-----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, V12YV5sw9+2IQtVJWkU5fNu20TEL8N1iC1BT+mEthdLz7L2Ttyd4Zxs9+t1qWFMW ZC0ToCBS4yYzBf3QbURu6A== 0000950135-95-002090.txt : 19951005 0000950135-95-002090.hdr.sgml : 19951005 ACCESSION NUMBER: 0000950135-95-002090 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950921 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19951004 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOFTKEY INTERNATIONAL INC CENTRAL INDEX KEY: 0000719612 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942562108 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-13069 FILM NUMBER: 95578661 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: 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 FOR SOFTKEY INTERNATIONAL INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20579 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): July 21, 1995 SOFTKEY INTERNATIONAL INC. - ------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Charter) Delaware 0-13069 94-2562108 - ------------------------------------------------------------------------------- (State or other (Commission (IRS Employer jurisdiction of File Number) Identification No.) incorporation) One Athenaeum Street, Cambridge, Massachusetts 02142 - ------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (617) 494-1200 N/A - ------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Total Number of Pages: Exhibit Index Appears on Page 4 2 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements of Business Acquired. Financial Statements of the Business Acquired are filed as Exhibit 99.2 hereto. (b) Pro Forma Financial Information. Pro forma financial information is filed as Exhibit 99.3 hereto. (c) Exhibits. 2.1 Share Purchase Agreement dated July 21, 1995 by and among SoftKey International Inc., a Delaware Corporation (the "Company"), Ziff-Davis Verlag GmbH, a German limited liability company ("Ziff-Davis"), and Helmut Kunkel ("Kunkel") (previously filed). 2.2 Earn-Out Agreement (the "Earn-Out Agreement") dated July 21, 1995 by and between the Company and Kunkel (previously filed). 23.1 Written Consent of Deloitte & Touche GmbH. 99.1 Press release dated July 25, 1995 (previously filed). 99.2 Financial Statements of Business Acquired (filed herewith). 99.3 Pro Forma Financial Information (filed herewith). 2 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 thereunto duly authorized. SOFTKEY INTERNATIONAL INC. -------------------------- (Registrant) By: ----------------------- R. Scott Murray Chief Financial Officer September , 1995 - --------------------------- (Date) 3 4 Exhibit Index
Exhibit Page No. Exhibit Description No. - ------- ------------------- ---- 2.1 Share Purchase Agreement dated July 21, 1995 by and among the Company, Ziff-Davis and Kunkel (previously filed). 2.2 Earn-Out Agreement dated July 21, 1995 by and between the Company and Kunkel (previously filed). 23.1 Written Consent of Deloitte & Touche GmbH 99.1 Press Release dated July 25, 1995 (previously filed). 99.2 Financial Statements of Business Acquired (filed herewith). 99.3 Pro Forma Financial Information (filed herewith).
4 EX-23.1 2 CONSENT OF INDEPENDENT AUDITORS 1 Exhibit 23.1 September 18, 1995 Munich, Germany CONSENT OF INDEPENDENT AUDITORS We consent to the use of our German report dated July 7, 1995 relating to the financial statements of tewi Verlag GmbH included herein. Deloitte & Touche GmbH Wirtschaftsprufungsgesellschaft EX-99.2 3 FINANCIAL STATEMENTS 1 Exhibit 99.2 DELOITTE & TOUCHE GmbH - -------------------------------------------------------------------------------- Wirtschaftsprufungsgesellschaft Postfach 202004 Isartorplatz 80020 Munich 80331 Munich Munich, July 7, 1995 TEWI VERLAG GMBH MUNICH Audited Annual Financial Statements as of December 31, 1994 2 DELOITTE & TOUCHE - --------------------------------------------------------------------------------
Contents Page REPORT - ------ 1. ASSIGNMENT AND PERFORMANCE OF ASSIGNMENT 1 2. LEGAL STATUS 1 2.1 Infrastructure 1 2.2 Executive Bodies and Resolutions 2 2.3 Important Contracts 2 2.4 Inter-Company Relations 4 3. COMMENTARY AND PRINCIPLES OF REPORTING 4 3.1 Annual Financial Statements 4 3.1.1 Balance Sheet and Profit and Loss Statement 4 3.1.1.1 Format 4 3.1.1.2 Accounting and Valuation 4 3.1.2 Notes to the Financial Statements 5 3.1.3 Statement of Economic Situation 5 3.1.3.1 Infrastructure 5 3.1.3.2 Summary 6 3.1.3.3 Net Worth Position 7 3.1.3.4 Financial Position 8 3.1.3.5 Earnings Position 9 3.2 Management Report 10 3.3 Accounting 10 4. AUDIT RESULTS AND AUDITOR'S REPORT 11 APPENDICES - ---------- 1. MANAGEMENT REPORT AND FINANCIAL STATEMENTS 1.1 Management Report 1.2 Balance Sheet 1.3 Profit and Loss Statement 1.4 Notes to the Financial Statements 2. SUPPLEMENTARY ITEMIZATIONS AND NOTES TO THE ANNUAL FINANCIAL STATEMENTS 2.1 Balance Sheet 2.1.1 Balance Sheet - Assets 2.1.2 Balance Sheet - Liabilities 2.2 Profit and Loss Statement 3. GENERAL TERMS AND CONDITIONS OF ASSIGNMENT
3 DELOITTE & TOUCHE - -------------------------------------------------------------------------------- REPORT 4 DELOITTE & 1 TOUCHE - -------------------------------------------------------------------------------- 1. ASSIGNMENT AND PERFORMANCE OF ASSIGNMENT Upon a resolution of the shareholders of tewi Verlag GmbH - hereinafter referred to as "tewi" or "the Company" - we were appointed to audit the Company's financial statements for the 1994 fiscal year. In compliance with this resolution, management assigned us to audit the annual financial statements as of December 31, 1994, together with the accounting records and the management report for fiscal 1994 pursuant to Section 317 HGB [Commercial Code] and to report on the results of our audit in the customary, generally accepted manner and scope. As for the performance of the assignment and our responsibilities, including in respect to third parties, the January 1, 1995 version of the General Terms and Conditions for Certified Public Accountants are applicable. Said Terms and Conditions are attached as Appendix 3. We conducted the audit during the months of April and May 1995 on the premises of the Company; the audited report was then completed in our offices. In the course of the audit, we observed the principles of due and proper auditing as set forth in the January 1988 expert opinion issued by the German Institute of Certified Public Accountants. 2. LEGAL STATUS 2.1 INFRASTRUCTURE Until June 10, 1994, the Company was known under the name A+UU Vermogensverwaltung GmbH. The Company was registered in the Commercial Register at the Munich District Court under the name tewi Verlag GmbH, HRB No. 104 319. We were presented with an excerpt from the Commercial Register documenting the most recent entry, dated September 8, 1994. The Company's principal place of business is Munich. The fiscal year follows the calendar year. The business and scope of the Company is the publication, distribution and design of books, magazines, loose-leaf publications and other printed media products, as well as information and software in any type of media and other publishing services and consulting services for publishing companies and the reprographic industry in the area of computer technology and in other areas. The Company's articles of incorporation were amended and revised on June 10, 1994, particularly with respect to the Company's name, the business of the Company and its representation. The nominal capital of the Company is DM 50,000.00. This amount is in conformity with the memorandum of incorporation and the excerpt from the Commercial Register and is fully subscribed, to wit, paid in. 5 DELOITTE & 2 TOUCHE - -------------------------------------------------------------------------------- The shares of the Company known as A+UU Vermogensverwaltung GmbH until June 10, 1994 were acquired by ZIFF Verlag GmbH on June 8, 1994. On June 8, 1994, a DM 20,000 share of the DM 50,000.00 stake acquired by ZIFF Verlag GmbH was sold to the Company's general manager. 2.2 EXECUTIVE BODIES AND RESOLUTIONS The Company appointed a general manager upon a resolution on June 10, 1994. He is named in the notes to the financial statements. The entry in the Commercial Register was accomplished on September 8, 1994. 2.3 IMPORTANT CONTRACTS AGREEMENT ON THE PURCHASE OF THE ASSETS OF TEWI'S PUBLISHING DIVISION ("TEWI DIVISION") AND ABSORPTION OF LIABILITIES Effective January 1, 1994, the Company was transferred from Ziff Verlag GmbH and its tewi division by purchasing assets and absorbing liabilities; the difference between assets and liabilities was treated as goodwill, which is based on an amended Schedule 1 of the January 1, 1994 Asset Purchase Agreement. SALE OF OS/2 LOOSE-LEAF DOCUMENTATION Effective December 31, 1994, the Company sold the OS/2 loose-leaf documentation series to Interest-Verlag GmbH for DM 400,000.00 plus VAT; the proceeds are reported in these financial statements. DISTRIBUTION CONTRACTS FOR CD-ROMS Agreements exist with various software manufacturers for the sale of software on CD-ROM. The agreements are for the most part short-term. Symantec, Claris, IBM, KHK, Delrina, Micrografix and Lotus are parties to the agreements. AGREEMENTS ON THE PRODUCTION OF CD-ROMS AND ON PRINTING BOOKS AND REFERENCE MANUALS Short-term agreements exist on the production of CD-ROMs and on printing books and reference manuals. Said agreements were concluded with the following parties: Typoconcept, Sonopress, Wiener Verlag, Kosel and PDC. DISTRIBUTION CONTRACTS FOR BOOKS Agreements on the distribution of merchandise have been concluded with Hugo Matthees Druckerei & Verlag GmbH & Co. KG, Ars Edition GmbH, Starcom and IBS Systemvertrieb. All of these agreements can be terminated on short notice. 