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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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(Mark One) |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended January 31, 2006 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to |
Commission file: 0-25674
SkillSoft Public Limited Company
(Exact name of registrant as specified in its charter)
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Republic of Ireland
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None |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
107 Northeastern Boulevard
Nashua, New Hampshire
(Address of principal executive offices) |
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03062
(Zip Code) |
Registrants telephone number, including area code:
(603) 324-3000
Securities registered pursuant to section 12(b) of the
Act: None
Securities registered pursuant to Section 12(g) of the
Act:
(Title of Class)
Ordinary Shares,
0.11
Subscription Rights
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K or any
amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filero
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Accelerated filerþ
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Non-accelerated filero
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Indicate by check mark whether the registrant is a shell company
(as defined by
Rule 12b-2 of the
Act). Yes o No þ
The approximate aggregate market value of voting shares held by
non-affiliates of the registrant as of July 31, 2005 was
$404,192,398
On March 31, 2006, the registrant had outstanding
107,493,534 ordinary shares (issued or issuable in exchange for
the registrants outstanding American Depository Shares
(ADSs)).
DOCUMENTS INCORPORATED BY REFERENCE
None.
SKILLSOFT PUBLIC LIMITED COMPANY
FORM 10-K
TABLE OF CONTENTS
1
PART I
Any statements in this
Form 10-K about
future expectations, plans and prospects for
SkillSoft®,
including statements containing the words believes,
anticipates, plans, expects,
will and similar expressions, constitute
forward-looking statements within the meaning of The Private
Securities Litigation Reform Act of 1995. Actual results may
differ materially from those indicated by such forward-looking
statements as a result of various important factors, including
those set forth in Item 1A, Risk Factors.
As used in this
Form 10-K,
we, us, our,
SkillSoft and the Company refer to
SkillSoft Public Limited Company and its subsidiaries; and
references to our fiscal year refer to the fiscal year ending on
January 31 of that year (e.g., fiscal 2007 is the fiscal year
ending January 31, 2007).
General
SkillSoft is a leading provider of comprehensive
e-learning content and
technology products for business and information technology
(IT) professionals within global enterprises. Our
multi-modal learning solutions support and enhance the speed and
effectiveness of both formal and informal learning processes and
integrate SkillSofts in-depth content resources, learning
management system, virtual classroom technology and support
services. Content offerings include our business, IT, desktop
and compliance courseware collections and
BusinessProtm,
ITProtm,
OfficeEssentialstm,
FinanceProtm,
EngineeringProtm,
GovEssentialstm,
ExecSummariestm
and
ExecBlueprintstm
collections from
Books24x7®.
Our complementary technologies include
SkillPort®,
SkillSofts learning management system with its powerful
Search-and-Learn®technology
and premium add-on modules, and SkillSoft
Dialoguetmvirtual
classroom, a tool that allows customers to create and deliver
effective blended learning programs using custom content and
off-the-shelf learning
resources.
Our products and services are designed to connect learning
objectives to business strategy and to maximize human capital
investments. With a comprehensive learning solution comprised of
high-quality learning resources and flexible technology
approaches, we help our customers achieve sustainable,
measurable business results. These solutions are designed to
support all levels of the organization and can easily be adapted
to meet strategic business initiatives, on-demand information
needs and individual job roles.
On the courseware side of our business, we focus on a variety of
business, professional effectiveness, IT and compliance topics
that we believe represent important skills required of employees
in increasingly dynamic and complex work environments. We also
provide informal learning products through our Books24x7
business unit that support on-demand learning and daily
information gathering needs. Our IT skills courses give learners
the ability to gain the technical knowledge they need to perform
their jobs and prepare for many popular IT professional
certifications. Our business skills courses (also known as soft
skills courses) concentrate on the skills and knowledge that are
relevant to various general competencies and functional
responsibilities in todays business organizations. These
skills are important to a business professionals ability
to work effectively with business associates and customers, make
sound business decisions and more rapidly achieve his or her
most important work-related and career objectives. Our Books24x7
Referenceware collections cover broad business and technical
areas of interest, as well as focused areas such as engineering
and finance. Generally, our courseware and Books24x7 content
solutions are based on open standard Web technologies and
flexible, low bandwidth architecture, enabling users to access
the material they need via computer, with the specificity or
breadth they require, any time or anywhere that they may need it.
Our technology solutions are designed to support a broad range
of corporate learning needs and respond quickly to business
demands. Our learning management system (LMS), SkillPort, is
designed to be a flexible, scalable platform that can be rapidly
implemented to meet the needs of the majority of business
enterprises. We also work actively with other LMS vendors to
ensure interoperability of our content and technology with their
systems. In addition to SkillPort, we offer, customization and
authoring tools, and other technology assets that allow our
customers to tailor our content to be a better fit with their
business. SkillSoft Dialogue, a virtual classroom and Web
collaboration technology, is focused on the rapid assembly and
delivery of effective online learning sessions.
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We have a worldwide customer base spanning business, government
and education, and more than six million licensed users. Our
major products include:
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SkillChoice Multi-Modal Learning Solutions: These
integrated solutions provide a rich array of resources
(including courseware, Referenceware, online mentoring, test
preparation exams, Express
Guides®
and SkillSimtm simulations) to support formal training and
informal performance support needs. Available as four offerings
(Complete, IT, Business and Desktop), SkillChoice solutions
provide the necessary depth, breadth, quality and currency to
encompass a wide range of corporate learning objectives. |
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SkillPort: SkillPort, our learning management platform,
provides a reliable, flexible and cost-effective way for
organizations to deploy and manage their
e-learning programs.
Using SkillPort, customers can leverage the benefits of the
multi-modal learning approach and deploy complex solutions
rapidly, on a global basis. With Search-and-Learntm, employees
view all e-learning
assets on the system with a single, unified search. SkillPort is
available as a hosted solution, supporting the growing demand
for reliable, scalable and secure
e-learning with a
low-cost, low IT-burden model. Alternatively, customers may
choose to deploy SkillPort on their intranet infrastructure.
Recently introduced add-on modules for our instructor-led
training (ILT) management and advanced reporting functionality
support complex, blended learning programs. |
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SkillSoft Dialogue: SkillSoft Dialogue is a virtual
classroom platform that has been designed for the rapid assembly
and delivery of effective live and on-demand learning sessions.
SkillSoft Dialogue provides customers access to an online
repository of hundreds of thousands of pages of SkillSoft
learning content. This content can be used to enrich live and
on-demand learning sessions created in SkilSoft Dialogue. These
sessions can also be launched and tracked from SkillPort and
other standards-based LMS platforms. SkillSoft Dialogue is
another example of SkillSoft leveraging its strong heritage of
content development and learning technology to bring a new form
of value to the market that directly addresses an unmet need of
todays leading learning organizations. |
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KnowledgeCenters: KnowledgeCenters are pre-packaged,
user-friendly learning portals that allow learners instant
access to trusted, targeted content. Each KnowledgeCenter
includes material specifically chosen to help a targeted
audience of learners build knowledge around a topic as quickly
and efficiently as possible. Components include Books24x7
Referenceware; access to SkillSoft courseware organized into
Learning Roadmaps that make it easy for learners to locate and
use the most appropriate courses for their needs; simulations
(through SkillSims, practice labs, or the Project Center);
expert mentoring services (for IT KnowledgeCenters and the PMI
KnowledgeCenter); and featured topic spotlights, refreshed
regularly, to provide an in-depth focus on particular topical
areas. |
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Business Skills Courseware Collection: This includes more
than 2,200 courseware titles and simulations encompassing
professional effectiveness, management/leadership, project
management, sales and customer-facing skills, business
strategy/operations, finance and human resources. Our courses
feature strong visual design; a focus on instructional
objectives at the application and analysis levels; learner
interactivity; reinforcement through RolePlays, SkillSims and
case studies; and transfer of learning into practice through
online Job Aids, Follow-On Activities and SkillBriefs. |
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IT Skills and Certification Courseware Collection: This
includes more than 1,600 courseware titles encompassing software
development, operating systems and server technologies, Internet
and network technologies, enterprise database systems and Web
design. Our IT skills collection also supports more than 75
current IT professional certification exams. The IT courses also
feature strong visual design, interactivity, and reinforcement
of learning transfer via frequent practice questions,
simulations and mentored and self-assessed exercises. |
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Desktop Skills Courseware Collection: SkillSofts
Desktop Skills Course Collection offers more than 750 courseware
titles to assist professionals who rely upon standard desktop
applications. Our desktop solutions are ideal for
day-to-day performance
support, as well as supporting major corporate software |
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migrations. Our Desktop Skills Courseware Collection also
supports over 25 industry certifications such as ECDL/ ICDL and
many of the Microsoft MOS certification exams. |
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Legal Compliance, Environmental Safety and Health (ES&H)
and Federal Government Compliance Collections:
SkillSofts Compliance Solution includes three focus
areas Legal Compliance, Environmental Safety and
Health (ES&H) Compliance and Federal Government Compliance.
SkillSofts Legal Compliance Solution, which includes more
than 35 courses, addresses the needs of our clients as they work
toward maintaining compliance with various statutes,
regulations, and case law that govern the workplace. The
ES&H Compliance Solution addresses key standards mandated by
the Occupational Safety and Health Administration (OSHA),
Environmental Protection Agency (EPA), and the Department of
Transportation (DOT). Our ES&H courses are designed for use
by the hardhat and safety glasses industries.
SkillSoft has over 200 ES&H courses in four languages. The
Federal Government Compliance Solution specifically addresses
compliance issues for individuals either working directly for
the Federal government or employees doing business with the
Federal government. The topics included in this solution are
similar to those found in the Legal Compliance Solution; however
they are designed to address Federal requirements that govern
Federal employees. |
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Online Mentoring: This service is offered for over 100
current certification exams for IT professionals, end-user
technologies and project management skills. Our approximately 45
on-staff mentors, averaging over 20 current certifications each,
are available 24 hours a day, 7 days a week. Through
online chats and
e-mail, learners can
ask questions, receive clarification and request additional
information to help them get the answers and understanding they
need to prepare for industry certification exams. |
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Books24x7 Referenceware: This includes more than 10,000
unabridged IT and business books and reports from more than 150
publishers that are available to online subscribers through our
subsidiary, Books24x7. Exclusive assets such as
Referencepointstm, which are original technology white papers
from SkillSoft Press, and more than 200 original digital books,
including the Instant Code series. White Papers from SkillSoft
Press and Instant Code Books fill gaps not covered by
traditional book publishers. A unique, patent-pending search
engine gives Books24x7 subscribers the ability to perform
multi-level searches to pinpoint information needed for
on-the-job performance
support and problem-solving. |
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Executive Content: Books24x7 executive level offerings
give busy executives the information they value in a form that
fits their busy schedules. ExecSummariestm offers concise
summaries of todays best-selling business books. Summaries
can be read on screen, printed or downloaded in MP3 format for
portable listening. ExecBlueprintstm are executive white papers
that provide near-term actionable information on key business
topics. ExecBlueprints are bylined by leading C-level executives
from prominent global companies. |
We were incorporated in Ireland on August 8, 1989. On
September 6, 2002, we completed a merger with SkillSoft
Corporation, a Delaware corporation, and, on November 19,
2002, we changed our corporate name from SmartForce PLC to
SkillSoft PLC. Our registered office is located at Belfield
Office Park, Clonskeagh, Dublin 4, Ireland, and our
telephone number at that address from the United States is
(011) 353-1-2181000.
Our principal office in the United States is located at 107
Northeastern Boulevard, Nashua, New Hampshire 03062, USA, and
our telephone number at that address is (603) 324-3000.
We maintain a Web site with the address www.SkillSoft.com. We
are not including the information contained on our Web site as
part of, or incorporating it by reference into, this annual
report on
Form 10-K. We make
available free of charge through our Web site our annual reports
on Form 10-K,
quarterly reports on
Form 10-Q and
current reports on
Form 8-K, and
amendments to these reports, as soon as reasonably practicable
after we electronically file these materials with, or otherwise
furnish them to, the Securities and Exchange Commission.
Industry Background
The corporate training market is large. We believe that a
substantial majority of the corporate training market is
comprised of business skills, IT skills and compliance training,
as well as the complementary
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technologies and services for the development and delivery of
learning programs. We believe that the growth in corporate
training is being driven by:
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the evolution of our economy to a service-based and
knowledge-based economy, in which the skills of the workforce
often represent the most important corporate assets; |
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the increasing recognition by businesses that it is imperative
to continually improve the skills of their employees in order to
remain competitive; |
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the rapidly evolving business environment, which necessitates
continual training and education of the employee base; |
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the increased competition in todays economy for skilled
employees and the recognition that effective training can be
used to recruit and retain employees; and |
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the retirement of Baby Boom Generation workers during the coming
15-to-20 years,
which will result in industries seeking technically skilled and
educated workers to meet the projected shortage of qualified and
trained candidates to replace those retiring workers. This
phenomenon is widely projected to create a major increase in
demand for training in technical and business skills. |
Although corporate training has historically been and continues
to be dominated by traditional classroom instruction,
e-learning solutions
are offering another choice in which business enterprises
improve the skills of their workforce. By providing real-time
accessibility and user-focused specificity,
e-learning enables the
training and education process to be broadened from a distinct
event often off-site and limited in
scope to a process of continuous learning for
employees. Often, we find that our customers combine
e-learning resources
with traditional classroom training or virtual classroom events.
These blended learning programs meet the rising need for
training in increasingly complex working environments, and, when
properly designed and deployed, blended solutions can
effectively address the needs of business organizations seeking
to provide comprehensive, enterprise-wide learning solutions to
their employees. These solutions can support both the planned
formal learning priorities and the
day-to-day informal
learning activities that comprise the primary means by which
business professionals learn the skills needed to do their job
and grow their careers.
We believe that
e-learning solutions
present a significant opportunity for business organizations to
cost-effectively deliver training and performance support
resources for their employees while maintaining a higher level
of productivity of their workforce.
E-learning solutions
can improve on the inefficiencies associated with classroom
training, including travel costs, scheduling difficulties and
the opportunity costs of employees time. In addition,
e-learning provides
benefits beyond other technology-based training methods that
make it more flexible, effective and cost-efficient. For
example, e-learning
solutions provide more timely and simplified deployment, the
flexibility of self-directed and personalized learning, improved
ease of use, and enhanced product/user support and
administrative functionality. Furthermore, through the use of
Web-based technologies,
e-learning solutions
provide access via computer to content any time, anywhere over
the Internet and in the exact amount required by each individual
learner.
Content Products
With over 4,750 courses spanning IT, cross-functional business
skills, functional area expertise and workplace compliance
subjects, we are well positioned in the
e-learning content
sector of the market for corporate education and training
solutions for todays critical business and IT skills.
Through our focus on these critical skills and our track record
in fast and effective execution, we strive to deliver
e-learning content that
excels in terms of depth, breadth, currency, interactive
learning design and Web deployment flexibility. Also, through
our Books24x7 professional Referenceware offering, we can offer
users access to over 10,000 unabridged business and IT titles
from more than 150 publishers, as well as summaries of leading
business books and reports authored by C-level executives on
pressing business topics. Together, these multi-modal
e-learning components
offer organizations an array of both formal and informal
learning based on user needs whether students need
to immerse themselves in the subject matter or need to quickly
reference content for five to ten minutes of
on-the-job performance
support.
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We regularly add new courses to cover new skills and
technologies and new subjects requested by our customers or that
we believe our customers will want. We also regularly retire
courses from our active library as certain skills, subjects or
technologies become outdated or used less frequently by our
customers, and as we replace older courses with newer and higher
quality versions. This combination of adding and retiring
courses, which is part of our continuous effort to ensure the
currency, relevancy and high quality of our active library, will
cause the overall active library size to fluctuate.
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Business Skills Courseware and Simulations |
Our comprehensive business skills library of
e-learning courses,
simulations and learning objects encompasses a wide array of
professional effectiveness skills and business topics. As of
January 31, 2006, our business skills library included over
2,200 business skills course and simulation offerings. Our
business skills courses and simulations are divided into the
following major Solution Areas:
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Professional Effectiveness
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Business Strategy & Operations |
Management & Leadership
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Sales & Customer-Facing Skills |
Project Effectiveness
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Finance, HR & Administration |
We have more than 700 current English language business skills
courses, and over 1,500 versions of these courses that have been
localized into a number of languages including UK English,
Italian, German, French, Castilian Spanish, Polish, Russian,
Japanese, Mandarin Chinese, Traditional Chinese, Cantonese,
Latin American Spanish and Brazilian Portuguese to support other
geographic markets.
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IT Skills and Certification Courseware |
Our comprehensive IT skills library of
e-learning courses and
learning objects encompasses a wide array of technologies used
by IT professionals and business end-users. As of
January 31, 2006, our IT skills library included over 1,600
IT skills course offerings that are divided into the following
major Solution Areas:
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Software Development
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Operating Systems & Server Technologies |
Internet & Network Technologies
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Database Systems |
Web Design
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The courseware in these Solution Areas address over 75 current
technical certifications sought by technical professionals and
enterprises providing technical products and services to their
customers, including:
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Microsoft
MCP
MCSA 2000
MCSE 2000
MCSD .NET
MCDBA
MCSA 2003
MCSE 2003 |
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Security
CompTIA Security+
CISSP (ISC2)
SSCP (ISC2)
ISSEP (ISC2)
CCSA (CheckPoint) |
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Cisco
CCNA
CCDA
CCNP
CCDP
CCSP |
Macromedia
ColdFusion MX Developer
Dreamweaver MX Developer
Flash MX Developer |
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CompTIA
A+
Net+
INet+
Server+
Linux+ |
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Sun
Sun Certified Programmer for the Java 2 Platform |
Project Mgmt Institute
PMP
CAPM |
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Linux Professional Institute
LPI: Level 1
LPI: Level II |
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CIW
CIW Associate
Master Enterprise Developer
CIW Site Designer |
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Oracle
OCA 9i
OCP 9i
OCA 10g
OCP 10g |
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We have more than 1,050 current English language IT skills
courses, and over 600 IT skills course titles that have been
localized into a number of languages including German, French,
Spanish, Japanese and Mandarin Chinese , to support other
geographic markets.
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Desktop Skills Courseware Collection. |
SkillSofts Desktop Skills Courseware Collection offers
more than 190 English language Desktop Skills courseware titles
and over 570 Desktop Skills courses that have been localized
into languages such as French, German, Spanish, Italian,
Portuguese, Polish, and Mandarin Chinese. Our Desktop Skills
courses are built to assist professionals who rely upon standard
desktop applications such as Microsoft Office, Lotus Notes and
Crystal Reports. Our desktop solutions are ideal for
day-to-day performance
support, as well as supporting major corporate software
migrations. In addition, SkillSofts Desktop Skills
Courseware Collection supports over 25 popular end user
certifications including ECDL/ ICDL and many Microsoft MOS
certification exams.
SkillSofts Compliance Solutions provide collections of
compliance-based
e-learning solutions.
Within Compliance Solutions there are three areas of focus:
Legal Compliance, Environmental Safety and Health (ES&H)
Compliance and Federal Government Compliance.
The Legal Compliance Solution addresses the needs of our clients
as they work toward maintaining compliance with various
statutes, regulations and case law that govern the workplace.
The various topics covered in this solution include Ethics, Code
of Conduct, Diversity, Sarbanes Oxley and Harassment. Our Legal
Compliance courses are designed for use by virtually everyone in
an organization, regardless of job title or position.
The ES&H Compliance Solution addresses key standards
mandated by the Occupational Safety and Health Administration
(OSHA), Environmental Protection Agency (EPA), and the
Department of Transportation (DOT). Our Environmental Safety and
Health (ES&H) courses are designed for use by the
hardhat and safety glasses industries.
The Federal Government Compliance Solution specifically
addresses compliance issues for individuals either working
directly for the U.S. Federal government or employees doing
business with the Federal government. The topics included in
this solution are similar to those found in the Legal Compliance
Solution; however, they are designed to address Federal
requirements that govern Federal employees.
Compliance Solutions also offers the SkillSoft Academy Learning
Management System (LMS). SkillSoft Academy is specifically
designed for compliance training management. Academy allows
training administrators to track learner status, run
up-to-the-minute
training compliance reports and set consistent training and
re-training requirements. As a cost-effective alternative choice
to traditional instructor-led training, a compliance solution
consisting of an LMS and courses can help reduce the risks and
liability for non-compliance in the workplace. In addition,
compliance solution courses are also designed to help reduce
risks associated with workers compensation claims,
lawsuits and the expense of increased insurance costs.
Books24x7, a SkillSoft company, offers a suite of core,
unabridged and topically organized Referenceware collections
that provide online subscribers the ability to perform
multi-level searches to pinpoint information needed for
on-the-job performance
support and problem-solving. Referenceware products draw upon
leading professional reference books, research reports and
documentation. Books24x7 delivers Referenceware via a Web-based
platform that enables paying subscribers to browse, read,
search, and collaborate anytime, anywhere with a simple Web
connection. The Referenceware collections include:
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ITPRO COLLECTION is geared toward technology professionals
including developers, network administrators, technology
executives, information services managers and technical support
representatives. This collection consists of content from dozens
of IT publishers including industry leaders such as Apress,
Microsoft Press, MIT Press, Osborne/ McGraw-Hill, Syngress, and
John Wiley & Sons. The |
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ITPro collection includes original content owned by SkillSoft
Press such as ReferencePoints white papers and the Instant Code
series of books. |
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BUSINESSPRO COLLECTION is geared toward professionals whose role
requires exercising strong business judgment. This collection
contains over 30 business skills and professional development
publishers including industry leaders such as AMACOM, ASTD,
Berrett-Koehler, Harvard Business School Press, Jossey-Bass,
Oxford University Press and John Wiley & Sons. |
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OFFICEESSENTIALS COLLECTION is a specialty collection geared
toward non-technical users who require occasional real-time
assistance with common office applications. This collection
contains award winning content, including the for
Dummies series, is written in a comfortable,
easy-to-understand tone
and can be deployed to desktops to relieve Help Desk congestion,
or provided as an end-user safety-net during
migration to applications such as Microsoft Office 2003. |
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FINANCEPRO COLLECTION offers professionals access to relevant
information on a variety of financial and accounting topics.
FinancePro delivers fully searchable, online content from
popular publishers such as AMACOM, John Wiley & Sons,
McGraw-Hill and Oxford University Press, and is an essential
tool for anyone needing immediate access to financial reference
materials including such topics as Generally Accepted Accounting
Principals (GAAP), International Accounting Standards,
Sarbanes-Oxley, operations management, planning and taxation. |
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ENGINEERINGPRO COLLECTION is a professional information tool
containing reference material covering a wide range of
engineering disciplines, and general reference topics important
to virtually all engineering professionals. This collection
features books from publishers such as John Wiley &
Sons, McGraw-Hill, The Institution of Electrical Engineers,
EngineeringPress, Industrial Press, Noble Publishing, Artech
House, Cambridge University Press, The MIT Press and others. |
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EXECSUMMARIES COLLECTION provides summaries of leading business
books from todays foremost business authors. ExecSummaries
expertly encapsulates the salient points and ideas of
full-length books into concise, 8-page summaries. Unlike
excerpts or reviews, designed for
ease-of-use with short
passages, bulleted lists, and other useful elements, these
thorough, yet high-level overviews provide time-constrained
executives with the leading ideas that are shaping todays
business environment. |
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EXECBLUEPRINTS COLLECTION is original content owned by SkillSoft
that provides executives with
easy-to-absorb,
practical information and best practices to help provide them
with a framework for taking near-term action on pressing
business issues. Authored by top C-level business executives who
are regarded as leaders and innovators in their fields, these
reports are designed to succinctly convey key issues, metrics,
lessons learned, milestones, timelines and action plans required
for successful execution. |
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GOVESSENTIALS COLLECTION is a broad reference tool targeted to
meet the information needs of government workers, contractors
and consultants. By combining the full text of
government-focused books from major publishers with carefully
selected public domain content, GovEssentials offers a variety
of ready-access titles in a broad range of subjects such as
Foundations of Government, Security & Homeland Defense,
Acquisition & Contracting,
E-Gov &
Information Technology, and other topics of importance to
government workers. |
Our Express Guides are targeted at IT professionals who need
information immediately upon release of new technologies.
Express Guides complement other learning options, such as
e-learning courses and
books, both of which require longer development cycles to bring
to market. Express Guides can be searched, launched and managed
through SkillPort, as well as other third-party learning
management systems.
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The SkillSoft Instructional Design Model |
Our instructional design model, which we have used in designing
our business and IT skills courses, is based primarily on the
concepts of performance-oriented instruction, mastery and the
sequencing of
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instructional activities and strategies. The model draws heavily
from adult learning principles that emphasize learner
initiative, self-management, experiential learning and transfer
of learning into the workplace. The design of each of our
courses starts with the definition of user-focused performance
objectives and then proceeds to the selection and implementation
of instructional strategies and learning activities appropriate
for those objectives. Frequent practice questions or exercises
along with assessments measure users achievement of those
objectives. This robust, yet flexible, design methodology
creates an instructionally sound framework for the design and
development of highly interactive, engaging and instructionally
effective courses regardless of the content focus or
level of learning.
Our instructional design model is intended to meet the challenge
of creating effective and engaging instruction that is easily
deployed on our corporate customers global computer
networks or over the Internet. Our design, development and
quality assurance standards and processes are all geared toward
insuring each course meets our expectations for the best
instruction possible.
Our instructional design model is focused on producing courses
in all content areas with:
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learning outcomes specified by performance goals and objectives; |
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content and learning activities based on specified objectives; |
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assessment based on the knowledge and skills specified in the
objectives; |
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options to take assessments in either pre- or post-test mode; |
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instructional strategies and multimedia elements tailored to the
specific course content; |
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tools to promote the transfer of learning into the workplace,
such as online Job Aids and Follow-On Activities; |
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instructional strategies appropriate for the content and
learning level, such as examples, behavior modeling, guided
practice, and simulations; and |
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levels of learning appropriate for the content and the target
audience. |
The theories and principles embedded within our instructional
design model are actualized via:
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a friendly, intuitive graphical user interface; |
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a course structure and navigation that supports self-paced,
user-controlled instruction; |
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unlimited access to instruction and assessments; |
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a standardized templates to create unified and predictable
functionality; |
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a variety of presentation, practice, and assessment templates
supporting high levels of user interactivity and
engagement; and |
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a standardized, yet flexible, flow of instruction. |
Starting from this set of common elements and attributes, our
courses then include the instructional strategies most suitable
for the content and specified objectives. For instance, the
approach to teaching communication skills is different from the
approach to teaching finance or accounting skills, and the
strategies used to teach these two business content areas differ
from those used to teach computer and software skills.
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Learning Design for Business Skills |
Our business skills courses cover a broad range of business and
professional effectiveness curriculum areas. Some content is
factual with predictable, non-variable outcomes, such as
finance; other content areas, such as communication skills, are
softer, or more behavioral-oriented, and have highly
variable implementation options and outcomes that require a
different set of instructional presentation and practice
strategies. In addition, we have a strong commitment to reach
the highest possible levels of learning in each
course
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including as much application and analysis level content as
possible, supported by strong foundational learning at the
knowledge and comprehension levels.
The key instructional features and strategies in our business
skills courses and library are:
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ROLEPLAY EXERCISES RolePlay exercises present users
with opportunities for realistic practice of varying aspects of
course content within everyday workplace scenarios. RolePlay
exercises have multiple possible outcomes based on users
responses to the simulations interactions. When integrated
into course topics, RolePlay exercises allow users to freely
explore the impact of handling realistic work situations in
different ways. SkillSofts RolePlay design allows users to
experience the exercise in score mode or
explore mode. Using score mode lets learners assess
their level of skill within the targeted content area. Using
explore mode allows the learner to dynamically explore
alternative responses to see the impact of those choices. This
user-driven exploration is the key to real learning. People
learn as much, or more, from their mistakes as from the things
they do correctly. RolePlays bring this principle home to
e-learning. |
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AUDIO-ENABLED LEARNING Our business skills
instruction is audio-enabled. This feature can easily be turned
on or off based on user preference and greatly enhances
engagement and retention for many users. Audio can be especially
key to the instructional effectiveness of behavior modeling,
RolePlay exercises and SkillSims. |
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SIMULATED DIALOGS The ability to observe behaviors
and their outcomes (positive and negative) is a key strategy for
teaching professional and behavioral skills. The simulated
dialog strategy gives users an opportunity to observe and listen
to the conversations of two or more people. The inclusion of
character audio enhances the emotional and tonal
qualities of the conversation, while the varying facial
expressions and body language offer another layer of
interpretation. These features, combined with the spoken words
of the characters, provide realistic vignettes or scenarios in
which varying aspects of a behavioral skill can be presented. |
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CASE STUDIES A case study strategy describes a
complex situation, often in the form of a story or scenario, and
then asks the user to explore its characteristics and possible
resolutions. Complexity is the primary difference between case
studies and examples that can be easily presented and practiced
through other types of strategies, such as multiple choice and
matching. Case studies are used to achieve learning at the
application and analysis levels and to present examples of
content within appropriate business contexts. |
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ANIMATIONS Animations are an important element of
our leading visual design. We use animations when movement is an
important part of the teaching point, when the content requires
that the users eye be drawn to a specific area of the
screen or when a key concept can be best presented via animated
visuals. Examples of content areas where animations can enhance
learning effectiveness include instruction on process and
dataflow diagrams, hierarchical and dependency relationships and
changes in state or perspective. |
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ONLINE JOB AIDS All of our business skills courses
include online Job Aids that help support the use of newly
learned skills and knowledge in the workplace. Job Aids are
courseware take-aways that can be used as-is, or
tailored to meet a users needs. Each Job Aid can easily be
edited to reflect a users organization-specific
information, and users can add organization-specific Job Aids
that they have independently developed. |
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LEARNING AIDS Learning aids are tools or documents
used in support of course content presentation and practice.
They are designed to support specific course context or content,
and, therefore, are not available for use outside of the course.
Learning aids could appear as worksheets (interactive or
passive), reference documents too large to include in a standard
template, complex charts or graphs or a variety of other
formats. Only the content and the chosen instructional
strategies limit the variations. |
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SKILLBRIEFS SkillBriefs are one- to two-page
text-based HTML documents that summarize the content in each
topic of a course. SkillBriefs are now available as part of
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through SkillPort. SkillBriefs can be used to quickly
refresh a learners memory of key teaching
points, as instant,
just-in-time
non-interactive learning when time doesnt allow for more
typical instruction and/or as valuable take-aways from a course
to support transfer of learning into the workplace. There are
currently SkillBriefs for over 5,000 topics. |
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PRE- AND POST-TESTING ASSESSMENTS Assessments are
available for use in both pre- and post-testing modes. When
Assessments are used in pre-test mode, learners can use the
results to tailor their initial path of instruction based on
those results. Post-test Assessments can be used to help
learners identify areas where review or remediation is necessary. |
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SKILLSIMS BUSINESS SKILLS SIMULATIONS SkillSims are
instructional resources that extend the learning advantages of
RolePlay into larger, more complex
e-learning experiences.
SkillSims are designed to give users an opportunity to practice
new skills in realistic work situations. Each SkillSims
simulation, typically
20-to-40 minutes in
duration, provides users with an opportunity to practice
application level skills based on content drawn from multiple
courses within one of our learning paths or series (a collection
of related courses). Users practice these skills by navigating
through different scenarios in which they encounter a variety of
business problems. As in real life, users have the opportunity
to select different courses of action, and the scenario unfolds
according to the users choice of actions. Events such as
telephone calls, meetings and interruptions add to the reality
of each scenario. |
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SkillSims, with integrated links to their corresponding
SkillSoft course series, provide a powerful learning experience
that allows the user to immediately apply newly gained knowledge
to challenging business situations in risk-free environments.
This results in engaging learning experiences and real skill
transfer. |
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BLENDED LEARNING TOOLKITS Like SkillSims, the
Blended Learning Toolkits are based on content drawn from
multiple courses within a single learning path or series.
However, this product is designed to provide our customers with
tools for blending and/or transferring
e-learning into the
workplace as well as the classroom. Each Blended Learning
Toolkit consists of multiple layers of content including a Users
Guide, approximately 18 to 20 activities or tools, PowerPoint
presentations that summarize the key teaching points from each
lesson in all the courses within the learning path and short
text-based summaries (SkillBriefs) of all the topic content.
Blended Learning Toolkits are delivered electronically and can
be used as is or customized to meet individual
customer requirements. Customers have the freedom to
blend the tools into traditional classroom settings,
instructional events delivered via collaborative learning
platforms, or to hand them over to managers, supervisors,
facilitators, and anyone else interested in transferring
learning into the workplace. The Blended Learning Toolkit
provides multi-layered content with many options for use and
implementation. It is adaptable and flexible to support a
variety of audiences, content areas, and implementation
environments and platforms. The goal of the Blended Learning
Toolkit is to effectively reinforce the application of knowledge
and skills from our courses. Most of all, it provides our
customers with another opportunity to enhance and leverage their
investment in
e-learning. |
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Learning Design for IT Skills |
Like our business skills courses, the instructional strategies
chosen for use in an IT skills course are largely dependent on
the course content and objectives. Learning the use or function
of buttons, menu items and other familiar software elements is
largely a knowledge and comprehension task. Learning the steps
to complete a specific task is very procedural and best achieved
via observation or guided practice, followed by opportunities
for more independent practice, with varying degrees of guidance,
feedback and support. In support of these and other IT
skills-related learning goals, our IT skills courses include
static and interactive explanations, step-by-step demonstrations
of how to perform specific procedures, guided practice
activities and sample coding solutions. Inclusion of frequent
review questions in the instructional topics reinforces key
teaching points. The availability of Assessments at both the
topic and course level provides the learner with an option to
assess their performance across the entirety of a course, or
with more focused concentration on individual topic level
content and objectives.
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The key instructional features and strategies in the IT skills
courses and library are:
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TEXT AND GRAPHICS Our IT skills courses use a
variety of text and graphic-based strategies to present and
explain software features and functions. Interactive text and
graphics are particularly useful to explain buttons, menu items,
coding or tagging parameters, and syntax. This strategy is also
an effective method to break down complex concepts into smaller,
graphically represented parts, or to separate lines of code into
smaller sections. Clicking or selecting graphically portrayed
parts produces additional information or explanation
about that specific part. All these features allow learners to
review information as often as they want and to ignore something
if they choose to. |
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DEMONSTRATIONS AND GUIDED PRACTICE Demos
in our IT skills courses are demonstrations of software
procedures and tasks. Most typically, the demonstration will
divide the procedure or task into specific steps and then
sequentially show those steps to the user. As the
demo moves from one step to the next, a simulated representation
of the software shows what happens next and additional text
provides commentary. In addition, learners are frequently given
the option of performing the salient steps of the procedure.
This feature, called a Try-It, prompts the user to
perform specific steps, or enter code that achieves a specified
end result. If learners decide not to perform the step, they can
click forward, which launches an animated sequence of the
correct step. A special animation feature, called a Show
Me, is used to demonstrate a specific sequence step or
user action. The steps are outlined in advance, and then the
learner is given the option of reviewing those steps in an
animated sequence. The automated playback of the demo is
optional the learner can opt to view the demo or
continue to the next section of instruction. |
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PROMPTED ANIMATIONS Animations help the learner
visualize content to draw his or her attention to an
area on an interface or conceptual graphic. Prompted animations
are initiated by the learner after some other introduction to
the content in the instruction. When the animation is launched,
it extends or reinforces the instruction that has already taken
place. The use of prompted versus autoplay animation
helps avoid split attention, which can occur when text displays
simultaneously with animation. Split attention means a learner
is confused about where to focus or watch, and confounds
learning. |
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INTERACTIVE EXERCISES There are many types of
interactive practice questions and exercises used in our IT
skills courses. |
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SkillChecks are a key practice strategy in GUI-based
content where it is important for the learner to be able to
use the software application. SkillChecks present
learners with a task to perform on a simulated interface. If a
learner performs all the required steps in the task correctly,
the interface responds as it would in the real application. If
learners decide not to perform the question, they can click
forward or click a Show-me button, both of which
launch an animated sequence of the correct step. |
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User-input questions enable learners to complete a
statement or segment of code by typing the answer into a blank
area in the code or statement. |
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Multiple-choice, matching, and ranking questions are used
to reinforce newly learned skills and knowledge within an
instructional topic, and to practice or assess the huge body of
conceptual information related to a complete understanding and
implementation of many IT subject areas. Learners are
debriefed on their performance on these questions
via detailed feedback for every answer choice, regardless of
whether they got the question right or wrong. |
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ONLINE MENTORING Is available for over 100 current
certification exams for IT professionals, end user technologies
and project management skills. We have approximately 45 on-staff
mentors, averaging over 20 certifications apiece that are
available 24 hours a day, 7 days a week. Through
on-line chats and
e-mail, learners can
ask questions, receive clarification, and request additional
information to help them get the answers and understanding they
need. |
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TESTPREP CERTIFICATION PRACTICE EXAMS Addressing
over 65 of the most popular current certification exams from
Microsoft, Cisco, Oracle and CompTIA, TestPrep practice exams
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learners to test their knowledge in a simulated
certification-testing environment. Tests can be taken in two
modes study and certification. The un-timed study
mode is designed to maximize learning by providing feedback and
mapping back to appropriate SkillSoft courses for further study,
while the
against-the-clock
certification mode is designed to mimic a certification exam. |
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SIMULATIONS AND EXERCISES Our IT skills courses
contain standalone topics that give learners the opportunity to
independently practice or consolidate the most critical
procedures and learning taught in the preceding instruction.
There are four types of simulations, each focused on developing
different skills: |
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Software exercises, which consist of a series of tasks
that learners perform in a simulated version of the application
being discussed in the course. |
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Coding exercises, which give learners the opportunity to
analyze and write code or commands. |
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Hardware exercises, which simulate hardware setup
problems. |
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Case-Study exercises, which consist of an interactive
review of concepts and information, presented in a
real-world scenario. |
All of these instructional strategies provide the learner with
the opportunity to practice his or her skills at higher learning
levels. All types of exercises typically build on skills
practiced previously in the course and are designed to cover
multiple learning objectives.
MENTORED EXERCISES AND SELF-ASSESSMENT EXERCISES
These exercises are designed to provide the user with an
opportunity to apply new knowledge and skills within a live
software application. Mentored exercises are designed to allow
learners to carry out complex tasks and exercises and submit
them to a mentor for review. Self-assessment exercises afford
learners the opportunity to carry out similar tasks and
exercises, on which they can then assess themselves from a
provided solution. Both of these exercises involve the
presentation of a real-world scenario requiring the learner to
provide a solution or complete a series of tasks. After
completing a series of these activities, users will have a set
of documents or products demonstrating proficiency with the
skills taught by the course.
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Web-Based Architecture and Deployment Technology |
Our Web-based architecture and deployment strategy enables us to
provide a number of features to support users in their learning.
These features include:
Learning Management Platforms. Learning management
platforms are key enabling technologies that permit users to
access a wide variety of
e-learning content
resources over the Web, including courseware, simulations,
Referenceware, online mentoring, SkillBriefs, Job Aids and
TestPrep Certification Practice Exams. Our SkillPort learning
management system provides a rich feature set to support a range
of corporate learning needs with a high degree of reliability
and scalability. Available as a hosted or intranet solution,
SkillPort offers our customers a low-cost, low IT-burden option
with fast
time-to-learning. As of
January 31, 2006, there are over 1,400 active SkillPort
installations. In addition to our own platform, we continue to
strive for convenient, easy integration of our content into
third-party learning management systems through ongoing support
of industry standards such as SCORM (Sharable Content Object
Reference Model) and AICC (Aviation Industry CBT Committee)
standards and through initiatives such as our Strategic Alliance
for Integrated Learning (SAIL).
SkillPort Search-and-Learn Technology. Search-and-Learn
technology, a key component of SkillPort, allows the users to
search and access learning resources topically with a single,
unified search. For example, a learner searching for resources
on Cisco networks can discover the various SkillSoft courses,
books, TestPreps, Express Guides and online mentoring services
available to the learner with a single search query. From the
identified results, the learner can then choose the resource
that best meets his or her specific needs, time requirements and
learning preferences.
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SkillPort Add-On Modules. Add-on modules expand the scope
of blended learning capabilities supported by SkillPort and
allow customers to introduce new content types as an integrated
part of their SkillPort learning programs. The SkillPort add-on
modules are Instructor-Led Training Module and Advanced
Reporting Module.
SkillPort Customer Content Support. Customer content
support allows customers to track, manage and search custom
courses created by SkillSofts authoring tools, as well as
Microsoft Word, PowerPoint and Excel and Adobe PDF documents.
This gives organizations the ability to incorporate important
information resources such as white papers, launch plans, budget
templates and customized training within a comprehensive
learning database. SkillPort also supports
off-the-shelf and
custom courseware from third-party providers, as long as the
content is designed to conform to our supported open standards
and meets SkillSofts custom content support guidelines.
SkillSoft Dialogue. SkillSoft Dialogue has been developed
in response to our customers need to rapidly assemble and
deliver new content that ties to the organization and its goals.
Many customers have added a virtual meeting component to their
learning programs to deliver company-specific information. They
have discovered that online meeting tools can be used to quickly
create new materials and are using these tools to deliver
information live, as well as recording their presentations for
employees to play back on-demand. However, they have also
encountered some common challenges. Most online meeting tools do
little to support subject matter experts (SMEs) who may not be
experienced in how to deliver sessions that are rich in
interaction, which can result in a lower level of engagement and
knowledge transfer. Additionally, editing these recordings is
often cumbersome or impossible. SkillSoft Dialogue builds upon
the foundation of this online meeting technology and adapts it
to better fit the needs and challenges of the learning
community. SkillSoft Dialogue will aid SMEs in creating more
interactive presentations, and provide access to SkillSoft
content to enrich presentations.
Assistive Technology Support. Assistive technology
support is designed to address the requirements of
Section 508 of the Rehabilitation Act Amendments of 1998,
which provides that, as of June, 2001, computer software
applications purchased or developed by federal agencies must be
designed for accessibility by people who are blind, deaf or have
poor motor skills. We have aggressively worked to adapt our
online courseware, Books24x7 Referenceware and our SkillPort LMS
platform to meet the requirements established by
Section 508. This development work is consistent with our
general corporate philosophy to help organizations
democratize training and give all employees access
to training and development opportunities anywhere, anytime
through computers. Our Section 508-compliant products
provide users in a government or commercial organization with
sight, hearing and/or mobility limitations equal access to our
courses through the use of leading assistive technologies such
as the JAWS screen reader.
