-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NPpvtPaak3Zms+vcPE18gSwWd7Qic4Z8PirPKs1voeOGPe6dARx9YAlDw57754a6 GJDHRUa268yt6ouVXYXu8A== 0000927016-99-001127.txt : 19990329 0000927016-99-001127.hdr.sgml : 19990329 ACCESSION NUMBER: 0000927016-99-001127 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980327 ITEM INFORMATION: FILED AS OF DATE: 19990326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEARNING CO INC CENTRAL INDEX KEY: 0000719612 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942562108 STATE OF INCORPORATION: DE FISCAL YEAR END: 0104 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-12375 FILM NUMBER: 99573427 BUSINESS ADDRESS: STREET 1: ONE ATHENAEUM ST CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: 6174941200 MAIL ADDRESS: STREET 1: ONE ATHENAEUM ST CITY: CAMBRIDGE STATE: MA ZIP: 02142 FORMER COMPANY: FORMER CONFORMED NAME: SOFTKEY INTERNATIONAL INC DATE OF NAME CHANGE: 19940210 FORMER COMPANY: FORMER CONFORMED NAME: WORDSTAR INTERNATIONAL INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MICROPRO INTERNATIONAL CORP DATE OF NAME CHANGE: 19890618 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A AMENDMENT NO. 5 TO CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of Earliest Event Reported): March 27, 1998 ------------------------------- THE LEARNING COMPANY, INC. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter Delaware - -------------------------------------------------------------------------------- (State or Other Jurisdiction of Incorporation) 1-12375 94-2562108 - -------------------------- --------------------------------- (Commission File Number) (IRS Employer Identification No.) One Athenaeum Street, Cambridge, Massachusetts 02142 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (617) 494-1200 - -------------------------------------------------------------------------------- Registrant's Telephone Number, Including Area Code Not Applicable - -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Item 7 of the Current Report on Form 8-K of The Learning Company, Inc. (the "Company") is amended and restated to read in its entirety as set forth below. The purpose of the amendment is as follows: In March 1998, the Company acquired Mindscape, Inc. and certain affiliated companies ("Mindscape") for approximately $152 million in a business combination accounted for as a purchase. The Company allocated $103 million of the purchase price to in-process technology. The Company believes that the amount recorded as an in-process technology charge at the date of its acquisition was measured in a manner consistent with appraisal practices utilized at the time of the acquisition. Subsequent to the acquisition, in a letter dated September 9, 1998 to the American Institute of Certified Public Accountants, the Chief Accountant of the Securities and Exchange Commission (the "SEC") reiterated the views of the staff of the SEC (the "Staff") on certain appraisal practices employed in the determination of the fair value of the in-process technology and other intangible assets. The Company has had discussions with the Staff concerning the application of the methodology to the valuation of the incomplete technology and other intangible assets as detailed in the September 9, 1998 letter from the Chief Accountant of the SEC, and as a result of these discussions, the Company has implemented the methodology. The Company has restated its previously issued results to reflect the discussions with the SEC and to apply the appropriate guidance and policies. The purchase price of Mindscape has been allocated by the Company based upon the application of the recent guidance and, accordingly, the unaudited pro forma combined condensed financial statements in this Form 8- K/A have been restated. After applying the guidance and policy, the allocation of the Mindscape purchase price was changed for in-process technology from $103 million to $40 million; for complete and core technology from $13 million to $22 million; and for brands and trade names from $30 million to $38 million, resulting in a change to goodwill from $9.85 million to $55.85 million. The unaudited pro forma combined condensed financial statements included in this Report on Form 8-K/A have also been restated to reflect the acquisition Broderbund Software, Inc. ("Broderbund") which occurred on August 31, 1998 and which has been accounted for using the pooling-of-interests method of accounting. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (a) Financial Statements of Business Acquired The audited financial statements of Mindscape Group as of and for the year ended December 31, 1997 are filed herewith as Exhibit 99.3. -2- (b) Pro Forma Financial Information The Unaudited Pro Forma Combined Condensed Consolidated Financial Statements of the Company as of and for the fiscal year ended January 3, 1998 are filed herewith as Exhibit 99.4. (c) Exhibits. See Index to Exhibits attached hereto. -3- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: March 25, 1999 THE LEARNING COMPANY, INC. (Registrant) By: /s/ R. Scott Murray ---------------------------- R. Scott Murray Executive Vice President and Chief Financial Officer -4- EXHIBIT INDEX ------------- Exhibit Number Description - ------- ----------- 2.1 Stock Purchase Agreement, dated as of March 5, 1998, by and between The Learning Company, Inc. and Mindscape Holding Company, Pearson Overseas Holdings Ltd. and Pearson Netherlands, BV, as amended 10.1 Registration Rights Agreement, dated as of March 27, 1998, by and between The Learning Company, Inc. and Mindscape Holding Company 99.1 Press Release issued by The Learning Company, Inc. on March 6, 1998 99.2 Press Release issued by The Learning Company, Inc. on March 27, 1998 99.3 Audited Financial Statements of Mindscape Group as of and for the year ended December 31, 1997 99.4* The Unaudited Pro Forma Combined Condensed Consolidated Financial Statements of The Learning Company, Inc. as of and for the fiscal year ended January 3, 1998. ___________________ * Filed herewith. All other exhibits previously filed. EX-99.4 2 UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Exhibit 99.4 ------------ THE LEARNING COMPANY, INC. PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 (In thousands) (Unaudited) (As restated)
The Learning Pro Forma Combined Company Mindscape Adjustments Pro Forma ------------ --------- ----------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents $188,956 $ 3,331 $ - (c) $192,287 Accounts receivable, net 161,927 33,071 - 194,998 Inventories 39,382 9,391 - 48,773 Other current assets 35,863 6,881 - 42,744 -------- ------- -------- -------- 426,128 52,674 - 478,802 Fixed assets and other, net 51,798 5,017 - 56,815 Goodwill and other intangible assets, net 145,848 2,080 115,854 (a) 263,782 -------- ------- -------- -------- $623,774 $59,771 $115,854 $777,399 ======== ======= ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable and accrued expenses $153,896 $34,094 $ - $187,990 Line of credit 35,150 300 - 35,450 Merger related accruals 12,533 - 28,674 (a) 41,207 Current portion of long-term obligations 10,717 - - 10,717 Purchase price payable 7,896 - 2,557 (a) 10,453 -------- ------- -------- -------- 220,192 34,394 31,231 285,817 LONG-TERM OBLIGATIONS: Long-term debt 294,356 - - 294,356 Accrued and deferred income taxes 75,167 - - 75,167 Other 8,069 - - 8,069 -------- ------- -------- -------- 377,592 - - 377,592 STOCKHOLDERS' EQUITY (DEFICIT): Stockholders' equity (deficit) 25,990 25,377 84,623 (a) 135,990 -------- ------- -------- -------- $623,774 $59,771 $115,854 $799,399 ======== ======= ======== ========
The accompanying notes are an integral part of these pro forma combined condensed consolidated financial statements. THE LEARNING COMPANY, INC. PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (In thousands, except share and per share amounts) (Unaudited) (As restated)
The Learning Pro Forma Combined Company Mindscape Adjustments Pro Forma ------------- ----------- ------------- ------------- REVENUES $ 620,931 $138,520 $ -- $ 759,451 COSTS AND EXPENSES: Costs of production 189,219 54,515 -- 243,734 Sales and marketing 156,797 43,771 -- 200,568 General and administrative 48,716 8,035 -- 56,751 Development and software costs 89,987 22,853 -- 112,840 Amortization, merger and other charges 543,926 15,625 20,700 (b) 580,251 ----------- -------- ---------- ----------- Total operating expenses 1,028,845 144,799 20,700 1,194,144 OPERATING LOSS (407,714) (6,279) (20,700) (434,693) ----------- -------- ---------- ----------- INTEREST INCOME (EXPENSE): Interest income 6,330 -- -- 6,330 Interest expense (22,482) (531) -- (23,013) ----------- -------- ---------- ----------- Total interest expense (16,152) (531) -- (16,683) LOSS BEFORE TAXES (423,866) (6,810) (20,700) (451,376) PROVISION FOR INCOME TAXES 71,044 -- -- 71,044 ----------- -------- ---------- ----------- NET LOSS $ (494,910) $ (6,810) $(20,700) $ (522,420) =========== ======== ========== =========== NET LOSS PER SHARE: Basic and Diluted $ (7.48) $ (6.94) WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic and Diluted 66,183,000 9,117,600 (c) 75,300,600