6 DELOITTE & 3 TOUCHE - -------------------------------------------------------------------------------- For IBS, tewi Verlag GmbH distributes the electronic telephone directory "TeleInfo-CD" published by Tele-Info Verlag. The Company was informed by IBS that Tele-Info Verlag is involved in a legal dispute with the publisher of official telephone books, DeTe Media GmbH, concerning Tele-Info's use of official telephone directories. CONTRACTS FOR SERVICES The company Revilek Verlagsservice is responsible for delivery, billing, and accounts receivable for tewi products. Written agreements have been concluded between the parties. LOAN AGREEMENT Effective January 1, 1994 ZIFF Verlag GmbH and tewi Verlag GmbH concluded loan agreements according to which tewi Verlag GmbH, in connection with the purchase of assets from the book division, has absorbed DM 750,000.00 in liabilities associated with the book division. ZIFF Verlag GmbH has promised to extend to tewi Verlag GmbH a loan in the amount of DM 2,500,000.00 by no later than December 31, 1995. The loan was granted under certain terms and conditions. Repayments have been arranged contractually for the period between 1997 and 2001. Interest will be charged on the loans at the prime rate. SECURITY AGREEMENT On June 10, 1994, tewi Verlag GmbH, as borrower under the loan agreement, pledged to transfer and assign all of its assets and accounts receivable to ZIFF Verlag GmbH as lender. This security is coextensive and covers existing and future claims by ZIFF Verlag GmbH as lender with tewi Verlag GmbH as borrower. SERVICE AGREEMENT In connection with the purchase of assets and the absorption of liabilities from the book division, the parties have agreed that ZIFF Verlag GmbH will continue to provide certain services to tewi Verlag GmbH after the sale (such as accounting, reception, network use and access and office cleaning). The offices of tewi Verlag GmbH are rented from ZIFF Davis Verlag GmbH (subtenancy arrangement). SUBORDINATION AGREEMENT AND EXCESS OF LIABILITIES OVER ASSETS Effective May 16, 1994, ZIFF Verlag GmbH subordinated the accounts receivable credit extended to tewi Verlag GmbH to third-party creditors in the event of liquidation, 7 DELOITTE & 4 TOUCHE - -------------------------------------------------------------------------------- bankruptcy, or composition of the Company. This transaction eliminated the excess of liabilities over assets reflected by the balance sheet. 2.4 INTER-COMPANY RELATIONS The Company is part of the ZIFF Davis Group, which operates worldwide and is headquartered in New York. ZIFF Davis Verlag GmbH (formerly ZIFF Verlag GmbH) plans to concentrate on the most important core areas of its publishing business in 1995 and for this reason will dispose of its shares. Contacts were made with potential purchasers in 1995. 3. COMMENTARY AND PRINCIPLES OF REPORTING 3.1 ANNUAL FINANCIAL STATEMENTS The annual financial statements as of December 31, 1994 are annexed to this report as Appendices 1.2 through 1.4; the individual positions in the financial statements are itemized and explained in Appendix 2. The Company is a "medium-sized" corporation within the meaning of Section 267 Par. 2 HGB. 3.1.1 BALANCE SHEET AND PROFIT AND LOSS STATEMENT 3.1.1.1 FORMAT The format of the balance sheet and profit and loss statement complies with Sections 266 and 275 HGB and Section 42 GmbHG [Law on Limited Liability Companies], whereby the total cost expenditure format was used for the profit and loss statement. The supplementary notes on the individual items in the financial statements are thorough and accurate. The terms to maturity are reported in the notes to the financial statements in accordance with Section 268 Pars. 4 and 5 HGB. 3.1.1.2 ACCOUNTING AND VALUATION The annual financial statements were prepared in accordance with the general valuation principles set forth in Sections 252 through 256 HGB and in compliance with the special principles of appraisal and valuation for corporations (Sections 269 through 274 and 279 through 283 HGB). The information contained in the notes to the financial statements is thorough and accurate. Assets The fixed assets are reported at the cost of purchase or manufacturing minus scheduled depreciation. Scheduled depreciation was taken on property, plant and equipment in accordance with the straight-line method and on the basis of its respective standard 8 DELOITTE & 5 TOUCHE - -------------------------------------------------------------------------------- useful life. The difference remaining after offsetting the liabilities absorbed against the lower nominal value of the assets received in the course of the transfer of ZIFF Verlag GmbH's tewi division to the Company at the beginning of the fiscal year was reported as goodwill, which is depreciated over 15 years. The valuation and/or asset depreciation range may be influenced by business policy decisions by tewi Verlag GmbH's purchaser on short notice. Low-value assets are depreciated at full cost in the year they are purchased. In the year under review, low-value assets were purchased by the shareholder ZIFF Verlag GmbH. These assets will be depreciated over their remaining useful lives. Work in process is valued at individual costs plus a general allowance for publishing overhead. Merchandise is posted at purchase price or at lower, adjusted values. Receivables from trade debtors are offset by a lump-sum allowance for bad debts. Other receivables and assets are reported at their nominal value or at lower, adjusted values. The liquid assets reflect the respective nominal values. Deferred items were allocated to later accounting periods pro rata temporis. Liabilities Other reserves for doubtful accounts receivable cover the estimated charges arising prior to the balance sheet date and risks becoming discernable at the time of preparing the balance sheet. Accounts payable are posted at their repayment amounts. In evaluating foreign currency payables, the realization principle was employed. Information on terms to maturity is supplied in the notes to the financial statements. 3.1.2 NOTES TO THE FINANCIAL STATEMENTS The notes to the financial statements are arranged coherently and logically. The required information on accounting and valuation principles is comprehensive and accurate. The remaining mandatory disclosures pursuant to Section 285 HGB and Section 42 GmbHG, and the information concerning terms remaining to maturity of accounts receivable and payable, are contained in the notes to the financial statements. 3.1.3 STATEMENT OF ECONOMIC SITUATION 9 DELOITTE & 6 TOUCHE - -------------------------------------------------------------------------------- 3.1.3.1 INFRASTRUCTURE The Company's activities include book and magazine publishing and design as well as other publishing services. Administration and the production phase are accomplished in offices rented from ZIFF Davis Verlag GmbH in Munich. Products are distributed to the German, Austrian and Swiss markets. 3.1.3.2 SUMMARY [TDM = KDM = thousand German marks]
Sales revenues 18,254 Cost of materials 12,912 Share in sales revenues 70,7 Personnel expenses 2,522 Number of employees (Section 267 HGB) 19 Revenues per employee 960 Investments in property, plant and equipment 312 Addition of goodwill 1,494 Depreciation of fixed assets 207 Cash flow -880 Result from ordinary activities -1,087 Balance sheet total 12,852 of which is equity capital -1,037 equity ratio -8,1 property, plant and equipment 207 liabilities 9,708 inventory 3,179
10 DELOITTE & 7 TOUCHE - -------------------------------------------------------------------------------- 3.1.3.3 NET WORTH POSITION The balance sheet of the Company establishes the net worth and capital structures set forth below. The composition of the individual positions is explained in the supplementary itemizations and notes to the annual financial statements.
12/31/94 of which is total short-term KDM % KDM ------------------------------------ Fixed assets Intangible assets 1,400 10,9 0 Property, plant and equipment 207 1,6 0 ------------------------------------ 1,607 12,5 0 Current assets Inventory 3,180 24,7 3,180 Accounts receivable and other assets 6,308 49,1 6,308 Liquid funds 683 5,3 683 Accruals and deferrals 37 0,3 37 ------------------------------------ 10,208 79,4 10,208 Shortfall not covered by equity capital 1,037 8,1 0 Assets 12,852 100,0 10.207 Capital resources Subscribed capital 50 0,4 0 Net loss for the year -1,087 -8,5 0 ------------------------------------ -1,037 -8.1 0 Shortfall not covered by equity capital 1,037 8,1 0 ------------------------------------ Borrowed capital Reserves 3,144 24,5 3,144 Liabilities 9,708 75,5 7,336 ------------------------------------ 12,852 100,0 10,480 ------------------------------------ Capital 12,852 100,0 10,480
11 DELOITTE & 8 TOUCHE - -------------------------------------------------------------------------------- The balance sheet composition is defined by the valuation of goodwill, inventory and receivables and the borrowed capital financing these items. As of the balance closing date, the Company had an excess of liabilities over assets; this overindebtedness was eliminated with the execution of a subordination agreement with the creditors of ZIFF Davis Verlag GmbH. 3.1.3.4 FINANCIAL POSITION To demonstrate the Company's financial position, the cash flow breaks down as follows:
1994 KDM ----- Net loss for the year -1.087 Depreciation of property, plant and equipment and intangible assets 207 ----- Cash flow -880
Financial Structure and Liquidity Ratios - ----------------------------------------
1994 ------- Cash flow ratio = Cash flow x 100 % 4.8 ------------------------ Sales revenues Degree of liquidity = (Receivables + liquid assets) x 100 % 66.7 ----------------------------------- Short-term borrowed capital
As the Company expands, additional loans appear necessary; an acceleration of the collection period for receivables and inventory turnover appears to be necessary. 12 DELOITTE & 9 TOUCHE - -------------------------------------------------------------------------------- 3.1.3.5 EARNINGS POSITION The results for the year are presented in accordance with an analysis based on operating performance. A separate itemization of the balanced result was not drawn up here. The composition and development of the individual positions are explained in the supplementary itemizations and notes on the annual financial statements.
