UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended October 31, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 1-10308
CUC International Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-0918165
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
707 Summer Street
Stamford, Connecticut 06901
(Address of principal executive offices) (Zip Code)
(203) 324-9261
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes No .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value - 182,294,108 shares as of November
30, 1995
INDEX
CUC INTERNATIONAL INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - October 31, 1995
and January 31, 1995. 3
Condensed Consolidated Statements of Income - Three
and Nine months ended October 31, 1995 and 1994. 4
Condensed Consolidated Statements of Cash Flows - Nine
months ended October 31, 1995 and 1994. 5
Notes to Condensed Consolidated Financial Statements. 6
Independent Accountants' Review Report. 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 18
INDEX TO EXHIBITS 19
PART I. FINANCIAL INFORMATION
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Oct. 31, Jan. 31,
1995 1995
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $160,261 $180,648
Receivables 255,303 188,185
Membership solicitations in process 57,203 45,636
Prepaid membership materials 44,830 26,503
Ppd expenses, deferred taxes & other 88,859 62,929
Total Current Assets 606,456 503,901
Contract renewal rights & intangible assets -
net of accumulated amortization of
$85,541 and $71,646 262,973 195,688
Properties, at cost, less accumulated
depreciation of $66,187 and $48,918 55,027 35,089
Deferred income taxes 5,106 16,778
Other 28,061 16,696
$957,623 $768,152
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable & accrued expenses &
federal & state income taxes payable $102,942 $109,489
Total Current Liabilities 102,942 109,489
Deferred membership income, net 211,024 197,010
Zero coupon convertible notes - net of
unamortized original issue discount of
$1,022 and $2,507 14,347 15,046
Other 3,833 3,285
Shareholders' Equity
Common stock-par value $.01 per share;
authorized 400 million shares and
200 million shares; issued 184,782,714
shares and 174,538,445 shares 1,848 1,745
Additional paid-in capital 304,549 216,286
Retained earnings 344,242 235,796
Treasury stock, at cost, 3,250,036
shares and 2,757,894 shares (25,162) (10,505)
Total Shareholders' Equity 625,477 443,322
$957,623 $768,152
See notes to condensed consolidated financial statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended
October 31,
1995 1994
REVENUES
Membership & service fees & other $341,406 $263,735
Total Revenues 341,406 263,735
EXPENSES
Operating 90,784 70,694
Marketing 134,631 106,363
General and administrative 50,049 37,329
Interest (income) expense, net, and
amort. of restricted stock comp. (643) 211
Total Expenses 274,821 214,597
INCOME BEFORE INCOME TAXES 66,585 49,138
Provision for income taxes 25,831 18,893
NET INCOME $40,754 $30,245
Net Income Per Common Share $0.22 $0.17
Weighted Average Number of
Common and Dilutive Common
Equivalent Shares Outstanding 188,734 177,428
See notes to condensed consolidated financial statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amounts)
Nine Months Ended
October 31,
1995 1994
REVENUES
Membership & service fees & other $979,886 $762,940
Total Revenues 979,886 762,940
EXPENSES
Operating 263,404 206,868
Marketing 385,684 307,771
General and administrative 145,345 109,390
Interest (income) expense, net, and
amort. of restricted stock comp. (838) 1,123
Total Expenses 793,595 625,152
INCOME BEFORE INCOME TAXES 186,291 137,788
Provision for income taxes 70,884 52,979
NET INCOME $115,407 $84,809
Net Income Per Common Share $0.62 $0.48
Weighted Average Number of
Common and Dilutive Common
Equivalent Shares Outstanding 186,873 176,400
See notes to condensed consolidated financial statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
OCTOBER 31,
NINE MONTHS ENDED 1995 1994
OPERATING ACTIVITIES:
Net income $115,407 $84,809
Adjustments to reconcile net income to
net cash provided by operating activities:
Membership acquisition costs (330,357)(262,626)
Amort of membership acquisition costs 305,472 261,335
Deferred membership income 10,960 (7,004)
Amort of contract renewal rights &
rights and excess cost 13,793 10,652
Deferred income taxes 13,986 11,402
Amortization of original issue
discount on convertible notes 1,236 1,094
Amort of restricted stock compensation 303
Depreciation 9,850 6,336
Changes in working capital items,
net of acquisitions:
Increase in receivables (48,530) (29,539)
Increase in membership
solicitations in process (11,567) (3,349)
Incr in ppd membership mat'ls (12,439) (15,654)
Increase in prepaid expenses (21,349) (19,409)
Net (decrease) increase in
accounts payable & accrued
expenses and federal and
state income taxes payable (17,776) 12,114
Other, net (12,781) (2,387)
Net cash provided by operating activities 15,905 48,077
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (42,352) (5,045)
Acquisitions of properties (20,272) (10,375)
Net cash used in investing activities (62,624) (15,420)
FINANCING ACTIVITIES:
Issuance of Common Stock 26,332 9,084
Net cash provided by financing activities 26,332 9,084
Net (decr) incr in cash & cash equivalents (20,387) 41,741
Cash & cash equiv at beginning of period 180,648 116,937
Cash & cash equivalents at end of period $160,261 $158,678
See notes to condensed consolidated financial statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine months ended
October 31, 1995 are not necessarily indicative of the results
that may be expected for the year ending January 31, 1996. For
further information, refer to the financial statements and
footnotes thereto included in the Company's Form 10-K filing for
the year ended January 31, 1995. The condensed consolidated
financial statements at October 31, 1995 and for the three and
nine months ended October 31, 1995 and 1994 are unaudited, but
have been reviewed by independent accountants and their report is
included herein.
