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, 1996
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 - 262,386,160 shares as of August
31, 1996
INDEX
CUC INTERNATIONAL INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - July 31, 1996
and January 31, 1996. 3
Condensed Consolidated Statements of Income - Three months
ended July 31, 1996 and 1995. 4
Condensed Consolidated Statements of Income - Six months
ended July 31, 1996 and 1995. 5
Condensed Consolidated Statements of Cash Flows -
Six months ended July 31, 1996 and 1995. 6
Notes to Condensed Consolidated Financial Statements. 7
Independent Accountants' Review Report. 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 23
INDEX TO EXHIBITS 24
PART I. FINANCIAL INFORMATION
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
July 31, January 31,
1996 1996
Assets (Unaudited)
Current Assets
Cash and cash equivalents $297,458 $307,965
Marketable securities 73,555 63,423
Receivables 415,665 391,539
Prepaid membership materials 47,021 39,061
Prepaid expenses, deferred taxes & other 143,831 135,772
Total Current Assets 977,530 937,760
Membership solicitations in process 61,881 60,713
Deferred membership acquisition costs 277,240 273,102
Contract renewal rights and intangible
assets - net of accumulated
amortization of $109,556 and $98,362 290,772 287,804
Properties, at cost, less accumulated
depreciation of $105,089 and $94,173 86,054 80,964
Deferred income taxes and other 50,823 41,943
$1,744,300 $1,682,286
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses $138,402 $182,602
Federal and state income taxes payable 14,054 35,957
Total Current Liabilities 152,456 218,559
Deferred membership income 510,219 513,219
Convertible debt 23,428 23,389
Zero coupon convertible notes 14,410
Other 11,287 13,046
Contingencies (Note 6)
Shareholders' Equity
Common stock-par value $.01 per share;
authorized 600 million shares;
issued 254,246,281 shares
and 246,171,191 shares 2,542 2,462
Additional paid-in capital 569,506 446,528
Retained earnings 560,422 483,679
Treasury stock, at cost, 3,979,095
shares and 3,410,631 shares (52,291) (30,998)
Deferred compensation (30,485)
Unrealized (loss)gain on marketable
securities (106) 248
Foreign currency translation (2,678) (2,256)
Total Shareholders' Equity 1,046,910 899,663
$1,744,300 $1,682,286
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,
1996 1995
REVENUES
Membership and service fees $421,797 $347,759
Software 68,580 62,260
Total Revenues 490,377 410,019
EXPENSES
Operating 155,995 135,178
Marketing 171,082 145,805
General and administrative 66,479 58,973
Merger costs 28,635
Interest income, net (1,103) (1,062)
Total Expenses 421,088 338,894
INCOME BEFORE INCOME TAXES 69,289 71,125
Provision for income taxes 33,981 26,823
NET INCOME $35,308 $44,302
Net Income Per Common Share $0.14 $0.18
Weighted Average Number of
Common and Dilutive Common
Equivalent Shares Outstanding 256,806 248,767
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,
1996 1995
REVENUES
Membership and service fees $811,823 $672,873
Software 129,053 109,962
Total Revenues 940,876 782,835
EXPENSES
Operating 301,466 254,699
Marketing 337,457 284,010
General and administrative 130,577 113,379
Merger costs 28,635
Interest income, net (2,770) (2,219)
Total Expenses 795,365 649,869
INCOME BEFORE INCOME TAXES 145,511 132,966
Provision for income taxes 63,218 50,661
NET INCOME $82,293 $82,305
Net Income Per Common Share $0.32 $0.33
Weighted Average Number of
Common and Dilutive Common
Equivalent Shares Outstanding 255,084 247,542
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 1996 1995
OPERATING ACTIVITIES:
Net income $82,293 $82,305
Adjustments to reconcile net income to net
cash provided by operating activities:
Membership acquisition costs (235,308) (186,090)
Amortization of membership
acquisition costs 242,431 195,203
Deferred membership income (14,499) (18,283)
Membership solicitations in process (1,168) (6,184)
Amortization of contract renewal
rights and excess cost 11,744 10,325
Deferred income taxes 6,734 13,984
Amortization of original issue
discount on convertible notes 1,291 832
Depreciation 13,116 8,583
Changes in working capital items, net of acquisitions:
Increase in receivables (24,126) (44,781)
Increase in prepaid membership
materials (7,960) (7,938)
Increase in prepaid expenses other
current assets (16,453) (12,024)
Net decrease in accounts payable
and accrued expenses and federal
and state income taxes payable (30,286) (25,533)
Other, net (16,028) (8,597)
Net cash provided by operating activities 11,781 1,802
INVESTING ACTIVITIES:
Proceeds from matured marketable securities 34,204 29,916
Purchases of marketable securities (44,336) (30,177)
Acquisitions, net of cash acquired (14,841) (59,256)
Acquisitions of properties (17,839) (18,230)
Net cash used in investing activities (42,812) (77,747)
FINANCING ACTIVITIES:
Issuance of Common Stock 18,537 14,663
Repayments of long-term obligations, net 1,987 (5)
Equity distributions (60)
Net cash provided by financing activities 20,524 14,598
Net decrease in cash and cash equivalents (10,507) (61,347)
Cash and cash equivalents at beginning of
period 307,965 263,098
Cash and cash equivalents at end of period $297,458 $201,751
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, 1996 are not necessarily indicative of the results that
may be expected for the year ending January 31, 1997. 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, 1996. The condensed consolidated
financial statements at July 31, 1996 and for the six months
ended July 31, 1996 and 1995 are unaudited, but have been
reviewed by independent accountants and their report is included
herein. All periods presented reflect the Company's
reclassifications of deferred membership acquisition costs
(previously classified as an offset to deferred membership
income) and membership solicitations in process (previously
classified as a current asset) to noncurrent assets.