1994 KDM KDM % ----------------------------------- Sales revenues 18,254 90,5 Increase in inventory 1,803 9,0 Other income 108 0,5 ----------------------------------- Operating performance 20.165 100 Cost of materials 12,912 64,0 Personnel expenses 2.,522 12,5 Nominal depreciation 207 1,0 Taxes independent of income 1 0 Other operating expenses 5,478 27,2 ----------------------------------- Operating performance 21.120 104,7 Operating result -955 -4,7 - ---------------- Income 2 0 Expenses 134 0,7 ----------------------------------- Financial result -132 0,7 - ---------------- Overall result -1.087 5,4 - -------------- Taxes on income 0 - --------------- Results for the year -1.087 -5,4 - -------------------- ====== ====
Of gross sales totalling KDM 21,380, KDM 12,997 are attributable to software and merchandise, KDM 7,197 to books and KDM 1,186 to other sales revenues. Returns totalled KDM 2,684 and other offsets to profits totalled KDM 442. Revenues include KDM 345 from the sale of the rights to a loose-leaf series. The cost of materials, totalling KDM 12,912, primarily concerns software at KDM 4,448, printing costs at KDM 3,081, royalties at KDM 1,552, books and merchandise at KDM 1,552, and manufacturing costs for CD-ROMs. 13 DELOITTE & 10 TOUCHE - -------------------------------------------------------------------------------- Personnel expenses, at KDM 2,522, reflect the increase in employees in the course of the year. Other operating expenses, at KDM 5,478, largely derive from delivery costs, advertising expenses, incidental personnel expenses and other administrative expenses. The KDM 955 operating loss is further offset by negative net interest amounting to KDM 132, which results in a KDM 1,087 loss for the year. The overindebtedness was eliminated with the execution of a subordination agreement with the creditors of ZIFF Davis Verlag GmbH. 3.2 MANAGEMENT REPORT The management report for 1994 is attached to this report as Appendix 1.1. The presentation of the corporation's position and the business trends affecting it reflect actual conditions. We are unaware that any activities of special significance occurred after the end of the fiscal year which should have been reported. The management report gives appropriate consideration to the anticipated development of the Company. According to the result of our audit, the management report conforms with the annual financial statements. The other information supplied does not misrepresent the position of the Company. 3.3 ACCOUNTING Business transactions are recorded using the double accounting system on a server connected to IBM-compatible workstations. The accounting software "Sun Account" by Systems Union is installed on the system. In addition to nominal accounts, accounts are maintained for debtors, creditors and other receivables and payables. The journal and ledgers are printed as needed. Cash transactions are recorded in a non-computerized cash ledger. Pay statements are handled outside of the Company on DATEV's computer system. Investment accounting is computed on the spreadsheet program EXCEL. The annual financial statements were drawn up on the basis of an account balance report containing all of the accounts maintained. 14 DELOITTE & 11 TOUCHE - -------------------------------------------------------------------------------- Inventories are recorded on a list based on a physical inventory as of December 31, 1994. Receivables and other assets are reported in lists of current account balances and other documentation. The existence of trade accounts receivable was verified with random requests for account balance statements as of November 30, 1994. Cash in banks is documented with account balance statements and bank statements; cash in hand is documented with receipts. Accruals and deferrals are documented with calculations. Subscribed capital (nominal capital) conforms with the articles of incorporation and the entry in the Commercial Register. The excess of liabilities over assets has been eliminated with an appropriate subordination agreement. Other liabilities are documented with calculations and other material. Accounts payable are documented with written notifications, account balances and other documentation. The amounts reported in the notes to the financial statements with respect to other financial obligations are documented with contracts and invoices. In the course of our audit, we were able to conclude that the books, accounts, records and other documentation have been maintained in accordance with sound business principles; receipts are properly filed, annotated and retained. The accounting is orderly. 4. AUDIT RESULTS AND AUDITOR'S REPORT The general manager has voluntarily supplied all of the requested explanations and documentation; in addition he submitted the standard declaration of completeness and accuracy on July 7, 1995. In the latter, he pledged in particular that the accounting contains all accountable transactions and that the balance sheet contains all accountable assets, liabilities and risks. We have prepared this report including appendices in accordance with the stipulations of Section 321 HGB and within the context of our audit declare that - - the records and receipts conform with the principles of orderly accounting; - - the balance sheet and profit and loss statement are arranged in accordance with laws, rules and regulations governing same; 15 DELOITTE & 12 TOUCHE - -------------------------------------------------------------------------------- - - the appraisal and valuation of assets and debts have been accomplished in conformity with commercial regulations and discernable risks have been compensated for with appropriate reserves; the auditor's report has been expanded to reflect the intended change in shareholders as it applies to the valuation and period of depreciation of the reported goodwill arising from the takeover of the tewi division of ZIFF Verlag GmbH; - - the required disclosures are contained in the notes to the financial statements - - the management report conforms with the annual financial statements, which contain the required disclosures and do not misrepresent the situation of the Company. The net worth, financial and earnings position of the Company are presented in Section 3.1.3 (Statement of Economic Situation). No figures were cited for the previous year, as the Company did not start operation until 1994. Upon the final result of our audit, we have issued the following auditor's report for the annual financial statements including the management report attached as Appendix 1 for the 1994 fiscal year of tewi Verlag GmbH, Munich, as set forth in Section 322 Par. 1 HGB with the indicated amendment: "The accounting and annual financial statements, which we have audited in accordance with professional standards, comply with statutory requirements. With due regard to the generally accepted accounting principles, the financial statements give a true and fair view of the net worth, financial and earnings position of the corporation. The management report conforms with the annual financial statements. Additionally, we note here that the valuation and/or period of depreciation (15 years) of goodwill may be influenced on short notice by future business policy decisions of the purchaser of the corporation." Munich, July 7, 1995 Deloitte & Touche GmbH Certified Public Accountants [round seal:] Deloitte & Touche GmbH Certified Public Accountants s/ s/ CERTIFIED PUBLIC ACCOUNTANTS (Dr. Grewe) (Imig) Certified Public Certified Public SEAL Accountant Accountant 16 DELOITTE & 13 TOUCHE - -------------------------------------------------------------------------------- Munich 17 DELOITTE & TOUCHE - -------------------------------------------------------------------------------- APPENDICES 18 TEWI literature on electronic technology tewi Verlag GmbH Riesstr. 25/Haus D 80992 Munich Tel. 089/14 31 24 60 Fax 089/14 31 24 61 1994 MANAGEMENT REPORT FOR TEWI VERLAG - -------------------------------------- Until the end of 1993, tewi Verlag was the book division of Ziff Verlag GmbH. Effective January 1, 1994, this division was spun off as tewi Verlag GmbH. The difference between absorbed liabilities and transferred assets was reported as goodwill and among other things represents the value of the tewi trademark, existing contracts with authors and operative licensing agreements. The shares in the corporation are held by Ziff Davis Verlag GmbH and Mr. Helmut Kunkel. The computer book market is currently undergoing profound changes and is characterized by increasing competition and the resulting lower prices for higher quality publications. Moreover, because of the software market situation, the average shelf life of such books is getting shorter. This situation has precipitated sales and earnings problems for almost all computer publishers. Tewi recognized this development early and its publishing program was adapted in response to the situation. In 1994, tewi converted from a printed book publisher to a multimedia publisher generating the majority of its revenues with CD-ROM products. As a consequence of this realignment, tewi was able to increase its total sales revenues by 93% as compared to the previous year, or from KDM 9,499 to KDM 18,362, and has thus become a publisher with one of the highest growth rates in Germany (tewi has achieved the second-highest growth rate after arsEdition, which publishes the MAGIC EYE series). At year-end, the Company employed a total of 23 persons. In the book area, 1994 was characterized by a concentration on a few central specialties and the expansion of new media areas (CD-ROM-related series), which had a positive effect on the earnings position. Compared to the division's loss in the previous year, tewi Verlag GmbH has reduced its net loss for 1994. 19 TEWI literature on electronic technology tewi Verlag GmbH Riesstr. 25/Haus D 80992 Munich Tel. 089/14 31 24 60 Fax 089/14 31 24 61 BOOK DIVISION - ------------- In this division, the Company concentrated on books on programming languages, operating systems, communications, graphics and networks in 1994. These highly technical subjects are among the specialties of tewi and, because of less competition, justify higher prices and allow for better variable gross margins. As a result of these measures, revenues from this area fell from KDM 8,193 in 1993 to KDM 5,400 in 1994, and the number of new publications fell from 68 to 34. CD-ROM DIVISION - --------------- In one year, tewi's CD-ROM division emerged as a market leader. The estimated number of CD-ROMs sold in 1994 is around 3 million units; tewi holds a 15% share of the market. Tewi was able to increase its sales from KDM 1,186 to KDM 10,787, or by 809%. The number of new publications was increased from 11 CDs to 71. In the course of 1994, tewi sold approximately 450,000 CDs. Statistically, every other CD-ROM drive in Germany is running a tewi CD. In the future, content and quality of tewi CDs will gain increasing importance, and tewi has already responded by developing new series in the area of travel guides and monographs. The undertaking to distribute standard software programs on CD-ROM under license from leading manufacturers was received very positively by the trade and manufacturers and has contributed KDM 4,849 in sales generated from CD-ROMs. The Company has predominately exclusive agreements with almost all of the major software manufacturers, and we anticipate a boom in this segment after the release of the Windows '95 operating system. 