NOTE 2 -- DEFERRED MEMBERSHIP INCOME, NET
Deferred membership income, net, included in the condensed
consolidated balance sheets is comprised of the following (in
thousands):
October 31, January 31,
1995 1995
Deferred membership income $462,745 $408,426
Less unamortized membership acquisition
costs (251,721) (211,416)
Deferred membership income, net $211,024 $197,010
NOTE 3 -- MERGERS AND ACQUISITIONS
During February 1995, the Company acquired all of the outstanding
capital stock of Welcome Wagon International, Inc. ("Welcome
Wagon") and substantially all of the assets of a related entity,
Gifts International, Inc., for $19.5 million in cash. Welcome
Wagon provides merchant advertising through direct visits by its
representatives to consumer households.
During March 1995, the Company acquired all of the outstanding
capital stock of the parent of its European licensee, CUC Europe
Limited, for $13 million. The purchase price was satisfied by
the payment of $12 million in cash and the issuance of 42,147
shares of the Company's common stock, par value $.01 per share
("Common Stock").
During March 1995, the Company acquired all of the outstanding
capital stock of Credit Card Sentinel (U.K.) Limited ("CCS") for
$22.5 million in cash. CCS is a leading provider of credit card
enhancement services, which are generally marketed through
European financial institutions.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 3 -- MERGERS AND ACQUISITIONS (continued)
These acquisitions were accounted for in accordance with the
purchase method of accounting and, accordingly, their results of
operations have been included in the consolidated results of
operations from the respective dates of acquisition. The results
of these entities' operations for the periods prior to their
acquisition were not significant to the Company's operations.
During June 1995, the Company acquired all of the outstanding
capital stock of Getko Group Inc. ("Getko") for a purchase price
of approximately $100 million, which was satisfied by the
issuance of approximately 3.7 million shares of Common Stock.
Getko distributes complimentary welcoming packages to new
homeowners throughout the United States and Canada. The
acquisition was accounted for as a pooling-of-interests; however,
financial statements for periods prior to February 1, 1995 have
not been restated due to immateriality.
During September 1995, the Company acquired all of the
outstanding capital stock of North American Outdoor Group, Inc.
("NAOG") for a purchase price of approximately $52 million, which
was satisfied by the issuance of approximately 1.5 million shares
of Common Stock. NAOG owns one of the largest private, for-
profit hunting and general interest fishing membership
organizations in the United States, and also owns a handyman
membership organization. The acquisition was accounted for as a
pooling-of-interests; however, financial statements for periods
prior to February 1, 1995 have not been restated due to
immateriality.
During October 1995, the Company and one of its wholly owned
subsidiaries ("Merger Sub") entered into an Agreement and Plan of
Merger with Advance Ross Corporation ("Advance Ross") pursuant to
which the Company, Merger Sub and Advance Ross plan to consummate
a merger (the "Merger") in which Merger Sub will be merged with
and into Advance Ross. In the Merger, each share of common
stock, par value $.01 per share, of Advance Ross issued and
outstanding immediately prior to the effective time of the Merger
will be converted into five-sixths (5/6) of one share of Common
Stock, subject to certain adjustments. In addition, all shares
of 5% Cumulative Preferred Stock, $25 par value, of Advance Ross
issued and outstanding immediately prior to the effective time of
the Merger will be converted in the Merger into shares of Common
Stock having a value equal to the liquidation preference of such
shares, subject to the obligation of Advance Ross to redeem such
shares under certain circumstances in lieu of such conversion.
