Press Releases & Coverage

SSI Investments II Limited Reports Fiscal Period Ended July 31, 2010 Results

NASHUA, N.H.--(BUSINESS WIRE)--SSI Investments II Limited (“SSI II”), a parent company of SkillSoft Limited (formerly SkillSoft PLC), a leading SaaS provider of on-demand e-learning and performance support solutions for global enterprises, government, education and small- to medium-sized businesses, today announced financial results for its fiscal period ended July 31, 2010.

BASIS OF PRESENTATION

On May 26, 2010, SSI Investments III Limited, a wholly owned subsidiary of SSII, completed its acquisition of SkillSoft PLC (the “Acquisition”), which was subsequently re-registered as a private limited company and whose corporate name changed from SkillSoft PLC to SkillSoft Limited (“SkillSoft”). Unless otherwise indicated or the context otherwise requires, the term the “Company”, “we”, “us”, “our” and other similar terms mean (a) prior to the Acquisition of SkillSoft, SkillSoft and its subsidiaries (the “Predecessor”) and (b) from and after the Acquisition of SkillSoft, SSI II and its subsidiaries including SkillSoft (the “Successor”).

Certain information furnished in this press release and the accompanying financial information, is presented for the combined Predecessor and Successor periods. The information presented for the three months ended July 31, 2010 includes the results of operations for the period from May 1 to May 25, 2010 of the Predecessor and the results of operations for the period from May 26 to July 31, 2010 of the Successor. The accompanying financial information refers to the three months ended July 31, 2010 and the six months ended July 31, 2010 as combined fiscal 2011 second quarter and combined six months ended July 31, 2010, respectively. Although the presentation of these fiscal periods on an arithmetically combined-basis does not comply with generally accepted accounting principles in the United States (referred to hereafter as “non-GAAP”), the Company’s management believes it provides a meaningful method of comparing the current period to the prior period results. A non-GAAP presentation of the results for the combined three months and combined six months ended July 31, 2010 is provided in the accompanying financial information and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that will be made available on the Company’s website at www.skillsoft.com.

The Company's management has also furnished in this press release and the accompanying financial information non-GAAP adjusted EBITDA and days sales outstanding (DSOs) from non-GAAP revenue, which are financial measurements that do not comply with generally accepted accounting principles in the United States. Non-GAAP adjusted EBITDA is calculated by adding to EBITDA certain items of expense and deducting from EBITDA certain items of income that the Company's management believes are not indicative of the Company's future operating performance including, among other things, merger and integration related expenses, stock-based compensation amortization, business realignment strategy charges, income from discontinued operations (net of income tax) and insurance recovery, and DSOs from non-GAAP revenue excludes fair value adjustments to acquired deferred revenue in purchase accounting related to the Acquisition. These non-GAAP financial measures are not in accordance with, or an alternative to, financial information prepared in accordance with GAAP and may not be comparable to similar non-GAAP financial measures used by other companies. These non-GAAP measures should not be considered in isolation from, or as a substitute for, the financial results prepared in accordance with GAAP. The Company’s management uses these measurements because they are required to be reported to certain of the Company’s investors, lenders and financial institutions regarding its operations, cash flows and ability to meet its future debt service, capital expenditures and working capital requirements.

COMBINED FISCAL 2011 SECOND QUARTER RESULTS

The Company reported revenue of $54.7 million for the combined second quarter ended July 31, 2010 of its fiscal year ending January 31, 2011 (fiscal 2011), which represented a $24.2 million decrease from the $78.9 million reported by the Predecessor in its second quarter of the fiscal year ended January 31, 2010 (fiscal 2010). Approximately $23.0 million of this decrease related to fair value adjustments to deferred revenue in purchase accounting related to the Acquisition. The Company’s deferred revenue at July 31, 2010 was approximately $97.2 million as compared to approximately $155.2 million at July 31, 2009. Approximately $55.1 million of this decrease related to the unamortized fair value adjustments on deferred revenues in purchase accounting related to the Acquisition.