NOTE 2 -- MERGERS AND ACQUISITIONS
During July 1996 the Company acquired all of the outstanding
capital stock of Davidson & Associates, Inc. ("Davidson") for a
purchase price of approximately $1 billion, which was satisfied
by the issuance of approximately 30.1 million shares of the
Company's common stock, par value $.01 per share ("Common
Stock"). Also during July 1996 the Company acquired all of the
outstanding capital stock of Sierra On-Line, Inc. ("Sierra") for
a purchase price of approximately $858 million, which was
satisfied by the issuance of approximately 25.6 million shares of
Common Stock. Davidson and Sierra develop, publish and
distribute educational and entertainment software for home and
school use. The mergers with Davidson and Sierra have been
accounted for in accordance with the pooling-of-interests method
of accounting and, accordingly, the accompanying interim
consolidated financial statements have been retroactively
adjusted as if Davidson, Sierra and the Company had operated as
one since inception.
The following represents revenues and net income of the Company
and Davidson and Sierra for the six months ended July 31, 1995
and the last complete interim period preceding the mergers
(unaudited, in thousands).
Three
months Six months
ended ended July
April 30, 31, 1995
1996
Revenues:
The Company $390,026 $672,873
Davidson and
Sierra 60,473 109,962
---------- ----------
$450,499 $782,835
======= =======
Net Income
(Loss):
The Company $48,250 $77,738
Davidson and
Sierra (1,265) 4,567
---------- ----------
$46,985 $82,305
======= =======
Davidson and Sierra previously used the fiscal year-ends December
31 and March 31, respectively, for their financial reporting. To
conform to the Company's January 31 fiscal year-end, Davidson's
operating results for January 1996 have been excluded from the
six months ended July 31, 1996 operating results in the
accompanying financial statements. In addition, Sierra's
operating results for February and March 1996 have been included
in the operating results for the six months ended July 31, 1996
in the accompanying financial statements and for the year ended
January 31, 1996. The above-mentioned excluded and duplicated
periods have been adjusted by a $5.7 million charge to retained
earnings at July 31, 1996.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 2 -- MERGERS AND ACQUISITIONS (continued)
In connection with the Davidson and Sierra mergers, the Company
charged $28.6 million ($25.1 million or $.10 per common share
after-tax effect) to operations in the three months ended July
31, 1996 for merger costs. Such costs are non-recurring and are
comprised primarily of transaction costs, other professional fees
and integration costs.
NOTE 3 -- SHAREHOLDERS' EQUITY
For the three and six months ended July 31, 1996, $14.7 million
and $14.9 million principal of zero coupon convertible notes were
converted into 2.2 million shares and 2.3 million shares of
Common Stock, respectively, and the related unamortized original
issue discount ($64,000 and $68,000, 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.
The Company's fiscal 1990 recapitalization included establishment
of a restricted stock plan designed to compensate and retain key
employees of the Company. During July 1996, 910,000 restricted
shares of Common Stock were granted with a fair value on the date
of grant of $30.5 million, which amount was deducted from
shareholders' equity and is being amortized over the vesting
period.
Net income per share, assuming the conversions of the zero coupon
convertible notes during the six months ended July 31, 1996
occurred at the beginning of such period, would not differ
significantly from the Company's actual earnings per share for
such period.
NOTE 4 -- SOFTWARE RESEARCH AND DEVELOPMENT COSTS AND COSTS OF
SOFTWARE REVENUE
Software research and development costs are included in operating
expenses and aggregated $15.3 million and $13.5 million for the
three months ended July 31, 1996 and 1995, respectively, and
$30.2 million and $24.3 million for the six months ended July 31,
1996 and 1995, respectively. Costs of software revenue are
included in operating expenses and aggregated $21.1 million and
$28.4 million for the three months ended July 31, 1996 and 1995,
respectively, and $45.9 million and $47.9 million for the six
months ended July 31, 1996 and 1995, respectively.
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.
NOTE 6 -- CONTINGENCIES - IDEON
During August 1996, the Company acquired Ideon (as defined and
described in Note 7). At July 31, 1996, Ideon was defending or
prosecuting claims in thirteen complex lawsuits, twelve of which
involved Peter Halmos, former Chairman of the Board and Executive
Management Consultant to SafeCard, and various parties related to
him as adversaries. Peter Halmos is also a plaintiff in three
other lawsuits, one against a former officer, one against a
director of Ideon and one against SafeCard's outside counsel, in
which neither SafeCard nor Ideon have been named as defendant.
