<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 June 30, 1997
[_] 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 ninety (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 August 1,
1997 was 19,251,776. The number of Ordinary Shares outstanding as of August 1,
1997 was 9,625,888.
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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 as of
December 31, 1996 and as of June 30, 1997 3
Condensed Consolidated Statements of
Operations for the three and six month
periods ended June 30, 1996 and 1997 4
Condensed Consolidated Statements of Cash
Flows for the six month periods ended June
30, 1996 and 1997 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
PART II. OTHER INFORMATION
Item 4. Matters Submitted to a Vote of the
Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
2
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CBT GROUP PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $11,346 $13,858
Short-term investments 36,782 37,252
Accounts receivable, net 20,864 24,513
Inventories 305 433
Deferred tax assets, net 140 140
Prepaid expenses 3,988 4,351
------- -------
Total current assets 73,425 80,547
Property and equipment, net 6,961 7,406
Investment 4,997 4,997
Deferred tax asset 428 391
Other assets 2,798 5,555
------- -------
Total assets 88,609 98,896
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Borrowings under bank overdraft 152 14
facility and overdrafts
Accounts payable 3,433 3,032
Accrued payroll and related expenses 3,301 2,913
Other accrued liabilities 12,305 14,550
Deferred revenues 6,993 4,033
------- -------
Total current liabilities 26,184 24,542
NON-CURRENT LIABILITIES
Borrowings under bank loan facility 794 --
Accrued payroll and related expenses 108 87
Deferred tax liability 112 105
Minority equity interest 16 621
------- -------
Total non-current liabilities 1,030 813
SHAREHOLDERS' EQUITY
Ordinary Shares, IR37.5p par value:
30,000,000 shares authorized at
December 31, 1996 and June 30, 1997;
issued and outstanding: 9,034,535
shares at December 31, 1996 and
9,427,759 at June 30, 1997 5,511 5,747
Additional paid-in capital 58,287 62,583
Accumulated (deficit) surplus (2,684) 4,967
Cumulative translation adjustment 281 244
------- -------
Total shareholders' equity 61,395 73,541
------- -------
Total liabilities and
shareholders' equity 88,609 98,896
======= =======
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1996 has been
derived from the audited financial statements at that date and has been restated
to reflect the acquisitions of ALA and Benelux (each as defined in the Notes
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 Six Months
------------------------ ------------------------
Ended June 30 Ended June 30
------------------------ ------------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $16,666 $25,058 $31,532 $47,359
Cost of revenues 3,166 4,111 5,915 7,728
------- ------- ------- -------
Gross profit 13,500 20,947 25,617 39,631
Operating expenses:
Research and development 2,649 4,227 5,042 7,970
Sales and marketing 6,989 10,100 13,684 19,530
General and administrative 1,337 1,661 2,597 3,302
Costs of acquisitions 596 -- 596 926
------- ------- ------- -------
Total operating expenses 11,571 15,988 21,919 31,728
------- ------- ------- -------
Income from operations 1,929 4,959 3,698 7,903
Other income, net 482 610 1,005 1,098
------- ------- ------- -------
Income before provision for income taxes 2,411 5,569 4,703 9,001
Provision for income taxes 412 835 814 1,350
------- ------- ------- -------
Net income 1,999 4,734 3,889 7,651
======= ======= ======= =======
Net income per equivalent ADS(1) $0.10 $0.23 $0.20 $0.37
======= ======= ======= =======
Shares used in computing net income per
equivalent ADS(1) 19,928 20,568 19,729 20,485
======= ======= ======= =======
</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
$0.20 and $0.46 for three months ended June 30, 1996 and 1997,
respectively, and $0.39 and $0.75 for the six months ended June 30, 1996
and 1997, respectively. Shares used in computing net income per Ordinary
Share was 9.964 million and 10.284 million for three months ended June 30,
1996 and 1997, respectively, and 9.865 million and 10.243 million for the
six months ended June 30, 1996 and 1997, respectively.