The consummation of the Merger is subject to certain customary
closing conditions, including the approval of the holders of
Advance Ross common stock. This transaction will be accounted
for under the pooling-of-interests method of accounting and is
expected to be completed during January 1996.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 4 -- SHAREHOLDERS' EQUITY
On June 7, 1995, the Company's Board of Directors declared a
three-for-two split of the Common Stock, in the nature of a stock
dividend, effective June 30, 1995, payable to shareholders of
record on June 19, 1995. Accordingly, the financial statements
and all common share and per common share data have been
retroactively adjusted to reflect the stock split. The par value
of the additional shares of Common Stock issued in connection
with the stock split was credited to Common Stock and charged to
retained earnings.
For the three and nine months ended October 31, 1995, $95,100 and
$2.2 million principal of zero coupon convertible notes were
converted into 14,432 shares and 331,471 shares of Common Stock,
respectively, and the related unamortized original issue discount
($87,000 and $1.9 million, respectively) was charged against
additional paid-in capital. The balance of the change in
additional paid-in capital and treasury stock relates to stock
option activity.
Net income per share, assuming the conversions of the zero coupon
convertible notes occurred at the beginning of the periods, would
not differ significantly from the Company's actual earnings per
share for the three and nine month periods ended October 31,
1995.
NOTE 5 -- INCOME TAXES
The Company's effective tax rate differs from the Federal
statutory rate principally because of state income taxes and non-
deductible amortization of the excess of cost over net assets
acquired.
Independent Accountants' Review Report
Shareholders and Board of Directors
CUC International Inc.
We have reviewed the accompanying condensed consolidated balance
sheet of CUC International Inc. as of October 31, 1995, and the
related condensed consolidated statements of income for the three-
month and nine-month periods ended October 31, 1995 and 1994, and
the condensed consolidated statements of cash flows for the nine-
month periods ended October 31, 1995 and 1994. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data, and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, which will be performed for the full year with the
objective of expressing an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying condensed
consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of CUC
International Inc. as of January 31, 1995, and the related
consolidated statements of income, shareholders' equity and cash
flows for the year then ended, not presented herein, and in our
report dated March 21, 1995, we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of January 31, 1995, is fairly stated, in all
material respects, in relation to the consolidated balance sheet
from which it has been derived.
ERNST & YOUNG LLP
Stamford, Connecticut
November 29, 1995
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended October 31, 1995 vs.
Three Months Ended October 31, 1994
The Company's overall membership base continues to grow at a
rapid rate (from 32.9 million members at October 31, 1994 to 40
million members at October 31, 1995), which is the largest
contributing factor to the 29% increase in revenues (from $263.7
million for the quarter ended October 31, 1994 to $341.4 million
for the quarter ended October 31, 1995). While the overall
membership base increased by approximately 2 million members
during the quarter (of which approximately 1 million members came
from an acquisition completed during the quarter (members
resulting from acquisitions being "Acquired Members")), the
average annual fee collected for the Company's membership
services increased by less than 1%. The change in the average
annual fee is principally due to the addition of Acquired Members
at a lower average annual fee. The Company divides its
memberships into three categories: individual, wholesale and
discount coupon program memberships. All of these categories
share various aspects of the Company's marketing and operating
resources. Compared to the previous year's third quarter,
individual, wholesale and discount coupon program memberships
grew by 29%, 10% and 19%, respectively. For the quarter ended
October 31, 1995, individual, wholesale and discount coupon
program memberships represented 70%, 13% and 17% of revenues,
respectively. The Company maintains a flexible marketing plan so
that it is not dependent on any one service for the future growth
of the total membership base.
As the Company's services continue to mature, a greater
percentage of the total individual membership base is in its
renewal years. This results in increased profit margins for the
Company due to the significant decrease in certain marketing
costs incurred on renewing members. As a result, operating
income before interest, amortization of restricted stock
compensation, and taxes ("EBIT") increased from $49.3 million to
$65.9 million, and EBIT margins improved from 18.7% to 19.3%.
The Company has not experienced any difficulty in acquiring or
renewing members in the current economic climate.
Individual membership usage continues to increase, which
contributes to additional service fees and indirectly contributes
to the Company's strong renewal rate. Historically, an increase
in overall membership usage has had a favorable impact on renewal
rates. The Company records its deferred revenue net of estimated
cancellations which are anticipated in the Company's marketing
programs.
