UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)


þ	QUARTERLY REPORT PERSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2013
OR
¨	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 333-169857

SSI INVESTMENTS II LIMITED

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


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

Registrant’s Telephone Number, Including Area Code: (603) 324-3000

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ¨ No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No ¨

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


Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer þ	Smaller reporting company ¨

(Do not check if a smaller reporting company)

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

SSI INVESTMENTS II LIMITED

FORM 10-Q

FOR THE QUARTER ENDED APRIL 30, 2013

INDEX



	PAGE NO.
PART I — FINANCIAL INFORMATION	1
Item 1. Unaudited Condensed Consolidated Financial Statements:	1
Condensed Consolidated Balance Sheets as of April 30, 2013 and January 31, 2013	1
Condensed Consolidated Statements of Operations for the Three Months Ended April 30, 2013 and April 30, 2012	2
Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended April 30, 2013 and April 30, 2012	3
Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2013 and April 30, 2012	4
Notes to Condensed Consolidated Financial Statements	5
PART II	41
Item 1. Legal Proceedings	41
Item 1A. Risk Factors	41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3. Defaults Upon Senior Securities	42
Item 4. Mine Safety Disclosures	42
Item 5. Other Information	42
Item 6. Exhibits	42
SIGNATURE	43

PART I

ITEM 1. — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SSI INVESTMENTS II LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)


		April 30, 2013		January 31, 2013
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	86,918	$	39,048
Restricted cash		156		136
Accounts receivable, net		102,404		188,682
Deferred tax assets		1,360		1,360
Prepaid expenses and other current assets		32,485		34,741
Total current assets		223,323		263,967
Property and equipment, net		12,499		13,654
Goodwill		636,050		637,524
Intangible assets, net		416,180		444,748
Deferred tax assets		10,090		10,090
Other assets		21,356		22,445
Total assets	$	1,319,498	$	1,392,428
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt	$	27,492	$	3,311
Accounts payable		6,287		11,650
Accrued compensation		11,159		23,456
Accrued expenses		40,631		39,310
Deferred tax liabilities		15,153		15,153
Deferred revenue		225,003		262,452
Total current liabilities		325,725		355,332

Long term debt		730,082		755,034
Deferred tax liabilities		18,331		26,646
Other long term liabilities		10,733		10,016
Total long-term liabilities		759,146		791,696
Commitments and contingencies (Note 11)
Shareholders' equity
Ordinary shares, $1.00 par value: 1,000,000,000 shares authorized; 534,513,271 shares issued at April 30, 2013 and January 31, 2013		534,513		534,513
Additional paid-in capital		16,058		14,574
Accumulated deficit		(327,044)		(316,520)
Accumulated other comprehensive income		11,100		12,833
Total stockholders' equity		234,627		245,400
Total liabilities and stockholders' equity	$	1,319,498	$	1,392,428

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

SSI INVESTMENTS II LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED, IN THOUSANDS)


	Three Months Ended April 30,
		2013		2012
Revenues	$	100,519	$	89,304
Cost of revenues		9,562		10,428
Cost of revenues - amortization of intangible assets		14,024		17,668
Gross profit		76,933		61,208
Operating expenses:
Research and development		13,929		13,987
Selling and marketing		34,379		33,357
General and administrative		9,933		8,977
Amortization of intangible assets		13,686		15,386
Acquisition related expenses		265		399
Merger and integration related expenses		1,728		2,305
Restructuring		2,351		467
Total operating expenses		76,271		74,878
Operating income (loss)		662		(13,670)
Other (expense) income, net		(217)		(922)
Interest income		272		27
Interest expense		(15,773)		(16,561)
Loss before benefit for income taxes		(15,056)		(31,126)
Benefit for income taxes		(4,528)		(5,085)
Net loss before discontinued operations	$	(10,528)	$	(26,041)
Income (loss) from discontinued operations, net of an income tax benefit of $0 and $416 for the three months ended April 30, 2013 and 2012, respectively		4		(655)
Net loss	$	(10,524)	$	(26,696)

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

SSI INVESTMENTS II LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED, IN THOUSANDS)


	Three Months Ended April 30,
		2013		2012
Comprehensive loss:
Net loss	$	(10,524)		(26,696)
Other comprehensive (loss) income — Foreign currency adjustment, net of tax		(1,733)		1,996
Comprehensive loss	$	(12,257)	$	(24,700)

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

SSI INVESTMENTS II LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED, IN THOUSANDS)


	Three Months Ended April 30,
		2013		2012
Cash flows from operating activities:
Net loss	$	(10,524)	$	(26,696)
Adjustments to reconcile net loss to net cash provided by operating activities:
Share-based compensation		1,484		-
Depreciation and amortization		1,623		1,393
Amortization of intangible assets		27,710		33,054
Provision of bad debts		49		-
Benefit for income taxes - non-cash		(8,159)		(6,979)
Non-cash interest expense		1,335		1,307
Loss on disposition of assets		13		152
Changes in current assets and liabilities, net of acquisitions:
Accounts receivable		85,403		87,850
Prepaid expenses and other current assets		1,933		5,256
Accounts payable		(2,033)		(8,388)
Accrued expenses, including long-term		(10,115)		(12,924)
Deferred revenue		(36,435)		(28,890)
Net cash provided by operating activities		52,284		45,135
Cash flows from investing activities:
Purchases of property and equipment		(3,555)		(2,565)
Proceeds on disposition of assets		-		96
Increase in restricted cash		(20)		(37)
Net cash used in investing activities		(3,575)		(2,506)
Cash flows from financing activities:
Principal payments on Senior Credit Facilities		(1,162)		(225)
Net cash used in financing activities		(1,162)		(225)
Effect of exchange rate changes on cash and cash equivalents		323		225
Net increase in cash and cash equivalents		47,870		42,629
Cash and cash equivalents, beginning of period		39,048		28,908
Cash and cash equivalents, end of period	$	86,918	$	71,537

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

SSI INVESTMENTS II LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. THE COMPANY

On May 26, 2010, SSI Investments III Limited (“SSI III”), a wholly owned subsidiary of SSI Investments Limited II (“SSI II”), completed its acquisition of Skillsoft PLC (the “Acquisition”), which was subsequently re-registered as a private limited company and whose corporate name changed from Skillsoft PLC (the “Predecessor”) to Skillsoft Limited (“Skillsoft” or the “Successor”). Unless otherwise indicated or the context otherwise requires, as used in this discussion, the terms “the Company”, “we”, “us”, “our” and other similar terms refers to (a) prior to the Acquisition, the Predecessor and its subsidiaries and (b) from and after the Acquisition, SSI II and its subsidiaries, including Skillsoft.

2. BASIS OF PRESENTATION

The accompanying, unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such SEC rules and regulations. In the opinion of management, the condensed consolidated financial statements reflect all material adjustments (consisting only of those of a normal and recurring nature) which are necessary to present fairly the consolidated financial position of the Company as of April 30, 2013 and the results of its operations and cash flows for three months ended April 30, 2013. These condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2013, as filed with the SEC on April 30, 2013. The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year.

