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, 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 - 426,473,398 shares as of November 28, 1997
INDEX
CUC INTERNATIONAL INC. AND SUBSIDIARIES
PARTI. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - October 31, 1997
and January 31, 1997. 3
Condensed Consolidated Statements of Income - Three months
ended October 31, 1997 and 1996. 4
Condensed Consolidated Statements of Income - Nine months
ended October 31, 1997 and 1996. 5
Condensed Consolidated Statements of Cash Flows -
Nine months ended October 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 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 26
INDEX TO EXHIBITS 27
PART I. FINANCIAL INFORMATION
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
October 31, January 31,
1997 1997
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $986,892 $564,362
Marketable securities 139,893 75,673
Receivables, net of allowances 686,415 602,718
Prepaid membership materials 55,764 39,470
Prepaid expenses, deferred income taxes and other 248,035 192,928
Total Current Assets 2,116,999 1,475,151
Membership solicitations in process 68,714 76,281
Deferred membership acquisition costs 419,807 401,564
Contract renewal rights and intangible assets -
net of accumulated amortization of
$185,940 and $163,882 676,848 550,512
Properties, at cost, less accumulated depreciation
of $179,806 and $152,270 192,025 172,228
Deferred income taxes and other 70,479 58,812
$3,544,872 $2,734,548
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses $463,819 $445,888
Federal and state income taxes 24,722 78,956
Total Current Liabilities 488,541 524,844
Deferred membership income 723,235 702,359
Convertible debt - net of unamortized
original issue discount of $7,355 and $488 561,685 23,487
Long-term debt 67,872 201,276
Other 56,979 6,044
Contingencies (Note 6)
Shareholders' Equity
Common stock-par value $.01 per share;
authorized 600 million shares; issued
433,299,044 shares and 423,214,578 shares 4,333 4,232
Additional paid-in capital 752,566 636,237
Retained earnings 999,768 725,343
Treasury stock, at cost, 6,545,362 shares
and 6,136,757 shares (67,944) (56,618)
Other (42,163) (32,656)
Total Shareholders' Equity 1,646,560 1,276,538
$3,544,872 $2,734,548
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,
1997 1996
REVENUES
Membership and service fees $649,485 $534,719
Software 125,223 98,611
Total Revenues 774,708 633,330
EXPENSES
Operating 233,574 189,655
Marketing 275,615 233,485
General and administrative 103,590 90,843
Other interest (income) expense, net (5,207) 1,393
Merger costs 147,200
Interest expense, 3% convertible notes 4,125
Total Expenses 611,697 662,576
INCOME (LOSS) BEFORE INCOME TAXES 163,011 (29,246)
Provision for (benefit from) income taxes 62,107 (12,838)
NET INCOME (LOSS) $100,904 $(16,408)
Net Income (Loss) Per Common Share $0.23 $(0.04)
Weighted Average Number of
Common and Dilutive Common
Equivalent Shares Outstanding 456,217 421,235
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,
1997 1996
REVENUES
Membership and service fees $1,870,890 $1,539,240
Software 297,423 228,096
Total Revenues 2,168,313 1,767,336
EXPENSES
Operating 667,324 535,237
Marketing 759,807 660,914
General and administrative 311,127 255,823
Other interest (income) expense, net (15,074) 5,388
Merger costs 175,835
Interest expense, 3% convertible notes 11,884
Total Expenses 1,735,068 1,633,197
INCOME BEFORE INCOME TAXES 433,245 134,139
Provision for income taxes 165,259 56,697
NET INCOME $267,986 $77,442
Net Income Per Common Share $0.61 $0.19
Weighted Average Number of
Common and Dilutive Common
Equivalent Shares Outstanding 452,366 416,057
See notes to condensed consolidated financial statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Nine Months Ended
October 31,
1997 1996
OPERATING ACTIVITIES:
Net income $267,986 $77,442
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Membership acquisition costs (474,103) (467,325)
Amortization of membership acquisition costs 455,860 478,762
Deferred membership income 20,737 (9,263)
Membership solicitations in process 7,567 (9,436)
Amortization of contract renewal rights
and excess cost 22,644 25,923
Deferred income taxes 13,351 (41,056)
Amortization of restricted stock and original
issue discount on convertible notes 5,968 2,880
Depreciation 37,008 31,400
Net loss during change in fiscal year-ends (592) (4,268)
Changes in working capital items, net of acquisitions:
Receivables (75,202) (73,794)
Prepaid membership materials (13,372) (9,992)
Prepaid expenses and other current assets (58,750) 9,961
Accounts payable, accrued expenses and
federal & state income taxes payable (122,588) 102,765
Product abandonment and related liabilities (10,841)
Other, net (20,991) (11,813)
Net cash provided by operating activities 65,523 91,345
INVESTING ACTIVITIES:
Proceeds from marketable securities 393,868 108,071
Purchases of marketable securities (458,088) (96,517)
Acquisitions, net of cash acquired (76,401) (43,138)
Acquisitions of properties (52,291) (57,426)
Net cash used in investing activities (192,912) (89,010)
FINANCING ACTIVITIES:
Issuance of Common Stock 69,822 41,879
Long-term obligations, net (62,866) (14,368)
Dividends paid (2,798)
Net proceeds from the issuance of convertible notes 542,963
Net cash provided by financing activities 549,919 24,713
Net increase in cash and cash equivalents 422,530 27,048
Cash and cash equivalents at beginning of period 564,362 358,326
Cash and cash equivalents at end of period $986,892 $385,374
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 nine months ended October 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, and has been approved by the shareholders of
both companies at a special meeting held on October 1, 1997. The
transaction will be accounted for in accordance with the pooling-
of-interests method of accounting and is expected to be completed
in December 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 of 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.
On October 29, 1997, the Company entered into an agreement to
sell its wholly-owned subsidiary, Interval International, Inc.,
and certain related entities ("Interval") for approximately $200
million, subject to certain adjustments. The agreement
contemplates that the Company will continue to provide existing
services to Interval's developers and members. The sale of
Interval is being proposed to address Federal Trade Commission
("FTC") concerns regarding the impact of the Merger on the timeshare
exchange business. The consummation of the sale is subject to
customary conditions as well as the Company and HFS having entered
into a consent decree with the FTC in connection with the Merger.
The following information reflects unaudited pro forma combined
condensed financial statements of the Company and HFS. These
financial statements include certain pro forma adjustments which
give effect to the Merger and certain reclassifications to
conform to the presentation to be used by the Company, post
Merger.
The pro forma balance sheet at October 31, 1997 reflects the
historical financial position of the Company and HFS as of
October 31, 1997 and September 30, 1997, respectively. The pro
forma statements of income for the three and nine months ended
October 31, 1997 include the historical operating results of the
Company and HFS for the three and nine months ended October 31,
1997 and September 30, 1997, respectively. The pro forma
statements of income for the three and nine months ended October
31, 1996 include the historical operating results of the Company
and HFS for the three and nine months ended October 31, 1996 and
September 30, 1996, respectively.