Operating costs increased 28% (from $70.7 million to $90.8
million). The major components of the Company's operating costs
continue to be personnel, telephone, computer processing,
participant insurance premiums (the cost of obtaining insurance
coverage for members) and travel cash awards. Travel members are
entitled to receive cash awards based on travel booked with the
Company. For the quarter ended October 31, 1995, these awards
represent less than 5% of total operating costs. The increase in
overall operating costs is due principally to the variable nature
of many of these costs and, therefore, the additional costs
incurred to support the growth in the membership base.
Historically, the Company has seen a direct correlation between
providing a high level of service to its members and improved
retention.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Three Months Ended October 31, 1995 vs.
Three Months Ended October 31, 1994
Marketing costs decreased as a percentage of revenue (from 40% to
39%). This is primarily due to improved per member acquisition
costs and an increase in renewing members. Membership
acquisition costs incurred increased 40% (from $103 million to
$144.3 million). Marketing costs include the amortization of
membership acquisition costs and other marketing costs, which
primarily consist of membership communications and sales
expenses. Amortization of membership acquisition costs increased
by 22% (from $90.1 million to $110.3 million). Other marketing
costs increased by 49% (from $16.3 million to $24.3 million).
These increases resulted primarily from the costs of servicing a
larger membership base. The marketing functions for the
Company's various consumer services are combined.
The Company routinely reviews all renewal rates and has not seen
any material change over the last year in the average renewal
rate. Based on current information, the Company does not
anticipate that the average renewal rate will change
significantly. Renewal rates are calculated by dividing the
total number of renewing members not requesting a refund during
their renewal year by the total number of members up for renewal.
General and administrative costs increased as a percentage of
revenue (from 14% to 15%). This is principally due to the
acquisitions completed during the nine months ended October 31,
1995. Interest (income) expense, net, decreased from $.2 million
to ($.6 million) primarily due to the reduced level of
amortization associated with the Company's zero coupon
convertible notes and the net interest income from the increased
level of cash generated by the Company for investment.
During the first nine months of fiscal 1996, the Company
completed several acquisitions (the "Acquisitions") (see Note 3
in Notes to Condensed Consolidated Financial Statements). The
operating activity of the companies acquired in the Acquisitions
is included in both revenues and pre-tax profits for the third
quarter; however, the operating activity resulting from the
Acquisitions is not included in the prior year's third quarter.
The Acquisitions were not significant to the Company's results of
operations.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Nine Months Ended October 31, 1995 vs.
Nine Months Ended October 31, 1994
The Company's overall membership base continues to grow at a
rapid rate (from 32.9 million members at October 31, 1994 to 40
million members at October 31, 1995), which is the largest
contributing factor to the 28% increase in revenues (from $762.9
million for the nine months ended October 31, 1994 to $979.9
million for the nine months ended October 31, 1995). While the
overall membership base increased by approximately 6.1 million
members during the nine months (of which approximately 3.1
million were Acquired Members), the average annual fee collected
for the Company's membership services increased by 1%. The
change in the average annual fee is principally due to the
addition of Acquired Members at a lower average annual fee. The
Company divides its memberships into three categories:
individual, wholesale and discount coupon program memberships.
All of these categories share various aspects of the Company's
marketing and operating resources. Compared to the previous
year's first nine months, individual, wholesale and discount
coupon program memberships grew by 21%, 9% and 15%, respectively.
For the nine months ended October 31, 1995, individual, wholesale
and discount coupon program memberships represented 70%, 13% and
17% of revenues, respectively. The Company maintains a flexible
marketing plan so that it is not dependent on any one service for
the future growth of the total membership base.
As the Company's services continue to mature, a greater
percentage of the total individual membership base is in its
renewal years. This results in increased profit margins for the
Company due to the significant decrease in certain marketing
costs incurred on renewing members. As a result, EBIT increased
from $138.9 million to $185.5 million, and EBIT margins improved
from 18.2% to 18.9%. The Company has not experienced any
difficulty in acquiring or renewing members in the current
economic climate.
Individual membership usage continues to increase, which
contributes to additional service fees and indirectly contributes
to the Company's strong renewal rate. Historically, an increase
in overall membership usage has had a favorable impact on renewal
rates. The Company records its deferred revenue net of estimated
cancellations which are anticipated in the Company's marketing
programs.