The Company evaluates events occurring after the date of the accompanying unaudited condensed consolidated balance sheets for potential recognition or disclosure in the financial statements. The Company did not identify any material subsequent events requiring adjustment to the accompanying unaudited condensed consolidated financial statements (recognized subsequent events). Those items requiring disclosure (unrecognized subsequent events) in the financial statements have been disclosed accordingly.

3. CASH, CASH EQUIVALENTS, RESTRICTED CASH AND INVESTMENTS

The Company considers all highly liquid investments with original maturities of 90 days or less at the time of purchase to be cash equivalents. At April 30, 2013 and January 31, 2013, the Company did not have any cash equivalents or available for sale investments.

At April 30, 2013 and January 31, 2013, the Company had approximately $0.2 million and $0.1 million of restricted cash, respectively, held in certificates-of-deposits with a commercial bank pursuant to terms of certain facilities lease agreements.

4. REVENUE RECOGNITION

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

The Company follows the provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 985-605 Software – Revenue Recognition and Staff Accounting Bulletin No. 104 to account for revenue derived pursuant to license agreements under which customers license the Company's products and services. The pricing for the Company's courses varies based upon the content offering selected by a customer, the number of users within the customer's organization and the term of the license agreement (generally one, two or three years). License agreements permit customers to exchange course titles, generally on the contract anniversary date. Hosting services are sold separately for an additional fee. A license can provide customers access to a range of learning products including courseware, Referenceware®, simulations, mentoring and prescriptive assessment.

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

For arrangements subject to ASC 985-605 Software – Revenue Recognition, the Company recognizes revenue ratably over the license period if the number of courses that a customer has access to is not clearly defined, available, or selected at the inception of the contract, or if the contract has additional undelivered elements for which the Company does not have vendor specific objective evidence (VSOE) of the fair value of the various elements. This may occur if the customer does not specify all licensed courses at the outset, the customer chooses to wait for future licensed courses on a when and if available basis, the customer is given exchange privileges that are exercisable other than on the contract anniversaries, or the customer licenses all courses currently available and to be developed during the term of the arrangement.

Arrangements which include extranet hosting/ASP services are generally accounted for under Staff Accounting Bulletin No. 104. Revenue from these arrangements is recognized on a straight-line basis over the period the services are provided. Upfront professional service fees are recorded as revenue over the contract period.

Revenue from nearly all of the Company's contractual arrangements is recognized on a subscription or straight-line basis over the contractual period of service.

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

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

The Company provides professional services, including instructor led training, customized content development, website development/hosting and implementation services.

During the first quarter of fiscal 2012, the Company prospectively adopted the guidance of Accounting Standards Update (ASU) No. 2009-13 Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements, specifically for multiple element arrangements which are not accounted for under ASC 985-605 Software – Revenue Recognition (this is normally due to the inclusion of extranet hosting/ASP services). ASU No. 2009-13 affects accounting and reporting for all multiple-deliverable arrangements.

ASU No. 2009-13 establishes a selling price hierarchy for determining the selling price of a deliverable in a sale arrangement. The selling price for each deliverable is based on vendor-specific objective evidence (VSOE) if available, third-party evidence (TPE) if VSOE is not available, or the Company's best estimated selling price (BESP) if neither VSOE nor TPE are available. The amendments in ASU No. 2009-13 eliminate the residual method of allocation and require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price allocation method. The relative selling price method allocates any discount in the arrangement proportionately to each deliverable on the basis of the deliverable's estimated fair value.

For transactions entered into subsequent to the adoption of ASU No. 2009-13 that include multiple elements, arrangement consideration is allocated to each element based on the relative selling prices of all of the elements in the arrangement using the fair value hierarchy as required by ASU No. 2009-13. The Company limits the amount of revenue recognition for the software and content licenses and extranet hosting services (as a bundled unit) to the amount that is not contingent on the future delivery of products or services or future performance obligation. That amount is then recognized on a straight-line basis over the contractual term. Professional services, including instructor led training, customized content development, website development/hosting and implementation services, are sometimes included in the arrangements. If the Company determines that the professional services are not separable from an existing customer arrangement, revenue from these services is recognized over the existing contractual terms with the customer; otherwise the Company typically recognizes professional service revenue as the services are performed. The Company does not have VSOE for its professional service offerings. Therefore, fair value for these elements is based on TPE, which is determined based on competitor prices for similar elements when sold separately, or the BESP. The objective of BESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. The Company determines BESP for a product or service by considering multiple factors including, but not limited to, pricing practices, geographies, customer classes and distribution channels.

The adoption of ASU 2009-13 did not significantly impact the Company’s financial statements.

Multiple contracts with a single customer or amendments to existing contracts with the same customer are evaluated as to whether they should be recognized as separate accounting arrangements from other contracts with the customer, based on an evaluation of several factors including, but not limited to, the timing of when contracts were negotiated and executed, whether the software is interdependent in terms of design, technology or function and whether payment terms coincide. If contracts are considered linked for accounting purposes and accounted for as one arrangement, fees are recognized over the longest service periods. If contracts are considered separable, fees in each arrangement are recognized over their respective service period.

The Company records reimbursable out-of-pocket expenses in both revenue and as a direct cost of revenue, as applicable. Out-of-pocket expenses were immaterial for both the three months ended April 30, 2013 and April 30, 2012.

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

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

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

5. SHAREHOLDERS’ EQUITY

(a) Share-Based Compensation

On November 16, 2010, the Manager of SSILuxco II S.A. (“Luxco II”), a Luxembourg entity which is an indirect parent of the Company, adopted the SSILuxco II S.A. 2010 Equity Incentive Plan (the “2010 Plan”) to advance the interests of Luxco II and its subsidiaries by providing Luxco II with the right to grant equity-based awards to eligible participants (i.e., key employees and directors of, and consultants and advisors to, Luxco II and/or its subsidiaries). Awards under the 2010 Plan are intended to align the incentives of (i) the executives of Luxco II and its subsidiaries and (ii) its direct and indirect shareholders.

Share options granted to date become exercisable based on service-based conditions or a combination of service-, performance- and market-based conditions. Performance conditions include the receipt of a dividend or sale of shares by the equity sponsors, an initial public offering or a change in control. Market conditions are based on the return received (or deemed received) by the equity sponsors on their initial equity investment in Luxco II and upon the occurrence of certain events, including a change in control of Luxco II. Options are priced at the fair market value on the date of grant, supported by a contemporaneous valuation of the ordinary shares of the Company using a combination of the discounted cash flow method and the guideline company method. Shares of Luxco II acquired upon the exercise of such share options are subject to both transfer restrictions and repurchase rights following a termination of employment. The share options expire on the tenth anniversary of the date of grant.

