##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED JULY 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 FOR
THE TRANSITION PERIOD FROM  TO
 COMMISSION FILE NUMBER 000-25674
 SKILLSOFT PUBLIC LIMITED COMPANY
  REPUBLIC OF IRELAND
(STATE OR OTHER JURISDICTION OF 
INCORPORATION OR ORGANIZATION)
    
    N/A
(I.R.S. EMPLOYER
IDENTIFICATION NO.)107 NORTHEASTERN BOULEVARD 
NASHUA, NEW HAMPSHIRE
    
    03062(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
    
    (ZIP CODE)
  
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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##### 



PAGE NO.PART I  FINANCIAL INFORMATION
    
    
    3Item 1. Unaudited Condensed Consolidated Financial Statements:
    
    
    3Condensed Consolidated Balance Sheets as of July 31, 2008 and January 31, 2008
    
    
    3Condensed Consolidated Income Statements for the Three and Six Months Ended July 31, 2008
and 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2008 and
2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    28PART II  OTHER INFORMATION
    
    
    28Item 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 3. Defaults Upon Senior Securities
    
    
    37Item 4. Submission of Matters to a Vote of Security Holders
    
    
    37Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    37SIGNATURE
    
    
    38EXHIBIT INDEX
    
    
    39EX-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
  2




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JULY 31,2008
    
    
    JANUARY 31,(Unaudited)
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    73,869
    
    
    $
    76,059Short-term investments
    
    
    8,100
    
    
    
    13,525Restricted cash
    
    
    3,960
    
    
    
    3,963Accounts receivable, net
    
    
    80,555
    
    
    
    171,708Prepaid expenses and other current assets
    
    
    29,384
    
    
    
    29,061Deferred tax assets
    
    
    10,326
    
    
    
    13,476Total current assets
    
    
    206,194
    
    
    
    307,792Property and equipment, net
    
    
    7,038
    
    
    
    7,210Intangible assets, net
    
    
    20,670
    
    
    
    29,887Goodwill
    
    
    257,519
    
    
    
    256,196Deferred tax assets
    
    
    80,244
    
    
    
    87,866Other assets
    
    
    3,799
    
    
    
    7,730Total assets
    
    $
    575,464
    
    
    $
    696,681LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long term debt
    
    $
    1,455
    
    
    $
    2,000Accounts payable
    
    
    3,510
    
    
    
    2,139Accrued compensation
    
    
    15,524
    
    
    
    24,577Accrued expenses
    
    
    17,390
    
    
    
    29,507Deferred revenue
    
    
    166,582
    
    
    
    219,161Total current liabilities
    
    
    204,461
    
    
    
    277,384Long term debt
    
    
    142,605
    
    
    
    197,000Other long term liabilities
    
    
    7,823
    
    
    
    9,209Total long term liabilities
    
    
    150,428
    
    
    
    206,209Commitments and contingencies (Note 12)Shareholders equity:Ordinary
shares, 0.11 par value: 250,
000,000 shares authorized;
113,736,418 and 111,663,813 shares
issued at July 31, 2008 and January
31, 2008, respectively
    
    
    12,755
    
    
    
    12,397Additional paid-in capital
    
    
    604,480
    
    
    
    591,303Treasury stock, at cost, 9,257,603
and 6,533,884 ordinary shares at
July 31, 2008 and January 31, 2008,
respectively
    
    
    (51,695
    )
    
    
    (24,524
    )Accumulated deficit
    
    
    (341,707
    )
    
    
    (361,663
    )Accumulated other comprehensive loss
    
    
    (3,258
    )
    
    
    (4,425
    )Total shareholders equity
    
    
    220,575
    
    
    
    213,088Total liabilities and shareholders equity
    
    $
    575,464
    
    
    $
    696,681
  3




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##### Table of Contents



THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJuly 31,
    
    
    July 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    83,332
    
    
    $
    71,469
    
    
    $
    164,975
    
    
    $
    128,609Cost of revenue (1)
    
    
    9,830
    
    
    
    8,718
    
    
    
    18,639
    
    
    
    15,546Cost of revenue  amortization of
intangible assets
    
    
    1,740
    
    
    
    1,744
    
    
    
    3,480
    
    
    
