<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 1995
Commission File Number 0-13069
SOFTKEY INTERNATIONAL INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 94-2562108
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
ONE ATHENAEUM STREET
CAMBRIDGE, MASSACHUSETTS 02142
(Address of Principal Executive Offices)
(617) 494-1200
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X No
----- -----
As of May 1, 1995, there were 19,454,411 outstanding shares of the
issuer's Common Stock, par value $.01 per share.
<PAGE> 2
<TABLE>
SOFTKEY INTERNATIONAL INC.
--------------------------
TABLE OF CONTENTS
-----------------
<CAPTION>
Part I - Financial Information
------------------------------
Page
----
<S> <C>
ITEM 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at
March 31, 1995 and December 31, 1994 . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of
Operations for the Three Months
Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of
Cash Flows for the Three Months
Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . 8
Part II - Other Information
---------------------------
ITEM 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 11
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
SOFTKEY INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<CAPTION>
March 31, December 31,
1995 1994
--------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalent $ 18,623 $12,205
Accounts receivable, less allowances for returns and
doubtful accounts of $7,588 and $6,744, respectively 23,747 16,745
Inventories 9,425 9,795
Other current assets 4,891 8,247
-------- -------
56,686 46,992
Property and equipment, net 9,809 9,325
Goodwill, net 31,154 32,051
Other assets 2,887 2,447
-------- -------
$100,536 $90,815
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 21,009 $29,455
Current portion of long-term obligations 2,920 2,016
-------- -------
23,929 31,471
LONG-TERM OBLIGATIONS 15,039 17,536
DEFERRED INCOME TAXES 4,323 4,323
-------- -------
43,291 53,330
-------- -------
STOCKHOLDERS' EQUITY 57,245 37,485
-------- -------
$100,536 $90,815
======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
<PAGE> 4
<TABLE>
SOFTKEY INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
---------------------
1995 1994
---- ----
<S> <C> <C>
REVENUES $ 41,004 $ 35,304
COST OF REVENUES 12,461 12,410
----------- -----------
GROSS MARGIN 28,543 22,894
----------- -----------
OPERATING EXPENSES:
Sales, marketing and support 8,714 6,499
General and administrative 5,391 5,963
Research and development 2,304 1,952
----------- -----------
16,409 14,414
----------- -----------
OPERATING INCOME 12,134 8,480
INTEREST EXPENSE, NET 347 255
----------- -----------
INCOME BEFORE TAXES 11,787 8,225
PROVISION FOR INCOME TAXES 1,768 1,934
----------- -----------
NET INCOME $ 10,019 $ 6,291
=========== ===========
NET INCOME PER SHARE: $ 0.45 $ 0.33
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING: 22,376,000 19,986,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
<PAGE> 5
<TABLE>
SOFTKEY INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $10,019 $ 6,291
Adjustments to reconcile net income
to net cash used for operating activities:
Depreciation and amortization 1,899 783
Changes in operating assets and liabilities:
Accounts receivable (7,002) (2,836)
Accounts payable and accruals (5,552) (11,019)
Merger and reorganization related accruals (135) (1,718)
Other (514) 3,097
------- --------
(1,285) (5,402)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets, net (1,486) (385)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital leases and long-term debt (552) (559)
Redemption of Series B preferred stock - (4,660)
Issuance of common stock, net 9,368 5,470
------- --------
8,816 251
------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 373 57
NET CHANGE IN CASH AND CASH EQUIVALENTS 6,418 (5,479)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,205 22,797
------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $18,623 $ 17,318
======= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
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 three months ended March
31, 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 three months ended March 31, 1995 are not necessarily indicative of the
results for the entire year ending December 31, 1995.
The first quarter reporting period for 1995 ended on April 1, 1995 and the first
quarter reporting period for 1994 ended on April 2, 1994. For clarity of
presentation and comparison, the periods from January 1, 1995 to April 1, 1995
and from January 1, 1994 to April 2, 1994 are referred to as the "Three Months
ended March 31, 1995" or the "First Quarter 1995" and "Three Months ended
March 31, 1994" or the "First Quarter 1994," respectively, throughout these
financial statements.