Any share-based compensation recognized in relation to options granted under the 2010 Plan will be recorded in the statement of operations for the subsidiaries for which those persons who received grants are employed.

No tax benefit was realized during the three month periods ended April 30, 2013 and April 30, 2012, as no share options were exercised.

Share Options

A summary of share option activity under the 2010 Plan for the three months ended April 30, 2013 is as follows:



Share Options	Shares	Exercise Price	Weighted Average Remaining Contractual Term (Years)
Outstanding, January 31, 2013	639,747	100.00 - 117.00	7.8
Granted	-	-	-
Exercised	-	-	-
Forfeited	(2,409)	100.00 - 117.00	-
Expired	-	-	-
Outstanding, April 30, 2013	637,338	100.00 - 117.00	7.6
Exercisable, April 30, 2013	105,436	100.00	7.6
Vested and expected to vest, April 30, 2013	637,338	100.00 - 117.00	7.6

Service-Based Vesting Options

Grants of options which become exercisable based on service conditions vest over a period of 5 years (20% of the shares subject to the options vest on each of the first, second, third, fourth and fifth anniversaries of the earlier of the grant date or a pre-determined vesting commencement date) provided that the optionee is continuously employed by the Company or any of its subsidiaries, and vest immediately upon a change in control. The options expire 10 years from the date of grant.

Performance- and Market-Based Vesting Options

Luxco II also granted options to purchase ordinary shares of Luxco II that vest based on the completion of a liquidity event that results in specified returns on the equity sponsors’ investment in Luxco II.

Such liquidity events would include, but not be limited to, an initial public offering of Luxco II, or a change-in-control transaction under which the investor group disposes of or sells more than 50 percent of the total voting power or economic interest in Luxco II to one or more third independent parties. These share options expire 10 years from the date of grant.

The fair value of the options with market and performance conditions was estimated on the grant date using the Monte Carlo Simulation Approach.

Recognition of Share Based Compensation Expense

Any shares exercised by the option holders are subject to a repurchase feature by Luxco II in the event of termination of employment. The repurchase would generally be at fair value at the date of termination of employment in all instances except termination for cause or voluntary termination of employment by the employee without “good reason”. In those instances the repurchase would be at the lower of cost or fair market value as defined in the 2010 Plan. The repurchase feature would lapse only in the event of an initial public offering or change in control. The Company had previously concluded that this repurchase feature represented an additional performance condition and had not recorded any share-based compensation, as the performance condition was not deemed probable.

The Company subsequently re-evaluated the accounting for its share options and determined that for all service-based vesting options, share-based compensation expense should be recorded over the shorter of the vesting period or the earliest period to retirement (for certain executive option holders who can voluntarily terminate their employment at a specified retirement age). In addition, the Company determined that for performance and market-based awards to certain executive option holders who can voluntarily terminate their employment at a specified retirement age and be considered having resigned for “good reason”, the share options may vest prior to a liquidity event if specified returns on the equity sponsors’ investment are achieved at the time of retirement. As a result the Company determined that these awards do not include performance conditions and expense associated with these share options is recognized over the shortest requisite service date which is typically the period from the date of grant through the earliest eligible retirement date.

In the fiscal year ended January 31, 2013, the Company recognized $14.2 million of share-based compensation expense, which includes $2.1 million and $6.0 million of share-based compensation attributable to services performed in prior periods which should have been recognized in the period from May 26, 2010 to January 31, 2011 and the year ended January 31, 2012, respectively. The error correction of cumulative expense to date in the current period was not considered material to the Company’s prior consolidated financial statements.

In the three months ended April 30, 2013, the Company recognized $1.5 million of share-based compensation expense. Total unrecognized expense associated with all stock options as of April 30, 2013 was $13.1 million.

(b) Share Capital

As of April 30, 2013, the Company's authorized share capital consisted of 1,000,000,000 ordinary shares of par value $1.00 each. As of April 30, 2013 and January 31, 2013, 534,513,271 ordinary shares were issued and outstanding.

Subject to the Articles of Association of the Company, at a general meeting of the Company, on a show of hands every holder of ordinary shares who (being an individual) is present in person or by proxy or (being a body corporate) is present by proxy or by a representative shall have one vote, and on a poll every holder of ordinary shares who is present in person or by a proxy or (being a body corporate) by proxy or by a representative shall have one vote for every ordinary share of which he is the holder. However, if and for so long as the Company is a single member company, all matters requiring a resolution of the Company in general meeting (except the removal of the auditors of the Company from office) may be validly dealt with by a decision of the sole member.

Subject to the Articles of Association of the Company, sums legally available to be distributed by the Company in or in respect of any financial period may (to the extent so resolved or recommended by the board of directors) be distributed amongst the holders of ordinary shares in proportion to the number of ordinary shares held by them.

6. ACQUISITIONS

ThirdForce Group PLC (“MindLeaders”)

On September 25, 2012, Skillsoft Ireland Limited (the "Buyer"), an indirect subsidiary of SSI II, completed the first closing of the cash offer (the “Offer”) for the entire issued and to be issued share capital of MindLeaders, at which time it received acceptances from approximately 91.3% of the issued and outstanding shares of MindLeaders. The Offer remained open for acceptance until October 11, 2012 for any remaining shareholders to accept the Offer and receive their funds. For the remaining 1.8% of shareholders, which did not accept the Offer by that time, the Buyer served notice on those shareholders of its intention to compulsorily acquire their shares as allowed under Irish securities law, based on the same terms of the initial Offer. This notice represented a forward contract to purchase the remaining shares of MindLeaders at a fixed price which has been recorded as a liability on the accompanying balance sheet and resulted in the determination for accounting purposes that the Company controlled 100% of MindLeaders as of October 31, 2012. Accordingly, no non-controlling interest was recognized in the Company’s consolidated financial statements.

All remaining shares were legally acquired during November 2012.

The acquisition of MindLeaders was accounted for as a business combination under ASC 805, Business Combinations. Accordingly, the results of MindLeaders have been included in the Company's consolidated financial statements since the date of acquisition.

The cash purchase price of $64.3 million was preliminarily allocated based upon the fair value of the assets acquired and liabilities assumed at the date of acquisition using available information and certain assumptions management believed reasonable. The following table summarizes the preliminary purchase price allocation (in thousands):



Description		Amount
Current assets	$	8,056
Property and equipment		513
Goodwill		40,971
Amortizable intangible assets		27,703
Long term assets		575
Current liabilities		(8,032)
Deferred revenue		(1,484)
Long term assets liabilities		(3,986)
Total	$	64,316

The estimated fair values assigned to amortizable intangible assets, goodwill and uncertain tax positions are considered preliminary and subject to adjustment primarily based upon additional information the Company is in process of obtaining related to tax positions taken by MindLeaders.

