<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 8-K
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 11, 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
<PAGE> 2
Item 5. Other Events.
------------
PRIVATE OFFERING OF NOTES. On October 11, 1995, SoftKey
International Inc. ("SoftKey") announced that it is making a private offering
of $300,000,000 principal amount Senior Convertible Notes due 2000 (the
"Notes"). The Notes will be convertible into SoftKey common stock at a fixed
conversion price per share to be determined. The Notes will be redeemable by
SoftKey on or after November 2, 1998 at declining redemption prices.
SoftKey intends to use all or a substantial portion of the net
proceeds of the offering for acquisitions and strategic alliances. There are
currently no understandings, agreements or commitments with respect to any such
transactions.
The Notes to be offered by SoftKey in the private placement
have not been registered under the Securities Act of 1933, as amended, and may
not be offered or sold in the United States absent such registration or an
applicable exemption from the registration requirements thereof.
In connection with the offering, SoftKey disclosed the
following to prospective investors. The Company has historically expanded its
business through, among other strategies, acquisitions, business combinations
and strategic alliances. Moreover, the consumer software industry as a whole
has recently experienced consolidation. The Company believes that its
customers will in the future demand that the Company offer increasing numbers
of titles throughout the Company's existing product categories and, in
particular, the education and entertainment categories. The Company believes
that in many cases the most efficient means to acquire such titles or the
ability to develop or license such titles is to enter into acquisitions,
business combinations or strategic alliances with consumer software companies.
The Company continuously evaluates and considers other
businesses of varying sizes as potential strategic partners and candidates for
acquisition and has engaged in discussions with certain businesses in pursuit
of possible transactions. Certain of these businesses may be substantially
larger than businesses acquired in
2
<PAGE> 3
the past by the Company. The Company is currently evaluating and considering a
number of potential transactions (both negotiated and non-negotiated) and
transaction prospects, but there are currently no understandings, agreements or
commitments with respect to any acquisition, business combination or strategic
alliance. Moreover, there can be no assurance that the Company will enter into
any such transaction or, if the Company does identify and consummate such a
transaction, that the transaction will enable the Company to achieve its goals.
PRELIMINARY EARNINGS. On October 11, 1995, SoftKey also
announced that it expects its revenues for the third quarter ended September
30, 1995 will be $40 million and that its approximate earnings per share will
be between $.33 and $.35 per share on a fully diluted basis. A copy of the
press release announcing the offering and these preliminary earnings is filed
as Exhibit 99.1 hereto.
RESTATED AND REVISED FINANCIAL INFORMATION. In connection
with the offering, SoftKey restated its unaudited financial results for the six
months ended June 30, 1995 to reflect the acquisition of Future Vision Holding,
Inc. on August 31, 1995, accounted for as a pooling of interests. The restated
results for the six months ended June 30, 1995 restate the historical financial
information for June 30, 1995 and the six month period then ended presented in
SoftKey's Form 10-Q as filed with the Securities and Exchange Commission (the
"Commission") on August 15, 1995. SoftKey also prepared revised unaudited pro
forma financial information for the year ended December 31, 1994 and the six
months ended June 30, 1995 (based on the above-referenced restated financial
results) to give effect to the acquisition of tewi Verlag GmbH, which occurred
on July 21, 1995. SoftKey originally prepared unaudited pro forma financial
information with respect to the tewi Verlag GmbH acquisition for SoftKey's Form
8- K/A filed with the Commission on October 4, 1995. A copy of the restated
financial results, which includes the revised unaudited pro forma financial
information, is filed as Exhibit 99.2 hereto.
3
<PAGE> 4
Item 7. (c) Exhibits.
---------
99.1 Press release dated October 11, 1995
99.2 Restated financial results for the six
months ended June 30, 1995 (including
revised unaudited pro forma financial
information for the year ended December 31,
1994 and the six months ended June 30,
1995)
<PAGE> 5
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: /s/ R. Scott Murray
--------------------
R. Scott Murray
Chief Financial Officer
October 12, 1995
- ----------------
(Date)
<PAGE> 6
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit Exhibit Description Sequential
No. Page No.
<S> <C>
99.1 Press release dated October 11, 1995
99.2 Restated financial results for the six months ended June 30, 1995
(including revised unaudited pro forma financial information for the
year ended December 31, 1994 and the six months ended June 30, 1995)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
Contact: R. Scott Murray
Chief Financial Officer
SoftKey International Inc.