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 Balance Sheet
(In thousands)
At
10/31/97 9/30/97 Pro Forma Combined
CUC HFS Adjustments Companies
Assets
Current Assets
Cash and cash equivalents $ 986,892 $ 93,667 $1,080,559
Restricted cash 23,825 23,825
Marketable securities 139,893 139,893
Receivables, net 686,415 857,338 1,543,753
Other current assets 303,799 289,519 593,318
Total Current Assets 2,116,999 1,264,349 3,381,348
Deferred membership
acquisition costs 419,807 419,807
Franchise agreements, net 942,780 942,780
Excess of cost over fair value
of net assets acquired, net 649,652 1,913,478 2,563,130
Other intangible assets, net 27,196 769,497 796,693
Other assets 331,218 983,601 1,314,819
3,544,872 5,873,705 9,418,577
Assets under management
and mortgage programs:
Net investment in leases
and leased vehicles 3,547,217 3,547,217
Relocation receivables 587,310 587,310
Mortgage loans held for sale 1,162,220 1,162,220
Mortgage servicing rights and fees 305,428 305,428
5,602,175 5,602,175
Total assets $3,544,872 $11,475,880 $15,020,752
Liabilities and Shareholders' Equity
Current Liabilities - accounts
payable, accrued expenses and
other current liabilities $ 488,541 $ 915,216 $1,403,757
Deferred income 723,235 397,754 1,120,989
Long-term debt 629,557 1,662,169 2,291,726
Other non-current
liabilities 56,979 204,608 261,587
1,898,312 3,179,747 5,078,059
Liabilities under management
and mortgage programs:
Debt 4,952,083 4,952,083
Deferred income taxes 300,683 300,683
5,252,766 5,252,766
Shareholders' Equity
Common stock 4,333 1,628 $2,210(a) 8,171
Additional paid-in capital 752,566 2,277,933 (192,680)(a) 2,837,819
Retained earnings 999,768 966,385 1,966,153
Treasury stock (67,944) (190,470) 190,470(a) (67,944)
Restricted stock,
deferred compensation (28,272) (28,272)
Foreign currency
translation adjustment (13,891) (12,109) (26,000)
Total Shareholders' Equity 1,646,560 3,043,367 4,689,927
Total liabilities and
shareholders' equity $3,544,872 $11,475,880 $15,020,752
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 Three Months Ended
10/31/97 9/30/97 Pro Forma Combined
CUC HFS Adjustment Companies
Revenues
Membership and
service fees, net $649,485 $597,872 $1,247,357
Software 125,223 125,223
Fleet leasing (net of
depreciation and interest
costs of $307,908) 13,148 13,148
Other 38,860 38,860
Net revenues 774,708 649,880 1,424,588
Expenses
Operating 233,574 222,771 456,345
Marketing and reservation 275,615 80,897 356,512
General and administrative 77,891 18,670 96,561
Depreciation and
amortization 25,699 44,541 70,240
Interest, net (1,082) 17,239 16,157
Total expenses 611,697 384,118 995,815
Income before income taxes 163,011 265,762 428,773
Provision for income taxes 62,107 108,359 170,466
Net income $100,904 $157,403 $258,307
Per share information (d)
Net income per share $0.23 $0.89 $0.30
Weighted average shares
outstanding 456,217 179,703 252,141 888,061
For the Three Months Ended
10/31/96 9/30/96 Pro Forma Combined
CUC HFS Adjustment Companies
Revenues
Membership and
service fees, net $534,719 $389,527 $924,246
Software 98,611 98,611
Fleet leasing (net of
depreciation and interest
costs of $283,086) 14,297 14,297
Other 5,747 5,747
Net revenues 633,330 409,571 1,042,901
Expenses
Operating 189,655 173,771 363,426
Marketing and reservation 233,485 50,044 283,529
General and administrative 66,164 17,647 83,811
Merger costs (c) 147,200 147,200
Depreciation and
amortization 24,679 25,224 49,903
Interest, net 1,393 1,070 2,463
Total expenses 662,576 267,756 930,332
Income (loss) before
income taxes (29,246) 141,815 112,569
Provision for (benefit from)
income taxes (12,838) 56,941 44,103
Net income (loss) ($16,408) $84,874 $68,466
Per share information (d)
Net income (loss) per share ($0.04) $0.50 $0.08
Weighted average shares
outstanding 421,235 171,947 241,259 834,441
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 Nine Months Ended
10/31/97 9/30/97 Pro Forma Combined
CUC HFS Adjustment Companies
