<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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): October 15, 1998
MINDSPRING ENTERPRISES, INC.
----------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 0-27890 58-2113290
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
</TABLE>
1430 WEST PEACHTREE ST., SUITE 400, ATLANTA, GA 30309
(Address of principal executive offices)
Registrant's telephone number, including area code: (404) 815-0770
<PAGE> 2
EXPLANATORY NOTE
This Amendment to Current Report on Form 8-K/A is being filed for the
purpose of amending the pro forma financial information contained in the
following Current Reports on Form 8-K and Form 8-K/A previously filed by
MindSpring Enterprises, Inc. (the "Company") with the SEC:
(1) Current Report on Form 8-K dated November 12, 1998 and filed with
the SEC on November 13, 1998;
(2) Current Report on Form 8-K dated December 7, 1998 and filed with
the SEC on December 7, 1998;
(3) Current Report on Form 8-K dated February 24, 1999 and filed with
the SEC on February 25, 1999;
(4) Amendment to Current Report on Form 8-K/A dated October 8, 1999 and
filed with the SEC on October 12, 1999.
<PAGE> 3
1. Current Report on Form 8-K dated November 12, 1998 and filed with the SEC
on November 13, 1998
Set forth below is an amendment to the pro forma financial information
contained in the Company's Current Report on Form 8-K previously filed with the
SEC on November 13, 1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro Forma Financial Information.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Pro Forma Financial Data.............................................. 1-1
Unaudited Pro Forma Balance Sheet as of June 30, 1998........................... 1-2
Unaudited Pro Forma Statement of Operations for the six months ended
June 30, 1998 and the twelve months ended December 31, 1997............... 1-4
</TABLE>
<PAGE> 4
UNAUDITED PRO FORMA FINANCIAL DATA
The following pro forma balance sheet reflects the acquisition of Spry,
Inc. ("Spry") as if it had occurred on June 30, 1998. The following pro forma
statements of operations for the year ended December 31, 1997 and the six months
ended June 30, 1998 reflect the acquisition of Spry as if it had occurred on
January 1, 1997. The balance sheet information for Spry included herein is as of
July 31, 1998. The statements of operations for Spry included herein reflect the
results of operations for the year ended January 31, 1997 and the six months
ended July 31, 1998. The pro forma financial information does not purport to
represent what the Company's consolidated results of operations would have been
if the acquisition had in fact occurred on these dates, nor does it purport to
indicate the future consolidated financial position or future consolidated
results of operations of the Company. The pro forma adjustments are based on
currently available information and certain assumptions that management believes
are reasonable.
1-1
<PAGE> 5
UNAUDITED PRO FORMA
BALANCE SHEET
AS OF JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Total Assets: MindSpring Spry Subtotal Adjustments Pro Forma
-------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 60,257 $ - $ 60,257 $ (25,000) (a) $ 35,257
Accounts receivable, net 2,437 3,345 5,782 (3,345) (a) 2,437
Due to parent - 2,012 2,012 (2,102) (a) -
Other 638 272 910 (272) (a) 638
-------------- ------------- -------------- -------------- --------------
Total current assets 63,332 5,629 68,961 (30,719) 38,332
-------------- ------------- -------------- -------------- --------------
Property and equipment, net 27,719 1,896 29,615 (1,286) (a) 28,329
-------------- ------------- -------------- -------------- --------------
Intangibles, net 6,278 35,494 41,772 (11,104) (a) 30,668
-------------- ------------- -------------- -------------- --------------
Other assets 801 156 957 (156) (a) 801
-------------- ------------- -------------- -------------- --------------
Total assets $ 98,130 $ 42,265 $ 141,395 $ (43,265) $ 98,130
============== ============= ============== ============== ==============
Liabilities and Stockholders' equity:
Accounts payable $ 4,750 $ 740 $ 5,490 $ (740) (a) $ 4,750
Accrued expenses 8,114 9,161 17,275 (9,161) (a) 8,114
Deferred revenue 3,351 - 3,351 - 3,351
Current portion of debt 1,239 - 1,239 - 1,239
Current portion of capital leases 2,697 - 2,697 - 2,697
-------------- ------------- -------------- -------------- --------------
Total current liabilities 20,151 9,901 30,052 (9,901) 20,151
-------------- ------------- -------------- -------------- --------------
Capital leases--non-current 3,753 - 3,753 - 3,753
