LEARNING CO INC, POS AM, 1998-07-15

LEARNING CO INC
POS AM, 1998-07-15
PREPACKAGED SOFTWARE

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1998

REGISTRATION NO. 333-02385
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

POST-EFFECTIVE AMENDMENT NO. 1

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

THE LEARNING COMPANY, INC.

(FORMERLY, SOFTKEY INTERNATIONAL INC.)

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 94-2562108
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)
</TABLE>

ONE ATHENAEUM STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 494-1200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

NEAL S. WINNEG, ESQ.

SENIOR VICE PRESIDENT AND GENERAL COUNSEL

THE LEARNING COMPANY, INC.
ONE ATHENAEUM STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 494-1200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

COPY TO:
MARK G. BORDEN, ESQ.

HALE AND DORR LLP

60 STATE STREET
BOSTON, MASSACHUSETTS 02109
(617) 526-6675
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:

FROM TIME TO TIME AS DETERMINED BY THE SELLING HOLDER

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for same offering: [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

INTRODUCTORY NOTE

This Post-Effective Amendment No. 1 contains a revised form of Basic
Prospectus relating to the resale of shares of Common Stock of The Learning
Company, Inc. held by Tribune Company and a Prospectus Supplement relating to
the resale of such shares pursuant to an offering by Tribune Company of its
Exchangeable Notes (DECS(SM)). The Prospectus Supplement relates only to the
shares of Common Stock of The Learning Company, Inc. that may be delivered upon
maturity of the DECS and is one form of Prospectus Supplement that may be used
by Tribune Company in connection with the resale of the shares of Common Stock
of The Learning Company, Inc. under the Registration Statement. "DECS" is a
service mark of Salomon Brothers Inc.

<PAGE> 3

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.

SUBJECT TO COMPLETION, DATED JULY 15, 1998

PROSPECTUS SUPPLEMENT

(To Prospectus Dated July , 1998)

4,600,000 SHARES

[THE LEARNING COMPANY, INC. LOGO]

COMMON STOCK

------------------

Pursuant to the terms of the % Exchangeable Notes Due August 15, 2001
(the "Debt Exchangeable for Common Stock(SM)" or "DECS(SM)") of Tribune Company,
a Delaware corporation ("Tribune"), Tribune may deliver to the holders of the
DECS shares of common stock, par value $.01 per share (the "Common Stock"), of
The Learning Company, Inc., a Delaware corporation ("TLC" or the "Company").
This Prospectus Supplement and the accompanying Prospectus of the Company (the
"Company Prospectus") relate to the delivery by Tribune pursuant to the DECS of
up to 4,600,000 shares of Common Stock, plus up to an additional 610,796 shares
with respect to over-allotments. This Prospectus Supplement and the accompanying
Company Prospectus accompany a prospectus supplement and prospectus (together,
the "DECS Prospectus") of Tribune relating to the sale of 4,600,000 DECS, plus
up to an additional 610,796 DECS solely to cover over-allotments. TLC will not
receive any of the proceeds from the sale of the DECS or delivery thereunder of
shares of Common Stock to which this Prospectus Supplement relates. TLC takes no
responsibility for any information included in or omitted from the DECS
Prospectus. The DECS Prospectus does not constitute a part of this Prospectus
Supplement and the accompanying Company Prospectus nor is it incorporated by
reference herein or therein.

The Common Stock is traded on the New York Stock Exchange, Inc. (the
"NYSE") under the symbol "TLC." On July 14, 1998, the last reported sale price
of the Common Stock on the NYSE was $31.625 per share. See "Price Range of
Common Stock and Related Matters."

------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THE ACCOMPANYING COMPANY
PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CAREFULLY
CONSIDERED BY PROSPECTIVE PURCHASERS.

------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS

SUPPLEMENT OR THE ACCOMPANYING COMPANY PROSPECTUS. ANY

REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

, 1998

<PAGE> 4

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE DECS OR THE
COMPANY'S COMMON STOCK, INCLUDING PURCHASES OF THE DECS OR THE COMPANY'S COMMON
STOCK TO STABILIZE THE MARKET PRICE OF SUCH SECURITIES AND PURCHASES TO COVER
SOME OR ALL OF A SHORT POSITION IN SUCH SECURITIES MAINTAINED BY THE
UNDERWRITER. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "SUPPLEMENTAL PLAN OF
DISTRIBUTION."

The Learning Company, MECC, Compton's, Reader Rabbit, Oregon Trail,
BodyWorks and Cyber Patrol are registered trademarks and Learn To Speak and Home
Medical Advisor are trademarks of TLC or its subsidiaries. Sesame Street is a
registered trademark of Children's Television Workshop. The Baby-Sitters Club is
a trademark of Scholastic Inc. based on the Baby-Sitters Club book series (C)
Ann M. Martin. American Girls is a registered trademark of Pleasant Company.
Berlitz is a registered trademark of Berlitz Investment Corporation. Mosby's is
a registered trademark of Mosby-Year Book, Inc. Madeline is a trademark of
Madeline Bemelmans and Barbara Bemelmans. The names of all other TLC brands and
products are trademarks of TLC or its subsidiaries.

Broderbund, the Broderbund logo, Family Tree Maker, Living Books, The Print
Shop and Parsons Technology are registered trademarks of Broderbund. Carmen
Sandiego is a trademark of Broderbund. Myst is a registered trademark of
Broderbund and Riven is a trademark of Cyan, Inc.

S-2
<PAGE> 5

PROSPECTUS SUPPLEMENT SUMMARY

THE LEARNING COMPANY, INC.

The Learning Company, Inc. ("TLC" or the "Company") develops and publishes
a broad range of high-quality branded consumer software for personal computers
("PCs") that educate across every age category, from young children to adults.
The Company's primary emphasis is on education and reference software, but it
also offers a selection of lifestyle, productivity and, to a lesser extent,
entertainment products, both in North America and internationally.

The Company's educational products are principally sold under a number of
well-known brands, including The Learning Company, Minnesota Educational
Computing Corporation ("MECC") and Creative Wonders brands. The Company develops
and markets educational products for children ages 18 months to seven years in
the popular "Reader Rabbit" family, which includes both single-subject and
multi-subject titles such as Reader Rabbit's Reading 1, Reader Rabbit's Math 1,
Reader Rabbit's Toddler, Reader Rabbit's Preschool, Reader Rabbit's Kindergarten
and Reader Rabbit's 1st Grade. The Company also publishes educational products
for this age group based on the popular Sesame Street and Madeline characters,
among others. For children seven years and older, the Company develops and
markets engaging educational products such as products based on the popular The
Baby-Sitters Club books, as well as the long-running "Trail" series, which
includes The Oregon Trail 3rd Edition. During 1997, the Company launched The
American Girls Premiere title, which is marketed towards girls in this age
group.

The Company's reference products include the "Compton's Home Library" line
which includes, among others, Compton's Interactive Encyclopedia and Compton's
3D World Atlas Deluxe. In addition, the Company offers a line of medical
reference products that includes BodyWorks, Home Medical Advisor and Mosby's
Medical Encyclopedia. The Company's productivity line is marketed under the
SoftKey and Creative Office brands. The Company also publishes a lower-priced
"Value" line of products in box version under the Key and Classics brands and a
jewel-case only version under the SoftKey brand.

The Company develops and markets several different lines of software
designed to teach children and adults such foreign languages as French, German,
Italian, Spanish, Japanese and English. These lines include, among others, the
Learn to Speak and Berlitz lines of products. The Company also offers an
Internet filtering product, Cyber Patrol, which allows parents and teachers to
choose what content on the Internet is appropriate for children. As a result of
the Company's recent acquisition of Mindscape, Inc. and related entities
(collectively, "Mindscape") in March 1998, the Company also sells the popular
Mavis Beacon Teaches Typing, Chessmaster 5500, Print Master Platinum and The
Complete National Geographic.

The Company distributes its products through retail channels, including
direct sales to computer electronics stores, office superstores, mass
merchandisers, discount warehouse stores and software specialty stores, which
control over 23,000 North American storefronts. The Company also sells its
products directly to consumers through the mail, telemarketing and the Internet,
and also directly to schools. The Company's international sales are conducted
from subsidiaries in Germany, France, Holland, Ireland, the United Kingdom,
Australia and Japan. The Company also derives revenue from licensing its
products to original equipment manufacturers ("OEMs")which bundle the Company's
products for sale with computer systems or components and through on-line
offerings.

In February 1994, the Company, which was then known as WordStar
International Incorporated, completed a three-way business combination with
Softkey Software Products Inc. and Spinnaker Software Corporation in which the
Company changed its name to SoftKey International Inc. In October 1996, the
Company changed its name from SoftKey International Inc. to The Learning
Company, Inc. to reflect its expanded emphasis on educational software.

PROPOSED MERGER WITH BRODERBUND SOFTWARE, INC.

On June 22, 1998, the Company and Broderbund Software, Inc. ("Broderbund")
announced that they had reached a definitive agreement to merge. Under the terms
of the agreement, TLC will issue 0.80 shares of

S-3
<PAGE> 6

Common Stock for each outstanding share of Broderbund common stock. Based on the
number of shares of Broderbund common stock issued and outstanding on May 31,
1998 (excluding stock options, warrants or other rights to acquire Broderbund
common stock), the Company expects to issue approximately 16,800,000 shares of
Common Stock in the transaction.

The closing of the transaction is subject to certain conditions, including
the expiration of applicable waiting periods under pre-merger notification
regulations and the approval of stockholders of each company. Broderbund's and
TLC's Boards of Directors have each approved the transaction and intend to
recommend that stockholders approve the transaction. The transaction is expected
to close before the end of September 1998 and is expected to be accounted for
using the pooling-of-interests method of accounting. There can be no assurance
that the transaction will be completed on a timely basis or at all. For further
information concerning the transaction, see the Company's Unaudited Pro Forma
Combined Condensed Consolidated Financial Statements and the notes thereto
included elsewhere in this Prospectus Supplement.

Broderbund develops, publishes and markets a broad line of interactive
personal productivity, entertainment and education software for use in the home,
school and small business markets. Broderbund's product strategy is to identify
and develop families of products that will achieve sustained consumer appeal and
brand name recognition primarily across three major consumer software
categories: personal productivity, entertainment and education. Broderbund's
products include The Print Shop family of personal productivity products, the
Carmen Sandiego family of educational products, the Family Tree Maker line of
genealogy products, and the entertainment products Myst and Riven.

INDUSTRY OVERVIEW

The consumer software market has grown over the past few years as a result
of several major trends, including the increasing installed based of PCs in the
home, the improved multimedia capabilities of PCs and the increasing demand for
high quality, affordably priced software applications. The proliferation of PCs
is attributable in part to the availability of lower priced, high performance
PCs, including PCs costing less than $1,000. Improved product performance,
expanded memory and enhanced multimedia capabilities have been the main drivers
of growth in the consumer software market. In addition, consumers are exposed to
software purchase opportunities from a wide variety of sources with increased
frequency. The Internet has increased consumers' exposure to a variety of
software products and technologies and, therefore, increased their expectations
for high quality multimedia educational and reference software. The demand for a
large number and broad spectrum of value-priced software is also having a
significant impact on consumer software distribution. The distribution of
consumer software has expanded beyond traditional software retailers and
computer stores to include mass merchandisers, price clubs and superstores. As
this trend continues, it will become increasingly important for companies to
achieve greater sell-through unit volumes through brand name recognition, to
establish strong relationships with retailers and to consistently launch new
product offerings with state-of-the-art capabilities and rich content.

COMPANY STRATEGY

The Company's strategy is to be a leading provider of high-quality branded
consumer software for PCs. Key elements of the Company's operating and growth
strategies include the following:

Leverage Strong Brand Names and Leading Market Share. The Company's family
of leading brand names ranks consistently among the leaders in PC Data
Corporation's measurements of in-store sales of educational software in the
United States. While the rankings of the Company's products change from time to
time, TLC had five of the top ten best selling educational software titles in
May 1998. The Company seeks to leverage its strong brand names through the
development and introduction of updated versions of existing products and new
products based on those brand names. The Company believes that it must continue
to maintain and expand its portfolio of brand names to meet retailers' demand
for both popular titles and a full line of complementary software products.

S-4
<PAGE> 7

Strengthen Product Position in Sales Channels. The Company currently sells
its products through a broad spectrum of distribution channels including retail,
OEM, school, direct and international. In order to increase its product
penetration at such key retailers as Wal-Mart, Kmart, Sam's Club, Sears and
other specialty and mass retailers, the Company is continually adding to its
portfolio of titles through acquisitions, new product development and the
introduction of updated versions of existing titles. Furthermore, as certain
mass retailers seek to consolidate their suppliers, the Company's strategy is to
build its business by focusing on strong brand names and the expansion of the
breadth of its product line. Although retail remains the largest distribution
channel for the Company's products, several other outlets are important,
including OEM, school and the Internet. The Company has focused its efforts to
reach consumers directly, including a customer database of over 7 million
end-users. The school channel represents an important opportunity, with the
Company's products currently being marketed to over 2.5 million classrooms.

Broaden and Strengthen Product Lines through Acquisitions. Company
management believes that the consumer software publishing and distribution
markets will continue to consolidate and that the successful companies in its
industry will need to offer increasingly greater product diversity as mass
market retailers look to consolidate suppliers. Since December 1995, the Company
has completed more than a dozen acquisitions, which have built and expanded its
educational, productivity and reference product lines and added new software
categories such as foreign language products and game software. The acquisition
of Mindscape has broadened the Company's market position in segments of consumer
software, principally personal productivity, reference and entertainment. The
acquisition of Creative Wonders, L.L.C. ("Creative Wonders") has bolstered the
Company's strong position in education while adding such popular titles as the
Sesame Street family of products. The following table presents a summary of the
Company's key acquisitions since December 1995:

<TABLE>
<CAPTION>
DATE ACQUISITION DESCRIPTION OF PRIMARY PRODUCTS ACQUIRED
---- ----------- ----------------------------------------
<S> <C> <C>
December 1995 The (former) Learning Company Various education titles, including
Reader Rabbit
December 1995 Compton's NewMedia, Inc. Compton's Interactive Encyclopedia and
Compton's branded titles
May 1996 Minnesota Educational Computing Various education titles
Corporation (MECC)
August 1996 Edusoft, S.A. Education titles in France
September 1996 Domus Software, B.V. Consumer titles in The Netherlands
December 1996 Rossipaul Medien GmbH Consumer titles in Germany
September 1997 Learning Services Inc. School software catalog
September 1997 Skills Bank Corporation School and education titles
October 1997 Microsystems Software, Inc. Internet filtering titles (Cyber Patrol)
December 1997 Creative Wonders, L.L.C. Sesame Street, Madeline, The Baby-
Sitters Club branded titles
December 1997 TEC Direct, Inc. Consumer software catalog
March 1998 Mindscape, Inc. Various productivity, reference and
education titles
May 1998 PF. Magic, Inc. "Virtual life" line of titles
June 1998 The Princeton Review's Interactive Test preparation titles
Software Group
July 1998 Sofsource, Inc. High school education titles
</TABLE>

S-5
<PAGE> 8

Improved Financial Flexibility. The Company has taken certain steps over
the past year to improve the Company's capitalization and financial flexibility.
In December 1997, the Company completed a recapitalization transaction in which
Thomas H. Lee Company, Bain Capital, Inc., Centre Partners Management LLC, and
affiliated entities (collectively, the "New Investors") acquired a combined 22%
equity ownership position in the Company. The New Investors purchased $150
million of the Company's Series A Convertible/ Exchangeable Notes due 2000 (the
"Tribune Notes") previously held by Tribune Company and exchanged the Tribune
Notes with the Company for 750,000 shares of the Company's Series A Convertible
Participating Preferred Stock (the "Preferred Stock"), which are mandatorily
convertible into Common Stock upon satisfaction of certain conditions. The
Company also decreased its leverage in June 1998 by issuing approximately 3.4
million shares of Common Stock in exchange for approximately $96.7 million
aggregate principal amount of its 5 1/2% Senior Convertible Notes due 2000
("Senior Convertible Notes") in a privately negotiated transaction. As of July
4, 1998, the Company had total long-term debt of approximately $191 million.

RISK FACTORS

This offering involves a high degree of risk. See "Risk Factors" in the
accompanying Company Prospectus.

THE DECS OFFERING

The DECS are being offered by Tribune pursuant to the DECS Prospectus.
Pursuant to the terms of the DECS, Tribune may deliver shares of Common Stock to
the holders of the DECS at maturity. This Prospectus Supplement relates to
shares of Common Stock that Tribune may deliver pursuant to the DECS. The DECS
Prospectus does not constitute a part of this Prospectus Supplement or the
Company Prospectus, nor are they incorporated by reference herein. The Company
takes no responsibility for any information included in or omitted from the DECS
Prospectus.

S-6
<PAGE> 9

SUMMARY CONSOLIDATED FINANCIAL DATA

The summary financial data presented below for the years ended December 31,
1997, 1996, 1995 and 1994, the six month period ended December 31, 1993 (the
"Transition Period Ended December 31, 1993") and the year ended June 30, 1993
are derived from the Company's audited consolidated financial statements. The
summary financial data presented below for the three months ended March 31, 1998
and 1997 are unaudited but include all adjustments (consisting of normal
recurring accruals) that the Company considers necessary for a fair presentation
of its financial position and results of operations. The interim results are not
necessarily indicative of results for a full year. The following summary
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and the notes thereto, included elsewhere
herein or incorporated by reference herein.

STATEMENT OF OPERATIONS DATA:

<TABLE>
<CAPTION>
TRANSITION
THREE MONTHS PERIOD YEAR
ENDED ENDED ENDED
MARCH 31, YEARS ENDED DECEMBER 31, DECEMBER 31, JUNE 30,
----------------------- ------------------------------------------------- ------------ ----------
1998 1997 1997 1996 1995 1994 1993 1993
---------- ---------- ---------- ---------- ---------- ---------- ------------ ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $ 113,602 $ 86,881 $ 392,438 $ 343,321 $ 167,042 $ 121,287 $ 41,645 $ 109,704
Costs and expenses:
Costs of production.... 33,964 24,020 111,703 91,045 53,070 37,885 27,748 49,993
Sales and marketing.... 28,145 20,859 86,621 67,690 38,370 27,274 19,322 38,014
General and
administrative....... 7,574 8,577 31,135 28,550 20,813 21,259 15,598 24,278
Development and
software costs....... 10,993 10,751 41,018 36,018 12,487 6,696 2,563 8,198
Amortization, merger
and other charges.... 156,820 124,721 515,016 501,330 103,172 2,432 45,471 46,202
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Total operating
expenses........... 237,496 188,928 785,493 724,633 227,912 95,546 110,702 166,685
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Operating income
(loss)................. (123,894) (102,047) (393,055) (381,312) (60,870) 25,741 (69,057) (56,981)
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Interest income
(expense), net....... (5,514) (5,521) (21,378) (24,139) 705 (535) (744) (166)
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Income (loss) before
income taxes........... (129,408) (107,568) (414,433) (405,451) (60,165) 25,206 (69,801) (57,147)
Provision (benefit) for
income taxes........... -- (250) 61,234 -- 5,795 4,061 3,457 103
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Net income (loss)........ $ (129,408) $ (107,318) $ (475,667) $ (405,451) $ (65,960) $ 21,145 $ (73,258) $ (57,250)
========== ========== ========== ========== ========== ========== ========= ==========
Net income (loss) per
share:
Basic.................. $ (2.45) $ (2.20) $ (9.59) $ (9.94) $ (2.65) $ 1.13 $ (5.01) $ (4.36)
Diluted................ $ (2.45) $ (2.20) $ (9.59) $ (9.94) $ (2.65) $ 1.07 $ (5.01) $ (4.36)
Weighted average number
of shares outstanding:
Basic.................. 52,732,000 48,742,000 49,613,000 40,801,000 24,855,000 18,710,000 14,618,000 13,129,000
Diluted................ 52,732,000 48,742,000 49,613,000 40,801,000 24,855,000 20,462,000 14,618,000 13,129,000
</TABLE>

BALANCE SHEET DATA:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $107,710 $ 95,137
Total assets................................................ 465,823 416,791
Long-term debt(1)........................................... 287,650 294,356
Other long-term obligations................................. 67,926 65,865
Total stockholders' deficit(1).............................. (59,027) (103,786)
</TABLE>

- ---------------

(1) On June 8, 1998, the Company repurchased from funds managed by Loomis Sayles
& Company, L.P., approximately $96.7 million aggregate principal amount of
the Company's Senior Convertible Notes in a privately negotiated
transaction, which were cancelled. The purchase price was satisfied by the
issuance of approximately 3.4 million shares of the Company's Common Stock.

S-7
<PAGE> 10

SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The summary unaudited pro forma combined financial data are derived from
the selected historical consolidated or combined financial statements of TLC,
Mindscape and Broderbund, give effect to the proposed merger of TLC and
Broderbund as a pooling-of-interests, and should be read in conjunction with the
unaudited pro forma combined condensed consolidated financial statements and the
notes thereto included elsewhere in this Prospectus Supplement. In preparing the
pro forma combined condensed consolidated balance sheet, Broderbund's
consolidated balance sheet as of February 28, 1998 has been combined with TLC's
consolidated balance sheet as of April 4, 1998, giving effect to the proposed
merger as if it had occurred on April 4, 1998. On March 27, 1998, TLC completed
its acquisition of all of the capital stock of Mindscape. The following periods
have been combined for purposes of preparing the pro forma combined condensed
consolidated statements of operations. Broderbund's results for the three months
ended February 28, 1998 have been combined with TLC's results for the Three
Months Ended March 31, 1998 and Mindscape's results for the period from January
1, 1998 to March 4, 1998; Broderbund's results for the twelve months ended
November 30, 1997 have been combined with TLC's and Mindscape's results for the
Year Ended December 31, 1997; Broderbund's results for the fiscal year ended
August 31, 1996 have been combined with TLC's results for the Year Ended
December 31, 1996; and Broderbund's results for the fiscal year ended August 31,
1995 have been combined with TLC's results for the Year Ended December 31, 1995.

TLC expects to incur merger related pre-tax charges for the transaction
costs of the merger, and for other related costs, principally in the quarter in
which the proposed merger is consummated. Such pre-tax charges are currently
estimated to be approximately $6 million and will include the direct transaction
costs of the proposed merger, including primarily fees to financial advisors,
legal counsel and independent accountants as well as printing costs.

<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
---------- --------------------------------------
1998 1997 1996 1995
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
PRO FORMA COMBINED TLC/BRODERBUND
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ 201,315 $ 759,451 $ 529,528 $ 338,636
Operating loss............................ (164,761) (424,478) (330,435) (9,380)
Net loss.................................. (172,602) (495,762) (377,674) (29,773)
Net loss per share -- Diluted............. $ (2.20) $ (6.58) $ (6.59) $ (.73)
Shares used in computing diluted net loss
per share............................... 78,547,200 75,300,500 57,346,600 40,876,600
</TABLE>

<TABLE>
<CAPTION>
MARCH 31,
--------------
1998
--------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................ $ 697,326
Total long-term obligations............. 357,526
Total stockholders' equity.............. 100,658
</TABLE>

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<PAGE> 11

PRICE RANGE OF COMMON STOCK AND RELATED MATTERS

The Common Stock is listed on the New York Stock Exchange under the symbol
"TLC." As of February 2, 1998, to the Company's knowledge, there were
approximately 1,469 holders of record of the Common Stock. The Company has not
paid cash dividends on the Common Stock and does not anticipate doing so in the
foreseeable future.

The following sets forth the quarterly high and low sales prices for the
fiscal periods indicated.

<TABLE>
<CAPTION>
1996 HIGH LOW
- ---- -------- ---------
<S> <C> <C>
First Quarter......................................... $27.75 $ 13.375
Second Quarter........................................ 30.3125 17.25
Third Quarter......................................... 22.375 15.25
Fourth Quarter........................................ 25.75 13.375
</TABLE>

<TABLE>
<CAPTION>
1997 HIGH LOW
- ---- -------- ---------
<S> <C> <C>
First Quarter......................................... $18.00 $ 5.75
Second Quarter........................................ 9.625 5.50
Third Quarter......................................... 15.75 8.5625
Fourth Quarter........................................ 20.50 13.78125
</TABLE>

<TABLE>
<CAPTION>
1998 HIGH LOW
- ---- -------- ---------
<S> <C> <C>
First Quarter......................................... $25.75 $ 14.125
Second Quarter........................................ 30.00 22.625
Third Quarter (through July 14, 1998)................. 32.4375 28.25
</TABLE>

S-9
<PAGE> 12

SELECTED CONSOLIDATED FINANCIAL DATA

The selected financial data presented below for the years ended December
31, 1997, 1996, 1995 and 1994, the six month period ended December 31, 1993 (the
"Transition Period Ended December 31, 1993") and the year ended June 30, 1993
are derived from the Company's audited consolidated financial statements. The
selected financial data presented below for the three months ended March 31,
1998 and 1997 are unaudited but include all adjustments (consisting of normal
recurring accruals) that the Company considers necessary for a fair presentation
of its financial position and results of operations. The interim results are not
necessarily indicative of results for a full year. The following selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and the notes thereto, included elsewhere
herein or incorporated by reference herein.

STATEMENT OF OPERATIONS DATA:

BALANCE SHEET DATA:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
--------- ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.......... $107,710 $ 95,137 $110,120 $ 77,832 $12,205 $22,797
Total assets....................... 465,823 416,791 793,518 900,413 90,815 79,334
Long-term and related party
debt(1).......................... 287,650 294,356 482,930 500,651 10,218 16,406
Other long-term obligations........ 67,926 65,865 91,998 60,450 11,641 8,281
Total stockholders' equity
(deficit)(1)..................... (59,027) (103,786) 104,937 214,519 37,485 (8,632)
</TABLE>

- ---------------

S-10
<PAGE> 13

PROPOSED MERGER WITH BRODERBUND

On June 22, 1998, the Company and Broderbund announced that they had
reached a definitive agreement to merge. Under the terms of the agreement, TLC
will issue 0.80 shares of Common Stock for each outstanding share of Broderbund
common stock. Based on the number of shares of Broderbund common stock issued
and outstanding on May 31, 1998 (excluding stock options, warrants or other
rights to acquire Broderbund common stock), the Company expects to issue
approximately 16,800,000 shares in the transaction.

Broderbund develops, publishes and markets a broad line of interactive
personal productivity, entertainment and education software for use in the home,
school and small business markets. Since its organization in 1980, Broderbund
has developed innovative products which take advantage of advances in PC
technology.

Broderbund's product strategy is to identify and develop families of
products that will achieve sustained consumer appeal and brand name recognition
primarily across three major consumer software categories: personal
productivity, entertainment and education. Broderbund's products include The
Print Shop family of personal productivity products, the Carmen Sandiego family
of educational products, the Family Tree Maker line of genealogy products, and
the entertainment products Myst and Riven. Recognizing that new and emerging
technologies have historically played, and will continue to play, an
increasingly significant role in the multimedia environment and consumer
preferences, Broderbund seeks to adapt to and incorporate such technologies into
its product offerings. In this respect, Broderbund believes that the emergence
of the Internet represents an important trend and opportunity in the consumer
software market, and as part of its Internet strategy it is developing on-line
capabilities to its existing products, expanding its web-site presence and
infrastructure and investing in a number of small Internet related companies in
order to keep abreast of developments in this rapidly-evolving area.

S-11
<PAGE> 14

UNAUDITED PRO FORMA COMBINED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma combined condensed consolidated financial
statements assume a business combination between TLC and Broderbund accounted
for using the pooling-of-interests method and are based upon the respective
historical consolidated financial statements and the notes thereto of TLC and
Broderbund, as well as the historical combined financial statements of
Mindscape. All amounts presented in these pro forma combined condensed
consolidated financial statements are in thousands of dollars, except for share
and per share data.

The pro forma combined condensed consolidated financial statements reflect
the pro forma financial position of the combining entities as of March 31, 1998
and the pro forma results of operations for the three months ended March 31,
1998 and each of the three years in the period ended December 31, 1997.

In preparing the pro forma combined condensed consolidated balance sheet,
Broderbund's balance sheet as of February 28, 1998 has been combined with TLC's
balance sheet as of March 31, 1998. The following periods have been combined for
purposes of preparing the pro forma combined condensed consolidated statements
of operations. Broderbund's results for the three months ended February 28, 1998
have been combined with TLC's results for the Three Months Ended March 31, 1998
and Mindscape's results for the period from January 1, 1998 to March 4, 1998;
Broderbund's results for the twelve months ended November 30, 1997 have been
combined with TLC's and Mindscape's results for the Year Ended December 31,
1997; Broderbund's results for the fiscal year ended August 31, 1996 have been
combined with TLC's results for the Year Ended December 31, 1996; and
Broderbund's results for the fiscal year ended August 31, 1995 have been
combined with TLC's results for the Year Ended December 31, 1995.

The pro forma combined condensed consolidated financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the financial position or operating results that would have been achieved if the
proposed merger of TLC and Broderbund had been consummated as of the beginning
of the periods presented, nor are they necessarily indicative of the future
financial position or operating results of TLC. No pro forma adjustments are
required to conform the financial reporting policies of TLC and Broderbund for
the periods presented. However, on a prospective basis, TLC expects to review
the accounting practices of Broderbund to ensure consistency with those of TLC.
The pro forma combined condensed consolidated financial information does not
give effect to any cost savings or restructuring and integration costs which may
result from the integration of TLC's and Broderbund's operations. Such costs
related to restructuring and integration have not yet been determined and TLC
expects to charge such costs to operations during the quarter in which the
proposed merger of TLC and Broderbund is consummated.

TLC expects to incur merger related pre-tax charges for the transaction
costs of the proposed merger, and for other related costs, principally in the
quarter in which the proposed merger is consummated. Such pre-tax transaction
charges are currently estimated to be $6 million and will include the direct
transaction costs of the proposed merger, including primarily fees to financial
advisors, legal counsel and independent accountants as well as printing costs.

S-12
<PAGE> 15

THE LEARNING COMPANY, INC.

PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET

AS OF MARCH 31, 1998

(IN THOUSANDS)

(UNAUDITED)

<TABLE>
<CAPTION>
THE LEARNING PRO FORMA COMBINED
COMPANY BRODERBUND ADJUSTMENTS PRO FORMA
-------------- ----------------- ----------- --------------
MARCH 31, 1998 FEBRUARY 28, 1998 MARCH 31, 1998
-------------- ----------------- --------------
<S> <C> <C> <C> <C>
ASSETS

CURRENT ASSETS:
Cash and short-term
investments.................. $107,710 $137,058 -- $244,768
Accounts receivable, net........ 94,428 11,505 -- 105,933
Inventories..................... 38,087 7,892 -- 45,979
Other current assets............ 45,289 28,219 -- 73,508
-------- -------- ------- --------
285,514 184,674 -- 470,188

Fixed assets and other, net....... 37,224 30,593 -- 67,817
Goodwill and other intangible
assets, net..................... 143,085 16,236 -- 159,321
-------- -------- ------- --------
$465,823 $231,503 -- $697,326
======== ======== ======= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities............... $169,274 $ 63,868 $ 6,000(a) $239,142
-------- -------- ------- --------
LONG-TERM OBLIGATIONS:
Long-term debt.................. 287,650 -- -- 287,650
Accrued and deferred income
taxes........................ 58,512 -- -- 58,512
Other........................... 9,414 1,950 -- 11,364
-------- -------- ------- --------
355,576 1,950 -- 357,526
STOCKHOLDERS' EQUITY (DEFICIT).... (59,027) 165,685 (6,000)(a) 100,658
-------- -------- ------- --------
$465,823 $231,503 $ -- $697,326
======== ======== ======= ========
</TABLE>

The accompanying notes are an integral part of these pro forma

combined condensed consolidated financial statements.

S-13
<PAGE> 16

THE LEARNING COMPANY, INC.

PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 1998

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(UNAUDITED)

<TABLE>
<CAPTION>
THE LEARNING MINDSCAPE PRO FORMA COMBINED
COMPANY (PREACQUISITION) BRODERBUND ADJUSTMENTS PRO FORMA
-------------- ------------------ ----------------- ----------- --------------
THREE MONTHS PERIOD FROM THREE MONTHS THREE MONTHS
ENDED JANUARY 1, 1998 TO ENDED ENDED
MARCH 31, 1998 MARCH 4, 1998 FEBRUARY 28, 1998 MARCH 31, 1998
-------------- ------------------ ----------------- --------------
<S> <C> <C> <C> <C> <C>
REVENUES................. $ 113,602 $ 9,090 $ 78,623 -- $ 201,315

COSTS AND EXPENSES:
Costs of production.... 33,964 9,846 34,381 -- 78,191
Sales and marketing.... 28,145 15,869 19,734 -- 63,748
General and
administrative....... 7,574 3,013 5,078 -- 15,665
Development and
software costs....... 10,993 5,446 12,062 -- 28,501
Amortization, merger
and other charges.... 156,820 19,186 2,217 $ 1,748(b) 179,971
---------- --------- ---------- ------- ----------
Total operating
expenses.......... 237,496 53,360 73,472 1,748 366,076
---------- --------- ---------- ------- ----------
OPERATING INCOME
(LOSS)................. (123,894) (44,270) 5,151 (1,748) (164,761)

INTEREST AND OTHER INCOME
(EXPENSE), NET......... (5,514) 6 965 -- (4,543)
---------- --------- ---------- ------- ----------
INCOME (LOSS) BEFORE
TAXES.................. (129,408) (44,264) 6,116 (1,748) (169,304)

PROVISION FOR INCOME
TAXES.................. -- 1,066 2,232 -- 3,298
---------- --------- ---------- ------- ----------
NET INCOME (LOSS)........ $ (129,408) $ (45,330) $ 3,884 $(1,748) $ (172,602)
========== ========= ========== ======= ==========
NET INCOME (LOSS) PER
SHARE:
Basic.................. $ (2.45) $ (4.97) $ .23 $ (2.20)
Diluted................ $ (2.45) $ (4.97) $ .23 $ (2.20)

WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING:
Basic.................. 52,732,000 9,117,600(d) 16,697,600(d) 78,547,200(d)
Diluted................ 52,732,000 9,117,600(d) 17,000,000(d) 78,547,200(d)
</TABLE>

The accompanying notes are an integral part of these pro forma

combined condensed consolidated financial statements.

S-14
<PAGE> 17

THE LEARNING COMPANY, INC.

PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1997

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(UNAUDITED)

<TABLE>
<CAPTION>
THE LEARNING MINDSCAPE PRO FORMA COMBINED
COMPANY (PREACQUISITION) BRODERBUND ADJUSTMENTS PRO FORMA
------------ ---------------- ------------ ----------- ------------
DECEMBER 31, DECEMBER 31, NOVEMBER 30, DECEMBER 31,
1997 1997 1997 1997
------------ ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES...................... $ 392,438 $ 138,520 $ 228,493 -- $ 759,451

COSTS AND EXPENSES:
Costs of production......... 111,703 54,515 77,516 -- 243,734
Sales and marketing......... 86,621 43,771 70,176 -- 200,568
General and
administrative............ 31,135 8,035 17,581 -- 56,751
Development and software
costs..................... 41,018 22,853 48,969 112,840
Amortization, merger and
other charges............. 515,016 15,625 37,910 $10,485(b) 570,036
(9,000)(c)
---------- --------- ---------- ------- ----------
Total operating
expenses............... 785,493 144,799 252,152 1,485 1,183,929
---------- --------- ---------- ------- ----------
OPERATING LOSS................ (393,055) (6,279) (23,659) (1,485) (424,478)

INTEREST AND OTHER INCOME
(EXPENSE), NET.............. (21,378) (531) 5,226 -- (16,683)
---------- --------- ---------- ------- ----------
LOSS BEFORE TAXES............. (414,433) (6,810) (18,433) (1,485) (441,161)

PROVISION (BENEFIT) FOR INCOME
TAXES....................... 61,234 -- (6,633) -- 54,601
---------- --------- ---------- ------- ----------
NET LOSS...................... $ (475,667) $ (6,810) $ (11,800) $(1,485) $ (495,762)
========== ========= ========== ======= ==========
NET LOSS PER SHARE:
Basic and Diluted........... $ (9.59) $ (.75) $ (.71) $ (6.58)

WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic and Diluted........... 49,613,000 9,117,600(d) 16,569,900(d) 75,300,500(d)
</TABLE>

The accompanying notes are an integral part of these pro forma

combined condensed consolidated financial statements.

S-15
<PAGE> 18

THE LEARNING COMPANY, INC.

PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1996

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(UNAUDITED)

<TABLE>
<CAPTION>
THE LEARNING PRO FORMA COMBINED
COMPANY BRODERBUND ADJUSTMENTS PRO FORMA
------------ ---------- ----------- ------------
DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1996 1996
------------ ---------- ------------
<S> <C> <C> <C> <C>
REVENUES................................. $ 343,321 $ 186,207 -- $ 529,528

COSTS AND EXPENSES:
Costs of Production.................... 91,045 58,259 -- 149,304
Sales and marketing.................... 67,690 34,381 -- 102,071
General and administrative............. 28,550 11,256 -- 39,806
Development and software costs......... 36,018 29,244 -- 65,262
Amortization, merger and other
charges............................. 501,330 (6,810) $ 9,000(c) 503,520
---------- ---------- ------- ----------
Total operating expenses............ 724,633 126,330 9,000 859,963
---------- ---------- ------- ----------

OPERATING INCOME (LOSS).................. (381,312) 59,877 (9,000) (330,435)

INTEREST AND OTHER INCOME (EXPENSE),
NET.................................... (24,139) 6,716 -- (17,423)
---------- ---------- ------- ----------

INCOME (LOSS) BEFORE TAXES............... (405,451) 66,593 (9,000) (347,858)

PROVISION FOR INCOME TAXES............... -- 29,816 -- 29,816
---------- ---------- ------- ----------
NET INCOME (LOSS)........................ $ (405,451) $ 36,777 $(9,000) $ (377,674)
========== ========== ======= ==========
NET INCOME (LOSS) PER SHARE:
Basic.................................. $ (9.94) $ 2.22 $ (6.59)
Diluted................................ $ (9.94) $ 2.14 $ (6.59)

WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Basic.................................. 40,801,000 16,545,600(d) 57,346,600(d)
Diluted................................ 40,801,000 17,207,200(d) 57,346,600(d)
</TABLE>

The accompanying notes are an integral part of these pro forma

combined condensed consolidated financial statements.

S-16
<PAGE> 19

THE LEARNING COMPANY, INC.

PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1995

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(UNAUDITED)

<TABLE>
<CAPTION>
THE LEARNING COMBINED
COMPANY BRODERBUND PRO FORMA
------------ ---------- ------------
DECEMBER 31, AUGUST 31, DECEMBER 31,
1995 1995 1995
------------ ---------- ------------
<S> <C> <C> <C>
REVENUES............................................ $ 167,042 $ 171,594 $ 338,636

COSTS AND EXPENSES:
Costs of production............................... 53,070 60,997 114,067
Sales and marketing............................... 38,370 25,143 63,513
General and administrative........................ 20,813 11,085 31,898
Development and software costs.................... 12,487 22,784 35,271
Amortization, merger and other charges............ 103,172 95 103,267
---------- ---------- ----------
Total operating expenses....................... 227,912 120,104 348,016

OPERATING INCOME (LOSS)............................. (60,870) 51,490 (9,380)

INTEREST AND OTHER INCOME, NET...................... 705 10,250 10,955
---------- ---------- ----------
INCOME (LOSS) BEFORE TAXES.......................... (60,165) 61,740 1,575

PROVISION FOR INCOME TAXES.......................... 5,795 25,553 31,348
---------- ---------- ----------
NET INCOME (LOSS)................................... $ (65,960) $ 36,187 $ (29,773)
========== ========== ==========
NET INCOME (LOSS) PER SHARE:
Basic............................................. $ (2.65) $ 2.26 $ (.73)
Diluted........................................... $ (2.65) $ 2.15 $ (.73)

WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic............................................. 24,855,000 16,021,600(d) 40,876,600(d)
Diluted........................................... 24,855,000 16,829,600(d) 40,876,600(d)
</TABLE>

The accompanying notes are an integral part of these pro forma

combined condensed consolidated financial statements.

S-17
<PAGE> 20

THE LEARNING COMPANY, INC.

NOTES TO PRO FORMA COMBINED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(UNAUDITED)

A. PRO FORMA BASIS OF PRESENTATION AND ADJUSTMENTS

The unaudited pro forma combined condensed consolidated financial
statements assume a business combination between The Learning Company, Inc.
("TLC") and Broderbund Software, Inc. ("Broderbund") accounted for using the
pooling-of-interests method and are based upon the respective historical
consolidated financial statements and the notes thereto of TLC and Broderbund,
as well as the historical combined financial statements of Mindscape Group (as
defined below).

Pursuant to the merger agreement, dated June 21, 1998, among TLC,
Broderbund and TLC Merger Corp., a Delaware corporation and wholly-owned
subsidiary of TLC, TLC will issue 0.80 shares (the "Exchange Ratio") of common
stock, $.01 par value per share, of TLC (the "TLC Common Stock") in exchange for
each outstanding share of Broderbund common stock, upon consummation of the
merger. TLC expects to account for the proposed merger using the
pooling-of-interests method.

On March 27, 1998, pursuant to a Stock Purchase Agreement, dated as of
March 5, 1998 (the "Mindscape Agreement"), by and between TLC, on the one hand,
and Mindscape Holding Company, Pearson Overseas Holdings Ltd. and Pearson
Netherlands, BV (collectively, the "Sellers"), on the other hand, TLC completed
its acquisition from the Sellers of all of the outstanding capital stock of
Mindscape, Inc., Mindscape International Ltd. and Mindscape France SARL
(collectively, "Mindscape" or "Mindscape Group"). Prior to any potential
adjustment in accordance with the terms of the Mindscape Agreement, the total
purchase price for the acquisition was $155,854, including cash, other
consideration consisting of TLC Common Stock, transaction related costs and net
liabilities assumed. The purchase price is subject to adjustment based upon the
balance of Mindscape's working capital, as defined in the Mindscape Agreement,
at the closing date of the acquisition. TLC Common Stock issued to the Sellers
in connection with the acquisition of Mindscape and the special warrants of
TLC's Canadian subsidiary, Softkey Software Products Inc. ("SoftKey Software"),
issued in connection with the financing of the acquisition (assuming exercise of
SoftKey Software's special warrants for SoftKey Software's exchangeable
non-voting shares (the "TLC Exchangeable Shares") and exchange thereof for TLC
Common Stock) represent, in the aggregate, approximately 9,117,600 shares of TLC
Common Stock. TLC accounted for the acquisition using the purchase method.

TLC's fiscal year is the 52 or 53 weeks ending on or after December 31. For
clarity of presentation herein, with regard to TLC, all references to March 31,
1998 relate to balances as of April 4, 1998, all references to December 31, 1997
relate to balances as of January 3, 1998, the period from January 4, 1998 to
April 4, 1998 is referred to as the Three Months Ended March 31, 1998, the
period from January 5, 1997 to January 3, 1998 is referred to as the Year Ended
December 31, 1997, the period from January 7, 1996 to January 4, 1997 is
referred to as the Year Ended December 31, 1996 and the period from January 1,
1995 to January 6, 1996 is referred to as the Year Ended December 31, 1995.

Broderbund's fiscal year ends on August 31. In preparing the pro forma
combined condensed consolidated balance sheet, Broderbund's balance sheet as of
February 28, 1998 has been combined with TLC's balance sheet as of March 31,
1998. The following periods have been combined for purposes of preparing these
pro forma combined condensed consolidated statements of operations. Broderbund's
results for the three months ended February 28, 1998 have been combined with
TLC's results for the Three Months Ended March 31, 1998 and Mindscape's results
for the period from January 1, 1998 to March 4, 1998; Broderbund's results for
the twelve months ended November 30, 1997 have been combined with TLC's and
Mindscape's results for the Year Ended December 31, 1997; Broderbund's results
for the fiscal year ended August 31, 1996 have been combined with TLC's results
for the Year Ended December 31, 1996; and Broderbund's results for

S-18
<PAGE> 21

THE LEARNING COMPANY, INC.

NOTES TO PRO FORMA COMBINED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(UNAUDITED)

the fiscal year ended August 31, 1995 have been combined with TLC's results for
the Year Ended December 31, 1995.

Broderbund's statement of operations for the twelve months ended November
30, 1997 has been compiled from Broderbund's unaudited condensed consolidated
statements of operations for the quarterly periods ended November 30, 1997,
August 31, 1997, May 31, 1997 and February 28, 1997. Broderbund's results of
operations for the three months ended November 30, 1996 have been excluded from
the pro forma combined condensed consolidated statements of operations.
Broderbund's unaudited revenues, operating income and net income were $61,491,
$13,518 and $8,895, respectively, in that period.

The pro forma combined condensed consolidated balance sheet sets forth the
pro forma financial position of TLC and Broderbund at March 31, 1998 as if the
proposed merger of TLC and Broderbund had occurred on March 31, 1998.

The pro forma combined condensed consolidated statements of operations for
the Three Months Ended March 31, 1998 and the Year Ended December 31, 1997 set
forth the pro forma results of operations of TLC, Mindscape and Broderbund as if
the acquisition of Mindscape by TLC and the proposed merger of TLC and
Broderbund had occurred at the beginning of that three month period and year,
respectively. The pro forma combined condensed consolidated statements of
operations for the Years Ended December 31, 1996 and 1995 set forth the pro
forma results of operations of TLC and Broderbund, as if the proposed merger of
TLC and Broderbund had occurred at the beginning of each of those years,
respectively.

The pro forma combined condensed consolidated financial statements are
unaudited, are intended for informational purposes and are not necessarily
indicative of the consolidated financial position or results of operations of
the combined entity which would have been reported had either the acquisition of
Mindscape by TLC or the proposed merger of TLC and Broderbund occurred at the
beginning of the periods presented, nor are they necessarily indicative of the
future consolidated financial position or results of operations of the combined
entity upon consummation of the proposed merger. These pro forma combined
condensed consolidated financial statements should be read in conjunction with
TLC's consolidated financial statements included in TLC's Quarterly Report on
Form 10-Q for the quarterly period ended April 4, 1998 and TLC's Annual Report
on Form 10-K for the fiscal year ended January 3, 1998; Mindscape Group's
combined financial statements included in TLC's Amendment No. 4 to Current
Report on Form 8-K/A dated March 27, 1998; Broderbund's consolidated financial
statements included in Broderbund's Quarterly Reports on Form 10-Q for the
quarterly periods ended February 28, 1998, November 30, 1997, May 31, 1997,
February 28, 1997 and November 30, 1996 and Broderbund's Annual Report on Form
10-K for the fiscal year ended August 31, 1997.

B. PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

(a) The pro forma adjustment to current liabilities and stockholders'
equity (deficit), in the amount of $6,000, reflects accruals in connection with
the estimated transaction costs related to the proposed merger of TLC and
Broderbund. These estimated transaction costs consist primarily of fees to
financial advisors, legal counsel and independent accountants as well as
printing costs. These costs are not considered in the pro forma combined
condensed consolidated statements of operations. These estimated transaction
costs will be charged against the results of operations during the quarter in
which the proposed merger of TLC and Broderbund is consummated.

(b) In connection with the acquisition of Mindscape by TLC, TLC recorded
goodwill and other intangible assets, in the amount of $52,854, which reflected
the allocation of the purchase price for that

S-19
<PAGE> 22

THE LEARNING COMPANY, INC.

NOTES TO PRO FORMA COMBINED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(UNAUDITED)

acquisition to brands and trade names, in the amount of $30,000, completed
technology and products, in the amount of $13,000, and goodwill, in the amount
of $9,854. The allocation of the purchase price reflected a nonrecurring charge,
in the amount of $103,000, for the fair value of in-process research and
development. The nonrecurring charge, in the amount of $103,000, for the fair
value of in-process research and development is not considered in the pro forma
combined condensed consolidated statement of operations for the Year Ended
December 31, 1997.

In connection with the acquisition of Mindscape by TLC, for the Three
Months Ended March 31, 1998 and the Year Ended December 31, 1997, the pro forma
adjustments to amortization, merger and other charges in the amounts of $1,748
and $10,485, respectively, reflect amortization of the identified intangible
assets acquired and goodwill over the estimated useful lives of the assets on a
straight-line basis. The estimated useful lives of brands and trade names,
completed technology and products and goodwill are ten, two and ten years,
respectively.

(c) In December 1995, The Learning Company ("The Former Learning Company")
terminated an agreement to merge with Broderbund and merged with TLC. In
connection with the termination of the agreement with Broderbund, The Former
Learning Company paid a termination fee, in the amount of $18,000, to
Broderbund, which was included in TLC's allocation of the purchase price for The
Former Learning Company and amortized over two years. The pro forma adjustment,
in the amount of $9,000 for the Year Ended December 31, 1996, reflects
elimination of the $18,000 termination fee, net of the corresponding reduction
in amortization of goodwill in connection with TLC's purchase of The Former
Learning Company. The pro forma adjustment, in the amount of $9,000 for the Year
Ended December 31, 1997, reflects elimination of the remaining amortization of
goodwill which resulted from the termination fee. There were no other
significant intercorporate transactions which required elimination.

(d) In connection with the acquisition of Mindscape by TLC, for the Three
Months Ended March 31, 1998 and the Year Ended December 31, 1997, the pro forma
adjustments to the weighted average number of shares outstanding reflect the
issuance of TLC Common Stock and SoftKey Software's special warrants (assuming
exercise of SoftKey Software's special warrants for TLC Exchangeable Shares and
exchange thereof for TLC Common Stock), which represent in the aggregate
approximately 9,117,600 shares of TLC Common Stock.

Based upon the terms of the Mindscape Agreement, as amended, $30,000 of the
purchase price was paid to the Sellers in TLC Common Stock. The number of shares
of TLC Common Stock issued to the Sellers was based upon the average closing
price of TLC Common Stock during the five trading days ended two days prior to
the closing date of the acquisition. Accordingly, TLC issued 1,366,700 shares of
TLC Common Stock to the Sellers in connection with the acquisition of Mindscape
by TLC.

On March 6, 1998, SoftKey Software agreed to sell to certain Canadian
institutional investors 8,687,500 special warrants for proceeds of approximately
$134,500. The pro forma adjustments for the Three Months Ended March 31, 1998
and the Year Ended December 31, 1997 reflect TLC's receipt and use of $120,000
of the proceeds in connection with the acquisition of Mindscape by TLC. Each
SoftKey Software special warrant is exercisable without additional payment for
one TLC Exchangeable Share. TLC has issued a special voting share (the "Voting
Share") which has a number of votes equal to the number of TLC Exchangeable
Shares outstanding (other than TLC Exchangeable Shares owned by TLC or any
entity controlled by TLC), and which may be voted by a trustee on behalf of such
holders of TLC Exchangeable Shares. The holder of the Voting Share is not
entitled to dividends and, upon receiving voting instructions from holders of
the TLC Exchangeable Shares, shall vote with the common stockholders as a single
class. The TLC Exchangeable Shares are exchangeable on a one-for-one basis for
TLC Common Stock without additional payment. The

S-20
<PAGE> 23

THE LEARNING COMPANY, INC.

NOTES TO PRO FORMA COMBINED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(UNAUDITED)

exercise of the special warrants for TLC Exchangeable Shares is subject to
certain conditions, including receipt of certain regulatory approvals.

In connection with the acquisition of Mindscape by TLC and for presentation
in the pro forma combined condensed consolidated statements of operations for
the Three Months Ended March 31, 1998 and Year Ended December 31, 1997, TLC
included 1,366,700 shares of TLC Common Stock issued to the Sellers and the
issuance of special warrants for $120,000, representing approximately 7,750,900
shares of TLC Common Stock, in the computation of basic and diluted earnings per
share as if the special warrants had been exercised for TLC Exchangeable Shares,
the TLC Exchangeable Shares had been exchanged for TLC Common Stock and the
Sellers' TLC Common Stock had been issued at the beginning of that three month
period and year, respectively.

In connection with the proposed merger of TLC and Broderbund and for
presentation in the pro forma combined condensed consolidated statements of
operations for all periods presented, TLC included the issuance of the number of
TLC's common shares that would have been issued at the Exchange Ratio based upon
the weighted average number of shares of Broderbund common stock outstanding in
each period in the computation of basic and diluted earnings. The computation of
earnings per share in the pro forma combined condensed consolidated statements
of operations for all periods presented reflects all adjustments necessary for
presentation in accordance with Statement of Financial Accounting Standards No.
128, Earnings per Share.

For clarity of presentation herein, the following table sets forth the
authorized, issued and outstanding capital stock of TLC as of March 31, 1998,
and on a pro forma basis as of March 31, 1998 to reflect (i) the issuance of
SoftKey Software's special warrants (assuming exercise of SoftKey Software's
special warrants for TLC Exchangeable Shares and exchange thereof for TLC Common
Stock) which represent approximately 7,750,900 shares of TLC Common Stock in
connection with the acquisition of Mindscape by TLC and (ii) the issuance of
approximately 16,747,300 shares of TLC Common Stock in connection with the
proposed merger of TLC and Broderbund.

S-21
<PAGE> 24

THE LEARNING COMPANY, INC.

NOTES TO PRO FORMA COMBINED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(UNAUDITED)

<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK COMMON STOCK SPECIAL VOTING STOCK
--------------- -------------------------- -------------------------------
REPRESENTING THE
SHARES SHARE VOTING RIGHTS OF
AUTHORIZED, SHARES AUTHORIZED, OUTSTANDING
ISSUED ISSUED ISSUED TLC
AND SHARES AND AND EXCHANGEABLE
OUTSTANDING AUTHORIZED OUTSTANDING OUTSTANDING SHARES
--------------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
TLC, March 31, 1998.... 750,000 120,000,000 51,636,020* 1 5,550,929
Pro Forma Adjustments:
Mindscape.............. -- -- -- -- 7,750,900
Broderbund............. -- -- 16,747,300 -- --
------- ----------- ----------- -- ----------
TLC, Pro Forma......... 750,000 120,000,000 68,383,320 1 13,301,829
======= =========== =========== == ==========
</TABLE>

- ---------------
* Balance includes approximately 1,366,700 shares of TLC Common Stock issued to
the Sellers in satisfaction of the stock portion of the purchase price in
connection with the acquisition of Mindscape by TLC prior to March 31, 1998.

S-22
<PAGE> 25

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto, and the information
incorporated by reference or included elsewhere herein. All dollar amounts
presented in this Management's Discussion and Analysis of Financial Condition
and Results of Operations are presented in thousands, except share and per share
amounts.

GENERAL

Business Combinations

On February 4, 1994, the Company completed a three-way business combination
(the "Three-Party Combination") among Softkey Software Products Inc., WordStar
International Incorporated ("WordStar") and Spinnaker Software Corporation
("Spinnaker"). The Three-Party Combination was accounted for using the
pooling-of-interests method of accounting. On February 4, 1994, WordStar changed
its name to SoftKey International Inc. and on October 24, 1996 changed its name
to The Learning Company, Inc.

On June 22, 1998, the Company and Broderbund announced that they had
reached a definitive agreement to merge. Under the terms of the agreement, TLC
will issue 0.80 shares of Common Stock for each outstanding share of Broderbund
common stock. The closing of the transaction is subject to certain conditions.
See "Proposed Merger with Broderbund."

On March 27, 1998, the Company completed the acquisition of Mindscape, a
publisher of educational, productivity and entertainment software. The purchase
price was a total of approximately $156,000, including cash of approximately
$120,000, approximately 1,366,700 shares of Common Stock valued at approximately
$30,000, transaction costs and net liabilities assumed. The transaction was
accounted for as a purchase.

On October 23, 1997, the Company acquired control of Creative Wonders, an
educational software company that publishes, among other titles, the Sesame
Street line of products. The purchase price was a total of $37,799, including
the value of employee stock options assumed by the Company and estimated
transaction costs. The purchase price included cash payments totaling $33,883.
The transaction was accounted for as a purchase.

On September 19, 1997, the Company acquired Learning Services Inc.
("Learning Services"), a national school software catalog for teachers, in
exchange for the issuance of 709,976 shares of Common Stock. On September 29,
1997, the Company acquired Skills Bank Corporation ("Skills Bank"), a leader in
developing language, mathematics and reading software products for adult,
adolescent and K to 12 students in exchange for the issuance of 1,069,286 shares
of Common Stock. On October 2, 1997, the Company acquired Microsystems Software,
Inc. ("Microsystems"), a leading developer of Internet filtering software, in
exchange for the issuance of 955,819 shares of Common Stock. On December 30,
1997, the Company acquired TEC Direct, Inc. ("TEC Direct"), an educational
consumer software catalog, in exchange for the issuance of 429,733 shares of
Common Stock. Each of these transactions was accounted for using the
pooling-of-interests method of accounting. The consolidated financial statements
of the Company for the years prior to December 31, 1997 included elsewhere
herein do not include the results and balances of these companies as they were
determined to be immaterial to the consolidated financial statements for those
periods. On May 14, 1998, the Company acquired PF. Magic, Inc. ("PF. Magic"), a
developer and publisher of virtual life software for children, in exchange for
the issuance of 496,627 shares of Common Stock. Effective July 4, 1998, the
Company acquired Sofsource, Inc. ("Sofsource"), a publisher of educational and
test software for high school and college students, in exchange for the issuance
of 1,641,138 shares of Common Stock. Each of these transactions was accounted
for as a purchase.

On May 17, 1996, the Company acquired MECC, a publisher and developer of
high quality educational software for children sold to consumers and schools, in
exchange for 9,214,007 shares of Common Stock. The total purchase price was
$284,631, including estimated transaction costs, the value of stock options
assumed and deferred income taxes related to certain identifiable intangible
assets acquired. In the transaction,

S-23
<PAGE> 26

approximately 1,048,000 MECC employee stock options were converted into options
to purchase approximately 1,198,000 shares of Common Stock. The transaction was
accounted for as a purchase.

On August 12, 1996, the Company acquired Edusoft S.A. ("Edusoft"), an
educational software company located in Paris, France, in exchange for the
issuance of 752,275 shares of Common Stock. The total purchase price was
$13,313, including estimated transaction costs. The transaction was accounted
for as a purchase.

On December 28, 1995, the Company purchased Compton's NewMedia, Inc. and
Compton's Learning Company (collectively, "Compton's"), developers and
publishers of educational and reference multimedia software titles and each a
former wholly-owned subsidiary of Tribune Company. In connection with the
acquisition, the Company issued a total of 5,052,697 shares of Common Stock,
which included 587,036 shares to settle $14,000 of intercompany debt to Tribune
Company and executed a promissory note to Tribune Company for $3,000 in
cancellation of certain remaining intercompany indebtedness. The total purchase
price was $104,394, including estimated transaction costs, settlement of certain
intercompany debt to Tribune Company, deferred income taxes related to certain
identifiable intangible assets acquired and assumption of the fair value of net
liabilities of Compton's. The $3,000 promissory note was repaid in 1996 by the
issuance of 158,099 shares of Common Stock. The transaction was accounted for as
a purchase.

On December 22, 1995, the Company acquired control of The Former Learning
Company, a leading developer of education software products for use at home and
school. Under the terms of the merger agreement, the Company acquired, in a
two-step business combination, all of the outstanding common stock of The Former
Learning Company for total consideration of $684,066, including estimated
transaction costs, value of stock options assumed and deferred income taxes
related to certain identifiable intangible assets acquired. Approximately
$543,163 of the purchase price was settled in cash. Approximately 1.1 million
unvested Former Learning Company stock options were assumed and converted into
stock options to purchase 3,123,000 shares of Common Stock, based on the merger
consideration of $67.50 per share, and were vested on or before January 26,
1996. The transaction was accounted for as a purchase.

On July 21, 1995, the Company acquired tewi Verlag GmbH ("tewi"), a German
software publisher and distributor, for a combination of cash and Common Stock.
The transaction was accounted for as a purchase.

Other

In July 1998, SoftKey Software, the Company's Canadian subsidiary, sold its
Canadian income tax software business for approximately $45 million in cash.

Fiscal Periods

On January 27, 1994, the Company changed its fiscal year end to the 52 or
53 weeks ending on or after December 31. For clarity of presentation herein, all
references to the Year Ended December 31, 1997 relate to the period January 5,
1997 to January 3, 1998. All references to the Year Ended December 31, 1996
relate to the period January 7, 1996 to January 4, 1997; all references to the
Year Ended December 31, 1995 relate to the period January 1, 1995 to January 6,
1996.

The first quarter reporting period for 1998 ended on April 4, 1998, and the
first quarter reporting period for 1997 ended on April 5, 1997. The periods from
January 4, 1998 to April 4, 1998 and from January 5, 1997 to April 5, 1997 are
referred to as the "First Quarter 1998" and "First Quarter 1997" or the "Three
Months Ended March 31, 1998" and the "Three Months Ended March 31, 1997",
respectively throughout these financial statements.

S-24
<PAGE> 27

Period-to-Period Comparisons

A variety of factors may cause period-to-period fluctuations in the
Company's operating results, including the integration of operations resulting
from acquisitions of companies, revenues and expenses related to the
introduction of new products or new versions of existing products, delays in
customer purchases in anticipation of upgrades to existing products, new or
larger competitors in the marketplace, currency fluctuations, dealer and
distributor order patterns and seasonality of buying patterns of customers.
Historical operating results are not indicative of future operating results and
performance. This is particularly true of historical data presented herein,
certain of which reflects the results of TLC prior to its acquisitions of The
Former Learning Company, MECC and Compton's and the other more recent
acquisitions.

Summary of Results

The following table summarizes the audited results of operations of the
Company for the periods shown.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Revenues................................................. $ 392,438 $ 343,321 $167,042
Operating loss........................................... (393,055) (381,312) (60,870)
Net loss................................................. (475,667) (405,451) (65,960)
Net loss per share (basic and diluted)................... $ (9.59) $ (9.94) $ (2.65)
</TABLE>

Operating loss includes amortization, merger and other charges of $515,016,
$501,330 and $103,172 in the Years Ended December 31, 1997, 1996 and 1995,
respectively.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
1997

Revenues

Revenues by distribution channel and their respective percentages for the
first quarter of 1998 and the first quarter of 1997 are as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------
% OF TOTAL % OF TOTAL
DISTRIBUTION CHANNEL 1998 REVENUES 1997 REVENUES
- -------------------- -------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Retail............................................ $ 55,858 49 $36,313 42
OEM............................................... 8,544 8 6,435 7
School............................................ 11,628 10 10,162 12
Direct response................................... 12,398 11 10,975 13
International..................................... 19,828 17 16,634 19
Tax software and services......................... 5,346 5 6,362 7
--- ------- ---
--------
100 $86,881 100
$113,602
=== ======= ===
========
</TABLE>

Retail sales increased in dollars and as a percentage of total revenue for
the three months ended March 31, 1998 as compared to the three months ended
March 31, 1997 primarily due to growth in the demand for consumer software and
the Company's increased market share. Retail revenues also were higher than the
prior year due to the acquisition of Mindscape and the launch of several new
products which included: Reader Rabbit's Second Grade, Success Builder: Math
Library, Cyber Patrol, Compton's Reference Suite, and Compton's 3D World Atlas
Deluxe. OEM sales increased in dollars for the three months ended March 31, 1998
as compared to the three months ended March 31, 1997 primarily due to additional
demand from PC manufacturers across the industry. International sales increased
in dollars for the three months ended March 31, 1998 as compared to the three
months ended March 31, 1997 primarily as a result of the higher

S-25
<PAGE> 28

PC sales in Europe and an extension of a distribution license in Australia.
Direct response revenues increased in dollars for the three months ended March
31, 1998 as compared to the three months ended March 31, 1997 due to growth in
the Company's catalog based sales to end users. School sales increased in
dollars for the three months ended March 31, 1997 as compared to the three
months ended March 31, 1997 as a result of the higher growth in revenues from
the acquisitions of Skills Bank and Learning Services in 1997 and due to the
increasing demand for software in American schools. Revenues from tax software
and services decreased in dollars and as a percentage of total revenue for the
three months ended March 31, 1998 as compared to the three months ended March
31, 1997 due to greater competition in the Canadian home tax software market and
lower Canadian dollar exchange rates.