The thirteen cases in which Ideon or its subsidiaries is a party
are as follows:
A suit initiated by Peter Halmos, related entities, and Myron
Cherry (a former lawyer for SafeCard) in April 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' claims
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 declatory
judgment action filed by Ideon in Delaware Chancery Court.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 6 -- CONTINGENCIES - IDEON (continued)
A suit which seeks monetary damages and certain equitable relief
filed by SafeCard in August 1993 in Laramie County Circuit Court
in Wyoming against Peter Halmos and related entities alleging
that Peter Halmos dominated and controlled SafeCard, breached his
fiduciary duties to SafeCard, and misappropriated material non-
public information to make $48 million in profits on sales of
SafeCard stock. In March 1994, Mr. Halmos and related entities
filed a counterclaim in which claims were made of conspiracy in
restraint to trade, monopolization and attempted monopolization,
unfair competition and restraint of trade, breach of contract for
indemnity and intentional infliction of emotional distress.
SafeCard's motion to sever the conspiracy, monopolization and
restraint of trade claims was granted in May 1994. The claims for
the conspiracy, monopolization, restraint of trade and unfair
competition were dismissed without prejudice in June 1994. On
April 12, 1995, the trial court granted the motion of Mr. Halmos
and certain related entities to amend their counterclaims. The
amended counterclaims include claims for indemnification for
legal expenses incurred in the action and a claim that SafeCard's
contract with CreditLine should be rescinded. On April 19, 1995,
the trial court granted Mr. Halmos' motion for summary judgment
that certain of SafeCard's claims against him were barred by the
statute of limitation. On March 14, 1996, the Wyoming Supreme
Court reversed the trial court's ruling that certain of
SafeCard's claims were barred by the statute of limitations.
Pursuant to the Court's order of July 31, 1996, the action has
been abated to permit the parties to engage in settlement
negotiations.
A suit seeking monetary damages by Peter Halmos, purportedly in
his name and in the name of CreditLine Corporation and Continuity
Marketing Corporation against SafeCard, one of its officers and
three of Ideon's directors in United States District Court in the
Southern District of Florida, in September 1994 purporting to
state various tort claims, state and federal antitrust claims and
claims of copyright infringement. The claims principally relate
to the allegation by Peter Halmos and his companies that SafeCard
has taken action to prevent him from being a successful
competitor. All discovery in the case has been stayed pending a
ruling on a motion to dismiss filed by SafeCard, its officer and
Ideon's directors. On August 16, 1995, the United States
Magistrate Judge filed a Report and Recommendation that the case
be dismissed. The parties have filed various beliefs and
memoranda in response to this Report. On January 4, 1996, the
Magistrate recommended ruling that the statute of limitations was
tolled during pendency of the case in federal court and the
plaintiffs' state law claims were thus not time-barred.
Defendants have filed an objection to this recommendation.
A suit seeking monetary damages by Peter Halmos, as trustee for
the Peter A. Halmos revocable trust dated January 24, 1990 and
the Halmos Foundation, Inc. individually and certain other named
parties on behalf of themselves and all others similarly situated
against SafeCard, one of its officers, one of its former officers
and three of Ideon's directors in the United States District
Court for the Southern District of Florida in December 1994. This
litigation involves claims by a putative class of sellers of
SafeCard Stock for the period January 11, 1993 through December
8, 1994 for alleged violations of the federal and states
securities laws in connection with alleged improprieties in
SafeCards' investor relations program. The complaint also
includes individual claims made by Peter Halmos in connection
with the sale of stock by two trusts controlled by him. SafeCard
and the individual defendants have filed a motion to dismiss.
There has been limited discovery on class certification and
identification of "John Doe" defendant issues. Ideon filed its
opposition to the pending motion for class certification on
December 11, 1995. Plaintiffs' reply was filed March 19, 1996.
On September 9, 1996, the Court entered an order abating the
action until December 9, 1996 to permit the parties to engage in
settlement negotiations.
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 April 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 Early Warnings Service and Family
Protection Network were conceived and commercialized by, among
others, Peter Halmos and have been improperly copied. An
amendment 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.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
A suit seeking monetary damages and declaratory relief by Peter
Halmos, individually and as trustee for the Peter A. Halmos
revocable trust dated January 24, 1990 and by James B. Chambers,
individually and on behalf of himself and all others similarly
situated against Ideon, SafeCard, each of the members of Ideon's
Board of Directors, three non-board member officers of Ideon,
Ideon's previous outside auditor and one of Ideon's outside
counsel in the United States District Court for the Southern
District of Florida in June 1995. The litigation involves claims
by a putative class of purchasers of Ideon stock between December
14, 1994 and May 25, 1995 and on behalf of a separate class of
all record holders of SafeCard stock as of April 27, 1995. The
putative class claims are for alleged violations of the federal
securities laws, for alleged breach of fiduciary duty and alleged
negligence in connection with certain matters voted on at the
Annual Meeting of SafeCard stockholders held on April 27, 1995.
Ideon and the individual defendants have filed a motion to
dismiss these claims. There has been limited discovery on class
certification issues. Ideon filed its opposition to the pending
motion for class certification on December 11, 1995. Plaintiffs'
reply was filed March 19, 1996. On September 9, 1996, the Court
entered an order abating the action until December 9, 1996 to
permit the parties to engage in settlement negotiations.
