20
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 July 31, 1997
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 - 410,678,615 shares as of August
29, 1997
INDEX
CUC INTERNATIONAL INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - July 31, 1997
and January 31, 1997. 3
Condensed Consolidated Statements of Income - Three months
ended July 31, 1997 and 1996. 4
Condensed Consolidated Statements of Income - Six months
ended July 31, 1997 and 1996. 5
Condensed Consolidated Statements of Cash Flows -
Six months ended July 31, 1997 and 1996. 6
Notes to Condensed Consolidated Financial Statements. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 25
INDEX TO EXHIBITS 26
PART I. FINANCIAL INFORMATION
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
July 31, January 31,
1997 1997
(Unaudited)
---------------------------
Assets
Current Assets
Cash and cash equivalents $725,634 $553,144
Marketable securities 468,810 69,139
Receivables, net of allowances 582,293 578,630
Prepaid membership materials 52,049 37,579
Prepaid expenses, deferred income
taxes and other 244,529 191,583
Total Current Assets 2,073,315 1,430,075
Membership solicitations in process 75,712 76,281
Deferred membership acquisition costs 383,177 401,564
Contract renewal rights and intangible
assets - net of accumulated amortization
of $139,126 and $126,013 478,213 366,038
Properties, at cost, less accumulated
depreciation of $144,707 and $132,090 161,886 145,620
Deferred income taxes and other 59,858 53,794
$3,232,161 $2,473,372
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses $459,443 $405,388
Federal and state income taxes 13,336 75,988
Total Current Liabilities 472,779 481,376
Deferred membership income 692,855 702,359
Convertible debt - net of unamortized
original issue discount of $7,808 and $488 562,882 23,487
Other 8,746 11,060
Contingencies (Note 6)
Shareholders' Equity
Common stock-par value $.01 per share;
authorized 600 million shares; issued
416,353,522 shares and 409,011,654 shares 4,164 4,090
Additional paid-in capital 696,929 619,532
Retained earnings 892,168 722,354
Treasury stock, at cost, 6,168,382
shares and 6,136,757 shares (57,436) (56,618)
Other (40,926) (34,268)
Total Shareholders' Equity 1,494,899 1,255,090
$3,232,161 $2,473,372
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
July 31,
1997 1996
REVENUES
Membership and service fees $581,122 $487,164
Software 91,566 68,580
Total Revenues 672,688 555,744
EXPENSES
Operating 199,451 168,014
Marketing 242,113 209,503
General and administrative 88,028 74,210
Other interest income, net (10,276) (1,835)
Merger costs 28,635
Interest expense, 3% convertible notes 4,125
Total Expenses 523,441 478,527
INCOME BEFORE INCOME TAXES 149,247 77,217
Provision for income taxes 56,937 36,756
NET INCOME $92,310 $40,461
Net Income Per Common Share $0.22 $0.10
Weighted Average Number of
Common and Dilutive Common
Equivalent Shares Outstanding 438,468 401,868
See notes to condensed consolidated financial statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amounts)
Six Months Ended
July 31,
1997 1996
REVENUES
Membership and service fees $1,125,159 $942,170
Software 172,200 129,053
Total Revenues 1,297,359 1,071,223
EXPENSES
Operating 408,990 326,341
Marketing 461,906 414,705
General and administrative 174,388 144,276
Other interest income, net (18,965) (4,075)
Merger costs 28,635
Interest expense, 3% convertible notes 7,759
Total Expenses 1,034,078 909,882
INCOME BEFORE INCOME TAXES 263,281 161,341
Provision for income taxes 100,498 68,759
NET INCOME $162,783 $92,582
Net Income Per Common Share $0.38 $0.23
Weighted Average Number of
Common and Dilutive Common
Equivalent Shares Outstanding 436,237 399,267
See notes to condensed consolidated financial statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six Months Ended
July 31,
1997 1996
OPERATING ACTIVITIES:
Net income $162,783 $92,582
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Membership acquisition costs (283,164) (310,392)
Amortization of membership
acquisition costs 301,551 319,514
Deferred membership income (9,504) (14,361)
Membership solicitations in process 569 (1,168)
Amortization of contract renewal
rights and excess cost 13,680 12,780
Deferred income taxes 13,734 11,359
Amortization of restricted stock and
original issue discount
on convertible notes 3,872 1,291
Depreciation 19,717 13,367
Net loss during change in
fiscal year-ends (4,268)
Changes in working capital items, net of acquisitions:
Receivables 4,316 (42,282)
Prepaid membership materials (11,597) (7,960)
Prepaid expenses and other
current assets (56,788) 2,830
Accounts payable, accrued expenses
and federal & state income
taxes payable (78,873) (21,210)
Product abandonment and related
liabilities (10,700)
Other, net (15,861) (7,350)
Net cash provided by operating activities 64,435 34,032
INVESTING ACTIVITIES:
Proceeds from matured marketable securities 58,417 75,460
Purchases of marketable securities (458,088) (66,947)
Acquisitions, net of cash acquired (58,911) (32,964)
Acquisitions of properties (31,478) (23,546)
Net cash used in investing activities (490,060) (47,997)
FINANCING ACTIVITIES:
Issuance of Common Stock 59,460 18,582
Long-term obligations, net (3,908) 1,987
Dividends paid (2,798)
Net proceeds from the issuance of
convertible notes 542,563
Net cash provided by financing activities 598,115 17,771
Net increase in cash and cash equivalents 172,490 3,806
Cash and cash equivalents at
beginning of period 553,144 333,036
Cash and cash equivalents at end of period $725,634 $336,842
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 of CUC International Inc. (the "Company"),
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
The January 31, 1997 consolidated balance sheet was derived from
the Company's audited financial statements. Operating results
for the three and six months ended July 31, 1997 are not
necessarily indicative of the results that may be expected for
the year ending January 31, 1998 (see Note 2). For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Form 10-K filing for
the year ended January 31, 1997.
NOTE 2 -- PENDING MERGER WITH HFS INCORPORATED
On May 27, 1997, the Company entered into an agreement to merge
with HFS Incorporated ("HFS") in a tax-free exchange of common
shares. Under the terms of the agreement and plan of merger with
HFS (the "Merger"), the Company plans to exchange 2.4031 shares
of the Company's common stock, par value $.01 per share ("Common
Stock"), for each outstanding share of HFS common stock. The
consummation of this Merger is subject to certain customary
closing conditions, including the approval of the shareholders
of both companies. Special meetings of the shareholders of
each of the Company and HFS have been scheduled for October 1,
1997 to approve the Merger. The transaction will be accounted
for in accordance with the pooling-of-interests method of accounting
and is expected to be completed during the Fall of 1997. Pursuant
to the merger agreement, HFS shall be merged with and into the
Company at the effective time of the Merger. Following the effective
time of the Merger, the Company shall be the surviving corporation
and shall succeed to and assume all the rights and obligations of
HFS. Also, following consummation of the Merger, the Company will
change its name to "Cendant Corporation". In connection with the
Merger, the Company intends to change its fiscal year end from
January 31 to December 31.
The following information reflects unaudited proforma combined
condensed financial statements of the Company and HFS. These
financial statements include certain proforma adjustments which
give effect to the Merger and certain reclassifications to conform
to the presentation to be used by the Company, post Merger.