The Company's net loss was $74.2 million for the combined second quarter of fiscal 2011, as compared to net income of $17.2 million reported by the Predecessor for the second quarter of fiscal 2010. The net loss was primarily driven by the Acquisition and the activities resulting from the Acquisition. The significant components of the Acquisition and Acquisition related activities include the following as of July 31, 2010 (amounts in millions):

  Combined   Combined
3 Months Ended

6 Months Ended

July 31, 2010

July 31, 2010

Fair value adjustments to deferred revenue in purchase accounting $ 23.0 $ 23.0
Amortization of intangible assets related to content and technology 11.7 11.7
Fair value adjustments to prepaid commissions in purchase accounting (2.9 ) (2.9 )
Accelerated vesting and settlement of stock-based compensation 23.4 23.4
Acquisition related expenses 30.3 35.7
Amortization of intangible assets 7.8 7.8
Interest expense from new borrowings   18.6     18.6  
$ 111.9   $ 117.3  

Gross margin was 65% for the Company’s combined fiscal 2011 second quarter as compared to 90% reported by the Predecessor for the fiscal 2010 second quarter. The decrease in gross margin is primarily due to a decrease in revenues from the fair value adjustments to acquired deferred revenues in purchase accounting of $23.0 million and the amortization of intangible assets related to content and technology from purchase accounting of $11.7 million.

Research and development expenses increased to $14.8 million in the combined fiscal 2011 second quarter as compared to $9.7 million reported by the Predecessor in the fiscal 2010 second quarter. This increase was primarily due to incremental stock-based compensation expense of $4.4 million resulting from the Acquisition. Research and development expenses were 27% of revenue for the combined fiscal 2011 second quarter as compared to 12% for the fiscal 2010 second quarter.

Sales and marketing expenses increased to $30.1 million for the combined fiscal 2011 second quarter as compared to $24.4 million reported by the Predecessor in the fiscal 2010 second quarter. Approximately $7.1 million of this increase related to incremental stock-based compensation expense resulting from the Acquisition, which was offset by approximately $2.9 million related to the fair value adjustments to prepaid commissions in purchase accounting related to the Acquisition in the combined fiscal 2011 second quarter. Sales and marketing expenses were 55% of revenue for the combined fiscal 2011 second quarter as compared to 31% for the fiscal 2010 second quarter.

General and administrative expenses increased to $19.0 million for the combined fiscal 2011 second quarter compared to $9.4 million reported by the Predecessor in the fiscal 2010 second quarter. Approximately $10.4 million of this increase related to incremental stock-based compensation expense resulting from the Acquisition, which was partially offset by an executive bonus accrued in the second quarter of fiscal 2010. General and administrative expenses were 35% of revenue for the combined fiscal 2011 second quarter as compared to 12% for the fiscal 2010 second quarter.

Interest expense increased to $19.9 million for the combined fiscal 2011 second quarter as compared to $2.0 million reported by the Predecessor in the fiscal 2010 second quarter. The increase in interest expense is primarily due to the borrowings under the credit incurred in connection with the Acquisition.

Acquisition related expenses were $30.3 million for the combined fiscal 2011 second quarter. These costs include transaction fees, banking fees, legal fees, accounting fees, sponsor fees and other professional service fees related to the Acquisition.

For the combined six months ended July 31, 2010, the Company’s tax benefit from continuing operations was $7.3 million and consisted of a cash tax provision of $1.3 million and a non-cash tax benefit of $8.6 million. This compares to a $11.5 million tax provision reported by the Predecessor for the six months ended July 31, 2009, which consisted of cash tax provision of approximately $4.9 million and a non-cash tax provision of approximately $6.6 million. The decrease in the current year tax expense was primarily due to the tax benefit recorded on our loss from operations and the change in the geographic distribution of worldwide earnings resulting, in part, from the effects of purchase accounting related to the Acquisition.