High Performance Web Technology. Our products incorporate
high performing Web technologies that we believe substantially
improve our product performance. Our courses and support tools
are developed using cross-platform technologies such as HTML,
XML, Java, JavaScript, Macromedia Flash and ColdFusion. Our
products employ advanced compression and database management
techniques, which allow our products to deliver high-quality
performance within our customers bandwidth constraints.
This enables us to provide our
e-learning solutions to
most users, not just those with the most powerful computers,
quickest modems and highest resolution monitors.
Flexible Deployment Options. We also offer a fully hosted
model as a deployment option for companies that prefer to have
users access courses from SkillSoft-managed servers via the
Internet rather than host the courses on the customers own
intranet. Chosen by the majority of SkillSoft customers, this
fully hosted option can significantly simplify and shorten the
implementation process.
The pricing for our courses varies based upon the number of
course titles or the courseware bundle licensed by a customer,
the number of users and the length of the license agreement
(generally one, two or three years). Our license agreements
permit customers to exchange course titles, generally on the
contract
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anniversary date. Some product features, such as SkillPort, the
Course Customization Toolkit, Dialogue and courseware hosting,
are separately licensed for an additional fee.
The pricing for our SkillChoice Solution license varies based on
the content offering selected by the customer, the number of
users within the customers organization and the length of
the license agreement. Our SkillChoice Solution license provides
customers access to a full range of learning products including
courseware, Referenceware, simulations, mentoring, testpreps and
Express Guides.
A Referenceware license gives users access to the full library
within one or more collections (ITPro, BusinessPro, FinancePro
and OfficeEssentials) from Books24x7. The pricing for our
Referenceware licenses varies based on the collections specified
by a customer, the number of users within the customers
organization and the length of the license agreement.
Sales and Marketing
In the fiscal year ended January 31, 2006, our products
were sold in 58 countries. Our primary sales channels consist of
a direct field sales force for larger accounts, a telesales
group for small to medium-sized business accounts and resellers
that address certain opportunities in the United States and some
international markets.
We believe this strategy enables us to focus our resources on
the largest sales opportunities, while simultaneously leveraging
the telesales model and reseller channels to address
opportunities that may not be cost-effective for us to pursue
through the direct field sales organization.
As of January 31, 2006, we employed 282 sales professionals
and sales operations, telesales, sales management and solution
services personnel. In the field sales organization, each
account executive reports to either a regional sales director or
an area sales vice president who is responsible for revenue
growth and expense control for his or her area. Our sales
professionals have significant sales experience, as well as
extensive contacts with the corporate customers that we target.
The sales process for an initial sale to a large customer
typically ranges from three to twelve months and often involves
a coordinated effort among a number of groups within our
organization.
We use sophisticated sales force automation software to track
each prospect and customer through a sales cycle covering the
following seven stages: prospect, qualify, discovery,
evaluation, proposal, negotiate and close. Each step of the
sales cycle has certain exit criteria that must be satisfied
before the prospect can progress to the next stage. Our senior
sales executives hold review meetings throughout each quarter
with our regional sales vice presidents and in some cases their
account executives to assess their
90-day forecast,
120-day pipeline
development and longer term territory strategy. Our area sales
vice presidents, regional sales directors and their account
executives typically confer regularly throughout the quarter to
review progress toward quarterly goals and longer term business
objectives and for coaching sessions.
We have an office in the United Kingdom that serves as the hub
of our Europe and Middle East sales operations. We also have an
office in Sydney, Australia that serves as the hub for our
Asia-Pacific operations. In order to accelerate our worldwide
market penetration, our sales strategy includes developing
relationships to access indirect sales channels such as reseller
and distributor partners. Our indirect sales channels give us
access to a more diverse client base, which we otherwise would
not be able to reach in a cost-effective manner through our
direct sales force. Our development and marketing partners also
generally have the right to resell products developed under
their alliances with us.
We have a telesales group located in Fredericton, New Brunswick,
Canada that has been established to target opportunities with
small to medium-sized businesses.
Our marketing organization utilizes a variety of programs to
support our global sales team. As of January 31, 2006, our
marketing organization consisted of 37 employees. Our marketing
programs include:
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customer advisory forums and user group events; |
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product and strategy updates with industry analysts; |
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public relations activities resulting in articles in trade press
and speaking engagements; |
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print advertising in trade publications; |
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printed promotional materials and direct mail; |
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online marketing in the form of web banners, content
syndication, email sponsorships, newsletters and key-word buying
on search engines; and |
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events, seminars and trade shows. |
No customer accounted for more than 10% of our revenue for the
fiscal year ended January 31, 2006. See Note 11 of the
Notes to the Consolidated Financial Statements for a discussion
of our revenue by geographic area and by segment.
Customer Service and Support
We offer a broad range of support and services to our customers
across the e-learning
lifecycle through our customer service, application engineering
and customer support organization. We believe that providing a
high level of customer service and support is necessary to
achieve rapid product implementation, full product utilization,
customer satisfaction and continued revenue growth.
Application engineering. We have application engineers
available to assist customers with the technical aspects of
installing and deploying our products. These engineers assist in
evaluating the network access and bandwidth requirements of the
software and courses within the customers environment to
ensure that they run successfully and provide the desired level
of performance.
Account consulting. We employ account consultants to
assist customers in planning and implementing best practices for
e-learning program
success. These individuals assist with the implementation of
pilot programs and offer expertise in establishing training
success criteria, planning internal marketing programs and
communicating with
e-learning end users.
Our account consultants work in close coordination with our
application engineers and sales representatives and are an
important component of our efforts to monitor and ensure
customer satisfaction and success.
Customer support. We also provide Web-based, live
telephone, e-mail and
chat support to our customers through our customer service and
support organization. They are available to assist customers
7 days per week, 24 hours per day, 365 days per
year.
As of January 31, 2006, our customer service and support
organization consisted of 183 people globally.
Competition
The market for corporate education and training products is
fragmented and highly competitive. We expect that competition in
this market will remain intense in the future for the following
reasons:
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The expected growth of this market. |
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Our course content providers are often not prohibited from
developing courses on similar topics for other companies,
provided that they do not use our toolkit or templates. |
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The tremendously fragmented nature of the competitive landscape,
including many competitors in the
e-learning segment of
the market. |
One source of competition for our products is the internal
educational and technological personnel of our potential
customers. If an organization decides to use external providers
to supply some or all of its training, our principal sources of
competition in the corporate education and training market are:
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Providers of traditional classroom instruction, including
American Management Association, AchieveGlobal, ESI, DDI, New
Horizons and GlobalKnowledge. Many of the companies in this
category are attempting to adapt their courses to
e-learning formats
suitable for access via Web |
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browsers or offer
e-Learning courses in
conjunction with their instructor-led training and, in general,
compete for the same training dollars in the customers
budget. |
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Technology companies such as IBM, Cisco, Oracle and Microsoft
that offer e-learning
courses. |
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Suppliers of online corporate education and training courses,
including Thomson Learning (through subsidiaries such as NETg
and Course Technologies), Element K, MindLeaders, Harvard
Business School Publishing, Ninth House and Corpedia. Our
Books24x7 business competes with companies such as Safari, a
joint venture between Pearson Technology Group and
OReilly & Associates, which offers aggregated
content primarily restricted to its own titles on a subscription
basis. |
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With our entrance into the virtual classroom market, we are
competing with companies such as WebEx, Centra, Interwise and
Microsoft; and with rapid content development technology
suppliers such as Macromedia Breeze, Articulate and Microsoft
PowerPoint. |
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With our SkillPort LMS platform technology, we compete with
other suppliers of LMS products such as SumTotal, Saba, Plateau,
GeoLearning, Oracle, SAP, IBM and others. |
We believe that the principal competitive factors in the
corporate education and training market include:
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the breadth, depth, currency and instructional design quality of
the course content; |
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informal performance support and other features of the training
solution; |
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adaptability, flexibility, reliability, scalability and
performance of technology platforms offered; |
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standards compliance and
ease-of-integration
with third party systems and customer learning portals; |
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the deployment options offered to customers, such as hosted,
intranet and low bandwidth access; |
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customer service and support; |
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price/value relationship; |
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relationships with the customer; and |
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corporate reputation. |
Although we believe that we currently compete favorably with
respect to those factors, we may not be able to maintain or
improve our competitive position. Some of our current and
potential competitors have greater financial resources than we
do. Increased competition may result in lost sales and may force
us to lower prices, which may adversely affect our business and
financial performance.
Product Development
We believe that the development of effective training content
requires the convergence of source material, instructional
design methodologies and computer technology. When developing a
new learning path or product, we first obtain content from our
content partners or other subject matter experts, existing
courses and product reference materials. Our design and
development teams then define the user-focused performance
objectives and select the content, instructional strategies,
learning activities and assessments appropriate for the intended
learning outcomes. This process includes the creation of design
documents, scripts, and in some cases storyboards to document
the planned content sequence, instructional flow and interactive
presentation and practice strategies. The design and development
team includes subject matter experts, learning designers,
technical writers and developers, graphic designers, animators,
and content editors and quality assurance reviewers. After final
assembly or integration of all course components into a
completed course, we test to ensure all functional capabilities
work as designed and deliver the desired learning experience and
result.
The core element of our learning solution development process is
our design and development process and the tools we use to
support that process. Our design, development and production
tools are comprised of our own proprietary software and
off-the-shelf tools.
Our combination of development toolsets allows us to quickly and
efficiently create and continually update modular learning
events and enhance, on an ongoing basis, the
17
multimedia content of such learning events. Our research and
development goal is to further enhance our product development
process and tools to facilitate the continual evolution of our
offerings and ensure that our instructional products incorporate
a wide variety of meaningful and effective instructional
elements. We use internal developers as well as external content
development partners to produce content for our business and IT
skills curriculums. Our current network of external content
development partners use the same methods, processes, and tools
to develop content as our internal developers, and are held to
the same set of instructional design and content quality
standards. Course content is supplied by us, by other companies
from which we have licensed content, or by the developer, based
on an outline jointly defined by the developer and us.
Our research and development efforts also include a focus on the
design, development and integration of other key product
elements, including online IT mentoring by certified content
experts 24 hours a day, 7 days a week, task-based IT
simulations and labs, business skills focused SkillSimulations,
Certification TestPrep for IT, and online Referenceware for
business and IT skills.
Our approach to technology begins with the understanding that
the ability of our customers to deploy our
e-learning applications
and content is a critical factor in their success with our
products. To meet our customers varied needs, we strive to
enable our courses to be able to be delivered on-line, using
standard Web browsers downloaded for off-line usage, or
distributed via CD-ROM.
Through careful technology selection, product design, and
exhaustive compatibility testing, we ensure our products can be
deployed on the vast majority of corporate desktop computers and
without requiring the installation of specialized plug-ins
whenever possible, and can be delivered over the varied and
complex network infrastructures in existence today. As
technologies and standards evolve, we continuously review those
changes and consider adapting our products when possible to
ensure compatibility.
We employ compression technologies for our media components and
design our products to operate effectively over low bandwidth
network environments. In this way, we reach a broader number of
users with our products and minimize the load on our
customers networks.
Deployment flexibility is also achieved by adhering to industry
standards such as AICC and SCORM. Our
e-learning course
content is designed for integration with third party learning
management systems as well as with our
e-learning platform
products.
The majority of the content for our Referenceware is licensed
from third party publishers.
Certain research and development activities are conducted by
internal teams located in our main product development centers
in Dublin, Ireland; Nashua, New Hampshire; Belfast, Northern
Ireland; and Fredericton, New Brunswick, Canada. In addition to
our internal efforts, we outsource various aspects of our
content development process to third parties.
As of January 31, 2006, the number of employees in our
product development organization totaled 326. We intend to
continue to make substantial investments in research and
development. Product development expenses were
$53.6 million, $45.6 million and $39.0 million
for the fiscal years ended January 31, 2004, 2005 and 2006,
respectively.
Proprietary Rights
We believe that proprietary technology forms an important or
valuable part of most of our business skills and IT skills
courseware offerings. We further believe that the creative
skills of our personnel in developing new products and
technologies, our ability to develop and introduce new products
rapidly and our responsiveness to customer demands are equally
important. We protect our technology by various means, including
entering into agreements with employees to protect against
disclosure of sensitive business information. We have three
United States patents and 23 foreign patents with respect to
computer-based training technologies and methods and 10 United
States and foreign patent applications pending with respect to
computer-based training technologies and methods. We also have
two Nationalized International [PCT] Cases. Finally, we
currently have one patent application pending with respect to
our Books24x7 product offerings.
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We attempt to avoid infringing upon intellectual property and
proprietary rights of third parties in our product development
efforts. However, we do not conduct comprehensive patent
searches to determine whether the technology used in our
products infringes patents held by third parties. In addition,
product development is inherently uncertain in a rapidly
evolving technological environment in which there may be
numerous patent applications pending, some of which are
confidential when filed, with regard to similar technologies. If
our products violate third-party proprietary rights, we could be
liable for substantial damages. In addition, we may be required
to reengineer our products or seek to obtain licenses to
continue offering the products, and those efforts may not be
successful.
We currently license certain technologies from third
parties including data compression technologies and
tools for developing Web applications and some
course content that we incorporate into our products. We also
license content for our Referenceware from third party
publishers. This technology and content may not continue to be
available to us on commercially reasonable terms. The loss of
this technology or content could result in delays in development
and introduction of new products or product enhancements, which
could have a material adverse effect on our business and
financial performance. Moreover, we may face claims from others
that the third-party technology or content incorporated in our
products violates proprietary rights held by those claimants. We
may also face claims for indemnification from our customers
resulting from infringement claims against them based on the
incorporation of third-party technology or content in our
products. Although we are generally indemnified against such
claims, in some cases the scope of that indemnification is
limited. Even if we receive broad indemnification, third parties
contractually obligated to indemnify us are not always well
capitalized and may not be able to indemnify us in the event of
infringement. In addition, such claims, even if not meritorious,
could result in the expenditure of significant financial and
managerial resources in addition to potential product
redevelopment costs and delays, all of which could materially
adversely affect our business.
SkillSoft, Books24x7, SkillPort, SkillChoice, RolePlay, Express
Guide, Search-and-Learn and Referenceware are registered
trademarks and/or service marks of SkillSoft.
Employees
As of January 31, 2006, we employed 979 people globally.
At January 31, 2006, 319 employees were engaged in sales,
sales operations, sales management, marketing, solution
services, telesales and corporate development, 151 were in
management, business applications, IT, administration and
finance, 183 employees were in customer service, application
engineering, solution services and customer support and 326 were
in product development, custom solutions, mentoring and hosting.
As of January 31, 2006, 545 employees were located in the
United States and 434 in our international locations. None of
our employees are subject to a collective bargaining agreement
and we have not experienced any work stoppages. We believe that
our employee relations are good.
Our future success will depend in large part on the continued
service of our key management, sales, product development and
operational personnel and on our ability to attract, motivate
and retain highly qualified employees. We also depend on
writers, programmers and graphic artists. We expect to continue
to hire additional product development, sales and marketing,
information services, accounting staff and other resources as we
deem appropriate to meet our business objectives.
Investors should carefully consider the risks described below
before making an investment decision with respect to shares of
the Company.
19
RISKS RELATED TO LEGAL PROCEEDINGS
IN CONNECTION WITH OUR RESTATEMENT OF THE HISTORICAL FINANCIAL
STATEMENTS OF SMARTFORCE, CLASS ACTION LAWSUITS HAVE BEEN FILED
AGAINST US AND ADDITIONAL LAWSUITS MAY BE FILED, AND WE ARE THE
SUBJECT OF A FORMAL ORDER OF PRIVATE INVESTIGATION ENTERED BY
THE SEC.
While preparing the closing balance sheet of SmartForce as at
September 6, 2002, the date on which we closed our merger
with SkillSoft Corporation (the Merger), certain accounting
matters were identified relating to the historical financial
statements of SmartForce (which, following the Merger, are no
longer our historical financial statements). On
November 19, 2002, we announced our intent to restate the
SmartForce financial statements for 1999, 2000, 2001 and the
first two quarters of 2002. We have settled several class action
lawsuits that were filed following the announcement of the
restatement.
We are the subject of a formal order of private investigation
entered by the SEC. We may incur substantial costs in connection
with the SEC investigation, which could cause a diversion of
management time and attention. In addition, we could be subject
to substantial penalties, fines or regulatory sanctions or
claims by our former officers, directors or employees for
indemnification of costs they may incur in connection with the
SEC investigation, which could adversely affect our business and
operating results.
On June 2, 2005, the Boston District Office of the SEC
informed us that it had made a preliminary determination to
recommend that the SEC bring a civil injunctive action against
us. Under the SECs rules, we are permitted to make a
so-called Wells Submission in which we seek to persuade the SEC
that no such action should be commenced. In the event we are
unable to resolve the SECs potential claims by agreement,
we intend to make such a submission. We continue to cooperate
with the SEC in this matter. At the present time we are unable
to predict the outcome of this action and as such have not
determined what, if any, impact it may have on our financial
statements.
CLAIMS THAT WE INFRINGE UPON THE INTELLECTUAL PROPERTY RIGHTS OF
OTHERS COULD RESULT IN COSTLY LITIGATION OR ROYALTY PAYMENTS TO
THIRD PARTIES, OR REQUIRE US TO REENGINEER OR CEASE SALES OF OUR
PRODUCTS OR SERVICES.
Third parties have in the past and could in the future claim
that our current or future products infringe their intellectual
property rights. Any claim, with or without merit, could result
in costly litigation or require us to reengineer or cease sales
of our products or services, any of which could have a material
adverse effect on our business. Infringement claims could also
result in an injunction in the use of our products or require us
to enter into royalty or licensing agreements. Licensing
agreements, if required, may not be available on terms
acceptable to the combined company or at all.
From time to time we learn of parties that claim broad
intellectual property rights in the
e-learning area that
might implicate our offerings. These parties or others could
initiate actions against us in the future.
WE COULD INCUR SUBSTANTIAL COSTS RESULTING FROM PRODUCT
LIABILITY CLAIMS RELATING TO OUR CUSTOMERS USE OF OUR
PRODUCTS AND SERVICES.
Many of the business interactions supported by our products and
services are critical to our customers businesses. Any
failure in a customers business interaction or other
collaborative activity caused or allegedly caused in the future
by our products and services could result in a claim for
substantial damages against us, regardless of our responsibility
for the failure. Although we maintain general liability
insurance, including coverage for errors and omissions, there
can be no assurance that existing coverage will continue to be
available on reasonable terms or will be available in amounts
sufficient to cover one or more large claims, or that the
insurer will not disclaim coverage as to any future claim.
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WE COULD BE SUBJECTED TO LEGAL ACTIONS BASED UPON THE CONTENT WE
OBTAIN FROM THIRD PARTIES OVER WHOM WE EXERT LIMITED CONTROL.
It is possible that we could become subject to legal actions
based upon claims that our course content infringes the rights
of others or is erroneous. Any such claims, with or without
merit, could subject us to costly litigation and the diversion
of our financial resources and management personnel. The risk of
such claims is exacerbated by the fact that our course content
is provided by third parties over whom we exert limited control.
Further, if those claims are successful, we may be required to
alter the content, pay financial damages or obtain content from
others.
RISKS RELATED TO THE OPERATION OF OUR BUSINESS
SOME OF OUR INTERNATIONAL SUBSIDIARIES HAVE NOT COMPLIED WITH
REGULATORY REQUIREMENTS RELATING TO THEIR FINANCIAL STATEMENTS
AND TAX RETURNS.
We operate our business in various foreign countries through
subsidiaries organized in those countries. Due to our
restatement of the historical SmartForce financial statements,
some of our subsidiaries have not filed their audited statutory
financial statements and have been delayed in filing their tax
returns in their respective jurisdictions. As a result, some of
these foreign subsidiaries may be subject to regulatory
restrictions, penalties and fines and additional taxes.
WE HAVE EXPERIENCED NET LOSSES IN THE PAST, AND WE MAY BE UNABLE
TO MAINTAIN PROFITABILITY.
We recorded a net loss of $113.3 million for the fiscal
year ended January 31, 2004, $20.1 million for the
fiscal year ended January 31, 2005 and net income of
$35.2 million for the fiscal year ended January 31,
2006. While we achieved profitability in the fiscal year ending
January 31, 2006, we cannot guarantee that our business
will sustain profitability in any future period.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.
THIS LIMITS YOUR ABILITY TO EVALUATE HISTORICAL FINANCIAL
RESULTS AND INCREASES THE LIKELIHOOD THAT OUR RESULTS WILL FALL
BELOW MARKET ANALYSTS EXPECTATIONS, WHICH COULD CAUSE THE
PRICE OF OUR ADSs TO DROP RAPIDLY AND SEVERELY.
We have in the past experienced fluctuations in our quarterly
operating results, and we anticipate that these fluctuations
will continue. As a result, we believe that our quarterly
revenue, expenses and operating results are likely to vary
significantly in the future. If in some future quarters our
results of operations are below the expectations of public
market analysts and investors, this could have a severe adverse
effect on the market price of our ADSs.
Our operating results have historically fluctuated, and our
operating results may in the future continue to fluctuate, as a
result of factors, which include (without limitation):
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the size and timing of new/renewal agreements and upgrades; |
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royalty rates; |
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the announcement, introduction and acceptance of new products,
product enhancements and technologies by us and our competitors; |
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the mix of sales between our field sales force, our other direct
sales channels and our telesales channels; |
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general conditions in the U.S. or the international economy; |
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the loss of significant customers; |
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delays in availability of new products; |
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product or service quality problems; |
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seasonality due to the budget and purchasing cycles
of our customers, we expect our revenue and operating results
will generally be strongest in the second half of our fiscal
year and weakest in the first half of our fiscal year; |
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the spending patterns of our customers; |
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litigation costs and expenses, including the costs related to
the restatement of the SmartForce financial statements; |
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non-recurring charges related to acquisitions; |
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growing competition that may result in price reductions; and |
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currency fluctuations. |
Most of our expenses, such as rent and most employee
compensation, do not vary directly with revenue and are
difficult to adjust in the short-term. As a result, if revenue
for a particular quarter is below our expectations, we could not
proportionately reduce operating expenses for that quarter. Any
such revenue shortfall would, therefore, have a disproportionate
effect on our expected operating results for that quarter.
DEMAND FOR OUR PRODUCTS AND SERVICES MAY BE ESPECIALLY
SUSCEPTIBLE TO ADVERSE ECONOMIC CONDITIONS.
Our business and financial performance may be damaged by adverse
financial conditions affecting our target customers or by a
general weakening of the economy. Companies may not view
training products and services as critical to the success of
their businesses. If these companies experience disappointing
operating results, whether as a result of adverse economic
conditions, competitive issues or other factors, they may
decrease or forego education and training expenditures before
limiting their other expenditures or in conjunction with
lowering other expenses.
INCREASED COMPETITION MAY RESULT IN DECREASED DEMAND FOR OUR
PRODUCTS AND SERVICES, WHICH MAY RESULT IN REDUCED REVENUES AND
GROSS PROFITS AND LOSS OF MARKET SHARE.
The market for corporate education and training solutions is
highly fragmented and competitive. We expect the market to
become increasingly competitive due to the lack of significant
barriers to entry. In addition to increased competition from new
companies entering into the market, established companies are
entering into the market through acquisitions of smaller
companies, which directly compete with us, and this trend is
expected to continue. We may also face competition from
publishing companies, vendors of application software and HR
outsourcers, including those vendors with whom we have formed
development and marketing alliances.
Our primary sources of direct competition are:
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third-party suppliers of instructor-led information technology,
business, management and professional skills education and
training; |
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technology companies that offer
e-learning courses
covering their own technology products; |
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suppliers of computer-based training and
e-learning solutions; |
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internal education, training departments and HR outsourcers of
potential customers; and |
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value-added resellers and network integrators. |
Growing competition may result in price reductions, reduced
revenue and gross profits and loss of market share, any one of
which would have a material adverse effect on our business. Many
of our current and potential competitors have substantially
greater financial, technical, sales, marketing and other
resources, as well as greater name recognition, and we expect to
face increasing price pressures from competitors as
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managers demand more value for their training budgets.
Accordingly, we may be unable to provide
e-learning solutions
that compare favorably with new instructor-led techniques, other
interactive training software or new
e-learning solutions.
WE RELY ON A LIMITED NUMBER OF THIRD PARTIES TO PROVIDE US WITH
EDUCATIONAL CONTENT FOR OUR COURSES AND REFERENCEWARE, AND OUR
ALLIANCES WITH THESE THIRD PARTIES MAY BE TERMINATED OR FAIL TO
MEET OUR REQUIREMENTS.
We rely on a limited number of independent third parties to
provide us with the educational content for a majority of our
courses based on learning objectives and specific instructional
design templates that we provide to them. We do not have
exclusive arrangements or long-term contracts with any of these
content providers. If one or more of our third party content
providers were to stop working with us, we would have to rely on
other parties to develop our course content. In addition, these
providers may fail to develop new courses or existing courses on
a timely basis. We cannot predict whether new content or
enhancements would be available from reliable alternative
sources on reasonable terms. In addition, our subsidiary, Books
24x7.com (Books) relies on third party publishers to provide all
of the content incorporated into its Referenceware products. If
one or more of these publishers were to terminate their license
with us, we may not be able to find substitute publishers for
such content. In addition, we may be forced to pay increased
royalties to these publishers to continue our licenses with them.
In the event that we are unable to maintain or expand our
current development alliances or enter into new development
alliances, our operating results and financial condition could
be materially adversely affected. Furthermore, we will be
required to pay royalties to some of our development partners on
products developed with them, which could reduce our gross
margins. We expect that cost of revenues may fluctuate from
period to period in the future based upon many factors,
including the revenue mix and the timing of expenses associated
with development alliances. In addition, the collaborative
nature of the development process under these alliances may
result in longer development times and less control over the
timing of product introductions than for
e-learning offerings
developed solely by us. Our strategic alliance partners may from
time to time renegotiate the terms of their agreements with us,
which could result in changes to the royalty or other
arrangements, adversely affecting our results of operations.
The independent third party strategic partners we rely on for
educational content and product marketing may compete with us,
harming our results of operations. Our agreements with these
third parties generally do not restrict them from developing
courses on similar topics for our competitors or from competing
directly with us. As a result, our competitors may be able to
duplicate some of our course content and gain a competitive
advantage.
OUR SUCCESS DEPENDS ON OUR ABILITY TO MEET THE NEEDS OF THE
RAPIDLY CHANGING MARKET.
The market for education and training software is characterized
by rapidly changing technology, evolving industry standards,
changes in customer requirements and preferences and frequent
introductions of new products and services embodying new
technologies. New methods of providing interactive education in
a technology-based format are being developed and offered in the
marketplace, including intranet and Internet offerings. In
addition, multimedia and other product functionality features
are being added to educational software. Our future success will
depend upon the extent to which we are able to develop and
implement products which address these emerging market
requirements in a cost effective and timely basis. Product
development is risky because it is difficult to foresee
developments in technology, coordinate technical personnel and
identify and eliminate design flaws. Any significant delay in
releasing new products could have a material adverse effect on
the ultimate success of our products and could reduce sales of
predecessor products. We may not be successful in introducing
new products on a timely basis. In addition, new products
introduced by us may fail to achieve a significant degree of
market acceptance or, once accepted, may fail to sustain
viability in the market for any significant period. If we are
unsuccessful in addressing the changing needs of the marketplace
due to resource, technological or other constraints, or in
anticipating and responding
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adequately to changes in customers software technology and
preferences, our business and results of operations would be
materially adversely affected. We, along with the rest of the
industry, face a challenging and competitive market for IT
spending that has resulted in reduced contract value for our
formal learning product lines. This pricing pressure is having a
negative impact on revenue for these product lines and may have
a continued or increased adverse impact in the future.
THE E-LEARNING MARKET
IS A DEVELOPING MARKET, AND OUR BUSINESS WILL SUFFER IF
E-LEARNING IS NOT
WIDELY ACCEPTED.
The market for
e-learning is a new and
emerging market. Corporate training and education have
historically been conducted primarily through classroom
instruction and have traditionally been performed by a
companys internal personnel. Many companies have invested
heavily in their current training solutions. Although
technology-based training applications have been available for
several years, they currently account for only a small portion
of the overall training market.
Accordingly, our future success will depend upon the extent to
which companies adopt technology-based solutions for their
training activities, and the extent to which companies utilize
the services or purchase products of third-party providers. Many
companies that have already invested substantial resources in
traditional methods of corporate training may be reluctant to
adopt a new strategy that may compete with their existing
investments. Even if companies implement technology-based
training or e-learning
solutions, they may still choose to design, develop, deliver or
manage all or part of their education and training internally.
If technology-based learning does not become widespread, or if
companies do not use the products and services of third parties
to develop, deliver or manage their training needs, then our
products and service may not achieve commercial success.
NEW PRODUCTS INTRODUCED BY US MAY NOT BE SUCCESSFUL.
An important part of our growth strategy is the development and
introduction of new products that open up new revenue streams
for us. Despite our efforts, we cannot assure you that we will
be successful in developing and introducing new products, or
that any new products we do introduce will meet with commercial
acceptance. The failure to successfully introduce new products
will not only hamper our growth prospects but may also adversely
impact our net income due to the development and marketing
expenses associated with those new products.
POTENTIAL FUTURE ACQUISITIONS MAY NOT PRODUCE THE BENEFITS WE
ANTICIPATE AND COULD HARM OUR CURRENT OPERATIONS.
One aspect of our business strategy is to pursue acquisitions of
businesses or technologies that will contribute to our future
growth. However, we may not be successful in identifying or
consummating attractive acquisition opportunities. Moreover, any
acquisitions we do consummate may not produce benefits
commensurate with the purchase price we pay or our expectations
for the acquisition. In addition, acquisitions involve numerous
risks, including:
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difficulties in integrating the technologies, operations,
financial controls and personnel of the acquired company; |
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difficulties in transitioning customers of the acquired company; |
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diversion of management time and focus; |
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the incurrence of unanticipated expenses associated with the
acquisition or the assumption of unknown liabilities or
unanticipated problems of the acquired company; and |
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accounting charges related to the acquisition, including
restructuring charges, write-offs of in-process research and
development costs, and subsequent impairment charges relating to
goodwill or other intangible assets acquired in the transaction. |
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THE SUCCESS OF OUR
E-LEARNING STRATEGY
DEPENDS ON THE RELIABILITY AND CONSISTENT PERFORMANCE OF OUR
INFORMATION SYSTEMS AND INTERNET INFRASTRUCTURE.
The success of our
e-learning strategy is
highly dependent on the consistent performance of our
information systems and Internet infrastructure. If our Web site
fails for any reason or if it experiences any unscheduled
downtimes, even for only a short period, our business and
reputation could be materially harmed. We have in the past
experienced performance problems and unscheduled downtime, and
these problems could recur. We currently rely on third parties
for proper functioning of computer infrastructure, delivery of
our e-learning
applications and the performance of our destination site. Our
systems and operations could be damaged or interrupted by fire,
flood, power loss, telecommunications failure, break-ins,
earthquake, financial patterns of hosting providers and similar
events. Any system failures could adversely affect customer
usage of our solutions and user traffic results in any future
quarters, which could adversely affect our revenues and
operating results and harm our reputation with corporate
customers, subscribers and commerce partners. Accordingly, the
satisfactory performance, reliability and availability of our
Web site and computer infrastructure is critical to our
reputation and ability to attract and retain corporate
customers, subscribers and commerce partners. We cannot
accurately project the rate or timing of any increases in
traffic to our Web site and, therefore, the integration and
timing of any upgrades or enhancements required to facilitate
any significant traffic increase to the Web site are uncertain.
We have in the past experienced difficulties in upgrading our
Web site infrastructure to handle increased traffic, and these
difficulties could recur. The failure to expand and upgrade our
Web site or any system error, failure or extended down time
could materially harm our business, reputation, financial
condition or results of operations.
BECAUSE MANY USERS OF OUR
E-LEARNING SOLUTIONS
WILL ACCESS THEM OVER THE INTERNET, FACTORS ADVERSELY AFFECTING
THE USE OF THE INTERNET OR OUR CUSTOMERS NETWORKING
INFRASTRUCTURES COULD HARM OUR BUSINESS.
Many of our customers users access our
e-learning solutions
over the Internet or through our customers internal
networks. Any factors that adversely affect Internet usage could
disrupt the ability of those users to access our
e-learning solutions,
which would adversely affect customer satisfaction and therefore
our business.
For example, our ability to increase the effectiveness and scope
of our services to customers is ultimately limited by the speed
and reliability of both the Internet and our customers
internal networks. Consequently, the emergence and growth of the
market for our products and services depends upon the
improvements being made to the entire Internet as well as to our
individual customers networking infrastructures to
alleviate overloading and congestion. If these improvements are
not made, and the quality of networks degrades, the ability of
our customers to use our products and services will be hindered
and our revenues may suffer.
Additionally, a requirement for the continued growth of
accessing e-learning
solutions over the Internet is the secure transmission of
confidential information over public networks. Failure to
prevent security breaches into our products or our
customers networks, or well-publicized security breaches
affecting the Internet in general could significantly harm our
growth and revenue. Advances in computer capabilities, new
discoveries in the field of cryptography or other developments
may result in a compromise of technology we use to protect
content and transactions, our products or our customers
proprietary information in our databases. Anyone who is able to
circumvent our security measures could misappropriate
proprietary and confidential information or could cause
interruptions in our operations. We may be required to expend
significant capital and other resources to protect against such
security breaches or to address problems caused by security
breaches. The privacy of users may also deter people from using
the Internet to conduct transactions that involve transmitting
confidential information.
OUR RESTRUCTURING PLANS MAY BE INEFFECTIVE OR MAY LIMIT OUR
ABILITY TO COMPETE.
In the fiscal year ended January 31, 2005 we recorded
approximately $13.4 million of restructuring charges
related to the reorganization of our content development
organization as well as the shut down of our
25
German facility. There are several risks inherent in these
efforts to transition to a new cost structure. These include the
risk that we will not be successful in maintaining
profitability, and hence we may have to undertake further
restructuring initiatives that would entail additional charges
and create additional risks. In addition, there is the risk that
cost-cutting initiatives will impair our ability to effectively
develop and market products and remain competitive. Each of the
above measures could have long-term effects on our business by
reducing our pool of talent, decreasing or slowing improvements
in our products, making it more difficult for us to respond to
customers, limiting our ability to increase production quickly
if and when the demand for our products increases and limiting
our ability to hire and retain key personnel. These
circumstances could cause our earnings to be lower than they
otherwise might be.
WE DEPEND ON A FEW KEY PERSONNEL TO MANAGE AND OPERATE THE
BUSINESS AND MUST BE ABLE TO ATTRACT AND RETAIN HIGHLY QUALIFIED
EMPLOYEES.
Our success is largely dependent on the personal efforts and
abilities of our senior management. Failure to retain these
executives, or the loss of certain additional senior management
personnel or other key employees, could have a material adverse
effect on our business and future prospects. We are also
dependent on the continued service of our key sales, content
development and operational personnel and on our ability to
attract, train, motivate and retain highly qualified employees.
In addition, we depend on writers, programmers, Web designers
and graphic artists. We may be unsuccessful in attracting,
training, retaining or motivating key personnel. In particular,
the negative consequences (including litigation) of having to
restate SmartForces historical financial statements,
uncertainties surrounding the Merger, and our recent adverse
operating results and stock price performance could create
uncertainties that materially and adversely affect our ability
to attract and retain key personnel. The inability to hire,
train and retain qualified personnel or the loss of the services
of key personnel could have a material adverse effect upon our
business, new product development efforts and future business
prospects.
CHANGES IN ACCOUNTING STANDARDS REGARDING STOCK OPTION PLANS
COULD LIMIT THE DESIRABILITY OF GRANTING STOCK OPTIONS, WHICH
COULD HARM OUR ABILITY TO ATTRACT AND RETAIN EMPLOYEES, AND
COULD ALSO REDUCE OUR PROFITABILITY.
The Financial Accounting Standards Board has determined to
require all companies to treat the value of stock options
granted to employees as an expense commencing in our first
quarter of fiscal 2007. This change will require companies to
record a compensation expense equal to the value of each stock
option granted. This expense will be spread over the vesting
period of the stock option. Due to the fact that we will be
required to expense stock option grants, it could reduce the
attractiveness of granting stock options because the additional
expense associated with these grants would reduce our
profitability. However, stock options are an important employee
recruitment and retention tool, and we may not be able to
attract and retain key personnel if we reduce the scope of our
employee stock option program. Accordingly, either our
profitability, or our ability to use stock options as an
employee recruitment and retention tool would be adversely
impacted.
OUR BUSINESS IS SUBJECT TO CURRENCY FLUCTUATIONS THAT COULD
ADVERSELY AFFECT OUR OPERATING RESULTS.
Due to our multinational operations, our operating results are
subject to fluctuations based upon changes in the exchange rates
between the currencies in which revenues are collected or
expenses are paid. In particular, the value of the
U.S. dollar against the euro and related currencies will
impact our operating results. Our expenses will not necessarily
be incurred in the currency in which revenue is generated, and,
as a result, we will be required from time to time to convert
currencies to meet our obligations. These currency conversions
are subject to exchange rate fluctuations, and changes to the
value of the euro, pound sterling and other currencies relative
to the U.S. dollar could adversely affect our business and
results of operations.
26
WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS. UNAUTHORIZED
USE OF OUR INTELLECTUAL PROPERTY MAY RESULT IN DEVELOPMENT OF
PRODUCTS OR SERVICES THAT COMPETE WITH OURS.
Our success depends to a degree upon the protection of our
rights in intellectual property. We rely upon a combination of
patent, copyright, and trademark laws to protect our proprietary
rights. We have also entered into, and will continue to enter
into, confidentiality agreements with our employees, consultants
and third parties to seek to limit and protect the distribution
of confidential information. However, we have not signed
protective agreements in every case.
Although we have taken steps to protect our proprietary rights,
these steps may be inadequate. Existing patent, copyright, and
trademark laws offer only limited protection. Moreover, the laws
of other countries in which we market our products may afford
little or no effective protection of our intellectual property.
Additionally, unauthorized parties may copy aspects of our
products, services or technology or obtain and use information
that we regard as proprietary. Other parties may also breach
protective contracts we have executed or will in the future
execute. We may not become aware of, or have adequate remedies
in the event of, a breach. Litigation may be necessary in the
future to enforce or to determine the validity and scope of our
intellectual property rights or to determine the validity and
scope of the proprietary rights of others. Even if we were to
prevail, such litigation could result in substantial costs and
diversion of management and technical resources.
OUR
NON-U.S. OPERATIONS
ARE SUBJECT TO RISKS WHICH COULD NEGATIVELY IMPACT OUR FUTURE
OPERATING RESULTS.
We expect that international operations will continue to account
for a significant portion of our revenues. Operations outside of
the United States are subject to inherent risks, including:
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difficulties or delays in developing and supporting non-English
language versions of our products and services; |
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political and economic conditions in various jurisdictions; |
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difficulties in staffing and managing foreign subsidiary
operations; |
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longer sales cycles and account receivable payment cycles; |
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multiple, conflicting and changing governmental laws and
regulations; |
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foreign currency exchange rate fluctuations; |
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protectionist laws and business practices that may favor local
competitors; |
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difficulties in finding and managing local resellers; |
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potential adverse tax consequences; and |
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the absence or significant lack of legal protection for
intellectual property rights. |
Any of these factors could have a material adverse effect on our
future operations outside of the United States, which could
negatively impact our future operating results.
THE MARKET PRICE OF OUR ADSs MAY FLUCTUATE AND MAY NOT BE
SUSTAINABLE.
The market price of our ADSs has fluctuated significantly since
our initial public offering and is likely to continue to be
volatile. In addition, in recent years the stock market in
general, and the market for shares of technology stocks in
particular, have experienced extreme price and volume
fluctuations, which have often been unrelated to the operating
performance of affected companies. The market price of our ADSs
may continue to experience significant fluctuations in the
future, including fluctuations that are unrelated to our
performance. As a result of these fluctuations in the price of
our ADSs, it is difficult to predict what the price
27
of our ADSs will be at any point in the future, and you may not
be able to sell your ADSs at or above the price that you paid
for them.
OUR SALES CYCLE MAY MAKE IT DIFFICULT TO PREDICT OUR OPERATING
RESULTS.
The period between our initial contact with a potential customer
and the purchase of our products by that customer typically
ranges from three to twelve months or more. Factors that
contribute to our long sales cycle, include:
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our need to educate potential customers about the benefits of
our products; |
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competitive evaluations by customers; |
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the customers internal budgeting and approval processes; |
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the fact that many customers view training products as
discretionary spending, rather than purchases essential to their
business; and |
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the fact that we target large companies, which often take longer
to make purchasing decisions due to the size and complexity of
the enterprise. |
These long sales cycles make it difficult to predict the quarter
in which sales may occur. Delays in sales could cause
significant variability in our revenues and operating results
for any particular period.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF OUR PRODUCTS CONTAIN
ERRORS.
Software products as complex as ours contain known and
undetected errors or bugs that result in product
failures. The existence of bugs could result in loss of or delay
in revenues, loss of market share, diversion of product
development resources, injury to reputation or damage to efforts
to build brand awareness, any of which could have a material
adverse effect on our business, operating results and financial
condition.
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Item 1B. |
Unresolved Staff Comments |
Not applicable.
Our United States headquarters are located in Nashua, New
Hampshire where we lease an aggregate of 62,816 square
feet. We have one lease for 37,416 square feet of space and
a second for 25,400 square feet of space. The leases for
both locations expire in June 2009. In addition to our
U.S. headquarters our primary facilities are located in
Dublin, Ireland; Norwood, Massachusetts; and Fredericton, New
Brunswick, Canada.