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 an annual and quarterly basis. Based upon
its most recent analysis, the Company believes that no impairment of goodwill
exists at March 31, 1995.
<TABLE>
3. LONG-TERM OBLIGATIONS
<Captions>
March 31, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
Revolving line-of-credit $ 7,700 $ 7,700
Related party debt 1,928 2,123
Capital leases 2,130 2,411
Accrued minimum royalties 2,260 2,415
Other 3,941 4,903
------- -------
17,959 19,552
Less: current portion (2,920) (2,016)
------- -------
$15,039 $17,536
======= =======
</TABLE>
6
<PAGE> 7
4. 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 in the First Quarter 1994 and
stock options and warrants using the treasury stock method in both reporting
periods. 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.
5. 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, a court 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 had discussions
with the staff of the Canadian Bureau of Competition Policy and is currently
cooperating to provide the documents and information specified in the order. 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
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the consolidated
financial statements and the notes thereto and in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
All dollar amounts presented in this Management's Discussion and Analysis of
Financial Condition and Results of Operations are presented in thousands, except
per share amounts.
INTRODUCTION
SoftKey International Inc. (the "Company") is a developer and a publisher of
consumer software for use with personal computers. The Company develops,
licenses, manufactures, distributes and markets a wide range of productivity,
lifestyle, education/entertainment and organizational software for individual,
home and small business users. SoftKey develops and publishes titles on both
magnetic disk and CD-ROM. In addition, the Company develops, markets and
distributes income tax software and provides comprehensive nationwide tax
processing for personal, corporate and trust tax returns in Canada.
The Company was created through a recent combination of three corporations. On
February 4, 1994 the Company (which was then known as WordStar International
Incorporated), completed a three-way business combination transaction (the
"Three-Party Combination") with SoftKey Software Products Inc. and Spinnaker
Software Corporation. The Three-Party Combination was accounted for as a
pooling-of-interests. Effective February 4, 1994, the Company changed its name
to SoftKey International Inc.
RESULTS OF OPERATIONS
Net Income. The company generated net income of $10,019 ( $0.45 per
fully diluted share) on revenues of $41,004 in First Quarter 1995 as compared to
net income of $6,291 ($0.33 per fully diluted share) on revenues of $35,304 in
First Quarter 1994. The increase is a result of several factors, including
increases in revenues and gross margins, reductions in operating expenses as a
percentage of revenue and the introduction of new product offerings.
<TABLE>
Revenues
Revenues by channel for the Company for the First Quarter are as follows:
<CAPTION>
Three Months Ended March 31
-----------------------------
1995 % 1994 %
------ --- ---- ----
<S> <C> <C> <C> <C>
Retail $15,257 37% $ 8,856 25%
OEM 2,964 7% 3,396 10%
Catalog -- -- 2,891 8%
Direct Mail 6,768 17% 3,652 10%
International 4,069 10% 2,952 82%
Tax Software and Services 11,946 29% 11,736 33%
Lansa Software -- -- 1,821 6%
------- ---- ------- ----
$41,004 100% $35,304 100%
======= ==== ======= ====
</TABLE>
Total Revenues increased 16% in First Quarter 1995 over First
Quarter 1994. The growth in the retail channel resulted from new product
offerings in First Quarter 1995 and from a larger number of retail distribution
outlets carrying the Company's products. International sales continued to
increase primarily as a result of the availability of newly translated foreign
language versions of English language products and the continued shift to
Windows-based applications on CD-ROM. Tax software sales and services
experienced increased revenue growth in Canadian dollar terms due to growth in
the Canadian computerized tax preparation market as a whole. However, this
volume increase was offset by the impact of the lower foreign exchange rate of
the Canadian dollar. Original Equipment Manufacturer ("OEM") revenues
declined slightly due to pricing pressures compared to First Quarter 1994.