-------------- ------------- -------------- -------------- --------------
Total Liabilities 23,904 9,901 33,805 (9,901) 23,904
-------------- ------------- -------------- -------------- --------------
Stockholders' equity:
Preferred stock - - - - -
Common stock 258 - 258 - 258
Additional paid-in-capital 84,817 37,500 122,317 (37,500) 84,817
Accumulated deficit (10,849) (4,136) (14,985) 4,136 (a) (10,849)
-------------- ------------- -------------- -------------- --------------
Total stockholders' equity 74,226 33,364 107,590 (33,364) 74,226
-------------- ------------- -------------- -------------- --------------
Total Liabilities and Stockholders'
equity $ 98,130 $ 43,265 $ 141,395 $ (43,265) $ 98,130
============== ============= ============== ============== ==============
</TABLE>
(a) Reflects the preliminary purchase price allocation as follows:
<TABLE>
<S> <C>
Purchase Price 25,000
Property and Equipment 610
Subscriber base 24,390
</TABLE>
The purchase price is based on $25 million paid at initial closing. Such
estimate will be revised upon final closing during the first quarter of
1999 when the final subscribers are determined under the terms of the
agreement. Management's best estimate based on currently available
information is that the final purchase price will be between $35-45
million (such increase will be entirely reflected as an increase in
subscriber
1-2
<PAGE> 6
base). The fixed assets of Spry that are being acquired have been included
based on management's estimate of their fair market value. All other
assets and liabilities are not being acquired. Accordingly, they have been
eliminated in the accompanying pro forma balance sheet.
1-3
<PAGE> 7
UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MindSpring Spry Subtotal Adjustments Pro Forma
(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 46,444 $ 23,607 $ 70,051 $ - $ 70,051
-------- -------- -------- -------- --------
Costs and expenses:
Selling, general and administrative 23,239 11,139 34,378 - 34,378
Cost of revenue 14,192 14,093 28,285 - 28,285
Depreciation and amortization 5,966 2,449 8,415 2,197 (b) 10,612
-------- -------- -------- -------- --------
43,397 27,681 71,078 2,197 73,275
-------- -------- -------- -------- --------
Operating income (loss) 3,047 (4,074) (1,027) (2,197) (3,224)
-------- -------- -------- -------- --------
Interest income (expense), net (75) (62) (137) - (137)
-------- -------- -------- -------- --------
Income before income tax expense 2,972 (4,136) (1,164) (2,197) (3,361)
Income tax expense (92) - (92) - (92)
-------- -------- -------- -------- --------
Net income $ 2,880 $ (4,136) $ (1,256) $ (2,197) $ (3,453)
======== ======== ======== ======== ========
Shares:
Basic 23,157 2,467 (c) 25,624
Diluted 24,588 1,036 (c) 25,624
Earnings per share:
Basic $ 0.12 $ (0.13)
======== ========
Diluted $ 0.12 $ (0.13)
======== ========
</TABLE>
1-4
<PAGE> 8
UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS
12 MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MindSpring Spry Subtotal Adjustments Pro Forma
(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 52,557 $ 50,190 $ 102,747 $ - $ 102,747
--------- --------- --------- --------- ---------
Costs and expenses:
Selling, general and administrative 30,784 29,279 60,063 - 60,063
Cost of revenue 16,823 29,689 46,512 - 46,512
Depreciation and amortization 8,695 4,191 12,886 6,897 (b) 19,783
--------- --------- --------- --------- ---------
56,302 63,159 119,461 6,897 126,357
--------- --------- --------- --------- ---------
Operating income (loss) (3,745) (12,969) (16,714) (6,897) (23,610)
--------- --------- --------- --------- ---------
Interest income (expense), net (338) (8) (346) 0 (346)
--------- --------- --------- --------- ---------
Net income $ (4,083) $ (12,977) $ (17,060) $ (6,897) $ (23,956)
========= ========= ========= ========= =========
Shares:
Basic 22,542 3,000 (c) 25,542
Diluted 22,542 3,000 (c) 25,542
Earnings per share:
Basic $ (0.18) $ (0.94)
========= =========
Diluted $ (0.18) $ (0.94)
========= =========
</TABLE>
(a) Adjustments have not been made to cost of revenue and selling, general and
administrative costs since the amounts expected to be incurred by
MindSpring are not readily determinable. However, such cost recorded by
Spry include allocations from its Parent Corporations and other
third-party vendors which may not be indicative of the costs that would
have been incurred on a stand alone basis. Accordingly, cost of revenue
and selling, general and administrative costs incurred by MindSpring in
future periods may be materially different from the amounts reflected in
MindSpring's historical statements.