Operating costs increased 27% (from $206.9 million to $263.4
million). The major components of the Company's operating costs
continue to be personnel, telephone, computer processing,
participant insurance premiums (the cost of obtaining insurance
coverage for members) and travel cash awards. Travel members are
entitled to receive cash awards based on travel booked with the
Company. For the nine months ended October 31, 1995, these
awards represent less than 5% of total operating costs. The
increase in overall operating costs is due principally to the
variable nature of many of these costs and, therefore, the
additional costs incurred to support the growth in the membership
base. Historically, the Company has seen a direct correlation
between providing a high level of service to its members and
improved retention.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Nine Months Ended October 31, 1995 vs.
Nine Months Ended October 31, 1994
Marketing costs decreased as a percentage of revenue (from 40% to
39%). This is primarily due to improved per member acquisition
costs and an increase in renewing members. Membership
acquisition costs incurred increased 26% (from $262.6 million to
$330.4 million). Marketing costs include the amortization of
membership acquisition costs and other marketing costs, which
primarily consist of membership communications and sales
expenses. Amortization of membership acquisition costs increased
by 17% (from $261.3 million to $305.5 million). Other marketing
costs increased by 72% (from $46.5 million to $80.2 million).
These increases resulted primarily from the costs of servicing a
larger membership base. The marketing functions for the
Company's various consumer services are combined.
The Company routinely reviews all renewal rates and has not seen
any material change over the last year in the average renewal
rate. Based on current information, the Company does not
anticipate that the average renewal rate will change
significantly. Renewal rates are calculated by dividing the
total number of renewing members not requesting a refund during
their renewal year by the total number of members up for renewal.
General and administrative costs increased as a percentage of
revenue (from 14% to 15%). This is principally due to the
acquisitions completed during the nine months ended October 31,
1995. Interest (income) expense, net, and amortization of
restricted stock compensation decreased from $1.1 million to ($.8
million) primarily due to the reduced level of amortization
associated with the Company's restricted stock and zero coupon
convertible notes and the net interest income from the increased
level of cash generated by the Company for investment.
During the first nine months of fiscal 1996, the Company
completed the Acquisitions (see Note 3 in Notes to Condensed
Consolidated Financial Statements). The operating activity of
the companies acquired in the Acquisitions is included in both
revenues and pre-tax profits for the nine months ended October
31, 1995; however, the operating activity resulting from the
Acquisitions is not included in the prior year's first nine
months. The Acquisitions were not significant to the Company's
results of operations.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Membership Information
The following chart sets forth the approximate number of members
and net additions for the respective periods.
Net New Member
Number of Additions
Period Members for the Period
Nine Months Ended October 31, 1995 39,985,000 6,135,000*
Year Ended January 31, 1995 33,850,000 3,000,000
Nine Months Ended October 31, 1994 32,925,000 2,075,000
Year Ended January 31, 1994 30,850,000 3,250,000
Quarter Ended October 31, 1995 39,985,000 1,960,000**
Quarter Ended October 31, 1994 32,925,000 600,000
*Includes approximately 3.1 million Acquired Members.
**Includes approximately 1 million Acquired Members.
The membership acquisition costs incurred applicable to obtaining
a new member, for memberships other than coupon book memberships,
generally approximate the initial membership fee. Initial
membership fees for coupon book memberships generally exceed the
membership acquisition costs incurred applicable to obtaining a
new member.
Membership cancellations processed by certain of the Company's
clients report membership information only on a net basis.
Accordingly, the Company does not receive actual numbers of gross
additions and gross cancellations for certain types of
memberships. In calculating the number of members, the Company
has deducted its best estimate of cancellations which may occur
during the trial membership periods offered in its marketing
programs. Typically these periods range from one to three
months.
Liquidity And Capital Resources; Inflation; Seasonality
Funds for the Company's operations and acquisitions have been
provided through cash flow from operations. The Company also has
a credit agreement with General Electric Capital Corporation that
currently provides for a $100 million revolving credit facility
(the "Credit Agreement"). The amount of borrowings available to
the Company under the Credit Agreement was $100 million at
October 31, 1995, as there were no borrowings under the Credit
Agreement at that date. The Credit Agreement is scheduled to
expire June 1, 1997. The Company invested approximately $42.4
million in acquisitions, net of cash acquired, during the nine
months ended October 31, 1995.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Liquidity And Capital Resources; Inflation; Seasonality
(continued)
The Company is not aware of any trends, demands or uncertainties
that will have a material effect on the Company's liquidity other
than those relating to accounts receivable. The Company
anticipates that cash flow from operations and the Credit
Agreement will be sufficient to achieve its current long-term
objectives. All of the assets of the Company and many of its
subsidiaries, and all of the stock of many of the Company's
subsidiaries, have been pledged to secure the Credit Agreement.
