Exhibit 99.2
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited Pro forma Consolidated Balance Sheet as of July 31, 2002
and the unaudited Pro forma Consolidated Statements of Operations for the six
months ended July 31, 2002, and year ended January 31, 2002, which is referred
to as the Pro forma Financial Information, present the pro forma effect of the
merger between SkillSoft Corporation and SmartForce PLC (SmartForce) (the
"Merger") in which SkillSoft Corporation was judged to be the accounting
acquirer. Following the merger SmartForce PLC changed its name to SkillSoft PLC.
The accompanying unaudited pro forma combined financial information reflects
SmartForce's merger with SkillSoft Corporation pursuant to an agreement and plan
of merger, effective September 6, 2002. Although SmartForce acquired SkillSoft
Corporation as a legal matter, SkillSoft Corporation is considered the acquirer
for accounting purposes. SmartForce is a global e-Learning company that provides
integrated enterprise e-Learning solutions.
In accordance with Statement of Financial Accounting Standards No. 141, Business
Combinations (SFAS No. 141), and Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets (SFAS 142), SkillSoft PLC used the
purchase method of accounting for a business combination to account for the
Merger as well as the related accounting and reporting regulations for goodwill
and other intangibles. Under these methods of accounting, the assets and
liabilities of SmartForce, including all intangible assets, were recorded at
their respective fair values. All intangible assets are amortized over their
estimated useful lives with the exception of goodwill and any other intangibles
with indefinite lives. The financial position, results of operations and cash
flows of SmartForce are included in SkillSoft PLC's financial statements
prospectively as of the completion of the Merger.
The unaudited pro forma consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States
after eliminating all intercompany activities.
The Pro forma Financial Information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial position
that would have occurred if the Merger had been consummated at the beginning of
the periods presented, nor is it necessarily indicative of future operating
results or financial position. The pro forma adjustments are based upon
available information and assumptions that SkillSoft PLC believes are reasonable
under the circumstances.
This Pro forma Financial Information should be read in conjunction with the
historical financial statements of (i) SkillSoft PLC included in its Form 10-K
as amended, for the year ended January 31, 2003, and (ii) SmartForce PLC
financial statements included elsewhere herein.
The unaudited Pro forma Combined Balance Sheet as of July 31, 2002 includes the
historical balance sheet of SkillSoft Corporation as of July 31, 2002 and
SmartForce as of June 30, 2002 and gives effect to the acquisition of
SmartForce.
The unaudited pro forma combined financial information for the six months ended
July 31, 2002 includes columns representing SkillSoft Corporation's historical
results for the six months then ended and the incorporation of SmartForce's
historical results for the period from January 1, 2002 through June 30, 2002.
The unaudited pro forma combined financial information for the fiscal year ended
January 31, 2002 includes columns representing SkillSoft Corporation's
historical results for the twelve months then ended and SmartForce's historical
results for the period from January 1, 2001 through December 31, 2001.
The unaudited pro forma adjustments do not reflect any operating efficiencies
and cost savings that SkillSoft believes are achievable.
