Filed by SmartForce PLC Pursuant to Rule 425
Under the Securities Act of 1933
And Deemed Filed Pursuant to Rule 14a-12
Under the Securities Act of 1934
Subject Company: Centra Software, Inc.
Commission File No.: 000-27861
On January 16, 2002, SmartForce PLC and Centra Software, Inc. issued a
joint press release announcing that SmartForce and Centra had entered into an
Agreement and Plan of Reorganization, dated as of January 16, 2002 by and among
SmartForce, Atlantic Acquisition Corp. and Centra. The text of the joint press
release follows.
FOR IMMEDIATE RELEASE
Contacts:
Anna Yen
Director of Investor Relations, SmartForce
ayen@smartforce.com
(650) 817-5924
SMARTFORCE SIGNS AGREEMENT TO ACQUIRE CENTRA SOFTWARE;
REPORTS STRONG FOURTH QUARTER 2001
FINANCIAL RESULTS
Acquisition of Leading e-Collaboration Company to Extend
SmartForce Market Leadership
Redwood City, Calif. - Jan. 16, 2002 - SmartForce (Nasdaq:SMTF) today
announced that it has entered into a definitive agreement to acquire Centra
Software (Nasdaq: CTRA). The transaction, the largest to date in the e-Learning
industry, unites the world's largest e-Learning company with the leading
provider of live e-Learning and business e-Collaboration software. SmartForce
today also announced revenues and earnings per share for the fourth quarter of
2001, meeting SmartForce's targets and consensus First Call estimates.
Centra Software Acquisition
SmartForce announced today that it is expanding its industry leadership
position by acquiring Centra Software in a stock for stock transaction. Based in
Lexington, Mass. Centra's solutions enable real-time, group-oriented human
interaction over corporate networks and the Internet. Under the terms of the
agreement, Centra shareholders will receive 0.425 shares of SmartForce for each
Centra share. Based on yesterday's closing price of SmartForce American
Depositary Shares, the transaction is valued at approximately $284 million,
including the assumption of Centra's stock options.
The acquisition further solidifies SmartForce's position as the world's
premier e-Learning company. Centra brings to SmartForce world-class technology,
talented employees and a blue-chip customer base that will complement the more
than 2,500 customers SmartForce already enjoys. Through the acquisition,
SmartForce will add Centra's base of over 775 customers, the substantial
majority of which are new to SmartForce. Moreover, the deal will solidify
SmartForce's position as a market leader with over 2,000 employees, including
over 900 customer facing employees, and combined 2001 research and development
investment of over $60 million, more than triple the investment of any other
public e-Learning company.
The acquisition also increases SmartForce's ability to provide targeted
learning solutions that support enterprises' critical business processes.
Centra's proven collaboration solutions are designed to facilitate strategic
business processes across the extended enterprise, including accelerated product
introductions, customer interaction, sales training, hands-on software
application deployments, new hire and employee training, change management
initiatives and other revenue-generating activities. The integration of Centra's
collaboration technology with SmartForce's key capabilities- including content,
platform, tools and services- will help SmartForce to rapidly develop and deploy
preconfigured learning solutions that address these processes, solutions that
customers can easily customize for their specific objectives.
Furthermore, the integration of Centra's collaboration software with
the SmartForce e-Learning platform will also significantly advance the Company's
longer-term strategy of becoming the primary infrastructure used by global
enterprises to drive knowledge transfer throughout the extended enterprise.
"This combination is truly a watershed event for the e-Learning
industry," said Greg Priest, Chairman and CEO of SmartForce. "Critical mass and
scale have become increasingly important as the market's requirements have
matured and new market entrants have emerged. By joining together with Centra,
we are taking another major step forward in building a company that can become a
powerful and enduring franchise. We lead the market today by every significant
measure, including customer base, salespeople, breadth of offerings and
technology investment."
"We are delighted to be joining forces with SmartForce," said Leon
Navickas, Chairman and CEO of Centra. "This transaction will enable the combined
company to move beyond traditional training and skills applications to build
solutions on a robust software infrastructure for our customers that gets to the
core of their mission-critical business problems."
The acquisition has been approved by both companies' Boards of
Directors and is subject to various closing conditions, including approval by
the shareholders of both companies and obtaining specific regulatory approvals.
Credit Suisse First Boston is acting as financial advisor to SmartForce on this
transaction.
Post-Acquisition Financial Guidance
SmartForce anticipates that the acquisition will be completed during
the second quarter of 2002 and that the acquisition will be one cent accretive
to earnings per share for the second half of 2002. In addition, the Company
anticipates that the acquisition will be accretive to earnings in 2003, and has
established a 2003 pre-amortization earnings per share target for the combined
business of $1.05, up from our previous 2003 target of $1.00. There will be a
substantial one-time charge in the second quarter of 2002 in connection with the
acquisition and the transaction will also be dilutive to Q2 earnings with the
exact amount depending on the timing of closing, given that this is a purchase
transaction.