Obligations under the Credit Agreement are guaranteed by certain
of the Company's subsidiaries. The Credit Agreement contains
certain customary restrictive covenants including, without
limitation, financial covenants, as well as restrictions that
preclude the payment of cash dividends on shares of Common Stock.
The Credit Agreement also contains various event of default
provisions including, without limitation, defaults arising from
certain changes in corporate structure.
The Company does not anticipate any material capital expenditures
for the next year. Total capital expenditures were $20.3 million
for the nine months ended October 31, 1995.
The Company intends to continue to review potential acquisitions
that it believes would enhance the Company's growth and
profitability. Any acquisitions paid in cash will initially be
financed through excess cash flow from operations and the Credit
Agreement. However, depending on the financing necessary to
complete an acquisition, additional funding may be required.
To date, the overall impact of inflation on the Company has not
been material. Except for the cash receipts from the sale of
discount coupon memberships, the Company's business is not
seasonal. Most cash receipts from these memberships are received
in the fourth quarter and, to a lesser extent, in the first and
the third quarters of each fiscal year.
For the nine months ended October 31, 1995, the Company's
international businesses represented less than 1% of EBIT. To
date, currency exposure has not been a significant competitive
factor at the local market operating level. As international
operations continue to expand and the number of cross-border
transactions increases, the Company intends to continue
monitoring its currency exposures closely and take prudent
actions as appropriate.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
No. Description
3.1 Restated Certificate of Incorporation of the Company,
as filed November 21, 1991, as amended June 25, 1992,
and as amended June 7, 1995 (filed as Exhibit 3.1 to
Company's Annual Report on Form 10-Q for the period ended April
30, 1995).*
10. Management Contracts, Compensatory Plans and
Arrangements
10.1 Form of Employment Contract with E. Kirk Shelton
and Christopher K. McLeod, dated February 1, 1987, as
amended November 1, 1991 (filed as Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal
year end January 31, 1994).*
10.2 Employment Contract with Walter A. Forbes, dated
January 1, 1987, as amended January 1, 1991, January 1,
1993 and October 1, 1993 (filed as Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1994) (the "Forbes Employment
Agreement").*
10.3 Fourth Amendment to Forbes Employment Agreement,
dated as of June 1, 1994 (filed as Exhibit 10.3 to the
Company's Form 10-Q for the period ended July 31,
1994).*
10.4 Agreement with Cosmo Corigliano, dated February 1,
1994 (filed as Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the fiscal year ended January
31, 1995).*
10.5 Agreement with Amy N. Lipton, dated April 1, 1987,
as amended April 21, 1993 and March 2, 1994 (filed as
Exhibit 10.7 to the Company's Annual Report on Form 10-
K for the fiscal year ended January 31, 1995).*
10.6 Form of Employee Stock Option under the 1987 Stock
Option Plan (filed as Exhibit 10.6 to the Company's
Form 10-Q for the period ended April 30, 1995).*
10.7 Form of Director Stock Option for 1990 and 1992
Directors Stock Options Plans (filed as Exhibit 10.4 to
the Company's Annual Report for the fiscal year ended
January 31, 1991, as amended December 12, 1991 and
December 19, 1991).*
10.8 Form of Director Stock Option for 1994 Directors
Stock Option Plan (filed as Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1995).*
10.9 1987 Stock Option Plan, as amended (filed as
Exhibit 10.9 to the Company's Form 10-Q for the period
ended April 30, 1995).*
10.10 1990 Directors Stock Option Plan, as amended
(filed as Exhibit 10.10. to the Company's Form 10-Q for
the period ended April 30, 1995).*
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
10.11 1992 Directors Stock Option Plan, as amended
(filed as Exhibit 10.11 to the Company's Form 10-Q for
the period ended April 30, 1995).*
10.12 1994 Directors Stock Option Plan (filed as
Exhibit 10.14 to the Company's Annual Report on Form 10-
K for the fiscal year ended January 31, 1995).*
10.13 Restricted Stock Plan and Form of Restricted
Stock Plan Agreement (filed as Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1991, as amended December 12,
1991 and December 19, 1991).*
10.14 Amended and Restated Credit Agreement between
the Company and General Electric Capital Corporation
dated June 30, 1994 (filed as Exhibit 10.12 to the
Company's Form 10-Q for the period ended July 31,
1994).*
10.15 Agreement and Plan of Merger, dated October
17, 1995, among CUC International Inc., Retreat
Acquisition Corporation and Advance Ross Corporation
(filed as Exhibit 2 to the Company's Registration
Statement on Form S-4, Registration No. 33-64801, filed
on December 7, 1995).*
11. Statement re: Computation of Per Share Earnings
(Unaudited)
15. Letter re: Unaudited Interim Financial
Information
(b) During the quarter ended October 31, 1995, the Company filed
the following Current Reports on Form 8-K:
(1) Current Report on Form 8-K, filed on September 5, 1995,
reporting an Item 5 ("Other Events") event.
