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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 March 31, 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 April 30,
1997 was 18,623,554. The number of Ordinary Shares outstanding as of April 30,
1997 was 9,311,777.
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CBT GROUP PUBLIC LIMITED COMPANY
TABLE OF CONTENTS
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 31,
1996 and as of March 31, 1997 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1996 and 1997 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 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 2(c). Changes in Securities - Sales of Unregistered Securities 14
Item 6. Exhibits and Reports on Form 8-K 15
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CBT GROUP PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
--------------------
December 31, March 31,
1996 1997
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $11,346 $12,371
Short-term investments 36,782 37,252
Accounts receivable, net 20,864 20,445
Inventories 305 313
Deferred tax assets, net 140 140
Prepaid expenses 3,988 4,204
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Total current assets 73,425 74,725
Property and equipment, net 6,961 7,183
Investment 4,997 4,997
Deferred tax asset 428 418
Other assets 2,798 4,985
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Total assets 88,609 92,308
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Borrowings under bank overdraft facility
and overdrafts 152 66
Accounts payable 3,433 3,664
Accrued payroll and related expenses 3,301 2,769
Other accrued liabilities 12,305 12,842
Deferred revenues 6,993 5,718
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Total current liabilities 26,184 25,059
NON-CURRENT LIABILITIES
Borrowings under bank loan facility 794 783
Accrued payroll and related expenses 108 107
Deferred tax liability 112 110
Minority equity interest 16 16
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Total non-current liabilities 1,030 1,016
SHAREHOLDERS' EQUITY
Ordinary Shares, IR37.5p par value: 30,000,000 shares
authorized at December 31, 1996 and March 31, 1997;
issued and outstanding: 9,034,535 shares at December
31, 1996 and 9,297,861 at March 31, 1997 5,511 5,669
Additional paid-in capital 58,287 60,190
Accumulated (deficit) surplus (2,684) 233
Cumulative translation adjustment 281 141
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Total shareholders' equity 61,395 66,233
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Total liabilities and shareholders' equity 88,609 92,308
======= =======
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 CLS, NTT, 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.
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CBT GROUP PLC
Condensed Consolidated Statements of Operations
(dollars in thousands, except per share amount)
---------------------------------------------
Three months
ended March 31,
1996 1997
---- ----
(Unaudited) (Unaudited)
Revenues $14,866 $22,301
Cost of revenues 2,749 3,617
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Gross profit 12,117 18,684
Operating expenses:
Research and development 2,393 3,743
Sales and marketing 6,695 9,430
General and administrative 1,260 1,641
Costs of acquisitions -- 926
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Total operating expenses 10,348 15,740
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Income from operations 1,769 2,944
Other income, net 523 488
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Income before provision for income taxes 2,292 3,432
Provision for income taxes 402 515
------- -------
Net income 1,890 2,917
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Net income per equivalent ADS(1) $ 0.10 $ 0.14
======= =======
ADS equivalents used in computing net income per
equivalent ADS(1) 19,530 20,380
======= =======
- ----------------------------------------------------
(1) Net income per equivalent ADS gives effect to the two-for-one share split
of CBT's ADSs effected in May 1996. Net income per Ordinary Share was $0.19
and $0.29 for three months ended March 31, 1996 and 1997, respectively.
Shares used in computing net income per Ordinary Share was 9.765 million
and 10.190 million for three months ended March 31, 1996 and 1997,
respectively.
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CBT GROUP PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(dollars in thousands)
--------------------
Three months
ended March 31,
1996 1997
---- ----
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,890 $2,917
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 262 687
Accrued interest on short-term investments -- (222)
Changes in operating assets and liabilities:
Accounts receivable 331 182
Inventories 11 (22)
Deferred tax assets (10) --
Prepaid expenses and other assets (824) (2,359)
Accounts payable 190 262
Accrued payroll and related expenses and other
accrued liabilities (837) 147
Deferred revenues 804 (1,171)
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Net cash provided by operating activities 1,817 421
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (1,366) (909)
Payments to acquire investments (523) (248)
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Net cash used in investing activities (1,889) (1,157)
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CASH FLOWS FROM FINANCING ACTIVITIES
Payment of notes payable (30) (86)
Proceeds (repayments) under bank overdraft facility (889) --
Payments receivable from shareholders 11 --
Proceeds from issuance of ordinary shares, net 137 2,061
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Net cash provided by (used in) financing activities (771) 1,975
Effect of exchange rate changes on cash 68 (214)
------ ------
Net increase (decrease) in cash
and cash equivalents (775) 1,025
Cash at beginning of period 7,142 11,346
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Cash at end of period $6,367 $12,371
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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, CBT Group PLC ("CBT," or the "Company") 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 was a developer and marketer of interactive education
software for SAP client/server applications, and NTT's primary business had been
to act as CBT's exclusive distributor in Canada. The Company issued a total of
145,854 of its equivalent 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, the Company's operating results have been restated to include the
results of CLS and NTT.