20 TEWI literature on electronic technology tewi Verlag GmbH Riesstr. 25/Haus D 80992 Munich Tel. 089/14 31 24 60 Fax 089/14 31 24 61 MERCHANDISE DIVISION - -------------------- The reluctance of trading companies to work with many different suppliers in a single area forces many CD-ROM suppliers to seek cooperation with established CD-ROM distributors. Since the fall of 1994, tewi has begun to sell third-party products as part of its range and sells these products through its distribution channels. In 1994, we generated KDM 575 from the sale of third-party products and we expect sales in this sector to pyramid in 1995. At present, exclusive agreements have been concluded with arsEdition, New Media, HR directmedia and iBS, and non-exclusive agreements with Bertelsmann and SAD. MAGAZINE SALES - -------------- In November 1994, we conducted our first field tests on distributing CD-ROMs through magazines. From our experiences in this area, we have developed a concept that makes the distribution of tewi products through magazines feasible despite high return rates. At present two CD-ROM products are delivered each month to approx. 3,000 selected magazine distributors via a national network. ONLINE - ------ Since April 1995, tewi's products are also available via Datex-J videotext. We are negotiating agreements with online service providers like CompuServe, Europe Online and Microsoft. After the introduction of the Microsoft network, tewi is planning to sell the contents of its books and CD-ROMs online as well. The prerequisites for such sales are currently being established. OUTLOOK - ------- For 1995, we anticipate continued expansion and a more balanced result; tewi Verlag GmbH concluded the first quarter of 1995 with a positive result. A number of new projects in the CD-ROM and book sectors are in the development phase. We are targeting a further expansion of our market position as a leading computer publisher. Ziff Davis Verlag is planning to focus on the most important core areas of its publishing activities in 1995, and therefore wishes to dispose of its shares. 21 TEWI literature on electronic technology tewi Verlag GmbH Riesstr. 25/Haus D 80992 Munich Tel. 089/14 31 24 60 Fax 089/14 31 24 61 The increase of inventory from DM 1.5 million to DM 3.1 million and of liabilities from DM 3.1 million to DM 6.9 million reflects the year's business activities. The increase of receivables from DM 1.4 million to DM 6.0 million is a result of doubled sales and a strong expansion of distribution channels with long payment periods, such as trade distributors and magazine distributors. 22 TEWI literature on electronic technology tewi Verlag GmbH Riesstr. 25/Haus D 80992 Munich Tel. 089/14 31 24 60 Fax 089/14 31 24 61 We herewith confirm that tewi Verlag GmbH has fulfilled all long-term purchase commitments to the best of its knowledge and belief. Munich, July 7, 1995 s/ Helmut Kunkel - ----------------- Managing Director 23 TEWI literature on electronic technology tewi Verlag GmbH Riesstr. 25/Haus D 80992 Munich Tel. 089/14 31 24 60 Fax 089/14 31 24 61 Appendix 1.2 LIABILITIES - --------------------------------------------------------------------------------
12/31/94 DM DM ------------ ------------- A. EQUITY CAPITAL I. Subscribed capital 50,000,00 II. Net loss for the year 1,086,964,98 1,036,964.98 III. Shortfall not covered by equity capital 1,036,964.98 (cf. assets, position C) ------------ B. RESERVES Other reserves 3,143,847.51 C. ACCOUNTS PAYABLE 1. Accounts payable trade 6,920,155.96 2. Accounts payable to affiliated companies 2,447,452.37 of which have less than a year remaining to maturity: of which due shareholders: 3. Other liabilities 340,152.62 of which are taxes: ------------ of which related to social security contributions: 9,707,760.95 12,851,608.46 =============
24 BALANCE SHEET AS OF 12/31/94 TEWI VERLAG GMBH, MUNICH ASSETS - --------------------------------------------------------------------------------
12/31/94 DM DM ------------- - ------------ A. FIXED ASSETS I. Intangible assets 1. Concessions, industrial property rights, and similar rights and values 6,261.50 2. Goodwill 1,393,903.48 II. Property, plant and equipment Office and plant equipment 207,066.51 ------------ 1,607,231.49 B. CURRENT ASSETS I. Inventories 1. Work in process 58,039.93 2. Finished goods and goods for resale 3,046,664.45 3. Payments on account 74,031.37 ------------ 3,178,735.75 II. Accounts receivable and other assets 1. Accounts receivable trade 5,638,087.57 2. Accounts receivable from affiliated companies 101,373.81 3. Other assets 568,487.45 ------------ 6,307,948.83 III. Cash on hand and in banks 683,212.83 C. PREPAID EXPENSES AND DEFERRED CHARGES 37,514.58 D. SHORTFALL NOT COVERED BY EQUITY CAPITAL 1,036,964.98 12,851,608.46 =============
25 1994 PROFIT AND LOSS STATEMENT APPENDIX 1.3 JANUARY 1 THROUGH DECEMBER 31, 1994 TEWI VERLAG GMBH, MUNICH
DM DM 12/31/94 - ------------ ------------- 1. Sales revenues 18,253,946.03 2. Increase in finished inventories and work in process 1,803,498.57 3. Other operating income 108,293.22 ------------- 20,165,737.82 4. Cost of materials a) Cost of purchased materials 5,986,156.92 b) Cost of purchased services 6,926,100.61 ------------- 12,912,257.53 5. Personnel expenses a) Wages and salaries 2,219,838.09 b) Social security and other pension costs of which is for retirement pensions: 301,583.40 ------------- 2,521,421.49 6. Depreciation of intangible fixed assets and property, plant and equipment 207,067.63 7. Other operating expenses 5,478,031.87 8. Other interest and similar income 1,712.59 9. Interest and similar expenses 134,784.01 ------------- of which due affiliated companies: of which due shareholders: 133,071.42 ---------- 10. RESULTS FROM ORDINARY ACTIVITIES -1,086,112.12 11. Other taxes 852.86 ------------- 12. NET LOSS FOR THE YEAR 1,086,964.98 =============
26 APPENDIX 1.4 PAGE 1 NOTES TO THE FINANCIAL STATEMENTS FOR THE 1994 FISCAL YEAR OF TEWI VERLAG GMBH, MUNICH I. GENERAL INFORMATION ON THE ANNUAL FINANCIAL STATEMENTS We have prepared our annual financial statements for 1994 in accordance with the regulations of the Commercial Code and the Law on Limited Liability Companies. We have elected the total cost method for preparing the profit and loss statement. Because the Company started operating in 1994, its financial statements contain no facts and figures from the previous year. II. ACCOUNTING AND VALUATION PRINCIPLES Assets The difference remaining after offsetting the liabilities absorbed against the lower nominal value of assets received in the course of the transfer of ZIFF Verlag GmbH's tewi division to the Company at the beginning of the fiscal year was reported as goodwill, which is depreciated over 15 years. The valuation and/or asset depreciation range may be influenced by business policy decisions of the purchaser of tewi Verlag GmbH on short notice. Property, plant and equipment is reported at the cost of purchase or manufacturing minus scheduled depreciation. Scheduled depreciation was taken on property, plant and equipment in accordance with the straight-line method. Low-value assets are depreciated at full cost in the year they are purchased. In the year under review, low-value assets were purchased by the shareholder ZIFF Verlag GmbH. These assets will be depreciated over their remaining useful lives. Inventories are valued at individual costs plus a general allowance publishing overhead or at lower, adjusted values. Receivables from trade debtors and other receivables are offset by an adjustment as appropriate. Deferred items were allocated to later accounting periods pro rata temporis. 27 APPENDIX 1.4 PAGE 2 Liabilities The subscribed capital conforms with the nominal capital recorded in the Commercial Register. The excess of liabilities over assets as of the balance closing date was eliminated with the execution of a subordination agreement with the creditors of ZIFF Davis Verlag GmbH. Accounts payable are posted at their repayment amounts. Foreign currency payables and receivables are valued at the exchange rate as of the date incurred. When the exchange rate of foreign currency receivables on the balance closing date is lower than on the date incurred, appropriate adjustments are made in accordance with the commercial principle of the lower of cost or market. As of the balance closing date, a valuation adjustment for exchange rate fluctuations was not necessary. III. NOTES TO THE FINANCIAL STATEMENTS 1. FIXED ASSETS The itemization of startup and expansion expenditures and of fixed assets is shown in the following fixed-asset movement schedule:
Cost of Acquisition Valuation Adjustment Nominal Carried Additions Disposals Status Carried Additions Disposals Status Value Forward as of Forward as of as of 12/31/94 12/31/94 12/31/94 KDM KDM KDM KDM KDM KDM KDM KDM KDM ----------------------------------------------------------------------------------------------------- A. Intangible assets 1. Software 0 8 0 8 0 2 0 2 6 2. Goodwill 0 1,494 0 1,494 0 100 0 100 1,394 ------------------------------------------------------------------------------------------------- 0 1,502 0 1,502 0 102 0 102 1,400 B. Property, plant and equipment 1. Comp hardware 0 165 0 165 0 41 0 41 124 2. Office and plant equipment 0 139 0 139 0 58 0 58 81 3. Vehicles 0 8 0 8 0 6 0 6 2 ------------------------------------------------------------------------------------------------- 0 312 0 312 0 105 0 105 207 0 1,814 0 1,814 0 207 0 207 1,607 ======================================== ===================================== =====
Office and plant equipment also includes low-value assets acquired in the year under review. 2. INVENTORIES Inventories include merchandise (CD-ROMs and books) as well as products manufactured by the Company. 28 APPENDIX 1.4 PAGE 3 3. ACCOUNTS RECEIVABLE AND OTHER ASSETS The accounts receivable are due and payable within one year. Trade accounts receivable include DM 1,001,157.01 from deliveries of CD-ROMs to magazine wholesalers. These accounts are settled through the shareholder Ziff Davis Verlag GmbH. Accounts receivable from affiliated companies contain KDM 75 in payments due from the shareholder ZIFF Davis Verlag GmbH for goods delivered. ZIFF Davis Verlag GmbH has full return privileges. Anticipated returns are deferred.