Revenues
Membership and
service fees, net $1,870,890 $1,627,076 $3,497,966
Software 297,423 297,423
Fleet leasing (net of
depreciation and interest
costs of $892,186) 42,905 42,905
Other, net 79,496 79,496
Net revenues 2,168,313 1,749,477 3,917,790
Expenses
Operating 667,324 657,835 1,325,159
Marketing and reservation 759,807 211,378 971,185
General and administrative 251,475 75,782 327,257
Merger and restructuring charge
associated with business
combination (b) 303,000 303,000
Depreciation and
amortization 59,652 131,075 190,727
Interest, net (3,190) 47,986 44,796
Total expenses 1,735,068 1,427,056 3,162,124
Income before income taxes 433,245 322,421 755,666
Provision for income taxes 165,259 180,364 345,623
Net income $267,986 $142,057 $410,043
Per share information (d)
Net income per share $0.61 $0.83 $0.47
Weighted average shares
outstanding 452,366 175,611 258,360 886,337
For the Nine Months Ended
10/31/96 9/30/96 Pro Forma Combined
CUC HFS Adjustment Companies
Revenues
Membership and
service fees, net $1,539,240 $ 974,754 $2,513,994
Software 228,096 228,096
Fleet leasing (net of
depreciation and interest
costs of $839,080) 41,016 41,016
Other, net 16,845 16,845
Net revenues 1,767,336 1,032,615 2,799,951
Expenses
Operating 535,237 469,154 1,004,391
Marketing and reservation 660,914 115,994 776,908
General and administrative 198,500 56,836 255,336
Merger costs (c) 175,835 175,835
Depreciation and
amortization 57,323 62,206 119,529
Interest, net 5,388 11,836 17,224
Total expenses 1,633,197 716,026 2,349,223
Income before income taxes 134,139 316,589 450,728
Provision for income taxes 56,697 128,098 184,795
Net income $77,442 $188,491 $265,933
Per share information (d)
Net income per share $0.19 $1.20 $0.34
Weighted average shares
outstanding 416,057 160,068 224,591 800,716
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 2 -- PENDING MERGER WITH HFS INCORPORATED (continued)
(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 pro forma adjustments assume that
all 159.7 million shares of HFS common stock outstanding at
September 30, 1997 (exclusive of 3.1 million shares of HFS
common stock in treasury which will be cancelled and retired
in connection with the Merger) will be converted into
approximately 383.8 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 nine months ended October 31, 1997) recorded by
HFS in connection with its merger with PHH Corporation.
(c) Includes a one-time pre-tax merger and restructuring charge
for the three and nine months ended October 31, 1996 of $147.2
million and $175.8 million, respectively (after-tax of $89.6
million and $114.6 million or $.11 and $.14 per common share
for the three and nine months ended October 31, 1996,
respectively), recorded by the Company in connection with the
mergers with Davidson & Associates, Inc. ("Davidson"), Sierra
On-Line, Inc. ("Sierra") and Ideon Group, Inc. ("Ideon").
(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 common 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 transaction
costs associated with the Merger (including merger, transaction
and restructuring costs related to the acquisition of Hebdo Mag
International Inc. ("Hebdo Mag") - see Note 3 to condensed
consolidated financial statements) which will be finalized
upon completion of the Merger.
NOTE 3 -- OTHER MERGERS AND ACQUISITIONS
During October 1997, the Company, through a wholly-owned
subsidiary ("Acquisition Sub"), acquired all of the outstanding
capital stock of Hebdo Mag, pursuant to the terms of a Share
Purchase Agreement dated August 13, 1997 among the Company,
Acquisition Sub, Hebdo Mag and other parties thereto. The purchase
price of approximately $440 million was satisfied by the
issuance of approximately 14.2 million shares of Common Stock.
In connection with this acquisition, the Company assumed long-term
debt, with interest at LIBOR plus .27%, of which, at October 31, 1997,
approximately $63.6 million of the assumed debt was outstanding.