(617) 494-5861
For Immediate Release
- ---------------------
SoftKey International Inc.
Announces Private Offering of $300,000,000
Principal Amount of Senior Convertible Notes
and Preliminary Earnings
--------------------------------------------
CAMBRIDGE, MASS., October 11, 1995 -- SoftKey International Inc. (Nasdaq: SKEY;
TSE: SSK) today announced that it is making a private offering of $300,000,000
principal amount Senior Convertible Notes due 2000. The Notes will be
convertible into SoftKey common stock at a fixed conversion price per share to
be determined. The Notes will be redeemable by SoftKey on or after November 1,
1998 at declining redemption prices.
SoftKey intends to use a substantial portion of the net proceeds of the offering
for acquisitions and strategic alliances. There are currently no understandings,
agreements or commitments with respect to any such transactions.
The Senior Convertible Notes to be offered by SoftKey in the private placement
have not been registered under the Securities Act of 1933, as amended, and may
not be offered or sold in the United States absent such registration or an
applicable exemption from the registration requirements.
SoftKey also announced today that it expects its revenues for the third quarter
ended September 30, 1995 will be $40 million and that its approximate earnings
per share will be between $.33 - $.35 per share on a fully diluted basis.
SoftKey will announce its third quarter financial results on October 24, 1995
as previously expected.
<PAGE> 1
EXHIBIT 99.2
SOFTKEY INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 93,447 $ 12,205
Accounts receivable, less allowances for returns and doubtful
accounts of $7,535 and $6,744, respectively.................. 20,607 16,745
Inventories..................................................... 11,725 9,795
Other current assets............................................ 8,096 8,247
--------- --------
133,875 46,992
Property and equipment, net....................................... 11,956 9,325
Goodwill, net..................................................... 31,337 32,051
Other assets...................................................... 6,171 2,447
--------- --------
$ 183,339 $ 90,815
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities........................ $ 23,064 $ 29,455
Current portion of long-term obligations........................ 7,024 2,016
--------- --------
30,088 31,471
LONG-TERM OBLIGATIONS............................................. 7,704 17,536
DEFERRED INCOME TAXES............................................. 4,339 4,323
--------- --------
42,131 53,330
--------- --------
STOCKHOLDERS' EQUITY.............................................. 141,208 37,485
--------- --------
$ 183,339 $ 90,815
========= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 2
SOFTKEY INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUES........................................................... $ 77,829 $ 62,090
COST OF REVENUES................................................... 25,907 21,743
----------- -----------
GROSS MARGIN..................................................... 51,922 40,347
----------- -----------
OPERATING EXPENSES:
Sales, marketing and support..................................... 18,145 12,941
General and administrative....................................... 12,355 11,117
Research and development......................................... 5,667 3,308
----------- -----------
36,167 27,366
----------- -----------
OPERATING INCOME................................................... 15,755 12,981
INTEREST EXPENSE, NET.............................................. (757) 315
----------- -----------
INCOME BEFORE TAXES................................................ 14,998 13,296
PROVISION FOR INCOME TAXES......................................... 2,203 3,051
----------- -----------
NET INCOME......................................................... $ 12,795 $ 10,245
=========== ===========
NET INCOME PER SHARE-FULLY DILUTED................................. $ 0.54 $ 0.53
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING...................... 23,801,000 20,079,000
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 3
SOFTKEY INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1995 1994
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................. $12,795 $10,245
Adjustments to reconcile net income to net cash used for operating
activities:
Depreciation and amortization....................................... 4,334 1,640
Changes in operating assets and liabilities:
Accounts receivable............................................... (3,862) (662)
Accounts payable and accruals..................................... (6,391) (5,332)
Other............................................................. (5,586) (9,570)
------- -------
1,290 (3,679)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets, net.......................................... (6,251) (1,409)
Other.................................................................. (3,724) 518
------- -------
(9,975) (891)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under capital leases and long-term debt, net................. 2,661 (5)
Issuance of common stock, net.......................................... 91,686 5,606
Repayment of line-of-credit............................................ (4,699) --
Redemption of Series B preferred stock................................. -- (4,660)
------- -------
89,648 941
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.................................. 279 684
NET CHANGE IN CASH AND CASH EQUIVALENTS.................................. 81,242 (2,945)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................... 12,205 22,797
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................. $93,447 $19,852
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 4
SOFTKEY INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements 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
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1994. 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.
