UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C.
20549




Form 10-K


ANNUAL
REPORT PURSUANT TO SECTIONS 13 OR 15(d)


OF
THE SECURITIES EXCHANGE ACT OF 1934





(Mark
      One)R
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      the fiscal year ended January 31, 2009or£
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      the transition period
      from          to





Commission
file: 0-25674








SkillSoft
Public Limited Company


(Exact
Name of Registrant as Specified in Its Charter)





Republic
      of Ireland
            None(State
      or Other Jurisdiction of
              Incorporation
      or Organization)
            (I.R.S.
      Employer
              Identification
      No.)107
      Northeastern Boulevard
            03062Nashua,
      New Hampshire
            (Zip
      Code)(Address
      of Principal Executive Offices)





Registrant’s
telephone number, including area code:


(603) 324-3000


Securities
registered pursuant to section 12(b) of the Act:





Title of Each Class
            Name of Each Exchange on Which
      RegisteredOrdinary
      Shares, €0.11
            NASDAQ
      Global Market





Securities
registered pursuant to Section 12(g) of the Act: None





Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes R     No £





Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes £     No R





Indicate
by check mark whether the 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 the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.  Yes R     No £





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.  R





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer,a
non-accelerated filer, or a smaller reporting company. See definitions of “large
accelerated filer”, “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated
      filer R
            Accelerated
      filer £Non-accelerated
      filer £
            Smaller reporting
      company £(Do
      not check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined by
Rule 12b-2 of the Act).  Yes £     No R





The
approximate aggregate market value of voting shares held by non-affiliates of
the registrant as of July 31, 2008 was $1,148,713,349





On
March 27, 2009, the registrant had outstanding 97,597,573 ordinary shares
(issued or issuable in exchange for the registrant’s outstanding American
Depositary Shares (ADSs)).





DOCUMENTS
INCORPORATED BY REFERENCE





Portions
of the registrant’s Definitive Proxy Statement for the registrant’s 2009 annual
meeting of shareholders to be filed within 120 days of the end of its
fiscal year ended January 31, 2009 may be incorporated into Part III
(Items 10, 11, 12, 13 and 14) of this Annual Report on
Form 10-K where indicated.


SKILLSOFT
PUBLIC LIMITED COMPANY




FORM 10-K




TABLE OF CONTENTS





PagePART IItem 1.
                                    Business
                                    2Item 1A.
                                    Risk Factors
                                    21Item 1B.
                                    Unresolved Staff Comments
                                    29Item 2.
                                    Properties
                                    29Item 3.
                                    Legal Proceedings
                                    29Item 4.
                                    Submission of Matters to a Vote of Security
      Holders
                                    30PART IIItem 5.
                                    Market for Registrant’s Common Equity, Related
      Stockholder Matters and Issuer Purchases of Equity
      Securities
                                    30Item 6.
                                    Selected Financial Data
                                    32Item 7.
                                    Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
                                    32Item 7A.
                                    Quantitative and Qualitative Disclosures About
      Market Risk
                                    48Item 8.
                                    Financial Statements and Supplementary
      Data
                                    48Item 9.
                                    Changes in and Disagreements with Accountants on
      Accounting and Financial Disclosure
                                    48Item 9A.
                                    Control and Procedures
                                    48Item 9B.
                                    Other Information
                                    51PART IIIItem 10.
                                    Directors, Executive Officers and Corporate
      Governance
                                    51Item 11.
                                    Executive Compensation
                                    51Item 12.
                                    Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
                                    51Item 13.
                                    Certain Relationships and Related Transactions, and
      Director Independence
                                    51Item 14.
                                    Principal Accountant Fees and
      Services
                                    51PART IVItem 15.
                                    Exhibits and Financial Statement
      Schedules
                                    51Signatures
                                    52EX-10.11 Employment Agreement - MoranEX-10.12 Employment Agreement - NineEX-10.14 Employment Agreement - TownsendEX-10.15 Employment Agreement -
    McDonaldEX-10.16 Employment Agreement-
    DarcyEX-10.18 Form of Indemnification
      AgreementEX-21.1   List of Significant
      SubsidiariesEX-23.1   Consent of Ernst &
      YoungEX-31.1   Section 302 Certification of
      CEOEX-31.2   Section 302 Certification of
      CFOEX-32.1   Section 906 Certification of
      CEOEX-32.2   Section 906 Certification of
      CFO





1
 
 Table of Contents




PART I





From time
to time, including in this Annual Report on Form 10-K and our Annual Report to
shareholders, we may issue forward-looking statements relating to such matters
as anticipated financial performance, business prospects, strategy, plans,
critical accounting policies, technological developments, new services,
consolidation activities, research and development activities, regulatory,
market and industry trends, and similar matters. The Private Securities
Litigation Reform Act of 1995 and federal securities laws provide safe harbors
for forward-looking statements. We note that a variety of factors, including
known and unknown risks and uncertainties as well as incorrect assumptions,
could cause our actual results and experience to differ materially from the
anticipated results or other expectations expressed in such forward-looking
statements. The factors that may affect the operations, performance, development
and results of our business include those discussed under Item 1A, “Risk
Factors” of this Annual Report on Form 10-K.





As used
in this Form 10-K, “we”, “us”, “our”, “SkillSoft” and “the Company” refer
to SkillSoft Public Limited Company and its subsidiaries; and references to our
fiscal year refer to the fiscal year ended on January 31 of that year (e.g.,
fiscal 2009 is the fiscal year ended January 31, 2009).





Item 1.Business





General





SkillSoft
is a leading Software as a Service (SaaS) provider of on-demand e-learning and
performance support solutions for global enterprises, government, education and
small to medium-sized businesses. We enable business organizations to maximize
business performance through a combination of comprehensive e-learning content,
online information resources, flexible learning technologies and support
services. Content offerings include business, information technology (IT),
desktop, compliance and consumer/small to medium-sized business courseware
collections, as well as complementary content assets such as Leadership
Development Channel video products, KnowledgeCenterTM
portals, virtual instructor-led training services and online mentoring services.
Our Books24x7® products offer online access to more than 22,000 digitized IT and
business reference titles, including full text books, book summaries and
executive reports. Our technology offerings include the SkillPort® learning
management system (LMS), Search-and-Learn® search technology and SkillSoft®
DialogueTM virtual
classroom. We also offer content as a service solution through our Open Learning
Services Architecture (OLSA), which utilizes Web Services standards and enables
customers to integrate our content and content-related services with their
enterprise application systems, enterprise portals and third party or custom LMS
solutions. OLSA also enables us to offer SkillSoft Learning Portlets, which
seamlessly deliver a personalized learning experience for each user via a
portlet, resulting in increased utilization of learning assets and greater
end-user satisfaction.





Our
products and services are designed to enable learning to sustain customers’
business success over the long term, while creating positive outcomes for more
stakeholders. With a comprehensive learning solution comprised of high-quality
learning resources and flexible technology approaches, we help our customers
achieve sustainable, measurable business results. These solutions are designed
to support all levels of the organization and can easily be adapted to meet
strategic business initiatives, on-demand information needs and individual job
roles.





On the
courseware side of our business, we focus on a variety of business, professional
effectiveness, IT and compliance topics that we believe represent important
skills required of employees in increasingly dynamic and complex work
environments. We also provide performance support products through our Books24x7
business unit that support on-demand learning and daily information gathering
needs. Our courses provide learners the ability to gain the knowledge they need
to perform their jobs and prepare for many popular professional certifications.
Our Books24x7 collections cover broad business and technical areas of interest,
as well as focused areas of interest such as engineering, finance, hospitality
and employee wellness. Generally, our courseware and Books24x7 content solutions
are based on open standard Web technologies and flexible, low bandwidth
architecture, enabling users to access the material they need via computer, with
the specificity or breadth they require, any time or anywhere that they may need
it.





Our
technology solutions are designed to support a broad range of corporate learning
needs and respond quickly to business demands. Our LMS, SkillPort, is designed
to be a flexible, scalable platform that can be rapidly implemented to meet the
needs of the majority of business enterprises. We also work actively with other
LMS vendors to ensure interoperability of our content and technology with their
systems. We also offer customization and authoring tools, and other technology
assets that allow our customers to tailor our content to better fit with their
business. SkillSoft Dialogue is focused on the rapid assembly and delivery of
effective online learning sessions. Our KnowledgeCenters are targeted learning
portals that provide audiences instant access to trusted, relevant content that
is specific to their job role. Each KnowledgeCenter includes material chosen to
help users quickly and
efficiently build knowledge around specific job-related topics. Customers can
use the SkillSoft KnowledgeCenter Editor to tailor SkillSoft KnowledgeCenters to
their business needs.





2
 Table of Contents
 We have a
worldwide customer base of over 3,000 organizations spanning business,
government and education sectors, with more than 10.5 million licensed users.
Our major products include:


SkillChoice Multi-Modal Learning
Solutions:  These integrated solutions provide a rich array of
resources (including courseware, Books24x7 products, online mentoring,
certification practice tests, Express Guides®and SkillSimTM
Business Simulations) to support formal training and informal performance
support needs. Available as four offerings (Complete, IT, Business and Desktop),
SkillChoice solutions provide the necessary depth, breadth, quality and currency
to encompass a wide range of corporate learning objectives.





SkillPort:  SkillPort,
our learning management system, provides a reliable, flexible and cost-effective
way for organizations to deploy and manage their e-learning programs. Using
SkillPort, customers can leverage the benefits of the multi-modal learning
approach and deploy robust learning solutions rapidly, on a global basis. With
Search-and-Learn, a component of SkillPort, users view all learning assets on
the system with a single, unified search. SkillPort is available as a
SaaS-architecture hosted solution, supporting the growing demand for reliable,
scalable and secure e-learning with a low-cost, low IT-burden model.
Alternatively, customers may choose to deploy SkillPort within their intranet
infrastructure.





SkillSoft
Dialogue:  SkillSoft Dialogue is a virtual classroom platform
that has been designed for the rapid assembly and delivery of effective live and
on-demand learning sessions. SkillSoft Dialogue provides customers access to an
online repository of hundreds of thousands of pages of SkillSoft learning
content. This content can be used to enrich live and on-demand learning sessions
created in SkillSoft Dialogue. These sessions can also be launched and tracked
from SkillPort.





KnowledgeCenters:  KnowledgeCenters
are pre-packaged, user-friendly learning portals that allow learners instant
access to trusted, targeted content. Each KnowledgeCenter includes material
specifically chosen to help a targeted audience of learners build knowledge
around a topic as quickly and efficiently as possible. Components include
Books24x7; access to SkillSoft courseware organized into Learning Roadmaps that
allow learners to locate and use the most appropriate courses for their needs;
simulations (through SkillSim Business Simulations, practice labs or the Project
Center); expert mentoring services (for IT KnowledgeCenters and the Project
Management Institute (“PMI”) KnowledgeCenter); and featured topic spotlights,
refreshed regularly, to provide an in-depth focus on particular topical areas.
KnowledgeCenters also feature Business Impact and Challenge Series titles. Our
KnowledgeCenter Editor is an easy-to-use tool that allows organizations to brand
and customize KnowledgeCenters. Using the KnowledgeCenter Editor, organizations
can further optimize the focus of the KnowledgeCenter and enhance the learner
experience by adding internal content, branding and resources.





Business Exploration
Series:  The Business Exploration Series provides learners with
scenario-based learning that enables them to experience real world situations in
safe, exploratory environments. The Business Exploration Series includes two
distinct learning assets, the Business Impact Series and the Challenge Series
which have been designed to engage the learner with concise, rich and authentic
learning experiences.





Business Impact
Series:  Business Impact Series titles are five- to 10-minute,
audio-driven dramatizations of workplace business problems and related
solutions. Innovative uses of video and Flash technology create realistic
characters and scenarios that depict a wide range of business and professional
development topics that learners can apply to their specific jobs.





Challenge
Series:  Challenge Series titles are media-rich interactive
case studies focused on content analysis, problem solving and decision making.
Each Challenge Series title presents learners with a specific objective or goal,
along with related discovery material and multiple potential solutions. Learners
are “challenged” to analyze the business problem and the discovery material,
select one of several potential solutions and then defend or justify their
selections by answering questions about the selected outcome.





Business Skills Courseware
Collection:  This includes more than 3,200 courseware titles
and simulations encompassing professional effectiveness, management/leadership,
project management, sales and customer-facing skills, business
strategy/operations, finance and human resources. Our courses feature strong
visual design; a focus on instructional objectives at the application and
analysis levels; learner interactivity; reinforcement through RolePlays,
SkillSims and case studies and transfer of learning into practice through online
job aids, follow-on activities and SkillBriefs. Our Business Skills Courseware
Collection also supports many popular and sought-after business certifications
including PMI’s Project Management, Portfolio Management and Program Management
certifications; HRCI’s PHR and SPHR certifications; ASQ’s Six Sigma Green Belt
and Black Belt; Certified Quality Manager certifications and IIBA’s Certified
Business Analysis Professional.




3
 Table of Contents




IT Skills Courseware
Collection:  This includes more than 2,700 courseware titles
encompassing software development, operating systems and server technologies,
Internet and network technologies, enterprise database systems and Web design.
Our IT Skills Courseware Collection and certification also supports more than
100 current IT professional certification exams, and in most instances includes
access to online mentoring. These IT courses also feature strong visual design,
interactivity and reinforcement of learning transfer via frequent practice
questions, simulations and self-assessed exercises.





Desktop Skills Courseware
Collection:  Our Desktop Skills Courseware Collection offers
more than 1,350 courseware titles to assist professionals who rely on standard
desktop applications. Our desktop solutions are ideal for day-to-day performance
support, as well as supporting major corporate software migrations.





Legal Compliance, Federal Government
Compliance and Environmental Safety and Health (ES&H) Courseware
Collection:  Our Compliance Solution includes three focus areas
— Legal Compliance, Federal Government Compliance and ES&H Compliance. Our
Legal Compliance Solution, which includes more than 55 courseware titles,
addresses the needs of our clients as they work toward maintaining compliance
with various statutes, regulations and case law that govern the workplace. The
Federal Government Compliance Series, which includes 13 courseware titles,
addresses legal compliance issues that are of interest to federal agencies and
private sector organizations that do business with the federal government. The
ES&H Compliance Solution addresses key standards mandated by the
Occupational Safety and Health Administration (OSHA), Environmental Protection
Agency (EPA) and the Department of Transportation (DOT). Our ES&H courses
are designed for use by the “hardhat and safety glasses” industries. We offer
over 200 ES&H courseware titles in six languages.





SkillSoft
Academy:  SkillSoft Academy is a dedicated, configurable,
online compliance learning management system that helps customers plan,
schedule, record and manage their training to help ensure compliance with
applicable regulatory and corporate requirements. Companies can plan and track
various types of training, including Web-based, classroom, on-the-job, video or
another format. The SkillSoft Academy helps organizations ensure compliance by
allowing consistent and specific training requirements to be set and tracked to
completion for different customer-defined learner groups, such as divisions,
departments, teams and job functions. Automated retraining functionality alerts
learners, supervisors and training administrators on training status via an
email notification system, allowing immediate review of training status for
planning and compliance purposes through flexible and robust
reporting.





Online
Mentoring:  This service is offered for over 115 current
certification exams for IT professionals, end-user technologies, human resources
professional (PHR), Six Sigma and project management skills. We have over 30
available, on-staff certified technical experts (CTEs), averaging over 25
current certifications each, available 24 hours a day, seven days a week (24x7)
for 35 of our most popular certification exams. In addition to the 35 exams that
have 24x7 mentoring, experts are also available online Monday through Friday, 9
a.m. to 5 p.m. EST for more than 60 additional certification exams. Through
online chats and e-mail, learners can ask questions, receive clarification and
request additional information to help them get the answers and understanding
they need to prepare for industry certification exams. We also offer 24-hour
e-mail support from subject matter experts (SMEs) for our Small
Business/Consumer product line and other selected vendor
certifications.





TestPrep:  Addressing
over 90 of the most popular current certification exams from Microsoft, Cisco,
Oracle and CompTIA, TestPrep practice exams allow learners to test their
knowledge in a simulated certification-testing environment. Tests can be taken
in two modes – study and certification. Study mode is designed to maximize
learning by providing feedback, while certification mode is designed to mimic a
certification exam.





Books24x7:  This
includes more than 22,000 unabridged professional reference books and reports
from more than 340 publishers that are available to online subscribers through
Books24x7. A patented search engine technology gives Books24x7 subscribers the
ability to perform multi-level searches to pinpoint information needed for
on-the-job performance support and problem-solving. Books24x7 also includes
AnalystPerspectives, which summarizes the views of many different analyst firms
and provides insight into their research and opinions in a form that helps
planners and decision makers at all levels make better informed decisions.
Complementing these summarized reports are full-text premium research reports
from leading analyst firms.





Executive
Content:  Books24x7 executive level offerings give busy
executives the insight they value in formats that fit their busy schedules.
ExecSummariesTMoffer
concise summaries of today’s best-selling business books. ExecBlueprintsTMare
executive white papers that provide near-term actionable information on key
business topics. ExecBlueprints are bylined by leading C-level executives from
prominent global companies. Most ExecSummaries and ExecBlueprints can be read on
screen, printed or downloaded in MP3 format for portable listening.





Leadership Development
Channel:This product line includes a collection of live and
on-demand video learning presentations featuring best-selling business authors,
experts and CEOs. The Leadership Development Channel is designed to cover formal
and informal learning needs of an organization through programs covering the
following topical areas: management and leadership, change and innovation,
communication, marketing and sales, business strategy and more.




4
 Table of Contents




In
addition, this collection
is ideal for group learning experiences, including use as meeting starters,
one-on-one coaching, integration in instructor-led training and facilitated
learning sessions and more.





Live Learning:Our
Live Learning offering is a derivative of traditional instructor-led technical
training. However, rather than gathering students in one physical locale,
instructor lectures are broadcast to participants anywhere via the Internet.
Live Learning classes are taught over three weeks as six, three-hour
Web-delivered lectures. Hands-on labs are performed by students independently
between lectures, with online mentors accessible to assist if needed, depending
on the course being taken. Recorded versions of lectures are available on-demand
for review or if a learner misses any scheduled live lecture.





We were
incorporated in Ireland on August 8, 1989. On September 6, 2002 we completed a
merger with SkillSoft Corporation, a Delaware corporation, and on November 19,
2002 we changed our corporate name from SmartForce PLC to SkillSoft PLC. In
addition, on May 14, 2007 we acquired NETg from The Thomson Corporation. Our
registered office is located at Belfield Office Park, Clonskeagh, Dublin 4,
Ireland, and our telephone number at that address from the United States is
(011) 353-1-2181000. Our principal office in the United States is located at 107
Northeastern Boulevard, Nashua, New Hampshire 03062, USA, and our telephone
number at that address is (603) 324-3000.





Available
Information





We
maintain a Web site with the address www.skillsoft.com. We are not including the
information contained on our Web site as part of, or incorporating it by
reference into, this annual report on Form 10-K. We make available free of
charge through our Web site our annual reports on Form 10-K, quarterly reports
on Form 10-Q and current reports on Form 8-K, and amendments to these reports,
as soon as reasonably practicable after we electronically file these materials
with, or otherwise furnish them to, the Securities and Exchange Commission
(SEC). In addition, we provide periodic investor relations updates and our
corporate governance materials on our Web site.





You may
read and copy any materials we file with the SEC at the SEC’s Public Reference
Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet website that contains reports, proxy and
information statements, and other information regarding the Company and other
issuers that file electronically with the SEC. The SEC’s Internet website
address is http://www.sec.gov.





Industry
Background





The
corporate training market is large. We believe that a substantial majority of
the corporate training market is comprised of business skills, IT skills and
compliance training, as well as the complementary technologies and services for
the development and delivery of learning programs. We believe that the growth in
corporate training is being driven by:





• 
      The evolution of our economy to a service-based and knowledge-based
      economy, in which the skills of the work force often represent the most
      important corporate assets;





• 
      The increasing recognition by businesses that it is imperative to
      continually improve the skills of their employees to remain
      competitive;





• 
      The rapidly evolving business environment, which necessitates continual
      training and education of
employees;





• 
      The increased competition in today’s economy for skilled employees and the
      recognition that effective training can be used to recruit and retain
      employees; and





• 
      The retirement of baby boom generation workers during the coming 10-to-15
      years, which will result in industries seeking technically skilled and
      educated workers to meet the projected shortage of qualified and trained
      candidates to replace those retiring workers. This phenomenon is widely
      projected to create a major increase in demand for training in technical
      and business skills.





Although
the significant majority of corporate training has historically been and
continues to be delivered through traditional classroom instruction, e-learning
solutions offer another choice in which business enterprises improve the skills
of their work force. By providing real-time accessibility and user-focused
specificity, e-learning enables the training and education process to be
broadened from a distinct event — often off-site and limited in scope — to a
process of continuous learning for employees. Often, we find that our customers
combine e-learning resources with traditional classroom instruction and virtual
classroom events.




5
 Table of Contents
  These
blended learning programs meet the rising need for training in increasingly
complex working environments, and when
properly designed and deployed, blended solutions can effectively address the
needs of business organizations seeking to provide cost effective,
comprehensive, enterprise-wide learning solutions to their employees. These
solutions can support the planned, formal learning priorities and the day-to-day
informal learning activities that comprise the primary means by which business
professionals learn the skills needed to do their job and grow their
careers.





We
believe that e-learning solutions present a significant opportunity for business
organizations to cost-effectively deliver training and performance support
resources for their employees while maintaining a higher level of productivity
of their work force. e-Learning solutions can improve on the inefficiencies
associated with classroom training, including travel costs, scheduling
difficulties and the opportunity costs of employees’ time. In addition,
e-learning provides benefits beyond other technology-based training methods that
make it more flexible, effective and cost-efficient. For example, e-learning
solutions provide more timely and simplified deployment, the flexibility of
self-directed and personalized learning, improved ease of use and enhanced
product/user support and administrative functionality. Furthermore, through the
use of Web-based technologies, e-learning solutions provide access via computer
to content any time, anywhere over the Internet and in the exact amount required
by each individual learner.





Content
Products





With over
7,500 courses spanning IT, cross-functional business skills, functional area
expertise and workplace compliance subjects, we are well positioned in the
e-learning content sector of the market for corporate education and training
solutions for today’s critical business and IT skills. Through our focus on
these critical skills and our track record in fast and effective execution, we
strive to deliver e-learning content that excels in terms of depth, breadth,
currency, interactive learning design and Web deployment flexibility. Also,
through our Books24x7 professional collections, we can offer users access to
over 22,000 unabridged business and IT titles from more than 340 publishers, as
well as summaries of leading business books, analyst reports and reports
authored by C-level executives on pressing business topics. Together, these
multi-modal e-learning components offer organizations an array of formal and
informal learning based on user needs — whether students need to immerse
themselves in the subject matter or need to quickly reference content for five
to 10 minutes of on-the-job performance support.





We
regularly add new courses to cover new skills and technologies and new subjects
requested by our customers or that we believe our customers will want. We also
regularly retire courses from our active library as certain skills, subjects or
technologies become outdated or used less frequently by our customers, and as we
replace older courses with newer and higher quality versions. This combination
of adding and retiring courses, which is part of our continuous effort to ensure
the currency, relevancy and high quality of our active library, will cause the
overall active library size to fluctuate.





Business
Skills Courseware and Simulations





Our
comprehensive business skills library of e-learning courses, simulations and
learning objects encompasses a wide array of professional effectiveness skills
and business topics. As of January 31, 2009, our business skills library
included over 3,200 business skills course and simulation offerings. Our
business skills courses and simulations are divided into the following major
Solution Areas:





Professional
      Effectiveness
            Business
      Strategy & OperationsManagement
      & Leadership
            Sales
      & Customer-Facing SkillsProject
      Effectiveness
            Finance, HR
      & Administration





We have
more than 1,050 current English language business skills courseware titles, and
over 2,100 versions of these courses that have been localized into a number of
languages, including UK English, Italian, German, French, European Spanish,
Polish, Russian, Japanese, Mandarin Chinese, Traditional Chinese, Cantonese,
Latin American Spanish and Brazilian Portuguese, to support other geographic
markets.





6
 Table of Contents




IT
Skills Courseware





Our
comprehensive IT skills library of e-learning courses and learning objects
encompasses a wide array of technologies used by IT professionals and business
end-users. As of January 31, 2009, our IT skills library included over 2,700 IT
skills course offerings that are divided into the following major Solution
Areas:





Software
      Development
            OS
      & Server TechnologiesInternet &
      Network Technologies
            Database
      SystemsWeb
      Design





The
courseware in these Solution Areas address over 100 current technical
certifications sought by IT professionals and enterprises providing technical
products and services to their customers, including:





Microsoft
            ISC(2)
            CiscoMCITP
      – Enterprise Support Technician
            CISSP
      (ISC2)
            CCENTMCITP
      – Database Administrator
            SSCP
      (ISC2)
            CCNAMCTS
      - .NET Framework 2.0
            
            CCDAMCTS
      – SQL Server 2005
            
            CCNPMCTS
      – SharePoint Server 2007
            Linux
      Professional Institute
            CCDPMCTS
      – Windows Vista Configuration
            LPI:
      Level 1
            CCSPMCDST
            LPI:
      Level II
            CCIPMCSA
      2003
            
            CCVPMCSE
      2003MCSD
      .NET
            Project
      Mgmt InstituteMCDBA
            Project
      Management ProfessionalMCP
            Certified
      Associate in Project Mgmt.MCSA
      2000
            Program
      Management ProfessionalMCSE
      2000





Macromedia
            CompTIA
            SunDreamweaver
      8 Developer
            A+
      2006
            Sun
      Certified ProgrammerDreamweaver
      MX 2004 Developer
            Network+
            for
      the Java 2 PlatformFlash
      MX 2004 Designer
            I-Net+
            Solaris
      9ColdFusion
      MX Developer
            Server+Linux+Security+





CIW
            Oracle
            ITILCIW
      Associate
            10g
      Administrator, OCA
            Foundations
      V3CIW
      Professional
            10g
      DBA OCP
            Foundations
      V2CIW
      Security Analyst
            Application
      Server 10g, OCAMaster
      CIW Administrator
            9i
      DBA OCPMaster
      CIW Enterprise Developer
            91
      DBA OCAMaster
      CIW Site Designer





We have
more than 1,960 current English language IT skills courseware titles and over
750 IT skills courseware titles that have been localized into a number of
languages, including German, French, Japanese and Mandarin Chinese, to support
other geographic markets.





Desktop
Skills Courseware Collection





Our
Desktop Skills library of e-learning courses and learning objects offers more
than 430 English language Desktop Skills courseware titles and over 900 Desktop
Skills courseware titles that have been localized into languages such as French,
German, Spanish, Italian, Brazilian Portuguese, Polish and Mandarin
Chinese.





7
 Table of Contents




Our
Desktop Skills courseware titles are built to assist professionals who rely upon
standard desktop applications such as Microsoft Office, Crystal Reports, Adobe
Acrobat and Lotus Notes. Our desktop solutions are ideal for day-to-day
performance support, as well as supporting major corporate software migrations.
In addition, our Desktop Skills Courseware Collection supports over 12 popular
end user certifications including ECDL/ICDL and many Microsoft MOS certification
exams.





Compliance
Solutions





Our
Compliance Solutions provide collections of compliance-based e-learning
solutions. Within Compliance Solutions there are three areas of focus: Legal
Compliance, Federal Government Compliance and ES&H Compliance.





The Legal
Compliance Solution addresses the needs of our clients as they work toward
maintaining compliance with various statutes, regulations and case law that
govern the workplace. The various topics covered in this solution include
ethics, code of


conduct,
diversity, Sarbanes-Oxley and harassment. Our Legal Compliance courses are
designed for use by virtually everyone in an organization, regardless of job
title or position.





The
Federal Government Compliance Series addresses legal compliance issues that are
of interest to federal agencies and private sector organizations that do
business with the federal government. The topics included in this solution are
similar to those found in the Legal Compliance Solution; however, they are
designed to address federal requirements that govern federal
employees.





The
ES&H Compliance Solution addresses key standards mandated by the
Occupational Safety and Health Administration (OSHA), Environmental Protection
Agency (EPA) and the Department of Transportation (DOT). Our ES&H courses
are designed for use by the “hardhat and safety glasses”
industries.





Leadership
Development Channel





With over
1,000 available video programs, our Leadership Development Channel product line
includes a collection of live and on-demand video learning presentations
featuring best-selling business authors, experts and CEOs. The Leadership
Development Channel is designed to support the formal and informal learning
needs of an organization through programs covering the following topical areas:
management and leadership, change and innovation, communication, marketing and
sales, business strategy and more. In addition, this collection is ideal for
group learning experiences, including use as a meeting starter, one-on-one
coaching, integration in instructor-led training and facilitated learning
sessions.





The
Leadership Development Channel also features an annual series of live,
interactive presentations featuring best-selling business authors and
thought-leaders. Each presentation is interactive by phone, fax and email and
broadcast via satellite, videoconference and webcast to the desktop. Presenters
in this series have included Stephen Covey, Pat Lencioni, Thomas Friedman and
John Kotter, among others.





The
Administrative Professional Channel is a video-based, online learning solution
that offers presentations from today's foremost business leaders aimed at
improving the skills and effectiveness of administrative professionals.
Developed with the support of the International Association of Administrative
Professionals (IAAP), the Administrative Professional Channel provides access to
a collection of relevant, on-demand video presentations as well as access to an
annual, live video event specifically for administrative
professionals.





Books24x7





Our
Books24x7 product line offers a suite of unabridged and topically organized
collections that provide online subscribers the ability to perform multi-level
searches to pinpoint information needed for on-the-job performance support and
problem-solving. Books24x7 products draw upon leading professional reference
books, research reports and documentation. Books24x7 is delivered via a
Web-based platform that enables paying subscribers to browse, read, search and
collaborate anytime, anywhere with a simple Web connection. Books24x7
collections include:





ITPRO
COLLECTION is geared toward technology professionals, including developers,
network administrators, technology executives, information services managers and
technical support representatives. This collection consists of content from
dozens of IT publishers including industry leaders such as Apress, Microsoft
Press, MIT Press, McGraw-Hill and John Wiley & Sons.





8
 Table of Contents




BUSINESSPRO
COLLECTION is geared toward professionals whose role requires exercising strong
business judgment. This collection contains over 100 business skills and
professional development publishers including industry leaders such as AMACOM,
ASTD, Harvard Business Press, Jossey-Bass, Oxford University Press, Project
Management Institute, Stanford University and John Wiley &
Sons.





OFFICEESSENTIALS
COLLECTION is a specialty collection geared toward non-technical users who
require occasional real-time assistance with common desktop applications. This
collection contains award winning content, including the “For Dummies®” series,
is written in a comfortable, easy-to-understand tone and can be deployed to
desktops to relieve help desk congestion, or provided as an end-user “safety
net” during migration to applications such as Microsoft Vista and Office
2007.





FINANCEPRO
COLLECTION offers professionals access to relevant information on a variety of
financial and accounting topics. FinancePro delivers fully searchable, online
content from popular publishers such as Bloomberg Press, John Wiley & Sons,
McGraw-Hill, Oxford University Press and the National Underwriter Company, and
provides immediate access to


financial
reference materials including such topics as Generally Accepted Accounting
Principles (GAAP), International Accounting Standards, Sarbanes-Oxley,
operations management, planning and taxation.





ENGINEERINGPRO
COLLECTION is a professional information tool containing reference material
covering a wide range of engineering disciplines, and general reference topics
important to virtually all engineers. This collection features books from
publishers such as John Wiley & Sons, McGraw-Hill, The Institution of
Electrical Engineers, Elsevier, Industrial Press, Noble Publishing, Artech
House, Cambridge University Press, The MIT Press and others.





EXECSUMMARIES
COLLECTION provides summaries of leading business books from today’s foremost
business authors. ExecSummaries expertly encapsulates the salient points and
ideas of full-length books into concise, eight-page summaries. These thorough,
yet high-level overviews provide time-constrained executives with the leading
ideas that are shaping today’s business environment. The ExecSummaries
collection is available through a partnership with Soundview Executive Book
Summaries.





EXECBLUEPRINTS
COLLECTION is original content owned by SkillSoft that provides executives with
easy-to-absorb, practical information and best practices to help provide them
with a framework for taking near-term action on pressing business issues.
Authored by leading business executives who are regarded as leaders and
innovators in their fields, these reports are designed to succinctly convey key
issues, metrics, lessons learned, milestones, timelines and action plans
required for successful execution.





GOVESSENTIALS
COLLECTION is a broad reference tool targeted to meet the information needs of
government workers, contractors and consultants. By combining the full text of
government-focused books from major publishers with carefully selected public
domain content, GovEssentials offers a variety of ready-access titles in a broad
range of subjects such as foundations of government, security & homeland
defense, acquisition & contracting, E-Gov & information technology and
other topics of importance to government workers.





WELL-BEINGESSENTIALS
COLLECTION is designed for deployment at all levels of the enterprise to help
foster a more productive employee base. The collection complements corporate EAP
(employee assistance program) initiatives by providing a resource for employees
to research and understand topics of importance to them. Well-BeingEssentials
includes best-selling titles from the best publishers in the health and
work-life arena, including AMACOM, Berrett-Koehler Publishers, Career Press,
John Wiley & Sons, Jossey-Bass and Kogan Page.





HOSPITALITYPRO
COLLECTION provides the hospitality and tourism industry with searchable
reference publications on hotel management, food and beverage operations, casino
management and many other related topics. With dozens of titles from top
publishers, including John Wiley & Sons and Butterworth-Heinemann,
HospitalityPro is geared toward supervisors, managers, directors and executives
who work in all aspects of hospitality and tourism, including hotels,
restaurants, casinos, cruise lines, airlines and travel agencies.





ANALYSTPERSPECTIVES
COLLECTION provides technology executives, managers and practitioners with the
analyst information they need to make the important decisions that affect their
enterprise. The collection consists of two major components: AnalystPerspectives
Consensus reports, which are exclusive SkillSoft-owned documents that compare,
contrast and summarize the views of multiple analyst firms; and more than 1,800
full-text analyst reports from more than 20 premium research firms covering a
variety of IT and telecommunications topics.





9
 Table of Contents




ITIL®
POWERED BY BOOKS24X7 is a collection that provides the official ITIL (IT
Infrastructure Library) curriculum guides. ITIL is a best practices framework
that enables businesses to deliver high-quality IT services and more effectively
manage IT operations. This collection is offered through a partnership with the
publisher, TSO, as well as the copyright holder, OGC (UK Office of Government
Commerce).





ELEMENTSESSENTIALSFRANCAIS is
a focused collection of books published in French covering desktop skills,
management, IT and other technical disciplines.





BOOKS24X7
EN ESPAÑOL is a focused collection of books published in Spanish covering
desktop skills, business management, IT and other technical
disciplines.





GERMAN
BOOKS COLLECTIONS includes three collections of titles published in German:
German Desktop Books, which includes popular Microsoft Office and other desktop
applications; German IT Books, featuring IT and technology topics and German
Books Complete, which includes all German titles from the Desktop and IT Books
collections plus business skills and other topics.





Business
Exploration Series





BUSINESS
IMPACT SERIES — The Business ImpactSeries is a collection
of concise, scenario-based vignettes employing video techniques to analyze core
business problems, dramatizing key elements and emphasizing practical solutions.
They are highly effective instructional strategies for presenting and sharing
information and best practices. They do not include any questions or
interactions. Business Impact titles always include a printable summary screen
listing the key content points.





CHALLENGE
SERIES — The Challenge Seriestitles are interactive
case studies designed to enhance solution-analysis and decision-making skills.
Primarily focused on decisions and decision outcomes, these media-rich products
challenge learners to solve modern business problems by considering numerous
options and solutions. The design of each ChallengeSeries titleassumes learners have
some prior knowledge of the content area coming into the scenario. Because
Challenge Series titles require responses from learners, they are excellent
interactive strategies for reinforcing and practicing application and
analysis-level learning. The ability to retake the Challenge Series title,
choosing each of the different solutions, adds multiple layers of content depth
to the overall learning experience.





The use
of rich media and audio-driven presentation strategies in both offerings has
multi-generational appeal and increases overall learner engagement with the
content.





TestPrep
Certification Practice Exams





Addressing
over 90 of the most popular current certification exams from Microsoft, Cisco,
Oracle and CompTIA, TestPrep practice exams allow learners to test their
knowledge in a simulated certification-testing environment. Tests can be taken
in two modes — study and certification. The un-timed study mode is designed to
maximize learning by providing feedback and mapping back to appropriate
SkillSoft courses for further study, while the against-the-clock certification
mode is designed to mimic a certification exam.





SkillSoft
Instructional/Learning Design Model





The
instructional design model for our business and IT skills courses is based
primarily on the concepts of performance-oriented instruction, mastery and the
sequencing of instructional activities and strategies. The model draws heavily
from adult learning principles that emphasize learner initiative,
self-management, experiential learning and transfer of learning into the
workplace. The design of each of our courses starts with the definition of
user-focused performance objectives and then proceeds to the selection and
implementation of instructional strategies and learning activities appropriate
for those objectives. Frequent practice questions or exercises along with
assessments measure users’ achievement of those objectives. This robust, yet
flexible, design methodology creates an instructionally sound framework for the
design and development of highly interactive, engaging and instructionally
effective courses — regardless of the content focus or level of
learning.





Our
instructional design model is intended to meet the challenge of creating
effective and engaging instruction that is easily deployed on our corporate
customers’ global computer networks or over the Internet. Our design,
development and quality assurance standards and processes are all geared toward
ensuring each course meets our expectations for the best instruction possible.




10
 Table of Contents
  The model
is intentionally flexible and non-technology specific, which allows for ongoing
implementation of innovative strategies and features.





Our
instructional design model is focused on producing courses in all content areas
with:





•
            Learning
      outcomes specified by performance goals and
  objectives;





•
            Content
      and learning activities based on specified
  objectives;





•
            Assessment
      based on the knowledge and skills specified in the
    objectives;





•
            Options
      to take assessments in either pre- or post-test
  mode;





•
            Instructional
      strategies and rich media elements tailored to the specific course
      content;


•
            Tools
      to promote the transfer of learning into the workplace, such as online job
      aids, code samples and follow-on
activities;





•
            Instructional
      strategies appropriate for the content and learning level, such as
      examples, RolePlays, case studies, guided practice and simulations;
      and





•
            Levels
      of learning appropriate for the content and the target
      audience.





The
theories and principles embedded within our instructional design model are
actualized via:





•
            A
      friendly, intuitive graphical user
interface;





•
            A
      course structure and navigation that supports self-paced, user-controlled
      instruction;





•
            Unlimited
      access to instruction and
assessments;





•
            Standardized
      templates to create unified and predictable
  functionality;





•
            A
      variety of presentation, practice and assessment templates supporting high
      levels of user interactivity and engagement;
and





•
            A
      standardized, yet flexible flow of
instruction.





Starting
from this set of common elements and attributes, our courses then include the
instructional strategies most suitable for the content and specified objectives.
For instance, the approach to teaching communication skills is different from
the approach to teaching finance or accounting skills, and the strategies used
to teach these two business content areas differ from those used to teach
computer and software skills.





Learning
Design for Business Skills, Compliance and ES&H





Our
business skills courses cover a broad range of business and professional
effectiveness curriculum areas. Some content is factual with predictable,
non-variable outcomes, such as finance. Other content areas, such as
communication skills, are “softer,” or more behavioral-oriented, and have highly
variable implementation options and outcomes that require a different set of
instructional presentation and practice strategies. In addition, we have a
strong commitment to reach the highest possible levels of learning in each
course — including as much application and analysis level content as possible,
supported by strong foundational learning at the knowledge and comprehension
levels.





The key
instructional features and strategies in our business skills, compliance and
ES&H courses and library are:





AUDIO-ENABLED
LEARNING — Audio is a standard feature in all business, compliance and ES&H
courses. Audio greatly enhances engagement and retention for many learners.
Audio is especially relevant to the instructional effectiveness of behavior
modeling, RolePlay exercises and SkillSims. Recognizing that all learning
environments are not appropriate for sound, and to accommodate varying learning
style preferences, audio can easily be turned on or off via user interface
controls.





11
 Table of Contents




NARRATED
ANIMATION — SkillSoft started implementing a presentation strategy called
narrated animation in its soft-skills business content in late 2007. In 2009, we
have made this the standard presentation strategy for all new business skills
courses. Narrated animation is a method of presenting content that incorporates
media-rich visuals, animations and transitional effects with verbalized content
(narration). The content is visualized via onscreen graphics, animations and
text, and verbalized via synchronized audio and optional onscreen captions. The
text in the onscreen caption box is a verbatim replication of the audio content
and can be a helpful memory enhancer with complex or highly technical content.
This new strategy updates the look and feel of the course content, appeals to
learners from all generations, and increases overall learner engagement. A new
player feature called “auto advance” makes it possible to automatically move
forward from one page to the next. The auto advance feature pauses only for
pages calling for user interaction or responses, such as practice questions or
pages with links to job aids.





Having
audio and onscreen text satisfies the needs of learners with varying learning
styles or preferences, and allows us to continue to deliver highly effective
learning solutions for accessibility.





ROLEPLAY
EXERCISES — RolePlay exercises present users with opportunities for realistic
practice of varying aspects of course content within everyday workplace
scenarios. RolePlay exercises have multiple possible outcomes based on users’ responses
to the simulation’s interactions. When integrated into course topics, RolePlay
exercises allow users to freely explore the impact of handling realistic work
situations in different ways. Our RolePlay design allows users to experience the
exercise in “score” mode or “explore” mode. Using score mode lets learners
assess their level of skill within the targeted content area. Using explore mode
allows the learner to dynamically explore alternative responses to see the
impact of those choices. This user-driven exploration is the key to real
learning.