Hebdo Mag is a leading publisher and distributor of classified
advertising information. The merger with Hebdo Mag has been
accounted for in accordance with the pooling-of-interests method
of accounting and, accordingly, the accompanying interim condensed
consolidated financial statements have been retroactively adjusted
as if Hebdo Mag and the Company had operated as one since
inception.
The following represents revenues and net income of the Company
and Hebdo Mag for the nine months ended October 31, 1996 and the
last complete interim period preceding the merger with Hebdo Mag
(unaudited, in thousands).
Six months ended Nine months ended
July 31, 1997 October 31, 1996
Revenues:
The Company $1,297,359 $1,673,426
Hebdo Mag 96,246 93,910
$1,393,605 $1,767,336
Net Income:
The Company $162,783 $74,573
Hebdo Mag 4,299 2,869
$167,082 $77,442
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 3 -- OTHER MERGERS AND ACQUISITIONS (continued)
To conform to the Company's January 31 fiscal year-end, Hebdo
Mag's operating results for January 1997 have been excluded from
the nine months ended October 31, 1997 operating results in the
accompanying financial statements. The excluded period has been
adjusted by a $.6 million charge to retained earnings at October
31, 1997.
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.
During the nine months ended October 31, 1997, the Company
acquired certain other entities for an aggregate purchase price
of $63.3 million, satisfied by the payment of $27.5 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 $89.9 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.
Principally in connection with the Davidson, Sierra and 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 charges amounted to $155.7 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 nine months
ended October 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
nine month periods ended October 31, 1997 includes the dilutive
effect of the 3% convertible subordinated notes issued February
11, 1997 using the if-converted method.
At the end of fiscal year, 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 nine months ended
October 31, 1997 and 1996 is not expected to be material.
NOTE 5 -- SOFTWARE RESEARCH AND DEVELOPMENT COSTS AND COSTS OF
SOFTWARE
REVENUE
Software research and development costs are included in operating
expenses and aggregated $32 million and $15.9 million for the
three months ended October 31, 1997 and 1996, respectively, and
$84.9 million and $46.1 million for the nine months ended October
31, 1997 and 1996, respectively. Costs of software revenue are
included in operating expenses and aggregated $31.8 million and
$24 million for the three months ended October 31, 1997 and
1996, respectively, and $88.7 million and $69.9 million for the
nine months ended October 31, 1997 and 1996, respectively.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
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
Corporation's rights under a marketing agreement between it and
SafeCard dated November 1, 1988.
The following Halmos related cases have been dismissed pursuant
to the Agreement:
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, 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. High Plains Capital Corporation f/k/a Halmos & Company, Inc.
v. Ideon Group, Inc., SafeCard Services, Inc., Eugene
Miller, Robert L. Dillenschneider, and the Dilenschneider
Group, Inc., Palm Beach County, Florida, Civil Action No. CL
95 8313 AE (Hon. Walter Colbath).
6. High Plains Capital Corporation v. Ideon Group, Inc., and
SafeCard Services, Inc., Civil Action No. 95 015024,
Seventeenth Judicial Circuit, Broward County, Florida.
The following Halmos related case will also be dismissed
pursuant to the Agreement:
7. 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.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 6 -- CONTINGENCIES - IDEON (continued)
On October 22, 1997, the plaintiffs, the Company and all of the
Company's indemnitees, entered into a Memorandum of Understanding
and thereafter filed final settlement agreements in James B.
Chambers and Peter A. Halmos v. SafeCard Services, Inc.; Ideon
Group, Inc.; Paul G. Kahn; William T. Bacon, Jr.; Robert L.
Dilenschneider; The Dilenschneider Group; Eugene Miller; G.