For clarity of presentation and comparison, the periods from January 1,
1995 to July 1, 1995 and from January 1, 1994 to July 2, 1994 are referred to as
the "Six Months Ended June 30, 1995" and "Six Months Ended June 30, 1994",
respectively, throughout these financial statements.
On August 31, 1995, the Company acquired all of the issued and outstanding
capital stock of Future Vision in exchange for the issuance of 1,088,149 shares
of common stock of the Company. The results for the Six Months Ended June 30,
1995 have been restated to reflect the pooling-of-interest accounting treatment
of the transaction. The financial statements for periods prior to the Six Months
Ended June 30, 1995 do not include amounts for this acquisition as they were
deemed to be immaterial.
Summarized results of operations for the Six Months Ended June 30, 1995 on
a separate company and combined basis are as follows (in thousands):
<TABLE>
<CAPTION>
SOFTKEY FUTURE VISION COMBINED
------- ------------- --------
<S> <C> <C> <C>
Revenues......................................... $74,721 $ 3,108 $77,829
Operating income (loss).......................... 21,779 (6,024) 15,755
Net income (loss)................................ 17,973 (5,178) 12,795
</TABLE>
2. GOODWILL
Goodwill represents the excess of purchase price over fair market value of
identifiable assets acquired. The Company evaluates the carrying value of
goodwill for possible impairment on a quarterly basis. Based upon its most
recent analysis, the Company believes that no impairment of goodwill exists at
June 30, 1995.
3. LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
JUNE 30, 1995 DECEMBER 31, 1994
-------------- -----------------
<S> <C> <C>
Revolving line-of-credit...................................... $ 3,001 $ 7,700
Related party debt............................................ 4,954 2,123
Capital leases................................................ 2,241 2,411
Accrued minimum royalties..................................... 2,210 2,415
Other......................................................... 2,322 4,903
-------------- -----------------
14,728 19,552
Less: current portion......................................... (7,024) (2,016)
-------------- -----------------
$ 7,704 $17,536
=========== =============
</TABLE>
The long-term related party debt includes $2,000 of debt that converted
into equity in August, 1995.
4. INVENTORIES
Inventories consist primarily of finished goods at June 30, 1995 and
December 31, 1994.
<PAGE> 5
5. COMPUTATION OF EARNINGS PER SHARE
Net income per share is computed using the weighted average number of
common and dilutive common stock equivalent shares outstanding during the
period. Dilutive common stock equivalent shares consist of convertible
debentures and notes, convertible Series A and Series B preferred stock and
stock options and warrants using the treasury stock method. The computations do
not include common stock equivalents where the effect would not be dilutive.
Primary earnings per share computations do not materially differ from fully
diluted earnings per share.
6. COMMITMENTS AND CONTINGENCIES
COMPETITION ACT INQUIRY (CANADA)
On June 10, 1994, the Director of Investigation and Research under the
Competition Act (Canada) (the "Act") commenced an inquiry in Canada under the
non-criminal, reviewable practices provisions of the Act respecting the
activities of SoftKey Software Products Inc. ("SoftKey Software") in the tax
preparation software business in Canada. On June 28, 1994, an order requiring
SoftKey Software, along with other companies in the Canadian tax preparation
software business, to produce certain documents and information respecting the
Canadian tax preparation software industry was issued by the Federal Court of
Canada, Trial Division. SoftKey Software has provided the Canadian Bureau of
Competition Policy (the "Bureau") with the documents and information sought by
the Bureau and is continuing to cooperate with the Bureau in its inquiry into
the relevant activities. At this time, no formal application has been made
seeking remedy under the Act. Management does not currently expect that the
outcome of this inquiry will have a material adverse effect on the Company.
OTHER LITIGATION
The Company is a defendant in various legal actions involving copyright,
breach of contract and various other claims incident to the conduct of its
business. Management does not expect the Company to suffer any material
liability by reason of such actions.
7. SUBSEQUENT EVENTS
ACQUISITION OF TEWI VERLAG GMBH
On July 21, 1995, the Company acquired 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 for
$3,640 and may issue additional shares of Common Stock to a former shareholder
of tewi pursuant to an earn-out agreement. The Company also paid cash
consideration of $12,688 for all of the share capital of tewi. The transaction
will be accounted for as a purchase.
