<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from ________ to ________
Commission File Number: 0-25674
CBT GROUP PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter)
Republic of Ireland Not Applicable
- -------------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1005 HAMILTON COURT
MENLO PARK, CALIFORNIA 94025
(Address of principal executive offices, including zip code)
(415) 614-5900
(Registrant's telephone number, including area code)
Indicate by check mark whether 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 Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [_]
The number of American Depositary Shares (issued or issuable in exchange for
Registrant's issued and outstanding Ordinary Shares) outstanding as of October
31, 1996 was 17,658,142. The number of Ordinary Shares outstanding as of
October 31, 1996 was 8,829,071.
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CBT GROUP PUBLIC LIMITED COMPANY
TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
as of December 31, 1995 and as of
September 30, 1996
Condensed Consolidated Statements of 4
Operations for the three and nine month
periods ended September 30, 1995 and 1996
Condensed Consolidated Statements of 5
Cash Flows for the nine month periods
ended September 30, 1995 and 1996
Notes to Condensed Consolidated 6
Financial Statements
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
2
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CBT GROUP PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
--------------------
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------ --------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 6,501 $ 5,824
Short-term investments 40,669 41,846
Accounts receivable, net 13,713 15,771
Inventories 254 70
Deferred tax assets, net 398 371
Prepaid expenses 479 2,446
-------- -------
Total current assets 62,014 66,328
Property and equipment, net 2,132 5,432
Other assets 1,872 2,602
-------- -------
Total assets $66,018 $74,362
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Borrowings under bank overdraft facility and overdrafts $ 1,346 $ 0
Note payable 79 0
Accounts payable 2,199 2,630
Accrued payroll and related expenses 2,312 2,727
Other accrued liabilities 8,548 9,890
Deferred revenues 3,457 2,667
------- -------
Total current liabilities 17,941 17,914
SHAREHOLDERS' EQUITY
Ordinary Shares, IR37.5p par value: 30,000,000 shares
authorized at December 31, 1995 and September 30, 1996;
issued and outstanding: 8,508,984 shares at December 31,
1995 and 8,775,794 at September 30, 1996 5,198 5,358
Additional paid-in capital 50,941 51,767
Accumulated deficit (7,865) (541)
Receivables from shareholders (190) (179)
Minority interest 16 16
Cumulative translation adjustment (23) 27
-------- -------
Total shareholders' equity 48,077 56,448
-------- -------
Total liabilities and shareholders' equity $66,018 $74,362
======== =======
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1995 has been
derived from the audited financial statements at that date and has been
restated to reflect the acquisitions of CLS and NTT (each as defined below).
In addition, the balance sheet does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
3
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CBT GROUP PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
------------- -----------
Ended September 30 Ended September 30
------------------ ------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $10,541 $17,033 $26,676 $44,612
Cost of revenues 2,025 2,677 5,191 7,094
------- ------- ------- -------
Gross profit 8,516 14,356 21,485 37,518
Operating expenses:
Research and development 1,473 2,822 4,025 7,517
Sales and marketing 4,511 6,863 11,645 19,055
General and administrative 855 1,225 2,442 3,298
Costs of acquisitions 0 0 0 596
------- ------- ------- -------
Total operating expenses 6,839 10,910 18,112 30,466
------- ------ ------- -------
Income from operations 1,677 3,446 3,373 7,052
Other income, net 299 588 407 1,667
------- ------- ------- -------
Income before provision for
income taxes 1,976 4,034 3,780 8,719
Provision for income taxes 358 645 743 1,395
------- ------- ------- -------
Net income 1,618 3,389 3,037 7,324
======= ======= ======= =======
Net income per equivalent ADS(1) $ 0.09 $ 0.17 $ 0.18 $ 0.37
======= ======= ======= =======
ADSs used in computing net
income per equivalent ADS(1) 17,874 19,860 16,770 19,617
======= ======= ======= =======
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net income per equivalent ADS gives effect to the two-for-one share split
of Registrant's ADSs effected in May 1996. Net income per Ordinary Share was
$0.18 and $0.34 for three months ended September 30, 1995 and 1996,
respectively, and $0.36 and $0.75 for the nine months ended September 30, 1995
and 1996, respectively. Shares used in computing net income per Ordinary Share
was 8.937 million and 9.930 million for three months ended September 30, 1995
and 1996, respectively, and 8.491 million and 9.808 million for the nine months
ended September 30, 1995 and 1996, respectively.