SIMULATED
DIALOGS — The ability to observe behaviors and their outcomes (positive and
negative) is a key strategy for teaching professional and behavioral skills. The
simulated dialog strategy gives users an opportunity to observe and listen to
the conversations of two or more people. The inclusion of “character” audio
enhances the emotional and tonal qualities of the conversation, while the
varying facial expressions and body language offer another layer of
interpretation. These features, combined with the spoken words of the
characters, provide realistic vignettes or scenarios in which varying aspects of
a behavioral skill can be presented.





CASE
STUDIES — A case study strategy describes a complex situation, often in the form
of a story or scenario, and then asks the user to explore its characteristics
and possible resolutions. Complexity is the primary difference between case
studies and examples that can be easily presented and practiced through other
types of strategies, such as multiple choice and matching. Case studies are used
to achieve learning at the application and analysis levels and to present
examples of content within appropriate business contexts.





MULTIPLE-CHOICE,
MATCHING AND RANKING QUESTIONS — Multiple-choice, matching and ranking questions
are interactive problem-solving exercises that give learners the opportunity to
evaluate and/or apply their knowledge before taking a test. Learners are
“debriefed” on their progress via detailed reinforcement, regardless of whether
they get the question right or wrong. These strategies are used to practice a
wide variety of content types, and are particularly useful when practicing
conceptual content.





CHOICE-SPECIFIC
FEEDBACK IN PRACTICE QUESTIONS — All multiple choice, matching and ranking
questions include an explanation of why each answer option is correct or
incorrect. Choice-specific feedback gives learners a method for getting more
information about each answer option. Upon selecting each individual answer
option, feedback is instantly displayed explaining why that answer option is
either a correct option or a distracter.





ANIMATIONS
— Animations are an important element of our leading visual design. We use
animations when movement is an important part of the teaching point, when the
content requires that the user’s eye be drawn to a specific area of the screen
or when a key concept can be best presented via animated visuals. Examples of
content areas where animations can enhance learning effectiveness include
instruction on process and dataflow diagrams, hierarchical and dependency
relationships and changes in state or perspective.





REFLECTIVE
TEMPLATES — Reflective templates provide learners with an opportunity to think
about a particular concept, event or teaching point, and then record those
thoughts for later printout or use in the instruction. This strategy helps
learners personalize the content to themselves or their organizations. This
personalization creates a more meaningful context in which the learner can frame
the learning experience.





12
 Table of Contents




ONLINE
JOB AIDS — All of our business skills courses include online job aids that help
support the use of newly learned skills and knowledge in the workplace. Job aids
are courseware “take-aways” that can be used as-is, or tailored to meet a user’s
needs. Each job aid can easily be edited to reflect a user’s
organization-specific information, and users can add organization-specific job
aids that they have independently developed via our customization
tools.





LEARNING
AIDS — Learning aids are tools or documents used in support of course content
presentation and practice. They are designed to support specific course context
or content, and, therefore, are not available for use outside of the course.
Learning aids could appear as worksheets (interactive or passive), reference
documents too large to include in a standard template, complex charts or graphs
or a variety of other formats. Only the content and the chosen instructional
strategies limit the variations.





SKILLBRIEFS
— SkillBriefs are one- to two-page text-based HTML documents that summarize the
content in each topic of a course. SkillBriefs are available as part of course
content, as well as through SkillPort. SkillBriefs can be used to quickly
“refresh” a learner’s memory of key teaching points, as instant, “just-in-time”
non-interactive learning when time doesn’t allow for more typical instruction
and/or as valuable take-aways from a course to support transfer of learning into
the workplace. There are currently SkillBriefs for over 5,000
topics.




PRE- AND
POST-TESTING ASSESSMENTS — Assessments are available for use in both pre- and
post-testing modes. When assessments are used in pre-test mode, learners can use
the results to tailor their initial path of instruction based on those results.
Post-test assessments can be used to help learners identify areas where review
or remediation is necessary. The ability to implement testing at topic, lesson
and/or course-level provides maximum flexibility across multiple corporate
testing philosophies and methodologies.





SKILLSIMS
BUSINESS SIMULATIONS — SkillSims are instructional resources that extend the
learning advantages of RolePlay into larger, more complex e-learning
experiences. SkillSims are designed to give users an opportunity to practice new
skills in realistic work situations. Each SkillSims simulation, typically
20-to-40 minutes in duration, provides users with an opportunity to practice
application level skills based on content drawn from multiple courses within one
of our learning paths or series (a collection of related courses). Users
practice these skills by navigating through different scenarios in which they
encounter a variety of business problems. As in real life, users have the
opportunity to select different courses of action, and the scenario unfolds
according to the users’ choice of actions. Events such as telephone calls,
meetings and interruptions add to the reality of each scenario.





SkillSims,
with integrated links to their corresponding SkillSoft course series, provide a
powerful learning experience that allows the user to immediately apply newly
gained knowledge to challenging business situations in risk-free
environments.





Learning
Design for IT Skills





Like our
business skills courses, the instructional strategies chosen for use in an IT
skills course are largely dependent on the course content and objectives.
Learning the use or function of buttons, menu items and other familiar software
elements is largely a knowledge and comprehension task. Learning the steps to
complete a specific task is very procedural and best achieved via observation or
guided practice, followed by opportunities for more independent practice, with
varying degrees of guidance, feedback and support. In support of these and other
IT skills-related learning goals, our IT skills courses include static and
interactive explanations, step-by-step demonstrations of how to perform specific
procedures, guided practice activities and sample coding solutions. Frequent
review questions in the instructional topics reinforce key teaching points.
Tests at topic, lesson and/or course level provide learners with an option to
assess their performance across the entirety of a course, or with more focused
concentration on individual topic or lesson level content and
objectives.





The key
instructional features and strategies in the IT skills courses and library
are:





INTERACTIVE
TEXT — Each item in the text bullet list is related to a different pop-up text
explanation, and can include a graphic display to accompany the pop-up
text.





INTERACTIVE
GRAPHICS USED WITH CONCEPTUAL CONTENT — Each active graphical element is
associated with a specific pop-up text box with additional instruction and
explanation.





DEMONSTRATIONS
AND GUIDED PRACTICE — “Demos” in our IT skills courses are demonstrations of
software procedures and tasks. Most typically, the demonstration will divide the
procedure or task into specific steps and then sequentially “show” those steps
to the user. As the demo moves from one step to the next, a simulated
representation of the software shows what happens next and additional text
provides commentary.




13
 Table of Contents




In
addition, learners are frequently given the option of performing the salient
steps of the procedure. This feature, called a “Try-It,” prompts the user to
perform specific steps or enter code that achieves a specified end result. If
learners decide not to perform the step, they can click forward, which launches
an animated sequence of the correct step. A special animation feature, called a
“Show Me,” is used to demonstrate a specific sequence step or user action. The
steps are outlined in advance, and the learner is given the option of reviewing
those steps in an animated sequence. The automated playback of the demo is
optional. The learner can opt to view the demo or continue to the next section
of instruction.





PROMPTED
ANIMATIONS — Animations help the learner visualize content and draw his or her
attention to an area on an interface or conceptual graphic. Prompted animations
are initiated by the learner after some other introduction to the content in the
instruction. When the animation is launched, it extends or reinforces the
instruction that has already taken place. The use of prompted versus “autoplay”
animation helps avoid split attention, which can occur when text displays
simultaneously with animation. Split attention means a learner is confused about
where to focus or watch, and confounds learning.





SHOW ME —
This instructional strategy automates the presentation of a sequence of steps
associated with a task or a subset of a task. The demonstration includes a
bulleted list outlining how the task or procedure is completed. The simulated
environment is often augmented by pointers or highlighters designed to help the
learner quickly focus on the important areas of the screen.





TRY IT IN
END-USER CONTENT — Try It exercises prompt learners to perform, on a simulated
interface, one or more steps from a procedure that has already been described in
the accompanying instruction. If the learner performs the step correctly, the
interface responds as it would in the real application, providing a simulation
of the software experience. If learners decide not to perform the requested
action, they can select forward to launch an animated sequence of the correct
step. This strategy is “guided” because the learner is told what to do for each
step, and the simulated environment is often augmented with visual cues and
highlighters.





TRY IT IN
CODING/COMMAND LINE CONTENT — Try It exercises present learners with a
scenario-based task in which they are asked to enter/type the command or code
lines associated with the task.





SKILLCHECK
— SkillCheck exercises give learners an opportunity to practice new skills
without guidance. Learners must successfully complete each step before being
allowed to progress to the next step.





MULTIPLE-CHOICE,
MATCHING AND RANKING QUESTIONS — Multiple-choice, matching and ranking questions
are interactive problem-solving exercises that give learners the opportunity to
evaluate and/or apply their knowledge before taking a test. Learners are
“debriefed” on their progress via detailed reinforcement, regardless of whether
they get the question right or wrong. These strategies are used to practice a
wide variety of content types, and are particularly useful when practicing
conceptual content.





CHOICE-SPECIFIC
FEEDBACK IN PRACTICE QUESTIONS — All multiple choice, matching and ranking
questions include an explanation of why each answer option is correct or
incorrect. Learners do not have to read this feedback—it is optional.
Choice-specific feedback gives learners a method for getting more information
about each answer option. Upon selecting each individual answer option, feedback
is instantly displayed explaining why that answer option is either a correct
option or a distracter.





SIMULATIONS
AND EXERCISES — Our IT skills courses contain standalone topics that give
learners the opportunity to independently practice or consolidate the most
critical procedures and learning taught in the preceding instruction.
Simulations consist of a series of tasks that learners perform in a simulated
version of the application being discussed in the course. Exercises give
learners the opportunity to analyze and write code or commands. Exercise topics
are also used to address hardware setup problems and case-study scenarios; these
content areas often require a hybrid mix of more standard type questions to
address conceptual knowledge followed by simulations and coding or user input
exercises to address the implementation of the associated solution. All
exercises are presented within contextually relevant “real-world”
scenarios.





SELF-ASSESSMENT
EXERCISES — These exercises are designed to provide the user with an opportunity
to apply new knowledge and skills within a scenario or problem-based
environment. When feasible, such as with desktop content, the exercises are
designed to be completed within a live software application. Self-assessment
exercises afford learners the opportunity to carry out complex tasks and
exercises, on which they can then assess themselves from a provided solution.
These exercises involve the presentation of a real-world scenario requiring the
learner to provide a solution or complete a series of tasks. After completing a
series of these activities, users will have a set of documents or products
demonstrating proficiency with the skills taught by the course.





14
 Table of Contents




Learning
Design for Workplace Performance





We
believe the use of learning assets in support of formal and informal learning is
now desirable and common for many of our customers. Learning organizations are
also demanding a broader range of learning environments and strategies as part
of their learning solutions. Formal instruction remains important, but
additional assets are needed to support solutions such as blended learning,
learning portals, performance support and communities of practice. We will
continue to develop learning assets that are flexible and innovative and that
enhance workplace performance.





Web-Based
Architecture and Deployment Technology





Our
Web-based architecture and deployment strategy enables us to provide a number of
features to support users in their learning. These features
include:





Learning Management
System:  Learning management systems are key enabling
technologies that permit users to access a wide variety of learning content
resources over the Web, including courseware, simulations, Books24x7, video
content, online mentoring, SkillBriefs, job aids and TestPrep certification
practice tests. Learning and development organizations can develop and
deliver targeted learning programs to achieve specific business objectives using
SkillPort’s learning program capabilities. Our SkillPort LMS provides a rich
feature set to support a range of corporate learning needs with a high degree of
reliability and scalability. Available as a hosted or intranet solution,
SkillPort offers our customers a low-cost, low IT-burden option with fast
time-to-learning. As of January 31, 2009, there were approximately 2,300 active
SkillPort customer sites. In addition to our SkillPort platform, we continue to
strive for convenient, easy integration of our content into third-party learning
management systems through ongoing support of industry standards such as SCORM
(Sharable Content Object Reference Model) and AICC (Aviation Industry CBT
Committee) standards and through initiatives such as our Strategic Alliance for
Integrated Learning (SAIL).





SkillPort Search-and-Learn®
Technology:  Search-and-Learn
technology, a key component of SkillPort, allows the users to search and access
learning resources topically with a single, unified search. For example, a
learner searching for resources on Cisco networks can discover the various
SkillSoft courses, books, TestPreps, Express Guides and online mentoring
services available to the learner with a single search query. Customer content
published to, and managed by SkillPort is also included in the search results.
From the identified results, the learner can then choose the resource that best
meets his or her specific needs, time requirements and learning
preferences.





SkillPort Customer Content
Support:  Customer content support allows customers to track,
manage and search custom courses, as well as Microsoft Word, PowerPoint, Excel
and Adobe PDF documents. This gives organizations the ability to incorporate
important information resources such as white papers, launch plans, budget
templates and customized training within a comprehensive learning database.
SkillPort also supports off-the-shelf and custom courseware from third-party
providers, as long as the content is designed to conform to our supported open
standards and meets our custom content support guidelines. SkillSoft also offers
services to assist customers in creating and publishing proprietary custom
courseware and other content using SkillSoft and third party authoring
technologies.





SkillSoft
Dialogue:  SkillSoft Dialogue has been developed in response to
our customers’ needs to rapidly assemble and deliver new content that ties to
their respective organizations and goals. Many customers have added a virtual
meeting component to their learning programs to deliver company-specific
information. They have discovered that online meeting tools can be used to
quickly create new material and are using these tools to deliver information
live, as well as recording their presentations for employees to play back on
demand. However, they have also encountered some common challenges. Most online
meeting tools do little to support subject matter experts (SMEs) who may not be
experienced in how to deliver sessions that are rich in interaction, which can
result in a lower level of engagement and knowledge transfer. Additionally,
editing these recordings is often cumbersome or impossible. SkillSoft Dialogue
builds on the foundation of this online meeting technology and adapts it to
better fit the needs and challenges of the learning community. SkillSoft
Dialogue aids SMEs in creating more interactive presentations, and provides
access to SkillSoft content to enrich presentations.





Assistive Technology
Support:  Assistive technology support is designed to address
the requirements of Section 508 of the Rehabilitation Act Amendments of 1998,
which provides that, as of June 2001, computer software applications purchased
or developed by federal agencies must be designed for accessibility by people
who are blind, deaf or have poor motor skills. We have aggressively worked to
adapt our online courseware, Books24x7 and our SkillPort LMS platform to meet
the requirements established by Section 508. This development work is consistent
with our general corporate philosophy to help organizations “democratize”
training and give all employees access to training and development opportunities
anywhere, anytime through computers. Our Section 508-compliant products provide
users in a government or commercial organization with sight, hearing and/or
mobility limitations equal access to our courses through the use of leading
assistive technologies such as the JAWS screen reader.





15
 Table of Contents




High Performance Web
Technology:  Our products incorporate high performing Web
technologies that we believe substantially improve our product performance. Our
courses and support tools are developed using cross-platform technologies such
as HTML, XML, Java, JavaScript and Adobe Flash. Our products employ advanced
compression techniques, which allow our products to deliver high-quality
performance within our customers’ bandwidth constraints. This enables us to
provide our e-learning solutions to most users, not just those with the most
powerful computers, fastest network connections and highest resolution
monitors.





Flexible Deployment
Options:  We offer a fully hosted SaaS-architecture model as a
deployment option for companies that prefer to have users access courses from
SkillSoft-managed servers via the Internet rather than host the courses on the
customer’s intranet. Chosen by the large majority of SkillSoft customers, this
SaaS option can significantly simplify and shorten the implementation
process.




Open Learning Services
Architecture:  Open Learning Services Architecture (OLSA) is a
set of Web services that enables customers to integrate our comprehensive
content and content related services with their enterprise application systems,
enterprise portals and third party or custom LMS systems. These services enable
automation of burdensome administrative tasks and rapid deployment of SkillSoft
hosted, off-the-shelf or customized, learning solutions. OLSA benefits include
lower integration and operations costs as well as reduced time-to-availability
of comprehensive learning resources. OLSA capabilities include fully-integrated
search technology (Search-and-Learn); catalog management; user management; user
learning data management; content launching with integrated services such as
mentoring, code evaluation with links to book references; online data
synchronization; learning structure launching such as KnowledgeCenter Portals
and learning programs with integrated SkillSoft Dialogue sessions, books,
courses, etc.





Product
Pricing





The
pricing for our courses varies based upon the number of course titles or the
courseware bundle licensed by a customer, the number of users and the length of
the license agreement (generally one, two or three years). Our license
agreements permit customers to exchange course titles, generally on the contract
anniversary date. Some product features, such as SkillPort, KnowledgeCenter
Portals, SkillStudio, SkillSoft Dialogue and courseware hosting, are separately
licensed for an additional fee.





The
pricing for our SkillChoice Solution license varies based on the content
offering selected by the customer, the number of users within the customer’s
organization and the length of the license agreement. Our SkillChoice Solution
license provides customers access to a full range of learning products including
courseware, Books24x7, simulations, mentoring, TestPreps and Express
Guides.





Books24x7
and Leadership Development Channel licenses give users access to the full
library within one or more collections (ITPro, BusinessPro, FinancePro,
OfficeEssentials, etc.). The pricing for our Books24x7 and Leadership
Development Channel licenses varies based on the collections specified by a
customer, the number of users within the customer’s organization and the length
of the license agreement.





Sales
and Marketing





In the
fiscal year ended January 31, 2009, our products were sold in 58 countries. Our
primary sales channels consist of a direct field sales force for larger
accounts, a telesales group for small to medium-sized business accounts and
resellers that address certain opportunities in the United States and some
international markets.





We
believe this strategy enables us to focus our resources on the largest sales
opportunities, while simultaneously leveraging the telesales model and reseller
channels to address opportunities that may not be cost-effective for us to
pursue through the direct field sales organization.





As of
January 31, 2009, we employed 397 sales, sales operations, telesales, sales
management, marketing, corporate development and solution services personnel
globally. In the field sales organization, each account executive reports to
either a regional sales director or regional sales vice president who is
responsible for revenue growth and expense control for his or her area. Our
sales professionals have significant sales experience as well as extensive
contacts within the corporate customers that we target. The sales process for an
initial sale to a large customer typically ranges from three to 12 months and
often involves a coordinated effort among a number of groups within our
organization.





We use
sophisticated sales force automation software to track each prospect and
customer through a sales cycle covering the following seven stages: prospect,
qualify, discovery, evaluation, proposal, negotiate and close.




16
 Table of Contents
  Our
senior sales executives hold review meetings throughout each quarter with our
regional sales vice presidents and in some cases their account executives to
assess their 90-day forecast, 120-day pipeline development and longer term
territory strategy. Our regional sales vice presidents, regional sales directors
and their account executives typically confer regularly throughout the quarter
to review progress toward quarterly goals and longer term business objectives
and for coaching sessions.





We have
an office in the United Kingdom that serves as the hub of our Europe and Middle
East sales operations. We also have an office in Sydney, Australia that serves
as the hub for our Asia-Pacific operations. In order to accelerate our worldwide
market penetration, our sales strategy includes developing relationships to
access indirect sales channels such as reseller and distributor partners. Our
indirect sales channels give us access to a more diverse client base, which we
otherwise would not be able to reach in a cost-effective manner through our
direct sales force. Our development and marketing partners also generally have
the right to resell products developed under their alliances with
us.




We have
telesales groups located in Scottsdale, Arizona and Fredericton, New Brunswick,
Canada that have been established to target opportunities with small to
medium-sized businesses.





Our
marketing organization utilizes a variety of programs to support our global
sales team. As of January 31, 2009, our global marketing organization consisted
of 43 employees. Our marketing programs include:





•
            Customer
      advisory forums and user group
events;





•
            Product
      and strategy updates with industry
analysts;





•
            Public
      relations activities resulting in articles in trade press and speaking
      engagements;





•
            Print
      advertising in trade publications;





•
            Printed
      promotional materials and direct
mail;





•
            Online
      marketing in the form of Web banners, content syndication, email
      sponsorships, newsletters and key-word buying on search engines;
      and





•
            Events,
      seminars and trade shows.





No
customer accounted for more than 10% of our revenue for the fiscal year ended
January 31, 2009. See Note 13 of the Notes to the Consolidated Financial
Statements for a discussion of our revenue by geographic area.





Backlog





We exited
the fiscal year ended January 31, 2009 with non-cancelable backlog of
approximately $239 million compared to $255 million at January 31, 2008. This
amount is calculated by combining the amount of deferred revenue at each fiscal
year end with the amounts to be added to deferred revenue throughout the next
twelve months from billings under committed customer contracts and determining
how much of these amounts are scheduled to amortize into revenue during the
upcoming fiscal year. The amount scheduled to amortize into revenue during
fiscal 2010 is disclosed as “backlog” as of January 31, 2009. Amounts to be
added to deferred revenue during fiscal 2010 include subsequent installment
billings for ongoing contract periods as well as billings for committed contract
renewals.





Customer
Service and Support





We offer
a broad range of support and services to our customers across the e-learning
lifecycle through our customer service, application engineering and customer
support organization. We believe that providing a high level of customer service
and support is necessary to achieve rapid product implementation, full product
utilization, measurable customer satisfaction and continued revenue
growth.





Application
engineering.  We have application engineers available to assist
customers with the technical aspects of installing, deploying and integrating
our products. These engineers assist in evaluating the customers’ environment
and integration opportunities to ensure that our products will interoperate
successfully, as well as assist with the integration of our products with third
party LMSs, customer portals and enterprise software systems.





17
 Table of Contents




Learning
consulting.  We employ learning consultants to assist customers
in planning and implementing best practices for e-learning program success.
These individuals assist with the implementation of pilot programs and customer
training initiatives, and offer expertise in establishing training success
criteria, planning internal marketing programs and communicating with e-learning
end users. Our learning consultants work in close coordination with our
application engineers and sales representatives and are an important component
of our efforts to monitor and ensure customer satisfaction and
success.





Customer
support.  We provide Web-based, live telephone, e-mail and chat
support to our customers through our customer service and support organization.
They are available to assist customers seven days per week, 24 hours per day,
365 days per year.





As of
January 31, 2009, our customer service and support, application engineering and
strategic services organization consisted of 225 people globally.




Competition





The
market for corporate education and training products is fragmented and highly
competitive. We expect that competition in this market will remain intense in
the future for the following reasons:





•
            The
      expected growth of this market will attract new
  entrants.





•
            Our
      course content providers are often not prohibited from developing courses
      on similar topics for other companies, provided that they do not use our
      toolkit or templates.





•
            The
      tremendously fragmented nature of the competitive landscape, including
      many competitors in the e-learning segment of the
  market.





One
source of competition for our products is the internal educational and
technological personnel of our potential customers. If an organization decides
to use external providers to supply some or all of its training, our principal
sources of competition in the corporate education and training market
are:





•
            Providers
      of traditional classroom instruction, including American Management
      Association, AchieveGlobal, ESI, DDI, New Horizons and GlobalKnowledge.
      Many of the companies in this category are attempting to adapt their
      courses to e-learning formats suitable for access via Web browsers or
      offer e-learning courses in conjunction with their instructor-led training
      and, in general, compete for the same training dollars in the customer’s
      budget.





•
            Technology
      companies such as IBM, Cisco, Oracle, Adobe and Microsoft that offer
      e-learning courses.





•
            Suppliers
      of online corporate education and training courses, including NIIT,
      Thirdforce, Cengage, Harvard Business School Publishing, SAI Global, Ninth
      House and Corpedia. Our Books24x7 business competes with companies such as
      Safari, a joint venture between Pearson Technology Group and O’Reilly
      & Associates, which offers aggregated IT and business content
      primarily consisting of its own titles on a subscription basis. Other
      companies that compete with one or more of Books24x7 collections include
      Knovel, which offers an Engineering collection; and getAbstract and
      BusinessBook Review, which offer condensed summaries of business books.
      NIIT offers a competitive online book collection that consists of a
      combination of their own products, Safari, getAbstract and books from book
      publishers that NIIT has established licenses
  with.





•
            With
      our SkillSoft Dialogue product, we are competing with companies such as
      WebEx (now a part of Cisco), Saba, Interwise (now a part of AT&T) and
      Microsoft; and with rapid content development technology suppliers such as
      Adobe Captivate, Articulate Studio and Microsoft
    PowerPoint.





•
            With
      our SkillPort LMS platform technology, we compete with other suppliers of
      LMS products such as SumTotal, Saba, Plateau, GeoLearning, Oracle, SAP and
      IBM.





18
 Table of Contents




We
believe that the principal competitive factors in the corporate education and
training market include:





•
            The
      breadth, depth, currency and instructional design quality of the course
      content;





•
            Informal
      performance support and other features of the training
      solution;





•
            Adaptability,
      flexibility, reliability, scalability and performance of technology
      platforms offered;





•
            Standards
      compliance and ease-of-integration with third party systems and customer
      learning portals;





•
            The
      deployment options offered to customers, such as hosted, intranet and low
      bandwidth access;





•
            Customer
      service and support;





•
            Price/value
      relationship;





•
            Relationships
      with the customer; and


•
            Corporate
      reputation.





Although
we believe that we currently compete favorably with respect to those factors, we
may not be able to maintain or improve our competitive position. Some of our
current and potential competitors have greater financial resources than we do.
Increased competition may result in lost sales and may force us to lower prices,
which may adversely affect our business and financial performance.





Product
Development





We
believe that the development of effective training content requires the
convergence of source material, instructional design methodologies and computer
technology. When developing a new learning path or product, we first obtain
content from our content partners or other subject matter experts, existing
courses and product reference materials. Our design and development teams then
define the user-focused performance objectives and select the content,
instructional strategies, learning activities and assessments appropriate for
the intended learning outcomes. This process includes the creation of design
documents, scripts and in some cases storyboards to document the planned content
sequence, instructional flow and interactive presentation and practice
strategies. The design and development team includes subject matter experts,
learning designers, technical writers and developers, graphic designers,
animators, content editors and quality assurance reviewers. After final assembly
or integration of all course components into a completed course, we test to
ensure all functional capabilities work as designed and deliver the desired
learning experience and result.





The core
element of our learning solution development process is our design and
development process and the tools we use to support that process. Our design,
development and production tools are comprised of our proprietary software and
off-the-shelf tools. Our combination of development toolsets allows us to
quickly and efficiently create and continually update modular learning events
and enhance, on an ongoing basis, the multimedia content of such learning
events. Our research and development goal is to further enhance our product
development process and tools to facilitate the continual evolution of our
offerings and ensure that our instructional products incorporate a wide variety
of meaningful and effective instructional elements. We primarily use a network
of content development partners to produce content for our business and IT
skills curriculums. Our content development partners use SkillSoft-defined
methods and tools to develop content based on instructional design and quality
standards defined by our content development team. Course content is supplied by
us, by other companies from which we have licensed content, or by our
development partners, based on an outline jointly defined by our development
partners and SkillSoft.





Our
research and development efforts also include a focus on the design, development
and integration of other key product elements, including online IT mentoring by
certified content experts, task-based IT simulations and labs, KnowledgeCenters,
Business Impact and Challenge Series products, business skills focused
SkillSims, certification TestPrep for IT, and online Books24x7 assets for
business and IT skills.





Our
approach to technology begins with the understanding that the ability of our
customers to deploy our e-learning applications and content is a critical factor
in their success with our products. To meet our customers’ varied needs, we
strive to enable our courses to be able to be delivered online using standard
Web browsers downloaded for off-line usage, or distributed via
CD-ROM.





19
 Table of Contents




Through
careful technology selection, product design and exhaustive compatibility
testing, we ensure our products can be deployed on the vast majority of
corporate desktop computers and without requiring the installation of
specialized plug-ins whenever possible, and can be delivered over the varied and
complex network infrastructures in existence today. As technologies and
standards evolve, we continuously review those changes and consider adapting our
products when possible to ensure compatibility.





We employ
compression technologies for our media components and design our products to
operate effectively over low bandwidth network environments. In this way, we
reach a broader number of users with our products and minimize the load on our
customers’ networks.





Deployment
flexibility is also achieved by adhering to industry standards such as AICC and
SCORM. Our e-learning course content is designed for integration with third
party learning management systems as well as with our e-learning platform
products.





The
majority of the content for our Books24x7 product offerings is licensed from
third party publishers.




Certain
research and development activities are conducted by internal teams located in
our main product development centers in Dublin, Ireland; Nashua, New Hampshire;
Belfast, Northern Ireland and Fredericton, New Brunswick, Canada. In addition to
our internal efforts, we outsource various aspects of our content development
process to third parties.





As of
January 31, 2009, the number of employees in our product development
organization totaled 326. We intend to continue to make substantial investments
in research and development. Product development expenses were approximately
$40.8 million, $49.6 million and $49.5 million for the fiscal years ended
January 31, 2007, 2008 and 2009, respectively.





Proprietary
Rights





We
believe that proprietary technology forms an important or valuable part of most
of our business skills and IT skills courseware offerings. We further believe
that the creative skills of our personnel in developing new products and
technologies, our ability to develop and introduce new products rapidly and our
responsiveness to customer demands are equally important. We protect our
technology by various means, including entering into agreements with employees
to protect against disclosure of sensitive business information. We have eight
United States patents and 24 foreign patents relating to computer-based training
technologies and methods, and nine United States and foreign patent applications
pending relating to computer-based training technologies and methods. We also
have one nationalized Patent Cooperation Treaty application.





We
attempt to avoid infringing upon intellectual property and proprietary rights of
third parties in our product development efforts. However, we do not conduct
comprehensive patent searches to determine whether the technology used in our
products infringes patents held by third parties. In addition, product
development is inherently uncertain in a rapidly evolving technological
environment in which there may be numerous patent applications pending, some of
which are confidential when filed, with regard to similar technologies. If our
products violate third-party proprietary rights, we could be liable for
substantial damages. In addition, we may be required to reengineer our products
or seek to obtain licenses to continue offering the products, and those efforts
may not be successful.





We
currently license certain technologies from third parties — including data
compression technologies and tools for developing Web applications — and some
course content that we incorporate into our products. We also license content
for our Books24x7 product offerings from third party publishers. This technology
and content may not continue to be available to us on commercially reasonable
terms. The loss of this technology or content could result in delays in
development and introduction of new products or product enhancements, which
could have a material adverse effect on our business and financial performance.
Moreover, we may face claims from others that the third-party technology or
content incorporated in our products violates proprietary rights held by those
claimants. We may also face claims for indemnification from our customers
resulting from infringement claims against them based on the incorporation of
third-party technology or content in our products. Although we are generally
indemnified against such claims, in some cases the scope of that indemnification
is limited. Even if we receive broad indemnification, third parties
contractually obligated to indemnify us are not always well capitalized and may
not be able to indemnify us in the event of infringement. In addition, such
claims, even if not meritorious, could result in the expenditure of significant
financial and managerial resources in addition to potential product
redevelopment costs and delays, all of which could materially adversely affect
our business.





SkillSoft,
Books24x7, SkillPort, SkillChoice, RolePlay, Express Guide, Search-and-Learn,
SkillView and Referenceware are registered trademarks and/or service marks of
SkillSoft.





20
 Table of Contents




Employees





As of
January 31, 2009, we employed 1,124 people globally. This figure includes
approximately 65 people that will be exiting the business in connection with the
layoffs described in our Current Report on Form 8-K filed with the SEC on
January 20, 2009.





At
January 31, 2009, 397 employees were engaged in sales, sales operations, sales
management, marketing, solution services, telesales and corporate development,
176 were in finance, administration, business applications and IT, 225 employees
were in customer service and support, application engineering and strategic
services and 326 were in product development, custom solutions, mentoring,
production and hosting.





As of
January 31, 2009, 616 employees were located in the United States and 508 in our
international locations. None of our employees are subject to a collective
bargaining agreement and we have not experienced any work stoppages. We believe
that our employee relations are good.




Our
future success will depend in large part on the continued service of our key
management, sales, product development and operational personnel and on our
ability to attract, motivate and retain highly qualified employees. We also
depend on writers, programmers and graphic artists. We expect to continue to
hire additional product development, sales and marketing, information services,
accounting staff and other resources as we deem appropriate to meet our business
objectives.




Item 1A. Risk
Factors
 
 Investors
should carefully consider the risks described below before making an investment
decision with respect to our shares.
 
 RISKS
RELATED TO THE OPERATION OF OUR BUSINESS
 
 OUR
QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, LIMITING YOUR ABILITY
TO EVALUATE HISTORICAL FINANCIAL RESULTS AND INCREASING THE LIKELIHOOD THAT OUR
RESULTS WILL FALL BELOW MARKET ANALYSTS’ EXPECTATIONS, WHICH COULD CAUSE THE
PRICE OF OUR ADSs TO DROP RAPIDLY AND SEVERELY.
 
 In the
past we have experienced fluctuations in our quarterly operating results, and we
anticipate that these fluctuations will continue. As a result, we believe that
our quarterly revenue, expenses and operating results are likely to vary
significantly in the future. If in some future quarters our results of
operations are below the expectations of public market analysts and investors,
this could have a severe adverse effect on the market price of our
ADSs.
 
 21
 Table of Contents
  Our
operating results have historically fluctuated, and our operating results may in
the future continue to fluctuate, as a result of factors, which include, without
limitation:
 
 •
              the
      size and timing of new/renewal agreements and
  upgrades;
 
 •
              royalty
      rates;
 
 •
              the
      announcement, introduction and acceptance of new products, product
      enhancements and technologies by us and our
  competitors;
 
 •
              the
      mix of sales between our field sales force, our other direct sales
      channels and our telesales
channels;
 
 •
              general
      conditions in the U.S. or the international
  economy;
 
 •
              the
      loss of significant customers;
 
 •
              delays
      in availability of new products;
 
 •
              product
      or service quality problems;
 
 •
              seasonality
      — due to the budget and purchasing cycles of our customers, we expect our
      revenue and operating results will generally be strongest in the second
      half of our fiscal year and weakest in the first half of our fiscal
      year;
 
 •
              the
      spending patterns of our customers;
 
 •
              litigation
      costs and expenses;
 
 •
              non-recurring
      charges related to acquisitions;
 
 •
              growing
      competition that may result in price reductions;
  and
 
 •
              currency
      fluctuations.
 
 Most of
our expenses, such as rent and most employee compensation, do not vary directly
with revenue and are difficult to adjust in the short-term. As a result, if
revenue for a particular quarter is below our expectations, we could not
proportionately reduce operating expenses for that quarter. Any such revenue
shortfall would, therefore, have a disproportionate effect on our expected
operating results for that quarter.
  PAST AND
FUTURE ACQUISITIONS MAY NOT PRODUCE THE BENEFITS WE ANTICIPATE AND COULD HARM
OUR CURRENT OPERATIONS.
 One
aspect of our business strategy is to pursue acquisitions of businesses or
technologies that will contribute to our future growth. However, we may not be
successful in identifying or consummating attractive acquisition opportunities.
Moreover, any acquisitions we do consummate may not produce benefits
commensurate with the purchase price we pay or our expectations for the
acquisition. In addition, acquisitions involve numerous risks,
including:
 
 •
              difficulties
      in integrating the technologies, operations, financial controls and
      personnel of the acquired company;
 
 •
              difficulties
      in retaining or transitioning customers and employees of the acquired
      company;
 
 •
              diversion
      of management time and focus;
 
 •
              the
      incurrence of unanticipated expenses associated with the acquisition or
      the assumption of unknown liabilities or unanticipated financial,
      accounting or other problems of the acquired company;
  and
 
 •
              accounting
      charges related to the acquisition, including restructuring charges,
      write-offs of in-process research and development costs, and subsequent
      impairment charges relating to goodwill or other intangible assets
      acquired in the transaction.
 
 22
 Table of Contents
  DEMAND
FOR OUR PRODUCTS AND SERVICES IS ESPECIALLY SUSCEPTIBLE TO GENERAL GLOBAL MARKET
AND ECONOMIC CONDITIONS.
 
 Weakness
in the United States and/or worldwide economy has had and could continue to have
a negative effect on demand for our products and our results of operations.
Companies may not view training products and services as critical to the success
of their businesses. If these companies continue experience disappointing
operating results, whether as a result of adverse economic conditions,
competitive issues or other factors, they may decrease or forego education and
training expenditures before limiting their other expenditures or in conjunction
with lowering other expenses. In addition, during economic downturns, customers
may slow the rate at which they pay vendors or may become unable to pay their
debts as they become due, which would have a negative effect on our
results.
 
 INCREASED
COMPETITION MAY RESULT IN DECREASED DEMAND FOR OUR PRODUCTS AND SERVICES, WHICH
MAY RESULT IN REDUCED REVENUE AND GROSS PROFITS AND LOSS OF MARKET
SHARE.
 
 The
market for corporate education and training solutions is highly fragmented and
competitive. We expect the market to become increasingly competitive due to the
lack of significant barriers to entry. In addition to increased competition from
new companies entering into the market, established companies are entering into
the market through acquisitions of smaller companies, which directly compete
with us, and this trend is expected to continue. We may also face competition
from publishing companies, vendors of application software and human resource
outsourcers, including those vendors with whom we have formed development and
marketing alliances.
 
 Our
primary sources of direct competition are:
 
 •
              third-party
      suppliers of instructor-led information technology, business, management
      and professional skills education and
training;
 
 •
              technology
      companies that offer learning courses covering their own technology
      products;
 
 •
              suppliers
      of computer-based training and e-learning
  solutions;
 
 •
              internal
      education, training departments and HR outsourcers of potential customers;
      and
 
 •
              value-added
      resellers and network integrators.
 
 Growing
competition may result in price reductions, reduced revenue and gross profits
and loss of market share, any one of which would have a material adverse effect
on our business. Many of our current and potential competitors have
substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition, and we expect to face increasing
price pressures from competitors as managers demand more value for their
training budgets. Accordingly, we may be unable to provide e-learning solutions
that compare favorably with new instructor-led techniques, other interactive
training software or new e-learning solutions.
 
 WE RELY
ON A LIMITED NUMBER OF THIRD PARTIES TO PROVIDE US WITH EDUCATIONAL CONTENT FOR
OUR COURSES AND REFERENCEWARE, AND OUR ALLIANCES WITH THESE THIRD PARTIES MAY BE
TERMINATED OR FAIL TO MEET OUR REQUIREMENTS.
  We rely
on a limited number of independent third parties to provide us with the
educational content for a majority of our courses based on learning objectives
and specific instructional design templates that we provide to them. We do not
have exclusive arrangements or long-term contracts with any of these content
providers. If one or more of our third party content providers were to stop
working with us, we would have to rely on other parties to develop our course
content. In addition, these providers may fail to develop new courses or
existing courses on a timely basis. We cannot predict whether new content or
enhancements would be available from reliable alternative sources on reasonable
terms. In addition, our subsidiary, Books24x7 relies on third party publishers
to provide all of the content incorporated into its Referenceware products. If
one or more of these publishers were to terminate their license with us, we may
not be able to find substitute publishers for such content. In addition, we may
be forced to pay increased royalties to these publishers to continue our
licenses with them.
 
 In the
event that we are unable to maintain or expand our current development alliances
or enter into new development alliances, our operating results and financial
condition could be materially adversely affected. Furthermore, we will be
required to pay royalties to some of our development partners on products
developed with them, which could reduce our gross margins.
  23
 Table of Contents
  We expect
that cost of revenues may fluctuate from period to period in the future based
upon many factors, including the revenue mix and the timing of expenses
associated with development alliances. In addition, the collaborative nature of
the development process under these alliances may result in longer development
times and less control over the timing of product introductions than for
e-learning offerings developed solely by us. Our strategic alliance partners may
from time to time renegotiate the terms of their agreements with us, which could
result in changes to the royalty or other arrangements, adversely affecting our
results of operations.
 
 The
independent third party strategic partners we rely on for educational content
and product marketing may compete with us, harming our results of operations.
Our agreements with these third parties generally do not restrict them from
developing courses on similar topics for our competitors or from competing
directly with us. As a result, our competitors may be able to duplicate some of
our course content and gain a competitive advantage.
 
 OUR
SUCCESS DEPENDS ON OUR ABILITY TO MEET THE NEEDS OF THE RAPIDLY CHANGING
MARKET.
 
 The
market for education and training software is characterized by rapidly changing
technology, evolving industry standards, changes in customer requirements and
preferences and frequent introductions of new products and services embodying
new technologies. New methods of providing interactive education in a
technology-based format are being developed and offered in the marketplace,
including intranet and Internet offerings. In addition, multimedia and other
product functionality features are being added to educational software. Our
future success will depend upon the extent to which we are able to develop and
implement products which address these emerging market requirements on a cost
effective and timely basis. Product development is risky because it is difficult
to foresee developments in technology coordinate technical personnel and
identify and eliminate design flaws. Any significant delay in releasing new
products could have a material adverse effect on the ultimate success of our
products and could reduce sales of predecessor products. We may not be
successful in introducing new products on a timely basis. In addition, new
products introduced by us may fail to achieve a significant degree of market
acceptance or, once accepted, may fail to sustain viability in the market for
any significant period. If we are unsuccessful in addressing the changing needs
of the marketplace due to resource, technological or other constraints, or in
anticipating and responding adequately to changes in customers’ software
technology and preferences, our business and results of operations would be
materially adversely affected. We, along with the rest of the industry, face a
challenging and competitive market for IT spending that has resulted in reduced
contract value for our formal learning product lines. This pricing pressure has
a negative impact on revenue for these product lines and may have a continued or
increased adverse impact in the future.
  THE
E-LEARNING MARKET IS A DEVELOPING MARKET, AND OUR BUSINESS WILL SUFFER IF
E-LEARNING IS NOT WIDELY ACCEPTED.
 
 The
market for e-learning is a new and emerging market. Corporate training and
education have historically been conducted primarily through classroom
instruction and have traditionally been performed by a company’s internal
personnel. Many companies have invested heavily in their current training
solutions. Although technology-based training applications have been available
for several years, they currently account for only a small portion of the
overall training market.
 
