**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-K**

** **

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

**for the fiscal year endedDecember 31, 2006.**

** **

**OR**

** **

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

for the transition period from                    to                        .

 

Commission File Number**0-22844**

 

**LAUREATE EDUCATION, INC.**

(Exact name of registrant as specified in its charter)

 

| **Maryland**                                |   | **52-1492296**       |
|---------------------------------------------|--------|----------------------|
| (State or other  jurisdiction of            |   | (I.R.S. Employer     |
| incorporation or  organization)             |   | Identification  No.) |
| ** **                                  |   |                 |
| **1001  Fleet Street, Baltimore, Maryland** |   | **21202**            |
| (Address of  principal executive offices)   |   | **(Zip  Code)**      |

 

Registrant’s telephone number, including area code:**  (410) 843-6100**

 

Securities registered pursuant to Section 12(b) of theAct: **Common Stock, Par Value $.01**

 

Securities registered pursuant to the Section 12(g) ofthe Act:**  None**

 

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.  Yes x.   No o

Indicated by checkmark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Exchange Act.  Yes o.   No x

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d), of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes x.   No o.

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-Kis not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form10-K.  o

 Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer or a non-acceleratedfiler.  See definition of “acceleratedfiler” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large acceleratedfiler   x          Acceleratedfiler   o          Non-acceleratedfiler   o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theAct). Yes o.   No x

The aggregatemarket value of voting Common Stock held by non-affiliates of the registrantwas approximately $2,169,960,530 as of June 30, 2006.

The registrant had51,438,283 shares of Common Stock outstanding as of February 26, 2007.

Circular 230Notice: In accordance with Treasury Regulations which became applicable to alltax practitioners as of June 20, 2005, please note that any tax advice givenherein (and in any attachments) is not intended or written to be used, andcannot be used by any taxpayer, for the purpose of (i) avoiding tax penaltiesor (ii) promoting, marketing or recommending to another party any transactionor matter addressed herein

**DOCUMENTSINCORPORATED BY REFERENCE**

Certaininformation in Laureate Education, Inc.’s definitive proxy statement, whichwill be filed with the Securities and Exchange Commission pursuant toRegulation 14A no later than April 30, 2007, is incorporated by reference inPart III of this Form 10-K.

 

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**INDEX**
|                                                                                                                   | ** ** |                                                                                                                                                                                                       | ** ** | **Page No.** |
|-------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------|
| **PART I.**                                                                                                       |       |                                                                                                                                                                                                  |       |         |
| ** **                                                                                                        |       |                                                                                                                                                                                                  |       |         |
| Item 1.                                                                                                           |       | Business                                                                                                                                                                                              |       | 3            |
| Item  1A.                                                                                                         |       | Risk Factors                                                                                                                                                                                          |       | 14           |
| Item 1B.                                                                                                          |       | Unresolved Staff Comments                                                                                                                                                                             |       | 19           |
| Item 2.                                                                                                           |       | Properties                                                                                                                                                                                            |       | 19           |
| Item  3.                                                                                                          |       | Legal Proceedings                                                                                                                                                                                     |       | 19           |
| Item 4.                                                                                                           |       | Submission of Matters to a Vote of Security Holders                                                                                                                                                   |       | 20           |
|                                                                                                              |       |                                                                                                                                                                                                  |       |         |
| **PART II.**                                                                                                      |       |                                                                                                                                                                                                  |       |         |
| ** **                                                                                                        |       |                                                                                                                                                                                                  |       |         |
| Item 5.                                                                                                           |       | Market for Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities                                                                                    |       | 20           |
| Item 6.                                                                                                           |       | Selected Consolidated Financial Data                                                                                                                                                                  |       | 22           |
| Item 7.                                                                                                           |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                                                                                           |       | 25           |
| Item 7A.                                                                                                          |       | Quantitative and Qualitative Disclosures About Market  Risk                                                                                                                                           |       | 45           |
| Item 8.                                                                                                           |       | Financial Statements and Supplementary Data                                                                                                                                                           |       | 47           |
| Item 9.                                                                                                           |       | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure                                                                                                                 |       | 91           |
| Item 9A.                                                                                                          |       | Controls and Procedures                                                                                                                                                                               |       | 91           |
| Item  9B.                                                                                                         |       | Other  Information                                                                                                                                                                                    |       | 94           |
|                                                                                                              |       |                                                                                                                                                                                                  |       |         |
| **PART III.**                                                                                                     |       |                                                                                                                                                                                                  |       |         |
| ** **                                                                                                        |       |                                                                                                                                                                                                  |       |         |
| Items 10, 11, 12, 13, and 14 are incorporated by  reference from Laureate Education, Inc.’s definitive proxy |       |                                                                                                                                                                                                  |
|                                                                                                              |       | statement which will be filed with the Securities and  Exchange Commission, pursuant to Regulation 14A, no later than April 30, 2007  or set forth in an amendment to this Annual Report on Form 10-K |       | 94           |
|                                                                                                              |       |                                                                                                                                                                                                  |       |         |
| **PART IV.**                                                                                                      |       |                                                                                                                                                                                                  |       |         |
| ** **                                                                                                        |       |                                                                                                                                                                                                  |       |         |
| Item 15.                                                                                                          |       | Exhibits, Financial Statement Schedules                                                                                                                                                               |       | 95           |
|                                                                                                              |       |                                                                                                                                                                                                  |       |         |
| **SIGNATURES**                                                                                                    |       | 97                                                                                                                                                                                                    |

 

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**PART I.**

**Item1.  Business**

**NoteRegarding Forward-Looking Statements**

*This Annual Report on Form 10-K and other materialsthe 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 theCompany’s senior management contain, or will contain, “forward-lookingstatements.” Forward-looking statements include all statements that do notrelate solely to historical or current facts and can be identified by the useof words such as “anticipate,” “goal,” “may,” “will,” “expect,” “hope,” “believe,”“intend,” “plan,” “estimate,” “project,” “should” and other similar terms. Suchforward-looking statements are based on the current facts and circumstances andmanagement’s current strategic plan and are subject to a number of risks anduncertainties that could significantly affect the Company’s current goals andfuture financial condition.*

*References to “Laureate,” the “Company,” in thisAnnual Report on Form 10-K refers to Laureate Education, Inc. and itssubsidiaries unless the context indicates otherwise.*

*For a comprehensive description of the types ofrisks and uncertainties the Company faces, see Item 1A. “Risk Factors.” of thisAnnual Report. Please note the forward-looking statements included in thisAnnual Report on Form 10-K are made only as of the date of this report. TheCompany assumes no obligation to publicly update any forward-lookingstatements. Investors should not unduly rely on our forward-looking statementswhen evaluating the information presented in the filings and reports.*

**Recent Events**

On January 28,2007, the Company entered into a definitive Agreement and Plan of Merger (the “MergerAgreement”) with Wengen Alberta, Limited Partnership, an Alberta limitedpartnership (“Wengen”) and L Curve Sub Inc., a direct subsidiary of Wengen (“MergerSub”), under which Merger Sub will merge (the “Merger”) with and into theCompany, with the Company surviving. Wengen is owned by an investment group consisting of Douglas L. Becker,Laureate’s Chairman and Chief Executive Officer, Kohlberg Kravis Roberts &Co., Citigroup Private Equity, S.A.C. Capital Management, LLC, SPG Partners,Bregal Investments, Caisse de depot et placement du Quebec, Sterling Capital,Makena Capital, Torreal S.A. and Southern Cross Capital.  Under the terms of the Merger Agreement,Laureate shareholders will receive $60.50 in cash for each share of Laureatecommon stock they own.

Completion of theMerger is subject to customary conditions, including, among others, theapproval of the Merger and the Merger Agreement by Laureate’s shareholders, theavailability to Wengen and the Merger Sub of debt financing, expiration ortermination of applicable waiting periods under the Hart-Scott-Rodino AntitrustImprovements Act of 1976 and certain responses from the United StatesDepartment of Education.

The MergerAgreement was filed in a Current Report on Form 8-K filed with the Securitiesand Exchange Commission on January 29, 2007. The foregoing description of the Merger Agreement is qualified in itsentirety by reference to the full text of the Merger Agreement.

**Business**

The Companyoperates a leading international network of licensed campus-based and onlineuniversities and higher education institutions (“higher education institutions”or “schools”).  Through this network,Laureate offers a broad range of career-oriented undergraduate and graduatedegree programs as well as other services that create a superior highereducation experience for students. Currently, Laureate enrolls over 243,000 students at its highereducation institutions located throughout The Americas, Europe, and Asia.

In many countries,demand for university-level education is rising - fueled by several demographicand economic factors including a growing middle class, a rising percentage ofstudents who participate in higher education, and the need for highly-skilledprofessionals in an increasingly competitive workforce.  To address this growing demand, Laureate isincreasing student capacity at current locations, adding new campus locations,developing new programs and curricula, and leveraging the Company’s educationand marketing expertise.  To furtherstrengthen its leadership in the international higher education market,Laureate will also enter into attractive new geographic markets and marketsegments.

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The schools inLaureate’s network, known as *LaureateInternational Universities*, are generally characterized by degreeprograms in a wide variety of career fields, a curriculum with an internationalperspective and strong academic and brand name recognition.  Laureate’s higher education network createsopportunities for students to access unique and specialized curricula fromother institutions within Laureate’s network as well as study abroad programsand other services shared among institutions in the network.

While most of Laureate’sinstitutions have many years of successful operating history, the Companyimplements programs and strategies to increase the financial and operationalperformance of each school.  Laureate’shigher education institutions share content and degree programs with otherschools in its network and transfer best practices, including successfulmarketing, recruiting, and retention programs.

Laureate believesin 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 ofits business model, a rigorous approach to expansion, and product innovationwill continue to provide valuable benefits to students as well as generateincreases in revenue.

The Company’seducational services are offered through three separate business segments:Campus Based - Latin America (“Latin America”), Campus Based — Europe (“Europe”)and Laureate Online Education.  In LatinAmerica, the Company owns or maintains controlling interests in thirteenseparately licensed higher education institutions located in Mexico, Chile,Peru, Ecuador, Panama, Costa Rica, Honduras and Brazil.  In Europe, the Company owns or maintainscontrolling interests in ten separately licensed higher education institutionslocated in Spain, Switzerland, France and Cyprus.  Laureate’s operations in China are managed inthe Europe business segment, as those operations are associated with theCompany’s Hospitality business.  TheLaureate Online Education segment provides career-oriented degree programs toover 33,000 students through one licensed university - Walden E-Learning, Inc.(“Walden”) - and two businesses that partner with licensed universities -Laureate Online Education B.V. and Canter and Associates (“Canter”).

The Company owns and operates the leading network of private,post-secondary educational institutions with program offerings that address thefast-growing international demand for career-oriented education.  In many international markets, public highereducation institutions are unable to adequately increase capacity to addressthe burgeoning demand for university education. The Company is uniquely positioned to address higher education demand byexpanding campus locations, opening new campus locations, and developinginnovative degree programs for traditional students and for students in newmarket segments, such as the market for working adult students.

The Company’s network of schools offers an education that emphasizescareer-oriented fields of study with undergraduate and graduate degrees in awide range of disciplines, including international business, hotel management,health sciences, information technology and engineering.  The Company believes its network benefitsfrom the strong academic reputation, developed brand awareness and establishedoperating history of each of its institutions. Each institution also has flexible, teaching-focused faculty led by anexperienced local management team.  Inaddition to expanding capacity, the Company is developing new degree programsand creating study abroad opportunities for both traditional students andworking professionals.

Laureate’s higher educationinstitutions offer more than 100 career-oriented undergraduate and graduatedegree programs in a wide range of fields. The time typically required tocomplete a program varies by degree, with undergraduate degrees requiring fourto five years on average and graduate degrees requiring an additional two tothree years on average. The Company’s International Rector oversees curriculumdevelopment and deployment of programs in the network in cooperation with thedeans of the higher education institutions. The Company also encourages its faculty to develop new educationalprograms and curricula.  The programs aredesigned to satisfy three constituencies:

·                  *Students.*  The Companybelieves that students choose from career-oriented schools based on the typeand quality of the educational offering and career placementopportunities.  The Company focuses onproviding students with a solid academic foundation and the technical andpractical skills necessary to pursue and excel in their careers.

·                  *Employers.*  The relationshipof each of the higher education institutions with the business community playsa significant role in the placement of students and development ofcurriculum.  Each school works withprominent members of relevant industries to evaluate and improve existingprograms in order to maintain their relevance in the workplace. These employersprovide critical input on the latest advancements within each field and theimplications of these changes on the curriculum.

·                  *Regulating or licensing agencies.*  The degree programs of each of the highereducation institutions have been approved in accordance with applicablelaw.  For example, the Secretary ofEducation in Mexico has reviewed all of UVM’s 

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                        accreditedprograms and given the university degree-granting authority for thoseprograms.  The Ministries of Education inSpain, France, Costa Rica, Panama, Honduras, Cyprus, and Ecuador performsimilar roles.  The Company mustgenerally work with the regulators of these higher education institutions toensure that any new programs will be approved.

## ***Campus Based — Latin America***

TheLatin America segment is composed of eleven separately licensed universitiesand two professional institutes, and has operations in Mexico, Chile, Brazil,Peru, Ecuador, Honduras, Panama and Costa Rica. The Latin America schools currently enroll approximately 190,000students and offer more than 100 degree programs through 49 campuses.  The schools primarily serve 18- to24-year-old students and offer an education that emphasizes career-orientedfields of study with undergraduate and graduate degrees in a wide range ofdisciplines, including international business, law, health sciences,information technology and engineering.

Thefollowing table presents information about Laureate schools in Latin America:
| **Higher Education   Institution**              | ** ** | **Principal  Locations**                           | ** ** | **Year Founded** | ** ** | **Year  Acquired** | ** ** | **Current   Ownership** | ** ** | **No. of   Campuses** | ** ** | **Enrolled   Students**(1) | ** ** | **Average  Annual   Tuition**(2) | ** ** | **Licensing  Oversight** | ** **                                                                |
|-----------------------------------------------------------|------------|----------------------------------------------------|------------|-----------------------|------------|--------------------|------------|------------------------------|------------|---------------------------------|------------|---------------------------------|------------|---------------------------------------|------------|--------------------------|---------------------------------------------------------------------------|
| Universidad  del Valle de México                     |       | Mexico  City,   Mexico                             |       | 1960                  |       | 2000               |       | 90                           | %          | 25                              |       | 74,600                          |       | $                                     | 3,500      |                     | Mexican    Ministry of   Education                                        |   |
|                                                      |       |                                               |       |                  |       |               |       |                         |       |                            |       |                            |       |                                  |       |                     |                                                                      |
| Universidad  de Las Américas                         |       | Santiago,    Chile and   Quito, Ecuador            |       | 1988                  |       | 2000               |       | 100                          | %          | 7                               |       | 30,300                          |       | $                                     | 3,700      |                     | Chilean  Ministry   of Education and   Ecuadorian   Ministry of Education |   |
|                                                      |       |                                               |       |                  |       |               |       |                         |       |                            |       |                            |       |                                  |       |                     |                                                                      |
| Universidad  Andrés Bello and AIEP                   |       | Santiago,  Chile                                   |       | 1989                  |       | 2003               |       | 100                          | %          | 3                               |       | 34,900                          |       | $                                     | 3,600      |                     | Chilean  Ministry   of Education                                          |   |
|                                                      |       |                                               |       |                  |       |               |       |                         |       |                            |       |                            |       |                                  |       |                     |                                                                      |
| Universidade  Anhembi Morumbi                             |       | Sao  Paulo, Brazil                                 |       | 1970                  |       | 2005               |       | 51                           | %          | 4                               |       | 20,500                          |       | $                                     | 4,100      |                     | Brazilian  Ministry   of Education                                        |   |
|                                                      |       |                                               |       |                  |       |               |       |                         |       |                            |       |                            |       |                                  |       |                     |                                                                      |
| Universidad  Interamericana                               |       | San  Jose,  Costa Rica and   Panama City,   Panama |       | 1986                  |       | 2003               |       | 100                          | %          | 4                               |       | 12,100                          |       | $                                     | 1,500      |                     | Costa  Rican and   Panamanian   Ministries of   Education                 |   |
|                                                      |       |                                               |       |                  |       |               |       |                         |       |                            |       |                            |       |                                  |       |                     |                                                                      |
| Universidad  Peruana de Ciencias Aplicadas                |       | Lima,  Peru                                        |       | 1994                  |       | 2004               |       | 80                           | %          | 2                               |       | 9,400                           |       | $                                     | 4,400      |                     | Peruvian    Ministry of   Education                                       |   |
| Universidad  Tecnológica Centroamericana             |       | Tegucigalpa,    Honduras                           |       | 1987                  |       | 2005               |       | 100                          | %          | 3                               |       | 5,900                           |       | $                                     | 2,100      |                     | Honduran    Ministry of   Education                                       |   |
|                                                      |       |                                               |       |                  |       |               |       |                         |       |                            |       |                            |       |                                  |       |                     |                                                                      |
| Universidad  Latinoamericana de Ciencia y Tecnología |       | Panama  City, 

Panama                             |       | 1991                  |       | 2004               |       | 100                          | %          | 1                               |       | 2,200                           |       | $                                     | 2,200      |                     | Panamanian 

Ministry  of

Education                                      |   |
|                                                      |       |                                               |       |                  |       |               |       |                         |       |                            |       |                            |       |                                  |       |                     |                                                                      |

 

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(1)             Representsenrollment on the last day of the year rounded to the nearest hundred.

(2)             Basedon 2006 calendar year data in U.S. dollars rounded to the nearest hundred,using an annual average exchange rate.

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The Company’s higher education institutions in Latin America provide abroad range of degrees and programs, and are well regarded by students,employers and government authorities in their respective markets:

·                  *Universidad del Valle deMéxico* (“UVM”) is the second largest private university in Mexico innumber of students and number of campuses. UVM has 25 campuses located throughout Mexico including eleven in MexicoCity, four in the central region (Queretaro, San Luis Potosi, Aguascalientesand Guadalajara), five in the southern region (Tuxtla, Villahermosa, Puebla,Toluca, and Cuernavaca) and five in the northern region (Hermosillo, Torreon,Saltillo, Mexicali, and Nogales).  UVMoffers 45 undergraduate and 25 graduate degree programs in a broad range offields including accounting, architecture, business administration, education,engineering, health sciences, and law. The majority of undergraduate students are enrolled in traditionalprograms. UVM also offers 9 of its 45 undergraduate programs specifically forworking adults.  Students typicallycomplete the traditional undergraduate degree programs in 4 to 5 years andgraduate programs in 1 to 2 years. Universities in Mexico are regulated by the Ministry of Education (*Secretaria de Educación Publica* or “SEP”).  The SEP has delegated authority to theassociation of private universities called FIMPES (*Federaciónde Instituciones Mexicanas Particulares de Educación Superior*) to bean additional accrediting body for private universities by peer review. The SEPgranted UVM federal recognition status in 1988, which allows the university toopen new campuses and launch new programs throughout the country.  In 2005, the SEP awarded UVM a certificationof Academic Excellence, allowing for fast-track approval of new programs.  From the peer review accreditation by FIMPES,UVM has received highest ratings. In addition, UVM has received accreditationof 28 degree programs at various campuses by the COPAES, a secondary accreditorcomprised of professional colleges approved by the SEP to review individualprograms, important in labor market placement. UVM has the second highestnumber of programs accredited by these bodies among private institutions inMexico.

*·**                  Universidad deLas Américas* (“UDLA”) offers 71 undergraduate degree programs focused onbusiness administration, education, engineering, law and psychology through twoinstitutions of higher learning, 8 technical vocational degrees, and an MBAprogram.  UDLA operates seven campuses,four in Santiago, one in Viña del Mar (central Chile), one in Concepción(southern Chile) and a satellite campus in Quito, Ecuador.  The majority of undergraduate students areenrolled in traditional programs. The typical duration of an undergraduateprogram at UDLA is approximately five years. The average duration of atechnical vocational degree is about three years and an MBA program is abouttwo years in length. UDLA offers various opportunities to their graduates inorder to aid in their careers.  During2006, UDLA participated in a job fair with 21 companies in which approximately 600graduates participated.  UDLA has beenrecommended as one of the top ten Chilean universities with job relatedwebsites according to the Universia rankings in 2006.  Universia is a university portal sponsored byBanco Santander, providing useful information for the higher education sectorin Latin America to student services, faculty, and the general public. Thiswebsite enables approximately 400 potential employers to communicate with about5,000 registered graduates and students for jobs and internships. UDLA offersvarious career learning opportunities outside of the university degreeprograms, including resume workshops, skills workshops, and professorworkshops.

·                  *Universidad Andrés Bello*(“UNAB”)**offers55 undergraduate and 108 graduate degree programs.  With degree programs in medicine, dentistry,business administration, law, engineering, psychology, and education, UNABranks among the top Chilean universities for its academic quality and brandrecognition among high school seniors. UNAB operates three campuses (two inSantiago and one in Viña del Mar) and a marine biology research station inQuintay.  The majority of enrolledstudents participate in traditional programs. The average duration of anundergraduate program at UNAB is 4 to 5 years. The majority of graduateprograms have a duration of 1 to 2 years. UNAB was awarded  institutionalaccreditation for a period of four years by the National AccreditationCommission for Undergraduate Studies. The process involved a self-evaluation accreditation procedure, anevaluation of UNAB’s peers, and the governmental agency granting theaccreditation for a specific number of years. Also in 2004, UNAB successfullyparticipated in the undergraduate accreditation program for four of itsundergraduate programs (agriculture 4 years, nursing 3 years, accounting 3years, chemistry and pharmacy 3 years). In addition, UNAB successfully participated in the graduateaccreditation program for two of its graduate programs (biotechnology 2 yearsand molecular bioscience 2 years).

·                  *Academia de Idiomas y Estudios Profesionales* (“AIEP”)**is a professional institute offering 43 technical andvocational programs to traditional and working-adult students at nine locationsthroughout Chile. AIEP offers one- to four-year certificate and degreeprograms, which include technology, management, communications, art, socialscience, and health science. AIEP’s modular curriculum is geared towardcertification of technical/vocational job skills and 

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                        competenciesand is designed to help working adults advance in existing careers, enter newcareer fields, or prepare for higher levels of university education.  The average time to complete a program atAIEP is 2 to 3 years. AIEP has an arrangement with the Chilean Association ofInformation Technology (“ACTI”) which enables AIEP to offer its students anemployment services database, visits to partner companies of ACTI, and tocoordinate joint activities (student fairs, workshops, seminars). In 2005, AIEPsubscribed to a national employment database to aid the students in finding jobopportunities, to post their resumes, and contact potential futureemployers.  In 2006, AIEP held anentrepreneur fair in which current students bring innovative ideas for businessplans in the presence of national company sponsors. AIEP is a member of theSuperior Council of Education, a public organization created in 1990 toadminister the supervision of universities and professional institutions.

·                  *Universidade Anhembi Morumbi (“UAM”)*offers more than 50undergraduate and associate degrees and 20 graduate degrees focused onarchitecture, business, communication, design, engineering, health sciences,hospitality management and law. Founded in 1970, UAM is a respected institutionwith programs in Hospitality Management, Fashion Design and Business that areamong the highest ranked in the country. UAM has four campuses located in SaoPaulo, Brazil. The average duration of an undergraduate program isapproximately 3 to 4 years. The average duration of a graduate program isapproximately 1 to 2 years. UAM offers the Laureate Global Career Centerthrough their website. UAM has 78% of their undergraduate programs certified bythe Ministry of Education.

·                  *Universidad Interamericana*(“UI”)**offers58 undergraduate, 35 graduate, and 10 doctorate degree programs in business,hospitality, engineering, communications, and education through four campusesat two higher education institutions, one in San Jose, Costa Rica and the otherin Panama City, Panama.  UI was afounding member of the Interamerican Consortium of Higher Education.  The UI student body in  Panama are enrolled in traditionalcourses.  The majority of the students atthe Costa Rica location are enrolled in traditional courses. The averageduration of an undergraduate program is approximately 3 to 4 years.  The average duration of a graduate program isapproximately 1 to 2 years.  UI hasstrong relationships with the business, not for profit, and governmentcommunities. UI has received accreditation from the National Council forPrivate Education, secondarily with the National System of Higher Education.

·                  *Universidad Peruana de Ciencias Aplicadas* (“UPC”) offersundergraduate and graduate programs in business, engineering, law,communications and architecture, and technical vocational programs in engineeringand information technology through *Cibertec*.  UPC operates two campuses in centralLima.  UPC offers 21 five year degreeprograms, 7 three year degree programs, 4 three and a half year working adultprograms, and 7 graduate masters programs typically 1 to 2 years in length. Themajority of UPC students are enrolled in traditional programs. UPC has a jobplacement office that helps students fulfill a required professional practiceprior to graduation.  UPC also holds anannual job fair to aid in job placement after graduation.

·                  *Universidad Tecnológica Centroamericana*(“UNITEC”)**offers 23 undergraduate and 6 graduate degree programs inBusiness, Engineering, Hospitality Management, Communications and InformationTechnology. UNITEC is accredited by AUPRICA (Association of PrivateUniversities in Central America) and RLCU (Latin-American Network forUniversity Cooperation). UNITEC has campuses in Tegucigalpa and San Pedro Sulain Honduras. The majority of the students at UNITEC attend traditional programs.  The majority of the students at UNITEC areenrolled in undergraduate programs. The average duration of an undergraduateprogram is approximately 4 to 5 years. The average duration of a graduate program is approximately 1 to 2years.  UNITEC has strong relationshipswith the business, not for profit, and government communities. UNITEC isaccredited with the National Council of Higher Education.

·                  *Universidad Latinoamericana de Ciencia y Tecnología*(“ULACIT”)offers 16 undergraduate, 9 graduate and 2 doctorate programs in business,engineering, law and psychology through its campus in Panama City, Panama. Themajority of the students at ULACIT attend traditional programs. The averageundergraduate program duration is approximately 4 years and an average mastersprogram duration is between 1 and 2 years in length. ULACIT has strongrelationships with business, not for profit and governmental communities.ULACIT’s curriculum has been reviewed and approved by the University of Panama.

*Tuitionand Fees*

Tuitionvaries at each of the higher education institutions depending on the curriculumand type of program.  Tuition paymentoptions vary by higher education institution and primarily include monthlyinstallment payment plans and lump sum payments at the beginning of theacademic year. Certain institutions offer long-term financing opportunities(see further discussion below). Historically, the Company has increased tuition as educational costs andinflation have risen.  In 2006, the 

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Company implemented averagelocal currency tuition increases of approximately 4.1% in Latin America.  The Company intends to continue increasingtuition at each of the higher education institutions as market conditionswarrant. 

 

Students are generallyresponsible for room and board fees, transportation expenses and costs relatedto 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 generateincremental revenue.  

 

Students typicallyself-finance their education or seek non-higher education institution sponsoredfinancing programs.  The Company has implemented pilot tuitionfinancing programs at its Chilean universities. The Company anticipates these programs will establish a lending andcollections history, which will attract third party lenders.

* *

*Long-Term Student Financing -Chile*

 

The Company continues toexpand its previous student financing activities at its Chilean universities inorder to establish a lending and collections history in this market to attractthird party lenders.  The Companybelieves Chile’s stability, both economic and political, coupled with itssophisticated banking system, reputable and reliable credit bureau, and the strongcredit consciousness of its people, support the Company’s decision to exploreadditional growth opportunities through enhanced financing.

 

UNAB offered its studentsfinancing on a limited basis prior to Laureate’s acquisition in 2003.  The program was designed as a retention tooloffered to students completing their second year of studies that might nototherwise be able to continue due to financial reasons.  To be eligible, students must meet certainacademic and financial requirements, and provide a cosigner of the debtobligation.

 

UDLA’s financingprogram also existed prior to Laureate’s acquisition in 2000 and, until 2003,was offered on a limited basis to new students for their first year of studiesto provide students time to obtain government or other forms of financing. In2004, the program was redesigned and expanded to require income qualificationsand credit scores, as well as a cosigner in certain cases.  More importantly, students are required tosecure part-time employment to the extent the university is able to provideopportunities through its employment program. UDLA has made arrangements with a number of Santiago businesses toprovide flexible part-time employment to its students.  As of December 31, 2006, there wereapproximately 8,900 students participating in the employment program.

 

Both the UNAB and theredesigned UDLA financing programs permit eligible students to pay 50% of theirtuition in monthly installments. Provided the students are in good academic standing and remain currentwith their monthly payments, they are allowed to defer the remaining 50% plusinterest until after graduation.  As ofDecember 31, 2006, the number of internally financed students represented 17%of total Chilean enrollment.

 

        At December 31, 2006 and2005, respectively, the Company has long-term tuition receivables of $39,053and $32,554, net of allowances of $11,691 and $9,328.  There have not been any material write-offsof long-term receivables in 2006 or 2005. Since this program is not mature, there is limited repaymenthistory.  Nevertheless, third partyinterest in the program is increasing from third parties regarding theacquisition of the portfolio and, in addition, the sale of prior receivables tothird parties. Creating a third party tuition finance solution in Latin Americacould create much broader access to our offerings thereby supplementing futureenrollment growth.

 

        There has been anincreased effort on the part of the private banking sector, as well as thegovernment, to offer more financing solutions to students.  The tuition funded for each student variesdepending upon the degree studied and the university attended. For the 2006academic year, there were approximately 21,500 students from all accreditedprivate universities in Chile who received approximately $50 million of Chileangovernment resources to finance post-secondary education. The program isdesigned to provide financial assistance for approximately 50% of programspecific government-determined annual tuition amounts for the post-secondary universitiesin Chile. In 2006, accreditation became mandatory for Chilean institutions inorder for students to be eligible for government loan programs. Currently, UNABis the Company’s only Chilean institution eligible to participate in thegovernment loan program since it is accredited. UDLA is in the preliminary phase of the accreditation process, andtherefore, does not have access to these funds and uses internal resources toprovide financing alternatives for its students.

 

## **CampusBased – Europe**

 

The Europe segmentconsists of ten licensed higher education institutions, and has operations inSpain, Switzerland, France and Cyprus. During the fourth quarter of 2006, theCompany acquired CH Holdings Netherlands BV, a 50% ownership interest in ajoint venture that provides educational services to higher educationinstitutions in the Campus Based-Europe segment. 

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Laureate campuses in Europe enroll over 20,000 students and offer morethan 75 degree programs through 9 campuses. The schools primarily serve 18- to 24-year-old students and offer an educationthat emphasizes career-oriented fields of study with undergraduate and graduatedegrees in a wide variety of disciplines, including international business,hotel management, health sciences, architecture and engineering.

 

The following table presentsinformation about Laureate schools in Europe:

 
| **Higher Education Institution**            | ** ** | **Principal  Locations**                                     | ** ** | **Year   Founded** | ** ** | **Year  Acquired** | ** ** | **Current   Ownership** | ** ** | **No. of   Campuses** | ** ** | **Enrolled   Students**(1) | ** ** | **Average   Annual Tuition**(2) | ** ** | **Licensing  Oversight** | ** **                                              |
|-------------------------------------------------------|------------|--------------------------------------------------------------|------------|-------------------------|------------|--------------------|------------|------------------------------|------------|---------------------------------|------------|---------------------------------|------------|-------------------------------------------|------------|------------------------------------|---------------------------------------------------------|
| Universidad Europea de Madrid                         |       | Madrid,    Spain                                             |       | 1995                    |       | 1999               |       | 100                          | %          | 2                               |       | 8,800                           |       | $                                         | 10,300     |                               | Spanish  Ministry  of Education                         |   |
|                                                  |       |                                                         |       |                    |       |               |       |                         |       |                            |       |                            |       |                                      |       |                               |                                                    |
| Cyprus  College                                       |       | Nicosia,  Cyprus                                             |       | 1961                    |       | 2005               |       | 45                           | %          | 1                               |       | 3,900                           |       | $                                         | 5,300      | (4)                                | Cyprus  Ministry   of Education                         |   |
|                                                  |       |                                                         |       |                    |       |               |       |                         |       |                            |       |                            |       |                                      |       |                               |                                                    |
| Hospitality  –Les Roches and Glion               |       | Bluche,  Switzerland   Marbella, Spain,   Glion, Switzerland |       | 1979   1995   1962      |       | 2000   2002   2002 |       | 100                          | %          | 4                               |       | 3,400                           |       | $                                         | 17,800     |                               | Swiss  Government   (license), NEASC  (accreditation)   |   |
|                                                  |       |                                                         |       |                    |       |               |       |                         |       |                            |       |                            |       |                                      |       |                               |                                                    |
| Institut Français de Gestion                     |       | Paris, France                                                |       | 1956                    |       | 2004               |       | 51                           | %          | N/A                             |       | 1,700                           | (3)        | $                                         | 3,500      |                               | Ministere de   I’Interieur,   Ministere du Travail |   |
|                                                  |       |                                                         |       |                    |       |               |       |                         |       |                            |       |                            |       |                                      |       |                               |                                                    |
| École Centrale d’Electronique               |       | Paris, France                                                |       | 1919                    |       | 2004               |       | 70                           | %          | 1                               |       | 1,500                           |       | $                                         | 8,300      |                               | French  Ministry   of Education                         |   |
|                                                  |       |                                                         |       |                    |       |               |       |                         |       |                            |       |                            |       |                                      |       |                               |                                                    |
| École Supérieure du Commerce Extérieur |       | Paris,  France                                               |       | 1968                    |       | 2001               |       | 89                           | %          | 1                               |       | 1,400                           |       | $                                         | 8,100      |                               | French  Ministry   of Education                         |   |
|                                                  |       |                                                         |       |                    |       |               |       |                         |       |                            |       |                            |       |                                      |       |                               |                                                    |
| IEDE, Institute for  Executive Development            |       | Madrid, Spain                                                |       | 1991                    |       | 2004               |       | 100                          | %          | N/A                             |       | 150                             |       | $                                         | 13,200     |                               | N/A                                                     |   |

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(1)             Representsenrollment on the last day of the year rounded to the nearest hundred.

(2)             Basedon 2006 calendar year data in U.S. dollars rounded to the nearest hundred,using an annual average exchange rate.

(3)             Excludesapproximately 12,000 short-course enrollments in the CNOF business.

(4)             Representsaverage tuition for degree programs only. 

Laureate higher educationinstitutions in Europe provide a broad range of degrees and programs, and arewell regarded by students, employers and government authorities in theirrespective markets:

 

·        *UniversidadEuropea de Madrid*(“UEM”) offers 43 undergraduate programs (diploma,bachelor degrees or double degree) and 54 graduate and Ph.D. degreeprograms.  The university includes awell-known school of health sciences and schools of architecture, economics,engineering, journalism, law and sports sciences. Most of UEM’s students areenrolled in traditional undergraduate programs, although UEM’s growing graduateand working adult programs provide options to working adults.  UEM is licensed by the Spanish Ministry ofEducation.  In 2005, UEM launched theSchool of University Studies with Real Madrid (one of the most recognizedsports clubs in the world).  The goal ofthe school is to promote career preparatory programs for students in the fieldsof Sports and Leisure Management.  UEMcurrently hosts hundreds of students from other universities in the Laureatenetwork through exchange programs and collaborates with several Laureateinstitutions to provide dual degree opportunities.  UEM’s advisory committee, which is composedof renowned business and academic leaders, works with UEM’s senior managementteam to ensure all academic programs are providing students with the knowledgeand experience they need to establish successful careers. UEM has a careerservice department that focuses on helping students research companies, preparefor interviews, and establish professional networks in addition to bringingemployers on campus to meet and interview students and recent graduates. UEMhas a campus located in Villaviciosa (approximately 30 minutes from centralMadrid) and another center in downtown Madrid.

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* *

·        *CyprusCollege*****offers morethan 45 undergraduate and graduate degree programs in business, computerscience, education, engineering, hospitality management and social sciences.Founded in 1961, Cyprus College is the oldest private post-secondaryinstitution in Cyprus. The majority of students at Cyprus are enrolled intraditional undergraduate programs. Undergraduate degrees at Cyprus Collegelast between two and four years while graduate programs last between one andtwo years.  Cyprus College is accreditedby the Ministry of Education of the Republic of Cyprus. Several of CyprusCollege’s bachelor degree programs have also been individually accredited.Cyprus College’s central campus is located in Nicosia, the capital of Cyprus.

 

·        *Hospitality(Les Roches Swiss Hotel Association Hotel Management School* (“LesRoches”) and *Glion Institute of Higher Education*(“Glion”)*)* offers globally recognized hospitalityand hotel management programs through four locations.  Hospitality specialized programs requirestudents to complete at least two internships prior to graduation.  The internship requirements for theseinstitutions facilitate the entry of graduates into the workforce followinggraduation.  The majority of students atthese institutions are traditional undergraduate students.  In the case of Les Roches and Glion inSwitzerland, the students are recruited from more than 80 countries around theworld, whereas in China and Spain, the majority of students are from theirrespective home country.  Les Roches wasthe first English-speaking hotel management school established inSwitzerland.  In addition to theappropriate licenses in Switzerland and Spain (Swiss Hotel Association andSwiss Hotel Schools Association), Les Roches (Bluche and Marbella) and Glionare both fully accredited by the New England Association of Schools andColleges (NEASC).

 

·        *InstitutFrançais de Gestion*(“IFG”) offers working adult programs inbusiness subjects.  Several of itsprograms have the highest recognition offered by the Commission Nationale de laCertification Professionelle (CPNC), the accrediting body for working adultdegree programs in France.  In 2006, IFGreached an agreement with University Paris X to elevate several of IFG’sgraduate programs to Master degrees.  IFGoffers an Executive MBA program with Concordia University in Montreal.  IFG offers courses to students in Paris and nineother cities in France.

* *

·        *ÉcoleCentrale d’Electronique*(“ECE”) offers undergraduate and graduateprograms in engineering to students through its campus in central Paris.  ECE was founded in 1919 to serve veteransreturning from the First World War in the emerging communicationtechnologies.  ECE is accredited by theCommission des Titres d’Ingenieurs (CTI) and is recognized by the FrenchMinistry of Education.  Most of ECE’s studentsare traditional students.  ECE, a Grande École of Engineering, was ranked inthe top 10 (from more than 300 engineering schools) by the magazine *Le Point* in 2005, and was the second highest ranking privateuniversity in the survey.

* *

·        *école Supérieure du Commerce Extérieur* (“ESCE”) offers afour-year undergraduate degree program in international commerce and managementthat features a combination of coursework and internships and is located inParis, France.  While traditionalundergraduate students represent the majority of the institutions enrollments,ESCE also offers graduate degree programs. ESCE is recognized by the French government and the degree earned byESCE graduates is certified by the French Ministry of Education and theNational Commission for Professional Certification (the highest level ofaccreditation for a school like ESCE). In addition, ESCE is a member of theAACSB (Association to Advance Collegiate Schools of Business), the EFMD(European Foundation for Management Development) and the UGEI (Union ofIndependent Schools of Higher Education). This post-secondary institution,founded in 1969, was the first in France to specialize in international trade.ESCE also has two smaller branch campuses in Lyon and Beijing, China.AMaster in International Management with Poitiers (another university in France)was launched in 2004 and a Master in International Management was created withEAE Business School (from Barcelona, Spain) in 2005.  ESCE works very closely with local andinternational employers to keep programs relevant to the dynamic world ofinternational business.  This effort isled and facilitated by the Strategic Planning Committee, which is composed ofleaders from business, government and academia. ESCE, a Grande École,was ranked 4th out of the top 30 French business schools bythe most recent ranking of *Le Point*magazine*.*  

 

·        *IEDE,Institute for Executive Development* (“IEDE”) is a business schooloffering MBA and postgraduate programs, in its main location in downtown Madridand an International MBA partially delivered in its subsidiary sites in Shanghai,China and Santiago, Chile and through a partner university in California.  IEDE’s Master of Financial Management isrecognized by the Chartered Institute of Management Accountants. 

10

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*Tuition and Fees*

Tuition varies at each ofthe higher education institutions depending on the curriculum and type ofprogram.  Tuition payment options vary byhigher education institution and primarily include monthly installment paymentplans and lump sum payments at the beginning of the academic year.Historically, the Company has increased tuition as educational costs andinflation have risen.  In 2006, theCompany implemented average local currency tuition increases of approximately3.8% in Europe.  The Company intends tocontinue increasing tuition at each of the higher education institutions asmarket conditions warrant.

Studentsare generally responsible for room and board fees, transportation expenses andcosts related to textbook and supply purchases required for their educationalprograms.  Only UEM and Hospitality haverevenue-generating room and board fees.

Studentstypically self-finance their education or seek non-higher education institutionsponsored financing programs.  Currentlythere are no company-sponsored financing arrangements in the Campus Based -Europe segment.

**Laureate Online Education**

LaureateOnline Education**offersundergraduate and graduate degree programs to working professionals throughdistance learning.  Laureate Online Educationinstitutions collectively offer degree programs in education, psychology,health and human services, management, engineering, and information technology.

The followingtable presents information about Laureate’s online higher education institutions,all of which are 100% owned:
| **Higher Education Institution** | ** ** | ** ** | ** ** | **Year   Founded** | ** ** | **Year   Acquired** | ** ** | **Enrolled   Students(1)** | ** ** | **Average   Annual   Tuition(3)** | ** **                                                                         | **Accrediting Body** | ** ** |
|--------------------------------------------|------------|------------|------------|-------------------------|------------|--------------------------|------------|---------------------------------|------------|---------------------------------------------|------------------------------------------------------------------------------------|---------------------------|------------|
| Walden University                          |       | 1970       |       | 2002                    |       | 25,400                   |       | $                               | 8,200      |                                        | North  Central  Association of  Colleges and Schools   Higher Learning  Commission |                      |
|                                       |       |       |       |                    |       |                     |       |                            |       |                                        |                                                                               |
| Canter & Associates                    |       | 1977       |       | 1998                    |       | 5,500                    | (2)        | $                               | 4,200      |                                        | N/A                                                                                |                      |
|                                       |       |       |       |                    |       |                     |       |                            |       |                                        |                                                                               |
| Laureate Online  Education B.V.            |       | 2000       |       | 2004                    |       | 2,200                    |       | $                               | 9,400      |                                        | N/A                                                                                |                      |
|                                       |       |       |       |                    |       |                     |       |                            |       |                                        |                                                                               |

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(1)             Representsenrollment as of the last day of the year rounded to the nearest hundred.

(2)             RepresentsDistance Learning graduate enrollment, excludes over 23,500 non-degreestudents.

(3)             Basedon 2006 calendar year data in U.S. dollars rounded to the nearest hundred,using an annual average exchange rate.

Laureate Online Education’sstrategy is to expand program offerings in specific career fields andspecializations that are experiencing rapid growth, undergoing major industrychanges, and/or experiencing professional shortages.  Each unit offers programs that present themost current academic theory and its practical application to the workplace,allowing graduates to apply their education to their occupations andsuccessfully compete against other well-qualified professionals in theworkforce.

As part of Laureate’sinternational network of higher education institutions, Laureate OnlineEducation is also focused on expanding student access to higher educationoutside the United States.  The Company’sonline higher education institutions are assisting Laureate’s campus basedhigher education institutions in launching distance-learning initiatives,including joint and coordinated degree programs.

·                  *Walden University* is one of the pioneersof distance education, and has over 35 years of academic and operating history.   Walden offers one undergraduate and 23graduate degree programs in management, health and human services, psychology,engineering and technology, and education to working professionals.  Bachelor’s and graduate degree programs aredelivered online.  Ph.D. programs aredelivered online with a short-term residency requirement.

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·                  *Canter & Associates*,**through its partner universities, offersa graduate degree in education and thousands of individual courses forteachers.  For over 25 years, Canter’smission has been to enhance the quality of teaching and learning by empoweringeducators with new teaching strategies. Canter’s Distance Learning graduate division works with five privateuniversities that provide primary and secondary education level educators theopportunity to earn a graduate degree in education

·                  *Laureate Online Education B.V.*, based inAmsterdam, is the exclusive worldwide distance-learning partner of theUniversity of Liverpool, and specializes in delivery of online graduate programsto working-adult students in over 152 countries.  The University of Liverpool through LaureateOnline Education B.V. offers graduate degree programs in business andinformation technology.

Tuition and Fees

Tuition varies at each ofthe higher education institutions, depending on the curriculum and type ofprogram.

·                  For Walden, tuition ranges from $230per credit hour (for bachelor’s degree programs); to between $315 and $865 percredit hour (for the graduate degree programs); to $4,050 per quarter (for certainPh.D. degree programs).  Walden studentsare eligible for the Department of Education’s Title IV federal financial aidunder the Higher Education Act of 1965. Degreeprograms take between two to six years to complete, with a total cost rangingfrom $10,800 to $94,000, depending on the degree.

·                  For Canter, tuition for a typicalstudent enrolled in one of Canter’s partner universities is approximately$7,000 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 tocomplete, with a total tuition of $27,000.

**Network Initiatives**

The campus-based networkin Latin America and Europe allows the Company to share high quality curriculaamong its higher education institutions, thereby broadening students’educational opportunities.  UEM currentlyhosts hundreds of students each year from universities in the Laureate networkthrough exchange programs and collaborates with several institutions includingUVM, UPC, UNAB, UDLA, UI, ULACIT and UAM to provide dual degree opportunities.In recent years, UEM and Les Roches developed a new joint degree program inhospitality business management that is now offered to students at UEM. UVM nowoffers a sports management degree program developed at UEM, and has launched anenhanced tourism degree, using Les Roches’ curriculum.  In 2004, UVM and UEM launched a dual-degreeprogram, in which graduating students earn a degree that benefits from thestrengths of both institutions and is recognized in both countries. In 2005,UVM and Walden University launched a dual-degree program, in which studentscomplete part of their degree online in English and receive a degree from bothinstitutions, recognized in both countries. UI and UNITEC also offerundergraduate business degrees with Walden University.  The Company has also launched the GlobalCareer Center, an international resource enabling all students in thecampus-based network to identify job and internship opportunities around theworld, and allowing the schools’ corporate partners to market their openpositions to all network students.

**Marketing**

*Latin America*and *Europe.*The Company markets its higher educationinstitutions through professional broadcasts and targeted marketingcampaigns.  These campaigns reachprospective students indirectly through media advertising as well as directlyby mail or one-on-one meetings.  Duringannual enrollment periods, the Company supplements this advertising with local,regional and sometimes national campaigns on television, radio, print and theInternet.  Each higher educationinstitution is responsible for implementing its own marketing campaign,although the Company provides a forum for the network’s marketing departmentsto share best practices.

*Laureate Online Education*. TheCompany markets its distance learning programs to working professionalsprimarily through direct mail and web advertising, as well as by direct sellingto school districts, hospitals, and corporations.

**Competition**

TheCompany faces competition in each of its business segments.  The competition focuses on price, educationalquality, reputation and location.

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*LatinAmerica*and *Europe.*Themarket for post-secondary education outside the U.S. is highly fragmented and markedby large numbers of local competitors. The target demographics are primarily 18- to 24-year-olds in theindividual countries in which the Company competes, except for its Hospitalityschools, which market to students worldwide. The Company generally competes with both public and private highereducation institutions on the basis of price, educational quality, reputationand location.  Public higher educationinstitutions tend to be less expensive, if not free, but more selective andless focused on career-oriented degree programs. The Company believes that itcompares favorably with competitors because of its focus on quality,career-oriented curriculum and the efficiencies of its network.  At present, the Company believes that noother company has a similar network of international higher educationinstitutions.  There are a number ofother private and public higher education institutions in each of the countrieswhere the Company owns a higher education institution.  Because the concept of private, for-profithigher education institutions is fairly new in many countries, it is difficultto predict how the markets will evolve and how many competitors there will bein the future.  The Company expectscompetition to increase as the markets mature.