Thomas Frankland; Francis J. Marino; John R. Birk; Marshall
Burman; Thomas F. Petway III; John Ellis Bush; Adam W. Herbert,
Jr.; Price Waterhouse LLP; Mahoney Adams & Criser, P.A. and John
Does 1 through 25, United States District Court, Southern
District of Florida, Case No. 95-1298-CIV-NESBITT ("Chambers");
Lois Hekker v. Ideon Group, Inc. and Paul G. Kahn, United States
District Court, Middle District of Florida, Jacksonville
Division, Case No. 95-681-CIV-J ("Hekker"); and James L. Binder,
individually, as custodian for Elizabeth Binder, and as custodian
for the James L. Binder, D.D.S., P.C. Profit Sharing Trust;
Edward Dubois; Sheila Ann Dubois, as Personal Representative for
The Estate of Winifred Dubois; G. Neal Goolsby; John E. Masters,
individually and as custodian for Gregory Halmos and Nicholas
Halmos; J.B. McKinney; on behalf of themselves and all others
similarly situated, and Peter A. Halmos, as Trustee for the Peter
A. Halmos Revocable Trust Dated January 24, 1990, and The Halmos
Foundation, Inc., individually, v. Safecard Services, Inc., a
Delaware corporation; Paul G. Kahn; William T. Bacon, Jr.; Robert
L. Dilenschneider; The Dilenschneider Group, a Delaware
corporation; Eugene Miller; Gerald R. Cahill; Oppenheimer & Co.,
Inc., a Delaware corporation; and John Does 1 through 100,
inclusive, United States District Court for the Southern District
of Florida, (Miami Division) Case No. 94-2604-CIV-MOORE
("Binder"). The above referenced settlement in the Chambers and
Hekker matters calls for payment by the Company to class members
of $15 million. The settlement in the Binder litigation calls
for the payment by the Company to class members of $3 million.
These settlements must be approved by the court at hearings
anticipated in January and February 1998.
The following actions remaining 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 described above only the claims of Myron Cherry remain
pending.
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 was
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 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. Although not
anticipated, in the event the foregoing class action settlements
are not approved by the Court, the outcome of the class action
matters described above as well as the other pending Ideon
matters could also exceed the amount accrued. 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.
ITEM 2.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended October 31, 1997 vs.
Three Months Ended October 31, 1996
The Company's overall membership base continues to grow at a
rapid rate (from 63.8 million members at October 31, 1996 to
72.9 million members at October 31, 1997), which is the largest
contributing factor to the 21% increase in membership revenues
(from $534.7 million for the quarter ended October 31, 1996 to
$649.5 million for the quarter ended October 31, 1997). While
the overall membership base increased by approximately 2.2
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 third quarter, individual,
wholesale and discount program memberships grew by 13%, 21%
and 13%, respectively. Wholesale memberships have grown in part
due to the success of the Company's international business in
Europe. For the quarter ended October 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 27% from $98.6 million for the
quarter ended October 31, 1996 to $125.2 million for the quarter
ended October 31, 1997. Distribution revenue, which consists
principally of third-party software and typically has low
operating margins, increased 45% from $11 million for the
quarter ended October 31, 1996 to $16 million for the quarter
ended October 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
25%. 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) expense, net,
interest expense on 3% convertible notes, merger costs and income
taxes ("EBIT") increased from $119.3 million to $161.9 million
and EBIT margins improved from 18.8% to 20.9%.
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
October 31, 1997, are revenues resulting from acquisitions which
were completed during the nine months ended October 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 October 31, 1997 vs.
Three Months Ended October 31, 1996 (continued)
Operating costs increased 23% (from $189.7 million to $233.6
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 37% to
36%. This decrease is primarily due to improved per member
acquisition costs and an increase in renewing members. Membership
acquisition costs incurred increased 22% (from $156.9 million to
$190.9 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 3%
(from $159.2 million to $154.3 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 63% (from $74.3 million to $121.3 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 decreased as a percentage of
revenue (from 14% to 13%). This is a result of the Company's
ongoing focus on controlling overhead. Other interest, net,
increased from an expense of $1.4 million to income of $5.2
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)
Nine Months Ended October 31, 1997 vs.