4
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CBT GROUP PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(dollars in thousands)
Nine months ended
September 30,
1995 1996
----------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,037 $ 7,324
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 283 758
Accrued interest on short-term
investments 0 134
Changes in operating assets and
liabilities:
Accounts receivable (3,672) (2,036)
Inventories 356 184
Deferred tax assets (53) 27
Prepaid expenses and other assets (454) (2,693)
Accounts payable 1,071 430
Accrued payroll and related
expenses and other accrued
liabilities 7 1,749
Deferred revenues 558 (793)
-------- -------
Net cash provided by operating
activities 1,133 5,084
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (981) (4,058)
Payments to acquire investments 0 (1,311)
-------- -------
Net cash used in investing
activities (981) (5,369)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of notes payable (657) (79)
Redemption of Series A shares (1,350) 0
Proceeds (repayments) under bank
overdraft facility 111 (1,346)
Proceeds of receivables from
shareholders 103 11
Proceeds from issuance of ordinary
shares, net 42,959 986
-------- -------
Net cash provided by (used in)
financing activities 41,166 (428)
-------- -------
Effect of exchange rate changes on cash (29) 36
-------- -------
Net increase (decrease) in cash and cash
equivalents 41,289 (677)
Cash at beginning of period 3,829 6,501
-------- -------
Cash at end of period $45,118 $ 5,824
======== =======
5
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CBT GROUP PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
These interim consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals), considered necessary for a
fair presentation of financial position, results of operations and cash
flows at the dates and for the periods presented have been included. The
interim financial information herein is not necessarily indicative of
results for any future period.
NOTE 2 ACQUISITIONS OF CLS AND NTT
On May 31, 1996, Registrant acquired CLS Consult, Gesellschaft fur
Beratung, Management und Beteiligung mbH ("CLS"), a German limited
liability company, and New Technology Training Ltd., an Ontario
corporation ("NTT"). CLS is a developer and marketer of interactive
education software for SAP client/server applications, and NTT's
primary business has been to act as Registrant's exclusive distributor
in Canada. The Company issued a total of 145,854 of its American
Depositary Shares ("ADSs") to the former shareholders of CLS and NTT in
connection with the acquisitions. Each transaction was accounted for as
a "pooling of interests" in accordance with U.S. generally accepted
accounting principles. In compliance with such principles, Registrant's
operating results have been restated to include the results of CLS and
NTT as if the acquisitions had occurred at the beginning of the first
period presented.
NOTE 3 AMERICAN DEPOSITARY SHARE SPLIT
On May 15, 1996, Registrant effected a two-for-one split of its
issued and outstanding ADSs whereby each issued and outstanding ADS is
now represented by one-half of one Ordinary Share and each issued and
outstanding Ordinary Share that is deposited with The Bank of New York,
as Depositary, will be represented by two ADSs. American Depositary
Receipts ("ADRs") reflecting the additional ADSs were distributed on May
20, 1996 to holders of record on May 15, 1996.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS
The following discussion contains forward looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Predictions of future events are
inherently uncertain. Actual events could differ materially from those
predicted in the forward looking statements as a result of the risks set forth
in the following discussion, and in particular, the risks discussed below under
the caption "Additional Risk Factors that Could Affect Operating Results."
OVERVIEW
CBT Group PLC ("CBT" or, the "Company") is a leading provider of interactive
software designed to meet businesses' information technology education and
training needs. The Company develops, publishes and markets a broad library of
over 279 software titles focused on client/server technologies and delivered on
networked and standalone PCs.
The Company derives revenues primarily from license agreements under which
customers license the Company's titles for periods of one, two or three years.