 Accordingly,
our future success will depend upon the extent to which companies adopt
technology-based solutions for their training activities, and the extent to
which companies utilize the services or purchase products of third-party
providers. Many companies that have already invested substantial resources in
traditional methods of corporate training may be reluctant to adopt a new
strategy that may compete with their existing investments. Even if companies
implement technology-based training or e-learning solutions, they may still
choose to design, develop, deliver or manage all or part of their education and
training internally. If technology-based learning does not become widespread, or
if companies do not use the products and services of third parties to develop,
deliver or manage their training needs, then our products and service may not
achieve commercial success.
 
 NEW
PRODUCTS INTRODUCED BY US MAY NOT BE SUCCESSFUL.
 
 An
important part of our growth strategy is the development and introduction of new
products that open up new revenue streams for us. Despite our efforts, we cannot
assure you that we will be successful in developing and introducing new
products, or that any new products we do introduce will meet with commercial
acceptance. The failure to successfully introduce new products will not only
hamper our growth prospects but may also adversely impact our net income due to
the development and marketing expenses associated with those new
products.
 
 THE
SUCCESS OF OUR E-LEARNING STRATEGY DEPENDS ON THE RELIABILITY AND CONSISTENT
PERFORMANCE OF OUR INFORMATION SYSTEMS AND INTERNET INFRASTRUCTURE.
 
 The
success of our e-learning strategy is highly dependent on the consistent
performance of our information systems and Internet infrastructure. If our Web
site fails for any reason or if it experiences any unscheduled downtimes, even
for only a short period, our business and reputation could be materially harmed.
We have in the past experienced performance problems and unscheduled downtime,
and these problems could recur.
  24
 Table of Contents
  We
currently rely on third parties for proper functioning of computer
infrastructure, delivery of our e-learning applications and the performance of
our destination site. Our systems and operations could be damaged or interrupted
by fire, flood, power loss, telecommunications failure, break-ins, earthquake,
financial patterns of hosting providers and similar events. Any system failures
could adversely affect customer usage of our solutions and user traffic results
in any future quarters, which could adversely affect our revenue and operating
results and harm our reputation with corporate customers, subscribers and
commerce partners. Accordingly,
the satisfactory performance, reliability and availability of our Web site and
computer infrastructure are critical to our reputation and ability to attract
and retain corporate customers, subscribers and commerce partners. We cannot
accurately project the rate or timing of any increases in traffic to our Web
site and, therefore, the integration and timing of any upgrades or enhancements
required to facilitate any significant traffic increase to the Web site are
uncertain. We have in the past experienced difficulties in upgrading our Web
site infrastructure to handle increased traffic, and these difficulties could
recur. The failure to expand and upgrade our Web site or any system error,
failure or extended down time could materially harm our business, reputation,
financial condition or results of operations.
 
 BECAUSE
MANY USERS OF OUR E-LEARNING SOLUTIONS WILL ACCESS THEM OVER THE INTERNET,
FACTORS ADVERSELY AFFECTING THE USE OF THE INTERNET OR OUR CUSTOMERS’ NETWORKING
INFRASTRUCTURES COULD HARM OUR BUSINESS.
 
 Many of
our customer’s users access our e-learning solutions over the Internet or
through our customers’ internal networks. Any factors that adversely affect
Internet usage could disrupt the ability of those users to access our e-learning
solutions, which would adversely affect customer satisfaction and therefore our
business.
 
 For
example, our ability to increase the effectiveness and scope of our services to
customers is ultimately limited by the speed and reliability of both the
Internet and our customers’ internal networks. Consequently, the emergence and
growth of the market for our products and services depends upon the improvements
being made to the entire Internet as well as to our individual customers’
networking infrastructures to alleviate overloading and congestion. If these
improvements are not made, and the quality of networks degrades, the ability of
our customers to use our products and services will be hindered and our revenue
may suffer.
 
 Additionally,
a requirement for the continued growth of accessing e-learning solutions over
the Internet is the secure transmission of confidential information over public
networks. Failure to prevent security breaches into our products or our
customers’ networks, or well-publicized security breaches affecting the Internet
in general could significantly harm our growth and revenue. Advances in computer
capabilities, new discoveries in the field of cryptography or other developments
may result in a compromise of technology we use to protect content and
transactions, our products or our customers’ proprietary information in our
databases. Anyone who is able to circumvent our security measures could
misappropriate proprietary and confidential information or could cause
interruptions in our operations. We may be required to expend significant
capital and other resources to protect against such security breaches or to
address problems caused by security breaches. The privacy of users may also
deter people from using the Internet to conduct transactions that involve
transmitting confidential information.
 
 WE DEPEND
ON A FEW KEY PERSONNEL TO MANAGE AND OPERATE THE BUSINESS AND MUST BE ABLE TO
ATTRACT AND RETAIN HIGHLY QUALIFIED EMPLOYEES.
 
 Our
success is largely dependent on the personal efforts and abilities of our senior
management. Failure to retain these executives, or the loss of certain
additional senior management personnel or other key employees, could have a
material adverse effect on our business and future prospects. We are also
dependent on the continued service of our key sales, content development and
operational personnel and on our ability to attract, train, motivate and retain
highly qualified employees. In addition, we depend on writers, programmers, Web
designers and graphic artists. We may be unsuccessful in attracting, training,
retaining or motivating key personnel. The inability to hire, train and retain
qualified personnel or the loss of the services of key personnel could have a
material adverse effect upon our business, new product development efforts and
future business prospects.
 
 OUR
BUSINESS IS SUBJECT TO CURRENCY FLUCTUATIONS THAT HAVE, AND COULD CONTINUE TO,
ADVERSELY AFFECT OUR OPERATING RESULTS.
 
 Due to
our multinational operations, our operating results are subject to fluctuations
based upon changes in the exchange rates between the currencies in which revenue
is collected or expenses are paid. In particular, the value of the U.S. dollar
against the Euro, pound sterling, Canadian dollar, Australian dollar, New
Zealand dollar, Singapore dollar and related currencies will impact our
operating results. Our expenses will not necessarily be incurred in the currency
in which revenue is generated, and, as a result, we will be required from time
to time to convert currencies to meet our obligations. These currency
conversions are subject to exchange rate fluctuations, and changes to the value
of these currencies and other currencies relative to the U.S. dollar have and
could continue to adversely affect our business and results of
operations.
 25
 Table of Contents
  LEGISLATION
HAS RECENTLY BEEN INTRODUCED IN THE UNITED STATES CONGRESS THAT COULD, IF
ENACTED IN ITS CURRENT FORM, SUBJECT US TO TAXATION AS A U.S. CORPORATION, WHICH
COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  We are
aware of two bills recently proposed in Congress that seek to prevent U.S.
companies from taking advantage of tax shelters in foreign
jurisdictions.  One of these proposed bills would, if enacted in its
current form, tax a foreign corporation as domestic if it is publicly traded and
managed and controlled in the U.S.  At this point, it is impossible to
tell whether any of the proposed bills will be enacted into law, or whether the
provisions of any enacted bill would apply to SkillSoft.   In
addition, we believe that if any such bill does become law, it would not take
effect for several years.  If any tax legislation of this nature is
ultimately adopted, we would assess its impact on us and take steps, where
appropriate, to mitigate such impact.  However, it is possible that we
could become subject to additional taxes as a result of the adoption of such
legislation.
  WE MAY BE
UNABLE TO PROTECT OUR PROPRIETARY RIGHTS. UNAUTHORIZED USE OF OUR INTELLECTUAL
PROPERTY MAY RESULT IN DEVELOPMENT OF PRODUCTS OR SERVICES THAT COMPETE WITH
OURS.
 
 Our
success depends to a degree upon the protection of our rights in intellectual
property. We rely upon a combination of patent, copyright, and trademark laws to
protect our proprietary rights. We have also entered into, and will continue to
enter into, confidentiality agreements with our employees, consultants and third
parties to seek to limit and protect the distribution of confidential
information. However, we have not signed protective agreements in every
case.
 
 Although
we have taken steps to protect our proprietary rights, these steps may be
inadequate. Existing patent, copyright, and trademark laws offer only limited
protection. Moreover, the laws of other countries in which we market our
products may afford little or no effective protection of our intellectual
property. Additionally, unauthorized parties may copy aspects of our products,
services or technology or obtain and use information that we regard as
proprietary. Other parties may also breach protective contracts we have executed
or will in the future execute. We may not become aware of, or have adequate
remedies in the event of, a breach. Litigation may be necessary in the future to
enforce or to determine the validity and scope of our intellectual property
rights or to determine the validity and scope of the proprietary rights of
others. Even if we were to prevail, such litigation could result in substantial
costs and diversion of management and technical resources.
 
 OUR
WORLDWIDE OPERATIONS ARE SUBJECT TO RISKS WHICH COULD NEGATIVELY IMPACT OUR
FUTURE OPERATING RESULTS.
 
 We expect
that international operations will continue to account for a significant portion
of our revenues and are subject to inherent risks, including:
 
 •
              difficulties
      or delays in developing and supporting non-English language versions of
      our products and services;
 
 •
              political
      and economic conditions in various
  jurisdictions;
 
 •
              difficulties
      in staffing and managing foreign subsidiary
  operations;
 
 •
              longer
      sales cycles and account receivable payment
  cycles;
 
 •
              multiple,
      conflicting and changing governmental laws and
  regulations;
 
 •
              foreign
      currency exchange rate
fluctuations;
 
 •
              protectionist
      laws and business practices that may favor local
    competitors;
 
 •
              difficulties
      in finding and managing local
resellers;
 
 •
              potential
      adverse tax consequences; and
 
 •
              the
      absence or significant lack of legal protection for intellectual property
      rights.
 
 Any of
these factors could have a material adverse effect on our future operations
outside of the United States, which could negatively impact our future operating
results.
 
 26
 Table of Contents
  OUR SALES
CYCLE MAY MAKE IT DIFFICULT TO PREDICT OUR OPERATING RESULTS.
 
 The
period between our initial contact with a potential customer and the purchase of
our products by that customer typically ranges from three to twelve months or
more. Factors that contribute to our long sales cycle, include:
 
 •
              our
      need to educate potential customers about the benefits of our
      products;
 
 •
              competitive
      evaluations by customers;
 
 •
              the
      customers’ internal budgeting and approval
  processes;
 
 •
              the
      fact that many customers view training products as discretionary spending,
      rather than purchases essential to their business;
  and
 
 •
              the
      fact that we target large companies, which often take longer to make
      purchasing decisions due to the size and complexity of the
      enterprise.
 
 These
long sales cycles make it difficult to predict the quarter in which sales may
occur. Delays in sales could cause significant variability in our revenue and
operating results for any particular period.
 
 OUR
BUSINESS COULD BE ADVERSELY AFFECTED IF OUR PRODUCTS CONTAIN
ERRORS.
 
 Software
products as complex as ours contain known and undetected errors or “bugs” that
result in product failures. The existence of bugs could result in loss of or
delay in revenue, loss of market share, diversion of product development
resources, injury to reputation or damage to efforts to build brand awareness,
any of which could have a material adverse effect on our business, operating
results and financial condition.
 
 RISKS
RELATED TO LEGAL PROCEEDINGS
 
 WE ARE
THE SUBJECT OF AN INVESTIGATION BY THE SEC.
 
 The
Boston District Office of the SEC informed us in January 2007 that we are the
subject of an informal investigation concerning option granting practices at
SmartForce for the period beginning April 12, 1996 through July 12, 2002. These
grants were made prior to the September 6, 2002 merger of SkillSoft Corporation
and SmartForce PLC. We have produced documents in response to requests from the
SEC.
 
 We have
cooperated with the SEC in this matter. At the present time, we are unable to
predict the outcome of this matter or its potential impact on our operating
results or financial position. However, we may incur substantial costs in
connection with the SEC option granting practices investigation, and this
investigation could cause a diversion of management time and attention. In
addition, we could be subject to penalties, fines or regulatory sanctions or
claims by our former officers, directors or employees for indemnification of
costs they may incur in connection with the SEC investigation. Any or all of
those issues could adversely affect our business, operating results and
financial position.
  CLAIMS
THAT WE INFRINGE UPON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS COULD RESULT IN
COSTLY LITIGATION OR ROYALTY PAYMENTS TO THIRD PARTIES, OR REQUIRE US TO
REENGINEER OR CEASE SALES OF OUR PRODUCTS OR SERVICES.
 
 Third
parties have in the past and could in the future claim that our current or
future products infringe their intellectual property rights. Any claim, with or
without merit, could result in costly litigation or require us to reengineer or
cease sales of our products or services, any of which could have a material
adverse effect on our business. Infringement claims could also result in an
injunction barring the sale of our products or require us to enter into royalty
or licensing agreements. Licensing agreements, if required, may not be available
on terms acceptable to the combined company or at all.
 
 From time
to time we learn of parties that claim broad intellectual property rights in the
e-learning area that might implicate our offerings. These parties or others
could initiate actions against us in the future.
  27
 Table of Contents
  WE COULD
INCUR SUBSTANTIAL COSTS RESULTING FROM PRODUCT LIABILITY CLAIMS RELATING TO OUR
CUSTOMERS’ USE OF OUR PRODUCTS AND SERVICES.
 
 Many of
the business interactions supported by our products and services are critical to
our customers’ businesses. Any failure in a customer’s business interaction or
other collaborative activity caused or allegedly caused in the future by our
products and services could result in a claim for substantial damages against
us, regardless of our responsibility for the failure. Although we maintain
general liability insurance, including coverage for errors and omissions, there
can be no assurance that existing coverage will continue to be available on
reasonable terms or will be available in amounts sufficient to cover one or more
large claims, or that the insurer will not disclaim coverage as to any future
claim.
 
 WE COULD
BE SUBJECTED TO LEGAL ACTIONS BASED UPON THE CONTENT WE OBTAIN FROM THIRD
PARTIES OVER WHOM WE EXERT LIMITED CONTROL.
 
 It is
possible that we could become subject to legal actions based upon claims that
our course content infringes the rights of others or is erroneous. Any such
claims, with or without merit, could subject us to costly litigation and the
diversion of our financial resources and management personnel. The risk of such
claims is exacerbated by the fact that our course content is provided by third
parties over whom we exert limited control. Further, if those claims are
successful, we may be required to alter the content, pay financial damages or
obtain content from others.
 
 SOME OF
OUR INTERNATIONAL SUBSIDIARIES HAVE NOT COMPLIED WITH REGULATORY REQUIREMENTS
RELATING TO THEIR FINANCIAL STATEMENTS AND TAX RETURNS IN PRIOR
YEARS.
 
 We
operate our business in various foreign countries through subsidiaries organized
in those countries. Due to our restatement of the historical SmartForce
financial statements, some of our subsidiaries have been delayed in the filing
of their audited statutory financial statements and have been delayed in filing
their tax returns in their respective jurisdictions. As a result, some of these
foreign subsidiaries may be subject to regulatory restrictions, penalties and
fines and additional taxes.
  RISKS
RELATED TO OUR ADSs


THE
MARKET PRICE OF OUR ADSs MAY FLUCTUATE AND MAY NOT BE SUSTAINABLE.
 
 The
market price of our ADSs has fluctuated significantly since our initial public
offering, has declined significantly in recent months and is likely to continue
to be volatile. In addition, in recent years the stock market in general, and
the market for shares of technology stocks in particular, have experienced
extreme price and volume fluctuations, which have often been unrelated to the
operating performance of affected companies. The market price of our ADSs may
continue to experience significant fluctuations in the future, including
fluctuations that are unrelated to our performance. As a result of these
fluctuations in the price of our ADSs, it is difficult to predict what the price
of our ADSs will be at any point in the future, and you may not be able to sell
your ADSs at or above the price that you paid for them.
 
 SALES OF
LARGE BLOCKS OF OUR ADSs COULD CAUSE THE MARKET PRICE OF OUR ADSs TO DROP
SIGNIFICANTLY, EVEN IF OUR BUSINESS IS DOING WELL.
 
 Some
shareholders own 5% or more of our outstanding shares. We cannot predict the
effect, if any, that public sales of these shares will have on the market price
of our ADSs. If our significant shareholders, or our directors and officers,
sell substantial amounts of our ADSs in the public market, or if the public
perceives that such sales could occur, this could have an adverse impact on the
market price of our ADSs, even if there is no relationship between such sales
and the performance of our business.
  28
 Table of Contents
  Item 1B.Unresolved Staff
Comments
 
 Not
applicable.
 
 Item 2.Properties
 
 Our
United States headquarters are located in Nashua, New Hampshire where we lease
an aggregate of 68,755 square feet. We have one lease for 43,355 square feet of
space and a second for 25,400 square feet of space. The leases for both
locations expire in June 2009 and we have been negotiating to extend these
leases with our landlords at both locations. In addition to our U.S.
headquarters, our other primary facilities are located in Dublin, Ireland;
Norwood, Massachusetts; Fredericton, New Brunswick, Canada; and Scottsdale,
Arizona.
 
 In
Ireland, we currently lease and occupy a 20,838 square foot facility in Dublin,
which primarily houses our main content development center. In addition, we
currently lease two other facilities in Dublin totaling approximately 27,765
square feet. These spaces have been vacated and the operations previously
performed in these facilities have been consolidated into the 20,838 square foot
facility.
 
 In
Norwood, Massachusetts, we currently lease and occupy 10,658 square feet. This
facility houses the operations of our Books24x7.com, Inc. subsidiary under a
lease that expires in December 2010.
 
 In
Scottsdale, Arizona, where part of our telesales operation is located, we
currently lease a total of 23,517 sq ft. The lease for this location expires in
January 2013.
 
 In
Canada, we currently lease a total of 47,906 square feet in two buildings in
Fredericton, New Brunswick. The Fredericton facility primarily houses our
mentoring operations, telesales and certain customer service and support
personnel and the lease expires in August 2012.
 
 We also
lease sales offices in a number of other countries including the United Kingdom,
Italy, Germany and Australia and we lease a development office in Belfast,
Northern Ireland.
 
 We
believe that our existing facilities are adequate to meet our current needs and
that suitable additional or substitute space will be available on commercially
reasonable terms when needed, including with respect to our Nashua
locations.
  Item 3.Legal
Proceedings




Ongoing
SEC Investigation





In
January 2007, the Boston District Office of the SEC informed us that we are the
subject of an informal investigation concerning option granting practices at
SmartForce for the period beginning April 12, 1996 through July 12, 2002, prior
to the September 6, 2002 merger of SkillSoft Corporation and SmartForce PLC (the
“Option Granting Investigation”). We have produced documents in response to
requests from the SEC. The SEC staff has informed us that it has not determined
whether to close the Option Granting Investigation.




29
 Table of Contents




We
believe that we accounted for SmartForce stock option grants properly in the
merger and that as a result of the merger, our financial statements are unlikely
to change even if SmartForce did not properly account for its pre-merger option
grants. When SkillSoft Corporation and SmartForce merged on September 6, 2002,
SkillSoft Corporation was, for accounting purposes, deemed to have acquired
SmartForce. Accordingly, the pre-merger financial statements of SmartForce are
not included in our historical financial statements, and our financial
statements include results from what had been the business of SmartForce only
from the date of the merger. Under applicable accounting rules, we valued all of
the outstanding SmartForce stock options assumed in the merger at fair value
upon consummation of the merger. Accordingly, we believe that our accounting for
SmartForce stock options will not be affected by any error that SmartForce may
have made in its own accounting for stock option grants, and that that the
Option Granting Investigation should not require any change in our financial
statements.





We have
cooperated with the SEC in the Option Granting Investigation. At the present
time, we are unable to predict the outcome of the Option Granting Investigation
or its potential impact on our operating results or financial
position.





We are
not a party to any other material legal proceedings.





Item 4.Submission of Matters to
a Vote of Security Holders





No
matters were submitted to a vote of our security holders during the fourth
quarter of the fiscal year ended January 31, 2009.





PART II





Item 5.Market
for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities





Our ADSs
are listed on the NASDAQ Global Market (NASDAQ) under the symbol “SKIL.” The
following table sets forth, for the periods indicated, the high and low intraday
sale prices per share of our ADSs as reported by NASDAQ between February 1,
2007 and January 31, 2009.





Quarter Ended
                
                High
                
                
                LowApril
      30, 2007
                
                $
                8.80
                
                
                $
                6.72July
      31, 2007
                
                
                9.40
                
                
                
                7.47October
      31, 2007
                
                
                9.30
                
                
                
                7.26January
      31, 2008
                
                
                10.22
                
                
                
                8.26April
      30, 2008
                
                
                11.42
                
                
                
                8.03July
      31, 2008
                
                
                10.95
                
                
                
                8.30October
      31, 2008
                
                
                11.06
                
                
                
                7.01January
      31, 2009
                
                
                8.75
                
                
                
                5.27  As of
March 31, 2009, there were 10 holders of record of ordinary
shares.





Dividends





We have
not paid any cash dividends on our ordinary shares and do not anticipate paying
any cash dividends in the foreseeable future. We currently intend to retain
future earnings, if any, to fund the growth of our business, make payments on
our outstanding debt obligations and/or repurchase shares. Dividends may only be
declared and paid out of profits available for distribution determined in
accordance with accounting principles generally accepted in Ireland and
applicable Irish Company Law. On May 14, 2007, we entered into a Credit
Agreement that contains customary covenants that place limitations on the
distribution of income or retained earnings by our consolidated group companies.
Any dividends, if and when declared, will be declared and paid in United States
dollars. We did not sell unregistered securities during fiscal
2009.




30
 Table of Contents





Purchases
of Equity Securities by the Issuer and Affiliated Purchases





On April
8, 2008, our shareholders approved the repurchase of up to an aggregate of
10,000,000 ADSs pursuant to a repurchase program. On September 24, 2008, our
shareholders approved an increase in the number of shares that may be
repurchased under the program to 25,000,000 and an extension of the repurchase
program until March 23, 2010.





During
the fourth quarter of fiscal 2009, we repurchased ADSs as follows:





(c)TotalNumber
      of
                  
                  
                  (d)Shares
                  
                  
                  MaximumPurchased
                  
                  
                  Number
      of(a)
                  
                  
                  
                  
                  
                  as
      Part of
                  
                  
                  Shares
      thatTotal
                  
                  
                  (b)
                  
                  
                  Publicly
                  
                  
                  May
      Yet BeNumber
      of
                  
                  
                  Average
                  
                  
                  Announced
                  
                  
                  PurchasedShares
                  
                  
                  Price
      Paid
                  
                  
                  or
      Program
                  
                  
                  Under
      thePeriod
                  
                  Purchased
      (1)
                  
                  
                  Per
      Share $
                  
                  
                  (2)
                  
                  
                  ProgramNovember
      1, 2008 - November 30, 2008
                  
                  
                  768,987
                  
                  
                  $
                  7.29
                  
                  
                  
                  768,987
                  
                  
                  
                  18,521,614December
      1, 2008 - December 31, 2008
                  
                  
                  2,839,887
                  
                  
                  
                  6.04
                  
                  
                  
                  2,839,887
                  
                  
                  
                  15,681,727January
      1, 2009 - January 31, 2009
                  
                  
                  1,779,042
                  
                  
                  
                  6.99
                  
                  
                  
                  1,779,042
                  
                  
                  
                  13,902,685Total
                  
                  
                  5,387,916
                  
                  
                  $
                  6.53
                  
                  
                  
                  5,387,916
                  
                  
                  
                  13,902,685





(1)           We
repurchased ADSs pursuant to a share repurchase program that was approved by our
shareholders on April 8, 2008 and amended on September 24, 2008.





(2)           Our
shareholders approved the repurchase by us of up to 25,000,000 ADSs at a per
share purchase price which complies with the requirements of Rule 10b-18.
Unless terminated earlier by resolution of our Board of Directors, the
repurchase program will expire on March 23, 2010 or when we have repurchased all
shares authorized for repurchase thereunder.





During
the fiscal year ended January 31, 2009, we repurchased a total of 11,097,315 and
retired 16,800,397 shares, including 6,533,884 shares repurchased in prior
fiscal years.





Irish
Stamp Duty





Stamp
duty, which is a tax on certain documents, is payable on all transfers of
ordinary shares in companies registered in Ireland wherever the instrument of
transfer may be executed. In the case of a transfer on sale, stamp duty will be
charged at the rate of €1 for every €100 (or part thereof) of the amount or
value of the purchase price. Where the consideration for the sale is expressed
in a currency other than Euro, the duty will be charged on the Euro equivalent
calculated at the rate of exchange prevailing on the date of the transfer. In
the case of a transfer by way of gift, subject to certain exceptions, or for
considerations less than the market value of the shares transferred, stamp duty
will be charged at the above rate on such market value.





A
transfer or issue of ordinary shares for deposit under the deposit agreements
among us, The Bank of New York Mellon, as Depositary, and the registered
holders and the owners of a beneficial interest in book-entry American
Depositary Receipts, or ADRs, in return for ADRs will be similarly chargeable
with stamp duty as will a transfer of ordinary shares from the Depositary or the
custodian under the deposit agreements upon surrender of an ADR for the purpose
of the withdrawal of the underlying ordinary shares in accordance with the terms
of the Deposit Agreement.


31
 Table of Contents


We
received a ruling from the Irish Revenue Commissioners that transfers of ADRs
issued in respect of our shares will not be chargeable with Irish stamp duty for
so long as the ADRs are dealt in and quoted on the NASDAQ Global Market. It has
been confirmed in Section 207, Finance Act 1992 that transfers of ADRs will
be exempt from stamp duty where the ADRs are dealt with in a recognized stock
exchange. The NASDAQ Global Market is regarded by the Irish authorities as a
recognized stock exchange for these purposes.





The
person accountable for payment of stamp duty is the transferee or, in the case
of a transfer by way of gift or for a consideration less than the market value,
both parties to the transfer. Stamp duty is normally payable within 30 days
after the date of execution of the transfer. Late payment of stamp duty will
result in liability to interest, penalties and fines.





Item 6.Selected Financial
Data





Incorporated
by reference from Appendix Aattached
hereto.





Item 7.Management’s
Discussion and Analysis of Financial Condition and Results of
Operations





The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and notes appearing in Appendix B of this Annual Report on Form
10-K.





Overview





We are a
leading Software as a Service (SaaS) provider of on-demand e-learning and
performance support solutions for global enterprises, government, education and
small to medium-sized businesses. We enable business organizations to maximize
business performance through a combination of comprehensive e-learning content,
online information resources, flexible learning technologies and support
services. Our multi-modal learning solutions support and enhance the speed and
effectiveness of both formal and informal learning processes and integrate our
in-depth content resources, learning management system, virtual classroom
technology and support services.





We
generate revenue primarily from the license of our products, the provision of
professional services as well as from the provision of hosting and application
services. The pricing for our courses varies based upon the content offering
selected by a customer, the number of users within the customer’s organization
and the length of the license agreement (generally one, two or three years). Our
agreements permit customers to exchange course titles, generally on the contract
anniversary date. Hosting services are separately sold for an additional
fee.





Cost of
revenues includes the cost of materials (such as storage media), packaging,
shipping and handling, CD duplication, custom content development and hosting
services, royalties and certain infrastructure and occupancy expenses and
share-based compensation. We generally recognize these costs as incurred. Also
included in cost of revenues is amortization expense related to capitalized
software development costs and intangible assets related to developed software
and courseware acquired in business combinations.





We
account for software development costs in accordance with Statement of Financial
Accounting Standards (SFAS) No. 86, “Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed” (SFAS 86), which
requires the capitalization of certain computer software development costs
incurred after technological feasibility is established. No software development
costs incurred during fiscal 2007, 2008 or 2009 met the requirements for
capitalization in accordance with SFAS No. 86.





Research
and development expenses consist primarily of salaries and benefits, share-based
compensation, certain infrastructure and occupancy expenses, fees to consultants
and course content development fees. Selling and marketing expenses consist
primarily of salaries and benefits, share-based compensation, commissions,
advertising and promotion expenses, travel expenses and certain infrastructure
and occupancy expenses. General and administrative expenses consist primarily of
salaries and benefits, share-based compensation, consulting and service
expenses, legal expenses, audit and tax preparation costs, regulatory compliance
costs and certain infrastructure and occupancy expenses.





Amortization
of intangible assets represents the amortization of customer value, non-compete
agreements, trademarks and tradenames from our acquisitions of NETg, Targeted
Learning Corporation (TLC), Books24x7 and GoTrain Corp. and our merger with
SkillSoft Corporation (the SmartForce Merger).


32
 Table of Contents


Merger
and integration related expenses primarily consist of salaries paid to NETg
employees for transitional work assignments, facilities, systems and process
integration activities.





Restructuring
expenses primarily consist of charges associated with our recent reduction in
force as described in our Form 8-K filed with the SEC on January 20,
2009.





SEC
investigation expenses primarily consist of legal and consulting fees incurred
in connection with the SEC investigation relating to the restatement of
SmartForce’s financial statements for 1999, 2000, 2001 and the first two
quarters of 2002, and more recently, the SEC’s review of SmartForce’s option
granting practices prior to the SmartForce Merger.





Business
Outlook





In the
fiscal year ended January 31, 2009, we generated revenues of $328.5 million as
compared to $281.2 million in the fiscal year ended January 31, 2008. We
reported operating income in the fiscal year ended January 31, 2009 of $79.0
million as compared to $36.5 million in the fiscal year ended January 31, 2008.
We reported net income in the fiscal year ended January 31, 2009 of $50.8
million as compared to $60.0 million in the fiscal year ended January 31,
2008.





While we
have achieved increased revenues and operating income from last fiscal year, we
have experienced in the last six months a significantly more cautious customer
environment due to the current challenging global economic climate. In addition,
we continue to find ourselves in a challenging business environment due to (i)
budgetary constraints on information technology (IT) spending by our current and
potential customers, (ii) price competition and value-based competitive
offerings from a broad array of competitors in the learning market and (iii) the
relatively slow overall market adoption rate for e-learning solutions. In recent
months, the challenging U.S. and global economic environment has put additional
pressure on potential budgetary constraints on IT and spending by our current
and potential customers. While we have seen some customers put spending on
hold, we have seen others increase spending and utilize e-learning as a cost
effective alternative to traditional learning. Despite the challenges, our
core business has performed predominately in accordance with our expectations.
Our recent revenue growth, as compared to last fiscal year, was primarily the
result of the realization of additional revenue from the increased customer base
associated with the NETg acquisition, third party resellers of our product and
international sales. Our growth prospects are strongest in developing our
expanded core business, which leverages our various product lines in a strategy
of bundled product offerings, as well as continued distribution partnerships
with third party resellers and international distribution growth. As a result,
we have increased our sales and marketing investment related to these areas to
help capitalize on the recent growth and potential continued growth and to help
overcome the challenges presented by the current economic climate. In order to
pursue the small and medium-sized business markets, we continue to invest in our
telesales business unit; however, we have not seen results in line with our
expectations and as a result, we have made and will continue to make
organizational changes as needed to achieve our expected growth. We plan to
continue to invest in our core field sales team, new business direct field sales
team and lead generator organizations. In other areas, however, we took a number
of actions in the fourth quarter of fiscal 2009 to reduce our cost structure in
light of the difficult economic conditions we are facing, and we intend to
continue to monitor our costs and make those adjustments we believe are
necessary to achieve our goal of growing net income in fiscal 2010.





In fiscal
2009 and fiscal 2010, we have and will continue to focus on revenue and earnings
growth primarily by:





•
            monitoring
      our current operating cost
structure;




•
            cross
      selling and up selling;




•
            looking
      at new markets, which may include expanding or investing
      internationally;




•
            acquiring
      new customers through our core sales team as well as through our new
      business field sales team;




•
            continuing
      to execute on our new product and telesales distribution initiatives;
      and




•
            continuing
      to evaluate merger and acquisition and possible partnership opportunities
      that could contribute to our long-term
  objectives.





Critical
Accounting Policies





Our
significant accounting policies are more fully described under the heading
“Summary of Significant Accounting Policies” in Note 2 of the Notes to the
Consolidated Financial Statements. However, we believe the accounting policies
described below are particularly important to the portrayal and understanding of
our financial position and results of operations and require application of
significant judgment by our management. In applying these policies, management
uses its judgment in making certain assumptions and estimates.


33
 Table of Contents







Revenue
Recognition





We
generate revenue primarily from the license of our products, the provision of
professional services and from the provision of hosting/application service
provider (ASP) services.





We follow
the provisions of the American Institute of Certified Public Accountants (AICPA)
Statement of Position (SOP) 97-2, “Software Revenue
Recognition,” as amended by SOP 98-4 and SOP 98-9 as well as
Emerging Issues Task Force (EITF) Issue Number 00-21, “Revenue Arrangements with Multiple
Deliverables” and SEC Staff Accounting Bulletin No. 104 (SAB 104), “Revenue Recognition”to
account for revenue derived pursuant to license agreements under which customers
license our products and services. The pricing for our courses varies based upon
the content offering selected by a customer, the number of users within the
customer’s organization and the term of the license agreement (generally one,
two or three years). License agreements permit customers to exchange course
titles, generally on the contract anniversary date. Hosting services are sold
separately for an additional fee. A license can provide customers access to a
range of learning products including courseware, Referenceware®,
simulations, mentoring and prescriptive assessment.





We offer
discounts from our ordinary pricing, and purchasers of licenses for a larger
number of courses, larger user bases or longer periods of time generally receive
discounts. Generally, customers may amend their license agreements, for an
additional fee, to gain access to additional courses or product lines and/or to
increase the size of its user base. We also derive revenue from hosting fees for
clients that use our solutions on an ASP basis and from the provision of
professional services. In selected circumstances, we derive revenue on a
pay-for-use basis under which some customers are charged based on the number of
courses accessed by users.





We
recognize revenue ratably over the license period if the number of courses that
a customer has access to is not clearly defined, available or selected at the
inception of the contract, or if the contract has additional undelivered
elements for which we do not have vendor specific objective evidence (VSOE) of
the fair value of the various elements. This may occur if the customer does not
specify all licensed courses at the outset, the customer chooses to wait for
future licensed courses on a when and if available basis, the customer is given
exchange privileges that are exercisable other than on the contract
anniversaries, or the customer licenses all courses currently available and to
be developed during the term of the arrangement. Revenue from nearly all of our
contractual arrangements is recognized on a subscription or straight-line basis
over the contractual period of service. We also derive revenue from extranet
hosting/ASP services which is recognized on a straight-line basis over the
period the services are provided. Upfront fees are recorded as revenue over the
contract period.





We
generally bill the annual license fee for the first year of a multi-year license
agreement in advance and license fees for subsequent years of multi-year license
arrangements are billed on the anniversary date of the agreement. Occasionally,
we bill customers on a quarterly basis. In some circumstances, we offer payment
terms of up to six months from the initial shipment date or anniversary date for
multi-year license agreements to our customers. To the extent that a customer is
given extended payment terms (defined by us as greater than six months), revenue
is recognized as payments become due, assuming all of the other elements of
revenue recognition have been satisfied.





We
typically recognize revenue from resellers when both the sale to the end user
has occurred and the collectibility of cash from the reseller is probable. With
respect to reseller agreements with minimum commitments, we recognize revenue
related to the portion of the minimum commitment that exceeds the end user sales
at the expiration of the commitment period provided we have received payment. If
a definitive service period can be determined, revenue is recognized ratably
over the term of the minimum commitment period, provided that payment has been
received or collectibility is probable.





We
provide professional services including instructor led training, customized
content development, website development/hosting and implementation services. If
we determine that the professional services are not separable from an existing
customer arrangement, revenue from these services is recognized over the
existing contractual terms with the customer, otherwise we typically recognize
professional service revenue as the services are performed.





We record
reimbursable out-of-pocket expenses in both revenue and as a direct cost of
revenue, as applicable, in accordance with EITF Issue No. 01-14, “Income Statement Characterization
of Reimbursements
Received for “Out-of-Pocket” Expenses Incurred”(EITF
01-14).





We record
revenue net of applicable sales tax collected. Taxes collected from customers
are recorded as part of accrued expenses on the balance sheet and are remitted
to state and local taxing jurisdictions based on the filing requirements of each
jurisdiction.


34
 Table of Contents





We record
as deferred revenue amounts that have been billed in advance for products or
services to be provided. Deferred revenue includes the unamortized portion of
revenue associated with license fees for which we have received payment or for
which amounts have been billed and are due for payment in 90 days or less
for resellers and 180 days or less for direct customers.





Our
contracts often include an uptime guarantee for solutions hosted on our servers
whereby customers may be entitled to credits in the event of non-performance. We
retain the right to remedy any non-performance event prior to issuance of any
credit. Historically, we have not incurred substantial costs relating to this
guarantee and we currently accrue for such costs as they are incurred. We review
these costs on a regular basis as actual experience and other information
becomes available; and should these costs become substantial, we would accrue an
estimated exposure and consider the potential related effects of the timing of
recording revenue on our license arrangements. We have not accrued any costs
related to these warranties in the accompanying consolidated financial
statements.





Amortization
of Intangible Assets and Impairment of Goodwill





Goodwill
and intangible assets that have indefinite useful lives are not amortized but
are evaluated for impairment annually and upon the occurrence of any events or
changes in circumstances that indicate that the carrying value may not be
recoverable. We record intangible assets at cost.





Amortization
is recorded over the estimated useful lives of the assets. We amortize our
intangible assets that have finite lives using either the straight-line method
or based on estimated future cash flows to approximate the pattern in which the
economic benefit of the asset will be utilized. We review these intangible
assets at least annually to determine if any adverse conditions exist or a
change in circumstances has occurred that would indicate impairment or a change
in their remaining useful life. We also review our indefinite-lived intangible
assets at least annually for impairment which includes goodwill and certain
trademarks.





We use
estimates in determining the value of goodwill and intangible assets, including
estimates of useful lives of intangible assets, discounted future cash flows and
fair values of the related operations. We test goodwill during the fourth
quarter of each year for impairment, or more frequently if certain indicators
are present or changes in circumstances suggest that impairment may exist. Based
on the results of the test, we determine that no impairment had occurred, as the
fair value of the reporting unit exceeded the respective carrying
value.





Share
Based Compensation





On
February 1, 2006, we adopted Financial Accounting Standards Board
(FASB) Statement No. 123(R) “Share-Based Payment”(SFAS 123(R)),
which is a revision of SFAS Statement No. 123 (SFAS 123), “Accounting for Stock-Based
Compensation.”SFAS 123(R) supersedes APB Opinion No. 25,
(Opinion 25), “Accounting for
Stock Issued to Employees,” and amends SFAS No. 95, “Statement of Cash Flows.”Generally, the approach on SFAS 123(R) is similar to the approach
described in SFAS 123. However, SFAS 123(R) requires all share-based
payments to employees, including grants of employee share options, be recognized
in the income statement based on their fair values.





In
connection with the SmartForce Merger on September 6, 2002, we recorded as
deferred compensation a portion of the difference between the exercise prices
and the fair value of the options at the date of completion of the merger,
determined under the Black-Scholes method, multiplied by the number of shares
underlying the options. The resulting deferred compensation was expensed over
the vesting period of the options. In connection with the adoption of
SFAS 123(R) on February 1, 2006, we reversed the remaining deferred
compensation of approximately $0.5 million with the offset to additional paid-in
capital.





As
permitted under SFAS 123(R), we use the Black-Scholes option pricing model
to estimate the fair value of share option grants. The Black-Scholes model
relies on a number of key assumptions to calculate estimated fair values. The
estimated fair value of employee share options is amortized to expense using the
straight-line method over the vesting period. Our assumed dividend yield of zero
is based on the fact that we have never paid cash dividends and have no present
intention to pay cash dividends. Since adoption of SFAS 123(R) on
February 1, 2006, our expected share-price volatility assumption is based
on a blend of implied volatility, based on exchange-traded options for our
shares, and actual historical volatility calculated over a period commensurate
with the expected life of our option grants. We believe that using a blended
volatility assumption will result in the best estimate of expected volatility.
The assumed risk-free interest rate is the U.S. Treasury security rate with
a term equal to the expected life of the option. The assumed expected life is
based on Company-specific historical experience. With regard to the estimate of
the expected life, we consider the exercise behavior of past grants and the
pattern of aggregate exercises. We looked at historical option grant
cancellation and termination data in order to determine our assumption of
forfeiture rate.


35
 Table of Contents


If
factors change and we employ different assumptions for estimating share-based
compensation expense in future periods, or if we decide to use a different
valuation model, the share-based compensation expense we recognize in future
periods may differ significantly from what we have recorded in the current
period and could materially affect our operating income, net income and earnings
per share. It may also result in a lack of comparability with other companies
that use different models, methods and assumptions. The Black-Scholes
option-pricing model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable.
These characteristics are not present in our option grants. Existing valuation
models, including the Black-Scholes model, may not provide reliable measures of
the fair values of our share-based compensation. Consequently, there is a risk
that our estimates of the fair values of share based awards on the grant dates
may bear little resemblance to the actual values realized upon the exercise,
expiration, early termination or forfeiture of those share-based payments in the
future. Certain share-based payments, such as employee share options, may expire
with little or no intrinsic value compared to the fair values originally
estimated on the grant date and reported in our financial statements.
Alternatively, the value realized from these instruments may be significantly
higher than the fair values originally estimated on the grant date and reported
in our financial statements. Currently, there is no market-based mechanism or
other practical application to verify the reliability and accuracy of the
estimates stemming from these valuation models, nor is there a means to compare
and adjust the estimates to actual values.





Deferral
of Commissions





We employ
an accounting policy consistent with guidance provided by FASB Technical
Bulletin 90-1 “Accounting
for Separately Priced Extended Warranty and Product Maintenance Contracts”and SEC Staff Accounting Bulletin 104 “Revenue Recognition,” related to the
concept of a direct and incremental relationship between revenue and expense. As
such, we defer the recognition of commission expense until such time as the
revenue related to the customer contract for which the commission was paid is
recognized.