4
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CBT GROUP PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,889 $ 7,651
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 640 1,374
Accrued interest on short-term
investments 19 (222)
Changes in operating assets and
liabilities:
Accounts receivable 189 (3,840)
Inventories (88) (144)
Prepaid expenses and other assets (2,178) (3,154)
Accounts payable 587 (342)
Accrued payroll and related
expenses and other accrued
liabilities 67 1,954
Deferred revenues 26 (2,827)
------- -------
Net cash provided by operating 3,151 450
activities ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (2,444) (1,819)
Payments to acquire short-term
investments (609) (248)
------- -------
Net cash used in investing activities (3,053) (2,067)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of notes payable (55) --
Repayment of bank loans -- (794)
Repayments under bank
overdraft facility (1,267) (138)
Payments receivable from shareholders 11 --
Proceeds from issuance of preferred
shares in subsidiary -- 605
Proceeds from issuance of ordinary
shares, net 810 4,532
------- -------
Net cash (used in) provided by financing
activities (501) 4,205
------- -------
Effect of exchange rate changes on cash 15 (76)
------- -------
Net (decrease) increase in cash (388) 2,512
Cash at beginning of period 7,142 11,346
------- -------
Cash at end of period $ 6,754 $13,858
======= =======
</TABLE>
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 ALA AND BENELUX
On February 28, 1997, CBT Group PLC ("CBT," or the "Company") completed the
acquisitions of Applied Learning Limited, a company organized under the laws
of Tasmania, Australia ("ALA") and CBT Systems Benelux B.V., a Netherlands
limited liability company ("Benelux"). ALA was an Australian distributor of
interactive education software and had been CBT's exclusive distributor in
Australia and New Zealand, and Benelux had been the Company's exclusive
distributor in the Netherlands, Belgium, and Luxembourg.
The Company issued a total of 207,222 equivalent ADSs to the former
shareholders of ALA and Benelux in connection with the acquisitions. Each
transaction is being accounted for as a "pooling of interests" in accordance
with U.S. generally accepted accounting principles.
NOTE 3 AMERICAN DEPOSITARY SHARE SPLIT
On May 15, 1996, the Company 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.
NOTE 4 EARNINGS PER EQUIVALENT ADS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact of such
requirements is expected to result in a restated primary earnings per share
for the three month periods ended June 30, 1996 and 1997 of $0.11 and $0.25
per equivalent ADS, respectively, and for the six month periods ended June 30,
1996 and 1997 of $0.22 and $0.41 per equivalent ADS, respectively.
6
<PAGE>
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 the information technology ("IT") education and
training needs of businesses and organizations worldwide. The Company develops,
publishes and markets a broad library of more than 433 software titles covering
a comprehensive range of client/server, Internet and corporate intranet
technologies and are delivered on networked and standalone PCs and over
corporate intranets.
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 in general 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 direct sales
and telesales organizations 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.
RECENT DEVELOPMENTS
On February 28, 1997, CBT completed the acquisition of Applied Learning Limited,
a company organized under the laws of Tasmania, Australia ("ALA"). ALA is an
Australian distributor of interactive education software and had been CBT's
exclusive distributor in Australia and New Zealand. Approximately half of ALA's
revenue for the year ended December 31, 1996 was attributable to sales of
products supplied by National Education Training Group ("NETG"), a division of
National Education Corporation, a competitor of the Company.
7
<PAGE>
Earlier this year, the Company and ALA received correspondence from NETG
threatening legal action with respect to matters related to the acquisition and
the alleged breach by ALA of a distributorship agreement between ALA and NETG.
The parties have settled their dispute. As part of the settlement, CBT will
cease distribution of NETG products as of December 31, 1997, and revenues
attributable to sales of NETG products will therefore reduce to zero effective
January 1, 1998.
CBT evaluated the proposed acquisition of ALA on the assumption that NETG might
seek to terminate its business relationship with ALA following the acquisition
and that revenue attributable to sales of NETG products might therefore not
continue in future periods. CBT's management concluded that even if such event
were to occur, the acquisition continued to be in the best interests of the
Company.
On February 28, 1997, CBT completed the acquisition of CBT Systems Benelux B.V.,
a Netherlands limited liability company ("Benelux"). Benelux had been the
Company's exclusive distributor in the Netherlands, Belgium, and Luxembourg.
The Company issued a total of 207,222 equivalent ADSs to the former shareholders
of ALA and Benelux in connection with the acquisitions. Each transaction is
being accounted for as a "pooling of interests" in accordance with U.S.
generally accepted accounting principles. The ALA and Benelux acquisitions
further expand the Company's global reach into emerging IT training markets.
