<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 6, 1996
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
Incorporation or Organization) Identification No.)
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 3, 1996, there were 32,530,781 outstanding shares of the issuer's
Common Stock, par value $.01 per share.
1
<PAGE> 2
SOFTKEY INTERNATIONAL INC.
--------------------------
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Part I - Financial Information
------------------------------
Page
----
<S> <C>
ITEM 1. Condensed Consolidated Financial Statements:
Consolidated Balance Sheets at
March 31, 1996 and December 31, 1995 ........................ 3
Condensed Consolidated Statements of
Operations for the Three Months
Ended March 31, 1996 and 1995 ............................... 4
Condensed Consolidated Statements of
Cash Flows for the Three Months
Ended March 13, 1996 and 1995 ............................... 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 ........................................... 12
ITEM 6. Exhibits and Reports on Form 8-K ............................ 12
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
SOFTKEY INTERNATIONAL INC.
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 77,479 $ 77,832
Accounts receivable (less allowances for returns and
doubtful accounts of $9,248 and $6,851, respectively) 45,069 32,402
Inventories 16,683 18,997
Other current assets 19,943 23,627
-------- --------
159,174 152,858
Property and equipment, net 19,657 19,621
Goodwill, net 509,756 580,165
Acquired technology and other intangible assets, net 132,253 147,769
-------- --------
$820,840 $900,413
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 51,303 $ 50,603
Current portion of long-term debt 1,002 4,434
Current portion of related party debt -- 4,314
Merger related accruals 30,180 40,089
Revolving line of credit 25,000 --
Due to The Learning Company stockholders 265 25,353
-------- --------
107,750 124,793
-------- --------
LONG-TERM OBLIGATIONS:
Senior Convertible Notes 350,000 350,000
Senior Exchangeable/Convertible Note 150,000 150,000
Other long-term obligations 2,351 3,982
-------- --------
502,351 503,982
-------- --------
DEFERRED INCOME TAXES 58,684 57,119
STOCKHOLDERS' EQUITY 152,055 214,519
-------- --------
$820,840 900,413
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
3
<PAGE> 4
SOFTKEY INTERNATIONAL INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1996 1995
------------ -----------
<S> <C> <C>
REVENUES $ 71,133 $ 42,875
COSTS AND EXPENSES:
Costs of production 20,455 14,026
Sales, marketing and support 15,380 9,938
General and administrative 6,862 6,522
Research and development 7,897 2,840
Amortization and merger related
charges 90,512 --
----------- -----------
141,106 33,326
OPERATING INCOME (LOSS) (69,973) 9,549
INTEREST EXPENSE, net 6,348 421
----------- -----------
INCOME (LOSS) BEFORE TAXES (76,321) 9,128
PROVISION FOR INCOME TAXES:
Current 3,479 1,369
Deferred (3,479) --
----------- -----------
-- 1,369
----------- -----------
NET INCOME (LOSS) $ (76,321) $ 7,759
=========== ===========
NET INCOME (LOSS) PER SHARE $ (2.32) $ 0.33
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 32,874,000 23,435,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
<PAGE> 5
SOFTKEY INTERNATIONAL INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
-----------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(76,321) $ 7,759
Adjustments to reconcile net income (loss) to net cash provided
by (used for) operating activities:
Depreciation and amortization 90,512 1,899
Provision for returns and doubtful accounts 9,230 5,786
Changes in operating assets and liabilities:
Accounts receivable (21,897) (12,788)
Accounts payable and accruals 3,406 (5,552)
Other 1,483 1,746
-------- --------
6,413 (1,150)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets, net (1,407) (1,486)
Software development costs (1,448) --
Payment of merger related accruals (9,909) (135)
Payments to stockholders of The Learning Company (25,088) --
-------- --------
(37,852) (1,621)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital leases and long-term debt (4,695) (552)
Borrowings under line of credit 25,000 --
Proceeds from issuance of common stock related to exercise of
stock options, net 12,046 9,368
-------- --------
32,351 8,816
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,265) 373
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (353) 6,418
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 77,832 12,205
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 77,479 $ 18,623
======== ========
</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 AND PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of SoftKey International Inc.