The accompanying notes are an integral part of these pro forma combined condensed consolidated financial statements. -2- THE LEARNING COMPANY, INC. NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) (Unaudited) A. PRO FORMA BASIS OF PRESENTATION AND ADJUSTMENTS On March 27, 1998, pursuant to a Stock Purchase Agreement, dated as of March 5, 1998 (the "Agreement"), by and between The Learning Company, Inc. ("TLC"), on the one hand, and Mindscape Holding Company, Pearson Overseas Holdings Ltd. and Pearson Netherlands, BV (collectively, the "Sellers"), on the other hand, TLC completed its acquisition from the Sellers of all of the outstanding capital stock of Mindscape, Inc., Mindscape International Ltd. and Mindscape France SARL (collectively, "Mindscape" or "Mindscape Group"). Prior to any potential adjustment in accordance with the terms of the Agreement, the total purchase price for the acquisition was $155,854, and included cash, other consideration consisting of TLC's common stock, transaction related costs and net liabilities assumed. The purchase price is subject to adjustment based upon the balance of Mindscape's working capital, as defined in the Agreement, at the closing date of the acquisition. TLC's common stock issued to the Sellers in connection with the acquisition of Mindscape and the special warrants of TLC's Canadian subsidiary, SoftKey Software Products Inc. ("SoftKey"), issued in connection with the financing of the acquisition (assuming exercise of SoftKey's special warrants for SoftKey's exchangeable non-voting shares (the "Exchangeable Shares") and exchange thereof for TLC's common stock) represent in the aggregate approximately 9,117,600 shares of TLC's common stock. TLC is accounting for the acquisition using the purchase method. The accompanying combined condensed consolidated financial statements as of December 31, 1997 have been restated to reflect a change in the original accounting for the purchase price allocation related to the March 1998 acquisition of Mindscape. After discussions with the staff of the SEC (the "Staff"), the Company has revised the original accounting for the purchase price allocation and the related amortization of intangibles. The Company has restated its previously issued results to reflect the discussions with the Staff and to apply the appropriate guidance and policy as discussed in Note B to the combined condensed consolidated financial statements. This has resulted in a reduction in the amount of the charge for in-process technology from $103,000 to $40,000 and an increase in the amounts allocated to complete technology and products from $13,000 to $22,000; to brands and trademarks from $30,000 to $38,000 and to goodwill from $9,854 to $55,854. The pro forma adjustments in this Form 8-K/A have been restated to reflect these adjustments. On August 31, 1998, the Company acquired Broderbund Software, Inc. ("Broderbund"), a publisher and developer of consumer software for the home and school, in exchange for 16,848,753 shares of the Company's common stock pursuant to an agreement and plan of merger dated June 21, 1998 whereby each share of Broderbund common stock was exchange for 0.80 shares of the Company's common stock. This transaction was accounted for using the pooling-of-interests method of accounting. The accompanying -3- THE LEARNING COMPANY, INC. NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) (Unaudited) combined condensed consolidated financial statements of the Company have been restated to include the results and balances of Broderbund for all periods presented. TLC's fiscal year is the 52 or 53 weeks ending on or after December 31. For clarity of presentation herein, with regard to TLC, all references to December 31, 1997 relate to balances as of January 3, 1998, and the period from January 5, 1997 to January 3, 1998 is referred to as the Year Ended December 31, 1997. The pro forma combined condensed consolidated balance sheet sets forth the financial position of TLC and Mindscape at December 31, 1997, as if the acquisition of Mindscape by TLC had occurred on December 31, 1997. The pro forma combined condensed consolidated statement of operations sets forth the results of operations of TLC and Mindscape for the Year Ended December 31, 1997, as if the acquisition of Mindscape by TLC had occurred at the beginning of that year. The pro forma combined condensed consolidated financial statements are unaudited, are intended for informational purposes, and are not necessarily indicative of the future consolidated financial position or future results of operations of the combined entity. These pro forma combined condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in TLC's Annual Report on Form 10-K/A for the fiscal year ended January 3, 1998 and its Current Report on Form 8-K/A, filed on March 24, 1999, containing supplemental audited consolidated financial statements reflecting the acquisition of Broderbund Software, Inc. and Mindscape Group's combined financial statements as of and for the year ended December 31, 1997. B. PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (a) The pro forma combined condensed consolidated balance sheet sets forth the financial position