Non-GAAP adjusted EBITDA for the combined 2011 second quarter was $29.4 million as compared to $30.8 million for the fiscal 2010 second quarter. The components of the Non-GAAP adjusted EBITDA for the combined fiscal 2011 second quarter is calculated by taking the net loss for the combined 2011 second quarter ($74.2 million) and adding back depreciation and amortization ($1.1 million), amortization of intangible assets and capitalized software development costs ($19.8 million), stock-based compensation inclusive of payroll taxes from the exercise of options ($24.5 million), interest expense, net ($19.9 million), and other expense, net ($0.8 million), Acquisition related expenses ($30.3 million), amortization from the fair value adjustments to deferred revenues from purchase accounting ($23.0 million), sponsor fees ($0.3 million), and deducting the tax benefit for income taxes ($13.2 million) and the impact of the adjustments to prepaid commissions from purchase accounting ($2.9 million).

The Company’s new senior credit facilities require the Company to comply on a quarterly basis with a single financial covenant for the benefit of the revolving credit facility only. The financial covenant requires the Company to maintain a maximum secured leverage ratio tested on the last day of each fiscal quarter (but failure to maintain the required ratio would not result in a default under the revolving credit facility so long as the revolving credit facility is undrawn at such time). The maximum secured leverage ratio will reduce over time, subject to increase in connection with certain material acquisitions. The Company’s new senior credit facilities and senior notes also include various nonfinancial covenants. As of July 31, 2010, the Company is in compliance with this financial covenant and all nonfinancial covenants.

The Company had approximately $29.4 million in cash, cash equivalents, short-term investments, restricted cash and long-term investments as of July 31, 2010 as compared to $83.0 million as of January 31, 2010. This decrease is primarily due to use of the Company’s cash in the Acquisition, including $52.7 million of cash, cash equivalents and short-term investments of the Predecessor and $2.3 million paid for the settlement of stock options that was netted against the $1,129.2 million purchase price, the repayment of the Predecessor’s senior credit facility with Credit Suisse and certain lenders for $84.4 million, investment purchases of $2.6 million and capital expenditures of $0.8 million. These decreases were offset by proceeds received from the borrowings under both the new senior credit facilities and the senior notes due 2018, net of debt acquisition fees for $602.8 million and the issuance of common stock for $534.5 million related to the Acquisition. Additionally, cash was also provided by operations of $16.5 million, from maturities of investments of $6.1 million and from the exercise of stock options under the Company’s various stock option programs and stock purchases made under the Company’s 2004 employee stock purchase plan of $4.7 million.

In order to adequately assess the Company’s collection efforts, taking into account the seasonality of the Company’s business, the Company believes that it is most useful to compare current period days sales outstanding (DSOs) to the prior year period. Given the quarterly seasonality of bookings, the deferral from revenue of subscription billings may increase or decrease the DSOs on sequential quarterly comparisons.

The Company’s DSOs from non-GAAP revenues were in the targeted range for the combined fiscal 2011 second quarter. On a net basis, which considers only receivable balances for which revenue has been recorded; DSOs from non-GAAP revenues were 3 days in the combined fiscal 2011 second quarter as compared to 4 days in the second quarter of fiscal 2010 and 5 days in the first quarter of fiscal 2011. On a gross basis, which considers all items billed as receivables, DSOs from non-GAAP revenues were 69 days in the combined fiscal 2011 second quarter as compared to 71 days in the second quarter of fiscal 2010 and 77 days in the first quarter of fiscal 2011. The decrease in gross and net basis DSOs from non-GAAP revenues was due to improvements in customer collection efforts.

Supplemental financial information will be available on the Company’s web site www.skillsoft.com at the time of our earnings call.

Conference Call

In conjunction with this release, management will conduct a conference call on Monday, September 13, 2010 at 5:00 p.m. EDT to discuss the Company’s fiscal period ended July 31, 2010 financial and operating results. Chuck Moran, President and Chief Executive Officer, and Tom McDonald, Chief Financial Officer, will host the call.

To participate in the conference call, dial (800) 322-9079 or (973) 582-2717 for international callers and use the following passcode: 97758252. The live conference call will be available via the Internet by accessing the SkillSoft Web site at www.skillsoft.com. Please go to the Web site at least fifteen minutes prior to the call to register, download and install any necessary audio software.