The purchase price will be allocated as follows:
<TABLE>
<S> <C>
Goodwill........................................................ $19,265
Less: net liabilities assumed................................... (2,101)
-------
Stock issued and cash paid, including transaction costs......... $17,164
=======
</TABLE>
<PAGE> 6
The amortization of goodwill resulting from the purchase will be amortized
over its estimated useful life of 20 years on a straight-line basis. Pro-forma
consolidated financial information adjusted to give effect to the acquisition of
tewi, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994(C)
------------------------------------------- SIX MONTHS ENDED JUNE 30, 1995
PRO -------------------------------------------
SOFTKEY TEWI ADJUSTMENTS FORMA SOFTKEY TEWI ADJUSTMENTS PRO FORMA
-------- ------- ----------- -------- ------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING INFORMATION(A):
Revenues....................... $121,287 $12,320 $ -- $133,607 $77,829 $ 3,720 $ -- $81,549
Cost of revenues............... 39,085 8,913 -- 47,998 25,907 5,161 -- 31,068
-------- ------- ------ -------- ------- ------- ----- -------
Gross margin................... 82,202 3,407 -- 85,609 51,922 (1,441) -- 50,481
-------- ------- ------ -------- ------- ------- ----- -------
Sales, marketing and
support................... 27,274 2,775 -- 30,049 18,145 1,439 -- 19,584
General and administrative... 22,444 1,298 963 24,705 12,355 709 482 13,546
Research and development..... 6,696 -- -- 6,696 5,667 -- -- 5,667
Purchased research and
development............... -- -- -- -- -- -- -- --
Merger and reorganization
costs..................... 1,079 -- -- 1,079 -- -- -- --
Provision for (gain on)
product lines sold or
discontinued.............. (778) -- -- (778) -- -- -- --
Provisions (reversals) for
litigation................ (254) -- -- (254) -- -- -- --
-------- ------- ------ -------- ------- ------- ----- -------
Total operating expenses..... 56,461 4,073 963 61,497 36,167 2,148 482 38,797
-------- ------- ------ -------- ------- ------- ----- -------
Operating income (loss)........ 25,741 (666) (963) 24,112 15,755 (3,589) (482) 11,684
Operating income (expense)..... (535) (91) -- (626) (757) (54) -- (811)
-------- ------- ------ -------- ------- ------- ----- -------
Income (loss) before taxes..... 25,206 (757) (963) 23,486 14,998 (3,643) (482) 10,873
Provision for income taxes..... 4,061 -- -- 4,061 2,203 -- -- 2,203
-------- ------- ------ -------- ------- ------- ----- -------
Net income (loss).............. $ 21,145 $ (757) $ (963) $ 19,425 $12,795 $(3,643) $(482) $ 8,670
======== ======= ====== ======== ======= ======= ===== =======
Fully diluted net income per
share........................ $1.04 $0.95 $0.54 $0.36
Shares used in computing fully
diluted net income per
share........................ 21,115 99 21,214 23,801 99 23,900
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995
--------------------------------------------
SOFTKEY TEWI ADJUSTMENTS PRO FORMA
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE SHEET INFORMATION(B):
Working Capital................................................ $103,787 $(3,412) $ -- $ 100,375
Total Assets................................................... 183,339 4,563 6,577 194,479
Total long-term obligations, less
current portion.............................................. 7,704 2,224 (2,224) 7,704
Total stockholders' equity (deficit)........................... 141,208 (4,486) 8,330 145,052
</TABLE>
- ---------------
(a) The pro forma operating information has been prepared assuming the
acquisition of tewi, a German publisher and distributor of CD-ROM software
and computer related books, by the Company occurred at the beginning of each
of the fiscal year ended December 31, 1994 and 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.
(b) The pro forma balance sheet information has been prepared assuming the
acquisition of tewi by the Company occurred on June 30, 1995.
(c) The financial information for periods prior to the Six Months Ended June 30,
1995 do not include amounts for the acquisition of Future Vision as they
were deemed to be immaterial.
<PAGE> 7
REDEMPTION OF WARRANTS
On July 31, 1995, the Company announced that it would redeem all of its
2,925,000 publicly traded warrants for $.10 per warrant on August 31, 1995 in
accordance with the terms and conditions of the warrants. As of September 30,
1995, holders of such warrants received in exchange for warrants an aggregate of
289,959 shares of Common Stock. The remaining approximately 25,410 warrants were
redeemed by the Company.