(b) Represents additional amortization of the acquired subscriber base based
on preliminary purchase price allocation (as noted in footnote (a) to the
pro forma balance sheet) using a three-year amortization period.
Management currently estimates that the final purchase price will increase
between $10-20 million, which would result in $3.3-6.6 million in
additional amortization expense per annum.
(c) Reflects the 3 million shares of common stock issued on May 29, 1998 as if
they were outstanding since January 1, 1997. Also, the six months ended
June 30, 1998 excludes the effect of stock options for purposes of the
diluted calculation since the effect for pro forma purposes is
antidilutive.
1-5
<PAGE> 9
2. Current Report on Form 8-K dated December 7, 1998 and filed with the SEC on
December 7, 1998
Set forth below is an amendment to the pro forma financial information
contained in the Company's Current Report on Form 8-K previously filed with the
SEC on December 7, 1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro Forma Financial Information.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Pro Forma Financial Data.............................................. 2-1
Unaudited Pro Forma Balance Sheet as of September 30, 1998...................... 2-2
Unaudited Pro Forma Statement of Operations for the nine months ended
September 30, 1998 and the twelve months ended December 31, 1997.......... 2-4
</TABLE>
<PAGE> 10
UNAUDITED PRO FORMA FINANCIAL DATA
The following pro forma balance sheet reflects the acquisition of Spry,
Inc. ("Spry") as if it had occurred on September 30, 1998. The following pro
forma statements of operations for the year ended December 31, 1997 and the nine
months ended September 30, 1998 reflect the acquisition of Spry as if it had
occurred on January 1, 1997. The pro forma financial information does not
purport to represent what the Company's consolidated results of operations would
have been if the acquisition had in fact occurred on these dates, nor does it
purport to indicate the future consolidated financial position or future
consolidated results of operations of the Company. The pro forma adjustments are
based on currently available information and certain assumptions that management
believes are reasonable.
2-1
<PAGE> 11
UNAUDITED PRO FORMA
BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Total Assets: MindSpring Spry Subtotal Adjustments Pro Forma
---------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 62,498 $ - $ 62,498 $(25,000) (a) $ 37,498
Accounts receivable, net 2,370 3,241 5,611 (3,241) (a) 2,370
Due to parent - 2,002 2,002 (2,002) (a) -
Other 602 161 763 (161) (a) 602
-------- ------- -------- --------- --------
Total current assets 65,470 5,404 70,874 (30,404) 40,470
-------- ------- -------- --------- --------
Property and equipment, net 28,375 1,740 30,115 (1,130) (a) 28,985
-------- ------- -------- --------- --------
Intangibles, net 5,280 34,883 40,163 (10,493) (a) 29,670
-------- ------- -------- --------- --------
Other assets 890 143 1,033 (143) (a) 890
-------- ------- -------- --------- --------
Total assets $100,015 $42,170 $142,185 $(42,170) $100,115
======== ======= ======== ========= ========
Liabilities and Stockholders' equity:
Accounts payable $ 2,036 $ 935 $ 2,971 $ (935) (a) $ 2,036
Accrued expenses 8,270 9,254 17,524 (9,254) (a) 8,270
Deferred revenue 4,961 - 4,961 - 4,961
Current portion of debt 593 - 593 - 593
Current portion of capital leases 2,715 - 2,715 - 2,715
-------- ------- -------- --------- --------
Total current liabilities 18,575 10,189 28,764 (10,189) 18,575
-------- ------- -------- --------- --------
Capital leases--non-current 3,077 - 3,077 - 3,077
-------- ------- -------- --------- --------
Total Liabilities 21,652 10,189 31,841 (10,189) 21,652
-------- ------- -------- --------- --------
Stockholders' equity:
Preferred stock - - - - -
Common stock 259 - 259 - 259
Additional paid-in-capital 84,967 37,500 122,467 (37,500) (a) 84,967
Accumulated deficit (6,863) (5,519) (12,382) 5,519 (a) (6,863)
-------- ------- -------- --------- --------
Total stockholders' equity 78,363 31,981 110,344 (31,981) 78,363
-------- ------- -------- --------- --------
Total Liabilities and Stockholders' equity $100,015 $42,170 $142,185 $(43,170) $100,015
======== ======= ======== ========= ========
</TABLE>
(a) Reflects the preliminary purchase price allocation as follows:
<TABLE>
<S> <C>
Purchase Price 25,000
Property and Equipment 610
Subscriber base 24,390
</TABLE>
The purchase price is based on $25 million paid at initial closing. Such
estimate will be revised upon final closing during the first quarter of
1999 when the final subscribers are determined under the terms of the
agreement. Management's best estimate based on currently available
information is that the final purchase price will be between $35-45
million (such increase will be entirely reflected as an increase in
subscriber
2-2
<PAGE> 12
base). The fixed assets of Spry that are being acquired have
been included based on management's estimate of their fair market value.
