1
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)
The Learning Pro Forma Combined
Company Mindscape Adjustments Pro Forma
------------ --------- ---------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 95,137 $ 3,331 $ - $ 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 2,080 140,000 (a) 269,561
--------- ------- -------- --------
$ 416,791 $59,771 $140,000 $616,562
========= ======= ======== ========
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 - 2,000 (a) 14,533
Current portion of long-term obligations 10,717 - - 10,717
Purchase price payable 7,896 - 3,000 (a) $ 10,896
--------- ------- -------- --------
160,356 34,394 5,000 199,750
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) 25,377 135,000 (a) 56,591
--------- ------- -------- --------
$ 416,791 $59,771 $140,000 $616,562
========= ======= ======== ========
The accompanying notes are an integral part of these pro forma
combined condensed consolidated financial statements.
2
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)
The Learning Pro Forma Combined
Company Mindscape Adjustments Pro Forma
------------ --------- ----------- -----------
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 14,000 (b) 544,641
----------- -------- ---------- -----------
Total operating expenses 785,493 144,799 14,000 944,292
OPERATING LOSS (393,055) (6,279) (14,000) (413,334)
----------- -------- ---------- -----------
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) (14,000) (435,243)
PROVISION FOR INCOME TAXES 61,234 -- -- 61,234
----------- -------- ---------- -----------
NET LOSS $ (475,667) $ (6,810) $ (14,000) $ (496,477)
----------- -------- ---------- -----------
NET LOSS PER SHARE:
Basic and Diluted $ (9.59) $ (8.45)
WEIGHT AVERAGE NUMBER
OF SHARES OUTSTANDING
Basic and Diluted 49,613,000 9,117,600 (c) 58,730,600
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
acquired from the Sellers all of the outstanding capital stock of Mindscape,
Inc., Mindscape International Ltd. and Mindscape France SARL (collectively,
"Mindscape"). The total estimated purchase price is approximately $155,000, and
includes cash, other consideration consisting of common stock, and transaction
related costs. The common stock and special warrants issued in connection with
the acquisition represent, in the aggregate, approximately 9,117,600 shares of
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 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 reflect the excess purchase price over the preliminary estimate of
the fair value of Mindscape's net assets, in the amount of approximately
$15,000, is reflected in goodwill and other intangible assets. The ultimate
allocation of the purchase price for the acquisition to the net assets, goodwill
and other intangible assets acquired, and to a charge for in-process research
and development, is subject to the final determination of their respective fair
values. Approximately $2,000 has been included in the purchase price as merger
related accruals in connection with the preliminary estimate of the fair value
of transaction related costs, including valuation and legal fees, and related
out-of-pocket expenses. Purchase price payable in the amount of $3,000 reflects
the preliminary estimate of bank cash balances due to the Sellers in conjunction
with the acquisition of Mindscape.
(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 in the amount of $14,000
reflects amortization of the excess purchase price over the preliminary estimate
of the fair value of the net assets acquired of Mindscape over the preliminary
estimated useful life of ten years on a straight-line basis. Any allocation of
the purchase price to the fair value of in-process research and development
related to Mindscape could result in a material charge to operations and a
reduction in the amounts of intangible assets to be amortized. There were no
intercorporate transactions that required elimination.
TLC has performed a preliminary evaluation of the estimated period of benefit
and the estimated useful life of the excess purchase price over the preliminary
estimate of the fair value of the net assets acquired in and resulting from the
acquisition of Mindscape based upon the nature of the brands and related rights
acquired. TLC has preliminarily determined that the estimated period of benefit
and the estimated useful life of the excess purchase price over the preliminary
estimate of the fair value of the net assets acquired in and resulting from the
acquisition of Mindscape is approximately ten years.
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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)
(c) The pro forma adjustment reflects the issuance of common stock and special
warrants, which represent in the aggregate approximately 9,117,600 shares of
TLC's common stock, in connection with the acquisition of Mindscape. TLC issued
approximately 1,366,700 shares of common stock in connection with the
acquisition of Mindscape. On March 6, 1998, TLC's Canadian subsidiary, SoftKey
Software Products Inc. ("SoftKey"), agreed to sell to certain Canadian
institutional investors 8,687,500 special warrants for aggregate proceeds of
approximately $134,500. TLC used approximately $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
Non-Voting Shares (the "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. The holder of the Voting Share is not entitled
to dividends and 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 private placement is ultimately
subject to certain conditions, including receipt of certain regulatory
approvals. For presentation in these pro forma combined condensed consolidated
financial statements, TLC included special warrants, 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 at the beginning of the Year Ended December 31, 1997.