    1,942Gross profit
    
    
    71,762
    
    
    
    61,007
    
    
    
    142,856
    
    
    
    111,121Operating expenses:Research and development (1)
    
    
    12,519
    
    
    
    11,364
    
    
    
    25,998
    
    
    
    21,605Selling and marketing (1)
    
    
    26,099
    
    
    
    23,714
    
    
    
    55,798
    
    
    
    46,262General and administrative (1)
    
    
    9,433
    
    
    
    8,998
    
    
    
    18,324
    
    
    
    16,126Amortization of intangible assets
    
    
    2,741
    
    
    
    3,741
    
    
    
    5,737
    
    
    
    4,320Merger and integration related
expenses
    
    
    240
    
    
    
    8,493
    
    
    
    761
    
    
    
    8,528SEC investigation
    
    
    (13
    )
    
    
    351
    
    
    
    49
    
    
    
    1,223Total operating expenses
    
    
    51,019
    
    
    
    56,661
    
    
    
    106,667
    
    
    
    98,064Operating income
    
    
    20,743
    
    
    
    4,346
    
    
    
    36,189
    
    
    
    13,057Other expense, net
    
    
    (347
    )
    
    
    (251
    )
    
    
    (1,034
    )
    
    
    (383
    )Interest income
    
    
    575
    
    
    
    728
    
    
    
    1,192
    
    
    
    2,336Interest expense
    
    
    (3,311
    )
    
    
    (3,762
    )
    
    
    (7,013
    )
    
    
    (3,814
    )Income before provision (benefit) for
income taxes from continuing
operations
    
    
    17,660
    
    
    
    1,061
    
    
    
    29,334
    
    
    
    11,196Provision (benefit) for income taxes
    
    
    6,845
    
    
    
    (10,803
    )
    
    
    11,352
    
    
    
    (8,157
    )Income from continuing operations
    
    
    10,815
    
    
    
    11,864
    
    
    
    17,982
    
    
    
    19,353Income from discontinued
operations, net of income tax
expense of $1.4 million and $1.3
million for the three and six
months ended July 31, 2008,
respectively, and $387 for the
three and six months ended July 31,
2007
    
    
    2,067
    
    
    
    524
    
    
    
    1,974
    
    
    
    524Net income
    
    $
    12,882
    
    
    $
    12,388
    
    
    $
    19,956
    
    
    $
    19,877Net income per share (Note 10):Basic  continuing operations
    
    $
    0.10
    
    
    $
    0.11
    
    
    $
    0.17
    
    
    $
    0.19Basic  discontinued operations
    
    $
    0.02
    
    
    $
    0.01
    
    
    $
    0.02
    
    
    $
    0.01$
    0.12
    
    
    $
    0.12
    
    
    $
    0.19
    
    
    $
    0.19
    Basic weighted average shares
outstanding
    
    
    104,877,548
    
    
    
    104,400,895
    
    
    
    105,081,727
    
    
    
    103,848,299Diluted  continuing operations
    
    $
    0.10
    
    
    $
    0.11
    
    
    $
    0.16
    
    
    $
    0.18Diluted  discontinued operations
    
    $
    0.02
    
    
    $
    0.00
    
    
    $
    0.02
    
    
    $
    0.00$
    0.12
    
    
    $
    0.11
    
    
    $
    0.18
    
    
    $
    0.18Diluted weighted average shares
outstanding
    
    
    108,712,224
    
    
    
    108,423,593
    
    
    
    109,231,394
    
    
    
    107,739,609
 
 
    
    Does not add due to rounding.(1)
    
    Share-based compensation included in cost of revenue and operating expenses: THREE MONTHS ENDED
    
    SIX MONTHS ENDEDJuly 31,
    
    July 31,2008
    
    2007
    
    2008
    
    2007Cost of revenue
    
    $
    67
    
    
    $
    48
    
    
    $
    111
    
    
    $
    65Research and development
    
    
    231
    
    
    
    225
    
    
    
    468
    
    
    
    433Selling and marketing
    
    
    444
    
    
    
    369
    
    
    
    1,022
    
    
    
    867General and administrative
    
    
    736
    
    
    
    631
    
    
    
    1,481
    
    
    