The balance sheet at July 31, 1997 reflects the historical
financial position of the Company and HFS as of July 31, 1997 and
June 30, 1997, respectively. The statements of income for the six
months ended July 31, 1997 include the historical operating results
of the Company and HFS for the six months ended July 31, 1997 and
June 30, 1997, respectively. The statements of income for the six
months ended July 31, 1996 include the historical operating results
of the Company and HFS for the six months ended July 31, 1996 and
June 30, 1996, respectively.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 2 -- PENDING MERGER WITH HFS INCORPORATED (continued)
ProForma Combined Condensed Balance Sheet
(In thousands)
At
7/31/97 6/30/97 Pro Forma Combined
Company HFS Adjustments Companies
Assets
Current Assets
Cash and cash
equivalents $725,634 $58,511 $784,145
Restricted cash 23,742 23,742
Marketable securities 468,810 468,810
Receivables,net 582,293 840,941 1,423,234
Other current assets 296,578 252,331 548,909
Total Current Assets 2,073,315 1,175,525 3,248,840
Deferred membership
acquisition costs 383,177 383,177
Franchise agreements, net 948,753 948,753
Excess of cost over fair
value of net assets
acquired, net 449,503 1,868,438 2,317,941
Other intangible
assets, net 28,710 588,710 617,420
Other assets 297,456 848,357 1,145,813
3,232,161 5,429,783 8,661,944
Assets under management
and mortgage programs
Net investment in leases
and leased vehicles 3,643,601 3,643,601
Relocation receivables 579,575 579,575
Mortgage loans held
for sale 820,615 820,615
Mortgage servicing rights
and fees 272,042 272,042
5,315,833 5,315,833
Total Assets $3,232,161 $10,745,616 $13,977,777
Liabilities and Shareholders' Equity
Current Liabilities -
accounts payable, accrued
expenses and other
current liabilities $472,779 $1,279,038 $ 1,751,817
Deferred income 692,855 250,525 943,380
Long-term debt 562,882 1,173,967 1,736,849
Other non-current
liabilities 8,746 120,165 128,911
1,737,262 2,823,695 4,560,957
Liabilities under
management and mortgage
programs
Debt 4,776,153 4,776,153
Deferred income taxes 301,200 301,200
5,077,353 5,077,353
Shareholders'Equity
Common stock 4,164 1,614 2,190(a) 7,968
Additional paid-in
capital 696,929 2,234,646 (192,660)(a) 2,738,915
Retained earnings 892,168 808,982 1,701,150
Treasury stock (57,436) (190,470) 190,470(a) (57,436)
Restricted stock,
deferred
compensation (27,357) (27.357)
Foreign currency
translation
adjustment (13,569) (10,204) (23,773)
Total shareholders'
equity 1,494,899 2,844,568 4,339,467
Total Liabilities and
Shareholders' Equity $3,232,161 $10,745,616 $13,977,777
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 2 -- PENDING MERGER WITH HFS INCORPORATED (continued)
Pro Forma Combined Condensed Statements of Income
(In thousands, except per share amounts)
For the Six Months Ended
7/31/97 6/30/97 ProForma Combined
Company HFS Adjustment Companies
Revenues
Membership and service
fees, net $1,125,159 $830,346 $1,955,505
Software 172,200 172,200
Fleet leasing (net of
depreciation and interest
costs of $584,275) 146,581 146,581
Other 122,670 122,670
Net revenues 1,297,359 1,099,597 2,396,956
Expenses
Operating 408,990 435,062 844,052
Marketing and reservation 461,906 130,481 592,387
General and administrative 140,991 57,112 198,103
Merger and restructuring
charge associated with
business combination(b) 303,000 303,000
Depreciation and
amortization 33,397 86,534 119,931
Interest, net (11,206) 30,747 19,541
Total expenses 1,034,078 1,042,936 2,077,014
Income before income
taxes 263,281 56,661 319,942
Provision for income
taxes 100,498 72,005 172,503
Net income (loss) $162,783 ($15,344) $147,439
Per share information (d)
Net income (loss) per share
Primary and fully diluted $0.38 ($0.10) $0.18
Weighted average shares
outstanding
Primary 436,237 158,342 266,714 861,293
Fully diluted 439,166 158,342 266,680 864,188
ProForma Combined Condensed Statements of Income
(In thousands, except per share amounts)
For the Six Months Ended
7/31/96 6/30/96 Pro Forma Combined
Company HFS Adjustment Companies
Revenues
Membership and service
fees, net $942,170 $423,022 $1,365,192
Software 129,053 129,053
Fleet leasing (net of
depreciation and interest
costs of $555,994) 133,770 133,770
Other 66,252 66,252
Net revenues 1,071,223 623,044 1,694,267
Expenses
Operating 326,341 295,383 621,724
Marketing and reservation 414,705 65,950 480,655
General and administrative 118,129 39,189 157,318
Merger costs (c) 28,635 28,635
Depreciation and
amortization 26,147 36,982 63,129
Interest, net (4,075) 10,766 6,691
Total expenses 909,882 448,270 1,358,152
Income before income taxes 161,341 174,774 336,115
Provision for income taxes 68,759 71,157 139,916
Net income $ 92,582 $ 103,617 $ 196,199
Per share information (d)
Net income per share
Primary $0.23 $0.69 $0.26
Fully diluted $0.23 $0.68 $0.26
Weighted average shares outstanding
Primary 399,267 154,232 216,403 769,902
Fully diluted 405,054 155,398 218,039 778,491
(a) In connection with the Merger, each outstanding share of HFS
common stock will be converted into the right to receive 2.4031
shares of Common Stock. In addition, each share of HFS common
stock that is owned by HFS or the Company will be cancelled and
retired. The proforma adjustments assume that all 158.3 million
and 158.4 million shares of HFS common stock outstanding at
June 30, 1997 and 1996, respectively, (exclusive of 3.1 million
and .3 million shares of HFS common stock in treasury
which will be cancelled and retired in connection with the Merger)
will be converted into approximately 380.4 million and 380.7 million
shares of Common Stock in accordance with the exchange ratio.
(b) Includes a one-time pre-tax merger and restructuring charge of
$303 million (after-tax of $227 million or $.26 per common share
for the six months ended July 31, 1997) recorded by HFS in
connection with its merger with PHH Corporation ("PHH").
(c) Includes a one-time pre-tax merger and restructuring charge
of $28.6 million (after-tax of $25.1 million or $.03 per
common share for the six months ended July 31, 1996) recorded
by the Company in connection with the mergers with Davidson
& Associates, Inc. ("Davidson") and Sierra On-Line ("Sierra").
(d) Net income per share has been computed based upon the combined
weighted average outstanding shares of Common Stock and HFS
common stock for each period. The historical weighted average
number of outstanding shares of HFS stock has been adjusted to
reflect the exchange ratio of 2.4031 shares of Common Stock for
each share of HFS common stock.
It is expected that the Company will incur pre-tax transaction costs
associated with the Merger which are expected to range from $600
million to $650 million, of which approximately $125 million will
be lump sum payments. These costs associated with the Merger are
being established by the combined management. In determining the
amount of the reserve for these costs, management is considering
the costs relating to facility and systems consolidations, the
costs associated with exiting certain activities and the costs
associated with implementing the combined business strategy.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 3 -- MERGERS AND ACQUISITIONS
On August 13, 1997, the Company signed a definitive share
purchase agreement to acquire Hebdo Mag International Inc., a
leading publisher and distributor of classified advertising
information, in a stock transaction valued at approximately $440
million. The consummation of the acquisition is subject to
certain customary closing conditions. This acquisition will be
accounted for in accordance with the pooling-of-interests method
of accounting and is expected to be completed during the Fall of
1997.
During the six months ended July 31, 1997, the Company acquired
certain entities for an aggregate purchase price of $49.0
million, satisfied by the payment of $11.2 million in cash and
the issuance of 1.5 million shares of Common Stock. The excess
of cost over net assets acquired resulting from these
acquisitions aggregated $68.8 million. These acquisitions were
accounted for in accordance with the purchase method of
accounting and, accordingly, the results of operations have been
included in the consolidated results of operations from the
respective dates of acquisition. The results of operations for
the periods prior to the respective dates of acquisition were not
significant to the Company's operations.
During February 1997, the Company acquired substantially all of
the assets and assumed specific liabilities of Numa Corporation
for $73.5 million. The purchase price was satisfied by the
issuance of 3.4 million shares of Common Stock. This acquisition
was accounted for as a pooling-of-interests; however, financial
statements for periods prior to the date of acquisition have not
been restated due to immateriality.
