<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 5 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)
<PAGE>
Item 7 of the Current Report on Form 8-K of The Learning Company, Inc. (the
"Company") is amended and restated to read in its entirety as set forth below.
The purpose of the amendment is as follows:
In March 1998, the Company acquired Mindscape, Inc. and certain affiliated
companies ("Mindscape") for approximately $152 million in a business combination
accounted for as a purchase. The Company allocated $103 million of the purchase
price to in-process technology. The Company believes that the amount recorded
as an in-process technology charge at the date of its acquisition was measured
in a manner consistent with appraisal practices utilized at the time of the
acquisition. Subsequent to the acquisition, in a letter dated September 9, 1998
to the American Institute of Certified Public Accountants, the Chief Accountant
of the Securities and Exchange Commission (the "SEC") reiterated the views of
the staff of the SEC (the "Staff") on certain appraisal practices employed in
the determination of the fair value of the in-process technology and other
intangible assets.
The Company has had discussions with the Staff concerning the application
of the methodology to the valuation of the incomplete technology and other
intangible assets as detailed in the September 9, 1998 letter from the Chief
Accountant of the SEC, and as a result of these discussions, the Company has
implemented the methodology. The Company has restated its previously issued
results to reflect the discussions with the SEC and to apply the appropriate
guidance and policies. The purchase price of Mindscape has been allocated by
the Company based upon the application of the recent guidance and, accordingly,
the unaudited pro forma combined condensed financial statements in this Form 8-
K/A have been restated. After applying the guidance and policy, the allocation
of the Mindscape purchase price was changed for in-process technology from $103
million to $40 million; for complete and core technology from $13 million to $22
million; and for brands and trade names from $30 million to $38 million,
resulting in a change to goodwill from $9.85 million to $55.85 million.
The unaudited pro forma combined condensed financial statements included in
this Report on Form 8-K/A have also been restated to reflect the acquisition
Broderbund Software, Inc. ("Broderbund") which occurred on August 31, 1998 and
which has been accounted for using the pooling-of-interests method of
accounting.
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.
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(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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<PAGE>
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: March 25, 1999 THE LEARNING COMPANY, INC.
(Registrant)
By: /s/ R. Scott Murray
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R. Scott Murray
Executive Vice President and
Chief Financial Officer
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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 Learning Company, Inc. as of and for the fiscal
year ended January 3, 1998.
___________________
* 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)
(As restated)
<TABLE>
<CAPTION>
The Learning Pro Forma Combined
Company Mindscape Adjustments Pro Forma
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<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $188,956 $ 3,331 $ - (c) $192,287
Accounts receivable, net 161,927 33,071 - 194,998
Inventories 39,382 9,391 - 48,773
Other current assets 35,863 6,881 - 42,744
-------- ------- -------- --------
426,128 52,674 - 478,802
Fixed assets and other, net 51,798 5,017 - 56,815
Goodwill and other intangible assets, net 145,848 2,080 115,854 (a) 263,782
-------- ------- -------- --------
$623,774 $59,771 $115,854 $777,399
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $153,896 $34,094 $ - $187,990
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
-------- ------- -------- --------
220,192 34,394 31,231 285,817
LONG-TERM OBLIGATIONS:
Long-term debt 294,356 - - 294,356
Accrued and deferred income taxes 75,167 - - 75,167
Other 8,069 - - 8,069
-------- ------- -------- --------
377,592 - - 377,592
STOCKHOLDERS' EQUITY (DEFICIT):
Stockholders' equity (deficit) 25,990 25,377 84,623 (a) 135,990
-------- ------- -------- --------
$623,774 $59,771 $115,854 $799,399
======== ======= ======== ========
</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)
(As restated)
<TABLE>
<CAPTION>
The Learning Pro Forma Combined
Company Mindscape Adjustments Pro Forma
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<S> <C> <C> <C> <C>
REVENUES $ 620,931 $138,520 $ -- $ 759,451
COSTS AND EXPENSES:
Costs of production 189,219 54,515 -- 243,734
Sales and marketing 156,797 43,771 -- 200,568
General and administrative 48,716 8,035 -- 56,751
Development and software costs 89,987 22,853 -- 112,840
Amortization, merger and other charges 543,926 15,625 20,700 (b) 580,251
----------- -------- ---------- -----------
Total operating expenses 1,028,845 144,799 20,700 1,194,144
OPERATING LOSS (407,714) (6,279) (20,700) (434,693)
----------- -------- ---------- -----------
INTEREST INCOME (EXPENSE):
Interest income 6,330 -- -- 6,330
Interest expense (22,482) (531) -- (23,013)
----------- -------- ---------- -----------
Total interest expense (16,152) (531) -- (16,683)
LOSS BEFORE TAXES (423,866) (6,810) (20,700) (451,376)
PROVISION FOR INCOME TAXES 71,044 -- -- 71,044
----------- -------- ---------- -----------
NET LOSS $ (494,910) $ (6,810) $(20,700) $ (522,420)
=========== ======== ========== ===========
NET LOSS PER SHARE:
Basic and Diluted $ (7.48) $ (6.94)
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING:
Basic and Diluted 66,183,000 9,117,600 (c) 75,300,600
</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.