("SoftKey" or the "Company") for the three months ended March 31, 1996 and 1995
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
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended January 6, 1996. The results of
operations for the three months ended March 31, 1996 are not necessarily
indicative of the results for the entire year ending December 31, 1996.
The first quarter reporting period for 1996 ended on April 6, 1996 and the first
quarter reporting period for 1995 ended on April 1, 1995. For clarity of
presentation and comparison, all references to the Year Ended December 31, 1995
relate to the period January 1, 1995 to January 6, 1996; the periods from
January 7, 1996 to April 6, 1996 and from January 1, 1995 to April 1, 1995 are
referred to as the "Three Months Ended March 31, 1996" or the "First Quarter
1996" and the "Three Months Ended March 31, 1995" or the "First Quarter 1995,"
respectively, throughout these financial statements.
On December 22, 1995, the Company acquired control of The Learning Company for
cash. On December 28, 1995, the Company acquired Compton's NewMedia, Inc. and
Compton's Learning Company (collectively, "Compton's") in exchange for a
combination of common stock and the assumption of certain intercompany
indebtedness from Tribune Company. On July 21, 1995, the Company acquired tewi
Verlag GmbH ("tewi") in exchange for a combination of cash and common stock.
Each of these acquisitions was accounted for using the purchase method of
accounting. On August 31, 1995, the Company acquired Future Vision Holding, Inc.
("Future Vision") for common stock. This transaction was accounted for using the
pooling-of-interests method. Prior period amounts have been restated to reflect
the pooling-of-interests with Future Vision.
<TABLE>
Summarized results of operations for the Three Months Ended March 31, 1995, on a
separate company and combined basis related to the pooling-of-interests with
Future Vision are as follows:
<CAPTION>
SoftKey Future Vision Combined
------- ------------- --------
<S> <C> <C> <C>
Revenues $41,004 $ 1,871 $42,875
Operating income (loss) 12,134 (2,585) 9,549
Net income (loss) 10,019 (2,260) 7,759
Net income (loss) per share .45 (2.08) .33
</TABLE>
On October 30, 1995, the Company entered into a definitive merger agreement with
Minnesota Educational Computing Corp. (MECC) ("MECC"), a publisher and
distributor of high quality educational software for children. SoftKey is
expected to acquire MECC in exchange for approximately 9,200,000 shares of
SoftKey common stock constituting a total estimated purchase price of
approximately $260,000 based upon the market value of SoftKey's common stock,
including transaction related costs and value of stock options acquired. During
the first quarter of 1996 the parties reached agreement regarding the framework
of a plan to implement SoftKey's strategic plan, including the business strategy
and management responsibilities upon consummation of the transaction. The
ultimate purchase price will depend upon the number of shares issued to acquire
MECC, which will be in the range of approximately 7,150,000 to 9,200,000 shares
of SoftKey common stock, (which number could be increased to approximately
10,500,000 shares to the extent that outstanding options to purchase common
shares of MECC, are exercised prior to the effective time of the merger). The
closing of this transaction is subject to, among other things, stockholder
approval of both the Company and MECC. The Special Stockholder meeting to
consider and vote upon this proposal has been set for May 16, 1996. The
transaction will be accounted for as a purchase.
6
<PAGE> 7
2. GOODWILL AND OTHER INTANGIBLE ASSETS
The excess cost over the fair value of net assets acquired is recorded as
goodwill and is amortized on a straight-line basis over 2 years, except for the
goodwill associated with the Company's Canadian income tax software business,
which is being amortized on a straight-line basis over its estimated useful life
of 40 years. The cost of identified intangible assets is generally amortized on
a straight-line basis over its estimated useful life of 2 to 7 years. Deferred
financing costs are being amortized on a straight-line basis over the term of
the related debt financing. The carrying value of goodwill and intangible assets
is reviewed on a quarterly and annual basis for the existence of facts or
circumstances both internally and externally that may suggest impairment. To
date no such impairment has occurred. Should there be an impairment in the
future, the Company will measure the amount of the impairment based on
discounted expected future cash flows. The cash flow estimates that will be used
will contain management's best estimates, using appropriate and customary
assumptions and projections at the time.