        *Laureate Online Education.* The postsecondary education market in the U.S.is highly fragmented and competitive, with no single institution having anysignificant market share.  The targetdemographics are adult working professionals who are over 25 years old.Laureate Online Education competes with traditional public and privatenon-profit institutions and for-profit schools. Typically, public institutions charge lower tuitions than LaureateOnline Education because they receive state subsidies, government andfoundation grants, tax-deductible contributions and have access to otherfinancial sources not available to Laureate Online Education.  However, tuition at private non-profitinstitutions is typically higher than the average tuition rates charged byLaureate Online Education.  LaureateOnline Education competes with other educational institutions principally basedupon the quality of its educational programs and student services. Outside theU.S., online higher education is also highly fragmented with no singleinstitution having a significant market share. The Company believes that internationally its products compare favorablyto the competition because of the quality of the curriculum and its focus onthe working adult. The Company focuses its international online initiatives inthose countries that appear ready for online education from both a technologyand cultural basis.

**Government Regulation**

*Campus-Based Regulation and Licensing.*Inresponse to the growing demand for post-secondary education, governments inmany countries have revised their regulations to permit the establishment ofprivate post-secondary, for-profit higher education institutions.  Each country in which the Company operatesnow allows private investment in post-secondary education. Typically, eachapplicable regulatory agency oversees higher education institutions,establishes requirements for creation of higher education institutions and setsthe official qualifications and standards governing higher educationinstitution departments and degree programs. Additionally, these regulatory agencies establish prerequisites thatstudents must satisfy in order to apply. These policies are designed to ensure that the higher educationinstitutions have the resources and capability to provide the student body witha quality education.

*Title IV. *Waldenstudents, mostly working professionals, finance their education through avariety of methods including self-financing, tuition reimbursement fromemployers, and through federal financial aid programs known as Title IV.  The Higher Education Act of 1965 and relatedregulations govern all U.S. higher education institutions participating inTitle IV programs.  Walden maintainseligibility to participate in the following Title IV programs: Federal PellGrant, Federal Work Study, Federal Family Education Loan, and Federal ParentLoan for Undergraduate Students and Federal Grad PLUS.

ForTitle IV program eligibility, universities must comply with the standards andprocedures set forth in the Higher Education Act of 1965 and relatedregulations.  The U.S. Department ofEducation reviews all participating institutions for compliance with allapplicable standards and regulations under the Higher Education Act. Theinstitution must be certified by the Department of Education to participate inTitle IV programs, based on meeting certain standards of administrativecapability and financial responsibility. In addition, an institution must beauthorized by each state within which it is physically located to offer itseducational programs and maintain institutional accreditations.

Waldenis subject to announced and unannounced compliance reviews as well as annualand periodic audits by various state and federal government agencies andaccrediting agencies.  Materialprovisions of Title IV regulations that may impact eligibility include:

·                  Standardsof financial responsibility

·                  Changein ownership or control

·                  Studentloan defaults

·                  Changesin federal and state regulations and laws

·                  Compensationof university representatives

·                  Administrativecapacity

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·                  Eligibilityand certification

·                  Accreditation

Changesin Title IV participation requirements, elimination or reduction in federalfunding of Title IV programs, or loss of Title IV program eligibility, couldreduce the ability of certain Walden students to finance their education,thereby leading to lower student enrollment. In 2006, approximately 47% of total Laureate Online Education students,which represents approximately 6% of students at all Laureate schools, obtainfinancing under Title IV programs.  Theelimination or reduction of Title IV programs could have an adverse impact onthe Company.

**IntellectualProperty**

The Companycurrently owns the registered trademark for the word “Laureate”.  The Company has registered applications withthe U.S. Patent and Trademark Office, as well as with the applicable Trademarkagencies within the specific countries where the Company operates, for themarks “Laureate International Universities”, “Laureate Online International”and “Laureate Online Education”.  Inaddition, Laureate has the rights to tradenames, logos, and other intellectualproperty specific to most of its higher education institutions, in thecountries in which those institutions operate.

**Employees**

As of December 31, 2006, theCompany had approximately 23,000 employees, including approximately 12,000classified as full-time and approximately 11,000 classified as part-time. Mostof the Company’s part-time employees are academic teaching staff. The Company’s employees at UEM, UVM and UAM, aswell as a portion of IFG, are covered by labor agreements.  The UEM agreement has been negotiated by anational union with a committee representing all of the private, for-profituniversities in the country and is effective until December 31, 2008.  All of UAM’s employees are required by law tobelong to a union and the university is required to be a part of a nationalemployers union.  These two groups negotiatestandard national or regional contracts and it is UAM’s responsibility tocomply with these agreements.  The IFGagreement governs certain labor conditions, such as vacation and salarylevels.  The agreement has no definedexpiration but can be nullified by either party.  It is reviewed annually.  Substantially all of the faculty at UVM isrepresented by a union.  The economicprovisions of the labor agreement at UVM were revised in 2005 without anysubstantial changes, and will be reviewed again in 2007.  The agreements govern salaries, benefits andworking conditions for all union members at the higher education institutions.The Company considers itself to be in good standing with these unions and withall of its employees.

**Effect of Environmental Laws**

The Company believes itis in compliance with all applicable environmental laws, in all materialrespects. The Company does not expect future compliance with environmental lawsto have a material effect on the business.

**Available Information**

The Company’s InternetAddress is www.laureate-inc.com.  TheCompany makes available, free of charge through its website, its Annual Reportson Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K andamendments to those reports filed pursuant to Section 13(a) or 15(d) of theExchange Act soon after they are electronically filed with the SEC.  In addition, the Company’s earningsconference calls and presentations to the financial community are web cast livevia the Company’s website.  In additionto visiting the Company’s website, you may read and copy public reports theCompany files with or furnishes to the SEC at the SEC’s Public Reference Roomat 100 F. Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Roomby calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet websitethat contains the Company’s reports, proxy and information statements, andother information that the Company files electronically with the SEC atwww.sec.gov.

**Item 1A.  Risk Factors**

The reader shouldcarefully consider the risks and uncertainties described below and all otherinformation contained in this Annual Report on Form 10-K. In order to help thereader assess the major risks in Laureate Education, Inc.’s business, theCompany has identified many, but not all, of these risks. For an enterprise aslarge and complex as the Company, a wide range of factors could materiallyaffect future developments and performance. In addition to the factors affecting specific business operationsidentified in connection with the description of these operations and thefinancial results of these operations elsewhere in this report, the mostsignificant factors affecting the Company’s operations include the following:

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***Business uncertaintiesand contractual restrictions while the proposed merger is pending may have anadverse effect on the Company.***

Uncertainty aboutthe Merger and its effect on employees, suppliers and partners may have anadverse effect on the Company.  Theseuncertainties may impair the Company’s ability to attract, retain and motivatekey personnel until the Merger is consummated, and could create distractions thataffect Company performance as the Company and its personnel prepare for theMerger.  Uncertainties relating to theMerger could cause others that deal with the Company to defer decisionsconcerning the Company, or seek to change existing business relationships withthe Company.  Employee retention may beparticularly challenging while the Merger is pending, as employees mayexperience uncertainty about their future roles with the post-mergerentity.  In addition, the MergerAgreement restricts the Company from taking specified actions without the buyer’sapproval.  These restrictions couldprevent the Company from pursuing attractive business opportunities that mayarise prior to the completion of the Merger.

***Failure to complete the Mergermay negatively impact on the Company’s ongoing business.***

If the Merger isnot approved by the Company’s shareholders or if the Merger is not completedfor any other reason, the Company will remain an independent public company andthe Company’s common stock will continue to be listed and traded on the NASDAQGlobal Select Market.  While the Companyexpects that management will operate the business in a manner similar to thatin which it is being operated today, if the merger is not completed, theCompany may suffer negative financial ramifications, including as a result ofpaying a termination fee if such termination fee is required to be paid and theexpenses incurred as a result of the proposed merger and the decline of themarket price of its shares of common stock to the extent that the currentmarket price reflects a market assumption that the proposed merger will becompleted.  In addition, a failed mergermay result in negative publicity and/or a negative impression of the Company inthe investment community.  As a result,the business, prospects, results of operations or stock price of the Companycould be adversely impacted.

***The Company’s global operationspose complex management, foreign currency, legal, tax and economic risks, whichmay be difficult to adequately address.***

Most of the Company’s operations are outside theU.S.  As a result, the Company facesrisks that are inherent in international operations.  These risks include:

·                  currency fluctuations, possible devaluations, inflation andhyper-inflation;

·                  price controls or restrictions on exchange of foreign currencies;

·                  potential economic and political instability in the countries in whichthe Company operates including student uprisings;

·                  expropriation of assets by local governments;

·                  key political elections;

·                  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 theCompany’s success, growth, and profitability that require competent management,planning, and reporting.  Failure toexecute them effectively and efficiently could adversely affect the Company’soperations, 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.

The Company plans to continue to grow the businessglobally by acquiring or establishing private universities in countries wherethe Company does not currently operate. The Company’s success in growing the business profitably will depend onthe ability to anticipate and effectively manage these and other risks relatedto operating in various countries.

15

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***The Company’s reported revenuesand earnings may be negatively affected by currency exchange rates.***

The Companyreports revenues, costs and earnings in U.S. dollars.  Exchange rates between the U.S. dollar andthe local currency in the countries where the Company operates universities arelikely to fluctuate from period to period. Because consolidated financial results are reported in U.S. dollars, theCompany is subject to the risk of translation losses for reportingpurposes.  When the U.S. dollarappreciates against the applicable local currency in any reporting period, theactual earnings generated by the Company’s business in that country arediminished in the translation.

In each of the past five years, operations outside theU.S. accounted for a significant portion of the Company’s revenues.  To the extent that foreign revenue andexpense transactions are not denominated in the local currency and/or to theextent foreign earnings are reinvested in a currency other than theirfunctional currency, the Company is also subject to the risk of transactionlosses.  The Company occasionally entersinto foreign exchange forward contracts to reduce the earnings impact ofnon-functional currency dominated non-trade receivables and debt.  The primary business objective of theactivity is to protect the U.S. dollar value of the Company’s assets and futurecash flows with respect to exchange rate fluctuations.  Given the volatility of exchange rates, thereis no assurance that the Company will be able to effectively manage currencytransaction and/or translation risks. Therefore, volatility in currency exchange rates may have a materialeffect on financial condition or results of operations.

***Becausethe valuation of an acquired university’s goodwill and indefinite livedintangibles may not accurately reflect its value, an impairment would lead theCompany to write off all, or a portion, of goodwill and indefinite livedintangibles, which may adversely affect the financial condition and results ofoperations***.

Uponacquisition of a university, the Company typically allocates a significantportion of the purchase price to goodwill and other intangibles.  Identified intangible assets other thangoodwill and indefinite-lived intangible assets are generally amortized overperiods of two to seven years following their purchase.  In accordance with Statement of FinancialAccounting Standards No. 142, “Goodwill and Other Intangible Assets,” theCompany is required to test at least annually for impairment of goodwill andindefinite lived intangibles.  TheCompany cannot assure the reader that the valuation of an acquired university’sgoodwill and indefinite lived intangibles will prove to reflect its truevalue.  If it does not, the Company wouldbe required to write off the difference between the fair value and the bookvalue of the impaired asset.  This chargecould have a material adverse effect on financial condition and results ofoperations of the Company.

***If the Company does noteffectively manage growth, the business and results of operation may beadversely affected.***

The Company has rapidlyexpanded the business over the past five years through the acquisition ofadditional universities and intends to continue to do so.  The Company intends to establish newuniversities in certain markets.  Planned growth will require the Company to add management personnel andupgrade the financial and management systems and controls.  There is no assurance that the Company willbe able to maintain or accelerate current growth rate, effectively manageexpanding operations, integrate new universities or achieve planned growth on atimely or profitable basis.  If revenuegrowth is less than projected, the costs incurred for these additions andupgrades may cause the Company’s profitability to decline from currentlevels.  This could have a materialadverse effect on the business, financial condition and results of operationsof the Company.

***The Company may not be able to identify, acquire and integrateadditional private universities, which could adversely affect the growth andprofitability of the Company.***

The Company expects to continueto rely on acquisitions as a key element of growth strategy, primarily inmarkets where the Company does not currently have a university.  There is no assurance that the Company willbe able to identify suitable acquisition candidates or that the Company will beable to acquire any of the acquisition candidates on favorable terms.  In addition, in many countries, the approvalof a regulatory agency is needed to acquire or operate a university, which theCompany may not be able to obtain. Furthermore, there is no assurance that any acquired university can besuccessfully integrated into the Company’s operations or be operatedprofitably.  Acquisitions involve anumber of risks, including:

·                  diversion of management’s time and resources;

·                  adverse short-term effects on reported operating results;

·                  cultural issues related to acquisition of family-run universities incountries around the world;

·                  integration of acquired universities’ operations, including reportingsystems and internal controls; and

·                  loss of key employees of the acquired business.

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If the Company cannot make acquisitions or makes feweracquisitions than planned, or if the acquisitions are not managed successfully,business growth and results of operations of the Company will be adverselyaffected.

***The Company may not be able tosuccessfully establish new universities, which could adversely affect growthand profitability***.

The Company has primarilygrown through initial acquisitions.  Aspart of the growth strategy, the Company intends to establish new universitiesin some markets where there are no suitable acquisition targets.  The Company has never successfullyestablished a new university and there is no assurance that this can be donesuccessfully or profitably.  Establishingnew universities poses unique challenges and will require the Company to makeinvestments in management, capital expenditures, marketing expenses and otherresources that are different, and in many cases greater, than those made toacquire and then operate an existing university.  To open a new university, the Company willalso be required to obtain appropriate governmental approvals.  If the Company is unable to successfullyestablish new universities, the Company’s growth and profitability may beadversely affected.

***The Company may need to raise additionalcapital in the future, which may not be available.  The raising of additional capital may dilutethe reader’s ownership interest.***

The Company may need toraise additional funds through the public or private sale of debt or equitysecurities in order to acquire or establish universities, satisfy existingobligations or commitments, develop new campuses, support a larger business orrespond to competitive pressures.  Any additionalcapital raised through the sale of equity securities is likely to dilute theownership interest of the reader.  Thereis no assurance that any additional financing needed will be available on termsfavorable to the Company, or at all.

***The minority owners ofuniversities may disagree with the way the Company operates them or plans toexpand them, which could adversely affect the Company’s business and results ofoperations***.

Although the Companycontrols all of its universities, the Company shares ownership of sevenuniversities with minority stockholders. The Company currently does not have the right to buy out all of theseminority interests.  Minoritystockholders may make conflict of interest claims in the future.  For example, if the Company acquired anotheruniversity in a country in which it operates, the Company could face claims ofa conflict of interest from the minority owners of the university already ownedin that country.  The minority ownersalso could assert that the business decisions of the Company at the otheruniversity adversely affected the value of their investment.  Disagreements with the minority owners maydistract management and may adversely affect the Company’s business, results ofoperations and financial condition.

***The Company’s indebtedness andoutstanding put option obligations could adversely affect our operations andfinancial condition.***

We have a significant amount of indebtedness.  In addition, in connection with certainacquisitions, the Company has entered into put/call arrangement with certainminority shareholders whereby they can require the Company to buy additionalinterest in certain higher education institutions at specified times in thefuture.  Our indebtedness and put optionobligations could have important consequences, such as:

·                  limitingour ability to obtain additional financing to fund growth, acquisitions,working capital, capital expenditures, debt service requirements or other cashrequirements;

·                  limitingour operational flexibility due to the covenants contained in our debtagreements;

·                  limitingour ability to invest operating cash flow in our business due to debt servicerequirements;

·                  limitingour ability to compete with companies that are less leveraged and that may bebetter positioned to withstand economic downturns;

·                  increasingour vulnerability to economic downturns and changing market conditions; and

·                  makingus vulnerable to fluctuations in market interest rates, to the extent that ourdebt is subject to floating interest rates.

17

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***If the Company cannot maintainstudent enrollments in its universities, the results of operations may beadversely affected.***

The Company’s strategy for growth and profitabilitydepends, in part, upon maintaining and, subsequently, increasing studentenrollments in its universities.  Attritionrates are often due to factors outside the Company’s control.  Many students face financial, personal orfamily constraints that require them to drop out of school.  They also are affected by economic and socialfactors prevalent in their countries.  Ifthe Company is unable to control the rate of student attrition, the overallenrollment levels are likely to decline. Also, to attract more students, the Company must develop and implementmarketing and student recruitment programs, which may not succeed.  If the Company cannot maintain and,subsequently, increase student enrollments, the Company’s results of operationsand profitability may be adversely affected.

***The Company’s universities aresubject to uncertain and varying regulations, and any changes to theseregulations may adversely affect the business and results of operations.***

Post-secondary educationis regulated to varying degrees and in different ways in each of the countrieswhere the Company has a university.  Ingeneral, the Company’s universities must have licenses from governmentalauthorities as well as maintain, or improve current accreditation status.  These licenses and accreditations must berenewed periodically, usually after an evaluation of the university bygovernmental authorities.  Althoughunlikely, these periodic evaluations could result in restrictions, downgrade,or withdrawal of licenses or accreditation. Once licensed, most of the universities will need approvals for newcampuses or to add new degree programs. Five of the Company’s universities are not-for-profit and in order toefficiently transfer funds out of these universities, the Company has enteredinto management agreements with the universities.  Under these agreements, the managementcompany is paid for providing services to universities.  There is no assurance that the governmentswould continue to permit this type of arrangement at all or would not requirethe Company to revise the amounts charged for the services provided.

All of these regulationsare subject to change without notice. Moreover, regulatory agencies may single the Company’s universities outfor special treatment because they are owned and controlled by a U.S.corporation.  The ability to operateuniversities profitably may be adversely affected by any changes in generallyapplicable regulations or how they are applied to the Company.

The laws of the countrieswhere the Company owns universities and expects to acquire universities in thefuture must permit both private universities and foreign ownership ofthem.  For political, economic or otherreasons, a country could decide to change its laws to prohibit private universitiesor foreign ownership of private universities. If this change occurred, the Company could be forced to sell auniversity, and the sale price could be lower than the fair value of theuniversity.  Therefore, a forced salecould adversely impact the Company’s business, results of operations andfinancial condition.

***The Company is subject to a number of risks and uncertainties relatingto U.S. and foreign income taxes, any of which could have a material adverseimpact on the Company.***

The Company has notrecorded any deferred tax liabilities for undistributed foreign earningsbecause the current strategy of the Company is to permanently reinvest theseearnings outside the U.S.  Ifcircumstances change and some or all of these undistributed foreign earningsare remitted to the U.S., the Company will be required to recognize deferredtax liabilities on those amounts.  Formore information, see “Critical Accounting Policies and Estimates.”  In addition, in February 2006, the Companyreceived two notices from the Internal Revenue Service (“Service”) with respectto its tax returns for prior periods. One notice related to a break-up feereceived by the Company in its attempted acquisition of National EducationCorporation (“NEC”) in 1997.  The othernotice related to the gain on the sale of the Company’s Prometric testingsubsidiary in 2000. The Company can provide no assurance as to the outcome ofthese claims.  For more information, seeNote 13 — Income Taxes to the Company’s Consolidated Financial Statements.  In addition, there are several other incometax audits in progress.  No assurance canbe given as to the eventual outcome of these audits.

***If the Company is unable to attract and retain highly qualifiedpersonnel, it will not be able to compete effectively and will not be able togrow its business.***

The Company’s success andability to grow depends on the ability to hire and retain large numbers oftalented people.  The Company depends onits executive officers and other members of its management team, as well as themanagement and faculties at each of its universities.  There is no assurance that the Company willbe able to retain its existing key personnel or that it will be able toattract, assimilate and retain the additional personnel needed to support thebusiness. If the Company cannot, it may not be able to grow its business asplanned, and the Company may not be able to operate its existing businesseffectively.  This could have a materialadverse effect on the business, financial condition and results of operationsof the Company.

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***The post-secondary educationmarket is very competitive, and the Company may not be able to competeeffectively.***

The post-secondaryeducation markets outside the United States are very competitive anddynamic.  The Company’s universitiescompete with traditional public and private two-year and four-year universitiesand other proprietary schools, including those that offer distance-learningprograms.  In each of the countries wherethe Company operates a private university, its primary competitors are otherprivate universities, some of which are larger, more widely known and havebetter reputations than the Company’s universities.  Some of the Company’s competitors in both thepublic and private sectors have substantially greater financial and otherresources than the Company has.  Othercompetitors may include large, well-capitalized companies who may pursue astrategy similar to the Company’s of acquiring or establishing for-profituniversities.  Also, some of the smallerprivate universities in a country may decide to consolidate, thereby creating alarger or better-capitalized competitor with enhanced abilities to compete withthe Company for students.

Any of these large,well-capitalized competitors may make it more difficult or impossible for theCompany to acquire universities as part of its growth strategy.  They may also be able to charge lowertuitions or attract more students, which would adversely affect the Company’sgrowth and the profitability of its competing university.  There is also an increased ability oftraditional universities to offer online programs.The Company expectscompetition 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, revenuesand profit margins.

**Item1B.  Unresolved Staff Comments**

None.

**Item 2. Properties**

The Company leasesapproximately 57% of the square footage in its facilities worldwide and ownsthe remaining 43%.

The Company’scampus-based segment leases and owns various sites that may include a localheadquarters and all or some of the facilities of a campus or location.  The Company’s campus-based segment owns orleases all or some of its 50 campuses and 11 locations in Latin America, 11campuses and 13 locations in Europe, and one campus and one location inChina.  Some of the Company’s facilitiesin Spain, Switzerland and Chile are subject to mortgages.

The Laureate OnlineEducation segment has offices with the Company’s headquarters location inBaltimore and leases four additional facilities in Los Angeles, California;Minneapolis, Minnesota; Tempe, Arizona; and Amsterdam, Netherlands. The Company’sheadquarters consist of three leased facilities in Baltimore, Maryland, usedprimarily for office space.

The Company monitors thecapacity of its higher education institutions on a regular basis and makesdecisions to expand capacity based on expected enrollment and other factors.

**Item3.   Legal Proceedings**

Since the publicannouncement of the proposed transaction among Laureate, Wengen and the MergerSub, two civil actions have been commenced in the Circuit Court for BaltimoreCity, Maryland alleging that the directors of Laureate have breached theirfiduciary duties by pursuing the proposed transaction.  The actions seekto enjoin the consummation of the transaction or, in the event that thetransaction is consummated, to rescind the transaction or to obtain anaward of damages in an unspecified amount.  Laureate, all of itsdirectors, and many of the private equity funds that make up the consortiumthat owns Wengen have been named as defendants.  The actions purport tohave been brought on behalf of a class consisting of all of Laureate’sstockholders except for the defendants and their affiliates.  Laureatebelieves that the claims asserted in the actions are without merit and intendsto defend the actions vigorously.

During the third quarterof 2006 and 2005, WSI Education S.a.r.l. received preliminary field auditreports assessing Italian value added taxes (“VAT”) owed related to servicesprovided by the WSI business unit in 2004 and 2003 and prior to itsdisposition, respectively.  Under theterms of the sale agreement with WSI, the Company agreed to indemnify WSI fromobligations that may arise as a result of an Italian VAT assessment related toperiods prior to the closing of the sale of the WSI business unit on February28, 2005. However, the Company is entitled to the value of the tax benefit ofany indemnification.  In the firstquarter of 2005, the Company issued a $12.0 million standby letter of credit infavor of WSI 

19

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Education S.a.r.lfor a tax indemnification related to the sale of WSI.  The Company has filed, on behalf of WSIEducation S.a.r.l., an appeal with the Italian authorities and a complaintagainst the Italian Republic at the European Union Commission for restraint oftrade based on the VAT exemption only being available to Italian ownedcompanies.  In the third quarter of 2006,the Company received notification that the Italian Court denied the stay ofpayment request, which sought to defer payment of the tax and interest portionof the obligation that is normally required to commence court proceedings.  As a result, the Company deposited approximately$3.0 million with the Italian tax authority, representing approximately 50% ofthe 2003 and prior total tax and interest assessed to date.  The next hearing is scheduled to be in March2007.  The Company continues to believethat a loss from this matter is not probable, nor is it possible to estimatethe ultimate outcome of this issue.  As aresult, no expense for any potential adverse outcome of this matter has beenrecorded in the consolidated financial statements.  The Company intends to vigorously pursuethese cases.

**Item 4.  Submission of Matters to a Vote of SecurityHolders**

No matters were submitted to a vote of securityholders during the fourth quarter of 2006.

**PART II.**

**Item 5.  Market for Registrant’s Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities**

*Market Information*. The Company’sCommon Stock trades on the NASDAQ Global Select Market under the ticker symbol “LAUR”.  The high and low trade prices for 2006 and2005 for the Company’s common stock are set out in the following table.  These prices are as reported by NASDAQ, andreflect inter-day price quotations, without retail mark-up, mark down orcommission, and may not necessarily represent actual transactions.

| 2006        | ** ** | **High** | ** ** | **Low** | ** ** |
|-------------|------------|----------|------------|---------|------------|
| 4th Quarter |       | $        | 53.59      |    | $          | 47.48 |   |
| 3rd Quarter |       | $        | 49.40      |    | $          | 40.52 |   |
| 2nd Quarter |       | $        | 54.64      |    | $          | 42.51 |   |
| 1st Quarter |       | $        | 55.22      |    | $          | 50.00 |   |
|        |       |     |       |    |       |
| **2005**    |       | **High** | ** ** | **Low** |       |
| 4th Quarter |       | $        | 54.95      |    | $          | 46.69 |   |
| 3rd Quarter |       | $        | 50.51      |    | $          | 41.39 |   |
| 2nd Quarter |       | $        | 48.55      |    | $          | 40.56 |   |
| 1st Quarter |       | $        | 48.20      |    | $          | 41.83 |   |

 

*Holders*.  The number of registered shareholders ofrecord as of January 31, 2007 was 601.

*Dividends.*   No dividends were paid on the common stock in2006 or 2005 and the Company does not anticipate paying any dividends for theforeseeable future. The Merger Agreement and the revolving credit facilityprohibit the Company from paying dividends on common stock without the consentof the other parties thereto.

*Stock Performance Graph.*Thegraph below compares the cumulative 5-year total stockholder return on Laureate’sCommon Stock from December 31, 2001 through December 31, 2006, with thecumulative total returns of the NASDAQ Composite index, and a customized peergroup of seven companies in the post-secondary education business. Thecompanies included in the peer group are: Apollo Group Inc (APOL), CareerEducation Corp. (CECO), Corinthian Colleges Inc. (COCO), Devry Inc (DV),Education Management Corp. (EDMC), ITT Educational Services (ESI) and StrayerEducation Inc. (STRA). The graph assumes that the value of the investment inour common stock, in the peer group, and the index (including reinvestment ofdividends) was $100 on December 31, 2001 and tracks it through December 31,2006.

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**COMPARISONOF 5 YEAR CUMULATIVE TOTAL RETURN***Among Laureate Education Inc., The NASDAQ Composite IndexAnd A Peer Group

 

 

*$100 invested on 12/31/01in stock or index-including reinvestment of dividends.Fiscal year ending December 31.

 

*Purchaseof Equity Securities.*  No shares of common stock were repurchasedduring the fourth quarter of 2006.

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**Item 6.  Selected Consolidated Financial Data****

The selectedconsolidated financial data for the years ended December 31, 2006, 2005, 2004,2003, and 2002 have been derived from the Company’s consolidated financialstatements.  The financial data should beread in conjunction with the consolidated financial statements and notesthereto.

The Companyconsummated several significant purchase business combinations in the five-yearperiod ended December 31, 2006. These business combinations affect thecomparability of the amounts presented.  The Company also restated its 2005 through 2002 financial statements dueto a voluntary change in revenue recognition. Refer to Note 2 to the consolidated financial statements for furtherdiscussion. Additionally, the accompanying financial data presents thecontinuing operations of the Company, and excludes the results of operations ofseveral businesses that were sold during the periods presented.  Note 4 to the consolidated financialstatements describes the operations that were discontinued.

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**LAUREATEEDUCATION, INC. AND SUBSIDIARIESConsolidated Statements of Operations Data***(Dollar amounts in thousands,except per share data)*
| ** **                                                                                                                                                                     | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                                                     | ** ** | **2006  (1)(2)**                           | ** ** | **2005  As restated  (1)(2)(4)** | ** ** | **2004  As restated  (1)(2)(4)** | ** ** | **2003  As restated  (1)(2)(3)(4)** | ** ** | **2002  As restated  (1)(2)(3)(4)** | ** ** |
| **Revenues**                                                                                                                                                                   | ** ** | ** **                                 | ** ** | ** ** | ** ** |   |   |   |   |   |   |
| Core operating segments                                                                                                                                                        |       | $                                          | 1,145,761  |   | $ | 875,824 |   | $ | 644,821 |   | $ | 472,749 |   | $ | 336,480 |   |
| Ventures                                                                                                                                                                       |       | —                                     |       | — |   | — |   | 903 |   | 395 |   |
| Total revenues                                                                                                                                                                 |       | 1,145,761                                  |       | 875,824 |   | 644,821 |   | 473,652 |   | 336,875 |   |
|                                                                                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| **Costs and Expenses**                                                                                                                                                         |       |                                       |       |   |   |   |   |   |   |   |   |
| Direct  Costs:                                                                                                                                                                 |       |                                       |       |   |   |   |   |   |   |   |   |
| Core operating segments                                                                                                                                                        |       | 951,283                                    |       | 715,958 |   | 529,234 |   | 400,885 |   | 292,665 |   |
| Ventures                                                                                                                                                                       |       | —                                     |       | — |   | — |   | 2,122 |   | 2,592 |   |
| General and administrative  expense:                                                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Core operating segments                                                                                                                                                        |       | 46,079                                     |       | 28,996 |   | 26,170 |   | 32,989 |   | 21,318 |   |
| Ventures                                                                                                                                                                       |       | —                                     |       | — |   | — |   | 1,756 |   | 4,804 |   |
| Total costs and expenses                                                                                                                                                       |       | 997,362                                    |       | 744,954 |   | 555,404 |   | 437,752 |   | 321,379 |   |
|                                                                                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Operating income                                                                                                                                                               |       | 148,399                                    |       | 130,870 |   | 89,417 |   | 35,900 |   | 15,496 |   |
|                                                                                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| **Other income (expense)**                                                                                                                                                     | ** ** | ** **                                 | ** ** | ** ** | ** ** |   |   |   |   |   |   |
| Interest and other income                                                                                                                                                      |       | 28,336                                     |       | 11,789 |   | 28,179 |   | 7,003 |   | 6,905 |   |
| Interest expense                                                                                                                                                               |       | (37,064                                    | )          | (10,440 ) |   | (7,670 ) |   | (8,844 ) |   | (8,256 ) |   |
| Ventures investment losses                                                                                                                                                     |       | —                                     |       | — |   | — |   | (8,394 ) |   | (2,308 ) |   |
| Loss on investments                                                                                                                                                            |       | —                                     |       | — |   | — |   | — |   | (8,253 ) |   |
| Foreign currency exchange  gain (loss)                                                                                                                                         |       | 4,823                                      |       | (1,503 ) |   | (957 ) |   | 257 |   | 641 |   |
|                                                                                                                                                                           |       | (3,905                                     | )          | (154 ) |   | 19,552 |   | (9,978 ) |   | (11,271 ) |   |
|                                                                                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Income from continuing  operations before income taxes, minority interest, equity in net income  (loss) of affiliates, and cumulative effect of change in accounting principle |       | 144,494                                    |       | 130,716 |   | 108,969 |   | 25,922 |   | 4,225 |   |
| Income tax (expense)  benefit                                                                                                                                                  |       | (24,108                                    | )          | (19,667 ) |   | (6,798 ) |   | 2,930 |   | 13,171 |   |
|                                                                                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Minority interest in  (income) loss of consolidated subsidiaries, net of tax:                                                                                                  |       |                                       |       |   |   |   |   |   |   |   |   |
| Ventures                                                                                                                                                                       |       | —                                     |       | — |   | — |   | 487 |   | 2,058 |   |
| Other                                                                                                                                                                          |       | (11,420                                    | )          | (24,154 ) |   | (20,476 ) |   | (15,125 ) |   | (7,074 ) |   |
|                                                                                                                                                                           |       | (11,420                                    | )          | (24,154 ) |   | (20,476 ) |   | (14,638 ) |   | (5,016 ) |   |
| Equity in net (loss) income  of affiliates, net of tax:                                                                                                                        |       |                                       |       |   |   |   |   |   |   |   |   |
| Ventures                                                                                                                                                                       |       | —                                     |       | — |   | — |   | (4,055 ) |   | (4,029 ) |   |
| Other                                                                                                                                                                          |       | (555                                       | )          | (535 ) |   | (323 ) |   | 194 |   | 309 |   |
|                                                                                                                                                                           |       | (555                                       | )          | (535 ) |   | (323 ) |   | (3,861 ) |   | (3,720 ) |   |
|                                                                                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Income from continuing  operations before  cumulative effect of  change in accounting principle                                                                           |       | $                                          | 108,411    |   | $ | 86,360 |   | $ | 81,372 |   | $ | 10,353 |   | $ | 8,660 |   |
|                                                                                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Earnings available to  common shareholders:                                                                                                                                    |       |                                       |       |   |   |   |   |   |   |   |   |
|                                                                                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
|                                                                                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Income from continuing  operations before  cumulative effect of  change in accounting principle                                                                           |       | $                                          | 108,411    |   | $ | 86,360 |   | $ | 81,372 |   | $ | 10,353 |   | $ | 8,660 |   |
| Effect of minority put  arangements                                                                                                                                            |       | (4,214                                     | )          | — |   | — |   | — |   | — |   |
| Income from continuing  operations before  cumulative effect of  change in accounting principle available to common shareholders                                          |       | $                                          | 104,197    |   | $ | 86,360 |   | $ | 81,372 |   | $ | 10,353 |   | $ | 8,660 |   |
|                                                                                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Income from continuing  operations before cumulative effect of change in accounting principle available  to common shareholders per share, basic                               |       | $                                          | 2.03       |   | $ | 1.74 |   | $ | 1.76 |   | $ | 0.25 |   | $ | 0.22 |   |
| Income from continuing  operations before cumulative effect of change in accounting principle  available to common shareholders per share, diluted:                            |       | $                                          | 1.96       |   | $ | 1.66 |   | $ | 1.66 |   | $ | 0.24 |   | $ | 0.22 |   |
|                                                                                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| **Consolidated Balance Sheet  Data:**                                                                                                                                          |       |                                       |       |   |   |   |   |   |   |   |   |
| Cash and cash equivalents  and restricted cash                                                                                                                                 |       | $                                          | 130,589    |   | $ | 105,106 |   | $ | 106,852 |   | $ | 92,145 |   | $ | 94,068 |   |
| Net working (deficit)  capital                                                                                                                                                 |       | (173,967                                   | )          | (141,518 ) |   | (77,979 ) |   | (42,221 ) |   | 74,089 |   |
| Intangible assets and  deferred costs, net                                                                                                                                     |       | 871,957                                    |       | 656,426 |   | 566,945 |   | 334,054 |   | 219,247 |   |
| Net assets of discontinued  operations                                                                                                                                         |       | —                                     |       | 2,906 |   | 50,199 |   | 71,914 |   | 198,281 |   |
| Total assets                                                                                                                                                                   |       | 2,203,013                                  |       | 1,776,128 |   | 1,535,395 |   | 1,154,254 |   | 973,193 |   |
| Long-term debt and due to  shareholders of acquired companies, including current portion, and other  long-term liabilities                                                     |       | 534,989                                    |       | 251,923 |   | 232,314 |   | 148,412 |   | 200,175 |   |
| Stockholders’ equity                                                                                                                                                      |       | 1,130,695                                  |       | 978,478 |   | 882,182 |   | 674,162 |   | 491,076 |   |

 

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(1)             During2006, 2005, and 2004, the Company completed significant acquisitions asdiscussed further in Note 5 to the consolidated financial statements.

The followingacquisitions were completed during 2003 and 2002 and the Company’s results ofcontinuing operations include the results of the acquired companies beginningon  the effective date of theacquisition.

·                  EffectiveMay 30, 2003, the Company acquired an 80% interest in UNAB, a comprehensiveuniversity located in Chile, and AIEP a technical/vocational institute locatedin Chile, from local Chilean investors for a cash purchase price ofapproximately $37.8 million.

·                  OnMarch 1, 2002, the Company acquired for cash of $6.7 million all of theoutstanding common stock of Hedleton, B.V., which owns all of the capital stockof Escuela Superior De Alta Gestion De Hotel, S.A., a private for-profituniversity located in Marbella, Spain.

·                  EffectiveMay 1, 2002, the Company acquired an additional 20% ownership interest inDesarrollo del Conocimiento S.A. (“Decon”), a holding company that controls andoperates UDLA, for an initital cash purchase price of approximately $6.7million.

·                  EffectiveAugust 1, 2002, the Company acquired for cash all of the outstanding commonstock of the Glion Group, S.A., the parent company of Glion, a leading hotelmanagement school in Switzerland.  Theinitial purchase price totaled approximately $16.9 million.

·                  InNovember 2002, the Company completed its acquisition of substantially all theassets and certain liabilities of the National Technological University (“NTU”)and Stratys Learning Solutions, Inc. (the holding company of NTU) forconsideration of $15.4 million.

(2)             EffectiveJanuary 1, 2006, the Company adopted the fair value recognition provisions ofStatement of Financial Accounting Standard No. 123 (revised 2004) (“FAS 123R”)using the modified prospective transition method and therefore has not restatedresults for prior periods. During 2006 and 2005, the Company recorded non-cashstock compensation expense related to the modification of stock options.  During 2004, the Company recorded a non-cashstock compensation expense related to the replenishment plan implementation change.  These events are discussed further in Note 3to the consolidated financial statements. During 2003, the Company recorded a stock option modification charge of$21.9 million due to the sale of the K-12 Disposal Group. As a FAS 123Rrequired disclosure in 2006, non-cash compensation expense is included in thesegment margins for 2006, 2005, 2004, 2003 and 2002.

(3)             During2003, the Company recorded losses on investments of $8.4 million related to theVentures businesses.

The Companyrealized investment losses of $10.6 million in 2002.  The most significant transaction giving riseto the loss was a $7.4 million write-off of the Company’s investment in andadvances to the Frontline Group.

(4)             EffectiveJanuary 1, 2006, the Company made a voluntary preferential change in itsrevenue recognition policies regarding semester-based tuition for itscampus-based universities, as further described in Note 2 to the consolidatedfinancial statements.

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**Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations****

**Overview**

The Company provideshigher education programs and services to over 243,000 students through theleading global network of licensed campus-based and online higher educationinstitutions.  The Company’s educationalservices are offered through three separate reportable segments: Latin America,Europe and Laureate Online Education. Latin America and Europe own or maintain controlling interests inthirteen and ten separately licensed higher education institutions, respectively.The Latin America segment has locations in Mexico, Chile, Brazil, Peru,Ecuador, Panama, Costa Rica, and Honduras. The Europe segment has locations inSpain, Switzerland, France, and Cyprus. The Laureate Online Education segment provides career-oriented degreeprograms to over 33,000 students through Walden, Laureate Education Online BVand Canter.

**Proposed Merger**

On January 28, 2007,Laureate entered into a definitive Agreement and Plan of Merger (the “MergerAgreement”) with Wengen Alberta, Limited Partnership, an Alberta limited partnership(“Wengen”) and L Curve Sub Inc., a direct subsidiary of Wengen (“Merger Sub”),under which Merger Sub will merge (the “Merger”) with and into Laureate, withLaureate surviving.  Wengen is owned byan investment group consisting of Douglas L. Becker, Laureate’s Chairman andChief Executive Officer, Kohlberg Kravis Roberts & Co., Citigroup PrivateEquity, S.A.C. Capital Management, LLC, SPG Partners, Bregal Investments,Caisse de depot et placement du Quebec, Sterling Capital, Makena Capital,Torreal S.A. and Southern Cross Capital. Under the terms of the Merger Agreement, Laureate stockholders willreceive $60.50 in cash for each share of Laureate common stock they own.

Completion of the Mergeris subject to customary conditions, including, among others, the approval ofthe Merger and the Merger Agreement by Laureate’s common stockholders, theavailability to Wengen and the Merger Sub of debt financing, expiration ortermination of applicable waiting periods under the Hart-Scott-Rodino AntitrustImprovements Act of 1976 and certain responses from the United StatesDepartment of Education.

The Merger Agreement wasfiled in a Current Report on Form 8-K filed with the Securities and ExchangeCommission on January 29, 2007.  Theforegoing description of the Merger Agreement is qualified in its entirety byreference to the full text of the Merger Agreement.

**Acquisitions**

During the third quarterof 2006 the Company purchased the remaining 20% of Decon and Desarollo de laEducacion Superior S.A., which are the holding companies that control andoperate UDLA and UNAB. During the fourth quarter of 2006 the Company purchasedan additional 10% interest in UVM. Also in 2006 the Company acquired a 50%interest in CH Holdings Netherlands BV, a 100% interest in IEDE Chile, and a100% interest in Compania de Servicios Educativos.  During 2005 the Company purchased a 51%ownership of a private for profit company which owns and manages UAM, a 45%interest in Cyprus College, a 100% interest in UNITEC and an 80% interest inUniversidad del Noroeste. In 2004 the Company acquired the remaining 49% ofWalden, the remaining 22.25% of UEM, a 100% interest in KIT eLearning BV, a100% interest in IEDE Spain, an 80% interest in UPC, a 100% interest in ULACIT,and an 80% interest in UDLA in Ecuador. Refer to Note 5 to the consolidated financial statements for furtherdiscussion of these transactions.

**Sale of Business Units**

During the thirdquarter of 2006, the Company sold the operations of Institut Francais deGestion Langues (“IFG Langues”), a non-strategic part of IFG.  Also, during the first quarter of 2005, theCompany completed the sale of its Wall Street Institute (“WSI”) business.  During 2004, the Company terminated itsprogram in India and sold its remaining K-12 educational services businesses.On June 30, 2003, the Company completed the sale to Educate, Inc. (“Educate”),a company newly-formed by Apollo Management L.P. (“Apollo”), of substantiallyall of the Company’s K-12 segments.  Theoperations and cash flows of the business components comprising IFG Langues,WSI, India, and K-12 educational services were eliminated from ongoingoperations as a result of the sale or abandonment and the Company does not haveany significant continuing involvement in the operations after the disposaltransactions.  Therefore, theseoperations are classified as discontinued operations for all periods.  Refer to Note 4 to the consolidated financialstatements for more information regarding these transactions.

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**Critical Accounting Policies and Estimates**

The Company’saccounting policies are more fully described in Note 2 to the ConsolidatedFinancial Statements.  As disclosed inNote 1 to the Consolidated Financial Statements, the preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States requires management to make estimates and assumptions aboutfuture events that affect the amounts reported in the financial statements andaccompanying notes.  Future events andtheir effects cannot be determined with absolute certainty.  Therefore, the determination of estimatesrequires the exercise of judgment. Actual results inevitably will differ from those estimates, and thesedifferences may be material to the financial statements.  The Company believes the following keyaccounting policies affect its more significant judgments and estimates used inthe preparation of its consolidated financial statements and are critical toits business operations and the understanding of its results of operations.

*Revenue Recognition.* EffectiveJanuary 1, 2006, the Company made a voluntary preferential change in itsrevenue recognition policies regarding semester-based tuition for itscampus-based universities.  Theuniversities now recognize tuition revenue ratably on a weekly straight-linebasis over each academic session instead of the previously used monthlystraight-line basis.  This change wasmade to improve transparency and the correlation between the Company’senrollments, revenues, and actual academic calendars.  Refer to Note 2 to the consolidated financialstatements for further discussion. Tuition revenue is reported net of scholarships and other discounts.  All other revenue is recognized as earnedover the appropriate service period, including the Company’s onlinebusiness.  Dormitory revenues arerecognized over the occupancy period. Textbook sales and the related cost of the textbooks are recognized atthe beginning of each academic quarter with respect to students who areattending courses in which textbooks are charged separately from tuition.  Approximately 92% of the Company’s revenuesrepresent tuition charges and approximately 5% of revenues represent bookstoresales and student fees where separately distinguishable.  For each student, billings issued or paymentsreceived in excess of tuition earned are recorded as deferred revenue. Refundsto students have been immaterial and generally limited to amounts paid forwhich educational services have not been rendered.  Since the Company does not recognize revenuesuntil the services have been rendered, these refunds are typically charged tothe deferred revenue account. The amount of tuition earned depends on the feeper semester or per credit hour of the courses, the number of program courses astudent takes during each period of enrollment, and the total number ofstudents enrolled in each program.  Eachof these factors is known at the time tuition revenues are calculated and isnot subject to estimation.  If theCompany adds additional fees related to educational services, the fees areassessed separately for proper revenue recognition treatment.

Revenue from the sale of educational products, approximately 3% of theCompany’s revenues, is generally recognized when shipped and collectibility isreasonably assured.

*Minority Share Ownership Purchase Arrangements *The Company’s acquisitionstrategy when acquiring a target company is to initially acquire a majorityownership of the target company with the ultimate goal of acquiring theremaining minority ownership of the target company sometime afterward.  Concurrent with the initial acquisition, theCompany typically enters into a series of put and call arrangements with theminority partner of the target company, which will eventually enable the Companyto purchase the remaining ownership interest of the acquired targetcompany.  The Company has used four typesof minority ownership purchase arrangements to acquire the minority ownershipof the target company including: Minority Put, Similar Exchange, Combination Exchange, and Fixed PurchasePrice Obligation (see Note 2 to the consolidated financial statements).

These arrangements require management to make certain estimates withregard to the final amount the Company will eventually pay in order to acquirethe remaining ownership in the company. In the Minority Put, Similar Exchange, and Combination Exchangearrangements, the final settlement value is usually based on a multiple offuture non-GAAP earnings. The Company uses the present value of the currentperiod non-GAAP earnings as an estimate for the final value that willeventually be paid to settle the arrangement. These values are then adjusted annually to reflect changes in the targetcompany’s non-GAAP earnings as well as the additional passage of time tomaturity for the arrangement.  To theextent the current non-GAAP earnings are different than the future periodnon-GAAP earnings, the value of these obligations can change significantlywhich will have an impact on the Company’s financial position and reportedresults of operations.

*Accounts and Notes Receivable.*The Company routinely makes estimates of the collectibility of its accounts andnotes receivable. The Company maintains allowances for doubtful accounts forestimated losses resulting from the inability of its students and other partiesto make required payments.  The Companyestimates the amount of the required allowance by reviewing the status ofpast-due receivables and analyzing historical bad debt trends.  If the financial condition of students wereto deteriorate, resulting in an impairment of their ability to make requiredpayments for tuition, additional allowances may be required.  The Company has implemented pilot tuitionfinancing programs at its Chilean universities where there is  a limited lending and collections history.

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*Equity-BasedCompensation. *TheCompany has awarded restricted stock and unit awards in which the vesting isbased on Company performance metrics. The Company uses its financial operations and forecasts to estimate therestricted stock and unit vesting based on the award performance criteria.  The Company’s compensation expense recognizedrelated to these restricted stock and unit awards is affected by the estimatesmade on their vesting potential.

*Goodwill and Other Intangible Assets.*  During each of the years presented, theCompany acquired various businesses accounted for using the purchase method ofaccounting.  A portion of the purchase pricefor these businesses was allocated to identifiable tangible and intangibleassets and assumed liabilities based on estimated fair values at the date ofacquisition. Any excess purchase price was allocated to goodwill.  This goodwill and other indefinite-livedintangibles are evaluated at least annually for impairment.