Costs and Expenses

The Company's costs and expenses and the respective percentages of revenues
for the first quarter of 1998 as compared to the first quarter of 1997 are as
follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------
% OF TOTAL % OF TOTAL
DISTRIBUTION CHANNEL 1998 REVENUES 1997 REVENUES
- -------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Costs of production................................ $33,964 30 $24,020 28
Sales and marketing................................ 28,145 25 20,859 24
Development and software costs..................... 10,993 10 10,751 12
General and administrative......................... 7,574 6 8,577 10
------- -- ------- --
$80,676 71 $64,207 74
======= == ======= ==
</TABLE>

Costs of production include the cost of manuals, packaging, diskettes,
duplication, assembly and fulfillment charges. In addition, costs of production
include royalties paid to third-party developers and inventory obsolescence
reserves. Costs of production as a percentage of revenues increased in the first
quarter of 1998 as compared to the first quarter of 1997 from 28% to 30%. The
increase in costs of production as a percentage of revenues in first quarter of
1998 from first quarter of 1997 was caused by the sale of products from the
acquisitions of Mindscape and Creative Wonders that have higher production costs
and royalties plus the higher cost of purchasing third-party product that is
sold through catalog distribution.

Sales and marketing expenses increased to 25% of revenues in the first
quarter of 1998 as compared to 24% of revenues in the first quarter of 1997. The
increase relates to higher spending on coupon rebate promotions, retail channel
marketing and trade promotion programs.

Development and software costs decreased to 10% of revenues in the first
quarter of 1998 as compared to 12% of revenues in the first quarter of 1997 due
to the timing of product introduction.

General and administrative expenses decreased to 6% of revenues in the
first quarter of 1998 as compared to 10% of revenues in the first quarter of
1997 due to continued efforts to reduce both fixed costs and employee headcount
related to the combinations of the Company's acquisitions.

The Company reported merger, amortization and other charges in the first
quarter of 1998 and the first quarter of 1997 of $156,820 and $124,721,
respectively, resulting primarily from acquisitions. The charges in the three
months ended March 31, 1998 include $103,000 related to in-process technology
write-offs, with the remainder relating to amortization of goodwill,
amortization of acquired technology related assets and other expenses. The
Company primarily used the income approach to determine the fair value of the
identified intangible assets acquired. The debt-free cash flows, net of
provision for operating expenses, were discounted to a net present value. The
value of certain completed technology was based upon comparable fair values in
the open market. In order to develop the acquired incomplete technology into
commercially viable products the Company will be required to complete
development of proprietary code, development of the artistic and graphic works
and design of the remaining storyboards.

S-26
<PAGE> 29

YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO YEAR ENDED DECEMBER 31, 1996

Revenues

Revenues by distribution channel and their respective percentages for the
Years Ended December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
YEAR ENDED % OF TOTAL YEAR ENDED % OF TOTAL
DISTRIBUTION CHANNEL DECEMBER 31, 1997 REVENUES DECEMBER 31, 1996 REVENUES
- -------------------- ----------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Retail................................ $179,255 46 $174,812 51
OEM................................... 27,286 7 27,855 8
School................................ 48,666 12 21,701 6
Direct response....................... 43,309 11 38,548 11
International......................... 74,179 19 57,684 17
Tax software and services............. 19,743 5 22,721 7
-------- --- -------- ---
$392,438 100 $343,321 100
======== === ======== ===
</TABLE>

Total revenues increased 14% in the Year Ended December 31, 1997 as
compared to the Year Ended December 31, 1996 primarily due to the introduction
of new educational software products by the Company such as Reader Rabbit's
Toddler, Reader Rabbit's Preschool, Reader Rabbit's Kindergarten and Reader
Rabbit's 1st Grade, The ClueFinders' 3rd Grade Adventures, The Oregon Trail 3rd
Edition and The American Girls Premiere. In the Year Ended December 31, 1997,
returns and allowances as a percentage of gross revenues increased to 15% from
10% in the Year Ended December 31, 1996 as a result of shorter product shelf
life, changing technology and greater competition. The Company expects returns
and allowances as a percentage of revenues to remain relatively constant in the
foreseeable future.

Retail sales during the Year Ended December 31, 1997 grew due to the
introduction of new and upgraded products by the Company. The Company believes
that the increasing availability of PCs at lower prices has contributed to the
increase in retail revenues. OEM sales declined due to lower demand from
hardware manufacturers but this decline was offset by the revenues derived from
the acquisition of Microsystems. School revenues increased primarily as a result
of sales from the acquisitions of Skills Bank and Learning Services and the
introduction of new and upgraded school software titles such as The Oregon Trail
3rd Edition. Direct response sales increased due to the continued expansion of
the outbound tele-sales channel during 1997. The increase in direct response
revenues was offset by a decline in solo direct mail revenues due to the effect
of the Internet and a shift in the Company's product strategy from productivity
and reference products to educational products, which historically have had a
lower response rate in the mail. The international business continued to expand
due to the introduction of 631 new localized and translated titles during the
Year Ended December 31, 1997, and due to the effect of a full year's results of
Edusoft in France and Domus Software B.V. in Holland, which were acquired in
August and September of 1996, respectively. In addition, the Company entered
into several international license and distribution transactions during the Year
Ended December 31, 1997 that increased revenues. Revenues from tax software and
services declined due to fluctuations in the Canadian dollar exchange rates and
the timing of delivery of certain products.

The Company expects that its future revenue growth will depend on, among
other things, its ability to introduce new and upgraded products to the
marketplace, the extent of competition, unit pricing trends, the rate of
proliferation of PCs into the home market and the demand for its consumer
software products along with the Company's respective share in the consumer
software market. Unit pricing will be affected by the extent of competition in
the consumer software industry, which is expected to increase. In addition, the
Company's ability to develop products for new platforms and introduce titles
into new distribution channels will impact future revenues and growth rates. The
consumer software industry has experienced continued consolidation of formerly
independent companies. To the extent that these companies gain greater market
share than the Company, future results will be affected negatively. During 1997,
the Company and many of its competitors began using rebate coupons as an
incentive to consumers to purchase products and expand

S-27
<PAGE> 30

revenues. In addition, the Company uses various forms of print and television
media advertising to enhance brand and product awareness. The use of these
methods of channel marketing and advertising is becoming more prevalent among
the larger consumer software companies. To the extent that the Company competes
with companies larger than itself having more financial resources, it may not be
able to adequately match future channel marketing and advertising programs,
which may in turn result in loss of market share and corresponding revenues and
operating profits.

Costs and Expenses

The Company's costs and expenses and the respective percentages of revenues
for the Year Ended December 31, 1997 as compared to the Year Ended December 31,
1996 are as follows:

<TABLE>
<CAPTION>
YEAR ENDED % OF TOTAL YEAR ENDED % OF TOTAL
DISTRIBUTION CHANNEL DECEMBER 31, 1997 REVENUES DECEMBER 31, 1996 REVENUES
- -------------------- ----------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Costs of production................... $111,703 28 $ 91,045 27
Sales and marketing................... 86,621 22 67,690 20
General and administrative............ 31,135 8 28,550 8
Development and software costs........ 41,018 10 36,018 10
Amortization, merger and other 515,016 131 501,330 146
charges.............................
-------- --- -------- ---
$785,493 199 $724,633 211
======== === ======== ===
</TABLE>

Total costs and expenses decreased as a percentage of revenues to 199% in
the Year Ended December 31, 1997 as compared with 211% in the Year Ended
December 31, 1996. The negative percentage of revenues was caused primarily by
the effect of the amortization, merger and other charges.

Sales and marketing costs increased to 22% of revenues in the Year Ended
December 31, 1997 as compared to 20% of revenues in the Year Ended December 31,
1996. The increase as a percentage of revenues was a result of increased
spending on coupon rebate programs in the retail channel, higher channel
marketing costs and increased spending for print and television media
advertising.

General and administrative costs as a percentage of revenues were constant
between years. The increase in expenses was due to the 1997 acquisitions.

Development and software costs were constant as a percentage of revenues.
Overall dollars spent increased in the Year Ended December 31, 1997 as compared
to the Year Ended December 31, 1996 as a result of the higher cost to develop
titles in the Reader Rabbit multi-subject series as well as The ClueFinders'
Adventures and Compton's Interactive Encyclopedia, which each have a higher
proportion of animation, graphics and online content than products developed in
prior years. In addition, the Company has begun to develop MMX, DVD and Internet
Applet platform based technologies, which are more expensive to develop than
traditional software code. The Company expects that as technologies become more
complex it will spend an increasing percentage of its revenues on research and
development.

Amortization, merger and other charges decreased as a percentage of
revenues to 131% in the Year Ended December 31, 1997 as compared to 146% in the
Year Ended December 31, 1996. The amortization, merger and other charges
includes, among other things, the amortization of goodwill and other acquired
intangible assets from the acquisitions of The Former Learning Company,
Compton's, Creative Wonders and MECC plus certain of the European acquisitions.
In addition, the amortization, merger and other charges for the Year Ended
December 31, 1997 include certain exit and restructuring costs related to
centralizing certain

S-28
<PAGE> 31

administrative functions of the acquisitions and employee severance. The change
in dollar amount in amortization of goodwill and other intangible assets of
$22,520 is also due to inclusion of a full year of amortization of the goodwill
and intangible assets resulting from the acquisition of MECC, whereas the prior
year included amortization from May 17, 1996, the acquisition date, to the end
of that year. In addition, the amortization, merger and other charges includes a
charge for incomplete technology in the Year Ended December 31, 1997 of $1,050
related to the acquisition of Creative Wonders and in the Year Ended December
31, 1996 includes a charge for incomplete technology of $56,688 related to the
acquisition of MECC.

Amortization, merger and other charges are as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Amortization of goodwill and other intangible assets........ $457,393 $434,866
Exit and restructuring costs................................ 48,571 4,260
Charge for incomplete technology............................ 1,050 56,688
Provision for earn-outs..................................... 5,497 2,917
Professional fees and other costs........................... 2,505 2,599
-------- --------
$515,016 $501,330
======== ========
</TABLE>

The increase in amortization of goodwill and other intangible assets in the
Year Ended December 31, 1997 as compared to the Year Ended December 31, 1996
related primarily to a full year of amortization of goodwill and other
intangible assets resulting from the acquisitions of MECC in May 1996 and a full
year of amortization of goodwill and other intangible assets resulting from the
European acquisitions of Edusoft and Domus in August and September 1996,
respectively. During 1997, the amortization of goodwill and other intangible
assets related to the acquisitions of The Former Learning Company and Compton's
was completed.

Exit and restructuring costs related to charges for employee severance,
discontinued products, termination of certain supplier relationships and other
charges related to the acquisitions. The plan was consummated during the year.
The charge increased in the Year Ended December 31, 1997 as compared to the Year
Ended December 31, 1996 as a result of the 1997 acquisitions and related changes
in strategy related to the school channel and discontinued product. The Company
does not expect the annual cost savings or liquidity improvement resulting from
these actions to be material.

The charge for incomplete technology for the Year Ended December 31, 1997
related to products being developed by Creative Wonders and the charge for
incomplete technology for the Year Ended December 31, 1996 related to products
being developed by MECC, in each case which the Company believes had not yet
reached technological feasibility and had no future alternative use at the date
of acquisition and for which additional development was required to complete the
software technology and products. In order to develop the acquired incomplete
technology into commercially viable products, the Company was required to
complete development of proprietary code, development of the artistic and
graphic works and design of the remaining storyboards. The in-process
development associated with acquisitions completed in fiscal 1996 and 1995 was
generally completed approximately 16 months from the respective acquisition date
in each of the transactions. In order to complete the development of the
incomplete technology, the Company spent approximately $6,000 (incurred in
fiscal 1996 and fiscal 1997) for the acquisition completed in fiscal 1996, and
$12,000 (incurred in fiscal 1996 and fiscal 1997) for the acquisitions completed
in fiscal 1995. The Company expects to spend approximately $500 in fiscal 1998
to complete the development of incomplete technology for the acquisition
completed in fiscal 1997.

The provision for earn-outs related to additional payments which were
earned by the former owners of certain acquisitions completed in 1996 and 1995.
The earn-out requirements are based upon meeting certain financial and other
goals and are recorded when those conditions are met. The amounts due are
payable in shares of the Company's Common Stock and are due prior to December
31, 1998.

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<PAGE> 32

Professional fees related to the investment banking, legal and accounting
costs for the acquisitions.

Interest Expense

Interest expense decreased to a net expense of $21,378 in the Year Ended
December 31, 1997 as compared to a net expense of $24,139 in the Year Ended
December 31, 1996 as a result of the repurchase of certain of the Senior
Convertible Notes, offset by the interest costs associated with the sale of
certain trade accounts receivable and by borrowings throughout the year under
the bank line of credit.

YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO YEAR ENDED DECEMBER 31, 1995

Revenues

Revenues by distribution channel and their respective percentages for the
Years Ended December 31, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
YEAR ENDED % OF TOTAL YEAR ENDED % OF TOTAL
DISTRIBUTION CHANNEL DECEMBER 31, 1996 REVENUES DECEMBER 31, 1995 REVENUES
- -------------------- ----------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Retail........................ $174,812 51 $ 75,734 45
OEM........................... 27,855 8 20,021 12
School........................ 21,701 6 -- --

Direct response............... 38,548 11 26,203 16
International................. 57,684 17 25,631 15
Tax software and services..... 22,721 7 19,453 12
-------- --- -------- ---
$343,321 100 $167,042 100
======== === ======== ===
</TABLE>

Total revenues increased 106% in the Year Ended December 31, 1996 as
compared to the Year Ended December 31, 1995 due to several factors, including
the effect of revenues from the acquisitions of The Former Learning Company,
Compton's and MECC of approximately $130,000 and the remainder due to an
increase in sales of new and upgraded products launched by the Company during
the year. Retail revenues increased by approximately $80,000 as a result of the
acquisitions of The Former Learning Company, Compton's and MECC plus a general
increase in sales of consumer software products through retailers such as
Wal-Mart, Office Depot, Kmart and OfficeMax and sales from new and upgraded
products. International sales increased primarily as a result of the acquisition
of Edusoft in 1996, a full year of sales from tewi which was acquired in July
1995 and an increase in the number of translated foreign language versions of
the Company's products available for sale in the international markets. OEM
revenues increased due to the availability of new product offerings for this
channel and an increased demand for multi-language titles. Direct response
revenues increased 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 response
channel. Direct response revenues also increased as a result of the introduction
of an outbound telephone sales program during 1996. Prior to the acquisitions of
The Former Learning Company and MECC, the Company did not participate in the
school channel. Revenues from tax software and services increased for the Year
Ended December 31, 1996 as compared to the Year Ended December 31, 1995 as a
result of earlier delivery of product to the Company's customers.

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<PAGE> 33

Costs and Expenses

The Company's costs and expenses and the respective percentages of revenues
for the Year Ended December 31, 1996 as compared to the Year Ended December 31,
1995 are as follows:

<TABLE>
<CAPTION>
YEAR ENDED % OF TOTAL YEAR ENDED % OF TOTAL
DECEMBER 31, 1996 REVENUES DECEMBER 31, 1995 REVENUES
----------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Costs of production........... $ 91,045 27 $ 53,070 32
Sales and marketing........... 67,690 20 38,370 23
General and administrative.... 28,550 8 20,813 12
Development and software 36,018 10 12,487 7
costs.......................
Amortization, merger and other 501,330 146 103,172 62
charges.....................
-------- --- -------- ---
$724,633 211 $227,912 136
======== === ======== ===
</TABLE>

Total costs and expenses increased as a percentage of revenues to 211% in
the Year Ended December 31, 1996, as compared with 136% in the Year Ended
December 31, 1995. This increase as a percentage of revenues was caused
primarily by the charges for incomplete technology, the amortization of goodwill
and acquired technology resulting from the acquisitions of The Former Learning
Company, Compton's and MECC, offset by the reduction in general and
administrative costs, sales and marketing costs and costs of production as a
percentage of revenues as a result of the integration and centralization of the
operations of the acquired companies.

Costs of production include the cost of manuals, packaging, diskettes and
CD-ROM discs, duplication, assembly and fulfillment charges. In addition, costs
of production include royalties paid to third party developers and inventory
obsolescence reserves. Costs of production, as a percentage of revenues,
decreased to 27% in the Year Ended December 31, 1996 as compared to 32% in the
Year Ended December 31, 1995. The decrease in costs of production as a
percentage of revenues was caused by reduced prices on the cost to manufacture
product due to increased unit volumes, changes in the production components, the
impact from The Former Learning Company and MECC having historically higher
gross margin selling products than the Company prior to the acquisitions. In
addition, during 1996 the Company experienced an increase in revenues in the
OEM, school and direct response channels, all of which typically experience
higher gross margins than the Company's traditional retail box product sales
channel. As well, the Company has seen an increase in sales of its Value line of
products, which, due to the nature of the low cost packaging in a jewel case,
also generate higher gross margins.

Sales and marketing expenses decreased to 20% of revenues in the Year Ended
December 31, 1996 as compared to 23% of revenues in the Year Ended December 31,
1995. The percentage decrease was a result of the Company reducing both fixed
costs and employee headcount of its combined operations following the
acquisitions in late 1995 and May 1996.

General and administrative expenses decreased to 8% of revenues in the Year
Ended December 31, 1996 as compared to 12% in the Year Ended December 31, 1995.
This is primarily the result of a general reduction in overhead costs and
employee headcount following the acquisitions in 1995 and 1996.

Development and software costs increased to 10% of revenues for the Year
Ended December 31, 1996 as compared to 7% in the Year Ended December 31, 1995.
The increase is a result of a higher proportion of internally developed products
from The Former Learning Company, Compton's and MECC than developed by the
Company prior to these acquisitions.

Amortization, merger and other charges increased to 146% of revenues in the
Year Ended December 31, 1996 as compared to 62% in the Year Ended December 31,
1995. The increase results from the amortization of the goodwill and other
intangible assets arising on the acquisitions of The Former Learning Company and
Compton's for a full year in the Year Ended December 31, 1996 as compared to
less than a month in the Year Ended December 31, 1995, and from the amortization
of goodwill and other intangible assets and the charge for incomplete technology
arising from the acquisition of MECC in May 1996.

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<PAGE> 34

Amortization, merger and other charges are as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Amortization of goodwill and other intangible assets........ $434,866 $ 31,968
Charge for incomplete technology............................ 56,688 60,483
Employee severance costs.................................... 4,260 1,304
Provision for earn-outs..................................... 2,917 --
Professional fees and other costs........................... 2,599 6,784
Provision for litigation.................................... -- 2,633
-------- --------
$501,330 $103,172
======== ========
</TABLE>

The increase in amortization of goodwill and other intangible assets in the
Year Ended December 31, 1996 as compared to the Year Ended December 31, 1995
relates primarily to the amortization resulting from acquisitions of MECC in May
1996 and a full year of amortization of goodwill arising from The Former
Learning Company and Compton's, which were acquired in December 1995. Goodwill
and other intangible assets are primarily being amortized on a straight-line
basis over two years.

The charge for incomplete technology for the Year Ended December 31, 1996
relates to products being developed by MECC and in the Year Ended December 31,
1995 for products developed by The Former Learning Company and Compton's which
the Company believes had not yet reached technological feasibility at the date
of acquisition and for which additional development was required to complete the
software technology and products.

Employee severance costs in each year related to severance paid to
employees of the Company terminated in connection with the acquisitions.

The provision for earn-outs relates to additional payments which may be
earned by the former owners of certain international acquisitions purchased in
1996 and 1995. The earn-out requirements are based upon meeting certain
financial and other goals and will be recorded when those conditions are met.

Professional fees and other costs decreased in the Year Ended December 31,
1996 as compared to the Year Ended December 31, 1995 due to decreased charges
related to the investment banking, legal and accounting costs.

Interest Income (Expense)

Interest income (expense) increased to a net expense of $24,139 in the Year
Ended December 31, 1996 as compared to interest income of $705 in 1995 as a
result of increased interest expense arising from the Senior Convertible Notes
issued by the Company in 1995.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents decreased from $110,120 at December 31, 1996 to
$95,137 at December 31, 1997. This decrease was attributable to the repurchase
of $28,000 of Senior Convertible Notes offset by cash generated from operations
of $90,074. The Company also paid $33,500 during the year to acquire control of
Creative Wonders, which was offset by the net proceeds of $57,462 from the issue
of the special warrants in Canada. Included as a use of cash from operating
activities is $25,115 of interest related to the Senior Convertible Notes and
the Tribune Notes.

Cash and cash equivalents increased from $95,137 at December 31, 1997 to
$107,710 at March 31, 1998. This increase was attributable to the Company's
Canadian subsidiary, SoftKey Software, issuing 8,687,500 special warrants in a
private placement for proceeds of approximately $134,000, offset by the cash
paid for the acquisition of Mindscape of approximately $120,000. Other financing
activities generated approximately

S-32
<PAGE> 35

$4,455 and investing activities used approximately $26,480, offset by cash
generated from operations of approximately $20,813.

As of May 6, 1998 the Company has outstanding $297,650 principal amount
Senior Convertible Notes ($10,000 is included as current). The Senior
Convertible Notes will be redeemable by the Company on or after November 2, 1998
at declining redemption prices. Should the Senior Convertible Notes not convert
under their terms into Common Stock, there can be no assurances that the Company
will have sufficient cash flows from future operations to meet payment
requirements under the debt or be able to refinance the notes under favorable
terms or at all. On June 8, 1998, the Company repurchased $96,695 aggregate
principal amount of the Senior Convertible Notes in a privately negotiated
transaction. The purchase price was satisfied by the issuance of approximately
3,400,000 shares of the Company's Common Stock.

As of July 1, 1998, the maximum availability under the Company's revolving
line of credit (the "Line") was $123,000, of which $35,000 was outstanding at
March 31, 1998. Borrowings under the line are due July 1, 2000 and bear interest
at variable rates. The Line is subject to certain financial covenants, is
secured by a general security interest in certain operating subsidiaries of the
Company and by a pledge of the stock of certain of its subsidiaries.

The Company, through its wholly owned subsidiary The Learning Company
Funding, Inc. (a separate special purpose corporation), is party to a
receivables purchase agreement whereby it can sell without recourse undivided
interests in eligible pools of trade accounts receivable on a revolving basis
during a five year period ending September 30, 2002 of up to $75,000. The
Company acts as servicing agent for the sold receivables in the collection and
administration of the accounts.

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 conducts portions of its business in currencies other than U.S.
dollar. The Company does not expect that it will incur any significant risk of
currency translation loss due to fluctuations in those other currencies as the
amounts are not material.

In the Year Ended December 31, 1997, revenues derived for the school and
international channels increased by $43,460, each of which has a slower customer
collection cycle and also requires a higher level of inventory on-hand due to
the higher number of title offerings and smaller production size requirements.
In addition, in the Year Ended December 31, 1997, the Company completed a number
of acquisitions, some of which involve catalog operations. Such operations,
relative to the Company's operations, require a greater number of software title
offerings and also have a slower accounts receivable collection pattern.
Management believes these changes in channel mix have caused an increase in the
accounts receivable aging and a decrease in inventory turnover as compared to
the prior year. The Company expects that as revenues derived from these channels
and from catalogs represent a greater proportion of its overall business,
accounts receivable aging may increase and inventory turns may decrease
correspondingly.

At the present time, the Company expects that its cash and cash equivalents
and 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 and software
markets. In addition, the Company's Senior Convertible Notes mature in November
2000. If not converted to Common Stock, the Company may be required to secure
alternative financing sources. There can be no assurance that alternative
financing sources will be available on terms acceptable to the Company in the
future or at all. The Company continuously evaluates 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.

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<PAGE> 36

Future Operating Results

See "Risk Factors" in the Company Prospectus to which this Prospectus
Supplement is attached for a description of important risks and uncertainties
that may cause the Company's future operating results to differ materially and
adversely from those described herein.

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

For the Year Ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128 ("FAS 128"), which requires the
presentation of basic and diluted earnings per share, which replaces primary and
fully diluted earnings per share. Earnings per share have been restated for all
periods presented to reflect the adoption of FAS 128. Basic net loss per share
is computed using the weighted average number of common shares outstanding
during the period. Diluted net loss per share is computed using the weighted
average number of common shares outstanding during the period, plus the diluted
effect of common stock equivalents. Common stock equivalent shares consist of
convertible debentures, preferred stock, stock options and warrants. The
dilutive computations do not include potential common stock equivalents for the
years ended December 31, 1997, 1996 and 1995 as their inclusion would be
antidilutive.

The Financial Accounting Standards Board ("FASB") recently issued Statement
of Position ("SOP") No. 97-2, Software Revenue Recognition, which supersedes SOP
No. 91-1, the existing pronouncement on this subject, in its final form. The
most significant changes to SOP No. 91-1, relate to multiple deliverables and
"when and if available" products. The adoption of this new standard is not
expected to have a material effect on the Company's financial statements. The
SOP is effective for transactions entered into in fiscal years beginning after
December 15, 1997. The Company adopted this new standard effective January 4,
1998.

In June 1997, the FASB issued FAS No. 130 Reporting Comprehensive Income
which establishes standards for reporting and display of comprehensive income
and its components (revenue, expenses, gains and losses) in a full set of
general purpose financial statements. Effective January 4, 1998, the Company
adopted FAS No. 130.

In June 1997, the FASB issued FAS No. 131 Disclosure about Segments of an
Enterprise and Related Information which changes the way public companies report
information about operating segments. FAS No. 131 which is based on the
management approach to segment reporting establishes requirements to report
selected segment information quarterly and to report entity wide disclosures
about products and services major customers and the material countries in which
the entity holds assets and reports revenue. Management is currently evaluating
the effects of this change on its reporting of segment information. The Company
will adopt FAS No. 131 for its fiscal year 1998.

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<PAGE> 37

BUSINESS

The Company develops and publishes a broad range of high quality branded
consumer software for PCs that educate across every age category, from young
children to adults. The Company's primary emphasis is on educational and
reference software, but it also offers a selection of lifestyle, productivity
and, to a lesser extent, entertainment products, both in North America and
internationally.

The Company's educational products are principally sold under a number of
well known brands, including The Learning Company, MECC and Creative Wonders
brands. The Company develops and markets educational products for children ages
18 months to seven years in the popular "Reader Rabbit" family, which includes
both single-subject and multi-subject titles such as Reader Rabbit's Reading 1,
Reader Rabbit's Math 1, Reader Rabbit's Toddler, Reader Rabbit's Preschool,
Reader Rabbit's Kindergarten and Reader Rabbit's 1st Grade. The Company also
publishes educational products for this age group based on the popular Sesame
Street and Madeline characters, among others. For children seven years and
older, the Company develops and markets engaging educational products such as
the long-running "Trail" series, which includes The Oregon Trail 3rd Edition, as
well as products based on the popular The Baby-Sitters Club books. During 1997,
the Company launched The American Girls Premiere title, which is marketed
towards girls in this age group.

The Company's reference products include the "Compton's Home Library" line
which includes, among others, Compton's Interactive Encyclopedia and Compton's
3D World Atlas Deluxe. In addition, the Company offers a line of medical
reference products that includes BodyWorks, Home Medical Advisor and Mosby's
Medical Encyclopedia. The Company's productivity line is marketed under the
SoftKey and the Creative Office brands. The Company also publishes a
lower-priced line of products in box version under the Key and Classics brands
and a jewel-case only version under the SoftKey brand.

The Company also offers an Internet filtering product, the Cyber Patrol,
which allows parents and teachers to choose what content on the Internet is
appropriate for children.

The Company distributes its products through retail channels, including
direct sales to computer electronics stores, office superstores, mass
merchandisers, discount warehouse stores and software specialty stores which
control over 23,000 North American storefronts. The Company also sells its
products directly to consumers through the mail, telemarketing and the Internet,
and also directly to schools. The Company's international sales are conducted
from subsidiaries in Germany, France, Holland, Ireland, the United Kingdom,
Australia and Japan. The Company also derives revenue from licensing its
products to OEMs, which bundle the Company's products for sale with computer
systems or components and through on-line offerings.

The Company has a history of acquiring companies in order to broaden its
product lines and sales channels. During 1997, the Company completed a number of
small complementary acquisitions in the educational software segment. During the
third quarter of 1997, the Company acquired Learning Services (a national school
software catalog for teachers), Skills Bank (a developer of older age and
remedial educational software for schools) and Microsystems (an Internet
filtering publisher and creator of Cyber Patrol). During the fourth quarter of
1997, the Company acquired control of Creative Wonders (a developer of branded
children's educational software) and acquired TEC Direct (the publisher of an
educational consumer software catalog). On March 27, 1998, the Company completed
the acquisition of Mindscape. Mindscape is a leading developer and publisher of
education, productivity, reference and entertainment software. On May 14, 1998,
the Company acquired PF. Magic, a developer and publisher of virtual life
software for children, and effective July 4, 1998, the Company acquired
Sofsource, a publisher of educational and test software for high school and
college students.

In July 1998, SoftKey Software, the Company's Canadian subsidiary, sold its
Canadian income tax software business for approximately $45 million in cash.

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<PAGE> 38

The Company was incorporated in California in October 1978 and
re-incorporated in Delaware in October 1986. In May 1996, the Company
consummated the acquisition of MECC, an educational software publisher. That
acquisition, together with the acquisitions in December 1995 of The Former
Learning Company and Compton's, marked the completion of the Company's strategic
initiative to expand its educational software franchise. In October 1996, the
Company changed its name from SoftKey International Inc. to The Learning
Company, Inc. to reflect its expanded emphasis on educational software. The
Company's executive offices are located at One Athenaeum Street, Cambridge,
Massachusetts 02142. Its telephone number is (617) 494-1200, and its Internet
web site is located at http:/www.learningco.com.

INDUSTRY BACKGROUND

The consumer software market has grown over the past few years as a result
of several major trends, including the increasing installed base of PCs in the
home, the improved multimedia capabilities of PCs and the increasing demand for
a greater number of high-quality, affordably priced software applications. In
addition, consumers are exposed to software purchase opportunities from a wide
variety of sources and with increased frequency. The Internet increased
consumers' exposure to a variety of software products and technologies and
therefore increased their expectations for high quality multimedia educational
and reference software. In addition to traditional software offerings, today's
successful software companies should also be able to offer hybrid
CD-ROM/Internet titles. The Company believes the Internet has reduced barriers
to enter the market and has allowed competitors with less access to capital to
compete effectively.

Improved product performance, expanded memory and enhanced multimedia
capabilities have been the main drivers of growth in the consumer software
market. Improvements in multimedia technology have made possible engaging,
highly interactive environments filled with rich content such as enhanced
graphics, animation and photographs, realistic sounds and music and clips of
film and video. These capabilities are particularly relevant to the education,
reference, lifestyle and entertainment categories, as specific software
purchases within these categories are largely driven by their content,
appearance and degree of interactivity.

The demand for a large number and broad spectrum of value-priced software
products is also having significant impact on consumer software distribution.
The distribution of consumer software has expanded beyond traditional software
retailers and computer stores to include mass merchandisers, price clubs and
superstores. As demand for consumer software has grown with improvements in
multimedia technology, consumers have also grown more sophisticated in their
expectations for software, requiring increasingly easy to use, content rich
products. Furthermore, competition has continued to increase among new and
existing multimedia software publishers, increasing price pressure and
competition for limited retail shelf space. This competition is characterized by
increased emphasis on channel marketing, coupon rebate programs and advertising.
As this trend continues, it will become increasingly important for companies to
achieve greater sell-through unit volumes through brand name recognition, to
establish strong relationships with retailers and to consistently launch new
product offerings with state-of-the-art capabilities and rich content.