12/31/94 KDM -------- Accounts receivable trade 5,638 Accounts receivable from affiliated companies 101 Other assets 569 ----- 6,308 =====
The other assets primarily consist of royalties and other advance payments. 4. OTHER RESERVES The most significant items reflect reserves for royalties, licenses and returns. 5. LIABILITIES
Remaining Terms to Maturity 12/31/94 less than 1 year 1 to 5 years more than 5 years Accounts Payable trade 6,920 6,920 0 0 A/P to affiliated companies 2,448 76 1,587 785 Other 340 340 0 0 of which - taxes: 129 129 0 0 - related to social security contributions: 59 59 0 0 ------------------------------------------------------------- 9,708 7,336 1,587 785 ===============================================================================================
Accounts payable to affiliated companies include KDM 2,429 due the shareholder ZIFF Davis Verlag GmbH, of which KDM 49 are payable within less than one year. ZIFF Davis Verlag GmbH has loaned the Company funds totalling KDM 2,250. The principle and the interest charged on same are due and payable as set forth in an agreed-upon repayment schedule beginning 1997, with full repayment due on February 1, 2001. To secure the claims of ZIFF Davis Verlag GmbH, we have transferred our inventories and office equipment to this shareholder. 29 APPENDIX 1.4 PAGE 4 6. OTHER FINANCIAL OBLIGATIONS Other financial obligations due ZIFF Verlag GmbH include:
1995 1996-1999 2000 and beyond KDM KDM KDM ---- --------- -------- Leasing 150 180/year 204/year Rent 245 282/year 300/year
These figures presuppose the extension of contracts as an operational necessity. IV. OTHER INFORMATION 1. NUMBER OF EMPLOYEES An average total of 19 persons were employed by the Company in 1994 (information supplied pursuant to Section 267 HGB). 2. EXECUTIVE BODIES Management: Helmut Kunkel (as of June 10, 1994) 3. INTER-COMPANY RELATIONS The company is part of the ZIFF Davis Group, which operates worldwide and is headquartered in New York. The shareholder ZIFF Davis Verlag GmbH holds a 60% stake in the Company. 4. PROPOSED TREATMENT OF NET LOSS Management proposes to carry the DM 1,086,964.98 net loss for the year forward to 1995. Munich, July 7, 1995 Managing Director: Helmut Kunkel 30 APPENDIX 1.4 PAGE 5 AUDITOR'S REPORT The accounting and annual financial statements, which we have audited in accordance with professional standards, comply with statutory requirements. With due regard to the generally accepted accounting principles, the financial statements give a true and fair view of the net worth, financial and earnings position of the corporation. The management report conforms with the annual financial statements. Additionally, we note here that the valuation and/or period of depreciation (15 years) of goodwill may be influenced on short notice by future business policy decisions of the purchaser of the corporation. Munich, July 7, 1995 Deloitte & Touche GmbH Certified Public Accountants [round seal:] Deloitte & Touche GmbH Certified Public Accountants s/ s/ CERTIFIED PUBLIC ACCOUNTANTS (Dr. Grewe) (Imig) Certified Public Certified Public SEAL Accountant Accountant Munich 31 DELOITTE & APPENDIX 2.1.1 TOUCHE PAGE 1 - -------------------------------------------------------------------------------- 2. SUPPLEMENTARY ITEMIZATIONS AND NOTES TO THE ANNUAL FINANCIAL STATEMENTS The Company started operation in 1994. Accordingly, no figures are given for the previous year. 2.1 BALANCE SHEET 2.1.1 BALANCE SHEET ASSETS A. FIXED ASSETS I. INTANGIBLE ASSETS 1. CONCESSIONS, INDUSTRIAL PROPERTY RIGHTS, AND SIMILAR RIGHTS AND VALUES
12/31/94 DM -------- Software 6,261.50
Software is depreciated on a straight-line basis over three years. 2. GOODWILL
12/31/94 DM -------- 1,393,903.48 ============
Goodwill is depreciated on a straight-line basis over fifteen years. We refer to the information supplied under the heading Legal Status (2.1, Infrastructure: agreement on the purchase of the assets of the "tewi division"). 32 DELOITTE & APPENDIX 2.1.1 TOUCHE PAGE 2 - -------------------------------------------------------------------------------- II. PROPERTY, PLANT AND EQUIPMENT Office and plant equipment
12/31/94 DM -------- Computer hardware 123,636.59 Office equipment and vehicles 83,429.92 ---------- 207,066.51 ==========
Office and plant equipment is depreciated over the standard useful lives of the individual items. B. CURRENT ASSETS I. INVENTORIES 1. WORK IN PROCESS
12/31/94 DM -------- 58,039.93 =========
2. FINISHED GOODS AND GOODS FOR RESALE
12/31/94 DM -------- Books and CD-ROMs 1,745,458.64 Software licenses for CD-ROMs 865,006.19 Merchandise (books and CD-ROMs) 436,199.62 ------------ 3,046,664.45 ============
In addition to the books and CD-ROMs manufactured by the Company, the Company also distributes third-party merchandise. 3. PAYMENTS ON ACCOUNT
12/31/94 DM -------- 74,031.37 =========
Payments on account reflect production costs for products distributed in 1995. 33 DELOITTE & APPENDIX 2.1.1 TOUCHE PAGE 3 - -------------------------------------------------------------------------------- II. ACCOUNTS RECEIVABLE AND OTHER ASSETS 1. ACCOUNTS RECEIVABLE TRADE
12/31/94 DM -------- Accounts receivable trade 5,911,661.49 minus: Individual value adjustments 141,716.22 Lump-sum value adjustments 131,857.70 ------------ 5,638,087.57 ============
Trade accounts receivable include DM 1,001,157.01 from deliveries of CD-ROMs to magazine wholesalers. These accounts are settled through the shareholder Ziff Davis Verlag GmbH. 2. ACCOUNTS RECEIVABLE FROM AFFILIATED COMPANIES
12/31/94 DM -------- ZIFF Davis Verlag GmbH 75,300.52 ZD Press 22,619.30 ZIFF Messe und Konferenz 3,453.99 ---------- 101,373.81 ==========
3. OTHER ASSETS
12/31/94 DM -------- Authors' advances 324,168.08 Receivables from suppliers 173,057.08 Travel advances 15,000.00 Other receivables and assets 38,476.54 Sales tax 8,441.87 Accounts receivable from creditors 9,343.88 ---------- 568,487.45 ==========
DM 376,343.08 were paid in authors' advances, which were offset by a DM 38,000.00 adjustment. Receivables from suppliers primarily concern payments made toward advertising expenses and the return of licensing rights. 34 DELOITTE & APPENDIX 2.1.1 TOUCHE PAGE 4 - -------------------------------------------------------------------------------- III. CHECKS, CASH IN HAND AND IN BANKS
12/31/94 DM -------- Commerzbank 50,000.00 Raiffeisenbank Gilching 935,326.30 Postbank 1,728.35 Cash in hand 1,200.92 ---------- 988,255.57 ----------- minus funds in circulation -305,042.74 ----------- 683,212.83 ===========
C. PREPAID EXPENSES AND DEFERRED CHARGES
12/31/94 DM -------- 37,514.58 =========
This item reflects rents, contributions and fees paid in advance for the following business year. 35 DELOITTE & APPENDIX 2.1.2 TOUCHE PAGE 1 - -------------------------------------------------------------------------------- 2. SUPPLEMENTARY ITEMIZATIONS AND NOTES TO THE ANNUAL FINANCIAL STATEMENTS 2.1 BALANCE SHEET 2.1.2 BALANCE SHEET LIABILITIES I. SUBSCRIBED CAPITAL
12/31/94 DM -------- 50,000.00 =========
II. NET LOSS FOR THE YEAR
12/31/94 DM -------- 1,086,964.98 ============
The excess of liabilities over assets as of the balance closing date was eliminated with the execution of a subordination agreement with the creditors of ZIFF Davis Verlag GmbH. B. RESERVES OTHER RESERVES
12/31/94 DM -------- Authors' advances and licenses 966,130.54 Vacation privileges and commissions 311,533.79 Returns 1,439,055.42 Advertising expenses paid in advance 145,000.00 Outstanding receivables 166,027.76 Legal, consulting and auditing costs 55,500.00 Other 60,600.00 ------------ 3,143,847.51 ============
36 DELOITTE & APPENDIX 2.1.2 TOUCHE PAGE 2 - -------------------------------------------------------------------------------- C. LIABILITIES 1. TRADE ACCOUNTS PAYABLE Trade accounts payable totalling DM 6,920.155.96 are due and payable within one year.