The license agreement format generally allows the customer to exchange titles
for other titles in the Company's library on an annual basis if the agreement is
for more than one year. The initial annual license fee is generally recognized
as revenue at the time of delivery of products, and subsequent annual license
fees are generally recognized on the anniversary of each delivery date.
Although the Company's license agreements are noncancellable by their terms,
there can be no assurance that any customer will fulfill the contractual
obligations under its agreement. Cancellation, reduction or delay in orders by
or shipments to any of these customers could have a material adverse effect on
the Company's business and results of operations. In addition, the Company
derives revenues from sales of its courses, primarily through its telesales
organization and resellers.
In recent years, the Company has entered into several development and marketing
alliances with key vendors of client/server software under which the Company
develops titles for training on specific products. Under certain of its
development and marketing alliances, the Company's partners have agreed to fund
certain product development costs. The Company recognizes such funding as
revenues on a percentage of completion basis, and the costs associated with such
revenues are reflected as cost of revenues. These agreements have the effect of
shifting expenses associated with developing certain new products from research
and development to cost of revenues. The Company expects that cost of revenues
may fluctuate from period to period in the future based upon many factors,
including, but not limited to, the timing of expenses associated with
development and marketing alliances.
7
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RESULTS OF OPERATIONS
The following table sets forth certain restated consolidated statements of
operations data as a percentage of revenues:
<TABLE>
<CAPTION>
Three Months Nine Months
------------ -----------
Ended Ended
----- -----
September 30 September 30
------------ ------------
1995 1996 1995 1996
----- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100% 100% 100% 100%
Cost of revenues 19.2 15.7 19.5 15.9
---- ---- ---- ----
Gross profit 80.8 84.3 80.5 84.1
Operating expenses:
Research and development 14.0 16.6 15.1 16.9
Sales and marketing 42.8 40.3 43.6 42.7
General and administrative 8.1 7.2 9.1 7.4
Costs of acquisitions -- -- -- 1.3
---- ---- ---- ----
Total operating expenses 64.9 64.1 67.8 68.3
---- ---- ---- ----
Income from operations 15.9 20.2 12.7 15.8
Other income, net 2.8 3.5 1.5 3.7
---- ---- ---- ----
Income before provision for income taxes 18.7 23.7 14.2 19.5
Provision for income taxes 3.4 3.8 2.8 3.1
---- ---- ---- ----
Net income 15.3% 19.9% 11.4% 16.4%
==== ==== ==== ====
</TABLE>
Revenues
- --------
Revenues increased 62% to $17.0 million in the three months ended September 30,
1996 from $10.5 million in the three months ended September 30, 1995, and 67% to
$44.6 million in the nine months ended September 30, 1996 from $26.7 million in
the nine months ended September 30, 1995. The increases in revenues during these
periods were primarily attributable to an increase in the number of available
courses, strong customer contract renewals and upgrades and expanded marketing
and distribution efforts.
Revenues in the United States for the three and nine month periods ended
September 30, 1996 increased to $12.3 million (or 72% of revenues) and $33.6
million (or 75% of revenues), respectively, from $8.3 million (or 79% of
revenues) and $19.3 million (or 72% of revenues) for the three and nine month
periods ended September 30, 1995, respectively. The increases were primarily the
result of a significant increase in the number of sales and related support
personnel employed in the United States, an increase in the number of available
courses and an expansion of the Company's customer base.
Revenues in Europe for the three and nine month periods ended September 30, 1996
were $3.6 million (or 21% of revenues) and $8.9 million (or 20% of revenues),
respectively, compared to $1.9 million (or 18% of revenues) and $6.6 million (or
25% of revenues) for the same periods in 1995. Revenues from outside the United
States and Europe (principally from Canada and South Africa) in the three and
nine month periods ended September 30, 1996 were 7% and 5% of revenues,
respectively, compared to 3% and 3% of revenues for the same periods in 1995.
Because a significant portion of the Company's business is conducted outside the
United States, the Company is
8
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subject to numerous risks of doing business in other countries, including risks
related to currency fluctuations.
