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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 3 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): March 27, 1998
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THE LEARNING COMPANY, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
1-12375 94-2562108
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(Commission File Number) (IRS Employer Identification No.)
One Athenaeum Street, Cambridge, Massachusetts 02142
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(Address of principal executive offices) (Zip Code)
(617) 494-1200
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Registrant's Telephone Number, Including Area Code
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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Item 7 is amended in its entirety as set forth below:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
The audited financial statements of Mindscape Group as of and
for the year ended December 31, 1997 are filed herewith as Exhibit
99.3.
(b) Pro Forma Financial Information
The Unaudited Pro Forma Combined Condensed Consolidated
Financial Statements of the Company as of and for the fiscal year ended
January 3, 1998 are filed herewith as Exhibit 99.4.
(c) Exhibits.
See Index to Exhibits attached hereto.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: May 20, 1998 THE LEARNING COMPANY, INC.
(Registrant)
By: /s/ Neal S. Winneg
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Neal S. Winneg
Sr. Vice President and General Counsel
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EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
2.1 Stock Purchase Agreement, dated as of March 5, 1998, by and
between The Learning Company, Inc. and Mindscape Holding
Company, Pearson Overseas Holdings Ltd. and Pearson
Netherlands, BV, as amended
10.1 Registration Rights Agreement, dated as of March 27, 1998, by
and between The Learning Company, Inc. and Mindscape Holding
Company
99.1 Press Release issued by The Learning Company, Inc. on March 6,
1998
99.2 Press Release issued by The Learning Company, Inc. on
March 27, 1998
99.3 Audited Financial Statements of Mindscape Group as of and for
the year ended December 31, 1997
99.4* The Unaudited Pro Forma Combined Condensed Consolidated
Financial Statements of the Company as of and for the fiscal
year ended January 3, 1998.
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* Filed herewith; all other exhibits previously filed
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Exhibit 99.4
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THE LEARNING COMPANY, INC.
PRO FORMA COMBINED CONDENSED CONSOLIDATED
BALANCE SHEET
AS OF DECEMBER 31, 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
The Learning Pro Forma Combined
Company Mindscape Adjustments Pro Forma
------------ --------- ---------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 95,137 $ 3,331 $ - (c) $ 98,468
Accounts receivable, net 99,677 33,071 - 132,748
Inventories 29,600 9,391 - 38,991
Other current assets 32,590 6,881 - 39,471
--------- ------- -------- --------
257,004 52,674 - 309,678
Fixed assets and other, net 32,306 5,017 - 37,323
Goodwill and other intangible assets, net 127,481 2,080 52,854 (a) 182,415
--------- ------- -------- --------
$ 416,791 $59,771 $ 52,854 $529,416
========= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 94,060 $34,094 $ - $128,154
Line of credit 35,150 300 - 35,450
Merger related accruals 12,533 - 28,674 (a) 41,207
Current portion of long-term obligations 10,717 - - 10,717
Purchase price payable 7,896 - 2,557 (a) 10,453
--------- ------- -------- --------
160,356 34,394 31,231 225,981
LONG-TERM OBLIGATIONS:
Long-term debt 294,356 - - 294,356
Accrued and deferred income taxes 59,746 - - 59,746
Other 6,119 - - 6,119
--------- ------- -------- --------
360,221 - - 360,221
STOCKHOLDERS' EQUITY (DEFICIT):
Stockholders' equity (deficit) (103,786) 25,377 21,623 (a) (56,786)
--------- ------- -------- --------
$ 416,791 $59,771 $ 52,854 $529,416
========= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma
combined condensed consolidated financial statements.