PRODUCTS

The Company develops, publishes and markets software products that educate
across every age, from young children to adults. The Company strives for
recognition from retailers, parents, teachers and students as the leader in
educational and reference software. The Company's strategy is to leverage its
name brands and breadth of content by selling across a range of price points and
through multiple distribution channels. By creating software titles that parents
and teachers trust to teach children fundamental skills at all age levels, the
Company strives to create an ongoing buying relationship with its consumers that
continues as their children grow older.

The Learning Company and Creative Wonders Educational Software

The Company's educational brands represent a series of products tailored to
support the most fundamental learning topics taught in schools. The product
lines are organized by age and by subject area, covering everything from
learning essentials for pre-schoolers to test preparation for college-bound
students

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<PAGE> 39

and foreign language instruction for adults. Market research and an experienced
staff of educational specialists seek to ensure that the content of each program
is educational, engaging, age-appropriate, non-violent and effectively
delivered. Highlights from the educational product line include:

- The Reader Rabbit series of software is designed to develop a lifelong
love of learning in children ages two through nine. During 1997, the
Company launched its early learning series of multi-subject titles
including Reader Rabbit's Toddler, Reader Rabbit's Preschool, Reader
Rabbit's Kindergarten and Reader Rabbit's 1st Grade. Other products in
the Reader Rabbit series include Reader Rabbit's Reading 1, Reading 2 and
Math 1. The Reader Rabbit series of products has been developed based on
a wealth of research by educators, parents, children and reading
specialists in order to create the most educational, engaging,
easy-to-use reading and multi-subject software. In 1997, the Company
expanded its line of multi-subject learning titles with the introduction
of The ClueFinders' 3rd Grade Adventures, the first of a new series of
products designed to meet the educational needs and interest of older
children.

- The American Girls Premiere, which is based on The American Girls
Collection successful line of historical fiction books, dolls and
accessories from Pleasant Company, is a new creativity program designed
for girls aged seven to 12. The product allows young girls to bring
American history to life by creating and producing their own plays
featuring five of the American Girls Doll characters.

- The Trail series, including The Oregon Trail 3rd Edition, are interactive
education products where children learn about history and geography while
taking part in exciting interactive adventures.

- The Munchers series of products for children ages six to 12 is used
widely in both schools and homes to build children's skills and
confidence in math, spelling and trivia.

- TLC is a leader in foreign language software with its four lines of
products covering language instruction in Spanish, French, German,
Italian, Japanese and English. Appropriate for high school age through
adult users, each line combines state-of-the-art technology with advanced
language learning techniques to create highly interactive and effective
products, that meet the abilities, interests and price sensitivities of
all consumers. Learn To Speak, is a comprehensive and complete
interactive course using state of the art technology to develop
all-around fluency for the entire family. The Berlitz line, designed to
help the user learn a language quickly, is an effective and complete
interactive language course branded with the famous Berlitz name. The For
Everyone line uses a fun, easy and interactive approach to learning a
foreign language and is designed for high school students and adults who
want to learn real-life conversation. Berlitz Think and Talk, based on
the proven Berlitz teaching method, offers a complete introductory
language study at a value price.

- The Company markets a number of additional products for older children,
including Success Builder -- High School, Score Builder for the SAT and
ACT, Treasure MathStorm! and Super Solvers Mission: T.H.I.N.K.

During 1997, the Company acquired Creative Wonders, an educational software
publisher. Creative Wonders focuses on creating educational software for
children using well-known branded content. The Creative Wonders line of products
are sold by the Company under the Creative Wonders brand and includes:

- The Sesame Street series using the well-known characters from Children's
Television Workshop in a series of early learning titles that includes
among others Sesame Street: Toddlers Deluxe, Sesame Street: Reading Is
Fun! (Toddler Edition), Sesame Street: Elmo's Preschool Deluxe, and
Sesame Street: Get Set For Kindergarten Deluxe.

- The Madeline Classroom Companion Series is a fun and comprehensive way to
help young girls get a successful start in school. This series includes
Madeline Classroom Companion: Preschool & Kindergarten, Madeline
Classroom Companion: 1st & 2nd Grade as well as a number of titles for
children ages five and up such as Madeline: European Adventures, Madeline
Thinking Games and Madeline And The Magnificent Puppet Show.

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<PAGE> 40

- The Schoolhouse Rock series reinforces essential learning skills for
children to succeed in elementary school. The series includes Schoolhouse
Rock: 1st & 2nd Grade Essentials and Schoolhouse Rock: 1st-4th Grade Math
Essentials.

Reference and Lifestyle Software

The Compton's Home Library brand comprises a complete line of core
reference, lifestyle and special interest programs. The Compton's Home Library
products are designed specifically to meet consumers' home information needs.
Each product in the line provides easy access to a wealth of information for
researching, learning and exploring, with many providing direct links to the
World-Wide-Web for up-to-date information. Products in this line include
Compton's Interactive Encyclopedia 1998 Edition, Compton's 3D World Atlas
Deluxe, Weight Watchers Light & Tasty Deluxe and Compton's Interactive Bible
NIV.

The Company's medical reference products are among the best-selling titles
in the industry. Strong brands and rich multimedia content enables the Company
to sell these products across all of its channels. The Company offers a line of
medical reference products that includes the popular BodyWorks, Home Medical
Advisor and Mosby's Medical Encyclopedia.

Internet Filtering Software

Cyber Patrol is the Company's popular Internet filtering software designed
to help protect children in cyberspace. Cyber Patrol allows parents and teachers
to choose what content on the Internet is appropriate for children. Adults can
choose to block material organized into many different categories such as
violence, nudity, explicit sexual material and hate speech. Cyber Patrol can be
customized for use by up to 10 different children. Adults can add or delete
specific sites based on their own beliefs and judgment, so that, for example,
content blocked for a seven-year-old can remain available to a 15-year-old. The
latest version, Cyber Patrol 4.0, offers a daily update of blocked sites,
assuring even greater protection in a Web environment that changes daily. In
addition to marketing the product to homes and schools, the Company is also
marketing to corporations a version of Cyber Patrol that can block sites with
content such as sports, leisure and shopping that improves productivity in the
office.

Productivity Software

Productivity titles targeted at the home, small business and home office
users are the flagship titles under the SoftKey brand. The price points and
content of these programs are designed for the consumer who purchases programs
to meet very specific needs. During 1997, the Company launched the "Creative
Office" series. Included in this series are Calendar Creator 5.0, PhotoFinish
4.1 and Resume Pro 3.0. Each of these titles has had a long history of success
in the productivity market. The "Key" line is designed to meet productivity
needs of those users who appreciate good value and quality performance. This
line includes a range of personal productivity tools, content such as fonts and
clip art, office productivity solutions and design tools.

Value Software

The Value lines under the Key, SoftKey and Classic brands are recognized as
top performers in the budget category of software. These lines offer consumers
brand name software at affordable prices in a jewel case only and boxed format
ranging in retail price from $9.99 to $14.95. The line covers all software
categories including reference, education, productivity, lifestyle and games.

SALES AND MARKETING

The Company distributes its consumer software products through retail,
direct response, OEMs and school channels within North America and through
international channels throughout Europe and the Pacific Rim.

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<PAGE> 41

Retail Channels. The Company has relationships with over 50 national
retailers and direct distributors controlling over 23,000 individual North
American storefronts where most of the nation's software sales occur. The
Company's retail distribution strategy is to foster strong direct relationships
with large retailers through a broad product offering, actively participating in
channel management and innovative merchandising. These direct relationships have
been the result of an established history of developing and publishing a wide
range of products and actively working with retailers to understand consumer
purchasing behavior and trends. Retailers routinely share sell-through sales
data with the Company, providing the Company with the ability to proactively
tailor its product offerings, modify distribution tactics and optimize product
marketing, merchandising, promotions and mix for specific retail channels and
stores. The Company sponsors merchandising programs and provides electronic data
interchange ("EDI") to most major accounts. The Company intends to continue to
build its relationships with the retail channels in an effort to further
strengthen these strategic relationships. The Company's dealer sales channel
consists of traditional PC hardware and software retail stores, including
national and regional chains and superstores. Increasingly, the Company sells
its products to office superstores such as Office Depot, OfficeMax and Staples,
electronic superstores such as CompUSA, Circuit City and Best Buy and mass
merchants such as Wal-Mart and K-Mart. In addition, the Company sells to
distributors such as Ingram Micro Inc., GT Interactive and Navarre.

Direct Response. The Company's database of over 7 million end-users
provides many cross-marketing opportunities. The Company mailed over 16 million
pieces of targeted direct mail in 1997. The Company typically utilizes targeted
customer mailings highlighting specific products. Prior to a full mailing, the
Company conducts test mailings at different price points and marketing
approaches in order to maximize response rates from its customers. The Company
also sells its products through direct mailings to potential end-users who are
not part of the installed user base using rented mailing lists. The Company made
approximately 4 million outbound telephone calls in 1997 to sell its products to
its customers. The Company has electronic registration of its consumer software
products that allows it to collect data from its customers that in turn provide
customer leads for the direct response business. The Company maintains an
Internet website which contains a catalog of the Company's products which
consumers can use to browse through the Company's products and submit orders
on-line or by telephone.

Original Equipment Manufacturers. The objective of the Company's OEM sales
strategy is to assist hardware manufacturers and on-line services to
differentiate their product lines and to introduce the Company's brands to new
computer hardware buyers. The Company licenses its software products to OEMs
(including IBM, Apple, Compaq, Hewlett-Packard and America On-Line), which
typically purchase the Company's products in higher volumes and at lower prices
than retail stores and distributors. The manufacturing costs incurred by the
Company for OEM sales are typically lower than for its boxed product because in
many cases the products are duplicated by the OEMs and sold without packaging
or, in some instances, documentation. In addition, the Company receives
royalties from a number of OEMs that have no production costs, which results in
higher gross margins for the Company.

School Channel. The Company's efforts in the school channel focus on the
unique needs of the school market through targeted and specialized marketing and
services. The Company sells products directly to schools and school districts
through field based direct sales representatives, telemarketing and direct mail.
Sales are also made through authorized resellers and distributors including
Educational Resources, Ingram Micro and Baker & Taylor. The Company markets its
school products to over 795 key school districts, 85,000 school buildings and,
in turn, to over 2.5 million classrooms across the United States. Through its
subsidiary Learning Services, the Company publishes an educational software
catalog for teachers and schools marketing products from most educational
software publishers, including the Company, under the Learning Services brand.
The Company intends to continue to leverage its established position in the
school market to expand its sales in the home market. The Company believes that
the history of acceptance of its products in schools, coupled with its broad
range of award-winning products, positions it to further enhance its market
share position and brand awareness in the home market.

International. The Company believes that the international consumer
software markets are rapidly growing as a result of trends similar to those
driving the North American market. The Company operates subsidiaries outside of
North America in Germany, France, Holland, Japan, the United Kingdom and
Ireland.
S-39
<PAGE> 42

In addition, the Company has distributors in major European, Latin American and
Pacific Rim countries, as well as in Australia and South Africa. The Company's
subsidiaries in Ireland and Germany generally coordinate manufacturing and
distribution for all of the Company's sales in Europe, Latin America and the
Pacific Rim. Generally, retail stores outside of North America are more reliant
on distributors than retail stores in North America. As distribution
environments differ from country to country, the Company tailors its
distribution strategy accordingly.

PRODUCT DEVELOPMENT

The Company develops and publishes products through internal development as
well as licensing. Approximately 83% of the Company's domestic revenues in 1997
were derived from products that have been internally developed. Through this
dual product strategy approach, the Company is able to introduce new products
while managing its research and development costs. During 1997, the Company
launched a total of 53 new and upgraded North American premium education,
reference and productivity products, of which 46 were developed internally.

Internal Product Development. The Company's internal product development
efforts are designed to result in efficient and timely product introductions by
focusing on "core code" development. Where possible, the Company specifies,
develops and manages (or purchases) one base of source code from which many
products are created. Using one base of source code permits the Company to
maximize programming efficiency because the investment of time and capital in
developing the base source code is shared among multiple products and additional
programming time is minimized. As a result, production schedules are more
predictable and development costs are lower since the underlying code for new
programs has previously been tested and debugged and the software already
documented. Even with these "core codes" the Company must continuously update
and improve the content and the technology of its products in order to remain
competitive.

In certain instances, the Company's internally developed products contain
components that have been developed by outside developers or authors and are
licensed by the Company. The Company generally pays these outside
developers/authors royalties based on a percentage of net sales or on a
work-for-hire basis.

The Company maintains principal research and development facilities and
personnel in Framingham, MA; Fremont, CA; Novato, CA; Knoxville, TN; Baltimore,
MD and Minneapolis, MN. The Company's development efforts include product
development, documentation and testing as well as the translation of certain of
its products into foreign languages.

The Company believes that its premium educational products require
significant investments in product marketing and research and development in
order to take advantage of new technologies that benefit educational software
products and to remain competitive. In addition to expenses related to
engineering and quality assurance, the Company's research and development
expenses include costs associated with the identification and validation of
educational content and engagement features and the development and
incorporation of new technologies into new products.

The Company's premium educational products require varying degrees of
development time, frequently depending on treatment of the subject matter, the
number of activities and the general complexity of the product. The typical
length of research and development time ranges from 6 to 24 months with the
first product in a new family generally requiring the longest period of
development. The development and introduction of new products that operate on,
and the adaptation of existing titles to new platforms or operating systems or
that incorporate emerging technologies may require greater development time and
expense and may generate less revenue per product as compared with recent
introductions of new products or product adaptations.

Most of the Company's educational products have been designed and developed
internally by Company employees. The Company also uses third-party designers,
artists and programmers in its research and development efforts and expects to
continue to do so in the future. The Company believes that a mix of internal and
external third-party resources, as well as potential acquisitions of products or
technologies, is a

S-40
<PAGE> 43

cost-effective method of facilitating the development of new educational
software products. Products that are developed using external third parties are
generally owned or licensed exclusively by the Company and are marketed under
the Company's various brand names. During 1997, the Company launched The
American Girls Premier, which combined the Company's advanced proprietary
technology with the well-known American Girls brand. Similarly, through its
Creative Wonders products, including the Sesame Street line, the Company seeks
to capitalize on brands that are trusted by parents and teachers for their
educational value.

Licensed Products. The Company supplements its development efforts by
acquiring the rights to products on either an exclusive or non-exclusive basis,
both through the purchase of products and under royalty-bearing licenses.
Generally, the Company's license agreements provide for the payment of royalties
based on a percentage of the Company's net sales of such products.

The licensed products typically are repackaged under the Company's
proprietary labels and sold through its distribution channels. The advantage of
this distribution method to the outside software developers is that the Company
is generally able to provide a significantly greater volume of sales than the
software developer would be able to command itself. The Company leverages its
broad distribution strength and reputation for successfully publishing products
to attract outside developers/authors and further enhance its relationships with
the software development community. Retail and direct response marketers benefit
from this arrangement by having convenient access to a wide range of products
offered by the Company.

The Company's licensing of fully developed products allows for efficiencies
because the cost of development is borne by the licensor. Licensing also reduces
the financial and market risk to the Company from a product that is not well
accepted by customers since the Company generally pays royalties based on actual
net sales.

Both internally developed and licensed products under development are
extensively tested by the Company's quality assurance department before being
released for production. The department tests for defects, functionality,
ease-of-use and compatibility the many of the popular PC and printer
configurations that are available to consumers.

The process of developing software products such as those offered by the
Company is extremely complex and is becoming more complex and expensive over
time. The Company's product development expense levels are based largely on its
expectations regarding future sales, and, accordingly, operating results would
be disproportionately adversely affected by a decrease in sales or failure to
meet the Company's sales expectations due to delays in new product
introductions, or lower than expected demand. If the Company does not accurately
anticipate and successfully adapt its products to emerging platforms,
environments and technologies, or new products are not introduced when planned
or do not achieve anticipated revenues, the Company's operating results could be
materially adversely affected. In addition, the Company believes that on-line or
Internet products and services will become an increasingly important platform
and distribution media; and as such the Company's failure to timely and
successfully adapt to and utilize such technologies could materially and
adversely affect its competitive position and its financial results.

PRODUCTION

The Company strives to minimize production costs, driving costs down as
unit volumes and the rate of new title introductions increase through process
efficiencies and economies of scale. Production of the Company's products
involves the duplication of diskettes or CD-ROM disks and the printing and
assembly of packaging, labels, user manuals and other purchased components. The
Company subcontracts all of the manufacture and fulfillment of its products to
third party vendors. In 1997, the production, assembly and distribution of the
Company's North American products, with certain exceptions (including
duplication of CD-ROM disks, school channel products and certain OEM products),
was performed by two units of Bertelsmann AG (collectively, "BMG"). The Company
believes that its existing production capacity is sufficient to handle
anticipated increases in volume and titles into the foreseeable future.
Manufacturing and assembly of the Company's international products take place
primarily at the Company's facilities in Dublin, Ireland and to a lesser extent
in Munich, Germany.

S-41
<PAGE> 44

TECHNICAL SUPPORT

The Company provides a variety of technical support services to dealers,
distributors, corporations and end-users. Users of the Company's products
generally receive free telephone support for the life of the product (i.e. until
the next version is released or manufacturing of the product is discontinued).
This support is principally provided by the Company's Technical Support Center
in Knoxville, TN.

COMPETITION

The consumer software industry is intensely and increasingly competitive
and is characterized by rapid changes in technology and customer requirements.
The Company competes for retail shelf space and general consumer awareness with
a number of companies that market consumer software. The Company encounters
competition from both established companies, including the largest companies in
the industry and new companies that may develop comparable or superior products.
A number of the Company's competitors and potential competitors possess
significantly greater capital, marketing resources and brand recognition than
the Company. Rapid changes in technology, product obsolescence and advances in
computer software and hardware require the Company to develop or acquire new
products and to enhance its existing products on a timely basis. The Company's
marketplace has recently experienced a higher emphasis on on-line and Internet
related services and content tailored for this new distribution channel. To the
extent that demand increases for on-line products and content, the demand for
the Company's existing products may change. There can be no assurance that the
Company will be able to successfully maintain market share and otherwise compete
successfully in the future.

Competitive pressures in the consumer software industry have resulted, and
the Company believes are likely to continue to result, in more innovative
channel marketing and advertising in the future. During 1997, the Company and
many of its competitors began using rebate coupons in order to induce consumers
to purchase their products. In addition, the Company uses various forms of print
and television advertising to enhance brand and product awareness. The use of
these methods of channel marketing and advertising is becoming more prevalent
among the larger consumer software publishers. To the extent that the Company
fails to match competitors' future channel marketing and advertising programs it
could risk loss of market share and corresponding revenues and operating
profits. Furthermore, during early 1997, the Company reduced the retail selling
prices of many of its core educational products in order to remain competitive
in the market place. There can be no assurance that the Company's selling prices
will not decline in the future or that the Company will not respond to such
declines with additional price reductions or marketing programs. Such price
reductions or marketing programs may reduce the Company's revenues and operating
margins in the future.

Large companies with substantial bases of intellectual property content in
the motion picture and media industries, sophisticated product marketing and
technical abilities and/or financial resources that may not need to realize an
immediate profit or return on investment have increasingly entered the consumer
software market. These competitors include: Microsoft Corporation, The Walt
Disney Company, Mattel, Inc., Hasbro, Inc., IBM and Cendant Corporation
(formerly CUC International Inc.). For example, technology companies have begun
to acquire greater access to branded content, and content-oriented companies
have begun to acquire greater technological capabilities. To the extent that
competitors achieve a performance, price or distribution advantage, the Company
could be adversely affected. Furthermore, increased consolidation of the
consumer software market may impact future growth potential and performance.

In the retail distribution channel resellers typically have a limited
amount of shelf space and promotional resources. There is intense competition
for high quality and adequate levels of shelf space and promotional support from
retailers. To the extent that the number of consumer computer platforms and
products increases, competition for shelf space may also increase. Mass
merchants such as Wal-Mart are increasingly representing a larger portion of the
Company's revenues. As these retailers achieve greater market share from the
traditional software retailers, the Company may experience higher marketing
costs and increased competition for shelf space, which could impact future sales
and operating margins. Additionally, as technology evolves, the type and number
of distribution channels will further change and new types of competitors, such
as cable

S-42
<PAGE> 45

or telephone companies, may emerge. There can be no assurance that the Company
will compete effectively in these channels.

The retail channels of distribution available for products are subject to
rapid changes as retailers and distributors enter and exit the consumer software
market or alter their product inventory preferences. Other types of retail
outlets and methods of product distribution may become important in the future.
These new methods may include delivery of software using on-line services or the
Internet, which will necessitate certain changes in the Company's business and
operations including addressing operational challenges such as improving
download time for pictures, images and programs, ensuring proper regulation of
content quality and developing sophisticated security for transmitting payments.
Should on-line distribution channels increase, the Company will be required to
modify its existing technology platforms in order for its products to be
compatible and remain competitive. It is critical to the success of the Company
that, as these changes occur, it maintains access to those channels of
distribution offering software in its market segments.

PROPRIETARY RIGHTS AND LICENSES

Consistent with industry practice, the Company does not have signed license
agreements with the end-users of its products, and its products do not contain
mechanisms to inhibit unauthorized copying. Instead, the Company relies on the
copyright laws to prevent unauthorized distribution of its software. The Company
also relies on a combination of trade secret, patent, trademark and other
proprietary rights, laws and license agreements to protect its proprietary
rights. Existing copyright laws afford only limited protection. It may be
possible for unauthorized third parties to copy the Company's products or to
obtain and use information the Company regards as proprietary.

Policing unauthorized use and distribution of the Company's products is
difficult, and while it is difficult to determine the extent to which such use
or distribution exists, software piracy can be expected to be a persistent
problem. These problems are particularly acute in certain international markets
such as South America, the Middle East, the Pacific Rim and the Far East, and
the laws of certain countries in which the Company's products are or may be
distributed provide less protection than those of the United States.

The Company periodically receives communications alleging or suggesting
that its products may incorporate material covered by the copyrights, trademarks
or other proprietary rights of third parties. With increased use of music, video
and animation in CD-ROM products and the increased number of products on the
market generally, the Company is likely to experience an increase in the number
of infringement claims asserted against it in the future. With respect to
licensed products, the Company is generally indemnified against liability on
these matters. The Company's policy is to investigate the factual basis of such
communications and to resolve such matters promptly by enforcing its rights,
negotiating licenses (if necessary) or taking other appropriate actions.

In certain circumstances, litigation may be necessary to enforce the
Company's proprietary rights, to protect copyrights, trademarks and trade
secrets and other intellectual property rights owned by the Company or its
licensors, to defend the Company against claimed infringements of the rights of
others and to determine the scope and validity of the proprietary rights of the
Company and others. Any such litigation, whether with or without merit, could be
costly and could result in a diversion of management's attention, which could
have an adverse effect on the Company's business, operating results or financial
condition. Adverse determinations in litigation relating to any of the Company's
products could result in the loss of the Company's proprietary rights, subject
the Company to liabilities, require the Company to seek licenses from third
parties or prevent the Company from selling particular products.

EMPLOYEES

At May 31, 1998, the Company had approximately 1,600 full time employees.
The Company believes that its success is highly dependent on its ability to
attract and retain qualified employees. As necessary, the Company supplements
its regular employees with temporary and contract personnel. No employees are
covered by a collective bargaining agreement, and there have been no work
stoppages.

S-43
<PAGE> 46

MANAGEMENT

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Michael J. Perik.......................... Chairman of the Board and Chief Executive Officer
Kevin O'Leary............................. President and Director
Gregory L. Bestick........................ President, TLC Learning Division
Anthony J. Bordon......................... President, International
John F. Moore............................. President, Mindscape Division
R. Scott Murray........................... Executive Vice President and Chief Financial Officer
David E. Patrick.......................... President, Worldwide Sales and Operations Division
Neal S. Winneg............................ Senior Vice President
Lamar Alexander........................... Director
Michael A. Bell........................... Director
Anthony J. DiNovi(1)...................... Director
Robert Gagnon............................. Director
Mark E. Nunnelly(2)....................... Director
Carolynn N. Reid-Wallace.................. Director
Robert A. Rubinoff........................ Director
Scott M. Sperling......................... Director
Paul J. Zepf(3)........................... Director
</TABLE>

- ---------------

(1) Designee of Thomas H. Lee Company

(2) Designee of Bain Capital, Inc.

(3) Designee of Centre Partners Management LLC

S-44
<PAGE> 47

PRINCIPAL STOCKHOLDERS

The following table sets forth information with respect to the beneficial
ownership of the shares of Common Stock as of June 30, 1998 held by (i) the
Company's Chief Executive Officer and the named executive officers as defined in
Item 402(a)(3) of Regulation S-K pursuant to the Securities Act (collectively,
the "Named Executive Officers"), (ii) each current director of the Company,
(iii) all current directors and executive officers as a group and (iv) each
person known to the Company to own beneficially more than 5% of the shares
outstanding.

<TABLE>
<CAPTION>
NUMBER OF
SHARES APPROXIMATE
BENEFICIALLY PERCENTAGE
NAME OWNED(1) OWNED
---- ------------ -----------
<S> <C> <C>
Lamar Alexander(2).......................................... 97,500 *
Michael A. Bell(2).......................................... 166,871 *
Anthony J. DiNovi(3)........................................ 9,146,340 13.3%
Robert Gagnon(4)............................................ 255,485 *
R. Scott Murray(5).......................................... 197,326 *
Mark E. Nunnelly(6)......................................... 3,414,640 5.4%
Kevin O'Leary(7)............................................ 1,087,857 1.8%
David E. Patrick(2)......................................... 217,833 *
Michael J. Perik(8)......................................... 1,278,781 2.1%
Kathryn M. Quinby-Johnson(9)................................ 109,228 *
Carolynn Reid-Wallace(2).................................... 28,750 *
Robert A. Rubinoff(10)...................................... 201,330 *
Scott M. Sperling(3)(11).................................... 9,346,961 13.5%
Paul J. Zepf(12)............................................ 2,440,020 3.9%
All current directors and executive officers as a group
(16 persons)(13).......................................... 18,895,684 24.2%
Affiliates of Bain Capital, Inc.(6)......................... 3,414,640 5.4%
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Affiliates of Thomas H. Lee Company(3)...................... 9,146,340 13.3%
c/o Thomas H. Lee Company
75 State Street
Boston, Massachusetts 02109
Tribune Company(14)......................................... 5,210,796 8.7%
435 North Michigan Avenue
Chicago, Illinois 60611
</TABLE>

- ---------------

* Represents less than 1% of the outstanding shares of Common Stock.

(1) Unless otherwise indicated, each person or entity named in the table has
sole voting and investment power (or shares such power with his or her
spouse) with respect to all shares of capital stock listed as owned by such
person or entity. Certain of the information contained in this table is
based upon information contained in the filings by certain persons or
entities under Section 13 of the Securities Exchange Act of 1934, as
amended.

(2) Consists of shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 1998.

(3) Certain affiliates of Thomas H. Lee Company, including Thomas H. Lee Equity
Fund III, L.P., Thomas H. Lee Foreign Fund III, L.P., THL-CCI Limited
Partnership, Anthony J. DiNovi and Scott M. Sperling, own 457,317 shares of
Preferred Stock, which were convertible as of June 30, 1998 into 9,146,340
shares of Common Stock. Each of Messrs. DiNovi and Sperling, directors of
the Company, is the direct owner of 1,628 shares of Preferred Stock, which
were convertible as of June 30,

S-45
<PAGE> 48

1998 into 32,560 shares of Common Stock. Messrs. DiNovi and Sperling are
also Managing Directors of Thomas H. Lee Company and therefore may be
deemed to have shared voting and investment power with respect to the
shares of Preferred Stock owned by the affiliates of Thomas H. Lee Company.
Each of Messrs. DiNovi and Sperling disclaims beneficial ownership of all
shares of Preferred Stock other than those shares he owns directly. Based
upon information contained in a Schedule 13D dated December 12, 1997 filed
with the Commission.

(4) Consists of 15,000 shares of Common Stock issuable pursuant to stock
options exercisable within 60 days after June 30, 1998 and 240,485 shares
of Common Stock issuable upon exchange of Exchangeable Non-Voting Shares of
SoftKey Software, a subsidiary of the Company (the "Exchangeable Shares"),
owned by a corporation wholly-owned by Mr. Gagnon.

(5) Consists of 196,466 shares of Common Stock issuable pursuant to stock
options exercisable within 60 days after June 30, 1998 and 860 shares of
Common Stock issuable upon exchange of Exchangeable Shares owned by Mr.
Murray.

(6) Certain affiliates of Bain Capital, Inc., including Bain Capital Fund V,
L.P., Bain Capital Fund V-B, L.P., BCIP Associates, L.P., BCIP Trust
Associates, L.P. and Brookside Capital Partners Fund, L.P., own 170,732
shares of Preferred Stock, which were convertible as of June 30, 1998 into
3,414,640 shares of Common Stock. Mr. Nunnelly, a director of the Company,
is a Managing Director of Bain Capital, Inc. and therefore may be deemed to
have shared voting and investment power with respect to the shares of
Preferred Stock owned by the affiliates of Bain Capital, Inc. Mr. Nunnelly
disclaims beneficial ownership of all shares of Preferred Stock. Based upon
information contained in a Schedule 13D dated December 12, 1997 filed with
the Commission.

(7) Consists of 350,000 shares of Common Stock owned directly by Mr. O'Leary,
525,699 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 1998 and 212,158 shares of Common
Stock issuable upon exchange of Exchangeable Shares owned by a corporation
wholly-owned by Mr. O'Leary. The 350,000 shares of Common Stock owned
directly by Mr. O'Leary represent shares of restricted stock which vest
over a 10-year period commencing July 1998.

(8) Consists of 407,960 shares of Common Stock owned directly by Mr. Perik,
867,700 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 1998 and 3,121 shares of Common
Stock issuable upon exchange of Exchangeable Shares owned by Mr. Perik.
350,000 of the shares of Common Stock owned directly by Mr. Perik represent
shares of restricted stock which vest over a 10-year period commencing July
1998.

(9) Consists of 316 shares of Common Stock owned directly by Ms. Quinby-Johnson
and 108,912 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 1998.

(10) Consists of 146,330 shares of Common Stock issuable pursuant to stock
options exercisable within 60 days after June 30, 1998 and 55,000 shares
of Common Stock issuable upon exchange of Exchangeable Shares owned by a
corporation over which Mr. Rubinoff exercises investment and voting power.

(11) Consists of 200,621 shares of Common Stock issuable pursuant to stock
options exercisable within 60 days after June 30, 1998 and shares of Common
Stock issuable pursuant to the conversion of Preferred Stock held directly
and beneficially by Mr. Sperling. See note (3) above.

(12) Consists of 1,000 shares of Common Stock owned directly by Mr. Zepf and
2,439,020 shares of Common Stock issuable upon the conversion of Preferred
Stock owned by certain affiliates of Centre Partners Management LLC.
Certain affiliates of Centre Partners Management LLC, including Centre
Capital Investors II, L.P., Centre Capital Tax-Exempt Investors II, L.P.,
Centre Capital Offshore Investors II, L.P., State Board of Administration
of Florida, Centre Parallel Management Partners, L.P. and Centre Partners
Coinvestment, L.P., own 121,951 shares of Preferred Stock, which were
convertible as of June 30, 1998 into 2,439,020 shares of Common Stock. Mr.
Zepf, a director of the Company, is a Managing Director of Centre Partners
Management LLC and therefore may be deemed to have shared voting and
investment power with respect to the shares of Preferred Stock owned by the
affiliates of Centre Partners Management LLC. Mr. Zepf disclaims beneficial
ownership of all shares of Preferred

S-46
<PAGE> 49

Stock. Based upon information contained in a Schedule 13D dated December
12, 1997 filed with the Commission.