12/31/94 DM -------- 6,920,155.96 ============
These amounts are reconciled with the open account balances. 2. ACCOUNTS PAYABLE TO AFFILIATED COMPANIES DM 66,469.44 of the accounts payable to affiliated companies are due within one year.
12/31/94 DM DM -------- -------- Accounts payable to ZIFF Davis Verlag GmbH - - Loans 2,250,000.00 - - Interest on loans 130,982.93 - - Charges passed on 48,896.44 ------------ 2,429,879.37 Accounts payable to ZIFF Davis Press 17,573.00 ------------ 2,447,452.37 ============
The loans extended by the shareholder ZIFF Davis Verlag GmbH and the interest charged on said loans are repayable in installments over the next 7 years. 3. OTHER LIABILITIES Other liabilities totalling DM 340,152.62 are due and payable within one year.
12/31/94 DM -------- Payables associated with wages and salaries 119,736.12 Payables associated with church and income taxes 124,696.59 Items in transit 36,655.03 Payables associated with social security contributions 58,553.64 Accounts payable on customers' accounts 511.24 ---------- 340,152.62 ==========
37 DELOITTE & APPENDIX 2.2 TOUCHE PAGE 1 - -------------------------------------------------------------------------------- 2. SUPPLEMENTARY ITEMIZATIONS AND NOTES TO THE ANNUAL FINANCIAL STATEMENTS 2.2 PROFIT AND LOSS STATEMENT 1. SALES REVENUES
1994 DM -------- Software and merchandise 12,997,145.41 Books, domestic 5,663,175.62 Books, foreign 1,533,685.80 Other sales revenues 1,186,086.45 ------------- 21,380,093.28 ------------- minus returns 2,683,768.78 Premiums and discounts 442,378.47 ------------- 3,126,147.25 ------------- 18,253,946.03 =============
2. INCREASE IN FINISHED INVENTORIES AND WORK IN PROCESS
1994 DM -------- 1,803,498.57 ============
This item reflects the increased inventories of books and CD-ROMs manufactured by the Company as well as inventories of unfinished goods. 3. OTHER OPERATING INCOME
1994 DM -------- Income from use of vehicles 41,766.38 Currency exchange rate gains 35,052.32 Other income 31,474.52 ---------- 108,293.22 ==========
38 DELOITTE & APPENDIX 2.2 TOUCHE PAGE 2 - -------------------------------------------------------------------------------- 4. COST OF MATERIALS
1994 DM -------- a) Cost of purchased materials Software 4,448,354.18 Books and other merchandise 1,551,898.45 6,000,252.63 minus delivery discounts 14,095.71 ------------ 5,986,156.92 ------------
b) Cost of purchased services Printing costs 3,080,501.86 Authors' royalties 1,551,727.85 CD-ROM manufacturing costs 1,169,460.06 Other third-party goods and services 1,124,410.84 ------------ 6,926,100.61 12,912,257.53 =============
5. PERSONNEL EXPENSES a) Wages and salaries
1994 DM -------- Salaries 2,213,078.04 Contributions to capital formation 6,760.00 ------------ 2,219,838.09
b) Social security contributions and other pension costs
1994 DM -------- Statutory social security contributions 261,572.09 Direct insurance 23,793.80 Maternity allowances 11,217.51 Workers' compensation 5,000.00 ------------ 301,583.40 2,521,421.49 ============
39 DELOITTE & APPENDIX 2.2 TOUCHE PAGE 3 - -------------------------------------------------------------------------------- 6. DEPRECIATION OF INTANGIBLE FIXED ASSETS AND PROPERTY, PLANT AND EQUIPMENT
1994 DM -------- Intangible assets 101,290.04 Property, plant and equipment 105,777.59 ---------- 207,067.63 ==========
7. OTHER OPERATING EXPENSES
1994 DM -------- Rent and office space expenses 200,597.48 Freelance employees, other personnel expenses 154,388.45 Vehicle expenses 225,720.22 Advertisements 886,401.30 Catalogues 217,937.14 Trade fair expenses 189,724.36 Other costs related to advertising and publicity 340,864.62 Gifts 11,595.70 Business entertainment expenses 33,368.84 Travel expenses, meetings 128,177.99 Delivery costs 1,185,510.47 Mailing costs 293,369.75 Licensing fees 426,012.84 Telephone charges 106,380.74 Office supplies 60,552.72 Legal, consulting and auditing costs 89,561.06 Cost allocation 134,962.59 Charitable contributions 5,500.00 Publicity aids and mailings 399,093.08 Transfer to adjustments on receivables 273,573.92 Social security contributions for artists 50,781.17 Other 63,957.43 ------------ 5,478,031.87 ============
8. OTHER INTEREST AND SIMILAR INCOME
1994 DM -------- 1,712.59 ========
40 DELOITTE & APPENDIX 2.2 TOUCHE PAGE 4 - -------------------------------------------------------------------------------- 9. INTEREST AND SIMILAR EXPENSES Due shareholders: DM 130,982.93
1994 DM -------- Due affiliated companies 130,982.93 3,801.08 ---------- 134,784.01 ==========
10. RESULTS FROM ORDINARY ACTIVITIES
1994 DM -------- -1,086,112.12 =============
11. OTHER TAXES
1994 DM -------- Motor vehicle taxes 852.86 ======
12. NET LOSS FOR THE YEAR
1994 DM -------- 1,086,964.98 ============
41 GENERAL TERMS AND CONDITIONS OF ASSIGNMENT FOR CERTIFIED PUBLIC ACCOUNTANTS AND ACCOUNTING FIRMS OF JANUARY 1, 1995 1. APPLICABILITY (1) The general terms and conditions of assignment apply to contracts concluded between Certified Public Accountants or Accounting Firms (hereinafter "Certified Public Accountants") and their principals for audits, consultation and other assignments, providing no other provision is expressly made in writing or stipulated by law. (2) If, in exceptional cases, contractual relations are established between the Certified Public Accountant and persons other than the principal, the provisions of No. 9 below shall also apply to such third parties. 2. SCOPE AND PERFORMANCE OF THE ASSIGNMENT (1) The assignment is confined to the agreed-upon service, and does not imply a guarantee of any specific economic success. The assignment is executed according to the principles of proper professional practice. The Certified Public Accountant is entitled to use the services of experts to carry out the assignment. (2) The consideration of foreign law shall require express written agreement, except in the case of operational audits. (3) Unless so specified, the assignment does not extend to examining compliance with the provisions of tax law or special provisions such as the provisions of price, competition or management law; the same applies to the determination as to whether subsidies, premiums or other incentives can be claimed. The execution of an assignment does not include audit procedures expressly intended to expose accounting falsifications or other irregularities unless reason to do so is found while carrying out the audit, or if it is expressly agreed in writing. (4) Should the legal situation change after the professional finding has been submitted, the Certified Public Accountant is not obligated to notify the principal of such changes or resulting consequences. 3. PRINCIPAL'S DUTY TO PROVIDE INFORMATION (1) The principal must ensure that all documents necessary for the execution of the assignment are presented in due time to the Certified Public Accountant, even without special request by the latter, and that the Certified Public Account is advised of all events and circumstances which could be significant for the execution of the 42 2 assignment. The foregoing also applies to documents, events and circumstances that become known during the course of the Certified Public Accountant's activities. (2) Upon the request of the Certified Public Accountant, the principal must confirm in a written statement prepared by the Certified Public Accountant the completeness of the documents presented and the information and explanations supplied. 4. INDEPENDENCE OF THE CERTIFIED PUBLIC ACCOUNTANT The principal must ensure that no action is taken that could jeopardize the independence of the employees of the Certified Public Accountant. The foregoing applies in particular to offers of employment and offers to take over assignments for own account. 5. REPORTING AND ORAL INFORMATION If the Certified Public Accountant is to record the results of his activity in writing, then only the written account is authoritative. For audit assignments, the report is drawn up in writing, unless otherwise agreed. Oral explanations and information from employees of the Certified Public Accountant provided outside the scope of the assignment are always non-binding. 6. PROTECTION OF THE INTELLECTUAL PROPERTY OF THE CERTIFIED PUBLIC ACCOUNTANT The principal agrees and promises that the expert opinions, organizational plans, drafts, illustrations, lists and calculations, and, in particular, asset and cost calculations prepared by the Certified Public Accountant in connection with the assignment will be used exclusively for the principal's purposes. 7. COMMUNICATION OF PROFESSIONAL FINDINGS OF THE CERTIFIED PUBLIC ACCOUNTANT (1) The communication of professional findings of the Certified Public Accountant (reports, expert opinions, etc.) to a third party shall require the written consent of the Certified Public Accountant, unless an agreement to release such declarations to a certain third party is made part of the assignment. The Certified Public Accountant shall be liable, within the context of No. 9 below, to a third party only if the conditions of Sentence 1 above are met. (2) The use of professional declarations of the Certified Public Accountant for commercial purposes is impermissible; any violation entitles the Certified Public Accountant to cancel any unexecuted assignments for the principal without notice. 43 3 8. CORRECTION OF ERRORS (1) The principal is entitled to the correction of any errors by the Certified Public Accountant. Only after failure to supply corrections can the principal demand a reduction in remuneration or cancellation of the contract; if the assignment is awarded by a businessperson in the course and conduct of business, by an artificial person under public law or by a special fund under public law, the principal may demand the cancellation of the contract only if the service performed is worthless due to failure to supply corrections. When claims for damages arise in addition to the foregoing, No. 9 below applies. (2) The right to correction of faults must be asserted by the principal in writing without delay. Claims pursuant to Paragraph 1, Sentence 1 expire six months after the Certified Public Accountant performs the professional service. (3) Obvious mistakes, such as spelling errors, calculation errors and procedural errors contained in a professional finding (report, expert opinion, etc.) issued by the Certified Public Accountant may be corrected by the Certified Public Accountant at any time; the same also applies with respect to third parties. Mistakes that are likely to cast doubt on the results contained in the professional declaration of the Certified Public Accountant entitle same to withdraw such declarations; the same also applies with respect to third parties. In the foregoing instances, the Certified Public Accountant shall confer with the principal in advance, to the extent possible. 