The Learning Company Inc. educational software market Address: 1 Athenaeum Pl. Cambridge, Massachusetts 02142 U.S.A. Telephone: (617) 494-1200 Toll Free: 800-377-6567 Fax: (617) 494-1219 http://www.learningco.com Statistics: Public Company Incorporated: 1978 as Micropro International Corp. Employees: 1,400 Sales: $392.4 million (1997) Stock Exchanges: New York Ticker Symbol: TLC SICs: 7372 Prepackaged Software; 5045 Computers, Peripherals & Software; 7373 Computer Integrated Systems Design; 8742 Management Consulting Services Company History: The Learning Company Inc. develops, publishes, and markets a family of premium software brands that educate across every age and area of interest, from young children to adults. The Learning Company's products are sold in more than 23,000 stores across 40 countries through multiple distribution channels including retail, school, online, and direct marketing. The Learning Company Inc. is America's premier developer and marketer of educational and reference software for consumers and schools. The company develops and publishes a broad range of high-quality consumer educational software for personal computers (PCs) for all age groups, featuring some of the most well-known brand name products on the market. The company manufactures primarily education and reference software, but also offers materials focusing on lifestyle, productivity, and entertainment. The company's educational products are generally marketed under The Learning Company and MECC brand names, and include the "College Prep," "Foreign Languages," "Oregon Trail," "Reader Rabbit," "Treasure," "Super Solvers," and "Writing and Creativity Tools" lines. In addition to consumer versions of these products, the company also publishes school editions of a number of them. The company's reference products include a line of Compton's Home Library brand products, including Compton's Interactive Encyclopedia, as well as the American Heritage Talking Dictionary, Mosby's Medical Encyclopedia, and BodyWorks. The company's premium productivity and lifestyle products are primarily sold under the SoftKey brand name. The company also publishes lower-priced boxed products under the "Key" brand name, and a line of budget, jewel-case-only products under the "Platinum" brand name. Other lines include products bearing the Sesame Street, Madeline, and School House Rock labels. From Micropro to WordStar, 1978-93 The company was originally incorporated in California in October 1978 as Micropro International Corp. and then incorporated again in Delaware in November 1986 as a successor to Micropro International Corp. Based in Novato, California, the company changed its name to WordStar International Inc. in May 1989 due to its focus on developing and distributing the then-popular word processing software of the same name, an early predecessor, and then competitor with Microsoft Word and WordPerfect. In March 1991, the company acquired Lifetree Software Inc. for $1.9 million in cash, stock, and future payments. Several months later, in July, the company created a foreign subsidiary, WordStar International S.A., France. The company grew a bit in January 1993 when it completed a merger with ZSoft. SoftKey International Inc., 1994-96 In February 1994, WordStar International Inc. was a fading industry heavyweight whose WordStar word-processing program once dominated the market. With sagging sales, the company gave in to a lucrative three-way merger with Cambridge, Massachusetts-based Spinnaker Software Corp. and Toronto, Ontario-based SoftKey Software Products Inc. Spinnaker brought its "PFS" line of budget personal productivity software and SoftKey brought its budget titles under the "Key" brand name to the deal. The newly formed company was renamed SoftKey International Inc. Ron Posner, the chairman of WordStar, helped engineer the merger and then stepped aside to become chairman of San Francisco-based Starpress Inc. The top management of the original SoftKey, including President Kevin O'Leary and Chairman Michael Perik, took control, set up headquarters in Cambridge, Massachusetts, and largely dismantled both Spinnaker and WordStar, retaining only a small development team to keep cranking out new products. The new company's breadth of business included developing personal productivity, educational/entertainment, and personal and office organizational software for home and small business users; developing income tax software and providing comprehensive nationwide tax processing for personal, corporate, and trust tax returns in Canada; and distributing and servicing LANSA software, a family of CASE products for the IBM AS/400 computer. The new company became one of the top U.S. software distributors, and the market leader in the Canadian tax