(13) Includes (i) 2,624,784 shares of Common Stock issuable pursuant to stock
options exercisable within 60 days after June 30, 1998, (ii) 511,624 shares
of Common Stock issuable upon exchange of Exchangeable Shares and (iii)
15,000,000 shares of Common Stock issuable upon conversion of 750,000
shares of Preferred Stock. Does not include securities beneficially owned
by Kathryn Quinby-Johnson, who is a Named Executive Officer but who was no
longer an executive officer of the Company on June 30, 1998.

(14) Based upon information contained in Amendment No. 2 to a Schedule 13D dated
April 16, 1996 filed with the Commission.

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<PAGE> 50

SUPPLEMENTAL PLAN OF DISTRIBUTION

Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among Tribune, TLC and Smith Barney Inc. (the
"Underwriter"), Tribune has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase, the number of DECS set forth below:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF DECS
- ----------- -------
<S> <C>
Smith Barney Inc. .......................................... 4,600,000
</TABLE>

Tribune has been advised by the Underwriter that it proposes to offer the
DECS directly to the public initially at the public offering price set forth on
the cover page of the DECS Prospectus and to certain dealers at such prices less
a concession not in excess of $ per DECS. The Underwriter may allow, and
such dealers may reallow, a concession not in excess of $ per DECS to other
dealers. After the initial public offering, such public offering price and such
concession and reallowance may be changed.

The Company and Tribune have agreed not to (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, or announce the offering of, any
shares of the Company's Common Stock or any securities convertible into or
exercisable or exchangeable for shares of the Company's Common Stock or (ii)
enter into any swap or other arrangement that transfers to another, in whole or
in part, any of the economic consequences of ownership of shares of the
Company's Common Stock, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of shares of the Company's Common Stock
or such other securities, in cash or otherwise, for a period of 60 days from the
date of this Prospectus Supplement without the prior written consent of the
Underwriter; provided, however, that the Company may issue shares of the
Company's Common Stock in connection with acquisitions by the Company, the
Company may exchange the 5 1/2% Senior Convertible Notes due 2000 of the Company
which are currently outstanding by issuing shares of the Company's Common Stock
provided that the recipients of such Common Stock are subject to the foregoing
restrictions for the remainder of the 60 day period, and the Company may issue
shares of the Company's Common Stock pursuant to any stock option plan, equity
incentive plan, stock purchase plan or dividend reinvestment plan of the Company
in effect on the date the Underwriting Agreement is executed or pursuant to any
warrant or other equity security convertible into or exercisable or exchangeable
for the Company's Common Stock outstanding on the date the Underwriting
Agreement is executed. If any such consent is given, it would not necessarily be
preceded or followed by a public announcement thereof.

Tribune has granted to the Underwriter an option, exercisable for the
30-day period after the date of this Prospectus Supplement, to purchase up to an
additional 610,796 DECS from Tribune, at the same price per DECS as the initial
DECS to be purchased by the Underwriter. The Underwriter may exercise such
option only for the purpose of covering over-allotments, if any, incurred in
connection with the sale of DECS offered hereby.

The DECS will be a new issue of securities with no established trading
market. Application will be made to list the DECS on the NYSE, and the
Underwriter intends to make a market in the DECS, subject to applicable laws and
regulations. However, the Underwriter is not obligated to do so and any such
market-making may be discontinued at any time at the sole discretion of the
Underwriter without notice. Accordingly, no assurance can be given as to the
liquidity of such market.

At Tribune's option, upon maturity of the DECS, shares of the Company's
Common Stock may be delivered by Tribune pursuant to the terms of the DECS. For
a description of the terms of such exchange, see the DECS Prospectus.

In connection with this offering, the Underwriter and its affiliates may
engage in transactions that stabilize, maintain or otherwise affect the market
prices of the DECS or the Company's Common Stock. Such transactions may include
stabilization transactions effected in accordance with Rule 104 of Regulation M,
pursuant to which such persons may bid for or purchase DECS or the Company's
Common Stock for the

S-48
<PAGE> 51

purpose of stabilization of their market prices. The Underwriter also may create
a short position for its account by selling more DECS than they are committed to
purchase from Tribune, and in such case may purchase DECS in the open market
following completion of the offering to cover all or a portion of such short
position. The Underwriter may also cover all or a portion of such short position
in the DECS, up to 610,796 DECS, by exercising the Underwriter's over-allotment
option referred to above. In addition, the Underwriter may impose "penalty
bids", whereby they may reclaim from dealers participating in the offering the
selling concession with respect to the DECS that are distributed in the offering
but subsequently purchased for the account of the Underwriter in the open
market. Any of the transactions described in this paragraph may result in the
maintenance of the prices of the DECS or the Company's Common Stock at levels
above those which might otherwise prevail in the open market. These transactions
may be effected on the NYSE (with respect to the Common Stock only), in the
over-the-counter market or otherwise. None of the transactions described in this
paragraph is required and, if they are undertaken, they may be discontinued at
any time.

The Underwriting Agreement provides that Tribune and the Company will
indemnify the Underwriter against certain liabilities, including liabilities
under the Securities Act, or contribute to payments the Underwriter may be
required to make in respect thereof.

In the ordinary course of their respective businesses, the Underwriter and
its affiliates may have engaged in and may in the future engage in commercial
and investment banking transactions with Tribune, the Company and their
respective affiliates, for which customary compensation has been or may be
received.

LEGAL MATTERS

The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Neal S. Winneg, General Counsel of the Company.
As of the date hereof, Mr. Winneg owns options to purchase an aggregate of
131,500 shares of Common Stock, which are to become exercisable in periodic
installments through January 1999.

S-49
<PAGE> 52

THE LEARNING COMPANY, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1997, 1996 and 1995...... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-6
Notes to Consolidated Financial Statements.................. F-8
Condensed Consolidated Balance Sheets as of March 31, 1998
(unaudited) and December 31, 1997......................... F-25
Condensed Consolidated Statements of Operations (unaudited)
for the Three Months Ended March 31, 1998 and 1997........ F-26
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Three Months Ended March 31, 1998 and 1997........ F-27
Notes to Condensed Consolidated Financial Statements........ F-28
</TABLE>

F-1
<PAGE> 53

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
The Learning Company, Inc.:

We have audited the accompanying consolidated balance sheets of The
Learning Company, Inc. as of January 3, 1998 and January 4, 1997 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three fiscal years in the period ended January 3, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Learning
Company, Inc. as of January 3, 1998 and January 4, 1997 and the related
consolidated results of its operations and its cash flows for each of the three
fiscal years in the period ended January 3, 1998 in conformity with generally
accepted accounting principles.

/s/ PricewaterhouseCoopers LLP

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
February 9, 1998
(except as to Note 12 which is
as of March 6, 1998)

F-2
<PAGE> 54

THE LEARNING COMPANY, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 95,137 $110,120
Accounts receivable, less allowances of $29,226 and
$15,191, respectively.................................. 99,677 79,610
Inventories............................................... 29,600 15,894
Other current assets...................................... 32,590 20,349
----------- --------
257,004 225,973
----------- --------
Fixed assets and other, net................................. 32,306 22,975
Goodwill and other intangible assets, net................... 127,481 544,570
----------- --------
$ 416,791 $793,518
=========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Trade accounts payable and accrued expenses............... $ 41,209 $ 49,723
Other current liabilities................................. 52,851 16,935
Line of credit............................................ 35,150 25,000
Merger related accruals................................... 12,533 10,667
Current portion of long-term obligations.................. 10,717 8,083
Purchase price payable.................................... 7,896 3,245
----------- --------
160,356 113,653
----------- --------
LONG-TERM OBLIGATIONS:
Long-term debt............................................ 294,356 332,930
Related party debt........................................ -- 150,000
Accrued and deferred income taxes......................... 59,746 86,920
Other..................................................... 6,119 5,078
----------- --------
360,221 574,928
----------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 7) STOCKHOLDERS' EQUITY
(DEFICIT):
Series A Preferred Stock, $.01 par value -- Authorized
750,000 shares, issued and outstanding 750,000 shares
at December 31, 1997 (liquidation value of $150,000)... 8 --
Common stock, $0.01 par value -- Authorized -- 120,000,000
shares; issued and outstanding 48,868,659 and
44,379,781 shares at December 31, 1997 and 1996,
respectively........................................... 489 444
Special voting stock -- Authorized and issued -- one share
representing the voting rights of 1,478,929 and
1,551,428 outstanding Exchangeable Shares (for common
stock) at December 31, 1997 and 1996, respectively..... -- --
Additional paid-in-capital................................ 1,012,273 733,229
Accumulated deficit....................................... (1,099,907) (618,047)
Cumulative translation adjustment......................... (16,649) (10,689)
----------- --------
(103,786) 104,937
----------- --------
$ 416,791 $793,518
=========== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements

F-3
<PAGE> 55

THE LEARNING COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
REVENUES................................................. $ 392,438 $ 343,321 $167,042
COSTS AND EXPENSES:
Costs of production.................................... 111,703 91,045 53,070
Sales and marketing.................................... 86,621 67,690 38,370
General and administrative............................. 31,135 28,550 20,813
Development and software costs......................... 41,018 36,018 12,487
Amortization, merger and other charges................. 515,016 501,330 103,172
--------- --------- --------
Total operating expenses....................... 785,493 724,633 227,912
--------- --------- --------
OPERATING LOSS........................................... (393,055) (381,312) (60,870)
--------- --------- --------
INTEREST INCOME (EXPENSE):
Interest income........................................ 1,104 2,564 6,020
Interest expense....................................... (22,482) (26,703) (5,315)
--------- --------- --------
Total interest income (expense)................ (21,378) (24,139) 705
--------- --------- --------
LOSS BEFORE TAXES........................................ (414,433) (405,451) (60,165)
PROVISION FOR INCOME TAXES............................... 61,234 -- 5,795
--------- --------- --------
NET LOSS................................................. $(475,667) $(405,451) $(65,960)
========= ========= ========
NET LOSS PER SHARE:
Basic and Diluted................................... $ (9.59) $ (9.94) $ (2.65)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic and Diluted................................... 49,613,000 40,801,000 24,855,000
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements

F-4
<PAGE> 56

THE LEARNING COMPANY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)

<TABLE>
<CAPTION>
SERIES A TOTAL
PREFERRED COMMON STOCK ADDITIONAL CUMULATIVE STOCKHOLDERS'
--------------- --------------- PAID-IN ACCUMULATED TRANSLATION TREASURY EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT STOCK (DEFICIT)
------ ------ ------ ------ ---------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1994.................... -- $-- 16,697 $167 $ 191,390 $ (142,792) $ (9,651) $(1,629) $ 37,485
Acquisition of Future
Vision.................. -- -- 1,135 11 8,455 (3,608) -- -- 4,858
Acquisition of tewi....... -- -- 99 1 3,639 -- -- -- 3,640
Acquisition of The Former
Learning Company........ -- -- -- -- 43,369 -- -- -- 43,369
Acquisition of
Compton's............... -- -- 5,053 51 86,634 -- -- -- 86,685
Other acquisitions........ -- -- 262 3 2,673 (236) -- -- 2,440
Sale of common stock...... -- -- 2,713 27 73,584 -- -- -- 73,611
Stock issued under
exercise of options and
warrants................ -- -- 1,898 19 28,171 -- -- -- 28,190
Treasury stock
retirement.............. -- -- -- -- (1,629) -- -- 1,629 --

Conversion of Exchangeable
Shares to common
stock................... -- -- 2,508 25 (25) -- -- -- --
Translation adjustments... -- -- -- -- -- -- 201 -- 201
Net loss.................. -- -- -- -- -- (65,960) -- -- (65,960)
--- --- ------ ---- ---------- ----------- -------- ------- ---------
BALANCE, DECEMBER 31,
1995.................... -- -- 30,365 304 436,261 (212,596) (9,450) -- 214,519
Acquisition of MECC....... -- -- 9,214 92 240,670 -- -- -- 240,762
Other acquisitions........ -- -- 899 9 15,247 -- -- -- 15,256
Conversion of debt to
common stock............ -- -- 158 2 3,051 -- -- -- 3,053
Stock issued under
exercise of options..... -- -- 3,198 32 24,985 -- -- -- 25,017
Conversion of Exchangeable
Shares to common
stock................... -- -- 45 -- -- -- -- -- --
Stock issued for
settlement of
expenses................ -- -- 500 5 13,015 -- -- -- 13,020
Translation adjustments... -- -- -- -- -- -- (1,239) -- (1,239)
Net loss.................. -- -- -- -- -- (405,451) -- -- (405,451)
--- --- ------ ---- ---------- ----------- -------- ------- ---------
BALANCE, DECEMBER 31,
1996.................... -- -- 44,379 444 733,229 (618,047) (10,689) -- 104,937
Issuance of Series A
Preferred Stock......... 750 8 -- -- 202,025 -- -- -- 202,033
Issuance of special
warrants................ -- -- -- -- 57,462 -- -- -- 57,462
Conversion of Exchangeable
Shares to common
stock................... -- -- 73 -- -- -- -- -- --
Stock issued under
exercise of stock
options................. -- -- 1,116 11 8,959 -- -- -- 8,970
Stock issued to settle
earn-outs............... -- -- 135 2 2,021 -- -- -- 2,023
Other acquisitions........ -- -- 3,165 32 8,577 (6,193) -- -- 2,416
Translation adjustments... -- -- -- -- -- -- (5,960) -- (5,960)
Net loss.................. -- -- -- -- -- (475,667) -- -- (475,667)
--- --- ------ ---- ---------- ----------- -------- ------- ---------
BALANCE, DECEMBER 31,
1997.................... 750 $ 8 48,868 $489 $1,012,273 $(1,099,907) $(16,649) $ -- $(103,786)
=== === ====== ==== ========== =========== ======== ======= =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE> 57

THE LEARNING COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................. $(475,667) $(405,451) $ (65,960)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization...................... 531,206 451,133 29,802
Charge for incomplete technology................... 1,050 56,688 60,483
Provision for returns and doubtful accounts........ 67,773 38,112 22,358
Provision for income taxes......................... 61,234 -- --
Change in assets and liabilities (net of acquired
assets and liabilities):
Accounts receivable................................ (89,396) (91,413) (39,811)
Inventories........................................ (10,954) 3,332 (4,441)
Other current assets............................... (2,035) 4,203 8,865
Other long-term assets............................. (8,625) (4,308) 11,990
Accounts payable and accrued expenses.............. 15,488 13,359 9,942
Other long-term obligations........................ -- -- (2,294)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... 90,074 65,655 30,934
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Businesses acquired, net of cash on-hand.............. (55,592) 21,518 (547,889)
Purchases of property and equipment, net.............. (4,685) (4,939) (7,811)
Software development costs............................ (27,299) (12,344) (2,410)
Merger related accruals............................... (53,021) (38,091) (7,341)
Payments to stockholders of The Former Learning
Company............................................ -- (25,025) --
--------- --------- ---------
NET CASH USED FOR INVESTING ACTIVITIES.................. (140,597) (58,881) (565,451)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of stock, options and
warrants........................................... 8,970 27,905 106,616
Borrowings under line of credit....................... 10,150 25,000 3,150
Payments on term notes................................ -- (4,832) (8,815)
Payments on capital lease obligations................. (2,676) (1,874) (1,008)
Sale (repurchase) of senior notes..................... (28,000) (18,350) 500,000
Costs incurred to issue Series A Preferred Stock...... (10,701) -- --
Proceeds from issue of special warrants............... 57,462 -- --
Other................................................. 1,821 (1,092) --
NET CASH PROVIDED BY FINANCING ACTIVITIES............... 37,026 26,757 599,943
EFFECT OF EXCHANGE RATE CHANGES ON NET CASH............. (1,486) (1,243) 201
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS................. (14,983) 32,288 65,627
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........ 110,120 77,832 12,205
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $ 95,137 $ 110,120 $ 77,832
========= ========= =========
</TABLE>

F-6
<PAGE> 58

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULING OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Issuance of Series A Preferred Stock to retire debt... $ 202,033 $ -- $ --
Common stock issued to settle earn-out agreements..... 2,023 -- --
Common stock issued to acquire MECC................... -- 221,319 --
Increase in APIC due to value of in-the-money employee
stock options acquired in connection with
acquisitions....................................... 2,969 19,444 43,369
Common stock issued for acquisitions.................. -- 15,255 95,292
Conversion of debt to equity.......................... -- 3,053 3,471
Common stock issued for settlement of expenses........ -- 10,132 111
Equipment acquired under capital leases............... -- 1,262 627
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (refunded) during period for:
Interest paid...................................... $ 29,876 $ 28,466 $ 524
Income taxes paid (refunded)....................... 1,583 (7,886) (12)
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements

F-7
<PAGE> 59

THE LEARNING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Business

The Learning Company, Inc. ("TLC" or the "Company") develops, publishes and
markets consumer software in the education and reference category and, to a
lesser extent, productivity, lifestyle and entertainment categories. The Company
sells its products in the retail channel through mass merchants, consumer
electronic stores, price clubs, office supply stores, software specialty stores
and distributors; to original equipment manufacturers ("OEMs"); to schools and
to end-users through direct response methods. The Company also develops and
distributes income tax software products and offers computerized processing of
income tax returns in Canada. The Company's principal market is in the United
States and Canada. The Company has international operations in Germany, Ireland,
France, Holland, the United Kingdom, Japan and Australia. On October 24, 1996,
SoftKey International Inc. changed its name to The Learning Company, Inc.

The Company's fiscal year is the 52 or 53 weeks ending on or after December
31. For clarity of presentation herein, all references to December 31, 1997
relate to balances as of January 3, 1998, references to December 31, 1996 relate
to balances as of January 4, 1997, the period from January 5, 1997 to January 3,
1998 is referred to as the "Year Ended December 31, 1997", the period from
January 7, 1996 to January 4, 1997 is referred to as the "Year Ended December
31, 1996" and the period from January 1, 1995 to January 6, 1996 is referred to
as the "Year Ended December 31, 1995".

Basis of Presentation

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions regarding
items such as return reserves and allowances, net realizable value of intangible
assets and valuation allowances for deferred tax assets that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant estimates in
these financial statements include: return reserves, inventory reserves,
valuation of deferred tax assets and valuation and useful lives of intangible
assets. Actual results could differ from these estimates.

The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
amounts and transactions have been eliminated.

Certain prior period amounts have been reclassified to conform with the
current year presentation.

Revenue Recognition

Revenues are primarily derived from the sale of software products and from
software licensing and royalty arrangements. The Company recognizes revenue in
accordance with the Statement of Position ("SOP") No. 91-1, Software Revenue
Recognition. The Financial Accounting Standards Board recently issued SOP No.
97-2, Software Revenue Recognition. The most significant changes to SOP No.
91-1, relate to multiple deliverables and "when and if available" products. The
new SOP No. 97-2 is effective for transactions entered into in fiscal years
beginning after December 15, 1997 and will be adopted by the Company for the
fiscal year ending December 31, 1998. The adoption of this new standard is not
expected to have a material effect on the Company's financial statements.

Revenues from the sale of software products are recognized upon shipment,
provided that no significant obligations remain outstanding and collection of
the receivable is probable. Costs related to insignificant post shipment
obligations are accrued when revenue is recognized for the sale of the related
products. Allowances for estimated returns are provided at the time of sale and
allowances for price protection are provided at the time of commitment and
charged against revenues. The Company evaluates the adequacy of allowances for

F-8
<PAGE> 60
THE LEARNING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

returns and doubtful accounts primarily based upon its evaluation of historical
and expected sales experience and by channel of distribution. The estimates
determined for reserves for returns and allowances are based upon information
available at the reporting date. To the extent the future market, sell-through
experience, customer mix, channels of distribution, product pricing and general
economic conditions change, the estimated reserves required for returns and
allowances may also change. Revenues from royalty and license arrangements are
recognized as earned based upon performance or product shipments.

Advertising and Marketing Costs

The Company charges direct response advertising costs to sales and
marketing expense as incurred. Direct response costs eligible for capitalization
are not material at December 31, 1997 or 1996. Co-operative advertising and
other channel marketing programs are expensed in the period the programs are run
or over the period of specific contract for services and are included in sales
and marketing expense. The Company offers various coupon rebate programs to its
end-user customers. The Company provides for the expected cost of the coupon
redemption at the time of sale under sales and marketing expense. The cost is
estimated based upon the expected coupon redemption rate on a product-by-product
basis and is adjusted at each reporting period for actual results. Fees for
preferred shelf space are expensed as incurred as sales and marketing expense.

Cash Equivalents

Cash equivalents are valued at cost, which approximates market value, and
consist principally of commercial paper, bankers' acceptances, short-term
government securities and money market accounts. The Company considers all such
investments having maturities at purchase of less than 90 days to be cash
equivalents. At year end the Company has approximately $20,000 of cash on
deposit under compensating balances that are not legally restricted with the
Company's bank to provide for credit enhancement under the receivables purchase
agreement. The amount of the compensating balances varies based upon the amount
of eligible accounts receivable under the agreement and the credit rating of
each account receivable.

Accounting for Transfers and Servicing Financial Assets

The Company follows Statement of Financial Accounting Standards No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities ("FAS 125"). FAS 125 applies a control-oriented,
financial-components approach to financial asset transfer transactions whereby
the Company (1) recognizes the financial and servicing assets it controls and
the liabilities it has incurred, (2) derecognizes financial assets when control
has been surrendered, and (3) derecognizes liabilities once they are
extinguished. The Company, through its wholly owned subsidiary The Learning
Company Funding, Inc. (a separate special purpose corporation), is party to a
receivables purchase agreement whereby it can sell without recourse undivided
interests in eligible pools of trade accounts receivable of up to $75,000 on a
revolving basis during a five year period ending September 30, 2002. The Company
acts as servicing agent for the sold receivables in the collection and
administration of the accounts.

Inventories

Inventories are stated at the lower of weighted average cost or net
realizable value and include third-party assembly costs, CD-ROM discs, manuals
and an allocation of fixed overhead.

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Components............................................... $ 4,243 $ 1,213
Finished goods........................................... 25,357 14,681
------- -------
$29,600 $15,894
======= =======
</TABLE>

F-9
<PAGE> 61
THE LEARNING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Property and Equipment

Property and equipment are stated at the lower of cost, net of accumulated
depreciation or net realizable value. Depreciation is calculated using
accelerated and straight-line methods over the following useful lives:

<TABLE>
<S> <C>
Building...................................... 40 years
Computer equipment............................ 3-5 years
Furniture and fixtures........................ 3-5 years
Leasehold improvements........................ Shorter of the life of the lease
or the estimated useful life
</TABLE>

Betterments and major renewals are capitalized and included in property,
plant, and equipment accounts while expenditures for maintenance and repairs and
minor renewals are charged to expense. When assets are retired or otherwise
disposed of, the assets and related allowances for depreciation and amortization
are eliminated from the accounts and any resulting gain or loss is reflected in
income.

Goodwill and Intangible Assets

The excess cost over the fair value of net assets acquired, goodwill, 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 (balance of $22,341 at the end of fiscal 1997 and $23,352 at the end of
fiscal 1996). The cost of identified intangible assets is generally amortized on
a straight-line basis over their estimated useful lives of 2 to 10 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. The Company determines whether an impairment has
occurred based on gross expected future cash flows and measures the amount of
the impairment based on the related future estimated discounted cash flows. The
cash flow estimates that are used to determine the amount of an impairment, if
any, contain management's best estimates, using appropriate and customary
assumptions and projections at the time. Goodwill and other intangible assets
have been presented net of accumulated amortization of $905,425 at the end of
fiscal 1997 and $444,967 at the end of fiscal 1996.

<TABLE>
<CAPTION>
NET BALANCE
AT DECEMBER 31,
ESTIMATED USEFUL -----------------------
DESCRIPTION LIFE IN YEARS 1997 1996
----------- --------------------- ----------- --------
<S> <C> <C> <C>
Goodwill........................................ 2 to 40 $ 55,199 $397,459
Acquired technology............................. 2 16,662 126,763
Brands and related content rights............... 7 to 10 51,453 10,061
Deferred financing costs........................ 5 3,828 9,423
Other intangible assets......................... 3 339 864
-------- --------
$127,481 $544,570
======== ========
</TABLE>

Development and Software Costs

Development and software costs are expensed as incurred. Development costs
for new software products and enhancements to existing software products are
expensed as incurred until technological feasibility has been established.
Capitalized software development costs on a product-by-product basis are being
amortized using the straight-line method over the remaining estimated economic
life of the product, which is generally twelve months beginning when launched,
which approximates the ratio that current gross revenues for a

F-10
<PAGE> 62
THE LEARNING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

product bear to the total of current and anticipated future gross revenues for
that product. At December 31, 1997 and 1996, the Company had capitalized
software development costs of $13,665 and $6,140, respectively, which are
included in other current assets. Amortization of software development costs was
$12,052, $9,904 and $2,368 in each of the Years Ended December 31, 1997, 1996
and 1995, respectively.

Income Taxes

Deferred tax liabilities and assets are determined based on the differences
between the financial statement basis and tax basis of assets and liabilities,
using enacted tax rates in effect for the year in which the differences are
expected to reverse. FAS 109 also requires a valuation allowance against net
deferred tax assets if based upon the available evidence it is more likely than
not that some or all of the deferred tax assets will not be realized.

Foreign Currency

The functional currency of each foreign subsidiary is the local currency.
Accordingly, assets and liabilities of foreign subsidiaries are translated to
U.S. dollars at period end exchange rates. Revenues and expenses are translated
using the average rates during the period. The effects of foreign currency
translation adjustments have been accumulated and are included as a separate
component of stockholders' equity (deficit).

Computation of Earnings Per Share

For the year ended December 31, 1997, the Company adopted Statement of
Accounting Standards No. 128 ("FAS 128"), which requires the presentation of
Basic and Dilutive earnings per share, which replaces primary and fully diluted
earnings per share. Earnings per share have been restated for all periods
presented to reflect the adoption of FAS 128. Basic net loss per share is
computed using the weighted average number of common shares outstanding during
the period. Dilutive net loss per share is computed using the weighted average
number of common shares outstanding during the period, plus the dilutive effect
of common stock equivalents. Common stock equivalent shares consist of
convertible debentures, preferred stock, stock options and warrants. The
dilutive computations do not include common stock equivalents for the years
ended December 31, 1997, 1996 and 1995 as their inclusion would be antidilutive.

(2) BUSINESS COMBINATIONS

Creative Wonders

On October 23, 1997, the Company acquired control of Creative Wonders,
L.L.C. ("Creative Wonders"), an educational software company that publishes,
among other titles, the Sesame Street line of products. The purchase price was a
total of $37,799 including the value of employee stock options assumed and
estimated transaction costs. The purchase price included cash payments of
$33,883.

Other 1997 Combinations

F-11
<PAGE> 63
THE LEARNING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

accounting. The consolidated financial statements of the Company for the years
prior to December 31, 1997 do not include the results and balances of these
companies as they were deemed to be immaterial to the consolidated financial
statements for those periods.

MECC

On May 17, 1996, the Company acquired Minnesota Educational Computing
Corporation (MECC) ("MECC"), a publisher and developer of high quality
children's educational software sold to consumers and schools, in exchange for
9,214,007 shares of the Company's common stock. The total purchase price was
$284,631, including estimated transaction costs, value of stock options assumed
and deferred income taxes related to certain identifiable intangible assets
acquired. Approximately 1,048,000 MECC employee stock options were converted
into stock options to purchase approximately 1,198,000 shares of TLC common
stock. This transaction was accounted for as a purchase.

Compton's

On December 28, 1995, the Company acquired Compton's New Media, Inc. and
Compton's Learning Company (collectively, "Compton's"), developers and
publishers of multimedia software titles. In and in connection with the
acquisition, the Company issued a total of 5,052,697 shares of the Company's
common stock, which included 587,036 shares of common stock to settle $14,000 of
intercompany debt due to Tribune Company and executed a promissory note for
$3,000 in cancellation of the remaining intercompany debt. The total purchase
price was $104,394, including estimated transaction costs, deferred income taxes
related to certain identifiable intangible assets acquired, settlement of
certain intercompany debt to Tribune Company and the fair value of net
liabilities assumed. The promissory note was repaid in 1996. This transaction
was accounted for as a purchase.

The Learning Company

On December 22, 1995, the Company acquired control of The Learning Company
(the "The Former Learning Company"), a leading developer of educational software
products for use at home and school. Under the terms of the merger agreement,
the Company acquired, in a two-step business combination, all of the outstanding
shares of The Former Learning Company for total consideration of approximately
$684,066, including the value of stock options assumed, estimated transaction
related costs and deferred income taxes related to certain identifiable
intangible assets acquired. Approximately 1.1 million unvested employee stock
options of The Former Learning Company were converted into options to purchase
3,123,000 shares of the Company's common stock, based on the merger
consideration of $67.50 per share and were vested on or before January 26, 1996.
Approximately $543,163 of the purchase price was settled in cash. This
transaction was accounted for as a purchase.

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
valued at $3,640 and may issue additional shares of common stock to a former
shareholder of tewi pursuant to an earn-out agreement. The Company paid cash
consideration of $12,688 for tewi. The additional shares issuable under the
earn-out agreement have been treated as contingent consideration and will be
recorded if and when certain future conditions are met. During 1997 and 1996,
$498 and $540, respectively, of consideration related to the contingent
consideration was earned and recorded as expense by the Company. This
transaction was accounted for as a purchase.

F-12
<PAGE> 64
THE LEARNING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The purchase price for the 1997 acquisition of Creative Wonders has been
allocated based on fair values as follows:

<TABLE>
<S> <C>
Purchase price............................................ $37,799
Less: fair value of net liabilities assumed............... (7,257)
-------
Excess to allocate........................................ 45,056
Less: excess allocated to
Incomplete technology.................................. 1,050
Brands and related content rights...................... 44,006
-------
Goodwill.................................................. $ --
=======
</TABLE>

The purchase price for the 1996 acquisitions has been allocated based on
fair values as follows:

<TABLE>
<CAPTION>
MECC OTHERS TOTAL
-------- ------- --------
<S> <C> <C> <C>
Purchase price............................................ $284,631 $15,681 $300,312
Less: fair value of net tangible assets (liabilities)..... 13,990 (15,424) (1,434)
-------- ------- --------
270,641 31,105 301,746
Excess to allocate to:
Less: excess to allocate
Incomplete technology.................................. 56,688 -- 56,688
Completed technology................................... 88,501 285 88,786
Brands and related content rights...................... 894 -- 894
-------- ------- --------
146,083 285 146,368
-------- ------- --------
Goodwill.................................................. $124,558 $30,820 $155,378
======== ======= ========
</TABLE>

The Company primarily used the income approach to determine the fair value
of the identified intangible assets acquired. The debt-free cash flows, net of
provision for operating expenses, were discounted to a net present value. The
value of certain completed technology was based upon comparable fair values in
the open market. The value of software technology and products under development
not considered to have reached technological feasibility and having no future
alternative use was expensed on acquisition.

Unaudited pro forma results of operations for the transactions accounted
for using the purchase method of accounting as though the acquisitions had
occurred at the beginning of the Years Ended December 31, 1996 and 1995 are
below. The pro forma adjustments detailed below include the effect of
amortization of intangible assets and goodwill related to the acquisitions over
their estimated useful lives of two years and the interest expense related to
the issue of the $500,000 of debt for the period prior to 1995 and 1996
acquisitions or issuance, net of any related income tax effects. Pro forma
results for the 1997 acquisitions were immaterial.

