-----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, QWRepghUh3ldEYsrQ2OtOxoYDiSotxPNapeckGGUCuHyF678uTFnW2c2ptsocP/F 3OfN7JwTYWtFrPmh9xkxcA== 0000950172-96-000040.txt : 19960126 0000950172-96-000040.hdr.sgml : 19960126 ACCESSION NUMBER: 0000950172-96-000040 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951130 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960125 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: 96507071 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 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) November 30, 1995 SOFTKEY INTERNATIONAL INC. (Exact name of registrant as specified in its 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) (617) 494 - 1200 Registrant's telephone number, including area code: N/A (Former name or former address, if changed since last report) Total Number of Pages Exhibit Index Appears on Page The Form 8-K dated December 29, 1995 of SoftKey International Inc. is hereby amended by adding the following to Item 7(a) and 7(c) thereof. Item 7. Financial Statement, Pro Forma Financial Information and Exhibits. (a) The required financial statements for Compton's NewMedia, Inc. and Compton's Learning Company (referred to collectively in such statements as "Compton's New Media Group") are filed herewith as Exhibit 99.6 hereto. (c) Exhibits. Exhibit No. Description 23.1 Written Consent of Price Waterhouse LLP 99.6 Financial Statements of Compton's New Media Group SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SOFTKEY INTERNATIONAL INC. By: /s/ R. Scott Murray R. Scott Murray Chief Financial Officer January 25, 1996 Exhibit Index Exhibit Sequential No. Description Page No. 23.1 Written Consent of Price Waterhouse LLP 99.6 Financial Statements of Compton's New Media Group EX-23 2 EXHIBIT 23.1 EXHIBIT 23.1 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-3 (Nos. 33-59706, 33-72050, 33-73422, 33-63073, and 333-145) and in the Registration Statements on Form S-8 (Nos. 33-75134, 33-92920, 33-92922, 33-61931, and 333-00107) of SoftKey International Inc. ("SoftKey") of our report dated January 5, 1996 relating to the combined financial statements of Compton's New Media Group as of December 25, 1994 and for the fiscal year then ended, which appears in the Current Report on Form 8-K/A of SoftKey dated January 25, 1996. PRICE WATERHOUSE LLP Chicago, Illinois January 25, 1996 EX-99 3 EXHIBIT 99.6 EXHIBIT 99.6 Report of Independent Accountants January 5, 1996 To the Stockholder of Compton's New Media Group In our opinion, the accompanying combined statement of financial position and the related combined statements of operations and changes in accumulated deficit and of cash flows present fairly, in all material respects, the financial position of Compton's New Media Group (wholly owned by Tribune Company) at December 25, 1994, and the results of its operations and its cash flows for the fiscal year in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Chicago, Illinois COMPTON'S NEW MEDIA GROUP (WHOLLY OWNED BY TRIBUNE COMPANY) COMBINED STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS) December 25, September 24, 1994 1995 (unaudited) ASSETS Current assets: Cash $ 675 $ 200 Trade accounts receivable, net of allowances for sales returns and doubtful accounts of $5,931 in 1994 and $7,057 in 1995 4,984 398 Income tax receivable from Tribune 958 3,565 Other receivables 361 101 Total receivables 6,303 4,064 Inventories 934 3,004 Prepaid expenses 1,050 2,049 Deferred income taxes 3,729 5,380 Total current assets 12,691 14,697 Property and equipment 5,750 7,081 Accumulated depreciation (1,366) (2,216) Net property and equipment 4,384 4,865 Capitalized software costs 343 1,994 Intangible assets 46,708 45,148 Other assets - 171 Total assets $64,126 $66,875 LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Advances from and interest payable to Tribune $ 6,971 $16,874 Accounts payable 3,633 3,670 Accrued compensation 1,544 546 Accrued royalties 933 255 Other current liabilities 510 2,672 Total current liabilities 13,591 24,017 Accrued compensation 402 372 Deferred income taxes 1,842 1,969 Total liabilities 15,835 26,358 Commitments and contingencies (Note 5) Stockholder's equity: Capital stock 58,089 58,089 Accumulated deficit (9,798) (17,572) Total stockholder's equity 48,291 40,517 Total liabilities and stockholder's equity $64,126 $66,875 The accompanying notes are an integral part of these statements. COMPTON'S NEW MEDIA GROUP (WHOLLY OWNED BY TRIBUNE COMPANY) COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN ACCUMULATED DEFICIT (IN THOUSANDS) For the fiscal For the nine months ended year ended September 24, September 25, December 25, 1994 1995 1994 (unaudited) Operating revenues $42,575 $19,370 $27,944 Cost of revenues 18,860 9,086 13,962 Gross profit 23,715 10,284 13,982 Operating expenses: Sales and marketing 13,692 9,453 9,253 General and administrative 12,728 7,037 9,666 Research and development 4,032 