A replay will be available from 12:01 p.m. EDT on September 14, 2010 until 11:59 p.m. EDT on September 21, 2010. The replay number is (800) 642-1687 or (706) 645-9291 for international callers, passcode: 97758252. A webcast replay will also be available on SkillSoft’s Web site at www.skillsoft.com.

About SSI II

On May 26, 2010, SSI Investments III Limited, a wholly owned subsidiary of SSII, completed its acquisition of SkillSoft PLC, which was subsequently re-registered as a private limited company and its corporate name changed from SkillSoft PLC to SkillSoft Limited. SkillSoft is a leading SaaS provider of on-demand e-learning and performance support solutions for global enterprises, government, education and small to medium-sized businesses. SkillSoft enables business organizations to maximize business performance through a combination of comprehensive e-learning content, online information resources, flexible learning technologies and support services.

Content offerings include business, IT, desktop, compliance and consumer/SMB courseware collections, as well as complementary content assets such as Leadership Development Channel video products, KnowledgeCenter(TM) portals, virtual instructor-led training services and online mentoring services. SkillSoft's Books24x7(R) product offering includes access to more than 25,000 digitized IT and business books, as well as book summaries and executive reports. Technology offerings include the SkillPort(R) learning management system, Search-and-Learn(R), SkillSoft(R) Dialogue(TM), inGenius™ and virtual classroom.

SkillSoft courseware content described herein is for information purposes only and is subject to change without notice. SkillSoft has no obligation or commitment to develop or deliver any future release, upgrade, feature, enhancement or function described in this press release except as specifically set forth in a written agreement.

SkillSoft, the SkillSoft logo, SkillPort, Search-and-Learn, SkillChoice, Books24x7, ITPro, BusinessPro, OfficeEssentials, GovEssentials, EngineeringPro, FinancePro, AnalystPerspectives, ExecSummaries, ExecBlueprints, Express Guide, Dialogue and inGenius are trademarks or registered trademarks of SkillSoft Limited in the United States and certain other countries. All other trademarks are the property of their respective owners, countries.

From time to time, including in this press release, we may make forward-looking statements, including but not limited to statements relating to such matters as anticipated financial performance, business prospects, strategy, plans, regulatory, market and industry trends, liquidity and similar matters. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will,” “target” and other words and terms of similar meaning in connection with a discussion of future operating or financial performance. We note that a variety of factors, including known and unknown risks and uncertainties as well as incorrect assumptions, could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in such forward-looking statements. These risks and uncertainties include, among others, that we are highly leveraged; that our debt agreements contain restrictions that limit our flexibility in operating our business; that our quarterly operating results may fluctuate significantly; that increased competition may result in decreased demand for our products and services; our ability to meet the needs of a rapidly changing, developing market; that our business is subject to currency fluctuations that could adversely affect our operating results; and that we may be unable to protect our proprietary rights. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties. Accordingly, investors should not place undue reliance on those statements. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.

SSI Investments II Limited and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited, In thousands)
             
 
Successor Predecessor Successor Predecessor
For the Periods For the Periods
May 26, (inception) May 1, to May 25, Three Months Ended May 26, (inception) to February 1, to May 25, Six Months Ended
to July 31, July 31,
2010   2010   July 31, 2009 2010   2010   July 31, 2009
 
Revenues $ 34,056 $ 20,620 $ 78,926 $ 34,056 $ 97,538 $ 155,365
Cost of revenues (1) 5,211 2,143 7,524 5,211 9,226 14,997

Cost of revenues - amortization of intangible assets

  11,706     8     32     11,706     40     64  
 
Gross profit 17,139 18,469 71,370 17,139 88,272 140,304
 
Operating expenses:
Research and development (1) 7,378 7,462 9,706 7,378 17,131 18,704
Selling and marketing (1) 14,521 15,574 24,387 14,521 40,378 46,798
General and administrative (1) 5,675 13,335 9,404 5,675 21,828 17,213
Amortization of intangible assets 7,789 241 2,117 7,789 1,137 4,572
Acquisition related expenses   20,598     9,741     -     20,598     15,063     -  
 
