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, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 1-10308
CUC International Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-0918165
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
707 Summer Street 06901
Stamford, Connecticut (Zip Code)
(Address of principal executive offices)
(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 - 178,559,716 shares as of August 25, 1995
INDEX
CUC INTERNATIONAL INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - July 31, 1995
and January 31, 1995.
Condensed Consolidated Statements of Income -
Three and Six months ended July 31, 1995 and 1994.
Condensed Consolidated Statements of Cash Flows -
Three and Six months ended July 31, 1995 and 1994.
Notes to Condensed Consolidated Financial Statements.
Independent Accountants' Review Report.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
INDEX TO EXHIBITS
PART I. FINANCIAL INFORMATION
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
July 31, Jan. 31,
1995 1995
(Unaudited)
Assets ----------- ---------
Current Assets
Cash and cash equivalents $135,204 $180,648
Receivables 224,355 188,185
Membership solicitations in process 51,820 45,636
Prepaid membership materials 35,801 26,503
Prepaid expenses, deferred taxes and other 82,981 62,929
------- -----
Total Current Assets 530,161 503,901
Contract renewal rights and intangible assets -
net of accumulated amortization of $80,565 and
$71,646 264,560 195,688
Properties, at cost, less accumulated depreciation
of $60,697 and $48,918 47,690 35,089
Deferred income taxes 4,127 16,778
Other 23,676 16,696
-------- ------
$870,214 $768,152
======= =======
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses
and federal and state income taxes payable $102,744 $109,489
-------- ------
Total Current Liabilities 102,744 109,489
Deferred membership income, net 194,261 197,010
Zero coupon convertible notes - net of unamortized
original issue discount of $1,434 and $2,507 14,031 15,046
Other 4,292 3,285
Shareholders' Equity
Common stock-par value $.01 per share;
authorized 400 million shares and 200
million shares; issued 181,309,664 shares
4sssharesharesan174,538,445 shares
and 174,538,445 shares 1,813 1,745
Additional paid-in capital 264,184 216,286
Retained earnings 305,514 235,796
Treasury stock, at cost, 3,008,859 shares and
2,757,894 shares (16,625) (10,505)
-------- ------
Total Shareholders' Equity 554,886 443,322
-------- ------
$870,214 $768,152
======= =======
See notes to condensed consolidated financial
statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended
July 31,
1995 1994
--------- ---------
REVENUES
Membership and service fees $314,603 $253,319
Other 1,364 1,624
--------- -------
Total Revenues 315,967 254,943
EXPENSES
Operating 83,250 69,150
Marketing 125,952 103,436
General and administrative 45,487 36,359
Interest (income) expense, net and amort.
of restricted stock compensation (128) 601
--------- -------
Total Expenses 254,561 209,546
--------- -------
INCOME BEFORE INCOME TAXES 61,406 45,397
Provision for income taxes 23,236 17,434
--------- -------
NET INCOME $38,170 $27,963
======= ========
Net Income Per Common Share $0.21 $0.16
======= ========
Weighted Average Number of
Common and Dilutive Common
Equivalent Shares Outstanding 185,203 175,962
======= ========
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,
1995 1994
--------- ---------
REVENUES
Membership and service fees $613,275 $496,170
Other 2,900 3,035
--------- -------
Total Revenues 616,175 499,205
EXPENSES
Operating 163,797 136,174
Marketing 244,657 201,408
General and administrative 90,189 72,061
Interest (income)expense, net and amort.