Goodwillis potentially impaired when the carrying amount of a reporting unit’s goodwillexceeds its implied fair value, as determined under a two-step approach.  The first step is to determine the estimatedfair value of each reporting unit with goodwill.  The reporting units of the Company forpurposes of the impairment test are those operating components for whichdiscrete financial information is available and for which operating results areregularly reviewed by segment management. Components are combined whendetermining reporting units if they have similar economic characteristics.  In general, each region in which the Companyoperates is a reporting unit for purposes of the impairment tests.

TheCompany estimates the fair value of each reporting unit by estimating thepresent value of the reporting unit’s future cash flows.   If the recorded net assets of the reportingunit are less than the reporting unit’s estimated fair value, then noimpairment is indicated.  Alternatively,if the recorded net assets of the reporting unit exceed its estimated fairvalue, then goodwill is potentially impaired and a second step is performed.  In the second step, the implied fair value ofthe goodwill is determined by deducting the estimated fair value of alltangible and identifiable intangible net assets of the reporting unit from theestimated fair value of the reporting unit. If the recorded amount of goodwill exceeds this implied fair value, animpairment charge is recorded for the excess.

Other intangibleassets include acquired student rosters, accreditation, tradenames,non-competition agreements and curriculum. The assumptions used to calculatethe initial fair value of these identified intangible assets included estimatesof future operating results and cash flows, as well as discount rates andweighted average costs of capital for each acquisition.  Accreditations and tradenames have indefinitelives.  Useful lives, which range from 2to 7 years, are assigned to all other intangible assets based upon estimatedmatriculation rates and other factors.

If the Companyused different assumptions and estimates in the calculation of the initial fairvalue of identified intangible assets and the estimation of the related usefullives, the amounts allocated to these assets, as well as the relatedamortization expense, could have been significantly different than the amountsrecorded.

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

*IncomeTaxes*.  The Companyearns a significant portion of its income from subsidiaries located incountries outside of the United States. At December 31, 2006, undistributed earnings of foreign subsidiariestotaled approximately $573.5 million. Deferred tax liabilities have not been recognized for undistributedearnings because it is management’s intention to permanently reinvest suchundistributed earnings outside of the United States.  APB Opinion No. 23, *Accounting for Income Taxes — Special Areas*,requires that a company evaluate its circumstances to determine whether or notthere is sufficient evidence to support the assertion that it has or willreinvest undistributed foreign earnings indefinitely.

The Company’s assertionthat earnings from its foreign operations will be permanently reinvested issupported by projected working capital and long-term capital needs in eachsubsidiary location in which the earnings are generated.  Additionally, the Company believes that it hasthe ability to permanently reinvest foreign earnings based on a review ofprojected cash flows from domestic operations, projected working capital andliquidity for both short-term and long-term domestic needs, and the expectedavailability of debt or equity markets to provide funds for those domesticneeds.

If circumstances changeand it becomes apparent that some or all of the undistributed earnings of theCompany’s foreign subsidiaries will be remitted to the United States in theforeseeable future, the Company will be required to recognize deferred taxexpense and liabilities on those amounts.

 

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TheCompany records a valuation allowance to reduce its deferred tax assets to theamount that it believes is more likely than not to be realized.  The Company also has considered futuretaxable income and ongoing prudent and feasible tax planning strategies inassessing the amount of valuation allowance needed.  If the Company were to determine that itwould not be able to realize all or part of its net deferred tax assets in thefuture, an adjustment to the deferred tax assets would be charged to income inthe period such determination was made. Likewise, should the Company determine that it would be able to realizeits deferred tax assets in the future in excess of its net recorded amount, anadjustment to the valuation allowance would increase income in the period suchdetermination was made.

OnJuly 13, 2006, the Financial Accounting Standards Board (“FASB”) issued FASBInterpretation No. 48. “*Accounting for Uncertaintyin Income Taxes*,”**(“FIN 48”).  FIN 48 clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s financial statementsin accordance with SFAS No. 109, “*Accounting for IncomeTaxes*”. FIN 48 prescribes a recognition threshold and measurementattribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return. FIN 48 also providesguidance on derecognition, classification, interest and penalties, accountingin interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15,2006.  The Company will adopt FIN 48effective January 1, 2007.  Thecumulative effect of adopting FIN 48 will be recorded as an adjustment tobeginning retained earnings in the first quarter of 2007.  The Company’s evaluation of the effect of FIN48 is ongoing.

**Impact ofRecently Issued Accounting Standards***.*

InSeptember 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS157”), which defines fair value, establishes a framework for measuring fairvalue in accordance with generally accepted accounting principles, and expandsdisclosures about fair value measurements.  SFAS 157 is effective in fiscal yearsbeginning after November 15, 2007.  TheCompany will adopt SFAS 157 on January 1, 2008. The Company does not expect that the adoption of this standard will havea material effect on the Company’s financial position or results of operations.

InSeptember 2006, the FASB issued SFAS No. 158, “*Employers’Accounting for Defined Benefit and Other Postretirement Plans, an amendment ofFASB Statements No. 87, 106, and 132 (R)*,” (“SFAS 158”).  SFAS 158 requires companies to recognize anet liability or asset and an offsetting adjustment to accumulated othercomprehensive income to report the funded status of defined benefit pension andother postretirement benefit plans.  SFASNo. 158 requires prospective application, and the recognition and disclosurerequirements are effective for the Company’s fiscal year ending December 31,2006.  In addition, SFAS 158 requirescompanies to measure plan assets and obligations at their year-end balancesheet date.  This requirement is effectivefor the Company’s fiscal year ending December 31, 2008.  The Company adopted the prospectiveapplication and recognition requirements with no material impact to thefinancial statements as of December 31, 2006.

InSeptember 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “*Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in Current Year Financial Statements*,” (“SAB 108”).SAB 108 addresses how the effects of prior year uncorrected financialmisstatements should be considered in current year financial statements.  SAB 108 requires registrants to quantifymisstatements using both balance sheet and income statement approaches and toevaluate whether either approach results in quantifying an error that is materialin light of relative quantitative and qualitative factors.  SAB 108 does not change the SEC staff’sprevious guidance in SAB 99, “*Materiality*,”on evaluating the materiality of misstatements. Additionally, SAB 108 addresses the mechanics of correctingmisstatements that include the effects from prior years.  SAB 108 allows registrants to apply the newguidance the first time it identifies material errors in existence at thebeginning of the first fiscal year ending after November 15, 2006 by correctingthese errors through a one time cumulative effect adjustment to beginningretained earnings.  The adoption of thisstandard did not have a material effect on the Company’s financial position orresults of operations.

**Resultsof Operations**

The Company’s threecontinuing reportable segments generate revenues as follows:

·                  *Latin America and Europe* both earn tuition and related feespaid by the students of the Company’s campus-based higher educationinstitutions.

·                  *Laureate Online Education*earns revenues from instructional services thatare provided through an online format, as well as other forms of distancelearning.

***Enrollments***

Management closelyfollows trends in new and total enrollment because total enrollment growth ishighly correlated with revenue growth. New enrollments are particularly important as they impact futureresults.

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***EnrollmentReporting***

Each of Laureate’shigher education institutions has a different enrollment cycle depending ongeography and academic program.  Eachschool has a “Primary Intake” at the start of each academic year, during whichmost of the enrollment occurs. The first quarter coincides with the PrimaryIntakes for the Company’s higher education institutions in South America(Chile, Brazil, Ecuador and Peru).  Thethird quarter coincides with the Primary Intakes for Mexico and Central America(Costa Rica, Panama and Honduras), as well as for schools in the Mediterraneanregion (Spain and Cyprus), Switzerland, U.S. and France.

***Seasonality***

Most of the schools in the Company’s network have a summer break whenclasses are generally not in session and during which minimal revenues arerecognized.  Operating expenses, however,do not fully correlate to the enrollment and revenue cycles, as the schoolscontinue to incur fixed expenses during summer breaks.  As a result, the fourth quarter is theCompany’s strongest quarter because all of its higher education institutionsare in session.  The second quarter isalso strong as most schools have classes in session, although the Company’slargest school, located in Mexico, is in session for only part of thatquarter.  The first and third quartersare weaker quarters because the majority of the Company’s schools have summerbreaks for some portion of one of these two quarters. Due to this seasonality,revenues and profits in any quarter are not necessarily indicative of resultsin subsequent quarters.

The following chart shows the enrollment cycles for each highereducation institution.  In the chart,shaded areas represent periods when classes are generally in session andrevenues are recognized.  Areas that arenot shaded represent summer breaks during which revenues are not typicallyrecognized.  The large circles indicatethe Primary Intake start dates of the Company’s schools, and the small circlesrepresent Secondary Intake start dates (smaller intake cycles).

 

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***StudentAttrition***

Managementdefines attrition as those students that leave the higher education institutionprior to graduation.  Attrition may bedue to academic, financial or other personal reasons.  Management closely monitors attrition levelsat its higher education institutions.  Toaddress the key reasons for student attrition, management has implementedprograms, such as assistance with financing, remedial educational programs,mentoring and counseling. In general,attrition at the Company’s schools has been stable as a percentage of totalrevenue over the past five years.

***AverageLength of Stay***

Management actively monitors the average lengthof stay of students.  The average lengthof stay is defined as the average time necessary to complete a given course ofstudy, adjusted for attrition. Management believes that the Company’s 3 to 4 year average programlengths and low attrition levels contribute to the predictability of futurerevenues.  Due to the Company’smulti-year program lengths, changes in enrollment from one cycle to the nexthave not historically materially impacted quarterly or annual results.

***Pricing***

Eachhigher education institution has different pricing based upon local demandlevel, economic conditions, and competitive environment.  Increases in tuition have historicallyexceeded local market inflation.

***ForeignExchange***

All of the higher education institutions in the campus-based segmentsare located outside the Unites States. Therefore, management actively monitorsthe impact of foreign currency movements and the correlation between the localcurrency and the U.S. Dollar.  TheCompany’s diversified portfolio of currencies has mitigated the impact of translationrisk based on currency movements. Because all revenues and expenses in a particular country are generallydenominated in the local currency, the exposure is limited to the operatingmargins of schools in that country. Also, since the Company has historically reinvested each highereducation institution’s cash flow locally, the principal exposure is thetranslation risk into U.S. Dollars for purposes of the consolidated financialstatements, as required by U.S. generally accepted accounting principles (“GAAP”).  In addition, the Company occasionally entersinto foreign exchange forward contracts to reduce the earnings impact ofnon-functional currency denominated receivables and debt.  Currently, the Mexican Peso is the Company’slargest currency, followed by the Chilean Peso, U.S. Dollar, Euro, BrazilianReal, Swiss Franc, Peruvian Nuevo Sol, Cypriot Pound, Honduran Lempira, andCosta Rican Colon.

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** **

 

***Reportable Segments***

 

The followingtable is derived from the Company’s consolidated financial statements andrepresents financial information of the Company’s reportable segments for 2006,2005, and 2004:

 
| ** **                           | ** ** | **Latin**               | ** ** | ** ** | ** ** | **Laureate  Online** | ** ** | ** **      | ** ** | ** **       | ** ** |
|--------------------------------------|------------|-------------------------|------------|------------|------------|----------------------|------------|-----------------|------------|------------------|------------|
| ** **                           | ** ** | **America**             | ** ** | **Europe** | ** ** | **Education**        | ** ** | **Unallocated** | ** ** | **Consolidated** | ** ** |
| ** **                           | ** ** | **(in thousands)** | ** ** |
| **2006**                             |       |                    |       |       |       |                 |       |            |       |             |       |
| Segment revenues                     |       | $                       | 687,355    |       | $          | 223,798              |       | $               | 234,608    |             | $          | — |   | $ | 1,145,761 |   |
| Segment direct costs                 |       | (538,160)               |       | (196,227)  |       | (191,302             | )          | —          |       | (925,689         | )          |
| Campus-based segments'  overhead     |       | —                  |       | —     |       | —               |       | (25,594         | )          | (25,594          | )          |
| Segment profit (loss)                |       | 149,195                 |       | 27,571     |       | 43,306               |       | (25,594         | )          | 194,478          |       |
| General and  administrative expenses |       | —                  |       | —     |       | —               |       | (46,079         | )          | (46,079          | )          |
| Operating income (loss)              |       | $                       | 149,195    |       | $          | 27,571               |       | $               | 43,306     |             | $          | (71,673 | ) | $ | 148,399 |   |
|                                 | ** ** | ** **              | ** ** | ** ** | ** ** | ** **           | ** ** | ** **      | ** ** | ** **       | ** ** |
| **2005 (1)**                         |       |                    |       |       |       |                 |       |            |       |             |       |
| Segment revenues                     |       | $                       | 506,583    |       | $          | 184,888              |       | $               | 184,353    |             | $          | — |   | $ | 875,824 |   |
| Segment direct costs                 |       | (383,057)               |       | (160,318)  |       | (156,297             | )          | —          |       | (699,672         | )          |
| Campus-based segments'  overhead     |       | —                  |       | —     |       | —               |       | (16,286         | )          | (16,286          | )          |
| Segment profit (loss)                |       | 123,526                 |       | 24,570     |       | 28,056               |       | (16,286         | )          | 159,866          |       |
| General and  administrative expenses |       | —                  |       | —     |       | —               |       | (28,996         | )          | (28,996          | )          |
| Operating income (loss)              |       | $                       | 123,526    |       | $          | 24,570               |       | $               | 28,056     |             | $          | (45,282 | ) | $ | 130,870 |   |
|                                 |       |                    |       |       |       |                 |       |            |       |             |       |
| **2004 (1)**                         |       |                    |       |       |       |                 |       |            |       |             |       |
| Segment revenues                     |       | $                       | 359,492    |       | $          | 150,197              |       | $               | 135,132    |             | $          | — |   | $ | 644,821 |   |
| Segment direct costs                 |       | (275,079)               |       | (127,285)  |       | (114,127             | )          | —          |       | (516,491         | )          |
| Campus-based segments'  overhead     |       | —                  |       | —     |       | —               |       | (12,743         | )          | (12,743          | )          |
| Segment profit (loss)                |       | 84,413                  |       | 22,912     |       | 21,005               |       | (12,743         | )          | 115,587          |       |
| General and  administrative expenses |       | —                  |       | —     |       | —               |       | (26,170         | )          | (26,170          | )          |
| Operating income (loss)              |       | $                       | 84,413     |       | $          | 22,912               |       | $               | 21,005     |             | $          | (38,913 | ) | $ | 89,417 |   |

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(1)             Asrestated for a voluntary preferential change in revenue recognition policies.  Refer to Note 2 to the consolidated financialstatements.

 

The Company’sdirect costs include all expenses incurred by operating units including sellingand administrative expenses.  TheCompany’s campus-based segments’ overhead represents centralized costs incurredin support of the Latin America and Europe operations that are not allocatedback to the reportable segments for U.S. GAAP reporting purposes.  In support of the Company's tax accountingand reporting structure, a portion of these costs are billed to the highereducation institution, where the institution is 100% owned or where anagreement is in place with the minority owners to allow these charges, based ona percentage of usage.  These expensesare reported in campus-based segments' overhead or general and administrativeexpenses.  

 

The followingcomparisons of results of operations focus on the continuing operations of theCompany.

*** ***

***Comparisonof results for 2006 to results for 2005.***

 

**Revenues.**  Total revenues increased by $270.0 million,or 31%, to $1,145.8 million for the year ended December 31, 2006 (“2006”) from$875.8 million for the year ended December 31, 2005 (“2005”).  This revenue increase was driven primarily byincreased total enrollment at the Company’s higher education institutions, plusthe impact of acquisitions within the last two years.

* *

*LatinAmerica* revenue for 2006 increased by $180.8 million, or 36%,to $687.4 million compared to 2005.  Afull year’s operations at UAM and UNITEC in 2006 increased revenues by $87.4million. Enrollment increases of 13.5% in schools owned in both fiscal yearsadded revenues of $64.5 million over 2005. For schools owned in both years, the Company increased local currencytuition by a weighted average of 4.1%, which served to increase revenues by$19.0 million.  The segment operates inseveral countries and is subject to the effects of foreign currency exchangerates in each of those countries.  For2006, the effects of currency translations increased revenues by $11.4 million,primarily due to the strengthening of theChilean Peso relative to the U.S. Dollar. Each institution in the segment offers tuitions at various pricesbased upon degree program.  For 2006, theeffects of enrollments at varying price points (“product mix”) combined withthe 

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impact on revenuesof differing academic calendars in 2005 and 2006 in each of our Latin Americaninstitutions (“timing”) resulted in a $1.5 million reduction in revenuecompared to 2005. Latin America revenue represented 60% of total revenues for2006 and 58% of total revenues for 2005. 

 

*Europe*revenue for 2006 increased by $38.9 million, or 21%, to $223.8 million comparedto 2005.  A full year’s operations at Cyprus College increased revenues by$15.6 million and a 2006 acquisition in the Mediterranean region  increased revenues by $0.8 million.  Enrollment increases of 6.8% in schools ownedin both years added revenues of $12.8 million over 2005.  For schools owned in both years, the Companyincreased local currency tuition by a weighted average of 3.8%, which served toincrease revenues by $6.5 million.  Eachinstitution in the segment offers tuitions at various prices based upon degreeprogram.  For 2006, the effects ofproduct mix and timing resulted in a $2.9 million increase in revenue comparedto 2005.  The segment operates in severalcountries and is subject to the effects of foreign currency exchange rates ineach of those countries.  For 2006, theeffects of currency translations increased revenues by $0.3 million, due to the strengthening of the Euro against the U.S.Dollar.  Europe revenue represented20% of total revenues for 2006, and 21% of total revenues for 2005.

* *

*LaureateOnline Education*revenue increased by $50.3 million, or 27%,to $234.6 million for 2006 compared to 2005. Enrollment increases added revenues of $19.6 million. Tuition increasesaccounted for $10.1 million of additional revenues, and other factors,primarily a favorable change in degree mix, added $20.6 million.  Laureate Online Education revenue represented20% of total revenues for 2006, and 21% of total revenues for 2005.

 

**DirectCosts.****Total directcosts of revenues increased $235.3 million, or 33%, to $951.3 million for 2005from $716.0 million for 2005.  Directcosts represented 83% of total revenues in 2006, and 82% of total revenues in2005.

 

*LatinAmerica*direct costs increased by $155.1 million to $538.2million, or 78% of Latin America revenue for 2006 year, compared to $383.1million or 76% of Latin America revenue for 2005.  Acquisitions increased expenses by $75.9million. An increase of $70.6 million in expenses reflected higher enrollmentsand corresponding expanded operating activities compared to 2005.  For 2006, the effects of currencytranslations increased expenses by $8.6 million, primarily due to the strengthening of the Chilean Peso relative tothe U.S. Dollar.  The increase in directcosts as a percentage of revenues was due primarily to $3.6 million ofseverance incurred as a result of the Chilean step acquisition and equity basedcompensation charges as well as the impact to operating margins of businessesacquired during 2005, which have lower operating margins than the otherinstitutions in the Latin America segment.

 

*Europe*direct costs increased by $35.9 million to $196.2 million, or 88% of Europerevenue for 2006, compared to $160.3 million, or 87% of Europe revenue for2005.  Higher enrollments and expandedoperations at the higher education institutions compared to 2005 increasedexpenses by $20.0 million, and the acquisitions increased expenses by $14.9million.  For 2006, the effects of currencytranslations increased expenses by $1.0 million, due to the strengthening of the Euro against the U.S. Dollar.  The increase in direct costs as percentage ofrevenues was due primarily to additional compensation charges (including equitybased compensation). 

 

*Campus-basedsegments’ overhead* expense increased $9.3 million, or 57%, to$25.6 million in 2006 compared to $16.3 million for 2005.  Campus based overhead expense represented 3%of total Campus-Based revenues in 2006, and 2% of total Campus-Based revenuesin 2005.  The increase is primarilyattributable to the implementation of a long-term cash executive performanceincentive program and the increase in performance-based compensation expense aswell as increased professional fees, payroll and management travel expenses insupport of the growth of the Company’s international operations.  In addition, there was an increase inequity-based compensation of $3.0, including the impact of expensing of stockoptions of $1.9 million under SFAS No. 123R.

 

*Laureate**Online Education*direct costsincreased by $35.0 million to $191.3 million, or 82% of Laureate OnlineEducation revenue for 2006, compared to $156.3 million, or 85% of LaureateOnline Education revenue for 2005.  Theincrease of $35.0 million in expenses reflected higher expenses due toincreased enrollments and expanded operating activities compared to 2005.  The decrease in direct costs as a percentageof revenues reflects increased efficiencies in program delivery as a result ofhigher enrollment volumes, partially offset by investment in brand developmentand student recruiting services.

 

**Generaland Administrative Expenses.** General and administrative expenses increased by $17.1 million to $46.1million for 2006, compared to $29.0 million for 2005.  The increase is primarily attributable to theimplementation of a long-term cash executive performance incentive program andthe increase in performance-based compensation expense as well as higherpayroll, professional fees, and other employee related costs resulting fromincreased headcount, and travel expenses to support the rapid growth in theCompany’s global operations.  Inaddition, there was an increase in equity-based compensation of $3.7 million,including the impact of expensing stock options of $2.3 million under SFAS No.123R.

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**Non-OperatingIncome/Expenses. **Non-operatingincome/expenses increased to expense of $3.9 million for 2006 from expense of$0.2 million in 2005.  This change wasprimarily attributable to interest expense related to increased 2006 borrowings,and non-cash financing costs of deferred purchase price on certain minorityownership exchange contracts somewhat offset by the gain on the sale ofChancery Software, Ltd. of $9.3 million in 2006.

 

*Interestand other income*increased $7.2 million to $19.0 million from$11.8 million in 2005. The increase is primarily attributable to additionalinterest income earned on long-term student receivables as well as an increasein interest income earned on higher cash balances.

* *

*Interestexpense* increased $26.6 million. $17.8 million of theincrease in interest expense is related to the additional debt recorded as aresult of the Company’s adoption of Emerging Issues Task Force Issue No. 00-4which impacted the way the Company had previously been accounting for its FixedPurchase Price and Similar Exchange Contract arrangements (see Note 2 tothe consolidated financial statements).  Interestexpense also increased an additional $8.8 million due to increased borrowingson outstanding lines of credit including the $350.0 million credit facilityused for acquisition purposes, including the payment of contingentconsideration and the purchase consideration for the 20% step acquisition inChile and purchase consideration for the 10% step acquisition in Mexico, aswell as indebtedness assumed with the Company’s 2005 and 2006 acquisitions.

* *

*Foreigncurrency exchange gain (loss)*increased $6.3 million to again of $4.8 million for 2006 from a loss of $1.5 million in 2005. This changeis primarily attributable to gains on foreign currency denominated loans of$4.7 million in 2006.

** **

**IncomeTaxes.**  The Company has operations in multiple countries,many of which have statutory tax rates lower than the United States.  Since approximately 81% of the Company'srevenues are generated outside the United States, the impact of generally lowereffective tax rates in these foreign jurisdictions is an effective tax ratesignificantly lower than the United States statutory rate as outlined in Note13 to the consolidated financial statements. The Company's effective tax rates from continuing operations were16.7% and 15.0% for the 2006 and 2005, respectively.   

 

**Minority Interest in Income of ConsolidatedSubsidiaries, Net of Tax.** Minority interest in income of consolidated subsidiaries decreased $12.8million to $11.4 million in 2006 from $24.2 million in 2005.  This decrease was primarily driven by thechange in accounting the Company implemented in 2006 associated with EmergingIssues Task Force Issue No. 00-4. As a result of adopting this standard, the Company now accounts for ECE,UNAB and UPC on a combined basis as if it owned 100% of the ventures.  As such, the Company reduced the MinorityInterest expense by $17.2 million in 2006 (see note 2 for additionalinformation).  Minority interest alsoincreased by $5.2 million due to a full year of inclusion for Cyprus Collegeand UAM.

** **

***Comparisonof results for 2005 to results for 2004.***

** **

**Revenues.**  Total revenues increased by $231.0 million,or 36%, to $875.8 million for the year ended December 31, 2005 (“2005”) from$644.8 million for the year ended December 31, 2004 (“2004”).  This revenue increase was driven primarily byincreased total enrollment at the Company’s higher education institutions, plusthe impact of acquisitions within the last two years.

* *

*LatinAmerica* revenue for 2005 increased by $147.1 million, or 41%,to $506.6 million compared to 2004. Enrollment increases of 17.5% in schools owned in both fiscal yearsadded revenues of $57.7 million over 2004. For schools owned in both years, the Company increased local currencytuition by a weighted average of 3.5%, which served to increase revenues by$13.1 million.  Each institution in thesegment offers tuitions at various prices based upon degree program.  For 2005, the effects of product mix andtiming resulted in a $3.7 million reduction in revenue primarily due tolower-priced working adult and high school enrollments exceeding undergraduateenrollment growth. The segment operates in several countries and is subject tothe effects of foreign currency exchange rates in each of those countries.  For 2005, the effects of currencytranslations increased revenues by $26.5 million, primarily due to the strengthening of the Chilean Peso and MexicanPeso relative to the U.S. Dollar.  Afull year’s operations at UPC, ULACIT, and the Hispanoamericana campus of UVM,and the acquisitions of UAM, UNITEC, and the UNO campus of UVM in 2005increased revenues by $53.5 million. Latin America revenue represented 58% oftotal revenues for 2005 and 56% of total revenues for 2004.  

 

*Europe*revenue for 2005 increased by $34.7 million, or 23%, to $184.9 million comparedto 2004.  Enrollment increases of 6.0% inschools owned in both years added revenues of $9.7 million over 2004.  For schools owned in both years, the Companyincreased local currency tuition by a weighted average of 4.9%, which served toincrease revenues by 

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$8.4 million.  Each institution in the segment offerstuitions at various prices based upon degree program.  For 2005, the effects of product mix andtiming resulted in a $8.7 million reduction in revenue primarily due tolower-priced post-graduate enrollment growth in Spain exceeding undergraduateenrollment growth.  The segment operatesin several countries and is subject to the effects of foreign currency exchangerates in each of those countries.  For2005, the effects of currency translations decreased revenues by $1.2 million,due to the weakening of the Euro and SwissFranc against the U.S. Dollar.  A fullyear’s operations at IEDE, IFG and ECE and the acquisition of CyprusCollege in 2005 increased revenues by $26.5 million.  Europe revenue represented 21% of totalrevenues for 2005, and 23% of total revenues for 2004.

* *

*LaureateOnline Education*revenue increased by $49.2 million, or 36%,to $184.3 million for 2005 compared to 2004. Enrollment increases of 27% added revenues of $30.3 million, and theLaureate Online Education B.V. acquisition added revenues of $2.9 million.Weighted average tuition increases of 4.6% accounted for $5.0 million ofadditional revenues, and other factors, primarily a favorable change in degreeprogram mix and timing, added $11.0 million. Laureate Online Education revenue represented 21% of total revenues for2005 and 2004.

 

**DirectCosts.****Total directcosts of revenues increased $186.8 million, or 35%, to $716.0 million for 2005from $529.2 million for 2004.  Directcosts remained unchanged at 82% of total revenues in 2005 and 2004.

 

*LatinAmerica*direct costs increased by $108.0 million to $383.1million, or 76% of Latin America revenue for 2005 year, compared to $275.1million or 77% of Latin America revenue for 2004.  An increase of $42.9 million in expensesreflected higher enrollments and corresponding expanded operating activitiescompared to 2004.  Acquisitions increasedexpenses by $47.2 million.  For 2005, theeffects of currency translations increased expenses by $17.9 million, primarilydue to the strengthening of the ChileanPeso and Mexican Peso relative to the U.S. Dollar.

 

*Europe*direct costs increased by $33.0 million to $160.3 million, or 87% of Europerevenue for 2005, compared to $127.3 million, or 85% of Europe revenue for2004.  Higher enrollments and expandedoperations at the higher education institutions compared to 2004 increasedexpenses by $7.0 million, and the acquisitions increased expenses by $26.4million. For 2005, the effects of currency translations decreased expenses by$0.4 million, due to the weakening of theEuro and Swiss Franc against the U.S. Dollar.

 

*Campus-basedsegments overhead* expense increased $3.6 million, or 28%, to$16.3 million in 2005 compared to $12.7 million for 2004.  Campus based overhead expense remainedunchanged at 2% of total Campus-Based revenues in 2005 and 2004.

 

*Laureate**Online Education*direct costsincreased by $42.2 million to $156.3 million, or 85% of Laureate OnlineEducation revenue for 2005, compared to $114.1 million, or 84% of LaureateOnline Education revenue for 2004.  Theincrease in direct costs as a percentage of revenues reflects investment inbrand development and student recruiting services. These investments werepartially offset by increased efficiencies in program delivery as a result ofhigher enrollment volumes.

 

**Generaland Administrative Expenses.  **Generaland administrative expenses increased by $2.8 million in 2005 to $29.0 millionfrom $26.2 million in 2004. The increase in expenses was primarily due toincreases in payroll and other employee related costs resulting from increasedheadcount, training costs and travel expenses incurred to support the rapidgrowth in the Company’s global operations. These increases were partially offset by a decrease in non-cash stockcompensation expense of $1.3 million. The decrease in non-cash stock compensation was primarily due tonon-recurring variable accounting expenses incurred in 2004 as a result of theinadvertent exercise as discussed below. 

 

During 2004,certain employees were inadvertently permitted to exercise stock options on anet share basis, whereby shares equal in value to the option exercise price andthe employee’s minimum tax withholding obligation were withheld by the Company(also known as a “cashless exercise”). Under Accounting Principles Board Opinion No. 25, *Accountingfor Stock Issued to Employees,* the use of “in the money” options tocover the exercise price resulted in a new measurement date and, as a result,the Company recognized $1.0 million of additional compensation expense incontinuing operations for the difference between the exercise price and themarket value of the shares on date of exercise.  When the situation was discovered bymanagement in May 2004, the Company discontinued this practice and, therefore,expects no further compensation charges from the exercise of employee stockoptions.

** **

**Non-OperatingIncome/Expenses. **Non-operatingincome/expenses changed to expense of $0.2 million for 2005 from income of$19.6 million in 2004.  This change wasprimarily attributable to 2004 income recognized in connection with the earlyrepayment of a note receivable originally issued on June 30, 2003, as partialconsideration for the sale of the Company’s K-12 segments to Educate with anoriginal issue discount of $13.4 million. 

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*Interestand other income*decreased $16.4 million to $11.8 millionfrom $28.2 million in 2004. In connection with the early repayment of theEducate note, the Company recorded income of $12.7 million in 2004 due to theaccelerated recognition of the remaining unamortized original issuediscount.  

* *

*Interestexpense* increased $2.8 million primarily due to the acquireddebt as a result of 2005 and 2004 acquisitions.

 

**MinorityInterest in (Income) Loss of Affiliates, Net of Tax.**  Minority interest in (income) loss ofaffiliates increased $3.7 million to $24.2 million in 2005 from $20.5 millionin 2004.  Acquisitions added $0.8 million,and the minority share of improved operating results at UVM, UDLA, and UNAB was$5.9 million.  As more fully described inNote 5 to the consolidated financial statements, the remaining ownershipinterests of the minority shareholders at Walden and UEM were acquired inSeptember 2004 and December 2004, respectively, which decreased minorityinterest by $3.6 million in 2005.

** **

**IncomeTaxes.**  The Company has operations in multiple countries,many of which have statutory tax rates lower than the United States.  Since approximately 80% of the Company'srevenues are generated outside the United States, the impact of generally lowereffective tax rates in these foreign jurisdictions is an effective tax ratesignificantly lower than the United States statutory rate as outlined in Note13 to the consolidated financial statements. The Company's effective tax rates from continuing operations were15.0% and 6.2% for the 2005 and 2004, respectively.  During 2004, the effective rate was impactedby the reversal of a valuation allowance related to a deferred tax asset.

 

**Liquidityand Capital Resources **

** **

The Company generates revenue from tuition and otherfees charged to students in connection with its various education programofferings.  Students typicallyself-finance the costs of their education or seek third-party sponsoredfinancing programs.  Tuition is generallycollected in advance.  As a result,working capital is generally a source rather than use of funds. Given thefavorable cash flow characteristics of the Company's post-secondary educationbusiness, Laureate anticipates generating sufficient cash flow from operationsin the majority of countries where the Company operates to satisfy the workingcapital and financing needs of the Company's organic growth plans for eachcountry.  If an educational institutionin a country were unable to maintain sufficient liquidity on its own, theCompany would look to internal cash resources as well as explore reasonableshort-term facilities to accommodate any short to medium term shortfalls.  Accordingly, liquidity is managed locallywith oversight provided by corporate staff in Baltimore, Maryland. 

 

The Company incurssignificant costs at its headquarters location in Baltimore, Maryland relatingto (1) meeting U.S. and group corporate governance, reporting and compliancerequirements, (2) stewardship and financing of its ownership in investments andsubsidiaries, and (3) development of group synergies among its investments andsubsidiaries.  Cash flow from operationsgenerated by the Company's domestic businesses, included within Laureate OnlineEducation, coupled with incremental borrowing capacity, are expected to besufficient to meet future domestic working capital, financing and investmentneeds. The Company anticipates that cash flow from operations, available cashand existing credit facilities will be sufficient to meet its recurringoperating requirements.  The Company willrequire additional liquidity in order to fund the long-term operating strategyof expanding existing locations, opening new campuses and entering newmarkets.  The Company continues toexamine opportunities in the educational services industry for potentialsynergistic acquisitions, which will require additional liquidity.  In connection with Merger Agreement asdiscussed in the section entitled “Recent Events” in Item 1, the Companyexpects to have significant new debt if the proposed merger is consummated.

 

Cash provided by operations was $216.8 million for2006, an increase of $75.7 million from $141.1 million for 2005.  Thisincrease was caused by several factors including a $29.8 million increase innet income for 2006.  Non-cash items increasing cash provided by operatingactivities include $14.1 million in additional depreciation and amortization,$10.5 million in additional equity-based compensation, which includes theimpact of expensing stock options, and $19.0 million in non-cash interest whichis primarily a result of minority share ownership purchase agreements in 2006. Non-cash items decreasing cash provided by operating activities include a $9.8million decrease in deferred income taxes, a $12.8 million decrease in minorityinterest in consolidated subsidiaries primarily due to minority share ownershippurchase agreements in 2006, a $10.8 million change in (gain)/loss on disposalof discontinued operations, the $9.3 million gain on sale of Chancery Software,Ltd. in the 2006 and $4.1 million in 2006 of unrealized foreign exchange gainon debt repayment. The operating assets and liabilities increased $48.2 millionto a source of cash of $16.2 million in 2006 compared to a use of cash of $32.0million in 2005.

 

Cash used in investing activities increased $251.0million from $198.0 million for 2005 to $449.0 million for 2006.  This changewas primarily driven by acquisition activity and capital expenditures. Cash paid for acquisitions, net of cash acquired increased $143.2 million in2006 compared to 2005.  Property and equipment capital expenditures were$174.7 

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million for 2006, an increase of $65.6 million from$109.1 million for 2005.  In addition, expenditures for deferred costsdecreased $2.2 million in 2006 compared to 2005.  Non-recurring activitytaking place in 2006 consisted of $12.9 million in proceeds from repayment ofnotes receivable and the sale of Chancery Software, Ltd.  During 2005$22.7 million in proceeds from the sale of discontinued operations relating tothe WSI business were received.  Proceeds from net sales of securitiesincreased $6.3 million in 2006 over 2005. Also, increasing cash used ininvesting activities was 2006 change in other long-term assets of $7.1 million.In 2006, restricted cash increased by $33.6 million related to a pendingpotential acquisition in Mexico.

 

Cash provided by financing activities increased $177.7million to cash provided by financing activities of $218.5 million in 2006 fromcash provided by financing activities of $40.8 million in 2005.  The mostsignificant components of this change are a net increase in the borrowings oflong-term debt of $169.2 million from net proceeds of $27.6 million in 2005 tonet proceeds of $196.8 million in 2006 and a net increase in the proceeds fromthe exercise of stock options of $4.8 million. Also, increasing cash provided by financing activities was a 2006 changein other long-term liabilities of $3.7 million.

 

The foreign currency effect on the cash balancesresulted in a increase of $1.7 million to a $5.5 million source of cash in 2006from a $3.8 million source of cash in 2005.

 

In the third quarter of2006, the Company entered into a $250.0 million Revolving Credit Facility (the“Bank Facility”) that has a five year term and a LIBOR-based interest rate withJPMorgan Chase Bank, National Association (“JPMorgan Chase”) and certain partiesthereto.  The Bank Facilityexpires on August 16, 2011 and is comprised of two sub-facilities:  a U.S.sub-facility for $150.0 million and a Spanish sub-facility for $100.0 million.The Bank Facility has a swingline loan feature of up to $10.0 million and anexpansion feature for an aggregate principal amount of up to $100.0million.  The Company entered into aFirst Amendment during the fourth quarter of 2006 (the “Amendment”) to the BankFacility, which increased the aggregate maximum principal amount of thefacility from $250.0 million to $350.0 million through the use of the $100.0million expansion feature, such that the maximum principal amount of the U.S.sub-facility increased from $150.0 million to $200.0 million and the maximumprincipal amount of the Spanish sub-facility increased from $100.0 million to$150.0 million.  The new borrowings wereused in part to repay the Company’s prior credit agreement dated as of October26, 2005 with Bank of America, National Association, which was terminated atthe time of repayment, except for a $5.0 million swingline that was kept inplace.  The proceeds of subsequentborrowings under the Bank Facility including the Amendment will be used forgeneral corporate purposes, including acquisitions. The amendment also permitedthe refinancing and repayment of certain indebtedness of the Company’s Chileanoperations.  The financial covenants,which are routine for this type of debt, include a maximum leverage of 3.5times earnings before interest, taxes, depreciation and amortization(“EBITDA”).  The outstanding balance onthe line of credit was $208.0 million at December 31, 2006.  The Company was in compliance with itscovenant requirements as of December 31, 2006.

 

In the third quarter of 2006, UVM entered into a newcredit line for $27.8 million.  The termof the credit line is 30 months with decreases in the available line of $2.8 millionper quarter.  The interest rate of thecredit line is in the Mexican interbank rate (TIIE) plus 1%.  In addition, UVM also renewed two existingcredit lines during the third quarter for a total of $37.0 million.  During the fourth quarter of 2006, UVMentered into another new credit line for $27.8 million.  The term of the credit line is 5 years andthe interest rate of the credit line is TIIE plus 1.5%.  The proceeds of the borrowings are used tosupport the growth of UVM.  In addition,the proceeds of the borrowings will be used to fund working capital needsincluding acquisitions.

 

# *Acquisitions*

The Company has entered intoput/call arrangements with certain minority shareholders whereby the Companycan be required by the minority shareholders to buy additional interest incertain higher education institutions at specified times in the future.  Additionally, the Company can buy theminority partner’s interest at the Company’s option after specified times inthe future at a purchase price generally determined to be fixed by reference toa multiple of the higher education institutions annual profits.  See disclosure in Note 11 to the consolidatedfinancial statements for discussion of commitments and contingent arrangements.

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**ContractualObligations and Contingent Matters**  

 

The followingtables reflect the Company’s contractual obligations and other commercialcommitments as of December 31, 2006:

 
| ** **                                                   | ** ** | **Payments Due by Period  (in thousands)** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| **Contractual Obligations**                             | ** ** | **Total**                                                      | ** ** | **Due in less   than 1 year** | ** ** | **Due in 1-3   years** | ** ** | **Due in 4-5   years** | ** ** | **Due after 5   years** | ** ** |
| Long-term debt (A)                                           |       | $                                                              | 407,489    |   | $ | 88,202 |   | $ | 37,501 |   | $ | 230,414 |   | $ | 51,372 |   |
| Interest  payments (B)                                       |       | 106,203                                                        |       | 24,520 |   | 58,277 |   | 13,385 |   | 10,021 |   |
| Operating leases  (C)                                        |       | 488,382                                                        |       | 48,685 |   | 143,278 |   | 127,308 |   | 169,111 |   |
| Due to  shareholders of acquired companies (D)               |       | 45,265                                                         |       | 21,780 |   | 12,522 |   | 1,688 |   | 9,275 |   |
| Other long term  liabilities (E)                             |       | 5,600                                                          |       | 5,600 |   | — |   | — |   | — |   |
| Fixed purchase  price (F)                                    |       | 8,446                                                          |       | — |   | 8,446 |   | — |   | — |   |
| Similar exchange  contracts (G)                              |       | 7,467                                                          |       | 7,467 |   | — |   | — |   | — |   |
| Total contractual cash  obligations of continuing operations |       | $                                                              | 1,068,852  |   | $ | 196,254 |   | $ | 260,024 |   | $ | 372,795 |   | $ | 239,779 |   |

 
| ** **                                             | ** ** | **Amount of Commitment  Expiration Per Period  (in thousands)** | ** ** |
|--------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| **Commercial Commitments**                        | ** ** | **Total   Amounts   Committed**                                                | ** ** | **Due in less   than 1year** | ** ** | **Due in 1-3   years** | ** ** | **Due in 4-5   years** | ** ** | **Due after 5   years** | ** ** |
| Guarantees (H)                                         |       | $                                                                                        | 11,991     |   | $ | 4,552 |   | $ | 6,462 |   | $ | 977 |   | $ | — |   |
| Capital  contribution (I)                              |       | 7,413                                                                                    |       | 4,121 |   | 3,292 |   | — |   | — |   |
| Acquisition  commitment (J)                            |       | 33,602                                                                                   |       | 33,602 |   | — |   | — |   | — |   |
| Standby letters  of credit (K)                         |       | 12,700                                                                                   |       | 12,700 |   | — |   | — |   | — |   |
| Total commercial  commitments of continuing operations |       | $                                                                                        | 65,706     |   | $ | 54,975 |   | $ | 9,754 |   | $ | 977 |   | $ | — |   |

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A                 OnAugust 16, 2006, the Company entered into a $250.0 million Bank Facility withJPMorgan Chase and certain other parties thereto.  In the fourth quarter of 2006, the Companyentered into a First Amendment which increased the aggregate maximum principalto $350.0 million.  Refer to Note 8 tothe consolidated financial statements for more information regarding thistransaction.  The outstanding balance onthe line of credit was $208.0 million at December 31, 2006.  Individual units within campus-basedoperations have unsecured lines of credit, which total $111.2 million,primarily for working capital purposes. The aggregate outstanding balance on the campus-based segments’ lines ofcredit was $74.9 million, which is included in the current portion of long-termdebt. The weighted average short term borrowing rates were 7.3% and 6.0% atDecember 31, 2006 and December 30, 2005 respectively.

B                   Interestpayments for variable rate long-term debt were calculated using the variableinterest rate in effect at December 31, 2006. 

C                   InFebruary 2006, the Company entered into a 15-year, approximately 140,000 squarefoot lease with Harbor East Parcel B – Commercial, LLC.  The lease has a 10-year non-cancellable leaseterm commencing in the first quarter of 2007. Upon completion, the leased facility will become the Company’s corporateheadquarters.  Refer to Note 10 of theconsolidated financial statements, “Leases and Related Party Transactions.”

D                  Referto Note 9 of the consolidated financial statements, “Due to Shareholders ofAcquired Companies.”  

E                    Underterms of note agreements with Kendall College (“Kendall”), the Company hascommitted to providing total additional funding to Kendall of up to $1.1 million.  In the event the Company does not exerciseits agreement to acquire Kendall, Kendall is obligated to enter into a leaseagreement with the Company beginning September 1, 2007 to lease office space.  The lease commitment specifies a term of 36months and annual rent of $1.3 million. The Company is currently negotiating an amendment with Kendall thatwould extend the purchase option through March 31, 2008 and the Company wouldcommit to provide additional funding to Kendall up to $5.5 million.  As a result, the lease agreement with Kendallwould begin on March 31, 2008 if the Company does not exercise the purchaseoption.  

F                    Aspart of the acquisition of Ecole Centrale d’Electronique (“ECE”), the Companycommitted to purchase the remaining 30% ownership from the sellers on December31, 2008 for approximately $8.4 million. The agreement is denominated in Euros, and is subject to foreigncurrency exchange risk on the date of payment. 

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G                   The$7.5 million related to the Similar Exchange Contract arrangements is thepresent value of the liability associated with UPC.  As part of a methodology election, theCompany has chosen to adopt an interest accretion method which allows theCompany to accrete changes in the value of the liability over time.  The value of the liability will increase overtime to the extent the non-GAAP earnings of UPC improves.   

H                  Subsequentto the divestiture of the K-12 segments in 2003, all leases related to SylvanLearning Centers acquired by Educate, Inc. (“Educate”) were renegotiated orassigned in the name of Educate during the third quarter of 2003.  Leases with remaining payments of $5.5million through December 2010 are guaranteed by the Company.  Under the terms of the Asset PurchaseAgreement with Educate, the Company is indemnified against any losses sufferedas a result of these lease guarantees. During 2004, the Company entered into anagreement to guarantee lease payments owed by Kendall to Key Equipment Finance.Leases with remaining payments of $3.6 million through December 2011 areguaranteed by the Company under this agreement. The Company has an agreement to guarantee rent lease payments owed by aco-tenant of a building in which the Company leases space.  Upon an event of default, eviction and otherconditions, on behalf of the co-tenant, the Company assumes all rights of theco-tenant.  The Company is not liable forany loss or damages due by the co-tenant. The lease contains remaining payments of $2.9 million through April 30,2009.

I                       As part of the acquisition of Institut Francaisde Gestion (“IFG”), the Company committed to additional capital contributions,which will increase the Company’s share of ownership by diluting presentminority ownership.  The agreementprovides that, no later than July 31, 2006 and July 31, 2007, the Company shallcontribute approximately $1.6 million and $2.5 million resulting in an increasein ownership share of 16% and 23%, respectively.  During the second quarter of 2006, theCompany negotiated an amendment to the agreement that provides that the firstadditional capital contribution can be extended up to July 31, 2007 instead ofJuly 31, 2006.  There were no othermaterial amendments made to the agreement. The agreement is denominated in Euros, and is subject to foreigncurrency exchange rate risk on the dates of payment. As part of the acquisitionof Cyprus College, the Company committed to making a capital contribution ofapproximately $3.3 million between the closing date and three yearsthereafter.  The contributions will fundcertain capital projects, if approved, and will not alter the relative equityinterests.  The contribution commitmentis denominated in Cypriot Pounds and is subject to foreign currency exchangerate risk on the dates of payment.  

J                      TheCompany has $33.6 million in restricted cash, deposited into an escrow accountfor a pending transaction in Mexico.

K                  TheCompany has approximately $12.7 million outstanding in standby letters ofcredit.  The Company is self-insured forworkers’ compensation and other insurable risks up to predetermined amountsabove which third party insurance applies. The Company is contingently liable to insurance carriers under certainof these policies and has provided a letter of credit in favor of the insurancecarriers for approximately $0.7 million. In the first quarter of 2005, the Company issued a $12.0 million standbyletter of credit in favor of WSI Education S.a.r.l. for a tax indemnificationrelated to the sale of WSI.

 

***ContingentMatters***

 

This chart provides a high-level summary of thevarious minority share ownership purchase arrangements the Company hadoutstanding as of December 31, 2006.  Inconnection with certain acquisitions, variable amounts of contingentconsideration are payable to the sellers based upon specified terms.  There are six different types ofarrangements.  