The acquisition of MindLeaders resulted in preliminary allocations of the purchase price to goodwill and identified intangible assets of $41.0 million and $27.7 million, respectively. Intangible assets and their estimated useful lives consist of the following (in thousands):



Description		Amount	Life
Proprietary development software and courseware	$	3,258	3 years
Customer relationships		23,225	8 years
Backlog		1,220	4 years
Total	$	27,703

Values and useful lives assigned to intangible assets were based on estimated value and use of these assets by a market participant. The customer relationships were valued using the income approach and the proprietary developed software and courseware was valued using the cost approach.

Goodwill represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The Company determined that the acquisition of MindLeaders resulted in the recognition of goodwill primarily because the acquisition is expected to help the Company to meet its long term operating profitability objectives through significant cost and service synergies. Goodwill is deductible for tax purposes.

The acquired intangible assets and goodwill are subject to review for impairment if indicators of impairment develop and otherwise at least annually.

The Company assumed certain liabilities in the acquisition of MindLeaders, including deferred revenue that was ascribed a fair value of $1.5 million using a cost-plus profit approach. The Company is amortizing deferred revenue over the period for which it is incurring costs to support the assumed customer obligations. In allocating the preliminary purchase price, the Company recorded an adjustment to reduce the carrying value of MindLeaders’ deferred revenue by $9.2 million. Approximately $0.6 million of acquired MindLeaders deferred revenue remained unamortized at April 30, 2013.

The Company incurred acquisition related expenses, which primarily consisted of transaction fees, legal, accounting and other professional services, that are included in “Acquisition related expenses” in the accompanying consolidated statement of operations.

The Company concluded that the acquisition of MindLeaders represented a material business combination for purposes of disclosure under ASC 805, Business Combinations. The following unaudited pro forma information presents the consolidated results of operations of the Company and MindLeaders for the three month period ended April 30, 2012, as if the acquisition had occurred as of the beginning of the annual period preceding the acquisition of MindLeaders, with pro forma adjustments to give effect to amortization of intangible assets, an increase in interest expense on acquisition financing, and certain other adjustments:



	Three Months Ended
	April 30, 2012
Revenue	$	96,299
Net loss		(27,629)

The Company’s only significant non-recurring pro-forma adjustments impacting the periods shown above relate to purchase accounting adjustments to deferred revenue.

The unaudited pro forma results are not necessarily indicative of the results that the Company would have attained had the acquisition of MindLeaders occurred as of February 1, 2011.

7. RESTRUCTURING

In connection with the acquisition of MindLeaders, the Company’s management approved and initiated a plan to integrate the business into its operations and to eliminate redundant headcount, reduce cost structure and better align operating expenses with existing economic conditions and the Company’s operating model. During the three months ended April 30, 2013, the Company consolidated and reorganized the space utilized by MindLeaders in the UK and Ireland and as a result incurred a $1.1 million restructuring charge, which is included in the statement of operations as restructuring.

In addition, the Company committed to an organizational change and a workforce reduction plan as a result of the acquisitions of Mindleaders and Element K in an effort to eliminate redundancies and positions not required by the combined businesses and to reduce the overall cost structure of the acquired business to better align our operating expenses with existing economic conditions, business requirements and our operating model. As a result of this reduction in force, the Company incurred additional restructuring charges during the three months ended April 30, 2013 of $1.2 million which related primarily to one-time termination benefits.

Activity in the Company’s restructuring accrual was as follows (in thousands):



		Employee Severance and Related Costs		Contractual Obligations		Total
Restructuring accrual as of January 31, 2013	$	837	$	878	$	1,715
Restructuring charges incurred		1,238		1,113		2,351
Payments made		(1,366)		(566)		(1,932)
Restructuring accrual as of April 30, 2013	$	709	$	1,425	$	2,134

8. DISCONTINUED OPERATIONS

Following the Element K acquisition, the Company decided to divest itself of the Training Channel Enablement (“TCE”) business acquired as part of the Element K acquisition because the Company does not believe this business is consistent with the Company’s strategy and profit model. As a result, on March 21, 2012, the Company entered into an Asset Purchase Agreement pursuant to which it agreed to sell to Logical Operations Inc. (“Logical Operations”) certain TCE assets. The closing of the sale of the TCE assets occurred on March 31, 2012. The Company also entered into a transitional services agreement with Logical Operations. The services provided under this agreement were completed within the fiscal year ended January 31, 2013 and the cash flows from the agreement were not material.

When TCE was classified as held for sale, the assets and liabilities were recorded at fair value less costs to sell the business. The assets held for sale included allocated goodwill of $5.1 million. The business was sold for $8.1 million, payable in installments as outlined in the Asset Purchase Agreement. There was no gain or loss recognized on the sale.

The Company has accounted for TCE as discontinued operations and the components of discontinued operations are as follows (in thousands):


	Three Months Ended April 30,
Statement of operations:	2013			2012
Revenue from discontinued operations	$	-	$	5,023

Income (loss) from discontinued operations before income taxes		4		(1,071)
Income tax (provision) benefit		-		416
Income (loss) from discontinued operations	$	4	$	(655)

9. GOODWILL AND INTANGIBLE ASSETS

Intangible assets are as follows (in thousands):



	April 30, 2013						January 31, 2013
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Internally developed software/ courseware	$	268,570	$	185,001	$	83,569	$	268,678	$	170,933	$	97,745
Customer contracts/ relationships		295,956		113,721		182,235		297,109		102,839		194,270
Non-compete agreement		4,070		1,255		2,815		4,070		1,052		3,018
Trademarks and trade names		15,220		5,901		9,319		15,220		5,449		9,771
Backlog		59,000		50,658		8,342		59,000		48,956		10,044
Skillsoft trademark		129,900		-		129,900		129,900		-		129,900
	$	772,716	$	356,536	$	416,180	$	773,977	$	329,229	$	444,748

Amortization expense related to the existing finite-lived intangible assets is expected to be as follows (in thousands):



Fiscal Year		Amortization Expense
2014 (remaining nine months)	$	81,866
2015		80,400
2016		42,176
2017		27,181
2018		21,092
2019		16,839
2020		13,436
2021		3,290
Total	$	286,280

In connection with the Acquisition, the Company concluded that its “Skillsoft” brand name is an indefinite lived intangible asset, as the brand has been in continuous use since 1999 and the Company has no plans to discontinue using the Skillsoft name.

The change in goodwill at April 30, 2013 from the amount recorded at January 31, 2013 is as follows:



Gross carrying amount of goodwill, January 31, 2013		637,524
Change in fair value assessment of MindLeaders		(15)
Foreign currency translation adjustment		(1,459)
Gross carrying amount of goodwill, April 30, 2013	$	636,050

The Company will be conducting its annual impairment test of goodwill for the fiscal year ended January 31, 2014 in the fourth quarter. There were no indicators of impairment identified in the first quarter of fiscal 2014.

10. INCOME TAXES

The Company operates as a holding company with operating subsidiaries in several countries. Each subsidiary is taxed based on the laws of the jurisdictions in which it operates.