The above targets represent the Company's current revenue and earnings
goals as of the date of this release, and are based on current conditions. The
Company does not undertake to update these targets in any way or for any reason.
2001 Financial Results
SmartForce's revenues for the fourth quarter were $65.3 million, up 13
percent from the $57.7 million reported a year ago. Net income for the quarter
excluding amortization of intangible assets was $2.6 million, or $0.04 per
share, in line with First Call consensus estimates. This compares with net
income of $648,000, or $0.01 per share, for the fourth quarter of 2000. On a
reported basis, the company recorded a net loss for the quarter of $205,000 or
$0.00 per share.
For 2001 as a whole, revenues were $261 million. Net income for the
year, before amortization of acquired intangibles, was $13.2 million, or $0.22
per share. On a reported basis, the Company recorded net income for 2001 $3.0
million, or $0.05 per share.
SmartForce continued to execute on its strategy, posting solid growth
and operating metrics. The Company reported that its average contract size
increased to $180,000, sequentially up from $175,000 during the third quarter
and up 13 percent from the same period a year ago. SmartForce continued to
leverage its customer base by renewing and expanding existing contracts and
penetrating multiple departments within its customer organizations. As a result,
the Company's dollar renewal rate remained strong, at over 150 percent.
SmartForce again exceeded its goal of signing at least five deals worth over $1
million during the quarter. December bookings were particularly strong,
representing the best bookings month of 2001.
"We are encouraged by the strength we saw in the quarter and are
particularly pleased with the success our sales force is having in selling
solutions that are critical to our customers' business initiatives," commented
Mr. Priest. "Customers are increasingly looking to SmartForce as the partner to
help them get the most out of their e-Learning solutions."
About SmartForce:
SmartForce, the world's largest e-Learning company, provides integrated
enterprise e-Learning solutions. SmartForce e-Learning is a comprehensive
application
infrastructure to support e-Learning initiatives in enterprises globally.
Encompassing the largest body of e-Learning content in the world, and a fully
integrated student environment, learning management system and a range of custom
content creation and publication tools, SmartForce e-Learning provides the
architecture that global enterprises are using today to implement e-Learning
strategies to support their critical strategic business initiatives. With more
than 2,500 major corporate customers, SmartForce e-Learning solutions bring the
power of the Internet to the critical training business process. SmartForce is
quoted on the NASDAQ National Market under the symbol "SMTF." The company, which
has more than 1,800 employees worldwide, has corporate headquarters at 900
Chesapeake Drive, Redwood City, Calif., 94063. Phone: 650.817.5900. Fax:
650.817.5061. Web site: www.smartforce.com.
About Centra
Centra is the world's leading provider of e-Learning and business
e-Collaboration applications. Used by more than 775 companies, government
agencies, and universities worldwide, Centra offers a comprehensive suite of
real-time knowledge delivery and management solutions, including voice-enabled
virtual classrooms, Web conferences and online meetings. Centra offers the most
advanced voice-over-IP technologies, with scalability across the extended
enterprise and seamless access through thin client architecture. Using the broad
suite of Centra applications, global organizations increase the overall
effectiveness of their e-Learning and communication initiatives, targeting the
appropriate mix of live and self-paced learning formats and activities for each
audience or strategic business task.
Forward-Looking Statements
Certain statements in this release, including but not limited to the
statements contained in the "Post Acquisition Financial Guidance" section of
this release, are forward-looking statements that involve a number of risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. Factors that could cause results to differ
materially include, but are not limited to, the factors more fully set forth in
the "Risk Factor" section below.
ADDITIONAL INFORMATION ABOUT THE MERGER AND WHERE TO FIND IT
SmartForce intends to file a registration statement on Form S-4 in connection
with the transaction, and SmartForce and Centra intend to mail a joint proxy
statement/prospectus to their respective stockholders in connection with the
transaction. Investors and security holders of SmartForce and Centra are urged
to read the joint proxy statement/prospectus when it becomes available because
it will contain important information about SmartForce, Centra and the
transaction. Investors and security holders may obtain a free copy of the joint
proxy statement/prospectus (when it is available) at the SEC's web site at
WWW.SEC.GOV. A free copy of the joint proxy
statement/prospectus may also be obtained (when it is available) from SmartForce
or Centra. In addition to the registration statement on Form S-4 to be filed by
SmartForce in connection with the transaction, and the joint proxy
statement/prospectus to be mailed to the stockholders of SmartForce and Centra
in connection with the transaction, each of SmartForce and Centra file annual,
quarterly and special reports, proxy and information statements, and other
information with the SEC. Investors may read and copy any of these reports,
statements and other information at the SEC's public reference rooms located at
450 5th Street, N.W., Washington, D.C., 20549, or any of the SEC's other public
reference rooms. Investors should call the SEC at 1-800-SEC-0330 for further
information on these public reference rooms. The reports, statements and other
information filed by SmartForce and Centra with the SEC are also available for
free at the SEC's web site at WWW.SEC.GOV. A free copy of these reports,
statements and other information may also be obtained from SmartForce or Centra.