9. LIABILITY (1) The provisions on limitations of liability as set forth in Section 323 Par. 2 HGB apply to legally required audits. (2) Liability for Negligence; Single Claim The liability of Certified Public Accountants for claims arising from negligence for damages of all kinds, whether under joint or several liability, is limited to DM 2 million in the case of a single claim within the meaning of Section 54 a Par. 1 No. 2 WPO [Ordinance for the Public Accounting Profession]; the foregoing also applies if liability is found to exist with respect to persons other than the principal. The definition of a single claim is when the sum of all of the claims for damages of all claimants arise from one and the same professional error (violation); a single claim also includes all violations committed in the course of a single audit or in the course of another, separate service (professional activity considered by professionals to be a separate, distinct service) by one person or several persons. However, the liability of a Certified Public Accountant for any loss arising in connection with several similar audits or similar separate services on the basis of several violations deriving from the same professional failure is limited to 44 4 the amount of DM 2.5 million, regardless whether the loss is caused by violations in one year or in several consecutive years. (3) Exclusion Periods A claim must be asserted within an exclusion period of 12 months after the claimant becomes aware of the loss and the event giving rise to a claim, and no later than 5 years after the event upon which the claim is based. The claim shall expire if an action for damages is not brought within six months following a written refusal to provide compensation, providing the principal was informed of such consequence. The right to appeal an expiration of claim shall remain unaffected by the foregoing. Sentences 1 through 3 also apply to legally required audits with legally prescribed liability limits. 10. ADDITIONAL PROVISIONS FOR AUDIT ASSIGNMENTS (1) Any subsequent changes or amendments to the annual financial statements or management report audited by the Certified Public Accountant and certified with an auditor's report shall require the written consent of the Certified Public Accountant, even if publication is not intended. If the Certified Public Accountant did not issue an auditor's report, any reference to the audit carried out by the Certified Public Accountant in the management report or in any other medium intended for the public may be made only upon the written consent of the Certified Public Accountant, and with the wording approved by the Certified Public Accountant. (2) If the Certified Public Accountant withdraws an auditor's report, the auditor's report may no longer be used. If the principal has already used the auditor's report, then in and that event the principal must disclose such withdrawal upon on the request of the Certified Public Accountant. (3) The principal is entitled to five copies of the report. Additional copies are charged separately. 11. SUPPLEMENTARY PROVISIONS FOR ASSISTANCE IN TAX MATTERS (1) The Certified Public Accountant is entitled, both when advising the principal in individual tax questions and when acting on a general retainer, to regard the facts presented by the principal, in particular figures, as accurate and complete; the same applies to bookkeeping assignments. However, the Certified Public Accountant must notify the principal of any inaccuracies he discovers. (2) Tax consulting assignments do not include activities associated with meeting deadlines unless the Certified Public Accountant has expressly accepted such mandate; in such instances, the principal must present to the Certified Public 45 5 Accountant all of the necessary documentation, in particular tax notifications, allowing the Certified Public Accountant sufficient time to prepare for such deadlines. (3) Unless any other agreement has been made in writing, tax consulting services on a general retainer include the following activities arising within the term of the contract: a) Preparing annual tax returns for income tax, corporation tax, and trade tax, as well as capital tax declarations on the basis of the annual financial statements and other records and documentation required for tax purposes supplied by the principal; b) Examining tax notifications for the taxes indicated in a) above; c) Negotiating with tax authorities in connection with the returns and notifications referred to in a) and b) above; d) Assisting in tax audits and evaluating the results of tax audits for the taxes referred to in a) above; e) Assisting in appeals and complaint proceedings for the taxes referred to in a) above. In carrying out the above-mentioned tasks, the Certified Public Accountant must take into account established case law and administrative policy. (4) If the Certified Public Accountant receives a lump-sum remuneration for the tax consulting services, and unless other written agreements have been made, the activities referred to in d) and e) above shall be charged separately. (5) The handling of individual questions concerning income tax, corporation tax, trade tax, unit valuation and capital tax, as well as any questions concerning sales tax, employment tax, miscellaneous taxes and duties shall be effected on the basis of a separate assignment. The foregoing also applies to: a) non-recurrent tax matters, such as matters related to inheritance tax, capital transfer tax, real property transfer tax, b) assistance and representation in proceedings before courts having tax and administrative jurisdiction, as well as in tax disputes, c) consulting services and expert assistance in connection with changing corporate form, mergers, capital increases or decreases, reorganization, joining and departing shareholders, sale of companies, liquidation, etc. 46 6 (6) When the processing of annual sales tax declarations and additional activities are part of the assignment, such activity does not include the examination of any special accounting conditions or the determination whether possible sales-tax incentives have been utilized. No warranty is made as to the thoroughness of documentation supporting refunds for value-added tax previously paid. 12. CONFIDENTIALITY VIS-a-VIS THIRD PARTIES, DATA PROTECTION (1) The Certified Public Accountant is obligated by law to keep confidential all facts which become known to him in connection with his activities for the principal, regardless whether the principal himself is concerned or one of his business partners, unless the principal has released the Certified Public Accountant from this confidentiality obligation. (2) The Certified Public Accountant may release to third parties reports, expert opinions and other written declarations on the results of his activities only upon prior consent of the principal. (3) The Certified Public Accountant is authorized to process, or have processed, personal data entrusted to him in connection with the purpose specified by the principal. 13. DELAY IN ACCEPTANCE AND FAILURE OF PRINCIPAL TO PERFORM If the principal delays in accepting the service offered by the Certified Public Accountant or fails to perform any obligation incumbent on him pursuant to No. 3 above, or any other obligation, the Certified Public Accountant is entitled to cancel the contract without notice. The claim of the Certified Public Accountant for compensation of any increased costs resulting from delay or failure to perform on the part of the principal, as well as any loss incurred, remains unaffected by the foregoing, even in such instances when the Certified Public Accountant does not make use of the right to cancel an assignment. 14. REMUNERATION (1) In addition to fees, the Certified Public Accountant is entitled to reimbursement of expenses; VAT is charged separately. The Certified Public Accountant may request advances and reimbursement of expenses as appropriate, and may condition the full delivery of the service upon the full satisfaction of his claims. Several principals are jointly and severally liable. (2) An offset against the claims of the Certified Public Accountant for remuneration and reimbursement of expenses is permissible only with respect to undisputed or legally established claims. 47 7 15. PRESERVATION AND SURRENDER OF DOCUMENTS (1) The Certified Public Accountant shall preserve all documentation supplied to him, all documents drawn up by him and correspondence concerning the assignment for seven years. (2) After satisfaction of his claims under the assignment, the Certified Public Accountant, upon request of the principal, must return all documentation supplied by the principal or for the principal in connection with the assignment. The foregoing does not apply, however, to correspondence between the Certified Public Accountant and the principal, and to the letters already in the Certified Public Accountant's possession as originals or as copies. The Certified Public Accountant may make copies of any documents returned to the principal in accordance with the foregoing. 16. APPLICABLE LAW German law shall apply exclusively to the assignment, its execution and any claims arising from same. 48 tewi Verlag GmbH ---------------- Table of Contents -----------------
Condensed Financial Statements: Page - ------------------------------- ---- Condensed Consolidated Balance Sheet at June 30, 1995 and December 31, 1994.............................. 2 Condensed Consolidated Statements of Operations for the six months June 30, 1995 and 1994........................ 3 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1995 and 1994.................. 4 Notes to Condensed Consolidated Financial Statements............. 5
49 TEWI VERLAG GMBH CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED)