The Company has significant tax loss carryforwards mainly in Ireland and the United States. Some of the U.S. tax leases are subject to limitations based upon the change in control provisions of Section 382 of the United States Internal Revenue Code.

For the three months ended April 30, 2013, the Company recorded an income tax benefit of $4.5 million. The Company's effective tax rate for the three months ended April 30, 2013 was 30.1%. The tax benefit for the three months ended April 30, 2013 consists of a cash tax provision of $3.6 million and a non-cash tax benefit of $8.1 million.

The Company's gross unrecognized tax benefits, including interest and penalties, totaled $8.8 million at April 30, 2013, all of which, if recognized, would result in a reduction of the Company's effective tax rate. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. As of April 30, 2013, the Company had $0.9 million of accrued interest and penalties related to uncertain tax positions.

In the normal course of business, the Company and its subsidiaries are subject to examination by taxing authorities including those in its major jurisdictions of Ireland, the United States, the United Kingdom, Germany, Australia and Canada. With few exceptions, the Company is no longer subject to any national level income tax examinations for years before fiscal 2009.

During fiscal year ended January 31, 2012, the Company was notified by the U.S. Internal Revenue Service (“IRS”) that its U.S. federal income tax return for the tax years ended January 31, 2010 and 2011 had been selected for examination.

As of April 30, 2013, the Company has not received any proposed adjustments to its reported tax positions. Although the Company estimates that it is reasonably possible that the IRS could propose material adjustments to its taxable income, the Company has not adjusted its tax reserves as a result of the ongoing examination. The Company intends to contest any material assessment at the IRS Office of Appeals and, if necessary, in court. The Company believes that its filing positions will be sustained on their technical merits. However, no assurance can be made that a settlement will be agreed upon, or that the Company will otherwise prevail in the final resolution of this matter. If the IRS prevails, a cash payment would be required, thereby negatively and adversely impacting the Company’s financial condition, results of operations, and cash flows. The Company will continue to reassess the adequacy of its existing tax reserves as the examination progresses and, through that process, the Company may determine the need to increase its existing reserves by a material amount.

11. COMMITMENTS AND CONTINGENCIES

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

The Company's software license arrangements and hosting services are typically warranted to perform in a manner consistent with general industry standards that are reasonably applicable and substantially in accordance with the Company's product documentation under normal use and circumstances. The Company's arrangements also include certain provisions for indemnifying customers against liabilities if its products or services infringe a third party's intellectual property rights.

The Company has entered into service level agreements with some of its hosted application customers warranting certain levels of uptime reliability and such agreements permit those customers to receive credits against monthly hosting fees or terminate their agreements in the event that the Company fails to meet those levels for an agreed upon period of time.

To date, the Company has not incurred any material costs as a result of such indemnifications or commitments and has not accrued any liabilities related to such obligations in the accompanying consolidated financial statements. The Company is currently evaluating existing contracts as a result of the continued Element K and MindLeaders integration efforts.

12. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The Company’s chief operating decision makers are the Chief Executive Officer, Chief Financial Officer and the Chief Operating Officer. The Company views its operations and manages its business as one segment, providing multi-modal, on-demand e-learning and performance support solutions for global enterprises, government, education and small to medium-sized businesses.

The Company attributes revenue to different geographical areas on the basis of the location of the customer. Revenues by geographical area were as follows (in thousands):


	Three Months Ended April 30,
		2013		2012
Revenue:
United States	$	77,047	$	70,429
United Kingdom		9,387		8,768
Canada		5,393		5,221
Europe, excluding United Kingdom		4,758		4,105
Australia/New Zealand		4,159		3,957
Other (Countries less than 5% individually, by region)		2,911		2,304
Purchase accounting adjustments		(3,136)		(5,480)
Total revenue	$	100,519	$	89,304

Long-lived tangible assets at international locations are not considered significant.

13. ACCRUED EXPENSES

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



		April 30, 2013		January 31, 2013
Professional fees	$	3,923	$	3,602
Sales tax payable/VAT payable		2,869		7,350
Accrued royalties		2,400		2,568
Accrued tax		5,406		4,815
Interest payable		16,515		7,772
Other accrued liabilities		9,518		13,203
Total accrued expenses	$	40,631	$	39,310

14. OTHER ASSETS

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



		April 30, 2013		January 31, 2013
Debt financing cost – long term (See Note 16)	$	14,868	$	15,982
Other		1,890		2,013
Note receivable		4,598		4,450
Total other assets	$	21,356	$	22,445

15. OTHER LONG TERM LIABILITIES

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



		April 30, 2013		January 31, 2013
Uncertain tax positions; including interest and penalties – long term	$	7,422	$	7,619
Unfavorable lease commitments assumed in the acquisition of Element K		844		898
Other		2,467		1,499
Total other long-term liabilities	$	10,733	$	10,016

16. CREDIT FACILITIES AND DEBT

SENIOR CREDIT FACILITIES

On September 25, 2012, SSI Investments I Limited (“Holdings”) and Skillsoft Corporation (“Borrower”) entered into an amendment, (the “Incremental Amendment”), to that certain amended and restated credit agreement, dated as of May 26, 2010, among Holdings, Borrower (as successor in interests and obligations to Skillsoft Limited, as successor in interests and obligations to SSI Investments II Limited), Morgan Stanley Senior Funding, Inc., the lenders party thereto, and the other agents named therein (as so amended and as previously amended , the “Credit Agreement”).

Pursuant to the Incremental Amendment, Morgan Stanley Senior Funding, Inc. agreed to provide an additional $50 million in new term loans (the “Additional Term Loans”) conditioned upon, among other things, the acquisition by Skillsoft Ireland Limited, an Irish private limited company and an indirect subsidiary of the Company, of at least 80% of the outstanding capital stock of MindLeaders (the “MindLeaders Acquisition”), substantially concurrently with the borrowing of such Additional Term Loans. The Incremental Amendment restricts the use of proceeds from such Additional Term Loans solely (i) to finance the MindLeaders Acquisition, (ii) repay any existing debt of MindLeaders and its subsidiaries and (iii) to pay fees and expenses in connection with the Incremental Amendment and the MindLeaders Acquisition. The Additional Term Loans have the same terms as the original term loans, including with respect to interest rate (including applicable margins), amortization, maturity date and optional and mandatory prepayments. In addition, prior to the MindLeaders Acquisition and the Incremental Amendment, Holdings, the Borrower and the lenders party thereto amended the Credit Agreement to permit the MindLeaders Acquisition under the Credit Agreement.

In addition, on September 28, 2012, Holdings and the Borrower completed a re-pricing of the Credit Agreement. The new interest rate on the term loans, including the Additional Term Loans, is LIBOR plus 3.75%, compared to the previous interest rate of LIBOR plus 4.75%. The new interest rate on the revolving loans is LIBOR plus 3.50%, compared to the previous interest rate of LIBOR plus 4.50%. The new LIBOR floor on the term loans, including the Additional Term Loans, and revolving loans is 1.25%, compared to the previous LIBOR floor of 1.75%. On March 29, 2013, the Company elected its interest calculation to be based on adjusted LIBOR.