Total operating expenses 55,961 46,353 45,614 55,961 95,537 87,287
 
 
Other (expense) income, net (1,035 ) 274 (605 ) (1,035 ) 385 (1,223 )
Interest income 16 13 68 16 95 138
Interest expense   (18,580 )   (1,353 )   (2,032 )   (18,580 )   (3,723 )   (4,477 )
 
Income before provision for income taxes (58,421 ) (28,950 ) 23,187 (58,421 ) (10,508 ) 47,455
 
(Benefit) provision for income taxes - cash (51 ) (798 ) 2,658 (51 ) 1,332 4,859
(Benefit) provision for income taxes - non-cash (5,400 ) (6,935 ) 3,358 (5,400 ) (3,226 ) 6,646
           
Net (loss) income $ (52,970 ) $ (21,217 ) $ 17,171   $ (52,970 ) $ (8,614 ) $ 35,950  
 
 
(1) The following summarizes the departmental allocation of the stock-based compensation
 
Cost of revenues $ - $ 188 $ 28 $ - $ 201 $ 49
Research and development - 4,660 247 - 4,861 516
Selling and marketing - 7,737 604 - 8,260 1,239
General and administrative   -     11,132     711     -     11,837     1,407  
$ -   $ 23,717   $ 1,590   $ -   $ 25,159   $ 3,211  
SSI Investments II Limited and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, In thousands)
    Successor   Predecessor
July 31, 2010 January 31, 2010
 
ASSETS
 
CURRENT ASSETS:
Cash, cash equivalents and short-term investments $ 26,629 $ 80,241
Restricted cash 2,740 2,786
Accounts receivable, net 62,535 141,828
Deferred tax assets 25 28,902
Prepaid expenses and other current assets   19,522   23,447
 
Total current assets 111,451 277,204
 
Property and equipment, net 5,126 6,288
Goodwill 563,957 238,550
Intangible assets, net 641,515 5,227
Deferred tax assets 142 49,127
Other assets   25,905   9,835
 
Total assets $ 1,348,096 $ 586,231
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES:
 
Current maturities of long term debt $ 3,250 $ 865
Accounts payable 4,263 4,519
Accrued expenses 31,211 41,386
Deferred tax liabilites 2,051 -
Deferred revenue   97,214   200,369
 
Total current liabilities 137,989 247,139
 
Long term debt 629,753 83,500

Deferred tax liabilities

85,805 -
Other long term liabilities   4,967   4,432
Total long-term liabilities 720,525 87,932
 
Total stockholders' equity   489,582   251,160
 
Total liabilities and stockholders' equity $ 1,348,096 $ 586,231
SSI Investments II Limited and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, In thousands)
       
Successor Predecessor Predecessor
For the Periods

May 26, (inception) to July 31, 2010

February 1, to May 25, 2010

Six Months Ended July 31, 2009

 
Cash flows from operating activities:
 
Net (loss) income $ (52,970 ) $ (8,614 ) $ 35,950

Adjustments to reconcile net income to net cash provided by operating activities:

Share-based compensation - 25,159 3,211
Depreciation and amortization 833 1,374 2,598
Amortization of intangible assets 19,495 1,177 4,636
Provision for (recovery) of bad debts 268 (52 ) 529
(Benefit) provision for income taxes - non-cash (5,400 ) (3,860 ) 6,646
Non-cash interest expense 792 3,219 576
Tax effect related to exercise of non-qualified stock options - 282 (22 )
Changes in current assets and liabilities, net of acquisitions
Accounts receivable (7,800 ) 86,230 85,900
Prepaid expenses, other current assets and other assets (2,411 ) (2,218 ) 2,769
Accounts payable 1,078 (1,559 ) (4,039 )
Accrued expenses and other long-term liabilities (8,733 ) (5,236 ) (12,005 )
Deferred revenue   17,229     (41,817 )   (51,980 )
 
Net cash (used) provided by operating activities (37,619 ) 54,085 74,769
 
Cash flows from investing activities:
 
Purchases of property and equipment (370 ) (438 ) (1,432 )
Acquisition of SkillSoft, net of cash received (1,074,181 ) - -
Purchases of investments - (2,562 ) (5,512 )
Maturity of investments - 6,122 2,350
Decrease (increase) in restricted cash   19     27     (117 )
 