In Ireland, we currently lease and occupy a 35,421 square
foot facility in Dublin, which primarily houses our main content
development center. In addition, we currently lease two other
facilities in Dublin totaling approximately 28,814 square
feet. These spaces have been vacated and the operations
previously performed in these facilities have been consolidated
into the 35,421 square foot facility.
In Norwood, Massachusetts, we currently lease and occupy
10,658 square feet. This facility houses the operations of
our Books24x7.com subsidiary under a lease that expires in
December 2010.
In Canada, we currently lease a total of 47,906 square feet
in Fredericton, New Brunswick between two buildings. A portion
of one building is subleased. The Fredericton facility primarily
houses our mentoring operations, telesales and certain customer
service and support personnel and the lease expires in August
2008.
We also lease sales offices in a number of other countries
including the United Kingdom and Australia, and we lease a
development office in Belfast, Northern Ireland.
We believe that our existing facilities are adequate to meet our
current needs and that suitable additional or substitute space
will be available on commercially reasonable terms when needed.
28
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Item 3. |
Legal Proceedings |
SEC Investigation
On or about February 4, 2003, the SEC informed us that we
are the subject of a formal order of private investigation
relating to our November 19, 2002 announcement that we
would restate the financial statements of SmartForce PLC for the
period 1999 through June 2002. We understand that the SECs
investigation concerns SmartForces financial disclosure
and accounting during that period, other related matters,
compliance with rules governing reports required to be filed
with the SEC, and the conduct of those responsible for such
matters. On June 2, 2005, the Boston District Office of the
SEC informed us that it had made a preliminary determination to
recommend that the SEC bring a civil injunctive action against
us. Under the SECs rules, we are permitted to make a
so-called Wells Submission in which we seek to persuade the SEC
that no such action should be commenced. If we cannot resolve
the SECs potential claims by agreement, we intend to make
such a submission. We continue to cooperate with the SEC in this
matter. At the present time we are unable to predict the outcome
of this action and as such have not determined what, if any,
impact it may have on our financial statements.
Lawsuits
On November 18, 2004, Jody Glidden, Michael LeBlanc and
Trish Glidden filed a lawsuit against us, David C. Drummond,
Gregory M. Priest, Patrick E. Murphy and Jack Hayes in the
United States District Court for the Northern District of
California. The plaintiffs subsequently dismissed Patrick E.
Murphy and Jack Hayes from the lawsuit. The court subsequently
dismissed Trish Gliddens claims. The plaintiffs had
previously opted out of the class action settlement that
received final approval from the court on September 29,
2004. The lawsuit sets forth substantially the same claims as
were alleged in the class action litigation. In particular, the
lawsuit alleges that we misrepresented or omitted to state
material facts in our SEC filings and press releases regarding
our revenues and earnings and failed to correct such false and
misleading SEC filings and press releases, which are alleged to
have artificially inflated the price of our ADSs in connection
with our acquisition of IC Global in early 2001. The lawsuit
sought compensatory damages in excess of $3.7 million and
other unspecified damages, including punitive damages. The
parties settled the lawsuit on April 7, 2006. Pursuant to
the settlement, we will pay approximately $1.8 million to
the plaintiffs by April 17, 2006, which has been recorded
as legal settlement in our statement of operations for the year
ended January 31, 2006. Within five days of receipt of
payment, counsel for the plaintiffs will submit to the Court a
Stipulation and Request for Dismissal with Prejudice of the
action.
We are not a party to any other material legal proceedings.
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Item 4. |
Submission of Matters to a Vote of Security Holders |
Not applicable.
29
PART II
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Item 5. |
Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities. |
Our ADSs are listed on the NASDAQ National Market under the
symbol SKIL. The following table sets forth, for the
periods indicated, the high and low intraday sale prices per
share of our ADSs as reported on the NASDAQ National Market
between February 1, 2004 and January 31, 2006.
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Quarter Ended |
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High | |
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Low | |
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April 30, 2004
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$ |
13.31 |
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$ |
8.50 |
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July 31, 2004
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13.59 |
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5.98 |
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October 31, 2004
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7.45 |
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5.28 |
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January 31, 2005
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7.77 |
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4.68 |
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April 30, 2005
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5.33 |
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2.95 |
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July 31, 2005
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4.10 |
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3.30 |
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October 31, 2005
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4.93 |
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3.77 |
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January 31, 2006
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5.97 |
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3.87 |
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As of March 31, 2006, there were 11 holders of ordinary
shares of record.
We have not paid any cash dividends on our ordinary shares and
do not anticipate paying any cash dividends in the foreseeable
future. We currently intend to retain future earnings, if any,
to fund the growth of our business. Dividends may only be
declared and paid out of profits available for distribution
determined in accordance with accounting principles generally
accepted in Ireland and applicable Irish Company Law. There are
no additional material restrictions on the distribution of
income or retained earnings by our consolidated group companies.
Any dividends, if and when declared, will be declared and paid
in United States dollars. We did not sell unregistered
securities during fiscal 2006.
The following table provides information about purchases by the
Company and our affiliated purchasers during the quarter ended
January 31, 2006 of equity securities that are registered
by the Company pursuant to Section 12 of the Exchange Act:
Issuer Purchases of Equity Securities
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(a) | |
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(b) | |
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(c) | |
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(d) | |
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Maximum Number | |
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(or Approximate | |
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Total Number of | |
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Dollar Value) of | |
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Shares (or Units) | |
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Shares (or Units) | |
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Purchased as | |
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that may yet be | |
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Total Number of | |
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Average Price Paid | |
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Part of Publicly | |
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Purchased Under | |
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Shares (or Units) | |
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per Share (or | |
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Announced Plans | |
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the Plans or | |
Period |
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Purchased(1) | |
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Unit)($) | |
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or Programs(2) | |
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Programs | |
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11/01/05-11/30/05
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466,116 |
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12/01/05-12/31/05
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466,116 |
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01/01/06-01/31/06
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466,116 |
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Total:
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466,116 |
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(1) |
We have repurchased an aggregate of 6,533,884 ADSs pursuant to
the repurchase program that was approved by our shareholders on
September 24, 2004 (the Program). |
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(2) |
Our Board of Directors and shareholders approved the repurchase
by us of up to an aggregate of 7,000,000 ADSs at a per share
purchase price which complies with the requirements of
Rule 10b-18
pursuant to the Program. The Program expired on March 24,
2006 and our shareholders approved the renewal and extension of
the Program on March 23, 2006 to repurchase up to an
aggregate of 3,500,000 ADSs. Unless terminated earlier by
resolution of our Board of Directors, the Program will expire on
the |
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earlier of September 22, 2007 or when we have repurchased
all shares authorized for repurchase thereunder. |
Irish Stamp Duty
Stamp duty, which is a tax on certain documents, is payable on
all transfers of ordinary shares in companies registered in
Ireland wherever the instrument of transfer may be executed. In
the case of a transfer on sale, stamp duty will be charged at
the rate of 1
for every
100 (or part thereof) of the amount or value of the
purchase price. Where the consideration for the sale is
expressed in a currency other than Euro, the duty will be
charged on the Euro equivalent calculated at the rate of
exchange prevailing on the date of the transfer. In the case of
a transfer by way of gift, subject to certain exceptions, or for
considerations less than the market value of the shares
transferred, stamp duty will be charged at the above rate on
such market value.
A transfer or issue of ordinary shares for deposit under the
deposit agreements among us, The Bank of New York, as
Depositary, and the registered holders and the owners of a
beneficial interest in book-entry American Depositary Receipts,
or ADRs, in return for ADRs will be similarly chargeable with
stamp duty as will a transfer of ordinary shares from the
Depositary or the custodian under the deposit agreements upon
surrender of an ADR for the purpose of the withdrawal of the
underlying ordinary shares in accordance with the terms of the
Deposit Agreement.
We received a ruling from the Irish Revenue Commissioners that
transfers of ADRs issued in respect of our shares will not be
chargeable with Irish stamp duty for so long as the ADRs are
dealt in and quoted on the NASDAQ National Market. It has been
confirmed in Section 207, Finance Act 1992 that transfers
of ADRs will be exempt from stamp duty where the ADRs are dealt
with in a recognized stock exchange. The NASDAQ National Market
is regarded by the Irish authorities as a recognized stock
exchange for these purposes.
The person accountable for payment of stamp duty is the
transferee or, in the case of a transfer by way of gift or for a
consideration less than the market value, both parties to the
transfer. Stamp duty is normally payable within 30 days
after the date of execution of the transfer. Late payment of
stamp duty will result in liability to interest, penalties and
fines.
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Item 6. |
Selected Financial Data |
Incorporated by reference from Appendix A attached
hereto.
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Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
Any statement in this Annual Report on
Form 10-K about
our future expectations, plans and prospects, including
statements containing the words believes,
anticipates, plans, expects,
will and similar expressions, constitute
forward-looking statements within the meaning of The Private
Securities Litigation Reform Act of 1995. Actual results may
differ materially from those indicated by such forward-looking
statements as a result of various important factors, including
those set forth in Item 1A, Risk Factors.
The following discussion and analysis of our financial condition
and results of operations should be read in conjunction with our
consolidated financial statements and notes appearing in
Appendix B of this Annual Report on
Form 10-K.
Overview
We are a leading provider of content resources and complementary
technologies for integrated enterprise learning. Our multi-modal
learning solutions support and enhance the speed and
effectiveness of both formal and informal learning processes and
integrate SkillSofts in-depth content resources, learning
management system, virtual classroom technology and support
services.
We derive revenue primarily from agreements under which
customers license our products and purchase our services. The
pricing for our courses varies based upon the number of course
titles or the courseware
31
bundle licensed by a customer, the number of users within the
customers organization and the length of the license
agreement (generally one, two or three years). Our agreements
permit customers to exchange course titles, generally on the
contract anniversary date. Additional services, such as hosting
and online mentoring, are subject to additional fees. Please
refer to Critical Accounting Policies Revenue
Recognition below for a product licensing and discounting
discussion.
Cost of revenue includes the cost of materials (such as storage
media), packaging, shipping and handling, CD duplication, the
cost of online mentoring and hosting services, royalties and
certain infrastructure and occupancy expenses. We generally
recognize these costs as incurred. Research and development
expenses consist primarily of salaries and benefits, certain
infrastructure and occupancy expenses, fees to consultants and
course content development fees. We account for software
development costs in accordance with Statement of Financial
Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed, which requires the
capitalization of certain computer software development costs
incurred after technological feasibility is established. In the
fiscal year ended January 31, 2006, we capitalized
approximately $1.7 million in software development costs of
which $0.5 million was amortized in fiscal 2006. Selling
and marketing expenses consist primarily of salaries and
benefits, commissions, advertising and promotion expenses,
travel expenses and certain infrastructure and occupancy
expenses. General and administrative expenses consist primarily
of salaries and benefits, consulting and service expenses, legal
expenses, audit and tax preparation costs, regulatory compliance
costs and certain infrastructure and occupancy expenses.
Legal settlements/ (insurance recoveries) includes amounts
incurred in connection with the settlement of various legal
matters, such as the 2002 securities class action lawsuit, the
NETg infringement lawsuit and other matters. Any insurance
recoveries related to these legal settlements are recorded and,
if appropriate, netted in legal settlements/ (insurance
recoveries). Legal fees incurred in connection with the
settlement of lawsuits are recorded as legal expenses within
general and administrative expenses in our statement of
operations, as incurred.
Deferred compensation consists of the value of unvested options
assumed in the Books acquisition and the Merger and is amortized
over the vesting period of the underlying share option or shares.
Amortization of intangibles represents the amortization of
intangible assets, such as customer value and content, from the
Books acquisition, the GoTrain acquisition and the Merger, as
well as amortization of those assets capitalized under
SFAS No. 86.
Restructuring primarily consists of charges associated with
international restructuring activities as well as activities
related to our fiscal 2005 content development restructuring.
SEC investigation and other professional fees primarily consist
of direct, incremental charges associated with, and as a result
of, the restatement of SmartForces financial statements
for 1999, 2000, 2001 and the first two quarters of 2002, the
re-filing of statutory tax returns as a result of the
restatement and charges related to the ongoing SEC investigation.
Business Outlook
In the fiscal year ended January 31, 2006, we generated
revenue of $215.6 million, an increase of $3.3 million
compared to the revenue in the fiscal year ended
January 31, 2005 of $212.3 million, and we reported
net income. While we continue to find ourselves in a challenging
business environment due to the overall market adoption rate for
e-learning solutions
remaining relatively slow, budgetary constraints on IT spending
by our current and potential customers and price competition in
the e-learning market,
we have seen some stability in the marketplace and our core
business has performed in accordance with our expectations. Our
recent revenue growth and our growth prospects are strongest in
our product lines focused on informal learning, such as our
Books24x7 Referenceware product line. As a result, we have
increased our sales and marketing investment in those areas to
help capitalize on the recent growth and potential continued
growth for informal learning. We have also invested aggressively
in research and development in those areas to accelerate the
time by which our planned new products will be available to our
customers.
32
In addition, during the fourth quarter of fiscal 2005, we
restructured our content development organization to more
efficiently manage costs and capitalize further on the
flexibility inherent in our existing outsourcing model. The goal
of the restructuring was to enable us to meet our existing
content production targets at a reduced cost and with greater
flexibility with respect to the product offerings in which we
elect to make investments. The restructuring involved the
elimination of 119 jobs in Dublin, Ireland and 12 in Nashua, New
Hampshire within our research and development organization as
well as facilities consolidation in Dublin. We have shifted the
remainder of our IT skills content development activities to our
outsourcing suppliers, while continuing to maintain project
management and quality control internally. This same
restructuring included a reduction of an additional 15 jobs in
Nashua, New Hampshire for a rightsizing of our inside sales
operation and 9 jobs in Germany related to the shutdown of our
German facility. As a result, we incurred restructuring charges
related to payments to terminated employees, facilities
consolidation and the repayment of grants previously awarded by
Irish agencies. These charges totaled approximately
$13.0 million and were incurred in the fourth quarter of
fiscal 2005. We believe that the restructuring has resulted in
content development cost savings of approximately
$6.4 million in fiscal 2006, which afforded us more
flexibility to reinvest in an outsourcing model for other
research and development initiatives and to increase
profitability of the organization.
In the first quarter of fiscal 2006, in order to more fully
focus on the multi-modal learning (MML) business (which
includes informal learning), we sold certain assets of our
retail IT certification business, SmartCertify (the Retail
Certification business). The Retail Certification business
was focused on
direct-to-consumer
business and contributed less revenue than expected. This action
has allowed us to fully focus our attention and resources on our
core enterprise business. We have maintained a reseller
arrangement with the acquiring organization, and we also have
maintained the existing customer contracts and will service
those contracts until the contractual obligation is fulfilled.
We have been recognizing revenue from the deferred revenue
balance related to
direct-to-consumer
business over the 18 to 24 months subsequent to the date of
sale. Substantially all of the sales, marketing and
administrative costs of our IT retail certification business
have been eliminated.
In fiscal 2007, we plan to focus on revenue and earnings growth
primarily through new customer acquisitions, continuing to
execute on our new product and telesales distribution
initiatives to provide new revenue streams, and a higher
priority approach to produce a long-term contribution from
possible merger and acquisition opportunities.
Critical Accounting Policies
Our significant accounting policies are more fully described in
Note 2 of the Notes to the Consolidated Financial
Statements. However, we believe the accounting policies
described below are particularly important to the portrayal and
understanding of our financial position and results of
operations and require application of significant judgment by
our management. In applying these policies, management uses its
judgment in making certain assumptions and estimates.
We generate revenue from the license of products and services
and from providing hosting/ASP services.
We follow the provisions of the American Institute of Certified
Public Accountants (AICPA) Statement of Position
(SOP) 97-2, Software Revenue
Recognition, as amended by SOP 98-4 and
SOP 98-9 to account for revenue derived pursuant to license
agreements under which customers license our products and
services. The pricing for our courses varies based upon the
number of course titles or the courseware bundle licensed by a
customer, the number of users within the customers
organization and the length of the license agreement (generally
one, two or three years). License agreements permit customers to
exchange course titles, generally on the contract anniversary
date. Additional product features, such as hosting and online
mentoring services, are separately licensed for an additional
fee.
The pricing for our product licenses varies based on the content
offering selected by the customer, the number of users within
the customers organization and the length of the license
agreement. Our product
33
licenses provide customers access to a full range of learning
products including courseware, Referenceware, simulations,
mentoring and prescriptive assessment.
A Referenceware license gives users access to a full
Referenceware library within one or more Referenceware
collections (examples of which include: ITPro, BusinessPro,
FinancePro, EngineeringPro, GovEssentials and OfficeEssentials)
from Books. The pricing for our Referenceware licenses varies
based on the collections specified by a customer, the number of
users within the customers organization and the length of
the license agreement.
We offer discounts from our ordinary pricing, and purchasers of
licenses for larger numbers of courses, for larger user bases or
for longer periods generally receive discounts. Generally,
customers may amend their license agreements, for an additional
fee, to gain access to additional courses or product lines
and/or to increase the size of the user base. We also derive
revenue from hosting fees for clients that use our solutions on
an ASP basis, online mentoring services and professional
services. In selected circumstances, we derive revenue on a
pay-for-use basis under which some customers are charged based
on the number of courses accessed by users. Revenue derived from
pay-for-use contracts has been minimal to date.
We recognize revenue ratably over the license period if the
number of courses that a customer has access to is not clearly
defined, available, or selected at the inception of the
contract, or if the contract has additional undelivered elements
for which we do not have vendor specific objective evidence
(VSOE) of the fair value of the various elements. This may
occur if the customer does not specify all licensed courses at
the outset, the customer chooses to wait for future licensed
courses on a when and if available basis, the customer is given
exchange privileges that are exercisable other than on the
contract anniversaries, or the customer licenses all courses
currently available and to be developed during the term of the
arrangement. Nearly all of our contractual arrangements result
in the recognition of revenue ratably over the license period.
We also derive revenue from extranet hosting/ ASP services and
online mentoring services. We recognize revenue related to
extranet hosting/ ASP services and online mentoring services on
a straight-line basis over the period the services are provided.
We generally bill the annual license fee for the first year of a
multi-year license agreement in advance and license fees for
subsequent years of multi-year license arrangements are billed
on the anniversary date of the agreement. Occasionally, we bill
customers on a quarterly basis. In some circumstances, we offer
payment terms of up to six months from the initial shipment date
or anniversary date for multi-year license agreements to our
customers. To the extent that a customer is given extended
payment terms (defined by us as greater than six months),
revenue begins to be recognized as cash becomes due, assuming
all of the other elements of revenue recognition have been
satisfied.
We typically recognize revenue from resellers when both the sale
to the end user has occurred and the collectibility of cash from
the reseller is probable. With respect to reseller agreements
with minimum commitments, we recognize revenue related to the
portion of the minimum commitment that exceeds the end user
sales at the expiration of the commitment period provided we
have received payment. If a definitive service period can be
determined, revenue is recognized ratably over the term of the
minimum commitment period, provided that cash has been received
or collectibility is probable.
We also provide professional services including instructor led
training, customized content, websites, and implementation
services. We recognize professional services revenue as the
services are performed.
We record reimbursable
out-of-pocket expenses
in both maintenance and services revenues and as a direct cost
of maintenances and services in accordance with EITF Issue
No. 01-14, Income Statement Characterization of
Reimbursements Received for
Out-of-Pocket
Expenses Incurred
(EITF 01-14).
EITF 01-14
requires reimbursable
out-of-pocket expenses
incurred to be characterized as revenue in the income statement.
We record as deferred revenue amounts that have been billed in
advance for products or services to be provided. Deferred
revenue includes the unamortized portion of revenue associated
with license fees for which we have received payment or for
which amounts have been billed and are due for payment in
90 days or less
34
for resellers and 180 days or less for direct customers. In
addition, deferred revenue includes amounts which have been
billed and not collected for which revenue is being recognized
ratably over the license period.
Our contracts often include an uptime guarantee for solutions
hosted on our server whereby customers would be entitled to
credits in the event of nonperformance. We also retain the right
to remedy any nonperformance event prior to issuing a credit.
Historically, we have not incurred substantial costs relating to
this guarantee and we currently accrue for such costs as they
are incurred. We review these costs on a regular basis as actual
experience and other information becomes available; and should
they become more substantial, we would accrue an estimated
exposure and consider the potential related effects of the
timing of recording revenue on our license arrangements. We have
not accrued any costs related to these warranties in the
accompanying consolidated financial statements.
|
|
|
Amortization of Intangible Assets and Impairment of
Goodwill |
We record intangible assets as historical cost. We
amortize our intangible assets, which include customer contracts
and internally developed software. We review these intangible
assets at least annually to determine if any adverse conditions
exist or a change in circumstances has occurred that would
indicate impairment or a change in their remaining useful life.
We also review our indefinite-lived intangible assets at least
annually for impairment which includes trademarks and trade
names.
We test goodwill during the fourth quarter of each year for
impairment, or more frequently if certain indicators are present
or changes in circumstances suggest that impairment may exist.
In performing the test, we calculate the fair value of the
reporting units as the present value of estimated future cash
flows using a risk-adjusted discount rate. The selection and use
of an appropriate discount rate requires significant management
judgment with respect to revenue and expense growth rates.
We account for our share-based employee compensation plans on
the intrinsic value method under the recognition and measurement
principles of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB
No. 25) and related Interpretations under APB No. 25.
We provide pro forma disclosures only of the compensation
expense determined under the fair value provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123).
See Recent Accounting Pronouncements for a
description of FASB Statement No. 123 (revised 2004),
Share-Based Payment.
We employ an accounting policy consistent with guidance provided
by FASB Technical Bulletin 90-1 Accounting for
Separately Priced Extended Warranty and Product Maintenance
Contracts and SEC Staff Accounting Bulletin 104
Revenue Recognition, related to the concept
of a direct and incremental relationship between revenue and
expense. As such, we defer the recognition of commission expense
until such time as the revenue related to the contract for which
the commission was paid is recognized.
We account for our restructuring activities under guidance
provided by SFAS No. 141 (SFAS 141),
Business Combinations EITF 95-3 and
SFAS No. 146 (SFAS 146), Accounting for
Costs Associated with Exit or Disposal Activities.
SFAS 141 states that after the end of the allocation
period (generally one year from date of merger) an adjustment
that results from a pre-acquisition contingency other than an
income tax loss carryforward should be included in the
determination of net income/(loss) in the period in which the
adjustment is determined. As such, adjustments to
pre-acquisition contingencies established at the time of the
SmartForce SkillSoft merger are recorded as
restructuring charges in our statement of operations.
SFAS 146 states that a liability related to an exit or
disposal activity should be recognized at fair value in the
35
period in which it is incurred. As such, when we identify
restructuring charges that fulfill the requirements identified
in SFAS 146 as incurred, we record the charges in our
statement of income.
The most significant element for each of our restructuring
charges incurred relates to lease abandonments. In determining
the fair value of liabilities associated with lease
abandonments, we assess our contractual ability to sub-lease the
spaces currently under lease and obtain local independent
professional assessments of current commercial real estate
market conditions in those areas so that we can reasonably
determine estimable sub-lease income benefits.
Furthermore, judgment is used in determining how to estimate
long-term restructuring costs. Generally the Company uses a
present value technique to estimate the fair value of a
liability and discounts the expected cash flow associated with
the restructuring activity using a credit-adjusted, risk free
rate.
In connection with any material legal proceedings that we may
become involved in, management periodically reviews estimates of
potential costs to be incurred by us in connection with the
adjudication or settlement, if any, of these proceedings. These
estimates are developed in consultation with our outside counsel
and are based on an analysis of potential litigation outcomes
and settlement strategies. In accordance with
SFAS No. 5, Accounting for
Contingencies, loss contingencies are accrued if, in
the opinion of management, an adverse outcome is probable and
such outcome can be reasonably estimated. In accordance with
SFAS No. 5, gain contingencies are recorded at the
time of realization. Legal costs are expensed as incurred.
We recognize deferred tax assets and liabilities for the future
tax consequences attributable to differences between the
financial statements carrying amounts of existing assets and
liabilities and their respective tax bases. A valuation
allowance is provided when it is more likely than not that some
portion or all of a deferred tax asset will not be realized. The
ultimate realization of deferred tax assets depends on the
generation of future taxable income during the period in which
related temporary differences become deductible. Deferred tax
assets and liabilities are measured using the enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred taxes assets and liabilities of a change
in tax rates is recognized in income in the period that includes
the enactment date of such change.
36
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended January 31, | |
|
|
| |
|
|
Dollar | |
|
Percent Change | |
|
Percentage of Revenue | |
|
|
Increase/(Decrease) | |
|
Increase/(Decrease) | |
|
| |
|
|
2005/2006 | |
|
2005/2006 | |
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
3,267 |
|
|
|
2 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Cost of revenue
|
|
|
3,583 |
|
|
|
16 |
% |
|
|
12 |
% |
|
|
10 |
% |
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
(316 |
) |
|
|
|
|
|
|
88 |
% |
|
|
90 |
% |
|
|
90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
(6,590 |
) |
|
|
(14 |
)% |
|
|
18 |
% |
|
|
21 |
% |
|
|
28 |
% |
Selling and marketing
|
|
|
(5,722 |
) |
|
|
(6 |
)% |
|
|
41 |
% |
|
|
44 |
% |
|
|
45 |
% |
General and administrative
|
|
|
583 |
|
|
|
2 |
% |
|
|
12 |
% |
|
|
12 |
% |
|
|
14 |
% |
Legal settlements/(insurance recoveries)
|
|
|
(17,710 |
) |
|
|
* |
|
|
|
(8 |
)% |
|
|
|
|
|
|
48 |
% |
Amortization of share-based compensation
|
|
|
(299 |
) |
|
|
(25 |
)% |
|
|
|
|
|
|
1 |
% |
|
|
1 |
% |
Amortization of intangible assets
|
|
|
(462 |
) |
|
|
(5 |
)% |
|
|
4 |
% |
|
|
5 |
% |
|
|
5 |
% |
Impairment charge
|
|
|
(19,268 |
) |
|
|
* |
|
|
|
|
|
|
|
9 |
% |
|
|
|
|
Restructuring
|
|
|
(12,720 |
) |
|
|
(95 |
)% |
|
|
|
|
|
|
6 |
% |
|
|
1 |
% |
Restatement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC investigation
|
|
|
(194 |
) |
|
|
(9 |
)% |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
Other professional fees
|
|
|
(320 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(62,702 |
) |
|
|
(30 |
)% |
|
|
68 |
% |
|
|
99 |
% |
|
|
151 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss)
|
|
|
62,386 |
|
|
|
* |
|
|
|
20 |
% |
|
|
(9 |
)% |
|
|
(61 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income/(expense), net
|
|
|
1,433 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/gain on sale assets, net
|
|
|
(586 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
2 |
% |
|
Interest income
|
|
|
688 |
|
|
|
63 |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(94 |
) |
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before provision for income taxes
|
|
|
63,827 |
|
|
|
* |
|
|
|
21 |
% |
|
|
(9 |
)% |
|
|
(58 |
)% |
|
Provision for income taxes
|
|
|
8,499 |
|
|
|
1,347 |
% |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$ |
55,328 |
|
|
|
* |
|
|
|
16 |
% |
|
|
(9 |
)% |
|
|
(59 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Does not add due to rounding. |
37
|
|
|
Comparison of the Fiscal Years Ended January 31, 2006
and 2005 |
The increase in revenue during the fiscal year ended
January 31, 2006 as compared to the fiscal year ended
January 31, 2005 was primarily due to revenue generated
from new business primarily derived from our product lines
focused on informal learning, better than anticipated reseller
revenues and a greater share of business having closed earlier
in each of the respective quarterly periods for the fiscal year
ended January 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended January 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
Change | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
168,525 |
|
|
$ |
165,871 |
|
|
$ |
2,654 |
|
|
International
|
|
|
47,042 |
|
|
|
46,429 |
|
|
|
613 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
215,567 |
|
|
$ |
212,300 |
|
|
$ |
3,267 |
|
|
|
|
|
|
|
|
|
|
|
Revenue increased by 2% and 1% in the United States and
internationally, respectively, in the fiscal year ended
January 31, 2006 as compared to the fiscal year ended
January 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended January 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
Change | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Modal Learning
|
|
$ |
201,236 |
|
|
$ |
192,135 |
|
|
$ |
9,101 |
|
|
Retail Certification
|
|
|
14,331 |
|
|
|
20,165 |
|
|
|
(5,834 |
) |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
215,567 |
|
|
$ |
212,300 |
|
|
$ |
3,267 |
|
|
|
|
|
|
|
|
|
|
|
In the first quarter of fiscal 2006, we sold certain assets
related to SmartCertify, our Retail Certification business. The
sale resulted in a reduction in revenue of $5.8 million in
our Retail Certification business for the fiscal year ended
January 31, 2006 as compared to the fiscal year ended
January 31, 2005. The increase in our MML revenue is
primarily due to revenue generated from new business primarily
derived from our product lines focused on informal learning and
better than anticipated reseller revenues. We expect a reduction
of approximately $9.0 million in revenue in our Retail
Certification business in fiscal 2007 when compared to fiscal
2006. We expect this decrease in revenue to be offset in fiscal
2007 by increased MML revenue generated from new business.
We exited the fiscal year ended January 31, 2006 with
non-cancelable backlog of approximately $171 million as
compared to $168 million at January 31, 2005. This
amount is calculated by combining the amount of deferred revenue
at our fiscal year end with the amounts to be added to deferred
revenue throughout the next twelve months as a result of
committed customer contracts and determining how much of these
amounts are scheduled to amortize into revenue during fiscal
2007. The amount scheduled to amortize into revenue during
fiscal 2007 is disclosed as backlog as of
January 31, 2006. Amounts to be added to deferred revenue
during fiscal 2007 include subsequent installment billings for
ongoing contract periods as well as billings for new or
continuing contracts. As a result of the previously described
sale of certain assets related to SmartCertify the balance of
non-cancelable backlog at January 31, 2006 reflects a
reduction of approximately $10.6 million when compared to
January 31, 2005 and SmartCertify will not contribute new
or continuing contracts during fiscal 2007. We have included
this non-GAAP disclosure due to the fact that it is directly
related to our subscription based revenue recognition policy.
This is a key business metric, which factors into our
forecasting and planning activities and provides visibility into
fiscal 2007 revenue.
38
The increase in cost of revenue in the fiscal year ended
January 31, 2006 versus the fiscal year ended
January 31, 2005 was primarily due to a higher mix of
royalty-bearing content due to the growth of our Books24x7
Referenceware product line.
The decrease in research and development expenses in the fiscal
year ended January 31, 2006 versus the fiscal year ended
January 31, 2005 was primarily due to the inclusion of
$3.8 million of purchased technology in fiscal 2005 and
savings of $6.4 million realized in fiscal 2006 as the
result of the reorganization of our content development
organization completed in the quarter ended January 31,
2005. This decrease was partially offset by the increased costs
associated with outsourcing activity of $4.0 million. We
anticipate that research and development expenses will be
between 18% and 19% of revenue in fiscal 2007.
The decrease in selling and marketing expenses in the fiscal
year ended January 31, 2006 versus the fiscal year ended
January 31, 2005 was primarily due to the expense reduction
of $10.5 million resulting from the sale of certain assets
related to SmartCertify, our Retail Certification business, at
the end of our fiscal 2006 first quarter. This was partially
offset by incremental expenses incurred to support the new
Dialogue product line of $1.3 million, new telesales
distribution operation focusing on small and mid-sized
businesses of $1.2 million and the additional investment in
our Books sales force of $1.7 million. We anticipate that
selling and marketing expenses will be between 40% and 41% of
revenue in fiscal 2007.
The increase in general and administrative expenses in the
fiscal year ended January 31, 2006 versus the fiscal year
ended January 31, 2005 was primarily due to an increase in
compensation expense of $1.7 million, which included a
$0.5 million payment to Howard Edelstein, a director of the
Company, in recognition of Mr. Edelsteins
contributions to the Company in connection with the settlements
of our litigation with NETg and our the securities class action
litigation, which was partially offset by the expense reduction
of $1.5 million resulting from the sale of certain assets
of SmartCertify at the end of our fiscal 2006 first quarter. We
anticipate that general and administrative expense will be
between 12% and 13% of revenue in fiscal 2007.
Within legal settlements/(insurance recoveries), we received an
insurance settlement of $19.5 million in the fiscal year
ended January 31, 2006, which resulted from the final
settlement with our insurance carriers regarding the 2002
securities class action lawsuit settlement of $30.5 million
in March 2004 and the ongoing related litigation and SEC
investigation. The settlement with our insurance carriers was
partially offset by the settlement of a lawsuit with Jody
Glidden, Trish Glidden and Michael LeBlanc, who had previously
opted out of the 2002 securities class action settlement, for
approximately $1.8 million on April 7, 2006.
In the fourth quarter of fiscal 2005 we evaluated the fair value
of goodwill. In November of 2004 we hired an investment banker
to actively market the Retail Certification segment to third
party buyers. However by January 31, 2005 the investment
banker reported the efforts to sell the business were
unsuccessful. In the first quarter of fiscal 2006, we sold
certain assets and liabilities of the business in exchange for
nominal consideration and the execution of a reseller agreement
with the buyer. In fiscal 2005, we concluded that the Retail
Certification segment had no goodwill and we recorded an
impairment charge of approximately $19.3 million in the
fiscal year ended January 31, 2005. In the first quarter of
fiscal 2006, we completed a restructuring of our Retail
Certification business which resulted in a charge of
approximately $0.5 million.
In the fourth quarter of fiscal 2006 we evaluated the fair value
of goodwill of the MML segment and concluded there was no
impairment of goodwill.
39
The key assumptions utilized in the preparation of forecasted
statements of operations for the MML segment, which reflect
certain new initiatives, were as follows:
|
|
|
|
|
Multi-Modal Learning |
|
|
|
Revenue
|
|
Compound annual growth of 7.0% |
Gross profit
|
|
88.0% |
Research and development
|
|
15.0% |
Selling and marketing
|
|
35.0% |
General and administrative
|
|
9.0% |
Other income/(expense)
|
|
$2.4 million for all years |
Working capital
|
|
14.00% of gross revenue |
On January 13, 2006, we accelerated the vesting of all
currently outstanding unvested stock options awarded to
employees. This vesting acceleration does not extend to any
options held by executive officers and directors. As a result of
this action, we expect to avoid recognition of approximately
$9.1 million of stock-based compensation expense in future
periods beginning February 1, 2006, including approximately
$4.7 million of stock-based compensation expense in the
fiscal year ending January 31, 2007. We recorded a charge
of approximately $89,000 in the fourth quarter of fiscal 2006
related to expected forfeitures due to the acceleration of
vesting of
in-the-money
options.
The decrease in restructuring expenses in the fiscal year ended
January 31, 2006 versus the fiscal year ended
January 31, 2005 was primarily due to the restructuring of
our content development organization in the fourth quarter of
fiscal 2005 and the closing of our German facility. We did not
incur any significant additional charges in fiscal 2006 as a
result of this restructuring. We do not anticipate any
significant additional charges in fiscal 2007 as a result of
these restructurings.
SEC investigation charges decreased in the fiscal year ended
January 31, 2006 versus the fiscal year ended
January 31, 2005 due to a decrease in activity related to
the ongoing SEC investigation in which costs are expensed as
incurred.
Other professional fees in the fiscal year ended
January 31, 2005 consisted primarily of the re-filing of
certain international tax returns and statutory financial
statements as a result of the restatement. We incurred no such
charges in the fiscal year ended January 31, 2006.
|
|
|
Other (Expense)/Income, net |
The change in other (expense)/income, net in the fiscal year
ended January 31, 2006 versus the fiscal year ended
January 31, 2005 was primarily due to foreign currency
fluctuations. Due to our multinational operations, our business
is subject to fluctuations based upon changes in the exchange
rates between the currencies used in our business.
|
|
|
Gain/(Loss) on Sale of Assets, net |
We recorded a loss of $586,000 in the fiscal year ended
January 31, 2006. This loss is primarily the result of
investment banking and professional fees associated with the
sale of certain assets of the Retail Certification business in
the first quarter of fiscal 2006.
The increase in interest income in the fiscal year ended
January 31, 2006 versus the fiscal year ended
January 31, 2005 was primarily due to more funds being
available for investment and higher interest rates on our cash
and cash equivalents and investments.
40
|
|
|
Provision for Income Taxes |
The increase in the provision for income taxes in the fiscal
year ended January 31, 2006 versus the fiscal year ended
January 31, 2005 was primarily due to of the generation of
higher taxable income in fiscal 2006 versus fiscal 2005. Our
effective tax rate of 20.6% is significantly less than the
combined federal and state tax rates primarily due to the fact
that the $19.5 million insurance recovery related to the
settlement of the 2002 securities class action lawsuit recorded
in fiscal 2006 was not taxable and to a lesser extent due to the
utilization of net operating loss carryforwards and income being
earned in lower or no tax jurisdictions.
|
|
|
Comparison of the Fiscal Years Ended January 31, 2005
and 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended January 31, | |
|
|
| |
|
|
|
|
Percentage of | |
|
|
Dollar | |
|
Percent Change | |
|
Revenue | |
|
|
Increase/(Decrease) | |
|
Increase/(Decrease) | |
|
| |
|
|
2004/2005 | |
|
2004/2005 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Revenue
|
|
$ |
18,825 |
|
|
|
10 |
% |
|
|
100 |
% |
|
|
100 |
% |
Cost of revenue
|
|
|
3,327 |
|
|
|
18 |
% |
|
|
10 |
% |
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
15,498 |
|
|
|
9 |
% |
|
|
90 |
% |
|
|
90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
(8,052 |
) |
|
|
(15 |
)% |
|
|
21 |
% |
|
|
28 |
% |
Selling and marketing
|
|
|
5,954 |
|
|
|
7 |
% |
|
|
44 |
% |
|
|
45 |
% |
General and administrative
|
|
|
(2,721 |
) |
|
|
(10 |
)% |
|
|
12 |
% |
|
|
14 |
% |
Legal settlements
|
|
|
(93,750 |
) |
|
|
(100 |
)% |
|
|
|
|
|
|
48 |
% |
Amortization of share-based compensation
|
|
|
(795 |
) |
|
|
(40 |
)% |
|
|
1 |
% |
|
|
1 |
% |
Amortization of intangible assets
|
|
|
(497 |
) |
|
|
(5 |
)% |
|
|
5 |
% |
|
|
5 |
% |
Impairment charge
|
|
|
19,268 |
|
|
|
100 |
% |
|
|
9 |
% |
|
|
|
|
Restructuring
|
|
|
11,504 |
|
|
|
619 |
% |
|
|
6 |
% |
|
|
1 |
% |
Restatement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC investigation
|
|
|
284 |
|
|
|
15 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
Other professional fees
|
|
|
(14,153 |
) |
|
|
(98 |
)% |
|
|
|
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(82,958 |
) |
|
|
(28 |
)% |
|
|
99 |
% |
|
|
151 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
98,456 |
|
|
|
83 |
% |
|
|
(9 |
) |
|
|
(61 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense)/income, net
|
|
|
(1,478 |
) |
|
|
(188 |
)% |
|
|
|
|
|
|
|
|
|
Gain/(loss) on sale of assets, net
|
|
|
(3,682 |
) |
|
|
(100 |
)% |
|
|
|
|
|
|
2 |
% |
|
Interest income
|
|
|
137 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(170 |
) |
|
|
102 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before provision for income taxes
|
|
|
93,263 |
|
|
|
83 |
% |
|
|
(9 |
) |
|
|
(58 |
)% |
|
Provision for income taxes
|
|
|
102 |
|
|
|
(19 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$ |
93,161 |
|
|
|
82 |
% |
|
|
(9 |
) |
|
|
(59 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue increased $18.8 million, or 10%, to
$212.3 million in the fiscal year ended January 31,
2005 from $193.5 million in the fiscal year ended
January 31, 2004. This increase was primarily due to
revenue generated from new business primarily derived from our
product lines focused on informal learning and an increase in
revenue from our Retail Certification segment due to sales to
new customers as well as the full recognition of the
segments subscription based revenue recognition model. The
segment defers revenue at the time of sale over 18 to
24 months. We exited the fiscal year ended January 31,
2005 with noncancellable backlog of
41
approximately $168 million as compared to $170 million
at January 31, 2004. This amount is calculated by combining
the amount of deferred revenue at our fiscal year end with the
amounts to be added to deferred revenue throughout the next
twelve months as a result of committed customer contracts and
determining how much of these amounts are scheduled to amortize
into revenue over the next twelve months. The amount scheduled
to amortize into revenue over the next twelve months is
disclosed as backlog. Amounts to be added to
deferred revenue throughout the next twelve months include
subsequent billings for ongoing contract periods as well as
billings for new or continuing contracts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended January 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
Change | |
|
|
| |
|
| |
|
| |
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
165,871 |
|
|
$ |
156,121 |
|
|
$ |
9,750 |
|
|
International
|
|
|
46,429 |
|
|
|
37,354 |
|
|
|
9,075 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
212,300 |
|
|
$ |
193,475 |
|
|
$ |
18,825 |
|
|
|
|
|
|
|
|
|
|
|
Revenue increased by 6% and 24% in the United States and
internationally, respectively, in the fiscal year ended
January 31, 2005 as compared to the fiscal year ended
January 31, 2004. The international revenue increase was
due, in addition to the factors discussed above, to increased
reseller revenue due to the timing of receipt of sell-through
reporting and cash from resellers. The United States represented
78% and 81% of revenue for the fiscal year ended
January 31, 2005 and 2004, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended January 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
Change | |
|
|
| |
|
| |
|
| |
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Modal Learning
|
|
$ |
192,135 |
|
|
$ |
180,098 |
|
|
$ |
12,037 |
|
|
Retail Certification
|
|
|
20,165 |
|
|
|
13,377 |
|
|
|
6,788 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
212,300 |
|
|
$ |
193,475 |
|
|
$ |
18,825 |
|
|
|
|
|
|
|
|
|
|
|
Revenue increased by 7% and 51% in the MML and Retail
Certification segments, respectively, in the fiscal year ended
January 31, 2005 as compared to the fiscal year ended
January 31, 2004. The revenue increase for MML was
primarily due to revenue generated from new business primarily
derived from our product lines focused on informal learning. The
revenue increase for Retail Certification was primarily due to
sales to new customers as well as the full recognition of the
segments subscription based revenue recognition model. The
segment defers revenue at the time of sale over 18 to
24 months. The MML segment represented 91% and 93% of
revenues for the fiscal years ended January 31, 2005 and
2004, respectively.