 

Call Right Arrangements – An arrangement whichprovides the Company with the right to acquire additional shares of the targetcompany at a future date typically based on a multiple of trailing non-GAAPearnings.   

 

Put Right Arrangements – An arrangement which providesthe Minority partner the option to require the Company to purchase the sharesfrom the minority partner, generally based on a multiple of trailing non-GAAPearnings.

 

Combination Exchange Contract Arrangements - Anarrangement which provides the Company with the ability to gradually increaseits ownership of the subsidiary based on a series of fixed price or formulaic calls(normally a multiple of non-GAAP earnings) exercisable at certain dates in thefuture.  After a certain ownershipthreshold is reached, the minority partner then would have the right to requirethe Company to purchase the remaining shares owned by the minoritypartner.  Prior to the Company acquiringa certain ownership percentage, the minority partner’s put right is notexercisable.

 

Similar Exchange Contract Arrangements - Anarrangement which provides the Company with the right (i.e. a Call) to purchasethe remaining shares of the target company and provides the minority partnerthe right (i.e. a Put) to require the Company to purchase its remainingownership of the target company. Generally, the terms of the Company’s call and the minority partner’sput is based on the same multiple of trailing non-GAAP earnings and are bothexercisable at the same point in time in the future.

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Fixed Purchase PriceArrangements — An arrangement which obligates the Company to acquire theremaining ownership of the target company sometime in the future at a pricethat is fixed at the acquisition date.

ContingentEarnouts (cash payments) - An arrangement which obligates the Company to payfuture consideration to the seller at a point in the future based on a multipleof  non-GAAP earnings.
| Higher Education Institution         | ** ** | **Date of Contingency**                                                                                                  | ** ** | **Additional   Ownership   Share** | ** ** | **Terms of Contingent Transaction**                                                                                                                                                    |
|--------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Company Call Right Arrangements:** |       |                                                                                                                     |       |                               |       |                                                                                                                                                                                   |
| UAM (1)                              |       | March 1, 2009                                                                                                            |       | 29%                                |       | The greater of 4 times recurring EBITDA for certain  specified periods or equivalent per share valuation of the Company’s initial  51% acquisition of UAM, adjusted for inflation |
|                                      |       |                                                                                                                     |       |                               |       |                                                                                                                                                                                   |
| ** **                           |       | Beginning March 1, 2013 through March 1, 2023                                                                            |       | 20%                                |       | The greater of 4 times recurring EBITDA for certain  specified periods or equivalent per share valuation of the Company’s initial  51% acquisition of UAM, adjusted for inflation |
| **Minority Put Right Arrangements:** |       |                                                                                                                     |       |                               |       |                                                                                                                                                                                   |
| UAM(2), (5)                          |       | March 1, 2009                                                                                                            |       | 29%                                |       | Approximately 4 times recurring earnings before  interest, taxes, depreciation and amortization (“EBITDA”) for certain  specified periods                                    |
|                                      |       |                                                                                                                     |       |                               |       |                                                                                                                                                                                   |
|                                 |       | Beginning March 1, 2013 through March 1, 2023                                                                            |       | 20%                                |       | Variable purchase price based on recurring EBITDA  for certain specified periods                                                                                                       |
|                                 |       |                                                                                                                     |       |                               |       |                                                                                                                                                                                   |
| UVM (3), (5)                         |       | Beginning when minority owners receive the December  31, 2006 audited UVM financial statements through December 31, 2011 |       | Up to 10%                          |       | Approximately 7 times earnings before interest and  taxes (“EBIT”) of the previous calendar year times the percentage of shares  being sold by minority owners               |
|                                      |       |                                                                                                                     |       |                               |       |                                                                                                                                                                                   |
|                                 |       | Beginning January 1, 2012 through December 31, 2012                                                                      |       | Up to 10%                          |       | Approximately 7 times earnings before interest and  taxes (“EBIT”) of the previous calendar year times the percentage of shares  being sold by minority owners               |
|                                 |       |                                                                                                                     |       |                               |       |                                                                                                                                                                                   |
| IFG (4), (5)                         |       | October through November 2008                                                                                            |       | 10%                                |       | $1.1 million                                                                                                                                                                           |
| ** **                           |       |                                                                                                                     |       |                               |       |                                                                                                                                                                                   |

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| **Combination Exchange Arrangements:**                    |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
|-----------------------------------------------------------|--------|-----------------------------------------------------------------------------------|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ***Company Call Right Arrangements:***                    |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| Cyprus College (6)                                        |   | Beginning July 1, 2006                                                            |   | 35%    |   | 6% - Payable April 2007 based on 6.25 times 2006  audited recurring EBITDA                                                                                                                                                                                                                                                               |
|                                                           |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
|                                                      |   |                                                                              |   |   |   | 29% - Payable April 2012 based on a variable scale  for new enrollments and 2011 EBITDA                                                                                                                                                                                                                                                  |
|                                                      |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
|                                                      |   | January 1, 2012 or up to five years thereafter                                    |   | 20%    |   | Payable April in the year following exercise based  on a variable scale for new enrollments and EBITDA related to the year prior  to exercise                                                                                                                                                                                            |
|                                                      |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| CH Holdings Netherlands BV (7)                            |   | On or before October 31, 2008                                                     |   | 8.75%  |   | $10.2 million plus an amount equal to CH Holdings  Netherlands BV total cash minus its long-term debt multiplied by the Sellers’  ownership percentage                                                                                                                                                                              |
|                                                           |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
|                                                           |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| ** **                                                |   | On or before October 31, 2008                                                     |   | 21.25% |   | $10.2 million plus an amount equal to CH Holdings  Netherlands BV total cash minus its long-term debt multiplied by the Sellers’  ownership percentage                                                                                                                                                                              |
| ** **                                                |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
|                                                           |   | Beginning November 1, 2008 through November 1, 2018                               |   | 20%    |   | Approximately 6 times prior twelve months EBITDA  plus CH Holdings Netherlands BV’s cash minus long-term debt multiplied by the  Sellers’ ownership percentage with a minimum payment of $20.0 million plus CH  Holdings Netherlands BV’s cash minus long-term debt multiplied by the Sellers’  ownership percentage |
|                                                           |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| ***Minority Put Right  Arrangements:***                   |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| Cyprus College (6)                                        |   | April 1, 2012 or up to five years thereafter                                      |   | 20%    |   | Payable based on a variable scale for new  enrollments and EBITDA related to the year prior to exercise                                                                                                                                                                                                                                  |
|                                                      |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| CH Holdings Netherlands BV (7)                            |   | Beginning November 1, 2008 through November 1, 2018                               |   | 20%    |   | Approximately 6 times prior twelve months EBITDA  plus CH Holdings Netherlands BV’s  cash minus long-term debt multiplied by the Sellers’ ownership percentage                                                                                                                                                                 |
|                                                           |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| **Similar Exchange Contract Arrangements:**               |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| UPC (8)                                                   |   | Period from April 1st to June 30th of each calendar year following 2006 |   | 20%    |   | Approximately 4.25 times audited EBITDA for the  preceding calendar year adjusted for a predefined rent formula minus the  outstanding balance of all UPC’s long-term interest bearing debt plus the  market value of any real estate owned by UPC multiplied by the Sellers’  ownership percentage                            |
| ** **                                                |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| **Fixed Purchase Price Arrangements:**                    |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| Ecole Centrale  d’Electronique (“ECE”) (9) |   | December 31, 2008                                                                 |   | 30%    |   | $9.2 million                                                                                                                                                                                                                                                                                                                             |

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| **Capital Contribution Obligations:**    |   |                                     |   |    |   |                                                                                                                              |
|------------------------------------------|--------|------------------------------------------|--------|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------|
| IFG (10)                                 |   | On or before July 31, 2007 July 31, 2007 |   | 16% 23% |   | $1.7 million $2.5 million                                                                                                         |
|                                          |   |                                     |   |    |   |                                                                                                                              |
| **Contingent Earnouts (cash payments):** |   |                                     |   |    |   |                                                                                                                              |
| Laureate Online Education BV (11)        |   | April 1, 2007                            |   |    |   | Approximately 75% of 4 times 2006 EBITDA, not to  exceed $10.0 million                                                            |
|                                     |   |                                     |   |    |   |                                                                                                                              |
|                                     |   | April 1, 2008                            |   |    |   | Approximately 4 times the average of 2006 and 2007  EBITDA, not to exceed $10.0 million, less the April 1, 2007 payment |

 

Obligations andcontingent payments (except for the contingent earnout on Laureate OnlineEducation BV) are denominated in foreign currency and are subject to foreigncurrency risk.

*Company Call Right Arrangements*

(1)             EffectiveMarch 1, 2009, the Company has a call right to acquire a 29% interest from theminority owners for a variable purchase price equal to the greater of 4.0 timesrecurring EBITDA for certain specified periods with a minimum payment of theequivalent per share valuation of the Company’s initial 51% acquisition of UAM,as adjusted for local inflation. Beginning March 1, 2013, and continuing forten years, the Company has another call right on the remaining 20% interest ofthe minority owners, with the purchase price determined based on a similarformula.  No accounting for thisarrangement is included in the Company’s financial statements.

                           *Minority PutRight Arrangements*

                           The below arrangements areaccounted for as Minority Put Right Arrangements as described in Note 2 to theconsolidated financial statements.

(2)             EffectiveMarch 1, 2009 the minority owners of UAM have a put right to require theCompany to purchase an equity interest of 29% from the minority owners at avariable purchase price based on 4.0 times recurring EBITDA for certainspecified periods. Beginning March 1, 2013, and continuing for ten years, theminority owners hold a second put right to require the Company to purchase theremaining 20% interest from the minority owners, with the purchase pricedetermined based on a similar formula. As of December 31, 3006, the Company recorded $3.7 million in minorityinterest and minority ownership put arrangements on the consolidated balancesheet for this arrangement.

(3)             Asa part of the 10% step acquisition of UVM in 2006, there are two put optionsheld by the minority owners for the remaining 10% interest.  Thefirst put option covers the time after which the minority owners receive theDecember 31, 2006 audited financial statements of UVM through December 31,2011.  During this period, the minorityowners may exercise the first put option one time for each calendar year withthe minimum shares transferred to the Company on each occasion equal to 25% ofthe shares held by the minority shareholders. Beginning January 1, 2012 through December 31, 2012, the minority ownershave a second put right to require the Company to purchase all remainingshares.  The put price for both putoptions is equal to approximately 7.0 times EBIT of the previous calendar yeartimes the percentage of shares being sold by the minority owners.  As the transaction was completed at the endof December 2006 no additional accounting was reflected for this Minority PutRight Arrangement.

(4)             During the period October through November 2008,the sellers of IFG may exercise a put option requiring the Company to purchasethe remaining 10% ownership for approximately $1.1 million.  As of December 31, 2006 the Company recorded$0.6 million in minority interest and minority ownership put arrangements onthe consolidated balance sheet for this arrangement.

(5)             The$4.2 million related to Minority Put rightarrangements is the present value of the Redeemable Minority Interestsassociated with the Brazilian, Mexican and French acquisitions that is inexcess of the minority interest for those entities.  Also as part of a methodology election, theCompany has chosen to adopt an accretion method which allows the Company to 

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                           accrete changes in the redemption value over theperiod from the date of issuance.  Assuch, the Company has elected to only reflect a pro-rata portion of the changein liability based on the time elapsed in the Put instruments which issignificantly lower than the final amount that will be required to settle theminority put arrangement.  If the Minorityput arrangements were all exercisable at December 31, 2006, the Company wouldbe obligated to pay the minority shareholders $80.7 million.

                           *CombinationExchange Contract Arrangements*

                           As described in Note 2 tothe consolidated financial statements, there is no accounting for Combination ExchangeContract Arrangements described below as it is not probable that the Companywill exercise its Call rights.

(6)             EffectiveApril 1, 2012 and exercisable up to five years thereafter, the minority ownersof Cyprus College have a put right to require the Company to purchase an equityinterest of 20% from the minority owners at a variable purchase price based ona variable scale for new enrollments and EBITDA for the calendar year precedingthe exercise date.  Beginning July 1,2006, the Company has a call right to acquire up to a 35% interest from theminority owners for a variable purchase price based on a variable scale for newenrollment and 2006 EBITDA.  EffectiveJanuary 1, 2012 and exercisable up to five years thereafter, the Company hasthe call right to acquire the remaining 20% interest from the minority ownersfor a variable purchase price based on a variable scale for new enrollment andEBITDA for the calendar year preceding the exercise date.

(7)             Asa part of the acquisition of CHHoldings Netherlands BV, there are three purchase options that enablethe Company to increase its ownership interest to 100%.  The first option allows the Company toincrease its ownership in CH HoldingsNetherlands BV to 58.75% if by October 30, 2008 it makes an additional$10.2 million payment plus an amount equal to CH Holdings Netherlands BV’s total cash minus its total long-termdebt multiplied by the seller’s ownership percentage.  After exercising the first call option andbefore October 30, 2008, the Company has a second call right to increase itsownership to 80% for an additional $10.2 million plus an amount equal to CH Holdings Netherlands BV’s totalcash minus its total long-term debt multiplied by the sellers’ ownershippercentage.  There is put/call option forthe final 20% ownership that can be exercised following the second calloption.  The put option will becalculated at 6.0 times the prior twelve months EBITDA plus CH Holdings Netherlands BV’s totalcash minus its total long-term debt multiplied by the seller’s ownershippercentage.  The call option will becalculated at 6.0 times the prior twelve months EBITDA plus CH Holdings Netherlands BV’s totalcash minus its total long-term debt multiplied by the seller’s ownershippercentage, with a minimum payment of $20.0 million plus CH Holdings Netherlands BV’s cashminus its total long-term debt multiplied by the seller’s percentage.

                           *SimilarExchange Contract Arrangements*

                           The below arrangement isaccounted for as a Similar Exchange Contract as described in Note 2 to theconsolidated financial statements.

(8)             Duringthe period of April 1st through June 30th ofeach calendar year following 2006, there are mirror put/call options withsimilar terms which enables the Company to acquire or the minority owners torequire the Company to purchase the remaining 20% ownership in UPC.  The Put and Call options are set atapproximately 4.35 times the audited EBITDA for the preceding calendar yearadjusted for a predefined rent formula minus the outstanding balance of alllong-term interest bearing debt at UPC plus the market value of any real estateowned by UPC at the time of the option. As of December 2006, the value of the liability reflected on the Company’sbalance sheet is $7.5 million for this Similar Exchange Contract.

                           *Fixed PricePurchase Contract Arrangements*

                           The below arrangement isaccounted for as a Fixed Price Purchase Contract as described in Note 2 to theconsolidated financial statements.

(9)             Aspart of the acquisition of ECE, the Company committed to purchase the remaining30% ownership from the sellers on December 31, 2008 for approximately $9.2million.  The purchase obligation isdenominated in Euros, and is subject to foreign currency exchange rate risk onthe date of payment.  As of December2006, the value of the debt reflected on the Company’s balance sheet is $8.4million.

42

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                           *Capital ContributionObligations*

(10)       Aspart of the acquisition of IFG, the Company committed to additional capitalcontributions, which will increase theCompany’s share of ownership by diluting present minority ownership.  The agreement provides that, no later thanJuly 31, 2006 and July 31, 2007, the Company shall contribute approximately$1.7 million and $2.5 million resulting in an increase in ownership share of16% and 23%, respectively. During the second quarter of 2006, the Companynegotiated an amendment to the agreement that provides that the firstadditional capital contribution of $1.7 million can be extended up to July 31,2007, instead of July 31, 2006.  Thepurchase obligation is denominated in Euros, and is subject to foreign currencyexchange rate risk on the dates of payment. This arrangement is not accounted for in the Company’s balance sheet asof 2006.

                           *ContingentEarnouts (cash payments)*

(11)       Additionalamounts of contingent consideration, not to exceed $10.0 million, are due thesellers of Laureate Online Education BV equal to four times the average of theaudited EBITDA for the calendar years ending December 31, 2006 and 2007.  Excluding adjustments of EBITDA items andother negotiated amounts and using 2006 results to estimate the 2007 results,the Company would be obligated to the sellers for $0.

*Effect ofMinority Share Ownership Purchase Arrangements on 2006 Financial Statements*

During 2006, the Company reevaluated the accounting for and thefinancial statement presentation of new and pre-existing put and call optionagreements entered into in connection with certain acquisitions. As a result ofthe reevaluation, management concluded that an error was made in the initial accountingdeterminations related to these arrangements. As a result, these errors were quantified and evaluated under SFAS 154, “AccountingChanges and Error Corrections”, Staff Accounting Bulleting (“SAB”) No. 99, “Materiality”,and SAB No. 108, “Considering the Effects of Prior Year Misstatements whenQuantifying Misstatements in Current Year Financial Statements”.  The Company concluded that the cumulativeeffect of the error is immaterial for restatement of prior years.  The prior year adjustments related to thisreevaluation have been recorded in the fourth quarter of 2006 and the 2006quarterly information has been restated in Note 17 to the consolidatedfinancial statements.

Thefollowing amounts represent the impact on each financial statement lineaffected by the Company’s accounting for the minority share ownership purchasearrangements on the statement of operations for the year-ended December 31,2006 and the consolidated balance sheet as of December 31, 2006.
| ** **                                                            | ** ** | **December 31, 2006** | ** ** |
|-----------------------------------------------------------------------|------------|---------------------------------|------------|
| ***Statement  of Operations***                                        |       |                            |       |
| *Increase  (decrease) to:*                                            |       |                            |       |
| Direct costs                                                          |       | $                               | 1,728      |   |
| Operating income                                                      |       | (1,728                          | )          |
|                                                                  |       |                            |       |
| Interest expense                                                      |       | (17,858                         | )          |
| Minority  interest in income of consolidated subsidiaries, net of tax |       | 17,154                          |       |
| Income from  continuing operations                                    |       | (2,432                          | )          |
|                                                                  |       |                            |       |
| Net income                                                            |       | $                               | (2,432     | ) |

* *
| ** **                                                        | ** ** | **December 31, 2006** | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------|------------|
| ***Balance  Sheet***                                              |       |                            |       |
| *Increase  (decrease) to:*                                        |       |                            |       |
| Property and  equipment, net                                      |       | $                               | (1,263     | ) |
| Goodwill and  intangible assets                                   |       | 7,083                           |       |
| Total assets                                                      |       | $                               | 5,820      |   |
|                                                              |       |                            |       |
| Long-term debt,  net of current portion                           |       | $                               | 15,914     |   |
| Deferred income  taxes                                            |       | (424                            | )          |
| Total  liabilities                                                |       | 15,490                          |       |
|                                                              |       |                            |       |
| Minority  interest and minority ownership put arrangements        |       | (3,045                          | )          |
|                                                              |       |                            |       |
| Additional Paid  in Capital — Redemption of Put Arrangements |       | (4,214                          | )          |
| Retained  earnings                                                |       | (2,432                          | )          |
| Accumulated  other comprehensive income                           |       | 21                              |       |
| Total stockholders’  equity                                  |       | (6,625                          | )          |
|                                                              |       |                            |       |
| Total  liabilities and stockholders’ equity                  |       | $                               | 5,820      |   |
|                                                              |       |                            |       |

 

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**RelatedParty Transactions**

*Transactions between UI and Certain Former Owners*

The Company entered into a lease agreement in October 2003 with certainformer owners of UI, located in Costa Rica and Panama.  In 2004, the Company entered into a new leasewith the same parties for the ULACIT campus. The lease agreements enable theCompany to operate UI and ULACIT at their established campuses.  Both leases have initial terms of fifteenyears, with additional five-year extensions available at the Company’soption.  The leases also containprovisions for the Company, at its option, to purchase the real estate for itsfair market value at any time.  Under theUI lease, monthly rental payments are based on eight percent of net campusrevenues for the first two years and ten percent of net campus revenues in thethird year.  Rental payments are fixed asof 2007, subsequent rental payments will be adjusted for inflation and have a180 day cancellation clause.  The Companyrecognized approximately $1.6 million and $1.1 million of rent expense underthis lease for the years ended December 31, 2006 and December 31, 2005,respectively.    The ULACIT lease hasfixed monthly rental payments.  As ofNovember 2006, the ULACIT lease had a step-up payment due.  The Company has been recording rent expensesince the lease inception date on a straight-line basis per U.S. GAAP.  The Company recognized approximately $0.9million and $0.8 million of rent expense under this lease for the year endedDecember 31, 2006 and December 31, 2005, respectively.

*Transactions between UVM and Certain Officersand Minority Shareholders*

The Company entered into lease agreements for UVM’s university campuseswith certain of its officers and minority owners.  The leases had an initial term of ten yearswith an additional two-year extension available at the Company’s option. During2002, this lease was amended to include an additional three-year extensionavailable at the Company’s option, for a total term of up to 15 years.  The amended lease also gives the Company theoption to purchase the real estate at the fair market value of the property atthe end of the lease term.  Rents areadjusted monthly for inflation.  For2006, 2005 and 2004, the Company incurred approximately $7.1 million, $6.9million and $5.6 million, respectively, of rent under these leases. The leaseagreements enable the Company to operate UVM at its already establishedcampuses. The value of the contracts was determined by arms-length negotiationbetween the parties and based upon the then prevailing market rates, and wascorroborated by an independent real estate appraisal.

*Transactions between UAM and Minority Shareholders*

TheCompany entered into lease agreements for most of UAM’s university campusfacilities with its minority owners. The leases have an initial term of 20years with two additional extensions of 20 years each, available at the Company’soption. Base annual rent expense under the lease agreements is approximately$6.0 million. Rents are adjusted annually for inflation. The contracts give theCompany the right of first refusal to purchase these properties in the casethat the lessor decides to sell the properties. If UAM were to elect to vacate the premises prior to the leasetermination date, the agreements contain certain conditional purchase options,which if not exercised by the Company, may result in early exit penalties. Thelease agreements enable the Company to operate UAM at its already establishedcampuses. The collective value of these contracts was determined by arms-lengthnegotiation between the parties and based upon the then prevailing marketrates, and was corroborated by an independent real estate appraisal. TheCompany recognized approximately $6.0 million and $0.5 million of rent expenseunder these leases for the year ended December 31, 2006 and the period December1, 2005 to December 31, 2005.

*Transactions between the Company and Affiliates*

In connection with thesale of the Company’s K-12 segments, the Company entered into a managementservice agreement with Educate.   The netfee paid to Educate for the year ended December 31, 2006 was $2.9 million.  In addition, the Company has entered into anagreement with Educate to transfer another 28,736 square feet of rentable spaceat 1001 Fleet Street along with the 57,471 square feet they currently sub-leasefrom the Company.  With the consent ofthe landlord, Educate will assume the lease for the 86,207 square feet as atenant upon the delivery of the remaining 28,736 square feet (currentlyestimated to be June 1, 2007). The Company shall pay Educate an allowance forthe space of $0.1 million and provide two months free rent.  Educate will pay $0.4 million for leaseholdimprovements in the space.  The Companywill retain a lease for an additional 28,735 square feet in the 1001 FleetStreet building.

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**Effectsof Inflation**

Inflation has not had amaterial effect on the Company’s revenues and income from continuing operationsin the past three years.  Inflation isnot expected to have a material effect in the foreseeable future.   The Company historically has been able toincrease tuition pricing at a rate at or above the applicable rate ofinflation.

**Item7A.  Quantitative and QualitativeDisclosures About Market Risk**

Market risk is therisk of loss to future earnings, to fair values or to future cash flows thatmay result from the changes in the price of financial instruments.  The Company is exposed to financial marketrisks, including changes in foreign currency exchange rates, interest rates,equity prices and investment values.  TheCompany occasionally uses derivative financial instruments to protect againstadverse currency movements related to significant foreign acquisitions.Exposure to market risks related to operating activities is managed through theCompany’s regular operating and financing activities.

###### *ForeignCurrency Risk*

        TheCompany derives approximately 81%****of itsrevenues from students outside the United States for the year-ended December31, 2006.  This business is transactedthrough a network of international subsidiaries, generally in the localcurrency that is considered the functional currency of that foreignsubsidiary.  Expenses are also incurredin the foreign currencies to match revenues earned, which minimizes the Company’sexchange rate exposure to operating margins. A hypothetical 10% adverse change in average annual foreign currencyexchange rates would have decreased operating income and cash flows for theyear ended December 31, 2006 by approximately $20.5 million. The Companygenerally views its investment in most of its foreign subsidiaries aslong-term. The effects of a change in foreign currency exchange rates on theCompany’s net investment in foreign subsidiaries are reflected in othercomprehensive income (loss) on the Company’s balance sheets.  A 10% depreciation in functional currenciesrelative to the U.S. dollar would have resulted in a decrease in the Company’snet investment in foreign subsidiaries of approximately $106.4 million atDecember 31, 2006.

The Companyoccasionally enters into foreign exchange forward contracts to reduce theearnings impact of non-functional currency denominated receivables andpayables.  The primary business objectiveof such activity is to protect the U.S. dollar value of the Company’s assetsand future cash flows with respect to exchange rate fluctuations.  At December 31, 2006, the Company had threeforward contracts with expiration dates in 2007 and 2009.  For the contract expiring in 2009, the gainor loss is deferred in accumulated other comprehensive income until the changesin the underlying financial instruments are recorded in the income statement.When appropriate, the deferred gains and losses will be reclassified fromaccumulated other comprehensive income on the balance sheet to the incomestatement.  For the 2007 contracts, thegains or losses are recorded in the income statement.  For the year-ended December 31, 2006 $0.1 wasrecorded as an unrealized gain on these forward contracts.

*Interest Rate Risk*

The Company holds itscash and cash equivalents in high quality, short-term, fixed incomesecurities.  Consequently, the fair valueof the Company’s cash and cash equivalents would not be significantly impactedby either a 100 basis point increase or decrease in interest rates due to theshort-term nature of the Company’s portfolio. The Company’s revolving credit facility bears interest at variablerates, and the fair value of this instrument is not significantly affected bychanges in market interest rates.  A 100basis point decrease in interest rates would have reduced net interest incomefor 2006 by approximately $1.9 million.

45

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Thetable below provides information about the Company’s financial instruments thatare sensitive to changes in interest rates. The table presents cash flows of weighted-average interest rates andprincipal payments for the following years ended December 31.  The fair value of the debt below approximatesbook value.
| **Total debt and due to shareholders   of acquired companies excluding   Fixed Purchase Price and Similar  Exchange Contract Arrangements   (in millions of US dollars):** | ** ** | **2007**   | ** ** | **2008**   | ** ** | **2009**   | ** ** | **2010**          | ** ** | **2011**   | ** ** | **Thereafter** | ** ** | **Total**  | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|-------------------|------------|------------|------------|----------------|------------|------------|------------|
| ** **                                                                                                                                                                                                                                                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **(in millions)** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| Fixed rate (Chilean peso)                                                                                                                                                                                                                                                           |       | $          | 16.7       |       | $          | 3.0        |       | $                 | 2.9        |       | $          | 3.0            |       | $          | 3.1        |   | $ | 3.4 |   | $ | 32.1 |   |
| Average interest rate                                                                                                                                                                                                                                                               |       | 7.5        | %          | 8.0        | %          | 8.1        | %          | 8.1               | %          | 8.1        | %          | 8.3            | %          | —     |       |
| Fixed rate (Swiss franc)                                                                                                                                                                                                                                                            |       | 2.5        |       | 2.6        |       | 2.6        |       | 2.6               |       | 2.5        |       | 28.3           |       | 41.1       |       |
| Average interest rate                                                                                                                                                                                                                                                               |       | 2.4        | %          | 2.5        | %          | 2.7        | %          | 2.8               | %          | 3.0        | %          | 3.4            | %          | —     |       |
| Fixed rate (Euro)                                                                                                                                                                                                                                                                   |       | 4.0        |       | 2.5        |       | 4.1        |       | 2.4               |       | 2.5        |       | 21.5           |       | 37.0       |       |
| Average interest rate                                                                                                                                                                                                                                                               |       | 4.3        | %          | 5.5        | %          | 5.5        | %          | 5.6               | %          | 5.7        | %          | 6.0            | %          | —     |       |
| Fixed rate (Brazilian Real)                                                                                                                                                                                                                                                         |       | 5.5        |       | 5.3        |       | —     |       | —            |       | —     |       | —         |       | 10.8       |       |
| Average interest rate                                                                                                                                                                                                                                                               |       | 0.0        | %          | 0.0        | %          | —     |       | —            |       | —     |       | —         |       | —     |       |
| Fixed rate (Honduran Lempira)                                                                                                                                                                                                                                                       |       | 1.1        |       | 0.5        |       | 1.9        |       | 0.7               |       | 0.7        |       | 10.1           |       | 15.0       |       |
| Average interest rate                                                                                                                                                                                                                                                               |       | 0.0        | %          | 0.0        | %          | 0.0        | %          | 0.0               | %          | 0.0        | %          | 0.0            | %          | —     |       |
| Fixed rate (United States Dollar)                                                                                                                                                                                                                                                   |       | 0.1        |       | —     |       | —     |       | —            |       | —     |       | —         |       | 0.1        |       |
| Average interest rate                                                                                                                                                                                                                                                               |       | 2.7        | %          | —     |       | —     |       | —            |       | —     |       | —         |       | —     |       |
| Variable rate (Chilean peso)                                                                                                                                                                                                                                                        |       | 4.7        |       | 0.2        |       | 0.2        |       | 0.2               |       | 0.2        |       | 0.8            |       | 6.3        |       |
| Average interest rate                                                                                                                                                                                                                                                               |       | 8.5        | %          | 8.1        | %          | 8.1        | %          | 8.1               | %          | 8.1        | %          | 8.1            | %          | —     |       |
| Variable rate (Euro)                                                                                                                                                                                                                                                                |       | 0.6        |       | 0.6        |       | 0.7        |       | 0.7               |       | 105.6      |       | 2.8            |       | 111.0      |       |
| Average interest rate                                                                                                                                                                                                                                                               |       | 6.7        | %          | 6.7        | %          | 6.7        | %          | 6.7               | %          | 6.7        | %          | 4.0            | %          | —     |       |
| Variable rate (Cypriot pound)                                                                                                                                                                                                                                                       |       | 1.2        |       | 1.2        |       | 1.2        |       | 1.2               |       | 1.2        |       | 5.3            |       | 11.3       |       |
| Average interest rate                                                                                                                                                                                                                                                               |       | 5.5        | %          | 5.5        | %          | 5.5        | %          | 5.5               | %          | 5.5        | %          | 5.5            | %          | —     |       |
| Variable rate (Mexican Peso)                                                                                                                                                                                                                                                        |       | 71.3       |       | 2.3        |       | —     |       | 1.8               |       | —     |       | —         |       | 75.4       |       |
| Average interest rate                                                                                                                                                                                                                                                               |       | 6.0        | %          | 0.6        | %          | —     |       | 0.2               | %          | —     |       | —         |       | —     |       |
| Variable rate (United States Dollar)                                                                                                                                                                                                                                                |       | —     |       | —     |       | —     |       | —            |       | 103.2      |       | —         |       | 103.2      |       |
| Average interest rate                                                                                                                                                                                                                                                               |       | —     |       | —     |       | —     |       | —            |       | 7.0        | %          | —         |       |       |       |
| Variable rate (Other)                                                                                                                                                                                                                                                               |       | 2.3        |       | 2.3        |       | 2.3        |       | 1.2               |       | 1.2        |       | 0.2            |       | 9.5        |       |
| Average interest  rate                                                                                                                                                                                                                                                              |       | 10.0       | %          | 10.0       | %          | 10.0       | %          | 10.0              | %          | 10.0       | %          | 10.0           | %          | —     |       |
|                                                                                                                                                                                                                                                                                     |            |            |            |            |            |            |            |                   |            |            |            |                |            |            |            |  |  |  |  |  |  |  |

 

Theweighted-average interest rates for the variable debt were calculated using theinterest rate in effect as of December 31, 2006 for each debt instrument.

*InvestmentRisk*

        TheCompany has an investment portfolio that includes short-term investments inavailable-for-sale debt and equity securities. The Company’s investment portfolio is exposed to risks arising fromchanges in these investment values.

All the potentialimpacts noted above are based on sensitivity analysis performed on the Company’sfinancial position at December 31, 2006. Actual results may differ materially.

46

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**Item 8. Financial Statements and Supplementary Data**

**INDEX TO FINANCIAL STATEMENTS**
|                                                                                                            | ** ** | **Page** |
|------------------------------------------------------------------------------------------------------------|------------|----------|
| Report of Independent Registered Public Accounting  Firm                                                   |       | 48       |
|                                                                                                       |       |     |
| Consolidated Balance Sheets as of December 31, 2006  and December 31, 2005                                 |       | 49       |
|                                                                                                       |       |     |
| Consolidated Statements of Operations for the years  ended December 31, 2006, 2005 and 2004                |       | 51       |
|                                                                                                       |       |     |
| Consolidated Statements of Stockholders’ Equity for  the years ended December 31, 2006, 2005 and 2004 |       | 52       |
|                                                                                                       |       |     |
| Consolidated Statements of Cash Flows for the years  ended December 31, 2006, 2005 and 2004                |       | 53       |
|                                                                                                       |       |     |
| Notes to Consolidated Financial Statements                                                                 |       | 54       |

 

47

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**Report ofIndependent Registered Public Accounting Firm**

Board of Directors and StockholdersLaureate Education, Inc.

We have audited the accompanying consolidated balance sheets ofLaureate Education, Inc. and subsidiaries as of December 31, 2006 and 2005, andthe related consolidated statements of operations, stockholders’ equity, andcash flows for each of the three years in the period ended December 31, 2006.Our audits also included the financial statement schedule listed in the Indexat Item 15(a). These financial statements and schedule are the responsibilityof the Company’s management. Our responsibility is to express an opinion onthese financial statements and schedule based on our audits.

We conducted our audits in accordance with the auditing standards ofthe Public Company Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements.  An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion. 

In our opinion, the financial statements referred to above presentfairly, in all material respects, the consolidated financial position ofLaureate Education, Inc. and subsidiaries at December 31, 2006 and 2005, andthe consolidated results of their operations and their cash flows for each ofthe three years in the period ended December 31, 2006, in conformity with U.S.generally accepted accounting principles. Also, in our opinion, the relatedfinancial statement schedule, when considered in relation to the basicfinancial statements taken as a whole, presents fairly in all material respectsthe information set forth therein.

As discussed in Note 2 to the consolidated financial statements, in2006 the Company changed its method of accounting for stock-based compensationupon the adoption of Statement of Financial Accounting Standards No. 123(R),“Share-Based Payment.” 

As discussed in Note 2 to the consolidated financial statements, in2006 the Company changed its method of revenue recognition.

We also have audited, in accordance with the standards of the PublicCompany Accounting Oversight Board (United States), the effectiveness ofLaureate Education, Inc. and subsidiaries’ internal control over financialreporting as of December 31, 2006, based on criteria established in *Internal Control-Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our reportdated March 1, 2007 expressed an unqualified opinion on management’s assessmentand an adverse opinion on the effectiveness of internal control over financialreporting.
|  |   | /s/ Ernst & Young LLP |
|--|--------|---------------------------|

 

Baltimore, MarylandMarch 1, 2007

 

48

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**LAUREATEEDUCATION, INC. AND SUBSIDIARIESConsolidated Balance Sheets***(Dollar and share amounts inthousands, except per share data)*
| ** **                                                                                                                                  | ** ** | **December 31,** | ** ** | **December 31,**                          | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|------------------------------------------------|------------|
| ** **                                                                                                                                  | ** ** | **2006**              | ** ** | **2005**                                       | ** ** |
| ** **                                                                                                                                  | ** ** | ** **            | ** ** | **(as restated - Note 2)** | ** ** |
| **Assets**                                                                                                                                  | ** ** | ** **            | ** ** | ** **                                     | ** ** |
| Current assets:                                                                                                                             |       |                  |       |                                           |       |
| Cash and cash  equivalents                                                                                                                  |       | $                     | 96,987     |                                           | $          | 105,106 |   |
| Restricted cash                                                                                                                             |       | 33,602                |       | —                                         |       |
|                                                                                                                                        |       |                  |       |                                           |       |
| Receivables:                                                                                                                                |       |                  |       |                                           |       |
| Accounts  receivable                                                                                                                        |       | 188,567               |       | 181,211                                        |       |
| Notes receivable                                                                                                                            |       | 110,157               |       | 104,880                                        |       |
| Other  receivables                                                                                                                          |       | 12,430                |       | 14,208                                         |       |
|                                                                                                                                        |       | 311,154               |       | 300,299                                        |       |
| Allowance for  doubtful accounts                                                                                                            |       | (51,460               | )          | (39,006                                        | )          |
|                                                                                                                                        |       | 259,694               |       | 261,293                                        |       |
|                                                                                                                                        |       |                  |       |                                           |       |
| Inventory                                                                                                                                   |       | 5,803                 |       | 5,282                                          |       |
| Deferred income  taxes                                                                                                                      |       | 5,830                 |       | 16,978                                         |       |
| Prepaid expenses  and other current assets                                                                                                  |       | 33,471                |       | 24,977                                         |       |
| Total current assets                                                                                                                        |       | 435,387               |       | 413,636                                        |       |
|                                                                                                                                        |       |                  |       |                                           |       |
| Notes receivable, less  current portion, net of allowance of $11,761 and $9,328 at December 31, 2006  and December 31, 2005, respectively   |       | 96,958                |       | 83,813                                         |       |
|                                                                                                                                        |       |                  |       |                                           |       |
| Property and equipment:                                                                                                                     |       |                  |       |                                           |       |
| Land                                                                                                                                        |       | 126,598               |       | 101,993                                        |       |
| Buildings                                                                                                                                   |       | 334,702               |       | 256,941                                        |       |
| Construction  in-progress                                                                                                                   |       | 58,510                |       | 40,856                                         |       |
| Furniture,  computer equipment and software                                                                                                 |       | 295,902               |       | 223,143                                        |       |
| Leasehold  improvements                                                                                                                     |       | 98,848                |       | 81,336                                         |       |
|                                                                                                                                        |       | 914,560               |       | 704,269                                        |       |
| Accumulated  depreciation and amortization                                                                                                  |       | (185,248              | )          | (130,332                                       | )          |
|                                                                                                                                        |       | 729,312               |       | 573,937                                        |       |
|                                                                                                                                        |       |                  |       |                                           |       |
| Goodwill                                                                                                                                    |       | 579,811               |       | 412,215                                        |       |
| Other intangible  assets:                                                                                                                   |       |                  |       |                                           |       |
| Tradenames and  accreditations                                                                                                              |       | 261,009               |       | 215,112                                        |       |
| Other intangible  assets, net of accumulated amortization of $21,184, and $14,397 at December  31, 2006 and December 31, 2005, respectively |       | 4,209                 |       | 7,163                                          |       |
|                                                                                                                                        |       | 845,029               |       | 634,490                                        |       |
|                                                                                                                                        |       |                  |       |                                           |       |
| Deferred income taxes                                                                                                                       |       | 34,870                |       | 25,760                                         |       |
| Deferred costs, net of  accumulated amortization of $19,418 and $14,041 at December 31, 2006 and  December 31, 2005, respectively           |       | 26,928                |       | 21,935                                         |       |
| Other assets                                                                                                                                |       | 34,529                |       | 22,557                                         |       |
| Total assets                                                                                                                                |       | $                     | 2,203,013  |                                           | $          | 1,776,128 |   |

 

49

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**LAUREATEEDUCATION, INC. AND SUBSIDIARIESConsolidated Balance Sheets (*continued*)***(Dollar and share amounts inthousands, except per share data)*

 
| ** **                                                                                                                                                                               | ** ** | **December 31,** | ** ** | **December 31,**                          | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|------------------------------------------------|------------|
| ** **                                                                                                                                                                               | ** ** | **2006**              | ** ** | **2005**                                       | ** ** |
| ** **                                                                                                                                                                               | ** ** | ** **            | ** ** | **(as restated - Note 2)** | ** ** |
| **Liabilities  and stockholders’ equity**                                                                                                                                           |       |                  |       |                                           |       |
| Current  liabilities:                                                                                                                                                                    |       |                  |       |                                           |       |
| Accounts payable                                                                                                                                                                         |       | $                     | 40,788     |                                           | $          | 30,078 |   |
| Accrued expenses                                                                                                                                                                         |       | 60,987                |       | 50,739                                         |       |
| Accrued compensation and benefits                                                                                                                                                        |       | 68,497                |       | 55,724                                         |       |
| Deferred revenue                                                                                                                                                                         |       | 290,242               |       | 273,030                                        |       |
| Current portion of long-term debt                                                                                                                                                        |       | 95,668                |       | 63,044                                         |       |
| Current portion of due to shareholders of acquired  companies                                                                                                                            |       | 21,781                |       | 18,737                                         |       |
| Income tax payable                                                                                                                                                                       |       | 23,141                |       | 31,615                                         |       |
| Deferred income taxes                                                                                                                                                                    |       | 1,571                 |       | 28,644                                         |       |
| Other current liabilities                                                                                                                                                                |       | 6,679                 |       | 3,543                                          |       |
| Total current  liabilities                                                                                                                                                               |       | 609,354               |       | 555,154                                        |       |
|                                                                                                                                                                                     |       |                  |       |                                           |       |
| Long-term debt,  less current portion                                                                                                                                                    |       | 327,734               |       | 99,997                                         |       |
| Due to  shareholders of acquired companies, less current portion                                                                                                                         |       | 23,484                |       | 46,686                                         |       |
| Deferred income  taxes                                                                                                                                                                   |       | 28,159                |       | 583                                            |       |
| Other long-term  liabilities                                                                                                                                                             |       | 38,163                |       | 22,876                                         |       |
| Total  liabilities                                                                                                                                                                       |       | 1,026,894             |       | 725,296                                        |       |
|                                                                                                                                                                                     |       |                  |       |                                           |       |
| Commitments and  contingent liabilities                                                                                                                                                  |       | —                |       | —                                         |       |
|                                                                                                                                                                                     |       |                  |       |                                           |       |
| Minority  interest and minority put arrangements                                                                                                                                         |       | 45,424                |       | 72,354                                         |       |
|                                                                                                                                                                                     |       |                  |       |                                           |       |
| Stockholders’  equity:                                                                                                                                                              |       |                  |       |                                           |       |
|                                                                                                                                                                                     |       |                  |       |                                           |       |
| Preferred stock, par value $.01 per share —  authorized 10,000 shares, no shares issued and outstanding as of December 31,  2006 and December 31, 2005                              |       | —                |       | —                                         |       |
| Common stock, par value $.01 per share — authorized  90,000 shares, issued and outstanding shares of 51,426 and 49,861 as of  December 31, 2006 and December 31, 2005, respectively |       | 514                   |       | 499                                            |       |
| Additional paid-in capital                                                                                                                                                               |       | 534,327               |       | 503,791                                        |       |
| Retained earnings                                                                                                                                                                        |       | 541,358               |       | 435,735                                        |       |
| Accumulated other comprehensive income                                                                                                                                                   |       | 54,496                |       | 38,453                                         |       |
|                                                                                                                                                                                     |       |                  |       |                                           |       |
| Total  stockholders’ equity                                                                                                                                                         |       | 1,130,695             |       | 978,478                                        |       |
|                                                                                                                                                                                     |       |                  |       |                                           |       |
| Total liabilities and  stockholders’ equity                                                                                                                                         |       | $                     | 2,203,013  |                                           | $          | 1,776,128 |   |

*** ***

***See accompanying notes tofinancial statements.***

50

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**LAUREATEEDUCATION, INC. AND SUBSIDIARIESConsolidated Statements of Operations***(Dollar and share amounts inthousands, except per share data)*
| ** **                                                                                                                                           | ** ** | **Year ended December 31** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                                                                           | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                                                           | ** ** | ** **                                | ** ** | **(as restated - Note 2)** | ** ** |
|                                                                                                                                                 |       |                                      |       |   |   |   |   |
| **Revenues**                                                                                                                                         |       | $                                         | 1,145,761  |   | $ | 875,824 |   | $ | 644,821 |   |
|                                                                                                                                                 |       |                                      |       |   |   |   |   |
| **Costs  and expenses**                                                                                                                              |       |                                      |       |   |   |   |   |
| Direct costs                                                                                                                                         |       | 951,283                                   |       | 715,958 |   | 529,234 |   |
| General and  administrative expenses                                                                                                                 |       | 46,079                                    |       | 28,996 |   | 26,170 |   |
| Total costs and  expenses                                                                                                                            |       | 997,362                                   |       | 744,954 |   | 555,404 |   |
|                                                                                                                                                 |       |                                      |       |   |   |   |   |
| **Operating  income**                                                                                                                                |       | 148,399                                   |       | 130,870 |   | 89,417 |   |
|                                                                                                                                                 |       |                                      |       |   |   |   |   |
| **Other  income (expense)**                                                                                                                          |       |                                      |       |   |   |   |   |
| Interest income                                                                                                                                      |       | 20,025                                    |       | 9,322 |   | 20,582 |   |
| Interest expense                                                                                                                                     |       | (37,064                                   | )          | (10,440 | ) | (7,670 | ) |
| Gain on sale of  Chancery Software, Ltd.                                                                                                             |       | 9,322                                     |       | — |   | — |   |
| Other (expense)  income                                                                                                                              |       | (1,011                                    | )          | 2,467 |   | 7,597 |   |
| Foreign currency  exchange gain (loss)                                                                                                               |       | 4,823                                     |       | (1,503 | ) | (957 | ) |
|                                                                                                                                                 |       | (3,905                                    | )          | (154 | ) | 19,552 |   |
| Income from  continuing operations before income taxes, minority interest, and equity in  net (loss) income of affiliates                            |       | 144,494                                   |       | 130,716 |   | 108,969 |   |
| Income tax  expense                                                                                                                                  |       | (24,108                                   | )          | (19,667 | ) | (6,798 | ) |
| Minority  interest in income of consolidated subsidiaries, net of tax                                                                                |       | (11,420                                   | )          | (24,154 | ) | (20,476 | ) |
| Equity in net  (loss) income of affiliates, net of tax                                                                                               |       | (555                                      | )          | (535 | ) | (323 | ) |
|                                                                                                                                                 |       |                                      |       |   |   |   |   |
| Income from  continuing operations                                                                                                                   |       | 108,411                                   |       | 86,360 |   | 81,372 |   |
| Loss from  discontinued operations, net of income tax expense of $2,965 in 2006, $1,385  in 2005, and $200 in 2004                                   |       | (4,456                                    | )          | (1,411 | ) | (6,466 | ) |
| Gain (loss) on  disposal of discontinued operations, net of income tax benefit (expense) of  $4,574 in 2006, $(10,270) in 2005, and $(3,232) in 2004 |       | 1,668                                     |       | (9,152 | ) | (13,324 | ) |
| **Net  income**                                                                                                                                      |       | $                                         | 105,623    |   | $ | 75,797 |   | $ | 61,582 |   |
|                                                                                                                                                 |       |                                      |       |   |   |   |   |
| Earnings available  to common shareholders:                                                                                                          |       |                                      |       |   |   |   |   |
|                                                                                                                                                 |       |                                      |       |   |   |   |   |
| Income from  continuing operations                                                                                                                   |       | $                                         | 108,411    |   | $ | 86,360 |   | $ | 81,372 |   |
| Effect of  minority put arrangements                                                                                                                 |       | (4,214                                    | )          | — |   | — |   |
| Income from  continuing operations available to common shareholders                                                                                  |       | $                                         | 104,197    |   | $ | 86,360 |   | $ | 81,372 |   |
|                                                                                                                                                 |       |                                      |       |   |   |   |   |
| Net income                                                                                                                                           |       | $                                         | 105,623    |   | $ | 75,797 |   | $ | 61,582 |   |
| Effect of  minority put arrangements                                                                                                                 |       | (4,214                                    | )          | — |   | — |   |
| Net income  available to common shareholders                                                                                                         |       | $                                         | 101,409    |   | $ | 75,797 |   | $ | 61,582 |   |
|                                                                                                                                                 |       |                                      |       |   |   |   |   |
| Earnings per  common share, basic:                                                                                                                   |       |                                      |       |   |   |   |   |
| Income from continuing operations available to  common shareholders                                                                                  |       | $                                         | 2.03       |   | $ | 1.74 |   | $ | 1.76 |   |
| Net income available to common shareholders                                                                                                          |       | $                                         | 1.98       |   | $ | 1.53 |   | $ | 1.33 |   |
|                                                                                                                                                 |       |                                      |       |   |   |   |   |
| Earnings per  common share, diluted:                                                                                                                 |       |                                      |       |   |   |   |   |
| Income from continuing operations available to  common shareholders                                                                                  |       | $                                         | 1.96       |   | $ | 1.66 |   | $ | 1.66 |   |
| Net income  available to common shareholders                                                                                                         |       | $                                         | 1.91       |   | $ | 1.46 |   | $ | 1.26 |   |