    1,264
  4




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##### Table of Contents



SIX MONTHS ENDEDJULY 31,2008
    
    
    2007Cash flows from operating activities from continuing operations:Net income, continuing operations
    
    $
    17,982
    
    
    $
    19,353Adjustments to reconcile net income from continuing operations to net cash provided by
operating activities:Share-based compensation
    
    
    3,082
    
    
    
    2,629Depreciation and amortization
    
    
    2,862
    
    
    
    4,009Amortization of intangible assets
    
    
    9,217
    
    
    
    6,262Provision for bad debts
    
    
    48
    
    
    
    54Provision (benefit) for income tax  non-cash
    
    
    9,386
    
    
    
    (9,164
    )Non-cash interest expense
    
    
    636
    
    
    
    226Tax benefit related to exercise of non-qualified stock options
    
    
    (673
    )
    
    
    Changes in current assets and liabilities, net of acquisitions:Accounts receivable
    
    
    88,805
    
    
    
    41,818Prepaid expenses and other current assets
    
    
    (965
    )
    
    
    4,942Accounts payable
    
    
    1,091
    
    
    
    (50
    )Accrued expenses, including long-term
    
    
    (19,132
    )
    
    
    (29,610
    )Deferred revenue
    
    
    (52,959
    )
    
    
    (30,463
    )Deferred tax asset
    
    
    281
    
    
    
    Net cash provided by operating activities from continuing operations
    
    
    59,661
    
    
    
    10,006Cash flows from investing activities from continuing operations:Purchases of property and equipment
    
    
    (2,687
    )
    
    
    (1,888
    )Cash used in purchase of businesses, net of cash acquired
    
    
    (250
    )
    
    
    (278,923
    )Purchases of investments
    
    
    (9,745
    )
    
    
    (1,000
    )Maturity of investments
    
    
    15,237
    
    
    
    37,973Release of restricted cash, net
    
    
    5
    
    
    
    16,090Net cash provided by (used in) investing activities from continuing operations
    
    
    2,560
    
    
    
    (227,748
    )Cash flows from financing activities from continuing operations:Borrowings under long-term debt, net of debt financing costs
    
    
    
    
    
    
    194,133Exercise of share options
    
    
    7,769
    
    
    
    8,122Proceeds from employee share purchase plan
    
    
    2,012
    
    
    
    1,088Principal payment on long term debt
    
    
    (54,940
    )
    
    
    Acquisition of treasury stock
    
    
    (27,171
    )
    
    
    Tax benefit related to exercise of non-qualified stock options
    
    
    673
    
    
    
    Net cash (used in) provided by financing activities from continuing operations
    
    
    (71,657
    )
    
    
    203,343Change in cash from discontinued operations
    
    
    6,942
    
    
    
    240Effect of exchange rate changes on cash and cash equivalents
    
    
    304
    
    
    
    1,097Net decrease in cash and cash equivalents
    
    
    (2,190
    )
    
    
    (13,062
    )Cash and cash equivalents, beginning of period
    
    
    76,059
    
    
    
    48,612Cash and cash equivalents, end of period
    
    $
    73,869
    
    
    $
    35,550
  5




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Accounting for Certain Investments in Debt and Equity
Securities
   Software Revenue Recognition Revenue Arrangements with
Multiple Deliverables Revenue Recognition
 6




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##### Table of Contents



®
      Income Statement Characterization
of Reimbursements Received for Out-of-Pocket Expenses Incurred.
  7




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##### Table of Contents



WeightedAverage
    
    AggregateWeighted
    
    Remaining
    
    IntrinsicAverage
    
    Contractual
    
    ValueShare Options
    
    Shares
    
    Exercise Price
    
    Term (Years)
    
    (in thousands)Outstanding, January 31, 2008
    
    
    16,630,763
    
    
    $
    7.05
    
    
    
    4.76Granted
    
    
    20,000
    
    
    
    10.90Exercised
    
    
    (1,815,619
    )
    
    
    4.28Cancelled
    
    
    (46,884
    )
    
    
    14.28Outstanding, July 31, 2008
    
    
    14,788,260
    
    
    $
    7.38
    
    
    