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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 Pro Forma Combined
Company Mindscape Adjustments Pro Forma
------------ --------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 392,438 $138,520 $ -- $ 530,958
COSTS AND EXPENSES:
Costs of production 111,703 54,515 -- 166,218
Sales and marketing 86,621 43,771 -- 130,392
General and administrative 31,135 8,035 -- 39,170
Development and software costs 41,018 22,853 -- 63,871
Amortization, merger and other charges 515,016 15,625 10,485 (b) 541,126
----------- -------- ---------- -----------
Total operating expenses 785,493 144,799 10,485 940,777
OPERATING LOSS (393,055) (6,279) (10,485) (409,819)
----------- -------- ---------- -----------
INTEREST INCOME (EXPENSE):
Interest income 1,104 -- -- 1,104
Interest expense (22,482) (531) -- (23,013)
----------- -------- ---------- -----------
Total interest expense (21,378) (531) -- (21,909)
LOSS BEFORE TAXES (414,433) (6,810) (10,485) (431,728)
PROVISION FOR INCOME TAXES 61,234 -- -- 61,234
----------- -------- ---------- -----------
NET LOSS $ (475,667) $ (6,810) $ (10,485) $ (492,962)
=========== ======== ========== ===========
NET LOSS PER SHARE:
Basic and Diluted $ (9.59) $ (8.39)
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING:
Basic and Diluted 49,613,000 9,117,600 (c) 58,730,600
</TABLE>
The accompanying notes are an integral part of these pro forma
combined condensed consolidated financial statements.
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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
On March 27, 1998, pursuant to a Stock Purchase Agreement, dated as of March 5,
1998 (the "Agreement"), by and between The Learning Company, Inc. ("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 Agreement, the total purchase
price for the acquisition was $155,854, and included cash, other consideration
consisting of TLC's 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 Agreement, at the closing date
of the acquisition. TLC's 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"), issued in connection
with the financing of the acquisition (assuming exercise of SoftKey's special
warrants for SoftKey's exchangeable non-voting shares (the "Exchangeable
Shares") and exchange thereof for TLC's common stock) represent, in the
aggregate approximately 9,117,600 shares of TLC's common stock. TLC is
accounting 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 December
31, 1997 relate to balances as of January 3, 1998, and the period from January
5, 1997 to January 3, 1998 is referred to as the Year Ended December 31, 1997.
The pro forma combined condensed consolidated balance sheet sets forth the
financial position of TLC and Mindscape at December 31, 1997, as if the
acquisition of Mindscape by TLC had occurred on December 31, 1997.
The pro forma combined condensed consolidated statement of operations sets forth
the results of operations of TLC and Mindscape for the Year Ended December 31,
1997, as if the acquisition of Mindscape by TLC had occurred at the beginning of
that year.
The pro forma combined condensed consolidated financial statements are
unaudited, are intended for informational purposes, and are not necessarily
indicative of the future consolidated financial position or future results of
operations of the combined entity. These pro forma combined condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements included in TLC's Annual Report on Form 10-K
for the fiscal year ended January 3, 1998 and Mindscape Group's combined
financial statements as of and for the year ended December 31, 1997.
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THE LEARNING COMPANY, INC.
NOTES TO PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(In thousands, except share and per share amounts)
(Unaudited)
B. PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(a) The pro forma combined condensed consolidated balance sheet sets forth the
financial position of TLC and Mindscape at December 31, 1997, as if the
acquisition of Mindscape by TLC had occurred on December 31, 1997.
The pro forma adjustment to Goodwill and other intangible assets, in the amount
of $52,854, includes the allocation of the purchase price 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 reflects a non-recurring charge, in the amount of $103,000, for
the fair value of in-process research and development.
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
Company believes that the incomplete products under development had not reached
technological 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 in-process research and development
into commerically viable products, the Company will be required to complete
development of proprietary code, development of artistic and graphic works and
design of remaining storyboards.
The pro forma adjustment to Merger related accruals, in the amount of $28,674,
reflects accruals in connection with transaction related costs, including
investment banking and legal fees, termination of certain contractual
commitments and other costs expected to result from the acquisition. The pro
forma adjustment to Purchase price payable, in the amount of $2,557, reflects
the amount of bank cash balances due to the Sellers in connection with the
acquisition of Mindscape.
The pro forma adjustment to Shareholders' equity (deficit), in the amount of
$21,623, reflects the issuance of TLC's common stock and SoftKey's special
warrants, in the amount of $150,000, in connection with the acquisition of
Mindscape, reduced by the nonrecurring charge, in the amount of $103,000, for
the fair value of in-process research and development and the elimination of
Mindscape's shareholders' equity.
(b) The pro forma combined condensed consolidated statement of operations sets
forth the results of operations of TLC and Mindscape for the Year Ended December
31, 1997, as if the acquisition of Mindscape by TLC had occurred at the
beginning of that year. The pro forma adjustment to Amortization, merger and
other charges in the amount of $10,485, reflects 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. 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. There were no
intercorporate transactions that required elimination.