June 30, December 31, 1995 1994 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 302 $ 441 Accounts receivable, net 648 3,703 Inventories 1,898 2,003 Other current assets 565 439 ------------ ------------ 3,413 6,586 Property and equipment, net 177 138 Goodwill and other assets, net 973 899 ------------ ------------ $ 4,563 $ 7,623 ============ ============ LIABILITIES AND STOCKHOLDERS' (DEFICIT) Current liabilities: Accounts payable and accrued liabilities $ 6,825 $ 6,725 ------------ ------------ 6,825 6,725 Long-term obligations 2,224 1,568 ------------ ------------ 9,049 8,293 STOCKHOLDERS' EQUITY (DEFICIT) (4,486) (670) ------------ ------------ $ 4,563 $ 7,623 ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. 50 TEWI VERLAG GMBH CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ----------------------------- 1995 1994 ------------ ------------ REVENUES $ 3,720 $ 4,209 COST OF REVENUES 5,161 3,067 ------------ ------------ GROSS MARGIN (1,441) 1,142 OPERATING EXPENSES: Sales, marketing and support 1,439 1,006 General and administrative 709 336 ------------ ------------ 2,148 1,343 ------------ ------------ OPERATING INCOME (LOSS) (3,589) (212) INTEREST EXPENSE, net (54) (70) ------------ ------------ INCOME (LOSS) BEFORE TAXES (3,643) (282) PROVISION FOR INCOME TAXES - - ------------ ------------ NET INCOME (LOSS) $ (3,643) $ (282) ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. 51 TEWI VERLAG GMBH CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------- 1995 1994 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (3,643) $ (282) Adjustments to reconcile net income (loss) to net cash used for operating activities: Depreciation and amortization (113) (24) Changes in operating assets and liabilities: Accounts receivable 3,055 (589) Inventory 105 (182) Accounts payable and accruals 100 321 Other 530 1,065 ------------ ------------ 34 309 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets, net - 39 ------------ ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH (173) (4) ------------ ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS (139) 344 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 441 240 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 302 $ 584 ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. 52 TEWI VERLAG GMBH NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED) 1. BASIS OF PRESENTATION The condensed consolidated financial statements of tewi Verlag GmbH ("tewi" or the "Company") for the six months ended June 30, 1995 and 1994 are unaudited and reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. These condensed consolidated financial statements should be read in conjunction with the annual December 31, 1994 financial statements and notes thereto included on Form 8-K. The results of operations for the six months ended June 30, 1995 are not necessarily indicative of the results for the entire year ending December 31, 1995. 2. COMPUTATION OF EARNINGS PER SHARE The share capital of tewi consists of two shares having a nominal value of $36. Accordingly, no earnings per share computation has been included on the face of the income statement. 3. SUBSEQUENT EVENT On July 21, 1995, SoftKey International Inc. ("SoftKey") acquired tewi. The purchase price was settled by a combination of cash and issuance of common stock. SoftKey issued 99,045 shares of common stock valued at $3,640 and paid $12,688 in cash for all of the share capital of tewi. EX-99.3 4 PRO FORMA FINANCIAL INFORMATION 1 Exhibit 99.3 SoftKey International Inc. Pro Forma Condensed Consolidated Balance Sheet June 30, 1995 (in thousands)
Pro Forma SoftKey Tewi Adjustments Pro Forma ------- ---- ----------- --------- ASSETS Current assets: Cash and cash equivalents $ 93,398 $ 302 $(12,688)(a) $ 81,012 Accounts receivable, net 21,063 648 -- 21,711 Inventories 9,982 1,898 -- 11,880 Other current assets 7,882 565 -- 8,447 -------- ------- -------- -------- 132,325 3,413 (12,688) 123,050 Property and equipment, net 11,326 177 -- 11,503 Goodwill and other assets, net 33,985 973 19,265 (a) 54,223 --------- ------- -------- -------- $177,636 $4,563 $ 6,577 $188,776 ========= ======= ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 16,958 $6,825 $ 471 (a) $ 24,254 Current portion of long-term obligations 1,991 -- -- 1,991 --------- ------ -------- -------- 18,949 6,825 471 26,245 Long-term obligations 6,925 2,224 (2,224)(a) 6,925 Deferred income taxes 4,339 -- -- 4,339 -------- ------ -------- -------- 30,213 9,049 (1,753) 37,509 STOCKHOLDERS' EQUITY 147,423 (4,486) 8,330 (a) 151,267 -------- ------ -------- -------- $177,636 $4,563 $ 6,577 $188,776 ======== ====== ======== ========
The accompanying notes are an integral part of these pro forma condensed consolidated financial statements. 2 SoftKey International Inc. Pro Forma Condensed Consolidated Statement Of Operations For the Six Month Period Ended June 30, 1995 (In thousands, except share and per share data)
Pro Forma SoftKey Tewi Adjustments Pro Forma ------- ---- ----------- --------- REVENUES $ 74,721 $ 3,720 $ -- $ 78,441 COST OF REVENUES 22,414 5,161 -- 27,575 ---------- ------- ------ ---------- GROSS MARGIN 52,307 (1,441) -- 50,866 OPERATING EXPENSES: Sales, marketing and support 15,416 1,439 -- 16,855 General and administrative 10,336 709 482(a) 11,527 Research and development 4,776 -- -- 4,776 ---------- ------- ------ ---------- 30,528 2,148 482 33,158 ---------- ------- ------ ---------- OPERATING INCOME 21,779 (3,589) (482) 17,708 INTEREST EXPENSE, net (689) (54) -- (743) ---------- ------- ------ ---------- INCOME BEFORE TAXES 21,090 (3,643) (482) 16,965 PROVISION FOR INCOME TAXES 3,117 -- -- 3,117 ---------- ------- ------ ---------- NET INCOME $ 17,973 $(3,643) $ (482) $ 13,848 ========== ======= ------ ========== NET INCOME PER SHARE - FULLY DILUTED $ 0.79 $ 0.61 ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING -FULLY DILUTED: 22,713,000 99,000 22,812,000 ---------- ------ ----------
The accompanying notes are an integral part of these pro forma condensed consolidated financial statements. 3 SoftKey International Inc. Pro Forma Condensed Consolidated Statement of Operations Year Ended December 31, 1994 (In thousands, except share and per share data)
Pro Forma SoftKey Tewi Adjustments Pro Forma ------- ---- ----------- --------- REVENUES $121,287 $12,320 $ -- $133,607 COST OF REVENUES 39,085 8,913 -- 47,998 -------- ------- ------ -------- GROSS MARGIN 82,202 3,407 -- 85,609 OPERATING EXPENSES: Sales, marketing and support 27,274 2,775 -- 30,049 General and administrative 22,491 1,298 963 (a) 24,752 Research and development 6,696 -- -- 6,696 -------- ------- ------ -------- 56,461 4,073 963 61,497 -------- ------- ------ -------- OPERATING INCOME 25,741 (666) (963) 24,112 INTEREST EXPENSE, Net (535) (91) -- (626) -------- ------- ------ -------- INCOME BEFORE TAXES 25,206 (757) (963) 23,486 PROVISION FOR INCOME TAXES 4,061 -- -- 4,061 -------- ------- ------ -------- NET INCOME $ 21,145 $ (757) $ (963) $ 19,425 ======== ======= ====== ======== NET INCOME PER SHARE - FULLY DILUTED $ 1.04 $ 0.95 ======== ======== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING -FULLY DILUTED: 21,115,000 99,000 21,214,000 ---------- ------ ----------
The accompanying notes are an integral part of these pro forma condensed consolidated financial statements. 4 SOFTKEY INTERNATIONAL, INC. NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) A. PRO FORMA BASIS OF PRESENTATION AND ADJUSTMENTS On July 21, 1995, SoftKey International Inc. (the "Company" or "SoftKey") completed its acquisition of tewi Verlag GmbH ("Tewi"), a publisher and distributor of CD-ROM software and computer related books, located in Munich, Germany. The purchase price was settled by a combination of cash and issuance of common stock. The Company issued 99,045 shares of common stock valued at $3,640 and paid $12,688 in cash for all of the share capital of Tewi. The transaction was accounted for as a purchase. The pro forma condensed consolidated balance sheet includes the financial statements of SoftKey and Tewi as of June 30, 1995, as if the acquisition had occurred on June 30, 1995. The unaudited pro forma condensed consolidated statements of operations set forth the results of operations for the six month period ended June 30, 1995 and for the year ended December 31, 1994, as if the acquisition of Tewi by the Company had occurred at the beginning of each period. The unaudited pro forma condensed consolidated financial statements are intended for information purposes and are not necessarily indicative of the future consolidated financial position or future results of operations of the combined entity. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994, Form 10-Q for the six month period ended June 30, 1995, and Tewi's historical financial statements filed herewith. B. PRO FORMA ADJUSTMENTS TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (a) The pro forma balance sheet reflects the purchase of Tewi as if the transaction had occurred on June 30, 1995. The purchase price consisted of cash of $12,688, the issuance of 99,045 shares of common stock valued at $3,640 and the assumption of net liabilities of $2,344. Transaction related costs for certain legal, accounting services, and other costs related to the purchase of $589 have been included in the purchase price. In addition, the debt owed to the former parent of Tewi, valued at $2,341 was forgiven as part of the acquisition. The allocation of purchase price between goodwill and other assets is subject to final analysis of the fair value attributable to intangibles. (b) The pro forma income statements have been prepared assuming the acquisition of Tewi was consummated at the beginning of the fiscal year ended December 31, 1994 and the beginning of the six month interim period ended June 30, 1995. Pro forma adjustments have been recorded to reflect the amortization of goodwill resulting from the purchase over its estimated useful life of 20 years on a straight line basis. There were no intercorporate transactions that required elimination. C. INCOME TAXES The pro forma condensed consolidated statement of operations assumes no tax benefit related to losses. The utilization of tax loss carryforwards is subject to annual limitations due to change in control and local country tax regulations. D. FOREIGN CURRENCY TRANSLATION Assets and liabilities of Tewi are translated to United States dollars at the period end exchange rates. Revenue and expenses are translated using the average exchange rate during the period. The functional reporting currency of Tewi is its local currency. Accordingly, any currency translation adjustments are included as a separate component of stockholders' equity. -----END PRIVACY-ENHANCED MESSAGE-----