1,427 3,533 Software development costs 2,308 540 1,674 Amortization of other intangibles 2,080 1,560 1,560 Severance charges 1,657 504 1,657 Depreciation 1,068 1,099 651 Total operating expenses 37,565 21,620 27,994 Operating loss (13,850) (11,336) (14,012) Interest expense paid to Tribune 196 525 58 Loss before income tax benefit (14,046) (11,861) (14,070) Income tax benefit 4,821 4,087 4,903 Net loss ($9,225) ($7,774) ($9,167) Accumulated deficit at beginning of the period ($ 573) ($9,798) ($ 573) Net loss for the period (9,225) (7,774) (9,167) Accumulated deficit at the end of the period ($9,798) ($17,572) ($9,740) The accompanying notes are an integral part of these statements. COMPTON'S NEW MEDIA GROUP (WHOLLY OWNED BY TRIBUNE COMPANY) COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS) For the fiscal For the nine months ended year ended September 24, September 25, December 25, 1994 1995 1994 (unaudited) Cash flows from operating activities: Net loss ($9,225) ($7,774) ($9,167) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation 1,068 1,099 651 Amortization and other reductions of intangibles 4,388 2,100 3,234 Deferred income taxes (964) (1,524) (2,789) (Increase) decrease in: Unaffiliated receivables, net 2,692 4,846 6,720 Inventories 1,790 (2,070) 1,560 Prepaid expenses (228) (999) (55) Increase (decrease) in: Accounts payable 710 37 (124) Accrued compensation 1,114 (1,028) 866 Accrued royalties (160) (678) (627) Other liabilities (688) 2,162 (744) Net cash provided by (used for) operating activities 497 (3,829) (475) Cash flows from investing activities: Capitalization of computer software costs (2,416) (2,191) (1,639) Purchases of property and equipment (3,286) (1,696) (2,513) Disposals of property and equipment - 116 - Other - (171) - Net cash used for investing activities (5,702) (3,942) (4,152) Cash flows from financing activities: Net change in amounts payable to and receivable from Tribune 5,443 7,296 4,536 Net increase (decrease) in cash 238 (475) (91) Cash at beginning of period 437 675 437 Cash at end of period $ 675 $ 200 $ 346 The accompanying notes are an integral part of these statements. COMPTON'S NEW MEDIA GROUP (WHOLLY OWNED BY TRIBUNE COMPANY) NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1: ORGANIZATION AND BASIS OF COMBINATION Compton's New Media Group ("Compton's") is composed of Compton's NewMedia, Inc. ("CNM") and Compton's Learning Company ("CLC"). As discussed in Note 7, CNM and CLC were acquired by SoftKey International Inc. ("SoftKey") in December 1995. Prior to the acquisition, CNM and CLC were wholly owned subsidiaries of Tribune Company ("Tribune"). The combined financial statements also include the financial position and results of operations of NewMedia Source, Inc. ("NMS"), a wholly owned subsidiary of Tribune, since it is anticipated that the direct-mail operations of NMS relating to CNM and CLC products (which, prior to the acquisition described in Note 7 comprised NMS' entire business and operations) will be continued by SoftKey. Compton's develops, publishes and markets encyclopedia and other software products for the consumer and education markets. Compton's also publishes and sells a print version of its encyclopedia. Tribune acquired Compton's in September 1993 from Encyclopaedia Britannica, Inc. The accompanying combined financial statements reflect the financial position, results of operations and cash flows for Compton's for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of management's estimates. Certain corporate general and administrative expenses of Tribune have been allocated to Compton's (see "Note 3: Related-Party Transactions") on various bases which, in the opinion of management, are reasonable. However, such expenses are not necessarily indicative of, and it is not practicable for management to estimate, the nature and level of expenses which might have been incurred had Compton's operated as a stand-alone company. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies of Compton's, as summarized below, are in conformity with generally accepted accounting principles and reflect practices appropriate to the business in which it operates. Fiscal year - Compton's fiscal year ends on the last Sunday in December. The 1994 fiscal year included 52 weeks. Unaudited interim financial period - The accompanying combined financial information as of September 24, 1995 and for the nine periods ended September 24, 1995 and September 25, 1994 is unaudited. The interim financial statements have been prepared on the same basis as the accompanying annual financial statements. In the opinion of management, such interim financial information reflects adjustments consisting only of normal and recurring adjustments necessary for a fair presentation of such financial information. The unaudited results of operations for the interim periods ended September 24, 1995 and September 25, 1994 are not necessarily indicative of the results of