A purported shareholder derivative action initiated by Michael P.
Pisano, on behalf of himself and other stockholders of SafeCard
and Ideon against SafeCard, Ideon, two of their officers, and
Ideon's directors in United States District Court, Southern
District of Florida. This litigation involves claims that the
officers and directors of SafeCard have improperly refused to
accede to Peter Halmos' litigation and indemnification demands
against Ideon. Ideon and the individual defendants have filed
motions to dismiss the first amended complaint. On September 29,
1995, Pisano filed a second amended complaint which made
additional allegations of waste and mismanagement against Ideon's
officers and directors in connection with the Family Protection
Network and PGA Tour Partner products. On December 26, 1995,
Ideon filed motions to dismiss the Second Amended Complaint. On
June 4 and June 19, 1996, orders were entered dismissing
plaintiff's claims with prejudice for failure to join an
indispensable party, Peter Halmos. On June 27, 1996, plaintiff
filed a notice of appeal.
A suit seeking monetary damages filed by Peter Halmos against
SafeCard, one of its directors, its former general counsel, and
its legal counsel in the Circuit Court, Fifteenth Judicial
Circuit, in and for Palm Beach County, Florida on August 10,
1995. This litigation involves claims by Peter Halmos for breach
of fiduciary duty and constructive fraud, fraud, and negligent
misrepresentation and is based on allegations arising out of the
resolution of a shareholder class action lawsuit in 1991 and
SafeCard's subsequent filing of an action against Halmos and his
related companies in Wyoming in 1993. Plaintiff filed an amended
complaint on June 26, 1996 and on July 11, 1996 Ideon moved to
dismiss plaintiff's amended complaint or in the alternative to
stay the action.
A declaratory judgment action by Ideon and its directors against
Peter Halmos in Delaware Chancery Court, New Castle County. This
action seeks a declaration regarding Ideon's advance
indemnification obligations, if any, to Peter Halmos in
connection with his many lawsuits. Halmos filed a motion to
dismiss on jurisdictional grounds on November 17, 1995. Ideon
filed a brief in opposition and an amended complaint on February
14, 1996. On April 22, 1996, Halmos filed an answer and amended
counterclaims in which High Plains Capital Corporation ("High
Plains") and Halmos Trading & Investment Company ("Halmos
Trading") were added as additional parties. The amended
counterclaims seek advancement and/or indemnification for Halmos,
High Plains and Halmos Trading for certain litigations and an IRS
investigation. The amended counterclaims also seek recovery
against individual defendant directors based on allegations they
willfully and unjustly denied Halmos indemnification and/or
advancement.
A suit by High Plains against Ideon, SafeCard, two of its
directors and The Dilenschneider Group, Inc. in Circuit Court in
Palm Beach County, Florida. This litigation involves claims by
High Plains for certain incentive compensation arising out of
Halmos' affiliation with SafeCard. The complaint includes claims
for breach of written agreements regarding additional services
and expenses, an alternative claim for quantum meruit based on
written agreement and a count for tortious interference with
advantageous business relationship. Ideon filed a motion for
final summary judgment. Discovery has been stayed pending a
ruling on this motion.
A suit filed by High Plains against Ideon and SafeCard in Circuit
Court in Broward County, Florida. This litigation involves claims
by High Plains for alleged breach of oral contract, alleged
violation of Florida's Uniform Trade Secrets Act, alleged
misappropriation of trade secrets and for declaration that
certain alleged trade secrets are property of High Plains. Ideon
filed motions to dismiss and to transfer on December 15, 1995.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 6 -- CONTINGENCIES - IDEON (continued)
A suit by Peter Halmos, purportedly in the name of Halmos
Trading, seeking monetary damages and specific performance
against SafeCard, one of its former officers and one of Ideon's
directors in Circuit Court in Broward County, Florida, making a
variety of claims related to the contested lease of SafeCard's
former Ft. Lauderdale headquarters. SafeCard had vacated the
building, ceased making payments related to such lease and had
filed counterclaims. On March 25, 1996, the parties entered into
a Settlement Agreement under which Ideon made a payment of $3.8
million to settle all claims currently pending or previously
brought in this lawsuit.
A suit by Lois Hekker on behalf of herself and all others
similarly situated seeking monetary damages against Ideon and its
former Chief Executive Officer in the United States District
Court for the Middle District of Florida on July 28, 1995. The
litigation involves claims by a putative class of purchasers of
Ideon stock for the period April 25, 1995 through May 25, 1995
for alleged violation of the federal securities laws in
connection with statements made about Ideon's business and
financial performance. Defendants filed a motion to dismiss on
October 2, 1995. On January 3, 1996, the court stayed all merits
discovery pending rulings on the motion to dismiss and on the
plaintiff's motion for class certification. On August 19, 1996,
the court denied the Company's motion to dismiss. The Company's
answer is currently scheduled to be filed on September 23, 1996.
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.