Cost of revenue increased $3.3 million, or 18%, to
$21.7 million in the fiscal year ended January 31,
2005 from $18.4 million in the fiscal year ended
January 31, 2004. This increase was primarily due to higher
sales volumes as well as increased use of contract services and
infrastructure charges incurred in connection with our efforts
to consolidate hosting sites. Cost of revenue as a percentage of
total revenue was 10% in both the fiscal year ended
January 31, 2005 and the fiscal year ended January 31,
2004.
Research and development expenses decreased $8.0 million,
or 15%, to $45.6 million in the fiscal year ended
January 31, 2005 from $53.6 million in the fiscal year
ended January 31, 2004. Research and development expenses
as a percentage of total revenue decreased to 21% in the fiscal
year ended January 31, 2005 from 28% in the fiscal year
ended January 31, 2004. Research and development for the
fiscal year ended January 31, 2005 included expenses of
$3.8 million to modify and enhance the technology we
purchased that will underlie our virtual classroom product
offering, SkillSoft Dialogue. The decrease in expenses compared
to fiscal 2004 was primarily due to our completion of the
initiative for content and platform improvements in the quarter
ended January 31, 2004.
42
Selling and marketing expenses increased $6.0 million, or
7%, to $93.5 million in the fiscal year ended
January 31, 2005 from $87.5 million in the fiscal year
ended January 31, 2004. The increase was primarily due to
increased compensation and benefit costs of approximately
$7.0 million as a result of increased commissions derived
from increased bookings in fiscal 2005 as compared to fiscal
2004. We also incurred additional expenses associated with
building the SkillSoft Dialogue direct sales channel. This
increase was partially offset by a decline in certain
infrastructure and occupancy charges of $0.8 million.
Selling and marketing expenses as a percentage of total revenue
decreased to 44% in the fiscal year ended January 31, 2005
from 45% in the fiscal year ended January 31, 2004, due to
the increase in revenue between fiscal years.
General and administrative expenses decreased $2.7 million,
or 10%, to $25.2 million in the fiscal year ended
January 31, 2005 from $27.9 million in the fiscal year
ended January 31, 2004. General and administrative expenses
as a percentage of total revenue decreased to 12% in the fiscal
year ended January 31, 2005 from 14% in the fiscal year
ended January 31, 2004.
These decreases were primarily due to a reduction of litigation
costs of $3.0 million in the fiscal year ended
January 31, 2005 compared to the fiscal year ended
January 31, 2004.
We had no litigation settlement expenses in the fiscal year
ended January 31, 2005. We recorded $93.8 million in
the fiscal year ended January 31, 2004. This related
primarily to the settlements of the 1998 securities class action
litigation ($16.0 million), the NETg litigation
($44.0 million), the 2002 class action litigation
($31.5 million) and the IPLearn litigation
($2.0 million).
Stock-based compensation expense decreased $795,000, or 40% to
$1.2 million in the fiscal year ended January 31, 2005
from $2.0 million in the fiscal year ended January 31,
2004. The expense relates to amortization of deferred
compensation resulting from granting of stock options to
employees at exercise prices below the fair market value of the
stock and the sales of restricted common stock with sales prices
below the fair market value of the stock. The stock options
granted and restricted stock sold at prices below fair market
value of the stock were granted by SkillSoft Corporation prior
to its initial public offering and by Books prior to its
acquisition by SkillSoft Corporation in December 2001. In
addition, we recorded a one time compensation charge of $274,000
in the fiscal year ended January 31, 2004 due to the
extension of certain option agreements.
Amortization of intangible assets decreased $497,000, or 5%, to
$9.6 million in the fiscal year ended January 31, 2005
from $10.1 million in the fiscal year ended
January 31, 2004. See Note 5 of the Notes to the
Consolidated Financial Statements.
In the fourth quarter of fiscal 2005 we evaluated the fair value
of goodwill. We prepared a cash flow analysis for the MML
segment comparing the discounted cash flows to the net book
values of the direct assets, goodwill and intangible assets. The
discounted cash flows supported the direct assets, goodwill and
intangible assets of the MML segment. At January 31, 2005,
we concluded there was no impairment of goodwill for the MML
segment.
The key assumptions utilized in the preparation of forecasted
statements of operations for the MML segment, which reflect
certain new initiatives were as follows:
|
|
|
|
|
2005 Multi-Modal Learning |
|
|
|
Revenue
|
|
Compound annual growth of 7.0% |
Gross profit
|
|
89.0% |
Research and development
|
|
15.0% |
Selling and marketing
|
|
36.0% |
General and administrative
|
|
9.0% |
Other income/(expense)
|
|
$2.4 million for all years |
Working capital
|
|
15.00% of gross revenue |
Restructuring charges increased $11.5 million, or 619%, to
$13.4 million in the fiscal year ended January 31,
2005 from $1.9 million in the fiscal year ended
January 31, 2004. This increase was due to the
43
fiscal 2005 fourth quarter restructuring related to content
development which included charges related to payments to
terminated employees, facilities consolidation, the repayment of
grants previously awarded by Irish agencies as a result of the
headcount reduction and the closing of our German facility.
SEC investigation charges increased $0.3 million, or 15%,
to $2.2 million in the fiscal year ended January 31,
2005 from $1.9 million in the fiscal year ended
January 31, 2004.
Other professional fees decreased $14.2 million, or 98%, to
$0.3 million in the fiscal year ended January 31, 2005
from $14.5 million in the fiscal year ended
January 31, 2004. The decrease is due to the completion of
the restatement of the SmartForce historical financial
statements in the fiscal year ended January 31, 2004.
Charges for the fiscal year ended January 31, 2005 consist
primarily of the re-filing of certain international tax returns
and statutory financial statements as a result of the
restatement.
Interest income decreased to $1,091,000 in the year ended
January 31, 2005 from $954,000 in the year ended
January 31, 2004. This decrease was primarily due to fewer
funds available for investment and lower interest rates on our
cash and cash equivalents and investments.
|
|
|
Other (Expense)/Income, net |
Other income/(expense), net decreased to ($692,000) in the year
ended January 31, 2005 from $786,000 in the year ended
January, 31, 2004. This decrease was primarily due to
foreign currency fluctuations. Due to our multinational
operations, our business is subject to fluctuations based upon
changes in the exchange rates between the currencies used in our
business.
|
|
|
Gain on Sale of Investments, net |
We recorded no net gain on sale of investments in the fiscal
year ended January 31, 2005. We recorded a one-time gain of
$3.6 million from the sale of an equity investment in
fiscal 2004.
|
|
|
Provision for Income Taxes |
The provision for income taxes was $631,000 and $529,000 in the
fiscal years ended January 31, 2005 and 2004, respectively.
The provision consists of income taxes payable in certain
foreign locations, which cannot be offset by net operating loss
carryforwards.
44
|
|
|
Quarterly Operating Results for Fiscal Years Ended
January 31, 2006 and 2005 (unaudited) |
The following table sets forth, for the periods indicated,
certain financial data of SkillSoft PLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 2006 | |
|
Q2 2006 | |
|
Q3 2006 | |
|
Q4 2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Revenues
|
|
$ |
53,327 |
|
|
$ |
53,604 |
|
|
$ |
53,901 |
|
|
$ |
54,735 |
|
Cost of revenues
|
|
|
5,834 |
|
|
|
6,318 |
|
|
|
6,509 |
|
|
|
6,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
47,493 |
|
|
|
47,286 |
|
|
|
47,392 |
|
|
|
48,089 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
9,869 |
|
|
|
10,190 |
|
|
|
9,122 |
|
|
|
9,804 |
|
|
Selling and marketing
|
|
|
24,030 |
|
|
|
20,718 |
|
|
|
20,382 |
|
|
|
22,634 |
|
|
General and administrative
|
|
|
6,276 |
|
|
|
6,735 |
|
|
|
5,496 |
|
|
|
7,238 |
|
|
(Insurance recoveries)/ legal settlements
|
|
|
|
|
|
|
(19,500 |
) |
|
|
|
|
|
|
1,790 |
|
|
Amortization of share-based compensation
|
|
|
237 |
|
|
|
220 |
|
|
|
219 |
|
|
|
216 |
|
|
Amortization of intangible assets
|
|
|
2,246 |
|
|
|
2,307 |
|
|
|
2,285 |
|
|
|
2,275 |
|
|
Restructuring
|
|
|
703 |
|
|
|
(116 |
) |
|
|
226 |
|
|
|
(172 |
) |
|
Restatement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC investigation
|
|
|
250 |
|
|
|
834 |
|
|
|
507 |
|
|
|
397 |
|
|
|
Other professional fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
43,611 |
|
|
|
21,388 |
|
|
|
38,237 |
|
|
|
44,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
3,882 |
|
|
|
25,898 |
|
|
|
9,155 |
|
|
|
3,907 |
|
|
Other (expense)/income, net
|
|
|
(110 |
) |
|
|
495 |
|
|
|
341 |
|
|
|
15 |
|
|
(Loss)/gain on sale of assets, net
|
|
|
(681 |
) |
|
|
|
|
|
|
73 |
|
|
|
22 |
|
|
Interest income
|
|
|
356 |
|
|
|
348 |
|
|
|
511 |
|
|
|
564 |
|
|
Interest expense
|
|
|
(61 |
) |
|
|
(38 |
) |
|
|
(243 |
) |
|
|
(89 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
3,386 |
|
|
|
26,703 |
|
|
|
9,837 |
|
|
|
4,419 |
|
|
Provision for income taxes
|
|
|
919 |
|
|
|
3,759 |
|
|
|
4,154 |
|
|
|
298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
2,467 |
|
|
$ |
22,944 |
|
|
$ |
5,683 |
|
|
$ |
4,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and dilutive income per share
|
|
$ |
0.02 |
|
|
$ |
0.22 |
|
|
$ |
0.06 |
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
105,662 |
|
|
|
103,796 |
|
|
|
100,664 |
|
|
|
100,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
105,877 |
|
|
|
104,223 |
|
|
|
101,541 |
|
|
|
102,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 2005 | |
|
Q2 2005 | |
|
Q3 2005 | |
|
Q4 2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Revenues
|
|
$ |
52,817 |
|
|
$ |
50,625 |
|
|
$ |
52,507 |
|
|
$ |
56,351 |
|
Cost of revenues
|
|
|
5,078 |
|
|
|
5,257 |
|
|
|
5,597 |
|
|
|
5,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
47,739 |
|
|
|
45,368 |
|
|
|
46,910 |
|
|
|
50,559 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
9,444 |
|
|
|
12,639 |
|
|
|
10,505 |
|
|
|
12,987 |
|
|
Selling and marketing
|
|
|
24,362 |
|
|
|
22,664 |
|
|
|
22,441 |
|
|
|
24,019 |
|
|
General and administrative
|
|
|
6,054 |
|
|
|
6,182 |
|
|
|
6,388 |
|
|
|
6,538 |
|
|
Amortization of stock-based compensation
|
|
|
348 |
|
|
|
300 |
|
|
|
296 |
|
|
|
247 |
|
|
Amortization of intangible assets
|
|
|
2,422 |
|
|
|
2,390 |
|
|
|
2,390 |
|
|
|
2,373 |
|
|
Impairment charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,268 |
|
|
Restructuring
|
|
|
147 |
|
|
|
175 |
|
|
|
(7 |
) |
|
|
13,046 |
|
|
Restatement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC investigation
|
|
|
324 |
|
|
|
779 |
|
|
|
716 |
|
|
|
363 |
|
|
|
Other professional fees
|
|
|
114 |
|
|
|
136 |
|
|
|
87 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
43,215 |
|
|
|
45,265 |
|
|
|
42,816 |
|
|
|
78,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss)
|
|
|
4,524 |
|
|
|
103 |
|
|
|
4,094 |
|
|
|
(28,265 |
) |
|
Other (expense)/income, net
|
|
|
(179 |
) |
|
|
(32 |
) |
|
|
75 |
|
|
|
(556 |
) |
|
Interest income
|
|
|
150 |
|
|
|
286 |
|
|
|
294 |
|
|
|
361 |
|
|
Interest expense
|
|
|
(27 |
) |
|
|
(45 |
) |
|
|
(206 |
) |
|
|
(59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before provision for income taxes
|
|
|
4,468 |
|
|
|
312 |
|
|
|
4,257 |
|
|
|
(28,519 |
) |
|
Provision for income taxes
|
|
|
1,265 |
|
|
|
(1,045 |
) |
|
|
142 |
|
|
|
269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$ |
3,203 |
|
|
$ |
1,357 |
|
|
$ |
4,115 |
|
|
$ |
(28,788 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and dilutive income/(loss) per share
|
|
$ |
0.03 |
|
|
$ |
0.01 |
|
|
$ |
0.04 |
|
|
$ |
(0.27 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
103,163 |
|
|
|
105,422 |
|
|
|
105,936 |
|
|
|
105,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
110,393 |
|
|
|
110,555 |
|
|
|
108,941 |
|
|
|
105,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
As of January 31, 2006, our principal source of liquidity
was our cash and cash equivalents and short-term investments,
which totaled $73.3 million. This compares to
$54.9 million at January 31, 2005.
Net cash provided by operating activities was $42.2 million
for the fiscal year ended January 31, 2006, which includes
net income of $35.2 million (inclusive of the net insurance
recovery and legal settlement of $17.7 million),
depreciation and amortization of $14.3 million and a
non-cash income tax provision of $7.9 million. These
amounts were partially offset by a decrease in deferred revenue
of $2.7 million, which was primarily due to the sale of
certain assets of SmartCertify, our Retail Certification
business, which was partially offset by increased billings in
our MML business, as well as decreases in accrued expenses of
$12.9 million. The decrease in accrued expenses is
primarily a result of the payment of short-term restructuring
and merger accruals.
Net cash used in investing activities was $4.9 million for
the fiscal year ended January 31, 2006. Purchases of
capital assets, primarily related to additional investments in
our hosting infrastructure, and capitalized software development
costs related to our SkillSoft Dialogue product totaled
approximately $6.4 million and $1.7 million,
respectively. Additionally, approximately $4.0 million of
cash was designated as restricted cash pursuant to an
arrangement with the named insureds as part of the legal
settlement payment received in fiscal 2006 in connection with
the 2002 securities class action, related litigation and the SEC
investigation. These amounts were partially offset by the
maturity of investments, net of purchases (short and long-term),
which generated a net cash inflow of approximately
$7.2 million in fiscal 2006.
46
Net cash used in financing activities was $18.9 million for
the fiscal year ended January 31, 2006. Cash was used to
purchase approximately 6.1 million shares having a value of
approximately $22.0 million on the open market under our
shareholder approved share repurchase program. This was
partially offset by proceeds from the exercise of share options
and share purchases under our 2004 Employee Share Purchase Plan
totaling $3.1 million.
Our working capital deficit was approximately $8.2 million
and $46.8 million as of January 31, 2006 and 2005,
respectively. The reduction in our working capital deficit was
primarily due to our net income of $35.2 million,
depreciation and amortization of $14.3 million, a non-cash
provision for income tax of $7.9 million, $3.1 million
of proceeds from the exercise of share options and share
purchases under our 2004 Employee Share Purchase Plan and the
maturity of long-term investments of $7.2 million, which
was partially offset by the repurchase of shares with a value of
approximately $22.0 million and the purchase of property
and equipment of $6.4 million.
We entered into a $25 million two year, line of credit with
a bank on July 23, 2004, which was amended in April 2005.
Under the terms of the line of credit, the bank holds a first
security interest in all domestic business assets. All
borrowings under the line of credit bear interest at the
banks prime rate. The facility is subject to a commitment
fee of $50,000 to secure the line of credit and unused
commitment fees of 0.125% based upon the daily average of
un-advanced amounts under the revolving line of credit. We paid
approximately $12,000 in unused commitment fees for the fiscal
year ended January 31, 2006. In addition, the line of
credit contains certain financial and non-financial covenants.
We are currently in compliance with all covenants. Also, the
line of credit provides that in the event of a Material Adverse
Change (as defined in the line of credit), the lender has the
ability to call amounts outstanding under the line of credit. As
of January 31, 2006, there were no borrowings on the line
of credit; however, we had an outstanding letter of credit of
$15.5 million that reduced the availability under the line
of credit. Letters of credit are subject to commission fees of
0.75% as well as administrative costs. We paid approximately
$79,000 in letters of credit fees in the fiscal year ended
January 31, 2006.
As of January 31, 2006, we had U.S. federal net
operating loss carryforwards (NOLs) of approximately
$314.0 million. These NOLs, which are subject to potential
limitations based upon change in control provisions of
Section 382 of the Internal Revenue Code, are available to
reduce future taxable income, if any, through 2025. We also had
U.S. federal tax credit carryforwards of approximately
$5.6 million at January 31, 2006. Additionally, we had
approximately $99.7 million of net operating loss
carryforwards in jurisdictions outside of the U.S. If not
utilized, these carryforwards expire at various dates through
the year ending January 31, 2025. Included in the
$314.0 million are approximately $200.1 million of
U.S. net operating loss carryforwards and $365,000 of
U.S. tax credit carryforwards that were acquired in the
Merger and the purchase of Books. In addition, included in the
$99.7 million is approximately $61.1 million of net
operating loss carryforwards in jurisdictions outside the
U.S. acquired in the Merger and the purchase of Books. We
will realize the benefits of these acquired net operating losses
through reductions to goodwill and non-goodwill intangibles
during the period that the losses are utilized to reduce tax
payments. Also included in the $314.0 million at
January 31, 2006, we have approximately $28.0 million
of net operating loss carryforwards in the United States
resulting from disqualifying dispositions. We will realize the
benefit of these losses through increases to stockholders
equity in the periods in which the losses are utilized to reduce
tax payments.
We lease certain of our facilities and certain equipment and
furniture under operating lease agreements that expire at
various dates through 2023. Future minimum lease payments, net
of estimated rentals, under these agreements are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period | |
|
|
| |
|
|
|
|
Less Than | |
|
|
|
More Than | |
Contractual Obligations |
|
Total | |
|
1 Year | |
|
1-3 Years | |
|
3-5 Years | |
|
5 Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Operating Lease Obligations
|
|
$ |
30,927 |
|
|
$ |
5,197 |
|
|
$ |
8,900 |
|
|
$ |
3,729 |
|
|
$ |
13,101 |
|
We have no future contracted obligations related to long-term
debt, capital leases or purchase obligations.
47
We have a remaining payout to be made in the fiscal year ending
January 31, 2007 of $15.25 million relating to the
settlement of the 2002 securities class action litigation
described in Note 8(c) of the Notes to the Consolidated
Financial Statements.
We have a payout to be made by April 17, 2006 of
$1.8 million to the plaintiffs relating to the settlement
on April 7, 2006 described in Note 8(d) of the Notes
to the Consolidated Financial Statements.
We expect to experience similar spending related to capital
expenditures in the fiscal year ending January 31, 2007, as
compared to the fiscal year ended January 31, 2006, and we
will continue to invest in our research and development and
sales and marketing in order to execute our business plan and
achieve expected revenue growth. To the extent that our
execution of the business plan results in increased sales, we
expect to experience corresponding increases in deferred
revenue, cash flow and prepaid expenses. Capital expenditures
for the fiscal year ending January 31, 2007 are expected to
be approximately $7.0 million. We purchased
6,533,884 shares under our shareholder approved repurchase
plan during fiscal 2005 and 2006. This plan expired on
March 24, 2006 with 466,116 shares available for
repurchase under the original program. Our shareholders have
approved the renewal and extension of the plan and as a result
we currently have the ability to purchase, subject to certain
limitations, up to 3,500,000 of our outstanding shares under the
recently approved shareholder plan. Under the program, there are
limitations on our ability to purchase shares up to this level,
which include, but are not limited to, the availability of
distributable profits under Irish regulations and available
cash. We expect that the principal sources of funding for our
operating expenses, capital expenditures, litigation settlement
payments and other liquidity needs will be a combination of our
available cash and cash equivalents and short-term investments
(which totaled approximately $73.3 million as of
January 31, 2006), and funds generated from future cash
flows from operating activities. We believe our current funds
and expected cash flows from operating activities will be
sufficient to fund our operations for at least the next
12 months. However, there are several items that may
negatively impact our available sources of funds. In addition,
our cash needs may increase due to factors such as unanticipated
developments in our business or significant acquisitions. The
amount of cash generated from operations will be dependent upon
the successful execution of our business plan. Although we do
not foresee the need to raise additional capital, any
unanticipated economic or business events could require us to
raise additional capital to support operations.
Recent Accounting Pronouncements
On December 16, 2004, the Financial Accounting Standards
Board (FASB) issued FASB Statement No. 123 (revised
2004), Share-Based Payment, which is a revision of
FASB Statement No. 123, Accounting for Stock-Based
Compensation. Statement 123(R) supersedes APB Opinion
No. 25, Accounting for Stock Issued to
Employees, and amends FASB Statement No. 95,
Statement of Cash Flows. Generally, the approach in
Statement 123(R) is similar to the approach described in
Statement 123. However, Statement 123(R) requires all
share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on
their fair values. Pro forma disclosure is no longer an
alternative.
Statement 123(R) is effective for the first quarter of the
first fiscal year that begins after June 15, 2005. Early
adoption will be permitted in periods in which financial
statements have not yet been issued. We adopted
Statement 123(R) on February 1, 2006.
Statement 123(R) permits public companies to adopt its
requirements using one of two methods:
|
|
|
1. A modified prospective method in which
compensation cost is recognized beginning with the effective
date (a) based on the requirements of Statement 123(R)
for all share-based payments granted after the effective date
and (b) based on the requirements of Statement 123 for
all awards granted to employees prior to the effective date of
Statement 123(R) that remain unvested on the effective
date; or |
|
|
2. A modified retrospective method which
includes the requirements of the modified prospective method
described above, but also permits entities to restate based on
the amounts previously recognized under Statement 123 for
purposes of pro forma disclosures either (a) all prior
periods presented or (b) prior interim periods of the year
of adoption. |
48
We have determined to utilize the modified
prospective method to use in adopting SFAS 123(R).
As a result of the adoption of SFAS 123(R), we expect
share-based compensation expense to be approximately
$3.0 million to $4.0 million for the fiscal year
ending January 31, 2007. However, our assessment of the
estimated compensation charges is affected by our share price as
well as assumptions regarding a number of complex and subjective
variables and the related tax impact. These variables include,
but are not limited to, the volatility of our share price and
employee share option exercise behaviors. In addition,
compensation expense could increase to the extent additional
share options are granted in the future. The adoption of
SFAS 123(R) will have no material impact on our net cash
flows.
On January 13, 2006 we accelerated the vesting of all
currently outstanding unvested stock options awarded to
employees. This vesting acceleration does not extend to any
options held by executive officers and directors. As a result of
this action we expect to avoid recognition of approximately
$9.1 million of stock-based compensation expense in future
periods beginning February 1, 2006, including approximately
$4.7 million of stock-based compensation expense in the
fiscal year ending January 31, 2007. We recorded a charge
of approximately $89,000 in the fourth quarter of fiscal 2006
related to expected forfeitures due to the acceleration of
vesting of
in-the-money
options.
The FASB recently issued Statement No. 154,
Accounting Changes and Error Corrections,
(SFAS 154), which is a replacement of APB Opinion
No. 20, Accounting Changes, and FASB
Statement No. 3, Reporting Accounting Changes in
Interim Financial Statements. (SFAS 3).
SFAS 154 applies to all voluntary changes in accounting
principle, and changes the requirements for accounting for and
reporting of a change in accounting principle. SFAS 154
requires retrospective application to prior periods
financial statements of a voluntary change in accounting
principle unless it is impracticable. APB 20 previously
required that most voluntary changes in accounting principle be
recognized by including in net income of the period of the
change the cumulative effect of changing to the new accounting
principle. SFAS 154 requires that a change in method of
depreciation, amortization, or depletion for long-lived,
non-financial assets be accounted for as a change in accounting
estimate that is effected by a change in accounting principle.
APB 20 previously required that such a change be reported
as a change in accounting principle. SFAS 154 carries
forward many provisions of APB 20 without change, including
the provisions related to the reporting of a change in
accounting estimate, a change in the reporting entity, and the
correction of an error. SFAS 154 also carries forward the
provisions of SFAS 3 that govern reporting accounting
changes in interim financial statements. SFAS 154 is
effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005. Earlier
application is permitted for accounting changes and corrections
of errors made occurring in fiscal years beginning after
June 1, 2005. SFAS 154 does not change the transition
provisions of any existing accounting pronouncements, including
those that are in a transition phase as of the effective date of
SFAS 154. We currently believe that the adoption of
SFAS 154 will have no impact on our results of operations.
Explanation of Use of Non-GAAP Financial Results
In addition to our audited financial results in accordance with
United States generally accepted accounting principles (GAAP),
to assist investors we may on occasion provide certain non-GAAP
financial results as an alternative means to explain our
periodic results. The non-GAAP financial results typically
exclude non-cash or one-time charges or benefits.
Our management uses the non-GAAP financial results internally as
an alternative means for assessing our results of operations. By
excluding non-cash charges such as stock-based compensation,
amortization of purchased intangible assets, impairment of
goodwill and purchased intangible assets, management can
evaluate our operations excluding these non-cash charges and can
compare its results on a more consistent basis to the results of
other companies in our industry. By excluding charges such as
restructuring charges (benefits), our management can compare our
ongoing operations to prior quarters where such items may be
materially different and to ongoing operations of other
companies in our industry who may have materially different
one-time charges. Our management recognizes that non-GAAP
financial results are not a substitute for GAAP results, and
believes that non-GAAP measures are helpful in assisting them in
understanding and managing our business.
49
Our management believes that the non-GAAP financial results may
also provide useful information to investors. Non-GAAP results
may also allow investors and analysts to more readily compare
our operations to prior financial results and to the financial
results of other companies in the industry who similarly provide
non-GAAP results to investors and analysts. Investors may seek
to evaluate our business performance and the performance of our
competitors as they relate to cash. Excluding one-time and
non-cash charges may assist investors in this evaluation and
comparisons.
We intend to continue to assess the potential value of reporting
non-GAAP results consistent with applicable rules and
regulations.
|
|
Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk |
As of January 31, 2006, we did not use derivative financial
instruments for speculative or trading purposes.
Interest Rate Risk
Our general investing policy is to limit the risk of principal
loss and to ensure the safety of invested funds by limiting
market and credit risk. We currently use a registered investment
manager to place our investments in highly liquid money market
accounts and government-backed securities. All highly liquid
investments with original maturities of three months or less are
considered to be cash equivalents. Interest income is sensitive
to changes in the general level of U.S. interest rates.
Based on the short-term nature of our investments, we have
concluded that there is no significant market risk exposure.
Foreign Currency Risk
Due to our multinational operations, our business is subject to
fluctuations based upon changes in the exchange rates between
the currencies in which we collect revenues or pay expenses and
the U.S. dollar. Our expenses are not necessarily incurred
in the currency in which revenue is generated, and, as a result,
we are required from time to time to convert currencies to meet
our obligations. These currency conversions are subject to
exchange rate fluctuations, in particular changes to the value
of the euro, Canadian dollar, Australian dollar, New Zealand
dollar, Singapore dollar, and pound sterling relative to the
U.S. dollar, which could adversely affect our business and
the results of operations. During fiscal 2004, 2005 and 2006, we
incurred foreign currency exchange gains/ (losses) of $581,000,
$(803,000) and $410,000, respectively.
|
|
Item 8. |
Financial Statements and Supplementary Data |
Incorporated by reference from Item 7
Managements Discussion and Analysis of Financial
Condition and Results of Operations Quarterly
Operating Results and Appendix B attached
hereto.
|
|
Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |
Not applicable.
|
|
Item 9A. |
Controls and Procedures |
|
|
|
Evaluation of Disclosure Controls &
Procedures |
Our management, with the participation of our chief executive
officer and chief financial officer, evaluated the effectiveness
of our disclosure controls and procedures as of January 31,
2006. The term disclosure controls and procedures,
as defined in
Rules 13a-15(e)
and 15d-15(e) under the
Securities Exchange Act of 1934 (the Exchange Act),
means controls and other procedures of a company that are
designed to ensure that information required to be disclosed by
a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SECs rules and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated
and communicated to the companys management,
50
including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding
required disclosure. Our management recognizes that any controls
and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their objectives
and management necessarily applies its judgment in evaluating
the cost-benefit relationship of possible controls and
procedures. Based on the evaluation of our disclosure controls
and procedures as of January 31, 2006, our chief executive
officer and chief financial officer concluded that, as of such
date, our disclosure controls and procedures were effective at
the reasonable assurance level.
|
|
|
Changes in Internal Control |
No change in our internal control over financial reporting
occurred during the fiscal quarter ended January 31, 2006
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
|
|
|
Managements Report on Internal Control over
Financial Reporting |
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting is defined in
Rule 13a-15(f) or
15d-15(f) promulgated
under the Exchange Act as a process designed by, or under the
supervision of, the companys principal executive and
principal financial officers and effected by the companys
board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures
that:
|
|
|
|
|
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of the assets of the company; |
|
|
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made
only in accordance with authorizations of management and
directors of the company; and |
|
|
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements. |
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Internal control over financial reporting cannot provide
absolute assurance of achieving financial reporting objectives
because of its inherent limitations. Internal control over
financial reporting is a process that involves human diligence
and compliance and is subject to lapses in judgment and
breakdowns resulting from human failures. Internal control over
financial reporting also can be circumvented by collusion or
improper management override. Because of such limitations, there
is a risk that material misstatements may not be prevented or
detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known risks
of the financial reporting process. Therefore, it is possible to
design into the process safeguards to reduce, though not
eliminate, this risk.
Our management assessed the effectiveness of our internal
control over financial reporting as of January 31, 2006. In
making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated
Framework.
Based on this assessment, our management believes that, as of
January 31, 2006 our internal control over financial
reporting is effective based on those criteria.
Our managements assessment of the effectiveness of our
internal control over financial reporting as of January 31,
2006 has been audited by Ernst & Young LLP, an
independent registered public accounting firm, as stated in
their report appearing on the following page of this
Form 10-K.
51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Shareholders of SkillSoft Public Limited Company
We have audited managements assessment, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting, that SkillSoft Public Limited Company
maintained effective internal control over financial reporting
as of January 31, 2006 based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). SkillSoft Public Limited Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements
assessment and an opinion on the effectiveness of the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that SkillSoft
Public Limited Company maintained effective internal control
over financial reporting as of January 31, 2006, is fairly
stated, in all material respects, based on the COSO criteria.
Also, in our opinion, SkillSoft Public Limited Company
maintained, in all material respects, effective internal control
over financial reporting as of January 31, 2006, based on
the COSO criteria.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of SkillSoft Public Limited Company
as of January 31, 2005 and 2006 and the related
consolidated statements of operations, stockholders equity
and comprehensive income/(loss) and cash flows for each of the
three years in the period ended January 31, 2006 of
SkillSoft Public Limited Company and our report dated
April 10, 2006 expressed an unqualified opinion thereon.
Boston, Massachusetts
April 10, 2006
52
|
|
Item 9B. |
Other Information |
On April 7, 2006, we agreed to settle a lawsuit filed by
Jody Glidden, Trish Glidden and Michael LeBlanc against us and
certain of our former and current officers and directors in late
2004 related to our 2002 securities class action lawsuit. Under
the terms of the settlement, we will pay a total of
$1.79 million to the plaintiffs prior to April 17,
2006. A description of the lawsuit and settlement is included in
Item 3 of this Annual Report on
Form 10-K.
PART III
|
|
Item 10. |
Directors and Executive Officers of the Registrant |
Directors
The following is a list of our directors and certain information
about their background.
Gregory M. Priest, age 42, was appointed Chairman of the
Board of Directors in November 2000, and has held the position
of Strategic Advisor with the Company since April 2005.
Mr. Priest served as our Chief Strategy Officer from
September 2002 to April 2005. Mr. Priest served as the
Companys President and Chief Executive Officer from
December 1998 to September 2002. Mr. Priest has been a
director since June 1996.
Charles E. Moran, age 51, has served as our President and
Chief Executive Officer and as a director since our merger with
SkillSoft Corporation in September 2002. Mr. Moran is a
founder of SkillSoft Corporation and served as its Chairman of
the Board, President and Chief Executive Officer from January
1998 until September 2002.
P. Howard Edelstein, age 51, has served as our
director since our merger with SkillSoft Corporation in
September 2002. Mr. Edelstein is currently an Executive in
Residence with Radianz, Inc., an Internet Protocol (IP)-based
networking company for the global financial services industry,
and an Entrepreneur in Residence with Warburg Pincus LLC.
Mr. Edelstein served as President and Chief Executive
Officer of Radianz from July 2003 to January 2006.
Mr. Edelstein served as an Entrepreneur in Residence with
Warburg Pincus LLC from January 2002 to July 2003.
Mr. Edelstein previously served as President and Chief
Executive Officer of Thomson Financial ESG (now known as Omgeo),
a provider of electronic commerce, transaction processing and
information services to the international securities/trading
community, from 1993 to 2001. Mr. Edelstein is also a
director of PalmSource, a software developer for mobile
information devices, and Alacra, a privately held financial
information company.
Stewart K.P. Gross, age 46, has served as our director
since our merger with SkillSoft Corporation in September 2002.
Mr. Gross is Managing Director with Lightyear Capital LLC,
a private equity firm concentrating on investments in the
financial services industry. Mr. Gross served as a director
of SkillSoft Corporation from January 1998 to September 2002.
Mr. Gross was Managing Director of Warburg Pincus LLC, from
July 1987 to December 2004. Mr. Gross is a director of BEA
Systems, Inc., and Aldabra Acquisition Corporation.
Mr. Gross is also a director to several privately held
companies.
James S. Krzywicki, age 54, has served as our director
since October 1998. Mr. Krzywicki has served as President
and Chief Executive officer of Docutron Systems, Inc., a
provider of web-based document management software solutions
that work in small business environments and connect with
enterprise objectives, since April 2004. Mr. Krzywicki was
Vice President, Channel Services of Parametric Technology
Corporation (PTC), a provider of software solutions
for manufacturers for product development and improvement, from
April 2003 to April 2004. Prior to joining PTC,
Mr. Krzywicki served as President of North American
Services of RoweCom, Inc. a provider of knowledge resource
management and acquisition services, from October 1999 to
February 2001, and as Chief Operating Officer from February 2001
to November 2001. In November 2001, RoweCom, Inc. was acquired
by divine, inc., a premier integrated solution provider focused
on the extended enterprise, and Mr. Krzywicki became Senior
Vice President and General Manager, divine information services,
and held this position until January 2003. Subsequently,
53
RoweCom, Inc. filed for protection under Chapter 11 of the
United States Bankruptcy Code in the United States District
Court for the District of Massachusetts in January 2003.
William F. Meagher, Jr., age 67, has served as our
director since March 2004. Mr. Meagher was the Managing
Partner of the Boston Office of Arthur Andersen LLP
(Andersen) from 1982 until 1995, and spent a total
of 38 years with Andersen. Mr. Meagher was a member of
the American Institute of Certified Public Accountants and the
Massachusetts Society of Certified Public Accountants.
Mr. Meagher is a trustee of Living Care Villages of
Massachusetts, Inc. d/b/a North Hill and the Dana Farber Cancer
Institute and the Greater Boston YMCA. Mr. Meagher also
sits on the Board of Directors of Dover Saddlery, a direct
marketer and a leading specialty retailer of equestrian products.
Ferdinand von Prondzynski, age 52, has served as our
director since November 2001. Dr. von Prondzynski has been
the President of Dublin City University, one of Irelands
leading higher education institutions, since July 2000. From
January 1991 to July 2000, Dr. von Prondzynski served as
Professor of Law and Dean of the Faculty of Social Services, the
University of Hull, UK.
There are no family relationships among any of the directors of
the Company.
Executive Officers
Our executive officers are as follows:
|
|
|
|
|
|
|
Name |
|
Age | |
|
Position |
|
|
| |
|
|
Charles E. Moran
|
|
|
51 |
|
|
President and Chief Executive Officer |
Thomas J. McDonald
|
|
|
56 |
|
|
Chief Financial Officer, Executive Vice President and Assistant
Secretary |
Jerald A. Nine, Jr.
|
|
|
48 |
|
|
Chief Operating Officer |
Mark A. Townsend
|
|
|
53 |
|
|
Executive Vice President, Technology |
Colm M. Darcy
|
|
|
42 |
|
|
Executive Vice President, Content Development |
Charles E. Moran has served as our President and Chief
Executive Officer since our merger with SkillSoft Corporation in
September 2002. Mr. Moran is a founder of SkillSoft
Corporation and served as its Chairman of the Board, President
and Chief Executive Officer from January 1998 until September
2002.
Thomas J. McDonald has served as our Chief Financial
Officer and Executive Vice President and Assistant Secretary
since our merger with SkillSoft Corporation in September 2002.
Mr. McDonald is a founder of SkillSoft Corporation and
served as its Chief Financial Officer, Vice President,
Operations, Treasurer and Secretary since February 1998.
Jerald A. Nine, Jr. has served as our Chief
Operating Officer since February 2004. Mr. Nine served as
our Executive Vice President, Global Sales & Marketing
and General Manager, Content Solutions Division from our merger
with SkillSoft Corporation in September 2002 to February 2004.
Mr. Nine is a founder of SkillSoft Corporation and served
as its Executive Vice President, Sales and Marketing and General
Manager, Books Division from December 2001 to February 2004.
From April 1998 to December 2001, Mr. Nine served as Vice
President, Worldwide Sales and Marketing.
Mark A. Townsend has served as our Executive Vice
President, Technology since our merger with SkillSoft
Corporation in September 2002. Mr. Townsend is a founder of
SkillSoft Corporation and served as its Vice President, Product
Development since January 1998.
Colm M. Darcy has served as our Executive Vice President,
Content Development since our merger with SkillSoft Corporation
in September 2002. From April 2002 to September 2002,
Mr. Darcy served as our Executive Vice President, Research
and Development. From January 2002 to April 7, 2002,
Mr. Darcy served as Vice President of Solutions Management.
From January 2001 to December 2001, Mr. Darcy served as
Vice President, Strategic Alliances. From January 1999 to
December 2000, he served as our Vice President, Content
Solutions and from January 1997 to December 1998, he served as
Director, Curriculum Develop-
54
ment. Prior to joining us, Mr. Darcy held positions in
Finance, Human Resources, Training and Information Technology in
the Irish Governments Department of Health and Child
Welfare.
There are no family relationships among any of the executive
officers.
Audit Committee
The Board of Directors has determined that Mr. Meagher is
an audit committee financial expert as defined in
Item 401(h) of
Regulation S-K.
The current members of the Audit Committee are
Messrs. Gross, Meagher (Chair) and Dr. von
Prondzynski. The Board of Directors has determined that all of
the members of the Audit Committee are independent as defined
under applicable NASDAQ rules and Rule 10A-3 under the
Exchange Act.
Director Nomination Process
The process followed by the Nominating and Corporate Governance
Committee to identify and evaluate director candidates includes
requests to Board members and others for recommendations,
meetings from time to time to evaluate biographical information
and background material relating to potential candidates and
interviews of selected candidates by members of the Nominating
and Corporate Governance Committee and the Board of Directors.
In considering whether to recommend any particular candidate for
inclusion in the Board of Directors slate of recommended
director nominees, the Nominating and Corporate Governance
Committee applies the criteria set forth in our Corporate
Governance Guidelines. These criteria include the
candidates integrity, business acumen, knowledge of our
business and industry, age, experience, diligence, conflicts of
interest and the ability to act in the interests of all
shareholders. The Nominating and Corporate Governance Committee
does not assign specific weights to particular criteria and no
particular criterion is a prerequisite for recommendation. We
believe that the backgrounds and qualifications of its
directors, considered as a group, should provide a composite mix
of experience, knowledge and abilities that will allow the Board
of Directors to fulfill its responsibilities.
Shareholders may recommend individuals to the Nominating and
Corporate Governance Committee for consideration as potential
director candidates by submitting their names, together with
appropriate biographical information and background materials
and a statement as to whether the shareholder or group of
shareholders making the recommendation has beneficially owned
more than 5% of our ADSs for at least a year as of the date such
recommendation is made, to the Nominating and Corporate
Governance Committee, c/o Investor Relations, SkillSoft
Public Limited Company, 107 Northeastern Boulevard, Nashua, New
Hampshire 03062. Assuming that appropriate biographical and
background material has been provided on a timely basis, the
Nominating and Corporate Governance Committee will evaluate
shareholder-recommended candidates by following substantially
the same process, and applying substantially the same criteria,
as it follows and applies for candidates submitted by others.