(c) The pro forma adjustment to the weighted average number of shares
outstanding reflects the issuance of TLC's common stock and SoftKey's special
warrants (assuming exercise of SoftKey's special warrants for Exchangeable
Shares and exchange thereof for TLC's common stock), which represent in the
aggregate approximately 9,117,600 shares of TLC's common stock, in connection
with the acquisition of Mindscape.
Based upon the terms of the Agreement, as amended, $30,000 of the purchase
price was paid to the Sellers in TLC's common stock. The number of shares of
TLC's common stock issued to the Sellers was based upon the average closing
price of TLC's common stock during the five trading days ended two days prior
to the closing date of the acquisition. Accordingly, TLC issued approximately
1,366,700 shares of TLC's common stock to the Sellers in connection with the
acquisition of Mindscape.
On March 6, 1998, SoftKey agreed to sell to certain Canadian institutional
investors 8,687,500 special warrants for proceeds of
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THE LEARNING COMPANY, INC.
NOTES TO PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(In thousands, except share and per share amounts)
(Unaudited)
approximately $134,500. The pro forma adjustments reflect TLC's receipt and use
of $120,000 of the proceeds in connection with the acquisition of Mindscape.
Each SoftKey special warrant is exercisable without additional payment for one
of SoftKey's Exchangeable Shares. TLC has issued a special voting share (the
"Voting Share") which has a number of votes equal to the number of Exchangeable
Shares outstanding (other than 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 Exchangeable Shares. The holder of the Voting Share is not entitled
to dividends and, upon receiving voting instructions from holders of
Exchangeable Shares, shall vote with the common stockholders as a single class.
SoftKey's Exchangeable Shares are exchangeable on a one-for-one basis for TLC's
common stock without additional payment. The exercise of the special warrants
for Exchangeable Shares is ultimately subject to certain conditions, including
receipt of certain regulatory approvals.
At December 31, 1997, 750,000 shares of TLC's Series A Preferred Stock, $.01
par value, were authorized, issued and outstanding. At December 31, 1997,
120,000,000 shares of TLC's common stock, $.01 par value, were authorized and
48,868,659 shares were issued and outstanding. In connection with the
acquisition of Mindcape, TLC issued approximately 1,366,700 shares of TLC's
common stock to the Sellers in satisfaction of the stock portion of the
purchase price. At December 31, 1997, there was authorized, issued and
outstanding one share of TLC's Special Voting Stock, representing the voting
rights of 1,478,929 outstanding Exchangeable Shares. For presentation in these
pro forma combined condensed consolidated financial statements, TLC included
the issuance of special warrants for $120,000, representing approximately
7,750,900 shares of common stock, in the computation of basic and diluted
earnings per share as if the special warrants had been exercised for
Exchangeable Shares and the Exchangeable Shares had been exchanged for TLC's
common stock at the beginning of the Year Ended December 31, 1997.
The following table sets forth the authorized, issued and outstanding capital
stock of TLC as of December 31, 1997, and on a pro forma basis as of December
31, 1997 to reflect (i) the issuance of approximately 1,366,700 shares of TLC's
common stock to the Sellers in the satisfaction of the stock portion of the
purchase price, and (ii) the issuance of SoftKey's special warrants (assuming
exercise of SoftKey's special warrants for Exchangeable Shares and exchange
thereof for TLC's common stock) which represent in the aggregate approximately
9,117,600 shares of TLC's common stock, in connection with the acquisition of
Mindscape.
<TABLE>
<CAPTION>
Series A
Preferred Stock Common Stock Special Voting Stock
---------------- -------------------------- ------------------------------
Shares Share Representing the
Authorized, Shares Authorized, voting rights of
Issued Issued Issued Outstanding
and Shares and and Exchangeable
Outstanding Authorized Outstanding Outstanding Shares
------------- ---------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
TLC, December
31, 1997 750,000 120,000,000 48,868,659 1 1,478,929
Pro Forma
Adjustments -- -- 1,366,700 -- 7,750,900
-----------------------------------------------------------------------------------
TLC, Pro Forma 750,000 120,000,000 50,235,359 1 9,229,829
===================================================================================
</TABLE>