SmartForce's executive officers and directors may be deemed to be
participants in the solicitation of proxies from the stockholders of Centra and
SmartForce in favor of the Merger. A description of the interests of
SmartForce's executive officers and directors in SmartForce is set forth in the
proxy statement for SmartForce's 2001 Annual Meeting of Stockholders, which was
filed with the SEC on June 15, 2001. Investors and security holders may obtain
more detailed information regarding the direct and indirect interests of
SmartForce's executive officers and directors in the Merger by reading the
preliminary joint proxy statement/prospectus filed with the SEC when it becomes
available.
Centra's executive officers and directors may be deemed to be
participants in the solicitation of proxies from the stockholders of Centra and
SmartForce in favor of the Merger. A description of the interests of Centra's
executive officers and directors in Centra is set forth in the proxy statement
for Centra's 2001 Annual Meeting of Stockholders, which was filed with the SEC
on March 30, 2001. Investors and security holders may obtain more detailed
information regarding the direct and indirect interests of Centra's executive
officers and directors in the Merger by reading the preliminary joint proxy
statement/prospectus filed with the SEC when it becomes available.
The merger agreement for SmartForce's acquisition of Centra Software,
Inc. was filed with the Securities and Exchange Commission today by SmartForce
as an exhibit to the Current Report on Form 8-K and is incorporated by reference
into this filing.
Note to Editors: Statements of Operations and Balance Sheet to follow
SmartForce PLC
Condensed Consolidated Statements of Operations
(dollars in thousands, except per share amounts)
Three Months Twelve Months
------------ -------------
Ended December 31, Ended December 31,
------------------ ------------------
2000 2001 2000 2001
---- ---- ---- ----
Revenues $ 57,699 $ 65,326 $ 168,197 $ 260,875
Cost of revenues 9,409 11,049 27,452 43,064
--------- -------- --------- ---------
Gross profit 48,290 54,277 140,745 217,811
Operating expenses:
Research and development 12,049 13,366 42,085 51,328
Sales and marketing 31,189 33,550 105,618 132,793
General and administrative 5,444 5,336 19,703 21,727
Amortization of acquired intangibles
2,323 2,811 8,603 10,158
--------- -------- --------- ---------
Total operating expenses 51,005 55,063 176,009 216,006
--------- -------- --------- ---------
Income (loss) from operations ( 2,715) (786) (35,264) 1,805
Other income, net 1,112 936 4,372 3,037
--------- -------- --------- ---------
Income (loss) before provision for income taxes (1,603) 150 (30,892) 4,842
Provision (benefit) for income taxes 72 355 (2,229) 1,800
--------- -------- --------- ---------
Net income (loss) $ (1,675) $ (205) $ (28,663) $ 3,042
========= ======== ========= =========
Net income (loss) per share - Basic $ (0.03) $ 0.00 $ (0.56) $ 0.06
========= ======== ========= =========
Shares used in computing net income (loss) per 51,762 56,709 51,111 54,478
========= ======== ========= =========
share - Basic
Net income (loss) per share - $ (0.03) $ 0.00 $ (0.56) $ 0.05
========= ======== ========= =========
Diluted
Shares used in computing net income (loss) per 51,762 56,709 51,111 60,837
========= ======== ========= =========
share - Diluted
SmartForce PLC
Condensed Consolidated Balance Sheets
(dollars in thousands)
December 31, December 31,
2000 2001
ASSETS
Current assets
Cash $ 65,412 $ 65,133
Short term investments 42,545 44,142
Accounts receivable, net 76,458 102,373
Inventories 369 333
Deferred tax assets, net 2,398 2,214
Prepaid expenses 12,467 21,079
--------- ---------
Total Current assets 199,649 235,274
Intangible assets 73,194 74,957
Property and equipment, net 29,388 40,191
Investments 3,616 13,616
Deferred tax assets, net 119 192
Other assets 28,817 27,877
--------- ---------
Total assets $ 334,783 $ 392,107
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred revenues $ 48,381 $ 44,539
Current liabilities 39,005 31,588
--------- ---------
Total current liabilities 87,386 76,127
Non current liabilities 1,759 517
Shareholders' equity 245,638 315,463
--------- ---------
Total liabilities and shareholders'
Equity $ 334,783 $ 392,107
========= =========
RISK FACTORS RELATING TO OUR BUSINESS
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY. THIS LIMITS YOUR
ABILITY TO EVALUATE OUR HISTORICAL FINANCIAL RESULTS AND INCREASES THE
LIKELIHOOD THAT OUR RESULTS WILL FALL BELOW MARKET ANALYSTS' EXPECTATIONS, WHICH
COULD CAUSE THE PRICE OF OUR ADSS TO DROP RAPIDLY AND SEVERELY.