All other assets and liabilities are not being acquired. Accordingly, they
have been eliminated in the accompanying pro forma balance sheet.
2-3
<PAGE> 13
UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MindSpring Spry Subtotal Adjustments(a) Pro Forma
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 75,139 $ 34,754 $ 109,893 $ - $ 109,893
--------- --------- --------- -------- ---------
Costs and expenses:
Selling, general and administrative 37,240 16,444 53,684 - 53,684
Cost of revenue 22,167 20,792 42,959 - 42,959
Depreciation and amortization 9,244 3,656 12,900 1,484 (b) 14,384
--------- --------- --------- -------- ---------
68,651 40,892 109,543 1,484 111,027
--------- --------- --------- -------- ---------
Operating income (loss) 6,488 (6,138) 350 (1,484) (1,134)
--------- --------- --------- -------- ---------
Interest income (expense), net 590 (70) 520 - 520
--------- --------- --------- -------- ---------
Income before income tax expense 2,972 (4,136) (1,164) (1,484) (614)
Income tax expense (212) - (212) - (212)
--------- --------- --------- -------- ---------
Net income $ 6,866 $ (6,208) $ 658 $(1,484) $ (826)
========= ========= ========= ======== =========
Shares:
Basic 24,043 1,644 (c) 25,687
Diluted 25,446 241 (c) 25,687
Earnings per share:
Basic $ 0.29 $ (0.03)
======== =========
Diluted $ 0.27 $ (0.03)
======== =========
</TABLE>
2-4
<PAGE> 14
UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS
12 MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MindSpring Spry Subtotal Adjustments(a) Pro Forma
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 52,557 $ 50,190 $ 102,747 $ - $ 102,747
-------- --------- --------- --------- ---------
Costs and expenses:
Selling, general and administrative 30,784 29,279 60,063 - 60,063
Cost of revenue 16,823 29,689 46,512 - 46,512
Depreciation and amortization 8,695 4,191 12,886 6,897 (b) 19,783
-------- --------- --------- --------- ---------
56,302 63,159 119,461 6,897 126,357
-------- --------- --------- --------- ---------
Operating income (loss) (3,745) (12,969) (16,714) (6,897) (23,610)
-------- --------- --------- --------- ---------
Interest income (expense), net (338) (8) (346) 0 (346)
-------- --------- --------- --------- ---------
Net income $ (4,083) $ (12,977) $ (17,060) $ (6,897) $ (23,956)
======== ========= ========= ========= =========
Shares:
Basic 22,542 3,000 (c) 25,542
Diluted 22,542 3,000 (c) 25,542
Earnings per share:
Basic $ (0.18) $ (0.87)
========= =========
Diluted $ (0.18) $ (0.87)
========= =========
</TABLE>
(a) Adjustments have not been made to cost of revenue and selling, general and
administrative costs since the amounts expected to be incurred by
MindSpring are not readily determinable. However, such cost recorded by
Spry include allocations from its Parent Corporations and other
third-party vendors which may not be indicative of the costs that would
have been incurred on a stand alone basis. Accordingly, cost of revenue
and selling, general and administrative costs incurred by MindSpring in
future periods may be materially different from the amounts reflected in
MindSpring's historical statements.
(b) Represents additional amortization of the acquired subscriber base based
on preliminary purchase price allocation (as noted in footnote (a) to the
pro forma balance sheet) using a three-year amortization period.
Management currently estimates that the final purchase price will increase
between $10-20 million, which would result in $3.3-6.6 million in
additional amortization expense per annum.
(c) Reflects the 3 million shares of common stock issued on May 29, 1998 as if
they were outstanding since January 1, 1997. Also, the nine months ended
September 30, 1998 excludes the effect of stock options for purposes of
the diluted calculation since the effect for pro forma purposes is
antidilutive.