The accompanying combined condensed consolidated financial statements as of
December 31, 1997 have been restated to reflect a change in the original
accounting for the purchase price allocation related to the March 1998
acquisition of Mindscape. After discussions with the staff of the SEC (the
"Staff"), the Company has revised the original accounting for the purchase price
allocation and the related amortization of intangibles. The Company has
restated its previously issued results to reflect the discussions with the Staff
and to apply the appropriate guidance and policy as discussed in Note B to the
combined condensed consolidated financial statements. This has resulted in a
reduction in the amount of the charge for in-process technology from $103,000 to
$40,000 and an increase in the amounts allocated to complete technology and
products from $13,000 to $22,000; to brands and trademarks from $30,000 to
$38,000 and to goodwill from $9,854 to $55,854. The pro forma adjustments in
this Form 8-K/A have been restated to reflect these adjustments.
On August 31, 1998, the Company acquired Broderbund Software, Inc.
("Broderbund"), a publisher and developer of consumer software for the home and
school, in exchange for 16,848,753 shares of the Company's common stock pursuant
to an agreement and plan of merger dated June 21, 1998 whereby each share of
Broderbund common stock was exchange for 0.80 shares of the Company's common
stock. This transaction was accounted for using the pooling-of-interests method
of accounting. The accompanying
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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)
combined condensed consolidated financial statements of the Company have been
restated to include the results and balances of Broderbund for all periods
presented.
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/A
for the fiscal year ended January 3, 1998 and its Current Report on Form 8-K/A,
filed on March 24, 1999, containing supplemental audited consolidated financial
statements reflecting the acquisition of Broderbund Software, Inc. and Mindscape
Group's combined financial statements as of and for the year ended December 31,
1997.
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 $115,854, as restated, includes the allocation of the purchase price to
brands and trade names, in the amount of $38,000, completed technology and
products, in the amount of $22,000, and goodwill, in the amount of $55,854. The
allocation of the purchase price reflects a nonrecurring charge, in the amount
of $40,000, for the fair value of in-process research and development.
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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)
The Staff has recently issued guidance related to the valuation of in-process
technology as set forth in its letter dated September 9, 1998 from the Chief
Accountant of the SEC to the American Institute of Certified Public Accountants.
The Company has had discussions with the Staff concerning the application of the
methodology to the valuation of the incomplete technology and other intangible
assets and has implemented the appropriate methodology. As a result of the
application of the valuation methodology, the purchase price was allocated to
incomplete technology, brands and trade names and complete technology and
products. Among the factors considered by the Company to determine the
allocation of the purchase price using the methodology were an estimation of the
stage of completion of development of each product at the date of acquisition,
an estimation of cash flows that would be achieved by any buyer resulting from
the expected revenues generated from such projects, a discounting of the net
cash flows from the products using an effective industry-based tax rate of 35%
(net of any tax benefits from the acquired assets) and a risk adjusted discount
rate (which ranged from 20% to 22%) and an estimation of market royalty rates to
value the brands and trade names. The in-process development consisted of
consumer software products in the games, productivity and education segments.
On average the in-process development projects were approximately 55% complete
at the time of acquisition. The Company expects to complete the majority of the
development projects within the twelve months of the acquisition date and
expects to spend approximately $25,000 to complete the development. The Company
expects that it will begin to receive the benefits of these in-process
development projects during 1998. There were no anticipated material changes
from historical pricing, margins or expense levels in the projects under
development. In order to complete the development on schedule the Company must
continue to retain key development personnel. In the event that these in-
process development projects are not completed or replaced with similar projects
the Company may experience lower future revenues, operating margins and cash
flows.
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
$84,623 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 $40,000, as
restated, for the fair value of in-process research and development and the
elimination of Mindscape's shareholders' equity.
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<PAGE>
THE LEARNING COMPANY, INC.
NOTES TO PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
(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 $20,700, as restated, 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 non-recurring charge, in the amount of
$40,000, as restated, 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 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 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 is ultimately subject
to certain conditions, including receipt of certain regulatory approvals.
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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)
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 Mindscape, 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
TLC's 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.
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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)
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 65,524,559 1 1,478,929
Pro Forma
Adjustments -- -- 1,366,700 -- 7,750,900
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TLC, Pro Forma 750,000 120,000,000 66,891,259 1 9,229,829
==========================================================================
</TABLE>
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