Cost of Revenues
- ----------------
Cost of revenues includes the cost of materials (such as CD-ROMs, diskettes,
packaging and documentation), royalties to third parties, the portion of
development costs associated with funded development projects and fulfillment
costs.
Gross margins increased to 84.3% and 84.1% in the three and nine month periods
ended September 30, 1996, respectively, from 80.8% and 80.5% in the three and
nine month periods ended September 30, 1995, respectively. The increase in gross
margins in the 1996 periods are primarily due to the inclusion in cost of
revenues for the earlier periods of certain costs CLS had incurred in developing
its SAP interactive training software. CLS, which was in an earlier stage of
development in the first nine months of 1995, outsourced a substantial portion
of its product development to third parties, and the associated expenses (which
were paid as royalties to such third parties) have been included in cost of
revenues for the three and nine month periods ended September 30, 1995. During
the comparable periods of 1996, these activities were conducted at CLS, and no
royalties were therefore payable. Accordingly, these expenses are included in
research and development expenses for the 1996 periods. The Company expects that
cost of revenues may fluctuate from period to period in the future based upon
many factors, including the mix of titles licensed (between titles developed
exclusively by CBT and royalty-bearing titles developed pursuant to development
and marketing alliances) and the timing of expenses associated with development
and marketing alliances.
Research and Development Expenses
- ---------------------------------
Research and development expenses consist primarily of salaries and benefits,
occupancy expenses, travel expenses and fees paid to outside consultants.
Research and development expenses increased in the three and nine month periods
ended September 30, 1996 to $2.8 million (or 16.6% of revenues) and $7.5 million
(or 16.9% of revenues), respectively, from $1.5 million (or 14.0% of revenues)
and $4.0 million (or 15.1% of revenues) in the comparable periods of the prior
year. The increases are primarily the result of the hiring of additional
research and development personnel required to expand and enhance the Company's
library of software products. These increases were partially offset by the
receipt of research and development grants from the Irish government by the
Company in the third quarter of 1996. The Company believes that significant
investment in research and development is required to remain competitive in the
information technology education and training market, and the Company therefore
expects research and development expenses to continue to increase in absolute
terms in future periods.
Software development costs are accounted for in accordance with Financial
Accounting Standards Board Statement No. 86, under which the Company is required
to capitalize software development costs after technological feasibility has
been established. To date, development costs after establishment of
technological feasibility have been immaterial, and all software development
costs have been expensed.
Sales and Marketing Expenses
- ----------------------------
Sales and marketing expenses consist primarily of salaries and commissions,
advertising and promotional expenses and related overhead costs. These expenses
increased in absolute terms in the three and nine month periods ended September
30, 1996 to $6.9 million (or 40.3% of revenues) and $19.1 million (or 42.7% of
revenues), respectively, from $4.5 million (or 42.8% of
9
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revenues) and $11.6 million (or 43.6% of revenues) for the comparable periods of
the prior year. The increases in absolute terms were primarily attributable to
increases in the number of sales and sales support personnel in the United
States and, to a lesser extent, outside the United States. Commission costs have
also increased in absolute terms along with the increases in revenues during
these periods. The decreases in sales and marketing expenses as a percentage of
revenues in the 1996 periods are due primarily to more rapid increases in
revenue than in associated expenses. The Company expects to increase sales and
marketing expenses to support an increase in its sales force and expansion of
its marketing efforts.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses increased in absolute terms and declined as
a percentage of revenues in the three and nine month periods ended September 30,
1996 to $1.2 million (or 7.2% of revenues) and $3.3 million (or 7.4% of
revenues), respectively, from $855,000 (or 8.1% of revenues) and $2.4 million
(or 9.1% of revenues) for the comparable periods of the prior year. The
increases in absolute terms were primarily the result of increased staffing to
support expanding operations. The decreases in these expenses as a percentage of
revenues were principally due to more rapid increases in revenues than in
associated expenses. The Company anticipates that absolute levels of general and
administrative expenses will increase in future periods due to increases in
staffing as well as the expenses associated with being a publicly traded company
and with complying with Irish reporting and other requirements.