Direct
8
<PAGE> 9
mail revenues increased due to an increase in the frequency of product mailings
and growth in the number of registered product end users. Revenues for First
Quarter 1994 include $2,891 of revenues from the Company's Power Up catalog
operation, which was closed in 1994 and $1,821 of revenues from the
Company's subsidiary, Lansa USA, Inc. ("Lansa"), which was sold by the Company
on September 30, 1994.
Cost of Revenues. Cost of revenues includes the cost of manuals,
packaging, diskettes, duplication, assembly and fulfillment charges. In
addition, cost revenues includes royalties paid to third-party developers,
inventory obsolescence reserves and amortization of capitalized software
development costs. Gross margins for First Quarter 1995 increased to 7065% as
compared to 6548% for First Quarter 1994. The improvement in the First Quarter
1995 is primarily due primarily to theroyalty contract higher percentage of
CD-ROM based sales and direct mail sales. Cost of revenues were also lower on a
percentage basis in First Quarter 1995 over First Quarter 1994 due to the
closing of the Power Up catalog operation at and the sale of the Lansa
operation, each of which generated lower gross margins than the Company's
current operations.
<TABLE>
Operating Expenses. The Company's operating expenses, and the
respective percentages of revenues for First Quarter 1995 as compared to First
Quarter 1994 are as follows:
<CAPTION>
Three Months Ended March 31,
----------------------------
% of % of
1995 Revenues 1994 Revenues
------ -------- ------- --------
<S> <C> <C> <C> <C>
Sales, marketing and support $ 8,714 21% $ 6,499 18%
General and administrative 5,391 13% 5,963 17%
Research and development 2,304 6% 1,952 6%
------- --- ------- ---
$16,409 40% $14,414 41%
======= === ======= ===
</TABLE>
Total operating expenses decreased as a percentage of net sales revenues to 40%
in First Quarter 1995 compared with 41% in First Quarter 1994. This
decrease is primarily the result of reductions in redundant and obsolete
operating infrastructure since the Three-Party Combination, closures of the
Power Up catalog operations and the sale of Lansa.
Sales, marketing and support expenses increased to 21% of revenues in First
Quarter 1995 compared to 18% of revenues in First Quarter 1994. The increase in
these expenses as a percentage of revenues is attributed primarily to the costs
associated with increased direct mail revenues and expansion of retail channel
sales.
General and administrative expenses decreased to 13% of revenues in First
Quarter 1995 compared to 17% of revenues in First Quarter 1994. This decrease
is principally attributable to the Company's a reduction of its worldwide
workforce in the number of employees as a result of closure of the Power Up
catalog operation and facilities in Barbados and Marina del Rey, California of
its and the sale of Lansa.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the Three-Party Combination, the Company has completed a
restructuring program, which included reductions in operating costs, that
has improved the Company's liquidity position. The Company's working capital
increased from $15,521 at December 31, 1994 to $32,757 at March 31, 1995.
During First Quarter 1995, the Company has continued to further its
manufacturing relationship with RR Donnelley & Sons ("Donnelley"), the supplier
of a majority of the Company's manufacturing and fulfillment services, such that
Donnelley now provides turn-key manufacturing and fulfillment services to the
Company. The Company anticipates that as the number of product offerings
increases the Company's ability to supply sufficient product to its
customers on a timely basis will become increasingly important to its business.
The Company expects that its future inventory levels will continue to expand as
the number of product offerings expands and new channels of distribution are
established.
9
<PAGE> 10
Cash and cash equivalents increased from $12,205 at December 31, 1994 to $18,623
at March 31, 1995. This increase is attributed primarily to cash generated
from operations and cash received from the exercise of employee stock options.
On September 30, 1994, SoftKey Inc., a wholly owned subsidiary of the Company,
obtained a revolving line of credit (the "Line") to provide for a maximum
availability of $10,000, subject to eligible accounts receivable limits.