of restricted stock compensation (128) 912
--------- -------
Total Expenses 498,515 410,555
--------- -------
INCOME BEFORE INCOME TAXES 117,660 88,650
Provision for income taxes 44,770 34,086
--------- -------
NET INCOME $72,890 $54,564
======= ========
Net Income Per Common Share $0.40 $0.31
======= ========
Weighted Average Number of
Common and Dilutive Common
Equivalent Shares Outstanding 184,440 175,887
======= =======
See notes to condensed consolidated financial
statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (UNAUDITED)
(In thousands)
JULY 31,
SIX MONTHS ENDED 1995 1994
OPERATING ACTIVITIES: -------- --------
Net income $72,890 $54,564
Adjustments to reconcile net income to
net cash provided by operating activities:
Membership acquisition costs (186,090) (159,638)
Amortization of membership acquisition costs 195,203 171,219
Deferred membership income (19,938) (23,649)
Amortization of contract renewal rights and
excess cost 8,937 7,038
Deferred income taxes 13,927 12,826
Amortization of original issue discount on
convertible notes 832 816
Amortization of restricted stock compensation 303
Depreciation 5,753 4,185
-------- ------
91,514 67,664
Changes in working capital items, net of
acquisitions:
Increase in receivables (24,175) (16,217)
Increase in membership solicitations in
process (6,184) (2,071)
Increase in prepaid membership materials (7,265) (6,188)
Increase in prepaid expenses (14,548) (13,466)
Net decrease in accounts payable and
accrued expenses and federal
and state income taxes payable (28,623) (7,253)
Other, net (7,944) (1,240)
-------- ------
Net cash provided by operating activities 2,775 21,229
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (49,674) (1,133)
Acquisitions of properties (12,125) (5,978)
-------- ------
Net cash used in investing activities (61,799) (7,111)
FINANCING ACTIVITIES:
Issuance of Common Stock 13,580 6,735
-------- ------
Net cash provided by financing activities 13,580 6,735
-------- ------
Net (decrease) increase in cash and cash (45,444) 20,853
equivalents
Cash and cash equivalents at beginning of period 180,648 116,937
-------- ------
Cash and cash equivalents at end of period $135,204 $137,790
======= =======
See notes to condensed consolidated financial
statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six months ended July 31, 1995 are not necessarily
indicative of the results that may be expected for the year ending January
31, 1996. For further information, refer to the financial statements and
footnotes thereto included in the Company's Form 10-K filing for the year
ended January 31, 1995. The condensed consolidated financial statements at
July 31, 1995 and for the three and six months ended July 31, 1995 and 1994
are unaudited, but have been reviewed by independent accountants and their
report is included herein.
NOTE 2 -- DEFERRED MEMBERSHIP INCOME, NET
Deferred membership income included in the condensed consolidated balance
sheets is comprised of the following (in thousands):
July 31, January 31,
1995 1995
---------- -----------
Deferred membership income $ 410,514 $ 408,426
Less unamortized membership
acquisition costs (216,253) (211,416)
----------- -----------
Deferred membership income, net $ 194,261 $ 197,010
=========== ===========
NOTE 3 -- MERGER AND ACQUISITIONS
During February 1995, the Company acquired all of the outstanding capital
stock of Welcome Wagon International, Inc. ("Welcome Wagon") and
substantially all of the assets of a related entity, Gifts International,
Inc., for $19.5 million in cash. Welcome Wagon provides merchant
advertising through direct visits by its representatives to consumer
households.
During March 1995, the Company acquired all of the outstanding capital
stock of the parent of its European licensee, CUC Europe Limited, for $13
million. The purchase price was satisfied by the payment of $12 million in
cash and the issuance of 42,147 shares of the Company's common stock, par
value $.01 per share ("Common Stock") (fair value of approximately $1
million).
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
During March 1995, the Company acquired all of the outstanding capital
stock of Credit Card Sentinel (U.K.) Limited ("CCS") for $22.5 million in
cash. CCS is a leading provider of credit card enhancement services, which
are generally marketed through European financial institutions.
These acquisitions were accounted for in accordance with the purchase
method of accounting and, accordingly, their results of operations have
been included in the consolidated results of operations from the respective
dates of acquisition. The results of operations for the periods prior to
acquisition were not significant to the Company's operations.
During June 1995, the Company acquired all of the outstanding capital stock
of GETKO Group Inc. ("GETKO") for approximately 3.7 million shares of
Common Stock (fair value of approximately $100 million). GETKO distributes
complimentary welcoming packages to new homeowners throughout the United
States and Canada. The acquisition was accounted for as a pooling-of-
interests; however, financial statements for periods prior to February 1,
1995 have not been restated due to immateriality.
NOTE 4 -- SHAREHOLDERS' EQUITY
On June 7, 1995, the Company's Board of Directors declared a three-for-two
split of the Common Stock, in the nature of a stock dividend, effective
June 30, 1995, payable to shareholders of record on June 19, 1995.