(2) Current Report on Form 8-K, filed on October 18, 1995,
reporting an Item 5 ("Other Events") event.
(3) Current Report on Form 8-K, filed on October 20, 1995,
reporting an Item 5 ("Other Events") event.
*Incorporated by reference
SIGNATURES
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 thereunto duly authorized.
CUC INTERNATIONAL INC.
(Registrant)
Date: December 11, 1995 By: WALTER A. FORBES
Walter A. Forbes - Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
Date: December 11, 1995 By: COSMO CORIGLIANO
Cosmo Corigliano - Senior Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
INDEX TO EXHIBITS
Exhibit
No. Description Page
3.1 Restated Certificate of Incorporation of the Company, as
filed November 21, 1991, as amended June 25, 1992, and as amended
June 7, 1995 (filed as Exhibit 3.1 to the Company's Form 10-Q for
the period ended April 30, 1995).*
10. Management Contracts, Compensatory Plans and Arrangements
10.1 Form of Employment Contract with E. Kirk Shelton and
Christopher K. McLeod, dated February 1, 1987, as amended November
1, 1991 (filed as Exhibit 10.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1994).*
10.2 Employment Contract with Walter A. Forbes, dated January 1,
1987, as amended January 1, 1991, January 1, 1993 and October 1,
1993 (filed as Exhibit 10.2 to the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1994) (the "Forbes
Employment Agreement").*
10.3 Fourth Amendment to Forbes Employment Agreement, dated as of
June 1, 1994 (filed as Exhibit 10.3 to the Company's Form 10-Q for
the period ended July 31, 1994).*
10.4 Agreement with Cosmo Corigliano, dated February 1, 1994
(filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1995).*
10.5 Agreement with Amy N. Lipton, dated April 1, 1987, as
amended April 21, 1993 and March 2, 1994 (filed as Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1995).*
10.6 Form of Employee Stock Option under the 1987 Stock Option
Plan (filed as Exhibit 10.6 to the Company's Form 10-Q for the
period ended April 30, 1995).*
10.7 Form of Director Stock Option for 1990 and 1992 Directors
Stock Option Plans (filed as Exhibit 10.4 to the Company's Annual
Report for the fiscal year ended January 31, 1991, as amended
December 12, 1991 and December 19, 1991).*
10.8 Form of Director Stock Option for 1994 Directors Stock
Option Plan (filed as Exhibit 10.10 to the Company's Annual Report
on Form 10-K for the fiscal year ended January 31, 1995).*
10.9 1987 Stock Option Plan, as amended (filed as Exhibit 10.9 to
the Company's Form 10-Q for the period ended April 30, 1995).*
10.10 1990 Directors Stock Option Plan, as amended (filed as
Exhibit 10.10 to the Company's Form 10-Q for the period ended
April 30, 1995).*
INDEX TO EXHIBITS (continued)
Exhibit
No. Description Page
10.11 1992 Directors Stock Option Plan, as amended (filed as
Exhibit 10.11 to the Company's Form 10-Q for the period ended
April 30, 1995).*
10.12 1994 Directors Stock Option Plan (filed as Exhibit
10.14 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1995).*
10.13 Restricted Stock Plan and Form of Restricted Stock
Plan Agreement (filed as Exhibit 10.24 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1991,
as amended December 12, 1991 and December 19, 1991).*
10.14 Amended and Restated Credit Agreement between the
Company and General Electric Capital Corporation dated June 30,
1994 (filed as Exhibit 10.12 to the Company's Form 10-Q for the
period ended July 31, 1994).*
10.15 Agreement and Plan of Merger, dated October 17, 1995,
among CUC International Inc., Retreat Acquisition Corporation and
Advance Ross Corporation (filed as Exhibit 2 to the Company's
Registration Statement on Form S-4, Registration No. 33-64801,
filed on December 7, 1995).*
11. Statement re: Computation of Per Share Earnings (Unaudited)
15. Letter re: Unaudited Interim Financial Information
*Incorporated by reference
CUC INTERNATIONAL INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
(In thousands, except per share amounts)
Three Months
Ended October 31,
1995 1994
PRIMARY ------------------
Average shares outstanding 175,051 166,959
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 13,683 10,469
-------- --------
Total 188,734 177,428
===== =====