We have in the past experienced fluctuations in our quarterly operating
results and anticipate that these fluctuations will continue and could intensify
in the future. As a result, we believe that our quarterly revenue, expenses and
operating results are likely to vary significantly in the future. Thus, it is
likely that in some future quarters our results of operations will be below the
expectations of public market analysts and investors, which could have a severe
adverse effect on the price of our ADSs. For example, our revenue for the
quarter ended September 30, 1998 did not increase at a rate comparable to prior
quarters. As a direct result, the trading price of our ADSs decreased rapidly
and significantly, having an extreme adverse effect on the value of an
investment in our securities.
Our operating results have historically fluctuated, and may in the
future continue to fluctuate, as a result of factors, which include:
- the size and timing of new and renewal agreements;
- the rate at which we continue to migrate our customers to our
e-Learning solutions;
- the number and size of outsourced virtual university agreements or
other agreements providing for professional services or the resale
of instructor-led training;
- the mix of revenue between content, e-Learning platform,
professional services and products licensed from third parties;
- 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 sales channels;
- the impact of any unanticipated decline in net revenues in any
particular quarter as compared to the relatively fixed nature of our
expense levels in the short term;
- general conditions in the U.S. or the international economy;
- general conditions in our market or the markets served by our
customers in the U.S.;
- competitive conditions in the industry;
- the loss of significant customers;
- delays in availability of existing or new products;
- the spending patterns of our customers;
- litigation costs and expenses;
- currency fluctuations; and
- the length of sales cycles.
DEMAND FOR OUR PRODUCTS AND SERVICES MAY BE ESPECIALLY SUSCEPTIBLE TO ADVERSE
ECONOMIC CONDITIONS.
Our business and financial performance may be damaged by adverse
financial conditions affecting our target customers or by a general weakening of
the economy. Some companies may not view training products and services as
critical to the success of their businesses. If these companies 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.
In addition, the general condition of the economy, and by extension our
business, can be affected by social, political and military conditions. For
example, the terrorist events of September 11, 2001 and their aftermath had a
material adverse effect on our third quarter bookings. It is not possible to
predict the outcome of the recent escalation of hostilities between the United
States and certain countries and persons related to the events of September 11.
The continuation of these hostilities could result in further weakness in the
economy which would have an adverse impact on our operating results and
financial condition.
OUR EXPERIENCE IN SELLING FULLY INTEGRATED, INTERNET-BASED LEARNING SOLUTIONS,
IS RELATIVELY LIMITED.
In the fourth quarter of 1999 we introduced SmartForce e-Learning, a
hosted Internet-based learning solution. While the results of our efforts to
migrate our business to the e-Learning model and market these solutions to our
customers have exceeded our expectations, we have relatively limited experience
with these solutions, which makes our historical results of limited value in
predicting the potential success of this initiative. The ultimate success of
this initiative will depend on our ability to continue to expand and enhance our
e-Learning infrastructure, to market and sell the new e-Learning solutions to
existing and prospective customers, to host, operate and manage our destination
site, and to attract and retain key management and technical personnel.
We may not be successful in these efforts and the economic terms of any
arrangements that might be expected may not be as favorable as the traditional
licensing agreements. We believe that a lack of success in this regard could
have a material negative effect on us. Moreover, the arrangements with our
customers under the e-Learning model have had and will continue to have
accounting and operating model consequences that would also be materially
different from the consequences of our traditional software licensing model.
OUR OPERATING RESULTS ARE SUBJECT TO SEASONAL FLUCTUATIONS WHICH MAY ADVERSELY
IMPACT OUR BUSINESS.
Our operating results are subject to seasonal fluctuations, based in
part on customers' annual budgetary cycles and in part on the annual nature of
sales quotas. These seasonal trends have in the past caused revenues in the
first quarter of a year to be less, perhaps substantially so, than revenues for
the immediately preceding fourth quarter. We expect that these seasonal trends
could continue to adversely affect our revenues. In addition, we have in past
years added significant headcount in the sales and marketing and research and
development functions in the first quarter, and to a lesser extent, the second
quarter. Because these headcount additions do not immediately contribute
significant revenues, our operating margins in the earlier part of the year tend
to be significantly lower than in the later parts of the year. In addition, many
technology companies also experience a seasonal downturn in demand during the
summer months. These seasonal trends may have a material adverse effect on our
results of operations.
WE RELY ON STRATEGIC ALLIANCES THAT MAY NOT CONTINUE IN THE FUTURE.
We have developed strategic alliances to develop and market many of our
products, and we believe that an increasing proportion of our future revenues
may be attributable to products developed and marketed through these and other
future alliances. However, these relationships are not exclusive and we may be
unable to continue to develop future products through these alliances in a
timely fashion or may be unable to negotiate additional alliances in the future
on acceptable terms or at all.