F-13
<PAGE> 65
THE LEARNING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
THE FORMER
LEARNING PRO FORMA PRO FORMA
TLC TEWI COMPTON'S COMPANY MECC ADJUSTMENTS COMBINED
--------- ------- --------- ---------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Revenues.......................... $ 343,321 $ -- $ -- $ -- $ 7,800 $ -- $ 351,121
Operating loss.................... (381,312) -- -- -- (9,212) (41,128) (431,652)
Net loss.......................... (405,451) -- -- -- (7,021) (34,009) (446,481)
Net loss per share................ (9.94) -- -- -- -- -- (10.12)

YEAR ENDED DECEMBER 31, 1995
Revenues.......................... $ 167,042 $ 3,720 $ 23,204 $60,698 $33,815 $ -- $ 288,479
Operating loss.................... (60,870) (3,589) (13,904) 10,874 6,079 (428,239) (489,649)
Net loss.......................... (65,960) (3,643) (9,626) 7,398 5,070 (398,195) (464,956)
Net loss per share................ (2.65) -- -- -- -- -- (12.01)
</TABLE>

Future Vision Holding, Inc.

On August 31, 1995, the Company acquired all of the issued and outstanding
capital stock of Future Vision Holding, Inc. ("Future Vision"), a multimedia
software company, in exchange for the issuance of 1,088,149 shares of common
stock of the Company. This acquisition has been accounted for using the pooling-
of-interests method of accounting. The financial statements for periods prior to
the Year Ended December 31, 1995 do not include amounts for this acquisition as
they were deemed to be immaterial to the consolidated financial statements for
those periods.

(3) FIXED ASSETS AND OTHER

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Building, land and leasehold improvements.............. $ 6,127 $ 4,516
Computer equipment..................................... 30,707 26,362
Furniture and fixtures................................. 7,820 9,062
-------- --------
44,654 39,940
Less: accumulated depreciation and amortization........ (24,065) (22,273)
======== ========
20,589 17,667
Other.................................................. 11,717 5,308
-------- --------
$ 32,306 $ 22,975
======== ========
</TABLE>

Included in computer equipment is equipment under capital lease of $1,952
and $2,207 at December 31, 1997 and 1996, respectively. Depreciation expense was
$4,966, $6,491 and $6,767 in each of the Years Ended December 31, 1997, 1996 and
1995, respectively.

(4) LINE OF CREDIT

TLC Multimedia, Inc., a wholly-owned subsidiary of the Company, has a
revolving line of credit (the "Line"), to provide for a maximum availability of
$50,000, of which $35,150 was utilized at December 31, 1997. Borrowings under
the Line become due on July 1, 1999 and bear interest at the prime rate (8 1/2%
at December 31, 1997). The Line is subject to certain financial covenants, is
secured by a general security interest in the assets of The Learning Company,
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.

F-14
<PAGE> 66
THE LEARNING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) LONG-TERM DEBT

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Senior Convertible Notes............................... $303,650 $331,650
Obligations under capital leases....................... 1,423 2,099
305,073 333,749
Less: current portion.................................. (10,717) (819)
-------- --------
$294,356 $332,930
======== ========
</TABLE>

The Company has outstanding $303,650 principal amount 5 1/2% Senior
Convertible Notes due 2000 (the "Notes"), which are unsecured. The Notes will be
redeemable by the Company on or after November 2, 1998 at redemption prices of
102.2% on November 2, 1998, 101.1% on November 1, 1999 and 100% on or after
November 1, 2000 and are convertible into common stock at a price of $53 per
share. Interest is payable on the Notes semi-annually on May 1 and November 1
each year. The long-term principal portion of the Notes declined by a total of
$38,000 and $18,350 during the years Ended December 31, 1997 and 1996,
respectively. Current portion of long-term debt includes $10,000 of the Notes as
the Company intends to repurchase the amount before December 31, 1998.

RELATED PARTY TRANSACTIONS

On December 28, 1995, Tribune Company made an investment in the Company in
the form of $150,000 principal amount 5 1/2% Senior Convertible/Exchangeable
Notes due 2000 (the "Private Notes"). The Private Notes were redeemable by the
Company on or after November 2, 1998 at redemption prices of 102.2% on November
2, 1998, 101.1% on November 1, 1999 and 100% on November 1, 2000 and were
convertible into common stock at a price of $53 per share. The Private Notes
were sold during 1997 in a private transaction to an investor group prior to
issuance by the Company of 750,000 shares of Series A Convertible Participating
Preferred Stock (the "Preferred Stock") and were surrendered by the investor
group for issue of the Preferred Stock. In connection with the issuance of the
Preferred Stock, the Company paid a transaction fee to the investor group
totaling $1,845, of which $1,125 was paid to one of the investors where a
director of the Company is an officer. The loss resulting from the exchange of
the Private Notes for the Preferred Stock, net of tax benefit, was immaterial.

F-15
<PAGE> 67
THE LEARNING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7) COMMITMENTS AND CONTINGENCIES

Lease Obligations

The Company leases office facilities and equipment under operating and
capital leases. Rental expense for operating leases was approximately $4,523,
$3,234 and $2,308 and for the Years Ended December 31, 1997, 1996 and 1995,
respectively. Future annual payments under capital and operating leases are as
follows:

<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
<S> <C> <C>
1998.......................................... $ 788 $ 7,424
1999.......................................... 601 6,280
2000.......................................... 142 5,467
2001.......................................... 2 4,643
2002.......................................... 2 909
Thereafter.................................... -- 8,070
------ -------
1,535 $32,793
=======
Less: interest................................ (112)
Less: current portion......................... (717)
------
$ 706
------
</TABLE>

(8) COMMON AND PREFERRED STOCK

Common Stock

The Company has reserved 19,279,847 shares of its common stock for issuance
related to the Exchangeable Shares, employee stock options and warrants at year
end. The Exchangeable Shares are represented by the one share of Special Voting
Stock. In addition, the Company has reserved a total of 20,729,245 shares of its
common stock for issuance related to the Notes and the Preferred Stock at year
end.

Exchangeable Shares

On February 4, 1994, the Company completed a three-way business combination
(the "Three-Party Combination") among SoftKey Software Products Inc. ("Former
SoftKey"), WordStar International Incorporated ("WordStar") and Spinnaker
Software Corporation ("Spinnaker"). In connection with the Three-Party
Combination, Former SoftKey stockholders were entitled to elect to receive
shares of the Company's common stock or Exchangeable Non-Voting Shares (the
"Exchangeable Shares") of SoftKey Software Products Inc. ("SoftKey Software"),
the successor by amalgamation to Former SoftKey. The Company also issued a
special voting share (the "Voting Share") which has a number of votes equal to
the number of Exchangeable Shares outstanding. The holder of the Voting Share is
not entitled to dividends and shall vote with the common stockholders as a
single class. The Exchangeable Shares may be exchanged for the Company's common
stock on a one-for-one basis until February 4, 2005, at which time any
outstanding Exchangeable Shares automatically convert to shares of the Company's
common stock. At year end there were 1,478,929 Exchangeable Shares outstanding
and not held by the Company and its subsidiaries.

On November 6, 1997, SoftKey Software issued in a private placement
4,072,000 special warrants for net proceeds of $57,462, each of which is
exercisable without additional payment for one Exchangeable Share.

Preferred Stock

On December 4, 1997, the Company issued an aggregate of 750,000 shares of
Series A Convertible Participating Preferred Stock (the "Preferred Stock") to an
investor group in exchange for the Private Notes.

F-16
<PAGE> 68
THE LEARNING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Each share of the Preferred Stock has an initial liquidation preference of $200
and is initially convertible into 20 shares of common stock, or 15,000,000
shares of common stock in the aggregate on an as-converted basis, subject to
adjustment for certain minimum returns on investment. The Preferred Stock is
non-redeemable, bears no dividend, is subject to restrictions on resale for a
period of at least eighteen months and is manditorily convertible into common
stock upon satisfaction of certain conditions.

The Company estimated the extraordinary loss for financial reporting
purposes to be approximately $61,000 as at the date the Company entered into and
announced the agreement on August 25, 1997. The Company also estimated that the
resulting benefit for income tax purposes was approximately $61,000 as at the
date if issuance of the Preferred Stock on December 5, 1997. As a result, the
extraordinary loss, net of tax, was determined to be immaterial.

(9) STOCK OPTIONS AND WARRANTS

Stock Option Plans

1990 Long-Term Equity Incentive Plan

The Company has a Long-Term Equity Incentive Plan (the "LTIP"). The LTIP
allows for incentive stock options, non-qualified stock options and various
other stock awards. Administration of the LTIP is conducted by the Company's
Compensation Committee of the Board of Directors. The Compensation Committee
determines the amount and type of option or award and terms and conditions and
vesting schedules (generally 3 years) of the award or option. The maximum term
of an option is 10 years. Upon a change of control, as defined, awards and
options then outstanding become fully vested, subject to certain limitations.

On December 4, 1997, the stockholders of the Company approved an amendment
to increase the maximum number of shares of common stock issuable under the LTIP
to 9,000,000 from 7,000,000. The total number of shares of common stock reserved
for issuance under the LTIP at year end was 6,538,716 shares, 2,039,645 of which
remained available for grant.

1996 Non-Qualified Stock Option Plan

The Company initiated a non-qualified stock option plan (the "1996 Plan")
that was approved by the Company's Board of Directors on February 5, 1996. The
1996 Plan allows for non-qualified stock options and various other stock awards.
Administration of the 1996 Plan is conducted by the Company's Compensation
Committee of the Board of Directors. The administrator determines the amount and
type of option or award and terms and conditions and vesting schedules
(generally 3 years) of the award or option. The maximum term of an option is 10
years. Upon a change of control, as defined, awards and options then outstanding
become fully vested, subject to certain limitations. The maximum number of
shares issuable under the 1996 Plan is 5,000,000. The total number of shares of
common stock reserved under the 1996 Plan at year end was 4,612,949 shares,
585,183 of which remained available for grant.

1994 Non-Employee Director Stock Option Plans

On April 26, 1994, the Board of Directors approved a non-employee director
stock option plan (the "1994 Non-Employee Director Plan"). The 1994 Non-Employee
Director Plan provides for an initial grant of 20,000 options at fair market
value to be issued to each non-employee director who first became a director of
the Company after February 1, 1994 ("Initial Grants"). During the Year Ended
December 31, 1995, a further 100,000 options were granted to each of the
non-employee directors. During the Year Ended December 31, 1996, a further
26,667 options were granted to each of the non-employee directors. The maximum
number of common shares issuable under the 1994 Non-Employee Director Plan is
500,000, all of which were granted at year end. Options granted to non-employee
directors as Initial Grants were 100% exercisable at the time of

F-17
<PAGE> 69
THE LEARNING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

grant and options issued as subsequent grants become exercisable over a
three-year period. All such options are exercisable for a period of 10 years
from date of grant.

1996 Non-Employee Director Stock Option Plan

On July 31, 1996, Board of Directors approved the Company's 1996
Non-Employee Director Option Plan (the "1996 Non-Employee Director Plan"), which
was approved by stockholders on December 4, 1997. Under the 1996 Non-Employee
Director Plan, certain directors who are not officers or employees of the
Company or any affiliate of the Company (the "Non-Employee Directors") are
eligible to receive stock options. The 1996 Non-Employee Director Plan provides
that each Non-Employee Director who became a director after May 16, 1996, but
prior to August 16, 1996 ( the "Effective Date") was entitled to receive a
non-statutory stock option (the "Initial Option") to purchase 50,000 shares of
common stock on the Effective Date. The 1996 Non-Employee Director Plan further
provides that each Non-Employee Director who becomes a director after the
Effective Date is entitled to receive the Initial option to purchase 50,000
shares of common stock on the date that he or she first becomes a member of the
Board of Directors. In addition, the 1996 Non-Employee Director Plan provides
that each Non-Employee Director is entitled to receive a non-statutory option to
purchase 25,000 shares of common stock upon initial appointment to a committee
of the Board of Directors (the "Committee Option"). The Board of Directors may
also grant additional non-statutory options (the "Discretionary Options") to
Non-Employee Directors in its or the Committee's sole discretion. Initial
options, Committee Options and Discretionary Options are exercisable in eight
quarterly installments, with the first of such installments becoming exercisable
three months after the date grant (provided that, for each such installment, the
optionee continues to serve as a director). The total number of shares of common
stock reserved for issuance under the 1996 Non-Employee Director Plan as of year
end was 500,000, 100,000 of which remain available for grant.

The following table summarizes the stock option activity under the LTIP,
the 1996 Plan, the 1996 Non-Employee Director Plan and the 1994 Non-Employee
Director Plan:

<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Beginning........................ 10,077,951 $17.22 6,663,769 $14.30 2,599,980 $11.62
Assumed in acquisitions.......... 716,856 4.78 1,197,852 8.39 3,123,938 8.10
Granted.......................... 6,617,773 10.57 7,202,103 17.79 2,446,996 25.72
Exercised........................ (1,116,050) 8.03 (3,198,476) 7.73 (1,394,035) 28.76
Canceled......................... (5,621,075) 17.61 (1,787,297) 19.77 (113,110) 19.81
---------- ------ ---------- ------ ---------- ------
Ending........................... 10,675,455 $12.96 10,077,951 $17.22 6,663,769 $14.30
========== ====== ========== ====== ========== ======
</TABLE>

F-18
<PAGE> 70
THE LEARNING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about stock options outstanding
at year end:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE ----------------------------
NUMBER REMAINING WEIGHTED NUMBER WEIGHTED
RANGE OF EXERCISE OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AVERAGE
PRICES AT 12/31/97 LIFE EXERCISE PRICE AT 12/31/97 EXERCISE PRICE
- ------------------------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.05 $ 9.8750 2,496,383 8.66 $ 7.17 769,409 $ 6.63
10.21 15.8750 4,156,021 7.86 10.58 2,865,111 10.62
16.0625 28.750 4,023,051 7.45 19.00 1,344,569 23.09
- --------------------- -------- ---------- ---- ------ ----------- ------
$ 0.05 $ 28.750 10,675,455 7.89 $12.96 4,979,089 $13.37
===================== ======== ========== ==== ====== =========== ======
</TABLE>

Options to purchase 4,979,089, 4,035,729 and 1,697,054 shares of common
stock were exercisable at December 31, 1997, 1996 and 1995, respectively.

The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", in accounting for its plans. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
Accordingly, no compensation expense has been recognized for the stock option
plans as calculated under SFAS 123. Had compensation cost for the Company's
stock option plans been determined based on the fair value at the grant date for
awards in 1997, 1996 and 1995 consistent with the provisions of SFAS 123, the
Company's net loss and basic and diluted net loss per share would have been
increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Net loss -- as reported.................. $(475,667) $(405,451) $(65,960)
Net loss -- pro forma.................... (511,575) (430,765) (80,670)
Net loss per share -- as reported........ (9.59) (9.94) (2.65)
Net loss per share -- pro forma.......... (10.07) (10.56) (3.25)
</TABLE>

The above compensation cost does not include the fair value of the stock
options assumed in connection with the acquisitions, as the fair value of such
options have been included in the purchase price of the acquired companies.

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995:

<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Dividend yield................................... -- -- --
Expected volatility.............................. .7500 .7857 .6827
Risk free interest rate.......................... 6.00% 5.47% 5.31%
Expected lives................................... 4 yrs 4 yrs 4 yrs
Weighted average grant-date fair value of options
granted........................................ $10.57 $10.79 $15.61
</TABLE>

The effects of applying SFAS 123 in this disclosure are not indicative of
future amounts. Additional grants in future years are anticipated.

On March 13, 1997, in order to continue to provide a competitive employment
environment for staff retention and hiring, the Company instituted an Option
Exchange Program under which certain employees (other than employees who are
directors) with options exercisable at $10.40 per share or higher were given the

F-19
<PAGE> 71
THE LEARNING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

opportunity to exchange such options for options with an exercise price of
$10.40 per share. A total of 3,627,020 employee stock options were exchanged and
are included in the cancelled and re-granted employee stock options in the above
table.

1997 Employee Stock Purchase Plan

On December 4, 1997, the Company's stockholders approved the 1997 Employee
Stock Purchase Plan, which provides for six offerings, one beginning every six
months commencing December 1, 1997 until and including November 30, 2000, that
provides certain eligible employees with the opportunity to purchase shares of
the Company's common stock at a price of 85% of the price listed on the New York
Stock Exchange at various specified purchase dates. A maximum of 1,000,000
shares of common stock has been authorized for issuance under the 1997 Employee
Stock Purchase Plan.

Warrants

On November 6, 1997, the Company's Canadian subsidiary, SoftKey Software
issued in a private placement in Canada 4,072,000 special warrants for net
proceeds of approximately $57,462. Each special warrant is exercisable without
additional payment for one Exchangeable Share and automatically was exercised in
accordance with their provisions subsequent to year end. The Exchangeable Shares
are exchangeable at the option of the holder on a one-for-one basis for common
stock of the Company without additional payment.

On July 31, 1995, the Company announced that it would redeem all of its
2,925,000 publicly traded warrants for $0.10 per warrant on August 31, 1995 in
accordance with the terms and conditions of the warrants. Holders of such
warrants received in exchange for the warrants an aggregate of 289,959 shares of
common stock. The remaining 25,410 warrants were redeemed by the Company.

(10) AMORTIZATION, MERGER AND OTHER CHARGES

During the Year Ended December 31, 1997, the Company completed the
acquisition of Creative Wonders using the purchase method of accounting and the
acquisitions of Learning Services, Skills Bank, TEC Direct and Microsystems
using the pooling-of-interests method of accounting. During the year ended
December 31, 1996 the Company completed the acquisitions of MECC and Edusoft
S.A. using the purchase method. During the Year Ended December 31, 1995, the
Company completed the acquisitions of The Former Learning Company, Compton's and
tewi using the purchase method of accounting and Future Vision using the
pooling-of-interest method of accounting. Amortization, merger and other charges
were expensed as incurred or were recorded when it became probable that the
transaction would occur and the expense could be reasonably estimated.
Amortization, merger and other related charges are as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Amortization of goodwill and other intangible
assets........................................ $457,393 $434,866 $ 31,968
Exit and restructuring costs..................... 48,571 4,260 1,304
Charge for incomplete technology................. 1,050 56,688 60,483
Provision for earn-outs.......................... 5,497 2,917 --
Professional fees and other costs................ 2,505 2,599 9,417
-------- -------- --------
$515,016 $501,330 $103,172
======== ======== ========
</TABLE>

The amortization of goodwill and other intangible assets in 1997, 1996 and
1995 represents primarily the amortization of the goodwill and acquired
intangible assets in connection with the acquisitions of Creative Wonders, MECC,
The Former Learning Company and Compton's.

F-20
<PAGE> 72
THE LEARNING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Exit and restructuring costs related to charges during the year for
employee severance of $10,936, discontinued products of $19,242 termination of
certain supplier relations of $10,229 and other charges related to the Company's
acquisition strategy and integration of the acquired Companies of $8,164. The
charge has increased in the Year Ended December 31, 1997 as compared to the Year
Ended December 31, 1996 due to the change in strategy related to the school
channel and product discontinuation due primarily to the 1997 acquisitions. A
total of 59 employees were terminated in the areas of development, marketing,
operations, sales and administration as part of the integration process. The
plan was consummated during the year. There were no separately identifiable
operations that will not be continued. Employee severance costs in the Year
Ended December 31, 1996 related to termination of employees of the Company in
connection with the acquisitions of The Former Learning Company and MECC and the
related changes in strategy. A total of 108 employees were terminated in the
areas of operations, marketing, sales, technical support and product
development. Employee severance costs in the Year Ended December 31, 1995
related to termination of employees in connection with the acquisitions of
Future Vision and certain severances related to changes in the Company's
operations related to the acquisitions and changes in strategy. A total of 63
employees were terminated in the areas of operations, product development and
administration. Accrued exit and restructuring costs at December 31, 1997 are
not material.

The charge for incomplete technology in the Year Ended December 31, 1997
related to products being developed by Creative Wonders, in the Year Ended
December 31, 1996 related to products being developed by MECC and in the Year
Ended December 31, 1995 related to products being developed by The Former
Learning Company and Compton's. In each case the Company believes the products
in development had not reached technological feasibility at the date of
acquisition, had no alternative future use and additional development would be
required to complete the software technology.

The provision for earn-outs related to the amounts earned by the former
owners of certain acquisitions based upon the achievement of certain revenue and
operating goals achieved. These amounts are expected to be paid in common stock
of the Company prior to December 31, 1998.

Professional fees and other costs in the Year Ended December 31, 1997
related to investment banking, legal, accounting fees and other transaction
related costs incurred in connection with the acquisitions of Skills \Bank,
Learning Services, TEC Direct and Microsystems. Professional fees and other
transaction related costs in the Year Ended December 31, 1996 relate to
additional legal and accounting costs incurred in connection with the
acquisition of MECC. Professional fees and other transaction related costs in
the Year Ended December 31, 1995 relate to the investment banking, legal and
accounting costs incurred to such date for the proposed merger with MECC and the
professional fees associated with the acquisition of Future Vision on August 31,
1995.

At December 31, 1997, the Company had merger related accruals of $12,533.
The accruals consisted of amounts due for legal and accounting fees, employee
severance and lease termination costs related to the acquisitions. The Company
expects to substantially pay the remaining amounts prior to December 31, 1998.

F-21
<PAGE> 73
THE LEARNING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(11) INCOME TAXES

The Company's net loss for the years ended December 31, 1997, 1996 and 1995
includes amortization, merger and other charges of $515,016, $501,330, and
$103,172, respectively, certain of which are not deductible for income tax
purposes. The Company's loss before income taxes consisted of the following:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
United States.................................... $(433,842) $(420,905) $(64,987)
Foreign.......................................... 19,409 15,454 4,822
--------- --------- --------
$(414,433) $(405,451) $(60,165)
========= ========= ========
</TABLE>

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Current income taxes:
Federal............................................ $37,498 $ 16,777 $ 6,000
State.............................................. 6,687 2,868 1,500
Foreign............................................ 1,512 4,000 250
------- -------- -------
45,697 23,645 7,750
------- -------- -------
Deferred income taxes (benefit):
Federal............................................ 15,537 (23,645) (1,955)
State.............................................. -- -- --
Foreign......................................... -- -- --
------- -------- -------
15,537 (23,645) (1,955)
------- -------- -------
$61,234 $ -- $ 5,795
======= ======== =======
</TABLE>

The significant components of deferred income tax expense are primarily
from changes in deferred tax liabilities related to the acquired technology,
depreciation, certain allowances and reserves not currently deductible, and
changes in the deferred tax asset valuation reserve.

The Company's actual tax as compared to the 1997, 1996 and 1995 statutory
tax rate reported on income is as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
---------- --------- --------
<S> <C> <C> <C>
Tax provision (benefit) at statutory federal income tax
rate (35%)............................................ $ (145,052) $(141,908) $(21,058)
State income tax, net of federal benefit................ 5,834 5,571 2,500
Net foreign earnings taxed at rates different than
federal tax rate...................................... 1,700 2,319 700
Non deductible amortization, merger and other charges... 121,461 175,465 36,110
Effect of change in valuation allowance................. 61,234 -- --
Utilization of prior year tax benefits.................. -- (41,447) (12,457)
Other................................................... 16,057 -- --
---------- --------- --------
$ 61,234 $ -- $ 5,795
========== ========= ========
</TABLE>

F-22
<PAGE> 74
THE LEARNING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating losses and credits....................... $112,196 $ 49,582
Other reserves and accruals............................ 25,918 8,104
-------- --------
138,114 57,686
Less: valuation allowance................................... (131,269) (53,350)
-------- --------
6,845 4,336
-------- --------
Tax liabilities:
Deferred intangible assets............................. (8,732) (54,429)
Deferred foreign taxes................................. -- (3,941)
Other deferred taxes................................... (7,008) --
-------- --------
(15,740) (58,370)
-------- --------
Net deferred tax liability.................................. (8,895) (54,034)
-------- --------
Accrued tax liabilities..................................... (50,581) (32,886)
-------- --------
$(59,746) $(86,920)
======== ========
</TABLE>

The valuation allowance relates to uncertainties surrounding the
recoverability of deferred tax assets. In assessing the realizability of
deferred assets, management considers whether it is more likely than not that
some or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during periods in which benefits from net operating loss
carryforwards are available and temporary differences become deductible. The
Company considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and other matters in making this assessment. As a result
of its evaluation of these factors at December 31, 1997 the Company recorded a
valuation reserve for deferred tax assets of $131,269 (including $16,600 for
items related to additional paid-in-capital in the Year Ended December 31,
1997). At December 31, 1997, the Company had worldwide net operating loss
carryforwards and other tax benefits of approximately $280,400 for income tax
purposes, expiring from the year 2000 through 2012. The Company expects to
reduce its deferred tax liability in proportion to the amortization taken on
certain intangible assets established in the acquisitions. The reduction of the
intangible assets and the deferred tax liability will not impact future cash
flows of the Company. The utilization of tax loss carryforwards is subject to
limitations under Section 382 of the U.S. Internal Revenue Code, the U.S.
consolidated tax return provisions, and foreign country tax regulations. Accrued
income tax liabilities relates to identified federal, state and foreign accrued
income tax liabilities that are not currently due.

(12) SUBSEQUENT EVENTS

On March 6, 1998, the Company announced that it had entered into an
agreement to acquire Mindscape, Inc. and its subsidiaries for a total purchase
price of $150,000,000, payable in cash and the remainder through the issuance of
shares of common stock. The transaction will be accounted for using the purchase
method of accounting. The Company has not yet completed its allocation of the
purchase price related to the transaction. The closing of the transaction is
subject to certain conditions, including expiration of applicable waiting
periods under pre-merger notification.

F-23
<PAGE> 75
THE LEARNING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On March 6, 1998, the Company also announced that its Canadian subsidiary,
SoftKey Software Products Inc., agreed to sell to certain Canadian institutional
investors approximately 6.25 million special warrants for aggregate proceeds of
approximately U.S. $104 million. Each special warrant is exercisable without
additional payment for one SoftKey Exchangeable Share. SoftKey's Exchangeable
Shares are exchangeable on a one-for-one basis for common stock of the Company
without additional payment. The private placement is ultimately subject to
certain conditions, including receipt of certain regulatory approvals.

(13) GEOGRAPHIC INFORMATION

The Company operates primarily in one business segment -- software for use
with microcomputers. The following table presents information concerning the
Company's United States, and International (including Canada) operations during
the Years Ended December 31, 1997, 1996 and 1995.

<TABLE>
<CAPTION>
UNITED
STATES INTERNATIONAL ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Revenues:
Customers............................... $ 295,513 $ 96,925 $ -- $ 392,438
Inter-company........................... 59 11,325 (11,384) --
Total........................... $ 295,572 $108,250 $(11,384) $ 392,438
Loss from operations...................... $(422,432) $ 29,377 $ -- $(393,055)
Identifiable assets....................... $ 246,800 $169,991 $ -- $ 416,791

DECEMBER 31, 1996
Revenues:
Customers............................... $ 261,816 $ 81,505 $ -- $ 343,321
Inter-company........................... 383 6,698 (7,081) --
Total........................... $ 262,199 $ 88,203 $ (7,081) $ 343,321
Loss from operations...................... $(396,697) $ 15,385 $ -- $(381,312)
Identifiable assets....................... $ 708,320 $ 85,198 $ -- $ 793,518

DECEMBER 31, 1995
Revenues:
Customers............................... $ 121,357 $ 48,061 $ (2,376) $ 167,042
Inter-company........................... 696 (3,072) 2,376 --
Total........................... $ 122,053 $ 44,989 $ -- $ 167,042
Loss from operations...................... $ (69,195) $ 8,295 $ -- $ (60,870)
Identifiable assets....................... $ 835,760 $ 64,653 $ -- $ 900,413
</TABLE>

The Company conducts a portion of its operations outside the United States.
At December 31, 1997, $20,209 of cash and cash equivalents were subject to
foreign currency fluctuations. Sales and transfers between geographic areas are
generally priced at market less an allowance for marketing costs. No single
customer accounted for greater than 10% of revenues for any of the periods
presented.

F-24
<PAGE> 76

THE LEARNING COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $107,710 $ 95,137
Accounts receivable (less allowances for returns of $26,732
and $29,226, respectively)................................ 94,428 99,677
Inventories................................................. 38,087 29,600
Other current assets........................................ 45,289 32,590
-------- ---------
285,514 257,004
Intangible assets, net...................................... 143,085 127,481
Other long-term assets...................................... 37,224 32,306
-------- ---------
$465,823 $ 416,791
======== =========

LIABILITIES & STOCKHOLDERS' DEFICIT
Current liabilities......................................... $169,274 $ 160,356
-------- ---------
LONG-TERM OBLIGATIONS:
Long-term debt.............................................. 287,650 294,356
Accrued and deferred income taxes........................... 58,512 59,746
Other long-term obligations................................. 9,414 6,119
-------- ---------
355,576 360,221
-------- ---------
STOCKHOLDERS' DEFICIT....................................... (59,027) (103,786)
-------- ---------
$465,823 $ 416,791
======== =========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

F-25
<PAGE> 77

THE LEARNING COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUES.................................................... $ 113,602 $ 86,881
COSTS AND EXPENSES:
Costs of production....................................... 33,964 24,020
Sales and marketing....................................... 28,145 20,859
General and administrative................................ 7,574 8,577
Development and software costs............................ 10,993 10,751
Amortization, merger and other charges.................... 156,820 124,721
----------- -----------
237,496 188,928
----------- -----------
OPERATING LOSS.............................................. (123,894) (102,047)
INTEREST EXPENSE, net....................................... 5,514 5,521
----------- -----------
LOSS BEFORE INCOME TAXES.................................... (129,408) (107,568)
PROVISION FOR INCOME TAXES.................................. -- (250)
----------- -----------
NET LOSS.................................................... $ (129,408) $ (107,318)
=========== ===========
NET LOSS PER SHARE -- basic and diluted..................... $ (2.45) $ (2.20)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -- basic and
diluted................................................... 52,732,000 48,742,000
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

F-26
<PAGE> 78

THE LEARNING COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(129,408) $(107,318)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation, amortization and other................... 55,269 126,101
Provisions for returns and doubtful accounts........... 12,874 8,449
Charge for incomplete technology....................... 103,000 --
Changes in operating assets and liabilities:
Accounts receivable.................................... (146) 2,335
Accounts payable and accruals.......................... (18,395) (14,078)
Other.................................................. (2,381) (5,598)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 20,813 9,891
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets and other....................... (11,489) (3,882)
Businesses acquired, net of cash acquired................. (116,972) --
Acquisition related items................................. (18,019) (7,898)
--------- ---------
NET CASH USED FOR INVESTING ACTIVITIES...................... (146,480) (11,780)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital leases and other
long-term debt......................................... (266) (207)
Repurchase of Senior Convertible Notes.................... (6,000) (7,000)
Proceeds from issuance of common stock related to exercise
of stock options, net.................................. 12,582 516
Proceeds from the issuance of special warrants, net....... 134,346 --
--------- ---------
Other..................................................... (2,207) (67)
--------- ---------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES........ 138,455 (6,758)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (215) (1,444)
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 12,573 (10,091)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 95,137 110,120
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 107,710 $ 100,029
========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Common stock issued to acquire Mindscape.................... $ 30,000 $ --
Common stock issued to settle note payable to related
party..................................................... -- 3,053
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

F-27
<PAGE> 79

THE LEARNING COMPANY, 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 The Learning Company,
Inc. ("TLC" or the "Company") for the three months ended March 31, 1998 and 1997
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 3, 1998. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results for the entire year ending December 31, 1998. The
results for the three months ended March 31, 1997 have been restated to reflect
the acquisitions of Skills Bank Corporation, Learning Services, Inc. and
Microsystems Software, Inc. which were accounted for using the
pooling-of-interest method of accounting.

The first quarter reporting period for 1998 ended on April 4, 1998, and the
first quarter reporting period for 1997 ended on April 5, 1997. The periods from
January 4, 1998 to April 4, 1998 and from January 7, 1997 to April 5, 1997 are
referred to as the "First Quarter 1998" and the "First Quarter 1997" or the
"Three Months Ended March 31, 1998" and the "Three Months Ended March 31, 1997",
respectively throughout these financial statements.

