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 April 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 1-10308
CUC International Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-0918165
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
707 Summer Street
Stamford, Connecticut 06901
(Address of principal executive offices) (Zip Code)
(203) 324-9261
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Sections
12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan
confirmed by a court. Yes No .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Common Stock, $.01 par value - 409,578,344 shares as of May 30, 1997
INDEX
CUC INTERNATIONAL INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - April 30, 1997
and January 31, 1997. 3
Condensed Consolidated Statements of Income - Three months
ended April 30, 1997 and 1996. 4
Condensed Consolidated Statements of Cash Flows -
Three months ended April 30, 1997 and 1996. 5
Notes to Condensed Consolidated Financial Statements. 6
Independent Accountants' Review Report. 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 22
INDEX TO EXHIBITS 23
PART I. FINANCIAL INFORMATION
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
April 30, January 31,
1997 1997
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $812,164 $553,144
Marketable securities 356,831 69,139
Receivables, net of allowances 593,253 578,630
Prepaid membership materials 36,299 37,579
Prepaid expenses, deferred income
taxes and other 203,562 191,583
Total Current Assets 2,002,109 1,430,075
Membership solicitations in process 77,024 76,281
Deferred membership acquisition costs 383,418 401,564
Contract renewal rights and intangible
assets - net of accumulated amortization of
$132,301 and $126,013 427,811 366,038
Properties, at cost, less accumulated
depreciation of $136,649 and $132,090 155,699 145,620
Deferred income taxes and other 54,625 53,794
$3,100,686 $2,473,372
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses $411,036 $405,388
Federal and state income taxes 33,917 75,988
Total Current Liabilities 444,953 481,376
Deferred membership income 697,594 702,359
Convertible debt - net of unamortized
original issue discount of $7,996 and $488 565,979 23,487
Other 9,835 11,060
Contingencies (Note 5)
Shareholders' Equity
Common stock-par value $.01 per share;
authorized 600 million shares; issued
415,182,522 shares and 409,011,654 shares 4,152 4,090
Additional paid-in capital 676,132 619,532
Retained earnings 799,858 722,354
Treasury stock, at cost, 6,168,382
shares and 6,136,757 shares (57,436) (56,618)
Other (40,381) (34,268)
Total Shareholders' Equity 1,382,325 1,255,090
$3,100,686 $2,473,372
See notes to condensed consolidated financial statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended
April 30,
1997 1996
REVENUES
Membership and service fees $544,037 $455,006
Software 80,634 60,473
Total Revenues 624,671 515,479
EXPENSES
Operating 209,539 158,327
Marketing 219,793 205,202
General and administrative 86,360 70,066
Other interest income, net (8,689) (2,240)
Interest expense, 3% convertible notes 3,634
Total Expenses 510,637 431,355
INCOME BEFORE INCOME TAXES 114,034 84,124
Provision for income taxes 43,561 32,003
NET INCOME $70,473 $52,121
Net Income Per Common Share $0.17 $0.13
Weighted Average Number of
Common and Dilutive Common
Equivalent Shares Outstanding 434,006 396,665
See notes to condensed consolidated financial statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three Months Ended
April 30,
1997 1996
OPERATING ACTIVITIES:
Net income $70,473 $52,121
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Membership acquisition costs (133,110) (164,341)
Amortization of membership
acquisition costs 151,256 160,366
Deferred membership income (4,765) 13,179
Membership solicitations in process (743) (950)
Amortization of contract renewal
rights and excess cost 6,583 5,684
Deferred income taxes 4,647 (2,508)
Amortization of restricted stock and
original issue discount on convertible notes 1,939 739
Depreciation 9,119 6,925
Net loss during change in fiscal year-ends (4,268)
Changes in working capital items, net
of acquisitions:
Receivables (6,951) 3.316
Prepaid membership materials 4,153 (3,241)
Prepaid expenses and other current assets (7,026) 9,534
Accounts payable, accrued expenses and
federal & state income taxes payable (66,253) (36,114)
Product abandonment and related liabilities (7,410)
Other, net (8,038) (4,309)
Net cash provided by operating activities 21,284 28,723
INVESTING ACTIVITIES:
Proceeds from matured marketable securities 42,570 46,922
Purchases of marketable securities (330,262) (28,832)
Acquisitions, net of cash acquired (47,171) (28,932)
Acquisitions of properties (14,869) (15,575)
Net cash used in investing activities (349,732) (26,417)
FINANCING ACTIVITIES:
Issuance of Common Stock 46,567 12,984
Long-term obligations, net (1,562) 1,237
Net proceeds from the issuance of
convertible notes 542,463
Net cash provided by financing activities 587,468 14,221
Net increase in cash and cash equivalents 259,020 16,527
Cash and cash equivalents at beginning of period 553,144 333,036
Cash and cash equivalents at end of period $812,164 $349,563
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 10Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management of CUC International Inc. (the "Company"),
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The January 31, 1997
consolidated balance sheet was derived from the Company's audited financial
statements. Operating results for the three months ended April 30, 1997
are not necessarily indicative of the results that may be expected for the
year ending January 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Form 10-K filing for the year ended January 31, 1997.