Code of Business Conducts and Ethics
We have adopted a written Code of Business Conduct and Ethics
(the Code) that applies to our directors, officers
and employees, including our principal executive officer,
principal financial officer, and principal accounting officer or
controller, or persons performing similar functions. We have
posted the Code on our Web site, which is located at
www.SkillSoft.com. In addition, we intend to disclose on our Web
site any amendments to, or waivers from, any provision of the
Code that applies to our principal executive officer, principal
financial officer, and principal accounting officer or
controller, or persons performing similar functions.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Exchange Act requires our directors,
executive officers and holders of more than 10% of a registered
class of our equity securities to file with the SEC initial
reports of ownership of our equity
55
securities on a Form 3 and reports of changes in such
ownership on a Form 4 or Form 5. Officers, directors
and 10% shareholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of copies of such filings by our
directors and executive officers and 10% shareholders or written
representations from certain of those persons, we believe that
all filings required to be made by those persons during the
fiscal year ended January 31, 2006 were timely made.
|
|
Item 11. |
Executive Compensation |
Summary Compensation Table. The following table sets
forth the total compensation for the fiscal years ended
January 31, 2004, 2005 and 2006 for our chief executive
officer and the four most highly compensated other executive
officers who were serving as executive officers on
January 31, 2006 (the Named Executive
Officers), as required under applicable rules of the SEC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Compensation | |
|
|
|
|
|
|
| |
|
All Other | |
Name and Principal Position |
|
Fiscal Year(1) | |
|
Salary | |
|
Bonus | |
|
Compensation(2) | |
|
|
| |
|
| |
|
| |
|
| |
Charles E. Moran
|
|
|
2006 |
|
|
$ |
250,000 |
|
|
$ |
395,314 |
|
|
$ |
5,012 |
|
|
President and Chief Executive Officer |
|
|
2005 |
|
|
|
250,000 |
|
|
|
42,969 |
|
|
|
9,610 |
|
|
|
|
|
2004 |
|
|
|
237,500 |
|
|
|
299,333 |
|
|
|
9,610 |
|
Jerald A. Nine Jr.
|
|
|
2006 |
|
|
|
225,000 |
|
|
|
274,920 |
|
|
|
4,531 |
|
|
Chief Operating Officer |
|
|
2005 |
|
|
|
225,000 |
|
|
|
29,883 |
|
|
|
6,919 |
|
|
|
|
|
2004 |
|
|
|
212,500 |
|
|
|
213,400 |
|
|
|
4,973 |
|
Colm M. Darcy
|
|
|
2006 |
|
|
|
200,000 |
|
|
|
225,000 |
|
|
|
3,281 |
|
|
Executive Vice President, |
|
|
2005 |
|
|
|
200,000 |
|
|
|
23,438 |
|
|
|
6,150 |
|
|
Content Development |
|
|
2004 |
|
|
|
200,000 |
|
|
|
166,000 |
|
|
|
5,092 |
|
Mark A. Townsend
|
|
|
2006 |
|
|
|
200,000 |
|
|
|
225,000 |
|
|
|
4,050 |
|
|
Executive Vice President, Technology |
|
|
2005 |
|
|
|
200,000 |
|
|
|
23,438 |
|
|
|
7,688 |
|
|
|
|
|
2004 |
|
|
|
180,000 |
|
|
|
166,000 |
|
|
|
7,688 |
|
Thomas J. McDonald
|
|
|
2006 |
|
|
|
200,000 |
|
|
|
225,000 |
|
|
|
4,050 |
|
|
Executive Vice President |
|
|
2005 |
|
|
|
200,000 |
|
|
|
23,438 |
|
|
|
7,688 |
|
|
and Chief Financial Officer |
|
|
2004 |
|
|
|
175,000 |
|
|
|
166,000 |
|
|
|
7,368 |
|
|
|
(1) |
The fiscal years in this column refer to the fiscal year ended
January 31 of that year. |
|
(2) |
Includes amounts paid as accrued vacation time per Company
policy to each of Moran, Nine, Darcy, Townsend and McDonald in
the amounts of $4,812, $4,331, $3,080, $3,850 and $3,850,
respectively. For the fiscal year ending January 31, 2006,
includes $200 for each of Moran, Nine, Darcy, Townsend and
McDonald that was paid pursuant to the Companys 401(k)
matching program. |
Share Option Grants Table. We granted no share options or
share appreciation rights during the fiscal year ended
January 31, 2006 to the Named Executive Officers.
56
Fiscal Year-End Option Value Table. The following table
provides information with respect to share options exercised by
the Named Executive Officers during the fiscal year ended
January 31, 2006, and the number and value of unexercised
share options held by each of the Named Executive Officers as of
January 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Ordinary Shares | |
|
|
|
|
|
|
|
|
Underlying Unexercised | |
|
Value of Unexercised | |
|
|
Number of | |
|
|
|
Options at | |
|
In-the-money Options at | |
|
|
Shares | |
|
|
|
January 31, 2006 | |
|
January 31, 2006(2) | |
|
|
Acquired | |
|
Value | |
|
| |
|
| |
Name |
|
on Exercise | |
|
Realized(1) | |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable | |
|
Unexercisable | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Charles E. Moran
|
|
|
|
|
|
|
|
|
|
|
1,462,984 |
|
|
|
241,673 |
|
|
$ |
1,196,896 |
|
|
$ |
384,260 |
|
Colm M. Darcy
|
|
|
|
|
|
|
|
|
|
|
309,449 |
|
|
|
52,085 |
|
|
|
370,513 |
|
|
|
114,482 |
|
Jerald A. Nine Jr.
|
|
|
|
|
|
|
|
|
|
|
860,562 |
|
|
|
155,360 |
|
|
|
998,048 |
|
|
|
247,022 |
|
Mark A. Townsend
|
|
|
|
|
|
|
|
|
|
|
832,791 |
|
|
|
138,099 |
|
|
|
1,198,666 |
|
|
|
219,577 |
|
Thomas J. McDonald
|
|
|
|
|
|
|
|
|
|
|
1,045,599 |
|
|
|
138,099 |
|
|
|
1,286,087 |
|
|
|
219,577 |
|
|
|
(1) |
The value realized upon exercise is the excess of the fair
market value (determined on the basis of the closing price per
share of our ADSs on the NASDAQ National Market) of the
underlying ordinary shares on the date of exercise over the
exercise price of the option multiplied by the number of
ordinary shares acquired upon exercise. |
|
(2) |
The value of the
in-the-money options is
the excess of the fair market value (determined on the basis of
the closing price per share of our ADSs on the NASDAQ National
Market) of the underlying ordinary shares on January 31,
2006 ($5.65 per share) over the exercise price of the
option multiplied by the number of ordinary shares underlying
the option. |
Employment Agreements
Charles E. Morans Employment Agreement. In
connection with our merger with SkillSoft Corporation, we
entered into an employment agreement, effective on
September 6, 2002, the date of completion of the merger,
with Charles E. Moran, to employ Mr. Moran as our President
and Chief Executive Officer. Mr. Morans employment
agreement provides for a cash compensation plan that reflects
the level established by the SkillSoft Corporation board of
directors for the then current fiscal year. Specifically,
Mr. Morans employment agreement provides that he will
be paid a base salary of $225,000 per year to be reviewed
for increases at least annually by our Board of Directors.
Mr. Morans current base salary is $250,000. In
addition, Mr. Moran will be entitled to receive an annual
performance bonus based on performance metrics established by
the Board of Directors. Mr. Morans employment is
at-will, but if Mr. Morans employment is terminated
without cause or if he resigns with good reason, each as defined
in his employment agreement, he will be entitled to receive a
payment equal to the sum of his base salary and target bonus for
a period of one year after the date of termination. In addition,
if Mr. Moran is terminated without cause or if he resigns
with good reason, he may elect to continue vesting of the
options granted to him for a period of one year after the date
of termination, if he agrees to be bound by the non-solicitation
and non-compete provisions contained in his employment
agreement. The employment agreement also includes a covenant not
to solicit employees and a covenant not to compete for a period
extending until one year after the termination of his
employment, if Mr. Morans termination is voluntary
(other than for good reason) or we terminate him for cause.
Colm M. Darcys Employment Agreement. In connection
with our merger with SkillSoft Corporation, we entered into an
employment agreement, effective on September 6, 2002, the
date of completion of the merger, with Colm M. Darcy, to employ
Mr. Darcy as our Executive Vice President, Content
Development. Mr. Darcys employment agreement provides
that he will be paid a base salary of $200,000 per year to
be reviewed for increases at least annually by the Board of
Directors. Mr. Darcys current base salary is
$200,000. Pursuant to the employment agreement, on
September 6, 2002, we granted Mr. Darcy an option to
purchase an aggregate of 50,000 shares at an exercise price
of $4.25 per share. The option grant vested as to 25% of
the shares on September 6, 2003 and vests thereafter in 48
equal monthly installments on each monthly anniversary of the
date of the grant. Mr. Darcy will also be reimbursed for
certain supplemental travel
57
expenses for him and his wife. In addition, Mr. Darcy will
be entitled to receive relocation expense reimbursement in the
event Mr. Darcy either relocates to Ireland at our request
or returns there within three months after his employment is
terminated without cause or if he resigns with good reason, each
as defined in his employment agreement. Mr. Darcys
employment is at-will, but if his employment is terminated
without cause or if he resigns with good reason, he will be
entitled to receive a payment equal to the sum of $75,000 plus
his base salary for a period of six months after the date of
termination. In addition, if Mr. Darcy is terminated
without cause or if he resigns with good reason, he may elect to
continue vesting of the options granted to him for a period of
six months after the date of termination, if he agrees to be
bound by the nonsolicitation and noncompete provisions contained
in his employment agreement. The employment agreement also
includes a covenant not to solicit employees and a covenant not
to compete for a period extending until the later of six months
after the termination of his employment and September 6,
2006, if Mr. Darcys termination is voluntary (other
than for good reason) or we terminate him for cause.
Jerald A. Nines Employment Agreement. In connection
with our merger with SkillSoft Corporation, we entered into an
employment agreement, effective on September 6, 2002, the
date of completion of the merger, with Jerald A. Nine, to employ
Mr. Nine as our Executive Vice-President, Content Solutions
and General Manager Books Division. Mr. Nines
employment agreement provides for a cash compensation plan that
reflects the level established by the SkillSoft Corporation
Board of Directors for the then current fiscal year.
Mr. Nines employment agreement provides that he will
be paid a base salary of $200,000 per year to be reviewed
for increases at least annually by the Board of Directors.
Mr. Nines current base salary is $225,000. In
addition, Mr. Nine will be entitled to receive an annual
performance bonus based on performance metrics established by
the Board of Directors. Mr. Nines employment is
at-will, but if Mr. Nines employment is terminated
without cause or if he resigns with good reason, as defined in
his employment agreement, he will be entitled to receive a
payment equal to the sum of his base salary plus the then
maximum performance bonus for a period of one year. In addition,
if Mr. Nine is terminated without cause or if he resigns
with good reason, he may elect to continue vesting of the
options granted to him for a period of one year. The employment
agreement also includes a covenant not to solicit employees and
a covenant not to compete for a period extending until one year
after the termination of his employment if Mr. Nines
termination is voluntary (other than for good reason) or we
terminate him for cause.
Mark A. Townsends Employment Agreement. SkillSoft
Corporation is a party to an employment agreement with Mark A.
Townsend, dated January 12, 1998. Under the terms of the
employment agreement, Mr. Townsend is entitled to receive a
base salary of $145,000, which may be increased in accordance
with SkillSoft Corporations regular salary review
practices. Mr. Townsends current base salary is
$200,000. Mr. Townsend is also entitled to participate in
any bonus plans that SkillSoft Corporation may establish for its
senior executives. Either SkillSoft Corporation or
Mr. Townsend may terminate the employment agreement at will
for any reason upon three months prior notice in the case
of termination by SkillSoft Corporation, or upon two
months prior notice in the case of termination by
Mr. Townsend. In addition, in the event of such a
termination, Mr. Townsends stock options will
continue to vest and be exercisable if he performs consulting
services for SkillSoft Corporation of up to ten hours per week
during the six months following termination.
Thomas J. McDonalds Employment Agreement. SkillSoft
Corporation is a party to an employment agreement with Thomas J.
McDonald, dated February 2, 1998. Under the terms of the
employment agreement, Mr. McDonald is entitled to receive a
base salary of $135,000, which may be increased in accordance
with SkillSoft Corporations regular salary review
practices. Mr. McDonalds current base salary is
$200,000. Mr. McDonald is also entitled to participate in
any bonus plans that SkillSoft Corporation may establish for its
senior executives. Either SkillSoft Corporation or
Mr. McDonald may terminate the employment agreement at will
for any reason upon three months prior notice in the case
of termination by SkillSoft Corporation, or upon two
months prior notice in the case of termination by
Mr. McDonald. In addition, in the event of such a
termination, Mr. McDonalds stock options will
continue to vest and be exercisable if he performs consulting
services for SkillSoft Corporation of up to ten hours per week
during the six months following termination.
58
Compensation Committee Interlocks and Insider
Participation
During the fiscal year ended January 31, 2006, the members
of the Compensation Committee of the Companys Board of
Directors were Messrs. Krzywicki, Edelstein and Gross
(Chair). In December 2005, Mr. Edelstein resigned from the
Compensation Committee. No executive officer of the Company has
served as a director or member of the compensation committee of
any other entity whose executive officers served as a director
or member of the Companys Compensation Committee.
Directors Compensation
At an Extraordinary General Meeting of our shareholders held on
March 23, 2006, our shareholders approved an ordinary
resolution pursuant to our Articles of Association that fixed
the annual fees to be paid to each director who is not an
employee of SkillSoft (each, an Outside Director)
for their ordinary services as directors in each fiscal year of
SkillSoft. Pursuant to such ordinary resolution, no such annual
ordinary remuneration shall be paid to directors who are also
employees of SkillSoft for their services as directors.
Beginning with the fiscal year ending January 31, 2007,
each Outside Director will be paid cash compensation as follows:
|
|
|
|
|
each Outside Director will receive an annual retainer of $30,000; |
|
|
|
the chairman of each of the Audit Committee and the Compensation
Committee will receive an additional annual retainer of
$7,500; and |
|
|
|
each Outside Director who is a member of any standing committee
(a Committee) of the Board will receive a payment of
$2,000 per Board or Committee meeting attended up to a
maximum of six meetings per year (including by conference
telephone) beyond regularly scheduled meetings (i.e. a maximum
additional payment of $12,000), provided that only one meeting
payment would be made in the event such additional meetings of
the Board and one or more Committee were held on the same day. |
Any director who is in office only for a portion of a fiscal
year shall only be entitled to be paid a pro-rated portion of
such remuneration reflecting such portion of the year during
which he held office.
Except as described below, we have not previously paid cash
compensation to any director for services as a member of the
Board or Committee, other than reimbursements for expenses in
attending meetings of the Board and Committees. We will continue
to reimburse directors for expenses in attending meetings of the
Board and Committees. On December 22, 2005, we made a
one-time payment in the amount of $500,000 to Howard Edelstein,
a director of SkillSoft, in recognition of
Mr. Edelsteins contributions in connection with the
settlement of our litigation with NETg and our securities class
action litigation. As a result of the payment to
Mr. Edelstein, the Board determined that Mr. Edelstein
is no longer an independent director as defined
under Rule 4200(a)(15) of the NASDAQ Stock Market, Inc.
Marketplace Rules and the Board accepted
Mr. Edelsteins resignation from each of the
Compensation Committee and the Nominating and Corporate
Governance Committee.
We currently have five Outside Directors, each of whom is
eligible for cash remuneration as described above: P. Howard
Edelstein, Stewart K.P. Gross, James S. Krzywicki, William F.
Meagher, Jr. and Dr. Ferdinand von Prondzynski.
Mr. Meagher is the chair of the Audit Committee and
Mr. Gross is the chair of the Compensation Committee. As
such, Messrs. Meagher and Gross will each be eligible to
receive the additional $7,500 retainer described above.
We continue to grant Outside Directors compensation in the form
of share options for their services as members of the Board of
Directors. On initial election to the Board of Directors, each
new non-employee director receives an option to
purchase 25,000 ordinary shares (the Initial
Grant) under our 2001 Outside Director Option Plan (the
Director Plan). Each non-employee director who has
been a director for at least six months receives an option to
purchase 10,000 ordinary shares on January 1st of
each year (the Annual Grant). All options granted
under the Director Plan have a term of ten years and an exercise
price equal to the fair market value of the ordinary shares on
the date of grant. The Initial Grant becomes exercisable as to
59
one-third of the shares subject to the option on each of the
first three anniversaries of the date of grant, provided the
non-employee director remains a director on such dates. The
Annual Grant becomes fully exercisable on the first anniversary
of the date of grant, provided the non-employee director remains
a director on such date. Upon exercise of an option, the
non-employee director may elect to receive his ordinary shares
in the form of ADSs. After termination as a non-employee
director, an optionee may exercise an option during the period
set forth in his option agreement. If termination is due to
death or disability, the option will remain exercisable for
12 months. In all other cases, the option will remain
exercisable for a period of three months. However, an option may
never be exercised later than the expiration of its ten-year
term. A non-employee director may not transfer options granted
under the Director Plan other than by will or the laws of
descent and distribution. Only the non-employee director may
exercise the option during his lifetime. In the event of our
merger with or into another corporation or a sale of
substantially all of our assets, the successor corporation may
assume, or substitute a new option in place of, each option. If
such assumption or substitution occurs, the options will
continue to be exercisable according to the same terms as before
the merger or sale of assets. Following such assumption or
substitution, if a non-employee director is terminated other
than by voluntary resignation, the option will become fully
exercisable and generally will remain exercisable for a period
of three months. If the outstanding options are not assumed or
substituted for, the Board of Directors will notify each
non-employee director that he has the right to exercise the
option as to all shares subject to the option for a period of
30 days following the date of the notice. The option will
terminate upon the expiration of the
30-day period. Unless
terminated sooner, the Director Plan will automatically
terminate in 2011. The Board of Directors has the authority to
amend, alter, suspend, or discontinue the Director Plan, but no
such action may adversely affect any grant previously made under
the Director Plan.
On January 1, 2006, Messrs. Meagher, Edelstein, Gross
and Krzywicki and Dr. von Prondzynski were each granted an
option to purchase 10,000 ordinary shares at an exercise
price of $5.50 per share. Each option granted to a
non-employee director was in accordance with the terms of the
Director Plan described above.
|
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Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The following table sets forth certain information as of
March 31, 2006 with respect to the beneficial ownership of
our ADSs by:
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each person known to SkillSoft to own beneficially more than 5%
of our outstanding securities; |
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each director; |
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our chief executive officer and the four most highly compensated
executive officers who were serving as executive officers on
January 31, 2006 (the Named Executive
Officers); and |
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the current directors and executive officers of SkillSoft as a
group. |
The number of ADSs beneficially owned by each 5% shareholder,
director or executive officer is determined under rules of the
SEC. Under such rules, beneficial ownership includes any shares
as to which the individual or entity has sole or shared voting
power or investment power and includes any ADSs representing the
ordinary shares which the individual has the right to acquire on
or before May 30, 2006 through the exercise of share
options, and any reference in the footnotes to this table to
shares subject to share options refers only to share options
that are so exercisable. For purposes of computing the
percentage of outstanding ADSs held by each person or entity,
any shares which that person or entity has the right to acquire
on or before May 30, 2006, are deemed to be outstanding but
are not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person. Unless otherwise
indicated, each person or entity has sole investment and voting
power (or shares such power with his or her spouse) with respect
to the shares set forth in the following table. The inclusion
herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership of those shares.
As of March 31, 2006, we had approximately 107,493,534
ordinary shares outstanding. Our shareholders may elect to hold
their respective shares of our outstanding securities in the
form of ordinary shares or ADSs. In addition, holders of options
to purchase ordinary shares of SkillSoft may, upon exercise of
their options,
60
elect to receive such ordinary shares in the form of ADSs. The
5% shareholders, directors and executive officers identified in
the following table hold their respective shares of SkillSoft
outstanding securities in the form of ADSs.
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Amount and Nature of | |
|
|
Beneficial Ownership | |
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| |
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|
Percentage | |
Name and Address of Beneficial Owner |
|
ADSs | |
|
Owned | |
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| |
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| |
5% Shareholders
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|
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|
Columbia Wanger Asset Management, L.P.(1)
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22,445,000 |
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20.3 |
% |
Warburg, Pincus Ventures, L.P.(2)
|
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|
13,279,987 |
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12.4 |
|
Cramer Rosenthal McGlynn, LLC(3)
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8,524,225 |
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7.9 |
|
Westfield Capital Management(4)
|
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|
7,743,119 |
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7.2 |
|
Prentice Capital Management, LP(5)
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6,426,015 |
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6.0 |
|
Transamerica Investment Management, LLC(6)
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4,812,950 |
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4.5 |
|
Directors
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|
Charles E. Moran(7)
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3,040,745 |
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2.8 |
|
Gregory M. Priest(8)
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2,537,499 |
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2.3 |
|
James S. Krzywicki(9)
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153,000 |
|
|
|
* |
|
Ferdinand von Prondzynski(10)
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40,010 |
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|
|
* |
|
P. Howard Edelstein(11)
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26,250 |
|
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|
* |
|
Stewart K.P. Gross(12)
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26,250 |
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|
* |
|
William F. Meagher, Jr.(13)
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|
16,000 |
|
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|
* |
|
Named Executive Officers
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|
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|
Mark A. Townsend(14)
|
|
|
1,419,655 |
|
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1.3 |
|
Jerald A. Nine(15)
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|
|
1,331,903 |
|
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1.2 |
|
Thomas J. McDonald(16)
|
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|
1,195,785 |
|
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|
1.1 |
|
Colm M. Darcy (17)
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|
342,783 |
|
|
|
* |
|
All current directors and executive officers as a group
(11 persons)
|
|
|
10,129,880 |
|
|
|
8.8 |
|
|
|
|
|
(1) |
On February 14, 2006, Columbia Wanger Asset Management,
L.P. (WAM), WAM Acquisition GP, Inc. (WAM
GP) filed Amendment No. 5 to Schedule 13G with
the SEC reporting beneficial ownership and shared voting and
dispositive power with respect to 22,445,000 ADSs for WAM and
WAM GP, consisting of shares beneficially owned by WAM and WAM
GP; the following information is reported in reliance on such
filing. WAM is an Investment Adviser registered under
section 203 of the Investment Advisors Act of 1940 and
reports ADSs acquired on behalf of discretionary clients. The
shares reported include the shares held by Columbia Acorn Trust
(Acorn), a Massachusetts business trust that is a
discretionary client of WAM. Acorn holds 17.8% of the
Companys shares. WAM GP is the general partner of WAM.
WAM, WAM GP and Acorn file jointly pursuant to a Joint Filing
Agreement dated February 13, 2006 among WAM, WAM GP and
Acorn. The address of WAM, WAM GP and Acorn is 227 West
Monroe Street, Suite 3000, Chicago, Illinois 60606. |
|
|
(2) |
On September 16, 2002, Warburg Pincus Ventures, L.P.
(WPV), Warburg Pincus & Co.
(WP) and Warburg Pincus LLC (WP LLC)
filed a Schedule 13D with the SEC reporting beneficial
ownership and shared voting and dispositive power with respect
to 13,279,987 ADSs, consisting of shares beneficially owned by
WPV, WP and WP LLC; the following information is reported in
reliance on such filing. WP is the sole general partner of WPV.
WPV is managed by WP LLC. The address for WPV is 466 Lexington
Avenue, 10th Floor, New York, New York 10017-3147. |
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(3) |
On February 14, 2006, Cramer Rosenthal McGlynn, LLC
(Cramer) filed Amendment No. 3 to
Schedule 13G with the SEC reporting beneficial ownership
with respect to 8,524,225 ADSs, consisting |
61
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|
|
of 3,844,650 ADSs for which Cramer has sole voting power,
4,077,450 ADSs for which Cramer has sole dispositive power,
4,338,775 ADSs for which Cramer has shared voting power and
4,446,775 ADSs for which Cramer has shared dispositive power;
the following information is reported in reliance on such
filing. Cramer is an Investment Adviser registered under
section 203 of the Investment Advisors Act of 1940. The
address of Cramer is 520 Madison Avenue, New York, New York
10022. |
|
|
(4) |
On February 10, 2006, Westfield Capital Management, Co.,
LLC (Westfield) filed Amendment No. 2 to
Schedule 13G with the SEC reporting beneficial ownership
with respect to 7,743,119 ADSs, consisting of 4,990,419 ADSs for
which Westfield has sole voting power and 7,743,119 ADSs for
which Westfield has sole dispositive power; the following
information is reported in reliance on such filing. Westfield is
an Investment Adviser registered in accordance with
(S)240.13d-1(b) (1)
(ii) (E). The address of Westfield is One Financial Center,
Boston, Massachusetts 02111. |
|
|
(5) |
On February 14, 2006, Prentice Capital Management, LP
(PCM) and Michael Zimmerman filed Amendment
No. 1 Schedule 13G with the SEC reporting beneficial
ownership and shared voting and dispositive power with respect
to 6,426,015 ADSs, consisting of shares beneficially owned by
PCM and Michael Zimmerman; the following information is reported
in reliance on such filing. PCM serves as an investment manager
to a number of investment funds (including Prentice Capital
Partners, LP, Prentice Capital Partners QP, LP and Prentice
Capital Offshore, Ltd.) and manages investments for certain
entities in managed accounts with respect to which it has voting
and dispositive authority over the shares reported in the
Schedule 13G. Michael Zimmerman is the Managing Member of
(a) Prentice Management GP, LLC, the general partner of PCM
and (b) Prentice Capital GP, LLC, the general partner of
certain investment funds. As such, he may be deemed to control
PCM and certain of the investment funds and therefore may be
deemed to be the beneficial owner of the securities reported in
the Schedule 13G. Each of Michael Zimmerman and PCM
disclaims beneficial ownership of all of the shares reported in
this Schedule 13G. The address of the principal business
office of PCM and Michael Zimmerman is 623 Fifth Avenue,
32nd Floor, New York, New York 10022. |
|
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(6) |
On September 12, 2005, Transamerica Investment Management,
LLC (TIM) filed Amendment No. 2 to
Schedule 13G with the SEC reporting beneficial ownership
and sole voting and sole dispositive power with respect to
4,812,950 ADSs; the following information is reported in
reliance on such filing. TIM is deemed to be the beneficial
owner pursuant to separate arrangements whereby TIM acts as
investment adviser to certain individuals and entities. The
address of TIM is 1150 S. Olive Street, Los Angeles,
California 90015. |
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|
(7) |
Represents 1,601,082 ADSs issuable upon exercise of share
options held by Mr. Moran, 11 ADSs held by
Mr. Morans wife, 2,367 ADSs held in a family trust of
which Mr. Moran is a trustee, and 1,437,285 ADSs
beneficially owned by Mr. Morans wife, as trustee of
various trusts for the benefit of Mr. Morans children. |
|
|
(8) |
Includes 2,526,340 ADSs issuable upon exercise of share options
held by Mr. Priest. |
|
|
(9) |
Includes 150,000 ADSs issuable upon exercise of share options
held by Mr. Krzywicki. |
|
|
(10) |
Includes 40,000 ADSs issuable upon exercise of share options
held by Dr. von Prondzynski. |
|
(11) |
Represents 26,250 ADSs issuable upon exercise of share options
held by Mr. Edelstein. |
|
(12) |
Represents 26,250 ADSs issuable upon exercise of share options
held by Mr. Gross. |
|
(13) |
Includes 15,000 ADSs issuable upon exercise of share options
held by Mr. Meagher. |
|
(14) |
Includes 911,704 ADSs issuable upon exercise of share options
held by Mr. Townsend and 59,185 ADSs beneficially owned by
Mr. Townsends wife as trustee of the MCM Trust.
Mr. Townsend disclaims beneficial ownership of the shares
held in trust. |
|
(15) |
Includes 949,338 ADSs issuable upon exercise of share options
held by Mr. Nine and 332,244 ADSs held by
Mr. Nines wife as trustee of the Kimberly M. Nine
Revocable Trust. Mr. Nine disclaims beneficial ownership of
the shares held in trust. |
|
(16) |
Includes 1,124,512 ADSs issuable upon exercise of share options
held by Mr. McDonald, 1,953 ADSs beneficially owned by
Mr. McDonalds wife, as trustee for the benefit of
Mr. McDonalds family and |
62
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|
|
3,906 owned by Mr. McDonalds daughters.
Mr. McDonald disclaims beneficial ownership of the shares
held in trust and by his daughters. |
|
(17) |
Represents 342,783 ADSs issuable upon exercise of share options
held by Mr. Darcy. |
Equity Compensation Plan Information
The following table provides information about the ordinary
shares authorized for issuance under our equity compensation
plans as of January 31, 2006.
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|
|
|
|
|
(b) | |
|
(c) | |
|
|
(a) | |
|
|
|
Number of Shares | |
|
|
Number of Shares to | |
|
|
|
Remaining Available for | |
|
|
be Issued upon | |
|
Weighted-average | |
|
Future Issuance under | |
|
|
Exercise of | |
|
Exercise Price of | |
|
Equity Compensation Plans | |
|
|
Outstanding Options, | |
|
Outstanding Options, | |
|
(Excluding Securities | |
Plan Category(1) |
|
Warrants and Rights | |
|
Warrants and Rights | |
|
Reflected in Column (a)) | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by security holders
|
|
|
4,531,314 |
(2) |
|
$ |
7.90 |
(2) |
|
|
2,747,763 |
(3) |
Equity compensation plans not approved by security holders
|
|
|
3,879,075 |
(4) |
|
|
11.96 |
|
|
|
7,321,928 |
(5) |
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|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,410,389 |
|
|
|
9.77 |
|
|
|
10,069,691 |
|
|
|
(1) |
This table excludes an aggregate of 8,020,024 ordinary shares
issuable upon exercise of options that we assumed in connection
with our merger with SkillSoft Corporation. The weighted average
exercise price of the excluded options is $5.53 per share.
We assumed the SkillSoft Corporation 1998 Stock Incentive Plan,
1999 Non-Employee Director Stock Option Plan, 2001 Stock
Incentive Plan and Books24x7.com, Inc. 1994 Stock Option Plan
only insofar as they related to options outstanding under the
plans at the time of the merger, and we may not grant any future
options under any of those plans. |
|
(2) |
Excludes ordinary shares issuable under the Companys 2004
Employee Stock Purchase Plan in connection with the current
offering period; such ordinary shares are included in column (c). |
|
(3) |
Consists of 564,513 ordinary shares reserved for issuance under
the 2002 Share Option Plan (the 2002 Plan),
1,734,500 ordinary shares reserved for issuance under the 2004
Employee Share Purchase Plan and 448,750 ordinary shares
reserved for issuance under the 2001 Outside Director Plan. |
|
(4) |
Consists of 3,878,987 ordinary shares subject to outstanding
options under our 1996 Supplemental Stock Plan (the 1996
Plan) and 88 ordinary shares subject to outstanding
options under the Knowledge Well Group Limited 1998 Share
Option Plan (the Knowledge Well Group 1998 Plan). |
|
(5) |
Consists of 6,120,372 ordinary shares available for issuance
under the 1996 Plan, 2 ordinary shares available for issuance
under the ForeFront Group, Inc. 1996 Non-Employee
Directors Stock Option Plan (the ForeFront
1996 Director Plan), 342,823 ordinary shares
available for issuance under the ForeFront Group, Inc. Amended
and Restated 1996 Stock Option Plan (the ForeFront 1996
Plan), 624,462 ordinary shares available for issuance
under the Knowledge Well Group 1998 Plan and 234,269 ordinary
shares available for issuance under the Knowledge Well Limited
1998 Share Option Plan (the Knowledge Well 1998
Plan). |
A description of the material terms of the 1996 Plan, the
ForeFront 1996 Director Plan, the ForeFront 1996 Plan, the
Knowledge Well 1998 Plan and the Knowledge Well Group 1998 Plan
is included in Note 9 to the Companys consolidated
financial statements filed as part of this Annual Report on
Form 10-K for the
fiscal year ended January 31, 2006 and is incorporated
herein by reference.
On March 23, 2006 at the Extraordinary General Meeting of
Shareholders, our shareholders approved an amendment to the 2002
Plan increasing the number of shares reserved for issuance
thereunder by 5,100,000 ordinary shares. This amendment did not
increase the total number of shares that we have reserved for
future grants under its equity plans. As indicated in the table
above, as of January 31, 2006 under existing
non-shareholder approved employee share plans, we had in excess
of 5,100,000 shares currently available for future
issuance. For ease of administration, and to avoid the loss of
available shares under certain of the existing non-
63
shareholder approved plans, some of which will expire by their
terms in the near future, we decided to amend such plans to
reduce the number of shares available for future issuance under
those plans by an aggregate of 5,100,000 shares.
|
|
Item 13. |
Certain Relationships and Related Transactions |
Not applicable.
|
|
Item 14. |
Principal Accountant Fees and Services |
Auditors Fees
The following table summarizes the fees of Ernst &
Young, our registered public accounting firm, billed to us for
each of the last two fiscal years.
|
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|
|
|
|
|
Fiscal Year Ended | |
|
Fiscal Year Ended | |
Fee Category |
|
January 31, 2006 | |
|
January 31, 2005 | |
|
|
| |
|
| |
Audit Fees(1)
|
|
$ |
1,492,900 |
|
|
$ |
1,775,600 |
|
Audit-Related Fees(2)
|
|
|
15,000 |
|
|
|
27,000 |
|
Tax Fees(3)
|
|
|
646,900 |
|
|
|
782,500 |
|
All Other Fees(4)
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$ |
2,154,800 |
|
|
$ |
2,585,100 |
|
|
|
|
|
|
|
|
|
|
(1) |
Audit fees consist of fees for the audit of our financial
statements, the audit of our internal control over financial
reporting as set forth in Section 404 of the Sarbanes-Oxley
Act, the review of the interim financial statements in our
quarterly reports on
Form 10-Q, other
professional services provided or accrued for in connection with
statutory and regulatory filings or engagements for the fiscal
years ended January 31, 2006 and January 31, 2005. |
|
(2) |
Audit-related fees consist of fees for assurance and related
services that are reasonably related to the performance of the
audit and the review of our financial statements and which are
not reported under Audit Fees. These services relate
to accounting consultations and employee benefit plan audits. |
|
(3) |
Tax fees consist of fees for tax compliance, tax advice and tax
planning services. Tax compliance services, which relate to
preparation of original and amended tax returns and claims for
refunds, accounted for $458,200 of the total tax fees billed in
the fiscal year ended January 31, 2006 and $292,500 of the
total tax fees billed in the fiscal year ended January 31,
2005. Tax advice and tax planning services relate to a transfer
pricing analysis, tax advice, assistance with tax audits and
appeals, tax advice related to mergers and acquisitions,
employee benefit plans and requests for rulings or technical
advice for taxing authorities. |
Pre-approval Policies and Procedures
The Audit Committee has adopted policies and procedures relating
to the approval of all audit and non-audit services that are to
be performed by our registered public accounting firm. This
policy generally provides that we will not engage our
independent registered public accounting firm to render audit or
non-audit services unless the service is specifically approved
in advance by the Audit Committee or the engagement is entered
into pursuant to one of the pre-approval procedures described
below.
From time to time, the Audit Committee may pre-approve specified
types of services that are expected to be provided to us by our
registered independent public accounting firm during the next
12 months. Any such pre-approval is detailed as to the
particular service or type of services to be provided and is
also generally subject to a maximum dollar amount.
The Audit Committee has also delegated to the Chair of the Audit
Committee the authority to approve any audit or non-audit
services to be provided to us by our registered public
accounting firm. Any approval of
64
services by the Chair of the Audit Committee pursuant to this
delegated authority is reported on at the next meeting of the
Audit Committee.
PART IV
|
|
Item 15. |
Exhibits and Financial Statement Schedules |
(a) Documents Filed as a Part of this Report:
|
|
|
1. Financial Statements. The following documents are
filed as Appendix B hereto and are included as part of
this Annual Report on Form 10K: |
|
|
|
Financial Statements: |
|
|
Report of Independent Registered Public Accounting Firm |
|
|
Consolidated Balance Sheets |
|
|
Consolidated Statements of Operations |
|
|
Consolidated Statements of Stockholders Equity and
Comprehensive Loss |
|
|
Consolidated Statements of Cash Flows |
|
|
Notes to the Consolidated Financial Statements |
|
|
|
2. Financial Statement Schedules. All Financial
Statement Schedules have been omitted since they are either not
required, not applicable, or the information is otherwise
included in this report. |
|
|
3. Exhibits. The Exhibits listed in the
Exhibit Index immediately preceding such Exhibits are filed
as part of and incorporated by reference in this
Form 10-K. |
65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
SKILLSOFT PUBLIC LIMITED COMPANY |
|
(Registrant) |
|
|
|
|
|
Charles E. Moran |
|
President and Chief Executive Officer |
|
|
Date: April 13, 2006 |
|
|
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been duly signed below by the following
persons on behalf of SkillSoft and in the capacities and on the
date set forth below. |
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ CHARLES E. MORAN
Charles E. Moran |
|
President and Chief Executive Officer and Director
(Principal Executive Officer) |
|
April 13, 2006 |
|
/s/ THOMAS J. MCDONALD
Thomas J. McDonald |
|
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
April 13, 2006 |
|
/s/ GREGORY M. PRIEST
Gregory M. Priest |
|
Director |
|
April 13, 2006 |
|
/s/ P. HOWARD EDELSTEIN
P. Howard Edelstein |
|
Director |
|
April 13, 2006 |
|
/s/ STEWART K. P. GROSS
Stewart K. P. Gross |
|
Director |
|
April 13, 2006 |
|
/s/ JAMES S. KRZYWICKI
James S. Krzywicki |
|
Director |
|
April 13, 2006 |
|
/s/ FERDINAND VON PRONDZYNSKI
Ferdinand von Prondzynski |
|
Director |
|
April 13, 2006 |
|
/s/ WILLIAM F. MEAGHER, JR
William F. Meagher, Jr. |
|
Director |
|
April 13, 2006 |
66
APPENDIX A
SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below should
be read in conjunction with our consolidated financial
statements and notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations
appearing elsewhere in this
Form 10-K. This
selected consolidated financial data are derived from our
audited consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
Year Ended | |
|
Year Ended | |
|
Year Ended | |
|
Year Ended | |
|
|
January 31, | |
|
January 31, | |
|
January 31, | |
|
January 31, | |
|
January 31, | |
|
|
2002 | |
|
2003(1) | |
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
44,271 |
|
|
$ |
101,470 |
|
|
$ |
193,475 |
|
|
$ |
212,300 |
|
|
$ |
215,567 |
|
Cost of revenue
|
|
|
2,552 |
|
|
|
11,548 |
|
|
|
18,397 |
|
|
|
21,724 |
|
|
|
25,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
41,719 |
|
|
|
89,922 |
|
|
|
175,078 |
|
|
|
190,576 |
|
|
|
190,260 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
17,698 |
|
|
|
29,104 |
|
|
|
53,627 |
|
|
|
45,575 |
|
|
|
38,985 |
|
|
Selling and marketing
|
|
|
27,602 |
|
|
|
52,691 |
|
|
|
87,532 |
|
|
|
93,486 |
|
|
|
87,764 |
|
|
General and administrative
|
|
|
7,199 |
|
|
|
17,914 |
|
|
|
27,883 |
|
|
|
25,162 |
|
|
|
25,745 |
|
|
Legal settlements/ (insurance recoveries)
|
|
|
|
|
|
|
|
|
|
|
93,750 |
|
|
|
|
|
|
|
(17,710 |
) |
|
Amortization of share-based compensation
|
|
|
793 |
|
|
|
1,634 |
|
|
|
1,986 |
|
|
|
1,191 |
|
|
|
892 |
|
|
Amortization of intangible assets
|
|
|
27 |
|
|
|
4,683 |
|
|
|
10,072 |
|
|
|
9,575 |
|
|
|
9,113 |
|
|
Impairment charge
|
|
|
|
|
|
|
250,107 |
|
|
|
|
|
|
|
19,268 |
|
|
|
|
|
|
Restructuring
|
|
|
|
|
|
|
14,179 |
|
|
|
1,857 |
|
|
|
13,361 |
|
|
|
641 |
|
|
Restatement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC Investigation
|
|
|
|
|
|
|
|
|
|
|
1,898 |
|
|
|
2,182 |
|
|
|
1,988 |
|
|
|
Other professional fees
|
|
|
|
|
|
|
5,107 |
|
|
|
14,473 |
|
|
|
320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
53,319 |
|
|
|
375,419 |
|
|
|
293,078 |
|
|
|
210,120 |
|
|
|
147,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss)/ income
|
|
|
(11,600 |
) |
|
|
(285,497 |
) |
|
|
(118,000 |
) |
|
|
(19,544 |
) |
|
|
42,842 |
|
|
Other income/ (expense), net
|
|
|
150 |
|
|
|
(282 |
) |
|
|
786 |
|
|
|
(692 |
) |
|
|
741 |
|
|
Gain/ (loss) on sale of investments, net
|
|
|
|
|
|
|
|
|
|
|
3,682 |
|
|
|
|
|
|
|
(586 |
) |
|
Interest income
|
|
|
1,811 |
|
|
|
2,288 |
|
|
|
954 |
|
|
|
1,091 |
|
|
|
1,779 |
|
|
Interest expense
|
|
|
(1 |
) |
|
|
(123 |
) |
|
|
(167 |
) |
|
|
(337 |
) |
|
|
(431 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/ income before provision for income taxes
|
|
|
(9,640 |
) |
|
|
(283,614 |
) |
|
|
(112,745 |
) |
|
|
(19,482 |
) |
|
|
44,345 |
|
|
Provision for income taxes
|
|
|
|
|
|
|
383 |
|
|
|
529 |
|
|
|
631 |
|
|
|
9,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/ income
|
|
$ |
(9,640 |
) |
|
$ |
(283,997 |
) |
|
$ |
(113,274 |
) |
|
$ |
(20,113 |
) |
|
$ |
35,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/ (loss) per share(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and dilutive (loss)/ income per share
|
|
$ |
(0.27 |
) |
|
$ |
(4.40 |
) |
|
$ |
(1.13 |
) |
|
$ |
(0.19 |
) |
|
$ |
0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
35,324 |
|
|
|
64,472 |
|
|
|
100,115 |
|
|
|
105,134 |
|
|
|
102,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
35,324 |
|
|
|
64,472 |
|
|
|
100,115 |
|
|
|
105,134 |
|
|
|
103,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
As of | |
|
As of | |
|
As of | |
|
As of | |
|
|
January 31, | |
|
January 31, | |
|
January 31, | |
|
January 31, | |
|
January 31, | |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$ |
68,946 |
|
|
$ |
125,031 |
|
|
$ |
61,340 |
|
|
$ |
54,927 |
|
|
$ |
73,339 |
|
Working capital (deficit)
|
|
|
48,650 |
|
|
|
31,822 |
|
|
|
(49,115 |
) |
|
|
(46,754 |
) |
|
|
(8,248 |
) |
Long-term investments & other assets
|
|
|
13,814 |
|
|
|
1,132 |
|
|
|
390 |
|
|
|
9,003 |
|
|
|
966 |
|
Total assets
|
|
|
153,458 |
|
|
|
378,137 |
|
|
|
342,378 |
|
|
|
303,497 |
|
|
|
299,902 |
|
Stockholders equity
|
|
|
113,750 |
|
|
|
191,087 |
|
|
|
85,758 |
|
|
|
84,919 |
|
|
|
102,272 |
|
|
|
(1) |
The statement of operations data for the year ended
January 31, 2003 includes the operating results of
SkillSoft PLC for the post-September 6, 2002 period. |
|
(2) |
See Note 2(e) of the Notes to the Consolidated Financial
Statements for the determination of shares used in computing
basic and diluted net loss per common share. |
A-2
APPENDIX B
FINANCIAL STATEMENTS
INDEX
|
|
|
|
|
|
|
Page | |
|
|
| |
|
|
|
B-2 |
|
|
|
|
B-3 |
|
|
|
|
B-4 |
|
|
|
|
B-5 |
|
|
|
|
B-8 |
|
|
|
|
B-9 |
|
B-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Shareholders of SkillSoft Public Limited Company:
We have audited the accompanying consolidated balance sheets of
SkillSoft Public Limited Company as of January 31, 2005 and
2006, and the related consolidated statements of operations,
stockholders equity and comprehensive income/ (loss), and
cash flows for each of the three years in the period ended
January 31, 2006. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of SkillSoft Public Limited Company at
January 31, 2005 and 2006, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended January 31, 2006, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of SkillSoft Public Limited Companys
internal control over financial reporting as of January 31,
2006, based on criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our
report dated April 10, 2006 expressed an unqualified
opinion thereon.