2. ACQUISITIONS

On March 5, 1998, the Company acquired control of Mindscape, Inc. and
certain affiliated companies ("Mindscape") for a total purchase price of
$152,557 payable in cash of $122,557 and the remainder through the issuance of
1,366,743 shares of common stock. This acquisition was accounted for using the
purchase method of accounting.

The purchase price for Mindscape was allocated as follows:

<TABLE>
<S> <C>
Purchase price.............................................. $152,557
Plus: fair value of net liabilities assumed................. 3,297
--------
Excess to allocate.......................................... 155,854
Less: excess allocated to
Incomplete technology..................................... 103,000
Completed technology and products......................... 13,000
Brands and trade names.................................... 30,000
--------
146,000
--------
Goodwill.................................................... $ 9,854
========
</TABLE>

F-28
<PAGE> 80
THE LEARNING COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

technical feasibility at the date of the acquisition, had no alternative future
use and additional development is required to ensure their commercial viability.
In order to develop the acquired incomplete technology into commercially viable
products the Company will be required to complete development of proprietary
code, development of the artistic and graphic works and design of the remaining
storyboards. Complete technology is being amortized using the straight-line
method over its estimated useful life of two years and goodwill and brands and
trade names are being amortized using the straight-line method over its
estimated useful life of ten years.

Summarized pro forma combined results of operations for the Three Months
Ended March 31, 1998 and 1997 are shown as if the transaction had occurred at
the beginning of the period presented. Pro forma adjustments relate primarily to
amortization of goodwill and complete technology. These pro forma combined
results of operations include the historical results from Mindscape and do not
reflect any reductions in operating costs derived from consolidation of
functional departments. In addition, the pro forma combined operating loss
includes pro forma amortization of acquired intangible assets resulting from the
acquisition of Mindscape for the Three Months Ended March 31, 1998 and 1997 of
$2,621.

<TABLE>
<CAPTION>
MINDSCAPE
INCLUDING
THE LEARNING PRO FORMA PRO FORMA
COMPANY, INC. ADJUSTMENTS COMBINED
------------- ----------- ---------
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1998
Revenues............................................... $ 113,602 $ 9,090 $ 122,692
Operating loss....................................... (123,894) (44,270) (168,164)
Net loss............................................. (129,408) (45,330) (174,738)
Net loss per share................................... $ (2.45) $ (2.83)
</TABLE>

<TABLE>
<CAPTION>
MINDSCAPE
INCLUDING
THE LEARNING PRO FORMA PRO FORMA
COMPANY, INC. ADJUSTMENTS COMBINED
------------- ----------- ---------
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1997
Revenues............................................... $ 86,881 $ 14,143 $ 101,024
Operating loss....................................... (102,047) (18,847) (120,894)
Net loss............................................. (107,318) (18,841) (126,159)
Net loss per share................................... $ (2.20) $ (2.18)
</TABLE>

3. ISSUANCE OF SPECIAL WARRANTS

On March 12, 1998, the Company's Canadian subsidiary, Softkey Software
Products Inc. ("SoftKey"), issued in a private placement in Canada 8,687,500
special warrants for net proceeds of approximately $134,000. Each special
warrant will be exercisable without additional payment for one (or, in certain
circumstances, 1.07) exchangeable non-voting share of SoftKey (an "Exchangeable
Share") following clearance from the various regulatory bodies in Canada. The
Exchangeable Shares are exchangeable at the option of the holder on a
one-for-one basis for common stock of the Company without additional payment.

4. BORROWINGS

On May 6, 1998, the Company amended its revolving line of credit (the
"Line") to provide a maximum availability of $148,500, of which $35,000 is
outstanding at March 31, 1998. Borrowings under the line are due July 1, 2000
and bear interest at variable rates. The Line is subject to certain financial
covenants, is secured by a general security interest in certain operating
subsidiaries of the Company and by a pledge of the stock of certain of its
subsidiaries.

F-29
<PAGE> 81
THE LEARNING COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. COMPREHENSIVE LOSS

Effective January 4, 1998, the Company adopted Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income." The Company's
comprehensive loss was as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net loss........................................... $(129,408) $(107,318)
Other comprehensive loss........................... (2,760) (1,448)
--------- ---------
Total comprehensive loss................. $(132,168) $(108,766)
========= =========
</TABLE>

Other comprehensive loss represents losses on foreign currency translation.

6. INVENTORIES

Inventories are stated at the lower of weighted average cost or net
realizable value and include third-party assembly costs, CD-ROM discs, manuals
and an allocation of fixed overhead.

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
Components................................... $ 1,930 $ 4,243
Finished goods............................... 36,157 25,357
------- -------
$38,087 $29,600
======= =======
</TABLE>

7. COMPUTATION OF EARNINGS PER SHARE

For the year ended December 31, 1997, the Company adopted Statement of
Accounting Standard No. 128 ("FAS 128"), which requires the presentation of
Basic and Dilutive earnings per share, which replaces primary and fully diluted
earnings per share. Basic net loss per share is computed using the weighted
average number of common shares outstanding during the period. Dilutive net loss
per share is computed using the weighted average number of common shares
outstanding during the period, plus the dilutive effect of common stock
equivalents. Common stock equivalents consist of convertible debentures,
preferred stock, stock options and warrants. The dilutive computations do not
included common stock equivalents for the Three Months Ended March 31, 1998 and
1997 as their inclusion would be antidilutive. Dilutive elements would include
the 750,000 shares of Series A Preferred Stock (which is ultimately convertible
into 15,000,000 shares of common stock) issued on December 5, 1997, 8,687,500
special warrants to acquire Exchangeable Shares and employee stock options
totaling 13,048,000 and 9,790,000 at March 31, 1998 and 1997, respectively.

8. EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS No. 131 Disclosure about Segments of an
Enterprise and Related Information which changes the way public companies report
information about operating segments. SFAS No. 131 which is based on the
management approach to segment reporting establishes requirements to report
selected segment information quarterly and to report entity wide disclosures
about products and services major customers and the material countries in which
the entity holds assets and reports revenue. Management is currently evaluating
the effects of this change on its reporting of segment information. The Company
will adopt SFAS No. 131 for its fiscal year ending December 31, 1998.

F-30
<PAGE> 82

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JULY 15, 1998

PROSPECTUS

5,210,796 SHARES

[THE LEARNING COMPANY, INC. LOGO]

COMMON STOCK

------------------

This Prospectus relates to up to 5,210,796 shares (the "Shares") of common
stock, $.01 par value per share ("Common Stock") of The Learning Company, Inc.,
a Delaware corporation ("TLC" or the "Company"), that may be offered hereby for
sale from time to time for the account of Tribune Company, a Delaware
corporation and the holder of such shares ("Tribune" or the "Selling Holder").
The Selling Holder may from time to time sell the Shares offered hereby in the
manner set forth under "Plan of Distribution."

The Common Stock is quoted on the New York Stock Exchange under the symbol
"TLC." On July 14, 1998, the last reported sale price of the Common Stock on the
New York Stock Exchange was $31.625 per share.

The Shares were originally issued by the Company on December 28, 1995 in a
transaction exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"). The Company will not receive any of the proceeds
from the sale of any of the Shares offered hereby.

SEE "RISK FACTORS" ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED HEREBY.

------------------

July , 1998

<PAGE> 83

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the Commission's regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048, and
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials also may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, reports, proxy and information statements and
other information concerning the Company can be inspected and copied at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005. The Company is required to file electronic versions of these documents
through the Commission's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.

The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments, supplements, exhibits and schedules thereto,
the "Registration Statement") under the Securities Act, with respect to the
Shares offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement, as certain items are omitted in
accordance with the rules and regulations of the Commission. For further
information pertaining to the Company and the Shares, reference is made to such
Registration Statement. Statements contained in this Prospectus regarding the
contents of any agreement or other document are not necessarily complete, and in
each instance reference is made to the copy of such agreement or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. The Registration Statement may be inspected
without charge at the office of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
from the Commission at prescribed rates.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission are
incorporated herein by reference:

(i) The Company's Annual Report on Form 10-K for the fiscal year ended
January 3, 1998, filed with the Commission on March 13, 1998;

(ii) The Company's Amendment No. 1 to Annual Report on Form 10-K for
the fiscal year ended January 3, 1998, filed with the Commission on May 28,
1998;

(iii) The Company's Amendment No. 2 to Annual Report on Form 10-K for
the fiscal year ended January 3, 1998, filed with the Commission on June
17, 1998;

(iv) The Company's Current Report on Form 8-K, dated March 12, 1998,
and filed with the Commission on March 17, 1998;

(v) The Company's Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 21, 1998, filed with the Commission on April
2, 1998;

(vi) The Company's Current Report on Form 8-K, dated March 27, 1998,
and filed with the Commission on April 13, 1998;

(vii) The Company's Amendment No. 1 to Current Report on Form 8-K/A,
dated March 27, 1998, and filed with the Commission on April 29, 1998;

(viii) The Company's Amendment No. 2 to Current Report on Form 8-K/A,
dated March 27, 1998, and filed with the Commission on May 8, 1998;

<PAGE> 84

(ix) The Company's Amendment No. 3 to Current Report on Form 8-K/A,
dated March 27, 1998, and filed with the Commission on May 20, 1998;

(x) The Company's Amendment No. 4 to Current Report on Form 8-K/A,
dated March 27, 1998, and filed with the Commission on May 29, 1998;

(xi) The Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended April 4, 1998, filed with the Commission on May 13, 1998;

(xii) The Company's Current Report on Form 8-K, dated June 21, 1998,
filed with the Commission on June 24, 1998;

(xiii) The Joint Proxy Statement/Prospectus filed with the Commission
as part of the Company's Registration Statement on Form S-4 (File No.
333-59089) on July 14, 1998; and

(xiv) The Company's Registration Statement on Form 8-A, filed with the
Commission on October 29, 1996.

All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the termination of the offering of the Shares registered hereby shall
be deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.

The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the foregoing documents incorporated by reference into this
Prospectus (without exhibits to such documents other than exhibits specifically
incorporated by reference into such documents). All such requests shall be
directed to: The Learning Company, Inc., One Athenaeum Street, Cambridge,
Massachusetts 02142, Attention: Secretary, Telephone: (617) 494-1200.

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

Certain statements in this Prospectus, any Prospectus Supplement and the
documents incorporated herein constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. For this purpose, any statements contained herein or therein or
incorporated herein that are not statements of historical fact may be deemed to
be forward-looking statements. Without limiting the foregoing, the words
"believes," "plans," "expects" and similar expressions are intended to identify
forward-looking statements. There are a number of important factors that could
cause the results of the Company to differ materially from those indicated by
such forward-looking statements. These factors include those set forth in "Risk
Factors" herein.

<PAGE> 85

RISK FACTORS

Prospective purchasers of the Shares offered hereby should carefully
consider the following risk factors, in addition to other information contained
or incorporated by reference in this Prospectus.

INTENSE COMPETITIVE ENVIRONMENT

The consumer software industry is intensely and increasingly competitive
and is characterized by rapid changes in technology and customer requirements.
The Company competes for retail shelf space and general consumer awareness with
a number of companies that market consumer software. The Company encounters
competition from both established companies, including the largest companies in
the industry, and new companies that may develop comparable or superior
products. A number of the Company's competitors and potential competitors
possess significantly greater capital, marketing resources and brand recognition
than the Company. Rapid changes in technology, product obsolescence and advances
in computer software and hardware require the Company to develop or acquire new
products and to enhance its existing products on a timely basis. The Company's
marketplace has recently experienced a higher emphasis on online and Internet
related services and content tailored for this new delivery vehicle. To the
extent that demand increases for online products and content, the demand for the
Company's existing products may change. There can be no assurance that the
Company will be able to successfully maintain market share and otherwise compete
successfully in the future.

Competitive pressures in the software industry have resulted, and the
Company believes may continue to result, in pressure to reduce the prices of its
products or risk loss of market share. In response to such competitive pressures
during early 1997 the Company reduced the retail selling price of certain of its
educational products. There can be no assurance that the Company's product
selling prices will not continue to decline in the future or that the Company
will not respond to such declines with additional price reductions. Such price
reductions may reduce the Company's revenues and operating margins in the
future. During 1997, the Company and many of its competitors began using rebate
coupons in order to induce consumers to purchase their products. In addition,
the Company uses various forms of print and television advertising to enhance
brand and product awareness. The use of these methods of channel marketing and
advertising is becoming more prevalent among the larger consumer software
publishers. To the extent that the Company fails to match its competitors'
future channel marketing and advertising programs, it could risk loss of market
share and corresponding revenues and operating profits.

Large companies with substantial bases of intellectual property content in
the motion picture and media industries, sophisticated product marketing and
technical abilities and/or financial resources that may not need to realize an
immediate profit or return on investment have increasingly entered or announced
their intention to enter the consumer software market. These competitors include
Microsoft Corporation, The Walt Disney Company, Mattel, Inc., Hasbro, Inc., IBM
and Cendant Corporation (formerly CUC International Inc.). For example,
technology companies have begun to acquire greater access to content, and
content-oriented companies have begun to acquire greater technological
capabilities. To the extent that competitors achieve a performance, price or
distribution advantage, the Company could be adversely affected. Furthermore,
increased consolidation of the consumer software market may impact future growth
potential and performance.

INTENSE COMPETITION FOR DISTRIBUTION CHANNELS

In the retail distribution channel, resellers typically have available a
limited amount of shelf space and promotional resources. There is intense
competition for high quality and adequate levels of shelf space and promotional
support from retailers. To the extent that the number of consumer computer
platforms and products increases, this competition for shelf space may also
increase. The Company also competes for shelf space against non-educational and
reference category publishers such as games. To the extent that these vendors
acquire greater shelf space, the Company's position may be reduced. Mass
merchants such as Wal-Mart and Kmart are increasingly accounting for a larger
portion of the Company's sales. As these retailers achieve greater market share
from the traditional software retailers, the Company may experience higher

<PAGE> 86

marketing costs and increased competition for shelf space, which could impact
future sales and operating margins. Additionally, as technology changes, the
type and number of distribution channels will further change and new types of
competitors, such as cable or telephone companies, are likely to emerge. There
can be no assurance that the Company will compete effectively in these channels
in the future.

The retail channels of distribution available for products are subject to
rapid changes as retailers and distributors enter and exit the consumer software
market or alter their product inventory preferences. Other types of retail
outlets and methods of product distribution may become important in the future.
These new methods may include delivery of software using online services or the
Internet, which will necessitate certain changes in the Company's business and
operations including addressing operational challenges such as improving
download time for pictures, images and programs, ensuring proper regulation of
content quality and developing sophisticated security for transmitting payments.
Should on-line distribution channels increase, the Company will be required to
modify its existing technology platforms in order for its products to be
compatible and remain competitive. It is critical to the success of the Company
that, as these changes occur, it maintain access to those channels of
distribution offering software in its market segments.

ACQUISITIONS, BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES

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 range of
product 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 and others.

The Company continuously evaluates and considers other businesses of
varying sizes as potential strategic partners and candidates for acquisition
(whether negotiated or non-negotiated) and continuously engages in discussions
with certain businesses in pursuit of possible transactions. Certain of these
businesses may be substantial in size as compared to the Company. 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.

Acquisitions or business combination transactions that would result in
further expansion of the Company's business in the entertainment and educational
product areas may result in a higher degree of product acceptance risk and
longer development cycles for the Company's products. In addition, companies
that develop entertainment software (for personal computer ("PC"), Sega,
Nintendo and 3DO platforms) typically experience lower gross margins than the
Company has experienced from its current operations. Further, should purchase
accounting be used by the Company for future acquisitions or business
combination transactions, such accounting treatment may result in large,
one-time expense charges for in-process research and development costs and short
amortization periods for acquired technology and other intangible assets
acquired in the transaction.

Competition for suitable acquisitions, business combinations and strategic
alliances and the cost of these transactions have recently been increasing. The
future availability of desirable prospects for these transactions in the
computer software industry is uncertain. In addition, assuming that the Company
is able to identify appropriate transaction prospects, the execution and
implementation of acquisitions, business combinations and strategic alliances
involves a significant time commitment from senior management and can result in
large restructuring costs. There can be no assurance that suitable opportunities
will be identified, that transactions can be consummated or that assets,
businesses or relationships acquired in such transactions can be integrated
successfully into the Company's operations.

RISKS RELATING TO THE PROPOSED MERGER WITH BRODERBUND

Completion of Acquisition. On June 22, 1998, the Company and Broderbund
Software, Inc. ("Broderbund") announced that they had reached a definitive
agreement to merge. The closing of the

<PAGE> 87

transaction is subject to certain conditions, including expiration of applicable
waiting periods under pre-merger notification regulations and the approval of
stockholders of each company. The transaction is expected to close before the
end of September 1998. There can be no assurance that the transaction will be
completed on a timely basis or at all.

Integration of Operations. The Company and Broderbund each have similar
operations involving the development and sale of consumer software. Integrating
the operations (including among other things, product development, sales and
marketing activities, information and software systems, customer and direct
response services, products manufacturing and fulfillment, employee hiring and
training, and expansion strategy) and management of the two companies will be a
time-consuming process, and there can be no assurance that this integration will
result in the achievement of any of the anticipated synergies and other benefits
that may be realized from the merger with Broderbund. Moreover, the integration
of these organizations will require the dedication of management resources,
which may temporarily distract attention from the day-to-day business of the
Company. The inability of management to successfully integrate the operations of
the two companies could have a material adverse effect on the business and
operating results of the Company.

The Company expects to incur restructuring and integration costs in
connection with the integration of the operations of the Company and Broderbund.
These costs include costs for employee severance and other compensation charges,
facilities closures, relocation, discontinuance of overlapping products and
other merger-related costs. The amount of these costs has not yet been
determined and the Company expects to charge such costs to operations in the
quarter in which the merger is consummated.

LEVERAGE

As of July 4, 1998, the Company had outstanding long-term debt of
approximately $190.9 million comprised of 5 1/2% Senior Convertible Notes due
2000 (the "Notes"). The Notes are convertible into Common Stock at a price of
$53 per share. If the holders of the Notes do not convert the Notes held by them
into Common Stock, there can be no assurance that the Company's operating cash
flow will be sufficient to meet its debt service requirements, or that the
Company will be able to repay the Notes at maturity or in accordance with their
respective terms or to refinance the Notes on favorable terms or at all.

MANAGEMENT OF GROWTH; INTEGRATION OF ACQUIRED BUSINESSES; KEY EMPLOYEES

The Company is currently experiencing a period of rapid growth that is
placing and will likely continue to place a strain on the Company's financial,
management and other resources in the future. The Company's ability to continue
to manage its growth effectively will require it, among other things, to
continue to improve its operational, financial and management information
systems and to continue to attract, train, motivate, manage and retain key
employees. If the Company's management becomes unable to manage growth
effectively, the Company's business, operating results and financial condition
could be adversely affected. For example, over the past two years, the Company
has acquired The Learning Company ("The Former Learning Company"), Compton's
NewMedia, Inc. and Compton's Learning Company (collectively, "Compton's"),
Minnesota Educational Computing Corporation (MECC) ("MECC"), Learning Services
Inc. ("Learning Services"), Skills Bank Corporation ("Skills Bank"),
Microsystems Software, Inc. ("Microsystems"), Creative Wonders, L.L.C.
("Creative Wonders"), TEC Direct, Inc. ("TEC Direct") Mindscape, Inc. and
certain related entities (collectively, "Mindscape"), PF. Magic, Inc. ("PF.
Magic") and Sofsource, Inc. ("Sofsource"), among other companies. Should certain
key employees not be retained, future operating results may be adversely
affected.

Additionally, as a result of such acquisitions, the Company faces
challenges relating to integration of operations such as coordinating
geographically separate organizations, integrating personnel with disparate
business backgrounds and combining different corporate cultures. The process of
combining organizations may cause an interruption of, or a loss of momentum in,
the activities of the Company's business, which could have an adverse effect on
the revenues and operating results of the Company, at least in the near term.

The ability of software companies with significant internal development and
marketing capabilities to continue to manage growth, develop competitive new
products and respond to rapid technological change

<PAGE> 88

depends on an ability to attract, motivate, manage and retain talented
developers, product marketers and other employees with valuable technological
and marketing expertise. The Company's educational software products require a
substantially larger internal development and marketing staff than its
operations had previously required. If the Company is unable to attract,
motivate, manage and retain such employees, the Company's results of operations
will likely be adversely affected.

NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE

The Company operates in a highly competitive and technology driven
environment. The consumer software industry is undergoing substantial change and
is subject to a high level of uncertainty. Software companies must continue to
develop or acquire new products or upgrade existing products on a timely basis
to sustain revenues and profitable operations. Factors contributing to the short
life span of PC software have included rapid technological change and an
expanded demand for content-rich products. Software companies must continue to
create or acquire innovative new products reflecting technological changes in
hardware and software and translate current products into newly accepted
hardware and software formats, in order to gain and maintain a viable market for
their products. PC hardware, in particular, is steadily advancing in power and
function, expanding the market for increasingly complex and flexible software
products. This has also resulted in longer periods necessary for research and
development of new products and a greater degree of unpredictability in the time
necessary to develop products. Furthermore, the rapid changes in the market and
the increasing number of new products available to consumers have increased the
degree of consumer acceptance risk with respect to any specific title that the
Company may publish. It is expected that this trend will continue and may become
more pronounced in the future.

The Company's rights to license many of its software products are
non-exclusive and, generally, of limited duration, and there is no assurance the
Company will be able to continue to obtain new products from developers or to
maintain or expand its market share in the event that a competitor offers the
same or similar software products. If the Company is unable to develop or
acquire new products in a timely manner as revenues decrease from products
reaching the end of their natural life cycle, the Company's results of
operations will be adversely affected.

Certain of the Company's products, such as The American Girls Premiere, The
Princeton Review, National Geographic and the Sesame Street line of products,
among others, include branded content licensed from third parties. This content
is licensed pursuant to agreements with terms of finite duration and which may
contain restrictions on the Company's ability to develop future products without
the consent of the applicable licensor. If the Company is not able to develop
future products under these agreements or enter into alternative arrangements
with the same or additional licensors, the Company's operating results could be
adversely affected.

COMPETITION FOR SHELF SPACE AND PROMOTIONAL SUPPORT

Retailers of the Company's products typically have a limited amount of
shelf space and promotional resources, and there is intense competition among
high-quality educational software products for adequate levels of shelf space
and promotional support from retailers. To the extent that the number of
consumer software products and computer platforms increases, this competition
for shelf space may intensify. Due to increased competition for limited shelf
space, retailers and distributors are increasingly in a better position to
negotiate favorable terms of sale, including price discounts and product return
policies, as well as cooperative market development funds. Retailers often
require software publishers to pay fees in exchange for preferred shelf space.
The amounts paid to retailers by software publishers for preferred shelf space
are customarily determined by arms-length negotiations on a case-by-case basis,
and there is no general formula or industry standard for determining such fees.
There can be no assurance that such retailers will continue to purchase the
Company's products, provide the Company's products with adequate levels and
quality of shelf space or continue to participate with the Company in
cooperative advertising, promotional or market development arrangements. In
addition, the Company has implemented new promotional programs, including coupon
rebates and other various programs through print media. These programs may
increase the Company's future cost of marketing and reduce future operating
margins.

<PAGE> 89

SIGNIFICANT PRICE REDUCTIONS IN PERSONAL COMPUTER SOFTWARE

Recently, several major publishers of PC software, including the Company,
have significantly reduced the prices of their products with the goal of gaining
greater market share. The retail and wholesale prices of many of the Company's
products have declined and the Company has introduced new lines of lower-priced
software products. There can be no assurance that such price reductions or new
product lines will result in an increase in unit sales volume or that prices
will not continue to decline in the future. Such a decline would lead to a
decrease in the revenues from, and gross margin on, sales of such products in
the future and could result in lower cash flow or operating margins.

RISK OF INTERNATIONAL OPERATIONS

The Company derived approximately 19% of its revenues in the year ended
January 3, 1998 from sales occurring outside North America. These revenues are
subject to the risks normally associated with international operations,
including currency conversion risks, limitations (including taxes) on the
repatriation of earnings, slower and more difficult accounts receivable
collection, greater difficulty and expense in administering business abroad,
complications in complying with foreign laws and the necessity of obtaining
requisite export licenses, which on occasion may be delayed or difficult to
obtain. In addition, the laws of foreign jurisdictions may not protect the
Company's proprietary rights to the same extent as the laws of the United
States. Software piracy has been, and can be expected to be, a persistent
problem for participants in the "shrink-wrap" software industry, including the
Company. These problems are particularly acute in certain international markets
such as South America, the Middle East, the Pacific Rim and the Far East.

PROTECTION OF PROPRIETARY RIGHTS; RISK OF INFRINGEMENT CLAIMS

The Company relies on a combination of trade secret, copyright, trademark
and other proprietary rights laws and license agreements to protect its rights
to its software products and related documentation. The Company does not have
any patents. United States copyright law, international conventions and
international treaties, however, may not provide meaningful protection against
unauthorized duplication of the Company's software. The Company generally
licenses its externally developed products rather than transferring title and
has relied on contractual arrangements with recipients and users of its products
to establish certain proprietary rights and to maintain confidentiality of those
products protected by trade secret law. Consistent with standard industry
practice, the Company's products generally are licensed pursuant to
"shrink-wrap" licenses that are not signed by the licensee. The enforceability
of such licenses has not been conclusively determined. The Company's products do
not contain any mechanisms to prevent or inhibit unauthorized copying.

The Company has registered numerous trademarks in the United States and
Canada, and a smaller number in other countries, for titles or components of its
products and has trademark registrations pending in the United States and other
countries for various new products.

Policing unauthorized use of a broadly disseminated product such as PC
software is very difficult. Software piracy can be expected to be a persistent
problem for the "shrink-wrap" software industry. These problems are particularly
acute in certain international markets such as South America, the Middle East,
the Pacific Rim and the Far East.

The Company periodically receives communications alleging or suggesting
that its products may incorporate material covered by the copyrights, trademarks
or other proprietary rights of third parties. With the increased use of music
and animation in CD-ROM products and the increased number of software products
on the market generally, the Company is likely to experience an increase in the
number of infringement claims asserted against it in the future. With respect to
licensed products, the Company is generally indemnified against liability on
these matters. The Company's policy is to investigate the factual basis of such
communications and to resolve such matters promptly by enforcing its rights,
negotiating licenses (if necessary) or taking other appropriate actions.

<PAGE> 90

or its licensors, to defend the Company against claimed infringements of the
rights of others and to determine the scope and validity of the proprietary
rights of the Company and others. Any such litigation, whether with or without
merit, could be costly and a diversion of management's attention, which could
have an adverse effect on the Company's business, operating results or financial
condition. Adverse determinations in litigation relating to any of the Company's
products could result in the loss of the Company's proprietary rights, subject
the Company to liabilities, require the Company to seek licenses from third
parties or prevent the Company from selling that product.

DEPENDENCE ON MAJOR SUPPLIER

In 1997, the production, assembly and distribution of the Company's North
American line of products was performed by two units of Bertelsmann AG
(collectively, "BMG"), (with the exception of school channel products and
certain original equipment manufacturer ("OEM") products). The Company believes
that its existing production capacity is sufficient to handle anticipated
increases in volume and titles into the foreseeable future. Although the Company
believes that suitable alternative suppliers exist, there can be no assurance
that any termination or modification of the agreement with BMG would not result
in a short-term business interruption for the Company.

YEAR 2000 COMPLIANCE

The Company has initiated an internal study to determine whether its
computer systems and related applications are Year 2000 compliant. The Company
has been taking, and will continue to take, actions intended to resolve Year
2000 issues through planned replacement or upgrades of its software systems.
During the execution of this project the Company has incurred, and may continue
to incur, internal staff costs as well as consulting and other expenses related
to enhancements necessary to prepare systems for the year 2000. Based on
information currently available to it, the Company believes it will be able to
modify or replace any affected systems in time to minimize any detrimental
effects on operations, and that any additional associated costs will not be
material to the financial condition or results of operations of the Company. The
Company is in the process of determining the effect of this issue on its
vendors' and customers' systems. There can be no assurance that the systems of
such third parties will be Year 2000 compliant on a timely basis, or that the
Company's results of operations will not be adversely affected by the failure of
systems operated by third parties to properly operate in the year 2000.

HISTORY OF LOSSES

A variety of factors may cause period-to-period fluctuations in the
Company's operating results, including integration of operations resulting from
acquisitions of companies, products or technologies, revenues and expenses
related to the introduction of new products or new versions of existing
products, changes in selling prices, customer delays in purchases in
anticipation of upgrades to existing products, currency fluctuations, dealer and
distributor order patterns, general economic trends or a slowdown of PC sales
and seasonality of customer buying patterns. Historical operating results of the
Company and its predecessors cannot be relied upon as indicative of the future
performance of the Company. On an historical basis, the Company incurred net
losses of $65,960,000 for the year ended January 6, 1996 (after amortization,
merger and other costs of $103,172,000), $405,451,000 for the year ended January
4, 1997 (after amortization, merger and other costs of $501,330,000) and
$475,667,000 for the year ended January 3, 1998 (after amortization, merger and
other costs of $515,016,000) and $129,408,000 for the three months ended April
4, 1998 (after amortization, merger and other costs of $156,820,000). There can
be no assurance that the Company will be profitable in the future.

CAPITAL RESOURCES

The expansion of the Company's current business involves significant
financial risk and capital investment. There is no assurance that financing will
be available in the future to meet the needs of the Company for additional
investment.

<PAGE> 91

DEPENDENCE ON CONTINUED PERSONAL COMPUTER SALES

The success of the Company is dependent upon the continuing use of PCs, and
especially multimedia PCs, in the consumer and school market. A general decrease
in unit sales of PCs or shift to an alternative means of delivery could
adversely affect the Company's future results of operations.

VOLATILITY OF STOCK PRICE; EFFECTS OF FUTURE ISSUANCES

The common stock, $.01 par value per share, of the Company (the "Common
Stock") is quoted on the New York Stock Exchange ("NYSE"). The market price of
the Common Stock, like that for the shares of many other high technology
companies, has been and may continue to be volatile. Recently, the stock market
in general and the shares of personal computer software companies in particular
have experienced significant price fluctuations. These broad market
fluctuations, as well as general economic and political conditions and factors
such as quarterly fluctuations in results of operations, the announcement of
technological innovations, the introduction of new products by the Company or
its competitors and general conditions in the computer hardware and software
industries may have a significant impact on the market price of the Common
Stock.

The Company has recently issued or plans to issue an aggregate of 3,528,902
shares of Common Stock in connection with its acquisition of Mindscape, PF.
Magic and Sofsource. On June 22, 1998, the Company and Broderbund announced that
they reached a definitive agreement to merge. Under the terms of the agreement,
TLC will issue 0.80 shares of Common Stock for each outstanding share of
Broderbund common stock. Based on the number of shares of Broderbund common
stock issued and outstanding on May 31, 1998 (excluding stock options, warrants
or other rights to acquire Broderbund common stock), the Company expects to
issue approximately 16,800,000 shares of Common Stock in the transaction. The
sale in the public market of all or part of these shares, or any shares that
might be issued in connection with future acquisitions, could have a material
adverse effect upon the market price of the Common Stock.

<PAGE> 92

THE COMPANY

The Learning Company, Inc. develops and publishes a broad range of high
quality branded consumer software for PCs that educate across every age
category, from young children to adults. The Company's primary emphasis is on
education and reference software, but it also offers a selection of lifestyle,
productivity and, to a lesser extent, entertainment products, both in North
America and internationally.