2-5
<PAGE> 15
3. Current Report on Form 8-K dated February 24, 1999 and filed with the SEC on
February 25, 1999
Set forth below is an amendment to the pro forma financial information
contained in the Company's Current Report on Form 8-K previously filed with the
SEC on February 25, 1999.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro Forma Financial Information.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Pro Forma Financial Data.............................................. 3-1
Unaudited Pro Forma Balance Sheet as of December 31, 1998....................... 3-2
Unaudited Pro Forma Statement of Operations for the twelve months
ended December 31, 1998.................................................... 3-4
</TABLE>
<PAGE> 16
UNAUDITED PRO FORMA FINANCIAL DATA
The following pro forma balance sheet reflects the acquisition by
MindSpring of certain assets of NETCOM On-Line Communication Services, Inc.
Domestic Subscriber Operations (the "NETCOM Domestic Operations") as if it had
occurred on December 31, 1998. The following pro forma statement of operations
for the year ended December 31, 1998 reflects the acquisition by MindSpring of
certain assets of the NETCOM Domestic Operations and of Spry, Inc. ("Spry") as
if they had occurred on January 1, 1998. The pro forma financial information
does not purport to represent what MindSpring's consolidated results of
operations would have been if the acquisitions had in fact occurred on these
dates, nor does it purport to indicate MindSpring's future consolidated
financial position or future consolidated results of operations. The pro forma
adjustments are based on currently available information and certain assumptions
that MindSpring's management believes are reasonable.
3-1
<PAGE> 17
UNAUDITED PRO FORMA
BALANCE SHEET
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
NETCOM
Domestic
Total Assets: MindSpring Operations Subtotal Adjustments Pro Forma
---------- ---------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents 167,743 - 167,743 (135,000) (a) 32,743
Accounts receivable, net 3,278 2,913 6,191 - 6,191
Deferred tax asset--current 3,421 - 3,421 - 3,421
Other 758 2,273 3,031 (1,855) (a) 1,176
-------- --------- -------- -------------- --------
Total current assets 175,200 5,186 180,386 (136,855) 43,531
-------- --------- -------- -------------- --------
Property and equipment, net 35,841 55,104 90,945 (37,864) (a) 53,081
-------- --------- -------- -------------- --------
Intangibles, net 34,742 - 34,742 230,514 (a) 265,256
-------- --------- -------- -------------- --------
Deferred acquisition costs - 4,729 4,729 (4,729) (a) -
-------- --------- -------- -------------- --------
Other assets 1,816 482 2,298 (294) (a) 2,004
-------- --------- -------- -------------- --------
Total assets 247,599 65,501 313,100 50,772 363,872
======== ========= ======== ============== ========
Liabilities and Stockholders' equity:
Accounts payable 3,462 8,901 12,363 (8,901) (a) 3,462
Accrued expenses 21,928 12,936 34,864 (10,460) (a) 24,404
Deferred revenue 7,443 3,869 11,312 (72) (a) 11,240
Due to parent - 142,508 142,508 (142,508) (a) -
Income taxes payable 2,566 - 2,566 - 2,566
Current portion of debt - - - 80,000 (a) 80,000
Current portion of capital leases 2,695 2,731 5,426 (2,731) (a) 2,695
-------- --------- -------- -------------- --------
Total current liabilities 38,094 170,945 209,039 (84,672) 124,367
-------- --------- -------- -------------- --------
Capital leases--non-current 2,424 2,061 4,485 (2,061) (a) 2,424
-------- --------- -------- -------------- --------
Total Liabilities 40,518 173,006 213,524 (86,733) 126,791
-------- --------- -------- -------------- --------
Stockholders' equity:
Preferred stock - - - - -
Common stock 283 - 283 4 (a) 287
Additional paid-in-capital 209,983 - 209,983 - (a) 239,979
29,996 (b)
Accumulated deficit (3,185) (107,505) (110,690) 107,505 (a) (3,185)
-------- --------- -------- -------------- --------
Total stockholders' equity 207,081 (107,505) 99,576 137,505 237,081
-------- --------- -------- -------------- --------
Total Liabilities and Stockholders' equity 247,599 65,501 313,100 50,772 363,872
======== ========= ======== ============== ========
</TABLE>
(a) Reflects the preliminary purchase price allocation as follows (in millions):
<TABLE>
<S> <C>
Purchase Price 245.0
Accounts receivable 2.9
Other current assets 0.4
Property and equipment 17.2
Other long-term assets 0.2
</TABLE>
3-2
<PAGE> 18
<TABLE>
<S> <C>
Deferred revenue (3.8)
Accrued liabilities (2.4)
Subscriber base 230.5
</TABLE>
The purchase price will be paid via $30 million in stock, $135 million in
cash, and $80 million in borrowings under a line of credit facility. The
aforementioned assets and liabilities have been included based on
management's estimate of their fair market value. All other assets and
liabilities are not being acquired. Accordingly, they have been eliminated
in the accompanying pro forma balance sheet.