<TABLE>
3. LONG-TERM OBLIGATIONS
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Related party Senior Convertible/
Exchangeable Notes $150,000 $154,314
Capital leases 1,106 1,614
Senior Convertible Notes 350,000 350,000
Other 2,247 6,802
-------- --------
Less: current portion (1,002) (8,748)
======== ========
$502,351 $503,982
======== ========
</TABLE>
On April 5, 1996 the Company issued 158,099 shares of common stock in settlement
of $3,000 of related party debt plus accrued interest.
4. INVENTORIES
Inventories consist primarily of finished goods and components at March 31, 1996
and December 31, 1995.
5. COMPUTATION OF EARNINGS PER SHARE
Net income (loss) 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 in both reporting
periods. The computations do not include common stock equivalents where the
effect would be antidilutive. Primary earnings per share computations do not
materially differ from fully diluted earnings per share due to the exclusion of
the dilutive effect of convertible debentures and notes plus the effect of using
the average price of the Company's common stock versus ending price in the
treasury stock computation.
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 January 6, 1996. 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. ("SoftKey" or the "Company") is a leading developer
and publisher of value-priced, high quality consumer software for PC's,
primarily produced on CD-ROM. The Company develops, licenses, manufactures,
distributes and markets a wide range of consumer titles in the lifestyle,
edutainment, productivity, entertainment and education categories. 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.
On December 22, 1995, the Company acquired control of The Learning Company for
cash. On December 28, 1995, the Company acquired Compton's NewMedia, Inc. and
Compton's Learning Company (collectively "Compton's") in exchange for a
combination of common stock and cancellation of certain intercompany
indebtedness from Tribune Company. On July 21, 1995 the Company acquired tewi
Verlag GmbH ("tewi") in exchange for a combination of cash and common stock.
Each of these transaction was accounted for as a purchase. Accordingly, results
are combined from the date of merger onwards for the above transactions. Results
(in terms of dollar amounts) for the Three Months Ended March 31, 1996 are not
directly comparable to the Three Months Ended March 31, 1995 because they do not
include results from the purchases. Accordingly, management's discussion and
analysis for these periods is generally based upon a comparison of specified
results as a percentage of total revenues.
RESULTS OF OPERATIONS
NET INCOME. The Company incurred a net loss of $76,321 ($2.32 per fully
diluted share) on revenues of $71,133 in the First Quarter 1996 as compared to
net income of $7,759 ($0.33 per fully diluted share) on revenues of $42,875 in
the First Quarter 1995. The increase in revenue is primarily a result of the
acquisitions of The Learning Company and Compton's in December 1995. The net
loss in the First Quarter 1996 is a result of the effect of the amortization of
goodwill and other merger related costs of $90,512.
<TABLE>
REVENUES. Revenues by distribution channel for the First Quarter 1996 as
compared to the First Quarter 1995 are as follows:
<CAPTION>
Three Months Ended March 31,
-------------------------------
1996 % 1995 %
-------- ---- ------- ----
<S> <C> <C> <C> <C>
Retail $34,159 48% $15,677 37%
OEM 6,335 9% 4,415 10%
School 2,422 3% -- --
Direct Mail 6,529 9% 6,768 16%
International 11,254 16% 4,069 10%
Tax software and services 10,434 15% 11,946 27%
------- --- ------- ---
$71,133 100% $42,875 100%
======= === ======= ===
</TABLE>
Total revenues increased 66% in the First Quarter 1996 as compared to First
Quarter 1995 due to several factors, including the effect of revenues from the
acquisitions of The Learning Company and Compton's and an increase in the sales
of the Company's Platinum "jewel-case only" line of products compared to First
Quarter 1995. Retail revenues increased as a result of the acquisitions of The
Learning Company and Compton's plus a general increase in demand for consumer
software products. International sales increased primarily as a result of the
acquisition of
8
<PAGE> 9
tewi on July 21, 1995 and an increase in foreign language translated versions of
the Company's products available for sale. Original equipment manufacturer
("OEM") revenues increased due to the availability of new product offerings for
this channel. Direct response revenues were consistent on a dollar basis but
decreased as a percentage of revenues due to the overall increase in revenues
resulting from product sales of the acquired companies which did not formerly
participate in the direct mail channel. Prior to the acquisition of The Learning
Company, the Company did not participate in the school channel. Revenues from
the Tax Division declined as a result of increased competition in the Canadian
income tax market.