Other Income, Net
- -----------------
Other income, net, comprises interest expense, interest income and foreign
currency exchange gains and losses. The Company recognized other income, net, of
$588,000 and $1.7 million in the three and nine month periods ended September
30, 1996, respectively, as compared to other income, net, of $299,000 and
$407,000 for the comparable periods of the prior year. The increases in other
income, net, were primarily the result of interest received on proceeds
deposited from the Company's initial and secondary public offerings in 1995.
The Company's consolidated financial statements are prepared in dollars,
although four of the Company's direct subsidiaries have functional currencies
other than the dollar, and a significant portion of the Company's and its
subsidiaries' revenues, costs and assets are denominated in currencies other
than their respective functional currencies. Fluctuations in exchange rates may
have a material adverse effect on the Company's results of operations,
particularly its operating margins, and could result in exchange losses. The
impact of future exchange rate fluctuations on the Company's results of
operations cannot be accurately predicted. To date, the Company has not sought
to hedge the risks associated with fluctuations in the exchange rate, but may
undertake such transactions in the future. There can be no assurance that any
hedging techniques implemented by the Company would be successful in eliminating
the effects of currency fluctuations.
Provision for Income Taxes
- --------------------------
CBT Group PLC operates as a holding company with operating subsidiaries in
several countries, and each subsidiary is taxed based on the laws of the
jurisdiction in which it operates. Because taxes are incurred at the subsidiary
level, and one subsidiary's tax losses cannot be used to offset the taxable
income of subsidiaries in other tax jurisdictions, the Company's consolidated
effective tax rate may increase to the extent that the Company reports tax
losses in some subsidiaries and taxable income in others.
10
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The Company has significant operations and generates a majority of its taxable
income in the Republic of Ireland, and certain of the Company's Irish operating
subsidiaries are taxed at rates substantially lower than U.S. tax rates. One
Irish subsidiary currently qualifies for a 10% tax rate which, under current
legislation, is in force until 2010, and another Irish subsidiary is income tax
exempt. If such subsidiaries were no longer to qualify for such tax rates or if
the tax laws were rescinded or changed, the Company's operating results could be
materially adversely affected. Moreover, because the Company incurs income tax
in several countries, an increase in the profitability of the Company in one or
more of these countries could result in a higher overall tax rate. In addition,
if tax authorities were to challenge successfully the manner in which profits
are recognized among the Company's subsidiaries, the Company's taxes could
increase and its cash flow and net income could be materially adversely
affected.
The effective tax rates for the three and nine month periods ended September 30,
1996 were 16.0% and 16.0%, compared to 18.1% and 19.7% for the same periods in
1995. The higher effective tax rates during the 1995 periods were primarily the
result of losses incurred by CLS and NTT during these periods.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments at September 30, 1996 increased slightly to
$47.7 million from $47.2 million at December 31, 1995. Working capital increased
to $48.4 million at September 30, 1996 from $44.1 million at December 31, 1995.
These increases were primarily the result of increased cash flow from operating
activities during the period, which were partially offset by expenditures for
property and equipment to support the Company's expanded operations.
Net cash provided by operating activities was $5.1 million in the nine months
ended September 30, 1996 compared to net cash provided by operating activities
of $1.1 million for the comparable period of the prior year. The increase in
cash flow from operations was primarily attributable to a $4.3 million increase
in net income, which was partially offset by a significant increase in prepaid
expenses.
Capital expenditures were $4.1 million in the nine months ended September 30,
1996 compared to $981,000 for the comparable period of the prior year. The
increase was primarily attributable to system upgrades, establishment of a new
fulfillment center and fixed asset requirements resulting from increases in
staff. Although the Company currently has no material capital commitments,
it has spent significantly more in 1996 than in previous years, primarily
as a result of improvements to its information systems and capital expenditures
associated with its new executive offices in Menlo Park, California and the new
research and development and fulfillment facilities in Dublin, Ireland. The
Company expects to make significant additional investments in these areas during
the remainder of 1996 and in 1997.
The Company believes that its existing cash and short-term investments will be
sufficient to meet its cash requirements for at least the next twelve months.