Net cash (used in) provided by investing activities (1,074,532 ) 3,149 (4,711 )
 
Cash flows from financing activities:
 
Exercise of stock options - 3,065 361
Proceeds from employee stock purchase plan - 1,666 1,164
Proceeds from issuance of common stock 534,513 - -
Proceeds from issuance of Senior Credit Facilities, net of fees 306,397 - -
Proceeds from issuance of Senior Notes, net of fees 296,447
Principal payments on long term debt - (84,365 ) (28,560 )
Acquisition of treasury stock - - (19,896 )
Tax effect related to exercise of non-qualified stock options   -     (282 )   22  
 
Net cash provided by (used in) financing activities 1,137,357 (79,916 ) (46,909 )
 
Effect of exchange rate changes on cash and cash equivalents   1,423     (1,315 )   2,508  
 
Net increase (decrease) in cash and cash equivalents 26,629 (23,997 ) 25,657
Cash and cash equivalents, beginning of period   -     76,682     37,853  
 
Cash and cash equivalents, end of period $ 26,629   $ 52,685   $ 63,510  
SSI Investments II Limited and Subsidiaries
Non-GAAP Condensed Consolidated Statements of Operations
(Unaudited, In thousands)
                 
 
Successor Predecessor   Combined Predecessor Successor Predecessor   Combined   Predecessor
For the Periods (2) For the Periods (2)
May 26, (inception) to July 31, May 1, to May 25, Three Months Ended Three Months Ended May 26, (inception) to July 31, February 1, to May 25, Six Months Ended Six Months Ended
2010 2010 July 31, 2010   July 31, 2009 2010 2010 July 31, 2010   July 31, 2009
 
Revenues $ 34,056 $ 20,620 $ 54,676 $ 78,926 $ 34,056 $ 97,538 $ 131,594 $ 155,365
Cost of revenues (1) 5,211 2,143 7,354 7,524 5,211 9,226 14,437 14,997
Cost of revenues - amortization of intangible assets   11,706     8     11,714     32     11,706     40     11,746     64  
 
Gross profit 17,139 18,469 35,608 71,370 17,139 88,272 105,411 140,304
 
Operating expenses:
Research and development (1) 7,378 7,462 14,840 9,706 7,378 17,131 24,509 18,704
Selling and marketing (1) 14,521 15,574 30,095 24,387 14,521 40,378 54,899 46,798
General and administrative (1) 5,675 13,335 19,010 9,404 5,675 21,828 27,503 17,213
Amortization of intangible assets 7,789 241 8,030 2,117 7,789 1,137 8,926 4,572
Acquisition related expenses   20,598     9,741     30,339     -     20,598     15,063     35,661     -  
 
Total operating expenses 55,961 46,353 102,314 45,614 55,961 95,537 151,498 87,287
 
 
Other (expense) income, net (1,035 ) 274 (761 ) (605 ) (1,035 ) 385 (650 ) (1,223 )
Interest income 16 13 29 68 16 95 111 138
Interest expense   (18,580 )   (1,353 )   (19,933 )   (2,032 )   (18,580 )   (3,723 )   (22,303 )   (4,477 )
 
Income before provision for income taxes (58,421 ) (28,950 ) (87,371 ) 23,187 (58,421 ) (10,508 ) (68,929 ) 47,455
 
(Benefit) provision for income taxes - cash (51 ) (798 ) (849 ) 2,658 (51 ) 1,332 1,281 4,859
(Benefit) provision for income taxes - non-cash (5,400 ) (6,935 ) (12,335 ) 3,358 (5,400 ) (3,226 ) (8,626 ) 6,646
               
Net (loss) income $ (52,970 ) $ (21,217 ) $ (74,187 ) $ 17,171   $ (52,970 ) $ (8,614 ) $ (61,584 ) $ 35,950  
 
 
(1) The following summarizes the departmental allocation of the stock-based compensation
 
Cost of revenues $ - $ 188 $ 188 $ 28 $ - $ 201 $ 201 $ 49
Research and development - 4,660 4,660 247 - 4,861 4,861 516
Selling and marketing - 7,737 7,737 604 - 8,260 8,260 1,239
General and administrative   -     11,132     11,132     711     -     11,837     11,837     1,407  
$ -   $ 23,717   $ 23,717   $ 1,590   $ -   $ 25,159   $ 25,159   $ 3,211  
 
(2)

This presentation does not comply with generally accepted accounting principles in the United States (GAAP), it is not an attempt to present pro-forma results, and may yield results that are not strictly comparable with prior periods as a result of purchase accounting adjustments. However, management believes it provides a meaningful method of comparing the current period to the prior period results.