Principally in connection with the Davidson, Sierra and Ideon
Group, Inc. ("Ideon") mergers which occurred during fiscal 1997,
the Company charged approximately $179.9 million to operations as
merger, integration, restructuring and litigation charges during
the year ended January 31, 1997. Such costs in connection with
the Davidson and Sierra mergers with the Company (approximately
$48.6 million) are non-recurring and are comprised primarily of
transaction costs, other professional fees and integration costs.
Such costs associated with the Company's merger with Ideon
(approximately $127.2 million) are non-recurring and include
integration and transaction costs as well as a provision relating
to certain litigation matters (see Note 6) giving consideration
to the Company's intended approach to these matters. To date,
such payments amounted to $125.9 million.
NOTE 4 -- SHAREHOLDERS' EQUITY AND NET INCOME PER COMMON SHARE
The change in common stock, additional paid-in capital and
treasury stock relates principally to acquisitions and stock
option activity.
Net income per common share, assuming the conversions of
subordinated convertible notes during the three and six months
ended July 31, 1997 occurred at the beginning of such period,
would not differ significantly from the Company's actual earnings
per share for such period.
Net income per common share includes the weighted average number
of common and common equivalent shares outstanding during the
respective periods. Common stock equivalents for the three and
six month periods ended July 31, 1997 includes the dilutive
effect of the 3% convertible subordinated notes issued February
11, 1997 using the if-converted method.
On January 31, 1998, the Company is required to adopt Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share". This new rule requires the Company to change the method
currently used to compute earnings per share and requires
restatement of all prior periods. Under the new requirements,
the dilutive effect of stock options and convertible securities
are excluded from computing primary earnings per share. The
impact of SFAS No. 128 on the calculation of primary and fully
diluted earnings per share for the three and six months ended
July 31, 1997 and 1996 is not expected to be material.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 5 -- SOFTWARE RESEARCH AND DEVELOPMENT COSTS AND COSTS OF
SOFTWARE REVENUE
Software research and development costs are included in operating
expenses and aggregated $28.7 million and $15.3 million for the
three months ended July 31, 1997 and 1996, respectively, and
$52.9 million and $30.2 million for the six months ended July 31,
1997 and 1996, respectively. Costs of software revenue are
included in operating expenses and aggregated $28.0 million and
$21.1 million for the three months ended July 31, 1997 and 1996,
respectively, and $57.0 million and $45.9 million for the six
months ended July 31, 1997 and 1996, respectively.
NOTE 6 -- CONTINGENCIES - IDEON
On June 13, 1997, the Company entered into an agreement (the
"Agreement") with Peter Halmos, the co-founder of SafeCard
Services, Incorporated ("SafeCard"), which was reorganized in
1995 as Ideon. The Company acquired Ideon in August 1996. The
Agreement, provides for the
settlement of all of the outstanding litigations involving Peter
Halmos, SafeCard and Ideon previously described in the Company's
Form 10-K. The Agreement became effective in July 1997. The
Agreement calls for the dismissal with
prejudice of these outstanding litigation matters and the payment
to Peter Halmos, over a six-year period, of $70.5 million.
Specifically, the Agreement requires that the Company pay Peter
Halmos one up-front payment of $13.5 million and six subsequent
annual payments of $9.5 million each. The Agreement also calls for
the transfer to the Company of assets related to SafeCard's CreditLine
business, including the transfer by CreditLine Corporation to the
Company of all of CreditLine Corporations's rights under a marketing
agreement between it and SafeCard dated November 1, 1988.
The following Halmos related cases have been or will be
dismissed;
1. Halmos Trading & Investing Company v. SafeCard Services, Inc. and
Gerald Cahill v. Peter A. Halmos and Steven J. Halmos and Halmos
Trading & Investment Co., Case No. 93-04354 (06) in the Circuit Court
for the 17th Judicial Circuit in and for Broward County, Florida.
2. SafeCard Services, Inc v. Peter Halmos, a Florida resident; High
Plains Capital Corporation, a Wyoming corporation; and CreditLine
Corporation, a Wyoming corporation which is pending in the
District Court, First Judicial District of Laramie County,
Wyoming; Case No. Doc. 134, No. 192.
3. Peter Halmos, CreditLine Corporation and Continuity Marketing
Corporation v. Paul G. Kahn, William T. Bacon, Robert L.
Dilenschneider, Eugene Miller and SafeCard Services, Inc., in
the United States District Court, Southern District of Florida,
Case No. 94-6920 CG-NESBITT.
4. Peter Halmos v. SafeCard Services, Inc., William T. Bacon, Jr.,
Barry I. Tillis and Barry Natter, Case No. 95-6325 (AJ) filed in
the Circuit Court, Fifteenth Judicial Circuit, in and for Palm
Beach County, Florida.
5. Ideon Group, Inc., SafeCard Services, Inc., Paul G. Kahn,
William T. Bacon, Jr., Marshall L. Burman, John Ellis (Jeb) Bush,
Robert L. Dilenschneider, Adam W. Herbert, Eugene Miller, and
Thomas F. Petway, III v. Peter Halmos, Civil Action No. 14600,
filed in the Court of Chancery of New Castle County, Delaware.
6. High Plains Capital Corporation f/k/a Halmos & Company, Inc.
v. Ideon Group, Inc., SafeCard Services, Inc., Eugene Miller,
Robert L. Dilenschneider, and the Dilenschneider Group, Inc.,
Palm Beach County, Florida, Civil Action No. CL 95 8313 AE
(Hon. Walter Colbath).
7. High Plains Capital Corporation v. Ideon Group, Inc. and SafeCard
Services, Inc., Civil Action No. 95 015024, Seventeenth Judicial
Circuit, Broward County, Florida.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 6 -- CONTINGENCIES - IDEON (continued)
The following actions remain pending, in whole or in part, as
described below:
A suit initiated by Peter Halmos, related entities, and Myron
Cherry (a former lawyer for SafeCard) in July 1993 in Cook County
Circuit Court in Illinois against SafeCard and one of Ideon's
directors, purporting to state claims aggregating in excess of
$100 million, principally relating to alleged rights to
"incentive compensation," stock options or their equivalent,
indemnification, wrongful termination and defamation. On
February 7, 1995, the court dismissed with prejudice Peter
Halmos' claim regarding alleged rights to "incentive
compensation," stock options or their equivalent, wrongful
termination and defamation. Mr. Halmos has appealed this ruling.
SafeCard has filed an answer to the remaining indemnification
claims. Its obligation to file an answer to the claims of Myron
Cherry have been stayed pending settlement discussions. On
December 28, 1995, the court stayed Halmos' indemnification
claims pending resolution of a declaratory judgment action filed
by Ideon in Delaware Chancery Court. As a result of the Halmos
settlement only the claims of Myron Cherry remain pending.
A suit seeking monetary damages by Peter Halmos, a trustee for
the Peter A. Halmos revocable trust dated January 24, 1990 and
the Halmos Foundation, Inc. individually and certain other named
parties on behalf of themselves and all others similarly situated
against SafeCard, one its officers, one of its former officers
and three of Ideon's directors in the United States District
Court for the Southern District of Florida in December 1994.
This litigation involves claims by a putative class of sellers of
SafeCard Stock for the period January 11, 1993 through December
8, 1994 for alleged violations of the federal and states
securities laws in connection with alleged improprieties in
SafeCard's investor relations program. The complaint also
includes individual claims made by Peter Halmos in connection
with the sale of stock by two trusts controlled by him. SafeCard
and the individual defendants have filed a motion to dismiss.
There has been limited discovery on class certification and
identification of "John Doe" defendant issues. Ideon filed its
opposition to the pending motion for class certification on
December 11, 1995. Plaintiffs' reply was filed March 19, 1996.
On September 9, 1996, the Court entered an order abating the
action until December 9, 1996 to permit the parties to engage in
settlement negotiations. On February 11, 1997, the Court entered
an order abating the stay. On August 8, 1997, the Court entered
an order setting the case for trial on December 8, 1997. As a
result of the settlement, Halmos released all individual claims
against defendants, while reserving the right to seek
reimbursement (for his former efforts and expenses on behalf of
class members) from any potential judgment the remaining class
plaintiffs might obtain. Halmos will dismiss with prejudice his
individual claims against the defendants, which included claims
on behalf of the Halmos Trust (counts VIII-XIX). Halmos has also
agreed under the Settlement not to aid parties in litigation
against the Company, its officers or directors.