The Company may from time to time consider the acquisition of complementary
businesses, products or technologies, which may require additional financing.
ADDITIONAL RISK FACTORS THAT COULD AFFECT OPERATING RESULTS
The following risk factors could materially and adversely affect the Company's
future operating results and could cause actual events to differ materially from
those predicted in the Company's forward looking statements relating to its
business.
11
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Fluctuations in Operating Results. The Company has in the past experienced
- ---------------------------------
fluctuations in its quarterly operating results and anticipates that such
fluctuations will continue and could intensify in the future. Fluctuations in
operating results may result in volatility in the price of the Company's ADSs.
Although the Company was profitable in each of the last eleven quarters, there
can be no assurance that such profitability will continue in the future or that
the levels of profitability will not vary significantly among quarterly periods.
The Company's operating results may fluctuate as a result of many factors,
including size and timing of orders and shipments, mix of sales between products
developed solely by the Company and products developed through development and
marketing alliances, royalty rates, the announcement, introduction and
acceptance of new products, product enhancements and technologies by the Company
and its competitors, mix of sales between the Company's field sales force, its
other direct sales channels and its indirect sales channels, competitive
conditions in the industry, loss of significant customers, delays in
availability of existing or new products, spending patterns of the Company's
customers, currency fluctuations and general economic conditions.
The Company's expense levels are based in significant part on its expectations
regarding future revenues and are fixed to a large extent in the short term.
Accordingly, the Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Any significant revenue
shortfall would therefore have a material adverse effect on the Company's
results of operations. In addition, the Company hired additional employees in
the first three quarters of 1996. This increase in employee expense could have
a negative impact on the Company's operating margins during 1996.
Competition. The information technology education and training market is highly
- -----------
fragmented and competitive, and the Company expects this competition to
increase. The Company expects that because of the lack of significant barriers
to entry into this market, new competitors may enter the market in the future.
In addition, companies are competing with the Company in the information
technology education and training through the acquisition of the Company's
competitors, and the Company expects this trend to continue. Such competitors
may also include publishing companies and vendors of application software,
including those vendors with whom the Company has formed development and
marketing alliances.
The Company competes primarily with third-party suppliers of instructor-led
information technology education and training and internal training departments
and with other suppliers of information technology education and training,
including several other companies that produce interactive software training.
To a lesser extent, the Company also competes with consultants, value-added
resellers and network integrators. Certain of these value-added resellers also
market products competitive with those of the Company. The Company expects that
as organizations increase their dependence on outside suppliers of training, the
Company will face increasing competition from these other suppliers as
information technology education and training managers more frequently compare
training products provided by outside suppliers.
Many of the Company's current and potential competitors have substantially
greater financial, technical, sales, marketing and other resources, as well as
greater name recognition, than the Company. In addition, the information
technology education and training market is characterized by significant price
competition, and the Company expects that it will face increasing price
pressures from competitors as MIS managers demand more value for their training
budgets. Accordingly, there can be no assurance that the Company will be able
to provide products that compare favorably with new instructor-led techniques or
other interactive training software or that competitive pressures will not
require the Company to reduce its prices significantly.
12
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Developing Market. The market for information technology ("IT") education and
- -----------------
training is rapidly evolving. New methods of delivering interactive education
software are being developed and offered in the marketplace, including intranet
and Internet deployment systems. Many of these new delivery systems will involve
new and different business models and contracting mechanisms. In addition,
multimedia and other product functionality features are being added to
educational software. Accordingly, the Company's future success will depend
upon, among other factors, the extent to which the Company is able to develop
and implement products which address these emerging market requirements. There
can be no assurance that the Company will be successful in meeting changing
market needs.
Seasonality. The software industry generally, and the Company in particular,
- -----------
are subject to seasonal revenue fluctuations, based in part on customers' annual
budgetary cycles and in part on the annual nature of sales quotas. These
seasonal trends have in the past caused, and in the future are expected to
cause, revenues and net income in the first quarter of a year to be less,
perhaps substantially so, than revenues and net income for the immediately
preceding fourth quarter. Many software companies also experience a seasonal
downturn in demand during the summer months. There can be no assurance that
these or other seasonal trends will not have a material adverse effect on the
Company's results of operations.