Derivative
Financial Instruments





We
account for derivative financial instruments in accordance with SFAS No. 133,
“Accounting for Derivative
Instruments and Hedging Activities” (SFAS 133), as amended and
interpreted, which established accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. As required by SFAS 133, we record all
derivatives on the balance sheet at fair value. The accounting for changes in
the fair value of derivatives depends on the intended use of the derivative and
the resulting designation. Derivatives used to hedge the exposure to changes in
the fair value of an asset, liability, or firm commitment attributable to a
particular risk, such as interest rate risk, are considered fair value hedges.
Derivatives used to hedge the exposure to variability in expected future cash
flows, or other types of forecasted transactions, are considered cash flow
hedges.





For
derivatives designated as fair value hedges, changes in the fair value of the
derivative and the hedged item related to the hedged risk are recognized in
earnings. For derivatives designated as cash flow hedges, the effective portion
of changes in the fair value of the derivative is initially reported in other
comprehensive income (outside of earnings) and subsequently reclassified to
earnings when the hedged transaction affects earnings, and the ineffective
portion of changes in the fair value of the derivative is recognized directly in
earnings. We assess the effectiveness of each hedging relationship by comparing
the changes in fair value or cash flows of the derivative hedging instrument
with the changes in fair value or cash flows of the designated hedged item or
transaction. For derivatives not designated as hedges, changes in fair value are
recognized in earnings.





We
entered into an interest rate swap agreement for an amortizing notional amount
on May 11, 2007 which we designated as a cash flow hedge relating to our
floating rate debt. As of January 31, 2009, no derivatives were designated as
fair value hedges or hedges of net investments in foreign operations.
Additionally, we do not use derivatives for trading or speculative purposes and
currently do not have any derivatives that are not designated as
hedges.





Restructuring
Charges





We
account for our restructuring activities under guidance provided by
SFAS No. 141, “Business Combinations”(SFAS 141), EITF No. 95-3, “Recognition of Liabilities in
Connection with a Purchase Business Combination” and
SFAS No. 146 (SFAS 146), “Accounting for Costs Associated
with Exit or Disposal
Activities.”SFAS 141 states that after the end of the
allocation period (generally one year from date of merger) an adjustment that
results from a pre-acquisition contingency other than an income tax loss
carryforward should be included in the determination of net income (loss) in the
period in which the adjustment is determined. As such, adjustments to
pre-acquisition contingencies established at the time of the
SmartForce Merger are recorded as restructuring charges in our statements
of income. SFAS 146 states that a liability related to an exit or
disposal activity should be recognized at fair value in the period in which it
is incurred. As such, when we identify restructuring charges that fulfill the
requirements identified in SFAS 146, we record the charges in our
statements of income.


36
 Table of Contents


Income
Taxes





Under
SFAS No. 109 Accounting for Income Taxes,
we recognize a net deferred tax asset for future benefits of tax loss and tax
credit carry forwards to the extent that it is “more likely than not” that these
assets will be realized. A valuation allowance is provided when it is more
likely than not that some portion or all of a deferred tax asset will not be
realized. The ultimate realization of deferred tax assets depends on the
generation of future taxable income during the period in which related temporary
differences become deductible. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. In
determining the realizability of these assets, we considered numerous factors,
including historical profitability, estimated future taxable income and the
industry in which we operate. Based on results of operations for the fiscal
years ended January 31, 2007, 2008 and 2009 and anticipated future profit
levels, we believe that certain of our deferred tax assets are more likely than
not to be realized. Accordingly, in the fiscal year ended January 31, 2009 and
2008, we reversed approximately $23.1 million of valuation allowance on Irish
net operating loss (NOL) carryforwards and $95.9 million of valuation allowance
on U.S. NOL carryforwards, respectively, which will more likely than not be
realized in future periods. Approximately $5.1 million of the reduction in
valuation allowance in fiscal 2009 was recorded through reductions to income tax
expense and $18.0 million was recorded through reductions to
goodwill. Approximately $41.4 million of the reduction in valuation
allowance in fiscal 2008 was recorded through reductions to income tax expense
and $54.5 million was recorded through reductions to goodwill.





As of
January 31, 2009, we have recorded a deferred tax asset in the amount of
$104.7 million comprised of $57.6 million of U.S. NOL carryforwards and $23.7
million of other U.S. related net deferred tax assets; $23.1 million of Irish
NOL carryforwards and $0.3 million of tax timing differences in Canada.
Additionally, in accordance with SFAS 123(R), we reduce our deferred tax
asset by the unrealized excess tax benefit attributable to stock
options.





At
January 31, 2009, we had $2.3 million of unrecognized tax benefits. We recognize
accrued interest and penalties related to unrecognized tax benefits as income
tax expense. As of January 31, 2009, we had approximately $0.7 million of
accrued interest and penalties related to uncertain tax positions.





Business
Combinations





We record
tangible and intangible assets acquired and liabilities assumed in business
combinations under the purchase method of accounting. Amounts paid for each
acquisition are allocated to the assets acquired and liabilities assumed based
on their fair values at the dates of acquisition. We then allocate the purchase
price in excess of net tangible assets acquired to identifiable intangible
assets based on detailed valuations that use information and assumptions
provided by management. We allocate any excess purchase price over the fair
value of the net tangible and intangible assets acquired and liabilities assumed
to goodwill.





Significant
management judgments and assumptions are required in determining the fair value
of acquired assets and liabilities, particularly acquired intangible assets. The
valuation of purchased intangible assets is based upon estimates of the future
performance and cash flows from the acquired business. We have used the income
approach to determine the estimated fair value of certain other identifiable
intangibles assets including developed technology, customer relationships and
tradenames. This approach determines fair value by estimating the after-tax cash
flows attributable to an identified asset over its useful life and then
discounting these after-tax cash flows back to a present value. Developed
technology represents patented and unpatented technology and know-how. Customer
contracts and relationships represent established relationships with customers
to whom we believe we may sell additional content and services. Tradenames
represent acquired product names that we intend to continue to
utilize.





Results
of Operations


Comparison
of the Fiscal Years Ended January 31, 2009 and 2008





Revenue





Fiscal
      Year Ended January 31,
                
                
                DOLLAR
      INCREASE/(DECREASE)
                
                
                PERCENT
      CHANGE2008
                
                2009(In
      thousands, except percentages)Revenues
                
                $
                281,223
                
                
                $
                328,494
                
                
                $
                47,271
                
                
                
                17
                %Operating
      income
                
                
                36,528
                
                
                
                79,024
                
                
                
                42,496
                
                
                
                116
                %


37
 Table of Contents


Revenue
increased primarily due to the realization of additional revenue resulting from
the increased customer base associated with the acquisition of NETg in May 2007
as well as from continued additional revenue earned under agreements with third
party resellers of our products. We anticipate that revenue may decrease by
approximately 5% to 9% in fiscal 2010 as compared to fiscal 2009. This is
primarily attributed to recent changes in foreign exchange rates and the
negative effect they have on our international subsidiaries’ revenue when
translated to U.S. dollars. However, given the volatility of foreign exchange
rates, our forward-looking estimates, which are based on January 31, 2009 rates,
could change materially. We may also see a decrease in revenue due to both the
current adverse global economic conditions and a decrease in some of our
customers budgeted spending.


Fiscal
      Year Ended January 31,
                        
                        
                        DOLLAR
      INCREASE/(DECREASE)
                        
                        
                        PERCENT
      CHANGE2008
                        
                        
                        2009(In
      thousands, except percentages)Revenue:United
      States
                        
                        $
                        217,670
                        
                        
                        $
                        243,967
                        
                        
                        $
                        26,297
                        
                        
                        
                        12
                        %International
                        
                        
                        63,553
                        
                        
                        
                        84,527
                        
                        
                        
                        20,974
                        
                        
                        
                        33
                        %Total
                        
                        $
                        281,223
                        
                        
                        $
                        328,494
                        
                        
                        $
                        47,271
                        
                        
                        
                        17
                        %





The
increase in revenue in the United States and internationally was the result
of increased revenue generated from the NETg acquisition, existing customers and
new business as well as from continued additional revenue earned under
agreements with third party resellers of our products. We expect the current
geographic mix of revenue to continue in fiscal 2010.





Costs
and Expenses





Fiscal
      Year Ended January 31,
                  
                  
                  DOLLAR
      INCREASE/(DECREASE)
                  
                  
                  PERCENT
      CHANGE2008
                  
                  
                  2009(In
      thousands, except percentages)Cost
      of revenues
                  
                  $
                  32,637
                  
                  
                  $
                  35,992
                  
                  
                  $
                  3,355
                  
                  
                  
                  10
                  %As
      a percentage of revenue
                  
                  
                  12
                  %
                  
                  
                  11
                  %Cost
      of revenues - amortization of intangible assets
                  
                  
                  5,423
                  
                  
                  
                  5,203
                  
                  
                  
                  (220
                  )
                  
                  
                  (4
                  )%As
      a percentage of revenue
                  
                  
                  2
                  %
                  
                  
                  2
                  %





The
dollar increase in cost of revenue in the fiscal year ended January 31, 2009
versus the fiscal year ended January 31, 2008 was primarily due to the payment
of $2.6 million in additional royalty fees associated with the increase in
revenue. We also incurred additional compensation costs of $0.5 due to increased
headcount during fiscal 2009. We anticipate that cost of revenue will be between
11% and 12% of revenue in fiscal 2010.





The
decrease in cost of revenue - amortization of intangible assets in the fiscal
year ended January 31, 2009 versus the fiscal year ended January 31, 2008 was
primarily due to certain intangible assets becoming fully amortized since
January 31, 2008. This decrease was partially offset by the inclusion of
the amortization of the intangible assets acquired in the acquisition of NETg
for all of fiscal 2009 versus less than nine months in fiscal 2008. We expect to
incur a significant reduction in the cost of revenue – amortization of
intangible assets in fiscal 2010 because most of the NETg intangible assets
related to acquired technology became fully amortized in fiscal
2009.





Fiscal
      Year Ended January 31,
                
                
                DOLLAR
      INCREASE/(DECREASE)
                
                
                PERCENT
      CHANGE2008
                
                2009(In
      thousands, except percentages)Research
      and development
                
                $
                49,612
                
                
                $
                49,540
                
                
                $
                (72
                )
                
                
                (0
                )%As
      a percentage of revenue
                
                
                18
                %
                
                
                15
                %


38
 Table of Contents
 The
decrease in research and development expense in the fiscal year ended January
31, 2009 versus the fiscal year ended January 31, 2008 was primarily due to a
reduction in (i) contractor and outsource partner costs of $0.5 million relating
to NETg integration initiatives, which became substantially completed prior to
the fourth quarter of fiscal 2009, (ii) facility charges of $0.5 million due to
a reduction in redundant leased space assumed in the acquisition of NETg and
(iii) depreciation expense of $0.4 million which was due primarily to certain
fixed assets related to the NETg acquisition becoming fully depreciated by the
end of fiscal 2008.


These
reductions were partially offset by an increase in compensation and benefits
expense of $1.3 million attributable to increased headcount during fiscal 2009.
We anticipate that research and development expenses will be between 13 % and
14% of revenue in fiscal 2010, which includes the impact of the reduction in
force following our cost saving initiative for fiscal 2010. In addition, fiscal
2009 included initiatives that have migrated from the development stage and will
not require the same level of spending which contributes to the reduction of
research and development as a percentage of revenue.





Fiscal
      Year Ended January 31,
                  
                  
                  DOLLAR
      INCREASE/(DECREASE)
                  
                  
                  PERCENT
      CHANGE2008
                  
                  
                  2009(In
      thousands, except percentages)Selling
      and marketing
                  
                  $
                  97,493
                  
                  
                  $
                  108,416
                  
                  
                  $
                  10,923
                  
                  
                  
                  11
                  %As
      a percentage of revenue
                  
                  
                  35
                  %
                  
                  
                  33
                  %





The
increase in selling and marketing expense in the fiscal year ended January 31,
2009 versus the fiscal year ended January 31, 2008 was primarily due to an
increase in compensation and benefits of $8.8 million due to increased
headcount, which includes additional direct sales, telesales and field support
personnel required to service our expanded customer base following the NETg
acquisition, as well as incremental commissions resulting from increased order
intake and billings from our larger base business and from the acquired NETg
customer base. In addition, we incurred incremental marketing costs of $1.4
million to support our larger customer base, which includes the expense
associated with our efforts to retain customers acquired in the NETg
acquisition. The decrease in selling and marketing expense as a percentage of
revenue in fiscal  2009 versus fiscal 2008 is due to the increase
in  revenue, which was partially offset by the aforementioned factors.
We anticipate that selling and marketing expenses will be between 35% and 36% of
revenue in fiscal 2010.





Fiscal
      Year Ended January 31,
                
                
                DOLLAR
      INCREASE/(DECREASE)
                
                
                PERCENT
      CHANGE2008
                
                2009(In
      thousands, except percentages)General
      and administrative
                
                $
                34,630
                
                
                $
                36,774
                
                
                $
                2,144
                
                
                
                6
                %As
      a percentage of revenue
                
                
                12
                %
                
                
                11
                %





The
increase in general and administrative expense in the fiscal year ended January
31, 2009 versus the fiscal year ended January 31, 2008 was primarily due to an
increase of $4.2 million in professional fees primarily related to (i) our share
capital reduction initiative aimed at increasing distributable profits in our
Irish parent entity and (ii) the feasibility analysis related to our business
realignment strategy. This increase was partially offset by a reduction in the
depreciation of fixed assets of $0.7 million, which was due primarily to certain
fixed assets related to the NETg acquisition becoming fully depreciated by the
end of fiscal 2008, as well as a reduction in bad debt expense of $0.4 million
resulting from improved collection efforts on accounts receivable balances
compared to fiscal 2008. In addition, there was a decrease in facility charges
of $0.4 million and a decrease in insurance expense of $0.4 million in fiscal
2009. The decrease in general and administrative expense as a percentage of
revenue in fiscal 2009 versus fiscal 2008 is due to the increase in revenue,
which was partially offset by the aforementioned factors. We anticipate that
general and administrative expenses will be between 10% and 11% of revenue in
fiscal 2010.




39
 Table of Contents





Fiscal
      Year Ended January 31,
                
                
                DOLLAR
      INCREASE/(DECREASE)
                
                
                PERCENT
      CHANGE2008
                
                
                2009(In
      thousands, except percentages)Amortization
      of intangible assets
                
                $
                11,237
                
                
                $
                11,212
                
                
                $
                (25
                )
                
                
                0
                %As
      a percentage of revenue
                
                
                4
                %
                
                
                3
                %Merger
      and integration related expenses
                
                
                12,283
                
                
                
                761
                
                
                
                (11,522
                )
                
                
                (94
                )%As
      a percentage of revenue
                
                
                4
                %
                
                
                0
                %Restructuring
                
                
                34
                
                
                
                1,523
                
                
                
                1,489
                
                
                
                4,379
                %As
      a percentage of revenue
                
                
                0
                %
                
                
                0
                %SEC
      investigation
                
                
                1,346
                
                
                
                49
                
                
                
                (1,297
                )
                
                
                (96
                )%As
      a percentage of revenue
                
                
                0
                %
                
                
                0
                %





Amortization
of intangible assets remained relatively flat in the fiscal year ended January
31, 2009 versus the fiscal year ended January 31, 2008. This was primarily due
to the amortization of the intangible assets acquired in the acquisition of NETg
being included for all of fiscal 2009 versus less than nine months in fiscal
2008, which was offset by certain intangible assets becoming fully amortized in
fiscal 2009.




Merger
and integration related expenses decreased primarily due to significant expenses
incurred in fiscal 2008 when the NETg acquisition was consummated. These costs
were  significantly lower in the current fiscal year as we substantially
completed our efforts to integrate NETg’s operations into ours during fiscal
2009.





In the
fourth quarter of fiscal 2009 we committed to a workforce reduction plan of
approximately 120 employees as part of a cost savings initiative undertaken in
connection with the development of our budget and operating plan for fiscal
2010. As a result of this reduction in force we incurred restructuring charges
in fiscal 2009 of $1.5 million which related primarily to one-time termination
benefits. We expect that the reduction in force will reduce our salary and bonus
operating costs by approximately $7.5 million in fiscal 2010 as compared to
fiscal 2009.





SEC
investigation related expense decreased in the fiscal year January 31, 2009
versus the fiscal year ended January 31, 2008 due to a decrease in legal
activities related to the SEC’s informal inquiry into  the pre-merger
option granting practices at SmartForce.





Fiscal
      Year Ended January 31,
                
                
                DOLLAR
      INCREASE/(DECREASE)
                
                
                PERCENT
      CHANGE2008
                
                
                2009(In
      thousands, except percentages)Other
      income (expense), net
                
                $
                295
                
                
                $
                1,480
                
                
                $
                1,185
                
                
                
                402
                %As
      a percentage of revenue
                
                
                0
                %
                
                
                0
                %Interest
      income
                
                
                3,948
                
                
                
                1,550
                
                
                
                (2,398
                )
                
                
                (61
                )%As
      a percentage of revenue
                
                
                1
                %
                
                
                0
                %Interest
      expense
                
                
                (12,630
                )
                
                
                (14,218
                )
                
                
                (1,588
                )
                
                
                13
                %As
      a percentage of revenue
                
                
                (4
                )%
                
                
                (4
                )%








The
change in other income (expense), net in the fiscal year ended January 31, 2009
versus the fiscal year ended January 31, 2008 was primarily due to foreign
currency fluctuation gains of $0.9 million. Due to our multi-national
operations, our business is subject to fluctuations based upon changes in the
exchange rates between the currencies used in our business. In addition, we
recognized a $0.2 million gain on insurance proceeds for funds received on
damaged equipment that had been fully depreciated.





The
reduction of interest income in the fiscal year ended January 31, 2009 versus
the fiscal year ended January 31, 2008 was primarily due to a reduction in our
short-term investments and lower interest rates.





The
increase in interest expense in the fiscal year ended January 31, 2009 versus
the fiscal year ended January 31, 2008 was primarily due to the interest expense
on the debt incurred for the acquisition of NETg being incurred for the
full year of fiscal 2009 versus only nine months in fiscal 2008. This was
partially offset by a reduction in interest expense resulting from $75.6 million
in principal payments made during fiscal 2009 to reduce debt.





40
 Table of Contents


Provision
for Income Taxes


Fiscal
      Year Ended January 31,
                  
                  
                  DOLLAR
      INCREASE/(DECREASE)
                  
                  
                  PERCENT
      CHANGE2008
                  
                  2009(In
      thousands, except percentages)Provision
      (benefit) for income taxes
                  
                  $
                  (31,587
                  )
                  
                  $
                  18,959
                  
                  
                  $
                  50,546
                  
                  
                  
                  (160
                  )%As
      a percentage of revenue
                  
                  
                  (11
                  )%
                  
                  
                  6
                  %


For the
fiscal year ended January 31, 2009, we recorded an income tax provision of $19.0
million versus an income tax benefit of $31.6 million for the fiscal year ended
January 31, 2008. The income tax provision for the fiscal year ended January 31,
2009 was impacted by the recognition of a reduction of income tax expense of
$5.1 million resulting from the release of a $23.1 million valuation allowance
attributed to our Ireland operations. The remaining $18.0 million related to net
operating losses acquired in the SmartForce merger and was recorded as an
adjustment to goodwill. The income tax benefit for the fiscal year ended January
31, 2008 included the release of $95.9 million of U.S valuation allowance.
Approximately $41.4 million of the valuation allowance release related to
SkillSoft net operating losses and was recorded through an offset to tax
expense. The remaining $54.5 million, which related to SmartForce net operating
losses, was recorded as an adjustment to goodwill.




Discontinued
Operations





Income
from discontinued operations, net of income tax, was $1.9 million in the fiscal
year ended January 31, 2009 versus $0.3 million during the fiscal year ended
January 31, 2008. The increase in fiscal 2009 was primarily due to the
prepayment of the purchase price from the acquirer of our former NETg Press
business during fiscal 2009, which resulted in a gain from the disposal of $2.0
million, net of income tax.





Comparison
of the Fiscal Years Ended January 31, 2008 and 2007





Revenue





Fiscal
      Year Ended January 31,
                
                
                DOLLAR
      INCREASE/(DECREASE)
                
                
                PERCENT
      CHANGE2007
                
                2008(In
      thousands, except percentages)Revenues
                
                $
                225,172
                
                
                $
                281,223
                
                
                $
                56,051
                
                
                
                25
                %Operating
      income
                
                
                32,168
                
                
                
                36,528
                
                
                
                4,360
                
                
                
                14
                %





The
primary reasons for the increase in revenue are the additional revenues realized
from the acquisitions of NETg in May 2007 and TLC in February 2007, a growth in
sales of our informal learning product lines and additional revenue earned under
agreements with third party resellers of our products. Approximately $24.3
million of revenues earned in the fiscal year ended January 31, 2008 related to
the amortization of deferred revenue we acquired in the NETg acquisition and
approximately $15.5 million was derived from NETg customer contracts that
renewed following the acquisition.





The
fiscal 2006 sale of certain assets related to SmartCertify, our Retail
Certification business, resulted in a reduction in revenue of $4.8 million in
our Retail Certification business for the fiscal year ended January 31, 2008 as
compared to the fiscal year ended January 31, 2007.


Fiscal
      Year Ended January 31,
                            
                            
                            DOLLAR
      INCREASE/(DECREASE)
                            
                            
                            PERCENT
      CHANGE2007
                            
                            
                            2008(In
      thousands, except percentages)Revenue:United
      States
                            
                            $
                            175,483
                            
                            
                            $
                            217,670
                            
                            
                            $
                            42,187
                            
                            
                            
                            24
                            %International
                            
                            
                            49,689
                            
                            
                            
                            63,553
                            
                            
                            
                            13,864
                            
                            
                            
                            28
                            %Total
                            
                            $
                            225,172
                            
                            
                            $
                            281,223
                            
                            
                            $
                            56,051
                            
                            
                            
                            25
                            %




The
increase in revenue in the United States and internationally was a result
of increased revenue generated from the NETg and TLC acquisitions and from
existing customers and new business.





41
 Table of Contents




Costs
and Expenses




Fiscal
      Year Ended January 31,
                    
                    
                    DOLLAR
      INCREASE/(DECREASE)
                    
                    
                    PERCENT
      CHANGE2007
                    
                    
                    2008(In
      thousands, except percentages)Cost
      of revenues
                    
                    $
                    26,601
                    
                    
                    $
                    32,637
                    
                    
                    $
                    6,036
                    
                    
                    
                    23
                    %As
      a percentage of revenue
                    
                    
                    12
                    %
                    
                    
                    12
                    %Cost
      of revenues - amortization of intangible assets
                    
                    
                    4,422
                    
                    
                    
                    5,423
                    
                    
                    
                    1,001
                    
                    
                    
                    23
                    %As
      a percentage of revenue
                    
                    
                    2
                    %
                    
                    
                    2
                    %





The
increase in cost of revenue in the fiscal year ended January 31, 2008 versus the
fiscal year ended January 31, 2007 was primarily due to increased
revenue.





The
increase in cost of revenue — amortization of intangible assets in the fiscal
year ended January 31, 2008 versus the fiscal year ended January 31, 2007 was
primarily due to the amortization of the intangible assets acquired in the
acquisition of NETg, which was partially offset by a reduction in amortization
of certain intangible assets related to capitalized software development costs
and technology acquired in business combinations becoming fully amortized during
the fiscal year ended January 31, 2008.





Fiscal
      Year Ended January 31,
                
                
                DOLLAR
      INCREASE/(DECREASE)
                
                
                PERCENT
      CHANGE2007
                
                2008(In
      thousands, except percentages)Research
      and development
                
                $
                40,776
                
                
                $
                49,612
                
                
                $
                8,836
                
                
                
                22
                %As
      a percentage of revenue
                
                
                18
                %
                
                
                18
                %





The
increase in research and development expenses in the fiscal year ended January
31, 2008 versus the fiscal year ended January 31, 2007 was primarily due to
expenses of $6.1 million associated with maintaining multiple platforms as a
result of the NETg acquisition, fulfilling obligations of acquired customer
contracts and product commitments assumed in the acquisition of NETg. In
addition, we incurred an increase in compensation and benefits of $2.9 million
as a result of our increased headcount.





Fiscal
      Year Ended January 31,
                  
                  
                  DOLLAR
      INCREASE/(DECREASE)
                  
                  
                  PERCENT
      CHANGE2007
                  
                  
                  2008(In
      thousands, except percentages)Selling
      and marketing
                  
                  $
                  90,894
                  
                  
                  $
                  97,493
                  
                  
                  $
                  6,599
                  
                  
                  
                  7
                  %As
      a percentage of revenue
                  
                  
                  40
                  %
                  
                  
                  35
                  %





The
increase in selling and marketing expenses in the fiscal year ended January 31,
2008 versus the fiscal year ended January 31, 2007 was primarily due to an
increase in compensation and benefits of $5.4 million as a result of our
increased headcount, which includes additional direct sales, telesales and field
support personnel required to service our increased customer base as a result of
the NETg acquisition. In addition we incurred incremental marketing costs of
$1.7 million to support the increased customer base.




42
 Table of Contents




Fiscal
      Year Ended January 31,
                
                
                DOLLAR
      INCREASE/(DECREASE)
                
                
                PERCENT
      CHANGE2007
                
                2008(In
      thousands, except percentages)General
      and administrative
                
                $
                27,735
                
                
                $
                34,630
                
                
                $
                6,895
                
                
                
                25
                %As
      a percentage of revenue
                
                
                12
                %
                
                
                12
                %





The
increase in general and administrative expenses in the fiscal year ended January
31, 2008 versus the fiscal year ended January 31, 2007 was primarily due to an
increase of $4.9 million in costs associated with the inclusion of additional
headcount, contractors and professional services required to support the
increase in customer contracts and the transitional activities undertaken as a
result of the NETg acquisition. In addition, we incurred an incremental $1.4
million of depreciation and facility related costs due to acquired assets and
leased office space from the NETg acquisition, as well as approximately $0.5
million of consulting expense related to a payment to a member of our Board of
Directors related to the NETg acquisition.




Fiscal
      Year Ended January 31,
                
                
                DOLLAR
      INCREASE/(DECREASE)
                
                
                PERCENT
      CHANGE2007
                
                
                2008(In
      thousands, except percentages)Amortization
      of intangible assets
                
                $
                1,652
                
                
                $
                11,237
                
                
                $
                9,585
                
                
                
                580
                %As
      a percentage of revenue
                
                
                1
                %
                
                
                4
                %Merger
      and integration related expenses
                
                
                -
                
                
                
                12,283
                
                
                
                12,283
                
                
                
                *As
      a percentage of revenue
                
                
                
                
                
                
                4
                %Restructuring
                
                
                26
                
                
                
                34
                
                
                
                8
                
                
                
                31
                %As
      a percentage of revenue
                
                
                0
                %
                
                
                0
                %SEC
      investigation
                
                
                898
                
                
                
                1,346
                
                
                
                448
                
                
                
                50
                %As
      a percentage of revenue
                
                
                0
                %
                
                
                0
                %


________


*           Not
meaningful.




The
increase in amortization of intangible assets in the fiscal year ended January
31, 2008 versus the fiscal year ended January 31, 2007 was primarily due to the
amortization of intangible assets acquired in NETg acquisition.
 
 In the
fiscal year ended January 31, 2008, we incurred approximately $12.3 million of
merger and integration related expenses as a result of efforts undertaken to
integrate NETg’s operations into ours. Included in these costs are approximately
$8.2 million of salary and benefits for NETg employees conducting transition
activities as well as approximately $4.1 million of charges related to
facilities, systems and process integration activities.
 
 Restatement
— SEC investigation expenses increased in the fiscal year ended January 31, 2008
versus the fiscal year ended January 31, 2007 due to an increase in legal
expenses related to the SEC’s informal inquiry into the pre-merger option
granting practices at SmartForce.





43
 Table of Contents




Fiscal
      Year Ended January 31,
                
                
                DOLLAR
      INCREASE/(DECREASE)
                
                
                PERCENT
      CHANGE2007
                
                
                2008(In
      thousands, except percentages)Other
      expense, net
                
                $
                (96
                )
                
                $
                295
                
                
                $
                391
                
                
                
                (407
                )%As
      a percentage of revenue
                
                
                0
                %
                
                
                0
                %Interest
      income
                
                
                4,310
                
                
                
                3,948
                
                
                
                (362
                )
                
                
                (8
                )%As
      a percentage of revenue
                
                
                2
                %
                
                
                1
                %Interest
      expense
                
                
                (278
                )
                
                
                (12,630
                )
                
                
                (12,352
                )
                
                
                4,443
                %As
      a percentage of revenue
                
                
                0
                %
                
                
                (4
                )%





The
change in other income (expense), net in the fiscal year ended January 31, 2008
versus the fiscal year ended January 31, 2007 was primarily due to foreign
currency fluctuations. Due to our multi-national operations, our business is
subject to fluctuations based upon changes in the exchange rates between the
currencies used in our business.





The
reduction of interest income in the fiscal year ended January 31, 2008 versus
the fiscal year ended January 31, 2007 was primarily due to the reduction of
funds available for investment as a result of cash used for the acquisition of
NETg in May 2007.





The
increase in interest expense in the fiscal year ended January 31, 2008 versus
the fiscal year ended January 31, 2007 was primarily due to the interest expense
recognized as a result of the debt incurred for the acquisition of NETg as well
as the amortization of deferred financing costs incurred as additional interest
expense.





Provision
for Income Taxes


Fiscal
      Year Ended January 31,
                    
                    
                    DOLLAR
      INCREASE/(DECREASE)
                    
                    
                    PERCENT
      CHANGE2007
                    
                    2008(In
      thousands, except percentages)Provision
      (benefit) for income taxes
                    
                    $
                    11,951
                    
                    
                    $
                    (31,587
                    )
                    
                    $
                    (43,538
                    )
                    
                    
                    (364
                    )%As
      a percentage of revenue
                    
                    
                    5
                    %
                    
                    
                    (11
                    )%
  For the
fiscal year ended January 31, 2008, we recorded a tax benefit of $31.6 million
versus a tax provision of $12.0 million for the fiscal year ended January 31,
2007. The tax benefit for the fiscal year ended January 31, 2008 has been
significantly influenced by the release of $95.9 million of U.S valuation
allowance. Approximately $41.4 million of the valuation allowance release
related to SkillSoft net operating losses and was recorded through a reduction
to tax expense. The remaining $54.5 million which related to SmartForce net
operating losses was recorded as an adjustment to goodwill.
 44
 Table of
Contents





LIQUIDITY
AND CAPITAL RESOURCES





As of
January 31, 2009, our principal source of liquidity was our cash and cash
equivalents and short-term investments, which totaled $39.0 million compared to
$89.6 million at January 31, 2008.





Net cash
provided by operating activities of $97.7 million for the fiscal year ended
January 31, 2009 was primarily due to net income of $50.8 million, which
included the impact of non-cash expenses for depreciation and amortization of
$21.7 million, non-cash provision for income taxes of $15.1 million, non-cash
amortization of deferred financing costs of $1.2 million and share-based
compensation expense of $6.1 million. Offsetting these adjustments were a gain
from discontinued operations of $3.4 million and a tax benefit from exercise of
stock options of $1.5 million. Net cash provided by operating activities also
reflected a decrease in accounts receivable of $17.0 million, prepaid expenses
and other current assets of $8.5 million and an increase in accounts payable of
$3.4 million. These amounts were partially offset by a decrease in accrued
expenses of $14.3 million as well as a decrease in deferred revenue of $6.9
million. The decrease in accounts receivable for fiscal 2009 was primarily the
result of improved collection efforts as compared to fiscal 2008. The increase
in accounts receivable in fiscal 2008 as compared to fiscal 2007 was primarily
attributed to the incremental business generated by our NETg acquisition. The
decrease in accrued expenses for fiscal 2009 as compared to fiscal 2008 was
primarily due to (i) a reduction in accrued royalties resulting from our ability
to consolidate royalty arrangements acquired in the NETg acquisition, (ii)
accrued merger costs as a result of ongoing payments against the remaining
balance and (iii) the settlement of accrued expenses incurred as part of the
NETg merger. Deferred revenue decreased in fiscal 2009 as compared to fiscal
2008 primarily due to the adverse impact of foreign currency exchange rates in
effect at January 31, 2009 as compared January 31, 2008. Deferred revenue
increased significantly as of January 31, 2008 as compared to January 31, 2007,
primarily due to the incremental business derived from our NETg acquisition (as
described in Note 3).





Net cash
provided by investing activities was $13.6 million for the fiscal year ended
January 31, 2009. Maturities of investments, net of purchases, generated a cash
inflow of approximately $12.5 million in fiscal 2009. In addition, in fiscal
2009 we received proceeds from the sale of the NETg Press business of $6.9
million. These cash inflows were partially offset by property and equipment
purchases of approximately $5.7 million.





Net cash
used in financing activities was $146.5 million for the fiscal year ended
January 31, 2009. During this period, we made principal payments on our debt of
$75.6 million and purchased our own shares having a value of $91.9 million under
our shareholder-approved share repurchase program. These uses of cash were
partially offset by proceeds of $21.0 million received from the exercise of
share options under our various share option programs, including the tax
benefit, and share purchases made under our 2004 Employee Share Purchase
Plan.





We had a
working capital deficit of approximately $11.9 million as of January 31, 2009
versus working capital of approximately $30.4 million as of January 31, 2008.
The decrease in working capital was primarily due to (i) principal payments on
our debt of $75.6 million, (ii) the purchase of shares for $91.9 million under
our shareholder-approved share repurchase program and (iii) $5.7 million for
purchase of fixed assets. This was partially offset by net income of $50.8
million, which includes non-cash charges for depreciation and amortization of
$21.7 million, share-based compensation expense of $6.1 million and a non-cash
provision for income taxes of $15.1 million. We also received proceeds of $19.5
million from the exercise of share options under our various share option
programs and from share purchases made under our 2004 Employee Share Purchase
Plan. In addition, we received payment of the $3.5 million long-term
receivable related to the sale of NETg press.




As of
January 31, 2009, we had U.S. federal NOL carryforwards of $214.2 million. These
NOL carryforwards represent the gross carrying value of the operating loss
carryforwards and are available to reduce future taxable income, if any, through
2025. We completed several financings since our inception and have incurred
ownership changes as defined under Section 382 of the Internal Revenue Code. We
completed an analysis of these changes and do not believe that the changes will
have a material impact on our ability to use these net operating loss
carryforwards. Included in the $214.2 million of U.S. federal NOL carryforwards
is $114.7 million (which reflects $20.5 million used in the current period) of
U.S. NOL carryforwards that were acquired in the SmartForce Merger and the
purchase of Books24X7, $55.4 million of NOL carryforwards resulting from
disqualifying dispositions and $44.1 million of U.S. NOL carryforwards that
relate to our operations. We will realize the benefit of the disqualifying
disposition losses through increases to shareholders' equity in the periods in
which the losses are utilized to reduce tax payments. Additionally, we have
$190.2 million of Irish NOL carryforwards. These NOL carryforwards represent the
gross carrying value of the operating loss carryforwards. Included in the $190.2
million are $149.8 million (which reflects $8.1 million used in the current
period) of NOL carryforwards which were acquired in the SmartForce Merger and
$40.4 million of NOL carryforwards that relate to our Irish operations. As a
result of the release of the Irish valuation allowance in the fiscal year ended
January 31, 2009, we realized the benefits of $149.8 million of these acquired
NOL carryforwards, which resulted in a reduction of goodwill of $18.0 million;
and $40.4 million of these NOL carryforwards, which resulted in a reduction to
the provision for income taxes of $5.1 million. We also had U.S. federal tax
credit carryforwards of approximately $3.9 million at January 31,
2009.
  These NOL
carryforwards represent the gross carrying value of the operating loss
carryforwards. Included in the $190.2 million is $149.8 million (which reflects
$8.1 million used in the current period) of NOL carryforwards which were
acquired in the SmartForce Merger and $40.4 million of NOL carryforwards that
relate to our Irish operations. As a result of the release of the Irish
valuation allowance in the fiscal year ended January 31, 2009, we realized the
benefits of $149.8 million of these acquired NOL carryforwards, which resulted
in a reduction of goodwill of $18.0 million; and $40.4 million of these NOL
carryforwards which resulted in a reduction to the provision for income taxes of
$5.1 million. We also had U.S. federal tax credit carryforwards of approximately
$3.9 million at January 31, 2009.
 45
 Table of Contents


We lease
certain of our facilities and certain equipment and furniture under operating
lease agreements that expire at various dates through 2023. In addition, we have
a term loan which will be paid out over the next 5 years. Future minimum lease
payments, net of estimated sub-rentals, under these agreements and the debt
repayments schedule are as follows (in thousands):





Payments
      Due By PeriodLess
      Than
                                              
                                              
                                              1
      - 3
                                              
                                              
                                              3
      - 5
                                              
                                              More
      ThanContractual
      Obligations
                                              Total
                                              
                                              1
      Year
                                              
                                              
                                              Years
                                              
                                              
                                              Years
                                              
                                              5
      YearsOperating
      Lease Obligations
                                              
                                              $
                                              10,943
                                              
                                              
                                              $
                                              3,699
                                              
                                              
                                              
                                              4,750
                                              
                                              
                                              $
                                              2,494
                                              
                                              
                                              $
                                              -Debt
      Obligations
                                              
                                              
                                              123,384
                                              
                                              
                                              
                                              1,253
                                              
                                              
                                              
                                              2,506
                                              
                                              
                                              
                                              119,625
                                              
                                              
                                              
                                              -Total
      Obligations
                                              
                                              $
                                              134,327
                                              
                                              
                                              $
                                              4,952
                                              
                                              
                                              
                                              7,256
                                              
                                              
                                              $
                                              122,119
                                              
                                              
                                              $
                                              -





We do not
have any off-balance sheet arrangements, as defined under SEC rules, such as
relationships with unconsolidated entities or financial partnerships, which are
often referred to as structured finance or special purpose entities, established
for the purpose of facilitating transactions that are not required to be
reflected on our balance sheet.





In May
2007, we entered into a credit agreement with Credit Suisse and certain lenders
providing for a $225.0 million senior credit facility comprised of a $200
million term loan facility and a $25.0 million revolving credit
facility. On July 7, 2008, we entered into an amendment to the credit
agreement (“the Amendment”). The primary purpose of the Amendment was to expand
our and our subsidiaries’ ability to make additional repurchases of our shares.
The expanded repurchase ability under the Amendment is conditioned on the
absence of an event of default and a requirement that (i) the leverage ratio
shall be no greater than 2.75:1 as of the most recently completed fiscal quarter
ending prior to the date of such repurchase and (ii) that we make a prepayment
of the term loan under the credit agreement in an amount equal to the dollar
amount of any such repurchase. Such term loan prepayments were not, however,
required in connection with the first $24.0 million of repurchases made from and
after July 7, 2008. The Amendment also provides for an increase in the annual
interest rate on the term loan to, at our election, (i) base rate plus a margin
of 2.5% or (ii) adjusted LIBOR plus margin of 3.5%,





Please
see Note 10 of The Notes to the Consolidated Financial Statements in this Annual
Report on Form 10-K for a detailed description of the credit agreement, as
amended.





We expect
that the principal sources of funding for our operating expenses, capital
expenditures, debt payment obligations, share repurchases and other liquidity
needs will be a combination of our available cash and cash equivalents and
short-term investments, and funds generated from future cash flows from
operating activities. We believe our current funds and expected cash flows from
operating activities will be sufficient to fund our operations, including our
debt repayment obligations, for at least the next 12 months. However, there are
several items that may negatively impact our available sources of funds. In
addition, our cash needs may increase due to factors such as unanticipated
developments in our business or the marketplace for our products in general or
significant acquisitions. The amount of cash generated from operations will be
dependent upon the successful execution of our business plan. Although we do not
foresee the need to raise additional capital, any unanticipated economic or
business events could require us to raise additional capital to support our
operations.





Recent
Accounting Pronouncements




In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141 (revised), “Business Combinations”” (SFAS
141(R)). SFAS 141(R) changes the accounting for business combinations including
the measurement of acquirer shares issued in consideration for a business
combination, the recognition of contingent consideration, the accounting for
pre-acquisition gain and loss contingencies, the recognition of capitalized
in-process research and development, the accounting for acquisition-related
restructuring cost accruals, the treatment of acquisition related transaction
costs and the recognition of changes in the acquirer’s income tax valuation
allowance. SFAS 141(R) is effective for SkillSoft for any
business combinations for which the acquisition date is on or after February 1,
2009, with early adoption prohibited. The adoption of SFAS 141(R) will have an
impact on our accounting for business combinations occurring on or after the
adoption date, but the effect will be dependent on the acquisitions made at that
time.





In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160, “Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No. 51”(SFAS 160). SFAS 160 changes the accounting for noncontrolling (minority)
interests in consolidated financial statements including the requirements to
classify noncontrolling interests as a component of consolidated stockholders’
equity, and the elimination of “minority interest” accounting in results of
operations with earnings attributable to noncontrolling interests reported as
part of consolidated earnings.


46
 Table of Contents


Additionally,
SFAS 160 revises the accounting for both increases and decreases in a parent’s
controlling ownership interest. SFAS 160 is effective for the SkillSoft on
February 1, 2009, with early adoption prohibited. Currently, we do not
anticipate that SFAS 160 will have a material impact on our financial
statements.





In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161,
“Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No.
133” (SFAS 161). SFAS 161 applies to all derivative instruments and
nonderivative instruments that are designated and qualify as hedging instruments
pursuant to paragraphs 37 and 42 of Statement 133. and related hedged items
accounted for under FASB Statement No. 133, “Accounting for Derivative
Instruments and Hedging Activities”(SFAS 133). SFAS 161 requires
entities to provide greater transparency through additional disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133 and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity’s financial position, results of operations, and
cash flows. SFAS 161 is effective for SkillSoft on February 1, 2009. We are
currently analyzing the effect, SFAS No. 161 will have on our
disclosures related to our interest rate swap agreement.