    4.30
    
    
    $
    56,021Exercisable, July 31, 2008
    
    
    11,238,453
    
    
    $
    7.63
    
    
    
    3.94
    
    
    $
    42,941Vested and Expected to Vest, July 31, 2008 (1)
    
    
    14,284,459
    
    
    $
    7.41
    
    
    
    4.26
    
    
    $
    54,158
 
 (1)
    
    Represents the number of vested options as of July 31, 2008 plus the number of unvested
options as of July 31, 2008 that are expected to vest adjusted for an estimated forfeiture
rate of 12.9%. The Company recognizes expense incurred under SFAS No. 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.    8




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##### Table of Contents



Business
Combinations
   THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJULY 31, 2007
    
    
    JULY 31, 2007(in thousands except per share data)Revenue
    
    $
    102,719
    
    
    $
    191,109Net income/loss
    
    
    (7,684
    )
    
    
    (24,625
    )Net income/loss per share  basic
    
    $
    (0.07
    )
    
    $
    (0.24
    )Net income/loss per share  diluted
    
    $
    (0.07
    )
    
    $
    (0.23
    )
    (a) Merger and Exit Costs Recognized as Liabilities in Purchase Accounting
 Recognition of Liabilities
in Connection with Purchase Business Combinations
   9




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EMPLOYEESEVERANCE AND
    
    
    CLOSEDOWN OFRELATED COSTS
    
    
    FACILITIES
    
    
    OTHER
    
    
    TOTALMerger and exit accrual January 31, 2008
    
    $
    1,646
    
    
    $
    3,224
    
    
    $
    1,370
    
    
    $
    6,240Adjustment to provision for merger and
exit costs in connection with the
acquisition of NETg
    
    
    212
    
    
    
    106
    
    
    
    (967
    )
    
    
    (649
    )Payments made during the six months
ended July 31, 2008
    
    
    (597
    )
    
    
    (845
    )
    
    
    (140
    )
    
    
    (1,582
    )Merger and exit accrual July 31, 2008
    
    $
    1,261
    
    
    $
    2,485
    
    
    $
    263
    
    
    $
    4,009
  Year ended January 31,2009 (remaining 6 months)
    
    $
    7412010
    
    
    4582011
    
    
    2,810Total
    
    $
    4,009
 Accounting for Costs Associated with Exit or Disposal
Activities,
 (b) Discontinued Operations
   THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJULY 31,
    
    
    JULY 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue from discontinued operations
    
    $
    107
    
    
    $
    3,629
    
    
    $
    288
    
    
    $
    3,629Gain from discontinued operations
before income taxes
    
    
    3,459
    
    
    
    911
    
    
    
    3,305
    
    
    
    911Income tax
    
    
    1,392
    
    
    
    387
    
    
    
    1,331
    
    
    
    387Gain from discontinued operations
    
    $
    2,067
    
    
    $
    524
    
    
    $
    1,974
    
    
    $
    524
 (c) Restructuring
  Total restructuring accrual as of January 31, 2008
    
    $
    961Payments made during the six months ended July 31, 2008
    
    
    (232
    )Restructuring charges incurred during the six months ended July 31, 2008
    
    
    Total restructuring accrual as of July 31, 2008
    
    $
    729
 10




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JULY 31, 2008
    
    
    JANUARY 31, 2008GROSS
    
    
    
    
    
    
    NET
    
    
    GROSS
    
    
    
    
    
    
    NETCARRYING
    
    
    ACCUMULATED
    
    
    CARRYING
    
    
    CARRYING
    
    
    ACCUMULATED
    
    
    CARRYINGAMOUNT
    
    
    AMORTIZATION
    
    
    AMOUNT
    
    
    AMOUNT
    
    
    AMORTIZATION
    
    
    AMOUNTInternally
developed software/
courseware
    
    $
    38,717
    
    
    $
    36,740
    
    
    $
    1,977
    
    
    $
    38,717
    
    
    $
    33,259
    
    
    $
    5,458Customer contracts
    
    
    36,848
    
    
    
    23,523
    
    
    
    13,325
    
    
    
    36,848
    
    
    
    19,846
    
    
    
    17,002Non-compete
    
    
    6,900
    
    
    
    3,450
    
    
    