The re-pricing was accounted for as a modification for accounting purposes. Accordingly, unamortized deferred financing costs and original issuance discounts of $13.8 million and $2.1 million, respectively, and $4.0 million of fees paid to lenders in connection with the re-pricing, will be amortized as additional interest expense over the revised term of the Senior Credit Facilities.

As of April 30, 2013, under the Credit Agreement, the Company had a $505 million senior secured credit facility comprised of a $465 million term loan facility and a $40 million revolving credit facility (collectively the “Senior Credit Facilities”). The revolving credit facility includes borrowing capacity available for letters of credit and for borrowings on same-day notice, referred to as the swingline loans. The revolving credit facility is available for general corporate purposes, including capital expenditures, subject to certain conditions. As of April 30, 2013, there were no amounts outstanding under the revolving credit facility.

Availability of the revolving credit facility is subject to the absence of any default under the Senior Credit Facilities, compliance with the financial covenant in certain circumstances and the accuracy in all material respect of certain representations and warranties. The revolving credit facility, including the letter of credit and swingline subfacilities, terminates on May 26, 2015, at which time all outstanding borrowings under the revolving credit facility are due.

The Company’s Senior Credit Facilities require it to prepay outstanding term loans, subject to certain exceptions, with:

·	a percentage initially expected to be 50% (subject to reduction to 25% and 0% based upon the Company’s leverage ratio) of the Company’s excess cash flow, as defined, as determined at the end of each fiscal year;

·	100% of the net cash proceeds of certain asset sales and casualty and condemnation events, subject to reinvestment rights and certain other exceptions; and

·	100% of the net cash proceeds of any incurrence of certain debt, other than debt permitted under the Company’s Senior Credit Facilities.

The foregoing mandatory prepayments are applied to installments of the term loan facility in direct order of maturity.

The Company may voluntarily repay outstanding loans under its Senior Credit Facilities at any time without premium or penalty, other than customary “breakage” costs with respect to LIBOR loans and, with respect to outstanding term loans, a premium during the first three years following the closing date for voluntary prepayments, repricings or effective repricings of such term loans. The premium for voluntary prepayments, repricings or effective repricings of term loans is 2% in the second year and 1% in the third year, with a customary make-whole premium for prepayments during the first year of the term loan facility. Voluntary prepayments may be applied as directed by the borrower.

The Company’s Senior Credit Facilities require scheduled quarterly payments on the term loan facility equal to 0.25% of the initial aggregate principal amount of the term loans made on the closing date, with the balance due at maturity. The Company’s scheduled quarterly payments are subject to change based on excess cash flow provisions as defined in the Senior Credit Facilities.

The Senior Credit Facilities are guaranteed by, subject to certain exceptions (including an exception for foreign subsidiaries of U.S. subsidiaries), each of the Company’s existing and future material wholly owned subsidiaries and its immediate parent. All obligations under the Company’s Senior Credit Facilities, and the guarantees of those obligations, will be secured by substantially all of the Company’s, its subsidiary guarantors' and its parent's existing and future property and assets and by a pledge of the Company’s capital stock and the capital stock of, subject to certain exceptions, each of its material wholly owned restricted subsidiaries (or up to 65% of the capital stock of material first-tier foreign wholly owned restricted subsidiaries of its U.S. subsidiaries).

In addition, the Company’s Senior Credit Facilities require it to comply on a quarterly basis with a single financial covenant for the benefit of the revolving credit facility only. Such covenant requires the Company to maintain a maximum secured leverage ratio tested on the last day of each fiscal quarter (but failure to maintain the required ratio would not result in a default under the revolving credit facility so long as the revolving credit facility is undrawn at such time). The maximum secured leverage ratio will reduce over time, subject to increase in connection with certain material acquisitions. At April 30, 2013, the Company was in compliance with this financial covenant.

In addition, the Company’s Senior Credit Facilities include negative covenants that, subject to significant exceptions, limit the Company’s ability and the ability of its restricted subsidiaries to, among other things, incur additional indebtedness; create liens on assets; engage in mergers or consolidations; sell assets (including pursuant to sale and leaseback transactions); pay dividends and distributions or repurchase its capital stock; make investments, loans or advances; repay certain indebtedness (including the Senior Notes defined below); engage in certain transactions with affiliates; amend material agreements governing certain indebtedness (including the Senior Notes); and change its lines of business.

The Company’s Senior Credit Facilities include certain customary representations and warranties, affirmative covenants and events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain events of bankruptcy, certain events under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), material judgments, the invalidity of material provisions of the Senior Credit Facilities documentation, actual or asserted failure of the guarantees or security documents for the Company’s Senior Credit Facilities, and a change of control. If an event of default occurs, the lenders under the Company’s Senior Credit Facilities will be entitled to take various actions, including the acceleration of all amounts due under the Company’s Senior Credit Facilities and all actions permitted to be taken by a secured creditor. At April 30, 2013, the Company was in compliance with these covenants.

During the three months ended April 30, 2013 and, April 30, 2012, the Company recorded $1.1 million of amortized interest expense related to the capitalized debt financing costs and original issue discount. During the three months ended April 30, 2012, the Company recorded $0.9 million of amortized interest expense related to the capitalized debt financing costs. As of April 30, 2013, total unamortized debt financing costs of $3.0 million and $9.0 million are recorded within prepaid expenses and other current assets and non-current other assets respectively based on scheduled future amortization.

During the three months ended April 30, 2013 and April 30, 2012, the Company paid approximately $5.5 million and $6.7 million in interest, respectively.

Future scheduled minimum payments, including estimated mandatory prepayments under the Senior Credit Facilities, are as follows (in thousands):



Fiscal 2014	$	3,488
Fiscal 2015		25,337
Fiscal 2016		-
Fiscal 2017		-
Fiscal 2018		425,513
Total	$	454,338

SENIOR NOTES

On May 26, 2010, senior notes ("Senior Notes") were issued under an indenture among the Company, as issuer, SSI Co-Issuer LLC, a wholly owned subsidiary of SSI II, as co-issuer, Wilmington Trust FSB, as trustee, and the Guarantors in an aggregate principal amount of $310.0 million. The Senior Notes mature on June 1, 2018. Interest is payable semiannually (at 11.125% per annum) in cash to holders of Senior Notes of record at the close of business on the May 15 or November 15 immediately preceding the interest payment date, on June 1 and December 1 of each year, commencing December 1, 2010. Interest is paid on the basis of a 360-day year consisting of twelve 30-day months.