Accordingly, the financial statements and all common share and per common
share data have been retroactively adjusted to reflect the stock split.
The par value of the additional shares of Common Stock issued in connection
with the stock split was credited to Common Stock and charged to retained
earnings.
For the three and six months ended July 31, 1995, $2 million and $2.1
million principal of zero coupon convertible notes were converted into
307,362 shares and 317,039 shares of Common Stock, respectively, and the
related unamortized original issue discount ($1.79 million and $1.84
million, respectively) was charged against additional paid-in capital. The
balance of the change in additional paid-in capital and treasury stock
relates to stock option activity.
Net income per share, assuming the conversions of the zero coupon
convertible notes occurred at the beginning of the periods, would not
differ significantly from the Company's actual earnings per share for the
three and six month periods ended July 31, 1995.
NOTE 5 -- INCOME TAXES
The Company's effective tax rate differs from the Federal statutory rate
principally because of state income taxes and non-deductible amortization
of the excess of cost over net assets acquired.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
NOTE 6 -- CONTINGENCIES
There are various claims and tax matters pending against the Company which,
in the opinion of management, will not have a material adverse effect on
the Company's consolidated financial position or results of operations.
NOTE 7 -- SUBSEQUENT EVENT
During August 1995, the Company announced that it had entered into an
agreement to acquire by merger all of the outstanding capital stock of
North American Outdoor Group, Inc. ("NAOG") for approximately 1.5 million
shares of Common Stock (fair value of approximately $52 million). NAOG is
a privately-held hunting, fishing and handyman membership organization.
The acquisition, which will be accounted for as a pooling-of-interests, is
subject to customary closing conditions, and is expected to be completed
during September 1995.
Independent Accountants' Review Report
Shareholders and Board of Directors
CUC International Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
CUC International Inc. as of July 31, 1995, and the related condensed
consolidated statements of income and cash flows for the three-month and
six-month periods ended July 31, 1995 and 1994. These financial statements
are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data, and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, which will be performed for the full year with the objective of
expressing an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial
statements referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of CUC International Inc. as of
January 31, 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for the year then ended, not presented
herein, and in our report dated March 21, 1995, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance
sheet as of January 31, 1995, is fairly stated, in all material respects,
in relation to the consolidated balance sheet from which it has been
derived.
ERNST & YOUNG LLP
Stamford, Connecticut
August 29, 1995
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended July 31, 1995 vs.
Three Months Ended July 31, 1994
The Company's overall membership base continues to grow at a rapid rate
(from 32.3 million members at July 31, 1994 to 38 million members at July
31, 1995), which is the largest contributing factor to the 24% increase in
revenues (from $254.9 million for the quarter ended July 31, 1994 to $316
million for the quarter ended July 31, 1995). While the overall membership
base increased by 1.2 million members during the quarter (of which
approximately .4 million members came from an acquisition completed during
the quarter ("Acquired Members")), the average annual fee collected for the
Company's membership services increased by less than 1%. The change in the
average annual fee is principally due to the addition of Acquired Members
at a lower average annual fee. The Company divides its memberships into
three categories: individual, wholesale and discount coupon program
memberships. All of these categories share various aspects of the
Company's marketing and operating resources. Compared to the previous
year's second quarter, individual, wholesale and discount coupon program
memberships grew by 23%, 9% and 16%, respectively. For the quarter ended
July 31, 1995, individual, wholesale and discount coupon program
memberships represented 70%, 13% and 17% of revenues, respectively. The
Company maintains a flexible marketing plan so that it is not dependent on
any one service for the future growth of the total membership base.
As the Company's services continue to mature, a greater percentage of the
total individual membership base is in its renewal years. This results in
increased profit margins for the Company due to the significant decrease in
certain marketing costs incurred on renewing members. As a result,
operating income before interest, amortization of restricted stock
compensation, and taxes ("EBIT") increased from $46 million to $61.3
million, and EBIT margins improved from 18% to 19%. The Company has not
experienced any difficulty in acquiring or renewing members in the current
economic climate.