    3,450
    
    
    
    6,900
    
    
    
    2,070
    
    
    
    4,830Trademarks and
trade names
    
    
    2,725
    
    
    
    1,707
    
    
    
    1,018
    
    
    
    2,725
    
    
    
    1,028
    
    
    
    1,697Books trademark
    
    
    900
    
    
    
    
    
    
    
    900
    
    
    
    900
    
    
    
    
    
    
    
    90086,090
    
    
    
    65,420
    
    
    
    20,670
    
    
    
    86,090
    
    
    
    56,203
    
    
    
    29,887Goodwill
    
    
    257,519
    
    
    
    
    
    
    
    257,519
    
    
    
    256,196
    
    
    
    
    
    
    
    256,196$
    343,609
    
    
    $
    65,420
    
    
    $
    278,189
    
    
    $
    342,286
    
    
    $
    56,203
    
    
    $
    286,083
  TotalGross 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
    
    
    1,073Gross carrying amount of goodwill, July 31, 2008
    
    $
    257,519
   Reporting Comprehensive Income
 THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJULY 31,
    
    
    JULY 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Comprehensive income:Net income
    
    $
    12,882
    
    
    $
    12,388
    
    
    $
    19,956
    
    
    $
    19,877Other comprehensive
(loss) income  Foreign
currency adjustment
    
    
    (95
    )
    
    
    (263
    )
    
    
    296
    
    
    
    (415
    )Change in fair value
of interest rate
hedge, net of tax
    
    
    524
    
    
    
    (232
    )
    
    
    895
    
    
    
    (232
    )Unrealized losses on
available-for-sale
securities
    
    
    (9
    )
    
    
    (8
    )
    
    
    (24
    )
    
    
    (86
    )Comprehensive income
    
    $
    13,302
    
    
    $
    11,885
    
    
    $
    21,123
    
    
    $
    19,144
 11




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##### Table of Contents



SIX MONTHS
    
    
    YEAR ENDEDENDED JULY 31,
    
    
    JANUARY 31,2008
    
    
    2008Unrealized (loss) gains on available-for-sale securities
    
    $
    (2
    )
    
    $
    22Change in fair value of interest rate hedge
    
    
    (1,185
    )
    
    
    (2,080
    )Foreign currency adjustment
    
    
    (2,071
    )
    
    
    (2,367
    )Total accumulated other comprehensive loss
    
    $
    (3,258
    )
    
    $
    (4,425
    )
   THREE MONTHS ENDED
    
    SIX MONTHS ENDEDJULY 31,
    
    JULY 31,2008
    
    2007
    
    2008
    
    2007Basic weighted average shares
outstanding
    
    
    104,877,548
    
    
    
    104,400,895
    
    
    
    105,081,727
    
    
    
    103,848,299Effect of dilutive shares outstanding
    
    
    3,834,676
    
    
    
    4,022,698
    
    
    
    4,149,667
    
    
    
    3,891,310Weighted average shares outstanding,
as adjusted
    
    
    108,712,224
    
    
    
    108,423,593
    
    
    
    109,231,394
    
    
    
    107,739,609
  THREE MONTHS ENDED
    
    SIX MONTHS ENDEDJULY 31,
    
    JULY 31,2008
    
    2007
    
    2008
    
    2007Options to purchase
shares
    
    
    2,944,977
    
    
    
    9,063,349
    
    
    
    2,951,235
    
    
    
    9,462,029
      12




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##### Table of Contents



THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJULY 31,
    
    
    JULY 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:United States
    
    $
    60,756
    
    
    $
    57,261
    
    
    $
    119,809
    
    
    $
    101,080United Kingdom (UK)
    
    
    11,790
    
    
    
    7,319
    
    
    
    23,622
    
    
    
    14,259Canada
    
    
    3,292
    
    
    
    2,575
    
    
    
    6,784
    
    
    
    5,129Europe, excluding UK
    
    
    1,842
    
    
    
    626
    
    
    
    3,680
    
    
    
    1,024Australia/New Zealand
    
    
    4,080
    
    
    
    3,077
    
    
    
    7,963
    
    
    
    5,838Other
    
    
    1,572
    
    
    
    611
    
    
    