RESULTS OF OPERATIONS
The following table sets forth certain restated consolidated statements of
operations data as a percentage of revenues:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 1997 1996 1997
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues 100% 100% 100% 100%
Cost of revenues 19.0 16.4 18.8 16.3
---- ---- ---- ----
Gross profit 81.0 83.6 81.2 83.7
Operating expenses:
Research and development 15.9 16.9 16.0 16.8
Sales and marketing 41.9 40.3 43.4 41.2
General and administrative 8.0 6.6 8.2 7.0
Costs of acquisitions 3.6 -- 1.9 2.0
---- ---- ---- ----
Total operating expenses 69.4 63.8 69.5 67.0
---- ---- ---- ----
Income from operations 11.6 19.8 11.7 16.7
Other income, net 2.9 2.4 3.2 2.3
---- ---- ---- ----
Income before provision for income taxes 14.5 22.2 14.9 19.0
Provision for income taxes 2.5 3.3 2.6 2.9
---- ---- ---- ----
Net income 12.0 18.9 12.3 16.1
==== ==== ==== ====
</TABLE>
8
<PAGE>
Revenues
- --------
Revenues increased 50% to $25.1 million in the three months ended June 30, 1997
from $16.7 million in the three months ended June 30, 1996, and 50% to $47.4
million in the six months ended June 30, 1997 from $31.5 million in the six
months ended June 30, 1996. 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. Revenue from CBT's core business (excluding the revenues of ALA and
Benelux) increased 59% in the three month period ended June 30, 1997 from the
comparable period in 1996. Revenues from ALA and Benelux increased at a
significantly lower rate, primarily due to a reduction in ALA's sales of
competitive NETG products. As a result, CBT's consolidated growth rate from the
three months ended June 30, 1996 to the three months ended June 30, 1997 was
50%. Sales of NETG products will terminate at the end of 1997, and the
Company will not derive any revenue from sales of NETG products in 1998 or
thereafter.
Revenues in the United States for the three and six month periods ended June 30,
1997 increased to $18.4 million (or 73% of revenues) and $35.2 million (or 74%
of revenues), respectively, from $11.0 million (or 66% of revenues) and $21.3
million (or 68% of revenues) for the three and six month periods ended June 30,
1996, respectively. These increases were primarily the result of a significant
increase in the number of sales and related personnel employed in the United
States, an increase in the number of available courses and an expansion of the
Company's customer base. The increases in U.S. revenues as of percentage of
total revenues are primarily attributable to the inclusion in the 1996 periods
of substantial revenues from ALA attributable to sales of competitive NETG
products, which reduced significantly in the 1997 periods, resulting in a lower
consolidated percentage growth rate internationally than in the United States.
Revenues in Europe for the three and six month periods ended June 30, 1997 were
$4.5 million (or 18% of revenues) and $7.6 million (or 16% of revenues),
respectively, and revenues from outside the United States and Europe
(principally from Australia and Canada) were 9% and 10%, respectively. Because
a significant portion of the Company's business is conducted outside the United
States, the Company is 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 83.6% and 83.7% in the three and six month periods
ended June 30, 1997, respectively, from 81.0% and 81.2% in the three and six
month periods ended June 30, 1996, respectively. The lower gross margins during
the three and six month periods ended June 30, 1996 were primarily due to the
restatement of these periods for the acquisition of ALA, whose royalty payments
to third party providers during such periods were higher than the average
royalty payments paid by CBT. 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
- ---------------------------------
9
<PAGE>
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 six month periods
ended June 30, 1997 to $4.2 million (or 16.9% of revenues) and $8.0 million (or
16.8% of revenues), respectively, from $2.6 million (or 15.9% of revenues) and
$5.0 million (or 16.0% of revenues) in the comparable periods of the prior year.
These 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 and the development of CBT Campus, the Company's next-
generation education deployment and management system. 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 six month periods ended June 30,
1997 to $10.1 million (or 40.3% of revenues) and $19.5 million (or 41.2% of
revenues), respectively, from $7.0 million (or 41.9% of revenues) and $13.7
million (or 43.4% of revenues) for the comparable periods of the prior year.
The increases in absolute terms were primarily attributable to an increase in
the number of sales and sales related 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 increase in revenues during this period. The
decreases in sales and marketing expenses as a percentage of revenues during
these periods were due primarily to more rapid increases in revenues than in
associated expenses. The Company expects to increase sales and marketing
expenses in the future 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 six month periods ended June 30, 1997
to $1.7 million (or 6.6% of revenues) and $3.3 million (or 7.0% of revenues),
respectively, from $1.3 million (or 8.0% of revenues) and $2.6 million (or 8.2%
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 as a percentage of revenues were
principally due to more rapid increases in revenues than in associated expenses.
The Company anticipates that general and administrative expenses will increase
in future periods due to increases in staffing and infrastructure.
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 $610,000 and $1.1 million in the three and six month periods ended June 30,
1997, respectively, as compared to other income, net, of $482,000 and $1.0
million for the comparable periods of the prior year. The increases in other
income during such periods were primarily attributable to interest on short-term
investments.
10
<PAGE>
The Company's consolidated financial statements are prepared in dollars,
although several of the Company's 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 certain such transactions to hedge specific currency risks in the
future. There can be no assurance that any hedging techniques implemented by
the Company would be successful in eliminating or reducing 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.