Borrowings under the Line become due on July 1, 1996 and bear interest at the
prime rate. The Line is subject to certain financial covenants, is secured by a
general security interest in the assets of SoftKey Inc. and certain other
subsidiaries of the Company and is guaranteed by the Company. As of March 31,
1995, the principal amount outstanding under the Line was $7,700.
Income generated by the Company's subsidiaries in certain foreign countries
cannot be repatriated to the Company in the United States without payment of
additional taxes since the Company does not currently receive a U. S. tax credit
with respect to income taxes paid by the Company (including its subsidiaries) in
those foreign countries. The Company also conducts its tax software
business in Canada, which has experienced foreign currency exchange rate
fluctuation. In order to mitigate this exposure, the Company has purchased a
Cdn $2,000 180 day foreign exchange option contract expiring July 28, 1995.
Cash flow from operations on a short-term basis is positively impacted by the
seasonality of the income tax software business in the first two quarters of the
calendar year. At the present time, the Company expects that its cash flows
from operations will be sufficient to finance the Company's operations for at
least the next twelve months. Longer term cash requirements are dictated by a
number of external factors, which include the Company's ability to launch new
and competitive products, the strength of competition in the consumer software
industry and the growth of the home computer market. The Company is
continuously evaluating products and technologies for acquisitions, and although
no estimation of short-term or long-term cash requirements for such acquisitions
can be made at this time, the Company may seek to raise additional funds for
these acquisitions or in anticipation of possible acquisitions.
FUTURE OPERATING RESULTS
The Company's future operating results are subject to a number of uncertainties,
including its ability to develop and introduce new products, the introduction of
competitive products and general economic conditions. The Company may plan to
seek acquisitions of businesses, products or technologies in the future that are
complementary to the current business. There can be no assurance that the
Company will not encounter difficulties in integrating any such business or
technology.
The information contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations is provided pursuant to
applicable regulations of the Securities and Exchange Commission and is not
intended to serve as a basis for projections of future events.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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.
SoftKey Software is an Ontario corporation and a wholly owned subsidiary of the
Company. On June 28, 1994, a court 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 had discussions with the staff of the Canadian Bureau of
Competition Policy and is currently cooperating to provide the documents and
information specified in the order. At this time no formal application has been
made seeking a remedy under the Act. Management does not currently expect that
the outcome of this inquiry will have a material adverse effect on the Company.
.
The Company is a defendant in various legal actions involving, 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.
<TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<CAPTION>
Exhibit
Number Description
- - - - ------- -----------
<S> <C>
2.1 Amended and Restated Combination Agreement by and among WordStar
International Incorporated, SoftKey Software Products Inc.,
Spinnaker Software Corporation and SSC Acquisition
Corporation dated as of August 17, 1993, as amended (1)
3.1 Restated Certificate of Incorporation (2)
3.2 Bylaws of the Company, as amended (3)
10.1 SoftKey Product Agreement dated April 6, 1994 by and between the
Company and R.R. Donnelley & Sons Company (2)
10.2 Employment Agreement dated May 27, 1994 by and between the Company
and Michael Perik (4)
10.3 Employment Agreement dated May 27, 1994 by and between the Company
and Kevin O'Leary (4)
10.4 Employment Agreement dated March 2, 1990 by and between
SoftKey Software Products Inc. and Peter Hamilton (2)
10.5 Employment Agreement dated February 1, 1994 by and between the
Company and R.Scott Murray (2)
10.6 Employment Agreement dated October 8, 1993 by and between
SoftKey Software Products Inc. and David E. Patrick (2)
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C>
10.7 1991 Employee Payroll Stock Purchase Plan (5)
10.8 1994 Non-Employee Director Stock Option Plan (3)
10.9 Employment Agreement dated September 15, 1993 by and between
WordStar International Incorporated and Edward Sattizahn (4)
10.10 Employment Agreement dated June 20, 1994 by and between the
Company and Neal S. Winneg (4)
10.11 Credit Agreement dated as of September 30, 1994 between
SoftKey Inc. and Fleet Bank of Massachusetts, N.A. (6)
10.12 Employment Agreement dated March 1, 1994 by and between
SoftKey Software Products Inc. and Robert Gagnon (3)
10.13 Amendment No. 1 dated as of March 1, 1995, to Employment Agreement
dated as of February 1, 1994 by and between R. Scott Murray
and the Company (2)
10.14 Sublease Agreement dated as of January 5, 1995 by and between
Mellon Financial Services Corporation #1 and SoftKey Inc. (3)
10.15 Continuing Guaranty of Lease dated as of January 5, 1995 by
the Company in favor of Mellon Financial Services Corporation #1. (3)
10.16 1990 Long Term Equity Incentive Plan, as amended and restated
through March 6, 1995. (3)
10.17 1982 Employee and Consultant Stock Option and Purchase Plan (7)
11.1 Statement re: Computation of Per Share Earnings
<FN>
____________________
(1) Incorporated by reference to schedules included in the Company's
definitive Joint Management Information Circular and Proxy Statement
dated December 27, 1993.