The marketing efforts of our partners may also disrupt our direct sales
efforts. Our development and marketing partners could pursue their existing or
alternative training programs in preference to and in competition with those
being developed by us. In the event that we are unable to maintain or expand our
current development and marketing alliances or enter into new development and
marketing alliances, our operating results and financial condition could be
materially adversely affected. Furthermore, we are required to pay royalties to
our development and marketing partners on products developed with them, which
reduces our gross margins. We expect that cost of revenues may fluctuate from
period to period in the future based upon many factors, including the revenue
mix (between content, e-Learning platform, services and partner's products) and
the timing of expenses associated with development and marketing 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 our agreement with them and could result in changes to the royalty
arrangements, which could adversely effect our results of operations.
OUR SUCCESS DEPENDS ON OUR ABILITY TO MEET THE NEEDS OF THE RAPIDLY CHANGING
MARKET.
The market for interactive education and training is influenced 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. Many of these new
offerings involve new and different business models and contracting mechanisms.
In addition, multimedia and other product functionality features are being added
to the educational software. Accordingly, 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 able to introduce 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.
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 we exercise any unscheduled down
times, even for only a short period of time, our business and reputation could
be materially harmed. We have in the past experienced performance problems and
unscheduled downtime, and these problems could occur. We rely on third parties
for proper functioning of our computer infrastructure, delivery of our
e-Learning application 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 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 revenues and
operating results and harm our reputation with corporate customers, subscribers
and commerce partners. A key element of our strategy is to generate a high
volume of traffic to the Web site and create a significant subscriber base.
Accordingly, the satisfactory performance, reliability and availability of our
Web site and computer infrastructure is 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 site infrastructure
to handle increased traffic, and these difficulties could recur. The failure to
expand and upgrade the Web site or any system error, failure or extended down
time, could materially harm our business, reputation, financial condition or
results of operations.
Our facilities in the State of California, including our corporate
headquarters and other critical business operations, are currently subject to
electrical blackouts as a consequence of a shortage of available power. In the
event these blackouts continue to increase in severity, they could disrupt the
operations of our affected facilities and our business could be seriously
harmed. In addition, in connection with the shortage of available power, prices
for electricity have risen dramatically, and will likely to continue to increase
in the foreseeable future. Such price changes will increase our operating costs,
which could adversely impact our profitability.
THE INTERNET-BASED LEARNING MARKET IS A DEVELOPING MARKET, AND OUR BUSINESS WILL
SUFFER IF E-LEARNING IS NOT WIDELY ACCEPTED.
The market for Internet-based enterprise learning is a new and emerging
market. Corporate training and education has historically been conducted
primarily through classroom instruction and has 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 and use the Internet in connection
with 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
Internet 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 and the use of the Internet for 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 services, may not achieve commercial success.
WE MAY FAIL TO INTEGRATE ADEQUATELY ACQUIRED PRODUCTS, TECHNOLOGIES AND
BUSINESSES.
As a result of the consummation of a number of acquisitions our
operating expenses have increased. The integration of these businesses may not
be successfully completed in a timely fashion, or at all. Further, the revenues
from the acquired businesses may not be sufficient to support the costs
associated with those businesses, without adversely affecting our operating
margins. Any failure to successfully complete
the integration in a timely fashion or to generate sufficient revenues from the
acquired businesses could have a material adverse effect on our business and
results of operations.
In April 2001 we acquired icGlobal, providers of industry acclaimed
Learning Management System software. In August 2001 we acquired substantially
all of the assets of Impaxselling.com, a sales performance company providing
global enterprises with web-based learning solutions designed to improve sales
and account management performance. In October 2001 we acquired SkillScape
Solutions, Inc., a provider of competency management systems. Difficulties in
combining these companies' products and technologies could have an adverse
impact on our ability to fully benefit from our existing and future investment
in this business and on the future prospects for our business, management and
professional education software products.
We regularly evaluate acquisition opportunities and are likely to make
acquisitions in the future that would provide additional product or service
offerings, additional industry expertise or an expanded geographic presence. We
may be unable to locate attractive opportunities or acquire any that we locate
on attractive terms. Future acquisitions could result in potentially dilutive
issuances of equity securities, the incurrence of debt and contingent
liabilities and amortization expenses related to goodwill and other intangible
assets, which could materially adversely affect our results of operations.
Product and technology acquisitions entail numerous risks, including
difficulties in the assimilation of acquired operations, technologies and
products, diversion of management's attention to other business concerns, risks
of entering markets in which we have no or limited prior experience and the
potential loss of key employees of acquired companies. We may be unable to
integrate successfully any operations, personnel or products that have been
acquired or that might be acquired in the future and our failure to do so could
have a material adverse effect on our results of operations.
RAPID EXPANSION OF OUR OPERATIONS COULD STRAIN OUR PERSONNEL AND SYSTEMS.
We have recently experienced rapid expansion of our operations, which
has placed, and is expected to continue to place, significant demands on our
executive, administrative, operational and financial personnel and systems. Our
future operating results will substantially depend on the ability of our
officers and key employees to manage changing business conditions and to
implement and improve our operational, financial control and reporting systems.