operations to be expected for any other interim period or for the full year. Revenue recognition - Compton's recognizes revenue upon product shipment and title transfer. Subject to certain limitations, Compton's permits customers to obtain exchanges or return products within certain specified periods of time. Allowances for estimated returns and pricing discounts are provided at the time of sale as a reduction of operating revenues. Revenues from royalties pursuant to license arrangements are recognized as earned based upon performance or product shipments. Combined Statements of Cash Flows - For purposes of the Combined Statements of Cash Flows, all short-term investments with original maturities of three months or less are considered to be cash equivalents. Information relating to cash paid for interest and taxes has been omitted since these costs are charged to Compton's by Tribune through the "Advances from and interest payable to Tribune" account. Allowances for sales returns and doubtful accounts - The allowances for sales returns and doubtful accounts are management's estimates of the amounts needed to absorb product returns and known and inherent risks related to Compton's receivables. Compton's evaluates the adequacy of the allowances primarily based upon historical and expected experience. Compton's grants credit terms to its customers consistent with normal industry practices. A significant portion of Compton's receivables relates to amounts due from retail and discount retail companies. Inventories - Inventories are stated at the lower of cost (weighted average) or market (net realizable value) and consist primarily of finished goods. Property and equipment - Property and equipment (primarily computers, office equipment and leasehold improvements) are stated at cost. Depreciation is computed using the straight-line method over the properties' estimated useful lives, which range from three to ten years, or the lease term, if shorter. Expenditures for maintenance and repairs are charged to expense. Intangible assets - Intangible assets represent the excess of cost over the fair market value of tangible net assets acquired and consisted of the following at December 25, 1994 (in thousands): Copyrights $16,800 Goodwill 13,994 Trade names 10,300 Software 5,000 Licensing agreements 3,300 Gross 49,394 Accumulated amortization (2,686) Net $46,708 Intangible assets are being amortized over various periods ranging from five to 40 years, with the majority over 40 years. Compton's periodically evaluates the realizability of the carrying value of intangibles based on projected future undiscounted cash flows. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The statement, which is effective for financial statements for fiscal years beginning after December 15, 1995, requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable. The statement also requires that long-lived assets and certain identifiable intangibles to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. Compton's plans to adopt the standard during the fiscal year beginning January 1, 1996. Management believes that the adoption will not have a material effect on the financial position or the results of operations of Compton's. Research and development and software development costs - Research and development costs are expensed as incurred. Development costs for new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established, after which time costs are capitalized and amortized over the shorter of the straight-line basis over the estimated product life (generally, 12 to 36 months) or the ratio of current revenues to total projected revenues. Compton's evaluates the realizability of capitalized software amounts periodically and establishes reserves accordingly. Fair value of financial instruments - The carrying values of cash, accounts receivable, accounts payable and accrued liabilities approximate fair values due to the short-term maturities of these assets and liabilities. Income taxes - Compton's operations are included in Tribune's consolidated United States federal and certain state income tax returns. Based on Tribune's tax-sharing policy, Compton's computes taxes as if it were filing separate tax returns, except to the extent that Compton's losses are utilized on a consolidated basis by Tribune. In such instances, a tax benefit is always recorded by Compton's. Current income tax payable or receivable is settled with Tribune through the "Advances from and interest payable to Tribune" account. NOTE 3: RELATED-PARTY TRANSACTIONS Compton's participates in Tribune's centralized cash management program with respect to accounts receivable, accounts payable, payroll and employee benefits. Tribune also provides Compton's with certain insurance and administrative services. Charges for these services are based on allocations of Tribune's actual direct and indirect costs using varying allocation bases as appropriate (e.g., payroll, headcount, etc.) designed to estimate the actual cost incurred by Tribune to render these services to Compton's. Treasury and legal services provided by Tribune are not allocated to Compton's because the costs are not significant. This allocation process is consistent with the methodology used by Tribune to allocate the cost of similar services provided to its other business units. The allocated cost of these services are presented in the "general and administrative" caption of the Combined Statements of Operations and Changes in Accumulated Deficit and totaled approximately $125,000 in fiscal 1994. In 1995, Compton's began using the warehouse and distribution services of another Tribune business unit, with the costs of these services (approximately $.3 million for the nine-month period ended September 24, 1995) also allocated. Advances from Tribune bear interest at eight percent for fiscal 1994 and for the 1995 and 1994 interim periods and have no definitive repayment terms. NOTE 4: EMPLOYEE BENEFIT PLANS Compton's participates in several Tribune-sponsored benefit plans, including an employee stock ownership plan with annual allocations based on payroll, an employee share purchase plan and a qualified savings incentive plan. The savings incentive plan provides for uniform employer contributions to eligible employees of $.25 for each $1.00 contributed by participants up to 4 percent of the participants' compensation. The total 1994 expense related to these plans included in the Combined Statements of Operations and Changes in Accumulated Deficit is approximately $.4 million. Compton's also participates in certain Tribune-sponsored medical and life insurance plans and certain Compton's employees are participants in various Tribune incentive and deferred compensation plans. Compton's post-retirement obligations and expense relating to these plans were not significant as of and for the fiscal year ended December 25, 1994. NOTE 5: COMMITMENTS AND CONTINGENCIES In 1995, Thomas D. Wallace filed a suit against Compton's, Tribune, and other named parties in the Central District of California. The suit stems from the appearance of an allegedly offensive word in Compton's Interactive Encyclopedia. Although Compton's intends to vigorously defend itself in this matter, the resolution and the liability, if any, is not determinable. Compton's is a defendant from time to time in actions for other matters arising out of its business operations. Compton's does not believe that any of these matters presently pending will have a significant adverse effect on its financial position or results of operations. Compton's leases certain facilities and equipment under operating leases expiring at various dates. Future minimum lease payments (including interest) under noncancelable operating leases in excess of one year at December 25, 1994 are as follows (in thousands): 1995 $ 593 1996 471 1997 371 1998 89 1999 92 Thereafter 333 $1,949 In fiscal 1994, total expense for all operating leases approximated $.7 million. NOTE 6: INCOME TAXES The fiscal 1994 income tax benefit was composed of $3.8 million that was currently receivable and $1.0 million that was deferred. The insignificant difference between income taxes computed at the United States federal statutory rate and the income tax benefit reported in the Combined Statements of Operations and Changes in Accumulated Deficit for the 1994 fiscal year relates primarily to the non-deductible portion of certain business expenses. Significant components of Compton's net deferred tax asset as of December 25, 1994 are as follows (in thousands): Inventory and receivable allowances $3,497 Accrued employee compensation 404 Other future deductible items 50 Deferred tax assets 3,951 Net intangible assets 1,641 Net properties 342 Other future taxable items 81 Deferred tax liabilities 2,064 Net deferred tax asset $1,887 Because it files a consolidated return with Tribune, Compton's losses are not available for carryforward. If Compton's had filed a separate return and had recorded taxes on a stand-alone basis, the net losses for the 1994 fiscal year and for the nine-month period ended September 24, 1995 would have been increased by approximately $4.2 million and $4.1 million, respectively. The increased net losses result from Compton's inability to recognize the benefit of its stand-alone losses. The benefit of such stand-alone loss carryforwards would have been offset by a valuation allowance established to reflect management's judgment that the benefit for such stand-alone loss carryforwards was "more likely than not" to be unrealized. NOTE 7: SUBSEQUENT EVENT On December 28, 1995, Tribune sold CNM and CLC to SoftKey for consideration comprising $120.5 million in SoftKey common stock and a $3 million promissory note. In addition, concurrent with this transaction, Tribune agreed to acquire $150 million of SoftKey notes, convertible at $53 per share. -----END PRIVACY-ENHANCED MESSAGE-----