Individual membership usage continues to increase, which contributes to
additional service fees and indirectly contributes to the Company's strong
renewal rate. Historically, an increase in overall membership usage has
had a favorable impact on renewal rates. The Company records its deferred
revenue net of estimated cancellations which are anticipated in the
Company's marketing programs.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Three Months Ended July 31, 1995 vs.
Three Months Ended July 31, 1994
Operating costs increased 20% (from $69.2 million to $83.3 million). The
major components of the Company's operating costs continue to be personnel,
telephone, computer processing, participant insurance premiums (the cost of
obtaining insurance coverage for members) and travel cash awards. Travel
members are entitled to receive cash awards based on travel booked with the
Company. For the quarter ended July 31, 1995, these awards represent less
than 5% of total operating costs. The increase in overall operating costs
is due principally to the variable nature of many of these costs and,
therefore, the additional costs incurred to support the growth in the
membership base. Historically, the Company has seen a direct correlation
between providing a high level of service to its members and improved
retention.
Marketing costs decreased as a percentage of revenue (from 41% to 40%).
This is primarily due to improved per member acquisition costs and an
increase in renewing members. Membership acquisition costs incurred
increased 29% (from $81.3 million to $104.8 million). Marketing costs
include the amortization of membership acquisition costs and other
marketing costs, which primarily consist of membership communications and
sales expenses. Amortization of membership acquisition costs increased by
16% (from $86.3 million to $100.2 million). Other marketing costs
increased by 51% (from $17.1 million to $25.8 million). These increases
resulted primarily from the costs of servicing a larger membership base.
The marketing functions for the Company's various consumer services are
combined.
The Company routinely reviews all renewal rates and has not seen any
material change over the last year in the average renewal rate. Based on
current information, the Company does not anticipate that the average
renewal rate will change significantly. Renewal rates are calculated by
dividing the total number of renewing members not requesting a refund
during their renewal year by the total members up for renewal.
General and administrative costs remained constant as a percentage of
revenue (14%). Interest (income) expense, net and amortization of
restricted stock compensation decreased from $.6 million to ($.1 million)
primarily due to the reduced level of amortization associated with the
Company's restricted stock and zero coupon convertible notes, and the net
interest income from the increased level of cash generated by the Company
for investment.
During the first six months of fiscal 1996, the Company completed several
acquisitions (the "Acquisitions") (see Note 3 in Notes to Condensed
Consolidated Financial Statements). The operating activity of the
Acquisitions is included in both revenues and pre-tax profits for the
quarter; however, this activity is not included in the prior year's first
quarter. These acquisitions were not significant to the Company's results
of operations.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Six Months Ended July 31, 1995 vs.
Six Months Ended July 31, 1994
The Company's overall membership base continues to grow at a rapid rate
(from 32.3 million members at July 31, 1994 to 38 million members at July
31, 1995), which is the largest contributing factor to the 23% increase in
revenues (from $499.2 million for the six months ended July 31, 1994 to
$616.2 million for the six months ended July 31, 1995). While the overall
membership base increased by 4.2 million members during the six months (of
which approximately 2.1 million were Acquired Members), the average annual
fee collected for the Company's membership services increased by less than
1%. The change in the average annual fee is principally due to the
addition of Acquired Members at a lower average annual fee. The Company
divides its memberships into three categories: individual, wholesale and
discount coupon program memberships. All of these categories share various
aspects of the Company's marketing and operating resources. Compared to
the previous year's first six months, individual, wholesale and discount
coupon program memberships grew by 17%, 8% and 13%, respectively. For the
six months ended July 31, 1995, individual, wholesale and discount coupon
program memberships represented 70%, 13% and 17% of revenues, respectively.
The Company maintains a flexible marketing plan so that it is not dependent
on any one service for the future growth of the total membership base.
As the Company's services continue to mature, a greater percentage of the
total individual membership base is in its renewal years. This results in
increased profit margins for the Company due to the significant decrease in
certain marketing costs incurred on renewing members. As a result, EBIT
increased from $89.6 million to $117.5 million, and EBIT margins improved
from 18% to 19%. The Company has not experienced any difficulty in
acquiring or renewing members in the current economic climate.