In particular, we require significant improvement in our order entry,
fulfillment and management information systems in order to support our expanded
operations. If we are unable to respond to and manage changing business
conditions, our business and results of operations could be materially adversely
affected.
OUR EXPENSE LEVELS ARE FIXED IN THE SHORT TERM AND WE MAY BE UNABLE TO ADJUST
SPENDING TO COMPENSATE FOR UNEXPECTED REVENUE SHORTFALLS.
Our expense levels are based in significant part on our expectations
regarding future revenues and are fixed to a large extent in the short term.
Accordingly, we may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Any significant revenue
shortfall would therefore have a material adverse effect on our results of
operations. This risk materialized in the third quarter of 1998, where profit
was dramatically negatively affected by a shortfall in revenues as against
management's expectations.
WE DEPEND ON A FEW KEY PERSONNEL TO MANAGE AND OPERATE US.
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,
motivate and retain highly qualified employees. In addition, we depend on
writers, programmers, Web designers and graphic artists. We expect to continue
to hire additional content development, programmers, sales and marketing,
information systems and accounting staff. However, we may be unsuccessful in
attracting, retaining or motivating key personnel. The inability to hire and
retain qualified personnel or the loss of the services of key personnel could
have a material adverse effect upon our current business, new product
development efforts and future business prospects.
INCREASED COMPETITION MAY RESULT IN DECREASED DEMAND FOR OUR PRODUCTS AND
SERVICES, WHICH MAY RESULT IN REDUCED REVENUES AND GROSS MARGINS AND LOSS OF
MARKET SHARE.
The market for business education training solutions is highly
fragmented and competitive, and we expect this competition to increase. We
expect that because of the lack of significant barriers to entry into this
market, new competitors may enter the market in the future. 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 we expect this trend to continue.
We expect the market to become increasingly competitive due to the lack of
significant barriers to entry. We may also face competition from publishing
companies and vendors of application software, including those vendors with whom
we have formed development and marketing alliances.
Our primary source of direct competition comes from third-party
suppliers of instructor-led information technology, business, management and
professional skills education and training as well as suppliers of
computer-based training and e-Learning solutions. We also face indirect
competition from internal education and training departments of our potential
customers. We also compete to a lesser extent with consultants, value-added
resellers and network integrators. Certain of these value-added
resellers also market products competitive with ours. We expect that as
organizations increase their dependence on outside suppliers of training, we
will face increasing competition from these other suppliers as education and
training managers more frequently compare training products provided by outside
suppliers.
Growing competition may result in reduced revenue and gross margins and
loss of market share, any one of which 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 price competition, and we expect that we will 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 or competitive pressures may require us to
reduce our prices significantly.
OUR BUSINESS IS SUBJECT TO CURRENCY FLUCTUATIONS THAT CAN ADVERSELY AFFECT OUR
OPERATING RESULTS.
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 revenues or pay expenses. In particular, the value of the U.S.
dollar against the Euro and related currencies impacts our operating results.
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, and changes to the value of the Euro, pound sterling
and other currencies relative to the U.S. dollar could adversely affect our
business and results of operations.
OUR CORPORATE TAX RATE MAY INCREASE, WHICH COULD ADVERSELY IMPACT OUR CASH FLOW,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We have significant operations and generate a majority of our taxable
income in the Republic of Ireland, and some of our Irish operating subsidiaries
are taxed at rates substantially lower than tax rates in effect in the United
States and other countries in which we have operations. If our Irish
subsidiaries were no longer to qualify for these lower tax rates or if the
applicable tax laws were rescinded or changed, our operating results could be
materially adversely affected. Moreover, because we incur income tax in several
countries, an increase in our profitability in one or more of these countries
could result in a higher overall tax rate. In addition, if U.S. or other foreign
tax authorities were to change applicable tax laws or successfully challenge the
manner in which our subsidiaries' profits are currently recognized, our taxes
could increase, and our business, cash flow, financial condition and results of
operations could be materially adversely affected.
WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS. UNAUTHORIZED USE OF OUR
TECHNOLOGY MAY RESULT IN DEVELOPMENT OF PRODUCTS OR SERVICES THAT COMPETE WITH
OURS.
Our success depends on our ability to protect our rights in our
intellectual property and trade secrets. We rely upon a combination of
copyright, trademark and trade secret laws and customer license agreements, and
other methods to protect our proprietary rights. We also enter into
confidentiality agreements with our employees, consultants and third parties to
seek to limit and protect the distribution of our proprietary information
regarding this technology. However, we have not signed protective agreements in
every case. Unauthorized parties may copy aspects of our products, services or
technology or obtain and use information that we regard as proprietary. Other
parties may breach confidentiality agreements and other protective contracts we
have executed. 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 our
intellectual property rights, to protect trade secrets or to determine the
validity and scope of the proprietary rights of others. This litigation could
result in substantial costs and diversion of management and technical resources.