The Senior Notes are unsecured senior obligations of SSI II and SSI Co-Issuer LLC and are guaranteed on a senior unsecured basis by SSI III Limited and the restricted subsidiaries of Skillsoft (other than immaterial subsidiaries and certain other excluded subsidiaries) that guarantee the Company’s Senior Credit Facilities. The guarantees of the Senior Notes are joint and several and will terminate upon the following customary circumstances: (i) the sale, exchange, disposition or transfer (by merger or otherwise) of all of the capital stock of a Guarantor, or all or substantially all of its assets; (ii) the release or discharge of the guarantee of the other indebtedness which resulted in the creation of the guarantee by such Guarantor under the Indenture; (iii) the proper designation of a Guarantor as an “Unrestricted Subsidiary” and (iv) the legal defeasance, covenant defeasance, or satisfaction and discharge of the Indenture, in each such case specified in clauses (i) through (iv) above in accordance with the requirements therefore set forth in the Indenture.

The Company may redeem the Senior Notes, in whole or in part, at any time on or after June 1, 2014, at a redemption price equal to 100% of the principal amount of the senior notes plus a premium declining ratably to par plus accrued and unpaid interest (if any). The Company may also redeem any of the Senior Notes at any time prior to June 1, 2014 at a redemption price of 100% of their principal amount plus a make-whole premium and accrued and unpaid interest (if any). This option is required to be bifurcated for accounting purposes as an embedded derivative in the Company’s Senior Notes. The Company has estimated the value of this option to be nominal as of January 31, 2013 and April 30, 2013. This call feature will be marked to market over the period it is active.

If the Company experiences certain kinds of changes of control, it must offer to purchase the Senior Notes at 101% of their principal amount plus accrued and unpaid interest (if any). If the Company sells certain assets and does not reinvest the net proceeds as specified in the indenture governing the Senior Notes, it must offer to repurchase the Senior Notes at 100% of their principal amount plus accrued and unpaid interest (if any).

The indenture governing the Senior Notes contains covenants that, among other things, restrict, subject to certain exceptions, the Company’s ability to: incur additional debt; pay dividends or distributions on its capital stock or repurchase its capital stock; issue preferred stock of subsidiaries; make certain investments; create liens on its assets to secure debt; enter into transactions with affiliates; merge or consolidate with another company; and sell or otherwise transfer assets. Subject to certain exceptions, the indenture governing the Senior Notes permits the Company and its subsidiaries to incur additional indebtedness, including secured indebtedness. At April 30, 2013, the Company was in compliance with these covenants.

In connection with the issuance of the Senior Notes, the Company incurred debt financing costs of $11.5 million. The Company capitalized these fees and is amortizing them to interest expense over the term of the Senior Notes. During both the three months ended April 30, 2013 and April 30, 2012, the Company recorded $0.4 million of amortized interest expense related to these capitalized debt financing costs. As of April 30, 2013, total unamortized debt financing costs of $1.4 million and $5.8 million are recorded within prepaid expenses and other current assets and non-current other assets, respectively, based on scheduled future amortization.

17. ACCUMULATED OTHER COMPREHENSIVE INCOME

Comprehensive income (loss) refers to revenues, expenses, gains and losses that under U.S. GAAP are included in other comprehensive income, but excluded from net income as these amounts are recorded directly as an adjustment to shareholders’ equity, net of tax. The Company’s other comprehensive income is composed primarily of foreign currency translation adjustments. The following is a summary of the components of accumulated other comprehensive income, net of tax, at April 30, 2013 (in thousands):



	Accumulated Other Comprehensive Income
Balance at January 31, 2013	$	12,833
Other comprehensive income (loss) from Foreign Currency Translation		(1,733)
Balance at April 30, 2013	$	11,100

18. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. Under this standard, entities are required to disclose additional information with respect to changes in accumulated other comprehensive income (AOCI) balances by component and significant items reclassified out of AOCI. Expanded disclosures for presentation of changes in AOCI involve disaggregating the total change of each component of other comprehensive income as well as presenting separately for each such component the portion of the change in AOCI related to (1) amounts reclassified into income and (2) current-period other comprehensive income. Additionally, for amounts reclassified into income, disclosure in one location is required, based upon each specific AOCI component, of the amounts impacting individual income statement line items. Disclosure of the income statement line item impacts is required only for components of AOCI reclassified into income in their entirety. ASU No. 2013-02 is effective for fiscal years beginning after December 15, 2012. The Company adopted this amendment in the first quarter of fiscal 2014. The adoption did not have a material impact on the condensed consolidated financial statements for the three months ended April 30, 2013.

19. FAIR VALUE MEASUREMENTS

FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) establishes a fair value hierarchy that prioritizes the inputs used to measure fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The three levels of the fair value hierarchy established by ASC 820 in order of priority are as follows:

• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

• 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.

The Company had no assets or liabilities that would be considered Type 1, 2 or 3 as of April 30, 2013. The Company currently invests excess cash balances primarily in cash deposits held at major banks. The carrying amounts of cash deposits, trade receivables, trade payables and accrued liabilities, as reported on the consolidated balance sheet as of April 30, 2013 approximate their fair value because of the short maturity of those instruments. The carrying value of borrowings outstanding on the Senior Credit Facilities bear interest at variable rates and are considered to approximate fair value.

Financial Instruments Not Recorded at Fair Value

The carrying values and fair values of financial instruments not recorded at fair value in the consolidated balance sheets as of April 30, 2013 were as follows (in thousands):



	April 30, 2013
		Current Value		Fair Value
Senior Notes	$	310,000	$	346,233

The fair value of the Senior Notes is determined by the trading price on April 30, 2013, representing a Level 1 valuation.

20. GUARANTORS

On May 26, 2010, in connection with the Acquisition, the Company completed an offering of $310.0 million aggregate principal amount of 11.125% Senior Notes due 2018 as described in Note 16. The Senior Notes are unsecured senior obligations of the Company and SSI Co-Issuer LLC, a wholly owned subsidiary of the Company, and are guaranteed on a senior unsecured basis by SSI III and the restricted subsidiaries of Skillsoft (other than immaterial subsidiaries and certain other excluded subsidiaries) that guarantee the Senior Credit Facilities described in Note 16. Each of the Guarantors is 100 percent owned, directly or indirectly, by the Company. The Guarantors also unconditionally guarantee the Senior Credit Facilities. All other subsidiaries of the Company, either direct or indirect, do not guarantee the Senior Notes (“Non-Guarantors”). The guarantees of the Senior Notes are joint and several and will terminate upon the following customary circumstances: (i) the sale, exchange, disposition or transfer (by merger or otherwise) of all of the capital stock of a Guarantor, or all or substantially all of its assets; (ii) the release or discharge of the guarantee of the other indebtedness which resulted in the creation of the guarantee by such Guarantor under the Indenture; (iii) the proper designation of a Guarantor as an “Unrestricted Subsidiary” and (iv) the legal defeasance, covenant defeasance, or satisfaction and discharge of the Indenture, in each such case specified in clauses (i) through (iv) above in accordance with the requirements therefore set forth in the Indenture.