Nine Months Ended October 31, 1996
The Company's overall membership base continues to grow at a
rapid rate (from 63.8 million members at October 31, 1996 to
72.9 million members at October 31, 1997), which is the largest
contributing factor to the 22% increase in membership revenues
(from $1,539.2 million for the nine months ended October 31,
1996 to $1,870.9 million for the nine months ended October 31,
1997). While the overall membership base increased by
approximately 6.6 million members during the nine months ended
October 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 nine months, individual,
wholesale and discount program memberships grew by 10%, 23%
and 12%, respectively. Wholesale memberships have grown in part
due to the success of the Company's international business in
Europe. For the nine months ended October 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 30% from $228.1 million for the nine
months ended October 31, 1996 to $297.4 million for the nine
months ended October 31, 1997. Distribution revenue, which
consists principally of third-party software and typically has
low operating margins, increased 35% from $38.5 million for the
nine months ended October 31, 1996 to $51.8 million for the nine
months ended October 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 30%. 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 $315.4 million to $430.1 million and EBIT
margins improved from 17.8% to 19.8%.
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 nine months ended
October 31, 1997, are revenues resulting from acquisitions which
were completed during the nine months ended October 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)
Nine Months Ended October 31, 1997 vs.
Nine Months Ended October 31, 1996 (continued)
Operating costs increased 25% (from $535.2 million to $667.3
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 37% to
35%. This decrease is primarily due to improved per member
acquisition costs and an increase in renewing members. Membership
acquisition costs incurred increased 1% (from $467.3 million to
$474.1 million) primarily due to 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 5%
(from $478.8 million to $455.9 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 67% (from $182.1 million to $303.9 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 (14%). This is a result of the Company's
ongoing focus on controlling overhead. Other interest, net,
increased from an expense of $5.4 million to income of $15.1
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
Nine Months Ended October 31, 1997 72,910,000 6,575,000
Year Ended January 31, 1997 66,335,000 6,685,000
Nine Months Ended October 31, 1996 63,835,000 4,185,000
Year Ended January 31, 1996 59,650,000 12,750,000*
Quarter Ended October 31, 1997 72,910,000 2,225,000
Quarter Ended October 31, 1996 63,835,000 1,520,000
*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 October 31, 1997, no
borrowings under the Credit Agreement were outstanding. The
Credit Agreement currently is scheduled to expire March 26, 2001;
however, the Company has agreed with the lenders to terminate the
Credit Agreement upon the consummation of the Merger.
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 nine month period ended October 31,
1997, interest expense on the 3% Notes was $11.9 million.
The Company invested approximately $76.4 million in acquisitions,
net of cash acquired, during the nine months ended October 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
$52.3 million for the nine months ended October 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 nine months ended October 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.
On October 29, 1997, the Company entered into an agreement to
sell Interval for approximately $200 million, subject to certain
adjustments. The agreement contemplates that the Company will
continue to provide existing services to Interval's developers
and members. The sale of Interval is being proposed to address
FTC concerns regarding the impact of the Merger on the timeshare
exchange business. The consummation of the sale is subject to
customary conditions as well as the Company and HFS having entered
into a consent decree with the FTC in connection with the Merger.
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 October 31, 1997, the Company
issued the following equity securities that were not registered
under the Securities Act:
(a) On October 2, 1997, the Company issued 14,202,924 shares of
Common Stock to the shareholders of Hebdo Mag in connection with
the acquisition by the Company of all of the outstanding capital
stock of Hebdo Mag. The issuance was made pursuant to the
exemption from registration provided by Section 4(2) of the
Securities Act, as this issuance of Common Stock did not involve
a "public offering" pursuant to the Securities Act given the
limited number and scope of persons to whom the securities were
issued.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held a special meeting of its shareholders on 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 considered and approved the proposed
Merger of the Company and HFS (and related transactions
contemplated thereby) and the Company's 1997 Stock Incentive
Plan. The results of such matters are as follows:
Proposal 1: To approve the proposed Merger of the Company and HFS
(and related transactions contemplated thereby).