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. The
Company's largest 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 six month periods ended June 30, 1997
were 15.0% and 15.0%, compared to 17.0% and 17.3% for the comparable periods in
1996. The higher tax rates for the three and six month periods ended June 30,
1996 were primarily the result of losses incurred by the Company's German
subsidiary and Benelux, which losses were not available to offset taxable income
earned in other jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments of $51.1 million at June 30, 1997 increased from
$48.1 million at December 31, 1996. Working capital increased to $56.0 million
at June 30, 1997 from $47.2 million at December 31, 1996. The increases in cash
and short-term investments and working capital were primarily the result of
receipts from the issuance of shares upon exercise of employee share options,
which were partially offset by the repayment of bank loans and expenditures for
property and equipment to support the Company's expanded operations.
Net cash provided by operating activities was $450,000 in the six months ended
June 30, 1997 compared to net cash provided by operating activities of $3.2
million for the comparable period of the prior year. The decrease was primarily
the result of increases in accounts receivable, prepaid commissions and
decreased deferred revenues, which were partially offset by increases in accrued
liabilities.
11
<PAGE>
Capital expenditures were $1.8 million in the six months ended June 30, 1997
compared to $2.4 million for the comparable period of the prior year. The
decrease was primarily attributable to the completion of the Company's new
fulfillment and development centers in Dublin and the relatively higher capital
expenditures in the 1996 period due to the relocation of the Company's U.S.
corporate headquarters to Menlo Park, California in the first half of 1996.
Although the Company currently has no material capital commitments, the Company
expects to spend significantly more in 1997 than in previous years, primarily as
a result of improvements to its information systems and capital expenditures
associated with its 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 1997 and in 1998. In addition, growth in
the Company's headquarters staff and the staff at the Dublin development center
will require significant additional space in both locations, including potential
relocation of both offices, which would likely result in significant incremental
expenses and cash expenditures.
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 from time to time considers the acquisition of complementary
businesses, products or technologies, which may require additional financing.
ADDITIONAL RISK FACTORS THAT COULD AFFECT OPERATING RESULTS
In addition to the other factors identified in this report, 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.
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 fourteen 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 six months of 1997. This increase in employee expense could have a
negative impact on the Company's operating margins during 1997.
Competition. The IT 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, larger
companies are competing with the Company in the IT education and
12
<PAGE>
training market, in part 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 IT
education and training and internal training departments and with other
suppliers of IT 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 IT 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 IT education and
training market is characterized by significant price competition, and the
Company expects that it will face increasing price pressures from competitors as
IS 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.
Developing Market. The market for 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 and
management systems. Many of these new delivery and training management systems
will involve new and different business models and contracting mechanisms. In
addition, multimedia and other product functionality features are being added to
the educational software. Accordingly, CBT's future success will depend upon,
among other factors, the extent to which CBT is able to develop and implement
products which address these emerging market requirements. There can be no
assurance that CBT will be successful in meeting changing market needs. In
particular, CBT has announced and will ship in 1997 its next generation
education deployment and management system, CBT Campus. If CBT Campus were to
fail to secure market acceptance, sales of CBT courseware, and CBT's operating
results, could be materially adversely affected. There can be no assurance that
CBT will successfully launch CBT Campus.
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
continue to cause, revenues in the first quarter of a year to be less, perhaps
substantially so, than revenues for the immediately preceding fourth quarter.
In addition, the Company has in past years added significant headcount in the
sales and marketing and research and development functions in the first quarter,
and to a lesser extent, the second quarter. Because these headcount additions
do not immediately contribute significant revenues, the Company's operating
margins in the earlier part of the year tend to be significantly lower than in
the later parts of the year. It is expected that this factor will affect CBT's
operating margins to some extent, in the third quarter of 1997. There can be no
assurance, however, that operating margins in the fourth quarter will meet the
Company's expectations. Many software companies also experience a seasonal
downturn in demand during the summer months. There can be no
13
<PAGE>
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. In particular, the
Company requires significant improvement in its order entry and fulfillment and
management information systems in order to support its expanded operations. 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 a number of acquisitions, the Company's
operating expenses have increased. There can be no assurance that the
integration of these 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 businesses 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.
Dependence on Key Personnel. The Company's future success depends, in large
- ---------------------------
part, on the continued service of its key management, sales, product development
and operational personnel and on its ability to attract, motivate and retain
highly qualified employees, including management personnel. In particular, the
loss of certain senior management personnel or other key employees could have a
material adverse effect on the Company's business. In addition, the Company
depends on writers, programmers and graphic artists, as well as third-party
content providers. The Company expects to continue to hire additional product
development, sales and marketing, IS and accounting staff. 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 upon the Company's current business, new product development efforts and
future business prospects.