of TLC and Mindscape at December 31, 1997, as if the acquisition of Mindscape by TLC had occurred on December 31, 1997. The pro forma adjustment to Goodwill and other intangible assets, in the amount of $115,854, as restated, includes the allocation of the purchase price to brands and trade names, in the amount of $38,000, completed technology and products, in the amount of $22,000, and goodwill, in the amount of $55,854. The allocation of the purchase price reflects a nonrecurring charge, in the amount of $40,000, for the fair value of in-process research and development. -4- THE LEARNING COMPANY, INC. NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) (Unaudited) The Staff has recently issued guidance related to the valuation of in-process technology as set forth in its letter dated September 9, 1998 from the Chief Accountant of the SEC to the American Institute of Certified Public Accountants. The Company has had discussions with the Staff concerning the application of the methodology to the valuation of the incomplete technology and other intangible assets and has implemented the appropriate methodology. As a result of the application of the valuation methodology, the purchase price was allocated to incomplete technology, brands and trade names and complete technology and products. Among the factors considered by the Company to determine the allocation of the purchase price using the methodology were an estimation of the stage of completion of development of each product at the date of acquisition, an estimation of cash flows that would be achieved by any buyer resulting from the expected revenues generated from such projects, a discounting of the net cash flows from the products using an effective industry-based tax rate of 35% (net of any tax benefits from the acquired assets) and a risk adjusted discount rate (which ranged from 20% to 22%) and an estimation of market royalty rates to value the brands and trade names. The in-process development consisted of consumer software products in the games, productivity and education segments. On average the in-process development projects were approximately 55% complete at the time of acquisition. The Company expects to complete the majority of the development projects within the twelve months of the acquisition date and expects to spend approximately $25,000 to complete the development. The Company expects that it will begin to receive the benefits of these in-process development projects during 1998. There were no anticipated material changes from historical pricing, margins or expense levels in the projects under development. In order to complete the development on schedule the Company must continue to retain key development personnel. In the event that these in- process development projects are not completed or replaced with similar projects the Company may experience lower future revenues, operating margins and cash flows. The pro forma adjustment to Merger related accruals, in the amount of $28,674, reflects accruals in connection with transaction related costs, including investment banking and legal fees, termination of certain contractual commitments and other costs expected to result from the acquisition. The pro forma adjustment to Purchase price payable, in the amount of $2,557, reflects the amount of bank cash balances due to the Sellers in connection with the acquisition of Mindscape. The pro forma adjustment to Shareholders' equity (deficit), in the amount of $84,623 reflects the issuance of TLC's common stock and SoftKey's special warrants, in the amount of $150,000, in connection with the acquisition of Mindscape, reduced by the nonrecurring charge, in the amount of $40,000, as restated, for the fair value of in-process research and development and the elimination of Mindscape's shareholders' equity. -5- THE LEARNING COMPANY, INC. NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) (Unaudited) (b) The pro forma combined condensed consolidated statement of operations sets forth the results of operations of TLC and Mindscape for the Year Ended December 31, 1997, as if the acquisition of Mindscape by TLC had occurred at the beginning of that year. The pro forma adjustment to amortization, merger and other charges in the amount of $20,700, as restated, reflects amortization of the identified intangible assets acquired and goodwill over the estimated useful lives of the assets on a straight-line basis. The estimated useful lives of brands and trade names, completed technology and products and goodwill are ten, two and ten years, respectively. The non-recurring charge, in the amount of $40,000, as restated, for the fair value of in-process research and development is not considered in the pro forma combined condensed consolidated statement of operations. There were no