3-3
<PAGE> 19
UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NETCOM
Domestic
MindSpring Spry Operations Subtotal Adjustments(a) Pro Forma
---------- -------- ---------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues 114,673 36,575 143,669 294,917 - 294,917
------- -------- -------- -------- -------------- --------
Costs and expenses:
Selling, general and administrative 57,324 17,314 99,570 174,208 - 174,208
Cost of revenue 34,336 21,889 58,046 114,271 - 114,271
Depreciation and amortization 15,227 3,856 31,878 50,961 82,690 (b) 133,651
------- -------- -------- -------- -------------- --------
106,887 43,059 189,494 339,440 82,690 422,130
------- -------- -------- -------- -------------- --------
Operating income (loss) 7,786 (6,484) (45,825) (44,523) (82,690) (127,213)
------- -------- -------- -------- -------------- --------
Interest income (expense), net 1,214 (70) 3,463 4,607 (6,690) (c) (2,083)
------- -------- -------- -------- -------------- --------
Income before income tax expense 9,000 (6,554) (42,362) (39,916) (89,380) (129,296)
Income tax expense 1,544 - - 1,544 - 1,544
======= ======== ======== ======== ============== ========
Net income 10,544 (6,554) (42,362) (38,372) (89,380) (127,752)
======= ======== ======== ======== ============== ========
Shares:
Basic 24,611 3,775 (d) 28,386
Diluted 25,431 2,955 (d) 28,386
Earnings per share:
Basic $ 0.43 $ (4.50)
======= ========
Diluted $ 0.41 $ (4.50)
======= ========
</TABLE>
(a) Adjustments have not been made to cost of revenue or to selling, general
and administrative costs. However, cost of revenue and selling, general
and administrative costs incurred by Spry and the NETCOM Domestic
Operations may not be indicative of the cost of revenue and selling,
general and administrative costs that would have been incurred by
MindSpring in relation to the same assets. In connection with MindSpring's
acquisition of the NETCOM Domestic Operations, MindSpring and NETCOM
(which will change its name) have entered into a network services
agreement, for one year with an option for a second year on potentially
different terms to be negotiated and agreed to by the parties. MindSpring
expects to use the network services purchased under this agreement
initially to provide service to the subscribers acquired from NETCOM.
MindSpring expects that the costs it incurs for such network services will
be different than the corresponding historical costs reported by NETCOM.
In this regard, cost of revenue and selling, general and administrative
costs incurred by MindSpring in future periods may be materially different
from the amounts reflected in the pro forma financial statements.
(b) Represents additional amortization of the acquired subscriber base based
on preliminary purchase price allocation (as noted in footnote (a) to the
pro forma balance sheet) for the NETCOM Domestic Operations and a full
year of amortization of the $32.5 million purchase price paid by
MindSpring for the acquisition of certain Spry assets using a three-year
amortization period for the acquired subscriber base.
(c) Reflects additional interest expense on anticipated borrowings under a
secured revolving credit facility (as noted in footnote (a) to the pro
forma balance sheet) at an assumed interest rate of 6.69%, as if such
borrowings were outstanding since January 1, 1998.
3-4
<PAGE> 20
(d) Reflects (i) 3 million shares of MindSpring common stock issued in a
public offering completed on May 29, 1998; (ii) 2.3 million shares of
MindSpring common stock issued in a public offering completed on December
14, 1998; and (iii) approximately 376,000 shares of MindSpring common
stock issued to NETCOM On-Line Communication Services, Inc. as part of the
purchase price for the NETCOM Domestic Operations assets (representing
approximately $30 million, at $79.76 per share) as if such shares were
outstanding since January 1, 1998. Also, excludes the effect of stock
options for purposes of the diluted earnings per share calculation, since
the effect for pro forma purposes is antidilutive.