Results: For Against Abstain
280,653,487 630,695 911,958
Proposal 2: To approve the Company's 1997 Stock Incentive Plan.
Results: For Against Abstain
214,725,702 65,934,965 1,535,472
ITEM 5. OTHER INFORMATION
On May 27, 1997, the Company entered into an agreement to merge
with HFS. The consummation of this Merger is subject to certain
customary closing conditions, and has been approved by the
shareholders of both companies. See Note 2 to Condensed
Consolidated Financial Statements for additional information
relating to the Merger including unaudited pro forma combined
condensed financial statements as of October 31, 1997 and for
the three and nine months ended October 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).*
10.1-10.21 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 October 31, 1997, the Company
filed the following Current Reports on Form 8-K:
(1) Current Report on Form 8-K, filed on August 15, 1997,
reporting an Item 5 ("Other Events") event and an Item 7
("Financial Statements, Pro Forma Financial Information
and Exhibits") event.
(2) Current Report on Form 8-K, filed on October 31, 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: December 15, 1997 By: WALTER A. FORBES
Walter A. Forbes - Chief Executive
Officer and Chairman of the Board
(Principal Executive Officer)
Date: December 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).*
10.1-10.21 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 October 31,
--------------------------
1997 1996
--------------------------
PRIMARY
Average shares outstanding 425,316 408,096
Net effect of dilutive stock
options and restricted stock -
based on the treasury stock method
using average market price 12,942 13,139
Assumed conversion of 3% convertible notes 17,959
---------- ----------
Total 456,217 421,235
======= =======
Net income (loss) $100,904 $(16,408)
Interest expense on 3% convertible
notes, net of tax benefit 2,553
--------- ----------
$103,457 $(16,408)
======== ========
Net income (loss) per common share $0.227 $(0.039)
===== ======
FULLY DILUTED
Average shares outstanding 425,316 408,096
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 13,704 13,155
Assumed conversion of convertible notes 20,458 3,147
--------- ----------
Total 459,478 424,398
======= =======
Net income (loss) $100,904 $(16,408)
Interest expense on convertible
notes, net of tax benefit 2,785 452
--------- ----------
$103,689 $(15,956)
======== ========
Net income (loss) per common share $0.226 $(0.038)
====== =======
CUC INTERNATIONAL INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
(In thousands, except per share amounts)
Nine Months
Ended October 31,
--------------------------
1997 1996
--------------------------
PRIMARY
Average shares outstanding 423,557 402,722
Net effect of dilutive stock options
and restricted stock - based on
the treasury stock method using
average market price 11,848 13,335
Assumed conversion of 3% convertible notes 16,961
--------- ----------
Total 452,366 416,057
======= =======
Net income $267,986 $77,442
Interest expense on 3% convertible
notes, net of tax benefit 7,350
--------- ----------
$275,336 $77,442
======== =======
Net income per common share $0.609 $0.186
====== ======
FULLY DILUTED
Average shares outstanding 423,557 402,722
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 12,137 13,568
Assumed conversion of convertible notes 19,712 4,680
--------- ----------
Total 455,406 420,970
======= =======
Net income $267,986 $77,442
Interest expense on convertible
notes, net of tax benefit 8,030 1,443
--------- ----------
$276,016 $78,885
======== =======
Net income per common share $0.606 $0.187
====== ======
5
0000723612
CUC INTERNATIONAL INC.
1,000
9-MOS
JAN-31-1998
OCT-31-1997
986,892
139,893
686,415
0
0
2,116,999
371,831
179,806
3,544,872
488,541
561,685
4,333
0
0
1,642,227
3,544,872
2,168,313
2,168,313
0
1,738,258
0
0
(3,190)
433,245
165,259
267,986
0
0
0
267,986
.61
.61