As noted in Note 7, the Company will establish a reserve upon the
Ideon merger related, in part, to these litigation matters. See
Note 7. The Company is also involved in certain other claims and
litigation arising from the ordinary course of business, which
are not considered material to the operations of the Company.
NOTE 7 -- SUBSEQUENT EVENT
During August 1996, the Company acquired all of the outstanding
capital stock of Ideon Group, Inc. ("Ideon"), principally a
provider of credit card enhancement services, for a purchase
price of approximately $393 million, which was satisfied by the
issuance of approximately 11 million shares of Common Stock (the
"Ideon Merger"). This transaction will be accounted for under
the pooling-of-interests method of accounting. The following
represents unaudited pro forma financial data of the Company and Ideon
(in thousands).
Three Six
Months Months
Ended Ended
July 31, July 31,
1996 1995 1996 1995
Income Statement Data:
Revenue $555,744 $466,048 $1,077,957 $896,707
Income (loss) before
income taxes 77,217 (1,756) 161,341 60,514
Net income (loss) 40,461 (2,368) 92,582 35,936
Earnings (loss)
per share $0.15 ($0.01) $0.35 $0.14
July 31, January 31,
1996 1996
Balance Sheet Data:
Current assets $1,132,645 $1,091,276
Current liabilities 264,278 332,005
Shareholders' equity 1,158,498 1,002,523
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 7 -- SUBSEQUENT EVENT (continued)
All costs related to the Ideon Merger have not been reflected in
the Company's financial statements but will be reflected in the
consolidated statements of income during the period the Ideon
Merger is completed. Such costs are non-recurring and include
integration and transaction costs as well as costs relating to
certain outstanding litigation matters (see Note 6) giving
consideration to the Company's intended approach to these
matters, which are estimated by the Company's management to
approximate $125.0 million ($80.0 million after tax effect). Most
of the reserve is related to these outstanding litigation
matters. In determining such portion, the Company estimated the
cost of settling these litigation matters. In estimating such
cost, the Company considered potential liabilities related to
these matters and the estimated cost of prosecuting and defending
them (including out-of-pocket costs, such as attorneys' fees, and
the cost to the Company of having its management involved in
numerous complex litigation matters). The Company is unable at
this time to determine the estimated timing of the future cash
outflows with respect to this liability. Although the Company has
attempted to estimate the amounts that will be required to settle
these litigation matters, there can be no assurance that the
actual aggregate amount of such settlements will not exceed the
amount of the reserve to be accrued. The reserve for these
matters will be expensed in the consolidated statement of income
subsequent to the closing of the Ideon Merger, and any subsequent
payments related to these matters will reduce the amount of the
reserve. The Company considered litigation-related costs and
liabilities, as well as integration and transaction costs, in
determining the agreed upon exchange ratio in respect of the
Ideon Merger.
In determining the amount of the reserve related to the Company's
proposed integration and consolidation efforts, the Company
estimated the significant severance costs to be accrued upon the
consummation of the Ideon Merger and costs relating to the
expected obligations for certain third-party contracts (e.g.,
existing leases and vendor agreements) to which Ideon is a party
and which are neither terminable at will nor automatically
terminated upon a change-in-control of Ideon. The Company expects
to incur significant integration costs because Ideon's credit
card registration and enhancement services are substantially
similar to the Company's credit card registration and enhancement
services. All of the business activities related to the
operations performed by Ideon's Jacksonville, Florida office were
transferred to the Company's Comp-U-Card Division in Stamford,
Connecticut upon the consummation of the Ideon Merger. The
Company also expects that there will be additional consolidation
affecting other parts of Ideon's business that are substantially
the same as the Company's existing businesses. The Company does
not expect any loss in revenue as a result of these integration
and consolidation efforts.
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, 1996, the related
condensed consolidated statement of income for the three-month
and six-month periods ended July 31, 1996 and 1995, and the
related condensed consolidated statement of cash flows for the
six-month periods ended July 31, 1996 and 1995. These financial
statements are the responsibility of the CompanyOs 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 previously audited and reported on the consolidated balance
sheet of CUC International Inc. as of January 31, 1996, prior to
the restatement for the fiscal 1997 poolings of interests with
Davidson & Associates, Inc. ("Davidson") and Sierra On-Line, Inc.
("Sierra") described in Note 2 to the condensed consolidated
financial statements. The balance sheets of Davidson and Sierra
included in the January 31, 1996 consolidated balance sheet were
audited and reported on seperately by other auditors. We have
also audited, as to combination only, the consolidated balance
sheet as of January 31, 1996, after restatement for the fiscal
1997 poolings of interests with Davidson and Sierra; in our
opinion, such consolidated balance sheet has been properly
combined on the basis described in Note 2 to the condensed
consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance as of January 31, 1996, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from
which is has been derived.
ERNST & YOUNG LLP
September 4, 1996
Stamford, Connecticut
ITEM 2.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended July 31, 1996 vs.
Three Months Ended July 31, 1995
The Company's overall membership base continues to grow at a
rapid rate (from 38 million members at July 31, 1995 to 49.5
million members at July 31, 1996), which is the largest
contributing factor to the 21% increase in membership revenues
(from $347.8 million for the quarter ended July 31, 1995 to
$421.8 million for the quarter ended July 31, 1996). While the
overall membership base increased by approximately 1.4 million
members during the quarter, the average annual fee collected for
the Company's membership services increased by less than 1%. The
Company divides its memberships into three categories:
individual, wholesale and discount program memberships.