NOTE 3 ACQUISITIONS OF ALA AND BENELUX
On February 28, 1997, CBT 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. In compliance with such principles,
the Company's operating results have been restated to include the results of ALA
and Benelux.
NOTE 4 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 5 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 March 31, 1996 and 1997 of $0.11 and $0.16 per equivalent ADS,
respectively.
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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 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 379 software titles covering
a comprehensive range of client/server, Internet and corporate intranet
technologies and 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 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.
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The Company and ALA have 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. CBT believes that
such claims are without merit and intends to vigorously defend any lawsuit
commenced based on such claims. Management of CBT and NETG have entered into
discussions relating to such claims. It is anticipated that a consequence of
these discussions will be that ALA will cease distribution of NETG products and
that revenues attributable to sales of NETG products will therefore diminish
significantly and ultimately entirely in future periods.
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.
RESULTS OF OPERATIONS
The following table sets forth certain restated consolidated statements of
operations data as a percentage of revenues:
Three months
ended March 31,
1996 1997
---- ----
Revenues 100% 100%
Cost of revenues 18.5 16.2
---- ----
Gross profit 81.5 83.8
Operating expenses:
Research and development 16.1 16.8
Sales and marketing 45.0 42.3
General and administrative 8.5 7.4
Costs of acquisitions -- 4.2
---- ----
Total operating expenses 69.6 70.7
---- ----
Income from operations 11.9 13.1
Other income, net 3.5 2.2
---- ----
Income before provision for income taxes 15.4 15.3
Provision for income taxes 2.7 2.3
---- ----
Net income 12.7 13.0
==== ====
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Revenues
- --------
Revenues increased 50% to $22.3 million in the three months ended March 31, 1997
from $14.9 million in the three months ended March 31, 1996. The increase in
revenues during this period was 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 57% in the three month
period ended March 31, 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 March 31, 1996 to the three
months ended March 31, 1997 was 50%.
Revenues in the United States for the three month period ended March 31, 1997
increased to $16.8 million (or 75% of revenues) from $10.4 million (or 70% of
revenues) for the three month period ended March 31, 1996. The increase was
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 month period ended March 31, 1997 were $3.1
million (or 14% of revenues), compared to $2.3 million (or 15% of revenues) for
the three month period ended March 31, 1996. In addition, revenues from outside
the United States and Europe (principally from Australia and Canada) in the
three month period ended March 31, 1997 were 11%, compared to 15% for the three
month period ended March 31, 1996. 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 83.8% in the three month period ended March 31, 1997
from 81.5% in the three month period ended March 31, 1996. The lower gross
margins during the three month period ended March 31, 1996 is primarily due to
the restatement of this period for the acquisition of ALA. 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 month period ended
March 31, 1997 to $3.7 million (or 16.8% of revenues) from $2.4 million (or
16.1% of revenues) in the three month period ended March 31, 1996. The increase
is primarily the result of the hiring of additional research and development
personnel required to expand and enhance the Company's library of software
products. 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
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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 month period ended March 31, 1997 to
$9.4 million (or 42.3% of revenues) from $6.7 million (or 45.0% of revenues) for
the three month period ended March 31, 1996. The increase in absolute terms was
primarily attributable to an increase 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
increase in revenues during this period. The decrease in sales and marketing
expenses as a percentage of revenues during these periods is due primarily to a
more rapid increase in revenue 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 month period ended March 31, 1997 to $1.6
million (or 7.4% of revenues) from $1.3 million (or 8.5% of revenues) for the
three month period ended March 31, 1996. The increase in absolute terms was
primarily the result of increased staffing to support expanding operations. The
decrease as a percentage of revenues was principally due to a more rapid
increase 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 $488,000 in the three month period ended March 31, 1997, as compared to other
income, net, of $523,000 for the comparable period of the prior year. Other
income during both periods was primarily attributable to interest on short-term
investments.
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 such transactions 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.