(2) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended April 2,
1994.
(3) Incorporated by reference to exhibits filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
(4) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended July 2,
1994.
(5) Incorporated by reference to exhibits filed with the Company's Annual
Report on Form 10-K for the Transition period ended September 30,
1992.
(6) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended October
1, 1994.
(7) Incorporated by reference to exhibits filed with the Company's Annual
Report on Form 10-K for the year ended June 30, 1991.
</TABLE>
12
<PAGE> 13
(b) Reports on Form 8-K
The registrant filed a report on Form 8-K dated February 10, 1995
reporting the appointment of Coopers & Lybrand L.L.P. as independent public
accountants for the Company commencing with the fiscal period ended
December 31, 1994.
13
<PAGE> 14
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 thereunto duly authorized.
SOFTKEY INTERNATIONAL INC.
May 15, 1994 /s/ R. Scott Murray
----------------------------------------
R. Scott Murray
Chief Financial Officer
(principal financial and accounting officer)
14
<PAGE> 15
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit Page
Number Description Number
- - - - ------- ----------- ------
<S> <C>
2.1 Amended and Restated Combination Agreement by and among WordStar
International Incorporated, SoftKey Software Products
Inc., Spinnaker Software Corporation and SSC Acquisition Corporation
dated as of August 17, 1993, as amended (1)
3.1 Restated Certificate of Incorporation (2)
3.2 Bylaws of the Company, as amended (3)
10.1 SoftKey Product Agreement dated April 6, 1994 by and between the
Company and R.R. Donnelley & Sons Company (2)
10.2 Employment Agreement dated May 27, 1994 by and between the Company
and Michael Perik (4)
10.3 Employment Agreement dated May 27, 1994 by and between the Company
and Kevin O'Leary (4)
10.4 Employment Agreement dated March 2, 1990 by and between SoftKey
Software Products Inc. and Peter Hamilton (2)
10.5 Employment Agreement dated February 1, 1994 by and between the
Company and R. Scott Murray (2)
10.6 Employment Agreement dated October 8, 1993 by and between SoftKey
Software Products Inc. and David E. Patrick (2)
10.7 1991 Employee Payroll Stock Purchase Plan (5)
10.8 1994 Non-Employee Director Stock Option Plan (3)
10.9 Employment Agreement dated September 15, 1993 by and between
WordStar International Incorporated and Edward Sattizahn (4)
10.10 Employment Agreement dated June 20, 1994 by and between the Company
and Neal S. Winneg (4)
10.11 Credit Agreement dated as of September 30, 1994 between SoftKey
Inc. and Fleet Bank of Massachusetts, N.A. (6)
10.12 Employment Agreement dated March 1, 1994 by and between SoftKey
Software Products Inc. and Robert Gagnon (3)
10.13 Amendment No. 1 dated as of March 1, 1995, to Employment Agreement
dated as of February 1, 1994 by and between R. Scott Murray
and the Company (2)
10.14 Sublease Agreement dated as of January 5, 1995 by and between
Mellon Financial Services Corporation #1 and SoftKey Inc. (3)
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C>
10.15 Continuing Guaranty of Lease dated as of January 5, 1995 by the
Company in favor of Mellon Financial Services Corporation #1. (3)
10.16 1990 Long Term Equity Incentive Plan, as amended and restated through
March 6, 1995. (3)
10.17 1982 Employee and Consultant Stock Option and Purchase Plan (7)
11.1 Statement re: Computation of Per Share Earnings
<FN>
____________________
(1) Incorporated by reference to schedules included in the Company's
definitive Joint Management Information Circular and Proxy Statement
dated December 27, 1993.