<TABLE>
COSTS AND EXPENSES. The Company's costs and expenses and the respective
percentages of revenues for the First Quarter 1996 as compared to the First
Quarter 1995 are as follows:
<CAPTION>
Three Months Ended March 31,
----------------------------
% of % of
1996 Revenues 1995 Revenues
------- -------- ------- --------
<S> <C> <C> <C> <C>
Costs of production $20,455 29% $14,026 33%
Sales, marketing and support 15,380 22% 9,938 23%
Research and development 7,897 11% 2,840 7%
General and administrative 6,862 9% 6,522 15%
------- -- ------- --
$50,594 71% $33,326 78%
======= == ======= ==
</TABLE>
Total costs and expenses decreased as a percentage of revenues to 71% in First
Quarter 1996 as compared with 78% in First Quarter 1995. This decrease was
caused primarily by the reduction in general and administrative costs and costs
of production as a percentage of revenues from consolidating the operations of
the acquired companies.
Costs of production includes the cost of manuals, packaging, diskettes,
duplication, assembly and fulfillment charges. In addition, costs of production
includes royalties paid to third-party developers and inventory obsolescence
reserves. Costs of production decreased in the First Quarter 1996 by 4% as
compared to the First Quarter 1995. The decrease in costs of production was
caused by reduced prices on the cost to manufacture product and the impact from
The Learning Company having historically higher gross margin selling products
than SoftKey.
Sales, marketing and support expenses decreased to 22% of revenues in First
Quarter 1996 as compared to 23% of revenues in First Quarter 1995. The
percentage decrease was a result of the Company reducing both fixed costs and
employee headcount of the combined Company following the acquisitions in 1995.
Research and development costs increased significantly to 11% of revenues in the
First Quarter 1996 as compared to 7% in the First Quarter 1995. The increase is
a result of a higher proportion of internally developed products in First
Quarter 1996 as compared to First Quarter 1995.
General and administrative expenses decreased to 9% of revenues in the First
Quarter 1996 as compared to 15% of revenues in the First Quarter 1995. This is
primarily the result of the closure of a Future Vision Holding, Inc. facility in
New York and consolidation of finance and manufacturing functions in Europe. In
addition, the percentage of revenues decrease resulted from a general reduction
in overhead costs and employee headcount following the acquisitions in 1995.
During the quarter, a charge of $90,512 arose from the acquisitions of The
Learning Company and Compton's. Approximately $71,280 relates to the
amortization of goodwill, $16,627 relates to the amortization of acquired
technology and other intangible assets and the balance of $2,605 relates to
other merger related costs.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased from $77,832 at December 31, 1995 to $77,479
at March 31, 1996. This decrease was primarily attributable to the repayment of
approximately $9.9 million of merger related liabilities, offset by proceeds
from stock option exercises. During the First Quarter the Company repaid $25,088
of amounts due to the former stockholders of The Learning Company and financed
this amount by drawing $25,000 against its revolving line of credit.
On October 23, 1995, the Company announced that it had completed a private
offering of $350,000 principal amount 5 1/2% Senior Convertible Notes due 2000
(The Senior Convertible Notes). The Senior Convertible Notes will be redeemable
by the Company on or after November 2, 1998 at declining redemption prices.
In February 1996, SoftKey Inc., a wholly owned subsidiary of Company, amended
its revolving line of credit (the "Line"), to provide for a maximum availability
of $50,000. Borrowings under the Line become due on July 1, 1997 and bear
interest at the prime rate (8.25% at March 31, 1996). 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 by a
pledge of the stock of certain of its subsidiaries. The Line is guaranteed by
the Company. There was $25,000 drawn on the Line at March 31, 1996.
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
relative to the US dollar. In order to mitigate this exposure, from time to time
the Company has purchased foreign exchange options contracts, none of which are
outstanding at March 31, 1996.
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, however, no estimation of
short-term or long-term cash requirements for such acquisitions can be made at
this time.
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. In addition, the Company
expects the level of competition in the consumer software industry will become
more intense and that companies with greater access to capital, new products and
retail shelf space may enter its market. In addition, should competitors of the
Company continue to consolidate, it will increase the risk associated with
channel management and product offerings.