In
April 2008, the FASB issued an FSP on SFAS No. 142-3, “Determination of the Useful Life of
Intangible Assets”(“FSP SFAS 142-3”). FSP SFAS 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS
No. 142, “Goodwill and
Other Intangible Assets”. The intent of this FSP is to improve the
consistency between the useful life of a recognized intangible asset under
Statement 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141 (revised 2007), “Business Combinations”,and
other U.S. generally accepted accounting principles. FSP SFAS 142-3 is effective
for SkillSoft, prospectively only in 2010, with early adoption prohibited. We
are currently evaluating the potential impact of adopting FSP SFAS
142-3.




In May
2008, the FASB issued SFAS No. 162 “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources
of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles in the
U.S. SFAS 162 is effective 60 days following the SEC approval of Public Company
Accounting Oversight Board (“PCAOB”) amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.” We do not
anticipate that SFAS 162 will have a material impact on our financial
statements.





Explanation
of Use of Non-GAAP Financial Results





In
addition to reporting our audited and unaudited financial results in accordance
with United States generally accepted accounting principles (GAAP), to assist
investors we on occasion provide certain non-GAAP financial results as an
alternative means to explain our periodic results. The non-GAAP financial
results typically exclude non-cash or one-time charges or benefits.




Our
management uses the non-GAAP financial results internally as an alternative
means for assessing our results of operations. By excluding non-cash charges
such as share-based compensation, amortization of purchased intangible assets,
impairment of goodwill and purchased intangible assets, management can evaluate
our operations excluding these non-cash charges and can compare our results on a
more consistent basis to the results of other companies in our industry. By
excluding charges such as merger and integration related expenses and one-time
or infrequent charges our management can compare our ongoing operations to prior
quarters where such items may be materially different and to ongoing operations
of other companies in our industry who may have materially different unusual
charges. Our management recognizes that non-GAAP financial results are not a
substitute for GAAP results, but believes that non-GAAP measures are helpful in
assisting them in understanding and managing our business.





Our
management believes that the non-GAAP financial results may also provide useful
information to investors. Non-GAAP results may also allow investors and analysts
to more readily compare our operations to prior financial results and to the
financial results of other companies in the industry who similarly provide
non-GAAP results to investors and analysts. Investors may seek to evaluate our
business performance and the performance of our competitors as they relate to
cash. Excluding one-time and non-cash charges may assist investors in this
evaluation and comparisons.





In
addition, certain covenants in our credit agreement are based on non-GAAP
financial measures, such as adjusted EBITDA, and evaluating and presenting these
measures allows us and our investors to assess our compliance with the covenants
in our credit agreement and thus our liquidity situation.





We intend
to continue to assess the potential value of reporting non-GAAP results
consistent with applicable rules and regulations.




47
 Table of Contents




Item 7A.Quantitative and
Qualitative Disclosures About Market Risk




As of
January 31, 2009, we did not use derivative financial instruments for
speculative or trading purposes.


Interest
Rate Risk





Our
general investing policy is to limit the risk of principal loss and to ensure
the safety of invested funds by limiting market and credit risk. We currently
use a registered investment manager to place our investments in highly liquid
money market accounts, government-backed securities, commercial paper and
corporate debt securities. All highly liquid investments with original
maturities of three months or less are considered to be cash equivalents.
Interest income is sensitive to changes in the general level of
U.S. interest rates. Based on the short-term nature and investment grade
quality of our investments, we have concluded that there is no significant
market risk exposure.





In order
to limit our exposure to interest rate changes associated with our term loan, we
entered into an interest rate swap agreement with an initial notional amount of
$160 million which amortizes over a period consistent with our anticipated
payment schedule. This strategy uses an interest rate swap to effectively
convert $160 million in variable rate borrowings into fixed rate liabilities at
a 5.1015% effective interest rate. The interest rate swap is considered to be a
hedge against changes in the amount of future cash flows associated with
interest payments on a variable rate loan. The current notional amount of the
interest rate swap agreement at January 31, 2009 was $80.8 million.





Foreign
Currency Risk





Due to
our multinational operations, our business is subject to fluctuations based upon
changes in the exchange rates between the currencies in which we collect revenue
or pay expenses and the U.S. dollar. Our expenses are not necessarily
incurred in the currency in which revenue is generated, and, as a result, we are
required from time to time to convert currencies to meet our obligations. These
currency conversions are subject to exchange rate fluctuations, in particular
changes to the value of the Euro, Canadian dollar, Australian dollar, New
Zealand dollar, Singapore dollar, and pound sterling relative to the
U.S. dollar, which could adversely affect our business and our results of
operations. During fiscal 2007, 2008 and 2009, we incurred foreign currency
exchange (losses) gains of $(0.4) million, $(0.1) million and $0.8 million,
respectively.





Item 8.Financial Statements and
Supplementary Data





Incorporated
by reference from Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Quarterly Operating Results” and
Appendix Battached hereto.





Item 9.Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure





Not
applicable.





Item 9A.Controls and
Procedures





Evaluation
of Disclosure Controls & Procedures





Our
management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures as of January 31, 2009. The term “disclosure controls and
procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the “Exchange Act”), means controls and other
procedures of a company that are designed to ensure that information required to
be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the company’s management, including its principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required
disclosure. Our management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of
January 31, 2009, our chief executive officer and chief financial officer
concluded that, as of such date, our disclosure controls and procedures were
effective at the reasonable assurance level.


48
 Table of Contents




Changes in Internal
Control




No change
in our internal control over financial reporting occurred during the fiscal
quarter ended January 31, 2009 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.





Management’s
Report on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act
as a process designed by, or under the supervision of, the company’s principal
executive and principal financial officers and effected by the company’s Board
of Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures
that:





•
            Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of the assets of the
      company;





•
            Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company
      are being made only in accordance with authorizations of management and
      directors of the company; and





•
            Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the company’s assets that
      could have a material effect on the financial
  statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Internal control over financial
reporting cannot provide absolute assurance of achieving financial reporting
objectives because of its inherent limitations. Internal control over financial
reporting is a process that involves human diligence and compliance and is
subject to lapses in judgment and breakdowns resulting from human failures.
Internal control over financial reporting also can be circumvented by collusion
or improper management override. Because of such limitations, there is a risk
that material misstatements may not be prevented or detected on a timely basis
by internal control over financial reporting. However, these inherent
limitations are known risks of the financial reporting process. Therefore, it is
possible to design into the process safeguards to reduce, though not eliminate,
this risk.





Our
management assessed the effectiveness of our internal control over financial
reporting as of January 31, 2009. In making this assessment, our management
used the criteria set forth in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework.





Based on
this assessment, our management believes that, as of January 31, 2009, our
internal control over financial reporting is effective based on those
criteria.





Ernst
& Young LLP, the independent registered public accounting firm that audited
our financial statements included in this annual report on Form 10-K, has issued
an attestation report on our internal control over financial reporting as of
January 31, 2009. Please see page 50.




49
 Table of Contents


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the
Board of Directors and
 Shareholders
of SkillSoft Public Limited Company
 
 We have
audited SkillSoft Public Limited Company’s internal control over financial
reporting as of January 31, 2009, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). SkillSoft Public
Limited Company’s management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
 
 A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
 
 In our
opinion, SkillSoft Public Limited Company maintained, in all material respects,
effective internal control over financial reporting as of January 31, 2009,
based on the COSO criteria.
 
 We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the 2009 consolidated financial statements of
SkillSoft Public Limited Company and our report dated March 30, 2009 expressed
an unqualified opinion thereon.


/s/  Ernst &
Young LLP





Boston,
Massachusetts


March 30,
2009


50
 Table of Contents


Item 9B.Other
Information





Not
applicable





PART III





Item 10.Directors, and Executive
Officers and Corporate Governance





The
information required by this item will be incorporated by reference to our Proxy
Statement for our 2009 Annual General Meeting or included in an amendment to
this Form 10-K, one of which will be filed with the Securities and Exchange
Commission within 120 days after the close of fiscal 2009.





Item 11.Executive
Compensation





The
information required by this item will be incorporated by reference to our Proxy
Statement for our 2009 Annual General Meeting or included in an amendment to
this Form 10-K, one of which will be filed with the Securities and Exchange
Commission within 120 days after the close of fiscal 2009.





Item 12.Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters





The
information required by this item will be incorporated by reference to our Proxy
Statement for our 2009 Annual General Meeting or included in an amendment to
this Form 10-K, one of which will be filed with the Securities and Exchange
Commission within 120 days after the close of fiscal 2009.





Item 13.Certain
Relationships and Related Transactions and Director Independence





The
information required by this item will be incorporated by reference to our Proxy
Statement for our 2009 Annual General Meeting or included in an amendment to
this Form 10-K, one of which will be filed with the Securities and Exchange
Commission within 120 days after the close of fiscal 2009.





Item 14.Principal Accounting
Fees and Services





The
information required by this item will be incorporated by reference to our Proxy
Statement for our 2009 Annual General Meeting or included in an amendment to
this Form 10-K, one of which will be filed with the Securities and Exchange
Commission within 120 days after the close of fiscal 2009.





PART IV





Item 15.Exhibits and Financial
Statement Schedules





(a) Documents
Filed as a Part of this Report:





1. Financial
Statements.  The following documents are filed as Appendix B hereto and are
included as part of this Annual Report on Form 10-K:





Financial
Statements:





Report of
Independent Registered Public Accounting Firm





Consolidated
Balance Sheets





Consolidated
Statements of Income





Consolidated
Statements of Shareholders’ Equity and Comprehensive Income





Consolidated
Statements of Cash Flows





Notes to
the Consolidated Financial Statements




2. Financial Statement
Schedules.  All Financial Statement Schedules have been omitted
since they are either not required, not applicable, or the information is
otherwise included in this report.
  3. Exhibits.  The
Exhibits listed in the Exhibit Index immediately preceding such Exhibits
are filed as part of and incorporated by reference in this
Form 10-K.


51
 Table of Contents





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, this registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.


SKILLSOFT PUBLIC LIMITED
      COMPANY(Registrant)By:
                      /s/ 
      CHARLES E. MORANCharles
      E. MoranPresident
      and Chief Executive OfficerDate:
      April 1,
2009





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
duly signed below by the following persons on behalf of SkillSoft and in the
capacities and on the date set forth below.





Signature
                                                            
                                                            Title
                                                            
                                                            Date/s/  CHARLES E.
      MORAN
                                                            
                                                            President
      and Chief Executive
                                                            
                                                            April
      1, 2009Charles
      E. Moran
                                                            
                                                            Officer
      and Director(Principal
      Executive Officer)/s/  THOMAS J.
      MCDONALD
                                                            
                                                            Chief
      Financial Officer
                                                            
                                                            April
      1, 2009Thomas
      J. McDonald
                                                            
                                                            (Principal
      Financial Officer)/s/  ANTHONY P.
      AMATO
                                                            
                                                            Vice
      President, Finance and Chief
                                                            
                                                            April
      1, 2009Anthony
      P. Amato
                                                            
                                                            Accounting
      Officer(Principal
      Accounting Officer)/s/  WILLIAM J.
      BOYCE.
                                                            
                                                            Director
                                                            
                                                            April
      1, 2009William
      J. Boyce/s/  P.
      HOWARD EDELSTEIN
                                                            
                                                            Director
                                                            
                                                            April
      1, 2009P.
      Howard Edelstein/s/  STEWART K. P.
      GROSS
                                                            
                                                            Director
                                                            
                                                            April
      1, 2009Stewart
      K. P. Gross/s/  JAMES S.
      KRZYWICKI
                                                            
                                                            Director
                                                            
                                                            April
      1, 2009James
      S. Krzywicki/s/  FERDINAND VON
      PRONDZYNSKI
                                                            
                                                            Director
                                                            
                                                            April
      1, 2009Ferdinand
      von Prondzynski/s/  WILLIAM F.
      MEAGHER, JR.
                                                            
                                                            Director
                                                            
                                                            April
      1, 2009William
      F. Meagher, Jr.





52
 Table of Contents


APPENDIX A





SELECTED
FINANCIAL DATA





The
selected consolidated financial data set forth below should be read in
conjunction with our consolidated financial statements and notes and
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” appearing elsewhere in this Form 10-K. This selected
consolidated financial data is derived from our audited consolidated financial
statements.





Year
      Ended
                                                              January
      31,
                                                            
                                                            
                                                            Year
      Ended
                                                              January
      31,
                                                            
                                                            
                                                            Year
      Ended
                                                              January
      31,
                                                            
                                                            
                                                            Year
      Ended
                                                              January
      31,
                                                            
                                                            
                                                            Year
      Ended J
                                                              anuary
      31,2005
                                                            
                                                            
                                                            2006
                                                            
                                                            
                                                            2007
                                                            
                                                            
                                                            2008
                                                            
                                                            
                                                            2009(In
      thousands, except per share data)Revenues
                                                            
                                                            $
                                                            212,300
                                                            
                                                            
                                                            $
                                                            215,567
                                                            
                                                            
                                                            $
                                                            225,172
                                                            
                                                            
                                                            $
                                                            281,223
                                                            
                                                            
                                                            $
                                                            328,494Cost
      of revenues
                                                            
                                                            
                                                            21,724
                                                            
                                                            
                                                            
                                                            25,307
                                                            
                                                            
                                                            
                                                            26,601
                                                            
                                                            
                                                            
                                                            32,637
                                                            
                                                            
                                                            
                                                            35,992Cost
      of revenues - amortization of intangible assets
                                                            
                                                            
                                                            6,864
                                                            
                                                            
                                                            
                                                            6,939
                                                            
                                                            
                                                            
                                                            4,422
                                                            
                                                            
                                                            
                                                            5,423
                                                            
                                                            
                                                            
                                                            5,203Gross
      profit
                                                            
                                                            
                                                            183,712
                                                            
                                                            
                                                            
                                                            183,321
                                                            
                                                            
                                                            
                                                            194,149
                                                            
                                                            
                                                            
                                                            243,163
                                                            
                                                            
                                                            
                                                            287,299Operating
      expenses:Research
      and development
                                                            
                                                            
                                                            45,841
                                                            
                                                            
                                                            
                                                            39,172
                                                            
                                                            
                                                            
                                                            40,776
                                                            
                                                            
                                                            
                                                            49,612
                                                            
                                                            
                                                            
                                                            49,540Selling
      and marketing
                                                            
                                                            
                                                            94,365
                                                            
                                                            
                                                            
                                                            88,438
                                                            
                                                            
                                                            
                                                            90,894
                                                            
                                                            
                                                            
                                                            97,493
                                                            
                                                            
                                                            
                                                            108,416General
      and administrative
                                                            
                                                            
                                                            25,208
                                                            
                                                            
                                                            
                                                            25,776
                                                            
                                                            
                                                            
                                                            27,735
                                                            
                                                            
                                                            
                                                            34,630
                                                            
                                                            
                                                            
                                                            36,774Insurance
      recoveries
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (17,710
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -Amortization
      of intangible assets
                                                            
                                                            
                                                            2,711
                                                            
                                                            
                                                            
                                                            2,174
                                                            
                                                            
                                                            
                                                            1,652
                                                            
                                                            
                                                            
                                                            11,237
                                                            
                                                            
                                                            
                                                            11,212Merger
      and integration related expenses
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            12,283
                                                            
                                                            
                                                            
                                                            761Restructuring
                                                            
                                                            
                                                            13,361
                                                            
                                                            
                                                            
                                                            641
                                                            
                                                            
                                                            
                                                            26
                                                            
                                                            
                                                            
                                                            34
                                                            
                                                            
                                                            
                                                            1,523Impairment
      charge
                                                            
                                                            
                                                            19,268
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -Restatement
      and option granting investigation:SEC
      investigation
                                                            
                                                            
                                                            2,182
                                                            
                                                            
                                                            
                                                            1,988
                                                            
                                                            
                                                            
                                                            898
                                                            
                                                            
                                                            
                                                            1,346
                                                            
                                                            
                                                            
                                                            49Other
      professional fees
                                                            
                                                            
                                                            320
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -Total
      operating expenses
                                                            
                                                            
                                                            203,256
                                                            
                                                            
                                                            
                                                            140,479
                                                            
                                                            
                                                            
                                                            161,981
                                                            
                                                            
                                                            
                                                            206,635
                                                            
                                                            
                                                            
                                                            208,275Operating
      (loss) income
                                                            
                                                            
                                                            (19,544
                                                            )
                                                            
                                                            
                                                            42,842
                                                            
                                                            
                                                            
                                                            32,168
                                                            
                                                            
                                                            
                                                            36,528
                                                            
                                                            
                                                            
                                                            79,024Other
      (expense) income, net (1)
                                                            
                                                            
                                                            (692
                                                            )
                                                            
                                                            
                                                            741
                                                            
                                                            
                                                            
                                                            (96
                                                            )
                                                            
                                                            
                                                            295
                                                            
                                                            
                                                            
                                                            1,480Loss
      on sale of investments, net
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (586
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -Interest
      income
                                                            
                                                            
                                                            1,091
                                                            
                                                            
                                                            
                                                            1,779
                                                            
                                                            
                                                            
                                                            4,310
                                                            
                                                            
                                                            
                                                            3,948
                                                            
                                                            
                                                            
                                                            1,550Interest
      expense (1)
                                                            
                                                            
                                                            (337
                                                            )
                                                            
                                                            
                                                            (431
                                                            )
                                                            
                                                            
                                                            (278
                                                            )
                                                            
                                                            
                                                            (12,630
                                                            )
                                                            
                                                            
                                                            (14,218
                                                            )(Loss)
      income before provision (benefit) for income taxes from continuing
      operations
                                                            
                                                            
                                                            (19,482
                                                            )
                                                            
                                                            
                                                            44,345
                                                            
                                                            
                                                            
                                                            36,104
                                                            
                                                            
                                                            
                                                            28,141
                                                            
                                                            
                                                            
                                                            67,836Provision
      (benefit) for income taxes
                                                            
                                                            
                                                            631
                                                            
                                                            
                                                            
                                                            9,130
                                                            
                                                            
                                                            
                                                            11,951
                                                            
                                                            
                                                            
                                                            (31,587
                                                            )
                                                            
                                                            
                                                            18,959Net
      (loss) Income from continuing operations
                                                            
                                                            
                                                            (20,113
                                                            )
                                                            
                                                            
                                                            35,215
                                                            
                                                            
                                                            
                                                            24,153
                                                            
                                                            
                                                            
                                                            59,728
                                                            
                                                            
                                                            
                                                            48,877Income
      from discontinued operations, net of income taxes
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            270
                                                            
                                                            
                                                            
                                                            1,912Net
      (loss) income
                                                            
                                                            $
                                                            (20,113
                                                            )
                                                            
                                                            $
                                                            35,215
                                                            
                                                            
                                                            $
                                                            24,153
                                                            
                                                            
                                                            $
                                                            59,998
                                                            
                                                            
                                                            $
                                                            50,789Net
      (loss) income per share (2):Basic
      - continuing operations
                                                            
                                                            $
                                                            (0.19
                                                            )
                                                            
                                                            $
                                                            0.34
                                                            
                                                            
                                                            $
                                                            0.24
                                                            
                                                            
                                                            $
                                                            0.57
                                                            
                                                            
                                                            $
                                                            0.47Basic
      - discontinued operations
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            0.00
                                                            
                                                            
                                                            $
                                                            0.02$
                                                            (0.19
                                                            )
                                                            
                                                            $
                                                            0.34
                                                            
                                                            
                                                            $
                                                            0.24
                                                            
                                                            
                                                            $
                                                            0.57
                                                            
                                                            
                                                            $
                                                            0.49Basic
      weighted average common shares outstanding
                                                            
                                                            
                                                            105,134
                                                            
                                                            
                                                            
                                                            102,473
                                                            
                                                            
                                                            
                                                            101,698
                                                            
                                                            
                                                            
                                                            104,391
                                                            
                                                            
                                                            
                                                            103,870Diluted
      - continuing operations
                                                            
                                                            $
                                                            (0.19
                                                            )
                                                            
                                                            $
                                                            0.34
                                                            
                                                            
                                                            $
                                                            0.23
                                                            
                                                            
                                                            $
                                                            0.55
                                                            
                                                            
                                                            $
                                                            0.46Diluted
      - discontinued operations
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            0.00
                                                            
                                                            
                                                            $
                                                            0.02$
                                                            (0.19
                                                            )
                                                            
                                                            $
                                                            0.34
                                                            
                                                            
                                                            $
                                                            0.23
                                                            
                                                            
                                                            $
                                                            0.55
                                                            
                                                            
                                                            $
                                                            0.47
                                                            †Diluted
      weighted average common  shares outstanding
                                                            
                                                            
                                                            105,134
                                                            
                                                            
                                                            
                                                            103,352
                                                            
                                                            
                                                            
                                                            104,240
                                                            
                                                            
                                                            
                                                            108,289
                                                            
                                                            
                                                            
                                                            107,034


________


†           Does
not add due to rounding.




A-1
 Table of Contents




As
      of January 31,
                
                
                As
      of January 31,
                
                
                As
      of January 31,
                
                
                As
      of January 31,
                
                
                As
      of January 31,2005
                
                
                2006
                
                
                2007
                
                
                2008
                
                
                2009(In
      thousands)Balance
      Sheet Data:Cash,
      cash equivalents and short-term investments
                
                $
                55,158
                
                
                $
                73,569
                
                
                $
                104,117
                
                
                $
                89,584
                
                
                $
                38,952Working
      capital (deficit)
                
                
                (46,523
                )
                
                
                (8,018
                )
                
                
                38,134
                
                
                
                30,408
                
                
                
                (11,858
                )Long-term
      investments, deferred tax assets, net & other assets
                
                
                8,772
                
                
                
                736
                
                
                
                6,719
                
                
                
                95,596
                
                
                
                81,583Total
      assets
                
                
                303,497
                
                
                
                299,902
                
                
                
                342,970
                
                
                
                696,681
                
                
                
                575,100Long-term
      debt
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                197,000
                
                
                
                122,131Stockholder's
      equity
                
                
                84,919
                
                
                
                102,272
                
                
                
                137,929
                
                
                
                213,088
                
                
                
                204,056


____________





(1)
            Certain
      reclassifications have been made to prior year amounts to conform to the
      fiscal 2009 presentation.(2)
            See
      Note 2(e) of the Notes to the Consolidated Financial Statements for
      the determination of shares used in computing basic and diluted net income
      (loss) per common share.





A-2
 Table of Contents


APPENDIX B





FINANCIAL
STATEMENTS


INDEX





PageReport
      of Independent Registered Public Accounting Firm
            B-2Consolidated
      Balance Sheets as of January 31, 2008 and 2009
            B-3Consolidated
      Statements of Income for the Years Ended January 31, 2007, 2008 and
      2009
            B-4Consolidated
      Statements of Shareholders’ Equity and Comprehensive Income for the Years
      Ended January 31, 2007, 2008 and 2009
            B-5Consolidated
      Statements of Cash Flows for the Years Ended January 31, 2007, 2008
      and 2009
            B-6Notes
      to the Consolidated Financial Statements
            B-7





B-1
 Table of Contents


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and
 Shareholders
of SkillSoft Public Limited Company:
 
 We have
audited the accompanying consolidated balance sheets of SkillSoft Public Limited
Company as of January 31, 2009 and 2008, and the related consolidated statements
of income, stockholders’ equity and comprehensive income, and cash flows for
each of the three years in the period ended January 31, 2009. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of SkillSoft Public
Limited Company at January 31, 2009 and 2008, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended January 31, 2009, in conformity with U.S. generally accepted accounting
principles.
 
 We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), SkillSoft Public Limited Company’s internal
control over financial reporting as of January 31, 2009, based on criteria
established in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our report dated
March 30, 2009 expressed an unqualified opinion thereon.





/s/  ERNST &
YOUNG LLP





Boston,
Massachusetts


March 30,
2009


B-2
 Table of Contents


SKILLSOFT
PUBLIC LIMITED COMPANY AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS







January
      31,2008
                  
                  
                  2009(In
      thousands except share data)ASSETSCurrent
      Assets:Cash
      and cash equivalents
                  
                  $
                  76,059
                  
                  
                  $
                  37,853Short-term
      investments
                  
                  
                  13,525
                  
                  
                  
                  1,099Restricted
      cash
                  
                  
                  3,963
                  
                  
                  
                  3,790Accounts
      receivable, less reserves of approximately $446 and $391 as of January 31,
      2008 and 2009, respectively
                  
                  
                  171,708
                  
                  
                  
                  146,362Prepaid
      expenses and other current assets
                  
                  
                  29,061
                  
                  
                  
                  18,286Deferred
      tax assets
                  
                  
                  13,476
                  
                  
                  
                  26,444Total
      current assets
                  
                  
                  307,792
                  
                  
                  
                  233,834Property
      and equipment, net
                  
                  
                  7,210
                  
                  
                  
                  7,661Intangible
      assets, net
                  
                  
                  29,887
                  
                  
                  
                  13,472Goodwill
                  
                  
                  256,196
                  
                  
                  
                  238,550Deferred
      tax assets
                  
                  
                  87,866
                  
                  
                  
                  78,223Other
      assets
                  
                  
                  7,730
                  
                  
                  
                  3,360Total
      assets
                  
                  $
                  696,681
                  
                  
                  $
                  575,100LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      Liabilities:Current
      maturities of long term debt
                  
                  $
                  2,000
                  
                  
                  $
                  1,253Accounts
      payable
                  
                  
                  2,139
                  
                  
                  
                  5,648Accrued
      compensation
                  
                  
                  24,577
                  
                  
                  
                  13,513Accrued
      expenses
                  
                  
                  29,507
                  
                  
                  
                  23,760Deferred
      revenue
                  
                  
                  219,161
                  
                  
                  
                  201,518Total
      current liabilities
                  
                  
                  277,384
                  
                  
                  
                  245,692Long-term
      debt
                  
                  
                  197,000
                  
                  
                  
                  122,131Other
      long-term liabilities
                  
                  
                  9,209
                  
                  
                  
                  3,221Total
      long-term liabilities
                  
                  
                  206,209
                  
                  
                  
                  125,352Commitments
      and contingencies (Note 8)Shareholders'
      equity:Ordinary
      shares, €0.11 par value: 250,000,000 shares authorized; 111,663,813 and
      98,892,249 shares issued at January 31, 2008 and 2009,
      respectively
                  
                  
                  12,397
                  
                  
                  
                  10,600Additional
      paid-in capital
                  
                  
                  591,303
                  
                  
                  
                  509,177Treasury
      stock, at cost, 6,533,884 and 830,802 ordinary shares at January 31, 2008
      and January 31, 2009, respectively
                  
                  
                  (24,524
                  )
                  
                  
                  (5,317
                  )Accumulated
      deficit
                  
                  
                  (361,663
                  )
                  
                  
                  (310,874
                  )Accumulated
      other comprehensive (loss) income
                  
                  
                  (4,425
                  )
                  
                  
                  470Total
      shareholders' equity
                  
                  
                  213,088
                  
                  
                  
                  204,056Total
      liabilities and shareholders' equity
                  
                  $
                  696,681
                  
                  
                  $
                  575,100








The
accompanying notes are an integral part of these consolidated financial
statements.





B-3
 Table of Contents





SKILLSOFT
PUBLIC LIMITED COMPANY AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME




Years
      Ended January 31,2007
                            
                            
                            2008
                            
                            
                            2009(In
      thousands, except per share data)Revenues
                            
                            $
                            225,172
                            
                            
                            $
                            281,223
                            
                            
                            $
                            328,494Cost
      of revenues (1)
                            
                            
                            26,601
                            
                            
                            
                            32,637
                            
                            
                            
                            35,992Cost
      of revenues - amortization of intangible assets
                            
                            
                            4,422
                            
                            
                            
                            5,423
                            
                            
                            
                            5,203Gross
      profit
                            
                            
                            194,149
                            
                            
                            
                            243,163
                            
                            
                            
                            287,299Operating
      expenses:Research
      and development (1)
                            
                            
                            40,776
                            
                            
                            
                            49,612
                            
                            
                            
                            49,540Selling
      and marketing (1)
                            
                            
                            90,894
                            
                            
                            
                            97,493
                            
                            
                            
                            108,416General
      and administrative (1)
                            
                            
                            27,735
                            
                            
                            
                            34,630
                            
                            
                            
                            36,774Amortization
      of intangible assets
                            
                            
                            1,652
                            
                            
                            
                            11,237
                            
                            
                            
                            11,212Merger
      and integration related expenses
                            
                            
                            -
                            
                            
                            
                            12,283
                            
                            
                            
                            761Restructuring
                            
                            
                            26
                            
                            
                            
                            34
                            
                            
                            
                            1,523SEC
      investigation
                            
                            
                            898
                            
                            
                            
                            1,346
                            
                            
                            
                            49Total
      operating expenses
                            
                            
                            161,981
                            
                            
                            
                            206,635
                            
                            
                            
                            208,275Operating
      income
                            
                            
                            32,168
                            
                            
                            
                            36,528
                            
                            
                            
                            79,024Other
      income (expense), net
                            
                            
                            (96
                            )
                            
                            
                            295
                            
                            
                            
                            1,480Interest
      income
                            
                            
                            4,310
                            
                            
                            
                            3,948
                            
                            
                            
                            1,550Interest
      expense
                            
                            
                            (278
                            )
                            
                            
                            (12,630
                            )
                            
                            
                            (14,218
                            )Income
      before provision (benefit) for income taxes from continuing
      operations
                            
                            
                            36,104
                            
                            
                            
                            28,141
                            
                            
                            
                            67,836Provision
      (benefit) for income taxes
                            
                            
                            11,951
                            
                            
                            
                            (31,587
                            )
                            
                            
                            18,959Income
      from continuing operations
                            
                            
                            24,153
                            
                            
                            
                            59,728
                            
                            
                            
                            48,877Income
      from discontinued operations, net of income taxes (2)
                            
                            
                            -
                            
                            
                            
                            270
                            
                            
                            
                            1,912Net
      income
                            
                            $
                            24,153
                            
                            
                            $
                            59,998
                            
                            
                            $
                            50,789Net
      income per share (Note 2 (e)):Basic
      - continuing operations
                            
                            $
                            0.24
                            
                            
                            $
                            0.57
                            
                            
                            $
                            0.47Basic
      - discontinued operations
                            
                            $
                            -
                            
                            
                            $
                            0.00
                            
                            
                            $
                            0.02$
                            0.24
                            
                            
                            $
                            0.57
                            
                            
                            $
                            0.49Basic
      weighted average common shares outstanding
                            
                            
                            101,698
                            
                            
                            
                            104,391
                            
                            
                            
                            103,870Diluted
      - continuing operations
                            
                            $
                            0.23
                            
                            
                            $
                            0.55
                            
                            
                            $
                            0.46Diluted
      - discontinued operations
                            
                            $
                            -
                            
                            
                            $
                            0.00
                            
                            
                            $
                            0.02$
                            0.23
                            
                            
                            $
                            0.55
                            
                            
                            $
                            0.47
                            †Diluted
      weighted average common  shares outstanding
                            
                            
                            104,240
                            
                            
                            
                            108,289
                            
                            
                            
                            107,034


†           Does
not add due to rounding.




(1)
            The
      following summarizes the allocation of stock-based compensation (in
      thousands):





2007
                
                
                2008
                
                
                2009Cost
      of revenues
                
                $
                90
                
                
                $
                203
                
                
                $
                225Research
      and development
                
                
                952
                
                
                
                958
                
                
                
                926Selling
      and marketing
                
                
                1,883
                
                
                
                1,911
                
                
                
                1,977General
      and administrative
                
                
                2,134
                
                
                
                2,879
                
                
                
                3,004




(2)
                Discontinued
      operations (in thousands):Income
      tax expense:
                
                $
                -
                
                $
                181
                
                $
                1,281




The
accompanying notes are an integral part of these consolidated financial
statements.


B-4
 Table of Contents


SKILLSOFT
PUBLIC LIMITED COMPANY AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME


(In
thousands except number of shares)








OrdinaryShares
                              
                              
                              
                              
                              
                              
                              
                              
                              Treasury
      Stock
                              
                              
                              
                              
                              
                              
                              
                              
                              Accumulated
      Other
                              
                              
                              Total
                              
                              
                              TotalNumber
      of Shares
                              
                              
                              €0.11
      Par Value
                              
                              
                              Additional
      Paid-In Capital
                              
                              
                              Number
      of Shares
                              
                              
                              Cost
                              
                              
                              Accumulated
      Deficit
                              
                              
                              Deferred
      Compensation
                              
                              
                              Comprehensive
      Income (Loss)
                              
                              
                              Stockholders'
      Equity
                              
                              
                              Comprehensive
      IncomeBALANCE,
      JANUARY 31, 2006
                              
                              107,344,243
                              
                              
                              $
                              11,773
                              
                              
                              $
                              562,052
                              
                              
                              6,533,884
                              
                              
                              $
                              (24,524
                              )
                              
                              $
                              (445,814
                              )
                              
                              $
                              (465
                              )
                              
                              $
                              (750
                              )
                              
                              $
                              102,272Exercise
      of stock options
                              
                              1,288,128
                              
                              
                              
                              182
                              
                              
                              
                              5,178
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              5,360
                              
                              
                              
                              -Issuance
      of ordinary shares under employee stock purchase plan
                              
                              622,995
                              
                              
                              
                              84
                              
                              
                              
                              1,570
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,654
                              
                              
                              
                              —Stock-based
      compensation
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              5,059
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              5,059
                              
                              
                              
                              —Reclassification
      of deferred compensation
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (465
                              )
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              465
                              
                              
                              
                              -
                              
                              
                              
                              
                              
                              
                              
                              —Unrealized
      gains on marketable securities, net of tax of $0
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              82
                              
                              
                              
                              82
                              
                              
                              
                              82Translation
      adjustment
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (651
                              )
                              
                              
                              (651
                              )
                              
                              
                              (651
                              )Net
      income
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              24,153
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              24,153
                              
                              
                              
                              24,153Comprehensive
      income for the year ended January 31, 2007
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              23,584BALANCE,
      JANUARY 31, 2007
                              
                              109,255,366
                              
                              
                              $
                              12,039
                              
                              
                              $
                              573,394
                              
                              
                              6,533,884
                              
                              
                              $
                              (24,524
                              )
                              
                              $
                              (421,661
                              )
                              
                              
                              
                              
                              
                              $
                              (1,319
                              )
                              
                              $
                              137,929Exercise
      of stock options
                              
                              1,928,374
                              
                              
                              
                              287
                              
                              
                              
                              8,833
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              9,120
                              
                              
                              
                              -Issuance
      of ordinary shares under employee stock purchase plan
                              
                              480,073
                              
                              
                              
                              71
                              
                              
                              
                              2,712
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              2,783
                              
                              
                              
                              -Stock-based
      compensation
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              5,951
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              5,951
                              
                              
                              
                              -Tax
      benefit from non-qualified stock options
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              413
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              413
                              
                              
                              
                              -Unrealized
      loss on marketable securities, net of tax of $0
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (45
                              )
                              
                              
                              (45
                              )
                              
                              
                              (45
                              )Unrealized
      loss on financial derivatives, net of tax effect of $1,387
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (2,080
                              )
                              
                              
                              (2,080
                              )
                              
                              
                              (2,080
                              )Translation
      adjustment
                              
                              
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (981
                              )
                              
                              
                              (981
                              )
                              
                              
                              (981
                              )Net
      income
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              59,998
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              59,998
                              
                              
                              
                              59,998Comprehensive
      income for the year ended January 31, 2008
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              56,892BALANCE,
      JANUARY 31, 2008
                              
                              111,663,813
                              
                              
                              $
                              12,397
                              
                              
                              $
                              591,303
                              
                              
                              6,533,884
                              
                              
                              $
                              (24,524
                              )
                              
                              $
                              (361,663
                              )
                              
                              
                              -
                              
                              
                              $
                              (4,425
                              )
                              
                              $
                              213,088Exercise
      of stock options
                              
                              3,653,650
                              
                              
                              
                              613
                              
                              
                              
                              15,842
                              
                              
                              
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              16,455
                              
                              
                              
                              -Issuance
      of ordinary shares under employee stock purchase plan
                              
                              375,183
                              
                              
                              
                              64
                              
                              
                              
                              2,999
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              3,063
                              
                              
                              
                              -Repurchase
      of ordinary shares
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              11,097,315
                              
                              
                              
                              (91,860
                              )
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (91,860
                              )Retirement
      of ordinary shares
                              
                              (16,800,397
                              )
                              
                              
                              (2,474
                              )
                              
                              
                              (108,593
                              )
                              
                              (16,800,397
                              )
                              
                              
                              111,067
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Stock-based
      compensation
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              6,132
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              6,132
                              
                              
                              
                              -Tax
      benefit from non-qualified stock options
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,494
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              
                              
                              
                              
                              1,494Unrealized
      loss on marketable securities, net of tax of $0
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (23
                              )
                              
                              
                              (23
                              )
                              
                              
                              (23
                              )Unrealized
      gain on financial derivatives, net of tax effect of ($755)
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,132
                              
                              
                              
                              1,132
                              
                              
                              
                              1,132Translation
      adjustment
                              
                              
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              3,786
                              
                              
                              
                              3,786
                              
                              
                              
                              3,786Net
      income
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              50,789
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              50,789
                              
                              
                              
                              50,789Comprehensive
      income for the year ended January 31, 2009
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              55,684BALANCE,
      JANUARY 31, 2009
                              
                              98,892,249
                              
                              
                              $
                              10,600
                              
                              
                              $
                              509,177
                              
                              
                              830,802
                              
                              
                              $
                              (5,317
                              )
                              
                              $
                              (310,874
                              )
                              
                              $
                              —
                              
                              
                              $
                              470
                              
                              
                              $
                              204,056





The
accompanying notes are an integral part of these consolidated financial
statements


.


B-5
 Table of Contents


SKILLSOFT
PUBLIC LIMITED COMPANY AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(In
thousands)


Year
      Ended January 31,2007
                      
                      
                      2008
                      
                      
                      2009(In
      thousands)Cash
      flows from operating activities:Net
      income
                      
                      $
                      24,153
                      
                      
                      $
                      59,998
                      
                      
                      $
                      50,789Adjustments
      to reconcile net income to net cash provided by operating
      activities:Share-based
      compensation
                      
                      
                      5,059
                      
                      
                      
                      5,951
                      
                      
                      
                      6,132Depreciation
      and amortization
                      
                      
                      6,100
                      
                      
                      
                      6,935
                      
                      
                      
                      5,277Amortization
      of intangible assets
                      
                      
                      6,074
                      
                      
                      
                      16,660
                      
                      
                      
                      16,415(Recovery
      of) provision for bad debts
                      
                      
                      (589
                      )
                      
                      
                      237
                      
                      
                      
                      (130
                      )Provision
      (benefit) for income taxes - non-cash
                      
                      
                      10,073
                      
                      
                      
                      (33,958
                      )
                      
                      
                      15,102Gain
      on sale of discontinued operations
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (3,386
                      )Non-cash
      interest expense
                      
                      
                      -
                      
                      
                      
                      735
                      
                      
                      
                      1,197Realized
      loss on sale of assets, net
                      
                      
                      -
                      
                      
                      
                      (58
                      )
                      
                      
                      -Tax
      benefit related to exercise of non-qualified stock options
                      
                      
                      -
                      
                      
                      
                      (413
                      )
                      
                      
                      (1,494
                      )Discontinued
      operations
                      
                      
                      -
                      
                      
                      
                      (1,357
                      )
                      
                      
                      -Changes
      in current assets and liabilities, net of acquisitions:Accounts
      receivable
                      
                      
                      (7,033
                      )
                      
                      
                      (43,261
                      )
                      
                      
                      17,006Prepaid
      expenses and other current assets
                      
                      
                      878
                      
                      
                      
                      884
                      
                      
                      
                      8,494Accounts
      payable
                      
                      
                      (532
                      )
                      
                      
                      (2,584
                      )
                      
                      
                      3,446Accrued
      expenses, including long-term
                      
                      
                      (1,839
                      )
                      
                      
                      (33,101
                      )
                      
                      
                      (14,271
                      )Deferred
      revenue
                      
                      
                      7,581
                      
                      
                      
                      45,490
                      
                      
                      
                      (6,890
                      )Net
      cash provided by operating activities
                      
                      
                      49,925
                      
                      
                      
                      22,158
                      
                      
                      
                      97,687Cash
      flows from investing activities:Purchases
      of property and equipment
                      
                      
                      (5,519
                      )
                      
                      
                      (2,968
                      )
                      
                      
                      (5,748
                      )Cash
      paid for business acquisitions
                      
                      
                      (2,881
                      )
                      
                      
                      (261,330
                      )
                      
                      
                      (250
                      )Purchases
      of investments
                      
                      
                      (91,168
                      )
                      
                      
                      (18,437
                      )
                      
                      
                      (19,645
                      )Maturities
      of investments
                      
                      
                      53,585
                      
                      
                      
                      63,928
                      
                      
                      
                      32,137(Deposit)
      release of restricted cash, net
                      
                      
                      (15,056
                      )
                      
                      
                      16,138
                      
                      
                      
                      173Cash
      received from sale of discontinued operations
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      6,903Net
      cash provided by (used in) investing activities
                      
                      
                      (61,039
                      )
                      
                      
                      (202,669
                      )
                      
                      
                      13,570Cash
      flows from financing activities:Borrowings
      under long term debt, net of debt financing costs
                      
                      
                      -
                      
                      
                      
                      194,133
                      
                      
                      
                      -Exercise
      of stock options
                      
                      
                      5,360
                      
                      
                      
                      9,120
                      
                      
                      
                      16,455Proceeds
      from employee stock purchase plan
                      
                      
                      1,654
                      
                      
                      
                      2,783
                      
                      
                      
                      3,063Principal
      payment on long term debt
                      
                      
                      -
                      
                      
                      
                      (1,000
                      )
                      
                      
                      (75,616
                      )Acquisition
      of treasury stock
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (91,860
                      )Tax
      benefit related to exercise of non-qualified stock options
                      
                      
                      -
                      
                      
                      
                      413
                      
                      
                      
                      1,494Net
      cash provided by (used in) financing activities
                      
                      
                      7,014
                      
                      
                      
                      205,449
                      
                      
                      
                      (146,464
                      )Effect
      of exchange rate changes on cash and cash equivalents
                      
                      
                      775
                      
                      
                      
                      2,509
                      
                      
                      
                      (2,999
                      )Net
      (decrease) increase in cash and cash equivalents
                      
                      
                      (3,325
                      )
                      
                      
                      27,447
                      
                      
                      
                      (38,206
                      )Cash
      and cash equivalents, beginning of period
                      
                      
                      51,937
                      
                      
                      
                      48,612
                      
                      
                      
                      76,059Cash
      and cash equivalents, end of period
                      
                      $
                      48,612
                      
                      
                      $
                      76,059
                      
                      
                      $
                      37,853Supplemental
      disclosure of cash flow information:Cash
      paid for interest
                      
                      $
                      279
                      
                      
                      $
                      10,308
                      
                      
                      $
                      13,252Cash
      paid for income taxes
                      
                      $
                      2,280
                      
                      
                      $
                      2,867
                      
                      
                      $
                      4,550







The
accompanying notes are an integral part of these consolidated financial
statements.