Individual membership usage continues to increase, which contributes to
additional service fees and indirectly contributes to the Company's strong
renewal rate. Historically, an increase in overall membership usage has
had a favorable impact on renewal rates. The Company records its deferred
revenue net of estimated cancellations which are anticipated in the
Company's marketing programs.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Six Months Ended July 31, 1995 vs.
Six Months Ended July 31, 1994
Operating costs increased 20% (from $136.2 million to $163.8 million). The
major components of the Company's operating costs continue to be personnel,
telephone, computer processing, participant insurance premiums (the cost of
obtaining insurance coverage for members) and travel cash awards. Travel
members are entitled to receive cash awards based on travel booked with the
Company. For the six months ended July 31, 1995, these awards represent
less than 5% of total operating costs. The increase in overall operating
costs is due principally to the variable nature of many of these costs and,
therefore, the additional costs incurred to support the growth in the
membership base. Historically, the Company has seen a direct correlation
between providing a high level of service to its members and improved
retention.
Marketing costs remained constant as a percentage of revenue (40%). This
is primarily due to improved per member acquisition costs and an increase
in renewing members. Membership acquisition costs incurred increased 17%
(from $159.6 million to $186.1 million). Marketing costs include the
amortization of membership acquisition costs and other marketing costs,
which primarily consist of membership communications and sales expenses.
Amortization of membership acquisition costs increased by 14% (from $171.2
million to $195.2 million). Other marketing costs increased by 64% (from
$30.2 million to $49.5 million). These increases resulted primarily from
the costs of servicing a larger membership base. The marketing functions
for the Company's various consumer services are combined.
The Company routinely reviews all renewal rates and has not seen any
material change over the last year in the average renewal rate. Based on
current information, the Company does not anticipate that the average
renewal rate will change significantly. Renewal rates are calculated by
dividing the total number of renewing members not requesting a refund
during their renewal year by the total members up for renewal.
General and administrative costs increased as a percentage of revenue (from
14% to 15%). This is principally due to the acquisitions completed during
the six months ended July 31, 1995. Interest (income) expense, net and
amortization of restricted stock compensation decreased from $.9 million to
($.1 million) primarily due to the reduced level of amortization associated
with the Company's restricted stock and zero coupon convertible notes, and
the net interest income from the increased level of cash generated by the
Company for investment.
During the first six months of fiscal 1996, the Company completed the
Acquisitions (see Note 3 in Notes to Condensed Consolidated Financial
Statements). The operating activity of the Acquisitions is included in
both revenues and pre-tax profits for the six months ended July 31, 1995;
however, this activity is not included in the prior year's first six
months. These acquisitions were not significant to the Company's results
of operations.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Membership Information
The following chart sets forth the approximate number of members and net
additions for the respective periods.
Net New Member
Number of Additions
Period Members for the Period
Six Months Ended July 31, 1995 38,025,000 4,175,000*
Year Ended January 31, 1995 33,850,000 3,000,000
Six Months Ended July 31, 1994 32,325,000 1,475,000
Year Ended January 31, 1994 30,850,000 3,250,000
Quarter Ended July 31, 1995 38,025,000 1,175,000**
Quarter Ended July 31, 1994 32,325,000 775,000
*Includes approximately 2.1 million Acquired Members.
**Includes approximately .4 million Acquired Members.
The membership acquisition costs incurred applicable to obtaining a new
member, for memberships other than coupon book memberships, generally
approximate the initial membership fee. Initial membership fees for coupon
book memberships generally exceed the membership acquisition costs incurred
applicable to obtaining a new member.
Membership cancellations processed by certain of the Company's clients
report membership information only on a net basis. Accordingly, the
Company does not receive actual numbers of gross additions and gross
cancellations for certain types of memberships. In calculating the number
of members, the Company has deducted its best estimate of cancellations
which may occur during the trial membership periods offered in its
marketing programs. Typically these periods range from one to three
months.