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PRO FORMA CONSOLIDATED BALANCE SHEET
JULY 31, 2002
(IN THOUSANDS)
(UNAUDITED)
SMARTFORCE PRO FORMA
SKILLSOFT PLC PLC ADJUSTMENTS PRO FORMA
------------- ------------- -------------- ------------
Current assets:
Cash and cash equivalents $ 22,587 $ 43,755 $ (654) A $ 65,688
Short-term investments 52,804 44,583 -- 97,387
Accounts receivable, net 17,123 42,758 (881) A 59,000
Prepaid expenses and other current assets 3,181 7,235 (328) A 10,088
------------ ------------- -------------- ------------
Total current assets 95,695 138,331 (1,863) 232,163
Goodwill and other intangible assets 48,680 53,896 278,222 B 380,798
Property and equipment, net 4,992 20,915 (9,718) A 16,189
Investments -- 7,871 -- 7,871
Other assets 528 1,479 (138) A 1,869
------------ ------------- -------------- ------------
Total assets $ 149,895 $ 222,492 $ 266,503 $ 638,890
============ ============= ============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,850 $ 5,948 $ (1,083) A $ 11,715
Accrued payroll and related expenses 2,915 7,719 -- 10,634
Other accrued liabilities 2,743 27,628 42,554 E,D,A 72,925
Deferred revenues 20,695 123,129 (76,591) I 67,233
------------ ------------- -------------- ------------
Total current liabilities 33,203 164,424 (35,120) 162,507
Other liabilities -- 3,351 3,351
Shareholders' equity:
Ordinary shares/Common stock 18 7,587 (1,326) C 6,279
Additional paid-in capital 180,982 304,992 48,503 C 534,477
Accumulated deficit (62,326) (255,705) 255,705 C (62,326)
Notes receiveable from shareholders (123) -- -- (123)
Deferred compensation (1,864) -- (3,416) C (5,280)
Other comprehensive income 5 (2,155) 2,155 C 5
Treasury stock -- (2) 2 C --
------------ ------------- -------------- ------------
Total shareholders' equity 116,692 54,717 301,623 473,032
------------ ------------- -------------- ------------
Total liabilities and shareholders' equity $ 149,895 $ 222,492 $ 266,503 $ 638,890
============ ============= ============== ============
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PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JULY 31, 2002
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
SMARTFORCE PRO FORMA
SKILLSOFT PLC PLC ADJUSTMENTS PRO FORMA
------------- ------------- -------------- ------------
Revenues $ 29,220 $ 95,858 $ -- $ 125,078
Cost of revenues 1,821 18,114 -- 19,935
------------ ------------- -------------- ------------
Gross profit 27,399 77,744 -- 105,143
------------ ------------- -------------- ------------
Operating expenses:
Research and development 7,184 23,104 -- 30,288
Sales and marketing 15,263 58,125 -- 73,388
General and administrative 3,601 7,804 -- 11,405
Amortization of acquired intangibles 162 8,765 (4,440) G 4,487
Restructuring costs -- 29,363 -- 29,363
Stock-based compensation 700 -- 445 H 1,145
------------ ------------- -------------- ------------
Total operating expenses 26,910 127,161 (3,995) 150,076
------------ ------------- -------------- ------------
Income (loss) from operations 489 (49,417) 3,995 (44,933)
Interest income (loss), net 830 (1,209) -- (379)
Net exchange gain -- 732 -- 732
------------ ------------- -------------- ------------
Income (loss) before provision/benefit for income taxes 1,319 (49,894) 3,995 (44,580)
Provision for income taxes -- (287) (225) F (512)
------------ ------------- -------------- ------------
Net income (loss) $ 1,319 $ (50,181) $ 3,770 $ (45,092)
============ ============= ============== ============
Basic and diluted loss per share $ (0.46)
============
Basic and diluted weighted average shares outstanding 98,959
============
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PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 2002
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
SMARTFORCE PRO FORMA
SKILLSOFT PLC PLC ADJUSTMENTS PRO FORMA
------------- ------------- -------------- ------------
Revenues $ 44,271 $ 197,630 $ -- $ 241,901
Cost of revenues 2,552 37,683 -- 40,235
------------ ------------- -------------- ------------
Gross profit 41,719 159,947 -- 201,666
------------ ------------- -------------- ------------
Operating expenses:
Research and development 17,698 52,206 -- 69,904
Sales and marketing 27,602 127,271 -- 154,873
General and administrative 7,199 15,118 -- 22,317
Amortization of acquired intangibles 820 16,437 (7,787) G 9,470
Stock-based compensation -- -- 889 H 889
------------ ------------- -------------- ------------
Total operating expenses 53,319 211,032 (6,898) 257,453
------------ ------------- -------------- ------------
Loss from operations (11,600) (51,085) 6,898 (55,787)
Interest income, net 1,960 2,548 -- 4,508
Net exchange loss -- (4,082) -- (4,082)
------------ ------------- -------------- ------------
Loss before provision for income taxes (9,640) (52,619) 6,898 (55,361)
Provision for income taxes -- (930) (449) F (1,379)
------------ ------------- -------------- ------------
Net loss $ (9,640) $ (53,549) $ 6,449 $ (56,740)
============ ============= ============== ============
Basic and diluted loss per share $ (0.61)
============
Basic and diluted weighted average shares outstanding 92,717
============
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NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED JANUARY 31, 2002
(IN THOUSANDS)
(UNAUDITED)
NOTE A
As a result of the Merger, each issued and outstanding share of common stock,
par value $0.001 per share, of SkillSoft Corporation (the SkillSoft Common
Stock) was automatically converted into the right to receive 2.3674 (the
Exchange Ratio) validly issued and fully paid ordinary shares, nominal value
0.11 per share (Euro), of SmartForce, with each ordinary share represented by an
American Depository Share of SmartForce (ADS).