    3,117
    
    
    
    1,279Total revenues
    
    $
    83,332
    
    
    $
    71,469
    
    
    $
    164,975
    
    
    $
    128,609
   13




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##### Table of Contents



JULY 31, 2008
    
    
    JANUARY 31, 2008Professional fees
    
    
    3,879
    
    
    
    5,308Sales tax payable/VAT payable
    
    
    1,539
    
    
    
    4,366Accrued royalties
    
    
    1,992
    
    
    
    6,892Other accrued liabilities
    
    
    9,980
    
    
    
    12,941Total accrued expenses
    
    $
    17,390
    
    
    $
    29,507
   JULY 31, 2008
    
    
    JANUARY 31, 2008Note receivable  long term
    
    
    
    
    
    
    3,507Debt financing cost  long term (See Note 18)
    
    
    3,718
    
    
    
    4,126Other
    
    
    81
    
    
    
    97Total other assets
    
    $
    3,799
    
    
    $
    7,730
   JULY 31, 2008
    
    
    JANUARY 31, 2008Merger accrual  long term
    
    
    2,923
    
    
    
    2,914Interest rate swap liability (See Note 19)
    
    
    1,984
    
    
    
    3,467Other
    
    
    2,916
    
    
    
    2,828Total other long-term liabilities
    
    $
    7,823
    
    
    $
    9,209
   Fair Value
Measurements
  Application of FASB
Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements
That Address Leasing Transactions Effective Date of
FASB Statement No. 157 Fair Value Measurements
 14




---



##### Table of Contents




    
    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.
  Accounting for Derivative
Instruments and Hedging Activities.
  Quoted Prices in
    
    SignificantActive Markets
    
    Other
    
    Significantfor Identical
    
    Observable
    
    UnobservableJuly 31, 2008
    
    Assets Level 1
    
    Inputs Level 2
    
    Inputs Level 3Financial Assets:Cash equivalents (1)
    
    $
    33,413
    
    
    $
    7,487
    
    
    $
    25,926
    
    
    $
    Available for sale securities (2)
    
    $
    8,100
    
    
    $
    8,100
    
    
    $
    
    
    
    $
    Financial Liabilities:Interest rate swap agreement (Note 19)
    
    $
    1,984
    
    
    $
    
    
    
    $
    1,984
    
    
    $
    
 15




---



##### Table of Contents



(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.        Fiscal 2009 (remaining 6 months)
    
    $
    728Fiscal 2010
    
    
    1,455Fiscal 2011
    
    
    1,455Fiscal 2012
    
    
    1,455Fiscal 2013
    
    
    1,455Thereafter
    
    
    137,512Total
    
    $
    144,060
  16




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##### Table of Contents



The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of FASB Statement No. 115
 Business Combinations
 17




---



##### Table of Contents



Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
 Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133 Accounting for Derivative Instruments and Hedging Activities
 
        18




---



##### Table of Contents



Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed
         19




---



##### Table of Contents




    
    cross selling and up selling;
    
    looking at new markets, which may include expanding or investing internationally;
    
    acquiring new customers;
    
    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.
     Three Months Ended July 31,Dollar
    
    
    Percent ChangeIncrease (Decrease)
    
    
    Increase (Decrease)
    
    
    Percentage of Revenue2007/2008
    
    
    2007/2008
    
    
    2008
    
    
    2007(In thousands)Revenue
    
    $
    11,863
    
    
    
    17
    %
    
    
    100
    %
    
    
    100
    %Cost of revenue
    
    
    1,112
    
    
    
    13
    %
    
    
    12
    %
    
    
    12
    %Cost of revenue  amortization of
intangible assets
    
    
    (4
    )
    
    
    
    
    
    
    2
    %
    
    
    2
    %Gross profit
    
    
    10,755
    
    
    
    18
    %
    
    
    86
    %
    
    
    85
    %Research and development
    
    
    1,155
    
    
    
    10
    %
    
    
    15
    %
    
    
    16
    %Selling and marketing
    
    
    2,385
    
    
    
    10
    %
    
    
    31
    %
    
    
    33
    %General and administrative
    
    
    435
    
    
    
    5
    %
    
    
    11
    %
    
    
    13
    %Amortization of intangible assets
    
    
    (1,000
    )
    