Liquidity And Capital Resources; Inflation; Seasonality
Funds for the Company's operations and acquisitions have been provided
through cash flow from operations and credit facilities. The Company has a
credit agreement with General Electric Capital Corporation that currently
provides for a $100 million revolving credit facility (the "Credit
Agreement"). The amount of borrowings available to the Company under the
Credit Agreement was $100 million at July 31, 1995, as there were no
borrowings under the Credit Agreement at that date. The Credit Agreement
is scheduled to expire June 1, 1997. The Company invested approximately
$49.7 million in acquisitions, net of cash acquired, during the six months
ended July 31, 1995. These acquisitions have been integrated into the
Company's operations.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Liquidity And Capital Resources; Inflation; Seasonality (continued)
The Company is not aware of any trends, demands or uncertainties that will
have a material effect on the Company's liquidity other than those relating
to accounts receivable. The Company anticipates that cash flow from
operations and the Credit Agreement will be sufficient to achieve its
current long-term objectives. All of the assets of the Company and many of
its subsidiaries, and all of the stock of many of the Company's
subsidiaries, have been pledged to secure the Credit Agreement.
Obligations under the Credit Agreement are guaranteed by certain of the
Company's subsidiaries. The Credit Agreement contains certain customary
restrictive covenants including, without limitation, financial covenants,
as well as restrictions that preclude the payment of cash dividends on
shares of Common Stock. The Credit Agreement also contains various event
of default provisions including, without limitation, defaults arising from
certain changes in corporate structure.
The Company does not anticipate any material capital expenditures for the
next year. Total capital expenditures were $12.1 million for the six
months ended July 31, 1995.
The Company intends to continue to review potential acquisitions that it
believes would enhance the Company's growth and profitability. Any
acquisitions paid in cash will initially be financed through excess cash
flow from operations and the Credit Agreement. However, depending on the
financing necessary to complete an acquisition, additional funding may be
required.
To date, the overall impact of inflation on the Company has not been
material. Except for the cash receipts from the sale of discount coupon
memberships, the Company's business is not seasonal. Most cash receipts
from these memberships are received in the fourth quarter and, to a lesser
extent, in the first and the third quarters of each fiscal year.
For the six months ended July 31, 1995, the Company's international
businesses represented less than 1% of EBIT. To date, currency exposure
has not been a significant competitive factor at the local market operating
level. As international operations continue to expand and the number of
cross-border transactions increases, the Company intends to continue
monitoring its currency exposures closely and take prudent actions as
appropriate.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No reports on Form 8-K were filed during the quarter ended
July 31, 1995.
(b) Exhibit No.
3.1 Restated Certificate of Incorporation of the Company, as
filed November 21, 1991, as amended June 25, 1992, and as
amended June 7, 1995 (filed as Exhibit 3.1 to the Company's
Form 10-Q for the period ended April 30, 1995).*
10. Management Contracts, Compensatory Plans and Arrangements
10.1 Form of Employment Contract with E. Kirk Shelton and
Christopher K. McLeod, dated February 1, 1987, as amended
November 1, 1991 (filed as Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended January
31, 1994).*
10.2 Employment Contract with Walter A. Forbes, dated
January 1, 1987, as amended January 1, 1991, January 1, 1993
and October 1, 1993 (filed as Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended January
31, 1994) (the "Forbes Employment Agreement").*
10.3 Fourth Amendment to Forbes Employment Agreement, dated as of
June 1, 1994 (filed as Exhibit 10.3 to the Company's Form 10-
Q for the period ended July 31, 1994).*
10.4 Agreement with Cosmo Corigliano, dated February 1, 1994
(filed as Exhibit 10.6 to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1995).*
10.5 Agreement with Amy N. Lipton, dated April 1, 1987, as
amended April 21, 1993 and March 2, 1994 (filed as Exhibit
10.7 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1995).*
10.6 Form of Employee Stock Option under the 1987 Stock Option
Plan (filed as Exhibit 10.6 to the Company's Form 10-Q for
the period ended April 30, 1995).*
10.7 Form of Director Stock Option for 1990 and 1992 Directors
Stock Option Plans (filed as Exhibit 10.4 to the Company's
Annual Report for the fiscal year ended January 31, 1991, as
amended December 12, 1991 and December 19, 1991).*
10.8 Form of Director Stock Option for 1994 Directors Stock
Option Plan (filed as Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31,
1995).*
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
10.9 1987 Stock Option Plan, as amended (filed as Exhibit 10.9 to
the Company's Form 10-Q for the period ended April 30,
1995).*
10.10 1990 Directors Stock Option Plan, as amended (filed as
Exhibit 10.10 to the Company's Form 10-Q for the period
ended April 30, 1995).*
10.11 1992 Directors Stock Option Plan, as amended (filed as
Exhibit 10.11 to the Company's Form 10-Q for the period
ended April 30, 1995).*
10.12 1994 Directors Stock Option Plan (filed as Exhibit 10.14 to
the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1995).*
10.13 Restricted Stock Plan and Form of Restricted Stock Plan
Agreement (filed as Exhibit 10.24 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31,
1991, as amended December 12, 1991 and December 19, 1991).*
10.14 Amended and Restated Credit Agreement between the Company
and General Electric Capital Corporation dated June 30, 1994
(filed as Exhibit 10.12 to the Company's Form 10-Q for the
period ended July 31, 1994).*
11. Schedule re: Computation of Per Share Earnings (Unaudited)
15. Letter re: Unaudited Interim Financial Information
*Incorporated by reference
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CUC International Inc.