Individual memberships consist of members that pay directly for
the services and the Company pays for the marketing costs to
solicit the member primarily using direct marketing techniques.
Wholesale memberships include members that pay directly for the
services to their sponsor and the Company does not pay for the
marketing costs to solicit the members. Discount program
memberships are generally marketed through a direct sales force,
participating merchant or general advertising and the related
fees are either paid directly by the member or the local
retailer. All of these categories share various aspects of the
Company's marketing and operating resources.
Compared to the previous year's second quarter, individual,
wholesale and discount program memberships grew by 17%, 25% and
54%, respectively, including members which came from acquisitions
completed during fiscal 1996 (members resulting from acquisitions
being "Acquired Members"). Discount program memberships have
incurred the largest increase from Acquired Members, principally
from Advance Ross Corporation, acquired in fiscal 1996, which
provides local discounts to consumers. For the quarter ended
July 31, 1996, individual, wholesale and discount coupon program
memberships represented 63%, 15% and 22% 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 10% from $62.3 million for the
quarter ended July 31, 1995 to $68.6 million for the quarter
ended July 31, 1996. Distribution revenue, which typically has
low operating margins, was down from $28.6 million to $12.6
million. The
Company's software operations continue to focus on the growth of
selling titles through retailers. Excluding distribution
revenue, core software revenue grew by 66%. Contributing to the
software revenue growth in fiscal 1997 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 impact profit margins. As a result,
operating income before interest, merger costs and taxes ("EBIT")
increased from $70.0 million to $96.8 million, and EBIT margins
improved from 17% to 20%.
Individual membership usage continues to increase, which
contributes to additional service fees and indirectly contributes
to the Company's strong renewal rate. Historically, an increase
in overall membership usage has had a favorable impact on renewal
rates. The Company records its deferred revenue net of estimated
cancellations which are anticipated in the Company's marketing
programs.
Operating costs increased 15% (from $135.2 million to $156.0
million). The major components of the Company's membership
operating costs continue to be personnel, telephone, computer
processing and participant insurance premiums (the cost of
obtaining insurance coverage for members). 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. Historically, the
Company has seen a direct correlation between providing a high
level of service to its members and improved retention.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended July 31, 1996 vs.
Three Months Ended July 31, 1995
Marketing costs decreased as a percentage of revenue (from 36% to
35%). This decrease is primarily due to improved per member
acquisition costs and an increase in renewing members. Membership
acquisition costs incurred increased 10.5% (from $102.2 million
to $112.9 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 increased by 28%
(from $98 million to $125 million). Other marketing costs
decreased by 4% (from $47.8 million to $46.1 million). These
increases 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 consumer services are combined for its various
services and, accordingly, there are no significant changes in
marketing costs by service.
The Company routinely reviews all 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 up for renewal.
General and administrative costs remained constant as a
percentage of revenue (14%). This is the result of the Company's
ongoing ability to control overhead. Interest income, net, was
$1.1 million for the three months ended July 31, 1996 and 1995.
Merger costs are non-recurring and are comprised primarily of
transaction costs, professional fees and integration costs
associated with the mergers of the Company with Davidson and
Sierra.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Six Months Ended July 31, 1996 vs.
Six Months Ended July 31, 1995
The Company's overall membership base continues to grow at a
rapid rate (from 38 million members at July 31, 1995 to 49.5
million members at July 31, 1996), which is the largest
contributing factor to the 21% increase in membership revenues
(from $672.9 million for the six months ended July 31, 1995 to
$811.8 million for the six months ended July 31, 1996). While
the overall membership base increased by approximately 3 million
members during the six months ended July 31, 1996, the average
annual fee collected for the Company's membership services
increased by 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 first six months, individual,
wholesale and discount program memberships grew by 21%, 21% and
59%, respectively, including members which came from acquisitions
completed during fiscal 1996 (members resulting from acquisitions
being "Acquired Members"). Discount program memberships have
incurred the largest increase from Acquired Members, principally
from Advance Ross Corporation, acquired in fiscal 1996, which
provides local discounts to consumers. For the six months ended
July 31, 1996, individual, wholesale and discount coupon program
memberships represented 63%, 15% and 22% 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 17% from $110 million for the six
months ended July 31, 1995 to $129.1 million for the six months
ended July 31, 1996. Distribution revenue, which typically has
low operating margins, was down from $41.7 million to $25.7
million. The
Company's software operations continue to focus on the growth of
selling titles through retailers. Excluding distribution
revenue, core software revenue grew by 57%. Contributing to the
software revenue growth in fiscal 1997 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 impact profit margins. As a result
EBIT increased from $130.7 million to $171.4 million, and EBIT
margins improved from 17% to 18%.
Individual membership usage continues to increase, which
contributes to additional service fees and indirectly contributes
to the Company's strong renewal rate. Historically, an increase
in overall membership usage has had a favorable impact on renewal
rates. The Company records its deferred revenue net of estimated
cancellations which are anticipated in the Company's marketing
programs.