The following consolidated financial statements are presented for the information of the holders of the Senior Notes and present the Consolidated Balance Sheets as of April 30, 2013 and January 31, 2013. The Consolidated Statements of Operations, the Consolidated Statements of Comprehensive Loss and the Statements of Cash Flows for the three months ended April 30, 2013 and April 30, 2012, of the issuer of the Senior Notes, the Guarantors, the Non-Guarantors, the elimination entries necessary to consolidate and combine the issuer with the Guarantor and Non-Guarantor subsidiaries on a consolidated and combined basis.

Investments in subsidiaries are accounted for using the equity method for purposes of the consolidated and combined presentation. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions. Separate financial statements and other disclosures with respect to the subsidiary guarantors have not been provided as management believes the following information is sufficient, as the guarantor subsidiaries are 100 percent owned by the parent and all guarantees are full and unconditional, subject to the customary automatic release provisions described above.

CONSOLIDATED BALANCE SHEETS

APRIL 30, 2013

(UNAUDITED, IN THOUSANDS)



		Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	78	$	71,345	$	15,495	$	-	$	86,918
Restricted cash		-		6		150		-		156
Accounts receivable, net		-		83,838		18,566		-		102,404
Intercompany receivables		-		410,310		-		(410,310)		-
Deferred tax assets		-		985		375		-		1,360
Prepaid expenses and other current assets		1,539		27,107		3,403		436		32,485
Total current assets		1,617		593,591		37,989		(409,874)		223,323
Property and equipment, net		-		12,497		2		-		12,499
Goodwill		-		610,114		25,936		-		636,050
Intangible assets, net		-		401,251		14,929		-		416,180
Investment in subsidiaries		953,894		1,375,943		4,167		(2,334,004)		-
Investment in, and advances to, nonconsolidated affiliates		-		436		-		(436)		-
Deferred tax assets		-		10,009		81		-		10,090
Other assets		5,831		14,825		700		-		21,356
Total assets	$	961,342	$	3,018,666	$	83,804	$	(2,744,314)	$	1,319,498
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt	$	-	$	27,492	$	-	$	-	$	27,492
Accounts payable		-		6,053		234		-		6,287
Accrued compensation		-		10,361		798		-		11,159
Accrued expenses		14,403		24,548		2,080		(400)		40,631
Intercompany payable		403,792		853,780		47,168		(1,304,740)		-
Deferred tax liabilities		-		15,119		34		-		15,153
Deferred revenue		-		198,427		26,576		-		225,003
Total current liabilities		418,195		1,135,780		76,890		(1,305,140)		325,725
Long term debt		308,520		421,562		-		-		730,082
Deferred tax liabilities		-		14,669		3,662		-		18,331
Other long term liabilities		-		9,399		1,334		-		10,733
Total long-term liabilities		308,520		445,630		4,996		-		759,146
Total stockholders' equity		234,627		1,437,256		1,918		(1,439,174)		234,627
Total liabilities and stockholders' equity	$	961,342	$	3,018,666	$	83,804	$	(2,744,314)	$	1,319,498

CONSOLIDATED BALANCE SHEETS

JANUARY 31, 2013

(IN THOUSANDS)



		Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	85	$	22,543	$	16,420	$	-	$	39,048
Restricted cash		-		6		130		-		136
Accounts receivable, net		-		164,053		24,629		-		188,682
Intercompany receivables		-		410,573		-		(410,573)		-
Deferred tax assets		-		967		393		-		1,360
Prepaid expenses and other current assets		1,454		29,063		3,799		425		34,741
Total current assets		1,539		627,205		45,371		(410,148)		263,967
Property and equipment, net		-		13,652		2		-		13,654
Goodwill		-		611,192		26,332		-		637,524
Intangible assets, net		-		428,637		16,111		-		444,748
Investment in subsidiaries		954,971		1,364,497		4,167		(2,323,635)		-
Investment in, and advances to, nonconsolidated affiliates		-		425		-		(425)		-
Deferred tax assets		-		10,008		82		-		10,090
Other assets		6,192		15,543		710		-		22,445
Total assets	$	962,702	$	3,071,159	$	92,775	$	(2,734,208)	$	1,392,428
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt	$	-	$	3,311	$	-	$	-	$	3,311
Accounts payable		-		11,557		93		-		11,650
Accrued compensation		-		21,310		2,146		-		23,456
Accrued expenses		5,798		29,444		4,468		(400)		39,310
Intercompany payable		403,038		864,535		48,197		(1,315,770)		-
Deferred tax liabilities		-		15,125		28		-		15,153
Deferred revenue		-		233,084		29,368		-		262,452
Total current liabilities		408,836		1,178,366		84,300		(1,316,170)		355,332
Long term debt		308,466		446,568		-		-		755,034
Deferred tax liabilities		-		22,506		4,140		-		26,646
Other long term liabilities		-		8,593		1,423		-		10,016
Total long-term liabilities		308,466		477,667		5,563		-		791,696
Total stockholders' equity		245,400		1,415,126		2,912		(1,418,038)		245,400
Total liabilities and stockholders' equity	$	962,702	$	3,071,159	$	92,775	$	(2,734,208)	$	1,392,428

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED APRIL 30, 2013

(UNAUDITED, IN THOUSANDS)



		Issuer		Guarantor		Non-Guarantor		Eliminations		Consolidated

Revenues	$	-	$	96,452	$	11,294	$	(7,227)	$	100,519
Cost of revenues		-		9,502		7,287		(7,227)		9,562
Cost of revenues - amortization of intangible assets		-		14,024		-		-		14,024
Gross profit		-		72,926		4,007		-		76,933
Operating expenses:
Research and development		-		13,929		-		-		13,929
Selling and marketing		-		30,714		3,665		-		34,379
General and administrative		43		9,521		369		-		9,933
Amortization of intangible assets		-		12,744		942		-		13,686
Acquisition related expenses		-		265		-		-		265
Merger and integration related expenses		-		1,727		1		-		1,728
Restructuring		-		2,351		-		-		2,351
Total operating expenses		43		71,251		4,977		-		76,271
Operating (loss) income		(43)		1,675		(970)		-		662
Other (expense) income, net		(2)		10,332		264		(10,811)		(217)
Interest income		-		270		2		-		272
Interest expense		(9,652)		(6,121)		-		-		(15,773)
(Loss) income before benefit for income taxes		(9,697)		6,156		(704)		(10,811)		(15,056)
Equity in (losses) earnings of subsidiaries before taxes		(5,355)		(410)		-		5,765		-
(Benefit) provision for income taxes		(4,528)		(4,234)		(294)		4,528		(4,528)
Net (loss) income before discontinued operations	$	(10,524)	$	9,980	$	(410)	$	(9,574)	$	(10,528)
Income from discontinued operations		-		4		-		-		4
Net (loss) income	$	(10,524)	$	9,984	$	(410)	$	(9,574)	$	(10,524)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED APRIL 30, 2012

(UNAUDITED, IN THOUSANDS)

SSI Investments II Ltd 10-Q