Net Income $40,754 $30,245
===== =====
Net income per common share $0.216 $0.170
===== =====
FULLY DILUTED
Average shares outstanding 175,051 166,959
Net effect of dilutive stock options -
based on the treasury stock method
using the period - end market price,
if higher than the average market price 13,975 10,469
Net effect of zero coupon convertible
notes - based on the if converted method 2,342 2,709
------- --------
Total 191,368 180,137
===== =====
Net Income $40,754 $30,245
Zero Coupon Convertible Notes 250 171
-------- --------
$41,004 $30,416
===== =====
Net income per common share $0.214 $0.169
===== =====
CUC INTERNATIONAL INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
(In thousands, except per share amounts)
Nine Months
Ended October 31,
1995 1994
PRIMARY ------------------
Average shares outstanding 174,368 166,226
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 12,505 10,174
-------- --------
Total 186,873 176,400
===== =====
Net Income $115,407 $84,809
===== =====
Net income per common share $0.618 $0.481
===== =====
FULLY DILUTED
Average shares outstanding 174,368 166,226
Net effect of dilutive stock options -
based on the treasury stock method
using the period - end market price,
if higher than the average market price 13,238 10,371
Net effect of zero coupon convertible
notes - based on the if converted method 2,485 2,814
-------- --------
Total 190,091 179,411
===== =====
Net Income $115,407 $84,809
Zero Coupon Convertible Notes 766 673
-------- --------
$116,173 $85,482
===== =====
Net income per common share $0.611 $0.476
===== =====
CUC INTERNATIONAL INC. AND SUBSIDIARIES
EXHIBIT 15 - LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION
December 8, 1995
Shareholders and Board of Directors
CUC International Inc.
We are aware of the incorporation by reference in the
Registration Statements (Form S-8s: Numbers 2-91291, 33-17247, 33-
17248, 33-17249, 33-26875, 33-75682, 33-93322, 33-41823, 3348175,
33-58896, 33-91656, 33-74068, 33-74066, 33-91658, 33-75684, 33-
80834 and 33-93372) of CUC International Inc. for the CUC
International Inc. Employee Stock Purchase Plan, the CUC
International Inc. 1985 Non-Qualified Stock Option Plan, the CUC
International Inc. 1985 Incentive Stock Option Plan, the CUC
International Inc. 1987 Performance Share Stock Option Plan, the
CUC International Inc. 1987 Stock Option Plan, the CUC
International Inc. 1987 Stock Option Plan as amended, the CUC
International Inc. 1987 Stock Option Plan as amended, the CUC
International Inc. 1990 Directors' Stock Option Plan, the
Entertainment Publications, Inc. 1988 Non-Qualified Stock Option
Plan, the CUC International Inc. 1992 Bonus and Salary
Replacement Stock Option Plan, the CUC International Inc. 1992
Bonus and Salary Replacement Stock Option Plan as amended, the
CUC International Inc. 1992 Directors Stock Option Plan, the CUC
International Inc. 1992 Employee Stock Option Plan, the CUC
International Inc. 1992 Employee Stock Option Plan as amended,
the CUC International Inc. 1994 Employee Stock Purchase Plan, the
CUC International Inc. Savings Incentive Plan, and the CUC
International Inc. 1994 Directors Stock Option Plan, respectively
and in the Registration Statements (Form S-3s: Numbers 33-30306,
33-47271, 33-58598 and 33-63237) of CUC International Inc. for
the registration of 738,057 shares, 3,450,000 shares, 331,797
shares and 1,498,888 shares, respectively, of its common stock,
and in the Registration Statement (Form S-4: Number 33-64801) of
CUC International Inc., of our report dated November 29, 1995
relating to the unaudited condensed consolidated interim
financial statements of CUC International Inc. which are included
in its Form 10-Q for the quarter ended October 31, 1995.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report
is not a part of the registration statements prepared or
certified by accountants within the meaning of Section 7 or 11 of
the Securities Act of 1933.
ERNST & YOUNG LLP
Stamford, Connecticut
5
0000723612
CUC INTERNATIONAL INC.
9-MOS
JAN-31-1995
OCT-31-1995
160,261
0
255,303
0
0
606,456
121,214
66,187
957,623
102,942
14,347
1,848
0
0
623,629
957,623
979,886
979,886
0
794,433
0
0
(838)
186,291
70,884
115,407
0
0
0
115,407
.618
.611