Management of Expanding Operations and Acquisitions. The Company has recently
- ---------------------------------------------------
experienced rapid expansion of its operations, which has placed, and is expected
to continue to place, significant demands on the Company's administrative,
operational and financial personnel and systems. The Company's future operating
results will substantially depend on the ability of its officers and key
employees to manage changing business conditions and to implement and improve
its operational, financial control and reporting systems. If the Company is
unable to respond to and manage changing business conditions, its business and
results of operations could be materially adversely affected.
As a result of the consummation of the acquisitions of Personal Training
Systems, Inc. ("PTS") in late 1995, and CLS and NTT in May 1996, the Company's
operating expenses have increased. There can be no assurance that the
integration of the businesses can be successfully completed in a timely fashion,
or at all, or that the revenues from the acquired businesses will be sufficient
to support the costs associated with those businesses, without adversely
affecting the Company's operating margins. Any failure to successfully complete
the integration in a timely fashion or to generate sufficient revenues from the
acquired business could have a material adverse effect on the Company's
business and results of operations.
The Company regularly evaluates acquisition opportunities and is likely to make
acquisitions in the future. Future acquisitions by the Company could result in
potentially dilutive issuances of equity securities, the incurrence of debt and
contingent liabilities and amortization expenses related to goodwill and other
intangible assets, which could materially adversely affect the Company's results
of operations. Product and technology acquisitions entail numerous risks,
including difficulties in the assimilation of acquired operations, technologies
and products, diversion of management's attention to other business concerns,
risks of entering markets in which the Company has no or limited prior
experience and potential loss of key employees of acquired companies. The
Company's management has had limited experience in assimilating acquired
organizations and products into the Company's operations. No assurance can be
given as to the ability of the Company to integrate successfully any operations,
personnel or products that have been acquired or that might be acquired in the
future, and the failure of the Company to do so could have a material adverse
effect on the Company's results of operations.
13
<PAGE>
Dependence on Key Personnel. The Company's future success depends in large part
- ---------------------------
on the continued service of its key management and its sales, product
development and operational personnel, and on its ability to continue to
attract, motivate and retain highly qualified employees, including additional
management personnel. In addition, the Company depends on writers, programmers
and graphic artists, as well as third party content providers. The Company
expects to continue to expand its product development, sales and marketing, IS
and accounting staff to manage the rapid growth of the Company. However, there
can be no assurance that the Company will be successful in attracting, retaining
or motivating key personnel. The inability to hire and retain qualified
personnel or the loss of the services of key personnel could have a material
adverse effect on the Company's business, new product development efforts and
results of operations.
Risk of Increasing Taxes. Certain of the Company's subsidiaries have
- ------------------------
significant operations and generate significant taxable income in Ireland, and
certain of the Company's Irish subsidiaries are taxed at rates substantially
lower than U.S. tax rates. The extent of the tax benefit could vary from period
to period, and there can be no assurance that the Company's tax situation will
not change.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
10.1* Letter Agreement effective as of September 3, 1996 between
CBT Group PLC, CBT Systems USA, Ltd. and James J. Buckley.
11.1 Statement Regarding Computation of Net Income Per Ordinary
Share.
27.1 Financial Data Schedule.
____________________________________
* Denotes management compensatory plan or arrangement.
(b) Reports on Form 8-K
-------------------
Not applicable.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CBT GROUP PLC
Date: November 14, 1996 By: /s/ William G. McCabe
------------------------------------
William G. McCabe
Chairman and Chief Executive Officer
Date: November 14, 1996 By: /s/ Gregory M. Priest
------------------------------------
Gregory M. Priest
VP, Finance and Chief Financial Officer
15
<PAGE>
EXHIBIT 10.1
[CBT LETTERHEAD]
Mr. Jim Buckley
124 Bridgton Court
Los Altos, CA 94022
24 July 1996
Dear Jim,
Further to our meeting, I am delighted on behalf of the Board to offer you the
position of President and Chief Operations Officer of CBT Systems. The basic
elements of the offer will be as follows:
(1) A base salary of $385,000;
(2) An on-target package of $535,000. There will be upside opportunity for
over-achievement of objectives. The formula for the performance element we
can work out during August. This package will be reviewed annually;
(3) 485,000 options at $39.25 per option. These options are four year vesting.