 

*Seeaccompanying notes to financial statements.*

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**LAUREATEEDUCATION, INC. AND SUBSIDIARIESConsolidated Statements of Stockholders’ Equity***(Dollar and share amounts inthousands)*
| ** **                                                                                                                              | ** ** | ** ** | ** ** | ** **     | ** ** | ** **   | ** ** | **Accumulated**        | ** ** | ** **             | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|----------------|------------|--------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                                                              | ** ** | ** ** | ** ** | **Additional** | ** ** | ** **   | ** ** | **Other**              | ** ** | **Total**              | ** ** |
| ** **                                                                                                                              | ** ** | **Common** | ** ** | **Paid-In**    | ** ** | **Retained** | ** ** | **Comprehensive**      | ** ** | **Stockholders’** | ** ** |
| ** **                                                                                                                              | ** ** | **Stock**  | ** ** | **Capital**    | ** ** | **Earnings** | ** ** | **Income (Loss)** | ** ** | **Equity**             | ** ** |
| Balance  at January 1, 2004 (as restated - Note 2)                                                                                      |       | $          | 450        |           | $          | 353,522      |       | $                      | 298,356    |                   | $          | 21,834 |   | $ | 674,162 |   |
|                                                                                                                                    |       |       |       |           |       |         |       |                   |       |                   |       |
| Options  exercised for purchase of 1,505 shares of common stock, net of 153  replenished shares, including income tax benefit of $5,801 |       | 15         |       | 25,289         |       | —       |       | —                 |       | 25,304                 |       |
| Issuance  of 14 shares of common stock in connection with the Employee Stock Purchase  Plan                                             |       | —     |       | 151            |       | —       |       | —                 |       | 151                    |       |
| Issuance  of 2,500 shares in connection with acquisition                                                                                |       | 25         |       | 88,810         |       | —       |       | —                 |       | 88,835                 |       |
| Non-cash  stock compensation (includes $1,436 in discontinued operations)                                                               |       | —     |       | 7,154          |       | —       |       | —                 |       | 7,154                  |       |
| Other  equity activity                                                                                                                  |       | (2         | )          | 2              |       | —       |       | —                 |       | —                 |       |
| Comprehensive  income:                                                                                                                  |       |       |       |           |       |         |       |                   |       |                   |       |
| Net income for the year ended December 31, 2004   (as restated - Note 2)                                                                |       | —     |       | —         |       | 61,582       |       | —                 |       | 61,582                 |       |
| Foreign currency translation adjustment                                                                                                 |       | —     |       | —         |       | —       |       | 24,952                 |       | 24,952                 |       |
| Unrealized gain on available-for-sale securities                                                                                        |       | —     |       | —         |       | —       |       | 42                     |       | 42                     |       |
| Total comprehensive income                                                                                                              |       | —     |       | —         |       | —       |       | —                 |       | 86,576                 |       |
| Balance  at December 31, 2004 (as restated - Note 2)                                                                                    |       | 488        |       | 474,928        |       | 359,938      |       | 46,828                 |       | 882,182                |       |
|                                                                                                                                    |       |       |       |           |       |         |       |                   |       |                   |       |
| Options  exercised for purchase of 998 shares of common stock, net of 44 replenishment  shares, including income tax benefit of $10,454 |       | 10         |       | 24,755         |       | —       |       | —                 |       | 24,765                 |       |
| Non  cash stock compensation modification for former employee                                                                           |       | —     |       | 923            |       | —       |       | —                 |       | 923                    |       |
| Non-cash  stock compensation                                                                                                            |       | —     |       | 3,665          |       | —       |       | —                 |       | 3,665                  |       |
| Other                                                                                                                                   |       | 1          |       | (480           | )          | —       |       | —                 |       | (479                   | )          |
| Comprehensive  income:                                                                                                                  |       |       |       |           |       |         |       |                   |       |                   |       |
| Net income for the year ended December 31, 2005  (as restated - Note 2)                                                                 |       | —     |       | —         |       | 75,797       |       | —                 |       | 75,797                 |       |
| Foreign currency translation adjustment                                                                                                 |       | —     |       | —         |       | —       |       | (8,427                 | )          | (8,427                 | )          |
| Unrealized gain on available-for-sale securities                                                                                        |       | —     |       | —         |       | —       |       | 52                     |       | 52                     |       |
| Total comprehensive income                                                                                                              |       | —     |       | —         |       | —       |       | —                 |       | 67,422                 |       |
| Balance  at December 31, 2005 (as restated - Note 2)                                                                                    |       | 499        |       | 503,791        |       | 435,735      |       | 38,453                 |       | 978,478                |       |
|                                                                                                                                    |       |       |       |           |       |         |       |                   |       |                   |       |
| Options  exercised for purchase of 1,490 shares of common stock, net of 39  replenishment shares                                        |       | 14         |       | 19,095         |       | —       |       | —                 |       | 19,109                 |       |
| Non-cash  stock compensation modification for former employee                                                                           |       | —     |       | 557            |       | —       |       | —                 |       | 557                    |       |
| Non-cash  stock compensation                                                                                                            |       | —     |       | 14,529         |       | —       |       | —                 |       | 14,529                 |       |
| Change  in redemption value of minority ownership put arrangements                                                                      |       | —     |       | (4,214         | )          | —       |       | —                 |       | (4,214                 | )          |
| Impact  of adoption of FAS 158                                                                                                          |       | —     |       | —         |       | —       |       | (2,272                 | )          | (2,272                 | )          |
| Other                                                                                                                                   |       | 1          |       | 569            |       | —       |       | —                 |       | 570                    |       |
| Comprehensive  income:                                                                                                                  |       |       |       |           |       |         |       |                   |       |                   |       |
| Net income for the year ended December 31, 2006                                                                                         |       | —     |       | —         |       | 105,623      |       | —                 |       | 105,623                |       |
| Foreign currency translation adjustment                                                                                                 |       | —     |       | —         |       | —       |       | 18,324                 |       | 18,324                 |       |
| Unrealized loss on available-for-sale securities                                                                                        |       | —     |       | —         |       | —       |       | (9                     | )          | (9                     | )          |
| Total comprehensive income                                                                                                              |       | —     |       | —         |       | —       |       | —                 |       | 123,938                |       |
| Balance at December 31, 2006                                                                                                            |       | $          | 514        |           | $          | 534,327      |       | $                      | 541,358    |                   | $          | 54,496 |   | $ | 1,130,695 |   |

* *

*See accompanying notes to financial statements*

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* *

**LAUREATEEDUCATION, INC. AND SUBSIDIARIES**Consolidated Statements of Cash Flows***(Dollar amounts in thousands)*
| ** **                                                                          | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                          | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                          | ** ** | ** **                                 | ** ** | **(as restated - Note 2)** | ** ** |
| **Operating  activities**                                                           |       |                                       |       |   |   |   |   |
| Net income                                                                          |       | $                                          | 105,623    |   | $ | 75,797 |   | $ | 61,582 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities:  |       |                                       |       |   |   |   |   |
| Depreciation and amortization of fixed assets                                       |       | 48,858                                     |       | 36,291 |   | 30,317 |   |
| Amortization                                                                        |       | 16,031                                     |       | 14,474 |   | 11,241 |   |
| Gain on sale of Chancery Software, Ltd.                                             |       | (9,322                                     | )          | — |   | — |   |
| (Gain) loss on disposal of discontinued operations                                  |       | (1,668                                     | )          | 9,152 |   | 13,324 |   |
| Unrealized gain on foreign exchange                                                 |       | (4,115                                     | )          | — |   | — |   |
| Non-cash interest expense                                                           |       | 18,955                                     |       | — |   | — |   |
| Non-cash stock compensation expense                                                 |       | 15,086                                     |       | 4,588 |   | 5,718 |   |
| Non-cash stock compensation expense - discontinued  operations                      |       | —                                     |       | — |   | 1,436 |   |
| Acceleration of original issue discount on note  receivable repayment               |       | —                                     |       | — |   | (12,722 | ) |
| Gain on conveyance of land as purchase consideration                                |       | —                                     |       | — |   | (5,169 | ) |
| Minority interest in consolidated subsidiaries                                      |       | 11,420                                     |       | 24,154 |   | 20,476 |   |
| Equity in net loss of affiliates                                                    |       | 555                                        |       | 535 |   | 323 |   |
| Deferred income taxes                                                               |       | 1,671                                      |       | 11,499 |   | 1,992 |   |
| Other non-cash items                                                                |       | (2,499                                     | )          | (3,470 | ) | 66 |   |
| Changes in operating assets and liabilities:                                        |       |                                       |       |   |   |   |   |
| Receivables                                                                         |       | (10,923                                    | )          | (46,332 | ) | (66,702 | ) |
| Inventory, prepaid expenses and other current assets                                |       | (14,558                                    | )          | (2,400 | ) | 12,922 |   |
| Accounts payable and accrued expenses                                               |       | 28,405                                     |       | (19,402 | ) | (271 | ) |
| Income tax payable                                                                  |       | (3,716                                     | )          | (9,782 | ) | (15,411 | ) |
| Deferred revenue and other current liabilities                                      |       | 17,013                                     |       | 45,956 |   | 65,220 |   |
| Net cash  provided by operating activities                                          |       | 216,816                                    |       | 141,060 |   | 124,342 |   |
|                                                                                |       |                                       |       |   |   |   |   |
| **Investing  activities**                                                           |       |                                       |       |   |   |   |   |
| Purchase of  available-for-sale securities                                          |       | (4,835                                     | )          | (6,704 | ) | (54,331 | ) |
| Proceeds from  sales or maturity of available-for-sale securities                   |       | 9,445                                      |       | 5,064 |   | 69,097 |   |
| Change in  restricted cash                                                          |       | (33,602                                    | )          | — |   | — |   |
| Change in  investment in and advances to affiliates and other investments           |       | (230                                       | )          | — |   | 4,115 |   |
| Proceeds from  sale of land                                                         |       | —                                     |       | — |   | 13,107 |   |
| Purchase of  property and equipment, net                                            |       | (174,732                                   | )          | (109,144 | ) | (100,779 | ) |
| Proceeds from  repayment of related party note receivable                           |       | 3,609                                      |       | — |   | 55,006 |   |
| Proceeds from  sales of discontinued operations, net of cash sold                   |       | —                                     |       | 22,654 |   | — |   |
| Cash loaned in  exchange for notes receivable                                       |       | (5,826                                     | )          | (6,214 | ) | (23,178 | ) |
| Proceeds from  repayment of notes receivable                                        |       | —                                     |       | 333 |   | 2,697 |   |
| Proceeds from  the sale of Chancery Software, Ltd.                                  |       | 9,322                                      |       | — |   | — |   |
| Cash paid for  acquisitions, including deferred consideration, net of cash acquired |       | (238,812                                   | )          | (95,613 | ) | (80,065 | ) |
| Expenditures for  deferred costs                                                    |       | (8,068                                     | )          | (10,279 | ) | (9,918 | ) |
| Change in other  long-term assets                                                   |       | (5,251                                     | )          | 1,860 |   | (2,764 | ) |
| Net cash used in  investing activities                                              |       | (448,980                                   | )          | (198,043 | ) | (127,013 | ) |
|                                                                                |       |                                       |       |   |   |   |   |
| **Financing  activities**                                                           |       |                                       |       |   |   |   |   |
| Proceeds from  exercise of options                                                  |       | 19,109                                     |       | 14,311 |   | 19,503 |   |
| Proceeds from  issuance of common stock                                             |       | —                                     |       | — |   | 151 |   |
| Proceeds from  issuance of long-term debt                                           |       | 764,889                                    |       | 187,463 |   | 77,777 |   |
| Payments on  long-term debt                                                         |       | (568,095                                   | )          | (159,883 | ) | (66,939 | ) |
| Change in other  long-term liabilities and other financing activities               |       | 2,622                                      |       | (1,085 | ) | 1,335 |   |
| Net cash provided  by financing activities                                          |       | 218,525                                    |       | 40,806 |   | 31,827 |   |
| Effects of  exchange rate changes on cash                                           |       | 5,520                                      |       | 3,765 |   | (10,026 | ) |
|                                                                                |       |                                       |       |   |   |   |   |
| Net change in  cash and cash equivalents                                            |       | (8,119                                     | )          | (12,412 | ) | 19,130 |   |
| Cash and cash  equivalents at beginning of period                                   |       | 105,106                                    |       | 117,518 |   | 98,388 |   |
| Cash and cash  equivalents at end of period                                         |       | $                                          | 96,987     |   | $ | 105,106 |   | $ | 117,518 |   |
|                                                                                |       |                                       |       |   |   |   |   |
| Cash and cash  equivalents classified as:                                           |       |                                       |       |   |   |   |   |
| Continuing operations                                                               |       | $                                          | 96,987     |   | $ | 105,106 |   | $ | 106,854 |   |
| Discontinued operations                                                             |       | —                                     |       | — |   | 10,664 |   |
| Cash and cash  equivalents at end of period                                         |       | $                                          | 96,987     |   | $ | 105,106 |   | $ | 117,518 |   |

 

*See accompanying notes to financial statements.*

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**LaureateEducation, Inc. and Subsidiaries Notes to Consolidated Financial Statements***(Dollarand share amounts in thousands, except per share data)*

**Note 1 -Description of Business, Basis of Presentation and Recent Events**

LaureateEducation, Inc. and subsidiaries (the “Company”) provides higher educationprograms and services to students through the leading global network oflicensed campus-based and online universities and higher education institutions(“higher education institutions”).  TheCompany’s educational offerings are delivered through three separate reportablesegments: Campus Based - Latin America (“Latin America”), Campus Based - Europe(“Europe”) and Laureate Online Education. The campus-based segments of Latin America and Europe own or maintaincontrolling interests in thirteen and ten separately licensed higher educationinstitutions, respectively. The Latin America segment has locations in Mexico,Chile, Brazil, Peru, Ecuador, Panama, Costa Rica, and Honduras.  The Europe segment has locations in Spain,Switzerland, France, and Cyprus.  TheLaureate Online Education segment provides career-oriented degree programs toworking adult students through Walden E-Learning, Inc. (“Walden”), LaureateOnline Education BV, and Canter and Associates (“Canter”). 

Theaccompanying consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States that requirethe Company’s management to make estimates and assumptions that affect reportedamounts and related disclosures.  Actualresults could differ from those estimates. 

Certainamounts previously reported for 2004 and 2005, including certain current andnon-current notes receivables and deferred revenue balances, have beenreclassified to conform to the 2006 presentation.  As discussed more fully in Note 4, certain businesscomponents are classified as discontinued operations in the accompanyingconsolidated financial statements. 

OnJanuary 28, 2007, the Company entered into a definitive Agreement and Plan ofMerger (the “Merger Agreement”) with Wengen Alberta, Limited Partnership, anAlberta limited partnership (“Wengen”) and L Curve Sub Inc., a directsubsidiary of Wengen (“Merger Sub”), under which Merger Sub will merge (the “Merger”)with and into Laureate, with Laureate surviving.  Wengen is owned by an investment groupconsisting of Douglas L. Becker, Laureate’s Chairman and Chief ExecutiveOfficer, Kohlberg Kravis Roberts & Co., Citigroup Private Equity, S.A.C.Capital Management, LLC, SPG Partners, Bregal Investments, Caisse de depot etplacement du Quebec, Sterling Capital, Makena Capital, Torreal S.A. andSouthern Cross Capital.  Under the termsof the Merger Agreement, Laureate shareholders will receive $60.50 in cash foreach share of Laureate common stock they own.

Completionof the Merger is subject to customary conditions, including, among others, theapproval of the Merger and the Merger Agreement by Laureate’s shareholders, theavailability to Wengen and the Merger Sub of debt financing, expiration ortermination of applicable waiting periods under the Hart-Scott-Rodino AntitrustImprovements Act of 1976 and certain responses from the United StatesDepartment of Education.

TheMerger Agreement was filed in a Current Report on Form 8-K filed with theSecurities and Exchange Commission on January 29, 2007.  The foregoing description of the MergerAgreement is qualified in its entirety by reference to the full text of theMerger Agreement. 

**Note****2 — Significant Accounting Policies**

*Principlesof Consolidation and Investments in Affiliates*

 The various interests that the Companyacquires in its affiliated companies are accounted for under three methods:consolidation, equity method, or cost method. The Company determines the method of accounting for its affiliatedcompanies on a case-by-case basis based upon its ownership percentage in eachaffiliated company, as well as its degree of influence over each affiliatedcompany.

*Consolidation.*Affiliated companies in which the Company owns, directly orindirectly, or otherwise controls 50% or more of the outstanding votinginterests are accounted for under the consolidation method of accounting.  Five subsidiaries of the Company consolidatenot-for-

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profit,non-stock universities that are controlled through majority voting interests oftheir respective Boards of Directors. The Company also has a substantial economic interest in the net assetsof these not-for-profit universities. Under the consolidation method, an affiliated company’s results ofoperations are reflected within the consolidated statements of operations.  Earnings or losses attributable to otherstockholders of a consolidated affiliated company are classified as “minorityinterest in income of consolidated subsidiaries” in the Company’s consolidatedstatements of operations.  Minorityinterest adjusts the Company’s consolidated net results of operations toreflect only its share of the after-tax earnings or losses of an affiliatedcompany.  Income taxes attributable tominority interest are determined using the applicable statutory tax rates inthe jurisdictions where such operations are conducted.  These rates vary from country tocountry.  Transactions between theCompany and its consolidated affiliated companies are eliminated inconsolidation. 

*EquityMethod.*  Affiliatedcompanies in which the Company owns, directly or indirectly, or otherwisecontrols more than 20% but less than 50% of the outstanding voting interests,but over which the Company exercises significant influence, are accounted forunder the equity method of accounting. Significant influence with respect to an affiliated company depends onan evaluation of several factors including, among other things, representationon the associated company’s board of directors, ownership percentage and votingrights associated with the Company’s holdings in the securities of the affiliatedcompany. Investments accounted for under the equity method are included inother assets in the consolidated balance sheets. Under the equity method ofaccounting, affiliated companies’ results of operations are not consolidatedwithin the Company’s operating results.  However, the Company’s share of the earnings or losses of theseaffiliated companies is classified as “equity in net (loss) income ofaffiliates” in the consolidated statements of operations. 

*CostMethod.*  Investments inequity securities that do not have readily determinable fair values and are notaccounted for under either the consolidation or the equity method of accountingare accounted for under the cost method of accounting.  Under this method, the Company’s investmentis carried at its cost and its share of earnings or losses of these companiesis not included in the Company’s consolidated statements of operations.  However, a series of operating losses orother factors may indicate that a decrease in value of the equity investmentshas occurred which is other than temporary. These impairment losses, if incurred, would be included in other expensein the consolidated statements of operations. 

*MinorityShare Ownership Purchase Arrangements and Restatement of 2006 QuarterlyInformation*

During the fourth quarter of 2006, the Companyreevaluated the accounting for and the financial statement presentation of newand pre-existing put and call option agreements entered into in connection withcertain acquisitions.    As a result ofthe reevaluation, management concluded that an error was made in the initialaccounting determinations related to these arrangements.  As a result, these errors were quantified andevaluated under Statement of Financial Accounting Standard (“SFAS”) 154, “AccountingChanges and Error Corrections”, Staff Accounting Bulletin (“SAB”) No. 99, “Materiality”,and SAB No. 108, “Considering the Effects of Prior Year Misstatements whenQuantifying Misstatements in Current Year Financial Statements”.  The Company concluded that the cumulativeeffect of the error correction is immaterial for restatement of prioryears.  The prior year adjustmentsrelated to this reevaluation have been recorded in 2006 and the 2006 quarterlyinformation previously reported in Form 10-Q’s has been restated in Note17.

TheCompany’s acquisition strategy when acquiring a target company is to initiallyacquire a majority ownership of the target company with the ultimate goal ofacquiring the remaining minority ownership of the target company sometimeafterward.  Concurrent with the initialacquisition, the Company typically enters into a series of put and callarrangements with the minority partner of the target company, which willeventually enable or require the Company to purchase the remaining ownershipinterest of the acquired target company. The Company has used four types of minority ownership purchasearrangements to acquire the minority ownership of the target companyincluding:  Minority Put Arrangements,Similar Exchange Contract Arrangements, Fixed Purchase Price ObligationArrangements and Combination Exchange Contract Arrangements.  These arrangements are accounted for asfollows. 

MinorityPut Arrangements — An arrangement which provides the minority partner theoption to require the Company to purchase the shares from the minority partner(i.e. “Put”), generally based on a future multiple of trailing non-generallyaccepted accounting principles based (“non-GAAP”) earnings.  The Company accounts for these combinedminority interest and put arrangements as mandatorily redeemable securitiesunder Accounting Series Release 268 (“ASR 268”) and Emerging Issues Task Force(“EITF”) Abstract Topic No. D-98 (“D-98”), as redemption is outside of thecontrol of the Company.  In thisaccounting model, to the extent the value of the minority Put option is greaterthan the minority interest reflected on its balance sheet (“traditionalminority interest”), the Company increases the value of the minority interest andminority put arrangements (similar to the mezzanine classification in ASR 268)with an offset to additional paid in capital and a similar reduction to thenumerator in the earnings per share available to common shareholders calculation.  The Company also reflects any decreases tothe amount in the same manner, with the floor in all cases being thetraditional minority interest balance. The Company values the Put option byusing the most current period earnings (i.e. the latest calendar year’sbaseline non-GAAP earnings amount as defined in the Put agreement). Also aspart of a methodology election, the Company has chosen to adopt an accretionmethod as described in Paragraph 16a of D-98 which allows the Company toaccrete changes in the redemption value over the period from the date ofissuance to the Put’s 

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exercisedate.  As such, the Company has electedto only reflect a pro-rata portion of the change in liability based on the timeelapsed in the Put instrument.  Annually,the Company revalues the Put and compares that value to the current traditionalminority interest value and to the extent the Put value exceeds the traditionalminority interest, that shortfall considered earned by the minority partnerwould be recognized as additional minority interest and minority putarrangements with an equivalent offset in additional paid in capital and areduction in earnings available to common shareholders.  At the point in time when the Company settlesthe obligation (or the Put expires unexercised), the cumulative reduction takenthrough equity and corresponding reductions to earnings available to commonshareholders are reversed and purchase accounting is applied.  A line item on the statement of operationstitled, “Effect of Minority Put Arrangements” reflects this impact, which was $4,214in fiscal 2006.  This impact is alsodiscussed in Note 14. 

SimilarExchange Contract Arrangements - An arrangement which provides the Company withthe right to purchase the remaining shares of the target company (i.e. a “Call”)and provides the minority partner the right to require the Company to purchaseits remaining ownership of the target company (i.e. a “Put”).  Generally, the terms of the Company’s Calland the minority partner’s Put, are based on the same multiple of trailingnon-GAAP earnings and are both exercisable during the same periods in thefuture.  The Company has concluded thatthese Put and Call arrangements are not free standing derivatives (or embeddedderivatives) as defined under SFAS No. 133 “Accounting for DerivativeInstruments and Hedging Activities” or free standing instruments under SFAS 150“Accounting for Certain Financial Instruments with Characteristics of bothLiabilities and Equity,” and has accounted for these arrangements under EITF IssueNo. 00-4 (“EITF 00-4”) “Majority owner’s accounting for a transaction in theshares of a consolidated subsidiary and a derivative indexed to the minorityinterest in that subsidiary”. 

Inapplying EITF 00-4, under the terms of the arrangement, at inception of theacquisition the Company is certain that the Put or Call will be exercised inthe future and it will ultimately own 100% of the target subsidiary.  Either the Company or the Minority partnerwill have an economic incentive to exercise their respective Call or Putoptions.  In addition, the fixed formularesults in a sufficient transfer of the risks and rewards of ownership. As aresult, and regardless of the Company’s legal ownership of the subsidiary, theCompany accounts for the subsidiary on a combined basis as if it owned 100% ofthe venture and applies purchase accounting at inception.  Under this accounting model, the Companytreats the Similar Exchange Contract arrangements as a financing mechanism thatenables the Company to own 100% of the target and thus accounts for the valueof the combined arrangement as debt. This has the effect of increasing the company’s assets as a result ofthe additional purchase accounting required at the date of acquisition with acorresponding increase to debt. 

TheCompany values this debt by taking the present value of the calculatedliability, using the same formula of non-GAAP earnings as described in the SimilarExchange Contract. Arrangements applied to current non-GAAP earnings.  In certain instances, use of the impliedvalue not acquired by the Company is the inception date value of the SimilarExchange Contract arrangements, which is then discounted using the company’sincremental borrowing rate from the earliest exercise date of the Put to theacquisition date.  On an ongoing basis,interest expense is accreted quarterly and then at the end of the calendar yearwhen the new non-GAAP value is determined (the Similar Exchange Contractarrangements are generally based on a multiple of annual non-GAAP earnings) thedebt balance is increased (or decreased) with this impact generally taken as afourth quarter interest charge or benefit. At maturity, the value of the debt associated with the Similar ExchangeContract arrangements instrument will be equivalent to its redemption value, sowhen the instrument is settled it is treated as a retirement of debt andclassified as a financing outflow in the cash flow statement.  As of December 31, 2006 the Company hadrecorded $7,467 of debt for these arrangements which is reflected on thebalance sheet and in Note 8. 

FixedPurchase Price Arrangements — An arrangement which obligates the Company toacquire the remaining ownership of the target company sometime in the future ata price that is fixed at the acquisition date. The Company accounts for the combined minority interest and fixedpurchase price arrangements under EITF 00-4. In applying EITF 00-4, since the Company has obligated itself topurchase the remaining shares of the target company at a point in the future,it accounts for the fixed purchase price as debt and employs purchaseaccounting at inception of the acquisition. The Company values the debt by taking the present value of theobligation using the Company’s incremental borrowing rate at the time of theacquisition.  On an ongoing basis,interest expense is accreted quarterly until the maturity of theobligation.  As of December 31, 2006, theCompany recorded $8,446 of debt for these arrangements which is reflected onthe balance sheet and in Note 8. 

CombinationExchange Contract Arrangements - An arrangement which provides the Company withthe ability to gradually increase its ownership of the subsidiary based on aseries of fixed price or formulaic calls (normally a multiple of non-GAAPearnings) exercisable at certain dates in the future.  After the Company reaches a stated ownershipthreshold, the minority partner then would have the right to require the Companyto purchase the remaining shares owned by the minority partner (Put).  Prior to the Company acquiring a certainownership percentage, the minority partner’s Put right is not exercisable.  Management does not account for thesearrangements until it believes it is probable that it will exercise the finalCall which would cause the minority partner’s Put option to becomeexercisable.  Once it is probable the Putwould become exercisable, the Company would then begin accounting for thearrangement at that point.  Depending onthe

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minoritypartner’s Put arrangement, the accounting would either follow the accountingmodel of the Similar Exchange Contract Arrangements or the Minority PutArrangements. 

*CashEquivalents*

TheCompany considers all highly liquid investments with a maturity of three monthsor less when purchased to be cash equivalents. 

*RestrictedCash*

Restrictedcash consists of cash held in escrow due to a pending potential transaction inMexico. 

*Investmentsin Marketable Securities*

Available-for-salesecurities are carried at fair value, with any unrealized gains and losses, netof tax, reported in other comprehensive income (loss).  The cost of debt securities in this categoryis adjusted for amortization of premiums and accretion of discounts tomaturity.  Such amortization is includedin interest income.  Realized gains andlosses and declines in value judged to be other than temporary onavailable-for-sale securities are included in interest income.  The cost of securities sold is based on thespecific identification method.  Interestand dividends on securities classified as available-for-sale are included ininterest income. 

*Financial Instruments*

TheCompany’s financial instruments consist primarily of cash and cash equivalents,accounts and notes receivable, available-for-sale investments, accountspayable, amounts owed to shareholders of acquired companies, and short andlong-term debt.  The fair value of thesefinancial instruments approximates their carrying amounts reported in theconsolidated balance sheets.  The Companyalso enters into certain minority share ownership purchase arrangements asdiscussed in this Note and in Note 11. 

*Accountsand Notes Receivable*

TheCompany routinely makes estimates of the collectibility of its accounts andnotes receivable.  The Company maintainsallowances for doubtful accounts for estimated losses resulting from theinability of its students and other parties to make required payments.  The Company estimates the amount of therequired allowance by reviewing the status of past-due receivables andanalyzing historical bad debt trends. Interest income is recognized using the effective interest method. Long-termstudent receivables are recorded at the present value of the note receivablebalance using the appropriate discount rate. Amounts are accreted throughinterest income to their full value over the life of the note receivable.

*Allowancefor Doubtful Accounts*

TheCompany uses estimates to determine the amount of the allowance for doubtfulaccounts necessary to reduce accounts and notes receivable to their expectednet realizable value.  The Companyestimates the amount of the required allowance by reviewing the status ofpast-due receivables and analyzing historical bad debt trends.  Actual collection experience has not variedsignificantly from estimates, due primarily to credit policies, collectionexperience, known and inherent risks in the receivable portfolio, and a lack ofconcentration of accounts receivable. The provision for credit losses on tuition finance receivables ischarged to earnings in amounts sufficient to maintain the allowance foruncollectible accounts at a level the Company believes is adequate to cover thelosses of principal and accrued interest in the existing portfolio.  The Company charges-off receivables deemed tobe uncollectible to the allowance for doubtful accounts.  Accounts and tuition finance notes receivablebalances are not collateralized. Other long-term notes receivable balances areprimarily collateralized by assets or stock of the financed entity. 

*Inventory*

Inventory,consisting primarily of computer software and educational, instructional, andmarketing materials and supplies, is stated at the lower of cost (first-in,first-out) or market value. 

*Propertyand Equipment*

Propertyand equipment is stated at cost. Included in property and equipment are the direct costs of developing orobtaining software for internal use. Repairs and maintenance costs are expensed as incurred.  Assets under construction are reflected inconstruction-in-progress until they are ready for their intended use.  Interest is capitalized as a component ofcost on major projects during the construction period. 

57

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Depreciationof buildings and furniture and equipment is computed using the straight-linemethod over the estimated useful lives of the assets for reporting purposes andan accelerated method for income tax reporting purposes.  Leasehold improvements are amortized usingthe straight-line method over the lesser of the lease term or the estimateduseful life of the asset as determined at inception of the lease.  Depreciation and amortization periods are asfollows: 

| Buildings                                   |   | 20-50 years |
|---------------------------------------------|--------|-------------|
| Furniture,  computer equipment and software |   | 3-15 years  |
| Leasehold  improvements                     |   | 4-20 years  |

 

TheCompany conducts a significant portion of its operations at leased facilitiesand recognizes rent expense on a straight-line basis over the terms of theleases.  Before entering into a lease, ananalysis is performed to determine whether a lease should be classified as acapital or an operating lease.

*Goodwill and Other IntangibleAssets*

Goodwill consists of thecost in excess of fair value of the identifiable net assets of entities acquiredin purchase business combinations.  Otherintangibles include student rosters, accreditation, tradenames, non-competitionagreements and curriculum acquired in purchase business combinations. The Company uses the income approach toestablish accreditation, tradename and student roster asset fair values.  Accreditations and tradenames are valued bythe “relief from royalty” method, estimating the amount of royalty income thatwould be generated if the assets were licensed in an arms length transaction toa third party. The Company uses the discounted cash flow method to establishacquired student roster asset values. The resulting asset value reflects the present value of the projectedearnings generated by the student roster.  The cost of intangible assets withdeterminable useful lives is amortized over estimated useful lives ranging from2 to 7 years.  Goodwill andindefinite-lived intangibles are evaluated annually for impairment and on aninterim basis if events or changes in circumstances between annual testsindicate that the asset might be impaired. 

Goodwill is potentiallyimpaired when the carrying amount of a reporting unit’s goodwill exceeds itsimplied fair value, as determined under a two-step approach.  The first step is to determine the estimatedfair value of each reporting unit with goodwill.  The reporting units of the Company forpurposes of the impairment test are those operating components for whichdiscrete financial information is available and for which operating results areregularly reviewed by segment management. Components are combined when determining reporting units if they havesimilar economic characteristics. Generally, each region in which the Companyoperates is a reporting unit for purposes of the impairment tests. 

The Company estimates thefair value of each reporting unit by estimating the present value of thereporting unit’s future cash flows.   Ifthe recorded net assets of the reporting unit are less than the reporting unit’sestimated fair value, then no impairment is indicated.  Alternatively, if the recorded net assets ofthe reporting unit exceed its estimated fair value, then goodwill ispotentially impaired and a second step is performed.  In the second step, the implied fair value ofthe goodwill is determined by deducting the estimated fair value of alltangible and identifiable intangible net assets of the reporting unit from theestimated fair value of the reporting unit. If the recorded amount of goodwill exceeds this implied fair value, animpairment charge is recorded for the excess. 

The impairment test forindefinite-lived assets, consisting of accreditation and tradenames, generallyrequires a new determination of the fair value of the intangible asset.  If the fair value of the intangible asset isless than its carrying value, an impairment loss is recognized for an amountequal to the difference. The intangible asset is then carried at its new fairvalue. 

*Deferred Costs*

Deferred costs includethe direct cost of internally developing proprietary educational products andmaterials that have extended useful lives and are licensed or sold to highereducation institutions or used at Company-operated institutions. These costsare capitalized and amortized over the estimated useful life of the productsand materials, which approximates five years. 

Deferred costs alsoinclude direct costs incurred for services to higher education institutionslicensing distance learning graduate programs. These costs are capitalized when incurred and expensed when the relatedrevenue is recognized. 

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*Impairment of Long-Lived Assets*

Long-lived assets,including amortizable intangible assets, are reviewed for impairment whenever eventsor changes in circumstances indicate that the carrying amount of an asset orgroup of assets may not be fully recoverable. These events or changes in circumstances may include a significantdeterioration of operating results, changes in business plans, or changes inanticipated future cash flows.  If animpairment indicator is present, the Company evaluates recoverability by acomparison of the carrying amount of the assets to future undiscounted net cashflows expected to be generated by the assets. Assets are grouped at the lowest level for which there is identifiablecash flows that are largely independent of the cash flows generated by otherasset groups.  If the assets areimpaired, the impairment recognized is measured by the amount by which thecarrying amount exceeds the fair value of the assets.  Fair value is generally determined byestimates of discounted cash flows.  Thediscount rate used in any estimate of discounted cash flows would be the raterequired for a similar investment of like risk. 

Assets held for sale arereported at the lower of carrying value or fair value, less estimated costs ofdisposal. 

*Accounting Change — RevenueRecognition*

Effective January 1,2006, the Company made a voluntary preferential change in its revenue recognitionpolicies regarding semester-based tuition for its campus-baseduniversities.  The universities nowrecognize tuition revenue ratably on a weekly straight-line basis over eachacademic session instead of the previously used monthly straight-line basis.This change was made to improve transparency and the correlation between theCompany’s enrollments, revenues, and actual academic calendars. Tuition revenueis reported net of scholarships and other discounts. Tuition paid in advance orunpaid and unearned tuition included in accounts receivable is recorded asdeferred revenue. 

The Company has appliedthis change retrospectively to all prior period financial statements presentedin accordance with SFAS No. 154, “*AccountingChanges and Error Corrections*,” (“FAS 154”) including retrospectiveapplication to all reporting periods presented. There was no material impact on the previously issued annual results ofthe Company as a result of this change as summarized below. 

All other revenue isrecognized as earned over the appropriate service period. Dormitory revenuesare recognized over the occupancy period. Revenue from the sale of educational products is generally recognizedwhen shipped and collectibility is reasonably assured. 

The following amountsrepresent the increases (decreases) to each financial statement line affectedby the Company’s preferential change in revenue recognition for theconsolidated balance sheet as of December 31, 2005 and the statements ofoperations for the years ended December 31, 2005 and 2004. 
| ** **                                       | ** ** | **December 31, 2005** | ** ** |
|--------------------------------------------------|------------|---------------------------------|------------|
| ***Balance  Sheet***                             |       |                            |       |
| Goodwill                                         |       | $                               | 100        |   |
| Total assets                                     |       | $                               | 100        |   |
|                                             |       |                            |       |
| Deferred revenue                                 |       | $                               | 656        |   |
| Total  liabilities                               |       | 656                             |       |
|                                             |       |                            |       |
| Minority  interest                               |       | (325 )                          |       |
|                                             |       |                            |       |
| Retained  earnings                               |       | 181                             |       |
| Accumulated  other comprehensive income          |       | (412 )                          |       |
| Total  stockholders’ equity                 |       | (231 )                          |       |
|                                             |       |                            |       |
| Total liabilities and  stockholders’ equity |       | $                               | 100        |   |

 

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| ** **                                                                                                                  | ** **   | **Year-ended**                  | ** **   | **Year-ended**                  | ** **   |
|-----------------------------------------------------------------------------------------------------------------------------|--------------|---------------------------------|--------------|---------------------------------|--------------|
| ** **                                                                                                                  | ** **   | **December 31, 2005** | ** **   | **December 31, 2004** | ** **   |
| ***Statements  of Operations***                                                                                             | *** *** | *** ***                    | *** *** | *** ***                    | *** *** |
| Revenues                                                                                                                    |         | $                               | 448          |                            | $            | (2,110 | ) |
|                                                                                                                        |         |                            |         |                            |         |
| Operating income                                                                                                            |         | 448                             |         | (2,110                          | )            |
| Income from  continuing operations before income taxes, minority interest and equity in  net (loss) in income of affiliates |         | 448                             |         | (2,110                          | )            |
|                                                                                                                        |         |                            |         |                            |         |
| Minority  interest in income of consolidated subsidiaries, net of tax                                                       |         | 166                             |         | 682                             |         |
|                                                                                                                        |         |                            |         |                            |         |
| Income from  continuing operations                                                                                          |         | 614                             |         | (1,428                          | )            |
| Net income                                                                                                                  |         | $                               | 614          |                            | $            | (1,428 | ) |
|                                                                                                                        |         |                            |         |                            |         |
| Earnings per  share, basic:                                                                                                 |         |                            |         |                            |         |
| Income from continuing operations                                                                                           |         | $                               | 0.01         |                            | $            | (0.03 | ) |
| Net income                                                                                                                  |         | $                               | 0.01         |                            | $            | (0.03 | ) |
|                                                                                                                        |         |                            |         |                            |         |
| Earnings per  share, diluted:                                                                                               |         |                            |         |                            |         |
| Income from continuing operations                                                                                           |         | $                               | 0.01         |                            | $            | (0.03 | ) |
| Net income                                                                                                                  |         | $                               | 0.01         |                            | $            | (0.03 | ) |

 

*Direct Costs*

Direct costs representdivisional costs of operations, including selling and administrative expensesthat are directly attributable to specific operating units. 

*Advertising*

The Company expensesadvertising costs as incurred. Advertising expense for the years ended December31, 2006, 2005 and 2004 was $66,416, $59,861, and $53,701, respectively.  Of these amounts, $0, $1,005, and $4,699 wereincluded as a component of discontinued operations in 2006, 2005 and 2004,respectively. 

*Equity-Based Compensation*

Effective January 1,2006, the Company adopted the fair value recognition provisions of SFAS No. 123(revised 2004), “*Share-Based Payment*”(“SFAS 123R”), using the modified prospective transition method and thereforehas not restated results for prior periods. Under this transition method,equity-based compensation expense for the year-ended December 31, 2006 includescompensation expense for all equity-based compensation awards granted prior to,but not yet vested as of January 1, 2006, based on the grant date fair valueestimated in accordance with the original provision of SFAS No. 123, “*Accounting for Stock-Based Compensation*” (“SFAS123”). Equity-based compensation expense for all equity-based compensationawards granted after January 1, 2006 is based on the grant-date fair valueestimated in accordance with the provisions of SFAS 123R.  The Company recognizes these compensationcosts on a straight-line basis over the requisite service period, which isgenerally the vesting period of the award. SFAS 123R clarifies and expands the guidance in SFAS 123 in severalareas, including measuring fair value and attributing compensation cost toreporting periods.  Changes to SFAS 123fair value measurement and service period provisions prescribed by SFAS 123Rinclude a requirement to estimate forfeitures of share-based awards at the dateof grant, rather than recognizing forfeitures as incurred as permitted by SFAS123.  The Company estimates theforfeiture rate based on historical experience. 

The Company uses theBlack-Scholes-Merton method to calculate the fair value of stock options.  The use of option valuation models requiresthe input of highly subjective assumptions, including the expected stock pricevolatility and the expected term of the option. In March 2005, the Securities and Exchange Commission (“SEC”) issued SABNo. 107 (“SAB 107”) regarding the SEC’s interpretation of SFAS 123R and thevaluation of share-based payments for public companies.  For options issued subsequent to January 1,2006, the Company has applied the provisions of SAB 107 in its adoption of SFAS123R.  Under SAB 107, the Company hasestimated the expected term of granted options to be the weighted averagemid-point between the vesting date and the end of the contractual term.  The Company estimates the volatility rate basedon historical closing stock prices.    

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Prior to theadoption of SFAS 123R, the Company recognized equity-based compensation expensein accordance with Accounting Principles Board (“APB”) Opinion No. 25, “*Accounting for Stock Issued to Employees*”(“APB 25”).  Under APB 25, the Companypresented the cash flows related to income tax deductions in excess of thecompensation cost recognized on stock options exercised during the period (“excesstax benefits”) as operating cash flows in the consolidated statement of cashflows. SFAS 123R requires excess tax benefits to be classified as financingcash flows.

The Companyrecords compensation expense for stock options granted to non-employees who arenot directors in an amount equal to their estimated fair value at the earlierof the performance commitment date or the date at which performance iscomplete, determined using the Black-Scholes-Merton option pricing model.  The compensation expense is recognizedratably over the vesting period.

The Company hasawarded restricted stock and unit awards in which the vesting is based onCompany performance metrics. The Company uses its financial operations andforecasts to estimate the restricted stock and unit vesting based on the awardperformance criteria.  The Company’scompensation expense recognized related to these restricted stock and unitawards is affected by the estimates made on their vesting potential.

*ForeignCurrency Translation*

The financialstatements of foreign subsidiaries with a functional currency other than theU.S. dollar have been translated into U.S. dollars using the current ratemethod.  Assets and liabilities have beentranslated using the exchange rates at year-end.  Income and expense amounts have been translatedusing the average exchange rates during the year.  Translation gains or losses resulting fromthe changes in exchange rates have been reported as a component of accumulatedother comprehensive income (loss) included in the consolidated statements ofstockholders’ equity.

*Other Comprehensive Income*

TheCompany displays changes to the accumulated balance of other comprehensiveincome (loss) in the consolidated statements of stockholders’ equity.  The components were as follows at December31:

|                                                               | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------------|------------|----------|------------|----------|------------|
| Foreign currency  translation adjustment                      |       | $        | 56,834     |     | $          | 38,510 |   |
| Unrealized loss on  available-for-sale securities, net of tax |       | (66      | )          | (57      | )          |
| Impact of adoption of  FAS 158                                |       | (2,272   | )          | —   |       |
| Accumulated other comprehensive income                        |       | $        | 54,496     |     | $          | 38,453 |   |

 

Because deferredtaxes are not provided for the unremitted earnings of foreign subsidiaries,deferred taxes are not provided for translation adjustments.

*IncomeTaxes*

The Companyaccounts for income taxes using the liability method pursuant to SFAS No. 109, “*Accounting for Income Taxes”* (“SFAS 109”).  Under the liability method, deferred taxassets and liabilities are determined based on the differences between thefinancial statement carrying amounts and the tax basis of existing assets andliabilities (i.e., temporary differences) and are measured at enacted tax ratesthat will be in effect when these differences are settled or realized.

For interimpurposes, the Company also applies Financial Accounting Standards Board (“FASB”)Interpretation No. 18, “*Accounting forIncome Taxes in Interim Periods”*(an interpretation of APB Opinion No. 28) (“FIN 18”).  FIN 18 measures the seasonality of anysubsidiary, or controlled entity, that operates at an annual loss for which noincome tax benefit is recognized.  This seasonalitycan cause volatility in the interim effective rates.  However, FIN 18 has no effect on the Company’sannual effective tax rate.

*Impact ofRecently Issued Accounting Standards*

On July 13, 2006,the FASB issued FIN 48, “*Accounting for Uncertaintyin Income Taxes*”.  FIN 48clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with SFAS 109. FIN 48prescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return. FIN 48 also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,disclosure, and transition.  FIN 48 is effectivefor fiscal years beginning after December 15, 2006.  The Company will adopt FIN 48 effectiveJanuary 1, 2007.  The cumulative effectof adopting 

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FIN 48 will berecorded as an adjustment to beginning retained earnings in the first quarterof 2007.  The Company has not yetcompleted its evaluation of the effect of FIN 48.

In September 2006,the FASB issued SFAS No. 157, “*Fair Value Measurements*,”(“SFAS 157”), which defines fair value, establishes a framework for measuringfair value in accordance with generally accepted accounting principles, andexpands disclosures about fair value measurements.  SFAS 157 is effective in fiscal yearsbeginning after November 15, 2007.  TheCompany will adopt SFAS 157 on January 1, 2008. The Company does not expect the adoption of this standard to have amaterial effect on the Company’s financial position or results of operations.

In September 2006,the FASB issued SFAS No. 158, “*Employers’ Accounting forDefined Benefit and Other Postretirement Plans, an amendment of FASB StatementsNo. 87, 106, and 132 (R)*,” (“SFAS 158”).  SFAS 158 requires companies to recognize anet liability or asset and an offsetting adjustment to accumulated othercomprehensive income to report the funded status of defined benefit pension andother postretirement benefit plans.  SFAS158 requires prospective application, and the recognition and disclosurerequirements are effective for the Company’s fiscal year ending December 31,2006.  In addition, SFAS 158 requirescompanies to measure plan assets and obligations at their year-end balancesheet date.  This requirement iseffective for the Company’s fiscal year ending December 31, 2008.  The Company adopted the prospectiveapplication and recognition requirements with no material impact to thefinancial statements as of December 31, 2006.

In September 2006,the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “*Consideringthe effects of Prior Year Misstatements when Quantifying Misstatements inCurrent Year Financial Statements*,” (“SAB 108”). SAB 108 addresseshow the effects of prior year uncorrected financial misstatements should beconsidered in current year financial statements.  SAB 108 requires registrants to quantifymisstatements using both balance sheet and income statement approaches and toevaluate whether either approach results in quantifying an error that ismaterial in light of relative quantitative and qualitative factors. SAB 108does not change the SEC staff’s previous guidance in SAB 99, “*Materiality*,” on evaluating the materiality ofmisstatements.  Additionally, SAB 108addresses the mechanics of correcting misstatements that include the effectsfrom prior years.  SAB 108 allowsregistrants to apply the new guidance the first time it identifies materialerrors in existence at the beginning of the first fiscal year ending afterNovember 15, 2006 by correcting these errors through a one time cumulativeeffect adjustment to beginning retained earnings.  The adoption of this standard had no effecton the Company’s financial position or results of operations.