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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. 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 month period ended March 31, 1997 was
15.0%, compared to 17.5% for the same period in 1996. The higher effective tax
rate for the three month period ended March 31, 1996 was primarily the result of
losses incurred by CLS and Benelux.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments at March 31, 1997 increased slightly to $49.6
million from $48.1 million at December 31, 1996. Working capital increased to
$49.7 million at March 31, 1997 from $47.2 million at December 31, 1996. These
increases were primarily the result of increased cash flow from operating
activities during the period, which was partially offset by expenditures for
property and equipment to support the Company's expanded operations.
Net cash provided by operating activities was $421,000 in the three months ended
March 31, 1997 compared to net cash provided by operating activities of $1.8
million for the comparable period of the prior year. The decrease in cash flow
from operations was primarily attributable to a significant increase in prepaid
expenses, which was partially offset by a $1.0 million increase in net income.
Capital expenditures were $909,000 in the three months ended March 31, 1997
compared to $1.4 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 relocation of the
Company's U.S. corporate headquarters to Menlo Park, California in 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 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 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.
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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 thirteen 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 quarter 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 training market
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
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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 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 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.
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 in the second quarter of 1997, and to some extent, the third
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 PTS in late 1995, CLS and
NTT in May 1996, and ALA and Benelux in February 1997, 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
13
<PAGE>
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 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.
PART II. OTHER INFORMATION
ITEM 2(c). CHANGES IN SECURITIES - SALES OF UNREGISTERED SECURITIES.
Benelux Acquisition. On February 28, 1997 (the "Closing Date"), CBT
-------------------
acquired all of the outstanding ordinary shares of CBT Systems Benelux B.V.
The acquisition of Benelux (the "Benelux Acquisition") was consummated pursuant
to a Share Purchase Agreement dated as of February 28, 1997 (the "Share Purchase
Agreement"), made and entered into by and among CBT, Benelux, BDT Systems B.V.,
a Netherlands limited liability company with its corporate seat in Amsterdam,
The Netherlands ("BDT"), FMU Systems B.V., a Netherlands limited liability
company with its corporate seat in Amsterdam, The Netherlands ("FMU," and,
together with BDT, the "Shareholders"), Bill Thorpe and Frank Uges. In the
Benelux Acquisition, CBT received all of the ordinary shares of Benelux, all of
which were held by the Shareholders, in exchange for 17,840 CBT Ordinary Shares.
As a result of the Benelux Acquisition, Benelux became a wholly-owned subsidiary
of CBT.
There were no underwriters or placement agents involved in the Benelux
Acquisition. The CBT Ordinary Shares were issued to BDT and FMU in equal
amounts.
As described above, CBT received all of the ordinary shares of Benelux in
exchange for 17,840 CBT Ordinary Shares. The amount of consideration received
by CBT was determined pursuant to arms' length negotiations between CBT and
Benelux and took into account various factors concerning the valuation of the
business of Benelux.
In connection with the issuance of the CBT Ordinary Shares in the Benelux
Acquisition, CBT relied upon the exemptions contained in Regulation S and
Regulation D under the Securities Act of 1933, as amended (the "Securities
Act"). The Benelux Acquisition consisted of the offer and sale of the CBT
Ordinary Shares to BDT and FMU, each of which is a Netherlands limited liability
company wholly owned by Messrs. Thorpe and Uges, respectively. Messrs. Thorpe
and Uges, in turn, are each residents of Amsterdam and non-U.S. citizens.
Without limiting the generality of the foregoing, the offer and sale of the CBT
Ordinary Shares were made in an "offshore transaction" (as defined in Rule
902(i) of the Securities Act) to non "U.S. persons" (as defined in Rule 902(o)
of the Securities Act) in the absence of any "directed selling efforts" (as
defined in Rule 902(b) of the Securities Act). In addition, CBT structured the
Benelux Acquisition to comply with the requirements of Rule 505 of Regulation D
under the Securities Act. The fair market value of the CBT Ordinary Shares as
of the date of the Benelux Acquisition was approximately US$1,900,000.
ALA Acquisition. On February 28, 1997, CBT consummated the transactions
---------------
contemplated by that certain Implementation Deed dated as of November 26, 1996,
as amended (the "Deed"), by and among CBT, Applied Learning Limited ("ALA"), and
Arie Baalbergen, James Josephson, Geoffrey Bransbury and Brian Hacker (together,
the "Founding Shareholders"). The Deed provided for the cancellation of all of
the outstanding ordinary shares of ALA ("ALA Ordinary Shares"), other than those
owned by CBT, pursuant to a Scheme of Arrangement (the "Scheme"), whereby, among
other things, the shareholders of ALA, other than CBT, received CBT ADSs in
consideration for the cancellation of all of such shareholders' ALA Ordinary
Shares. As a result of the transactions contemplated by the Deed and the Scheme
(hereinafter referred to collectively as the "ALA Acquisition"), ALA became a
wholly-owned subsidiary of CBT. Prior to the ALA Acquisition, ALA was a
publicly held company in Australia whose ordinary shares were traded on the
Australian Stock Exchange.