Boston, Massachusetts
April 10, 2006
B-2
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, | |
|
|
| |
|
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
|
(In thousands | |
|
|
except share data | |
|
|
and per share data) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
34,906 |
|
|
$ |
51,937 |
|
|
Short-term investments
|
|
|
20,021 |
|
|
|
21,402 |
|
|
Accounts receivable, less reserves of approximately $1,383 and
$787 as of January 31, 2005 and 2006, respectively
|
|
|
87,030 |
|
|
|
85,681 |
|
|
Prepaid expenses and other current assets
|
|
|
22,659 |
|
|
|
22,006 |
|
|
Restricted cash
|
|
|
994 |
|
|
|
5,039 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
165,610 |
|
|
|
186,065 |
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
|
23,900 |
|
|
|
29,341 |
|
|
Furniture and fixtures
|
|
|
2,142 |
|
|
|
2,128 |
|
|
Leasehold improvements
|
|
|
1,559 |
|
|
|
1,615 |
|
|
|
|
|
|
|
|
|
|
|
27,601 |
|
|
|
33,084 |
|
|
Less accumulated depreciation and amortization
|
|
|
18,464 |
|
|
|
22,853 |
|
|
|
|
|
|
|
|
|
|
|
9,137 |
|
|
|
10,231 |
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
Acquired intangible assets, net
|
|
|
16,171 |
|
|
|
8,711 |
|
|
Goodwill
|
|
|
103,576 |
|
|
|
93,929 |
|
|
|
|
|
|
|
|
|
|
|
119,747 |
|
|
|
102,640 |
|
Long-term investments
|
|
|
8,943 |
|
|
|
230 |
|
Other assets
|
|
|
60 |
|
|
|
736 |
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
303,497 |
|
|
$ |
299,902 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
5,361 |
|
|
$ |
3,819 |
|
|
Accrued expenses
|
|
|
66,995 |
|
|
|
53,795 |
|
|
Deferred revenue
|
|
|
140,008 |
|
|
|
136,699 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
212,364 |
|
|
|
194,313 |
|
Long term liabilities
|
|
|
6,214 |
|
|
|
3,317 |
|
Commitments and Contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
Ordinary Shares,
0.11 par value Authorized
250,000,000 shares 106,207,818 and 107,344,243 issued at
January 31, 2005 and January 31, 2006, respectively
and 105,764,061 and 100,810,359 outstanding at January 31,
2005 and January 31, 2006, respectively
|
|
|
11,617 |
|
|
|
11,773 |
|
|
Additional paid-in capital
|
|
|
559,052 |
|
|
|
562,052 |
|
|
Treasury stock, at cost, 443,757 and 6,533,884 ordinary shares
at January 31, 2005 and January 31, 2006, respectively
|
|
|
(2,523 |
) |
|
|
(24,524 |
) |
|
Accumulated deficit
|
|
|
(481,029 |
) |
|
|
(445,814 |
) |
|
Deferred compensation
|
|
|
(1,358 |
) |
|
|
(465 |
) |
|
Accumulated other comprehensive loss
|
|
|
(840 |
) |
|
|
(750 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
84,919 |
|
|
|
102,272 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
303,497 |
|
|
$ |
299,902 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
B-3
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended January 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Revenue
|
|
$ |
193,475 |
|
|
$ |
212,300 |
|
|
$ |
215,567 |
|
Cost of revenue(1)
|
|
|
18,397 |
|
|
|
21,724 |
|
|
|
25,307 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
175,078 |
|
|
|
190,576 |
|
|
|
190,260 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1)
|
|
|
53,627 |
|
|
|
45,575 |
|
|
|
38,985 |
|
Selling and marketing(1)
|
|
|
87,532 |
|
|
|
93,486 |
|
|
|
87,764 |
|
General and administrative(1)
|
|
|
27,883 |
|
|
|
25,162 |
|
|
|
25,745 |
|
Legal settlements/ (insurance recoveries)
|
|
|
93,750 |
|
|
|
|
|
|
|
(17,710 |
) |
Amortization of share-based compensation(1)
|
|
|
1,986 |
|
|
|
1,191 |
|
|
|
892 |
|
Amortization of intangible assets
|
|
|
10,072 |
|
|
|
9,575 |
|
|
|
9,113 |
|
Impairment charge
|
|
|
|
|
|
|
19,268 |
|
|
|
|
|
Restructuring
|
|
|
1,857 |
|
|
|
13,361 |
|
|
|
641 |
|
Restatement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC investigation
|
|
|
1,898 |
|
|
|
2,182 |
|
|
|
1,988 |
|
|
Other professional fees
|
|
|
14,473 |
|
|
|
320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
293,078 |
|
|
|
210,120 |
|
|
|
147,418 |
|
|
|
|
|
|
|
|
|
|
|
Operating (loss)/income
|
|
|
(118,000 |
) |
|
|
(19,544 |
) |
|
|
42,842 |
|
|
Other income/(expense), net
|
|
|
786 |
|
|
|
(692 |
) |
|
|
741 |
|
|
Gain/(loss) on sale of assets, net
|
|
|
3,682 |
|
|
|
|
|
|
|
(586 |
) |
|
Interest income
|
|
|
954 |
|
|
|
1,091 |
|
|
|
1,779 |
|
|
Interest expense
|
|
|
(167 |
) |
|
|
(337 |
) |
|
|
(431 |
) |
|
|
|
|
|
|
|
|
|
|
(Loss)/income before provision for income taxes
|
|
|
(112,745 |
) |
|
|
(19,482 |
) |
|
|
44,345 |
|
|
Provision for income taxes
|
|
|
529 |
|
|
|
631 |
|
|
|
9,130 |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income
|
|
$ |
(113,274 |
) |
|
$ |
(20,113 |
) |
|
$ |
35,215 |
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss)/income per share
|
|
$ |
(1.13 |
) |
|
$ |
(0.19 |
) |
|
$ |
0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
100,115 |
|
|
|
105,134 |
|
|
|
102,473 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
100,115 |
|
|
|
105,134 |
|
|
|
103,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The following summarizes the departmental allocation of the
amortization of stock-based compensation (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
Cost of revenue
|
|
$ |
4 |
|
|
$ |
|
|
|
$ |
|
|
Research and development
|
|
|
772 |
|
|
|
266 |
|
|
|
187 |
|
Selling and marketing
|
|
|
446 |
|
|
|
879 |
|
|
|
674 |
|
General and administrative
|
|
|
764 |
|
|
|
46 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,986 |
|
|
$ |
1,191 |
|
|
$ |
892 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
B-4
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE INCOME (LOSS)
(In thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes | |
|
Accumulated | |
|
|
|
|
|
|
Ordinary Shares | |
|
|
|
Additional | |
|
|
|
|
|
Receivable | |
|
Other | |
|
Total | |
|
Total | |
|
|
Number of | |
|
0.11 Par | |
|
Paid-In | |
|
Accumulated | |
|
Deferred | |
|
from | |
|
Comprehensive | |
|
Stockholders | |
|
Comprehensive | |
|
|
Shares | |
|
Value | |
|
Capital | |
|
Deficit | |
|
Compensation | |
|
Stockholders | |
|
Income | |
|
Equity | |
|
Loss | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
BALANCE, JANUARY 31, 2003
|
|
|
99,598,146 |
|
|
$ |
10,737 |
|
|
$ |
530,929 |
|
|
$ |
(347,642 |
) |
|
$ |
(4,345 |
) |
|
$ |
(58 |
) |
|
$ |
1,466 |
|
|
$ |
191,087 |
|
|
$ |
|
|
Exercise of stock options
|
|
|
1,530,657 |
|
|
|
201 |
|
|
|
4,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,137 |
|
|
|
|
|
Issuance of common stock settlement of IP Learn
litigation
|
|
|
100,000 |
|
|
|
13 |
|
|
|
487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
|
|
Issuance of common stock under employee stock purchase plan
|
|
|
628,911 |
|
|
|
80 |
|
|
|
2,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,176 |
|
|
|
|
|
Deferred compensation reversal of unearned
compensation related to employee terminations
|
|
|
|
|
|
|
|
|
|
|
(229 |
) |
|
|
|
|
|
|
229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,986 |
|
|
|
|
|
|
|
|
|
|
|
1,986 |
|
|
|
|
|
Deferred compensation amended stock option grants
|
|
|
|
|
|
|
|
|
|
|
274 |
|
|
|
|
|
|
|
(274 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of note receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
58 |
|
|
|
|
|
Unrealized (losses) on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,713 |
) |
|
|
(1,713 |
) |
|
$ |
(1,713 |
) |
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199 |
) |
|
|
(199 |
) |
|
|
(199 |
) |
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113,274 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113,274 |
) |
|
|
(113,274 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive net loss for the year ended January 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(115,186 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JANUARY 31, 2004
|
|
|
101,857,714 |
|
|
$ |
11,031 |
|
|
$ |
538,493 |
|
|
$ |
(460,916 |
) |
|
$ |
(2,404 |
) |
|
$ |
|
|
|
$ |
(446 |
) |
|
$ |
85,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
B-5
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE INCOME/(LOSS)
(In thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Ordinary Shares | |
|
|
|
Treasury Stock | |
|
|
|
|
|
Notes |
|
Other | |
|
|
|
|
|
|
| |
|
Additional | |
|
| |
|
|
|
|
|
Receivable |
|
Comprehensive | |
|
Total | |
|
Total | |
|
|
Number of | |
|
0.11 Par | |
|
Paid-In | |
|
Number | |
|
|
|
Accumulated | |
|
Deferred | |
|
from |
|
Income | |
|
Stockholders | |
|
Comprehensive | |
|
|
Shares | |
|
Value | |
|
Capital | |
|
of Shares | |
|
Cost | |
|
Deficit | |
|
Compensation | |
|
Stockholders |
|
(Loss) | |
|
Equity | |
|
Loss | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
BALANCE, JANUARY 31, 2004
|
|
|
101,857,714 |
|
|
$ |
11,031 |
|
|
$ |
538,493 |
|
|
|
|
|
|
$ |
|
|
|
$ |
(460,916 |
) |
|
$ |
(2,404 |
) |
|
$ |
|
|
|
$ |
(446 |
) |
|
$ |
85,758 |
|
|
$ |
|
|
Exercise of stock options
|
|
|
3,816,626 |
|
|
|
514 |
|
|
|
17,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,950 |
|
|
|
|
|
Issuance of common stock under employee stock purchase plan
|
|
|
533,478 |
|
|
|
72 |
|
|
|
2,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,050 |
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
443,757 |
|
|
|
(2,523 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,523 |
) |
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,046 |
|
|
|
|
|
|
|
|
|
|
|
1,191 |
|
|
|
|
|
Unrealized (losses)/gains on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(133 |
) |
|
|
(133 |
) |
|
$ |
(133 |
) |
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(261 |
) |
|
|
(261 |
) |
|
|
(261 |
) |
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,113 |
) |
|
|
(20,113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive net loss for the year ended January 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(20,507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JANUARY 31, 2005
|
|
|
106,207,818 |
|
|
$ |
11,617 |
|
|
$ |
559,052 |
|
|
|
443,757 |
|
|
|
(2,523 |
) |
|
$ |
(481,029 |
) |
|
$ |
(1,358 |
) |
|
$ |
|
|
|
$ |
(840 |
) |
|
$ |
84,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
B-6
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE INCOME/(LOSS) (Continued)
(In thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock | |
|
|
|
|
|
Notes |
|
Other | |
|
|
|
|
|
|
Ordinary Shares | |
|
|
|
Additional | |
|
| |
|
|
|
|
|
Receivable |
|
Comprehensive | |
|
Total | |
|
Total | |
|
|
Number of | |
|
0.11 Par | |
|
Paid-In | |
|
Number of | |
|
|
|
Accumulated | |
|
Deferred | |
|
from |
|
Income | |
|
Stockholders | |
|
Comprehensive | |
|
|
Shares | |
|
Value | |
|
Capital | |
|
shares | |
|
Cost | |
|
Deficit | |
|
Compensation | |
|
Stockholders |
|
(Loss) | |
|
Equity | |
|
Loss | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
BALANCE, JANUARY 31, 2005
|
|
|
106,207,818 |
|
|
$ |
11,617 |
|
|
$ |
559,052 |
|
|
|
443,757 |
|
|
$ |
(2,523 |
) |
|
$ |
(481,029 |
) |
|
$ |
(1,358 |
) |
|
$ |
|
|
|
$ |
(840 |
) |
|
$ |
84,919 |
|
|
$ |
|
|
Exercise of stock options
|
|
|
370,930 |
|
|
|
51 |
|
|
|
797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
848 |
|
|
|
|
|
Issuance of common stock under employee stock purchase plan
|
|
|
765,495 |
|
|
|
105 |
|
|
|
2,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,210 |
|
|
|
|
|
Stock option modification
|
|
|
|
|
|
|
|
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89 |
|
|
|
|
|
Tax Benefit Non- qualified stock options
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,090,127 |
|
|
|
(22,001 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,001 |
) |
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
893 |
|
|
|
|
|
|
|
|
|
|
|
893 |
|
|
|
|
|
Unrealized gains on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
44 |
|
|
$ |
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
46 |
|
|
|
46 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,215 |
|
|
|
35,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive net income for the year ended January 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
35,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JANUARY 31, 2006
|
|
|
107,344,243 |
|
|
$ |
11,773 |
|
|
$ |
562,052 |
|
|
|
6,533,884 |
|
|
|
(24,524 |
) |
|
$ |
(445,814 |
) |
|
$ |
(465 |
) |
|
$ |
|
|
|
$ |
(750 |
) |
|
$ |
102,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
B-7
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended January 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/ income
|
|
$ |
(113,274 |
) |
|
$ |
(20,113 |
) |
|
$ |
35,215 |
|
|
Adjustments to reconcile net (loss)/ income to net cash (used
in)/ provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
2,486 |
|
|
|
1,191 |
|
|
|
981 |
|
|
Depreciation and amortization
|
|
|
9,329 |
|
|
|
4,779 |
|
|
|
5,224 |
|
|
Impairment charge
|
|
|
|
|
|
|
19,268 |
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
10,072 |
|
|
|
9,575 |
|
|
|
9,113 |
|
|
Provision/ (recovery) for bad debts
|
|
|
459 |
|
|
|
335 |
|
|
|
(593 |
) |
|
Provision for income tax non-cash
|
|
|
|
|
|
|
326 |
|
|
|
7,922 |
|
|
Realized (loss)/ gain on sale of assets, net
|
|
|
(3,682 |
) |
|
|
|
|
|
|
586 |
|
|
Changes in current assets and liabilities, net of acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(5,149 |
) |
|
|
(14,062 |
) |
|
|
784 |
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(6,632 |
) |
|
|
2,406 |
|
|
|
407 |
|
|
|
|
Accounts payable
|
|
|
(4,181 |
) |
|
|
(1,220 |
) |
|
|
(1,935 |
) |
|
|
|
Accrued expenses (includes long-term)
|
|
|
45,887 |
|
|
|
(40,858 |
) |
|
|
(12,859 |
) |
|
|
|
Deferred revenue
|
|
|
23,522 |
|
|
|
4,743 |
|
|
|
(2,693 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/ provided by operating activities
|
|
|
(41,163 |
) |
|
|
(33,630 |
) |
|
|
42,152 |
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(3,643 |
) |
|
|
(7,594 |
) |
|
|
(6,423 |
) |
|
Capitalized software development costs
|
|
|
|
|
|
|
|
|
|
|
(1,652 |
) |
|
Purchase of investments
|
|
|
(92,614 |
) |
|
|
(52,456 |
) |
|
|
(20,048 |
) |
|
Maturity of investments
|
|
|
137,786 |
|
|
|
42,063 |
|
|
|
27,219 |
|
|
Sales of short-term investments
|
|
|
6,119 |
|
|
|
|
|
|
|
|
|
|
(Designation)/ release of restricted cash, net
|
|
|
(25,981 |
) |
|
|
24,943 |
|
|
|
(4,045 |
) |
|
Net cash used for a business combination
|
|
|
(5,187 |
) |
|
|
|
|
|
|
|
|
|
|
Decrease in other assets
|
|
|
409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/ (used in) investing activities
|
|
|
16,889 |
|
|
|
6,956 |
|
|
|
(4,949 |
) |
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
5,137 |
|
|
|
17,950 |
|
|
|
848 |
|
|
Proceeds from employee stock purchase plan
|
|
|
2,176 |
|
|
|
3,050 |
|
|
|
2,210 |
|
|
Repayment of note receivable
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
Purchase treasury stock
|
|
|
|
|
|
|
(2,523 |
) |
|
|
(22,001 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/ (used in) financing activities
|
|
|
7,371 |
|
|
|
18,477 |
|
|
|
(18,943 |
) |
Effect of exchange rate changes on cash and cash equivalents
|
|
|
5,551 |
|
|
|
1,174 |
|
|
|
(1,229 |
) |
|
|
|
|
|
|
|
|
|
|
Net (decrease)/ increase in cash and cash equivalents
|
|
|
(11,352 |
) |
|
|
(7,023 |
) |
|
|
17,031 |
|
Cash and cash equivalents, beginning of year
|
|
|
53,281 |
|
|
|
41,929 |
|
|
|
34,906 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$ |
41,929 |
|
|
$ |
34,906 |
|
|
$ |
51,937 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
167 |
|
|
$ |
337 |
|
|
$ |
431 |
|
|
Cash paid for income taxes
|
|
|
781 |
|
|
|
200 |
|
|
|
1,375 |
|
Supplemental disclosure of cash flows related to acquisitions
(see Note 3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired, excluding cash
|
|
$ |
5,438 |
|
|
$ |
|
|
|
$ |
|
|
|
Payments in connection with the acquisition, net of cash acquired
|
|
|
(5,187 |
) |
|
|
|
|
|
|
|
|
|
Issuance of common stock and assumption of common stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed
|
|
$ |
251 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
B-8
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(1) |
Basis of Presentation |
SkillSoft PLC, (the Company or SkillSoft), was incorporated in
Ireland on August 8, 1989. The Company is a leading
provider of comprehensive
e-learning content and
technology products for businesses and information technology
(IT) professionals within global enterprises. SkillSoft PLC
is the result of a merger between SmartForce PLC and SkillSoft
Corporation on September 6, 2002 (the Merger).
|
|
(2) |
Summary of Significant Accounting Policies |
The accompanying consolidated financial statements reflect the
application of certain significant accounting policies, as
described in this note and elsewhere in these notes.
|
|
(a) |
Principles of Consolidation |
The accompanying consolidated financial statements include the
accounts of the Company and its wholly and majority owned
subsidiaries (see Note 6). All material intercompany
transactions and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Although the Company
regularly assesses these estimates, actual results could differ
materially from these estimates. Changes in estimates are
recorded in the period in which they become known. The Company
bases its estimates on historical experience and various other
assumptions that it believes to be reasonable under the
circumstances. Actual results could differ from
managements estimates if past experience or other
assumptions do not turn out to be substantially accurate.
The Company generates revenue from the license of products and
services and from providing hosting/ application service
provider (ASP) services.
The Company follows the provisions of the American Institute of
Certified Public Accountants (AICPA) Statement of Position
(SOP) 97-2, Software Revenue
Recognition, as amended by SOP 98-4 and
SOP 98-9 to account for revenue derived pursuant to license
agreements under which customers license the Companys
products and services. The pricing for the Companys
courses varies based upon the number of course titles or the
courseware bundle licensed by a customer, the number of users
within the customers organization and the length of the
license agreement (generally one, two or three years). License
agreements permit customers to exchange course titles, generally
on the contract anniversary date. Additional product features,
such as hosting and online mentoring services, are separately
licensed for an additional fee.
The pricing for the Companys product licenses varies based
on the the content offering selected by the customer, the number
of users within the customers organization and the length
of the license agreement. Our product licenses provide customers
access to a full range of learning products including
courseware, Referenceware, simulations, mentoring and
prescriptive assessment.
A Referenceware license gives users access to a full
Referenceware library within one or more Referenceware
collections (examples of which include: ITPro, BusinessPro,
FinancePro, EngineeringPro, GovEssential and OfficeEssentials)
from Books24x7.com, Inc. (Books). The pricing for the
Companys
B-9
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Referenceware licenses varies based on the collections specified
by a customer, the number of users within the customers
organization and the length of the license agreement.
The Company offers discounts from its ordinary pricing, and
purchasers of licenses for larger numbers of courses, for larger
user bases or for longer periods generally receive discounts.
Generally, customers may amend their license agreements, for an
additional fee, to gain access to additional courses or product
lines and/or to increase the size of the user base. The Company
also derives revenue from hosting fees for clients that use its
solutions on an ASP basis and from the provision of online
mentoring services and professional services. In selected
circumstances, the Company derives revenue on a pay-for-use
basis under which some customers are charged based on the number
of courses accessed by users. Revenue derived from pay-for-use
contracts has been minimal to date.
The Company recognizes revenue ratably over the license period
if the number of courses that a customer has access to is not
clearly defined, available, or selected at the inception of the
contract, or if the contract has additional undelivered elements
for which the Company does not have vendor specific objective
evidence (VSOE) of the fair value of the various elements.
This may occur if the customer does not specify all licensed
courses at the outset, the customer chooses to wait for future
licensed courses on a when and if available basis, the customer
is given exchange privileges that are exercisable other than on
the contract anniversaries, or the customer licenses all courses
currently available and to be developed during the term of the
arrangement. Nearly all of the Companys contractual
arrangements are recognized on a subscription or straight-line
basis over the period of service.
The Company also derives revenue from extranet hosting/ ASP
services and online mentoring services. The Company recognizes
revenue related to extranet hosting/ ASP services and online
mentoring services on a straight-line basis over the period the
services are provided.
The Company generally bills the annual license fee for the first
year of a multi-year license agreement in advance and license
fees for subsequent years of multi-year license arrangements are
billed on the anniversary date of the agreement. Occasionally,
the Company bills customers on a quarterly basis. In some
circumstances, the Company offers payment terms of up to six
months from the initial shipment date or anniversary date for
multi-year license agreements to its customers. To the extent
that a customer is given extended payment terms (defined by the
Company as greater than six months), revenue is recognized as
cash becomes due, assuming all of the other elements of revenue
recognition have been satisfied.
The Company typically recognizes revenue from resellers when
both the sale to the end user has occurred and the
collectibility of cash from the reseller is probable. With
respect to reseller agreements with minimum commitments, the
Company recognizes revenue related to the portion of the minimum
commitment that exceeds the end user sales at the expiration of
the commitment period provided the Company has received payment.
If a definitive service period can be determined, revenue is
recognized ratably over the term of the minimum commitment
period, provided that cash has been received or collectibility
is probable.
The Company provides professional services, including instructor
led training, customized content, websites, and implementation
services. The Company recognizes professional service revenue as
the services are performed.
The Company records reimbursable
out-of-pocket expenses
in both revenues and as a direct cost of revenues, as
applicable, in accordance with Emerging Issues Task Force
(EITF) Issue No. 01-14, Income Statement
Characterization of Reimbursements Received for
Out-of-Pocket
Expenses Incurred
(EITF 01-14).
The Company records as deferred revenue amounts that have been
billed in advance for products or services to be provided.
Deferred revenue includes the unamortized portion of revenue
associated with license fees for which the Company has received
payment or for which amounts have been billed and are due for
B-10
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
payment in 90 days or less for resellers and 180 days
or less for direct customers. In addition, deferred revenue
includes amounts which have been billed and not collected for
which revenue is being recognized ratably over the license
period.
SkillSoft contracts often include an uptime guarantee for
solutions hosted on the Companys server whereby customers
would be entitled to credits in the event of nonperformance. The
Company also retains the right to remedy any nonperformance
event prior to issuing a credit. Historically, the Company has
not incurred substantial costs relating to this guarantee and
the Company currently accrues for such costs as they are
incurred. The Company reviews these costs on a regular basis as
actual experience and other information becomes available; and
should they become more substantial, the Company would accrue an
estimated exposure and consider the potential related effects of
the timing of recording revenue on its license arrangements. The
Company has not accrued any costs related to these warranties in
the accompanying consolidated financial statements.
The Company employs an accounting policy consistent with
guidance provided by FASB Technical Bulletin 90-1,
Accounting for Separately Priced Extended Warranty and
Product Maintenance Contracts and SEC Staff Accounting
Bulletin 104, Revenue Recognition,
related to the concept of a direct and incremental relationship
between revenue and expense. As such, the Company defers the
recognition of commission expense until such time as the revenue
related to the contract for which the commission was paid is
recognized. Unamortized commissions expense is included in
prepaid expenses and other current assets in the accompanying
consolidated balance sheets.
|
|
(e) |
Net Income/ (Loss) Per Share |
Basic and diluted net (loss)/ income per common share was
determined by dividing net (loss)/ income by the weighted
average common shares outstanding during the period. In fiscal
2004 and 2005 basic and diluted net loss per share is the same,
as outstanding common stock options and warrants are
anti-dilutive as the Company recorded a net loss for those
periods.
The reconciliation of basic and diluted net shares is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
Basic weighted average shares outstanding
|
|
|
100,120 |
|
|
|
105,134 |
|
|
|
102,473 |
|
Effect of diluted shares outstanding
|
|
|
|
|
|
|
|
|
|
|
879 |
|
Less weighted average unvested restricted common shares
outstanding
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding
|
|
|
100,115 |
|
|
|
105,134 |
|
|
|
103,352 |
|
|
|
|
|
|
|
|
|
|
|
The following share equivalents have been excluded from the
computation of diluted weighted average shares outstanding as of
January 31, 2004, 2005 and 2006, respectively, as they
would be anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
Options outstanding
|
|
|
23,036,822 |
|
|
|
18,976,502 |
|
|
|
9,857,947 |
|
|
|
(f) |
Foreign Currency Translation |
Assets and liabilities of the foreign subsidiaries are
translated in accordance with Statement of Financial Accounting
Standards (SFAS) No. 52, Foreign Currency
Translation. The reporting currency for the
B-11
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company is the U.S. dollar (dollar). The functional
currency of the Companys subsidiaries in the United
States, Ireland, the United Kingdom, Canada, Germany, Australia,
the Netherlands, Sweden, Norway, Denmark, France, New Zealand
and Singapore are the currencies of those countries. The
functional currency of the Companys subsidiaries in the
Commonwealth of the Bahamas and the Grand Cayman is the
U.S. dollar. In accordance with SFAS No. 52,
assets and liabilities are translated to the U.S. dollar
from the local functional currency at current exchange rates,
and income and expense items are translated to the
U.S. dollar using the average rates of exchange prevailing
during the year. Gains and losses arising from translation are
recorded in other comprehensive income (loss) as a separate
component of stockholders equity. Currency gains or losses
on transactions denominated in a currency other than an
entitys functional currency are recorded in the results of
the operations. (Losses)/gains arising from transactions
denominated in foreign currencies were approximately $581,000,
($803,000) and $410,000 for the years ended January 31,
2004, 2005 and 2006, respectively, and are included in other
income (expense), net in the accompanying consolidated
statements of operations.
|
|
(g) |
Cash, Cash Equivalents, Restricted Cash, Short-term
Investments, and Long-term Investments |
The Company considers all highly liquid investments with
original maturities of 90 days or less at the time of
purchase to be cash equivalents. At January 31, 2005 and
January 31, 2006, cash equivalents consisted mainly of
commercial paper, short-term notes and money market funds. The
Company holds cash in investments to secure certain facility
leases and to secure funds to defend named former and current
executives and board members of SmartForce PLC for actions
arising out of the SEC investigation to be restricted cash. At
January 31, 2006 the Company had approximately
$4.1 million of restricted cash, which is held voluntarily
to defend named former and current executives and board members
of SmartForce PLC for actions arising out of the SEC
investigation and litigation related to the 2002 securities
class action and approximately $0.9 million, which is
legally required to be held as part of certain facilities leases.
The Company accounts for certain investments in accordance with
SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities
(SFAS No. 115). Under SFAS No. 115,
securities that the Company does not intend to hold to maturity
are reported at market value, and are classified as
available-for-sale. At January 31, 2005 and 2006, the
Companys investments were classified as available for sale
and had an average maturity of approximately 180 and
64 days, respectively.
Cash and cash equivalents, available for sale short-term
investments and long-term investments as of January 31,
2005 and 2006, respectively, were as follows (in thousands).
B-12
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
|
Gross | |
|
|
|
|
Contracted | |
|
|
|
Unrealized | |
|
Unrealized | |
|
|
Description |
|
Maturity | |
|
Cost | |
|
Gains | |
|
Losses | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
N/A |
|
|
$ |
28,238 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
28,238 |
|
|
Commercial paper
|
|
|
0-3 months |
|
|
|
3,592 |
|
|
|
|
|
|
|
|
|
|
|
3,592 |
|
|
Federal agency notes
|
|
|
0-3 months |
|
|
|
1,999 |
|
|
|
|
|
|
|
|
|
|
|
1,999 |
|
|
Money market funds
|
|
|
0-3 months |
|
|
|
1,077 |
|
|
|
|
|
|
|
|
|
|
|
1,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,906 |
|
|
|
|
|
|
|
|
|
|
|
34,906 |
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
|
4-12 months |
|
|
|
8,897 |
|
|
|
|
|
|
|
(4 |
) |
|
|
8,893 |
|
|
Federal agency notes
|
|
|
4-12 months |
|
|
|
6,986 |
|
|
|
|
|
|
|
(14 |
) |
|
|
6,972 |
|
|
Corporate debt securities
|
|
|
4-12 months |
|
|
|
4,178 |
|
|
|
|
|
|
|
(22 |
) |
|
|
4,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,061 |
|
|
|
|
|
|
|
(40 |
) |
|
|
20,021 |
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal agency notes
|
|
|
13-24 months |
|
|
|
5,428 |
|
|
|
|
|
|
|
(36 |
) |
|
|
5,392 |
|
|
Corporate debt securities
|
|
|
13-24 months |
|
|
|
3,341 |
|
|
|
|
|
|
|
(21 |
) |
|
|
3,320 |
|
|
Public equity securities
|
|
|
N/A |
|
|
|
181 |
|
|
|
50 |
|
|
|
|
|
|
|
231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,950 |
|
|
|
50 |
|
|
|
(57 |
) |
|
|
8,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
63,917 |
|
|
$ |
50 |
|
|
$ |
(97 |
) |
|
$ |
63,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-13
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
|
Gross | |
|
|
|
|
Contracted | |
|
|
|
Unrealized | |
|
Unrealized | |
|
|
Description |
|
Maturity | |
|
Cost | |
|
Gains | |
|
Losses | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
N/A |
|
|
$ |
25,692 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
25,692 |
|
|
Commercial paper
|
|
|
0-3 months |
|
|
|
18,090 |
|
|
|
|
|
|
|
(3 |
) |
|
|
18,087 |
|
|
Federal agency notes
|
|
|
0-3 months |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
0-3 months |
|
|
|
8,158 |
|
|
|
|
|
|
|
|
|
|
|
8,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,940 |
|
|
|
|
|
|
|
(3 |
) |
|
|
51,937 |
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
|
4-12 months |
|
|
|
2,371 |
|
|
|
|
|
|
|
(1 |
) |
|
|
2,370 |
|
|
Federal agency notes
|
|
|
4-12 months |
|
|
|
10,879 |
|
|
|
|
|
|
|
(29 |
) |
|
|
10,850 |
|
|
Corporate debt securities
|
|
|
4-12 months |
|
|
|
8,201 |
|
|
|
|
|
|
|
(19 |
) |
|
|
8,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,451 |
|
|
|
|
|
|
|
(49 |
) |
|
|
21,402 |
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public equity securities
|
|
|
N/A |
|
|
|
181 |
|
|
|
49 |
|
|
|
|
|
|
|
230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181 |
|
|
|
49 |
|
|
|
|
|
|
|
230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
73,572 |
|
|
$ |
49 |
|
|
$ |
(52 |
) |
|
$ |
73,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(h) |
Depreciation and Amortization |
The Company records depreciation and amortization by charges to
operations in amounts estimated to allocate the cost of property
and equipment over their estimated useful lives, on a
straight-line basis using the half year convention, as follows:
|
|
|
|
|
Estimated Useful Lives |
|
|
|
Computer equipment
|
|
2-3 years |
Furniture and fixtures
|
|
5 years |
Leasehold improvements
|
|
Lesser of: |
|
|
7 years or life of lease |
Repairs and maintenance are expensed as incurred.
|
|
(i) |
Research and Development Expenses |
The Company expenses all research and development costs, which
include course content development fees, to operations as
incurred, except for costs of internally developed or externally
purchased software that qualify for capitalization.
SFAS No. 86, Accounting for the Costs of
Computer Software to Be Sold, Leased or Otherwise
Marketed (SFAS No. 86), requires the
capitalization of certain computer software development costs
incurred after technological feasibility is established given
the Companys operations, once technological feasibility of
a software product has been established, the additional
development costs incurred to bring the product to a
commercially acceptable level has not been and is not expected
to be significant. The Company capitalized software development
costs related to new products SkillSoft Dialogue and SkillView
in fiscal 2006.
B-14
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Capitalized software development costs, net of accumulated
amortization were approximately $4.8 million and
$10.1 million as of January 31, 2006 and
January 31, 2005, respectively. The Company recognized
approximately $7.0 million, $6.9 million and
$6.8 million of amortization expense related to capitalized
software development costs in the fiscal years ended
January 31, 2006, 2005 and 2004, respectively.
The Company enters into agreements with content providers for
published content, the Companys policy is to expense these
costs to research and development upon receipt of content.
|
|
(j) |
Other Comprehensive Income |
SFAS No. 130, Reporting Comprehensive
Income (SFAS No. 130) requires disclosure of all
components of comprehensive income/(loss) on an annual and
interim basis. Comprehensive income/(loss) is defined as the
change in equity of a business enterprise during a period from
transactions, other events and circumstances from non-owner
sources. The components of accumulated comprehensive
income/(loss) as of January 31, 2005 and 2006 are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
January 31, | |
|
|
| |
|
|
2005 | |
|
2006 | |
|
|
| |
|
| |
Unrealized holding gains/ (losses)
|
|
$ |
(59 |
) |
|
$ |
(15 |
) |
Foreign currency adjustment
|
|
|
(781 |
) |
|
|
(735 |
) |
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss)
|
|
$ |
(840 |
) |
|
$ |
(750 |
) |
|
|
|
|
|
|
|
|
|
(k) |
Fair Value of Financial Instruments |
Financial instruments consist mainly of cash and cash
equivalents, investments, restricted cash, accounts receivable
and accounts payable. The Company determines fair value for
short-term and long-term investments based on quoted market
values. The carrying amounts of accounts receivable is net of an
allowance for doubtful accounts, which is based on historical
collections and known credit risks.
|
|
(l) |
Concentrations of Credit Risk and Off-Balance-Sheet Risk |
For the years ended and as of January 31, 2004, 2005 and
2006, no customers individually comprised greater than 10% of
total revenue or accounts receivable.
The Company performs continuing credit evaluations of its
customers financial condition and generally does not
require collateral.
The Company has no significant off-balance-sheet or
concentration of credit risks such as foreign exchange
contracts, option contracts or other foreign hedging
arrangements.
The Companys cash, cash equivalents and investments are
subject to the guidelines of the Companys investment
policy. The primary objective of the policy with regard to the
Companys portfolio is to provide with minimal risk as high
a level of current income as is consistent with the preservation
of capital and the maintenance of liquidity. Approved
Instruments include U.S. Government and Agency securities
as well as fixed income instruments rated AAA, A1/P1 or better.
|
|
(m) |
Disclosures About Segments of an Enterprise |
The Company follows the provisions of SFAS No. 131,
Disclosures About Segments of an Enterprise and Related
Information (SFAS No. 131).
SFAS No. 131 established standards for reporting
information regarding operating segments in annual financial
statements and requires selected information for those segments
to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also established
B-15
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
standards for related disclosures about products and services
and geographic areas. Operating segments are identified as
components of an enterprise about which separate discrete
financial information is available for evaluation by the chief
operating decision maker, or decision-making group, in making
decisions how to allocate resources and assess performance. The
Companys chief operating decision makers, as defined under
SFAS No. 131, are the Chief Executive Officer, Chief
Financial Officer and the Chief Operating Officer. The Company
views its operations and manages its business as principally two
operating segments: MML and retail certification. MML content
and software is an integrated solution that supports business
and information technology professionals learning needs through
its comprehensive learning management platform technology. The
retail certification segment provides direct sales and services
to individual end-users (See Note 11).
|
|
(n) |
Amortization and Impairment of Goodwill and Intangible
Assets |
The Company records intangible assets at historical costs. The
Company amortizes its intangible assets including customer
contracts and internally developed software. The Company reviews
intangible assets subject to amortization at least annually to
determine if any adverse conditions exist or a change in
circumstances has occurred that would indicate impairment or a
change in remaining useful life. Conditions that would indicate
an impairment and trigger a more frequent impairment assessment
include, but are not limited to, a significant adverse change in
legal factors or business climate that could affect the value of
an asset, or an adverse action or assessment by a regulator. In
addition, the Company reviews its indefinite-lived intangible
assets at least annually for impairment and reassesses their
classification as indefinite-lived assets.
The Company tests goodwill during the fourth quarter of each
year for impairment, or more frequently if certain indicators
are present or changes in circumstances suggest that impairment
may exist. When conducting its annual goodwill impairment test,
the Company utilizes the two-step approach prescribed under FASB
Statement No. 142, Goodwill and Other Intangible
Assets.
|
|
(o) |
Restructuring Charges |
The Company accounts for its restructuring activities under
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (SFAS 146).
SFAS 146 states that a liability related to and exit
or disposal activity should be recognized at fair value in the
period in which it is incurred. Costs covered by SFAS 146
include, but are not limited to, the following:
(1) one-time involuntary termination benefits provided to
employees under the terms of a benefit arrangement that, in
substance, is not an ongoing benefit arrangement or a deferred
compensation contract, (2) certain contract termination
costs, including operating lease termination costs and
(3) other associated costs. As such, when the Company
identifies restructuring charges that fulfill the requirements
identified in SFAS 146 as incurred, it records the charges
in its statement of operations.
Costs incurred for producing and communicating advertising are
expensed when incurred. Advertising expenses amounted to
approximately $971,000, $975,000, and $515,000 for the fiscal
years ended January 31, 2004, 2005 and 2006, respectively.
The Company has entered into grant agreements with government
agencies to employ additional personnel. Conditions of
employment are attached to these grant agreements. Government
grants are recorded when there is reasonable assurance that the
Company has complied with, and will continue to comply with, all
conditions necessary to obtain the grants. In connection with
the reduction in workforce resulting from the Merger and
subsequent restructuring, the Company did not fulfill all the
obligations associated with certain
B-16
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
grants, and therefore, reflected grants subject to refund as a
liability in the accompanying consolidated balance sheet. As of
January 31, 2005 and 2006, there was $1.8 million and
$0 of grants subject to repayment, respectively, which are
included in accrued liabilities on the consolidated balance
sheet. At January 31, 2006, the Company had repaid all
outstanding grants subject to refund.
|
|
(r) |
Accounting for Stock-Based Compensation |
The Company accounts for its stock-based employee compensation
plans using the intrinsic value method under the recognition and
measurement principles of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees (APB No. 25) and related
Interpretations under APB No. 25. The Company provides pro
forma disclosures only of the compensation expense determined
under the fair value provisions of SFAS No. 123,
Accounting for Stock-Based Compensation
(SFAS No. 123).
SFAS No. 123 requires the measurement of the fair
value of stock options to employees to be included in the
statements of operations or disclosed in the notes to financial
statements. The Company elected the disclosure-only alternative
under SFAS No. 123, which requires disclosure of the
pro forma effects on earnings as if the fair-value-based method
of accounting under SFAS No. 123 had been adopted, as
well as certain other information. In accordance with
SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure
(SFAS No. 148), the Company has provided the pro forma
disclosures required under SFAS No. 123 for options
granted using the Black-Scholes option-pricing model prescribed
by SFAS No. 123. The weighted average information and
assumptions used for the grants were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
Risk-free interest rates
|
|
|
2.84- 3.96 |
% |
|
|
3.31-4.35 |
% |
|
|
3.86-4.48 |
% |
Expected dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
Volatility factor
|
|
|
96 |
% |
|
|
86 |
% |
|
|
67 |
% |
Expected lives
|
|
|
7 years |
|
|
|
7 years |
|
|
|
7 years |
|
Weighted average fair value of options granted
|
|
$ |
3.50 |
|
|
$ |
8.78 |
|
|
$ |
2.78 |
|
Weighted average remaining contractual life of options
outstanding
|
|
|
7.6 years |
|
|
|
6.79 years |
|
|
|
5.99 years |
|
For shares purchased under the 2004 Employee Share Purchase Plan
(ESPP), the Company uses a Black-Scholes option-pricing model,
with the following assumptions. In valuing the ESPP, the Company
used an assumed risk-free interest rate of 3.09%
3.79% for fiscal 2006, 1.01% 1.76% for fiscal 2005
and 1.24% for fiscal 2004. The Company also used an expected
volatility factor of 49% for fiscal 2006, 50% for fiscal 2005
and 90% for fiscal 2004, and an expected life of six months,
with the assumption that dividends will not be paid.
