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
Group (as defined in the accompanying notes), all of which are incorporated by
reference in this Joint Proxy Statement/Prospectus. 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
Merger 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 Merger, and for other related costs, principally in the quarter in
which the Merger is consummated. Such pre-tax transaction charges are currently
estimated to be $6 million and will include the direct transaction costs of the
Merger, including primarily fees to financial advisors, legal counsel and
independent accountants as well as printing costs.
These pro forma combined condensed consolidated financial statements are
based on, and should be read in conjunction with, the historical consolidated
financial statements and the related notes thereto of TLC and Broderbund, as
well as the historical combined financial statements of Mindscape Group, all of
which are incorporated by reference in this Joint Proxy Statement/Prospectus.
See "Available Information" and "Incorporation of Certain Documents by
Reference."
74
THE LEARNING COMPANY, INC.
PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(In thousands)
(Unaudited)
Pro Forma Combined
Broderbund Adjustments Pro Forma
---------------- ----------- --------------
The Learning
Company
--------------
March 31, 1998 February 28, 1998 March 31, 1998
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
-------------- -------- ----------- --------------
-------------- -------- ----------- --------------
The accompanying notes are an integral part of these pro forma
combined condensed consolidated financial statements.
75
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)
The Learning Mindscape Pro Forma Combined
Company (Preacquisition) Broderbund Adjustments Pro Forma
------------------- ----------------- ------------------- ------------- --------------
Period from
January 1, 1998 Three Months
Three Months Ended to Three months ended Ended
March 31, 1998 March 4, 1998 February 28, 1998 March 31, 1998
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)
The accompanying notes are an integral part of these pro forma
combined condensed consolidated financial statements.
76
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 Mindscape Pro Forma Combined
Company (Preacquisition) Broderbund Adjustments Pro Forma
------------- -------------- ------------- -------------- -------------
December 31, December 31, November 30, December 31,
1997 1997 1997 1997
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)
The accompanying notes are an integral part of these pro forma
combined condensed consolidated financial statements.
77
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)
The Learning Pro Forma Combined
Company Broderbund Adjustments Pro Forma
------------- ------------- -------------- -------------
December 31, August 31, December 31,
1996 1996 1996
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)
The accompanying notes are an integral part of these pro forma
combined condensed consolidated financial statements.
78
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)
The Learning Combined
Company Broderbund Pro Forma
------------- ------------- -------------
December 31, August 31, December 31,
1995 1995 1995
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)
The accompanying notes are an integral part of these pro forma
combined condensed consolidated financial statements.
79
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.
Pursuant to the Merger Agreement, TLC will issue 0.80 shares (the "Exchange
Ratio") of 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"), issued in
connection with the financing of the acquisition (assuming exercise of SoftKey's
special warrants for SoftKey'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
80
THE LEARNING COMPANY, INC.
NOTES TO PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)
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.
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 $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
81
THE LEARNING COMPANY, INC.
NOTES TO PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)
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 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 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's special warrants (assuming exercise
of SoftKey'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 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
special warrant is
82
THE LEARNING COMPANY, INC.
NOTES TO PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)
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 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's special warrants (assuming exercise of SoftKey'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.
83
THE LEARNING COMPANY, INC.
NOTES TO PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share and per share amounts)
(Unaudited)
SERIES A
PREFERRED
STOCK COMMON STOCK SPECIAL VOTING STOCK
-------------- --------------------------- ----------------------------------
REPRESENTING
THE
SHARES SHARE VOTING RIGHTS
AUTHORIZED, SHARES AUTHORIZED, OF
ISSUED ISSUED ISSUED OUTSTANDING TLC
AND SHARES AND AND EXCHANGEABLE
OUTSTANDING AUTHORIZED OUTSTANDING OUTSTANDING SHARES
-------------- ------------- ------------ ----------------- ---------------
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
--
--
------- ------------- ------------ ---------------
------- ------------- ------------ ---------------
- ------------------------
* 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.
84