B-6
 Table of Contents


SKILLSOFT
PUBLIC LIMITED COMPANY AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





(1)  Basis
of Presentation





SkillSoft
PLC (the Company or SkillSoft) was incorporated in Ireland on August 8,
1989. The Company is a leading Software as a Service (SaaS) provider of
on-demand e-learning and performance support solutions for global enterprises,
government, education and small to medium-sized businesses. SkillSoft helps
companies to maximize business performance through a combination of content,
online information resources, flexible technologies and support services.
SkillSoft is the surviving corporation in a merger between SmartForce PLC and
SkillSoft Corporation on September 6, 2002 (the SmartForce Merger). On May 14,
2007, the Company acquired NETg from The Thomson Corporation for approximately
$254.7 million in cash (see Note 3).





(2)  Summary
of Significant Accounting Policies





The
accompanying consolidated financial statements reflect the application of
certain significant accounting policies, as described in this note and elsewhere
in these notes.





(a)  Principles
of Consolidation





The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany
transactions and balances have been eliminated in consolidation.





(b)  Use
of Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Although the Company regularly assesses these estimates, actual results
could differ materially from these estimates. Changes in estimates are recorded
in the period in which they become known. The Company bases its estimates on
historical experience and various other assumptions that it believes to be
reasonable under the circumstances. Actual results could differ from
management’s estimates if past experience or other assumptions do not turn out
to be substantially accurate.





(c)  Revenue
Recognition





The
Company generates revenue primarily from the license of its products, the
provision of professional services and from the provision of providing
hosting/application service provider (ASP) services.





The
Company follows the provisions of the American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 97-2, “Software Revenue
Recognition,” as amended by SOP 98-4 and SOP 98-9 as well as Emerging
Issues Task Force (EITF) Issue No. 00-21, “Revenue Arrangements with Multiple
Deliverables” and SEC Staff Accounting Bulletin No. 104 (SAB No. 104),
“Revenue Recognition”to account for revenue derived pursuant to license agreements under which
customers license the Company’s products and services. The pricing for the
Company’s courses varies based upon the content offering selected by a customer,
the number of users within the customer’s organization and the term of the
license agreement (generally one, two or three years). License agreements permit
customers to exchange course titles, generally on the contract anniversary date.
Hosting services, are sold separately for an additional fee. A license can
provide customers access to a range of learning products including courseware,
Referenceware®, simulations, mentoring and prescriptive assessment.





The
Company offers discounts from its ordinary pricing, and purchasers of licenses
for a larger number of courses, larger user bases or longer periods of time
generally receive discounts. Generally, customers may amend their license
agreements, for an additional fee, to gain access to additional courses or
product lines and/or to increase the size of the user base. The Company also
derives revenue from hosting fees for clients that use its solutions on an ASP
basis and from the provision of professional services. In selected
circumstances, the Company derives revenue on a pay-for-use basis under which
some customers are charged based on the number of courses accessed by
users.





The
Company recognizes revenue ratably over the license period if the number of
courses that a customer has access to is not clearly defined, available, or
selected at the inception of the contract, or if the contract has additional
undelivered elements for which the Company does not have vendor specific
objective evidence (VSOE) of the fair value of the various elements. This may
occur if the customer does not specify all licensed courses at the outset, the
customer chooses to wait for future licensed courses on a when and if available
basis, the customer is given exchange privileges that are exercisable other than
on the contract anniversaries, or the customer licenses all courses currently
available and to be developed during the term of the arrangement. Revenue from
nearly all of the Company’s contractual arrangements is recognized on a
subscription or straight-line basis over the contractual period of
service.


B-7
 Table of Contents


The
Company also derives revenue from extranet hosting/ASP services which is
recognized on a straight-line basis over the period the services are provided.
Upfront fees are recorded as revenue over the contract period.





The
Company generally bills the annual license fee for the first year of a
multi-year license agreement in advance and license fees for subsequent years of
multi-year license arrangements are billed on the anniversary date of the
agreement. Occasionally, the Company bills customers on a quarterly basis. In
some circumstances, the Company offers payment terms of up to six months from
the initial shipment date or anniversary date for multi-year license agreements
to its customers. To the extent that a customer is given extended payment terms
(defined by the Company as greater than six months), revenue is recognized as
payments become due, assuming all of the other elements of revenue recognition
have been satisfied.





The
Company typically recognizes revenue from resellers when both the sale to the
end user has occurred and the collectibility of cash from the reseller is
probable. With respect to reseller agreements with minimum commitments, the
Company recognizes revenue related to the portion of the minimum commitment that
exceeds the end user sales at the expiration of the commitment period provided
the Company has received payment. If a definitive service period can be
determined, revenue is recognized ratably over the term of the minimum
commitment period, provided that payment has been received or collectibility is
probable.





The
Company provides professional services, including instructor led training,
customized content development, website development/hosting and implementation
services. If the Company determines that the professional services are not
separable from an existing customer arrangement, revenue from these services is
recognized over the existing contractual terms with the customer; otherwise the
Company typically recognizes professional service revenue as the services are
performed.





The
Company records reimbursable out-of-pocket expenses in both revenue and as a
direct cost of revenue, as applicable, in accordance with EITF Issue No. 01-14,
“Income Statement
Characterization of Reimbursements Received for “Out-of-Pocket” Expenses
Incurred” (EITF No. 01-14).





The
Company records revenue net of applicable sales tax collected. Taxes collected
from customers are recorded as part of accrued expenses on the balance sheet and
are remitted to state and local taxing jurisdictions based on the filing
requirements of each jurisdiction.





The
Company records as deferred revenue amounts that have been billed in advance for
products or services to be provided. Deferred revenue includes the unamortized
portion of revenue associated with license fees for which the Company has
received payment or for which amounts have been billed and are due for payment
in 90 days or less for resellers and 180 days or less for direct
customers.





SkillSoft
contracts often include an uptime guarantee for solutions hosted on the
Company’s servers whereby customers may be entitled to credits in the event of
non-performance. The Company also retains the right to remedy any nonperformance
event prior to issuance of any credit. Historically, the Company has not
incurred substantial costs relating to this guarantee and the Company currently
accrues for such costs as they are incurred. The Company reviews these costs on
a regular basis as actual experience and other information becomes available;
and should these costs become substantial, the Company would accrue an estimated
exposure and consider the potential related effects of the timing of recording
revenue on its license arrangements. The Company has not accrued any costs
related to these warranties in the accompanying consolidated financial
statements.





(d)  Deferred
Commissions





The
Company employs an accounting policy consistent with guidance provided by the
Financial Accounting Standards Board (FASB) Technical Bulletin 90-1, “Accounting for Separately Priced
Extended Warranty and
Product Maintenance Contracts”and SEC Staff Accounting Bulletin No.
104, “Revenue Recognition,”related to the concept of a direct and incremental relationship between
revenue and expense. As such, the Company defers the recognition of commission
expense until such time as the revenue related to the arrangement for which the
commission was paid is recognized. Unamortized commission expense is included in
prepaid expenses and other current assets in the accompanying consolidated
balance sheets.





(e)  Net
Income Per Share





Statement
of Financial Accounting Standards (SFAS) No. 128, “Earnings per Share,”
requires two presentations of earnings per share, “basic” and “diluted.” Basic
earnings per share is computed by dividing income available to common
shareholders (the numerator) by the weighted-average number of common shares
outstanding (the denominator) for the period. The computation of diluted
earnings per share is similar to basic earnings per share, except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the potentially dilutive common shares had been
issued, calculated using the treasury stock method.





B-8
 Table of Contents


The
reconciliation of basic and diluted shares is as follows (in
thousands):


Year
      Ended January 31,2007
                  
                  2008
                  
                  2009Basic
      weighted average shares outstanding
                  
                  
                  101,698
                  
                  
                  
                  104,391
                  
                  
                  
                  103,870Effect
      of incremental diluted shares outstanding
                  
                  
                  2,542
                  
                  
                  
                  3,898
                  
                  
                  
                  3,164Diluted
      weighted average common shares outstanding
                  
                  
                  104,240
                  
                  
                  
                  108,289
                  
                  
                  
                  107,034





Approximately
8.5 million, 8.7 million and 2.9 million shares have been excluded from the
computation of diluted weighted average shares outstanding as of
January 31, 2007, 2008 and 2009, respectively, as they would be
anti-dilutive.





(f)  Foreign
Currency Translation





Assets
and liabilities of the Company’s foreign subsidiaries are translated in
accordance with SFAS No. 52, “Foreign Currency Translation.”The reporting
currency for the Company is the U.S. dollar (dollar) and the functional
currency of the Company’s subsidiaries in the United States, Ireland, the United
Kingdom, Canada, Germany, Australia, the Netherlands, France, New Zealand,
Singapore and India are the currencies of those countries. The functional
currency of the Company’s subsidiaries in the Commonwealth of the Bahamas and
the Grand Cayman is the U.S. dollar. In accordance with
SFAS No. 52, assets and liabilities are translated to the
U.S. dollar from the local functional currency at current exchange rates,
and income and expense items are translated to the U.S. dollar using the
average rates of exchange prevailing during the year. Gains and losses arising
from translation are recorded in other comprehensive income (loss) as a separate
component of shareholders’ equity. Foreign currency gains or losses on
transactions denominated in a currency other than an entity’s functional
currency are recorded in the results of the operations. Gains (losses) arising
from transactions denominated in foreign currencies other than an entity’s
functional currency were approximately $(0.4) million, $(0.1) million and $0.8
million for the years ended January 31, 2007, 2008 and 2009, respectively,
and are included in other income (expense), net in the accompanying consolidated
statements of income.





(g)  Cash,
Cash Equivalents, Restricted Cash and Short-term Investments





The
Company considers all highly liquid investments with original maturities of 90
days or less at the time of purchase to be cash equivalents. At January 31, 2008
and January 31, 2009, cash equivalents consisted mainly of high-grade commercial
paper and federal agency notes.





At
January 31, 2009, the Company had approximately $3.8 million of restricted cash
of which approximately $2.7 million is held voluntarily to defend named former
executives and board members of SmartForce PLC for actions arising out of the
SEC investigation and litigation related to the 2002 securities class action and
approximately $1.1 million is held in certificates of deposits with a commercial
bank pursuant to terms of certain facilities lease agreements.





The
Company accounts for certain investments in commercial paper, corporate debt
securities and federal agency notes in accordance with SFAS No. 115, “Accounting for Certain Investments
in Debt and Equity Securities”(SFAS No. 115). Under SFAS No. 115,
securities that the Company does not intend to hold to maturity or for trading
purposes are reported at market value, and are classified as available for sale.
At January 31, 2008 and 2009, the Company’s investments were classified as
available for sale and had an average maturity of approximately 29 and 17 days,
respectively





Cash and
cash equivalents and available for sale short-term investments as of January 31,
2008 and 2009, respectively, were as follows (in thousands):





2008Description
                                    
                                    Contracted
      Maturity
                                    
                                    Cost
                                    
                                    
                                    Gross
      Unrealized Gains
                                    
                                    
                                    Gross
      Unrealized Losses
                                    
                                    
                                    Fair
      ValueCash
      and cash equivalents:Cash
                                    
                                    N/A
                                    
                                    $
                                    32,576
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    32,576Commercial
      paper
                                    
                                    0-3
      months
                                    
                                    
                                    16,680
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    16,680Federal
      agency notes
                                    
                                    0-3
      months
                                    
                                    
                                    26,800
                                    
                                    
                                    
                                    3
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    26,803$
                                    76,056
                                    
                                    
                                    $
                                    3
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    76,059Short-term
      investments:Commercial
      paper
                                    
                                    4-12
      months
                                    
                                    
                                    7,396
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    7,396Corporate
      debt securities
                                    
                                    4-12
      months
                                    
                                    
                                    4,709
                                    
                                    
                                    
                                    20
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    4,729Certificates
      of deposit
                                    
                                    4
      months
                                    
                                    
                                    1,400
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,400$
                                    13,505
                                    
                                    
                                    $
                                    20
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    13,525





B-9
 Table of Contents


2009Description
                                  
                                  Contracted
      Maturity
                                  
                                  
                                  Cost
                                  
                                  
                                  Gross
      Unrealized Gains
                                  
                                  
                                  Gross
      Unrealized Losses
                                  
                                  
                                  Fair
      ValueCash
      and cash equivalents:Cash
                                  
                                  N/A
                                  
                                  
                                  $
                                  34,653
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  34,653Commercial
      paper
                                  
                                  0-3
      months
                                  
                                  
                                  
                                  2,199
                                  
                                  
                                  
                                  1
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,200Federal
      agency notes
                                  
                                  2
      months
                                  
                                  
                                  
                                  1,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,000$
                                  37,852
                                  
                                  
                                  $
                                  1
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  37,853Short-term
      investments:Commercial
      paper
                                  
                                  4
      months
                                  
                                  
                                  
                                  1,099
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,099$
                                  1,099
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  1,099





Realized
gains and losses and declines in value determined to be other-than-temporary on
available-for-sale securities are included in investment income. Gross realized
gains totaled approximately $32,000, $107,000, and $7,000 for the years ended
January 31, 2007, 2008 and 2009, respectively. Gross realized losses for the
years ended January 31, 2007, 2008 and 2009 were nominal. The cost of securities
sold is based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in other
income.





(h)  Property
and Equipment





The
Company records property and equipment at cost. Depreciation and amortization is
charged to operations based on the cost of property and equipment over their
respective estimated useful lives on a straight-line basis using the half year
convention, as follows:





Estimated
      Useful LivesComputer
      equipment
              
              2
      - 3 yearsFurniture
      and fixtures
              
              5
      yearsLeasehold
      improvements
              
              Lesser
      of estimated useful life or life of
lease





Expenditures
for maintenance and repairs are expensed as incurred. Expenditures for renewals
or betterments are capitalized.





(i)  Research
and Development Expenses





The
Company expenses all research and development costs, which include course
content development fees, to operations as incurred, except for costs of
internally developed or externally purchased software that qualify for
capitalization under SFAS No. 86, “Accounting for the Costs of
Computer Software to Be Sold, Leased or Otherwise Marketed”(SFAS No. 86). SFAS No. 86 requires the capitalization of
certain computer software development costs incurred after technological
feasibility is established. Given the Company’s operations, once technological
feasibility of a software product has been established, the additional
development costs incurred to bring the product to a commercially acceptable
level has not been and is not expected to be significant. No software
development costs incurred during fiscal 2007, 2008 and 2009 met the
requirements for capitalization in accordance with SFAS No. 86,
however developed courseware was added through the acquisition of
NETg.





Capitalized
software development costs (including acquired software development costs), net
of accumulated amortization, were approximately $0.4 million, $5.5 million
and $0.3 million as of January 31, 2007, 2008 and 2009, respectively.
The Company recognized approximately $4.4 million, $5.4 million and
$5.2 million of amortization expense related to capitalized software
development costs in the fiscal years ended January 31, 2007, 2008 and
2009, respectively.





The
Company enters into agreements with content providers for published content, the
Company’s policy is to expense these costs to research and development upon
receipt of content.





(j)  Other
Comprehensive Income





SFAS No. 130,
“Reporting Comprehensive
Income” (SFAS No. 130) requires disclosure of all
components of comprehensive income (loss) on an annual and interim basis.
Comprehensive loss is defined as the change in equity of a business enterprise
during a period from transactions, other events and circumstances from non-owner
sources. The components of accumulated comprehensive income (loss) as of
January 31, 2008 and 2009 are as follows (in thousands):





B-10
 Table of Contents


Year
      Ended January 31,2008
                  
                  
                  2009Unrealized
      holdings gains
                  
                  $
                  23
                  
                  
                  $
                  -Change
      in fair value of interest rate hedge, net of tax
                  
                  
                  (2,080
                  )
                  
                  
                  (948
                  )Foreign
      currency adjustment
                  
                  
                  (2,368
                  )
                  
                  
                  1,418Total
      accumulated other comprehensive income (loss)
                  
                  $
                  (4,425
                  )
                  
                  $
                  470





(k)  Fair
Value of Financial Instruments





Financial
instruments consist mainly of cash and cash equivalents, derivative financial
instrument contracts, investments, restricted cash, accounts receivable and
debt. The Company determines fair value for short-term investments based on
quoted market values. The carrying amount of accounts receivable is net of an
allowance for doubtful accounts, which is based on historical collections and
known credit risks. The Company believes the fair value of its variable rate
debt approximates its carrying value based on comparable market terms and
conditions.





In
connection with the acquisition of NETg, the Company entered into an interest
rate swap contract that is carried at fair value related to debt assumed in
connection with the acquisition.





See Note
11 for further discussion.





(l)  Deferred
Financing Costs





The
Company amortizes deferred debt financing costs as interest expense over the
terms of the underlying obligations using the effective interest
method.





(m)  Derivative
Financial Instruments





The
Company recognizes all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value
through income. If a derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives will either be offset against
the change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's
change in fair value is immediately recognized in earnings. The Company
classifies cash inflows and outflows from derivatives within net income on the
statement of cash flows.





The
Company’s objective for utilizing derivative instruments is to reduce its
exposure to fluctuations in cash flows due to changes in the variable interest
rates of certain borrowings issued under its credit facility. The Company’s
strategy to achieve that objective involves entering into interest rate swaps
that are specifically designated to certain variable rate instruments and
accounted for as cash flow hedges.





All the
interest rate swap agreements are considered highly effective as cash flow
hedges for a portion of the Company’s variable rate debt, and the Company
applies hedge accounting to account for these instruments. The notional
amounts and all other significant terms of the swap agreements are matched to
the provisions and terms of the variable rate debt being hedged.





See Note
11 for further discussion.





(n)  Concentrations
of Credit Risk and Off-Balance-Sheet Risk





For the
years ended and as of January 31, 2007, 2008 and 2009, no customer
individually comprised greater than 10% of total revenue or accounts
receivable.





The
Company performs continuing credit evaluations of its customers’ financial
condition and generally does not require collateral.





The
Company maintains a reserve for an allowance for doubtful accounts and sales
credits that is the Company’s best estimate of potentially uncollectible trade
receivables. Provisions are made based upon a specific review of all significant
outstanding invoices that are considered potentially uncollectible in whole or
in part. For those invoices not specifically reviewed or considered
uncollectible, provisions are provided at different rates, based upon the age of
the receivable, historical experience, and other currently available evidence.
The reserve estimates are adjusted as additional information becomes known or
payments are made.





The
Company has no significant off-balance-sheet arrangements nor concentration of
credit risks such as foreign exchange contracts, option contracts or other
foreign hedging arrangements.


B-11
 Table of Contents


The
Company’s cash, cash equivalents and investments are subject to the guidelines
of the Company’s investment policy. The primary objective of the policy with
regard to the Company’s portfolio is to provide with minimal risk as high a
level of current income as is consistent with the preservation of capital and
the maintenance of liquidity. Approved Instruments include U.S. Government
and Agency securities as well as fixed income instruments rated AAA, A1/P1 or
better.





(o)  Amortization
and Impairment of Goodwill and Intangible Assets





The
Company records intangible assets at cost and amortizes its finite-lived
intangible assets including customer contracts and internally developed
software. The Company reviews intangible assets subject to amortization at least
annually to determine if any adverse conditions exist or a change in
circumstances has occurred that would indicate impairment or a change in
remaining useful life. Conditions that would indicate an impairment and trigger
a more frequent impairment assessment include, but are not limited to, a
significant adverse change in legal factors or business climate that could
affect the value of an asset, or an adverse action or assessment by a regulator.
In addition, the Company reviews its indefinite-lived intangible assets at least
annually for impairment and reassesses their classification as indefinite-lived
assets.





The
Company tests goodwill during the fourth quarter of each year for impairment, or
more frequently if certain indicators are present or changes in circumstances
suggest that an impairment may exist. When conducting its annual goodwill
impairment test, the Company utilizes the two-step approach prescribed under
SFAS No. 142, “Goodwill
and Other Intangible Assets.”





The
Company performed its annual impairment review during the fourth quarter of
fiscal 2009 and determined that there was no impairment of
goodwill.





(p)  Restructuring
Charges





The
Company accounts for its restructuring activities under SFAS No. 146,
“Accounting for Costs
Associated with Exit or Disposal Activities”(SFAS No. 146).
SFAS No. 146 states that a liability related to exit or disposal
activity should be recognized at fair value in the period in which it is
incurred. Costs covered by SFAS No. 146 include, but are not limited to,
the following: (1) one-time involuntary termination benefits provided to
employees under the terms of a benefit arrangement that, in substance, are not
an ongoing benefit arrangement or a deferred compensation contract,
(2) certain contract termination costs, including operating lease
termination costs and (3) other associated costs. As such, when the Company
identifies restructuring charges that fulfill the requirements identified in
SFAS No. 146, it records the charges in its statement of
operations.





(q)  Merger
and Integration Related Costs





Certain
former NETg employees continued employment during a transition period and
certain former NETg facilities to be vacated were used as the Company
transitioned operations to other locations. These costs were expensed as
incurred and included in merger and integration related expenses in the
accompanying statements of income.





(r)  Business
Combinations





The
Company records tangible and intangible assets acquired and liabilities assumed
in recent business combinations under the purchase method of accounting. Amounts
paid for each acquisition are allocated to the assets acquired and liabilities
assumed based on their fair values at the dates of acquisition. The Company then
allocates the purchase price in excess of net tangible assets acquired to
identifiable intangible assets based on detailed valuations that use information
and assumptions provided by management. Excess purchase price over the fair
value of the net tangible and intangible assets acquired and liabilities is
recorded as goodwill.





Significant
management judgments and assumptions are required in determining the fair value
of acquired assets and liabilities, particularly acquired intangible assets. The
valuation of purchased intangible assets is based upon estimates of the future
performance and cash flows from the acquired business. The Company uses the
income approach to determine the estimated fair value of certain other
identifiable intangible assets including developed technology, customer
relationships and tradenames. This approach determines fair value by estimating
the after-tax cash flows attributable to an identified asset over its useful
life and then discounting these after-tax cash flows back to a present value.
Developed technology represents patented and unpatented technology and know-how.
Customer contracts and relationships represent established relationships with
customers, which provides a ready channel for the sale of additional content and
services. Tradenames represent acquired product names that the Company intends
to continue to utilize.





(s)  Advertising
Costs





Costs
incurred for production and communication of advertising initiatives are
expensed when incurred. Advertising expenses amounted to approximately $0.4
million, $0.8 million, and $0.6 million for the fiscal years ended
January 31, 2007, 2008 and 2009, respectively.


B-12
 Table of Contents




(t)  Accounting
for Share-Based Compensation


The
Company has several share-based compensation plans under which employees,
officers, directors and consultants may be granted options to purchase the
Company’s ordinary shares, generally at the market price on the date of
grant.





The
Company accounts for share-based compensation expense in accordance with SFAS
No. 123(R), “Accounting for
Stock-Based Compensation” (SFAS 123(R)). Under SFAS 123(R), share-based
compensation expense reflects the fair value of share-based awards measured at
the grant date and recognized over the relevant service period. The Company uses
the Black-Scholes option pricing model to estimate the fair value of share
option grants. The Black-Scholes option pricing model incorporates assumptions
as to stock price volatility, the expected life of options, a risk-free interest
rate and dividend yield. The Company recognizes share-based compensation expense
on a straight-line basis over the service period of the award, which is
generally four years.





(u)  Recent
Accounting Pronouncements





In
December 2007, the FASB issued SFAS No. 141 (revised), “Business Combinations” (SFAS
No. 141(R)). SFAS No. 141(R) changes the accounting for business combinations
including the measurement of acquirer shares issued in consideration for a
business combination, the recognition of contingent consideration, the
accounting for pre-acquisition gain and loss contingencies, the recognition of
capitalized in-process research and development, the accounting for
acquisition-related restructuring cost accruals, the treatment of acquisition
related transaction costs and the recognition of changes in the acquirer’s
income tax valuation allowance. SFAS No. 141(R) is effective for the Company for
any business combinations for which the acquisition date is on or after February
1, 2009, with early adoption prohibited. The adoption of SFAS 141(R) will have
an impact on the Company’s accounting for business combinations occurring on or
after the adoption date, but the effect will be dependent on the acquisitions at
that time.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51”(SFAS
No. 160). SFAS No. 160 changes the accounting for noncontrolling (minority)
interests in consolidated financial statements including the requirements to
classify noncontrolling interests as a component of consolidated stockholders’
equity, and the elimination of “minority interest” accounting in results of
operations with earnings attributable to noncontrolling interests reported as
part of consolidated earnings. Additionally, SFAS No. 160 revises the accounting
for both increases and decreases in a parent’s controlling ownership interest.
SFAS No. 160 is effective for the Company in fiscal 2010, with early adoption
prohibited. Adoption of SFAS No. 160 is not expected to have a material impact
on the Company’s financial position or results of operations when it
becomes effective.





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”(SFAS No. 161). SFAS No. 161 applies to all derivative instruments and
nonderivative instruments that are designated and qualify as hedging instruments
pursuant to paragraphs 37 and 42 of Statement 133 and related hedged items
accounted for under FASB Statement No. 133, “Accounting for Derivative
Instruments and Hedging Activities”(SFAS No. 133). SFAS No. 161 requires
entities to provide greater transparency through additional disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133 and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity’s financial position, results of operations, and
cash flows. SFAS No. 161 is effective for the Company on February 1, 2009. The
Company is currently analyzing the effect, SFAS No. 161 will have on
its disclosures related to the Company’s interest rate swap
agreement.





In April
2008, the FASB issued FASB Staff Position (FSP) No. 142-3, “Determination of the Useful Life of
Intangible Assets” (FSP 142-3). FSB 142-3 requires companies estimating
the useful life of a recognized intangible asset to consider their historical
experience in renewing or extending similar arrangements or, in the absence of
historical experience, to consider assumptions that market participants would
use about renewal or extension as adjusted for SFAS 142’s entity-specific
factors. FSP 142-3 is effective for financial statements issued for fiscal years
beginning after December 15, 2009. Adoption of this statement is not expected to
have a material impact on the Company’s consolidated financial statements when
it becomes effective.





In May
2008, the FASB issued SFAS No. 162 “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). SFAS No. 162 identifies the sources
of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles in the
U.S. SFAS 162 is effective 60 days following the SEC approval of Public Company
Accounting Oversight Board (“PCAOB”) amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.” The Company
does not anticipate that SFAS 162 will have a material impact on the Company’s
financial statements.





(v)  Income
Taxes





The
Company accounts for income taxes under SFAS No. 109, “Accounting for Income Taxes”
(SFAS No. 109). SFAS No. 109 is an asset and liability approach that requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Company’s financial
statements or tax returns. In June 2006, the FASB issued FASB Interpretation No.
48 (FIN 48), “Accounting for
Uncertainty in Income Taxes – An Interpretation of FASB
Statement No. 109,” which clarified the accounting for uncertainty in
income taxes recognized in an enterprise's financial statement in accordance
with SFAS No. 109.


B-13
 Table of Contents


FIN No.
48 requires that a tax position must be more likely than not to be sustained
before being recognized in the financial statements. The interpretation also
requires the accrual of interest and penalties as applicable on unrecognized tax
positions. The Company adopted the provisions of FIN 48 on February 1,
2007.





(w)  Prior
Year Financial Statement Reclassifications





Certain
reclassifications have been made to the prior year consolidated financial
statements to conform with current year presentation.





(3)  Acquisitions





Fiscal
2008 Transactions:





(a)
NETg





On May
14, 2007, the Company acquired NETg from The Thomson Corporation for
approximately $254.7 million in cash. The combined entity offers a more robust
multi-modal solution that includes online courses, simulations, digitized books
and an on-line video library as well as complementary learning technologies. The
acquisition supports SkillSoft’s mission to deliver comprehensive and high
quality learning solutions and positions the Company to serve the demands of
this growing marketplace.





The
acquisition of NETg was accounted for as a business combination under SFAS No.
141, “Business Combinations”using the purchase method. Accordingly, the results of NETg have been
included in the Company’s consolidated financial statements since the date of
acquisition.





In
addition, the Company paid direct transaction costs related to this acquisition
of $7.3 million. The Company paid the purchase price in cash, which was financed
through available cash balances and bank financing of approximately
$200 million. The components of the consideration paid are as follows (in
thousands):





Cash
      paid
                      
                      $
                      254,737Transaction
      cost incurred
                      
                      
                      7,288Total
      purchase price
                      
                      $
                      262,025





The final
allocation of the total purchase price of NETg’s assets acquired and net
tangible and identifiable intangible assets as of January 31, 2009 is as
follows (in thousands):





TotalCurrent
      assets
                  
                  $
                  37,869Deferred
      tax asset
                  
                  
                  10,194Property
      and equipment
                  
                  
                  1,470Goodwill
                  
                  
                  225,654Amortizable
      intangible assets
                  
                  
                  43,050Current
      liabilities*
                  
                  
                  (30,727
                  )Deferred
      revenue
                  
                  
                  (25,485
                  )Total
                  
                  $
                  262,025


____________


*      Includes
exit costs of $12.5 million.





Adjustments
made to our preliminary purchase price allocation as of May 14, 2007
primarily consisted of changes in estimates and post closing purchase price
adjustments.





Intangible
assets and their estimated useful lives consist of the following (in
thousands):




AccumulatedAmortization
      as of
                        
                        Net
      Book Value as ofAscribed
                        
                        
                        
                        January
      31,
                        
                        January
      31,Description
                        Fair
      Value
                        
                        Life
                        
                        2009
                        
                        2009Non-compete
      agreement
                        
                        $
                        6,900
                        
                        2.5
      years
                        
                        $
                        (4,830
                        )
                        
                        $
                        2,070Trademark/tradename
                        
                        
                        2,700
                        
                        2
      years
                        
                        
                        (2,363
                        )
                        
                        
                        337Developed
      software/courseware
                        
                        
                        9,950
                        
                        1.5
      years
                        
                        
                        (9,950
                        )
                        
                        
                        -Customer
      contractual relationships
                        
                        
                        1,000
                        
                        1
      year
                        
                        
                        (1,000
                        )
                        
                        
                        -Customer
      non-contractual relationships
                        
                        
                        22,500
                        
                        4
      years
                        
                        
                        (12,700
                        )
                        
                        
                        9,800$
                        43,050
                        
                        
                        
                        $
                        (30,843
                        )
                        
                        $
                        12,207





B-14
 Table of Contents




Intangible
assets are amortized over a weighted average life of 36 months.





The
non-compete agreement, trademark/tradename and customer relationships were
valued using the income approach and the developed software/courseware was
valued using the cost approach. Values and useful lives assigned to intangible
assets were determined using management’s estimates. Acquired intangible assets
are reviewed for impairment upon the occurrence of any events or changes in
circumstances that indicate the carrying amount of an asset may not be
recoverable. The useful life of each intangible asset is evaluated for each
reporting period to determine whether events and circumstances warrant a
revision to the remaining useful life.





Goodwill
represents the excess of the purchase price over the net identifiable tangible
and intangible assets acquired. The Company determined that the acquisition of
NETg resulted in the recognition of goodwill primarily because the acquisition
is expected to help SkillSoft reach critical mass and shorten its timeframe to
approach its long term operating profitability objectives through incremental
scalability and significant cost synergies. The goodwill recorded as a result of
this acquisition is expected to be deductible for tax purposes.





Goodwill
is subject to review for impairment annually and when there are any interim
indicators of impairment. The Company performs its goodwill impairment tests as
of November 1st each
year.





The
Company assumed certain liabilities in the acquisition including deferred
revenue that was ascribed a fair value of $25.5 million using a cost-plus profit
approach in accordance with EITF No. 01-03, “Accounting in a Business Combination
for Deferred Revenue of an Acquiree.” The Company amortized deferred
revenue over the average remaining term of the contracts, which reflects the
estimated period to satisfy these customer obligations. In allocating the
purchase price, the Company recorded an adjustment to reduce the carrying value
of NETg’s deferred revenue by $22.2 million, which was fully amortized as of
January 31, 2009.





In
connection with the acquisition, the Company’s management approved and initiated
plans to integrate NETg into its operations and to eliminate redundant
facilities and headcount, reduce cost structure and better align operating
expenses with existing economic conditions, business requirements and the
Company’s operating model. In accordance with EITF Issue No. 95-3, “Recognition of Liabilities in Connection with a
Purchase Business Combination” (EITF No. 95-3) the Company has accrued
for certain liabilities incurred directly related to the NETg acquisition and
accounted for those in the allocation of the purchase price. The items accounted
for in accordance with EITF Issue No. 95-3 primarily relate to severance related
costs incurred in association with workforce reductions and totaled
approximately $8.9 million for employee separation costs for approximately 360
employees. The Company also estimated a liability of $1.8 million representing
the estimated fair value of abandoned lease obligations. The Company estimated a
liability of $0.2 million and $0.5 million for NETg content re-branding and
legal and outplacement services, respectively. All amounts accrued under EITF
No. 95-3 in relation to the NETg acquisition were paid as of January 31,
2009.





Supplemental
Pro-Forma Information (Unaudited)





The
Company has concluded that the NETg acquisition represents a material business
combination. The following unaudited pro forma information presents the
consolidated results of operations of the Company and NETg as if the acquisition
had occurred on February 1, 2007, with pro forma adjustments to give effect to
amortization of intangible assets, an increase in interest expense on
acquisition financing and certain other adjustments (in thousands, except per
share data):





Year
      Ended January 31,2007
                
                
                2008Revenue
                
                $
                284,162
                
                
                $
                343,723Net
      income
                
                
                (44,962
                )
                
                
                15,497Net
      income per share - basic
                
                $
                (0.44
                )
                
                $
                0.15Net
      income per share - diluted
                
                $
                (0.44
                )
                
                $
                0.14





B-15
 Table of Contents


The
unaudited pro forma results are not necessarily indicative of the results that
the Company would have attained had the acquisition of NETg occurred at the
beginning of the periods presented.





(b)
Targeted Learning Corporation





On
February 9, 2007, the Company acquired the assets of Targeted Learning
Corporation (TLC), an on-line video library business, for approximately $4.6
million in cash plus liabilities assumed of $0.8 million. The acquisition
resulted in tangible assets acquired of approximately $1.0 million and an
allocation of the purchase price to goodwill and identified intangible assets of
$3.3 million and $0.9 million, respectively. The acquisition of TLC was
accounted for as a business combination under SFAS No. 141, “Business Combinations”using
the purchase method. Accordingly, the results of TLC have been included in the
Company’s consolidated financial statements since the date of
acquisition.





As part
of the purchase price allocation, all intangible assets that were a part of the
acquisition were identified and valued. It was determined that only contractual
customer relationships, trade name and developed software had separately
identifiable values.




Intangible
assets and their estimated useful lives consist of the following (in
thousands):




AccumulatedAmortization
      as of
                          
                          Net
      Book Value as ofAscribed
                          
                          
                          
                          January
      31,
                          
                          January
      31,Description
                          Fair
      Value
                          
                          Life
                          
                          2009
                          
                          2009Trademark/tradename
                          
                          $
                          20
                          
                          2
      years
                          
                          $
                          (20
                          )
                          
                          $
                          -Developed
      software/courseware
                          
                          
                          510
                          
                          4
      years
                          
                          
                          (255
                          )
                          
                          
                          255Customer
      contractual relationships
                          
                          
                          330
                          
                          3
      years
                          
                          
                          (220
                          )
                          
                          
                          110$
                          860
                          
                          
                          
                          $
                          (495
                          )
                          
                          $
                          365




Values
and useful lives assigned to intangible assets were determined using
management’s estimates. The Company concluded that the acquisition of TLC does
not represent a material business combination and therefore no pro forma
financial information has been provided herein.





Goodwill
represents the excess of the purchase price over the net identifiable tangible
and intangible assets acquired. The Company determined that the acquisition of
TLC resulted in the recognition of goodwill primarily because the acquisition
provided new offerings that fit the Company’s business model and can be
effectively sold within the Company’s existing customers base The goodwill
recorded as a result of this acquisition is expected to be deductible for tax
purposes.




The
following table reflects supplemental cash flow investing activities related to
the acquisitions of TLC and NETg (in thousands):




Business
      Acquisitions, Net of Cash Acquired:Fair
      value of tangible assets acquired
                
                $
                50,553Liabilities
      assumed
                
                
                (57,050
                )Cost
      in excess of fair value (goodwill)
                
                
                229,229Fair
      value of acquired identifiable intangible assets
                
                
                43,910$
                266,642Less
      cash acquired
                
                
                2,181Net
      cash paid for acquisitions*
                
                $
                264,461





*Includes
$2.9 million and $0.3 million paid for acquisition costs in the fiscal year
ended January 31, 2007 and 2009, respectively.





(4)  Special
Charges





(a)
            Merger
      and Exit Costs Recognized as Liabilities in Purchase
      Accounting





In
connection with the closing of the NETg acquisition on May 14, 2007 (the
Acquisition), the Company’s management effected a merger integration effort to
eliminate redundant facilities and employees and reduce the overall cost
structure of the acquired business to better align the Company’s operating
expenses with existing economic conditions, business requirements and the
Company’s operating model.


B-16
 Table of Contents


Pursuant
to this restructuring, the Company recorded $12.5 million of costs related to
severance and related benefits, costs to vacate leased facilities and other
pre-Acquisition liabilities. These costs were accounted for under EITF No. 95-3,
“Recognition of Liabilities in
Connection with Purchase Business Combinations” (EITF No. 95-3). These
costs, which were recognized as a liability assumed in the purchase business
combination, were included in the allocation of the purchase price.





The
reductions in employee headcount totaled approximately 360 employees from the
administrative, sales, marketing and development functions, and amounted to a
liability of approximately $8.9 million, which was paid against the exit plan
accrual through January 31, 2009.





In
connection with the exit plan, the Company abandoned certain leased facilities
resulting in a facilities consolidation liability of $1.8 million, which was
paid as of January 31, 2009, consisting of lease termination costs, broker
commissions and other facility costs. As part of the plan, two sites were
vacated. The fair value of the lease termination costs was calculated with
certain assumptions related to the Company’s estimated cost recovery efforts
from subleasing vacated space, including (i) the time period over which the
property will remain vacant, (ii) the sublease terms and (iii) the sublease
rates.





In
connection with the SmartForce Merger, the Company’s management effected a
restructuring to eliminate redundant facilities and headcount, reduce the cost
structure of the business and better align the Company’s operating expenses with
existing economic conditions. Pursuant to this restructuring, the Company
recorded $30.3 million of costs in 2002 relating to exiting activities of
pre-Merger SmartForce PLC such as severance and related benefits, costs to
vacate leased facilities and other pre-Merger liabilities. These costs were
accounted for under EITF No. 95-3. These costs, which were recognized as a
liability assumed in the purchase business combination, were included in the
allocation of the purchase price and increased goodwill.





The
reductions in employee headcount totaled approximately 632 employees from the
administrative, sales, marketing and development functions, and amounted to a
liability of approximately $14.5 million in 2002. This liability was paid
out against the exit plan accrual through January 31, 2009.





In
connection with the exit plan, the Company abandoned or downsized certain leased
facilities resulting in a facilities consolidation liability of
$12.7 million as of January 31, 2003, consisting of sublease losses,
broker commissions and other facility costs. As part of the plan, 11 sites were
vacated and 4 sites were downsized. To determine the sublease loss, which is the
loss after the Company’s estimated cost recovery efforts from subleasing vacated
space, certain assumptions were made related to the (1) time period over
which the property will remain vacant, (2) sublease terms and
(3) sublease rates. The lease loss is an estimate under
SFAS No. 5 “Accounting for Contingencies”
(SFAS No. 5). In the year ended January 31, 2004, the Company
revised certain of its estimates made in connection with the original purchase
price pertaining to unoccupied facilities under lease as a result of the
SmartForce Merger. This adjustment to the exit plan accrual fell within the one
year purchase price allocation period prescribed by SFAS No. 141
“Business Combinations”
(SFAS No. 141). In the fiscal years ended January 31, 2006 and
2007, the Company again revised certain of its estimates made in connection with
the original purchase price pertaining to unoccupied facilities under lease as a
result of the SmartForce Merger. This adjustment to the exit accrual fell
outside the one year purchase price allocation period and was charged to
restructuring and is included in the statement of operations. The net present
value of the obligation under this exit plan, as adjusted, was approximately
$15.3 million, of which $1.6 million remains.