A suit seeking monetary damages and injunctive relief by LifeFax,
Inc. and Continuity Marketing Corporation companies affiliated with
Peter Halmos, in the State Circuit Court in Palm Beach County,
Florida in July 1995 against Ideon, Family Protection Network,
Inc., SafeCard, one of Ideon's directors and Ideon's Chief
Executive Officer purporting to state various statutory and tort
claims. The claims principally relate to the allegation by these
companies that SafeCard's Family Protection Network were
conceived and commercialized by, among others, Peter Halmos and
have been improperly copied. An amended complaint filed on June
14, 1995 seeking monetary damages adds to the prior claims
certain claims by Nicholas Rubino that principally relate to the
allegation that SafeCard's Pet Registration Product was conceived
by Mr. Rubino and has been improperly copied. The Company has
filed an appropriate answer. As a result of the Halmos
settlement, all claims of Continuity Marketing Corporation will
be dismissed, leaving pending only the claims related to Family
Protection Network and the Pet Registration Program.
A suit seeking monetary damages and declaratory relief by Peter
Halmos, individually and as trustee for the Peter A. Halmos
revocable trust dated January 24, 1990 and by James B. Chambers,
individually and on behalf of himself and all others similarly
situated against Ideon, SafeCard, each of the members of Ideon's
Board of Directors, three non-board member officers of Ideon,
Ideon's previous outside auditor and one of Ideon's outside
counsel in the United States District Court for the Southern
District of Florida in June 1995. The litigation involves claims
by a putative class of purchasers of Ideon stock between December
14, 1994 and May 25, 1995 and on behalf of a separate class of
all record holders of SafeCard stock as of April 27, 1995. The
putative class claims are for alleged
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 6 -- CONTINGENCIES - IDEON (continued)
violations of the federal securities laws, for alleged breach of
fiduciary duty and alleged negligence in connection with certain
matters voted on at the Annual Meeting of SafeCard stockholders
held on April 27, 1995. Ideon and the individual defendants have
filed a motion to dismiss these claims. There has been limited
discovery on class certification issues. Ideon filed its
opposition to the pending motion for class certification on
December 11, 1995. Plaintiffs' reply was filed March 19, 1996.
On September 9, 1996, the Court entered an order abating the
action until December 9, 1996 to permit the parties to engage in
settlement negotiations. On December 5, 1996, plaintiffs filed a
motion for leave to file an amended complaint, name additional
parties (previously named as "John Does") and include additional
legal claims. The amended complaint is a purported buyer and
class action under the securities and racketeering laws alleging
Ideon and others engaged in a stock manipulation scheme to
artificially inflate the price of SafeCard/Ideon stock between
January 1993 and December 1995. On August 8, 1997, the Court
entered an order resetting the trial date beginning February 16,
1998. On June 13, 1997, Peter Halmos and the Company entered
into a settlement in which Halmos released all individual claims
against defendants, while reserving the right to seek
reimbursement (for his former efforts and expenses on behalf of
class members) from any potential judgment the remaining class
plaintiffs might obtain. Halmos will dismiss with prejudice
his individual claims in counts VIII - XIX against the defendants.
Halmos has also agreed in the Settlement not to aid any parties
in litigation against the Company, its officers or directors.
A purported shareholder derivative action initiated by Michael P.
Pisano, on behalf of himself and other stockholders of SafeCard
and Ideon against SafeCard, Ideon, two of their officers, and
Ideon's directors in United States District Court, Southern
District of Florida. This litigation involves claims that the
officers and directors of SafeCard have improperly refused to
accede Peter Halmos' litigation and indemnification demands
against Ideon. Ideon and the individual defendants have filed
motions to dismiss the first amended complaint. On September 29,
1995, Pisano filed a second amended complaint which made
additional allegations of waste and mismanagement against Ideon's
officers and directors in connection with the Family Protection
Network and PGA Tour Partners products. On December 26, 1995,
Ideon filed motions to dismiss the Second Amended Complaint. On
June 4 and June 19, 1996, orders were entered dismissing
plaintiff's claims with prejudice for failure to join an
indispensable party, Peter Halmos. On June 27, 1996, plaintiff
filed a notice of appeal. Plaintiff filed initial and reply
briefs and Ideon filed an answer brief. On June 6, 1997, the
Appellate Court affirmed the dismissal.
A suit by Lois Hekker on behalf of herself and all others
similarly situated seeking monetary damages against Ideon and its
former Chief Executive Officer in the United States District
Court for the Middle District of Florida on July 28, 1995. The
litigation involves claims by a putative class of purchasers of
Ideon stock for the period April 25, 1995 through May 25, 1995
for alleged violation of the federal securities laws in
connection with statements made about Ideon's business and
financial performance. Defendants filed a motion to dismiss on
October 2, 1995. On January 3, 1996, the court stayed all merits
discovery pending rulings on the motion to dismiss and on the
plaintiff's motion for class certification. On August 19, 1996,
the court denied the Company's motion to dismiss. The Company
filed its answer. On May 6, 1997, the
Court entered an order abating the action while the parties
engage in settlement negotiations.
A suit by Frist Capital Partners, Thomas F. Frist III and
Patricia F. Elcan against Ideon and two of its employees in the
United States District Court for the Southern District of New
York. The litigation involves claims against Ideon, its former
CEO and its Vice President of Investor Relations for alleged
material misrepresentations and omissions in connection with
announcements relating to Ideon's expected earnings per share in
1995 and its new product sales, which included the PGA Tour Card
Program, Family Protection Network and Collections of the Vatican
Museums. On July 15, 1996, Ideon filed a motion to dismiss. The
Company withdrew its motion to dismiss and answered the complaint
on December 5, 1996.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 6 -- CONTINGENCIES - IDEON (continued)
The Company established a reserve upon the consummation of the
merger with Ideon during the third quarter of fiscal 1997
related, in part, to these litigation matters. The Company is
also involved in certain other claims and litigation arising in
the ordinary course of business, which are not considered
material to the financial position, operations or cash flows of
the Company. Although not anticipated, the outcome of the class
action matters described above could also exceed the amount accrued.
ITEM 2.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended July 31, 1997 vs.
Three Months Ended July 31, 1996
The Company's overall membership base continues to grow at a
rapid rate (from 62.3 million members at July 31, 1996 to 70.7
million members at July 31, 1997), which is the largest
contributing factor to the 19% increase in membership revenues
(from $487.2 million for the quarter ended July 31, 1996 to
$581.1 million for the quarter ended July 31, 1997). While the
overall membership base increased by approximately 2.1 million
members during the quarter, the average annual fee collected for
the Company's membership services increased by approximately 1%.
The Company divides its memberships into three categories:
individual, wholesale and discount program memberships.
Individual memberships consist of members that pay directly for
the services and the Company pays for the marketing costs to
solicit the member, primarily using direct marketing techniques.
Wholesale memberships include members that pay directly for the
services to their sponsor and the Company does not pay for the
marketing costs to solicit the members. Discount program
memberships are generally marketed through a direct sales force,
participating merchant or general advertising and the related
fees are either paid directly by the member or the local
retailer. All of these categories share various aspects of the
Company's marketing and operating resources.
Compared to the previous year's second quarter, individual,
wholesale and discount program memberships grew by 11%, 22%
and 12%, respectively. Wholesale memberships have grown in part
due to the success of the Company's international business in
Europe. For the quarter ended July 31, 1997, individual,
wholesale and discount program memberships represented 67%, 14%
and 19% of membership 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.
Software revenues increased 34% from $68.6 million for the
quarter ended July 31, 1996 to $91.6 million for the quarter
ended July 31, 1997. Distribution revenue, which consists
principally of third-party software and typically has low
operating margins, increased 56% from $12.6 million for the
quarter ended July 31, 1996 to $19.7 million for the quarter
ended July 31, 1997. The Company's software operations continue
to grow by focusing on selling titles through retailers.