The Company has recently completed the acquisitions of The Learning Company and
Compton's and may plan to seek acquisitions of businesses, products or
technologies in the future that are complementary to its current business. In
addition, the Company has entered into a definitive merger agreement with
Minnesota Educational Computing Corp. (MECC)("MECC"). The consummation of this
merger is subject to, among other things, stockholder approval of both the
Company and MECC. There can be no assurance that the Company will not encounter
difficulties in integrating these or future businesses, products or
technologies. As a result of the acquisitions in 1995 and the proposed
acquisition of MECC, the Company will have substantial amounts of non-cash
amortization of goodwill and intangible assets over the next few years. This
will result in operating losses in the future.
The rate of change in the consumer software industry has continued to increase.
As consumers have become more accustomed to purchasing multimedia software the
Company believes they have developed, and will continue to develop, increased
sophistication with respect to the content and quality of their software
purchases, demanding
10
<PAGE> 11
increasingly full featured and content rich programs. In addition, the
development time for new platforms on which the Company's products run is
decreasing, requiring the Company to update or discontinue products at shorter
intervals. The Company also anticipates that the future demand for on-line and
Internet compatible products will increase and it will be required to
continuously re-evaluate its product strategy. The Company continually assesses
and re-defines its existing distribution strategy to meet these future demands.
These factors make the Company's future revenue and profitability increasingly
unpredictable.
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.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings other than ordinary
routine litigation and arbitration incidental to its business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
(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)
2.2 Agreement and Plan of Merger dated November 30, 1995 by among the
Company, Cubsco I Inc., Cubsco II Inc., Tribune Company, Compton's
NewMedia, Inc., and Compton's Learning Company(2)
2.3 SoftKey/TLC Agreement and Plan of Merger dated December 6, 1995
among the Company, Kidsco Inc. and The Learning Company(2)
2.4 Agreement and Plan of Merger by and among the Company, SchoolCo
Inc. and Minnesota Educational Computing Corporation (MECC) dated
as of October 30, 1995(3)
3.1 Restated Certificate of Incorporation, as amended(7)
3.2 Bylaws of the Company, as amended(4)
4.1 Indenture dated as of October 16, 1995 between the Company and
State Street Bank and Trust Company, as Trustee, for 5 1/2% Senior
Convertible Notes due 2000 (the "Indenture")(3)
4.2 First Supplemental Indenture to the Indenture, dated as of
November 22, 1995, by and between the Company and State Street
Bank and Trust Company, as Trustee(5)
4.3 Note Resale Registration Rights Agreement dated as of October 23,
1995 by and between the Company, on the one hand, and the Initial
Purchasers set forth therein, on the other hand (the "Registration
Rights Agreement")(5)
4.4 Letter Agreement dated November 22, 1995 amending the Registration
Rights Agreement(5)
4.5 Form of Securities Resale Registration Rights Agreement by and
among the Company and Tribune Company(6)
4.6 Form of Indenture between the Company and State Street Bank and
Trust Company, as Trustee, for 5 1/2% Senior
Convertible/Exchangeable Notes Due 2000(2)
11.1 Statement Re: Computation of Per Share Earnings
</TABLE>
12
<PAGE> 13
- -------------------------
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 Current
Report on Form 8-K dated December 11, 1995.
3 Incorporated by reference to exhibits filed with the Company's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1995.
4 Incorporated by reference to exhibits filed with The Company's
Registration Statement on Form S-3 (Reg.No. 33-88728) filed January 23,
1995.
5 Incorporated by reference to exhibits filed with Company's Registration
Statement on Form S-3 (Reg No. 333- 145), filed January 26, 1996.
6 Filed as exhibits to Exhibit 2.2 hereto.
7 Incorporated by reference to exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended January 6, 1996.
(b) REPORTS ON FORM 8-K
On January 25, 1996 the Company filed an amendment on Form 8K/A to its
Form 8-K reporting, among other things, the agreement entered into on
November 30, 1995 to acquire Compton's NewMedia, Inc. and Compton's
Learning Company.