    
    (27
    )%
    
    
    3
    %
    
    
    5
    %Merger related integration expenses
    
    
    (8,253
    )
    
    
    (97
    )%
    
    
    
    
    
    
    12
    %SEC investigation
    
    
    (364
    )
    
    
    *
    
    
    
    
    
    
    
    Total operating expenses
    
    
    (5,642
    )
    
    
    (10
    )%
    
    
    61
    %
    
    
    79
    %Operating income
    
    
    16,397
    
    
    
    377
    %
    
    
    25
    %
    
    
    6
    %Other income expense, net
    
    
    (96
    )
    
    
    38
    %
    
    
    
    
    
    
    Interest income
    
    
    (153
    )
    
    
    (21
    )%
    
    
    1
    %
    
    
    1
    %
 20




---



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Three Months Ended July 31,Dollar
    
    
    Percent ChangeIncrease (Decrease)
    
    
    Increase (Decrease)
    
    
    Percentage of Revenue2007/2008
    
    
    2007/2008
    
    
    2008
    
    
    2007(In thousands)Interest expense
    
    
    451
    
    
    
    (12
    )%
    
    
    (4
    )%
    
    
    (5
    )%Income before income taxes
    
    
    16,599
    
    
    
    1,564
    %
    
    
    21
    %
    
    
    1
    %Provision for income taxes
    
    
    17,648
    
    
    
    *
    
    
    
    8
    %
    
    
    (15
    )%Income from continuing operations
    
    
    (1,049
    )
    
    
    (9
    )%
    
    
    13
    %
    
    
    17
    %Income from discontinued
operations, net of income tax
    
    
    1,543
    
    
    
    *
    
    
    
    2
    %
    
    
    1
    %Net income
    
    $
    494
    
    
    
    4
    %
    
    
    15
    %
    
    
    17
    %
 
 *
    
    Not meaningful
    
    Does not add due to rounding. Revenue
  THREE MONTHS ENDED JULY 31,(IN THOUSANDS)
    
    2008
    
    
    2007
    
    
    CHANGERevenue:United States
    
    $
    60,756
    
    
    $
    57,261
    
    
    $
    3,495International
    
    
    22,576
    
    
    
    14,208
    
    
    
    8,368Total
    
    $
    83,332
    
    
    $
    71,469
    
    
    $
    11,863
   Costs and Expenses
    21




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Other Expense, Net
  Interest Income
  Interest Expense
  Provision for Income Taxes
  Discontinued Operations
  22




---



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Six Months Ended July 31,Dollar
    
    
    Percent ChangeIncrease (Decrease)
    
    
    Increase (Decrease)
    
    
    Percentage of Revenue2007/2008
    
    
    2007/2008
    
    
    2008
    
    
    2007(In thousands)Revenue
    
    $
    36,366
    
    
    
    28
    %
    
    
    100
    %
    
    
    100
    %Cost of revenue
    
    
    3,093
    
    
    
    20
    %
    
    
    11
    %
    
    
    12
    %Cost of revenue  amortization of
intangible assets
    
    
    1,538
    
    
    
    79
    %
    
    
    2
    %
    
    
    2
    %Gross profit
    
    
    31,735
    
    
    
    29
    %
    
    
    87
    %
    
    
    86
    %Research and development
    
    
    4,393
    
    
    
    20
    %
    
    
    16
    %
    
    
    17
    %Selling and marketing
    
    
    9,536
    
    
    
    21
    %
    
    
    34
    %
    
    
    36
    %General and administrative
    
    
    2,198
    
    
    
    14
    %
    
    
    11
    %
    
    
    13
    %Amortization of intangible assets
    
    
    1,417
    
    
    
    33
    %
    
    
    3
    %
    
    
    3
    %Merger related integration expenses
    
    
    (7,767
    )
    
    
    (91
    )%
    
    
    
    
    
    
    7
    %SEC investigation
    
    
    (1,174
    )
    
    
    (96
    )%
    
    
    
    
    
    
    (1
    )%Total operating expenses
    
    
    8,603
    
    
    
    9
    %
    
    
    65
    %
    
    
    76
    %Operating income
    
    
    23,132
    
    
    