3-5
<PAGE> 21
4. Amendment on Form 8-K/A dated October 8, 1999 and filed with the SEC on
October 12, 1999
Set forth below is an amendment to the pro forma financial information
contained in the Company's Amendment to Current Report on Form 8-K/A previously
filed with the SEC on October 12, 1999.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro Forma Financial Information.
INDEX TO FINANCIAL STATEMENTS
MINDSPRING ENTERPRISES, INC.
<TABLE>
<S> <C>
Unaudited Pro Forma Financial Data.............................................. 4-1
Unaudited Pro Forma Statement of Operations for the six months
ended June 30, 1999........................................................ 4-2
</TABLE>
<PAGE> 22
UNAUDITED PRO FORMA FINANCIAL DATA
The following pro forma statement of operations for the six months ended
June 30, 1999 reflects the acquisition by MindSpring of certain assets of NETCOM
On-Line Communication Services, Inc.'s Domestic Subscriber Operations ("NETCOM")
as if it had occurred on January 1, 1999. The pro forma financial information
does not purport to represent what MindSpring's consolidated results of
operations would have been if the acquisition had in fact occurred on this date,
nor does it purport to indicate MindSpring's future consolidated financial
position or future consolidated results of operations. The pro forma adjustments
are based on currently available information and certain assumptions that
management believes are reasonable.
4-1
<PAGE> 23
UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MindSpring NETCOM Subtotal Adjustments(a) Pro Forma
---------- ------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Revenues 147,292 18,857 166,149 - 166,149
-------- -------- -------- -------- --------
Costs and expenses:
Selling, general and administrative 70,028 13,131 83,159 - 83,159
Cost of revenue 50,518 7,669 58,187 - 58,187
Depreciation and amortization 45,258 4,156 49,414 9,605 (b) 59,019
-------- -------- -------- -------- --------
165,804 24,956 190,760 9,605 200,365
-------- -------- -------- -------- --------
Operating income (loss) (18,512) (6,099) (24,611) (9,605) (34,216)
-------- -------- -------- -------- --------
Interest income (expense), net 1,487 450 1,937 - 1,937
-------- -------- -------- -------- --------
Income before income tax expense (17,025) (5,649) (22,674) (9,605) (32,279)
Income tax expense 6,640 - 6,640 - 6,640
======== ======== ======== ======== ========
Net income (10,385) (5,649) (16,034) (9,605) (25,639)
======== ======== ======== ======== ========
Shares:
Basic 59,899 2,995 (c) 62,894
Diluted 59,899 2,995 (c) 62,894
Earnings per share:
Basic $ (0.17) $ (0.41)
======== ========
Diluted $ (0.17) $ (0.41)
======== ========
</TABLE>
(a) Adjustments have not been made to cost of revenue and selling, general and
administrative costs since the amounts that would have been incurred by
MindSpring are not readily determinable. However, such cost incurred by
NETCOM may not be indicative of the costs that would have been incurred by
MindSpring. Accordingly, cost of revenue and selling, general and
administrative costs incurred by MindSpring in future periods may be
materially different from the amounts reflected in the pro forma financial
statements.
(b) Reflects the preliminary purchase price allocation as follows
(in millions):
<TABLE>
<S> <C>
Purchase Price 245.0
Accounts receivable 2.9
Other current assets 0.4
Property and equipment 17.2
Other long-term assets 0.2
Deferred revenue (3.8)
Accrued liabilities (2.4)
Subscriber base 230.5
</TABLE>
4-2
<PAGE> 24
The purchase price will be paid via $30 million in stock, $135 million in
cash, and $80 million in borrowings under a line of credit facility. The
aforementioned assets and liabilities have been included based on
management's estimate of their fair market value. All other assets and
liabilities were not acquired.
Represents additional amortization of the acquired subscriber base based
on the preliminary purchase price allocation for NETCOM using a three-year
amortization period.
(c) Reflects (i) 5.25 million shares of common stock issued in April 1999 and
(ii) 385 thousand shares issued in conjunction with the NETCOM acquisition
as if such shares were outstanding since January 1, 1999. Also, excludes
the effect of stock options for purposes of the diluted earnings per share
calculation since the effect for pro forma purposes is antidilutive.
4-3
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MINDSPRING ENTERPRISES, INC.
/s/ Juliet M. Reising
---------------------------------
Juliet M. Reising
Executive Vice President and Chief
Financial Officer
Date: December 16, 1999