SSI Investments II Limited and Subsidiaries
Non-GAAP Condensed Consolidated Cash Flows
(Unaudited, In thousands)
         
Successor Predecessor Combined Predecessor
For the Periods (1)
May 26, (inception) to July 31, 2010 February 1, to May 25, 2010 Six Months Ended July 31, 2010 Six Months Ended July 31, 2009
 
Cash flows from operating activities:
 
Net (loss) income $ (52,970 ) $ (8,614 ) $ (61,584 ) $ 35,950
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation - 25,159 25,159 3,211
Depreciation and amortization 833 1,374 2,207 2,598
Amortization of intangible assets 19,495 1,177 20,672 4,636
Provision for (recovery) of bad debts 268 (52 ) 216 529
(Benefit) provision for income taxes - non-cash (5,400 ) (3,860 ) (9,260 ) 6,646
Non-cash interest expense 792 3,219 4,011 576
Tax effect related to exercise of non-qualified stock options - 282 282 (22 )
Changes in current assets and liabilities, net of acquisitions -
Accounts receivable (7,800 ) 86,230 78,430 85,900
Prepaid expenses, other current assets and other assets (2,411 ) (2,218 ) (4,629 ) 2,769
Accounts payable 1,078 (1,559 ) (481 ) (4,039 )
Accrued expenses and other long-term liabilities (8,733 ) (5,236 ) (13,969 ) (12,005 )
Deferred revenue   17,229     (41,817 )   (24,588 )   (51,980 )
 
Net cash (used) provided by operating activities (37,619 ) 54,085 16,466 74,769
 
Cash flows from investing activities:
 
Purchases of property and equipment (370 ) (438 ) (808 ) (1,432 )
Acquisition of SkillSoft, net of cash received (1,074,181 ) - (1,074,181 ) -
Purchases of investments - (2,562 ) (2,562 ) (5,512 )
Maturity of investments - 6,122 6,122 2,350
Decrease (increase) in restricted cash   19     27     46     (117 )
 
Net cash (used in) provided by investing activities (1,074,532 ) 3,149 (1,071,383 ) (4,711 )
 
Cash flows from financing activities:
 
Exercise of stock options - 3,065 3,065 361
Proceeds from employee stock purchase plan - 1,666 1,666 1,164
Proceeds from issuance of common stock 534,513 - 534,513 -
Proceeds from issuance of Senior Credit Facilities, net of fees 306,397 - 306,397 -
Proceeds from issuance of Senior Notes, net of fees 296,447 296,447
Principal payments on long term debt - (84,365 ) (84,365 ) (28,560 )
Acquisition of treasury stock - - - (19,896 )
Tax effect related to exercise of non-qualified stock options   -     (282 )   (282 )   22  
 
Net cash provided by (used in) financing activities 1,137,357 (79,916 ) 1,057,441 (46,909 )
 
Effect of exchange rate changes on cash and cash equivalents   1,423     (1,315 )   108     2,508  
 
Net increase (decrease) in cash and cash equivalents $ 26,629   $ (23,997 ) $ 2,632   $ 25,657  
 
 
(1) This presentation does not comply with generally accepted accounting principles in the United States (GAAP), it is not an attempt to present pro-forma results, and may yield results that are not strictly comparable with prior periods as a result of purchase accounting adjustments. However, management believes it provides a meaningful method of comparing the current period to the prior period results.

Contacts

FOR: SSI INVESTMENTS II LIMITED
Tom McDonald, 603-324-3000, x4232
Chief Financial Officer