The Company's educational products are principally sold under a number of
well-known brands, including The Learning Company, MECC and Creative Wonders
brands. The Company develops and markets educational products for children ages
18 months to seven years in the popular "Reader Rabbit" family, which includes
both single-subject and multi-subject titles such as Reader Rabbit's Reading 1,
Reader Rabbit's Math 1, Reader Rabbit's Toddler, Reader Rabbit's Preschool,
Reader Rabbit's Kindergarten and Reader Rabbit's 1st Grade. The Company also
publishes educational products for this age group based on the popular Sesame
Street and Madeline characters, among others. For children seven years and
older, the Company develops and markets engaging educational products such as
the long-running "Trail" series, which includes The Oregon Trail 3rd Edition, as
well as products based on the popular The Baby-Sitters Club books. During 1997,
the Company launched The American Girls Premiere title, which is marketed
towards girls in this age group.

The Company's reference products include the "Compton's Home Library" line
which includes, among others, Compton's Interactive Encyclopedia and Compton's
3D World Atlas Deluxe. In addition, the Company offers a line of medical
reference products that includes BodyWorks, Home Medical Advisor and Mosby's
Medical Encyclopedia. The Company's productivity line is marketed under the
SoftKey and the Creative Office brands. The Company also publishes a
lower-priced "Value" line of products in box version under the Key and Classics
brands and a jewel-case only version under the SoftKey brand.

The Company develops and markets several different lines of software
designed to teach children and adults such foreign languages as French, German,
Spanish and Japanese. These lines include, among others, the Learn to Speak and
Berlitz lines of products. The Company also offers an Internet filtering
product, Cyber Patrol, which allows parents and teachers to choose what content
on the Internet is appropriate for children. As a result of the Company's recent
acquisition of Mindscape in 1998, the Company also sells the popular Mavis
Beacon Teaches Typing, Chessmaster 5500, Print Master Platinum and The Complete
National Geographic.

The Company distributes its products through retail channels, including
direct sales to computer electronics stores, office superstores, mass
merchandisers, discount warehouse stores and software specialty stores, which
control over 23,000 North American storefronts. The Company also sells its
products directly to consumers through the mail, telemarketing and the Internet,
and directly to schools. The Company's international sales are conducted from
subsidiaries in Germany, France, Holland, Ireland, the United Kingdom, Australia
and Japan. The Company also derives revenue from licensing its products to OEMs
which bundle the Company's products for sale with computer systems or components
and through on-line offerings.

The Company has a history of acquiring companies in order to broaden its
product lines and sales channels. On July 4, 1998, the Company completed the
acquisition of Sofsource, a publisher of educational and test software for high
school and college students. In May 1998, the Company completed the acquisition
of PF. Magic, a developer and publisher of virtual life software for children.
In March 1998, the Company completed the acquisition of Mindscape, a publisher
of educational, productivity and entertainment software. During 1997, the
Company completed a number of small complementary acquisitions in the
educational software segment. During the third quarter of 1997, the Company
acquired Learning Services (a national school software catalog for teachers),
Skills Bank (a developer of older age and remedial educational software for
schools) and Microsystems (an Internet filtering publisher and creator of Cyber
Patrol). During the fourth quarter of 1997, the Company acquired control of
Creative Wonders (a developer of branded children's educational software) and
acquired TEC Direct (the publisher of an educational consumer software catalog).

<PAGE> 93

In May 1996, the Company consummated the acquisition of MECC, an
educational software publisher. That acquisition, together with the acquisitions
in December 1995 of The Former Learning Company and Compton's, marked the
completion of the Company's strategic initiative to expand its educational
software franchise.

In July 1998, Softkey Software Products Inc. ("SoftKey Software"), the
Company's Canadian subsidiary, sold its Canadian income tax software business
for approximately $45 million in cash.

The Company was incorporated in California in October 1978 and
reincorporated in Delaware in October 1986. In February 1994, the Company, which
was then known as WordStar International Incorporated, completed a three-way
business combination with Softkey Software Products Inc. and Spinnaker Software
Corporation in which the Company changed its name to SoftKey International Inc.
In October 1996, the Company changed its name from SoftKey International Inc. to
The Learning Company, Inc. to reflect its expanded emphasis on educational
software. The Company's executive offices are located at One Athenaeum Street,
Cambridge, Massachusetts 02142. Its telephone number is (617) 494-1200, and its
internet web site is located at http:/www.learningco.com. "The Learning Company,
Inc." and all of the Company's logos and product names are trademarks of the
Company.

USE OF PROCEEDS

The Company will not receive any proceeds from the sale of the Shares by
the Selling Holder.

THE SELLING HOLDER

The Selling Holder owns 5,210,796 shares of Common Stock of the Company
(the "Shares"). It is unknown if, when or in what amounts the Selling Holder may
offer the shares for sale and there can be no assurance that the Selling Holder
will sell any or all of the Shares offered hereby. The Shares were initially
issued and sold pursuant to the Agreement and Plan of Merger dated November 30,
1995 (the "Merger Agreement") by and among the Company, Compton's NewMedia,
Inc., Compton's Learning Company and others. The Selling Holder acquired the
Shares in a transaction exempt from registration under the Securities Act. The
Company has agreed to indemnify and hold the Selling Holder harmless against
certain liabilities under the Securities Act that would arise in connection with
sales of Shares by the Selling Holder.

In view of the fact that the Selling Holder may offer for sale all or a
portion of the Shares held by it from time to time, no estimate can be given as
to the number of shares of Common Stock that will be held by the Selling Holder
after completion of the offering made hereby.

Information concerning the Selling Holder may change from time to time and
any such changed information will be set forth in supplements to this Prospectus
if and when necessary.

In connection with the execution and delivery of the Merger Agreement, the
Company and Tribune entered into (i) the Standstill Agreement dated as of
December 22, 1995 pursuant to which, among other agreements, Tribune agreed
under certain circumstances to restrict its ownership in and voting of
securities of the Company and the Company agreed (x) to take all necessary
actions to increase the size of its Board of Directors (the "Board of
Directors") by one and to fill the vacancy created thereby with an individual
designated by Tribune and (y) if the Board of Directors shall at any time
consist of 11 or more members, to take all necessary actions to increase further
the size of the Board of Directors by one and to fill the additional vacancy
created thereby with a second individual designated by Tribune and (ii) the Tax
Sharing Agreement dated as of December 28, 1995 pursuant to which the Company
and Tribune agreed to an allocation of certain tax liabilities and related
matters. The director of the Company designated by the Selling Holder, James C.
Dowdle, resigned as a director effective May 22, 1998, and the Selling Holder
waived its right to designate a second director in connection with the election
of three new directors of the Company in 1998.

In December 1997, the Selling Holder sold $150,000,000 principal amount of
the Company's 5 1/2% Senior Convertible/Exchangeable Notes due 2000 to Thomas H.
Lee Company, Bain Capital, Inc. and Centre Partners Management LLC, which
surrendered such Notes to the Company in exchange for 750,000 shares of Series A
Convertible Participating Preferred Stock of the Company.
12

<PAGE> 94

DESCRIPTION OF CAPITAL STOCK

Under the Company's Restated Certificate of Incorporation (the "Restated
Certificate"), the Company is authorized to issue 200,000,000 shares of Common
Stock, 5,000,000 shares of preferred stock, $.01 par value per share (the
"Preferred Stock"), and one share of Special Voting Stock.

COMMON STOCK

Shares of Common Stock have a par value of $0.01 per share. The holders of
Common Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of stockholders. Cumulative voting for the election
of directors is not authorized by the Restated Certificate. The holders of
Common Stock are entitled to receive such dividends as may be declared by the
Company's board of directors out of funds legally available therefor and will be
entitled upon any liquidation, dissolution or winding-up of the Company to
receive rateably the net assets of the Company available for distribution.

The Common Stock does not provide for pre-emptive rights, conversion
rights, redemption rights or sinking fund provisions.

SPECIAL VOTING SHARE

A single share of Special Voting Stock (the "Voting Share") is authorized
and is outstanding. The Voting Share is held of record by CIBC Mellon Trust
Company, formerly The R-M Trust Company, as Trustee (the "Voting Share
Trustee"), under a Voting and Exchange Trust Agreement pursuant to which each
holder of Exchangeable Non-Voting Shares (the "Exchangeable Shares") of SoftKey
Software, an Ontario corporation and a subsidiary of the Company, other than the
Company or any entity controlled by the Company (a "Controlled Entity"), is
entitled to instruct the Voting Share Trustee to exercise one of the votes
attached to the Voting Share for each Exchangeable Share held by such holder.
Except as otherwise required by law or the Company's Restated Certificate, the
holder of record of the Voting Share will have a number of votes equal to the
number of Exchangeable Shares outstanding from time to time not owned by the
Company or any Controlled Entity. The holders of shares of the Common Stock and
the Voting Share vote together as a single class on all matters, except as may
be required by applicable law. The holder of the Voting Share will not be
entitled to receive any assets of the Company available for distribution to its
stockholders. The holder of the Voting Share will not be entitled to receive
dividends. Pursuant to the Combination Agreement dated as of August 17, 1993, by
and among WordStar International Incorporated ("WordStar"; now known as The
Learning Company, Inc.), Softkey Software Products Inc., Spinnaker Software
Corporation and SSC Acquisition Corporation (the "Combination Agreement"), the
Voting Share was first issued to the trustee appointed under the Voting and
Exchange Trust Agreement dated as of February 4, 1994, among SoftKey
International Inc. (formerly WordStar; now known as The Learning Company, Inc.),
SoftKey Software and The R-M Trust Company (the "Voting and Exchange Trust
Agreement"). At such time as the Voting Share has no votes attached to it
because there are no exchangeable non-voting shares of SoftKey Software
outstanding not owned by the Company or a Controlled Entity, and there are no
shares of stock, debt, options or other agreements of SoftKey Software that
could give rise to the issuance of any exchangeable non-voting shares to any
person (other than the Company or a Controlled Entity), the Voting Share will be
cancelled.

All Exchangeable Shares not exchanged for an equivalent number of shares of
Common Stock by February 4, 2005 (the "Redemption Date") will be redeemed by
SoftKey Software, for a price per share equal to the current market price of a
share of Common Stock (which shall be paid in Common Stock) plus a cash amount
equivalent to the full amount of all unpaid dividends thereon, and the Voting
Share will thereupon be cancelled. The Board of Directors of SoftKey Software
may extend the Redemption Date or, if at any time there are less than 50,000
outstanding Exchangeable Shares (other than Exchangeable Shares held by the
Company or any Controlled Entity, subject to adjustment to reflect permitted
changes to the Exchangeable Shares), accelerate the Redemption Date.

<PAGE> 95

PREFERRED STOCK

Shares of Preferred Stock have a par value of $.01 per share. An aggregate
of 5,000,000 shares of Preferred Stock are presently authorized, of which
750,000 shares have been designated Series A Convertible Participating Preferred
Stock ("Series A Preferred Stock") and are outstanding.

The Company's board of directors is authorized to provide for the issuance
of shares of preferred stock in one or more series, and to establish from time
to time the number of shares to be included in each such series, to fix the
designations, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof. The Company's board
of directors could issue a series of Preferred Stock that could, depending on
the terms of such series, provide for a liquidation preference over the Common
Stock or impede the completion of a merger, tender offer or other takeover
attempt. The Company's board of directors, in so acting, could issue Preferred
Stock having terms that could discourage an acquisition attempt through which an
acquiror may be otherwise able to change the composition of the board of
directors, including a tender or exchange offer or other transaction that some,
or a majority, of the Company's stockholders might otherwise believe to be in
their best interests.

SERIES A CONVERTIBLE PARTICIPATING PREFERRED STOCK. The following is a
summary of the terms of the Series A Preferred Stock. This summary is not
intended to be complete and is subject to, and qualified in its entirety by
reference to, the Certificate of Designation of the Series A Preferred Stock
(the "Designation"), setting forth the rights, preferences and limitations of
the Series A Preferred Stock.

Dividends and Distributions. Holders of shares of Series A Preferred Stock
are entitled to receive from the Company, subject to certain exceptions, with
respect to each share of Series A Preferred Stock held, the same dividend or
other distribution received by a holder of the number of shares of Common Stock
into which such share of Series A Preferred Stock is convertible on the record
date for such dividend or other distribution.

Voting Rights. Each share of Series A Preferred Stock entitles the holder
thereof to vote on all matters voted on by holders of Common Stock voting
together as a single class with other shares entitled to vote at all meetings of
the stockholders of the Company. The affirmative vote of the holders of at least
66 2/3% of the outstanding shares of Series A Preferred Stock shall be necessary
to (i) authorize, increase the authorized number of shares of or issue any
shares of any class or series of capital stock of the Company (other than Common
Stock) ranking prior to or on parity with (either as to dividends or the
distribution of assets upon liquidation, dissolution or winding up) the Series A
Preferred Stock; (ii) increase the authorized number of shares of, or issue any
shares of Series A Preferred Stock; (iii) authorize, adopt or approve an
amendment to the Restated Certificate of the Company which would decrease the
aggregate number of authorized shares of Series A Preferred Stock, increase or
decrease the par value of such shares or change the powers, or alter the
preferences or special rights of such shares so as to affect such shares of
Series A Preferred Stock adversely; or (iv) reclassify any shares of Common
Stock or any other shares into shares ranking prior to or on parity with the
Series A Preferred Stock.

Purchase of Series A Preferred Stock Upon a Purchase Event. If a Purchase
Event (as defined below) shall occur, then each holder of Series A Preferred
Stock shall have the right to require that the Company purchase, to the extent
that the Company shall have funds legally available therefor, such holder's
shares of Series A Preferred Stock, in whole or in part, at a purchase price in
cash in an amount equal to the Purchase Event Purchase Price (as defined below).
A "Purchase Event" shall be deemed to have occurred if any person (other than
any of the initial purchasers of the Series A Preferred Stock) is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities, other than in an Acquisition Event (as defined below).
The "Purchase Event Purchase Price" shall mean an amount per share equal to $200
(the "Base Purchase Event Amount") plus, if such Purchase Event occurs after the
second anniversary of the date of issuance of the shares of Series A Preferred
Stock, a 9% annual cumulative return on the Base Purchase Event Amount,
compounded quarterly, from such second anniversary date through the date of such
Purchase Event.

Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Company (including the commencement of proceedings under
applicable bankruptcy laws), no distribution shall be

<PAGE> 96

made (i) to the holders of Common Stock or other capital stock junior to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received the Liquidation Amount (as defined below)
with respect to each such share or (ii) to the holders of shares of capital
stock on a parity with the Series A Preferred Stock, except distributions made
ratably on the Series A Preferred Stock and all such parity stock. If upon any
liquidation, dissolution or winding up of the Company, the assets of the
Company, or proceeds thereof, distributable among the holders of the shares of
Series A Preferred Stock shall be insufficient to pay in full the Liquidation
Amount and the liquidation preference on all parity stock, then such assets, or
the proceeds thereof, shall be distributed ratably among the holders of shares
of Series A Preferred Stock and any such parity stock in accordance with the
respective amounts that would be payable on such shares if all amounts payable
thereon were paid in full. Upon receipt of the Liquidation Amount, holders of
shares of Series A Preferred Stock shall not be entitled to any further payments
following a liquidation, dissolution or winding up of the Company. The
"Liquidation Amount" for a share of Series A Preferred Stock shall mean the
greater of (a) an amount per share equal to $200 (the "Base Liquidation
Preference"), plus, if such liquidation, dissolution or winding up occurs after
the second anniversary of the issuance of such shares of Series A Preferred
Stock, an amount equal to a 9% annual cumulative return on the Base Liquidation
Preference, compounded quarterly, from such second anniversary date through the
date of such liquidation, dissolution or winding up, and (b) the amount that
would be distributed with respect to the shares of Common Stock issuable upon
conversion of such share of Series A Preferred Stock if all outstanding shares
of Series A Preferred Stock were converted into Common Stock immediately prior
to such liquidation, dissolution or winding up.

Conversion Rights. The holders of shares of Series A Preferred Stock shall
have the right at any time (and from time to time) to convert each such share of
Series A Preferred Stock into a number of shares of Common Stock to be
determined by dividing $200 by the Conversion Price (as defined below) in effect
at the time of such conversion. The initial Conversion Price is $10.00. The
initial Conversion Price is subject to adjustment in certain events, including
subdivisions and combinations of the Common Stock; a tender offer by the Company
for all or any portion of the Common Stock, that shall require the payment to
stockholders of aggregate consideration having a fair market value that combined
with certain previous payments made by the Company for Common Stock shall exceed
20% of the product of the then current market price of Common Stock times the
number of shares of Common Stock then outstanding; and certain reclassifications
of Common Stock.

Acquisition Event. Upon the occurrence of any Acquisition Event (as
defined below), each share of Series A Preferred Stock then outstanding shall
thereafter be convertible into the kind and amount of shares of stock and other
securities or property or assets (including cash) paid in such Acquisition Event
(the "Acquisition Event Consideration") for a number of shares of Common Stock
issuable upon conversion of such shares of Series A Preferred Stock immediately
prior to such Acquisition Event; provided, however, that if such Acquisition
Event occurs after the date which is two years from the date of issuance of such
share of Series A Preferred Stock and the fair market value of the Acquisition
Event Consideration paid for the number of shares of Common Stock issuable upon
conversion of such share of Series A Preferred Stock is less than an amount
equal to the sum of the Base Liquidation Preference and an amount equal to a 9%
annual cumulative return on the Base Liquidation Preference, compounded
quarterly, from such second anniversary date through the date of such
Acquisition Event (the amount, if any, by which such fair market value is less
than such sum being hereinafter referred to as the "Difference"), then each
share of the Series A Preferred Stock shall thereafter be convertible into the
Acquisition Event Consideration into which it becomes convertible pursuant to
the foregoing provisions, plus additional Acquisition Event Consideration having
a fair market value equal to the Difference (or, at the option of the Company,
cash equal to the Difference). An "Acquisition Event" shall be deemed to have
occurred if (i) a merger, consolidation or other corporate combination of the
Company with any other person is consummated, other than (a) a merger,
consolidation or other corporate combination which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent at least 51% of the combined voting power of the voting securities of
the Company or the surviving corporation outstanding immediately after such
merger, consolidation or other corporate consolidation or (b) a merger,
consolidation or other corporate combination effected to

<PAGE> 97

implement certain recapitalizations, or (ii) the sale or disposition by the
Company of all or substantially all of the property and assets of the Company is
consummated.

Mandatory Conversion. The Company shall have the right, at its option, at
a time after the initial period, if any, of 130 consecutive trading days for
which the weighted average closing price for the Common Stock for such period is
greater than 200% of the Conversion Price, to cause the conversion of each share
of Series A Preferred Stock (but not less than all of such shares) into shares
of Common Stock at the then effective Conversion Price.

TRANSFER AGENT AND REGISTRAR

The Company has appointed The First National Bank of Boston as transfer
agent and registrar of the Common Stock.

PLAN OF DISTRIBUTION

The Shares covered hereby may be offered and sold from time to time by the
Selling Holder. The Selling Holder will act independently of the Company in
making decisions with respect to the timing, manner and size of each sale. Sales
of the Shares are, in general, expected to be made at the market price
prevailing at the time of each such sale; however, prices in negotiated
transactions may differ considerably. Such sales may be made directly by the
Selling Holder or in the over-the-counter market or otherwise, at fixed prices,
at market prices prevailing at the time of sale, at prices related to the then
prevailing market prices or in negotiated transactions, including without
limitation pursuant to an underwritten public offering or pursuant to one or
more of the following methods: (a) purchases by a broker-dealer as principal and
resale by such broker or dealer for its account pursuant to this Prospectus; (b)
ordinary brokerage transactions and transactions in which a broker solicits
purchasers; and (c) crosses and block trades in which a broker-dealer so engaged
will attempt to sell the Shares as agent but may take a position and resell a
portion of the block as principal to facilitate the transaction. The Shares may
also be delivered upon the maturity, exchange or other settlement of other
equity or debt securities of the Company or another issuer.

Underwriters, brokers, dealers or agents may participate in such
transactions as agents and may, in such capacity, receive brokerage commissions
from the Selling Holder or purchasers of such securities. Such underwriters,
brokers, dealers or agents may also purchase the Shares and resell such
securities for their own account. The Selling Holder and such underwriters,
brokers, dealers or agents may be considered "underwriters" as that term is
defined by the Securities Act, although the Selling Holder disclaims such
status. Any commissions, discounts or profits received by such underwriters,
brokers, dealers or agents in connection with the foregoing transactions may be
deemed to be underwriting discounts and commissions under the Securities Act.

To comply with the securities laws of certain jurisdictions, if applicable,
the Shares will be offered or sold in such jurisdictions only through registered
or licensed brokers or dealers. In addition, in certain jurisdictions, the
Shares may not be offered or sold unless they have been registered or qualified
for sale in such jurisdictions or unless an exemption from such registration or
qualification is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Shares may be limited in its ability to engage
in market activities with respect to such Shares. In addition and without
limiting the foregoing, the Selling Holder will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder, which
provisions may limit the timing of purchases and sales of any of the Shares by
the Selling Holder. All of the foregoing may affect the marketability of the
Shares.

The Company may suspend the use of this Prospectus and any supplements
hereto in certain circumstances due to pending corporate developments, public
filings with the commission or similar events. The Company is obligated in the
event of such suspension to use its reasonable efforts to ensure that the use of
the Prospectus (as amended or supplemented as necessary) may be resumed as soon
as practicable.

<PAGE> 98

The Company has agreed to pay all of the expenses incident to the
registration, offering and sale to the public of the Shares other than
commissions and discounts of agents, dealers or underwriters. The Company has
also agreed to indemnify the Selling Holder against certain liabilities,
including certain liabilities under the Securities Act.

LEGAL MATTERS

The validity of the Shares offered hereby will be passed upon for the
Company by Neal S. Winneg, General Counsel of the Company. As of the date
hereof, Mr. Winneg owns options to purchase an aggregate of 131,500 shares of
Common Stock, which are to become exercisable in periodic installments through
January 1999.

EXPERTS

The consolidated balance sheets of the Company as of January 3, 1998 and
January 4, 1997, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three fiscal years
in the period ended January 3, 1998, incorporated by reference in this
Prospectus, have been incorporated herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.

The combined balance sheet of Mindscape as of December 31, 1997, and the
related combined statements of operations, shareholder's equity and cash flows
for the year then ended, incorporated by reference in this Prospectus, have been
so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

The consolidated financial statements of Broderbund at August 31, 1997 and
1996, and for each of the three years in the period ended August 31, 1997,
incorporated by reference in this Prospectus, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report appearing in
Broderbund's Annual Report (Form 10-K) for the year ended August 31, 1997, and
are incorporated by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

<PAGE> 99

- ------------------------------------------------------
- ------------------------------------------------------

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING PROSPECTUS SUPPLEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE SELLING HOLDER. THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS
SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS, THE ACCOMPANYING PROSPECTUS SUPPLEMENT, NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE SUCH DATE.

------------------

TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary......... S-3
Price Range of Common Stock and
Related Matters..................... S-9
Selected Consolidated Financial
Data................................ S-10
Proposed Merger with Broderbund....... S-11
Unaudited Pro Forma Combined Condensed
Consolidated Financial Statements... S-12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... S-23
Business.............................. S-35
Management............................ S-44
Principal Stockholders................ S-45
Supplemental Plan of Distribution..... S-48
Legal Matters......................... S-49
Index to Consolidated Financial
Statements.......................... F-1
PROSPECTUS
PAGE
---

Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Special Note Regarding
Forward-Looking Information......... 3
Risk Factors.......................... 4
The Company........................... 11
Use of Proceeds....................... 12
The Selling Holder.................... 12
Description of Capital Stock.......... 13
Plan of Distribution.................. 16
Legal Matters......................... 17
Experts............................... 17
</TABLE>

- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------

5,210,796 SHARES

THE LEARNING

COMPANY, INC.

COMMON STOCK

LEARNCOM LOGO

------------

PROSPECTUS SUPPLEMENT

, 1998

------------
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 100

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The expenses in connection with the distribution of the securities being
registered (all of which, other than selling commissions and discounts, will be
borne by the Company and not the Selling Holder), are estimated as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 87,325
NASD Filing Fee............................................. 17,500
Legal Fees and Expenses..................................... 95,000
Accounting Fees and Expenses................................ 75,000
Trustee and Registrar Fees and Expenses..................... 12,000
Miscellaneous............................................... 63,175
--------
Total............................................. $350,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 102 of the Delaware General Corporation Law, as amended, allows a
corporation to eliminate the personal liability of directors of a corporation to
the corporation or its stockholders for monetary damage for a breach of
fiduciary duty as a director, except where the director breached his duty of
loyalty, failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.

Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at its request in such capacity in another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.

Section 8 of the Company's Restated Certificate of Incorporation, as
amended, provides for elimination of directors' personal liability and
indemnification as follows:

8. Limitation of Liability and Indemnification of Directors

8.1 Elimination of Certain Liabilities of Directors. A director of
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the directors' duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director
derived an improper personal benefit. If the Delaware General Corporation
Law is amended after approval by the stockholders of this Section to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the
Delaware General Corporation Law, as so amended. Any repeal or modification
of this Section by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at
the time of such repeal or modification.
II-1
<PAGE> 101

8.2 Indemnification and Insurance.

8.2.1 Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative, or
investigative (hereinafter a "proceeding"), by reason of the fact that he
or she, or a person of whom he or she is the legal representative, is or
was a director or officer, of the Corporation or is or was serving at the
request of the Corporation, as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust, or other
enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee, or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to its fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide
prior to such amendment), against all expense, liability, and loss
(including attorneys' fees, judgments, fines, Employee Retirement Income
Security Act of 1974, excise taxes or penalties, and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in
connection therewith, and such indemnification shall continue as to a
person who has ceased to be a director, officer, employee, or agent and
shall inure to the benefit of his or her heirs, executors, and
administrators; provided, however, that the Corporation shall indemnify any
such person seeking indemnification in connection with a proceeding (or
part thereof) initiated by such person only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation. The
right to indemnification conferred in this Section shall be a contract
right and shall include the right to be paid by the Corporation the
expenses incurred defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation
Law requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be
made only upon delivery to the Corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such director or officer is not
entitled to be indemnified under this Section or otherwise. The Corporation
may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as
the foregoing indemnification of directors and officers.

8.2.2 Non-Exclusivity of Rights. The right to indemnification and
the payment of expenses incurred in defending a proceeding in advance of
its final disposition conferred in this Section shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, provision of this Restated Certificate, Bylaw, agreement, vote of
stockholders, or disinterested directors or otherwise.

8.2.3 Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee, or agent of
the Corporation or another corporation, partnership, joint venture, trust,
or other enterprise against any such expense, liability or loss, whether or
not the Corporation would have the power to indemnify such person against
such expense, liability, or loss under the Delaware General Corporation
Law."

The Corporation has purchased directors' and officers' liability
insurance which would indemnify the directors and officers of the
Corporation against damages arising out of certain kinds of claims which
might be made against them based on their negligent acts or omissions while
acting in their capacity as such.

II-2
<PAGE> 102

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*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 and
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)
*4.1 Securities Resale Registration Rights Agreement by and among
the Company and Tribune Company
*4.2 Indenture between the Company and State Street Bank and
Trust Company, as Trustee, for 5 1/2% Senior
Convertible/Exchangeable Notes Due 2000 (including the Form
of the Notes)
*5.1 Opinion of Neal S. Winneg, Esq.
*12.1 Statements re. computation of ratios
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of Neal S. Winneg, Esq. (included in Exhibit 5.1)
24.1 Power of Attorney (included on the signature page of this
registration statement)
*25.1 Statement of eligibility of trustee
</TABLE>

- ---------------
* Previously filed

(1) Incorporated by reference to exhibits filed with the Company's Registration
Statement on Form S-3 (File No. 333-40549).

(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.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes:

(1) To file during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration statement;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and

II-3
<PAGE> 103

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 15 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

II-4
<PAGE> 104

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Post-Effective
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cambridge, the
Commonwealth of Massachusetts on July 14, 1998.

THE LEARNING COMPANY, INC.

By: /s/ MICHAEL J. PERIK
------------------------------------
Michael J. Perik
Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated. Each person whose signature appears below hereby
authorizes Neal S. Winneg and R. Scott Murray and each of them, with full power
of substitution, to execute in the name and on behalf of such person any
amendment (including any post-effective amendment) to this Registration
Statement (or any other registration statement for the same offering that is to
be effective upon filing pursuant to Rule 462(b) under the Securities Act) and
to file the same, with exhibits thereto, and other documents in connection
therewith, making such changes in this Registration Statement as the person(s)
so acting deems appropriate, and appoints each of such persons, each with full
power of substitution, attorney-in-fact to sign any amendment (including any
post-effective amendment) to this Registration Statement (or any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act) and to file the same, with
exhibits thereto, and other documents in connection therewith.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ MICHAEL J. PERIK Chairman of the Board and Chief July 14, 1998
- --------------------------------------------------- Executive Officer (principal
Michael J. Perik executive officer)

/s/ R. SCOTT MURRAY Executive Vice President and Chief July 14, 1998
- --------------------------------------------------- Financial Officer (principal
R. Scott Murray financial and accounting officer)

/s/ KEVIN O'LEARY President and Director July 14, 1998
- ---------------------------------------------------
Kevin O'Leary

/s/ LAMAR ALEXANDER Director July 14, 1998
- ---------------------------------------------------
Lamar Alexander

/s/ MICHAEL A. BELL Director July 14, 1998
- ---------------------------------------------------
Michael A. Bell

/s/ ANTHONY J. DINOVI Director July 14, 1998
- ---------------------------------------------------
Anthony J. DiNovi
</TABLE>

II-5
<PAGE> 105

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT GAGNON Director July 14,1998
- ---------------------------------------------------
Robert Gagnon

/s/ MARK E. NUNNELLY Director July 14,1998
- ---------------------------------------------------
Mark E. Nunnelly

/s/ CAROLYNN N. REID-WALLACE Director July 14,1998
- ---------------------------------------------------
Carolynn N. Reid-Wallace

/s/ ROBERT A. RUBINOFF Director July 14,1998
- ---------------------------------------------------
Robert A. Rubinoff

/s/ SCOTT M. SPERLING Director July 14,1998
- ---------------------------------------------------
Scott M. Sperling

/s/ PAUL J. ZEPF Director July 14,1998
- ---------------------------------------------------
Paul J. Zepf
</TABLE>

II-6
<PAGE> 106

EXHIBIT INDEX

- ---------------
* Previously filed

(1) Incorporated by reference to exhibits filed with the Company's Registration
Statement on Form S-3 (File No. 333-40549).

(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.

<PAGE> 1
Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in this Post-Effective Amendment
No. 1 to the registration statement on Form S-3 (Registration No. 333-02385) of
our report dated February 9, 1998 (except as to Note 12 which is as of March 6,
1998), on our audits of the consolidated financial statements and financial
statement schedule of valuation and qualifying accounts of The Learning Company,
Inc. as of January 3, 1998 and January 4, 1997 and for each of the three fiscal
years in the period ended January 3, 1998. We also consent to references to our
firm under the caption "Experts."

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

Boston, Massachusetts
July 14, 1998

<PAGE> 1

Exhibit 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus
constituting part of Post-Effective Amendment No. 1 to the Registration
Statement on Form S-3 (File No. 333-02385) of The Learning Company, Inc. (the
"Company") of our report dated March 2, 1998, relating to the combined financial
statements of Mindscape Group which appear in the Company's Current Report on
Form 8-K/A, dated March 27, 1998. We also consent to the reference to us under
the caption "Experts" in such Prospectus.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

San Jose, California

July 13, 1998

<PAGE> 1
Exhibit 23.3

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated October 3, 1997, with respect to the consolidated
financial statements of Broderbund Software, Inc. included in its Annual Report
(Form 10-K) for the year ended August 31, 1997 incorporated by reference in
Post-Effective Amendment No. 1 to the Registration Statement (Form S-3 No.
333-02385) and related Prospectus of The Learning Company, Inc. for the
registration of 5,210,796 shares of its common stock.

/s/ Ernst & Young LLP
Ernst & Young LLP

Palo Alto, California
July 14, 1998