Operating costs increased 18% (from $254.7 million to $301.5
million). The major components of the Company's membership
operating costs continue to be personnel, telephone, computer
processing and participant insurance premiums (the cost of
obtaining insurance coverage for members). 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. Historically, the
Company has seen a direct correlation between providing a high
level of service to its members and improved retention.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Six Months Ended July 31, 1996 vs.
Six Months Ended July 31, 1995
Marketing costs remained constant as a percentage of revenue
(36%). This is primarily due to maintained per member
acquisition costs and an increase in renewing members.
Membership acquisition costs incurred increased 26% (from $186.1
million to $235.3 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 increased by 24%
(from $195.2 million to $242.4 million). Other marketing costs
increased by 7% (from $88.8 million to $95.1 million). These
increases 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 consumer services are combined for its various
services and, accordingly, there are no significant changes in
marketing costs by service.
The Company routinely reviews all 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 up for renewal.
General and administrative costs remained constant as a
percentage of revenue (14%). This is the result of the Company's
ongoing ability to control overhead. Interest income, net,
increased from $2.2 million to $2.8 million primarily due to the
increased level of cash generated by the Company for investment.
Merger costs are non-recurring and are comprised primarily of
transaction costs, professional fees and integration costs
associated with the mergers of the Company with Davidson and
Sierra.
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, 1996 49,450,000 2,970,000
Year Ended January 31, 1996 46,480,000 12,630,000*
Six Months Ended July 31, 1995 38,025,000 4,175,000**
Year Ended January 31, 1995 33,850,000 3,000,000
Quarter Ended July 31, 1996 49,450,000 1,435,000
Quarter Ended July 31, 1995 38,025,000 1,175,000
*Includes approximately 8 million Acquired Members.
**Includes approximately 2.1 million Acquired Members.
The membership acquisition costs incurred applicable to obtaining
a new member, for memberships other than coupon book memberships,
generally approximate the initial membership fee. Initial
membership fees for coupon book memberships generally exceed the
membership acquisition costs incurred applicable to obtaining a
new member.
Membership cancellations processed by certain of the Company's
clients report membership information only on a net basis.
Accordingly, the Company does not receive actual numbers of gross
additions and gross cancellations for certain types of
memberships. In calculating the number of members, the Company
has deducted its best estimate of cancellations which may occur
during the trial membership periods offered in its marketing
programs. Typically these periods range from one to three
months.
Liquidity And Capital Resources; Inflation; Seasonality
Funds for the Company's operations and acquisitions have been
provided through cash flow from operations. The Company also has
a credit agreement, dated March 26, 1996, with certain 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 (the "Credit Agreement"). The
Credit Agreement provides for a $500 million revolving credit
facility with a variety of different types of loans available
thereunder. The Credit Agreement contains certain customary
restrictive covenants including, without limitation, financial
covenants and restrictions on certain corporate transactions, and
also contains various event of default provisions including,
without limitation, defaults arising from certain changes in
control of the Company. The amount of borrowings available to
the Company under the Credit Agreement was $500 million at July
31, 1996, as there were no borrowings under the Credit Agreement
at that date. The Credit Agreement is scheduled to expired March
26, 2001.
In fiscal 1996, Sierra entered into an unsecured bank line of
credit that provides for borrowing of up to $10 million, expiring
August 31, 1996. The line contains covenants requiring Sierra to
maintain certain financial ratios and minimum balances in cash
and cash equivalents. There have been no borrowings by Sierra
under this line of credit to date. This line of credit expired
August 31, 1996.
All costs related to the Ideon Merger have not been reflected in
the Company's financial statements but will be reflected in the
consolidated statement of income during the period the Ideon
Merger is completed. Such costs are non-recurring and include
integration and transaction costs as well as costs relating to
certain outstanding litigation matters (see Note 6 to the
condensed consolidated financial statements) giving consideration
to the Company's intended approach to these matters, which are
estimated by the Company's management to approximate $125.0
million ($80.0 million after tax effect). Most of the reserve is
related to these outstanding litigation matters. In determining
such portion, the Company estimated the cost of settling these
litigation matters. In estimating such cost, the Company
considered potential liabilities related to these matters and the
estimated cost of prosecuting and defending them (including out-
of-pocket costs, such as attorneys' fees, and the cost to the
Company of having its management involved in numerous complex
litigation matters). The Company is unable at this time to
determine the estimated timing of the future cash outflows with
respect to this liability. Although the Company has attempted to
estimate the amounts that will be required to settle these
litigation matters, there can be no assurance that the actual
aggregate amount of such settlements will not exceed the amount
of the reserve to be accrued.
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 invested approximately $15 million in acquisitions,
net of cash acquired, during the six months ended July 31, 1996.
These 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 flow from
operations and the Credit Agreement will be sufficient to achieve
its current long-term objectives.
The Company does not anticipate any material capital expenditures
for the next year. Total capital expenditures were $18 million
for the six months ended July 31, 1996.
The Company intends to continue to review potential acquisitions
that it believes would enhance the Company's growth and
profitability. Any acquisitions paid for 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
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 season.