There were no underwriters or placement agents involved in the ALA
Acquisition. The CBT ADSs were issued to the former shareholders of ALA based
on each shareholder's pro rata ownership of ALA prior to the ALA Acquisition.
Pursuant to the ALA Acquisition, an aggregate of 171,542 CBT ADSs were
issued in consideration for the cancellation of all of the issued and
outstanding ALA Ordinary Shares (a total of 11,500,010), other than those held
by CBT. The CBT ordinary shares underlying the CBT ADSs were issued from the
authorized but unissued share capital of CBT. The consideration paid by CBT for
cancellation of the outstanding ALA Ordinary Shares pursuant to the ALA
Acquisition was determined pursuant to arms' length negotiations between CBT and
ALA and took into account various factors concerning the valuation of the
business of ALA. The actual number of CBT ADSs to be received by a holder of
ALA Ordinary Shares was based on an acquisition price of A$1.10 for each ALA
Ordinary Share. That price was then converted into a specific number of CBT
ADSs based on the exchange rate between U.S. dollars and Australian dollars
immediately prior to the Closing Date and the closing sale price of the CBT ADSs
immediately prior to the Closing Date. The fair market value of the CBT ADSs as
of the date of the ALA Acquisition was approximately US$9,800,000. All options
to purchase ALA Ordinary Shares outstanding immediately prior to the ALA
Acquisition were assumed by CBT pursuant to Option Amendment Deeds dated
February 28, 1997.
In connection with the issuance of the CBT ADSs in the ALA Acquisition, CBT
relied upon the exemption provided by Section 3(a)(10) under the Securities Act.
Without limiting the generality of the foregoing, the offer and sale of the CBT
ADSs were made after a finding of fairness of the terms and conditions of the
ALA acquisition by the Supreme Court of New South Wales in Australia.
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
-------------------
The Company filed a report on Form 8-K with the Securities and
Exchange Commission on March 14, 1997 reporting under Item 2
Registrant's acquisition of ALA on February 28, 1997.
The Company filed a report on Form 8-K with the Securities and
Exchange Commission on March 14, 1997 reporting under Item 9
Registrant's acquisition of Benelux on February 28, 1997.
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: May 14, 1997 By: /s/ James J. Buckley
-----------------------------
James J. Buckley
Chief Executive Officer and
President
Date: May 14, 1997 By: /s/ Gregory M. Priest
-----------------------------
Gregory M. Priest
VP, Finance and Chief
Financial Officer
15
<PAGE>
EXHIBIT 11.1
------------
STATEMENT RE: COMPUTATION OF NET INCOME PER ORDINARY SHARE
(dollars in thousands, except per share amounts)
----------------------------------------------
Three months ended
March 31,
1996 1997
---- ----
PRIMARY
Computation of ordinary and ordinary equivalent
shares outstanding:
Weighted average ordinary shares outstanding 8,716 9,245
Dilutive equivalent ordinary shares issuable upon
exercise of options 1,012 916
Incremental ordinary shares per applicable Staff
Accounting Bulletins 37 29
------ ------
Total weighted average ordinary and ordinary
equivalent shares outstanding 9,765 10,190
====== ======
Net income $1,890 $2,917
====== ======
Net income per ordinary share(1) $0.19 $0.29
====== ======
FULLY DILUTED
Computation of ordinary and ordinary equivalent
shares outstanding:
Weighted average ordinary shares outstanding 8,716 9,245
Dilutive equivalent ordinary shares issuable upon
exercise of options 1,119 916
Incremental ordinary shares per applicable Staff
Accounting Bulletins 37 29
------ ------
Total weighted average ordinary and ordinary
equivalent shares outstanding 9,872 10,190
====== ======
Net income $1,890 $2,917
====== ======
Net income per ordinary share(1) $0.19 $0.29
====== ======
(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 presented on the face of
the Consolidated Statements of Operations since it is not materially different
from primary net income per ordinary share.
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
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<SECURITIES> 37,252
<RECEIVABLES> 21,033
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<PP&E> 12,331
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<CURRENT-LIABILITIES> 25,059
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0
0
<COMMON> 5,669
<OTHER-SE> 60,564
<TOTAL-LIABILITY-AND-EQUITY> 92,308
<SALES> 22,301
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