intercorporate transactions that required elimination. (c) The pro forma adjustment to the weighted average number of shares outstanding reflects the issuance of TLC's common stock and SoftKey's special warrants (assuming exercise of SoftKey's special warrants for Exchangeable Shares and exchange thereof for TLC's common stock), which represent in the aggregate approximately 9,117,600 shares of TLC's common stock, in connection with the acquisition of Mindscape. Based upon the terms of the Agreement, as amended, $30,000 of the purchase price was paid to the Sellers in TLC's common stock. The number of shares of TLC's common stock issued to the Sellers was based upon the average closing price of TLC's common stock during the five trading days ended two days prior to the closing date of the acquisition. Accordingly, TLC issued approximately 1,366,700 shares of TLC's common stock to the Sellers in connection with the acquisition of Mindscape. On March 6, 1998, SoftKey agreed to sell to certain Canadian institutional investors 8,687,500 special warrants for proceeds of approximately $134,500. The pro forma adjustments reflect TLC's receipt and use of $120,000 of the proceeds in connection with the acquisition of Mindscape. Each special warrant is exercisable without additional payment for one of SoftKey's Exchangeable Shares. TLC has issued a special voting share (the "Voting Share") which has a number of votes equal to the number of Exchangeable Shares outstanding (other than Exchangeable Shares owned by TLC or any entity controlled by TLC), and which may be voted by a trustee on behalf of such holders of Exchangeable Shares. The holder of the Voting Share is not entitled to dividends and, upon receiving voting instructions from holders of Exchangeable Shares, shall vote with the common stockholders as a single class. SoftKey's Exchangeable Shares are exchangeable on a one-for-one basis for TLC's common stock without additional payment. The exercise of the special warrants is ultimately subject to certain conditions, including receipt of certain regulatory approvals. -6- THE LEARNING COMPANY, INC. NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) (Unaudited) At December 31, 1997, 750,000 shares of TLC's Series A Preferred Stock, $.01 par value, were authorized, issued and outstanding. At December 31, 1997, 120,000,000 shares of TLC's common stock, $.01 par value, were authorized and 48,868,659 shares were issued and outstanding. In connection with the acquisition of Mindscape, TLC issued approximately 1,366,700 shares of TLC's common stock to the Sellers in satisfaction of the stock portion of the purchase price. At December 31, 1997, there was authorized, issued and outstanding one share of TLC's Special Voting Stock, representing the voting rights of 1,478,929 outstanding Exchangeable Shares. For presentation in these pro forma combined condensed consolidated financial statements, TLC included the issuance of special warrants for $120,000, representing approximately 7,750,900 shares of TLC's common stock, in the computation of basic and diluted earnings per share as if the special warrants had been exercised for Exchangeable Shares and the Exchangeable Shares had been exchanged for TLC's common stock at the beginning of the Year Ended December 31, 1997. -7- THE LEARNING COMPANY, INC. NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) (Unaudited) The following table sets forth the authorized, issued and outstanding capital stock of TLC as of December 31, 1997, and on a pro forma basis as of December 31, 1997 to reflect (i) the issuance of approximately 1,366,700 shares of TLC's common stock to the Sellers in the satisfaction of the stock portion of the purchase price, and (ii) the issuance of SoftKey's special warrants (assuming exercise of SoftKey's special warrants for Exchangeable Shares and exchange thereof for TLC's common stock) which represent in the aggregate approximately 9,117,600 shares of TLC's common stock, in connection with the acquisition of Mindscape.
Series A Preferred Stock Common Stock Special Voting Stock --------------- ------------------------ ----------------------------- Shares Share Representing the Authorized, Shares Authorized, voting rights of Issued Issued Issued outstanding and Shares and and Exchangeable Outstanding Authorized Outstanding Outstanding Shares --------------- ----------- ----------- ----------- ---------------- TLC, December 31, 1997 750,000 120,000,000 65,524,559 1 1,478,929 Pro Forma Adjustments -- -- 1,366,700 -- 7,750,900 -------------------------------------------------------------------------- TLC, Pro Forma 750,000 120,000,000 66,891,259 1 9,229,829 ==========================================================================
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