September 1, 1995 WALTER A. FORBES
Walter A. Forbes - Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
September 1, 1995 COSMO CORIGLIANO
Cosmo Corigliano - Senior Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
INDEX TO EXHIBITS
Exhibit
No. Description Page
3.1 Restated Certificate of Incorporation of the Company,
as filed November 21, 1991, as amended June 25, 1992,
and as amended June 7, 1995 (filed as Exhibit 3.1 to the
Company's Form 10-Q for the period ended April 30, 1995).*
10. Management Contracts, Compensatory Plans and Arrangements
10.1 Form of Employment Contract with E. Kirk Shelton and
Christopher K. McLeod, dated February 1, 1987, as amended
November 1, 1991 (filed as Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1994).*
10.2 Employment Contract with Walter A. Forbes, dated January 1,
1987, as amended January 1, 1991, January 1, 1993 and
October 1, 1993 (filed as Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1994) (the "Forbes Employment Agreement").*
10.3 Fourth Amendment to Forbes Employment Agreement, dated as
of June 1, 1994 (filed as Exhibit 10.3 to the Company's
Form 10-Q for the period ended July 31, 1994).*
10.4 Agreement with Cosmo Corigliano, dated February 1, 1994
(filed as Exhibit 10.6 to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1995).*
10.5 Agreement with Amy N. Lipton, dated April 1, 1987, as
amended April 21, 1993 and March 2, 1994 (filed as
Exhibit 10.7 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1995).*
10.6 Form of Employee Stock Option under the 1987 Stock Option
Plan (filed as Exhibit 10.6 to the Company's Form 10-Q for
the period ended April 30, 1995).*
10.7 Form of Director Stock Option for 1990 and 1992 Directors
Stock Option Plans (filed as Exhibit 10.4 to the Company's
Annual Report for the fiscal year ended January 31, 1991,
as amended December 12, 1991 and December 19, 1991).*
10.8 Form of Director Stock Option for 1994 Directors Stock
Option Plan (filed as Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the fiscal year ended
January 31, 1995).*
10.9 1987 Stock Option Plan, as amended (filed as Exhibit 10.9 to
the Company's Form 10-Q for the period ended April 30, 1995).*
INDEX TO EXHIBITS (Continued)
Exhibit
No. Description Page
10.10 1990 Directors Stock Option Plan, as amended (filed as
Exhibit 10.10 to the Company's Form 10-Q for the period
ended April 30, 1995).*
10.11 1992 Directors Stock Option Plan, as amended (filed as
Exhibit 10.11 to the Company's Form 10-Q for the period
ended April 30, 1995).*
10.12 1994 Directors Stock Option Plan (filed as Exhibit 10.14 to
the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1995).*
10.13 Restricted Stock Plan and Form of Restricted Stock Plan
Agreement (filed as Exhibit 10.24 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31,
1991, as amended December 12, 1991 and December 19, 1991).*
10.14 Amended and Restated Credit Agreement between the Company and
General Electric Capital Corporation dated June 30, 1994
(filed as Exhibit 10.12 to the Company's Form 10-Q for the
period ended July 31, 1994).*
11. Schedule re: Computation of Per Share Earnings (Unaudited)
15. Letter re: Unaudited Interim Financial Information