SmartForce also assumed each outstanding option to purchase SkillSoft Common
Stock, which had been granted under SkillSoft Corporation's existing stock
option plans, under the same exchange ratio. As discussed above, SkillSoft
Corporation has been determined to be the acquirer for accounting purposes. This
transaction resulted in the issuance of approximately 57,400,000 million
ordinary shares (represented by ADSs) of SmartForce with a fair value of
approximately $317,400,000, the assumption of options to purchase approximately
15,700,000 ordinary shares (represented by ADSs) with a Black-Scholes fair value
of approximately $38,900,000, and estimated direct transaction costs of
$15,400,000. The number of ordinary shares issued and options assumed was fixed
in the agreement related to the Merger and was not subject to change prior to
closing. The fair value of SmartForce's ADSs was derived using a market price
per ADS of $5.53, which was based on an average of the closing prices for a
range of six trading days around the announcement date (June 10, 2002) of the
acquisition. Immediately following the Merger, the former stockholders of
SkillSoft Corporation owned approximately 42% of the outstanding ordinary shares
of SmartForce.
The aggregate purchase price of SmartForce is $371,700,000, including
acquisition costs. The purchase price for SmartForce has been allocated to the
estimated fair value of assets acquired and liabilities assumed. The components
of the purchase price and allocation are as follows (in thousands):
Allocation of purchase price:
Stock to be issued to SkillSoft PLC stockholders 317,440
Acquisition costs 15,373
Fair value of options exchanged 38,899
----------
Total consideration and acquisition costs $ 371,712
==========
Allocation of purchase price:
Cash and short-term investments $ 87,684
Accounts receivable 41,877
Other current assets 6,907
Property, plant & equipment 11,197
Other assets 9,213
Identifiable intangible assets 37,000
Goodwill 295,118
Deferred revenue (46,538)
Merger exit costs (30,300)
Other liabilities assumed (40,446)
----------
Total $ 371,712
==========
Liabilities assumed include approximately $30,300,000 of exit costs, related to
SmartForce, expected to be incurred in connection with the Merger. The plans
include initiatives to eliminate redundant facilities and headcount, reduce cost
structure, and better align SmartForce's operating expenses with existing
economic conditions. These costs were accounted for under EITF 95-3,
"Recognition of Liabilities in Connection with Purchase Business Combinations".
These costs were recognized as a liability assumed in the purchase business
combination and included in the allocation of the purchase price, and have been
included as an increase to goodwill. In addition, SmartForce has recorded
adjustments of $9,749,000 and $936,000 to reflect the fair value of certain
assets and accrued liabilities, respectively, as of the merger date. SkillSoft
PLC exited the Telcom business in connection with the SmartForce acquisition.
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NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED JANUARY 31, 2002
(IN THOUSANDS)
(UNAUDITED)
On June 5, 2002, SmartForce purchased all the assets of Frontline Telcom
Training and Performance Company ("Telcom"). In connection with the SmartForce
acquisition, SkillSoft PLC decided to exit this business. On January 31, 2003,
Advanced Education Corporation (AEC) purchased certain assets and assumed
certain liabilities of Telcom. In addition, AEC agreed to pay a royalty to
SkillSoft PLC on all future revenues in an amount ranging from 2.5% to 11% based
on the amount of revenue each year. SkillSoft PLC will record any royalties
received as an adjustment to goodwill. As of June 30, 2002, the net tangible
assets were reclassified to goodwill as follows:
JULY 31, 2002
--------------
(IN THOUSANDS)
Cash and cash equivalents $ 654
Accounts receivable, net 881
Prepaid expenses and other current assets 7
Property, plant and equipment 290
Other assets 138
------
Total assets $1,970
======
Accounts payable $1,083
Deferred revenue 81
Shareholders' equity 806
------
Total liabilities and shareholders' equity $1,970
======
SkillSoft has recorded approximately $3,416,000 of deferred compensation
attributable to unvested stock options assumed in the Merger, which will be
amortized over the remaining vesting period of the underlying options (see Note
H).