Excluding distribution revenue, core software revenue grew by
28%. Contributing to the software revenue growth in the current
fiscal year is the availability of a larger number of titles as
well as the significant increase in the installed base of CD-ROM
personal computers.
As the Company's membership 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. Improved response rates for
new members also favorably impacted profit margins. As a result,
operating income before other interest income, net, interest
expense on 3% convertible notes, merger costs and income taxes
("EBIT") increased from $104.0 million to $143.1 million and EBIT
margins improved from 18.7% to 21.3%.
Individual membership usage continues to increase, which
contributes to additional service fees and indirectly contributes
to the Company's strong renewal rates. 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. Included in total revenues for the quarter ended July
31, 1997, are revenues resulting from acquisitions which were
completed during the six months ended July 31, 1997. However,
total revenues contributed from these acquisitions are not
material to the Company's total reported revenues.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Three Months Ended July 31, 1997 vs.
Three Months Ended July 31, 1996 (continued)
Operating costs increased 19% (from $168.0 million to $199.5
million). The major components of the Company's membership
operating costs continue to be personnel, telephone, computer
processing and participant insurance premiums (the cost of
obtaining insurance coverage for members). Historically, the
Company has seen a direct correlation between providing a high
level of service to its members and improved retention. The
major components of the Company's software operating costs are
material costs, manufacturing labor and overhead, royalties paid
to developers and affiliated label publishers and research and
development costs related to designing, developing and testing
new software products. 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 and software sales.
Marketing costs decreased as a percentage of revenue, from 38% to
36%. This decrease is primarily due to improved per member
acquisition costs and an increase in renewing members. Membership
acquisition costs incurred increased 3% (from $146.1 million to
$150.1 million) as a result of the increased marketing effort
which resulted in an increased number of new members acquired.
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 decreased by 6%
(from $159.1 million to $150.3 million), which reflects a
reduction in membership acquisition costs period to period
resulting from increased conversion rates in the Company's
membership marketing programs. Other marketing costs increased
by 82% (from $50.4 million to $91.8 million). The overall
increase in marketing costs resulted primarily from the costs of
servicing a larger membership base and expenses incurred when
selling and marketing a larger number of software titles. The
marketing functions for the Company's membership services are
combined for its various services, and, accordingly, there are no
significant changes in marketing costs by membership service.
The Company routinely reviews all membership renewal rates and
has not seen any material change over the last year in the
average renewal rate. Renewal rates are calculated by dividing
the total number of renewing members not requesting a refund
during their renewal year by the total members eligible for
renewal.
General and administrative costs remained constant as a
percentage of revenue (13%). This is a result of the Company's
ongoing focus on controlling overhead. Other interest income,
net, increased from $1.8 million to $10.3 million primarily due
to the increased level of cash generated by the Company from the
proceeds of its issuance of 3% convertible subordinated notes in
February 1997 (see "Liquidity And Capital Resources; Inflation;
Seasonality").
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Six Months Ended July 31, 1997 vs.
Six Months Ended July 31, 1996
The Company's overall membership base continues to grow at a
rapid rate (from 62.3 million members at July 31, 1996 to 70.7
million members at July 31, 1997), which is the largest
contributing factor to the 19% increase in membership revenues
(from $942.2 million for the six months ended July 31, 1996 to
$1,125.2 million for the six months ended July 31, 1997). While
the overall membership base increased by approximately 4.4
million members during the six months ended July 31, 1997, the
average annual fee collected for the Company's membership
services increased by approximately 3%. The Company divides its
memberships into three categories: individual, wholesale and
discount program memberships. Individual memberships consist of
members that pay directly for the services and the Company pays
for the marketing costs to solicit the member, primarily using
direct marketing techniques. Wholesale memberships include
members that pay directly for the services to their sponsor and
the Company does not pay for the marketing costs to solicit the
members. Discount program memberships are generally marketed
through a direct sales force, participating merchant or general
advertising and the related fees are either paid directly by the
member or the local retailer. All of these categories share
various aspects of the Company's marketing and operating
resources.
Compared to the previous year's first six months, individual,
wholesale and discount program memberships grew by 11%, 22%
and 12%, respectively. Wholesale memberships have grown in part
due to the success of the Company's international business in
Europe. For the six months ended July 31, 1997, individual,
wholesale and discount program memberships represented 67%, 14%
and 19% of membership 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.
Software revenues increased 33% from $129.1 million for the six
months ended July 31, 1996 to $172.2 million for the six months
ended July 31, 1997. Distribution revenue, which consists
principally of third-party software and typically has low
operating margins, increased 39% from $25.7 million for the six
months ended July 31, 1996 to $35.8 million for the six months
ended July 31, 1997. The Company's software operations continue
to grow by focusing on selling titles through retailers.
Excluding distribution revenue, core software revenue grew by
32%. Contributing to the software revenue growth in the current
fiscal year is the availability of a larger number of titles as
well as the significant increase in the installed base of CD-ROM
personal computers.
As the Company's membership 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. Improved response rates for
new members also favorably impacted profit margins. As a result,
EBIT increased from $185.9 million to $252.1 million and EBIT
margins improved from 17.4% to 19.4%.
Individual membership usage continues to increase, which
contributes to additional service fees and indirectly contributes
to the Company's strong renewal rates. 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. Included in total revenues for the six months ended
July 31, 1997, are revenues resulting from acquisitions which
were completed during the six months ended July 31, 1997.
However, total revenues contributed from these acquisitions are
not material to the Company's total reported revenues.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Six Months Ended July 31, 1997 vs.
Six Months Ended July 31, 1996 (continued)
Operating costs increased 25% (from $326.3 million to $409.0
million). The major components of the Company's membership
operating costs continue to be personnel, telephone, computer
processing and participant insurance premiums (the cost of
obtaining insurance coverage for members). Historically, the
Company has seen a direct correlation between providing a high
level of service to its members and improved retention. The
major components of the Company's software operating costs are
material costs, manufacturing labor and overhead, royalties paid
to developers and affiliated label publishers and research and
development costs related to designing, developing and testing
new software products. 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 and software sales.
Marketing costs decreased as a percentage of revenue, from 39% to
36%. This decrease is primarily due to improved per member
acquisition costs and an increase in renewing members. Membership
acquisition costs incurred decreased 9% (from $310.4 million to
$283.2 million) primarily due to increased conversion rates in
the Company's various membership marketing programs. 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 decreased by 6% (from $319.5 million to $301.6
million), which reflects a reduction in membership acquisition
costs period to period resulting from increased conversion rates
in the Company's membership marketing programs. Other marketing
costs increased by 68% (from $95.2 million to $160.3 million).
The overall increase in marketing costs resulted primarily from
the costs of servicing a larger membership base and expenses
incurred when selling and marketing a larger number of software
titles. The marketing functions for the Company's membership
services are combined for its various services, and, accordingly,
there are no significant changes in marketing costs by membership
service.
The Company routinely reviews all membership renewal rates and
has not seen any material change over the last year in the
average renewal rate. Renewal rates are calculated by dividing
the total number of renewing members not requesting a refund
during their renewal year by the total members eligible for
renewal.
General and administrative costs remained constant as a
percentage of revenue (13%). This is a result of the Company's
ongoing focus on controlling overhead. Other interest income,
net, increased from $4.1 million to $19.0 million primarily due
to the increased level of cash generated by the Company from the
proceeds of its issuance of 3% convertible subordinated notes in
February 1997 (see "Liquidity And Capital Resources; Inflation;
Seasonality").
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. All membership data
has been restated to reflect the acquisition of Ideon in August
1996; however it has not been restated to reflect other members
added through acquisitions ("Acquired Members").