The initial 25% will vest 12 months after you take up your position
thereafter the options will vest monthly over a further 36 months;
(4) You will be offered a one year contract by CBT Systems. The detail of this
contract will require further work;
(5) You will commence your role as President and Chief Operations Officer no
later than Tuesday 3rd September 1996; and
(6) One third of your pro-rated bonus will be guaranteed during 1996.
I am delighted to make this offer to you and I look forward to working with you
to achieve even greater success for CBT Systems in the coming years.
Please indicate your acceptance by signing both copies and returning one to me.
Yours sincerely,
Bill McCabe
Chairman and Chief Executive Officer
I accept the position as President and Chief Operations Officer under the above
terms and conditions.
Name: Name:
-------------------------------- --------------------------------
Title: Title:
------------------------------- -------------------------------
Date: Date:
-------------------------------- --------------------------------
<PAGE>
EXHIBIT 11.1
------------
STATEMENT RE: COMPUTATION OF NET INCOME PER ORDINARY SHARE
(in thousands, except per share amounts)
--------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1996 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
PRIMARY
Computation of ordinary and ordinary
equivalent shares outstanding:
Weighted average shares outstanding 7,835 8,764 7,045 8,691
Dilutive equivalent shares issuable
upon exercise of options 1,065 1,129 948 1,080
Equivalent shares attributable to
redeemable convertible preferred shares -- -- 355 --
Incremental shares per applicable Staff
Accounting Bulletins 37 37 37 37
------ ------ ------ ------
Total weighted average ordinary and
ordinary equivalent shares outstanding 8,937 9,930 8,385 9,808
====== ====== ====== ======
Net income $1,618 $3,389 $3,037 $7,324
====== ====== ====== ======
Net income per ordinary share (1) $ 0.18 $ 0.34 $ 0.36 $ 0.74
====== ====== ====== ======
FULLY DILUTED
Computation of ordinary and ordinary
equivalent shares outstanding:
Weighted average shares outstanding 7,835 8,764 7,045 8,691
Dilutive equivalent shares issuable
upon exercise of options 1,077 1,138 996 1,162
Equivalent shares attributable to
redeemable convertible preferred shares -- -- 355 --
Incremental shares per applicable Staff
Accounting Bulletins 37 37 37 37
------ ------ ------ ------
Total weighted average ordinary and
ordinary equivalent shares outstanding 8,949 9,939 8,433 9,890
====== ====== ====== ======
Net income $1,618 $3,389 $3,037 $7,324
====== ====== ====== ======
Net income per ordinary share (1) $ 0.18 $ 0.34 $ 0.36 $ 0.74
====== ====== ====== ======
</TABLE>
(1) Each Ordinary Share is represented by two American Depositary Shares
("ADSs"), which are the securities that are publicly traded. Net income per
Ordinary Share is therefore, within rounding, two times net income per
equivalent ADS.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,824
<SECURITIES> 41,846
<RECEIVABLES> 15,971
<ALLOWANCES> (200)
<INVENTORY> 70
<CURRENT-ASSETS> 66,328
<PP&E> 0
<DEPRECIATION> 758
<TOTAL-ASSETS> 74,362
<CURRENT-LIABILITIES> 17,914
<BONDS> 0
0
0
<COMMON> 5,358
<OTHER-SE> 51,090
<TOTAL-LIABILITY-AND-EQUITY> 74,362
<SALES> 44,612
<TOTAL-REVENUES> 44,612
<CGS> 7,094
<TOTAL-COSTS> 37,560
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,667)
<INCOME-PRETAX> 8,719
<INCOME-TAX> 1,395
<INCOME-CONTINUING> 7,324
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,324
<EPS-PRIMARY> $0.74
<EPS-DILUTED> $0.74
</TABLE>