    177
    %
    
    
    22
    %
    
    
    10
    %Other income expense, net
    
    
    (651
    )
    
    
    170
    %
    
    
    (1
    )%
    
    
    Interest income
    
    
    (1,144
    )
    
    
    (49
    )%
    
    
    1
    %
    
    
    2
    %Interest expense
    
    
    (3,199
    )
    
    
    84
    %
    
    
    (4
    )%
    
    
    (3
    )%Income before income taxes
    
    
    18,138
    
    
    
    162
    %
    
    
    18
    %
    
    
    9
    %Provision for income taxes
    
    
    19,509
    
    
    
    *
    
    
    
    7
    %
    
    
    (6
    )%Income from continuing operations
    
    
    (1,371
    )
    
    
    (7
    )%
    
    
    11
    %
    
    
    15
    %Income from discontinued
operations, net of income tax
    
    
    1,450
    
    
    
    *
    
    
    
    1
    %
    
    
    Net income
    
    $
    79
    
    
    
    
    
    
    
    12
    %
    
    
    15
    %
 
 *
    
    Not meaningful.
    
    Does not add due to rounding. Revenue
  SIX MONTHS ENDED JULY 31,(IN THOUSANDS)
    
    2008
    
    
    2007
    
    
    CHANGERevenue:United States
    
    $
    119,809
    
    
    $
    101,080
    
    
    $
    18,729International
    
    
    45,166
    
    
    
    27,529
    
    
    
    17,637Total
    
    $
    164,975
    
    
    $
    128,609
    
    
    $
    36,366
  Costs and Expenses
    23




---



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Other Expense, Net
  Interest Income
  Interest Expense
  Provision for Income Taxes
  24




---



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Discontinued Operations
          25




---



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Payments Due by PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    More ThanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsOperating Lease Obligations
    
    $
    18,481
    
    
    $
    4,568
    
    
    $
    4,790
    
    
    $
    2,741
    
    
    $
    6,382Debt Obligations
    
    
    144,060
    
    
    
    1,455
    
    
    
    2,910
    
    
    
    139,695
    
    
    
    Total Obligations
    
    $
    162,541
    
    
    $
    6,023
    
    
    $
    7,700
    
    
    $
    142,436
    
    
    $
    6,382
        26




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27




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SEC Investigations
  
   RISKS RELATED TO THE OPERATION OF OUR BUSINESS
    
    
    the size and timing of new/renewal agreements and upgrades;
    
    royalty rates;
 28




---



##### Table of Contents




    
    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.
    
    
    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;
    
    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.
 29




---



##### Table of Contents




    
    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.
    30




---



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31




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32




---



##### Table of Contents




    
    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;
 33




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##### Table of Contents




    
    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.
    
    
    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.
    RISKS RELATED TO LEGAL PROCEEDINGS
   34




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35




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RISKS RELATED TO OUR ADSs
     
    (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)
    
    
    ProgramMay 1, 2008  May 31, 2008
    
    
    766,486
    
    
    $
    10.21
    
    
    
    766,486
    
    
    
    8,021,614June 1, 2008  June 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,021,614July 1, 2008  July 31, 2008
    
    
    745,333
    
    
    
    9.59
    
    
    
    745,333
    
    
    
    7,276,281Total
    
    
    1,511,819
    
    
    $
    9.90
    
    
    
    1,511,819
    
    
    
    7,276,281
 
 (1)
    
    We repurchased 2,723,719 of our ADSs pursuant to a share repurchase program that was approved
by our shareholders on April 8, 2008.(2)
    
    Our shareholders approved the repurchase by us of up to 10,000,000 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 36




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##### Table of Contents



Directors, the repurchase program will expire on October 7, 2009 or when we have repurchased all
shares authorized for repurchase thereunder.  
   
   
   
   37




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SKILLSOFT PUBLIC LIMITED COMPANYDate: September 9, 2008
    By:
    /s/ Thomas J. McDonaldThomas J. McDonaldChief Financial Officer 38




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10.1
    
    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)).31.1
    
    Certification of SkillSoft PLCs Chief Executive Officer pursuant to
Rule 13a-14(a)/Rule 15(d)-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 15(d)-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.
 39