**Note 3 —Equity-Based Compensation**

*Equity-BasedCompensation Plans*

The Company’sBoard of Directors may grant options under six equity-based compensation plansto selected employees, officers and directors of the Company to purchase sharesof the Company’s common stock at a price not less than the fair market value ofthe stock at the date of the grant.  TheLaureate Education, Inc. 2005 Stock Incentive Plan (“2005 Plan”) is the onlyplan with significant stock option awards available for grant.  Options outstanding under all six of theCompany’s stock option plans have been granted at prices which are equal to orexceed the market value of the stock on the date of grant and vest ratably overperiods not exceeding five years.

At the Company’sannual shareholder meeting on June 28, 2006, approval of an amendment to the2005 Plan was obtained to increase the number of shares reserved under the 2005Plan by 4,000 shares, with no more than 1,000 shares of that increase beinggranted in the form of non-options (referred to as “2005 Plan Amendment No. 1”).  Approval of the 2005 Plan Amendment No. 1,increased available shares from 1,250 issuable shares to 5,250 issuable shares,of which no more than a total of 1,313 shares can be granted in the form ofrestricted shares or units.

Stock optionawards under plans approved prior to the 2005 Plan are subject to time-basedvesting generally over five years with a contractual term of ten years.   Stock option awards under the 2005 Plan aresubject to time-based vesting generally over four years with a contractual termof seven years; the first year vests generally on the first anniversary dateand the remaining three years generally vest quarterly. Stock options grantedto non-employee directors generally vested immediately prior to January 1,2006.  Subsequent to January 1, 2006,options granted to non-employee directors generally vest monthly over a oneyear period.  Restricted stock andrestricted stock unit (“RSU”) awards granted prior to December 2005 are subjectto time-based vesting generally over five years.  Restricted stock and RSU awards grantedsubsequent to December 2005 are generally performance-based and are commonlyeligible for vesting over four years.

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*StockOptions*

The followingtable summarizes the stock option activity of the Company for the years endedDecember 31:

 
| ** **                                       | ** ** | **2006**    | ** ** | **2005**                               | ** ** | **2004**                        | ** ** |
|--------------------------------------------------|------------|-------------|------------|----------------------------------------|------------|---------------------------------|------------|
| ** **                                       | ** ** | **Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Aggregate  Intrinsic  Value** | ** ** | **Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| Outstanding at the  beginning of the year        |       | 6,188       |       | $                                      | 19.45      |                            |       |   | 6,643 |   | $ | 15.06 |   | 7,992 |   | $ | 14.80 |   |
| Granted                                          |       | 527         |       | $                                      | 48.86      |                            |       |   | 945 |   | $ | 45.91 |   | 414 |   | $ | 24.43 |   |
| Exercised                                        |       | (1,530      | )          | $                                      | 13.73      |                            |       |   | (1,042 | ) | $ | 15.99 |   | (1,658 | ) | $ | 16.13 |   |
| Forfeited                                        |       | (16         | )          | $                                      | 36.24      |                            |       |   | (358 | ) | $ | 18.78 |   | (105 | ) | $ | 15.79 |   |
| Outstanding at end of  year                      |       | 5,169       |       | $                                      | 24.16      |                            | $          | 138,859 |   | 6,188 |   | $ | 19.45 |   | 6,643 |   | $ | 15.06 |   |
| Exercisable at end of  year                      |       | 3,856       |       | $                                      | 17.56      |                            | $          | 128,811 |   | 4,881 |   | $ | 14.30 |   | 5,457 |   | $ | 14.33 |   |
| Vested and expected to vest at December 31, 2006 |       | 5,112       |       | $                                      | 24.16      |                            | $          | 137,168 |   |   |   |   |   |   |   |   |   |

 
| ** **                                        | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**     | ** ** |
|---------------------------------------------------|------------|------------------------------|------------|----------------------------------|------------|
| **Range of  Exercise Prices** | ** ** | ** **                   | ** ** | **Number   of Shares** | ** ** | **Weighted   Average   Exercise   Prices** | ** ** | **Weighted  Average   Remaining   Contractual   Life  (Years)** | ** ** | **Number   of Shares** | ** ** | **Weighted   Average   Exercise   Prices** | ** ** |
|  $3.33-$6.77                                 |       | 1,568                        |       | $                                | 3.55       |   | 3.0 |   | 1,568 |   | $ | 3.55 |   |
|  $6.78-$13.45                                |       | 96                           |       | $                                | 12.67      |   | 3.2 |   | 96 |   | $ | 12.67 |   |
|  $13.55-$20.02                               |       | 578                          |       | $                                | 17.74      |   | 5.5 |   | 438 |   | $ | 17.86 |   |
| $20.03-$35.55                                     |       | 1,395                        |       | $                                | 25.93      |   | 1.6 |   | 1,374 |   | $ | 25.94 |   |
| $35.56-$54.00                                     |       | 1,532                        |       | $                                | 46.73      |   | 6.3 |   | 380 |   | $ | 45.97 |   |
|                                              |       | 5,169                        |       |                             |       |   |   | 3,856 |   |   |   |
|                                                   |            |                              |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

The weightedaverage remaining contractual term of options outstanding is 3.8 years.  The weighted average contractual term ofexercisable options outstanding is 3.0 years. The total intrinsic value, measured as the pre-tax difference betweenthe exercise price and the market price on the date of exercise, of all optionsexercised during the period was $58,681.

The weightedaverage estimated fair value of stock options granted for the year endedDecember 31, 2006 was $16.02.  The totalcompensation expense related to stock options was $6,497, net of the impact ofestimated forfeitures, for the year ended December 31, 2006.

As of December 31,2006, $18,006 of total unrecognized equity-based compensation cost related tostock options is expected to be recognized over a weighted average period of2.5 years.

*NonvestedRestricted Stock and RSUs*

The followingtable summarizes the nonvested restricted stock and RSU activity of the Companyfor the year ended December 31:  
| ** **                      | ** ** | **2006**   | ** ** | **2005**                                                                  | ** ** | **2004**   | ** ** |
|---------------------------------|------------|------------|------------|---------------------------------------------------------------------------|------------|------------|------------|
| ** **                      | ** ** | **Shares** | ** ** | **Weighted   Average   Grant Date   Fair Value** | ** ** | **Shares** | ** ** | **Weighted   Average   Grant Date   Fair Value** | ** ** | **Shares** | ** ** | **Weighted   Average   Grant Date   Fair Value** | ** ** |
| Nonvested at beginning  of year |       | 610        |       | $                                                                         | 38.95      |       | 372        |   | $ | 24.96 |   | 235 |   | $ | 17.77 |   |
| Granted                         |       | 70         |       | $                                                                         | 46.55      |       | 324        |   | $ | 51.06 |   | 191 |   | $ | 31.78 |   |
| Lapsed                          |       | (74        | )          | $                                                                         | 26.57      |       | (59        | ) | $ | 19.58 |   | (54 | ) | $ | 17.74 |   |
| Forfeited                       |       | —     |       | —                                                                    |       | (27        | )          | $ | 33.56 |   | — |   | — |   |
| Nonvested at end of year        |       | 606        |       | $                                                                         | 41.33      |       | 610        |   | $ | 38.95 |   | 372 |   | $ | 24.96 |   |

 

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Of the nonvestedrestricted stock and RSU awards above, 279 shares with a weighted-average grantdate fair value of $51.49 per share, are subject solely to performance-basedconditions.  The restrictions on theawards are eligible for lapse annually on the anniversary date of the awardover a four year period.  A fixedpercentage of shares are eligible for vesting each year, with the potential tofully vest in subsequent years if performance warrants.  No shares will vest if required performancelevels are not achieved during the four-year period and the applicable one-yearcatch up period.  The compensationexpense associated with these awards is evaluated on a quarterly basis forprogress toward achievement of pre-determined performance targets. Thecompensation expense is recognized when it is probable that the performancelevels will be met.

As of December 31,2006, there was $13,944 of unrecognized equity-based compensation expenserelated to nonvested restricted stock and RSU awards.  The cost is expected to be recognized over aweighted-average period of 2.7 years, assuming that all performance conditionsare met.

The fair value ofthe nonvested restricted stock and RSU awards is measured using the closingprice of the Company’s stock on the date of grant.  The total compensation expense related torestricted stock and RSU awards was $7,930, $3,507 and $2,771 for the years endedDecember 31, 2006, 2005 and 2004, respectively.

Forthe years ended December 30, 2006, 2005 and 2004, total equity-basedcompensation expense was allocated as follows:
| ** **                                                 | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Direct costs                                               |       | $8,070   |       | $1,257   |       | $2,839   |       |
| General and administrative expenses                        |       | 7,016    |       | 3,331    |       | 2,879    |       |
| Equity-based compensation expense before income taxes      |       | 15,086   |       | 4,588    |       | 5,718    |       |
| Income tax benefit                                         |       | (4,926   | )          | (1,201   | )          | (1,037   | )          |
| Total equity-based compensation expense after income taxes |       | $10,160  |       | $3,387   |       | $4,681   |       |

 

Prior to January1, 2006, the Company provided pro forma disclosure amounts in accordance withSFAS 123, as if the fair value method defined by SFAS 123 had been applied toits equity-based compensation.

The followingaverage assumptions were used in calculating pro forma equity-basedcompensation expense for the years ended December 31, 2005 and 2004 andrecorded equity-based compensation for the year ended December 31, 2006:
| ** **                       | ** ** | **2006**    | ** ** | **2005**      | ** ** | **2004**  | ** ** |
|----------------------------------|------------|-------------|------------|---------------|------------|-----------|------------|
| Average risk-free  interest rate |       | 4.7         | %          | 4.0           | %          | 3.3       | %          |
| Expected dividend yield          |       | 0.0         | %          | 0.0           | %          | 0.0       | %          |
| Expected lives                   |       | 3.5-6 years |       | 2.5-6.5 years |       | 4-6 years |       |
| Average expected volatility      |       | 28.1        | %          | 29.8          | %          | 46.0      | %          |

 

Thepro forma table below reflects net income and basic and diluted net earningsper share for the years ended December 31, 2005 and 2004 had the Companyapplied the fair value recognition provisions of SFAS 123:
| ** **                                                                                           | ** ** | **Year ended   December 31, 2005** | ** ** | **Year ended  December 31, 2004** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------|------------|
| Net income, as reported  (as restated — Note 2)                                                 |       | $                                                      | 75,797     |                                             | $          | 61,582 |   |
| Equity-based employee  compensation expense included in net income, as reported, net of tax          |       | 3,387                                                  |       | 4,681                                            |       |
| Equity-based employee  compensation expense as if the fair value method had been applied, net of tax |       | (5,087                                                 | )          | (5,215                                           | )          |
| Pro forma net income                                                                                 |       | $                                                      | 74,097     |                                             | $          | 61,048 |   |
|                                                                                                 |       |                                                   |       |                                             |       |
| Earnings per share:                                                                                  |       |                                                   |       |                                             |       |
| Basic — as  reported                                                                            |       | $                                                      | 1.53       |                                             | $          | 1.33 |   |
| Basic — pro  forma                                                                              |       | $                                                      | 1.49       |                                             | $          | 1.32 |   |
| Diluted — as  reported                                                                          |       | $                                                      | 1.46       |                                             | $          | 1.26 |   |
| Diluted — pro forma                                                                             |       | $                                                      | 1.42       |                                             | $          | 1.25 |   |

 

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Pro formacompensation expense recognized under SFAS 123 does not consider estimatedforfeitures.  The terms and nature of the2006 equity-based compensation awards create computational differences betweenthe pro forma compensation presented above and the equity compensationrecognized in 2006 that render the calculations incomparable.

As a result ofadopting SFAS 123R, for the year ended December 31, 2006, income fromcontinuing operations before income taxes, minority interest and equity in net(loss) income of affiliates and net income was $6,497 and $5,413 lower,respectively, than if the Company had continued to account for equity-basedcompensation under APB 25. The impact on basic and diluted earnings per sharefrom continuing operations using the Company’s effective tax rate for the yearended December 31, 2006 was $0.11 per share and $0.10 per share, respectively.In addition, prior to the adoption of SFAS 123R, the Company presented the taxbenefit of stock option exercises as operating cash flows.  Upon the adoption of SFAS 123R, tax benefitsresulting from tax deductions in excess of the compensation cost recognized forthose options are classified as financing cash flows.  Under SFAS 123R, these excess tax benefitsare not recognized until the tax deductions result in a reduction of taxliability instead of creating or increasing net operating losses.  As a result, there was no excess tax benefitrecorded for the year-ended December 31, 2006.

*SharesReserved For Future Issuance*

As of December 31,2006, the Company has reserved 8,889 shares of common stock for future issuanceupon the exercise of all outstanding stock options and options available forgrant under the 2005 plan.

*Replenishment Plan ImplementationChange*

During 2004,certain current and former employees were inadvertently permitted to exercise203 stock options on a net share basis, whereby shares equal in value to theoption strike price and the employee’s minimum tax withholding obligation werewithheld by the Company (also known as a “cashless exercise”).  Under APB 25*,*the use of “in the money” options to cover the strike price resulted in a newmeasurement date and, as a result, in 2004 the Company recognized $1,049 ofadditional compensation expense in continuing operations and $1,436 ofadditional compensation in discontinued operations for the difference betweenthe exercise price and the market value of the shares on date of exercise.  When the situation was discovered bymanagement, the Company discontinued this practice.

*Stock Option Modification*

Inperiods prior to 2003, certain members of executive management and employees ofthe Company were granted options to acquire common stock of the subsidiaryserving as the holding company for the campus-based segments.  Due to the restructuring of the Company’soperations, on April 1, 2003 the Company negotiated an agreement with employeesholding stock options to acquire common stock of the subsidiary that providedfor the exchange of these stock options for stock options to acquire commonstock of the Company.  The result of theexchange of options did not increase the aggregate intrinsic value of theoptions or reduce the ratio of the exercise price per share of the options tothe per share fair value of common stock on the date of exchange, as determinedby independent members of the Board of Directors advised by independentvaluation experts.  The exchange wasaccounted for as a modification of granted stock options that established a newmeasurement date for the purpose of determining stock compensation expense.  The Company recorded non-cash compensationexpense related to this event of $39, $158, and $1,898 in the years endedDecember 31, 2006, 2005, and 2004, respectively.

In 2006 and 2005,the Company modified certain equity grants to members of executivemanagement.  The Company appropriately recorded$619 and $923 for the years ended December 31, 2006 and 2005, respectively, asnoncash compensation expense related to these modifications.

**Note 4—DiscontinuedOperations**

During the thirdquarter of 2006, the Company sold the operations of Institut Francais deGestion Langues (“IFG Langues”), a non-strategic part of Institut Francais deGestion (“IFG”).  Also, during the firstquarter of 2005, the Company closed the sale of its Wall Street Institute (“WSI”)business.  During 2004, the Company terminatedits program in India and sold its remaining K-12 educational servicesbusinesses. The operations and cash flows of the business components comprisingthe IFG Langues, WSI, India, and K-12 educational services were eliminated fromongoing operations as a result of the sale or abandonment and the Company doesnot have any significant continuing involvement in the operations after thedisposal transactions.  Therefore, theseoperations are classified as discontinued operations for all periods.

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*WSI Business*

On December 31,2004, the Company and WSI Education S.a.r.l. executed an agreement thatprovided for the sale of substantially all of the Company’s WSI business unitsand investments.  At that time, thepurchase price was estimated to be $40,000 based on eight times the projected2004 earnings before interest, taxes, depreciation, and amortization (“EBITDA”)of $5,000.  At closing, the considerationfor the sale of the shares comprising the WSI business unit consisted of thefollowing:

·                  Cashof $15,000;

·                  A$15,000 USD equivalent subordinated note, denominated in Euros, bearinginterest at 12.5%; and

·                  Anestimated $10,000 other receivables payable in cash.

Subsequent to theclosing date of February 28, 2005, the final base purchase price was determinedto be $40,000 as estimated in December 2004. The Company received a payment incash for the $10,000 of other receivables in the third quarter of 2005.  The Company is entitled to additionalconsideration if the operating results of WSI exceed specified levels ofearnings in 2005 and 2006, up to a maximum of $11,500.  As of December 31, 2006, no additionalconsideration has been recognized by the Company related to the 2005 or 2006earnout years.

In addition, in2005 the Company agreed to continue to finance the $15,000 subordinated notereceived at closing with a senior promissory note bearing market interest ofLIBOR plus 625 basis points with a step-up provision of 50 basis points perannum. The note matures in July 2010.  Additionally, the Company received a paymentduring the third quarter of 2005 of $2,000 in recognition of net workingcapital conveyed at closing.

During the fourth quarter of 2004, the Company recorded an estimated losson disposal of WSI of $13,389, which included income tax expense of$3,202.  The loss reflected the change inthe net realizable value of the net assets of the WSI business (includingchanges in the carrying value of the net assets resulting from foreign currencyfluctuations) adjusted for estimated costs to close the WSI sale and accruedexpenses related to indemnifications specified in the agreement.

During 2005, theCompany recorded a loss on disposal of $11,064, which included income taxexpense of $9,891. This additional income tax expense was due to a reversal ofa deferred tax asset as well as a change in the Company’s estimate of the taxliabilities incurred in connection with this transaction.

During 2006, theCompany recorded a net gain of $261, including a tax benefit of $576, relatedto the settlement of franchisee lawsuits related to the WSI business.  Also during 2006, the Company recorded a nettax adjustment of $1,057 due to the re-assessment of income tax accruals and abeneficial tax return adjustment related to the discontinued operations of theWSI business. All of the above adjustments have been recorded in loss ondisposal of discontinued operations on the consolidated statement ofoperations.

During 2006 and2005, WSI Education S.a.r.l. received preliminary field audit reports assessingItalian value added taxes (“VAT”) owed related to services provided by the WSIbusiness unit in 2004 and 2003 and prior to its disposition.  Under the terms of the sale agreement withWSI, the Company agreed to indemnify WSI from obligations that may arise as aresult of an Italian VAT assessment related to periods prior to the closing ofthe sale of the WSI business unit on February 28, 2005. However, the Company isentitled to the value of the tax benefit of any indemnification.  In the first quarter of 2005, the Companyissued a $12,000 standby letter of credit in favor of WSI Education S.a.r.l fora tax indemnification related to the sale of WSI.  The Company has filed, on behalf of WSIEducation S.a.r.l., an appeal with the Italian authorities and a complaintagainst the Italian Republic at the European Union Commission for restraint oftrade based on the VAT exemption only being available to Italian ownedcompanies.  In the third quarter of 2006,the Company received notification that the Italian Court denied the stay of paymentrequest, which sought to defer payment of the tax and interest portion of theobligation that is normally required to commence court proceedings.  As a result, the Company depositedapproximately $3,000 with the Italian tax authority, representing approximately50% of the 2003 and prior total tax and interest assessed to date.  The next hearing is scheduled to be in March2007.  The Company continues to believethat a loss from this matter is not probable, nor is it possible to estimatethe ultimate outcome of this issue.  Inorder to commence court proceedings, no expense for any potential adverseoutcome of this matter has been recorded in the consolidated financialstatements.  The Company intends tovigorously pursue these cases.

*Other*

In July 2006, theCompany sold IFG Langues, a non-strategic part of IFG, to an unrelated thirdparty.  Under the agreement, the buyerpurchased all assets and assumed substantially all third party liabilities ofthe business.  As a result of the sale,the Company recorded a loss of $2,274, representing the difference between thecarrying value of the net assets held for sale and the net realizable value.

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During 2006, theCompany adjusted the gain on a 2000 business sale by recording a loss of $983,net of $655 in taxes. The adjustment resulted from the settlement of the use ofdeferred tax assets relating to the purchase in years subsequent to thesale.  In 2006, the Company also recordeda reversal of a tax reserve relating to this sale of $2,800.

In the firstquarter of 2004, due to the unfavorable regulatory climate for privateeducational enterprises in India, the Company decided to terminate its currentprograms there, including the cessation of the educational activities of SouthAsia International Institute.  In conjunctionwith this decision, the Company reduced the carrying value of its assets inIndia to expected realizable value upon final disposition.

*SummarizedFinancial Information of Discontinued Operations*

Summarizedoperating results from the discontinued operations included in the Company’sconsolidated statement of operations were as follows for the year endedDecember 31:
| ** **                                         | ** ** | **WSI**  | ** ** | **Other** | ** ** |
|----------------------------------------------------|------------|----------|------------|-----------|------------|
| ** **                                         | ** ** | **2006** | ** ** | **2005**  | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues                                           |       | $        | —     |      | $          | 12,310 |   | $ | 68,765 |   | $ | 4,207 |   | $ | 11,742 |   | $ | 1,088 |   |
| Pre-tax (loss) income from discontinued operations |       | $        | (58        | )         | $          | 383 |   | $ | (1,821 | ) | $ | (1,433 | ) | $ | (409 | ) | $ | (4,445 | ) |

 

Net assets ofdiscontinued operations included in other assets in the balance sheet atDecember 31 2005, are as follows:

| Current assets                              |   | $   | 2,192  |   |
|---------------------------------------------|--------|-----|--------|--------|
| Property and equipment,  net                |   | 386 |   |
| Goodwill                                    |   | 165 |   |
| Other assets                                |   | 163 |   |
| Total net assets of discontinued operations |   | $   | 2,906  |   |

 

The consolidated balance sheet at December 31, 2005classifies the assets and liabilities of the other disposal group based on theprobable timing of receipt of sales proceeds.

**Note 5—Acquisitions**

During each of theyears presented, the Company acquired certain businesses accounted for usingthe purchase method of accounting.  Aportion of the purchase price for these businesses was allocated toidentifiable tangible and intangible assets and assumed liabilities based onestimated fair values at the dates of acquisition.  Any excess purchase price was allocated togoodwill.  Certain acquisitions requirethe payment of contingent amounts of purchase consideration if specifiedoperating results are achieved in periods subsequent to the acquisitiondate.  Upon the resolution of thesecontingent payments, the Company records as goodwill any additionalconsideration owed to the sellers. The results of operations of the acquiredbusinesses are included in the accompanying consolidated financial statementscommencing on the date of acquisition.

**2006Acquisitions**

*ChileanOperations*

On August 16,2006, the Company entered into a binding agreement to purchase the remaining20% of the share capital of Desarrollo del Conocimiento S.A. (“Decon”) andDesarrollo de la Educacion Superior S.A. (“Desup”) that was not previouslyowned by the Company, in order to increase the Company’s ownership to 100%.Decon and Desup control the Company’s Chilean businesses, including asubsidiary in Ecuador.  The purchaseprice of $153,034, including cash transaction costs of $1,115 and othernon-cash consideration of $10,277, was paid on September 12, 2006. In additionto the final 20% share capital in Decon and Desup, this amount includes theremaining balances payable by the Company as contingent earnouts with respectto the Company’s previous purchases of the initial 80% of the share capital ofDecon. Following the closing, the Company had no further monetary obligationswith respect to the purchase of the capital stock of Decon and Desup except forthe amounts disclosed in Note 9.  TheCompany began 100% consolidation of the Decon businesses effective September12, 2006.  See Note 2 regarding theaccounting for the Desup minority interest acquisition as the original purchaseincluded a Similar Exchange Contract Arrangement.

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*Mexican Operations*

On December 22,2006 the Company entered into a binding agreement to purchase an additional 10%interest in UVM.  The purchase price of$51,467, including transaction costs of $88, was paid on December 22, 2006.  This acquisition within the Latin Americasegment was to provide additional interest in the UVM entity.

*Other 2006 Acquisitions*

In 2006, theCompany acquired the following entities for a total cost of $24,183, which waspaid primarily in cash:

·                  A50% interest in CH Holdings Netherlands BV — Goodwill of $19,983 was recognizedin connection with the acquisition of an interest in a joint venture which isassigned to the Campus Based - Europe segment. This acquisition was made to provide educational services to highereducation institutions in the Campus Based - Europe segment.

·                  IEDE— Goodwill of $2,508 was recognized in connection with the acquisition andassigned to the Latin America segment. This acquisition was made to enable the Company to provide additionalpost secondary services in Chile.

·                  CSE— Goodwill of $1,711 was recognized in connection with this acquisition andassigned to the European segment.  Thisacquisition was made to add architectural curriculum to UEM’s existing body ofcourses.

For 2006, none ofthe goodwill related to these acquisitions is expected to be deductible forincome tax purposes.

Thefollowing table summarizes the estimated fair values of all assets acquired andliabilities assumed at the date of acquisition:
| ** **              | ** ** | **Chile** | ** ** | **Mexico** | ** ** | **All other** | ** ** |
|-------------------------|------------|-----------|------------|------------|------------|--------------------|------------|
|                    |       |      |       |       |       |               |       |
| Current assets          |       | $         | —     |       | $          | —             |       | $ | 3,003 |   |
| Property and equipment  |       | —    |       | 2,575      |       | 431                |       |
| Other intangible assets |       | 25,764    |       | —     |       | —             |       |
| Goodwill                |       | 97,831    |       | 25,466     |       | 24,202             |       |
| Other long-term assets  |       | —    |       | —     |       | 350                |       |
| Total assets  acquired  |       | 123,595   |       | 28,041     |       | 27,986             |       |
|                    |       |      |       |       |       |               |       |
| Current liabilities     |       | —    |       | (88        | )          | 2,958              |       |
| Minority interest       |       | (29,439   | )          | (23,338    | )          | 845                |       |
| Total  liabilities      |       | (29,439   | )          | (23,426    | )          | 3,803              |       |
| Net assets acquired     |       | $         | 153,034    |       | $          | 51,467             |       | $ | 24,183 |   |

 

The preliminaryallocation of the purchase price of the above listed acquisitions is subject torevision based on the final determination of fair values, including thedetermination of the values assigned to the specifically-identifiableintangible assets acquired for certain of these acquisitions.

Pro Forma results are notmaterial for 2006 and therefore have not been presented.

*Restricted Cash*

The Company has$33,602 in restricted cash, deposited into an escrow account for a pending potentialtransaction in Mexico.

*MinorityShare Ownership Arrangements*

On December 22,2006, the Company acquired an additional 10% interest in UVM in Mexico.  This brings the Company’s total ownershipinterest in UVM to 90%.  As a result ofthe step acquisition, there are two Minority Put Arrangements held by theminority owners for the remaining 10%. The first put option period covers thetime after which the minority owners receive the December 31, 2006 auditedfinancial statements of UVM through 30 days after the minority owners receivethe December 31, 2011 audited financials of UVM.  During this period, the minority owners mayexercise the first put option one time for each calendar year with the minimumnumber of shares transferred to the Company on each occasion equal to 25% ofthe shares held by the minority shareholder. After the expiration of the first put option period and only during thecalendar year ending December 31, 2012, the minority owners are entitled tosell, transfer, assign and deliver all remaining shares to the Company. TheCompany has accounted for this Minority Put Arrangement as described in Note 2.

On November 8,2006, the Company acquired a 50% interest in CH Holdings Netherlands BV (“CHHoldings”), a joint venture which is assigned to the European segment.  A shareholder’s agreement with the sellersprovides the Company with three additional call options that enable the Companyto increase its ownership interest in CH Holdings to 100%.  The first 

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call option allowsfor an increase in the Company’s ownership in the CH Holdings to 58.75%.  The first call option requires a payment of$10,200 plus an amount equal to CH Holdings’ total cash minus its totallong-term debt multiplied by the sellers ownership percentage by October 30,2008.  The second option allows for anincrease in the Company’s ownership to 80% for an additional $10,200 plus anamount equal to CH Holdings’ total cash minus its total long term debtmultiplied by the sellers’ ownership percentage.  There is also a put option and a call optionfor the final 20% ownership of CH Holdings, which would be calculated at 6times prior fiscal year’s EBITDA plus the CH Holdings’s cash minus long termdebt multiplied by the sellers’ ownership percentage, subject to a minimum paymentof $20,000 applicable to the call option only, plus CH Holdings’ cash minuslong term debt multiplied by the sellers percentage, that can be exercisedprior to November 1, 2018 following the Company’s 80% purchase.  If none of the call options are exercised byOctober 30, 2008, the sellers are entitled to a one-time dividend preference of$6,000 in addition to the pro rata dividends distributed to all shareholders ofCH Holdings.  CH Holdings will pay theportion of the dividend that the Company is entitled to receive to the sellersuntil their $6,000 is reached. This arrangement is considered to be aCombination Exchange Contract Arrangement as described in Note 2.

**2005Acquisitions**

*UAM*

Effective onNovember 28, 2005, the Company acquired a 51% ownership of ISCP — SociedadeEducacional S.A., a private for profit company which owns and managesUniversidade Anhembi Morumbi, collectively (“UAM”).  The purchase price of $71,413, includingtransaction costs, was paid by cash of $56,917 and a $14,496 note payable(denominated in local currency) due in three annual installments, on each ofthe first three anniversary dates of the acquisition.  The Company allocated the purchase price toacquired identifiable tangible and intangible assets and liabilities assumedbased on estimated fair values at the date of acquisition, with the excessof  $46,462 recorded as goodwill as apart of the Campus Based — Latin America segment. The purchase price wasfinalized in 2006 with no significant adjustments. UAM was purchased to obtaina platform to provide educational services to the largest post secondaryeducational market in South America.

*Other 2005 Acquisitions*

In 2005, the Companyacquired the following entities for a total cost of $32,875, which was paidthrough a combination of cash and notes payable to the sellers:

·                  A45% interest in Cyprus College - Goodwill of $6,226 was recognized inconnection with the acquisition and assigned to the Campus Based - Europesegment. This acquisition expands the Europe segment.

·                  UNITEC- Goodwill of $1,227 was recognized in connection with the acquisition andassigned to the Campus-Based — Latin America segment. This acquisition expandsthe Company’s presence into Honduras in Central America.

·                  UNO— Goodwill of $2,593 was recognized in connection with the acquisition andassigned to the Campus-Based-Latin America segment. This acquisition shows thecontinued growth opportunities in Mexico.

For 2005, none ofthe goodwill related to these acquisitions is expected to be deductible forincome tax purposes.

The following tablesummarizes the estimated fair values of all assets acquired and liabilitiesassumed at the date of acquisition:
| ** **                     | ** ** | **UAM** | ** ** | **All other** | ** ** |
|--------------------------------|------------|---------|------------|--------------------|------------|
| Current assets                 |       | $       | 20,804     |               | $          | 7,353 |   |
| Property and  equipment        |       | 8,353   |       | 23,844             |       |
| Tradenames and  accreditations |       | 26,973  |       | 13,045             |       |
| Other intangible  assets       |       | 355     |       | 471                |       |
| Goodwill                       |       | 46,462  |       | 10,046             |       |
| Other long-term  assets        |       | 1,697   |       | 72                 |       |
| Total assets acquired          |       | 104,644 |       | 54,831             |       |
|                           |       |    |       |               |       |
| Current  liabilities           |       | 18,783  |       | 9,456              |       |
| Long-term debt                 |       | —  |       | 6,835              |       |
| Other long-term  liabilities   |       | 8,379   |       | 3,285              |       |
| Minority  interest             |       | 6,069   |       | 2,380              |       |
| Total liabilities              |       | 33,231  |       | 21,956             |       |
| Net assets acquired            |       | $       | 71,413     |               | $          | 32,875 |   |

 

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Pro forma resultsare not material for 2005 and therefore have not been presented.

*MinorityShare Ownership Arrangements*

As describedabove, effective on November 28, 2005 the Company acquired a 51% interest inUAM. Included in the purchase agreement are Put and Call provisions that areaccounted for as Minority Put Arrangements as further described in Note 2 andNote 11.

**2004Acquisitions**

*Walden*

Effective onSeptember 1, 2004, the Company acquired the remaining 49% ownership of Walden,increasing its ownership percentage to 100%. The purchase price of $108,446, including transaction costs, was paid byissuance of 2,500 shares of the Company’s common stock and a $19,000 notepayable paid in January 2005.  The value of the common shares issued wasdetermined based on the average market price of the Company’s common sharesover the two day period before and after the terms of the acquisition wereagreed to and announced.  TheCompany accounted for this step acquisition using the purchase method ofaccounting, allocating the purchase price to its incremental share of acquiredidentifiable intangible assets and liabilities assumed based on estimated fairvalues at the date of acquisition, with the excess of  $59,258 recorded as additional goodwill.  Walden was purchased to provide distancelearning capabilities by offering accredited Ph.D. and Master Degree programsto professional working adults.  Fullownership gives the Company the ability to consolidate its online offeringsunder the Walden post-secondary regional accreditation. Additionally, theremoval of minority shareholder rights allows Walden management to moreefficiently and effectively pursue new business opportunities.  The Company acquired a 41% stake in Waldenfor $32,800 in February 2001, and an additional 10% ownership for $8,000 inFebruary 2002, and also recorded these transactions as step acquisitions with atotal purchase price of $39,892, after subtracting previously recorded equityin net losses.   This step acquisitionwas made to increase our ownership to 100% of this business.

*Universidad Europea de Madrid (UEM)*

Effective onNovember 30, 2004, the Company acquired the remaining 22.25% ownership ofProuniversidad S.A., which owns and operates UEM, increasing the Company’sownership percentage to 100%.  Thepurchase price of $48,739, including transaction costs, was paid by transfer ofreal estate valued at $10,397, with the remainder in cash. The Companyaccounted for this step acquisition using the purchase method of accounting,allocating the purchase price to its incremental share of identifiableintangible assets and liabilities assumed based on estimated fair values at thedate of acquisition, with the excess of $20,651 recorded as additionalgoodwill.  The Company previouslyacquired a 54% ownership interest in UEM in 1999 and an additional 23.75%interest in 2001. Each purchase of additional interest was accounted for as astep acquisition, with a total purchase price of $96,480.  This step acquisition was made to increaseour ownership to 100% of this business.

*Other 2004 Acquisitions*

In 2004, the Company acquiredthe following entities for a total cost of $58,018, which was paid primarily incash:

·                  KITeLearning BV - Goodwill of $16,552 was recognized in connection with theacquisition and assigned to the Laureate Online Education segment. Thisacquisition was to expand Laureate Online Education into the Internationalmarket.

·                  IEDE- Goodwill of $3,569 was recognized in connection with the acquisition andassigned to the Europe segment. This acquisition was made to provide more postsecondary services in Spain.

·                  Hispanoamericana- Goodwill of $5,675 was recognized in connection with the acquisition andassigned to the Latin America segment. This acquisition was made to continue tothe growth of the Company’s Mexico business.

·                  An80% interest in UPC - Goodwill of $390 was recognized in connection with theacquisition and assigned to the Latin America segment. This acquisition wasmade to increase the Company’s post secondary presence in Latin America.

·                  ULACIT- Goodwill of $581 was recognized in connection with the acquisition andassigned to the Latin America segment. This acquisition was made to increasethe Company’s presence in Central America.

·                  UDLA-Ecuador-No goodwill was recognized in connection with the acquisition of an additional20% interest in UDLA-Ecuador, bringing total ownership to 80%.  This transaction was accounted for as a stepacquisition.

·                  A70% interest in ECE - Goodwill of $8,233 was recognized in connection with theacquisition and assigned to the Europe segment. This acquisition was made toincrease the Company’s presence and opportunities in France.

·                  A51% interest in IFG - Goodwill of $2,865 was recognized in connection with theacquisition and assigned to the Europe segment. This acquisition was made toincrease the Company’s presence and opportunities in France.

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For 2004, goodwillrelated to the acquisition of IEDE is deductible for income tax purposes.  The goodwill related to the remainingacquisitions is not deductible.

The following tablesummarizes the fair values of the all assets acquired and liabilities assumedat the date of acquisition:
| ** **                     | ** ** | **Walden** | ** ** | **UEM** | ** ** | **All other** | ** ** |
|--------------------------------|------------|------------|------------|---------|------------|--------------------|------------|
| Current assets                 |       | $          | —     |    | $          | —             |       | $ | 28,477 |   |
| Property and  equipment        |       | —     |       | 9,316   |       | 33,502             |       |
| Tradenames and  accreditations |       | 64,190     |       | 6,892   |       | 19,483             |       |
| Other intangible  assets       |       | 1,421      |       | 592     |       | 4,235              |       |
| Goodwill                       |       | 59,258     |       | 20,651  |       | 37,865             |       |
| Other long-term  assets        |       | —     |       | (3,826  | )          | 1,376              |       |
| Total assets acquired          |       | 124,869    |       | 33,625  |       | 124,938            |       |
|                           |       |       |       |    |       |               |       |
| Current  liabilities           |       | —     |       | 4,116   |       | 43,504             |       |
| Long-term debt                 |       | —     |       | —  |       | 17,045             |       |
| Other long-term  liabilities   |       | 26,244     |       | 2,620   |       | 7,001              |       |
| Minority  interest             |       | (9,821     | )          | (21,850 | )          | (630               | )          |
| Total liabilities              |       | 16,423     |       | (15,114 | )          | 66,920             |       |
| Net assets acquired            |       | $          | 108,446    |    | $          | 48,739             |       | $ | 58,018 |   |

 

The following unauditedconsolidated pro forma results of operations of the Company give effect to the2004 acquisitions, assuming that they occurred on January 1, 2004.

|                                                                                              | ** ** | **2004** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------|------------|
| Revenues                                                                                     |       | $        | 702,389    |   |
| Income from continuing operations before cumulative effectof change in  accounting principle |       | $        | 88,584     |   |
| Net income                                                                                   |       | $        | 68,937     |   |
| Earnings per common share, diluted:                                                          |       |     |       |
| Income from continuing  operations before cumulativeeffect of change in accounting principle |       | $        | 1.75       |   |
| Net Income                                                                                   |       | $        | 1.36       |   |

 

**SupplementalCash Flow Information Related to Acquired Businesses**

The following is asummary of changes to assets (other than cash), liabilities, and stockholders’equity as a result of the acquisitions described above:
| ** **                                             | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                             | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Working capital,  other than cash                      |       | $                                          | (547       | ) | $ | (3,724 | ) | $ | (36,881 | ) |
| Property and  equipment                                |       | 3,006                                      |       | 32,197 |   | 42,818 |   |
| Goodwill                                               |       | 147,499                                    |       | 56,508 |   | 117,774 |   |
| Other intangible  assets                               |       | 25,764                                     |       | 40,844 |   | 96,813 |   |
| Other long-term  assets                                |       | 350                                        |       | 1,769 |   | (2,450 | ) |
| Long-term debt                                         |       | —                                     |       | (6,835 | ) | (17,045 | ) |
| Due to  shareholders of acquired companies             |       | —                                     |       | (30,865 | ) | (23,232 | ) |
| Other  liabilities                                     |       | —                                     |       | (11,664 | ) | (35,865 | ) |
| Minority  interest                                     |       | 51,932                                     |       | (8,449 | ) | 32,301 |   |
| Net assets  acquired, other than cash                  |       | 228,004                                    |       | 69,781 |   | 174,233 |   |
|  Non-cash consideration, net of tax               |       | (10,277                                    | )          | — |   | (97,984 | ) |
| Cash purchase  price, net of cash received             |       | 217,727                                    |       | 69,781 |   | 76,249 |   |
| Direct costs of  acquisition paid in subsequent year   |       | —                                     |       | — |   | (487 | ) |
| Payments on due  to shareholders of acquired companies |       | 21,085                                     |       | 25,832 |   | 4,303 |   |
| Cash purchase price per  statement of cash flows       |       | $                                          | 238,812    |   | $ | 95,613 |   | $ | 80,065 |   |

** **

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**Note 6 — NotesReceivable (Long-term)**

Notes receivable(long-term) consists of the following amounts at December 31:

|                                                                                                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Trade notes receivable  (long-term), net of allowance of $11,761 and $9,328 at December 31, 2006 and  2005, respectively |       | $42,702  |       | $34,762  |       |
| Notes receivable  (long-term):                                                                                           |       |     |       |     |       |
| Kendall College                                                                                                          |       | 33,031   |       | 25,395   |       |
| WSI Education  S.a.r.l. (See Note 4)                                                                                     |       | 14,994   |       | 13,448   |       |
| Other                                                                                                                    |       | 6,231    |       | 10,208   |       |
|                                                                                                                     |       | $96,958  |       | $83,813  |       |

 

The gross increasein long-term trade notes receivable of $10,373 is due to the primary enrollmentat the Chilean universities. Tuition revenues are generally billable and thefull amount of notes receivable and related deferred revenue are recorded whena note agreement is signed by the student.

The Company has implemented pilot tuitionfinancing programs at its Chilean universities in order to establish a lendingand collections history in this market and attract third party lenders.  At December 31, 2006 and 2005, respectively,the Company has long-term tuition finance receivables of $39,053 and $32,554, netof allowance of $11,691 and $9,328, respectively, which are included in tradenotes receivable above.  Interest incomeunder these programs for the years ended December 31, 2006 and 2005 was $4,957and $2,449, respectively.  The repaymentterms on the tuition financing programs vary and range from three to eightyears.

On July 21, 2004, the Company entered into anarrangement with Kendall College (“Kendall”), a not-for-profit corporation thatoperates a private post-secondary school in Illinois offering culinary andrelated degree programs. Under the terms of the arrangement, the Companyreceived the right to purchase from Kendall substantially all of its assets, includingthe campus, and the current right to offer the Company’s hospitality managementcurriculum through a licensing agreement with Kendall College.  In accordance with the terms of theseagreements, the Company committed to assist Kendall with working capital needsand capital improvements to its Riverworks campus.

The purchase option gives the Company the right topurchase substantially all of Kendall’s assets, including the campus,  for a purchase price of the aggregateprincipal amount and accrued interest outstanding under the subordinated notespayable agreements plus assumption of the aggregate principal amount of themortgages on Kendall’s Riverworks campus and specific other liabilities. Theoriginal arrangement, as amended, grants the Company the right to exercise thepurchase option through September 1, 2007. The Company is in the process of negotiating the arrangement to extendthe purchase option through March 31, 2008.

The subordinated note agreements consist of multiplepromissory notes that accrue interest at 8% and are due upon the exercise ofthe option by applying the balance due to the purchase price on the date theoption is exercised.  If the option isnot exercised, the balance of some of the promissory notes will be appliedagainst payments due under a lease agreement for part of the Riverworks Campusby the Company, and the remaining note balances will be due in 36 equal monthlyinstallments beginning March 31, 2008. The subordinated note agreements are secured by a second lien on theproperty.

In the event that the Company does not exercise theoption agreement, the Company will enter into a lease agreement with Kendall beginningSeptember 1, 2007 to lease space in the Riverworks campus, allowing the Companyto offer post-secondary educational programs including its hospitalityprogram.  Upon successful negotiation ofthe arrangement as discussed above, the inception date of the lease agreementwill be also extended to March 31, 2008 if the Company does not exercise theoption agreement.  The lease commitmentspecifies a term of 36 months and annual rent of $1,275.

The program educational licensing agreement allowsKendall the right to use certain intellectual property of Les Roches SwissHotel Association Hotel Management School (“Les Roches”) for purposes ofoffering a hospitality management 

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degree for a two year period beginning July 22, 2004in exchange for a royalty based on a fixed percentage of the collectedhospitality management net program tuition fees.  The agreement was extended for an additional2 years after the initial termination date.

Kendall also offers an undergraduate degree in earlychildhood education in partnership with Canter. This program agreement iseffective until December 31, 2008.  As ofDecember 31, 2006 there were 274 students in this program.

**Note 7— Goodwilland Other Intangible Assets**

The changes in the net carrying amount of goodwill forthe years ended December 31, 2006 and 2005 by reportable business segment arefollows:
| ** **                 | ** ** | **Balance at   December 31,   2005  (as restated —   Note 2)** | ** ** | **Acquisitions** | ** ** | **Translation  and Other** | ** ** | **Balance at  December 31,   2006** | ** ** |
|----------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|------------------|------------|---------------------------------|------------|----------------------------------------------------|------------|
| Latin America              |       | $                                                                                                           | 184,255    |             | $          | 125,805                         |       | $                                                  | 2,880      |   | $ | 312,940 |   |
| Europe                     |       | 74,019                                                                                                      |       | 21,694           |       | 15,386                          |       | 111,099                                            |       |
| Laureate Online  Education |       | 153,941                                                                                                     |       | —           |       | 1,831                           |       | 155,772                                            |       |
|                       |       | $                                                                                                           | 412,215    |             | $          | 147,499                         |       | $                                                  | 20,097     |   | $ | 579,811 |   |

 
| ** **                 | ** ** | **Balance at   December 31,   2004  (as restated —   Note 2)** | ** ** | **Acquisitions** | ** ** | **Translation   and Other** | ** ** | **Balance at   December 31,  2005  (as restated —   Note 2)** | ** ** |
|----------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|------------------|------------|---------------------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|
| Latin America              |       | $                                                                                                           | 130,446    |             | $          | 48,495                                |       | $                                                                                                     | 5,314      |   | $ | 184,255 |   |
| Europe                     |       | 78,925                                                                                                      |       | 7,392            |       | (12,298                               | )          | 74,019                                                                                                |       |
| Laureate Online  Education |       | 155,906                                                                                                     |       | —           |       | (1,965                                | )          | 153,941                                                                                               |       |
|                       |       | $                                                                                                           | 365,277    |             | $          | 55,887                                |       | $                                                                                                     | (8,949     | ) | $ | 412,215 |   |

 

The following table summarizes intangible assets as ofDecember 31, 2006:
| ** **                      | ** ** | **Gross Carrying   Amount** | ** ** | **Accumulated   Amortization** | ** ** | **Net Carrying   Amount** | ** ** |
|---------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
| *Subject  to amortization:*     |       |                                  |       |                                |       |                                |       |
| Student rosters                 |       | $                                     | 22,945     |                                | $          | (19,484                             | )          | $ | 3,461 |   |
| Non-compete agreements          |       | 1,363                                 |       | (1,151                              | )          | 212                                 |       |
| Other                           |       | 1,085                                 |       | (549                                | )          | 536                                 |       |
| *Not  subject to amortization:* |       |                                  |       |                                |       |                                |       |
| Tradenames and accreditations   |       | 261,009                               |       | —                              |       | 261,009                             |       |
| Total                           |       | $                                     | 286,402    |                                | $          | (21,184                             | )          | $ | 265,218 |   |

 

The following table summarizes intangible assets as ofDecember 31, 2005:
| ** **                      | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net Carrying  Amount** | ** ** |
|---------------------------------|------------|---------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| *Subject  to amortization:*     | * *   | * *                        | * *   | * *                      | * *   | * *                      | * *   |
| Student rosters                 |       | $                               | 19,496     |                          | $          | (12,757                       | )          | $ | 6,739 |   |
| Non-compete agreements          |       | 1,288                           |       | (974                          | )          | 314                           |       |
| Other                           |       | 776                             |       | (666                          | )          | 110                           |       |
| *Not subject  to amortization:* | * *   | * *                        | * *   | * *                      | * *   | * *                      | * *   |
| Tradenames and accreditations   |       | 215,112                         |       | —                        |       | 215,112                       |       |
| Total                           |       | $                               | 236,672    |                          | $          | (14,397                       | )          | $ | 222,275 |   |

 

Amortization expense for intangible assets subject toamortization was $6,580 in 2006, $4,855 in 2005, and $4,428 in 2004. The estimatedfuture amortization expense for intangible assets for each of the five yearssubsequent to December 31, 2006 is as follows: 2007 - $2,686; 2008 - $827; 2009- $394; 2010 - $255; 2011 and beyond - $47.