SOME MAY CLAIM THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS, WHICH COULD
RESULT IN COSTLY LITIGATION OR REQUIRE US TO REENGINEER OR CEASE SALES OF OUR
PRODUCTS OR SERVICES.
Third parties 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
in the use 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 us or at all. Though no legal actions are pending at this time,
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.
WE ARE SUBJECT TO A PENDING LEGAL PROCEEDING AND MAY BECOME SUBJECT TO
ADDITIONAL PROCEEDINGS AND ADVERSE DETERMINATIONS IN THESE PROCEEDINGS COULD
HARM OUR BUSINESS.
Since the end of the third quarter of 1998, a class action lawsuit has
been pending in the United States District Court for the Northern District of
California against us, one of our subsidiaries, SmartForce USA, and certain of
our former and current officers and directors, alleging violation of the federal
securities laws. It has been alleged in this lawsuit that we misrepresented or
omitted to state material facts regarding our business and financial condition
and prospects in order to artificially inflate and maintain the price of our
ADSs, and misrepresented or omitted to state material facts in our registration
statement and prospectus issued in connection with our merger with Forefront,
which also is alleged to have artificially inflated the price of our ADSs.
We believe that this action is without merit and intend to vigorously
defend ourselves against it. Although we cannot presently determine the outcome
of this action, an adverse resolution of this matter could significantly
negatively impact our financial position and results of operations.
We may be from time to time involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. An adverse
resolution of these matters could significantly negatively impact our financial
position and results of operations.
OUR NON-U.S. 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 intend to continue to expand our
operations outside of the United States. Operations outside of the United States
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, in staffing and
managing foreign subsidiary operations, longer account receivable payment cycles
and potential adverse tax consequences. 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.
BECAUSE MANY USERS OF OUR E-LEARNING SOLUTIONS ACCESS THEM OVER THE INTERNET,
FACTORS ADVERSELY AFFECTING THE USE OF THE INTERNET COULD HARM OUR BUSINESS.
Many of our users access our e-Learning solutions over the Internet.
Any factors that adversely affect Internet usage could disrupt the ability of
those users to access our e-Learning solutions, which would adversely effect
customer satisfaction and therefore our business. Factors which could disrupt
Internet usage include slow access to download times, security concerns, network
problems or service disruptions that prevent users from accessing an Internet
server and delays in, or disputes concerning, the development of industry wide
Internet standards and protocols.
THE MARKET PRICE FOR OUR ADSS MAY FLUCTUATE AND MAY NOT BE SUSTAINABLE.
The market price of our ADSs has fluctuated significantly since our
initial public offering and is likely to continue to be volatile. We believe
that factors, such as the following, could cause the price of our ADSs to
fluctuate, perhaps substantially:
- announcements of developments related to ourselves or our
competitors' business;
- announcements of new products or enhancements by ourselves or our
competitors;
- sales of our ADSs into the public market;
- developments in our relationships with our customers, partners and
distributors;
- shortfalls or changes in revenues, gross margins, earnings or losses
or other financial results which differ from public market
expectations;
- changes in the public market expectation of our performance or
industry performance;
- changes in market valuations of competitors;
- regulatory developments;
- additions or departures of key personnel;
- fluctuations in results of operations; and
- general conditions in our market or the markets served by our
customers or in the U.S. and or the International economy.
In addition, in recent years the stock market in general, and the
market for shares of technology stocks in particular, has 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. To succeed we must continue to expand our
content offerings, upgrade our technology and distinguish our solution. We may
not be able to do successfully. Any failure by us to anticipate or respond
adequately to changes in technology and customer preferences or any significant
delays in content development or implementation could impact our ability to
capture market share.
RISKS RELATED TO THE PROPOSED MERGER
WE MAY FACE CHALLENGES IN INTEGRATING CENTRA'S BUSINESS WITH OURS AND, AS A
RESULT, MAY NOT REALIZE THE EXPECTED BENEFITS OF THE ANTICIPATED MERGER
We may not be successful in integrating Centra's business with ours.
Integrating our operations and personnel with Centra's will be a complex
process. The integration may not be completed rapidly or achieve the anticipated
benefits of the merger. The successful integration of Centra's business with
ours will require, among other things, integration of our two companies'
products and services, sales and marketing, information and software systems,
coordination of employee retention, hiring and training and coordination of
ongoing and future research and development efforts. The diversion of the
attention of management and any difficulties encountered in the process of
combining the companies could cause the disruption of, or a loss of momentum in,
the activities of the combined company's business. Further, the process of
combining Centra's business with ours could negatively affect employee morale
and our ability to retain some of our or Centra's key employees after the
merger. In addition, we intend after the merger to develop new products and
services that combine Centra's assets with ours. This may result in longer sales
cycles and product implementations, which may cause revenue and operating income
to fluctuate and fail to meet expectations. To date, we have not
completed our investigation into the obstacles, technological, market-driven or
otherwise, to developing and marketing these new products and services in a
timely and efficient way. There can be no assurance that we will be able to
overcome these obstacles, or that a market for such new SmartForce products and
services will develop after the merger.