B-17
 Table of Contents




Activity
in the Company’s merger and exit costs and long-term liabilities related to the
NETg acquisition and the SmartForce Merger, was as follows (in
thousands):




EMPLOYEE
      SEVERANCE AND RELATED COSTS
                  
                  
                  CLOSEDOWN
      OF FACILITIES
                  
                  
                  OTHER
                  
                  
                  TOTALMerger
      and exit accrual January 31, 2007
                  
                  $
                  878
                  
                  
                  $
                  2,278
                  
                  
                  $
                  121
                  
                  
                  $
                  3,277Payments
      made during the year
                  
                  
                  (7,993
                  )
                  
                  
                  (1,282
                  )
                  
                  
                  (328
                  )
                  
                  
                  (9,603
                  )Adjustment
      to provision for merger and exit costs in connection with the acquisition
      of NETg
                  
                  
                  8,761
                  
                  
                  
                  1,957
                  
                  
                  
                  1,753
                  
                  
                  
                  12,471Adjustment
      to provision for merger and exit costs in connection with the SmartForce
      merger
                  
                  
                  -
                  
                  
                  
                  271
                  
                  
                  
                  (176
                  )
                  
                  
                  95Merger
      and exit accrual January 31, 2008
                  
                  $
                  1,646
                  
                  
                  $
                  3,224
                  
                  
                  $
                  1,370
                  
                  
                  $
                  6,240Payments
      made during the year
                  
                  $
                  (959
                  )
                  
                  $
                  (1,851
                  )
                  
                  $
                  (207
                  )
                  
                  $
                  (3,017
                  )Adjustment
      to provision for merger and exit costs in connection with the acquisition
      of NETg
                  
                  
                  212
                  
                  
                  
                  (45
                  )
                  
                  
                  (1,086
                  )
                  
                  
                  (919
                  )Adjustment
      to provision for merger and exit costs in connection with the SmartForce
      merger
                  
                  
                  (899
                  )
                  
                  
                  266
                  
                  
                  
                  -
                  
                  
                  
                  (633
                  )Merger
      and exit accrual January 31, 2009
                  
                  $
                  -
                  
                  
                  $
                  1,594
                  
                  
                  $
                  77
                  
                  
                  $
                  1,671Long-term
      obligation
                  
                  $
                  -
                  
                  
                  $
                  1,189
                  
                  
                  $
                  -
                  
                  
                  $
                  1,189Current
      obligation
                  
                  $
                  -
                  
                  
                  $
                  405
                  
                  
                  $
                  77
                  
                  
                  $
                  482





Other
merger accruals primarily include payments under operating equipment leases,
content rebranding and legal costs.





The
Company anticipates that the remainder of the merger and exit accrual will be
paid out by October 2011 as follows (in thousands):





Year
      Ended January 31, 2010
                  
                  $
                  482Year
      Ended January 31, 2011
                  
                  
                  1,189Total
                  
                  $
                  1,671





(b)
            Discontinued
      Operations





In
connection with the NETg acquisition, the Company discontinued four businesses
acquired from NETg because the Company believed those product offerings did not
represent areas that could grow in a manner consistent with the Company’s
operating model or be consistent with the Company’s profit model or strategic
initiatives. The businesses that were identified as discontinued operations were
Financial Campus, NETg Press, Interact Now and Wave.





NETg
Press





On
October 26, 2007, the Company entered into an Asset Purchase Agreement pursuant
to which it agreed to sell to AXZO Press LLC the NETg Press assets. The Company
classified the NETg Press business as discontinued operations in the second
quarter of fiscal 2008. The Company received a note receivable for the sales
price, subject to discounts for pre-payment. The note receivable was valued at
$3.5 million at the time of divestiture, reflecting uncertainty relating to the
buyer’s ability to repay the note in full in accordance with its
terms.





Since the
NETg Press operations were acquired through the acquisition of NETg, its
carrying value was adjusted to its fair value. When NETg Press was classified as
held for sale, the assets and liabilities were recorded at fair value less costs
to sell the business. At the time of the agreement with AXZO Press, the fair
value of these assets and liabilities were adjusted to equal expected proceeds
from the sale of the business. This refinement to the fair value estimate was
recorded as a purchase accounting adjustment to goodwill and therefore no gain
or loss was recorded in the operations for the period ended January 31,
2008.





The
continuing cash flows were attributable to payments toward the note receivable
and potential inventory reseller revenue cash flows. Based upon the Company’s
assessment of the criteria in SFAS No. 144 and EITF No. 03-13, Applying the Conditions in Paragraph
42 of FASB Statement No. 144 in Determining Whether to Report Discontinued
Operations" (EITF No. 03-13), the Company concluded that continuing
involvement with the disposed component does not constitute significant
continuing involvement.





In the
second quarter of fiscal 2009, the note receivable was paid in full, resulting
in a pre-tax gain of $3.4 million, representing amounts received in excess of
the carrying value of the note receivable at that time.




B-18
 Table of Contents


Financial Campus




On August
21, 2007, the Company entered into an Asset Purchase Agreement pursuant to which
it agreed to sell to SmartPros, LTD, the Financial Campus assets. The Company
classified the Financial Campus business as discontinued operations in the
second quarter of fiscal 2008. The closing of the sale of the Financial Campus
assets occurred on August 21, 2007, resulting in nominal cash proceeds and
potential earnout payments for three years from the date of the sale based on
SmartPros’ gross revenue from the Financial Campus business line. Due to the
purchase price being contingent and not fixed or currently determinable, future
payments were not considered in calculating the gain on the sale of these
assets.





The
continuing cash flows are attributable to customer contracts retained by the
Company and potential earn out payments for three years from the date of the
sale. Based upon the Company’s assessment of the criteria in SFAS No. 144 and
EITF No. 03-13, "Applying the
Conditions in Paragraph 42 of FASB Statement No. 144 in Determining Whether to
Report Discontinued Operations" (EITF No. 03-13), the Company concluded
that these cash flows are not direct cash flows of the disposed component and
continuing involvement with the disposed component does not constitute
significant continuing involvement.





As of
January 31, 2009, the Company has not received any additional cash proceeds from
the sale of Financial Campus.  If the Company receives any future
earnout payments they will be classified as gain from discontinued
operations.





Interact
Now





The
Company determined it would not be feasible to sell the Interact Now business
line and the Company abandoned that business.





Wave





The
Company exited the Wave business in October 2007. There are no continuing
incoming or outgoing cash flows following the period in which the Company exited
this business.





The
summarized discontinued operations results for the fiscal years ended
January 31, 2008 and 2009 are as follows (in thousands):





Year
      Ended January 31,2008
                  
                  
                  2009Revenue
      from discontinued operations
                  
                  $
                  7,226
                  
                  
                  $
                  172Income
      from discontinued operations before income tax
                  
                  
                  451
                  
                  
                  
                  3,193Income
      tax provision
                  
                  
                  181
                  
                  
                  
                  1,281Income
      from discontinued operations
                  
                  $
                  270
                  
                  
                  $
                  1,912





The
income from discontinued operations before income tax for the fiscal year ended
January 31, 2009 primarily consists of a $3.4 million gain resulting from
proceeds received during the second quarter of fiscal 2009 from the Company’s
sale of the assets related to the NETg Press business in October 2007, offset by
a $0.2 million loss from discontinued operations.





(c)
            Restructuring




On
January 19, 2009, the Company committed to a reduction in force with respect to
approximately 120 employees in the U.S., Ireland and the United Kingdom. The
decision was based on a review of various cost savings initiatives undertaken in
connection with the development of the Company’s budget and operating plan for
fiscal 2010.The
Company recorded a $1.5 million restructuring charge for the fiscal year
ended January 31, 2009, which is included in the statement of income as
restructuring. Substantially all of thischarge represents the
severance cost of terminated employees.


B-19
 Table of Contents








Employee
      Severance and Related Costs
                  
                  
                  Contractual
      Obligations
                  
                  
                  TotalTotal
      restructuring accrual as of January 31, 2007
                  
                  $
                  88
                  
                  
                  $
                  1,333
                  
                  
                  $
                  1,421Payments
      and write downs made during the year
                  
                  
                  (122
                  )
                  
                  
                  (372
                  )
                  
                  
                  (494
                  )Restructuring
      provision
                  
                  
                  34
                  
                  
                  
                  -
                  
                  
                  
                  34Total
      restructuring accrual as of January 31, 2008
                  
                  
                  -
                  
                  
                  
                  961
                  
                  
                  
                  961Restructuring
      provision
                  
                  
                  1,523
                  
                  
                  
                  -
                  
                  
                  
                  1,523Payments
      and write downs made during the year
                  
                  
                  (411
                  )
                  
                  
                  (961
                  )
                  
                  
                  (1,372
                  )Total
      restructuring accrual as of January 31, 2009
                  
                  $
                  1,112
                  
                  
                  $
                  -
                  
                  
                  $
                  1,112Long-term
      obligation
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Current
      obligation
                  
                  $
                  1,112
                  
                  
                  $
                  -
                  
                  
                  $
                  1,112





The net
restructuring charges for the fiscal years ended January 31, 2007, 2008 and
2009 would have been allocated as follows had the Company recorded the expense
and adjustments within the functional department of the restructured activities
(in thousands):





Year
      Ended January 31,2007
                
                
                2008
                
                
                2009Cost
      of revenues
                
                $
                -
                
                
                $
                -
                
                
                $
                138Research
      and development
                
                
                (226
                )
                
                
                -
                
                
                
                645Selling
      and marketing
                
                
                53
                
                
                
                34
                
                
                
                535General
      and administrative
                
                
                22
                
                
                
                -
                
                
                
                205Exit
      related restructure
                
                
                177
                
                
                
                -
                
                
                
                -Total
                
                $
                26
                
                
                $
                34
                
                
                $
                1,523





The
Company anticipates that the remainder of the restructuring accrual will be paid
out in fiscal 2010.





(5)  Goodwill
and Intangible Assets





Intangible
assets are as follows (in thousands):





January
      31, 2008
                
                January
      31, 2009Gross
                
                
                
                Net
                
                Gross
                
                
                
                NetCarrying
                
                Accumulated
                
                Carrying
                
                Carrying
                
                Accumulated
                
                CarryingAmount
                
                Amortization
                
                Amount
                
                Amount
                
                Amortization
                
                AmountInternally
      developed software/ courseware
                
                $
                38,717
                
                
                $
                33,259
                
                
                $
                5,458
                
                
                $
                38,717
                
                
                $
                38,462
                
                
                $
                255Customer
      contracts
                
                
                36,848
                
                
                
                19,846
                
                
                
                17,002
                
                
                
                36,848
                
                
                
                26,938
                
                
                
                9,910Non-compete
                
                
                6,900
                
                
                
                2,070
                
                
                
                4,830
                
                
                
                6,900
                
                
                
                4,830
                
                
                
                2,070Trademarks
      and trade names
                
                
                2,725
                
                
                
                1,028
                
                
                
                1,697
                
                
                
                2,725
                
                
                
                2,388
                
                
                
                337Books
      trademark
                
                
                900
                
                
                
                -
                
                
                
                900
                
                
                
                900
                
                
                
                -
                
                
                
                900$
                86,090
                
                
                $
                56,203
                
                
                $
                29,887
                
                
                $
                86,090
                
                
                $
                72,618
                
                
                $
                13,472




Customer
contracts are existing contracts that relate to underlying customer
relationships pertaining to the services provided by the acquired company. The
Company amortizes the fair value of customer contracts on an accelerated basis
over their estimated useful lives ranging from 12 to 60 months with a
weighted average estimated useful life of 51 months. Internally developed
software/courseware relates to the Books24x7 platform, GoTrain Corp. content and
platform, the SmartForce PLC content, the NETg content and costs incurred
subsequent to technological feasibility and prior to general release for the
development of SkillSoft Dialogue and SkillView capitalized under
SFAS No. 86. Course content includes courses in both the business
skills and information technology skills subject areas. All courseware is
deployable via the Internet or corporate intranets. The Company amortizes
internally developed or purchased software/courseware, including SkillSoft
Dialogue and SkillView costs capitalized under SFAS No. 86, over their
estimated useful lives ranging from 18 to 48 months with a weighted average
useful life of 39 months. The non-compete agreement relates to terms stated
in the NETg acquisition agreement and has an estimated useful life of 30 months.
Trademarks and trade names relate to those acquired under the NETg and TLC
acquisitions and have estimated useful lives of 24 months. The weighted average
useful life for all intangible assets is 43 months.   B-20
 Table of
Contents





Fiscal Year
                
                Amortization
      Expense2010
                
                $
                8,2452011
                
                
                3,7122012
                
                
                615Total
                
                $
                12,572





Trademarks
of $0.9 million relating to Books24X7 are considered indefinite-lived and
accordingly no amortization expense is recorded.





Goodwill
is as follows (in thousands):





Gross
      carrying amount of goodwill, January 31, 2008
                  
                  $
                  256,196Payment
      of contingent purchase price of Targeted Learning
    Corporation
                  
                  
                  250Adjustments
      to allocation of purchase price for NETg acquisition
                  
                  
                  805Utilization
      of acquired tax benefits
                  
                  
                  (18,701
                  )Gross
      carrying amount of goodwill, January 31, 2009
                  
                  $
                  238,550




The
change in goodwill at January 31, 2009 from the amount recorded at
January 31, 2008 was due primarily to the release of a valuation allowance
offsetting net operating loss carryforwards attributed to the Company’s Ireland
operations. The Company anticipates full utilization of these tax benefits.
Partially offsetting the recognition of acquired tax benefits are adjustments to
the allocation of purchase price for the acquisition of NETg from the Thomson
Corporation on May 14, 2007.


(6)  Related
Party Transactions




In
connection with the NETg acquisition, the Company paid a special bonus of $0.5
million to one of the members of its Board of Directors for his assistance in
negotiating and completing the transaction. This bonus payment is included in
general and administrative expense in the accompanying statements of income for
the fiscal year ended January 31, 2008.





(7)  Income
Taxes





Income
from continuing operations before provision (benefit) for income taxes consists
of the following (in thousands):





Year
      Ended January 31,2007
                  
                  
                  2008
                  
                  
                  2009Ireland
                  
                  $
                  1,526
                  
                  
                  $
                  6,236
                  
                  
                  $
                  8,128United
      States
                  
                  
                  29,296
                  
                  
                  
                  20,476
                  
                  
                  
                  54,437Rest
      of World
                  
                  
                  5,282
                  
                  
                  
                  1,429
                  
                  
                  
                  5,271$
                  36,104
                  
                  
                  $
                  28,141
                  
                  
                  $
                  67,836





The
provision (benefit) for income taxes consists of the following (in
thousands):





Year
      Ended January 31,2007
                    
                    
                    2008
                    
                    
                    2009Current:Ireland
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -United
      States
                    
                    
                    3,158
                    
                    
                    
                    2,966
                    
                    
                    
                    4,884Rest
      of World
                    
                    
                    832
                    
                    
                    
                    580
                    
                    
                    
                    1,323$
                    3,990
                    
                    
                    $
                    3,546
                    
                    
                    $
                    6,207Deferred:Ireland
                    
                    $
                    183
                    
                    
                    $
                    -
                    
                    
                    $
                    (5,095
                    )United
      States
                    
                    
                    7,778
                    
                    
                    
                    (35,206
                    )
                    
                    
                    17,816Rest
      of World
                    
                    
                    -
                    
                    
                    
                    73
                    
                    
                    
                    31$
                    7,961
                    
                    
                    $
                    (35,133
                    )
                    
                    $
                    12,752Tax
      provision
                    
                    $
                    11,951
                    
                    
                    $
                    (31,587
                    )
                    
                    $
                    18,959





B-21
 Table of Contents


Net
deferred tax assets and liabilities consist of the following (in
thousands):





January
      31,2008
                    
                    
                    2009Current:Net
      operating loss carryforwards
                    
                    $
                    11,473
                    
                    
                    $
                    24,417Nondeductible
      expenses and reserves
                    
                    
                    2,261
                    
                    
                    
                    1,395Interest
      rate swap
                    
                    
                    -
                    
                    
                    
                    63213,734
                    
                    
                    
                    26,444Non-current:Net
      operating loss carryforwards
                    
                    $
                    95,302
                    
                    
                    $
                    56,132Tax
      credits
                    
                    
                    2,459
                    
                    
                    
                    3,932Intangibles
                    
                    
                    8,884
                    
                    
                    
                    12,596FAS123
      (R) compensation
                    
                    
                    4,143
                    
                    
                    
                    4,890Nondeductible
      expenses and reserves
                    
                    
                    4,791
                    
                    
                    
                    673Interest
      rate swap
                    
                    
                    1,386
                    
                    
                    
                    -116,965
                    
                    
                    
                    78,223Total
      current and non-current
                    
                    
                    130,699
                    
                    
                    
                    104,667Less
      - valuation allowance
                    
                    
                    (29,357
                    )
                    
                    
                    -$
                    101,342
                    
                    
                    $
                    104,667





Deferred
Taxes




Under
SFAS No. 109 “Accounting for Income Taxes,”
the Company recognizes a net deferred tax asset for future benefit of tax loss
and tax credit carryforwards to the extent that it is “more likely than not”
that these assets will be realized. In evaluating the Company’s ability to
recover these deferred tax assets, the Company considers all available positive
and negative evidence, including its past operating results, the existence of
cumulative income in the most recent years, changes in the business, its
forecast of future taxable income and the availability of tax planning
strategies. In determining future taxable income, the Company is responsible for
assumptions utilized including the amount of pre-tax operating income, the
reversal of temporary differences and the implementation of feasible and prudent
tax planning strategies. A valuation allowance is provided when it is more
likely than not that some portion or all of a deferred tax asset will not be
realized. Based on results of operations for the fiscal years ended January 31,
2007, 2008 and 2009 and anticipated future profit levels, the Company believes
that its deferred tax assets relating to its net operating loss carryforwards
are more likely than not to be realized. Accordingly, in the fiscal year ended
January 31, 2008 and 2009, the Company reversed approximately $95.9 million and
$23.1 million, respectively of valuation allowance on net operating loss
carryforwards and other net deferred tax assets, which will more likely than not
be realized in future periods. In fiscal
2008, the Company recognized the benefits of (i) $99.3 million of net operating
loss carryforwards and other net deferred tax assets attributed to the Company’s
U.S. operations, resulting in a $41.4 million reduction to the provision for
income taxes and (ii) $148.4 million of net operating loss carryforwards
acquired in the SmartForce merger and the purchase of Books24x7, resulting in a
$54.5 million reduction to goodwill. In fiscal 2009, the Company recognized the
benefits of (i) $40.4 million of net operating loss carryforwards attributed to
the Company’s operations in Ireland, resulting in a reduction to the
provision for income taxes of $5.1 million and (ii)$149.8 million of acquired
Irish net operating loss carryforwards resulting in an $18.0 million reduction
to goodwill.




As of
January 31, 2009, the Company has recorded a deferred tax asset in the
amount of $104.7 million comprised of $57.6 million of U.S. NOL carryforwards
and $23.7 million of other U.S. related net deferred tax assets, $23.1 million
of Irish NOL carryforwards and $0.3 million of tax timing differences in Canada.
Additionally, in accordance with SFAS No. 123(R), the Company reduces
its deferred tax asset and valuation allowance by the unrealized excess tax
benefit attributable to stock options.
 
 The
Company considers the excess of its financial reporting over its tax basis in
its investment in foreign subsidiaries essentially permanent in duration and as
such has not recognized a deferred tax liability related to this
difference.





B-22
 Table of Contents




A
reconciliation of the Irish statutory rate to the Company’s effective tax rate
is as follows:




January
      31,2007
                  
                  
                  2008
                  
                  
                  2009Income
      tax provision at Irish statutory rate
                  
                  
                  12.5
                  %
                  
                  
                  12.5
                  %
                  
                  
                  12.5
                  %Increase
      (decrease) in tax resulting from:U.S.
      state tax provision, net of U.S. federal benefit
                  
                  
                  6.5
                  
                  
                  
                  6.3
                  
                  
                  
                  4.1Foreign
      rate differential, primarily U.S.
                  
                  
                  17.2
                  
                  
                  
                  16.8
                  
                  
                  
                  17.3Nondeductible
      items
                  
                  
                  2.9
                  
                  
                  
                  2.8
                  
                  
                  
                  1.7Other
                  
                  
                  0.0
                  
                  
                  
                  0.6
                  
                  
                  
                  0.5Change
      in valuation allowance
                  
                  
                  (6.0
                  )
                  
                  
                  (151.2
                  )
                  
                  
                  (8.1
                  )Effective
      tax rate
                  
                  
                  33.1
                  %
                  
                  
                  (112.2
                  )
      %
                  
                  
                  28.0
                  %




The
Company recorded a total provision for income taxes in 2007 of
$12.0 million, influenced by the use of acquired tax assets, the benefit of
which were realized through reductions to goodwill and income generated in
foreign countries which cannot be offset by loss carryforwards. For the fiscal
year ended January 31, 2008, the Company recorded a tax benefit from continuing
operations of $31.6 million, primarily related to a deferred income tax benefit
of $42.6 million associated with the Company’s change in valuation allowance.
For the fiscal year ended January 31, 2009, the Company recorded a tax provision
of $19.0 million, influenced by a deferred income tax benefit of $5.1 million
associated with the Company’s change in valuation allowance.
 
 As of
January 31, 2009, the Company has $404.4 million and $3.9 million
in net operating loss and tax credit carryforwards, respectively which are
available to reduce future income taxes payments, if any. Approximately
$190.2 million of these carryforwards are not subject to expiration while
the remainder of $214.2 million, if not utilized, will expire at various
dates through the year ending January 31, 2025.
 
 Included
in the consolidated carryforward totals, are $214.2 million of
U.S. federal net operating loss carryforwards and $190.2 million of
Irish net operating loss carryforwards. These NOL carryforwards represent the
gross carrying value of the operating loss carryforwards.
 
 Tax
credit carryforwards of $3.9 million relate to U.S. federal
taxes.
 
 Included
in the $214.2 million of U.S. federal net operating carryforwards is $114.7
million (which reflects $20.5 million used in the current period) of U.S NOL
carryforwards that were acquired in the SmartForce Merger and the purchase of
Books24x7, $44.1 of U.S. NOL carryforwards  that relate to our
operations and $55.4 million of NOL carryforwards resulting from disqualifying
dispositions. The Company will realize the benefit of the disqualifying
disposition losses through increases to shareholders’ equity in the periods in
which the losses are utilized to reduce tax payments.
 
 Included
in the $190.2 million of Irish net operating loss carryforwards is $149.8
million (which reflects $8.1 million used in the current period) of NOL
carryforwards which were acquired in the SmartForce Merger and $40.4 million of
NOL carryforwards that relate to our Irish operations.
 
 The
Company completed several financings since its inception and has incurred
ownership changes as defined under Section 382 of the Internal Revenue
Code. The Company completed an analysis of these changes and does not believe
that the changes will have a material impact on its ability to use its net
operating loss and tax credit carryforwards.
 
 Effective
February 1, 2007, the Company adopted the provisions of FASB Interpretation No.
48, “Accounting for
Uncertainty in Income Taxes.” The Company had gross unrecognized tax
benefits and related accrued interest and penalties of $2.6 million at January
31, 2008 that, if recognized, $0.9 million would affect the Company’s effective
tax rate. At January 31, 2009, the Company’s unrecognized tax benefits and
related accrued interest and penalties totaled $3.1 million, all of which, if
recognized, would affect the Company’s effective tax rate. The increase in
unrecognized tax benefits, at January 31, 2009 as compared to January 31, 2008,
which if recognized would impact our effective tax rate, is due to the adoption
of FASB Statement No. 141(R) - Business Combinations as of February 1, 2009.
FASB Statement No. 141(R) requires that the Company recognize changes in
acquired income tax uncertainties (applied to acquisitions before and after the
adoption date) as income tax expense or benefit. The Company anticipates that in
the next twelve months the liability for unrecognized tax benefits for certain
tax positions could decrease by as much as $0.7 million due to settlement with
various tax authorities. The Company accounts for interest and penalties related
to uncertain tax positions as part of its provision for federal and state income
taxes. The Company had $0.7 million accrued for interest and penalties at
January 31, 2009. The total amount of interest and penalties recognized in the
consolidated statement of income for the fiscal year ended January 31, 2009 was
$0.5 million.


B-23
 Table of Contents




The
following table sets forth a reconciliation of the beginning and ending amounts
of unrecognized tax benefits (in thousands):




January
      31,2008
                  
                  
                  2009Unrecognized
      tax benefits
                  
                  
                  1,959
                  
                  
                  $
                  2,290Increases
      for tax positions taken during the current period
                  
                  
                  201
                  
                  
                  
                  423Increases
      for tax positions taken during a prior period
                  
                  
                  706
                  
                  
                  
                  773Decrease
      related to settlements
                  
                  
                  (576
                  )
                  
                  
                  (14
                  )Increases
      (decreases) resulting from the expiration of statute of
      limitations
                  
                  
                  -
                  
                  
                  
                  (1,127
                  )Unrecognized
      tax benefits
                  
                  $
                  2,290
                  
                  
                  $
                  2,345




In the
normal course of business, the Company is subject to examination by taxing
authorities in such major jurisdictions as Ireland, the United Kingdom, Germany,
Australia, Canada and the United States. With few exceptions, the Company is no
longer subject to U.S federal, state and local or non-U.S. income tax
examinations for years before 2002 in these major jurisdictions. The Company
does not believe that it is reasonably possible that the estimates of
unrecognized tax benefits will change significantly in the next twelve
months.





(8)  Commitments
and Contingencies




(a) Leases


The
Company leases its facilities and certain equipment and furniture under
operating lease agreements that expire at various dates through 2023. Included
in the accompanying statements of income is rent expense for leased facilities
and equipment of approximately $3.6 million, $5.4 million, and
$4.6 million for the fiscal years ended January 31, 2007, 2008 and
2009, respectively.
 
 None of
the Company’s operating leases contain contingent rent provisions. The
amortization period for all leasehold improvements is the lesser of the
estimated useful life of the assets or the related lease term.
 
 Future
minimum lease payments under the operating lease agreements are approximately as
follows (in thousands):





Facilities
                  
                  
                  Other
                  
                  
                  TotalFiscal
      year ended January 31:2010
                  
                  $
                  3,527
                  
                  
                  $
                  172
                  
                  
                  $
                  3,6992011
                  
                  
                  2,654
                  
                  
                  
                  118
                  
                  
                  
                  2,7722012
                  
                  
                  1,948
                  
                  
                  
                  30
                  
                  
                  
                  1,9782013
                  
                  
                  1,744
                  
                  
                  
                  2
                  
                  
                  
                  1,7762014
                  
                  
                  718
                  
                  
                  
                  -
                  
                  
                  
                  718$
                  10,621
                  
                  
                  $
                  322
                  
                  
                  $
                  10,943




(b) Litigation




SEC
Investigation


The
Company had been the subject of a formal investigation by the United States
Securities and Exchange Commission (SEC) into the events and circumstances
giving rise to the 2003 restatement of SmartForce PLC’s accounts (the
Restatement Investigation). On July 19, 2007, the SEC announced that three
former officers and one former employee of SmartForce had settled SEC claims in
connection with the Restatement Investigation. The Company understands that the
Restatement Investigation has now been concluded without any claim being brought
against it.
 
 In
January 2007, the Boston District Office of the SEC informed the Company that it
is the subject of an informal investigation concerning option granting practices
at SmartForce for the period beginning April 12, 1996 through July 12, 2002 (the
Option Granting Investigation). These grants were made prior to the September 6,
2002 merger with SmartForce PLC. The Company has produced documents in response
to requests from the SEC. The SEC staff has informed the Company that despite
closure of the Restatement Investigation, the staff has not determined whether
to close the Option Granting Investigation.
 
 The
Company believes that it accounted for SmartForce stock option grants properly
in the merger, and believes that as a result of the merger accounting the
Company’s financial statements are not going to change even if the SEC concludes
that SmartForce did not properly account for its pre-merger option grants. When
SkillSoft Corporation and SmartForce merged on September 6, 2002, SkillSoft
Corporation was for accounting purposes deemed to have acquired SmartForce.
Accordingly, the pre-merger financial statements of SmartForce are not included
in the historical financial statements of the Company, and the Company’s
financial statements include results from what had been the business of
SmartForce only from the date of the merger.




B-24
 Table of Contents
  Under
applicable accounting
rules, the Company valued all of the outstanding SmartForce stock options
assumed in the merger at fair value upon consummation of the
merger.
 
 Accordingly,
SkillSoft believes that its accounting for SmartForce stock options will not be
affected by any error that SmartForce may have made in its own accounting for
stock option grants and that that the Option Granting Investigation should not
require any change in SkillSoft’s financial statements.
 The
Company has cooperated with the SEC in the Option Granting Investigation. At the
present time, the Company is unable to predict the outcome of the Option
Granting Investigation or its potential impact on its operating results or
financial position.




Lawsuits




From time
to time, the Company is a party to or may be threatened with other litigation in
the ordinary course of its business. The Company regularly analyzes current
information, including, as applicable, the Company’s defenses and insurance
coverage and, as necessary, provides accruals for probable and estimable
liabilities for the eventual disposition of these matters. The Company is not a
party to any other material legal proceedings.


(c) Delinquent Foreign Filings




The
Company operates in various foreign countries through subsidiaries organized in
those countries. Due to the restatement of the historical SmartForce statutory
financial statements, some of the subsidiaries were delayed in filing their
audited financial statements and have been delayed in filing their tax returns
in their respective jurisdictions. As a result, some of these foreign
subsidiaries may be subject to regulatory restrictions, penalties and fines. The
Company does not believe such restrictions, penalties and fines, if any, would
have a material impact on the financial statements.





(9)  Shareholders’
Equity





(a)
            ADS
      Repurchase Program




On April
8, 2008, the Company’s shareholders approved a program for the repurchase by the
Company of up to an aggregate of 10,000,000 ADSs. On September 24, 2008, the
Company’s shareholders approved an increase in the number of shares that may be
repurchased under the program to 25,000,000 and an extension of the repurchase
program until March 23, 2010. As of January 31, 2009, 13,902,685 shares remain
available for repurchase, subject to certain limitations, under the shareholder
approved repurchase program.
 
 During
the fiscal year ended January 31, 2009, the Company repurchased a total of
11,097,315 shares for a total purchase price, including commissions, of $91.9
million. The Company retired 16,800,397 shares during the fiscal year ended
January 31, 2009, including 6,533,884 shares repurchased in prior fiscal years.
As of January 31, 2009, 830,802 of the repurchased shares have not been retired
or canceled and are held as treasury shares at cost; the Company intends to
retire these shares in the near future.





(b)
            Share
      Based Compensation




The
Company currently has two share-based compensation plans, the 2001 Outside
Director Option Plan (the Outside Director Plan) and the 2002 Stock Incentive
Plan (the 2002 Plan), under which employees, officers, directors and consultants
may be granted options to purchase the Company’s ordinary shares, generally at
the market price on the date of grant.
 
 The Plans
are administered by the Compensation Committee of the Board of Directors (the
Committee). Under the Outside Director Plan, all outside directors of the
Company are eligible to receive option grants upon appointment to the Board of
Directors and each subsequent year thereafter. All grants of options under the
Outside Director Plan are automatic and nondiscretionary and are made strictly
in accordance with the provisions of the plan. The exercise price of option
grants under the Outside Director Plan is the closing sales price for such
shares (or the closing bid, if no sales were reported) as quoted on such
exchange or system on the date of grant (or for the most recent trading day).
The options granted generally vest over one year and have a term of ten
years.
 
 Under the
2002 Plan all employees, inside directors and consultants are eligible to
receive incentive share options or non-statutory share options. Share purchase
rights may also be granted under the plan. The options generally vest over four
years and have a term of seven years. Options under the Plans generally expire
not later than 30 to 90 days following termination of employment or service
or twelve months following an optionees’ death or disability.




In
connection with the SmartForce Merger on September 6, 2002, the Company
assumed the SmartForce plans, which included the 1994 Share Option Plan
(the 1994 Plan) and the 1996 Supplemental Stock Plan (the 1996
Plan).


B-25
 Table of Contents




These
SmartForce Plans along
with the following legacy SkillSoft plans, the Book24x7.com, Inc. 1994 Stock
Option Plan (the Books Plan), 1998 Stock Incentive Plan (the 1998 Plan) and the
2001 Stock Incentive Plan (the 2001 Plan), (collectively the Previous Plans)
exist solely to satisfy outstanding options previously granted under these
plans.
 
 A total
of 49,672,609 shares were authorized under these plans, of which 2,065,138
shares were available for grant from the 2002 Plan and the Outside Director Plan
at January 31, 2009.
  All stock
option activity under the Plans for the fiscal year ended January 31, 2009
is as follows:





Shares
                              
                              Exercise
      Price
                              
                              Weighted
      Average Exercise Price
                              
                              Weighted
      Average Remaining Contractual Term (Years)
                              
                              Aggregate
      Intrinsic Value(In
      Thousands)Outstanding,
      January 31, 2008
                              16,630,763
                              
                              $0.11
      - $42.88
                              
                              $
                              7.05
                              
                              4.76
                              
                              $
                              51,072Granted
                              415,000
                              
                              0.14  -  10.95
                              
                              
                              3.11Exercised
                              (3,653,650)
                              
                              0.11  -  10.67
                              
                              
                              4.50Forfeited
                              (77,501)
                              
                              5.99  -  10.90
                              
                              
                              9.29Expired
                              (290,456)
                              
                              0.11  -  31.50
                              
                              
                              11.28Outstanding,
      January 31, 2009
                              13,024,156
                              
                              0.14  -  42.88
                              
                              $
                              7.54
                              
                              3.91
                              
                              
                              16,075Exercisable,
      January 31 , 2009
                              9,982,162
                              
                              0.25  -  42.88
                              
                              $
                              8.02
                              
                              3.66
                              
                              
                              12,310Vested
      and Expected to Vest, January 31, 2009(1)
                              12,633,768
                              
                              
                              
                              $
                              7.60
                              
                              3.90
                              
                              
                              15,383Exercisable,
      January 31 , 2008
                              12,335,123
                              
                              $0.11
      - $42.88
                              
                              $
                              7.23


__________





(1)
            This
      represents the number of vested options as of January 31, 2009 plus
      the number of unvested options as of January 31, 2009 that are
      expected to vest as adjusted to reflect an estimated forfeiture rate of
      12.9%. The Company recognizes expense incurred under SFAS 123(R) on a
      straight line basis. Due to the Company’s vesting schedule, expense is
      incurred on options that have not yet vested but which are expected to
      vest in a future period. The options for which expense has been incurred
      but have not yet vested are included above as options expected to
      vest.





The
aggregate intrinsic value in the table above represents the total pre-tax
intrinsic value (the difference between the closing price of the shares on
January 31, 2009 of $7.10 and the exercise price of each in-the-money
option outstanding) that would have been realized by the option holders had all
option holders exercised their options on January 31, 2009.
 
 The
weighted average grant date fair value of options granted during the fiscal
ended January 31, 2009 was $4.97 per share. The total intrinsic value
of options exercised during the fiscal year ended January 31, 2008 and 2009
was approximately $6.9 million and $21.8 million,
respectively.
 
 The
following table summarizes certain information relating to the outstanding and
exercisable options as of January 31, 2009:


Outstanding
                                                  
                                                  ExercisableRange of Exercise Prices
                                                  Number
      of Shares
                                                  
                                                  Weighted
      Average Remaining Contractual Life (Years)
                                                  
                                                  Weighted
      Average Exercise Price
                                                  
                                                  Number
      of Shares
                                                  
                                                  Weighted
      Average Exercise Price$
      0.14 - $ 3.99
                                                  1,007,835
                                                  
                                                  3.31
                                                  
                                                  $
                                                  2.45
                                                  
                                                  742,835
                                                  
                                                  $
                                                  3.27$
      4.06 - $ 4.06
                                                  1,759,024
                                                  
                                                  3.54
                                                  
                                                  
                                                  4.06
                                                  
                                                  1,759,024
                                                  
                                                  
                                                  4.06$
      4.07 - $ 5.99
                                                  1,264,778
                                                  
                                                  4.06
                                                  
                                                  
                                                  5.69
                                                  
                                                  967,266
                                                  
                                                  
                                                  5.59$
      6.09 - $ 6.38
                                                  1,329,188
                                                  
                                                  2.78
                                                  
                                                  
                                                  6.34
                                                  
                                                  1,325,021
                                                  
                                                  
                                                  6.34$
      6.41 - $ 6.41
                                                  4,697,556
                                                  
                                                  4.84
                                                  
                                                  
                                                  6.41
                                                  
                                                  2,397,554
                                                  
                                                  $
                                                  6.41$
      6.62 - $11.60
                                                  1,289,259
                                                  
                                                  4.04
                                                  
                                                  
                                                  10.11
                                                  
                                                  1,113,946
                                                  
                                                  
                                                  10.38$12.10
      - $34.25
                                                  1,672,516
                                                  
                                                  2.77
                                                  
                                                  
                                                  17.70
                                                  
                                                  1,672,516
                                                  
                                                  
                                                  17.70$42.88
      - $42.88
                                                  4,000
                                                  
                                                  1.71
                                                  
                                                  
                                                  42.88
                                                  
                                                  4,000
                                                  
                                                  $
                                                  42.88$
      0.14 - $42.88
                                                  13,024,156
                                                  
                                                  3.91
                                                  
                                                  $
                                                  7.54
                                                  
                                                  9,982,162
                                                  
                                                  $
                                                  8.02




The
Company uses the Black-Scholes option pricing model to determine the weighted
average fair value of options prior to and after adopting SFAS 123(R). The
estimated fair value of employee share options is amortized to expense using the
straight-line method over the vesting period. The weighted average information
and assumptions used for the grants were as follows:


B-26
 Table of Contents





Year
      Ended January 31,2007
                
                
                2008
                
                
                2009Risk-free
      interest rates
                
                
                4.41-5.03
                %
                
                
                3.25-4.93
                %
                
                
                1.39-2.93
                %Expected
      dividend yield
                
                
                -
                
                
                
                -
                
                
                
                -Volatility
      factor
                
                
                60
                %
                
                
                60
                %
                
                
                39-56
                %Expected
      lives
                
                4
      years
                
                
                4
      years
                
                
                2.34-4.0
      yearsWeighted
      average fair value of options granted
                
                $
                3.16
                
                
                $
                4.69
                
                
                $
                4.97Weighted
      average remaining contractual life of options outstanding
                
                5.47
      years
                
                
                4.76
      years
                
                
                3.91
      years




The
Company’s assumed dividend yield of zero is based on the fact that it has never
paid cash dividends and has no present intention to pay cash dividends. The
expected share-price volatility assumption used by the Company has been based on
a blend of implied volatility in conjunction with calculations of the Company’s
historical volatility determined over a period commensurate with the expected
life of its option grants. The implied volatility is based on exchange traded
options of the Company’s share. The Company believes that using a blended
volatility assumption will result in the best estimate of expected volatility.
The assumed risk-free interest rate is the U.S. Treasury security rate with
a term equal to the expected life of the option. The assumed expected life is
generally four years, which is based on company-specific historical experience.
With regard to the estimate of the expected life, the Company considers the
exercise behavior of past grants and the pattern of aggregate exercises. The
Company looked at historical option grant cancellation and termination data in
order to determine its assumption of forfeiture rate, which was 12.9% as of
January 31, 2009.
 
 As of
January 31, 2009, there was $10.5 million of compensation expense related
to non-vested share awards that is expected to be recognized over a period of
3.67 years and a weighted-average period of 1.82 years.
 
 SFAS
123(R) requires the cash flows resulting from excess tax benefits related to
share compensation to be classified as cash flows from financing activities when
realized. Excess tax benefits from the exercise of share options, classified as
a cash flow from financing activities, were $0, $0.4 million and $1.5 million in
fiscal years ended January 31, 2007, 2008 and 2009, respectively.
 
 Dividends
may only be declared and paid out of profits available for distribution
determined in accordance with accounting principles generally accepted in
Ireland and applicable Irish Company Law. On May 14, 2007, the Company entered
into a Credit Agreement that contains customary negative covenants that place
limitations on the distribution of income or retained earnings by the
consolidated group of companies of the Company. Any dividends, if and when
declared, will be declared and paid in dollars.
  (c) Employee Share Purchase
Plan




The
Company maintains an Employee Share Purchase Plan (the Purchase Plan) pursuant
to which participants are generally granted options to purchase ordinary shares
on the last business day of each six-month offering period ending each
September 30 and March 31 at 85% of the market price of the ADSs on
the first or last trading day of each offering period, whichever is less. The
purchase price for such shares is paid through payroll deductions, and the
current maximum allowable payroll deduction is 20% of each eligible employee’s
eligible compensation. As of January 31, 2009, there were
1,256,249 shares available for future issuance under the Purchase
Plan.
 
 For
shares purchased under the 2004 Employee Share Purchase Plan (ESPP), the Company
uses a Black-Scholes option-pricing model, with the following assumptions. In
valuing the ESPP, the Company used an assumed risk-free interest rate of
4.79% — 5.08% for fiscal 2007, 4.20% — 5.10% for fiscal 2008 and
1.51% — 1.64% for fiscal 2009. The Company also used an expected volatility
factor of 35% for fiscal 2007, 37% for fiscal 2008 and 40% for fiscal 2009, and
an expected life of six months, with the assumption that dividends will not be
paid. The Company recorded compensation expense of approximately $0.6 million,
$1.0 million and $0.9 million in the years ended January 31, 2007, 2008 and
2009, respectively, related to the ESPP.




(10)  Credit
Facilities




In
connection with the closing of the NETg acquisition on May 14, 2007, the Company
entered an Agreement (the Credit Agreement) with certain lenders (the Lenders)
providing for a $225 million senior secured credit facility comprised of a $200
million term loan facility and a $25 million revolving credit facility. The term
loan was used to finance the Acquisition and the revolving credit facility may
be used for general corporate purposes.
 