For the six months ended July 31, 1996, the Company's
international businesses represented less than 5% 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.
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).*
10.1-10.20 Management Contracts, Compensatory Plans and
Arrangements
10.1 Agreement with E. Kirk Shelton, dated as of May
15, 1996.
10.2 Agreement with Christopher K. McLeod, dated as of
May 15, 1996.
10.3 Amended and Restated Employment Contract with
Walter A. Forbes, dated as of May 15, 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 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).*
10.7 Employment Agreement with Robert M. Davidson,
dated July 24, 1996.
10.8 Employment Agreement with Janice G. Davidson,
dated July 24, 1996.
10.9 Non-Competition Agreement with Robert M. Davidson,
dated July 24, 1996.
10.10 Non-Competition Agreement with Janice G.
Davidson, dated July 24, 1996.
10.11 Employment Agreement with Kenneth A.
Williams, dated July 24, 1996.
10.12 Non-Competition Agreement with Kenneth A.
Williams, dated July 24, 1996.
10.13 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).*
10.14 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).*
10.15 Form of Director Stock Option for 1994
Directors Stock Option Plan, as amended (filed as
Exhibit 10.11 to the Company's Form 10-Q for the period
ended April 30, 1996).*
10.16 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).*
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
10.17 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).*
10.18 1992 Directors Stock Option Plan, as amended
(filed as Exhibit 10.14 to the Company's Form 10-Q for
the period ended April 30, 1996).*.
10.19 1994 Directors Stock Option Plan, as amended
(filed as Exhibit 10.15 to the Company's Form 10-Q for
the period ended April 30, 1996).*.
10.20 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).*
10.21 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).*
10.22 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).*
10.23 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).*
10.24 Amendment No.1 dated as of July 24, 1996,
among Davidson & Associates, Inc., CUC International
Inc. and Stealth I Acquisition Corp. (filed as Exhibit
2.2 to the Company's Report on Form 8-K filed August 5,
1996).*
10.25 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).*
10.26 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).*
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
10.27 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).*
10.28 Registration Rights Agreement dated July 24,
1996, among CUC International Inc. and the other
parties signatory thereto (filed as Exhibit 10.1 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
April 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).*
11. Statement re: Computation of Per Share Earnings
(Unaudited)
15 Letter re: Unaudited Interim Financial
Information
27 Financial data schedule
(b) During the quarter ended July 31, 1996, the Company filed
the following Current Reports on Form 8-K:
None.
*Incorporated by reference
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CUC INTERNATIONAL INC.
(Registrant)
Date: September 16, 1996 By: WALTER A. FORBES
Walter A. Forbes - Chief
Executive Officer and Chairman
of the Board (Principal
Executive Officer)
Date: September 16, 1996 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).*
10.1-10.20 Management Contracts, Compensatory
Plans and Arrangements
10.1 Agreement with E. Kirk Shelton, dated as
of May 15, 1996.
10.2 Agreement with Christopher K. McLeod,
dated as of May 15, 1996.
10.3 Amended and Restated Employment Contract
with Walter A. Forbes, dated as of May
15, 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 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).*
10.7 Employment Agreement with Robert M.
Davidson, dated July 24, 1996.
10.8 Employment Agreement with Janice G.
Davidson, dated July 24, 1996.
10.9 Non-Competition Agreement with
Robert M. Davidson, dated July 24, 1996.
10.10 Non-Competition Agreement
with Janice G. Davidson, dated July 24,
1996.
10.11 Employment Agreement with
Kenneth A. Williams, dated July 24, 1996.
10.12 Non-Competition Agreement with Kenneth A.
Williams, dated July 24, 1996.
10.13 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).*
10.14 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).*
10.15 Form of Director Stock Option for 1994
Directors Stock Option Plan, as amended
(filed as Exhibit 10.11 to the Company's
Form 10-Q for the period ended April 30,
1996).*
INDEX TO EXHIBITS
Exhibit
No. Description
Page
10.16 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).*
10.17 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).*
10.18 1992 Directors Stock Option Plan, as
amended (filed as Exhibit 10.14 to the
Company's Form 10-Q for the period ended
April 30, 1996).*.
10.19 1994 Directors Stock Option Plan, as
amended (filed as Exhibit 10.15 to the
Company's Form 10-Q for the period ended
April 30, 1996).*.
10.20 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).*
10.21 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).*
10.22 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).*
10.23 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).*
10.24 Amendment No.1 dated as of July 24, 1996,
among Davidson & Associates, Inc., CUC
International Inc. and Stealth I
Acquisition Corp. (filed as Exhibit 2.2
to the Company's Report on Form 8-K filed
August 5, 1996).
10.25 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).*
10.26 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).*
10.27 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).*
10.28 Registration Rights Agreement dated July
24, 1996, among CUC International Inc.
and the other parties signatory thereto
(filed as Exhibit 10.1 to the Company's
Report on Form 8-K filed August 5,
1996).*
INDEX TO EXHIBITS
Exhibit
No. Description
Page
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
April 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).*
11 Statement re: Computation of Per Share
Earnings (Unaudited)
15 Letter re: Unaudited Interim Financial
Information
27 Financial data schedule
*Incorporated by reference