NOTE B
The acquired identifiable intangible assets of SmartForce include the fair value
assigned to content and customer contracts by an independent third party
appraiser. Approximately $37,000,000 of the purchase price has been allocated to
amortizable intangible assets comprised of $12,000,000 for contractual customer
relationships and $25,000,000 for course content. Contractual customer
relationships are existing contracts that relate to underlying customer
relationships pertaining to the services provided by the acquired company.
Goodwill represents the excess of consideration paid over the fair value of net
assets acquired and totaled $295,118,000. This excess has been recorded in the
pro forma statements as an increase in the carrying value of the acquired
intangible assets of SmartForce. The goodwill resulting from the Merger will not
be amortized and is not deductible for tax purposes.
Also included in the pro forma balance sheet adjustment at July 31, 2002 is the
elimination of SmartForce's pre-acquisition goodwill and intangible assets.
Management did not value these intangibles in the SmartForce acquisition as the
intangible assets were not expected to be utilized on a post merger basis.
NOTE C
Reflects adjustments to eliminate the historical equity accounts of SmartForce
and issuance of ADSs and share options in connection with the acquisition.
NOTE D
Reflects adjustment to record transaction costs of $15,373,000 consisting
primarily of Irish capital duty cost, and financial advisor, legal and other
professional fees.
NOTE E
Includes adjustment to record the accrued exit costs as discussed in Note A.
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NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED JANUARY 31, 2002
(IN THOUSANDS)
(UNAUDITED)
NOTE F
Income tax adjustments have been calculated using estimated statutory income tax
rates for the jurisdictions in which the companies operate. The pro forma
consolidated provision for income taxes may not represent amounts that would
have resulted had SkillSoft Corporation and SmartForce filed consolidated income
tax returns during the periods presented.
The historical SmartForce financial statements include a deferred tax liability
on the separately identified intangible assets from the Knowledge Well
acquisition. The historical SmartForce tax provision includes a tax benefit from
the amortization of this deferred tax liability. In connection with the
SmartForce acquisition, the Knowledge Well intangible assets were not valued.
The pro forma consolidated balance sheet adjustment to other accrued liabilities
includes $2,183,000 representing the deferred tax liability not assumed in
purchase accounting. The pro forma consolidated statements of operations include
adjustments to eliminate the tax benefit of $449,000 and $225,000 for the year
ended January 31, 2002 and the six months ended July 31, 2002, respectively,
resulting from amortization of the deferred tax liability included in
SmartForce's historical operating results.
NOTE G
Includes adjustment to historical amortization of identifiable intangible assets
and goodwill (in 2001 year only) as follows (in thousands):
January 31, July 31,
2002 2002
----------- --------
Goodwill $ 2,476 $ --
Identifiable intangibles 13,961 8,765
----------- --------
Total 16,437 8,765
Pro forma amortization 8,650 4,325
----------- --------
Pro forma adjustment $ 7,787 $ 4,440
=========== ========
Pro forma amortization is calculated based on a four year life assigned to
content ($25 million value) and a five year life assigned to customer contracts
($12 million value).
NOTE H
Includes adjustments of approximately $889,000 and $445,000 in 2001 and 2002,
respectively, related to deferred compensation attributable to unvested stock
options assumed in the Merger which are being amortized over the remaining
vesting period of the underlying options.
NOTE I
Elimination of approximately $76,591,000 of deferred revenue of SmartForce as
required by EITF 01-3 "Accounting in a Purchase Business Combination for
Deferred Revenue of an Acquiree".
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