As of December 31, 2006, the weighted average amortizationperiod of total intangible assets subject to amortization is 2.8 years.   The weighted average amortization period ofthe student roster, non-compete agreements, and other intangibles is 2.9 years,1.6 years, and 0.4 years, respectively.

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**Note 8 —Long-Term Debt**

Long-term debtconsists of the following:
| ** **                                                                                           | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                           | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Long-term credit lines  under the Bank Facility bearing interest at ratesranging from 6.83% to 6.90% |       | $                     | 208,040    |                  | $          | — |   |
| Various unsecured lines  of credit bearing interest at variable rates ranging from 3.45% to 8.95%    |       | 74,923                |       | 51,332                |       |
| Mortgage notes payable  bearing interest at variable rates ranging from 3.35% to 8.50%               |       | 52,220                |       | 52,429                |       |
| Notes payable secured  by fixed assets, bearing interest at rates ranging from 3.95% to 10.00%       |       | 27,981                |       | 24,239                |       |
| Capital lease  obligations bearing interest at rates ranging from 2.60% to 9.00%                     |       | 22,699                |       | 12,374                |       |
| Various notes payable  bearing interest at fixed rates ranging from 3.00% to 8.09%                   |       | 18,638                |       | 19,742                |       |
| Fixed Purchase Price  Arrangement (See Notes 2 and 11)                                               |       | 8,446                 |       | —                |       |
| Similar Exchange  Contract Arrangements (See Notes 2 and 11)                                         |       | 7,467                 |       | —                |       |
| Various notes payable  bearing interest at variable rates ranging from 6.50% to 9.05%                |       | 2,988                 |       | 2,925                 |       |
|                                                                                                 |       | 423,402               |       | 163,041               |       |
| Less: current portion  of long-term debt                                                             |       | 95,668                |       | 63,044                |       |
| Total long-term debt, net of current portion                                                         |       | $                     | 327,734    |                  | $          | 99,997 |   |

 

The Company’slong-term debt including long-term capital lease obligations is secured byassets with a carrying value of $203,987 at December 31, 2006 and $192,987 atDecember 31, 2005.  Aggregate maturitiesof the Company’s borrowings are as follows: 2007 - $95,668; 2008 - $21,880;2009 - $12,824; 2010 - $11,244; 2011 - $219,527 and thereafter $62,259.

OnAugust 16, 2006, the Company entered into a $250,000 Credit Agreement (the “BankFacility”) with JPMorgan Chase Bank, National Association (“JPMorgan Chase”)and certain other parties thereto. The Bank Facility expires on August 16, 2011and is comprised of two sub-facilities:  a U.S. sub-facility for $150,000and a Spanish sub-facility for $100,000. The Bank Facility has a swingline loanfeature of up to $10,000 and an expansion feature for an aggregate principalamount of up to $100,000.  The Companyentered into a First Amendment to the Bank Facility during the fourth quarterof 2006 (the “Amendment”), which increased the aggregate maximum principalamount of the facility from $250,000 to $350,000 through the use of the$100,000 expansion feature, such that the maximum principal amount of the U.S.sub-facility increased from $150,000 to $200,000 and the maximum principalamount of the Spanish sub-facility increased from $100,000 to $150,000.  The new borrowings were used in part to repaythe Company’s prior credit agreement dated as of October 26, 2005 with Bank ofAmerica, National Association, which was terminated at the time of repayment,except for a $5,000 swingline that was kept in place.  The proceeds of subsequent borrowings underthe Bank Facility including the Amendment will be used for general corporatepurposes, including acquisitions and the transaction described in Footnote5.  The amendment also permits therefinancing and repayment of certain indebtedness of the Company’s Chileanoperations.

TheBank Facility provides that all borrowings under the U.S. sub-facility aredenominated in U.S. Dollars. Borrowings under the Spanish sub-facility may bedenominated in U.S. Dollars or foreign currency. Borrowings bear interest (a)in the case of U.S. Dollar-denominated loans, at the Borrower’s option, ateither (i) the applicable LIBOR rate or (ii) the higher of JPMorgan Chase’sprime rate or the Federal Funds effective rate (the “Alternate Base Rate”),plus, in the case of both (i) and (ii), a margin that varies according to theCompany’s net leverage ratio; (b) in the case of loans denominated in foreigncurrency, at the applicable LIBOR rate plus a margin that varies according tothe Company’s net leverage ratio; and (c) in the case of swingline loans, atthe Alternate Base Rate, as defined in the Bank Facility.

TheBank Facility contains affirmative and negative covenants, including covenantsrelated to maintenance of the Company’s net leverage ratio and interest expensecoverage ratio and covenants restricting indebtedness, liens, investments, 

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assettransfers and distributions. The obligations of the Company under the BankFacility are guaranteed by certain subsidiaries, and, in the case of theSpanish sub-facility, by the Company. The obligations of the Company under theBank Facility are secured by a pledge of certain equity interests and otherassets of the Company.

During the thirdquarter of 2006, Universidad Del Valle De Mexico (“UVM”) entered into a newcredit line for $27,771.  The term of thecredit line is 30 months with decreases in the available line of $2,777 perquarter.  The interest rate of the creditline is the Mexican interbank rate (“TIEE”) plus 1%.  In addition, UVM also renewed two existingcredit lines during the third quarter for an aggregate borrowing capacity of$37,028.  During the fourth quarter of2006, UVM entered into another new credit line for $27,771.  The term of the credit line is 5 years andthe interest rate of the credit line is the TIEE plus 1.5%. The proceeds of theborrowings are used to support the growth of UVM.  In addition, the proceeds of the borrowingswill be used to fund working capital needs including acquisitions.

Individual unitswithin campus-based operations have the ability to borrow under unsecured linesof credit totaling $111,224, primarily for working capital purposes.  The aggregate outstanding balance on thesecampus-based segments’ lines of credit was $74,925 at December 31, 2006, whichis included in the current portion of long-term.

The weightedaverage short term borrowing rate was 7.3% and 6.0% at December 31, 2006 andDecember 31, 2005, respectively.

**Note 9 —Due to Shareholders of Acquired Companies**

Due to shareholders ofacquired companies consists of the following amounts payable in cash atDecember 31:
| ** **                                                                | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Amounts payable  to former shareholders of:                               |       |     |       |     |       |
| Universidad  Tecnologica Centroamericana (“UNITEC”)             |       | $        | 15,038     |     | $          | 14,814 |   |
| Universidad  Andres Bello (“UNAB”)                              |       | 13,827   |       | 24,929   |       |
| Universidade  Anhembi Morumbi (“UAM”)                           |       | 10,831   |       | 13,658   |       |
| Universidad  Peruana de Ciencias Aplicadas (“UPC”)              |       | 3,059    |       | 2,859    |       |
| Universidad del  Noroeste (“UNO”)                               |       | 1,882    |       | 1,890    |       |
| Compania de  Servicios Educativos (“CSE”)                       |       | 528      |       | —   |       |
| Universidad  Latinoamericana de Ciencia y Tecnologia (“ULACIT”) |       | 100      |       | 100      |       |
| Universidad  Interamericana (“UI”)                              |       | —   |       | 4,200    |       |
| Cyprus College                                                            |       | —   |       | 2,973    |       |
|                                                                      |       | 45,265   |       | 65,423   |       |
| Less: current  portion of due to shareholders                             |       | 21,781   |       | 18,737   |       |
| Total due to  shareholders, net of current portion                        |       | $        | 23,484     |     | $          | 46,686 |   |

 

During the fourth quarter of 2006, the Company entered into an agreementwith the sellers of CSE to finance a portion of the purchase price of theacquisition.  The principal amount of theseller note will be repaid in equal installments over the next five years.  The purchase obligation is denominated inEuros, and is subject to foreign currency exchange risk on the dates ofpayment.

In conjunction with the acquisition of UNITEC in July 2005, the Companyentered into an agreement with the sellers to finance a portion of the purchaseprice.  This agreement calls for theCompany to make a one-time payment to the sellers of approximately $1,491 onthe fourth anniversary of the closing and additional monthly payments over a15-year period beginning at acquisition, with current monthly payments ofapproximately $91, adjusted annually for inflation.  The Company recorded these obligations attheir present value of $15,038.  Theamounts payable to the sellers are denominated in Honduran Lempiras, and aresubject to foreign currency exchange risk at the dates of payment.

In conjunction with the acquisition of UAM in December 2005, the Companyentered into an agreement with the prior owners of UAM to finance a portion ofthe purchase price.  The principal amountof the seller note will be repaid in equal installments at each of the firstthree anniversary dates of the acquisition with the first payment made inDecember 2006.  The seller note includesa provision to protect the sellers from inflation, defined within the agreementas interest calculated at the rate of Indice Geral de Precos-Mercado (“IGPM”).  The purchase obligation is denominated inBrazilian Reais, and is subject to foreign currency exchange rate risk on thedates of payments.

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During 2006, the amount payable to the former shareholders of CyprusCollege was re-evaluated under the terms of the terms of the purchaseagreement.  As a result, the liabilityand corresponding goodwill recorded in the transaction were decreased.

**Note 10 —Leases and Related Party Transactions**

The Companyconducts significant operations from leased facilities.  These facilities include the Company’scorporate headquarters and other office locations, as well as several of theCompany’s higher education facilities. The terms of these leases varies and generally contain renewaloptions.  The Company also leases certainequipment under non-cancelable operating leases, the majority of which are forterms of 60 months or less.  The Companyrecords rent expense on a straight-line basis over the initial term of alease.  Any difference between the rentpayment and the straight-line expense is recorded as a liability.  There are no lease obligations related todiscontinued operations at December 31, 2006. Future minimum lease payments at December 31, 2006, by year and in theaggregate, for continuing operations, under all non-cancelable operating leasesand subleases are as follows:

|                            | ** ** | **Total   Operating   Leases** | ** ** | **Total   Sublease** | ** ** |
|----------------------------|------------|------------------------------------------|------------|---------------------------|------------|
| Years ending  December 31: |       |                                     |       |                      |       |
| 2007                       |       | $                                        | 48,685     |                      | $          | 2,884 |   |
| 2008                       |       | 49,613                                   |       | 2,485                     |       |
| 2009                       |       | 48,025                                   |       | 2,307                     |       |
| 2010                       |       | 45,640                                   |       | 1,912                     |       |
| 2011                       |       | 44,013                                   |       | 1,269                     |       |
| Thereafter                 |       | 252,406                                  |       | —                    |       |
|                       |       | $                                        | 488,382    |                      | $          | 10,857 |   |

 

The Company hasentered into sublease agreements for certain leased office space adjustedannually for increases in gross operating rent and related expenses.  The sublease agreements have variousexpiration dates through 2011.

The Companyentered into lease agreements for its university campuses in Mexico withcertain officers and minority owners of the Company’s Mexican universitysubsidiary.  The leases had an initialterm of ten years with an additional two-year extension available at theCompany’s option. During 2002, this lease was amended to include an additionalthree-year extension available at the Company’s option, for a total term of upto 15 years.  The amended lease alsocontains a provision for the Company, at its option, to purchase the realestate for the fair market value of the property, less the Company’s net bookvalue of leasehold improvements, at the end of the lease term.  Fixed monthly rent payments are adjustedannually for inflation. The Company recognized approximately $7,104, $6,855 and$5,645 of rent expense under these leases for the years ended December 31,2006, 2005, and 2004, respectively.

During 2003, theCompany entered into a lease agreement for UI campuses located in Costa Ricaand Panama with certain former owners, and in 2004 entered into another leaseagreement for the ULACIT campus.  Bothleases have initial terms of fifteen years, with additional five-yearextensions available at the Company’s option. The leases also contain provisions for the Company, at its option, topurchase the real estate for its fair market value at any time.  Under the UI lease, monthly rental paymentsare based on eight percent of net campus revenues for the first two years andten percent of net campus revenues in the third year.  Rental payments are fixed as of 2007, andsubsequent rental payments will be adjusted for inflation and have a 180 daycancellation clause.  The Companyrecognized approximately $1,564, $1,093 and $842 of rent expense under the UIlease for the years ended December 31, 2006, 2005, 2004, respectively.  The ULACIT lease has fixed monthly rentalpayments.  The Company recognizedapproximately $909, $835 and $87 of rent expense under the ULACIT lease for theyears ended December 31, 2006 and 2005 and the period from October 25, 2004through December 31, 2004, respectively.

The Companyentered into lease agreements for most of UAM’s university campus facilitieswith its minority owners. The leases have an initial term of 20 years with twoadditional extensions of 20 years each, available at the Company’s option. Baseannual rent expense under the lease agreements is approximately $6,000. Rentsare adjusted annually for inflation. The contracts give the Company the rightof first refusal to purchase these properties in the case that the lessordecides to sell the properties.  If UAMwere to elect to vacate the premises prior to the lease termination date, theagreements contain certain conditional purchase options, which if not exercisedby the Company, may result in early exit penalties. The lease agreements enablethe Company to operate UAM at its already established campuses. The collectivevalue of these contracts was determined by arms-length negotiation between theparties and based upon the then prevailing market rates, and was 

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corroborated by anindependent real estate appraisal. The Company recognized approximately $6,000and $500 of rent expense under these leases for the year ended December 31,2006 and the period December 1, 2005 through December 31, 2005.

The Company hasentered into an agreement with Educate, Inc. (“Educate”) to transfer certainrentable space at 1001 Fleet Street along with the space they currentlysub-lease from the Company.  With theconsent of the landlord, Educate will assume the lease as the tenant, which iscurrently estimated to be June 1, 2007. The Company will pay Educate an allowance for the square feet andprovide two months free rent.  Educatewill pay $400 for leasehold improvements in the space.  The Company will retain a lease for a portionof the 1001 Fleet Street building.

Rent expense, netof sub-lease income, included in income from continuing operations for allcancelable and non-cancelable leases was approximately $55,123, $39,073, and$27,767 for the years ended December 31, 2006, 2005 and 2004,respectively.  Rent expense, net of sub-leaseincome, included in income from discontinued operations for all cancelable andnon-cancelable leases was approximately $450, $1,140, and $6,135 for the yearsended December 31, 2006, 2005 and 2004, respectively.

**Note 11 —Commitments and Contingencies**

This chart provides a high-level summary of thevarious Minority Share Ownership Purchase Arrangements the Company hadoutstanding as of December 31, 2006. Also, in connection with certain acquisitions, variable amounts ofcontingent consideration are payable to the sellers based upon specified terms.
| Higher Education Institution         | ** ** | **Date of Contingency**                       | ** ** | **Additional   Ownership Share** | ** ** | **Terms of Contingent Transaction**                                                                                                                                                    |
|--------------------------------------|------------|-----------------------------------------------|------------|----------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Company Call Right Arrangements:** |       |                                          |       |                             |       |                                                                                                                                                                                   |
| UAM (1)                              |       | March 1, 2009                                 |       | 29%                              |       | The greater of 4 times recurring EBITDA for certain  specified periods or equivalent per share valuation of the Company’s initial  51% acquisition of UAM, adjusted for inflation |
|                                      |       |                                          |       |                             |       |                                                                                                                                                                                   |
|                                 |       | Beginning March 1, 2013 through March 1, 2023 |       | 20%                              |       | The greater of 4 times recurring EBITDA for certain  specified periods or equivalent per share valuation of the Company’s initial  51% acquisition of UAM, adjusted for inflation |
| ** **                           |       |                                          |       |                             |       |                                                                                                                                                                                   |
| **Minority Put Right Arrangements:** |       |                                          |       |                             |       |                                                                                                                                                                                   |
| UAM(2), (5)                          |       | March 1, 2009                                 |       | 29%                              |       | Approximately 4 times recurring EBITDA for certain  specified periods                                                                                                                  |
|                                      |       |                                          |       |                             |       |                                                                                                                                                                                   |
|                                 |       | Beginning March 1, 2013 through March 1, 2023 |       | 20%                              |       | Variable purchase price based on recurring EBITDA  for certain specified periods                                                                                                       |

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|                                         |   |                                                                                                                     |   |      |   |                                                                                                                                                                                                                                                                                                                                                                                           |
|-----------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| UVM (3), (5)                            |   | Beginning when minority owners receive the December  31, 2006 audited UVM financial statements through December 31, 2011 |   | Up to 10% |   | Approximately 7 times earnings before interest and  taxes (“EBIT”) of the previous calendar year times the percentage of shares  being sold by minority owners                                                                                                                                                                                                                       |
|                                         |   |                                                                                                                     |   |      |   |                                                                                                                                                                                                                                                                                                                                                                                           |
|                                    |   | Beginning January 1, 2012 through December 31, 2012                                                                      |   | Up to 10% |   | Approximately 7 times EBIT of the previous calendar  year times the percentage of shares being sold by minority owners                                                                                                                                                                                                                                                                         |
|                                    |   |                                                                                                                     |   |      |   |                                                                                                                                                                                                                                                                                                                                                                                           |
|  IFG (4), (5)                      |   | October through November 2008                                                                                            |   | 10%       |   | $1,056                                                                                                                                                                                                                                                                                                                                                                                         |
|                                         |   |                                                                                                                     |   |      |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| **Combination  Exchange Arrangements:** |   |                                                                                                                     |   |      |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| ***Company  Call Right Arrangements:*** |   |                                                                                                                     |   |      |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| Cyprus College  (6)                     |   | Beginning July 1, 2006                                                                                                   |   | 35%       |   | 6% - Payable April 2007 based on 6.25 times 2006  audited recurring EBITDA                                                                                                                                                                                                                                                                                                                     |
|                                    |   |                                                                                                                     |   |      |   |                                                                                                                                                                                                                                                                                                                                                                                           |
|                                         |   |                                                                                                                     |   |      |   | 29% - Payable April 2012 based on a variable scale  for new enrollments and 2011 EBITDA                                                                                                                                                                                                                                                                                                        |
|                                    |   | January 1, 2012 or up to five years thereafter                                                                           |   | 20%       |   | Payable April in the year following exercise based  on a variable scale for new enrollments and EBITDA related to the year prior  to exercise                                                                                                                                                                                                                                                  |
|                                    |   |                                                                                                                     |   |      |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| CH Holdings Netherlands BV (7)          |   | On or before October 31, 2008                                                                                            |   | 8.75%     |   | $10,200 plus an amount equal to CH Holdings  Netherlands BV’s total cash minus its long-term debt multiplied by the  Sellers’ ownership percentage                                                                                                                                                                                                                                   |
|                                         |   |                                                                                                                     |   |      |   |                                                                                                                                                                                                                                                                                                                                                                                           |
|                                    |   | On or before October 31, 2008                                                                                            |   | 21.25%    |   | $10,200 plus an amount equal to CH Holdings JV’s  total cash minus its long-term debt multiplied by the Sellers’ ownership  percentage                                                                                                                                                                                                                                               |
|                                    |   |                                                                                                                     |   |      |   |                                                                                                                                                                                                                                                                                                                                                                                           |
|                                         |   | Beginning November 1, 2008 through November 1, 2018                                                                      |   | 20%       |   | Approximately 6 times prior twelve months EBITDA  plus CH Holdings Netherlands BV’s cash minus long-term debt multiplied by the  Sellers’ ownership percentage with a minimum payment of $20,000 divided by  the total number of shares representing the 20% plus CH Holdings Netherlands  BV’s cash minus long-term debt multiplied by the Sellers’ ownership  percentage |
|                                         |   |                                                                                                                     |   |      |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| ***Minority  Put Right Arrangements:*** |   |                                                                                                                     |   |      |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| Cyprus College 6                        |   | April 1, 2012 or up to five years thereafter                                                                             |   | 20%       |   | Payable based on a variable scale for new  enrollments and EBITDA related to the year prior to exercise                                                                                                                                                                                                                                                                                        |

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| CH Holdings Netherlands BV (7)                            |   | Beginning November 1, 2008 through November 1, 2018                               |   | 20%    |   | Approximately 6 times prior twelve months EBITDA  plus CH Holdings JV’s cash minus long-term debt multiplied by the Sellers’  ownership percentage                                                                                                                                                  |
|-----------------------------------------------------------|--------|-----------------------------------------------------------------------------------|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                           |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                          |
| **Similar  Exchange Contract Arrangements:**              |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                          |
| UPC (8)                                                   |   | Period from April 1st to June 30th of each calendar year following 2006 |   | 20%    |   | Approximately 4.25 times audited EBITDA for the  preceding calendar year adjusted for a predefined rent formula minus the  outstanding balance of all UPC’s long-term interest bearing debt plus the  market value of any real estate owned by UPC multiplied by the Sellers’  ownership percentage |
| ** **                                                |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                          |
| **Fixed Purchase Price Arrangements:**                    |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                          |
| Ecole Centrale d’Electronique  (“ECE”) (9) |   | December 31, 2008                                                                 |   | 30%    |   | $9,241                                                                                                                                                                                                                                                                                                        |
|                                                           |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                          |
| **Capital  Contribution Obligations:**                    |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                          |
| IFG (10)                                                  |   | On or before July 31, 2007                                                        |   | 16%    |   | $1,655                                                                                                                                                                                                                                                                                                        |
|                                                      |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                          |
|                                                           |   | July 31, 2007                                                                     |   | 23%    |   | $2,465                                                                                                                                                                                                                                                                                                        |
|                                                           |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                          |
| **Contingent  Earnouts (cash payments):**                 |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                          |
| Laureate Online  Education BV (11)                        |   | April 1, 2007                                                                     |   |   |   | Approximately 75% of 4 times 2006 EBITDA, not to  exceed $10,000                                                                                                                                                                                                                                              |
|                                                      |   |                                                                              |   |   |   |                                                                                                                                                                                                                                                                                                          |
|                                                           |   | April 1, 2008                                                                     |   |   |   | Approximately 4 times the average of 2006 and 2007  EBITDA, not to exceed $10,000, less the April 1, 2007 payment                                                                                                                                                                                             |

 

Obligations andcontingent payments (except for the contingent earnout on Laureate OnlineEducation BV) are denominated in foreign currency and are subject to foreigncurrency risk.

*Company Call Right Arrangements*

(1)             EffectiveMarch 1, 2009, the Company has a call right to acquire a 29% interest from theminority owners for a variable purchase price equal to the greater of 4.0 timesrecurring EBITDA for certain specified periods with a minimum payment of theequivalent per share valuation of the Company’s initial 51% acquisition of UAM,as adjusted for local inflation. Beginning March 1, 2013, and continuing forten years, the Company has another call right on the remaining 20% interest ofthe minority owners, with the purchase price determined based on a similarformula.  No accounting for thisarrangement is included in the Company’s financial statements.

                           *Minority PutRight Arrangements*

                           The below arrangements areaccounted for as Minority Put Right Arrangements as described in Note 2.

(2)             EffectiveMarch 1, 2009 the minority owners of UAM have a put right to require theCompany to purchase an equity interest of 29% from the minority owners at avariable purchase price based on 4.0 times recurring EBITDA for certainspecified periods. Beginning March 1, 2013, and continuing for ten years, theminority owners hold a second put right to require the Company to purchase theremaining 20% interest from the minority owners, with the purchase pricedetermined based on a similar formula. As of December 31, 3006, the Company recorded $3,652 in minorityinterest and minority ownership put arrangements on the consolidated balancesheet for this arrangement.

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(3)             Asa part of the 10% step acquisition of UVM in 2006, there are two put optionsheld by the minority owners for the remaining 10% interest.  Thefirst put option covers the time after which the minority owners receive theDecember 31, 2006 audited financial statements of UVM through December 31,2011.  During this period, the minorityowners may exercise the first put option one time for each calendar year withthe minimum shares transferred to the Company on each occasion equal to 25% ofthe shares held by the minority shareholders. Beginning January 1, 2012 through December 31, 2012, the minority ownershave a second put right to require the Company to purchase all remainingshares.  The put price for both putoptions is equal to approximately 7.0 times EBIT of the previous calendar yeartimes the percentage of shares being sold by the minority owners.  As the transaction was completed at the endof December 2006 no additional accounting was reflected for this Minority PutRight Arrangement in the financial statements.

(4)             During the period October through November 2008,the sellers of IFG may exercise a put option requiring the Company to purchasethe remaining 10% ownership for approximately $1,056.  As of December 31, 2006 the Company recorded$562 in minority interest and minority ownership put arrangements on theconsolidated balance sheet for this arrangement.

(5)             The$4,214 related to Minority Put rightarrangements is the present value of the Redeemable Minority Interestsassociated with the Brazilian, Mexican and French acquisitions that is inexcess of the minority interest for those entities.  Also as part of a methodology election, theCompany has chosen to adopt an accretion method which allows the Company toaccrete changes in the redemption value over the period from the date of issuances.  As such, the Company has elected to onlyreflect a pro-rata portion of the change in liability based on the time elapsedin the Put instrument which is significantly lower than the final amount thatwill be required to settle the minority put arrangement.  If the Minority put arrangements were allexercisable at December 31, 2006, the Company would be obligated to pay theminority shareholders $80,700.

                           *CombinationExchange Contract Arrangements*

                           As described in Note 2,there is no accounting for Combination Exchange Contract Arrangements describedbelow as it is not probable that the Company will exercise its Call rights.

(6)             EffectiveApril 1, 2012 and exercisable up to five years thereafter, the minority ownersof Cyprus College have a put right to require the Company to purchase an equityinterest of 20% from the minority owners at a variable purchase price based ona variable scale for new enrollments and EBITDA for the calendar year precedingthe exercise date.  Beginning July 1,2006, the Company has a call right to acquire up to a 35% interest from theminority owners for a variable purchase price based on a variable scale for newenrollment and 2006 EBITDA.  EffectiveJanuary 1, 2012 and exercisable up to five years thereafter, the Company hasthe call right to acquire the remaining 20% interest from the minority ownersfor a variable purchase price based on a variable scale for new enrollment andEBITDA for the calendar year preceding the exercise date.

(7)             Asa part of the acquisition of CH Holdings Netherlands BV, there are threepurchase options that enable the Company to increase its ownership interest to100%.  The first option allows theCompany to increase its ownership in CH Holdings Netherlands BV to 58.75% if byOctober 30, 2008 it makes an additional $10,200 payment plus an amount equal toCH Holdings Netherlands BV’s total cash minus its total long-term debtmultiplied by the seller’s ownership percentage.  After exercising the first call option andbefore October 30, 2008, the Company has a second call right to increase itsownership to 80% for an additional $10,200 plus an amount equal to CH HoldingsNetherlands BV’s total cash minus its total long-term debt multiplied by theseller’s ownership percentage.  There is aput/call option for the final 20% ownership that can be exercised following thesecond call option.  The put option willbe calculated at 6.0 times the prior twelve months EBITDA plus CH HoldingsNetherlands BV’s total cash minus its total long-term debt multiplied by theseller’s ownership percentage.  The calloption will be calculated at 6.0 times the prior twelve months EBITDA plus CHHoldings Netherlands BV’s total cash minus its total long-term debt multipliedby the seller’s ownership percentage, with a minimum payment of $20,000 plus CHHoldings Netherlands BV’s cash minus its total long-term debt multiplied by theseller’s percentage.

                           *SimilarExchange Contract Arrangements*

                           The below arrangement isaccounted for as a Similar Exchange Contract as described in Note 2.

(8)             Duringthe period of April 1st through June 30th ofeach calendar year following 2006, there are put and call options with similarterms which enable the Company to acquire or the minority owners to require theCompany to purchase the remaining 20% ownership in UPC.  The Put and Call options are set at approximately4.25 times the audited EBITDA for the preceding calendar year adjusted for apredefined rent formula minus the outstanding balance of all long-term interest

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                           bearing debt at UPC plus themarket value of any real estate owned by UPC at the time of the optionmultiplied by the seller’s ownership percentage.  As of December 31, 2006, the value of the liabilityreflected on the Company’s balance sheet is $7,467 for this Similar ExchangeContract.

                           *Fixed PricePurchase Contract Arrangements*

                           The below arrangement isaccounted for as a Fixed Price Purchase Contract as described in Note 2.

(9)             Aspart of the acquisition of ECE, the Company committed to purchase the remaining30% ownership from the sellers on December 31, 2008 for approximately$9,241.  The purchase obligation is denominatedin Euros, and is subject to foreign currency exchange rate risk on the date ofpayment.  As of December 2006, the valueof the debt reflected on the Company’s balance sheet is $8,446.

                           *CapitalContribution Obligations*

(10)       Aspart of the acquisition of IFG, the Company committed to additional capitalcontributions, which will increase theCompany’s share of ownership by diluting present minority ownership.  The agreement provides that, no later thanJuly 31, 2006 and July 31, 2007, the Company shall contribute approximately$1,655 and $2,465 resulting in an increase in ownership share of 16% and 23%,respectively. During the second quarter of 2006, the Company negotiated anamendment to the agreement that provides that the first additional capital contributionof $1,655 can be extended up to July 31, 2007, instead of July 31, 2006.  The purchase obligation is denominated inEuros, and is subject to foreign currency exchange rate risk on the dates ofpayment.  This arrangement is notaccounted for in the Company’s balance sheet as of 2006.

                           *ContingentEarnouts (cash payments)*

(11)       Additionalamounts of contingent consideration, not to exceed $10,000, are due the sellersof Laureate Online Education BV equal to four times the average of the auditedEBITDA for the calendar years ending December 31, 2006 and 2007.  Excluding adjustments of EBITDA items andother negotiated amounts and using 2006 results to estimate the 2007 results,the Company would be obligated to the sellers for $0.

*LossContingencies*

The Company issubject to legal actions arising in the ordinary course of its business. Inmanagement’s opinion, the Company has adequate legal defenses and/or insurancecoverage with respect to the eventuality of such actions and does not believeany settlement would materially affect the Company’s financial position.  See additional discussion in Note 4 and Note13 to the consolidated financial statements.

*MaterialGuarantees*

Subsequent to the June 2003 divestiture of the Company’s K-12 businesssegments, all leases related to Sylvan Learning Centers were renegotiated orassigned in the name of Educate, Inc. (“Educate”) during the third quarter of2003.  Leases with remaining payments of$5,511 through 2011 are guaranteed by the Company.  Under the terms of an asset purchaseagreement with Educate, the Company is indemnified against any losses sufferedas a result of these lease guarantees. During 2004, the Company entered into an agreement to guarantee equipmentlease payments owed by Kendall to Key Equipment Finance. Equipment leases withremaining payments of $3,623 through December 2011 are guaranteed by theCompany. The Company has an agreement to guarantee rent lease payments owed bya co-tenant of a building in which the Company leases space.  Upon the event of default, eviction and otherconditions, on behalf of the co-tenant, the Company assumes all rights of theco-tenant.  The Company is not liable forany loss or damages caused by the co-tenant. The lease contains remaining payments of $2,856 through April 30,2009.  The fair value of the guaranteeshas been recorded as other long-term liabilities in the consolidated balancesheets.

*StandbyLetters of Credit*

The Company has$12,700 outstanding in standby letters of credit.  The Company is self-insured for workerscompensation and other insurable risks up to predetermined amounts above whichthird party insurance applies.  TheCompany is contingently liable to insurance carriers under certain of thesepolicies and has provided a letter of credit in favor of the insurance carriersfor $700.  Additionally, in the firstquarter of 2005, the Company issued a $12,000 standby letter of credit in favorof WSI Education S.a.r.l for a tax indemnification related to the sale of WSI(see Note 4).

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*Commitments*

Under terms ofnote agreements with Kendall, the Company has committed to providing totaladditional funding to Kendall of up to $1,109. In the event the Company does not exercise its agreement to acquireKendall, Kendall is obligated to enter into a lease agreement with the Companybeginning September 1, 2007 to lease office space.  The lease commitment specifies a term of 36months and annual rent of $1,275.  As discussedin Note 6, the Company is currently negotiating an amendment to the arrangementwith Kendall that would extend the purchase option through March 31, 2008 andthe Company would commit to provide additional funding to Kendall up to$5,500.  As a result, the lease agreementwith Kendall would begin on March 31, 2008 if the Company does not exercise thepurchase option.

As a part of theacquisition of Cyprus College, the Company committed to making a contributionof approximately $3,292 between the closing date and three yearsthereafter.  The contributions will fundcertain capital projects, if approved, and will not alter the relative equityinterests.  The contribution commitmentis denominated in Cypriot Pounds and is subject to foreign currency exchangerate risk on the dates of payment.

**Note 12 —Benefit Plans**

* DomesticDefined Contribution Retirement Plan*

The Company sponsors adefined contribution retirement plan under section 401(k) of the InternalRevenue Code. The provisions of this plan allow for voluntary employeecontributions of up to 20% of an employee’s salary, subject to certain annuallimitations.  The Company may at itsdiscretion make matching contributions, which are allocated to eligibleparticipants. All employees are eligible after meeting certain servicerequirements.  The Company madediscretionary contributions to this plan of $501, $352, and $328 during theyears ended December 31, 2006, 2005 and 2004, respectively.

*InternationalPension Benefit Plans*

UVM has an unfundednoncontributory defined benefit pension plan that covers union employees,retirees and vested non-union employees. During 2006, all non-vested non-union employees excluding expatriatesand special employees who will be carried on another entity’s payroll weretransferred from the defined benefit pension plan to a newly created fundeddefined contribution plan.

*LaborUnions*

TheCompany’s employees at UEM, UVM, UAM, as well as a portion of IFG, are coveredby labor agreements.  The UEM agreementhas been negotiated by a national union with a committee representing all ofthe private, for-profit universities in the country and is effective untilDecember 31, 2008.  All of UAM’semployees are required by law to belong to a union and the university is a partof a national employers union.  These twogroups negotiate standard national or regional contracts and it is required tobe UAM’s responsibility to comply with these agreements.  The IFG agreement governs certain laborconditions, such as vacation and salary levels. The agreement has no defined expiration but can be nullified by eitherparty.  It is reviewed annually.  Substantially all of the faculty at UVM isrepresented by a union.  The economicprovisions of the labor agreement at UVM were revised in 2005 without any substantialchanges, and will be reviewed again in 2007. The agreements govern salaries, benefits and working conditions for allunion members at the higher education institutions. The Company considersitself to be in good standing with these unions and with all of its employees.

**Note 13 —Income Taxes**

Significantcomponents of the provision for income taxes on earnings from continuingoperations for the years ended December 31 are as follows: 

|               | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------|------------|----------|------------|----------|------------|----------|------------|
| Current:      |       |     |       |     |       |     |       |
| United States |       | $        | (1,380     | )        | $          | (1,269   | )          | $ | 5,187 |   |
| Foreign       |       | (5,321   | )          | (16,478  | )          | (13,585  | )          |
| State         |       | (1,881   | )          | (600     | )          | (2,494   | )          |
|          |       | (8,582   | )          | (18,347  | )          | (10,892  | )          |
| Deferred:     |       |     |       |     |       |     |       |
| United States |       | (17,083  | )          | (4,777   | )          | 2,976    |       |
| Foreign       |       | 1,621    |       | 443      |       | 3,460    |       |
| State         |       | (64      | )          | 3,014    |       | (2,342   | )          |
|          |       | (15,526  | )          | (1,320   | )          | 4,094    |       |
| Total expense |       | $        | (24,108    | )        | $          | (19,667  | )          | $ | (6,798 | ) |

 

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For the yearsended December 31, 2006, 2005 and 2004, foreign income from continuingoperations before income taxes was $144,199, $135,349, and $106,556,respectively.

The Company usesthe liability method to account for income taxes.  Deferred income taxes reflect the net taxeffects of temporary differences between the carrying amount of assets andliabilities for financial reporting purposes and the amounts used for incometax purposes.  Significant components ofthe Company’s deferred tax assets and liabilities arising from continuingoperations are as follows as of December 31:

|                                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|
| Deferred tax  assets:                            |       |     |       |     |       |
| Net operating loss carryforwards                 |       | $        | 105,962    |     | $          | 90,246 |   |
| Equity in net losses of affiliates               |       | 420      |       | 24,809   |       |
| Deferred compensation                            |       | 18,460   |       | 12,971   |       |
| Tax credit carryforwards                         |       | 3,762    |       | 5,918    |       |
| Allowance for doubtful accounts                  |       | 739      |       | 1,776    |       |
| Deferred revenue                                 |       | —   |       | 215      |       |
| Non-deductible reserves                          |       | 4,036    |       | —   |       |
| Other                                            |       | —   |       | 883      |       |
| Total deferred  tax assets                       |       | 133,379  |       | 136,818  |       |
| Deferred tax  liabilities:                       |       |     |       |     |       |
| Amortization of intangible assets                |       | 58,667   |       | 62,620   |       |
| Deferred income                                  |       | —   |       | 12,729   |       |
| Depreciation                                     |       | 14,047   |       | 4,916    |       |
| Prepaid expenses                                 |       | 371      |       | 760      |       |
| Non-deductible reserves                          |       | —   |       | 574      |       |
| Advertising costs                                |       | 488      |       | 339      |       |
| Other                                            |       | 162      |       | 386      |       |
| Total deferred  tax liabilities                  |       | 73,735   |       | 82,324   |       |
|                                             |       |     |       |     |       |
| Net future  income tax benefits                  |       | 59,644   |       | 54,494   |       |
| Valuation  allowance for net deferred tax assets |       | (48,674  | )          | (40,983  | )          |
| Net deferred tax assets                          |       | $        | 10,970     |     | $          | 13,511 |   |

 

At December 31,2006, undistributed earnings from continuing and discontinued operations ofnon-U.S. subsidiaries totaled approximately $573,500.  Deferred tax liabilities have not beenrecognized for these undistributed earnings because it is management’s currentintention to permanently reinvest such undistributed earnings outside of theU.S.

The net operatingloss carryforwards at December 31, 2006 are related to subsidiaries of theCompany, and are available only to offset future taxable income of thosesubsidiaries.  These net operating losscarryforwards will begin to expire in 2007. The tax credit carryforwardsconsist of foreign tax credits that begin to expire in 2011.

The valuationallowance relates to the uncertainty surrounding the realization of the taxbenefits attributable to the net operating losses of subsidiaries of theCompany that are available only to offset future taxable income of those subsidiaries.

During the second quarterof 2006, Laureate Education, LLC (“Ventures”), a subsidiary of the Company,recorded a receivable of $9,322 from the sale of Chancery Software, Ltd. (seeNote 18).  Because this event monetizedthe last significant remaining uncertain asset of Ventures, the Company hasreassessed its plans for the liquidation of Ventures.  As a result of the Chancery transaction andcurrent liquidation plans, the Company re-evaluated its deferred tax assetsrelated to Ventures, and recorded income tax expense of $6,991 to reduce theasset to its current net realizable value. The liquidation of Ventures was completed as of December 31, 2006.

On February 8, 2006, theCompany received notice of certain adjustments proposed by the Internal RevenueService (the “IRS”) with respect to the Company’s 2000 federal income taxreturn. The proposed adjustments primarily relate to the gain on the sale ofthe Company’s Prometric testing subsidiary in 2000 for $775,000. The IRS claimsthat the Company owes additional taxes of approximately $54,600 plus penaltiesand interest. The Company filed a protest with the IRS during the secondquarter of 2006 and will vigorously contest the IRS’s determination andbelieves that it has properly reported the 

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transaction.  Consequently, the Company does not believe atthis point that a loss from this matter is probable, nor is it possible toestimate the ultimate outcome if the Company does not prevail.  As a result, no accrual for any potentialadverse outcome of this matter has been made in the consolidated financialstatements; however, the Company can provide no assurance that the eventualoutcome will not result in a material adverse amount.

On February 23, 2006, the Company received a Notice ofDeficiency from the IRS for the Company’s 1997 federal income tax returndisagreeing with the Company’s exclusion from income of a break up fee itreceived in its attempted acquisition of National Education Corporation. TheCompany is appealing the Notice of Deficiency and paid the current amount ofthe assessment, $8,100, and the associated interest due of $5,900, in May2006.   These amounts had been previouslyaccrued by the Company.  The Company ispreparing its appeal to be appropriately filed in the United States Court ofClaims.  The Company believes that itproperly excluded the break up fee from income and intends to vigorouslycontest the IRS’s determination. Although the ultimate disposition of thisissue is uncertain, based on current information, the Company believes that theoutcome of this issue will not have a material adverse effect on the Company’sconsolidated financial position, liquidity, or results of operations.

In April 2006, theIRS began a field examination of the Company’s 2003 income tax return.  In addition, there are several other incometax audits in progress, which includes an IRS examination of Walden for the2003 federal income tax return; an examination of two of the Company’s Dutchsubsidiaries, Sylvan I BV and Sylvan International BV for the 2000 through 2003income tax returns; and an examination of the net operating loss carryforwardsthat Laureate Online Education BV inherited when it was purchased from thirdparties in 2004.  No assurance can begiven as to the eventual outcome of these audits. Based on current information,the Company has adequately accrued for identified risks associated with thesetax authority inquiries.  The Company canprovide no assurance that the eventual outcome will not result in a materialadverse amount.

The reconciliation of the reported income tax expenseto the amount that would result by applying the U.S. federal statutory tax rateof 35% to income from continuing operations before income taxes for the yearsended December 31 is as follows:

|                                                                | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Tax expense at  U.S. statutory rate                            |       | $        | (50,593    | )        | $          | (45,751  | )          | $ | (38,139 | ) |
| Permanent  differences                                         |       | (4,686   | )          | (6,648   | )          | (2,645   | )          |
| State income tax  benefit (expense), net of federal tax effect |       | (4,509   | )          | 542      |       | (121     | )          |
| Tax effect of  foreign income taxed at lower rate              |       | 45,169   |       | 45,808   |       | 30,227   |       |
| Change in  valuation allowance                                 |       | (1,047   | )          | (7,386   | )          | 3,880    |       |
| Deemed foreign  dividends                                      |       | (3,549   | )          |     |       |     |       |
| Effect of rate  changes                                        |       | (1,954   | )          | —   |       | —   |       |
| Loss on  partnership liquidation                               |       | (3,342   | )          | —   |       | —   |       |
| Estimated tax  refunds                                         |       | —   |       | (6,484   | )          | —   |       |
| Other                                                          |       | 403      |       | 252      |       | —   |       |
| Total tax expense                                              |       | $        | (24,108    | )        | $          | (19,667  | )          | $ | (6,798 | ) |

 

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**Note 14 —Earnings (Loss) Per Share**

The followingtable summarizes the computations of basic and diluted earnings per share forthe years ended December 31: 
| ** **                                                                                                       | ** ** | **2006**   | ** ** | **2005**(As Restated -   Note 2) | ** ** | **2004**(As Restated -   Note 2) | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
| Numerator used  in basic and diluted earnings (loss) per common share:                                           |       |       |       |                                                 |       |                                                 |       |
|                                                                                                             |       |       |       |                                                 |       |                                                 |       |
| Income from  continuing operations                                                                               |       | $          | 108,411    |                                                 | $          | 86,360                                               |       | $ | 81,372 |   |
| Loss from discontinued operations, net of tax                                                                    |       | (4,456     | )          | (1,411                                               | )          | (6,466                                               | )          |
| Gain (loss) on disposal of discontinued operations,  net of tax                                                  |       | 1,668      |       | (9,152                                               | )          | (13,324                                              | )          |
| Net income                                                                                                       |       | $          | 105,623    |                                                 | $          | 75,797                                               |       | $ | 61,582 |   |
|                                                                                                             |       |       |       |                                                 |       |                                                 |       |
| Income from  continuing operations                                                                               |       | $          | 108,411    |                                                 | $          | 86,360                                               |       | $ | 81,372 |   |
| Effect of minority put arrangements                                                                              |       | (4,214     | )          | —                                               |       | —                                               |       |
| Income from continuing operation available to common  shareholders                                               |       | $          | 104,197    |                                                 | $          | 86,360                                               |       | $ | 81,372 |   |
|                                                                                                             |       |       |       |                                                 |       |                                                 |       |
| Net income                                                                                                       |       | $          | 105,623    |                                                 | $          | 75,797                                               |       | $ | 61,582 |   |
| Effect of minority put arrangements                                                                              |       | (4,214     | )          | —                                               |       | —                                               |       |
| Net income available to common stockholders                                                                      |       | $          | 101,409    |                                                 | $          | 75,797                                               |       | $ | 61,582 |   |
|                                                                                                             |       |       |       |                                                 |       |                                                 |       |
| Denominator for  basic earnings per share - weighted-average common shares oustanding                            |       | 51,225     |       | 49,625                                               |       | 46,356                                               |       |
| Net effect of  dilutive stock options based on treasury stock method                                             |       | 1,805      |       | 2,403                                                |       | 2,660                                                |       |
| Denominator for  diluted earnings per share - weighted-average common shares oustanding and  assumed conversions |       | 53,030     |       | 52,028                                               |       | 49,016                                               |       |
|                                                                                                             |       |       |       |                                                 |       |                                                 |       |
| **Earnings  per common share basic:**                                                                            | ** ** | ** ** | ** ** | ** **                                           | ** ** | ** **                                           | ** ** |
| Income from  continuing operations                                                                               |       | $          | 2.12       |                                                 | $          | 1.74                                                 |       | $ | 1.76 |   |
| Effect of  minority put arrangements                                                                             |       | (0.08      | )          | —                                               |       | —                                               |       |
| Income from  continuing operations available to common shareholders                                              |       | 2.03       |       | 1.74                                                 |       | 1.76                                                 |       |
| Loss from  discontinued operations, net of tax                                                                   |       | (0.09      | )          | (0.03                                                | )          | (0.13                                                | )          |
| Gain (loss) on  disposal of discontinued operations, net of tax                                                  |       | 0.03       |       | (0.18                                                | )          | (0.29                                                | )          |
| Net income  available to common shareholders                                                                     |       | $          | 1.98       |                                                 | $          | 1.53                                                 |       | $ | 1.33 |   |
|                                                                                                             |       |       |       |                                                 |       |                                                 |       |
| **Earnings  per common share diluted:**                                                                          | ** ** | ** ** | ** ** | ** **                                           | ** ** | ** **                                           | ** ** |
| Income from  continuing operations                                                                               |       | $          | 2.04       |                                                 | $          | 1.66                                                 |       | $ | 1.66 |   |
| Effect of  minority put arrangements                                                                             |       | (0.08      | )          | —                                               |       | —                                               |       |
| Income from  continuing operation available to common shareholders                                               |       | 1.96       |       | 1.66                                                 |       | 1.66                                                 |       |
| Loss from  discontinued operations, net of tax                                                                   |       | (0.08      | )          | (0.03                                                | )          | (0.13                                                | )          |
| Gain (loss) on  disposal of discontinued operations, net of tax                                                  |       | 0.03       |       | (0.18                                                | )          | (0.27                                                | )          |
| Net income  available to common shareholders                                                                     |       | $          | 1.91       |                                                 | $          | 1.46                                                 |       | $ | 1.26 |   |

 

**Note 15 —Business and Geographic Segment Information**

The Company provides higher education programs and servicesto students through a leading global network of licensed campus-based andonline higher education institutions. The Company’s educational services areoffered through three reportable segments: Latin America, Europe and Laureate Online Education.

The accounting policies of the segments are the sameas those described in the significant accounting policies.  The Company evaluates performance based onprofit or loss from operations before income taxes, corporate general andadministrative expenses, non-cash stock compensation expense and campus-basedoverhead expenses.

The Latin America segment consists of elevenseparately licensed universities and two professional institutes, and hasoperations in Mexico, Chile, Brazil, Peru, Ecuador, Panama, Honduras and CostaRica.  The schools primarily serve 18- to24-year-old students and offer an education that emphasizes career-orientedfields of study with undergraduate and graduate degrees in a wide range ofdisciplines, including international business, law, health sciences,information technology and engineering.