software business. Acquisitions continued in June as the company acquired Aris Multimedia Entertainment Inc. for an undisclosed amount and, the following month, the company acquired Compact Publishing, Inc. September saw the company acquiring Software Marketing Corporation of Phoenix, Arizona, in exchange for approximately 600,000 shares of common stock and the assumption of $1.6 million in long-term debt. And, as the company itself grew, so did the industry, with sales of educational software in the United States generating $522 million in 1994. In 1995, SoftKey went on an acquisition hayride, purchasing numerous companies in an effort to capture more of the market share in educational and entertainment software. In July, the company acquired Tewi Verlag GmbH, a German limited liability company, in exchange for approximately $11.6 million cash paid to Ziff-Davis and approximately $1.5 million cash and 99,045 shares of common stock paid to Kunkel. The following month, SoftKey acquired Future Vision Holding, Inc., a New York multimedia software business. In December, the company gave itself a Christmas present when it acquired Fremont, California- based The Learning Co. for nearly $606 million in a hostile outbidding of Broderbund Software Inc.'s offer for approximately $552 million. Broderbund--known for its "Where in the World is Carmen Sandiego?" line of products; the math-teaching program The Logical Journey of the Zoombinis; Kid Pix Studio, Math Workshop and Print Shop; and distribution of the hit game Myst--had previously been given the go-ahead for a merger with The Learning Co. in August, but the more lucrative offer from SoftKey caused the latter to give in to the hostile bid. The acquisition gave the company product lines focusing on the kids market, as Learning Co. was best known for its line of educational children's software, especially the Reader Rabbit (in which children travel with Reader Rabbit, Mat the Mouse, and Sam the Lion through "Letter Lands" containing "Skill Houses" where they learn phonics and words through games and activities, and "Storybooks" where they are taught new words and simple sentences) and Math Rabbit (a similar math adventure) series of learning games, and its Knoxville, Tennessee division's language education software for adults marketed under the "Learn to Speak" brand name. The Learning Company's products had begun achieving favorable recognition as far back as 1991, when Reader Rabbit 1 won Technology & Learning Magazine's Language Arts Program of the Decade. The following year, the company's products continued to gain recognition, with Reader Rabbit 2 winning a Parents' Choice Foundation Award, the Software Publishers Association's Award for Best Elementary Education Product, and Technology & Learning Magazine's Award of Excellence. The year 1993 followed with Treasure Cove! and Treasure MathStorm!, both winning Innovations '93 Software Showcase Honors at the Summer Consumer Electronics Show. In 1994, Reader Rabbit 1 won a Gold Medal from The National Association of Parenting Publications Awards (NAPPA); Reader Rabbit 2 won Technology & Learning Magazine's Software Award for Excellence--Next in Series; and Treasure MathStorm! received an Honorable Mention--Math from Practical Homeschooling's First Annual Reader Awards and an Award of Excellence from Technology & Learning Magazine. That same month, the company completed a merger with Compton's NewMedia, Inc. from Tribune Company for approximately 4.7 million shares of common stock and Tribune Company made a $150 million strategic investment in the company. The company also acquired EduSoft in late 1995, finishing a $1.2 billion shopping spree for the year and reinventing the company as a category leader in educational software. But snapping up the competition was not the only thing the company was doing to shake up the industry. With the elimination of elaborate packaging and hard-copy documentation, and the move to jewel-case formats with CD-sized booklets, SoftKey pioneered the budget line of CD- ROM products in 1995, with the company's "Platinum" line titles carrying retail list prices of $12.99 instead of the mid-$30 range most of the premiere products carried. With the new packaging, a new distribution deal was made with SoftKey switching from Stream International to BMG, with the latter company's subsidiary, BMG Distribution, providing fulfillment services for the budget line. The move brought the company's products into a wide range of retail outlets, including Best Buy, Circuit City, Computer City, Egghead Software, Office Depot, Price Club/Costco, Sam's Club, and Staples. SoftKey's products were well-received in 1995, with Reader Rabbit's Interactive Reading Journey winning a plethora of awards, including Home PC's