(2) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended April 2,
1994.
(3) Incorporated by reference to exhibits filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
(4) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended July 2,
1994.
(5) Incorporated by reference to exhibits filed with the Company's Annual
Report on Form 10-K for the Transition period ended September 30,
1992.
(6) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarterly period ended October
1, 1994.
(7) Incorporated by reference to exhibits filed with the Company's Annual
Report on Form 10-K for the year ended June 30, 1991.
</TABLE>
16
<PAGE> 1
<TABLE>
EXHIBIT 11.1
SOFTKEY INTERNATIONAL INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<CAPTION>
Three Months Ended
March 31,
------------------
1995 1994
---- ----
<S> <C> <C>
FULLY DILUTED
- - - - -------------
Net income $ 10,019 $ 6,291
Add:
Interest on convertible debentures and notes -- 232
Amortization of convertible debenture issue costs -- 35
----------- -----------
Adjusted net income $ 10,019 $ 6,558
=========== ===========
Weighted average Common and Exchangeable
Shares outstanding 21,069,000 18,521,000
Incremental shares calculated by the Treasury Stock
Method applied to options, convertible
debentures and warrants issued, using the
greater of the closing and average fair value 1,307,000 1,465,000
----------- -----------
Common and common share equivalents
outstanding for purposes of calculating
fully diluted earnings per share 22,376,000 19,986,000
=========== ===========
Fully diluted earnings per share $ 0.45 $ .33
=========== ===========
PRIMARY
- - - - -------
Net income $ 10,019 $ 6,291
Add:
Interest on convertible debentures and notes -- 232
Amortization of convertible debenture issue costs -- 35
----------- -----------
Adjusted net income $ 10,019 $ 6,558
=========== ===========
Weighted average Common and Exchangeable
Shares outstanding 21,040,000 18,521,000
Incremental shares calculated by the Treasury Stock
Method applied to options, convertible
debentures and warrants issued, using the
greater of the closing and average fair value 1,228,000 1,465,000
----------- -----------
Common and common share equivalents
outstanding for purposes of calculating
fully diluted earnings per share 22,268,000 19,986,000
=========== ===========
Primary earnings per share $ 0.45 $ .33
=========== ===========
</TABLE>
17
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> QUARTER
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 18,623,000
<SECURITIES> 0
<RECEIVABLES> 23,747,000
<ALLOWANCES> 7,588,000
<INVENTORY> 9,425,000
<CURRENT-ASSETS> 56,686,000
<PP&E> 9,809,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 100,536,000
<CURRENT-LIABILITIES> 23,929,000
<BONDS> 0
<COMMON> 193,000
0
0
<OTHER-SE> 57,052,000
<TOTAL-LIABILITY-AND-EQUITY> 100,536,000
<SALES> 41,004,000
<TOTAL-REVENUES> 41,004,000
<CGS> 12,461,000
<TOTAL-COSTS> 16,409,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 347,000
<INCOME-PRETAX> 11,787,000
<INCOME-TAX> 1,768,000
<INCOME-CONTINUING> 10,019,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,019,000
<EPS-PRIMARY> $.45
<EPS-DILUTED> $.45
</TABLE>