Net New Member
Number of Additions
Period Members for the Period
Six Months Ended July 31, 1997 70,685,000 4,350,000
Year Ended January 31, 1997 66,335,000 6,685,000
Six Months Ended July 31, 1996 62,315,000 2,665,000
Year Ended January 31, 1996 59,650,000 12,750,000*
Quarter Ended July 31, 1997 70,685,000 2,125,000
Quarter Ended July 31, 1996 62,315,000 1,440,000
*Includes approximately 8 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 have been provided principally
through cash flows from operations and credit facilities, while
acquisitions have also been funded through the issuance of Common
Stock. The Company entered into a credit agreement effective
March 26, 1996 which provides for a $500 million revolving credit
facility with a variety of different types of loans available
thereunder ("Credit Agreement"). At July 31, 1997, no borrowings
under the Credit Agreement were outstanding. The Credit
Agreement is scheduled to expire March 26, 2001.
On February 11, 1997, the Company issued $550 million in principal
amount of 3% convertible subordinated notes (the "3% Notes") due
February 15, 2002. Interest on the 3% Notes is payable semi-
annually on February 15 and August 15 of each year, commencing
August 15, 1997. For the six month period ended July 31, 1997,
interest expense on the 3% Notes was $7.8 million. As a result of
the failure of the Company to comply with certain registration
requirements set forth in a registration rights agreement between
the Company and the initial purchasers of the 3% Notes, commencing
on August 11, 1997 the Company began to accrue interest under the
3% Notes at the rate of 3.25% until such time as the Company
complies with such requirements of that agreement. The Company
anticipates complying with such registration requirements as soon
as practicable.
The Company invested approximately $58.9 million in acquisitions,
net of cash acquired, during the six months ended July 31, 1997.
Substantially all acquisitions have been fully integrated into
the Company's operations. The Company is not aware of any
trends, demands or uncertainties that will have a material effect
on the Company's liquidity. The Company anticipates that
cash flows from operations and its credit facilities will be
sufficient to achieve its current long-term objectives.
The Company does not anticipate any material capital expenditures
for the remainder of the year. Total capital expenditures were
$31.5 million for the six months ended July 31, 1997.
The Company intends to continue to review potential acquisitions
that it believes would enhance the Company's growth and
profitability. Any acquisitions will initially be financed
through the issuance of Common Stock, excess cash flows from
operations, the Company's Credit Agreement or from the proceeds
of the issuance of the 3% Notes. However, depending on the
financing necessary to complete an acquisition, additional
funding may be required.
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)
To date, the overall impact of inflation on the Company has not
been material. Except for the cash receipts from the sale of
coupon book memberships, the Company's membership business is
generally not seasonal. Most cash receipts from these coupon
book memberships are received in the fourth quarter and, to a
lesser extent, in the first and the third quarters of each fiscal
year. As is typical in the consumer software industry, the
Company's software business is highly seasonal. Net revenues and
operating income are highest during the third and fourth quarters
and are lowest in the first and second quarters. This seasonal
pattern is primarily due to the increased demand for the
Company's software products during the year-end holiday selling
season.
For the six months ended July 31, 1997, the Company's
international businesses represented less than 10% of EBIT.
Operating in international markets involves dealing with
sometimes volatile movements in currency exchange rates. The
economic impact of currency exchange rate movements on the
Company is complex because it is linked to variability in real
growth, inflation, interest rates and other factors. Because the
Company operates in a mix of membership services and numerous
countries, management believes currency exposures are fairly well
diversified. 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.
Forward-Looking Statements
Except for historical information contained herein, the above
discussion contains certain forward-looking statements that
involve potential risks and uncertainties. The Company's future
results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences
include, but are not limited to, changes in market conditions,
effects of state and federal regulations and risks inherent in
international operations. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company undertakes no obligation
to revise or update these forward-looking statements to reflect
events or circumstances that arise after the date hereof or to
reflect the occurrence of unanticipated events.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Ideon and certain of its subsidiaries are defending or
prosecuting a number of complex lawsuits (See Note 6 to Condensed
Consolidated Financial Statements).
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the fiscal quarter ended July 31, 1997, the Company issued
the following equity securities that were not registered under
the Securities Act:
(a) During February and March 1997, the Company issued 150,000
shares of restricted Common Stock to four employees of its
CUC Software division in connection with their employment
by the Company. The issuance was made pursuant to an
exemption from registration provided by Section 4(2) of the
Securities Act, as this issuance did not involve a "public
offering" pursuant to the Securities Act given the limited
number and scope of person to whom the securities were issued.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on June 11,
1997. The results of the matters voted on by the Company's
shareholders at such meeting were described in Part II, Item 4 of
the Company's Quarterly Report on Form 10-Q for the quarterly
period ended April 30, 1997. These matters included: the
election of Bartlett Burnap, Walter A. Forbes and Robert P.
Rittereiser to the Board of Directors of the Company, each for a
term expiring in 2000; the approval of the Company's 1997 Stock
Option Plan; and the ratification of the appointment of Ernst &
Young LLP as the Company's independent auditors.
The Company has scheduled a special meeting of its shareholders
for October 1, 1997, pursuant to a Notice of Special Meeting and
Proxy Statement dated August 28, 1997, a copy of which has been
filed previously with the Securities and Exchange Commission, at
which shareholders of the Company will consider approval of the
proposed merger of the Company and HFS (and related transactions
contemplated thereby), and approval of the Company's 1997 Stock
Incentive Plan.
ITEM 5: OTHER INFORMATION
On May 27, 1997, the Company entered into an agreement to merge
with HFS Incorporated ("HFS"). The consummation of this merger
is subject to certain customary closing conditions, including the
approval of the shareholders of both companies. See Note 2 to
Condensed Consolidated Financial Statements for additional
information relating to the HFS merger including unaudited pro forma
combined condensed financial statements as of July 31, 1997 and
for the six months ended July 31, 1997 and 1996.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibit
No. Description
3.1 Amended and Restated Certificate of Incorporation of
the Company, as filed June 5, 1996 (filed as Exhibit
3.1 to the Company's Form 10-Q for the period ended
April 30, 1996).*
3.2 By-Laws of the Company (filed as Exhibit 3.2 to the
Company's Registration Statement, No. 33-44453, on Form
S-4 dated December 19, 1991).*
4.1 Form of Stock Certificate (filed as Exhibit 4.1 to the
Company's Registration Statement, No. 33-44453, on Form
S-4 dated December 19, 1991).*
4.2 Indenture dated as of February 11, 1997, between CUC
International Inc. and Marine Midland Bank, as trustee
(filed as Exhibit 4(a) to the Company's Report on Form
8-K filed February 13, 1997).*
10.1-10.26 Management Contracts, Compensatory Plans and
Arrangements
10.1 Agreement with E. Kirk Shelton, dated as of May 15,
1996 (filed as Exhibit 10.1 to the Company's Form 10-Q
for the period ended July 31, 1996).*
10.2 Agreement with Christopher K. McLeod, dated as of May
15, 1996 (filed as Exhibit 10.2 to the Company's Form
10-Q for the period ended July 31, 1996).*
10.3 Amended and Restated Employment Contract with Walter A.
Forbes, dated as of May 15, 1996 (filed as Exhibit 10.3
to the Company's Form 10-Q for the period ended July
31, 1996).*
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 Amendment to Agreement with Cosmo Corigliano, dated
February 21, 1996 (filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1996).*
10.6 Amendment to Agreement with Cosmo Corigliano, dated
January 1, 1997 (filed as Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1997).*
10.7 Agreement with Amy N. Lipton, dated February 1, 1996
(filed as Exhibit 10.8 to the Company's Annual Report
on Form 10-K for the fiscal year ended January 31,
1996).*
10.8 Amendment to Agreement with Amy N. Lipton, dated
January 1, 1997 (filed as Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1997).*
10.9 Employment Agreement with Kenneth A. Williams, dated
July 24, 1996 (filed as Exhibit 10.11 to the Company's
Form 10-Q for the period ended July 31, 1996).*
10.10 Non-Competition Agreement with Kenneth A. Williams, dated
July 24, 1996 (filed as Exhibit 10.12 to the Company's
Form 10-Q for the period ended July 31, 1996).*
10.11 Form of Employee Stock Option under the 1987 Stock
Option Plan, as amended (filed as Exhibit 10.13 to the
Company's Form 10-Q for the period ended October 31,
1996).*
10.12 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).*
10.13 Form of Director Stock Option for 1994 Directors
Stock Option Plan, as amended (filed as Exhibit 10.15
to the Company's Form 10-Q for the period ended October
31, 1996).*
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
(a) Exhibit
No. Description
10.14 1987 Stock Option Plan, as amended (filed as
Exhibit 10.16 to the Company's Form 10-Q for the period
ended October 31, 1996).*
10.15 1990 Directors Stock Option Plan, as amended
(filed as Exhibit 10.17 to the Company's Form 10-Q for
the period ended October 31, 1996).*
10.16 1992 Directors Stock Option Plan, as amended
(filed as Exhibit 10.18 to the Company's Form 10-Q for
the period ended October 31, 1996).*
10.17 1994 Directors Stock Option Plan, as amended
(filed as Exhibit 10.19 to the Company's Form 10-Q for
the period ended October 31, 1996).*
10.18 1996 Executive Retirement Plan (filed as Exhibit
10.22 to the Company's Form 10-Q for the period ended
April 30, 1997).*
10.19 1997 Stock Option Plan (filed as Exhibit 10.23 to
the Company's Form 10-Q for the period ended April 30,
1997).*
10.20 Form of Employee Stock Option under the 1997 Stock
Option Plan (filed as Exhibit 10.24 to the Company's
Form 10-Q for the period ended April 30, 1997).*
10.21 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).*
10.22 Credit Agreement, dated as of March 26, 1996,
among: CUC International Inc.; the banks signatory
thereto; The Chase Manhattan Bank, N.A., Bank of
Montreal, Morgan Guaranty Trust Company of New York,
and The Sakura Bank, Limited as Co-Agents; and The
Chase Manhattan Bank, N.A., as Administrative Agent
(filed as Exhibit 10.17 to the Company's Annual Report
on Form 10-K for the fiscal year ended January 31,
1996).*
10.23 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).*
10.24 Agreement and Plan of Merger, dated as of February
19, 1996, by and among Davidson & Associates, Inc., CUC
International Inc. and Stealth Acquisition I Corp.
(filed as Exhibit 2(a) to the Company's Report on Form
8-K filed March 12, 1996).*
10.25 Amendment No.1 dated as of July 24, 1996, among
Davidson & Associates, Inc., CUC International Inc. and
Stealth Acquisition I Corp. (filed as Exhibit 2.2 to
the Company's Report on Form 8-K filed August 5,
1996).*
10.26 Agreement and Plan of Merger, dated as of February 19, 1996,
by and among Sierra On-Line, Inc., CUC International Inc.
and Larry Acquisition Corp. (filed as Exhibit 2(b) to the
Company's Report on Form 8-K filed March 12, 1996).*
10.27 Amendment No.1 dated as of March 27, 1996, among Sierra
On-Line, Inc., CUC International Inc. and Larry Acquisition
Corp. (filed as Exhibit 2.4 to the Company's Report on
Form 8-K filed August 5, 1996).*
10.28 Amendment No.2 dated as of July 24, 1996, among
Sierra On-Line, Inc., CUC International Inc. and Larry
Acquisition Corp. (filed as Exhibit 2.5 to the
Company's Report on Form 8-K filed August 5, 1996).*
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
(a) Exhibit
No. Description
10.29 Agreement of Sale dated July 23, 1996, between
Robert M. Davidson and Janice G. Davidson and CUC Real
Estate Holdings, Inc. (filed as Exhibit 10.2 to the
Company's Report on Form 8-K filed August 5, 1996).*
10.30 Agreement and Plan of Merger, dated as of July 19,
1996, by and among Ideon Group, Inc., CUC International
Inc. and IG Acquisition Corp. (filed as Exhibit 10.21
to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996).*
10.31 Form of U.S. Underwriting Agreement dated October
1996, among CUC International Inc., certain selling
stockholders and the U.S. Underwriters (filed as
Exhibit 1.1 (a) to the Company's Registration Statement
on Form S-3, Registration No. 333-13537, filed on
October 9, 1996).*
10.32 Form of International Underwriting Agreement dated
October 1996, among CUC International Inc., certain
selling stockholders and the International Underwriters
(filed as Exhibit 1.1 (b) to the Company's Registration
Statement on Form S-3, Registration No. 333-13537,
filed on October 9, 1996).*
10.33 Registration Rights Agreement dated as of February
11, 1997, between CUC International Inc. and Goldman,
Sachs & Co. (for itself and on behalf of the other
purchasers party thereto) (filed as Exhibit 4(b) to the
Company's Report on Form 8-K filed February 13, 1997).*
10.34 Agreement and Plan of Merger between CUC
International Inc. and HFS Incorporated, dated as of
May 27, 1997 (filed as Exhibit 2.1 to the Company's
Report on Form 8-K filed on May 29, 1997).*
10.35 Plan for Corporate Governance of CUC International
Inc. following the Effective Time (filed as Exhibit
99.2 to the Company's Report on Form 8-K filed on May
29, 1997).*
11 Statement re: Computation of Per Share Earnings (Unaudited)
27 Financial data schedule
(b) During the quarter ended July 31, 1997, the Company filed
the following Current Reports on Form 8-K:
(1) Current Report on Form 8-K, filed on May 29, 1997,
reporting an Item 5 ("Other Events") event and an Item 7
("Financial Statements, Pro Forma Financial Information
and Exhibits") 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: September 15, 1997 By: WALTER A. FORBES
Walter A. Forbes - Chief Executive
Officer and Chairman of the Board
(Principal Executive Officer)
Date: September 15, 1997 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 Amended and Restated Certificate of
Incorporation of the Company, as filed
June 5, 1996 (filed as Exhibit 3.1 to the
Company's Form 10-Q for the period ended
April 30, 1996).*
3.2 By-Laws of the Company (filed as Exhibit
3.2 to the Company's Registration
Statement, No. 33-44453, on Form S-4
dated December 19, 1991).*
4.1 Form of Stock Certificate (filed as
Exhibit 4.1 to the Company's Registration
Statement, No. 33-44453, on Form S-4
dated December 19, 1991).*
4.2 Indenture dated as of February 11, 1997, between
CUC International Inc. and Marine Midland Bank,
as trustee (filed as Exhibit 4(a) to the Company's
Report on Form 8-K filed February 13, 1997).*
10.1-10.26 Management Contracts, Compensatory Plans
and Arrangements
10.1 Agreement with E. Kirk Shelton, dated as of
May 15, 1996 (filed as Exhibit 10.1 to the
Company's Form 10-Q for the period ended
July 31, 1996).*
10.2 Agreement with Christopher K. McLeod, dated as of
May 15, 1996 (filed as Exhibit 10.2 to the Company's
Form 10-Q for the period ended July 31, 1996).*
10.3 Amended and Restated Employment Contract with
Walter A. Forbes, dated as of May 15, 1996 (filed
as Exhibit 10.3 to the Company's Form 10-Q for the
period ended July 31, 1996).*
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 Amendment to Agreement with Cosmo Corigliano, dated
February 21, 1996 (filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1996).*
10.6 Amendment to Agreement with Cosmo Corigliano, dated
January 1, 1997 (filed as Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1997).*
10.7 Agreement with Amy N. Lipton, dated February 1 1996
(filed as Exhibit 10.8 to the Company's Annual Report
on Form 10-K for the fiscal year ended January 31,
1996).*
10.8 Amendment to Agreement with Amy N. Lipton, dated
January 1, 1997 (filed as Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1997).*
10.9 Employment Agreement with Kenneth A. Williams,
dated July 24, 1996 (filed as Exhibit 10.11 to the
Company's Form 10-Q for the period ended July 31, 1996).*
10.10 Non-Competition Agreement with Kenneth A. Williams,
dated July 24, 1996 (filed as Exhibit 10.12 to the
Company's Form 10-Q for the period ended July 31, 1996).*
INDEX TO EXHIBITS
Exhibit
No. Description Page
10.11 Form of Employee Stock Option under the 1987 Stock
Option Plan, as amended (filed as Exhibit 10.13 to
the Company's Form 10-Q for the period ended
October 31, 1996).*
10.12 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).*
10.13 Form of Director Stock Option for 1994 Directors
Stock Option Plan, as amended (filed as Exhibit 10.15
to the Company's Form 10-Q for the period ended
October 31, 1996).*
10.14 1987 Stock Option Plan, as amended (filed as Exhibit
10.16 to the Company's Form 10-Q for the period ended
October 31, 1996).*
10.15 1990 Directors Stock Option Plan, as amended (filed as
Exhibit 10.17 to the Company's Form 10-Q for the
period ended October 31, 1996).*
10.16 1992 Directors Stock Option Plan, as amended (filed as
Exhibit 10.18 to the Company's Form 10-Q for the
period ended October 31, 1996).*
10.17 1994 Directors Stock Option Plan, as amended (filed as
Exhibit 10.19 to the Company's Form 10-Q for the
period ended October 31, 1996).*
10.18 1996 Executive Retirement Plan (filed as Exhibit
10.22 to the Company's Form 10-Q for the period ended
April 30, 1997).*
10.19 1997 Stock Option Plan (filed as Exhibit 10.23 to
the Company's Form 10-Q for the period ended April 30,
1997).*
10.20 Form of Employee Stock Option under the 1997 Stock
Option Plan (filed as Exhibit 10.24 to the Company's
Form 10-Q for the period ended April 30, 1997).*
10.21 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).*
10.22 Credit Agreement, dated as of March 26, 1996,
among: CUC International Inc.; the Banks signatory
thereto; The Chase Manhattan Bank, N.A., Bank of
Montreal, Morgan Guaranty Trust Company of New York,
and the Sakura Bank, Limited as Co-Agents; and
The Chase Manhattan Bank, N.A., as Administrative
Agent (filed as Exhibit 10.17 to the Company's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1996).*
10.23 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).*
10.24 Agreement and Plan of Merger, dated as of February 19,
1996, by and among Davidson & Associates, Inc.,
CUC International Inc. and Stealth Acquisition I Corp.