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 tax rates in effect in the United States and in other
14
<PAGE>
countries in which the Company has operations. 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.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
The Company held its annual general meeting of shareholders on June 12,
1997 (the "AGM"). Voting was conducted by a show of hands in accordance
with Irish law. Five shareholders or their representatives were present
for the vote. There were no abstentions, broker non-votes or votes
withheld with respect to any matter. The following is a brief description
of each matter submitted to a vote of the security holders at the AGM and
a summary of the votes tabulated with respect to each such matter:
The shareholders re-elected Mr. William G. McCabe to serve as a director of
the Company.
Votes "FOR" Votes "AGAINST"
------------- ---------------
5 0
The shareholders re-elected Mr. John P. Hayes to serve as a director of the
Company.
Votes "FOR" Votes "AGAINST"
------------- ---------------
5 0
The shareholders elected Mr. James J. Buckley to serve as a director of the
Company.
Votes "FOR" Votes "AGAINST"
------------- ---------------
5 0
The shareholders authorized the Company's Board of Directors to fix the
remuneration of the Company's auditors.
Votes "FOR" Votes "AGAINST"
------------- ---------------
5 0
The shareholders authorized and approved an amendment to the Company's 1994
Share Option Plan (the "1994 Plan") increasing the total number of Ordinary
Shares reserved for issuance thereunder by 464,905 (which will be
represented by 929,810 ADSs).
Votes "FOR" Votes "AGAINST"
------------- ---------------
5 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
11.1 Statement Regarding Computation of Net Income Per Ordinary Share.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
Not Applicable.
16
<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: August 13, 1997 By: /s/ James J. Buckley
--------------------
James J. Buckley
Chief Executive Officer and President
Date: August 13, 1997 By: /s/ Gregory M. Priest
---------------------
Gregory M. Priest
VP, Finance and Chief Financial Officer
17
<PAGE>
EXHIBIT 11.1
------------
STATEMENT RE: COMPUTATION OF NET INCOME PER ORDINARY SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1997 1996 1997
-------- -------- ------- -------
<S> <C> <C> <C> <C>
PRIMARY
Computation of ordinary and ordinary
equivalent shares outstanding:
Weighted average shares outstanding 8,803 9,362 8,759 9,304
Dilutive equivalent shares issuable upon
exercise of options 1,124 904 1,069 921
Incremental shares per applicable Staff
Accounting Bulletins 37 18 37 18
------- ------- ------ -------
Total weighted average ordinary and
ordinary equivalent shares outstanding 9,964 10,284 9,865 10,243
======= ======= ====== =======
Net income 1,999 4,734 3,889 7,651
======= ======= ====== =======
Net income per Ordinary Share (1) $ 0.20 $ 0.46 $ 0.39 $ 0.75
======= ======= ====== =======
FULLY DILUTED
Computation of ordinary and ordinary
equivalent shares outstanding:
Weighted average shares outstanding 8,803 9,362 8,759 9,304
Dilutive equivalent shares issuable upon
exercise of options 1,191 1,019 1,194 1,003
Incremental shares per applicable Staff
Accounting Bulletins 37 18 37 18
------- ------- ------ -------
Total weighted average ordinary and
ordinary equivalent shares outstanding 10,031 10,399 9,990 10,325
======= ======= ====== =======
Net income 1,999 4,734 3,889 7,651
======= ======= ====== =======
Net income per Ordinary Share (1) $ 0.20 $ 0.46 $ 0.39 $ 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.
__________________________________________
NOTE: Fully diluted net income per ordinary share is not presented on the face
of the Consolidated Statements of Operations since it is not materially
different from primary net income per ordinary share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 13,858
<SECURITIES> 37,272
<RECEIVABLES> 25,101
<ALLOWANCES> 588
<INVENTORY> 433
<CURRENT-ASSETS> 80,547
<PP&E> 13,241
<DEPRECIATION> 5,835
<TOTAL-ASSETS> 98,896
<CURRENT-LIABILITIES> 24,542
<BONDS> 0
0
0
<COMMON> 5,747
<OTHER-SE> 67,794
<TOTAL-LIABILITY-AND-EQUITY> 98,896
<SALES> 47,359
<TOTAL-REVENUES> 47,359
<CGS> 7,728
<TOTAL-COSTS> 39,456
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,098)
<INCOME-PRETAX> 9,001
<INCOME-TAX> 1,350
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,651
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.74
</TABLE>