Also, we could face additional risks inherent in Centra's business that
we were not previously subject to, such as additional requirements in the future
to fund our operations could be significantly increased due to the capital
requirements of Centra's business.
In addition to the integration risks discussed above, the combined
company's ability to realize these benefits and synergies could be adversely
impacted by practical or legal constraints on its ability to combine operations
or implement workforce reductions.
CHARGES TO EARNINGS RESULTING FROM THE APPLICATION OF THE PURCHASE METHOD OF
ACCOUNTING MAY ADVERSELY AFFECT SMARTFORCE'S RESULTS OF OPERATIONS AND THE
MARKET VALUE OF SMARTFORCE'S ADSS FOLLOWING THE MERGER
In accordance with United States generally accepted accounting
principles, the combined company will account for the merger using the purchase
method of accounting, which will result in charges to earnings that could have a
material adverse effect on Smartforce's results of operations and the market
value of SmartForce ADSs following completion of the merger. Under the purchase
method of accounting, the combined company will allocate the total estimated
purchase price to Centra's net tangible assets, amortizable intangible assets,
intangible assets with indefinite lives and in-process research and development
based on their fair values as of the date of completion of the merger, and
record the excess of the purchase price over those fair values as goodwill. The
portion of the estimated purchase price allocated to in-process research and
development will be expensed by the combined company in the quarter in which the
merger is completed. The combined company will incur additional depreciation and
amortization expense over the useful lives of certain of the net tangible and
intangible assets acquired in connection with the merger. In addition, to the
extent the value of goodwill or intangible assets with indefinite lives becomes
impaired, the combined company may be required to incur material charges
relating to the impairment of those assets. These depreciation, amortization,
in-process research and development and potential impairment charges could have
a material impact on the combined company's results of operations.
NEED FOR GOVERNMENTAL CLEARANCES MAY PREVENT OR DELAY CONSUMMATION OF THE MERGER
The merger is subject to review by the United States Federal Trade
Commission under the Hart-Scott-Rodino Improvements Act of 1976. In addition,
other filings with, notifications to and authorizations and approvals of,
various governmental agencies with respect to the merger and other transactions
contemplated by the reorganization agreement and the stockholder agreements,
relating primarily to antitrust issues, must be made prior to the consummation
of the merger. Under each of these statutes, SmartForce and Centra are required
to make pre-merger notification filings and to await the
expiration or early termination of statutory waiting periods and clearance prior
to completing the merger. We and Centra are seeking to obtain all such required
regulatory clearances prior to the scheduled completion of these transactions.
The reviewing authorities may not permit the merger at all or may
impose restrictions or conditions on the merger that may seriously harm the
combined company if the merger is completed. These conditions could include a
complete or partial license, divestiture, spin-off or the holding separate of
assets or businesses. Either SmartForce or Centra may refuse to complete the
merger if restrictions or conditions are required by governmental authorities
that would materially adversely impact the combined company's results of
operations or the benefits anticipated to be derived by the combined company.
Any delay in the completion of the merger could diminish the anticipated
benefits of the merger or result in additional transaction costs, loss of
revenue or other effects associated with uncertainty about the transaction.
SmartForce and Centra also may agree to restrictions or conditions imposed by
antitrust authorities in order to obtain regulatory approval, and these
restrictions or conditions could harm the combined company's operations. In
addition, during or after the statutory waiting periods, and even after
completion of the merger, governmental authorities could seek to block or
challenge the merger as they deem necessary or desirable in the public interest.
In addition, in some jurisdictions, a competitor, customer or other third party
could initiate a private action under the antitrust laws challenging or seeking
to enjoin the merger, before or after it is completed. SmartForce, Centra or the
combined company may not prevail, or may incur significant costs, in defending
or settling any action under the antitrust laws.
THE BUSINESSES OF SMARTFORCE AND CENTRA MAY BE ADVERSELY AFFECTED IF THE MERGER
IS NOT COMPLETED.
If the merger is not completed, SmartForce's business and Centra's
operations may be harmed to the extent that customers, suppliers and others
believe that the companies cannot effectively compete in the marketplace without
the merger, or otherwise remain uncertain about the companies. Completion of the
merger is subject to several closing conditions, including obtaining requisite
regulatory and shareowner approvals. SmartForce and Centra will be required to
pay significant costs incurred in connection with the merger, including legal,
accounting and a portion of the financial advisory fees, whether or not the
merger is completed.
PARTNERS OR CUSTOMERS MAY REACT UNFAVORABLY TO THE PROPOSED COMBINATION
Both we and Centra partner with numerous other technology companies including
software and services firms to deliver SmartForce and Centra products and
services to customers. Some of these partners may feel that the combined company
poses new competitive threats to their businesses and as a result may break
their relationships with us or Centra. In addition, some of our customers or
customers of Centra may view the combined company as a competitor and,
therefore, terminate relationships with SmartForce or Centra.