B-17
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Had compensation expense for its plans been determined
consistent with SFAS No. 123, the Companys net
income/(loss) and basic and diluted net income/(loss) per share
would have been increased to the following pro forma amounts (in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006(1) | |
|
|
| |
|
| |
|
| |
Net (loss)/ income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(113,274 |
) |
|
$ |
(20,113 |
) |
|
$ |
35,215 |
|
|
Add: Share-based employee compensation expense recognized under
APB No. 25
|
|
|
1,986 |
|
|
|
1,191 |
|
|
|
893 |
|
|
Less: Total share-based employee compensation expense determined
under fair value based method for all awards under the employee
share option plan
|
|
|
(20,885 |
) |
|
|
(24,474 |
) |
|
|
(24,551 |
) |
|
Less: Total share-based employee compensation expense determined
under fair value based method for all awards under the ESPP
|
|
|
(1,296 |
) |
|
|
(1,019 |
) |
|
|
(753 |
) |
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income/ (loss)
|
|
$ |
(133,469 |
) |
|
$ |
(44,415 |
) |
|
$ |
10,804 |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(1.13 |
) |
|
$ |
(0.19 |
) |
|
$ |
0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
(1.33 |
) |
|
$ |
(0.42 |
) |
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
|
Because additional option grants are expected to be made in
future periods, the above pro forma disclosures may not be
representative of results for future periods. We currently
expect to incur approximately $3.1 million and
$0.2 million in fiscal 2007 and fiscal 2008, respectively,
for the future compensation cost for unvested awards as of
January 31, 2006.
|
|
(1) |
Fiscal 2006 total share-based compensation expense determined
under fair value based method for all awards included
approximately $9.1 million as a result of the acceleration
of vesting of all previously outstanding unvested share options
previously awarded to employees (excluding unvested share
options held by executive officers and directors). The
acceleration of vesting was effected in order to avoid a
negative impact to the Companys income statement upon
adoption of SFAS 123R in fiscal 2007. |
|
|
(s) |
Recent Accounting Pronouncements |
On December 16, 2004, the Financial Accounting Standards
Board (FASB) issued FASB Statement No. 123 (revised
2004), Share-Based Payment, which is a
revision of SFAS No. 123. Statement 123(R)
supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees, and amends FASB Statement
No. 95, Statement of Cash Flows.
Generally, the approach in Statement 123(R) is similar to
the approach described in SFAS 123. However,
Statement 123(R) requires all share-based payments to
employees, including grants of employee share options, to be
recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative.
Statement 123(R) is effective for the first quarter of the
first fiscal year that begins after June 15, 2005. Early
adoption will be permitted in periods in which financial
statements have not yet been issued. The Company adopted
Statement 123(R) on February 1, 2006.
Statement 123(R) permits public companies to adopt its
requirements using one of two methods:
1. A modified prospective method in which
compensation cost is recognized beginning with the effective
date (a) based on the requirements of Statement 123(R)
for all share-based payments granted after
B-18
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the effective date and (b) based on the requirements of
Statement 123 for all awards granted to employees prior to
the effective date of Statement 123(R) that remain unvested
on the effective date; or
2. A modified retrospective method which
includes the requirements of the modified prospective method
described above, but also permits entities to restate based on
the amounts previously recognized under Statement 123 for
purposes of pro forma disclosures either (a) all prior
periods presented or (b) prior interim periods of the year
of adoption.
The Company has determined to utilize the modified
prospective method in adopting SFAS 123(R).
The Company currently anticipates recognizing between
$3.0 million and $4.0 million in the fiscal year
ending January 31, 2007 and approximately $0.2 million
in the fiscal year ending January 31, 2008 of compensation
expense related to unvested share options currently held by
executive officers and directors as a result of adopting
SFAS 123(R). Compensation expense could be increased to the
extent additional share options are granted in the future.
Had the Company adopted SFAS 123(R) in prior fiscal years,
the impact of that standard would have approximated the impact
of SFAS 123 as described in the disclosure of pro forma net
income/ (loss) and earnings per share in Note 2(r).
The FASB recently issued Statement No. 154,
Accounting Changes and Error Corrections,
(SFAS 154), which is a replacement of APB Opinion
No. 20, Accounting Changes, and FASB
Statement No. 3, Reporting Accounting Changes in
Interim Financial Statements. (SFAS 3).
SFAS 154 applies to all voluntary changes in accounting
principle, and changes the requirements for accounting for and
reporting of a change in accounting principle. SFAS 154
requires retrospective application to prior periods
financial statements of a voluntary change in accounting
principle unless it is impracticable. APB 20 previously
required that most voluntary changes in accounting principle be
recognized by including in net income of the period of the
change the cumulative effect of changing to the new accounting
principle. SFAS 154 requires that a change in method of
depreciation, amortization, or depletion for long-lived,
non-financial assets be accounted for as a change in accounting
estimate that is effected by a change in accounting principle.
APB 20 previously required that such a change be reported
as a change in accounting principle. SFAS 154 carries
forward many provisions of APB 20 without change, including
the provisions related to the reporting of a change in
accounting estimate, a change in the reporting entity, and the
correction of an error. SFAS 154 also carries forward the
provisions of SFAS 3 that govern reporting accounting
changes in interim financial statements. SFAS 154 is
effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005. Earlier
application is permitted for accounting changes and corrections
of errors made occurring in fiscal years beginning after
June 1, 2005. SFAS 154 does not change the transition
provisions of any existing accounting pronouncements, including
those that are in a transition phase as of the effective date of
SFAS 154.
|
|
(t) |
Prior Year Financial Statement Reclassifications |
To conform with the current year presentation, $787,000 and
$784,000 of interest income, net for the fiscal years ended
January 31, 2004 and 2005, respectively, was reclassified
as interest income of $954,000 and $1,091,000 and interest
expense of $167,000 and $337,000 in the fiscal years ended
January 31, 2004 and 2005, respectively.
GoTrain Corp.
In June 2003, the Company acquired the assets of GoTrain Corp.
(GoTrain), an
e-learning business,
for approximately $5.2 million in cash, which was paid
during the quarter ended July 31, 2003. This acquisition
B-19
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
resulted in allocations of purchase price to goodwill and
intangible assets of $3.7 million and $1.5 million,
respectively. Intangible assets allocated were the internally
developed software, which is comprised of content valued at
$498,000 that will be amortized over a period of 4 years
and the platform valued at $512,000 that will be amortized over
a period of 2 years. Intangible assets also include
customer contracts valued at $518,000, which will be amortized
over 4 years. The historical results of operations for
GoTrain were not material to the results of the operations of
the Company.
|
|
(a) |
Merger and Exit Costs |
In connection with a merger between SmartForce PLC and SkillSoft
Corporation on September 6, 2002 (the Merger), the
Companys management effected a restructuring to eliminate
redundant facilities and headcount, reduce cost structure and
better align the Companys operating expenses with existing
economic conditions. Pursuant to this restructuring, the Company
recorded $30.3 million of costs in 2002 relating to exiting
activities of pre-Merger SmartForce PLC such as severance and
related benefits, costs to vacate leased facilities and other
pre-Merger liabilities. These costs were accounted for under
EITF 95-3, Recognition of Liabilities in Connection
with Purchase Business Combinations. These costs, which
were recognized as a liability assumed in the purchase business
combination, were included in the allocation of the purchase
price and increased goodwill.
The reductions in employee headcount totaled approximately 632
employees from the administrative, sales, marketing and
development functions, and amounted to a liability of
approximately $14.5 million in 2002. Approximately
$13.3 million was paid out against the exit plan accrual
through January 31, 2006, and the remaining amount of
$1.2 million, net of adjustments for foreign currency
translation, is expected to be paid by the end of fiscal 2007.
In connection with the exit plan, the Company abandoned or
downsized certain leased facilities resulting in a facilities
consolidation liability of $12.7 million as of
January 31, 2003, consisting of sublease losses, broker
commissions and other facility costs. As part of the plan, 11
sites were vacated and 4 sites were downsized. To determine the
sublease loss, which is the loss after the Companys
estimated cost recovery efforts from subleasing vacated space,
certain assumptions were made related to the (1) time
period over which the property will remain vacant,
(2) sublease terms and (3) sublease rates. The lease
loss is an estimate under SFAS No. 5 Accounting
for Contingencies (SFAS No. 5). In the year
ended January 31, 2004, the Company revised certain of its
estimates made in connection with the original purchase price
pertaining to unoccupied facilities under lease as a result of
the Merger. This adjustment to the exit plan accrual fell within
the one year purchase price allocation period prescribed by
SFAS No. 141 Business Combinations
(SFAS No. 141). In the fiscal years ended
January 31, 2005 and 2006, the Company again revised
certain of its estimates made in connection with the original
purchase price pertaining to unoccupied facilities under lease
as a result of the Merger. This adjustment to the exit accrual
fell outside the one year purchase price allocation period and
was charged to restructuring and is included in the statement of
operations. The net present value of the obligation under this
exit plan, as adjusted, was approximately $15.3 million, of
which $3.5 million remains.
B-20
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Activity in the Companys merger and exit costs, which are
included in accrued expenses (see Note 13) and long-term
liabilities, was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee | |
|
|
|
|
|
|
|
|
Severance and | |
|
Closedown | |
|
|
|
|
|
|
Related Costs | |
|
of Facilities | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Merger and exit accrual, January 31, 2004
|
|
$ |
2,831 |
|
|
$ |
9,073 |
|
|
$ |
484 |
|
|
$ |
12,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligation
|
|
$ |
|
|
|
$ |
5,469 |
|
|
$ |
|
|
|
$ |
5,469 |
|
|
Current obligation
|
|
$ |
2,831 |
|
|
$ |
3,604 |
|
|
$ |
484 |
|
|
$ |
6,919 |
|
Payments made during the year ended January 31, 2005
|
|
|
(925 |
) |
|
|
(3,228 |
) |
|
|
(210 |
) |
|
|
(4,363 |
) |
Adjustments to accrual during the year ended January 31,
2005
|
|
|
49 |
|
|
|
707 |
|
|
|
60 |
|
|
|
816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger and exit accrual, January 31, 2005
|
|
$ |
1,955 |
|
|
$ |
6,552 |
|
|
$ |
334 |
|
|
$ |
8,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligation
|
|
$ |
|
|
|
$ |
4,022 |
|
|
$ |
|
|
|
$ |
4,022 |
|
|
Current obligation
|
|
$ |
1,955 |
|
|
$ |
2,530 |
|
|
$ |
334 |
|
|
$ |
4,819 |
|
Payments made during the year ended January 31, 2006
|
|
|
(316 |
) |
|
|
(3,275 |
) |
|
|
(110 |
) |
|
|
(3,701 |
) |
Reversal without utilization to accrual during the year ended
January 31, 2006
|
|
|
(453 |
) |
|
|
|
|
|
|
(55 |
) |
|
|
(508 |
) |
Adjustments to accrual during the year ended January 31,
2006
|
|
|
|
|
|
|
180 |
|
|
|
|
|
|
|
180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger and exit accrual, January 31, 2006
|
|
$ |
1,186 |
|
|
$ |
3,457 |
|
|
$ |
169 |
|
|
$ |
4,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligation
|
|
$ |
|
|
|
$ |
1,602 |
|
|
$ |
|
|
|
$ |
1,602 |
|
|
Current obligation
|
|
$ |
1,186 |
|
|
$ |
1,855 |
|
|
$ |
169 |
|
|
$ |
3,210 |
|
Other merger accruals primarily include payments under operating
equipment leases.
The Company anticipates that the remainder of the merger and
exit accrual will be paid out by October 2011 as follows (in
thousands):
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2007
|
|
|
|
|
|
$ |
3,210 |
|
Year Ended January 31, 2008
|
|
|
|
|
|
|
551 |
|
Year Ended January 31, 2009
|
|
|
|
|
|
|
493 |
|
Year Ended January 31, 2010
|
|
|
|
|
|
|
518 |
|
Thereafter
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$ |
4,812 |
|
|
|
|
|
|
|
|
The Company recorded a $14.2 million restructuring charge
during the fiscal year ended January 31, 2003, which was
included in the statement of operations. Approximately
$10.2 million of this charge represented the compensation
cost of terminated SmartForce PLC employees for services
rendered from the date of the Merger through such
employees termination dates and certain other compensation
costs to terminated and continuing employees of the Company.
Also included in the $14.2 million charge are certain other
one time costs incurred by SkillSoft Corporation as a result of
the Merger. These costs primarily consist of employee severance
and related costs and contractual obligations. Payments made
under these obligations
B-21
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
during the years ended January 31, 2004, 2005 and 2006
aggregated approximately $2.6 million, $100,000, and $0,
respectively.
The Company recorded a $13.4 million restructuring charge
for the fiscal year ended January 31, 2005, which was
included in the statement of operations. Approximately
$9.8 million of this charge represented contractual
obligations (including $350,000 related to Retail
Certification), $3.4 million represented the compensation
cost of terminated employees, which included 131 employees in
our research and development function and 41 employees in our
sales function, for services rendered from the date of the
restructuring through termination dates and one time severance
payouts (including $353,000 related to Retail Certification) and
approximately $400,000 was related to the write-down of fixed
assets rendered obsolete as a result of the restructuring
activities.
During the fiscal year ended January 31, 2006 the Company
revised certain of its estimates made in connection to the
previous restructurings related to both contractual obligations
and employee severance and related costs.
Activity in the Companys restructuring accrual was as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee | |
|
|
|
|
|
|
Severance and | |
|
Contractual | |
|
|
|
|
Related Costs | |
|
Obligations | |
|
Total | |
|
|
| |
|
| |
|
| |
Total restructuring accrual as of January 31, 2004
|
|
$ |
|
|
|
$ |
84 |
|
|
$ |
84 |
|
Payments and write downs made during the year ended
January 31, 2005
|
|
|
(2,932 |
) |
|
|
(617 |
) |
|
|
(3,549 |
) |
Restructuring charge for year ended January 31, 2005
|
|
|
3,556 |
|
|
|
9,277 |
|
|
|
12,833 |
|
|
|
|
|
|
|
|
|
|
|
Total restructuring accrual as of January 31, 2005
|
|
|
624 |
|
|
|
8,744 |
|
|
|
9,368 |
|
Payments and write downs made during the year ended
January 31, 2006
|
|
|
(968 |
) |
|
|
(6,874 |
) |
|
|
(7,842 |
) |
Restructuring charge for year ended January 31, 2006
|
|
|
344 |
|
|
|
117 |
|
|
|
461 |
|
|
|
|
|
|
|
|
|
|
|
Total restructuring accrual as of January 31, 2006
|
|
$ |
|
|
|
$ |
1,987 |
|
|
$ |
1,987 |
|
|
|
|
|
|
|
|
|
|
|
The net restructuring charges for the fiscal years ended
January 31, 2004, 2005 and 2006 would have been allocated
as follows had the Company recorded the expense and adjustments
within the functional department of the restructured activities
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year | |
|
Year | |
|
Year | |
|
|
Ended | |
|
Ended | |
|
Ended | |
|
|
January 31, | |
|
January 31, | |
|
January 31, | |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
Research and development
|
|
$ |
126 |
|
|
$ |
11,510 |
|
|
$ |
5 |
|
Selling and marketing
|
|
|
643 |
|
|
|
846 |
|
|
|
394 |
|
General and administrative
|
|
|
1,088 |
|
|
|
477 |
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,857 |
|
|
$ |
12,833 |
|
|
$ |
461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
SEC investigation and Other Professional Fees |
Consistent with the Companys accounting policy and
historical treatment regarding annual audit fees, the Company
accrued the estimated audit fees related to the restatement of
the historical SmartForce PLC financial statements, the acquired
business, in the year ended January 31, 2003. All other
costs associated with the restatement, the resulting SEC
investigation, and the 2002 shareholder class action
lawsuit are expensed as the work is performed. For the fiscal
years ended January 31, 2004, 2005 and 2006, the Company
recorded
B-22
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$1.9 million, $2.2 million and $2.0 million,
respectively, in expenses related to the ongoing SEC
investigation. For the fiscal years ended January 31, 2004,
2005 and 2006, the Company recorded $14.5 million,
$0.3 million and $0, respectively in professional fees
related to the re-filing of statutory tax returns as a result of
the restatement of the historical SmartForce PLC financial
statements.
|
|
(5) |
Goodwill and Intangible Assets |
Goodwill and intangible assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2005 | |
|
January 31, 2006 | |
|
|
| |
|
| |
|
|
Gross | |
|
|
|
Net | |
|
Gross | |
|
|
|
Net | |
|
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
|
Amount | |
|
Amortization | |
|
Amount | |
|
Amount | |
|
Amortization | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Internally developed software/courseware
|
|
$ |
26,610 |
|
|
$ |
16,476 |
|
|
$ |
10,134 |
|
|
$ |
28,257 |
|
|
$ |
23,414 |
|
|
$ |
4,843 |
|
Customer contracts
|
|
|
13,018 |
|
|
|
7,881 |
|
|
|
5,137 |
|
|
|
13,018 |
|
|
|
10,055 |
|
|
|
2,963 |
|
Books trademark
|
|
|
900 |
|
|
|
|
|
|
|
900 |
|
|
|
905 |
|
|
|
|
|
|
|
905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,528 |
|
|
|
24,357 |
|
|
|
16,171 |
|
|
|
42,180 |
|
|
|
33,469 |
|
|
|
8,711 |
|
Goodwill
|
|
|
103,576 |
|
|
|
|
|
|
|
103,576 |
|
|
|
93,929 |
|
|
|
|
|
|
|
93,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
144,104 |
|
|
$ |
24,357 |
|
|
$ |
119,747 |
|
|
$ |
136,109 |
|
|
$ |
33,469 |
|
|
$ |
102,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer contracts are existing contracts that relate to
underlying customer relationships pertaining to the services
provided by the acquired company. The Company amortizes the fair
value of customer contracts on an accelerated basis over their
estimated useful lives ranging from 48 to 60 months with a
weighted average estimated useful life of 48 months.
Internally developed software/courseware relates to the Books
platform, GoTrain content and platform, the SmartForce PLC
content, and costs incurred subsequent to technological
feasibility and prior to general release for the development of
SkillSoft Dialogue and SkillView capitalized under
SFAS No. 86. Course content includes courses in both
the business skills and information technology skills subject
areas. All courseware is deployable via the Internet or
corporate intranets. The Company amortizes internally developed
or purchased software/courseware, including SkillSoft Dialogue
and SkillView costs capitalized under SFAS No. 86,
over their estimated useful lives ranging from 24 to
48 months with a weighted average useful life of
46 months.
The change in goodwill at January 31, 2006 from the amount
recorded at January 31, 2005 was due primarily to the
Companys utilization of the tax benefit of net operating
loss carryforwards assumed as part of the Merger. The change in
goodwill at January 31, 2005 from the amount recorded at
January 31, 2004 was due primarily to the impairment charge
recorded for the Companys Retail Certification unit and to
a lesser extent due to revisions to the purchase price accruals,
collections of accounts receivable in excess of the
B-23
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
estimated realizable value at the purchase date and the
Companys utilization of the tax benefit of net operating
loss carryforwards assumed as part of the Merger.
|
|
|
|
|
|
|
Total | |
|
|
| |
Gross carrying amount of goodwill, January 31, 2004
|
|
$ |
125,878 |
|
Impairment
|
|
|
(19,268 |
) |
Utilization of tax benefit
|
|
|
(326 |
) |
Other
|
|
|
(2,708 |
) |
|
|
|
|
Gross carrying amount of goodwill, January 31, 2005
|
|
|
103,576 |
|
Utilization of tax benefit
|
|
|
(7,922 |
) |
Other
|
|
|
(1,725 |
) |
|
|
|
|
Gross carrying amount of goodwill, January 31, 2006
|
|
$ |
93,929 |
|
|
|
|
|
Amortization expense for the next three fiscal years is expected
to be as follows (in thousands):
|
|
|
|
|
|
|
|
Amortization | |
Fiscal Year |
|
Expense | |
|
|
| |
2007
|
|
$ |
6,169 |
|
2008
|
|
|
1,625 |
|
2009
|
|
|
12 |
|
|
|
|
|
|
Total
|
|
$ |
7,806 |
|
|
|
|
|
Goodwill Impairment
In the fourth quarter of fiscal 2005, the Company evaluated the
fair value of goodwill. In November of 2004 the Company hired an
investment banker to actively market the Retail Certification
segment to third party buyers. However by January 31, 2005
the investment banker reported the efforts to sell the business
were unsuccessful. On March 14, 2005, the Company entered
into a non-binding letter of intent with respect to the sale of
the Companys Retail Certification segment. The terms of
the sale involve the transfer of certain assets and liabilities
of the business in exchange for nominal consideration and the
execution of a reseller agreement with the buyer. Consequently,
based on the Companys attempts to sell the business and
the results of a valuation done by an independent third party
valuation firm, it is the Companys conclusion that the
Retail Certification segment has no goodwill. The Company
recorded an impairment charge of approximately
$19.3 million in the fiscal year ended January 31,
2005.
The Company prepared a cash flow analysis for the MML segment
comparing the discounted cash flows to the net book values of
the direct assets, goodwill and intangible assets. The
discounted cash flows supported the direct assets, goodwill and
intangible assets of the MML segment. At January 31, 2005
and 2006, the Company concluded there was no impairment of
goodwill for the MML segment.
|
|
(6) |
Related Party Transactions |
CBT Technology
Approximately 9% of the outstanding share capital of CBT
Technology Limited (CBT T), one of the Companys Irish
subsidiaries, representing a special non-voting class, is owned
by Stargazer Productions (Stargazer), an unlimited company which
is wholly-owned by certain employees of SkillSoft PLC. These
employees do not include any of the Companys directors or
executive officers.
B-24
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
All of the voting securities of CBT T are owned by Fidalco
Limited, a wholly owned subsidiary of SkillSoft PLC and, except
for the securities owned by Fidalco Limited and Stargazer, there
are no other outstanding securities of CBT T. CBT T has in the
past and may in the future declare and pay dividends to
Stargazer, and Stargazer may pay dividends to its shareholders
out of such amounts. Dividend payments of approximately
$338,000, $196,000 and $0 were paid in the fiscal years ended
January 31, 2004, 2005 and 2006, respectively. Stargazer
does not have any rights to the assets of CBT T, only to receive
periodic dividends as and when declared by CBT T. Except for the
fact that Stargazer is wholly owned by certain key employees of
SkillSoft PLC, there is no relationship between SkillSoft PLC
and Stargazer.
Income/(loss) before provision/benefit for income taxes consists
of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
Ireland
|
|
$ |
(55,076 |
) |
|
$ |
(20,066 |
) |
|
$ |
13,178 |
|
United States
|
|
|
(61,995 |
) |
|
|
(5,994 |
) |
|
|
28,365 |
|
Rest of World
|
|
|
4,326 |
|
|
|
6,578 |
|
|
|
2,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(112,745 |
) |
|
$ |
(19,482 |
) |
|
$ |
44,345 |
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31 | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ireland
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
United States
|
|
|
50 |
|
|
|
56 |
|
|
|
7,992 |
|
Rest of World
|
|
|
479 |
|
|
|
482 |
|
|
|
968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
529 |
|
|
$ |
538 |
|
|
$ |
8,960 |
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ireland
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
United States
|
|
|
|
|
|
|
156 |
|
|
|
99 |
|
Rest of World
|
|
|
|
|
|
|
(63 |
) |
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
93 |
|
|
$ |
170 |
|
|
|
|
|
|
|
|
|
|
|
Tax provision
|
|
$ |
529 |
|
|
$ |
631 |
|
|
$ |
9,130 |
|
|
|
|
|
|
|
|
|
|
|
B-25
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net deferred tax assets and liabilities consist of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 31, | |
|
|
| |
|
|
2005 | |
|
2006 | |
|
|
| |
|
| |
Current
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$ |
11,433 |
|
|
$ |
10,822 |
|
Nondeductible expenses and reserves
|
|
|
(6,627 |
) |
|
|
(4,770 |
) |
|
|
|
|
|
|
|
|
|
|
18,060 |
|
|
|
15,592 |
|
Non-current
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$ |
139,031 |
|
|
$ |
127,815 |
|
Tax credits
|
|
|
3,326 |
|
|
|
5,612 |
|
Nondeductible non-goodwill intangibles
|
|
|
(3,497 |
) |
|
|
(2,008 |
) |
|
|
|
|
|
|
|
|
|
|
138,860 |
|
|
|
131,419 |
|
|
|
|
|
|
|
|
Total current and non-current
|
|
|
156,920 |
|
|
|
147,011 |
|
Less valuation allowance
|
|
|
(157,004 |
) |
|
|
(146,317 |
) |
|
|
|
|
|
|
|
|
|
$ |
(84 |
) |
|
$ |
694 |
|
|
|
|
|
|
|
|
The Company has recorded a deferred tax asset as of
January 31, 2006. The deferred tax asset is the result of
temporary differences arising in Canada of $949,000, partially
offset by $255,000 of U.S. deferred tax liabilities. The
Company has reduced its valuation allowance due to the
utilization of net operating losses and other temporary
differences to reduce U.S. taxable income. The Company
analyzes its deferred tax assets and liabilities and its
valuation allowances on a jurisdiction by jurisdiction basis.
Some jurisdictions have a history of profitability while others
have a history of losses. Additionally, in some jurisdictions we
anticipate future profitability while in others we do not.
The Company has considered all tax planning strategies available
to it when calculating its deferred tax assets and liabilities
and its valuation allowances.
A reconciliation of the Irish statutory rate to the
Companys effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
Income tax provision at statutory rate
|
|
|
12.0 |
% |
|
|
12.0 |
% |
|
|
12.0 |
% |
Increase (decrease) in tax resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State tax provision, net of federal benefit
|
|
|
(0.04 |
) |
|
|
(6.8 |
) |
|
|
4.50 |
|
Tax exempt legal settlements/(insurance proceeds)
|
|
|
3.38 |
|
|
|
0.0 |
|
|
|
(4.73 |
) |
Foreign differential
|
|
|
15.44 |
|
|
|
(21.4 |
) |
|
|
16.09 |
|
Nondeductible items, primarily goodwill impairment charge in 2005
|
|
|
0.0 |
|
|
|
(11.3 |
) |
|
|
1.95 |
|
Change in valuation allowance
|
|
|
(31.25 |
) |
|
|
24.3 |
|
|
|
(9.22 |
) |
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
(0.47 |
)% |
|
|
(3.2 |
)% |
|
|
20.59 |
% |
|
|
|
|
|
|
|
|
|
|
The Company accounts for income taxes using the liability method
in accordance with SFAS No. 109, Accounting
for Income Taxes (SFAS No. 109). Under the
liability method specified by SFAS No. 109, a deferred
tax asset or liability is determined based on the difference
between the financial statement and tax bases of assets and
liabilities, as measured by the enacted tax rates assumed to be
in effect when these differences are expected to reverse. A
deferred tax valuation allowance is required if it is more
likely than not that all or a portion of the recorded deferred
tax assets will not be realized.
B-26
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has recorded a total provision for income taxes in
2004, 2005 and 2006 of $529,000, $631,000 and $9.1 million,
respectively, primarily related to the use of acquired tax
assets, the benefit of which is realized through reductions to
goodwill, income generated in foreign countries, which cannot be
offset by loss carryforwards and tax exempt insurance proceeds
and legal settlements.
As of January 31, 2006, the Company has U.S. federal
net operating loss carryforwards of approximately
$314.0 million available to reduce future income taxes, if
any. The Company also has U.S. federal tax credit
carryforwards of approximately $5.6 million at
January 31, 2006. Additionally, the Company has
approximately $99.7 million of net operating loss
carryforwards in jurisdictions outside of the
U.S. Approximately $93.8 of these carryforwards are not
subject to expiration while the remainder of $319.9, if not
utilized, will expire at various dates through the year ending
January 31, 2025.
Included in the $314.0 million of U.S. federal net
operating loss carryforwards and U.S. federal tax credit
carryforwards of approximately $5.6 million, is
approximately $200.1 million of U.S. net operating
loss carryforwards and $365,000 of U.S. tax credit
carryforwards, respectively, that were acquired in the Merger
and the purchase of Books. In addition, included in the
$99.7 million of net operating loss carryforwards in
jurisdictions outside of the U.S., is approximately
$61.1 million of net operating loss carryforwards in
jurisdictions outside the U.S. acquired in the Merger and
the purchase of Books. The Company will realize the benefits of
these acquired net operating losses through reductions to
goodwill and non-goodwill intangibles during the period that the
losses are utilized.
Also included in the $314.0 million of U.S. federal
net operating loss carryforwards at January 31, 2006, is
approximately $28.0 million of net operating loss
carryforwards in the United States resulting from disqualifying
dispositions. The Company will realize the benefit of these
losses through increases to stockholders equity in the
periods in which the losses are utilized to reduce tax payments.
The Company completed several financings since its inception and
has incurred ownership changes as defined under Section 382
of the Internal Revenue Code. The Company completed an analysis
of these changes and does not believe that the changes will have
a material impact on its ability to use its net operating loss
and tax credit carryforwards.
The Company recorded as part of purchase accounting a deferred
tax liability of $7.4 million related to separately
identified intangible assets. Additionally, through purchase
accounting, the Company recognized a deferred tax asset of
$7.4 million relative to a portion of the net operating
losses acquired. Due to the Companys history of operating
losses, there is significant uncertainty surrounding the
Companys ability to utilize its net operating loss and tax
credit carryforwards. Accordingly, the Company has provided a
full valuation allowance against its otherwise realizable net
deferred tax assets as of January 31, 2005 and 2006.
The Company has a reserve for taxes that may become payable as a
result of audits in future periods with respect to previously
filed tax returns. The Company establishes the reserves based
upon managements assessment of exposure associated with
permanent tax differences and associated interest expense. The
tax reserves are analyzed periodically (at least annually) and
adjustments are made as events occur to warrant adjustment to
the reserve. For example, if the statutory period for assessing
tax on a given tax return or period lapses, the reserve
associated with that period will be reduced. In addition, the
adjustment to the reserve will reflect any additional exposure
based on current calculations.
The American Jobs Creation Act of 2004 (the Act)
introduced a special one-time dividend received deduction on the
repatriation of certain foreign earnings to a U.S. taxpayer
(repatriation provision), provided certain criteria are met. The
President signed the Act into law on October 22, 2004. The
Company is an Irish based Company and cannot take advantage of
the Act. The Companys current intention is to reinvest all
of the Companys unremitted earnings permanently and
therefore has not set up any deferred taxes on these earnings.
B-27
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(8) |
Commitments and Contingencies |
The Company leases its facilities and certain equipment and
furniture under operating lease agreements that expire at
various dates through 2023. The lease agreements frequently
include renewal clauses, escalation clauses and purchase
provisions and require the Company to pay taxes, insurances and
maintenance costs. Included in the accompanying statements of
operations is rent expense for leased facilities and equipment
of approximately $5.0 million, $5.6 million, and
$3.6 million for the fiscal years ended January 31,
2004, 2005 and 2006, respectively.
Future minimum lease payments under the operating lease
agreements are approximately as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
Fiscal year ended January 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$ |
4,730 |
|
|
$ |
467 |
|
|
$ |
5,197 |
|
2008
|
|
|
4,612 |
|
|
|
202 |
|
|
|
4,814 |
|
2009
|
|
|
4,069 |
|
|
|
17 |
|
|
|
4,086 |
|
2010
|
|
|
2,061 |
|
|
|
|
|
|
|
2,061 |
|
2011
|
|
|
1,668 |
|
|
|
|
|
|
|
1,668 |
|
Thereafter
|
|
|
13,101 |
|
|
|
|
|
|
|
13,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30,241 |
|
|
$ |
686 |
|
|
$ |
30,927 |
|
|
|
|
|
|
|
|
|
|
|
As of January 31, 2006 the Company had not entered into any
long-term agreements with third parties to provide services
and/or subject matter expertise.
SEC Investigation
On or about February 4, 2003, the SEC informed the Company
that it is the subject of a formal order of private
investigation relating to its November 19, 2002
announcement that it would restate the financial statements of
SmartForce PLC for the period 1999 through June 2002. The
Company understands that the SECs investigation concerns
SmartForces financial disclosure and accounting during
that period, other related matters, compliance with rules
governing reports required to be filed with the SEC, and the
conduct of those responsible for such matters. On June 2,
2005, the Boston District Office of the SEC informed the Company
that it had made a preliminary determination to recommend that
the SEC bring a civil injunctive action against the Company.
Under the SECs rules, the Company is permitted to make a
so-called Wells Submission in which the Company seeks to
persuade the SEC that no such action should be commenced. If the
Company cannot resolve the SECs potential claims by
agreement, the Company intends to make such a submission. The
Company continues to cooperate with the SEC in this matter. At
the present time the Company is unable to predict the outcome of
this action and as such has not determined what, if any, impact
it may have on its financial statements.
Lawsuits
On November 18, 2004, Jody Glidden, Michael LeBlanc and
Trish Glidden filed a lawsuit against the Company, David C.
Drummond, Gregory M. Priest, Patrick E. Murphy and Jack Hayes in
the United States
B-28
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
District Court for the Northern District of California. The
plaintiffs subsequently dismissed Patrick E. Murphy and Jack
Hayes from the lawsuit. The court subsequently dismissed Trish
Gliddens claims. The plaintiffs had previously opted out
of the class action settlement that received final approval from
the court on September 29, 2004. The lawsuit sets forth
substantially the same claims as were alleged in the class
action litigation. In particular, the lawsuit alleges that the
Company misrepresented or omitted to state material facts in its
SEC filings and press releases regarding the Companys
revenues and earnings and failed to correct such false and
misleading SEC filings and press releases, which are alleged to
have artificially inflated the price of the Companys ADSs
in connection with its acquisition of IC Global in early 2001.
The lawsuit sought compensatory damages in excess of
$3.7 million and other unspecified damages, including
punitive damages. The parties settled the lawsuit on
April 7, 2006. Pursuant to the settlement, the Company will
pay approximately $1.8 million to the plaintiffs by
April 17, 2006, which has been recorded as legal settlement
in our statement of operations for the year ended
January 31, 2006. Within five days of receipt of payment,
counsel for the plaintiffs will submit to the Court a
Stipulation and Request for Dismissal with Prejudice of the
action.
Six class action lawsuits have been filed against the Company
and certain of its current and former officers and directors
captioned: (1) Gianni Angeloni v. SmartForce PLC d/b/a
SkillSoft, William McCabe and Greg Priest; (2) Ari R.
Schloss v. SkillSoft PLC f/k/a SmartForce PLC, Gregory M.
Priest, Patrick E. Murphy, David C. Drummond and William G.
McCabe; (3) Joseph J. Bish v. SmartForce PLC d/b/a
SkillSoft, Gregory M. Priest, William G. McCabe, David C.
Drummond, John M. Grillos, John P. Hayes and Patrick E. Murphy;
(4) Stacey Cohen v. SmartForce PLC d/b/a SkillSoft,
William G. McCabe and Greg Priest; (5) Daniel
Schmelz v. SmartForce PLC d/b/a SkillSoft, William G.
McCabe and Greg Priest; and (6) John
ODonoghue v. SmartForce PLC d/b/a SkillSoft, William
G. McCabe and Greg Priest. Each lawsuit was filed in the United
States District Court for the District of New Hampshire. In
March 2004, the Company reached a settlement of this litigation
for total settlement payments of $30.5 million, with
one-half paid in August 2004 and the remainder expected to be
paid in fiscal 2007. In July 2005, the Company received
$19.5 million, which resulted from the final settlement
with the insurance carriers regarding the 2002 securities class
action lawsuit settlement of $30.5 million in March 2004
and the ongoing related litigation and SEC investigation. The
Company recorded the aggregate settlement with the plaintiffs as
a charge in its fiscal 2004 fourth quarter; and the settlement
with its insurers has been recorded in the fiscal 2006 second
quarter.
On December 1, 2003, the Company reached a settlement of
the class action litigation filed in 1998 in the United States
District Court for the Northern District of California against
the Company, one of its subsidiaries and certain of its former
and current officers and directors alleging violations of the
federal securities laws. Under the terms of the settlement, the
Company made a $10 million cash payment in January 2004 and
made an additional $6 million payment in fiscal 2005. The
Companys insurance carriers paid an additional
$16 million for total settlement payments of
$32 million. The court granted final approval of the
settlement, and the litigation was dismissed with prejudice on
February 27, 2004. The Company expensed the entire
settlement in the fiscal year ending January 31, 2004.
On July 21, 2003, the parties entered into a settlement
agreement, which resulted in a final dismissal and termination
of the NETg State Court Litigation and the NETg Patent
Litigation. Under the terms of the settlement agreement, the
Company has agreed to pay NETg an aggregate of $44 million
in two payments of $22 million each. The Company made the
first payment on July 25, 2003 and the second payment on
July 21, 2004. The Company also agreed not to make certain
specific modifications to its information technology training
courseware for a limited period of time. In exchange, SkillSoft
Corporation and the other defendants received complete but
conditional releases from any liability relating to the subject
matter of the NETg State Court Litigation or the NETg Patent
Litigation, or with certain exceptions, based on or arising from
the alleged use of any alleged NETg intellectual property. The
Company also received a perpetual, non-transferable,
non-exclusive license to develop, use, sell, offer for sale,
lease or offer to lease products or services
B-29
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
containing or embodying certain NETg technology or inventions
disclosed or described in certain NETg patent applications. The
Settlement Agreement provides that it is specifically
understood that two million dollars of the payments provided for
under the Settlement Agreement, shall be in respect of
such license. Under the terms of the settlement agreement, if
NETg was not compelled to return the first $22 million
payment on or before October 28, 2003, then the releases
would become unconditional, the NETg State Court Litigation
would be dismissed with prejudice and the NETg Patent Litigation
would not be pursued further. On October 29, 2003, the
state court entered the parties stipulation of dismissal,
and the action was dismissed with prejudice. The
above-referenced releases likewise became unconditional. The
Company expensed the entire settlement in the fiscal year ending
January 31, 2004.
In June 2003, the Company reached an agreement with IP Learn
regarding the settlement of the pending litigation pursuant to
which the Company obtained a license to use certain of IP
Learns patents. Under the terms of the settlement
agreement, the Company made a cash payment of $2.0 million
and issued 100,000 ordinary shares (which are represented by
ADSs). On or about November 18, 2003, pursuant to the
settlement agreement and a stipulation filed by the parties, the
court entered an order dismissing the lawsuits with prejudice.
The Company expensed the entire settlement in the fiscal year
ending January 31, 2004.
On October 23, 2003, the Company entered into a settlement
agreement with Lionet Limited. The Company recorded to expense
the entire settlement in the fiscal year ended January 31,
2004.
We are not a party to any other material legal proceedings.
From time to time, the Company is a party to or may be
threatened with other litigation in the ordinary course of its
business. The Company regularly analyzes current information,
including, as applicable, the Companys defenses and
insurance coverage and, as necessary, provides accruals for
probable and estimable liabilities for the eventual disposition
of these matters.
The Company entered into a $25 million two year, line of
credit with a bank on July 23, 2004, which was amended in
April 2005. Under the terms of the line of credit, the bank
holds a first security interest in all domestic business assets.
All borrowings under the line of credit bear interest at the
banks prime rate. The facility is subject to a commitment
fee of $50,000 to secure the line of credit and unused
commitment fees of 0.125% based upon the daily average of
un-advanced amounts under the revolving line of credit. The
Company paid approximately $12,000 in unused commitment fees for
the fiscal year ended January 31, 2006. In addition, the
line of credit contains certain financial and non-financial
covenants. The Company is currently in compliance with all
covenants. Also, the line of credit provides that in the event
of a Material Adverse Change (as defined in the line of credit),
the lender has the ability to call amounts outstanding under the
line of credit. As of January 31, 2006, there were no
borrowings on the line of credit; however the Company had an
outstanding letter of credit of $15.5 million that reduced
the availability under the line of credit. Letters of credit are
subject to commission fees of 0.75% as well as administrative
costs. The Company paid approximately $79,000 in letters of
credit fees in the fiscal year ended January 31, 2006.
|
|
(e) |
Delinquent Foreign Filings |
The Company operates in various foreign countries through
subsidiaries organized in those countries. Due to the
restatement of the historical SmartForce statutory financial
statements, some of the subsidiaries have not filed their
audited financial statements and have been delayed in filing
their tax returns in their respective jurisdictions. As a
result, some of these foreign subsidiaries may be subject to
regulatory restrictions, penalties and fines. The Company does
not believe such restrictions, penalties and fines, if any,
would have a material impact on the financial statements.
B-30
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company adopted the 1998 Stock Incentive Plan (the 1998
Plan), pursuant to which up to 7,402,071 shares of common
stock could have been issued. In July 2001, the Company adopted
the 2001 Stock Incentive Plan (the 2001 Plan), pursuant to which
up to 3,432,730 shares of common stock could have been
issued, subject to increase in accordance with the terms of the
2001 Plan. Under the 1998 Plan and the 2001 Plan, the Company
could have granted both incentive stock options and nonqualified
stock options, as well as award or sell shares of common stock
to employees, directors or outside consultants of the Company.
All option grants, prices and vesting periods are determined by
the Board of Directors or its designee. Incentive stock options
were to be granted at a price not less than 100% of the fair
market value of the common stock on the date of grant and not
less than 110% of the fair market value for a stockholder
holding more than 10% of the Companys voting common stock.
In connection with the acquisition of Books on December 28,
2001, the Company assumed the Books 1994 Stock Option Plan (the
1994 Plan), consisting of options to
purchase 808,799 shares, insofar as it related to
outstanding options. Under the 1994 Plan, options to acquire
ordinary shares in Books could have been granted to all
officers, other key employees, consultants and advisors. The
1994 Plan is administered by the Board of Directors. Options
under the Plan generally expire not later than 90 days
following termination of employment or service or 12 months
following the optionees death. There are certain
exceptions for exercises following retirement or death.