 The
Company is required to pay the Lenders a commitment fee at a rate per annum of
0.50% on the average daily unused amount of the revolving credit facility
commitments of such Lenders during the period for which payment is made, payable
quarterly in arrears. The term loan is payable in 24 consecutive quarterly
installments of (i) $500,000 in the case of each of the first 23 installments,
on the last day of each of September, December, March, and June commencing
September 30, 2007 and ending on March 31,
2013, and (ii) the balance due on May 14, 2013.   B-27
 Table of Contents
  The
revolving credit facility terminates on May 14, 2012, at which time all
outstanding borrowings under the revolving credit facility are due. The Company
may optionally prepay loans under the Credit Agreement at any time, without
penalty. The loans are subject to mandatory prepayment in certain circumstances. The
Credit Agreement contains customary representations and warranties as well as
affirmative and negative covenants. Affirmative covenants include, among others,
with respect to the Company and its subsidiaries, maintenance of existence,
financial and other reporting, payment of obligations, maintenance of properties
and insurance, maintenance of a credit rating, and interest rate protection.
Negative covenants include, among others, with respect to the Company and its
subsidiaries, limitations on incurrence or guarantees of indebtedness,
limitations on liens, limitations on sale and lease-back transactions,
limitations on investments, limitations on mergers, consolidations, asset sales
and acquisitions, limitations on dividends, share redemptions and other
restricted payments, limitations on affiliate transactions, limitations on
hedging transactions, and limitations on capital expenditures. The Credit
Agreement also includes a leverage ratio covenant and an interest coverage ratio
covenant (the ratio of the Company’s consolidated EBITDA to its consolidated
interest expense as calculated pursuant to the Credit
Agreement).





Within
the definitions of the Credit Agreement, a material adverse effect shall mean a
material adverse condition or material adverse change in or materially and
adversely affecting (a) the business, assets, liabilities, operations or
financial condition of Holdings, the Borrower and the Subsidiaries, taken as a
whole, or (b) the validity or enforceability of any of the Loan Documents or the
rights and remedies of the Administrative Agent, the Collateral Agent or the
Secured Parties thereunder. During the year ended January 31, 2009, no event,
change or condition occurred that has caused, or could reasonably be expected to
cause, a material adverse effect. As of January 31, 2009, the Company was in
compliance with all other covenants under the Credit Agreement.





The
Company’s obligations under the Credit Agreement are guaranteed by SkillSoft
PLC, as the parent company, its domestic subsidiaries, and certain other
material subsidiaries of the Company pursuant to a Guarantee and Collateral
Agreement, dated May 14, 2007 (the Guarantee and Collateral Agreement), among
the Company, the subsidiary guarantors thereto from time to time (the
Guarantors), and the Agent on behalf of the Lenders, and in addition by certain
foreign law guarantees issued by certain of the Guarantors. The loans and the
other obligations of the Company under the Credit Agreement and related loan
documents and the guarantee obligations of the Company and Guarantors are
secured by substantially all of the tangible and intangible assets of the
Company, and each Guarantor (including, without limitation, the intellectual
property and the capital stock of certain subsidiaries) pursuant to the
Guarantee and Collateral Agreement, and pursuant to certain foreign debentures
and charges against their assets.





On July
7, 2008, the Company entered into an amendment (Amendment No. 1) to the Credit
Agreement, and the related Guarantee and Collateral Agreement, dated May 14,
2007. The primary purpose of Amendment No. 1 was to expand the ability of the
Company and its subsidiaries to make repurchases of the Company’s Ordinary
Shares. The Company’s expanded repurchase ability under Amendment No. 1 is
conditioned on the absence of an event of default and a requirement that (i) the
leverage ratio shall be no greater than 2.75:1.0 as of the most recently
completed fiscal quarter ending prior to the date of such repurchase and (ii)
that the Company make a prepayment of the term loan under the Credit Agreement
in an amount equal to the dollar amount of any such repurchase. Such term loan
prepayments were not, however, required in connection with the first $24.0
million of repurchases made from and after July 7, 2008.





Amendment
No. 1 also provides for an increase in the interest rate on the term loan
outstanding under the Credit Agreement and the payment of additional fees to the
Lenders upon execution of Amendment No. 1. Pursuant to Amendment No. 1, the term
loan will bear interest at a rate per annum equal to, at the Company’s election,
(i) a base rate (3.25% at January 31, 2009) plus a margin of 2.50% (increased
from 1.75%) or (ii) adjusted LIBOR (1.46% at January 31, 2009) plus a margin of
3.50% (increased from 2.75%).





In
connection with the Credit Agreement and Amendment No. 1, the Company incurred
debt financing costs of $5.9 million and $0.3 million, respectively, which were
capitalized and are being amortized as additional interest expense over the term
of the loans using the effective-interest method. The Company paid approximately
$ 10.3 million and $11.2 million in interest during the fiscal years ended
January 31, 2008 and 2009, respectively. The Company recorded $ 0.7 million and
$1.2 million of amortized interest expense related to the capitalized debt
financing costs during the fiscal years ended January 31, 2008 and 2009,
respectively. As of January 31, 2009, total unamortized debt financing costs of
$1.0 and $3.2 million are recorded within prepaid expenses and other current
assets and non-current other assets respectively based on scheduled future
amortization.





The
Company paid $1.0 million and $75.6 million against the term amount during the
fiscal years ended January 31, 2008 and 2009, respectively.





The
Lenders required the Company to enter into an interest rate swap agreement for
at least 50% of the term loan, or $100 million, as a means of reducing the
Company’s interest rate exposure. Accordingly, the Company entered into an
interest rate swap agreement with an
initial notional amount of $160.0 million which amortizes over a period
consistent with the Company’s anticipated payment schedule. The current notional
amount of the interest rate swap agreement at January 31, 2009 was $80.8
million.





B-28
 Table of Contents


Future
scheduled minimum payments under this credit facility are as follows (in
thousands):





Total2010
                  
                  $
                  1,2532011
                  
                  
                  1,2532012
                  
                  
                  1,2532013
                  
                  
                  1,2532014
                  
                  
                  118,372Total
                  
                  $
                  123,384





(11)
Derivative Instruments and Hedging Agreements




SFAS No.
133, “Accounting for
Derivative Instruments and Hedging Activities” (SFAS No. 133), as amended
and interpreted, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. As required by SFAS No. 133, the Company
records all derivatives on the balance sheet at fair value. The accounting for
changes in the fair value of derivatives depends on the intended use of the
derivative and the resulting designation. Derivatives used to hedge the exposure
to changes in the fair value of an asset, liability, or firm commitment
attributable to a particular risk, such as interest rate risk, are considered
fair value hedges. Derivatives used to hedge the exposure to variability in
expected future cash flows, or other types of forecasted transactions, are
considered cash flow hedges.
 
 For
derivatives designated as fair value hedges, changes in the fair value of the
derivative and the hedged item related to the hedged risk are recognized in
earnings. For derivatives designated as cash flow hedges, the effective portion
of changes in the fair value of the derivative is initially reported in other
comprehensive income (outside of earnings) and subsequently reclassified to
earnings when the hedged transaction affects earnings, and the ineffective
portion of changes in the fair value of the derivative is recognized directly in
earnings. The Company assesses the effectiveness of each hedging relationship by
comparing the changes in fair value or cash flows of the derivative hedging
instrument with the changes in fair value or cash flows of the designated hedged
item or transaction. For derivatives not designated as hedges, changes in fair
value are recognized in earnings.
 
 As of
January 31, 2009, no derivatives were designated as fair value hedges or hedges
of net investments in foreign operations. Additionally, the Company does not use
derivatives for trading or speculative purposes and currently does not have any
derivatives that are not designated as hedges. The Company’s interest rate swap
is not considered a fair value hedge nor a hedge of net investments in foreign
operations.
 
 The
Company’s objective in using derivatives is to add stability to interest expense
and to manage its exposure to interest rate movements or other identified risks.
To accomplish this objective, the Company primarily uses interest rate swaps as
part of its cash flow hedging strategy. Interest rate swaps designated as cash
flow hedges involve the receipt of variable-rate amounts in exchange for
fixed-rate payments over the life of the agreements without exchange of the
underlying principal amount. As of January 31, 2008 and 2009 the notional amount
on the interest rate swap was approximately $159.2 million and $80.8 million,
respectively.
 
 At
January 31, 2008, the interest rate swap had a fair value of $(3.5) million
which was included in long-term liabilities. At January 31, 2009, the interest
rate swap had a fair value of $(1.6) million which was included in current
liabilities. No hedge ineffectiveness was recognized during the fiscal year
ending January 31, 2008 and 2009. For the years ended January 31, 2008 and 2009,
the change in net unrealized gains (losses) on the interest rate swap designated
as a cash flow hedge and reported as a component of comprehensive income
included within the Statement of Shareholder’s Equity represented a $2.1 million
loss and $1.1 million gain, net of tax, respectively. The change in net
unrealized gains (losses) on cash flow hedges reflects (i) an unrealized loss of
$3.3 million and $0.3 million for the fiscal year ended January 31, 2008 and
2009 respectively, (ii) the reclassification of a $0.2 million unrealized gain
and a $2.2 million net unrealized loss from accumulated other comprehensive
income to interest expense for the years ending January 31, 2008 and 2009,
respectively and (iii) a tax benefit of $1.4 million and a tax charge of $0.8
million for the fiscal years ended January 31, 2008 and 2009, respectively.
Amounts reported in accumulated other comprehensive income related to
derivatives will be reclassified to interest expense as interest payments are
made on the Company’s variable-rate debt. For the year ending January 31, 2010,
the Company estimates that it will incur an additional $1.6 million of interest
expense relating to the interest rate swap.


B-29
 Table of Contents




(12)  Employee
Benefit Plan


The
Company has a 401(k) plan covering all US-based employees of the Company who
have met certain eligibility requirements. Under the terms of the 401(k) plan,
the employees may elect to make tax-deferred contributions to the 401(k) plan.
In addition, the Company may match employee contributions, as determined by the
Board of Directors of SkillSoft Corporation, and may make a discretionary
contribution to the 401(k) plan. Under this plan, contributions of approximately
$0.9 million, $1.0 million and $1.0 million were made for the fiscal years ended
January 31, 2007, 2008 and 2009, respectively.





(13)  Disclosures
About Segments of an Enterprise




The
Company follows the provisions of
SFAS No. 131. SFAS No. 131 established standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS No. 131 also
established standards for related disclosures about products and services and
geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision-making group, in
making decisions how to allocate resources and assess performance. The Company’s
chief operating decision makers, as defined under SFAS No. 131, are
the Chief Executive Officer, Chief Financial Officer and the Chief Operating
Officer. On April 29, 2005, the Company sold certain assets and transferred
certain liabilities related to its Retail Certification business and incurred a
$0.6 million loss on disposition in fiscal 2006. As a result beginning in fiscal
2008 the Company no longer views its operations or manages its business as
principally two operating segments: MML and retail certification. The Company
views its operations and manages its business as one segment, providing
multi-modal, on-demand e-learning and performance support solutions for global
enterprises, government, education and small to medium-sized
businesses.
 
 The
following tables set forth the Company’s statements of income for the fiscal
year ended January 31, 2007 by segment with additional disclosures as
required by SFAS No. 131:


Year
      Ended January 31, 2007Multi-Modal
                
                
                Retail
      Certification
                
                
                Combined(In
      thousands)Revenues
                
                $
                220,150
                
                
                $
                5,022
                
                
                $
                225,172Cost
      of revenues
                
                
                26,601
                
                
                
                -
                
                
                
                26,601Cost
      of revenues - amortization of intangible assets
                
                
                4,422
                
                
                
                -
                
                
                
                4,422Gross
      profit
                
                
                189,127
                
                
                
                5,022
                
                
                
                194,149Operating
      expenses:Research
      and development
                
                
                40,776
                
                
                
                -
                
                
                
                40,776Selling
      and marketing (1)
                
                
                90,875
                
                
                
                19
                
                
                
                90,894General
      and administrative (1)
                
                
                27,743
                
                
                
                (8
                )
                
                
                27,735Amortization
      of intangible assets
                
                
                1,652
                
                
                
                -
                
                
                
                1,652Restructuring
                
                
                74
                
                
                
                (48
                )
                
                
                26SEC
      investigation
                
                
                898
                
                
                
                -
                
                
                
                898Total
      operating expenses
                
                
                162,018
                
                
                
                (37
                )
                
                
                161,981Operating
      income
                
                $
                27,109
                
                
                $
                5,059
                
                
                $
                32,168Supplemental
      segment disclosuresProvision
      for income taxes
                
                
                11,951
                
                
                
                -
                
                
                
                11,951Depreciation,
      amortization and share-based compensation expense
                
                $
                17,233
                
                
                $
                -
                
                
                $
                17,233




B-30
 Table of Contents




The
following tables set forth the Company’s supplemental balance sheet information
by segment:




As
      of January 31, 2007Multi-Modal
                              
                              
                              Retail
      Certification
                              
                              
                              Combined(In
      thousands)Current
      assets, net
                              
                              $
                              240,226
                              
                              
                              $
                              544
                              
                              
                              $
                              240,770Property
      and equipment, net
                              
                              
                              9,672
                              
                              
                              
                              -
                              
                              
                              
                              9,672Goodwill
                              
                              
                              83,171
                              
                              
                              
                              -
                              
                              
                              
                              83,171Other
      assets
                              
                              
                              9,357
                              
                              
                              
                              -
                              
                              
                              
                              9,357Total
      consolidated assets
                              
                              $
                              342,426
                              
                              
                              $
                              544
                              
                              
                              $
                              342,970Current
      liabilities
                              
                              $
                              202,151
                              
                              
                              $
                              485
                              
                              
                              $
                              202,636Long-term
      liabilities
                              
                              
                              2,405
                              
                              
                              
                              -
                              
                              
                              
                              2,405Total
      liabilities
                              
                              
                              204,556
                              
                              
                              
                              485
                              
                              
                              
                              205,041Stockholders'
      equity
                              
                              
                              137,870
                              
                              
                              
                              59
                              
                              
                              
                              137,929Total
      consolidated liabilities and stockholders' equity
                              
                              $
                              342,426
                              
                              
                              $
                              544
                              
                              
                              $
                              342,970Supplemental
      segment disclosuresCapital
      expenditures
                              
                              $
                              5,519
                              
                              
                              $
                              -
                              
                              
                              $
                              5,519





Geographical
Reporting





The
Company attributes revenue to different geographical areas on the basis of the
location of the customer.





Revenues
by geographic area are as follows (in thousands):





Year
      Ended January 31,2007
                  
                  
                  2008
                  
                  
                  2009Revenue:United
      States
                  
                  $
                  175,483
                  
                  
                  $
                  217,670
                  
                  
                  $
                  243,967United
      Kingdom
                  
                  
                  26,030
                  
                  
                  
                  33,082
                  
                  
                  
                  44,681Canada
                  
                  
                  9,595
                  
                  
                  
                  11,090
                  
                  
                  
                  12,646Europe,
      excluding UK
                  
                  
                  2,001
                  
                  
                  
                  3,538
                  
                  
                  
                  7,056Australia/New
      Zealand
                  
                  
                  8,963
                  
                  
                  
                  12,640
                  
                  
                  
                  14,019Other
      (Countries less than 5% individually, by region)
                  
                  
                  3,100
                  
                  
                  
                  3,203
                  
                  
                  
                  6,125All
      Foreign Locations
                  
                  
                  49,689
                  
                  
                  
                  63,553
                  
                  
                  
                  84,527Total
      revenues
                  
                  $
                  225,172
                  
                  
                  $
                  281,223
                  
                  
                  $
                  328,494





Long-lived
tangible assets at international facilities are not significant.





(14)  Other
Assets





Other
assets in the accompanying consolidated balance sheets consist of the following
(in thousands):





Year
      Ended January 31,2008
                  
                  
                  2009Note
      receivable - long term
                  
                  $
                  3,507
                  
                  
                  $
                  -Debt
      financing cost - long term (See Note 10)
                  
                  
                  4,126
                  
                  
                  
                  3,211Other
                  
                  
                  97
                  
                  
                  
                  149Total
      other assets
                  
                  $
                  7,730
                  
                  
                  $
                  3,360





B-31
 Table of Contents




(15)  Accrued
Expenses — Current





Accrued
expenses in the accompanying consolidated balance sheets consist of the
following (in thousands):




Year
      Ended January 31,2008
                  
                  
                  2009Professional
      fees
                  
                  $
                  5,308
                  
                  
                  $
                  4,237Sales
      tax payable/VAT payable
                  
                  
                  4,366
                  
                  
                  
                  3,806Accrued
      royalties
                  
                  
                  6,892
                  
                  
                  
                  1,650Interest
      rate swap liability
                  
                  
                  -
                  
                  
                  
                  1,581Other
      accrued liabilities
                  
                  
                  12,941
                  
                  
                  
                  12,486Total
      accrued expenses
                  
                  $
                  29,507
                  
                  
                  $
                  23,760





(16)  Other
Long Term Liabilities





Other
long term liabilities in the accompanying consolidated balance sheets consist of
the following (in thousands):





Year
      Ended January 31,2008
                  
                  
                  2009Merger
      accrual - long term
                  
                  $
                  2,914
                  
                  
                  $
                  1,189Uncertain
      tax positions including interest and penalties - long term
                  
                  
                  2,569
                  
                  
                  
                  1,714Interest
      rate swap liability
                  
                  
                  3,467
                  
                  
                  
                  -Other
                  
                  
                  259
                  
                  
                  
                  318Total
      other long -term liabilities
                  
                  $
                  9,209
                  
                  
                  $
                  3,221





(17)  Fair
Value of Financial Instruments




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which
defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and expands disclosures
about fair value measurements. As defined in SFAS No. 157, fair value is the
amount that would be received if an asset was sold or a liability transferred in
an orderly transaction between market participants at the measurement
date.
 
 Effective
February 1, 2008, the Company adopted SFAS No. 157 with respect to its financial
assets and liabilities that are measured at fair value within its consolidated
financial statements. The adoption of SFAS No. 157 did not have a material
impact on the Company’s financial position, results of operations or cash
flows.
 
 In
February 2008, the FASB issued FSP SFAS No. 157-1, “Application of FASB Statement No.
157 to FASB Statement No. 13 and Its Related Interpretive Accounting
Pronouncements That Address Leasing Transactions” (FSP SFAS No. 157-1),
and FSP SFAS No. 157-2, “Effective Date of FASB Statement
No. 157” (FSP SFAS No. 157-2). FSP SFAS No. 157-1 removes leasing from
the scope of SFAS No. 157, “Fair Value Measurements.”
FSP SFAS No. 157-2 delays the effective date of SFAS No. 157 from 2008 to 2009
for all non-financial assets and non-financial liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The adoption of FSP SFAS No. 157-1,
effective February 1, 2008, did not impact the Company’s financial position,
results of operations or cash flows. The Company has deferred the application of
the provisions of this statement to its non-financial assets and liabilities in
accordance with FSP SFAS No. 157-2. The Company does not expect that its
adoption of the provisions of FSP SFAS No. 157-2 will have a material impact on
its financial position, results of operations or cash flows.
 
 SFAS No.
157 establishes a fair value hierarchy that prioritizes the inputs used to
measure fair value that maximizes the use of observable inputs and minimizes the
use of unobservable inputs. Observable inputs are inputs that reflect the
assumptions that market participants would use in pricing the asset or liability
developed based on market data obtained from sources independent of the Company.
Unobservable inputs are inputs that reflect the Company’s assumptions about the
assumptions market participants would use in pricing the asset or liability
developed based on the best information available in the
circumstances.
 
 The three
levels of the fair value hierarchy established by SFAS No. 157 in order of
priority are as follows:





•
            Level
      1: Quoted prices in active markets for identical assets as of the
      reporting date.





•
            Level
      2: Pricing inputs other than quoted prices in active markets included in
      Level 1, which are either directly or indirectly observable as of the
      reporting date. These include quoted prices for similar assets or
      liabilities in active markets and quoted prices for identical or similar
      assets or liabilities in markets that are not
  active.





•
            Level
      3: Unobservable inputs that reflect the Company’s assumptions about the
      assumptions that market participants would use in pricing the asset or
      liability. Unobservable inputs shall be used to measure fair value to the
      extent that observable inputs are not
available.


B-32
 Table of Contents


The
Company’s commercial paper, corporate debt securities, certificates of deposit
and federal agency notes are classified as cash equivalents or available for
sale securities based on the original maturity period and carried at fair value.
These assets, except for federal agency notes and treasury bills, are generally
classified within Level 1 of the fair value hierarchy because they are valued
using quoted market prices. The Company classifies federal agency notes within
Level 2 of the fair value hierarchy because they are valued using pricing inputs
other than quoted prices in active markets included in Level 1, which are either
directly or indirectly observable as of the reporting date.
 
 The
Company recognizes all derivative financial instruments in its consolidated
financial statements at fair value in accordance with FASB Statement No. 133,
“Accounting for Derivative
Instruments and Hedging Activities.” The Company determines the fair
value of these instruments using the framework prescribed by SFAS No. 157 by
considering the estimated amount the Company would receive to terminate these
agreements at the reporting date and by taking into account current interest
rates and the creditworthiness of the counterparty. In certain instances, the
Company may utilize financial models to measure fair value. Generally, the
Company uses inputs that include quoted prices for similar assets or liabilities
in active markets, quoted prices for identical or similar assets or liabilities
in markets that are not active, other observable inputs for the asset or
liability and inputs derived principally from, or corroborated by, observable
market data by correlation or other means. The Company has classified its
derivative liability within Level 2 of the fair value hierarchy because these
observable inputs are available for substantially the full term of the
derivative instrument.
 
 The
following table summarizes the Company’s fair value hierarchy for its financial
assets and liabilities measured at fair value on a recurring basis as of January
31, 2009 (in thousands):





January
      31, 2009
                
                
                Quoted
      Prices in Active Markets for Identical Assets
                  Level
      1
                
                
                Significant
      Other Observable Inputs Level 2
                
                
                Significant
      Unobservable Inputs Level 3Financial
      Assets:Cash
      equivalents (1)
                
                
                3,200
                
                
                $
                2,200
                
                
                $
                1,000
                
                
                $
                -Available
      for sale securities (2)
                
                
                1,099
                
                
                $
                1,099
                
                
                $
                -
                
                
                $
                -Financial
      Liabilities:Interest
      rate swap agreement (Note 19)
                
                
                1,581
                
                
                $
                -
                
                
                $
                1,581
                
                
                $
                -





(1)
Consists of high-grade commercial paper and federal agency notes with original
and remaining maturities of less than 90 days.





(2)
Consists of high-grade commercial paper, corporate debt securities and
certificates of deposit with original maturities of 90 days or more and
remaining maturities of less than 365 days.





(18)  Property
and Equipment





Property
and equipment consists of the following (in thousands):





Year
      Ended January 31,2008
                  
                  
                  2009Computer
      equipment
                  
                  $
                  38,983
                  
                  
                  $
                  43,399Furniture
      and fixtures
                  
                  
                  2,902
                  
                  
                  
                  2,442Leasehold
      improvements
                  
                  
                  1,765
                  
                  
                  
                  1,79143,650
                  
                  
                  
                  47,632Less
      accumulated depreciation and amortization
                  
                  
                  (36,440
                  )
                  
                  
                  (39,971
                  )$
                  7,210
                  
                  
                  $
                  7,661





Depreciation
and amortization expense related to property and equipment was $6.1 million,
$6.9 million and $5.3 million for the years ended January 31, 2007, 2008 and
2009, respectively.





B-33
 Table of Contents




(19)  Valuation &
Qualifying Accounts





Allowance
for Doubtful Accounts (amounts in thousands)


Balance
      at Beginning of Period
                
                
                Net
      provision added/(credited without utilization)
                
                
                Write-offs
                
                
                Balance
      at End of PeriodYear
      ended January 31, 2007
                
                $
                787
                
                
                $
                (452
                )
                
                $
                (129
                )
                
                $
                206Year
      ended January 31, 2008
                
                $
                206
                
                
                $
                242
                
                
                $
                (2
                )
                
                $
                446Year
      ended January 31, 2009
                
                $
                446
                
                
                $
                25
                
                
                $
                (80
                )
                
                $
                391





Valuation
Allowance on Deferred Tax Assets (amounts in thousands)





Balance
      at Beginning of Period
                
                
                Charged
      to Costs and Expenses
                
                
                Charged
      to Goodwill
                
                
                Write
      Down of Fully Valued Assets
                
                
                Deductions
                
                
                Balance
      at End of PeriodYear
      ended January 31, 2007
                
                $
                146,786
                
                
                $
                -
                
                
                $
                (10,073
                )
                
                $
                -
                
                
                $
                (11,924
                )
                
                $
                124,789Year
      ended January 31, 2008
                
                $
                124,789
                
                
                $
                16,592
                
                
                $
                (54,471
                )
                
                $
                -
                
                
                $
                (57,553
                )
                
                $
                29,357Year
      ended January 31, 2009
                
                $
                29,357
                
                
                $
                489
                
                
                $
                (18,029
                )
                
                $
                (4,068
                )
                
                $
                (7,749
                )
                
                $
                -





(20)  Concentration
of Suppliers




The
Company relies on a limited number of independent third parties to provide
educational content for a majority of the courses based on learning objectives
and specific instructional design templates that the Company provides to them.
The failure to maintain or expand the current development alliances or enter
into new development alliances could adversely affect the Company’s operating
results and financial condition.





(21)  Quarterly
Statement of Operation Information





Quarterly
Operating Results for Fiscal Years Ended January 31, 2009 and 2008
(unaudited)





The following table sets forth, for
the periods indicated, certain financial data of SkillSoft PLC





Q1
      2009
                
                
                
                Q2
      2009
                
                
                
                Q3
      2009
                
                
                
                Q4
      2009Revenues
                
                $
                81,643
                
                
                $
                83,332
                
                
                $
                83,064
                
                
                $
                80,455Gross
      Profit
                
                
                71,095
                
                
                
                71,762
                
                
                
                72,000
                
                
                
                72,443Income
      from continuing operations
                
                
                7,166
                
                
                
                10,815
                
                
                
                12,066
                
                
                
                18,829Net
      income
                
                $
                7,073
                
                
                $
                12,882
                
                
                $
                12,029
                
                
                $
                18,804Basic
      - continuing operations
                
                $
                0.07
                
                
                $
                0.10
                
                
                $
                0.12
                
                
                $
                0.19Basic
      - discontinued operations
                
                
                -
                
                
                
                0.02
                
                
                
                0.00
                
                
                
                0.00$
                0.07
                
                
                $
                0.12
                
                
                $
                0.12
                
                
                $
                0.19Diluted
      - continuing operations
                
                $
                0.07
                
                
                $
                0.10
                
                
                $
                0.11
                
                
                $
                0.18Diluted
      - discontinued operations
                
                
                -
                
                
                
                0.02
                
                
                
                0.00
                
                
                
                0.00$
                0.06
                †
                
                $
                0.12
                
                
                $
                0.11
                
                
                $
                0.18





Q1
      2008
                
                
                
                Q2
      2008
                
                
                
                Q3
      2008
                
                
                
                Q4
      2008Revenues
                
                $
                57,140
                
                
                $
                71,469
                
                
                $
                75,124
                
                
                $
                77,490Gross
      Profit
                
                
                50,114
                
                
                
                61,007
                
                
                
                65,102
                
                
                
                66,941Income
      from continuing operations
                
                
                7,489
                
                
                
                11,864
                
                
                
                6,176
                
                
                
                34,200Net
      income
                
                $
                7,489
                
                
                $
                12,388
                
                
                $
                5,825
                
                
                $
                34,297Basic
      - continuing operations
                
                $
                0.07
                
                
                $
                0.11
                
                
                $
                0.06
                
                
                $
                0.33Basic
      - discontinued operations
                
                
                -
                
                
                
                0.01
                
                
                
                0.00
                
                
                
                0.00$
                0.07
                
                
                $
                0.12
                
                
                $
                0.06
                
                
                $
                0.33Diluted
      - continuing operations
                
                $
                0.07
                
                
                $
                0.11
                
                
                $
                0.06
                
                
                $
                0.31Diluted
      - discontinued operations
                
                
                -
                
                
                
                0.00
                
                
                
                0.00
                
                
                
                0.00$
                0.07
                
                
                $
                0.11
                
                
                $
                0.05
                †
                
                $
                0.31


_______


†           Does
not add due to rounding.





B-34




EXHIBIT INDEX
 
 Exhibit
      No.
                    Title2.1
                    Agreement
      and Plan of Merger, dated as of June 10, 2002, by and among
      SmartForce Public Limited Company, SkillSoft Corporation and Slate
      Acquisition Corp. (Incorporated by reference to Exhibit 2.1 to
      SkillSoft PLC’s Current Report on Form 8-K dated June 14, 2002
      (File No. 000-25674)).2.2
                    Stock
      and Asset Purchase Agreement among T.N.H. France SARL, T.N.H. Holdings
      GmbH, The Thomson Corporation (Australia) Pty Ltd, Thomson Information and
      Solutions Limited, Thomson Global Resources, Thomson Learning Inc.,
      SkillSoft Public Limited Company and SkillSoft Corporation, dated
      October 25, 2006 (Incorporated by reference to Exhibit 2.1 to
      SkillSoft PLC’s Current Report on Form 8-K as filed with the
      Securities and Exchange Commission on October 26, 2006 (File
      No. 000-25674)).2.3
                    Side
      Letter to Purchase Agreement, dated as of May 14, 2007, by and among
      SkillSoft Public Limited Company, SkillSoft Corporation, Thompson Learning
      Inc., Thomson Global Resources, T.N.H. France SARL, T.N.H. Holdings GmbH,
      The Thomson Corporation (Australia) Pty Ltd., and Thomson Information
      & Solutions Limited (Incorporated by reference to Exhibit 2.2 of
      SkillSoft PLC’s Current Report on Form 8-K as filed with the Securities
      and Exchange Commission on May 14, 2007 (File No.
000-25674)).3.1
                    Memorandum
      of Association of SkillSoft PLC as amended on March 24, 1992,
      March 31, 1995, April 28, 1998, January 26, 2000,
      July 10, 2001, September 6, 2002 and November 19, 2002
      (Incorporated by reference to Exhibit 3.1 to SkillSoft PLC’s
      Quarterly Report on Form 10-Q for the fiscal quarter ended
      October 31, 2002 as filed with the Securities and Exchange Commission
      on January 21, 2003 (File No. 000-25674)).3.2
                    Articles
      of Association of SkillSoft PLC as amended on July 6, 1995,
      April 28, 1998, January 26, 2000, July 10, 2001,
      September 6, 2002 and November 19, 2002 (Incorporated by
      reference to Exhibit 3.2 to SkillSoft PLC’s Quarterly Report on
      Form 10-Q for the fiscal quarter ended October 31, 2002 as filed
      with the Securities and Exchange Commission on January 21, 2003 (File
      No. 000-25674)).4.1
                    Specimen
      certificate representing the ordinary shares of SkillSoft PLC
      (Incorporated by reference to Exhibit 4.1 to SkillSoft PLC’s Annual
      Report on Form 10-K for the fiscal year ended January 31, 2003
      as filed with the Securities and Exchange Commission on April 29,
      2003 (File No. 000-25674)).4.2
                    Amended
      and Restated Deposit Agreement (including the form of American Depositary
      Receipt), dated as of April 13, 1995 as amended and restated as of
      September 4, 2002, among SkillSoft PLC, The Bank of New York, as
      Depositary, and each Owner and Beneficial Owner from time to time of
      American Depositary Receipts issued thereunder (Incorporated by reference
      to Exhibit 4.1 to SkillSoft PLC’s Current Report on Form 8-K
      dated November 14, 2002 (File No. 000-256740)).4.3
                    Amended
      and Restated Restricted Deposit Agreement (including the form of American
      Depositary Receipt), dated as of November 30, 1995 and amended and
      restated as of September 4, 2002, among SkillSoft PLC, The Bank of
      New York, as Depositary, and each Owner and Beneficial Owner from time to
      time of American Depositary Receipts issued thereunder (Incorporated by
      reference to Exhibit 4.2 to SkillSoft PLC’s Current Report on
      Form 8-K dated November 14, 2002 (File
      No. 000-25674)).4.4
                    Restricted
      Deposit Agreement (B) dated as of June 8, 1998 and amended and
      restated as of September 4, 2002 among SkillSoft PLC, The Bank of New
      York, and the owners and beneficial owners of Restricted American
      Depositary Receipts (Incorporated by reference to Exhibit 4.3 to
      SkillSoft PLC’s Current Report on Form 8-K dated November 14, 2002
      (File No. 000-25674)).10.1**
                    Form
      of Indemnification Agreement between CBT Systems USA, Ltd. (formerly,
      Thornton Holdings, Ltd.) and its directors and officers dated as of April
      1995 (Incorporated by reference to Exhibit 10.5 to SkillSoft PLC’s
      Registration Statement on Form F-1 declared effective with the
      Securities and Exchange Commission on April 13, 1995 (File
      No. 333-89904)).10.2**
                    Form
      if Indemnification Agreement between SmartForce (USA) and its directors
      and officers dated as of September 6, 2002 (Incorporated by reference to
      Exhibit 10.5 to SkillSoft PLC’s Annual Report on Form 10-K for the fiscal
      year ended January 31, 2003 as filed with the Securities and Exchange
      Commission on April 29, 2003 (File No. 000 25674)).10.3**
                    Book24x7.com,
      Inc. 1994 Stock Option Plan (Incorporated by reference to Exhibit 10.1 to
      SkillSoft PLC's Quarterly Report on Form 10-Q for the fiscal quarter ended
      October 31, 2002 as filed with the Securities and Exchange Commission on
      January 21, 2003 (File No. 000-25674)).10.4**
                    1994 Share
      Option Plan (Incorporated be reference to Exhibit 10.2 to SkillSoft
      PLC’s Registration Statement on Form F-1 declared effective with the
      Securities and Exchange Commission on April 13, 1995 (File
      No. 333-89904)).
 Table of Contents
   ExhibitNo.
                    Title10.5**
                    1996
      Supplemental Stock Plan (Incorporated by reference to Exhibit 10.3 to
      SkillSoft PLC’s Quarterly Report on Form 10-Q for the fiscal quarter
      ended October 31, 2006 as filed with the Securities and Exchange
      Commission on December 8, 2006 (File
      No. 000-25674)).10.6**
                    1998
      Stock Incentive Plan (Incorporated by reference to Exhibit 10.2 to
      SkillSoft PLC's Quarterly Report on Form 10-Q for the fiscal quarter ended
      October 31, 2002 as filed with the Securities and Exchange Commission on
      January 21, 2003 (File No. 000-25674)).10.7**
                    2001
      Stock Incentive Plan (Incorporated by reference to Exhibit 10.4 to
      SkillSoft PLC's Quarterly Report on Form 10-Q for the fiscal quarter ended
      October 31, 2002 as filed with the Securities and Exchange Commission on
      January 21, 2003 (File No. 000-25674)).10.8**
                    2001
      Outside Director Option Plan, as amended (Incorporated by reference to
      Exhibit 10.1 to SkillSoft PLC’s Quarterly Report on Form 10-Q
      for the fiscal quarter ended October 31, 2007 as filed with the
      Securities and Exchange Commission on December 10, 2007 (File
      No. 000-25674)).10.9**
                    2002 Share
      Option Plan, as amended (Incorporated by reference to Exhibit 10.2 to
      SkillSoft PLC’s Quarterly Report on Form 10-Q for the fiscal quarter
      ended October 31, 2006 as filed with the Securities and Exchange
      Commission on December 8, 2006 (File
      No. 000-25674)).10.10**
                    2004
      Employee Share Purchase Plan, as amended (Incorporated by reference
      to Appendix C to SkillSoft PLC's Definitive Proxy Statement on Schedule
      14A as filed with the Securities and Exchange Commission on July 28, 2004
      (File No. 000-25674)).10.11**†
                    Employment
      Agreement dated June 10, 2002 between SkillSoft PLC and Charles E.
      Moran, as amended December 23, 2008.10.12**†
                    Employment
      Agreement dated as of June 10, 2002 between SkillSoft PLC and Jerald
      A. Nine, Jr., as amended December 23, 2008.10.13
                    Registration
      Rights Agreement dated as of June 10, 2002 between SkillSoft PLC and
      Warburg Pincus Ventures, L.P. (Incorporated by reference to
      Exhibit 10.27 to SkillSoft PLC’s Amendment No. 1 to Registration
      Statement on Form S-4 as filed with the Securities and Exchange
      Commission on July 30, 2002 (File No. 333-90872)).10.14**†
                    Employment
      Agreement dated January 12, 1998 between SkillSoft Corporation and
      Mark A. Townsend, as amended December 29, 2008.10.15**†
                    Employment
      Agreement dated January 12, 1998 between SkillSoft Corporation and
      Thomas J. McDonald, as amended December 23, 2008.10.16**†
                    Employment
      Agreement dated effective September 6, 2002 between SkillSoft PLC and
      Colm Darcy, as amended December 23, 2008.10.17
                    Lease
      dated May 25, 2001, as amended between 1987 Tamposi Limited
      Partnership and SkillSoft Corporation (Incorporated by reference to
      Exhibit 10.15 to SkillSoft PLC’s Annual Report on Form 10-K for
      the fiscal year ended January 31, 2006 as filed with the Securities
      and Exchange Commission on April 13, 2006 (File
      No. 000-25674)).10.18**†
                    Form
      of Indemnification Agreement by and between SkillSoft Corporation and its
      directors and officers dated as of March 2009.10.19
                    Lease
      agreement, dated June 9, 2004, as amended, by and between
      Hewlett-Packard Company and SkillSoft Corporation (Incorporated by
      reference to Exhibit 10.19 to SkillSoft PLC’s Annual Report on
      Form 10-K for the fiscal year ended January 31, 2006 as filed
      with the Securities and Exchange Commission on April 13, 2006 (File
      No. 000-25674)).10.20**
                    Form
      of Director Option Agreement for initial grants under the
      2001 Director Option Plan (Incorporated by reference to
      Exhibit 99.2 to SkillSoft PLC’s Current Report on Form 8-K as
      filed with the Securities and Exchange Commission on January 4, 2006
      (File No. 000-25674)).10.21**
                    Form
      of Director Option Agreement for subsequent grants under the
      2001 Director Option Plan (Incorporated by reference to
      Exhibit 99.3 to SkillSoft PLC’s Current Report on Form 8-K as
      filed with the Securities and Exchange Commission on January 4, 2006
      (File No. 000-25674)).10.22**
                    Form
      of Option Agreement under 2002 Share Option Plan (Incorporated by
      reference to Exhibit 10.5 to SkillSoft PLC’s Quarterly Report on
      Form 10-Q for the quarter ended July 31, 2004 as filed with the
      Securities and Exchange Commission on September 9, 2004 (File
      No. 000-25674)).10.23**
                    Summary
      of Fiscal 2007 Executive Incentive Compensation Program. (Incorporated by
      reference to Exhibit 99.1 to SkillSoft PLC’s Current Report on
      Form 8-K as filed with the Securities and Exchange Commission on
      April 28, 2006 (File No. 000-25674)).
   Table of Contents
 
 Exhibit
      No.
                  Title10.24
                  Release
      and Settlement Agreement (Incorporated by reference to Exhibit 10.1
      to SkillSoft PLC’s Quarterly Report on Form 10-Q for the quarter
      ended July 31, 2005 as filed with the Securities and Exchange
      Commission on September 9, 2005 (File
      No. 000-25674)).10.25
                  Credit
      Agreement, dated May 14, 2007, among SkillSoft PLC, SkillSoft Corporation,
      Credit Suisse, Credit Suisse Securities (USA) LLC, Keybank National
      Association, Silicon Valley Bank, and the lenders party thereto
      (Incorporated by reference to Exhibit 10.1 of SkillSoft PLC’s Current
      Report on Form 8-K as filed with the Securities and Exchange Commission on
      May 14, 2007 (File No. 000-25674)).10.26
                  Guarantee
      and Collateral Agreement, dated May 14, 2007, among SkillSoft PLC,
      SkillSoft Corporation and the subsidiary guarantors party thereto
      (Incorporated by reference to Exhibit 10.2 of SkillSoft PLC’s Current
      Report on Form 8-K as filed with the Securities and Exchange Commission on
      May 14, 2007 (File No. 000-25674)).10.27
                  Amendment
      No.1, dated July 7, 2008, to Credit Agreement and to Guarantee and
      Collateral Agreement, each dated May 14, 2007 (Incorporated by
      reference to Exhibit 10.1 of SkillSoft PLC’s Current Report on Form 8-K as
      filed with the Securities and Exchange Commission on July 11, 2008 (File
      No. 000-25674)).10.28
                  Summary
      of Fiscal 2009 Executive Cash Incentive Compensation Program (Incorporated
      by reference to Exhibit 99.1 to SkillSoft PLC’s Current Report on Form 8-K
      as filed with the Securities and Exchange Commission on April 17, 2008
      (File No. 000-25674)).21.1†
                  List
      of Significant Subsidiaries.23.1†
                  Consent
      of Ernst & Young LLP31.1†
                  Certification
      of SkillSoft PLC’s Chief Executive Officer pursuant to Rule 13a-
      14(a)/Rule 15d-14(a) under the Securities Exchange Act of
      1934.31.2†
                  Certification
      of SkillSoft PLC’s Chief Financial Officer pursuant to Rule 13a-
      14(a)/Rule 15d-14(a) under the Securities Exchange Act of
      1934.32.1†
                  Certification
      of SkillSoft PLC’s Chief Executive Officer pursuant to Rule 13a-
      14(b)/Rule 15d-14(b) under the Securities Exchange Act of 1934, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2†
                  Certification
      of SkillSoft PLC’s Chief Financial Officer pursuant to Rule 13a-
      14(b)/Rule 15d-14(b) under the Securities Exchange Act of 1934, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
 __________
 †
                Filed
      herewith.**
                Denotes
      management or compensatory plan or arrangement required to be filed by
      registrant pursuant to Item 15(c) of this report on
      Form 10-K.