(filed as Exhibit 2(a) to the Company's Report on
Form 8-K filed March 12, 1996).*
INDEX TO EXHIBITS
Exhibit
No. Description Page
10.25 Amendment No.1 dated as of July 24, 1996, among
Davidson & Associates, Inc., CUC International Inc.
and Stealth Acquisition I Corp. (filed as Exhibit 2.2
to the Company's Report on Form 8-K filed
August 5, 1996). *
10.26 Agreement and Plan of Merger, dated as of February 19,
1996, by and among Sierra On-Line, Inc., CUC International
Inc. and Larry Acquisition Corp. (filed as Exhibit
2(b) to the Company's Report on Form 8-K
filed March 12, 1996).*
10.27 Amendment No.1 dated as of March 27, 1996, among
Sierra On-Line, Inc., CUC International Inc. and Larry
Acquisition Corp.(filed as Exhibit 2.4 to the
Company's Report on Form 8-K filed August 5, 1996).*
10.28 Amendment No.2 dated as of July 24, 1996, among Sierra
On-Line, Inc., CUC International Inc. and Larry Acquisition
Corp. (filed as Exhibit 2.5 to the
Company's Report on Form 8-K filed August
5, 1996).*
10.29 Agreement of Sale dated July 23, 1996, between
Robert M. Davidson and Janice G. Davidson and CUC Real
Estate Holdings, Inc. (filed as Exhibit 10.2 to the
Company's Report on Form 8-K filed August 5, 1996).*
10.30 Agreement and Plan of Merger, dated as of July 19, 1996,
by and among Ideon Group, Inc., CUC International Inc.
and IG Acquisition Corp. (filed as Exhibit 10.21
to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996).*
10.31 Form of U.S. Underwriting Agreement dated October 1996,
among CUC International Inc., certain selling
stockholders and the U.S. Underwriters
(filed as Exhibit 1.1 (a) to the
Company's Registration Statement on Form
S-3, Registration No. 333-13537, filed on
October 9, 1996).*
10.32 Form of International Underwriting
Agreement dated October 1996, among CUC
International Inc., certain selling
stockholders and the International
Underwriters (filed as Exhibit 1.1 (b) to
the Company's Registration Statement on
Form S-3, Registration No. 333-13537,
filed on October 9, 1996).*
10.33 Registration Rights Agreement dated
as of February 11, 1997, between CUC
International Inc. and Goldman, Sachs &
Co. (for itself and on behalf of the
other purchasers party thereto) (filed as
Exhibit 4(b) to the Company's Report on
Form 8-K filed February 13, 1997).*
10.34 Agreement and Plan of Merger between
CUC International Inc. and HFS
Incorporated, dated as of May 27, 1997
(filed as Exhibit 2.1 to the Company's
Report on Form 8-K filed on May 29,
1997).*
10.35 Plan for Corporate Governance of CUC
International Inc. following the
Effective Time (filed as Exhibit 99.2 to
the Company's Report on Form 8-K filed on
May 29, 1997).*
11 Statement re: Computation of Per
Share Earnings (Unaudited)
27 Financial data schedule
*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 July 31,
---------------------
1997 1996
---------------------
PRIMARY
Average shares outstanding 409,500 388,582
Net effect of dilutive stock options
and restricted stock - based on
the treasury stock method using
average market price 11,009 13,286
Assumed conversion of
3% convertible notes 17,959
--------- ----------
Total 438,468 401,868
===== =====
Net income $92,310 $40,461
Interest expense on 3% convertible
notes, net of tax benefit 2,551
--------- ---------
$94,861 $40,461
===== =====
Net income per common share $0.216 $0.101
===== =====
FULLY DILUTED
Average shares outstanding 409,500 388,582
Net effect of dilutive stock options
and restricted stock - based on
the treasury stock method using
the period-end market price, if
higher than the average market price 11,115 13,288
Assumed conversion of convertible notes 20,626 4,344
--------- ----------
Total 441,241 406,214
===== =====
Net income $92,310 $40,461
Interest expense on convertible
notes, net of tax benefit 2,758 522
--------- ---------
$95,068 $40,983
===== =====
Net income per common share $0.215 $0.101
===== =====
CUC INTERNATIONAL INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
(In thousands, except per share amounts)
Six Months
Ended July 31,
---------------------
1997 1996
---------------------
PRIMARY
Average shares outstanding 408,473 385,832
Net effect of dilutive stock options
and restricted stock - based on the
treasury stock method using
average market price 11,302 13,435
Assumed conversion of
3% convertible notes 16,462
--------- ----------
Total 436,237 399,267
===== =====
Net income $162,783 $92,582
Interest expense on 3% convertible
notes, net of tax benefit 4,797
--------- ----------
$167,580 $92,582
===== =====
Net income per common share $0.384 $0.232
===== =====
FULLY DILUTED
Average shares outstanding 408,473 385,832
Net effect of dilutive stock options
and restricted stock - based on the
treasury stock method using the
period-end market price, if higher
than the average market price 11,354 13,775
Assumed conversion of convertible notes 19,339 5,447
--------- ----------
Total 439,166 405,054
===== =====
Net income $162,783 $92,582
Interest expense on convertible
notes, net of tax benefit 5,245 991
--------- ----------
$168,028 $93,573
===== =====
Net income per common share $0.383 $0.231
===== =====
5
0000723612
CUC INTERNATIONAL INC.
1,000
6-MOS
JAN-31-1998
JUL-31-1997
725,634
468,810
582,293
0
0
2,073,315
306,593
144,707
3,232,161
472,779
562,882
0
0
4,164
1,490,735
3,232,161
1,297,359
1,297,359
0
1,045,284
0
0
(11,206)
263,281
100,498
162,783
0
0
0
162,783
.38
.38