In connection with the Merger on September 6, 2002, the
Company assumed the SmartForce plans, consisting of options to
purchase 15,941,705 ordinary shares under various plans.
The following is a brief description of such plans:
|
|
|
|
|
Under the 1990 Share Option Scheme (the 1990 Plan), options
to acquire ordinary shares in the Company could have been
granted to any director or employee of the Company. The 1990
Plan has expired by its terms. |
|
|
|
Under the 1994 Share Option Plan (the 1994 Plan), all
employees and directors of the Company and any independent
contractor who performed services for the Company were eligible
to receive grants of non-statutory options (NSOs). Employees
were also eligible to receive grants of incentive share options
intended to qualify under Section 422 of the Internal
Revenue Code. The 1994 Plan has expired by terms. |
|
|
|
Under the 2001 Outside Director Plan (the Outside Director
Plan), all outside directors of the Company are eligible to
receive option grants upon appointment to the Board of Directors
and each subsequent year thereafter. |
|
|
|
Under the 1996 Supplemental Stock Plan (the 1996 Plan), all
employees, with the exception of directors and executive
officers, are eligible to receive grants of NSOs. |
|
|
|
Under the ForeFront92 Plan, (the FF92 Plan) NSOs and ISOs
were granted to any employee or director of ForeFront. The FF92
Plan has expired by terms. |
|
|
|
Under the ForeFront96 Plan, (the FF96 Plan) NSOs were granted to
employees and directors of ForeFront. The FF96 Plan has expired
by terms. |
|
|
|
Under the Forefront Directors 1996 Plan, (the
FF96 Directors Plan) non-employee directors were
eligible to receive grants of options to acquire common stock
upon election to the Board of Directors and each subsequent year
thereafter. The FF96 Directors Plan has expired by
terms. |
B-31
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Under the Knowledge Well Limited Plan, (the KWL Plan) and the
Knowledge Well Group Limited Plan, (the KWGL Plan), employees
and directors and any independent contractor who performs
services for Knowledge Well Limited (KWL) and Knowledge
Well Group Limited (KWGL) were eligible to receive grants of
NSOs. Employees of KWL and KWGL were also eligible to receive
grants of ISOs which were intended to qualify under
Section 422 of the Internal Revenue Code. |
The Plans are administered by the Compensation Committee of the
Board of Directors (the Committee). The terms of the options
granted under all plans, except for the Outside Director Plan,
are generally determined by the Committee, the Board of
Directors or a designee of the Board of Directors. All grants of
options under the Outside Director Plan are automatic and
nondiscretionary and are made strictly in accordance with the
provisions of the plan. The exercise price of options granted
under the 1990 Plan and ISOs granted under the 1994 Plan
cannot be less than the fair market value of ordinary shares on
the date of grant (as defined in the plans). In the case of ISOs
granted to holders of more than 10% of the voting power of the
Company the exercise price cannot be less than 110% of such fair
market value. Under the 1994 Plan, the exercise price of NSOs
may be set by the Committee at its discretion. The exercise
price of option grants under the Outside Director Plan is the
closing sales price for such shares (or the closing bid, if no
sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination.
The term of an option under the 1994, Outside Director, 1996,
FF92, FF96, KWL and KWGL Plans cannot exceed ten years and,
generally, the terms of an option under the 1990 Plan and
FF96 Directors Plan cannot exceed ten years. The term
of an ISO granted to a holder of more than 10% of the voting
power of the Company cannot exceed five years. An option may not
be exercised unless the option holder is at the date of
exercise, or within three months of the date of exercise has
been, a director, employee or contractor of the Company. There
are certain exceptions for exercises following retirement or
death. Options under the Plans generally expire not later than
30 to 90 days following termination of employment or
service or six months following an optionees death or
disability.
The following is a summary of the share options authorized,
outstanding and available to be granted under all of the
Companys share option plans as of January 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Name |
|
Authorized | |
|
Outstanding | |
|
Available for Grant | |
|
|
| |
|
| |
|
| |
1990 Share Option Scheme (the 1990 Plan)
|
|
|
4,700,000 |
|
|
|
166,148 |
|
|
|
|
|
1994 Share Option Plan (the 1994 Plan)
|
|
|
11,747,036 |
|
|
|
3,213,655 |
|
|
|
|
|
1996 Supplemental Stock Plan (the 1996 Plan)(1)
|
|
|
14,000,000 |
|
|
|
3,878,987 |
|
|
|
6,120,372 |
|
2001 Outside Director Option Plan (the Outside Director Plan)
|
|
|
750,000 |
|
|
|
295,000 |
|
|
|
448,750 |
|
1996 ForeFront Group Inc. Non-Qualified Stock Option Plan (the
FF96 Plan)(1)
|
|
|
798,924 |
|
|
|
|
|
|
|
342,823 |
|
Knowledge Well Limited 1998 Share Option Plan (the KWL
Plan)(1)
|
|
|
654,800 |
|
|
|
|
|
|
|
234,269 |
|
Knowledge Well Group Limited 1998 Share Option Plan (the
KWGL Plan)(1)
|
|
|
654,800 |
|
|
|
88 |
|
|
|
624,462 |
|
Books24x7.com, Inc. 1994 Stock Option Plan
|
|
|
867,436 |
|
|
|
60,476 |
|
|
|
|
|
1998 Stock Incentive Plan (the 1998 Plan)
|
|
|
7,402,071 |
|
|
|
1,026,130 |
|
|
|
|
|
2001 Stock Incentive Plan (the 2001 Plan)
|
|
|
11,354,512 |
|
|
|
6,741,095 |
|
|
|
|
|
2002 Stock Incentive Plan (the 2002 Plan)(1)
|
|
|
2,350,000 |
|
|
|
856,511 |
|
|
|
564,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,279,579 |
|
|
|
16,238,090 |
|
|
|
8,335,189 |
|
|
|
|
|
|
|
|
|
|
|
B-32
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(1) |
On March 23, 2006, the Companys shareholders approved
a resolution to transfer an aggregate of 5,100,000 shares
from certain non-shareholder approved plans to the 2002 Plan.
This includes 342,823 shares from the FF96 Plan,
624,462 shares from the KWGL Plan, 234,269 shares from
the KWL Plan and 3,898,446 shares from the 1996 Plan
available for grant. |
All stock option activity under the Plans for the fiscal years
ended January 31, 2004, 2005 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
|
|
|
|
|
Average | |
|
|
Shares | |
|
Exercise Price | |
|
Exercise Price | |
|
|
| |
|
| |
|
| |
Outstanding, January 31, 2003
|
|
|
25,426,235 |
|
|
$ |
0.11 |
|
|
- |
|
|
44.25 |
|
|
$ |
8.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,320,550 |
|
|
|
2.61 |
|
|
- |
|
|
8.65 |
|
|
|
4.41 |
|
|
Exercised
|
|
|
(1,530,657 |
) |
|
|
0.11 |
|
|
- |
|
|
8.19 |
|
|
|
3.40 |
|
|
Canceled
|
|
|
(3,179,306 |
) |
|
|
0.11 |
|
|
- |
|
|
41.13 |
|
|
|
13.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 31, 2004
|
|
|
23,036,822 |
|
|
$ |
0.11 |
|
|
- |
|
|
44.25 |
|
|
$ |
7.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,713,800 |
|
|
|
2.82 |
|
|
- |
|
|
12.99 |
|
|
|
10.78 |
|
|
Exercised
|
|
|
(3,816,626 |
) |
|
|
0.11 |
|
|
- |
|
|
11.60 |
|
|
|
4.70 |
|
|
Canceled
|
|
|
(1,957,494 |
) |
|
|
0.25 |
|
|
- |
|
|
43.12 |
|
|
|
12.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 31, 2005
|
|
|
18,976,502 |
|
|
$ |
0.11 |
|
|
- |
|
|
44.25 |
|
|
$ |
8.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
271,550 |
|
|
|
3.04 |
|
|
- |
|
|
5.65 |
|
|
|
4.06 |
|
|
Exercised
|
|
|
(370,925 |
) |
|
|
0.11 |
|
|
- |
|
|
4.12 |
|
|
|
2.29 |
|
|
Canceled
|
|
|
(2,639,037 |
) |
|
|
0.25 |
|
|
- |
|
|
42.38 |
|
|
|
12.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 31, 2006
|
|
|
16,238,090 |
|
|
$ |
0.11 |
|
|
- |
|
|
44.25 |
|
|
$ |
7.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, January 31, 2006
|
|
|
15,189,336 |
|
|
$ |
0.11 |
|
|
- |
|
$ |
44.25 |
|
|
$ |
7.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, January 31, 2005
|
|
|
12,083,373 |
|
|
$ |
0.11 |
|
|
- |
|
$ |
44.25 |
|
|
$ |
9.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, January 31, 2004
|
|
|
12,117,780 |
|
|
$ |
0.11 |
|
|
- |
|
$ |
44.25 |
|
|
$ |
10.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-33
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes certain information relating to
the outstanding and exercisable options as of January 31,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding | |
|
Exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
|
|
|
|
|
Average | |
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
Remaining | |
|
Average | |
|
|
|
Average | |
|
|
Number of | |
|
Contractual | |
|
Exercise | |
|
Number of | |
|
Exercise | |
Range of Exercise Prices |
|
Shares | |
|
Life (Years) | |
|
Price | |
|
Shares | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
$ 0.11-$ 3.30
|
|
|
1,797,921 |
|
|
|
6.30 |
|
|
$ |
2.88 |
|
|
|
1,569,482 |
|
|
$ |
2.82 |
|
$ 3.34-$ 3.66
|
|
|
1,180,987 |
|
|
|
6.91 |
|
|
|
3.64 |
|
|
|
1,180,987 |
|
|
|
3.64 |
|
$ 3.72-$ 4.06
|
|
|
4,360,368 |
|
|
|
6.60 |
|
|
|
4.05 |
|
|
|
3,687,137 |
|
|
|
4.05 |
|
$ 4.07-$ 6.12
|
|
|
1,923,632 |
|
|
|
6.03 |
|
|
|
5.45 |
|
|
|
1,815,298 |
|
|
|
5.45 |
|
$ 6.18-$ 6.84
|
|
|
1,641,137 |
|
|
|
5.69 |
|
|
|
6.37 |
|
|
|
1,641,137 |
|
|
|
6.37 |
|
$ 6.91-$11.01
|
|
|
1,623,870 |
|
|
|
5.27 |
|
|
|
9.25 |
|
|
|
1,585,120 |
|
|
|
9.24 |
|
$11.14-$16.44
|
|
|
2,352,658 |
|
|
|
5.73 |
|
|
|
13.65 |
|
|
|
2,352,658 |
|
|
|
13.65 |
|
$17.00-$44.25
|
|
|
1,357,517 |
|
|
|
4.45 |
|
|
|
22.27 |
|
|
|
1,357,517 |
|
|
|
22.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.11-$44.25
|
|
|
16,238,090 |
|
|
|
5.99 |
|
|
$ |
7.73 |
|
|
|
15,189,336 |
|
|
$ |
7.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the purchase of Books on December 28,
2001, the Company assumed the Books 1994 Stock Option Plan,
consisting of options to purchase 808,799 shares,
insofar as it related to outstanding options. These options were
valued at $6,376,000 using the Black-Scholes option pricing
model, and were included in the determination of consideration
paid. In addition, the Company recorded deferred compensation of
$1,752,000, which represents the intrinsic value of unvested
options assumed in the transaction. The deferred compensation is
being amortized to expense over the vesting period of the stock
options. The Company recorded compensation expense of
approximately $583,000, $236,000 and $25,000 in the years ended
January 31, 2004, 2005 and 2006, respectively, related to
these options.
In connection with the Merger on September 6, 2002, the
Company assumed all the SmartForce stock option plans consisting
of options to purchase 15,941,705 shares. These
options were valued at approximately $38,900,000 using the
Black-Scholes option pricing model, and were included in the
determination of consideration paid. In addition, the Company
recorded deferred compensation of $3,416,000, which represents
the intrinsic value of unvested options assumed in the
transaction. The deferred compensation is being amortized to
expense over the vesting period of the stock options. The
Company recorded compensation expense of approximately $890,000,
$880,000 and $832,000 in the years ended January 31, 2004,
2005 and 2006 respectively, related to these options.
Dividends may only be declared and paid out of profits available
for distribution determined in accordance with accounting
principles generally accepted in Ireland and applicable Irish
Company Law. There are no material restrictions on the
distribution of income or retained earnings by the consolidated
group of companies of the Company. Any dividends, if and when
declared, will be declared and paid in dollars.
The Company recorded a compensation charge of $274,000 in the
fiscal year ended January 31, 2004 due to the extension of
certain option agreements until the Registration Statement on
Form S-8 covering
such option agreements, which was suspended as a result of the
delay in filing a
Form 8-K/ A
containing the historical SmartForce financial statements, was
again available for use.
In the fourth quarter of fiscal 2006 the Company accelerated all
previously outstanding unvested share options previously awarded
to employees (excluding unvested share options held by executive
officers and directors). The acceleration of vesting was
effected in order to avoid a negative impact to the
Companys income statement upon adoption of SFAS 123R
in fiscal 2007.
B-34
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(b) |
Employee Share Purchase Plan |
The Company maintains an Employee Share Purchase Plan (the
Purchase Plan) pursuant to which participants are
generally granted options to purchase ordinary shares on the
last business day of each six-month offering period ending each
September 30 and March 31 at 85% of the market price
of the ADSs on the first or last trading day of each offering
period, whichever is less. The purchase price for such shares is
paid through payroll deductions, and the current maximum
allowable payroll deduction is 20% of each eligible
employees eligible compensation. As of January 31,
2006, there were 1,734,500 shares available for future
issuance under the Purchase Plan.
|
|
(10) |
Employee Benefit Plan |
The Company has a 401(k) plan covering all US-based employees of
the Company who have met certain eligibility requirements. Under
the terms of the 401(k) plan, the employees may elect to make
tax-deferred contributions to the 401(k) plan. In addition, the
Company may match employee contributions, as determined by the
Board of Directors of SkillSoft Corporation, and may make a
discretionary contribution to the 401(k) plan. Under this plan,
contributions of approximately $32,000, $0 and $70,000 were made
for the fiscal years ended January 31, 2004, 2005 and 2006,
respectively.
|
|
(11) |
Disclosures About Segments of an Enterprise |
The Company follows the provisions of SFAS No. 131.
SFAS No. 131 established standards for reporting
information regarding operating segments in annual financial
statements and requires selected information for those segments
to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also established standards
for related disclosures about products and services and
geographic areas. Operating segments are identified as
components of an enterprise about which separate discrete
financial information is available for evaluation by the chief
operating decision maker, or decision-making group, in making
decisions how to allocate resources and assess performance. The
Companys chief operating decision makers, as defined under
SFAS No. 131, are the Chief Executive Officer, Chief
Financial Officer and the Chief Operating Officer. The Company
views its operations and manages its business as principally two
operating segments: MML and retail certification. On
April 29, 2005, the Company sold certain assets and
transferred certain liabilities related to its Retail
Certification business and incurred a $608,000 loss on
disposition in fiscal 2006. The sale resulted in a reduction in
Retail Certification revenue in fiscal 2006 of approximately
$5.8 million and the Company expects that trend to continue
with a reduction in Retail Certification revenue of
approximately $9.0 million in fiscal 2007 when compared to
fiscal 2006.
B-35
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables set forth the Companys statements of
operations for the fiscal years ended January 31, 2004,
2005 and 2006 by segment with additional disclosures as required
by SFAS No. 131:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2004 | |
|
|
| |
|
|
Multi-Modal | |
|
Retail Certification | |
|
Combined | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Revenue
|
|
$ |
180,098 |
|
|
$ |
13,377 |
|
|
$ |
193,475 |
|
Cost of revenues
|
|
|
17,825 |
|
|
|
572 |
|
|
|
18,397 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
162,273 |
|
|
|
12,805 |
|
|
|
175,078 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
53,627 |
|
|
|
|
|
|
|
53,627 |
|
|
Selling and marketing
|
|
|
74,556 |
|
|
|
12,976 |
|
|
|
87,532 |
|
|
General and administrative
|
|
|
25,660 |
|
|
|
2,223 |
|
|
|
27,883 |
|
|
Legal settlements
|
|
|
93,750 |
|
|
|
|
|
|
|
93,750 |
|
|
Amortization of share-based compensation
|
|
|
1,986 |
|
|
|
|
|
|
|
1,986 |
|
|
Amortization of intangible assets
|
|
|
10,072 |
|
|
|
|
|
|
|
10,072 |
|
|
Impairment charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other non-recurring items
|
|
|
1,857 |
|
|
|
|
|
|
|
1,857 |
|
|
Restatement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC investigation
|
|
|
1,898 |
|
|
|
|
|
|
|
1,898 |
|
|
|
Other professional fees
|
|
|
14,473 |
|
|
|
|
|
|
|
14,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
277,879 |
|
|
|
15,199 |
|
|
|
293,078 |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$ |
(115,606 |
) |
|
$ |
(2,394 |
) |
|
$ |
(118,000 |
) |
|
|
|
|
|
|
|
|
|
|
Supplemental segment disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
529 |
|
|
|
|
|
|
|
529 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and stock based compensation expense
|
|
$ |
20,908 |
|
|
$ |
479 |
|
|
$ |
21,387 |
|
|
|
|
|
|
|
|
|
|
|
B-36
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables set forth the Companys supplemental
balance sheet information by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31, 2004 | |
|
|
| |
|
|
Multi-Modal | |
|
Retail Certification | |
|
Combined | |
|
|
| |
|
| |
|
| |
Current assets, net
|
|
$ |
171,620 |
|
|
$ |
12,298 |
|
|
$ |
183,918 |
|
Property and equipment, net
|
|
|
6,272 |
|
|
|
175 |
|
|
|
6,447 |
|
Goodwill
|
|
|
106,602 |
|
|
|
19,276 |
|
|
|
125,878 |
|
Other assets
|
|
|
26,135 |
|
|
|
|
|
|
|
26,135 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated assets
|
|
$ |
310,629 |
|
|
$ |
31,749 |
|
|
$ |
342,378 |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$ |
215,111 |
|
|
$ |
17,922 |
|
|
$ |
233,033 |
|
Long-term liabilities
|
|
|
23,510 |
|
|
|
77 |
|
|
|
23,587 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
238,621 |
|
|
|
17,999 |
|
|
|
256,620 |
|
Stockholders equity
|
|
|
72,008 |
|
|
|
13,750 |
|
|
|
85,758 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated liabilities and stockholders equity
|
|
$ |
310,629 |
|
|
$ |
31,749 |
|
|
$ |
342,378 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental segment disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
$ |
3,490 |
|
|
$ |
153 |
|
|
$ |
3,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2005 | |
|
|
| |
|
|
Multi-Modal | |
|
Retail Certification | |
|
Combined | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Revenue
|
|
$ |
192,135 |
|
|
$ |
20,165 |
|
|
$ |
212,300 |
|
Cost of revenues
|
|
|
21,269 |
|
|
|
455 |
|
|
|
21,724 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
170,866 |
|
|
|
19,710 |
|
|
|
190,576 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
45,306 |
|
|
|
269 |
|
|
|
45,575 |
|
|
Selling and marketing
|
|
|
80,147 |
|
|
|
13,339 |
|
|
|
93,486 |
|
|
General and administrative
|
|
|
23,286 |
|
|
|
1,876 |
|
|
|
25,162 |
|
|
Amortization of share-based compensation
|
|
|
1,191 |
|
|
|
|
|
|
|
1,191 |
|
|
Amortization of intangible assets
|
|
|
9,575 |
|
|
|
|
|
|
|
9,575 |
|
|
Impairment charge
|
|
|
|
|
|
|
19,268 |
|
|
|
19,268 |
|
|
Restructuring
|
|
|
13,361 |
|
|
|
|
|
|
|
13,361 |
|
|
Restatement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC investigation
|
|
|
2,182 |
|
|
|
|
|
|
|
2,182 |
|
|
|
Other professional fees
|
|
|
320 |
|
|
|
|
|
|
|
320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
175,368 |
|
|
|
34,752 |
|
|
|
210,120 |
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$ |
(4,502 |
) |
|
$ |
(15,042 |
) |
|
$ |
(19,544 |
) |
|
|
|
|
|
|
|
|
|
|
Supplemental segment disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
626 |
|
|
|
5 |
|
|
|
631 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and stock based compensation expense
|
|
$ |
15,447 |
|
|
$ |
98 |
|
|
$ |
15,545 |
|
|
|
|
|
|
|
|
|
|
|
B-37
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables set forth the Companys supplemental
balance sheet information by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31, 2005 | |
|
|
| |
|
|
Multi-Modal | |
|
Retail Certification | |
|
Combined | |
|
|
| |
|
| |
|
| |
Current assets, net
|
|
$ |
154,010 |
|
|
$ |
11,600 |
|
|
$ |
165,610 |
|
Property and equipment, net
|
|
|
9,011 |
|
|
|
126 |
|
|
|
9,137 |
|
Goodwill
|
|
|
103,576 |
|
|
|
|
|
|
|
103,576 |
|
Other assets
|
|
|
25,174 |
|
|
|
|
|
|
|
25,174 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated assets
|
|
$ |
291,771 |
|
|
$ |
11,726 |
|
|
$ |
303,497 |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$ |
195,582 |
|
|
$ |
16,782 |
|
|
$ |
212,364 |
|
Long-term liabilities
|
|
|
6,174 |
|
|
|
40 |
|
|
|
6,214 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
201,756 |
|
|
|
16,822 |
|
|
|
218,578 |
|
Stockholders equity
|
|
|
90,015 |
|
|
|
(5,096 |
) |
|
|
84,919 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated liabilities and stockholders equity
|
|
$ |
291,771 |
|
|
$ |
11,726 |
|
|
$ |
303,497 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental segment disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$ |
7,476 |
|
|
$ |
118 |
|
|
$ |
7,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2006 | |
|
|
| |
|
|
Multi-Modal | |
|
Retail Certification | |
|
Combined | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Revenue
|
|
$ |
201,236 |
|
|
$ |
14,331 |
|
|
$ |
215,567 |
|
Cost of revenues
|
|
|
25,103 |
|
|
|
204 |
|
|
|
25,307 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
176,133 |
|
|
|
14,127 |
|
|
|
190,260 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
38,985 |
|
|
|
|
|
|
|
38,985 |
|
|
Selling and marketing
|
|
|
84,988 |
|
|
|
2,776 |
|
|
|
87,764 |
|
|
General and administrative
|
|
|
25,346 |
|
|
|
399 |
|
|
|
25,745 |
|
|
Legal settlements/(insurance recoveries)
|
|
|
(17,710 |
) |
|
|
|
|
|
|
(17,710 |
) |
|
Amortization of share-based compensation
|
|
|
892 |
|
|
|
|
|
|
|
892 |
|
|
Amortization of intangible assets
|
|
|
9,113 |
|
|
|
|
|
|
|
9,113 |
|
|
Restructuring
|
|
|
123 |
|
|
|
518 |
|
|
|
641 |
|
|
Restatement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC investigation
|
|
|
1,988 |
|
|
|
|
|
|
|
1,988 |
|
|
|
Other professional fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
143,725 |
|
|
|
3,693 |
|
|
|
147,418 |
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
32,408 |
|
|
$ |
10,434 |
|
|
$ |
42,842 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental segment disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
9,130 |
|
|
|
|
|
|
|
9,130 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and share-based compensation expense
|
|
$ |
15,212 |
|
|
$ |
17 |
|
|
$ |
15,229 |
|
|
|
|
|
|
|
|
|
|
|
B-38
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables set forth the Companys supplemental
balance sheet information by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31, 2006 | |
|
|
| |
|
|
Multi-Modal | |
|
Retail Certification | |
|
Combined | |
|
|
| |
|
| |
|
| |
Current assets, net
|
|
$ |
186,065 |
|
|
$ |
|
|
|
$ |
186,065 |
|
Property and equipment, net
|
|
|
10,231 |
|
|
|
|
|
|
|
10,231 |
|
Goodwill
|
|
|
93,929 |
|
|
|
|
|
|
|
93,929 |
|
Other assets
|
|
|
9,677 |
|
|
|
|
|
|
|
9,677 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated assets
|
|
$ |
299,902 |
|
|
$ |
|
|
|
$ |
299,902 |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$ |
189,091 |
|
|
$ |
5,222 |
|
|
$ |
194,313 |
|
Long-term liabilities
|
|
|
3,317 |
|
|
|
|
|
|
|
3,317 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
192,408 |
|
|
|
5,222 |
|
|
|
197,630 |
|
Stockholders equity
|
|
|
107,494 |
|
|
|
(5,222 |
) |
|
|
102,272 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated liabilities and stockholders equity
|
|
$ |
299,902 |
|
|
$ |
|
|
|
$ |
299,902 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental segment disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$ |
6,423 |
|
|
$ |
|
|
|
$ |
6,423 |
|
|
|
|
|
|
|
|
|
|
|
Geographical Reporting
The Company attributes revenues to different geographical areas
on the basis of the location of the customer. Revenues by
geographic area are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
156,121 |
|
|
$ |
165,871 |
|
|
$ |
168,525 |
|
United Kingdom
|
|
|
9,785 |
|
|
|
20,219 |
|
|
|
22,838 |
|
Canada
|
|
|
6,801 |
|
|
|
8,274 |
|
|
|
9,147 |
|
Europe, excluding UK
|
|
|
14,231 |
|
|
|
7,244 |
|
|
|
4,793 |
|
Australia/ New Zealand
|
|
|
5,086 |
|
|
|
6,885 |
|
|
|
7,691 |
|
Other (Countries less than 5% individually, by region)
|
|
|
1,451 |
|
|
|
3,807 |
|
|
|
2,573 |
|
|
|
|
|
|
|
|
|
|
|
All Foreign Locations
|
|
|
37,354 |
|
|
|
46,429 |
|
|
|
47,042 |
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
193,475 |
|
|
$ |
212,300 |
|
|
$ |
215,567 |
|
|
|
|
|
|
|
|
|
|
|
Long-lived tangible assets at international facilities are not
significant.
B-39
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(12) |
Prepaid Expenses and Other Current Assets |
Prepaid expenses and other current assets in the accompanying
consolidated balance sheets consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
January 31, | |
|
|
| |
|
|
2005 | |
|
2006 | |
|
|
| |
|
| |
Other receivables
|
|
$ |
1,225 |
|
|
$ |
485 |
|
Prepaid commissions and recoverable sales draw
|
|
|
13,613 |
|
|
|
15,427 |
|
Prepaid insurances
|
|
|
1,964 |
|
|
|
1,559 |
|
Prepaid facilities
|
|
|
617 |
|
|
|
408 |
|
Reclaimable taxes
|
|
|
1,731 |
|
|
|
1,395 |
|
Prepaid royalties
|
|
|
252 |
|
|
|
157 |
|
Other
|
|
|
3,257 |
|
|
|
2,575 |
|
|
|
|
|
|
|
|
|
Total prepaid expenses and other current assets
|
|
$ |
22,659 |
|
|
$ |
22,006 |
|
|
|
|
|
|
|
|
|
|
(13) |
Accrued Expenses Current |
Accrued expenses in the accompanying consolidated balance sheets
consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
January 31, | |
|
|
| |
|
|
2005 | |
|
2006 | |
|
|
| |
|
| |
Accrued compensation and benefits
|
|
$ |
20,415 |
|
|
$ |
15,984 |
|
Course development fees
|
|
|
2,205 |
|
|
|
1,170 |
|
Professional fees
|
|
|
2,788 |
|
|
|
2,989 |
|
Accrued payables
|
|
|
1,798 |
|
|
|
1,254 |
|
Accrued miscellaneous taxes
|
|
|
238 |
|
|
|
395 |
|
Accrued merger related costs*
|
|
|
5,271 |
|
|
|
2,977 |
|
Sales tax payable/ VAT payable
|
|
|
3,864 |
|
|
|
4,193 |
|
Accrued royalties
|
|
|
2,422 |
|
|
|
3,129 |
|
Accrued litigation settlements
|
|
|
15,250 |
|
|
|
17,040 |
|
Accrued restructuring
|
|
|
8,005 |
|
|
|
810 |
|
Other accrued liabilities
|
|
|
4,739 |
|
|
|
3,854 |
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$ |
66,995 |
|
|
$ |
53,795 |
|
|
|
|
|
|
|
|
|
|
* |
Includes $1,684 and $1,584 of accrued income taxes in
January 31, 2005 and 2006, respectively. |
B-40
SKILLSOFT PUBLIC LIMITED COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(14) |
Valuation & Qualifying Accounts |
|
|
|
Allowance for Doubtful Accounts (amounts in
thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at | |
|
Net provision | |
|
|
|
Balance | |
|
|
Beginning | |
|
added/(credited | |
|
|
|
at End | |
|
|
of Period | |
|
without utiliazation) | |
|
Write-offs | |
|
of Period | |
|
|
| |
|
| |
|
| |
|
| |
Year ended January 31, 2004
|
|
$ |
848 |
|
|
$ |
293 |
|
|
$ |
(70 |
) |
|
$ |
1,071 |
|
Year ended January 31, 2005
|
|
$ |
1,071 |
|
|
$ |
335 |
|
|
$ |
(23 |
) |
|
$ |
1,383 |
|
Year ended January 31, 2006
|
|
$ |
1,383 |
|
|
$ |
254 |
|
|
$ |
(850 |
) |
|
$ |
787 |
|
|
|
(15) |
Share Repurchase Program |
In fiscal 2005, the Companys shareholders approved the
repurchase by the Company of up to an aggregate of 7,000,000
ADSs. The Company repurchased 6,533,884 and 443,757 shares
at January 31, 2006 and January 31, 2005,
respectively. The program expired on March 24, 2006. On
March 23, 2006, the Companys shareholders approved
the renewal and extension of the program and the repurchase by
the Company of up to an aggregate of 3,500,000 ADSs. Currently,
none of the shares under the renewed program have been
repurchased and as a result 3,500,000 are available for
repurchase, subject to certain limitations, under the
shareholder approved program.
|
|
(16) |
Concentration of Suppliers |
The Company relies on a limited number of independent third
parties to provide educational content for a majority of the
courses based on learning objectives and specific instructional
design templates that the Company provides to them. The failure
to maintain or expand the current development alliances or enter
into new development alliances could adversely affect the
Companys operating results and financial condition.
B-41
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
No. |
|
Title |
|
|
|
|
2 |
.1 |
|
Agreement and Plan of Merger, dated as of June 10, 2002, by
and among SmartForce Public Limited Company, SkillSoft
Corporation and Slate Acquisition Corp. (Incorporated by
reference to exhibit 2.1 to SkillSoft PLCs Current
Report on Form 8-K dated June 14, 2002 (File
No. 000-25674)). |
|
3 |
.1 |
|
Memorandum of Association of SkillSoft PLC as amended on
March 24, 1992, March 31, 1995, April 28, 1998,
January 26, 2000, July 10, 2001, September 6,
2002 and November 19, 2002 (Incorporated by reference to
exhibit 3.1 to SkillSoft PLCs Quarterly Report on
Form 10-Q for the fiscal quarter ended October 31,
2002 as filed with the Securities and Exchange Commission on
January 21, 2003 (File No. 000-25674)). |
|
3 |
.2 |
|
Articles of Association of SkillSoft PLC as amended on
July 6, 1995, and April 28, 1998, January 26,
2000, July 10, 2001, September 6, 2002 and
November 19, 2002 (Incorporated by reference to
exhibit 3.2 to SkillSoft PLCs Quarterly Report on
Form 10-Q for the fiscal quarter ended October 31,
2002 as filed with the Securities and Exchange Commission on
January 21, 2003 (File No. 000-25674)). |
|
4 |
.1 |
|
Specimen certificate representing the ordinary shares of
SkillSoft PLC (Incorporated by reference to exhibit 4.1 to
SkillSoft PLCs Annual Report on Form 10-K for the
fiscal year ended January 31, 2003 as filed with the
Securities and Exchange Commission on April 29, 2003 (File
No. 000-25674)). |
|
4 |
.2 |
|
Amended and Restated Deposit Agreement (including the form of
American Depositary Receipt), dated as of April 13, 1995 as
amended and restated as of September 4, 2002, among
SkillSoft PLC, The Bank of New York, as Depositary, and each
Owner and Beneficial Owner from time to time of American
Depositary Receipts issued thereunder (Incorporated by reference
to Exhibit 4.1 to SkillSoft PLCs Current Report on
Form 8-K dated September 4, 2002 (File
No. 000-256740)). |
|
4 |
.3 |
|
Amended and Restated Restricted Deposit Agreement (including the
form of American Depositary Receipt), dated as of
November 30, 1995 and amended and restated as of
September 4, 2002, among SkillSoft PLC, The Bank of New
York, as Depositary, and each Owner and Beneficial Owner from
time to time of American Depositary Receipts issued thereunder
(Incorporated by reference to exhibit 4.2 to SkillSoft
PLCs Current Report on Form 8-K dated
September 4, 2002 (File No. 000-25674)). |
|
4 |
.4 |
|
Restricted Deposit Agreement (B) dated as of June 8, 1998
and amended and restated as of September 4, 2002 among
SkillSoft PLC, The Bank of New York, and the owners and
beneficial owners of Restricted American Depositary Receipts
(Incorporated by reference to Exhibit 4.3 to SkillSoft
PLCs Current Report on Form 8-K dated
September 4, 2002 (File No. 000-25674)). |
|
10 |
.1** |
|
1990 Share Option Scheme (Incorporated by reference to
exhibit 10.1 to SkillSoft PLCs Registration Statement
on Form F-1 declared effective with the Securities and
Exchange Commission on April 13, 1995 (File
No. 333-89904)). |
|
10 |
.2** |
|
1994 Share Option Plan (Incorporated be reference to
exhibit 10.2 to SkillSoft PLCs Registration Statement
on Form F-1 declared effective with the Securities and
Exchange Commission on April 13, 1995 (File
No. 333-89904)). |
|
10 |
.3** |
|
Form of Indemnification Agreement between CBT Systems USA, Ltd.
(formerly, Thornton Holdings, Ltd.) and its directors and
officers dated as of April 1995 (Incorporated by reference to
exhibit 10.5 to SkillSoft PLCs Registration Statement
on Form F-1 declared effective with the Securities and
Exchange Commission on April 13, 1995 (File
No. 333-89904)). |
|
10 |
.4** |
|
Form of Indemnification Agreement between SmartForce (USA) and
its directors and officers dated as of September 6, 2002
(Incorporated by reference to exhibit 10.5 to SkillSoft
PLCs Annual Report on Form 10-K for the fiscal year
ended January 31, 2003 as filed with the Securities and
Exchange Commission on April 29, 2003 (File
No. 000-25674)). |
|
10 |
.5** |
|
1996 Supplemental Stock Plan. |
|
10 |
.6** |
|
2002 Share Option Plan, as amended. |
|
|
|
|
|
Exhibit |
|
|
No. |
|
Title |
|
|
|
|
10 |
.7** |
|
2001 Outside Director Option Plan, as amended (Incorporated by
reference to exhibit 99.1 to SkillSoft PLCs Current
Report on Form 8-K as filed with the Securities and
Exchange Commission on January 4, 2006 (File
No. 000-25674)). |
|
10 |
.8** |
|
Amended and Restated Employment Agreement dated June 10,
2002 between SkillSoft PLC and Gregory M. Priest (Incorporated
by reference to exhibit 10.30 to SkillSoft PLCs
Amendment No. 1 to Registration Statement on Form S-4
as filed with the Securities and Exchange Commission on
July 30, 2002 (File No. 333-90872)). |
|
10 |
.9** |
|
Employment Agreement dated June 10, 2002 between SkillSoft
PLC and Charles E. Moran (Incorporated by reference to
exhibit 10.31 to SkillSoft PLCs Amendment No. 1
to Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission on July 30, 2002 (File
No. 333-90872)). |
|
10 |
.10** |
|
Employment Agreement dated as of June 10, 2002 between
SkillSoft PLC and Jerald A. Nine, Jr. (Incorporated by
reference to exhibit 10.33 to SkillSoft PLCs
Amendment No. 1 to Registration Statement on Form S-4
as filed with the Securities and Exchange Commission on
July 30, 2002 (File No. 333-90872)). |
|
10 |
.11 |
|
Registration Rights Agreement dated as of June 10, 2002
between SkillSoft PLC and Warburg Pincus Ventures, L.P.
(Incorporated by reference to exhibit 10.27 to SkillSoft
PLCs Amendment No. 1 to Registration Statement on
Form S-4 as filed with the Securities and Exchange
Commission on July 30, 2002 (File No. 333-90872)). |
|
10 |
.12** |
|
Employment Agreement dated January 12, 1998 between
SkillSoft Corporation and Mark A. Townsend (Incorporated by
reference to exhibit 10.15 to SkillSoft PLCs Annual
Report on Form 10-K for the fiscal year ended
January 31, 2003 as filed with the Securities and Exchange
Commission on April 29, 2003 (File No. 000-25674)). |
|
10 |
.13** |
|
Employment Agreement dated January 12, 1998 between
SkillSoft Corporation and Thomas J. McDonald (Incorporated by
reference to exhibit 10.16 to SkillSoft PLCs Annual
Report on Form 10-K for the fiscal year ended
January 31, 2003 as filed with the Securities and Exchange
Commission on April 29, 2003 (File No. 000-25674)). |
|
10 |
.14** |
|
Employment Agreement dated effective September 6, 2002
between SkillSoft PLC and Colm Darcy (Incorporated by reference
to exhibit 10.17 to SkillSoft PLCs Annual Report on
Form 10-K for the fiscal year ended January 31, 2003
as filed with the Securities and Exchange Commission on
April 29, 2003 (File No. 000-25674)). |
|
10 |
.15 |
|
Lease dated May 25, 2001, as amended between 1987 Tamposi
Limited Partnership and SkillSoft Corporation. |
|
10 |
.16** |
|
Indemnification Agreement, dated November 13, 2003, by and
between SkillSoft Corporation and P. Howard Edelstein
(Incorporated by reference from exhibit 10.2 to SkillSoft
PLCs Quarterly Report on Form 10-Q for the quarter
ended October 31, 2003 as filed with the Securities and
Exchange Commission on December 15, 2003 (File No.
000-25674)). |
|
10 |
.17** |
|
Indemnification Agreement, dated March 4, 2004, by and
between SkillSoft Corporation and William Meagher. (Incorporated
by reference from exhibit 10.27 to SkillSoft PLCs
Annual Report on Form 10-K for the fiscal year ended
January 31, 2004 as filed with the Securities and Exchange
Commission on April 15, 2004 (File No. 000-25674)). |
|
10 |
.18** |
|
Amended and Restated Summary of Director Compensation
(Incorporated by reference from exhibit 99.1 to SkillSoft
PLCs Current Report on Form 8-K as filed with the
Securities and Exchange Commission on March 28, 2006 (File
No. 000-25674)). |
|
10 |
.19 |
|
Lease agreement, dated June 9, 2004, as amended, by and
between Hewlett-Packard Company and SkillSoft Corporation. |
|
10 |
.20 |
|
Loan and Security Agreement, dated July 23, 2004, as
amended, by and between Silicon Valley Bank, SkillSoft
Corporation, SmartCertify Direct Inc. and Books24x7.com, Inc. |
|
10 |
.21** |
|
Form of Director Option Agreement for initial grants under the
2001 Director Option Plan (Incorporated by reference to
exhibit 99.2 to SkillSoft PLCs Current Report on
Form 8-K as filed with the Securities and Exchange
Commission on January 4, 2006 (File No. 000-25674)). |
|
|
|
|
|
Exhibit |
|
|
No. |
|
Title |
|
|
|
|
10 |
.22** |
|
Form of Director Option Agreement for subsequent grants under
the 2001 Director Option Plan (Incorporated by reference to
exhibit 99.3 to SkillSoft PLCs Current Report on
Form 8-K as filed with the Securities and Exchange
Commission on January 4, 2006 (File No. 000-25674)). |
|
10 |
.23** |
|
Form of Option Agreement under 2002 Share Option Plan
(Incorporated by reference to exhibit 10.5 to SkillSoft
PLCs Quarterly Report on Form 10-Q for the quarter
ended July 31, 2004 as filed with the Securities and
Exchange Commission on September 9, 2004 (File No.
000-25674)). |
|
10 |
.24** |
|
Summary of Fiscal 2006 Executive Incentive Compensation Program.
(Incorporated by reference to exhibit 10.34 to SkillSoft
PLCs annual report on Form 10-K for the year ended
January 31, 2005 as filed with the Securities and Exchange
Commission on April 18, 2005 (File No. 000-25674)). |
|
10 |
.25 |
|
Release and Settlement Agreement (Incorporated by reference to
exhibit 10.1 to SkillSoft PLCs Quarterly Report on
Form 10-Q for the quarter ended July 31, 2005 as filed
with the Securities and Exchange Commission on September 9,
2005 (File No. 000-25674)). |
|
21 |
.1 |
|
List of Significant Subsidiaries. |
|
23 |
.1 |
|
Consent of Ernst & Young LLP |
|
31 |
.1 |
|
Certification of SkillSoft PLCs Chief Executive Officer
pursuant to Rule 13a-14(a)/Rule 15(d)-14(a) under the
Securities Exchange Act of 1934. |
|
31 |
.2 |
|
Certification of SkillSoft PLCs Chief Financial Officer
pursuant to Rule 13a-14(a)/Rule 15(d)-14(a) under the
Securities Exchange Act of 1934. |
|
32 |
.1 |
|
Certification of SkillSoft PLCs Chief Executive Officer
pursuant to Rule 13a-14(b)/Rule 15d-14(b) under the
Securities Exchange Act of 1934, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
32 |
.2 |
|
Certification of SkillSoft PLCs Chief Financial Officer
pursuant to Rule 13a-14(b)/Rule 15d-14(b) under the
Securities Exchange Act of 1934, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
** |
Denotes management or compensatory plan or arrangement required
to be filed by registrant pursuant to Item 15(c) of this
report on
Form 10-K. |