85

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The Europe segment consists of ten licensed highereducation institutions, and has operations in Spain, Switzerland, France, andCyprus.  The schools primarily serve 18-to 24-year-old students and offer an education that emphasizes career-orientedfields of study with undergraduate and graduate degrees in a wide range ofdisciplines, including international business, hotel management, healthsciences, architecture and engineering.

The Company believes that all of its campus-basedhigher education institutions benefit from strong academic reputations andbrand awareness, and established operating histories.  Each school also has flexible, non-tenured,teaching-focused faculty and is led by an experienced local management team.

The Laureate Online Education segment offersundergraduate and graduate degree programs to working professionals throughdistance learning.  Laureate Online Educationconsists of Walden, Canter, and Laureate Online Education BV, whichcollectively offer degree programs including education, psychology, health andhuman services, management, engineering, and information technology.

These reportable segments are business units thatoffer distinct services and are managed separately.  The campus-based reportable segments of LatinAmerica and Europe are not aggregated with Laureate Online Education asLaureate Online Education offers services to a different class of customer,through a different delivery system, and with different economiccharacteristics.  The Latin America andEurope segments are managed separately and have certain differences in classesof customer and economic characteristics, and thus are not aggregated together.

The followingtable sets forth information on the Company’s reportable segments for the yearsended December 31:
| **2006**                       | ** ** | **Latin   America** | ** ** | **Europe** | ** ** | **Laureate Online   Education** | ** ** | **Other** | ** ** | **Total** | ** ** |
|--------------------------------|------------|--------------------------|------------|------------|------------|-------------------------------------------|------------|-----------|------------|-----------|------------|
| Revenues                       |       | $                        | 687,355    |       | $          | 223,798                                   |       | $         | 234,608    |      | $          | — |   | $ | 1,145,761 |   |
| Segment profit                 |       | 149,195                  |       | 27,571     |       | 43,306                                    |       | —    |       | 220,072   |       |
| Segment assets                 |       | 1,284,947                |       | 469,572    |       | 358,334                                   |       | —    |       | 2,112,853 |       |
| Long-lived  assets             |       | 436,159                  |       | 267,560    |       | 21,102                                    |       |      |       | 724,821   |       |
| Depreciation and  amortization |       | 36,642                   |       | 11,651     |       | 14,072                                    |       | —    |       | 62,365    |       |
|                                |            |                          |            |            |            |                                           |            |           |            |           |            |  |  |  |  |  |

 
| ** 2005 (as restated, see Note 2)** | ** ** | **Latin   America** | ** ** | **Europe** | ** ** | **Laureate Online  Education** | ** ** | **Other** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------|------------|------------|------------|-------------------------------------|------------|-----------|------------|-----------|------------|
| Revenues                                                          |       | $                        | 506,583    |       | $          | 184,888                             |       | $         | 184,353    |      | $          | — |   | $ | 875,824 |   |
| Segment profit                                                    |       | 123,526                  |       | 24,570     |       | 28,056                              |       | —    |       | 176,152   |       |
| Segment assets                                                    |       | 876,105                  |       | 374,387    |       | 408,127                             |       | —    |       | 1,658,619 |       |
| Long-lived  assets                                                |       | 333,066                  |       | 222,883    |       | 12,704                              |       | —    |       | 568,653   |       |
| Depreciation and  amortization                                    |       | 24,307                   |       | 11,248     |       | 13,751                              |       | —    |       | 49,306    |       |
|                                                                   |            |                          |            |            |            |                                     |            |           |            |           |            |  |  |  |  |  |

 
| **2004 (as restated, see Note 2)** | ** ** | **Latin   America** | ** ** | **Europe** | ** ** | **Laureate Online   Education** | ** ** | **Other (1)** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------|------------|--------------------------|------------|------------|------------|-------------------------------------------|------------|--------------------|------------|-----------|------------|
| Revenues                                                    |       | $                        | 359,492    |       | $          | 150,197                                   |       | $                  | 135,132    |      | $          | — |   | $ | 644,821 |   |
| Segment profit  (loss)                                      |       | 84,413                   |       | 22,912     |       | 21,005                                    |       | —             |       | 128,330   |       |
| Segment assets                                              |       | 626,682                  |       | 412,827    |       | 383,707                                   |       | 1,574              |       | 1,424,790 |       |
| Long-lived  assets                                          |       | 220,796                  |       | 247,670    |       | 10,115                                    |       | —             |       | 478,581   |       |
| Depreciation and  amortization                              |       | 17,831                   |       | 10,606     |       | 11,424                                    |       | —             |       | 39,861    |       |
|                                                             |            |                          |            |            |            |                                           |            |                    |            |           |            |  |  |  |  |  |

 

(1)             Otherrepresents results from Ventures, which was disbanded in 2003.

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The followingtables reconcile the reported segment information reported in the consolidatedstatements of operations and balance sheets for the years ended December 31:
| ** **                                                                                                            | ** ** | **2006** | ** ** | **2005**(as restated -  Note 2) | ** ** | **2004**(as restated -  Note 2) | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|----------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
| Total profit for  reportable segments                                                                                 |       | $        | 220,072    |                                           | $          | 176,152                                        |       | $ | 128,330 |   |
| Campus-based  segments’ overhead                                                                                 |       | (25,594  | )          | (16,286                                        | )          | (12,743                                        | )          |
| Core operating  general and administrative expense                                                                    |       | (46,079  | )          | (28,996                                        | )          | (26,170                                        | )          |
| Net  non-operating (expenses) income                                                                                  |       | (3,905   | )          | (154                                           | )          | 19,552                                         |       |
| Income from continuing  operations before income taxes, minority interest, equity in net income  (loss) of affiliates |       | $        | 144,494    |                                           | $          | 130,716                                        |       | $ | 108,969 |   |

 
| ** **                                    | ** ** | **2006** | ** ** | **2005**(as restated -  Note 2) | ** ** | **2004**(as restated -  Note 2) | ** ** |
|-----------------------------------------------|------------|----------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
| Total assets for  reportable segments         |       | $        | 2,112,853  |                                           | $          | 1,658,619                                      |       | $ | 1,424,790 |   |
| Campus-based  segments’ corporate assets |       | 1,312    |       | 2,576                                          |       | 6,581                                          |       |
| Unallocated  corporate assets                 |       | 88,848   |       | 112,027                                        |       | 53,825                                         |       |
| Assets of  discontinued operations, net       |       | —   |       | 2,906                                          |       | 50,199                                         |       |
| Total assets                                  |       | $        | 2,203,013  |                                           | $          | 1,776,128                                      |       | $ | 1,535,395 |   |

 
| ** **                                               | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Total long-lived  assets for reportable segments         |       | $        | 724,821    |     | $          | 568,653  |       | $ | 478,581 |   |
| Campus-based  segments’ corporate long-lived assets |       | 122      |       | 463      |       | 732      |       |
| Unallocated  corporate long-lived assets                 |       | 4,369    |       | 4,821    |       | 5,849    |       |
| Total long-lived assets                                  |       | $        | 729,312    |     | $          | 573,937  |       | $ | 485,162 |   |

 
| ** **                                                           | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Total  depreciation and amortization for reportable segments         |       | $        | 62,365     |     | $          | 49,306   |       | $ | 39,861 |   |
| Campus-based  segments’ corporate depreciation and amortization |       | 146      |       | 144      |       | 437      |       |
| Corporate  depreciation and amortization                             |       | 2,378    |       | 1,315    |       | 1,245    |       |
| Depreciation and  amortization of discontinued operations            |       | —   |       | —   |       | 15       |       |
| Total depreciation and  amortization                                 |       | $        | 64,889     |     | $          | 50,765   |       | $ | 41,558 |   |

 

Revenue and long-lived assets information ofcontinuing operations by geographic area for the years ended December 31 is asfollows:
| ** **                     | ** ** | **2006**   | ** ** | **2005**(as restated -  Note 2) | ** ** | **2004**(as restated -  Note 2) | ** ** |
|--------------------------------|------------|------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
| **Revenues**                   | ** ** | ** ** | ** ** | ** **                                     | ** ** | ** **                                     | ** ** |
|  Mexico                   |       | $          | 282,445    |                                           | $          | 239,532                                        |       | $ | 181,474 |   |
|  Chile                    |       | 229,085    |       | 193,493                                        |       | 148,005                                        |       |
|  United States            |       | 216,511    |       | 172,254                                        |       | 128,330                                        |       |
|  Spain                    |       | 107,171    |       | 95,756                                         |       | 89,402                                         |       |
|  Brazil                   |       | 85,835     |       | 6,301                                          |       | -                                              |       |
|  Other foreign  countries |       | 224,714    |       | 168,488                                        |       | 97,610                                         |       |
|  Consolidated  total      |       | $          | 1,145,761  |                                           | $          | 875,824                                        |       | $ | 644,821 |   |
| ** **                     | ** ** | ** ** | ** ** | ** **                                     | ** ** | ** **                                     | ** ** |
| **Long-Lived  Assets**         | ** ** | ** ** | ** ** | ** **                                     | ** ** | ** **                                     | ** ** |
|  Mexico                   |       | $          | 252,500    |                                           | $          | 171,173                                        |       | $ | 121,809 |   |
|  Chile                    |       | 120,926    |       | 113,363                                        |       | 79,446                                         |       |
|  Spain                    |       | 114,437    |       | 103,719                                        |       | 121,628                                        |       |
|  Switzerland              |       | 103,999    |       | 96,162                                         |       | 110,160                                        |       |
|  United States            |       | 24,200     |       | 17,443                                         |       | 16,112                                         |       |
|  Other foreign  countries |       | 113,250    |       | 72,077                                         |       | 36,007                                         |       |
|  Consolidated total       |       | $          | 729,312    |                                           | $          | 573,937                                        |       | $ | 485,162 |   |

 

Revenues are attributed to countries based on thelocation of the customer.

87

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**Note 16 —Supplemental Cash Flow Information**

Interest paymentswere approximately $17,300, $3,227, and $5,963 for the years ended December 31,2006, 2005 and 2004, respectively. Income tax payments were $26,242, $18,514,and $24,596 for the years ended December 31, 2006, 2005, and 2004, respectively.

On June 28, 2006, theCompany entered into a 27.5 year lease on property in downtown Paris forapproximately $16,700.  The Companyfinanced approximately $11,400 through a 12 year loan with a third partylender.  The financing agreement is denominated in Euros, and is subject toforeign currency exchange rate risk on the dates of payment.

**Note 17 —Quarterly Financial Data (Unaudited)**

The followingfinancial information reflects all normal recurring adjustments, which are, inthe opinion of management, necessary for a fair statement of the results of theinterim periods.  All periods’ resultshave been restated to separately disclose discontinued operations.

During the fourthquarter of 2006, the Company reevaluated the accounting for and the financialstatement presentation of new and pre-existing put and call option agreements(“exchange contracts”) entered into in connection with certainacquisitions.  See Note 2 for discussionof this change. As a result, the quarterly financials results were restated. Summarizedoperating data with exchange contract restatement is as follows:
| ** **                                                                 | ** ** | **Quarter Ended 2006**                | ** ** |
|----------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                 | ** ** | **March 31**                               | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                                                                 | ** ** | **(as restated —  Note 2)** | ** ** | **(as restated —  Note 2)** | ** ** | **(as restated —  Note 2)** | ** ** | ** ** | ** ** |
| Revenues                                                                   |       | $                                               | 235,110    |   | $ | 303,119 |   | $ | 260,906 |   | $ | 346,626 |   |
| Direct costs                                                               |       | 235,211                                         |       | 246,251 |   | 248,743 |   | 267,157 |   |
| Operating income  (loss)                                                   |       | (101                                            | )          | 56,868 |   | 12,163 |   | 79,469 |   |
| Income (loss)  from continuing operations                                  |       | (3,270                                          | )          | 44,727 |   | 8,618 |   | 58,336 |   |
| Loss from  discontinued operations, net of tax                             |       | (169                                            | )          | (1,504 | ) | (113 | ) | (2,670 | ) |
| (Loss) gain on  disposal of discontinued operations, net of tax            |       | 261                                             |       | (1,182 | ) | 2,217 |   | 372 |   |
| Net income  (loss)                                                         |       | (3,178                                          | )          | 42,041 |   | 10,722 |   | 56,038 |   |
|                                                                       |       |                                            |       |   |   |   |   |   |   |
| Earnings available  to common shareholders:                                |       |                                            |       |   |   |   |   |   |   |
|                                                                       |       |                                            |       |   |   |   |   |   |   |
| Income (loss)  from continuing operations                                  |       | (3,270                                          | )          | 44,727 |   | 8,618 |   | 58,336 |   |
| Effect of  minority put arrangements                                       |       | —                                          |       | — |   | — |   | (4,214 | ) |
| Income (loss)  from continuing operations available to common shareholders |       | (3,270                                          | )          | 44,727 |   | 8,618 |   | 54,122 |   |
|                                                                       |       |                                            |       |   |   |   |   |   |   |
| Net income  (loss)                                                         |       | (3,178                                          | )          | 42,041 |   | 10,722 |   | 56,038 |   |
| Effect of  minority put arrangements                                       |       | —                                          |       | — |   | — |   | (4,214 | ) |
| Net income  (loss) available to common shareholders                        |       | (3,178                                          | )          | 42,041 |   | 10,722 |   | 51,824 |   |
|                                                                       |       |                                            |       |   |   |   |   |   |   |
| Earnings (loss)  per common share, basic:                                  |       |                                            |       |   |   |   |   |   |   |
| Income (loss)  from continuing operations                                  |       | $                                               | (0.06      | ) | $ | 0.87 |   | $ | 0.17 |   | $ | 1.13 |   |
| Effect of  minority put arrangements                                       |       | —                                          |       | — |   | — |   | (0.08 | ) |
| Income (loss)  from continuing operations available to common shareholders |       | (0.06                                           | )          | 0.87 |   | 0.17 |   | 1.05 |   |
| Loss from  discontinued operations                                         |       | (0.00                                           | )          | (0.03 | ) | (0.00 | ) | (0.05 | ) |
| (Loss) gain on  disposal of discontinued operations                        |       | 0.01                                            |       | (0.02 | ) | 0.04 |   | 0.01 |   |
| Net income  (loss) available to common shareholders                        |       | $                                               | (0.06      | ) | $ | 0.82 |   | $ | 0.21 |   | $ | 1.01 |   |
|                                                                       |       |                                            |       |   |   |   |   |   |   |
| Earnings (loss)  per common share, diluted:                                |       |                                            |       |   |   |   |   |   |   |
| Income (loss)  from continuing operations                                  |       | $                                               | (0.06      | ) | $ | 0.84 |   | $ | 0.16 |   | $ | 1.09 |   |
| Effect of  minority put arrangements                                       |       | —                                          |       | — |   | — |   | (0.08 | ) |
| Net income  (loss) available to common shareholders                        |       | (0.06                                           | )          | 0.84 |   | 0.16 |   | 1.02 |   |
| Loss from  discontinued operations                                         |       | (0.00                                           | )          | (0.03 | ) | (0.00 | ) | (0.05 | ) |
| (Loss) gain on  disposal of discontinued operations                        |       | 0.01                                            |       | (0.02 | ) | 0.04 |   | 0.01 |   |
| Net income  (loss) available to common shareholders                        |       | $                                               | (0.06      | ) | $ | 0.79 |   | $ | 0.20 |   | $ | 0.97 |   |
|                                                                       |       |                                            |       |   |   |   |   |   |   |
| Shares used in  computation, basic:                                        |       | 50,436                                          |       | 51,429 |   | 51,522 |   | 51,552 |   |
| Shares used in  computation, diluted:                                      |       | 50,436                                          |       | 53,098 |   | 53,124 |   | 53,284 |   |

 

88

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Earnings per shareare computed independently for each of the quarters presented.  Therefore, the sum of the quarterly netearnings per share will not necessarily equal the total for the year.  Per share amounts may not sum due to roundingdifferences.

The impact of the exchangechanges are summarized below:
| ** **                                                            | ** ** | **Quarter Ended** | ** ** |
|-----------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                            | ** ** | **March 31**      | ** ** | **June 30** | ** ** | **September 30** | ** ** |
| **2006 Statement of Operations**                                      |       |                   |       |   |   |   |   |
| *Increase (decrease) to:*                                             | * *   | * *               | * *   | * * | * * | * * | * * |
| Direct costs                                                          |       | $                      | 124        |   | $ | 121 |   | $ | 123 |   |
| Operating income                                                      |       | (124                   | )          | (121 | ) | (123 | ) |
|                                                                  |       |                   |       |   |   |   |   |
| Interest expense                                                      |       | (514                   | )          | (519 | ) | (2,251 | ) |
| Minority interest in  income of consolidated subsidiaries, net of tax |       | (1,861                 | )          | 4,702 |   | 1,110 |   |
| Income from continuing  operations                                    |       | (2,499                 | )          | 4,062 |   | (1,264 | ) |
|                                                                  |       |                   |       |   |   |   |   |
| Net income                                                            |       | $                      | (2,499     | ) | $ | 4,062 |   | $ | (1,264 | ) |
|                                                                  |       |                   |       |   |   |   |   |
| *Increase (decrease) to:*                                             | * *   | * *               | * *   | * * | * * | * * | * * |
| Earnings per common  share, basic:                                    |       |                   |       |   |   |   |   |
| Income from continuing  operations                                    |       | $                      | (0.05      | ) | $ | 0.08 |   | $ | (0.02 | ) |
| Net (loss) income                                                     |       | $                      | (0.05      | ) | $ | 0.08 |   | $ | (0.02 | ) |
| *Increase (decrease) to:*                                             | * *   | * *               | * *   | * * | * * | * * | * * |
| Earnings per common  share, diluted:                                  |       |                   |       |   |   |   |   |
| Income from continuing  operations                                    |       | $                      | (0.05      | ) | $ | 0.08 |   | $ | (0.02 | ) |
| Net (loss) income                                                     |       | $                      | (0.05      | ) | $ | 0.08 |   | $ | (0.02 | ) |

 

 
| ** **                                                                | ** ** | **Quarter Ended** | ** ** |
|---------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                | ** ** | **March 31**      | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| **2005  (as restated for revenue recognition policy change, see Note 2)** | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                                                  |       | $                      | 178,677    |   | $ | 226,969 |   | $ | 193,800 |   | $ | 276,378 |   |
| Direct costs                                                              |       | 176,943                |       | 182,359 |   | 178,359 |   | 207,293 |   |
| Operating income                                                          |       | 1,734                  |       | 44,610 |   | 15,441 |   | 69,085 |   |
| Income from  continuing operations                                        |       | 1,328                  |       | 31,310 |   | 9,067 |   | 44,655 |   |
| Income (loss)  from discontinued operations, net of tax                   |       | 612                    |       | 3 |   | (229 | ) | (1,797 | ) |
| (Loss) income on  disposal of discontinued operations, net of tax         |       | —                 |       | (9,751 | ) | — |   | 599 |   |
| Net income                                                                |       | $                      | 1,940      |   | $ | 21,562 |   | $ | 8,838 |   | $ | 43,457 |   |
|                                                                      |       |                   |       |   |   |   |   |   |   |
| Earnings (loss)  per common share, basic:                                 |       |                   |       |   |   |   |   |   |   |
| Income from  continuing operations                                        |       | $                      | 0.03       |   | $ | 0.63 |   | $ | 0.18 |   | $ | 0.90 |   |
| Income (loss)  from discontinued operations                               |       | 0.01                   |       | 0.00 |   | 0.00 |   | (0.04 | ) |
| (Loss) income on  disposal of discontinued operations                     |       | 0.00                   |       | (0.20 | ) | 0.00 |   | 0.01 |   |
| Net income                                                                |       | $                      | 0.04       |   | $ | 0.44 |   | $ | 0.18 |   | $ | 0.87 |   |
|                                                                      |       |                   |       |   |   |   |   |   |   |
| Earnings (loss)  per common share, diluted:                               |       |                   |       |   |   |   |   |   |   |
| Income from  continuing operations                                        |       | $                      | 0.03       |   | $ | 0.60 |   | $ | 0.17 |   | $ | 0.85 |   |
| Income (loss)  from discontinued operations                               |       | 0.01                   |       | 0.00 |   | 0.00 |   | (0.03 | ) |
| (Loss) income on  disposal of discontinued operations                     |       | 0.00                   |       | (0.19 | ) | 0.00 |   | 0.01 |   |
| Net income                                                                |       | $                      | 0.04       |   | $ | 0.42 |   | $ | 0.17 |   | $ | 0.83 |   |
|                                                                      |       |                   |       |   |   |   |   |   |   |
| Shares used in computation,  basic:                                       |       | 49,237                 |       | 49,566 |   | 49,801 |   | 49,881 |   |
| Shares used in  computation, diluted:                                     |       | 51,819                 |       | 51,944 |   | 52,073 |   | 52,267 |   |

 

89

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Earnings per shareare computed independently for each of the quarters presented.  Therefore, the sum of the quarterly net earningsper share will not necessarily equal the total for the year.

**Note 18 —Other Financial Information**

On June 30, 2003, the Company sold stock of certaininvestments held by Ventures which were considered non-strategic assets,including Chancery Software, Ltd., for contingent consideration to PorterCapital (“Porter”).  During the yearended December 31, 2003, the Company wrote-off the balance of its equity methodinvestment in Chancery Software, Ltd. through a charge to equity in net loss ofaffiliates.  On June 7, 2006, Porter soldall of the shares of stock it held in Chancery Software, Ltd.  In accordance with the note between Porterand the Company, Porter paid the Company $9,322.  The Company recorded a non-operating gain of$9,322.  There is an additional amount inescrow, approximately $2,400, for certain indemnity claims to be made over thenext two years.  Due to the uncertaintyof receipt of this escrow, the Company has not recorded any amount related tothese additional funds.

Effective July 1, 2006, the Company entered into aseries of agreements which allows Walden to participate in the School as LenderProgram under the Higher Education Act’s Federal Family Education Loan Program(“Title IV”).  Under the “eligible lendertrustee” arrangement, Walden designated Wells Fargo Bank to serve as trusteefor their Title IV loans.  Sallie Maeprovides a $100,000 line of credit facility to fund the origination of Title IVloans as well as a sale/purchase agreement to purchase all of the eligibleTitle IV loans from the trustee immediately after funding.  Through their purchases of the loans, SallieMae will incur all financial risk.  Sincecredit is both drawn and repaid on the date of loan origination, it isanticipated that no indebtedness will be outstanding as of the end of anyperiod and that no interest expense will be incurred. The terms of theagreement are for a two-year period ending June 30, 2008 and may be extended upto four additional years by mutual consent.

**Note 19 —Subsequent Events**

On February 1, 2007, the Company entered intoexecutive retention agreements (each an “Executive Retention Agreement,” andcollectively, the “Executive Retention Agreements”) with each of Raph Appadoo,Rosemarie Mecca, Paula R. Singer, William C. Dennis, Jr. and Daniel M. Nickel(each an “Executive”).  The Executive Retention Agreements provide certainseverance payments and benefits, including payments and benefits in connectionwith a Change of Control (as defined in the Executive Retention Agreements),and supersede any prior agreements the Executive entered into with theCompany.  Each Executive Retention Agreement has a three-year term whichautomatically renews for additional one-year terms under certain circumstances.

90

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**Item 9. Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure**

There were nochanges in accountants, disagreements, or other events requiring disclosureunder this Item.

**Item 9A. Controls and Procedures**

**EVALUATIONOF DISCLOSURE CONTROLS AND PROCEDURES**

The Company’s management, with the participation of the Company’s  Chief Executive Officer and  Chief Financial Officer, has evaluated theeffectiveness of the Company’s disclosure controls and procedures (as definedin Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, asamended (the “Exchange Act”)), as of December 31, 2006.  As a result of the material weakness ininternal control over financial reporting related to the Company’s accountingfor income taxes as discussed below, management has concluded that theCompany’s disclosure controls and procedures were not effective as of December31, 2006. 

The Company plans to continue to implement several improvements toremediate and remove the material weakness. The Company will continue to strengthenand expand its tax resources in the areas of international tax and taxaccounting.  The Company will alsoconduct a complete review of the internal control structure surrounding all taxprocesses and aspects to implement additional checks, balances, and reviews toensure accurate and timely reporting of any significant tax events ortransactions. 

**CHANGESIN INTERNAL CONTROL OVER FINANCIAL REPORTING**

With the exceptionof the item described above, there have been no significant changes in theCompany’s internal controls over financial reporting that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrols over financial reporting as of December 31, 2006.

**MANAGEMENT’SREPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**

The Company’s management is responsible for establishing andmaintaining adequate internal control over financial reporting (as defined inRule 13a-15(f) under the Securities Exchange Act of 1934, as amended).  The Company’s internal control system wasdesigned to provide reasonable assurance regarding the preparation and fairpresentation of published financial statements. Because of its inherent limitations, internal control over financialreporting may not prevent or detect misstatements.  Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.  Under the supervision and with theparticipation of management, including the Company’s Chief Executive Officerand Chief Financial Officer, the Company assessed the effectiveness of internalcontrol over financial reporting as of December 31, 2006.  In making this assessment, management usedthe criteria set forth by the Committee of Sponsoring Organizations of theTreadway Commission (“COSO”) in *Internal Control – IntegratedFramework*.

Based on this assessment, management identified one material weaknessas of December 31, 2006.  A materialweakness is a control deficiency, or combination of control deficiencies, thatresults in more than a remote likelihood that a material misstatement of theannual or interim financial statements will not be prevented or detected.  The material weakness pertains to the factthat the Company did not maintain effective procedures related to accountingfor income taxes, including the determination and reporting of income taxexpense and the related balance sheet accounts. The Company’s attention to certain controls relating to income taxaccounts was not adequate and fourth quarter errors in our tax accounts werenot detected by management during the year-end financial statement closingprocess. Specifically, the Company’s year end policy and procedures did notadequately provide for (i) the accurate documentation and managementreview  of  a tax exposure  item and (ii) the  accurate preparation of, pre-closing process relatingto, and management review of the income tax provision.  Accordingly, management has determined thatthis deficiency in controls that resulted in the adjustments to our income taxaccounts reflects a material weakness. Because of this material weakness, managementhas concluded that the Company did not maintain effective internal control overfinancial reporting as of December 31, 2006 based on the criteria in *Internal Control – Integrated Framework*. 

Management’s assessment of the effectiveness of the Company’s internalcontrol over financial reporting as of December 31, 2006 has been audited byErnst & Young LLP, the Company’s independent registered public accountingfirm, as stated in their report, which follows.

/s/ Douglas L.BeckerDouglas L. BeckerChairman and CEOLaureate Education, Inc.

/s/ RosemarieMeccaRosemarie MeccaExecutive Vice President & CFOLaureate Education, Inc.

91

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**Reportof Independent Registered Public Accounting Firm on Internal Control over FinancialReporting**

Board of Directors andStockholders Laureate Education, Inc.

We have auditedmanagement’s assessment, included in the accompanying Management’s Report onInternal Control over Financial Reporting, that Laureate Education, Inc. didnot maintain effective internal control over financial reporting as of December31, 2006, because of the material weakness described below, based on criteriaestablished in *Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(the COSO criteria). Laureate Education, Inc.’s management is responsible formaintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting.Our responsibility is to express an opinion on management’s assessment and anopinion on the effectiveness of the company’s internal control over financialreporting based on our audit. 

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects. Our audit includedobtaining an understanding of internal control over financial reporting,evaluating management’s assessment, testing and evaluating the design andoperating effectiveness of internal control, and performing such otherprocedures as we considered necessary in the circumstances. We believe that ouraudit provides a reasonable basis for our opinion.

A company’s internalcontrol over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2)provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or dispositionof the company’s assets that could have a material effect on the financialstatements.

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements.  Also, projectionsof any evaluation of effectiveness to future periods are subject to the riskthat controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate.

92

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A material weakness is acontrol deficiency, or combination of control deficiencies, that results inmore than a remote likelihood that a material misstatement of the annual orinterim financial statements will not be prevented or detected. The followingmaterial weakness has been identified and included in management’s assessment.The Company did not maintain effective procedures related to accounting forincome taxes, including the determination and reporting of income tax expenseand the related balance sheet accounts.  Specifically,the Company’s year end policy and procedures did not adequately provide for(i)  the accurate documentation  andmanagement  review  of  atax  exposure  item and (ii) the  accurate preparation of, pre-closing process relatingto, and management review of the income tax provision.  As a result, adjustments were made to incometax accounts because errors in the fourth quarter were not detected bymanagement during the year-end financial statement closing process.  This material weakness was considered indetermining the nature, timing, and extent of audit tests applied in our auditof the 2006 consolidated financial statements, and this report does not affectour report dated March 1, 2007 on those financial statements. 

In our opinion,management’s assessment that Laureate Education, Inc. did not maintaineffective internal control over financial reporting as of December 31, 2006, isfairly stated, in all material respects, based on the COSO control criteria.Also, in our opinion, because of the effect of the material weakness describedabove on the achievement of the objectives of the control criteria, LaureateEducation, Inc. did not maintain effective internal control over financialreporting as of December 31, 2006, based on the COSO control criteria. 

 
|  |   | /s/ Ernst &  Young LLP |
|--|--------|----------------------------|

Baltimore, MarylandMarch 1, 2007

93

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**Item 9B. Other Information**

None.

**PART III.**

**Item 10. Directors and Executive Officers of Laureate Education, Inc.**

Information required by this item will be either set forth in theCompany’s definitive proxy statement and incorporated herein by reference orset forth in an amendment to this Annual Report on Form 10-K.

The Company has adopted a Code of Business Conduct and Ethics forDirectors and Employees (the “Code of Ethics”), including the principalexecutive officer, principal financial officer, principal accounting officerand persons performing similar functions. Copies of the Code of Ethics are available free of charge by writing toInvestor Relations at 1001 Fleet Street, Baltimore, Maryland 21202.  Any waivers of the Code of Ethics must beapproved, in advance, by the full Board of Directors.  Any amendments to, or waivers from the Codeof Ethics must be approved, in advance, by the full Board of Directors.  Any amendments to, or waivers from the Codeof Ethics that apply to executive officers and directors will be posted on the “CorporateGovernance” section of the Internet website located at www.laureate-inc.com.

**Item 11. Executive Compensation**

       Information required by this item willbe either set forth in the Company’s definitive proxy statement andincorporated herein by reference or set forth in an amendment to this AnnualReport on Form 10-K.

**Item 12. Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters**

        Information required by this item willbe either set forth in the Company’s definitive proxy statement andincorporated herein by reference or set forth in an amendment to this AnnualReport on Form 10-K.

**Item 13. Certain Relationships and Related Transactions**

        Information required by this item willbe either set forth in the Company’s definitive proxy statement andincorporated herein by reference or set forth in an amendment to this AnnualReport on Form 10-K.

**Item 14.  Principal Accountant Fees and Services**

**       **Information requiredby this item will be either set forth in the Company’s definitive proxystatement and incorporated herein by reference or set forth in an amendment tothis Annual Report on Form 10-K.

94

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**PART IV.**

**Item15.  Exhibits, Financial StatementSchedules**

(a)          Thefollowing documents are filed as a part of this report:

**1.****              FinancialStatements**

The response to this portion of Item 15 is containedin Item 8 of this Report.

**2.****              FinancialStatement Schedules**

The following consolidated financial statement schedule of LaureateEducation, Inc. and subsidiaries are included in Item 15(a):

Schedule II Valuation and qualifying accounts.

All other schedules for which provision is made in the applicableaccounting regulations of the Securities and Exchange Commission are notrequired under the related instructions or are inapplicable and, therefore,have been omitted.

**3.****              Exhibits**

(a)   Exhibitsfiled with this report:
| Exhibit Number | ** ** | **Description**                                                                                                                                                                                                                                                                                  |
|----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1*           |       | Articles of  Amendment and Restatement of the Charter (Exhibit to the Company’s  Registration Statement on Form S-1 (Registration No. 33-69558)).                                                                                                                                           |
| 3.2*           |       | Amended and  Restated Bylaws dated August 8, 2006, as amended (Exhibit to the Company’s  Current Reports on Form 8-K filed August 14, 2006 and January 29, 2007).                                                                                                                      |
| 4.1*           |       | Specimen Common  Stock Certificate (Exhibit to the Company’s Registration Statement on Form  S-1 (Registration No. 33-69558)).                                                                                                                                                              |
| 4.2*           |       | Amended and  Restated Rights Agreement by and between Sylvan Learning Systems, Inc. and  First Union National Bank, Rights Agent, dated as of December 18, 1999  (Exhibit to the Company’s Current Report on Form 8-K filed December 17,  1999).                                            |
| 4.3*           |       | Amendment to  Rights Agreement dated as of March 30, 2001 between Sylvan and First Union  National Bank (Exhibit to the Company’s Current Report on Form 8-K filed  April 24, 2001).                                                                                                        |
| 10.1*          |       | Credit Agreement  Dated as of October 26, 2005 among Laureate Education, Inc., Bank of America,  N.A., and the other parties thereto (Exhibit to the Company’s Current Report  of Form 8-K filed October 31, 2005).                                                                         |
| 10.2*          |       | Formation  Agreement by and among Sylvan Learning Systems, Inc., AP Educate Investments,  LLC, R. Christopher Hoehn-Saric and Douglas L. Becker dated June 30, 2000  (Exhibit to the Company’s Form 10-K filed April 2, 2001).                                                              |
| 10.3*          |       | Agreement and  Plan of Merger dated as of September 16, 2004, by and among Laureate  Education, Inc., Laureate Acquisition Corporation and Walden e-Learning, Inc.  (Exhibit to the Company’s Current Report of Form 8-K filed September 17,  2004).                                   |
| 10.4*          |       | Stockholders  Exchange and Registration Rights Agreement dated as of September 16,  2004, by and among Laureate Education, Inc. and certain of the former  stockholders of Walden e-Learning, Inc. (Exhibit to the Company’s Current  Report of Form 8-K filed September 17, 2004).    |
| 10.5*          |       | Asset Purchase  Agreement by and among Educate Operating Company, LLC, Apollo Sylvan, LLC,  Apollo Sylvan II, LLC, Educate Inc., Sylvan Learning Systems, Inc and Sylvan  Ventures, L.L.C dated March 10, 2003 (Exhibit to the Company’s Current Report  of Form 8-K filed March 11, 2003). |
| 10.6*          |       | Option Exchange  Agreement by and between Sylvan Learning Systems, Inc. and Douglas L. Becker,  R. Christopher Hoehn-Saric, Raph Appadoo and William C. Dennis, Jr. dated  March 10, 2003 (Exhibit to the Company’s Current Report of Form 8-K filed  March 11, 2003).                      |

95

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| 10.7*    |   | Purchase Agreement by  and between Sylvan Learning Systems, Inc. and Incubator Investment LLC dated  March 10, 2003 (Exhibit to the Company’s Current Report of Form 8-K filed  March 11, 2003).                                                                                                                                                                |
|----------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.8*    |   | Purchase Agreement by  and between Sylvan Learning Systems, Inc. and BBHT Educate Investment II, LLC  on March 10, 2003 (Exhibit to the Company’s Current Report of Form 8-K filed  March 11, 2003).                                                                                                                                                            |
| 10.9*    |   | Agreement by and among  Sylvan Learning Systems Mexico, S. de R.L. de C.V. and Jose Ortega Martinez,  et. al. for the purchase of Universidad del Valle de Mexico, A.C. dated  September 25, 2000 (Exhibit to the Company’s Form 10-K filed April 2, 2001).                                                                                                     |
| 10.10*   |   | Purchase Agreement  dated December 12, 2000 between Sylvan Chile Limitada and Indeco S.A. for the  purchase of Universidad de las Americas de Chile (Exhibit to the Company’s  Form 10-K filed April 2, 2001).                                                                                                                                                  |
| 10.11*   |   | Acquisition Agreement  dated May 30, 2003 between Desarrollo de la Educación Superior S.A. and  Inversiones la Caleta S.A, Inversiones Yuste S.A, Copra S.A, Inversiones  Huepil Limitada, and Edin Development Ltd. (Exhibit to the Company’s Current  Report of Form 8-K filed June 4, 2003).                                                            |
| 10.12+*  |   | Senior Management  Option Plan dated March 29, 1996 (Exhibit to the Company’s Form 10-K filed  March 31, 1997).                                                                                                                                                                                                                                                 |
| 10.13+*  |   | Sylvan Learning  Systems, Inc. Employee Stock Purchase Plan (Exhibit to the Company’s Registration  Statement on Form S-8 dated February 18, 1997).                                                                                                                                                                                                             |
| 10.14+*  |   | Sylvan Learning  Systems, Inc. 1998 Stock Incentive Plan (Exhibit to the Company’s 1998 Proxy  Statement filed April 21, 1998).                                                                                                                                                                                                                                 |
| 10.15+*  |   | Form of Non-Qualified  Employee Stock Option Agreement pursuant to the Laureate Education, Inc. 1998  Stock Incentive Plan (Exhibit to the Company’s Registration Statement on Form  S-8 (File No. 333-127887)).                                                                                                                                                |
| 10.16+*  |   | Form of Restricted  Stock Agreement pursuant to the Laureate Education, Inc. 1998 Stock Incentive  Plan (Exhibit to the Company’s Registration Statement on Form S-8 (File No.  333-127887)).                                                                                                                                                                   |
| 10.17+*  |   | Laureate Education,  Inc. 2003 Stock Incentive Plan (Exhibit to the Company’s Registration  Statement on Form S-8 (File No. 333-127887)).                                                                                                                                                                                                                       |
| 10.18+*  |   | Form of Non-Qualified  Employee Stock Option Agreement pursuant to the Laureate Education, Inc. 2003  Stock Incentive Plan (Exhibit to the Company’s Registration Statement on Form  S-8 (File No. 333-127887)).                                                                                                                                                |
| 10.19+*  |   | Form of Restricted  Stock Agreement pursuant to the Laureate Education, Inc. 2003 Stock Incentive  Plan (Exhibit to the Company’s Registration Statement on Form S-8 (File No.  333-127887)).                                                                                                                                                                   |
| 10.20+*  |   | Performance Shares  Grant Agreement with Douglas L. Becker (Exhibit to the Company’s Form 10-K  filed March 11, 2005).                                                                                                                                                                                                                                          |
| 10.21+*  |   | Employment Agreement  with Douglas L. Becker (Exhibit to the Company’s Form 10-K filed March 11,  2005).                                                                                                                                                                                                                                                        |
| 10.22+*  |   | Laureate Education,  Inc. 2005 Stock Incentive Plan, as amended (Exhibit to the Company’s Current  Report on Form 8-K filed on June 23, 2005 and the Company’s 2006 Proxy Statement  filed on May 1, 2006).                                                                                                                                           |
| 10.23+*  |   | Employment Agreement  entered into September 14, 2005 with Ms. Rosemarie Mecca (Exhibit to the  Company’s Current Report on Form 8-K filed September 16, 2005).                                                                                                                                                                                            |
| 10.24*   |   | Five Year Credit  Agreement dated as of August 16, 2006 among Laureate Education, Inc.,  Iniciativas Culturales de Espana, SL, The Lenders Party Hereto, J.P.Morgan  Chase Bank, N.A., as Facility Agent and J.P.Morgan Europe Limited, as London  Agent. (Exhibit to the Company’s Current Report on Form 8-K filed  August 22, 2006).               |
| 10.25*   |   | First Amendment dated  as of October 24, 2006 among Laureate Education, Inc., Iniciativas Culturales  de Espana, SL, J.P.Morgan Chase Bank, N.A., as facility agent and collateral  agent, J.P.Morgan Europe Limited, as London agent, and the lenders party  thereto. (Exhibit to the Company’s Current Report on Form 8-K filed  October 26, 2006). |
| 10.26*   |   | Agreement and Plan of  Merger dated January 28, 2007. (Exhibit to the Company’s Current Report on  Form 8-K filed January 29, 2007).                                                                                                                                                                                                                  |
| 10.27+*  |   | Executive Retention  Agreements dated February 1, 2007. (Exhibit to the Company’s Current Report  on Form 8-K filed January 29, 2007).                                                                                                                                                                                                                |
| 10.28*   |   | Laureate Education,  Inc. 2006 Executive Annual Incentive Plan (Exhibit to the Company’s 2006  Proxy Statement filed May 1, 2006).                                                                                                                                                                                                                         |
| 10.29*   |   | Revolving Financing  Agreement dated as of July 1, 2006, among Walden University, Inc., Wells  Fargo and Sallie Mae, Inc. (Exhibit to the Company’s Form 10-Q filed  August 4, 2006).                                                                                                                                                            |
| 10.30*   |   | Exportss® Agreement of July 1, 2006 among Sallie  Mae, Inc., SLM Education Credit Finance Corporation and Wells Fargo Bank,  National Association (Exhibit to the Company’s Form 10-Q filed  August 4, 2006).                                                                                                                          |
| 10.31*   |   | Form of Restricted  Stock Agreement to the Laureate Education, Inc. 2005 Stock Incentive Plan  (Exhibit to the Company’s Current Report on Form 8-K filed  August 7, 2006).                                                                                                                                                                           |
| 10.32*   |   | Form of Nonqualified  Stock Option Agreement to the Laureate Education, Inc. 2005 Stock Incentive  Plan (Exhibit to the Company’s Current Report on Form 8-K filed  August 7, 2006).                                                                                                                                                                  |
| 10.33*   |   | Form on Nonqualified  Stock Option Agreement for Non-Employee Directors to the Laureate Education,  Inc. 2005 Stock Incentive Plan (Exhibit to the Company’s Current Report on  Form 8-K filed August 7, 2006).                                                                                                                                       |
| 10.34*   |   | Nonqualified Stock  Option Agreement entered into on September 29, 2005 with  Ms. Rosemarie Mecca (Exhibit to the Company’s Registration on  Form S-8 (File No. 333-137804)).                                                                                                                                                               |
| 18.01*   |   | Preferability Letter of  Ernst & Young LLP for Change in Accounting Principle (Exhibit to the  Company’s Quarterly Report on Form 10-Q filed May 10, 2006).                                                                                                                                                                                                 |
| 21.01    |   | Subsidiaries of  Laureate Education, Inc.                                                                                                                                                                                                                                                                                                                            |
| 23.01    |   | Consent of Ernst &  Young LLP                                                                                                                                                                                                                                                                                                                                    |
| 31(i).01 |   | Certification of  Douglas L. Becker pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                        |
| 31(i).02 |   | Certification of  Rosemarie Mecca pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                          |
| 32.01    |   | Certification of  Douglas L. Becker pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                        |
| 32.02    |   | Certification of  Rosemarie Mecca pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                          |

----

*                    Incorporatedby reference.

+           Notes: Relates to a management contract orcompensatory plan or arrangement.

96

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**SIGNATURES**

Pursuant to the requirements of Section 13 of theSecurities Exchange Act of 1934, the Registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized on March1, 2007.
|        |   | LAUREATE EDUCATION, INC. |
|--------|--------|--------------------------|
|   |   | (Registrant)             |
|   |   |                     |   |   |
|   |   |                     |   |   |
|   |   | By:                      |   | /s/Douglas L. Becker |
|   |   |                     |   | Douglas L. Becker |
|   |   |                     |   | Chairman of the Board |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the following personson behalf of the Registrant and in the capacities indicated and on March 1,2007.
| Signature                       | ** ** | ** **                       | ** ** | **Capacity** | ** ** | ** ** |
|---------------------------------|------------|----------------------------------|------------|--------------|------------|------------|
|                            |       |                             |
| /s/Douglas L. Becker            |       | Director, Chairman of  the Board |
| Douglas L. Becker               |       | and Chief Executive  Officer     |
|                            |       |                             |
| /s/Rosemarie Mecca              |       | Executive Vice  President        |
| Rosemarie Mecca                 |       | and Chief Financial  Officer     |
|                            |       |                             |
| /s/ R. Christopher  Hoehn-Saric |       | Director                         |
| R. Christopher  Hoehn-Saric     |       |                             |
|                            |       |                             |
| /s/James H. McGuire             |       | Director                         |
| James H. McGuire                |       |                             |
|                            |       |                             |
| /s/Isabel Aguilera              |       | Director                         |
| Isabel Aguilera                 |       |                             |
|                            |       |                             |
| /s/Richard W. Riley             |       | Director                         |
| Richard W. Riley                |       |                             |
|                            |       |                             |
| /s/David A. Wilson              |       | Director                         |
| David A. Wilson                 |       |                             |
|                            |       |                             |
| /s/John A. Miller               |       | Director                         |
| John A. Miller                  |       |                             |
|                            |       |                             |
| /s/Wolf H. Hengst               |       | Director                         |
| Wolf H. Hengst                  |       |                             |
|                            |       |                             |
| /s/R. William Pollock           |       | Director                         |
| R. William Pollock              |       |                             |

 

97

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**Schedule IILaureate Education, Inc.Valuation and Qualifying Accounts***(inthousands)*

* *
| ** **                            | ** ** | ** **                                                 | ** ** | **Additions**                                             | ** ** | ** **                                     | ** ** | ** **     | ** ** |
|---------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|------------------------------------------------|------------|----------------|------------|
| **Description**                       | ** ** | **Balance at   Beginning of   Period** | ** ** | **Charges to   Costs and   Expenses** | ** ** | **Charges to   Other Accounts** | ** ** | **Deductions** | ** ** | **Balance at   End of   Period** | ** ** |
| Year Ended December 31,  2004         |       |                                                       |       |                                                      |       |                                           |       |           |       |   |   |
| Allowance for doubtful  accounts      |       | $                                                          | 17,708     |                                                      | 14,019     |                                           | 4,120      | (1)            | (4,792     | ) | $ | 31,055 |   |
| Deferred tax asset  valuation account |       | $                                                          | 14,915     |                                                      | (3,881     | )                                              | 22,564     | (2)            | —     |   | $ | 33,598 |   |
|                                  |       |                                                       |       |                                                      |       |                                           |       |           |       |   |   |
| Year Ended December 31,  2005         |       |                                                       |       |                                                      |       |                                           |       |           |       |   |   |
| Allowance for doubtful  accounts      |       | $                                                          | 31,055     |                                                      | 19,239     |                                           | 13,283     | (1)            | (15,243    | ) | $ | 48,334 |   |
| Deferred tax asset  valuation account |       | $                                                          | 33,598     |                                                      | 7,385      |                                           | —     |           | —     |   | $ | 40,983 |   |
|                                  |       |                                                       |       |                                                      |       |                                           |       |           |       |   |   |
| Year Ended December 31,  2006         |       |                                                       |       |                                                      |       |                                           |       |           |       |   |   |
| Allowance for doubtful  accounts      |       | $                                                          | 48,334     |                                                      | 25,368     |                                           | 5,392      | (1)            | (15,873    | ) | $ | 63,221 |   |
| Deferred tax asset valuation account  |       | $                                                          | 40,983     |                                                      | 7,691      |                                           | —     |           | —     |   | $ | 48,674 |   |

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(1)             Forthe year ended December 31, 2004, other charges consist of reserves acquiredthrough purchase acquisition of  $2,898and foreign currency translation of $1,222. For the year ended December 31, 2005, other charges consist of reservesacquired through purchase acquisitions of $13,633 offset by foreign currencytranslation of $(350).  For the yearended December 31, 2006, other charges consist of reserves acquired throughpurchase acquisitions of $4,075, and foreign currency translation of $1,317.

(2)             Forthe years ended December 31, 2004, other charges consisted of valuationallowances provided on deferred tax assets acquired in business combinations of$3,020 and increases of $19,544 to deferred tax assets offset by full valuationallowances.

98

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