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 16, 1996
/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> <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)
2.2 Agreement and Plan of Merger dated November 30, 1995 by among the
Company, Cubsco I Inc., Cubsco II Inc., Tribune Company, Compton's
NewMedia, Inc., and Compton's Learning Company(2)
2.3 SoftKey/TLC Agreement and Plan of Merger dated December 6, 1995
among the Company, Kidsco Inc. and The Learning Company(2)
2.4 Agreement and Plan of Merger by and among the Company, SchoolCo Inc.
and Minnesota Educational Computing Corporation (MECC) dated as of
October 30, 1995(3)
3.1 Restated Certificate of Incorporation, as amended(7)
3.2 Bylaws of the Company, as amended(4)
4.1 Indenture dated as of October 16, 1995 between the Company and State
Street Bank and Trust Company, as Trustee, for 5 1/2% Senior
Convertible Notes due 2000 (the "Indenture")(3)
4.2 First Supplemental Indenture to the Indenture, dated as of November
22, 1995, by and between the Company and State Street Bank and Trust
Company, as Trustee(5)
4.3 Note Resale Registration Rights Agreement dated as of October 23,
1995 by and between the Company, on the one hand, and the Initial
Purchasers set forth therein, on the other hand (the "Registration
Rights Agreement")(5)
4.4 Letter Agreement dated November 22, 1995 amending the Registration
Rights Agreement(5)
4.5 Form of Securities Resale Registration Rights Agreement by and among
the Company and Tribune Company(6)
4.6 Form of Indenture between the Company and State Street Bank and
Trust Company, as Trustee, for 5 1/2% Senior
Convertible/Exchangeable Notes Due 2000(2)
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 Current
Report on Form 8-K dated December 11, 1995.
3 Incorporated by reference to exhibits filed with the Company's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1995.
4 Incorporated by reference to exhibits filed with The Company's
Registration Statement on Form S-3 (Reg.No. 33-88728) filed January 23,
1995.
</TABLE>
15
<PAGE> 16
5 Incorporated by reference to exhibits filed with Company's Registration
Statement on Form S-3 (Reg No. 333- 145), filed January 26, 1996.
6 Filed as exhibits to Exhibit 2.2 hereto.
7 Incorporated by reference to exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended January 6, 1996.
16
<PAGE> 1
EXHIBIT 11.1
SOFTKEY INTERNATIONAL INC.
<TABLE>
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (LOSS)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1996 1995
------------ -----------
<S> <C> <C>
FULLY DILUTED
Net income (loss) $ (76,321) $ 7,759
Weighted average common and Exchangeable Shares
outstanding 32,874,000 22,128,000
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
------------ -----------
Common and common share equivalents outstanding for
purposes of calculating fully diluted earnings per
share 32,874,000 23,435,000
------------ -----------
Fully diluted earnings (loss) per share $ (2.32) $ 0.33
============ ===========
PRIMARY
Net income (loss) $ (76,321) $ 7,759
Weighted average common and Exchangeable Shares
Outstanding 32,874,000 22,099,000
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
------------ -----------
Common and common share equivalents outstanding
for purposes of calculating primary earnings
per share 32,874,000 23,327,000
------------ -----------
Primary earnings (loss) per share $ (2.32) $ 0.33
============ ===========
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET OF SOFTKEY INTERNATIONAL INC. AS OF
MARCH 31, 1996, CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH
FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995. AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-04-1997
<PERIOD-START> JAN-07-1996
<PERIOD-END> APR-06-1996
<EXCHANGE-RATE> 1
<CASH> 77,479
<SECURITIES> 0
<RECEIVABLES> 45,069
<ALLOWANCES> 9,248
<INVENTORY> 16,683
<CURRENT-ASSETS> 159,174
<PP&E> 36,610
<DEPRECIATION> 16,953
<TOTAL-ASSETS> 820,840
<CURRENT-LIABILITIES> 107,750
<BONDS> 500,000
<COMMON> 367
0
0
<OTHER-SE> 151,688
<TOTAL-LIABILITY-AND-EQUITY> 820,840
<SALES> 71,133
<TOTAL-REVENUES> 71,133
<CGS> 20,455
<TOTAL-COSTS> 20,455
<OTHER-EXPENSES> 120,651
<LOSS-PROVISION> 9,230
<INTEREST-EXPENSE> 6,348
<INCOME-PRETAX> (76,321)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (76,321)
<EPS-PRIMARY> (2.32)
<EPS-DILUTED> (2.32)
</TABLE>