The condensed consolidated financial statements at April 30, 1997 and for
the three months ended April 30, 1997 and 1996 are unaudited, but have
been reviewed by independent accountants and their report is included herein.
NOTE 2 -- MERGERS AND ACQUISITIONS
During February 1997, the Company acquired substantially all of the assets
and assumed specific liabilities of Numa Corporation ("Numa") for $73.5
million. The purchase price was satisfied by the issuance of 3.4 million
shares of the Company's common stock, par value $.01 per share ("Common
Stock"). Numa publishes personalized heritage publications and markets and
sells personalized merchandise. This acquisition was accounted for as a
pooling-of-interests; however, financial statements for periods prior to
the date of acquisition have not been restated due to immateriality.
During the quarter ended April 30, 1997, the Company acquired certain
entities for an aggregate purchase price of $48.3 million, satisfied by
the payment of $10.5 million in cash and the issuance of 1.5 million shares
of Common Stock. The excess of cost over net assets acquired resulting from
these acquisitions aggregated $68.4 million. These acquisitions were
accounted for in accordance with the purchase method of accounting and,
accordingly, the results of operations have been included in the
consolidated results of operations from the respective dates of acquisition.
The results of operations for the periods prior to the respective dates
of acquisition were not significant to the Company's operations.
Principally in connection with the Davidson & Associates, Inc ("Davidson"),
Sierra On-Line, Inc. ("Sierra") and Ideon Group, Inc. ("Ideon") mergers which
occurred during fiscal 1997, the Company charged approximately $179.9 million
($118.7 million or $.29 per common share after-tax effect) to operations as
merger, integration, restructuring and litigation charges for the year ended
January 31, 1997. Such costs in connection with the Davidson and Sierra
mergers with the Company (approximately $48.6 million) are non-recurring and
are comprised primarily of transaction costs, other professional fees and
integration costs. Such costs associated with the Company's merger with
Ideon (approximately $127.2 million) are non-recurring and include
integration and transcation costs as well as a provision relating to certain
litigation matters (see Note 5) giving consideration to the Company's
intended approach to these matters. To date, such payments amounted to
$96.0 million.
NOTE 3 -- SHAREHOLDERS' EQUITY AND NET INCOME PER COMMON SHARE
The change in common stock, additional paid-in capital and treasury stock
relates principally to acquisitions and stock option activity.
Net income per common share, assuming the conversions of subordinated
convertible notes during the three months ended April 30, 1997 occurred
at the beginning of such period, would not differ significantly from the
Company's actual earnings per share for such period.
Net income per common share includes the weighted average number of common
and common equivalent shares outstanding during the respective periods.
Common stock equivalents for the three month period ended April 30, 1997
includes the dilutive effect of the 3% convertible subordinated notes issued
February 11, 1997 using the if-converted method.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 3 -- SHAREHOLDERS' EQUITY AND NET INCOME PER COMMON SHARE (continued)
On January 31, 1998, the Company is required to adopt Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share". This new rule
requires the Company to change the method currently used to compute earnings
per share and requires restatement of all prior periods. Under the new
requirements, the dilutive effect of stock options and convertible
securities are excluded from computing primary earnings per share. The
impact of SFAS No. 128 on the calculation of primary and fully diluted
earnings per share for the quarters ended April 30, 1997 and 1996 is not
expected to be material.
NOTE 4 -- SOFTWARE RESEARCH AND DEVELOPMENT COSTS AND COSTS OF SOFTWARE
REVENUE
Software research and development costs are included in operating expenses
and aggregated $24.2 million and $14.9 million for the three months ended
April 30, 1997 and 1996, respectively. Costs of software revenue are
included in operating expenses and aggregated $29.0 million and $24.8
million for the three months ended April 30, 1997 and 1996, respectively.
NOTE 5 -- CONTINGENCIES - IDEON
At April 30, 1997, Ideon was defending or prosecuting claims in fifteen
complex lawsuits, twelve of which involved Peter Halmos, former Chairman of
the Board and Executive Management Consultant to SafeCard Services,
Incorporated ("SafeCard"), a subsidiary of Ideon, 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 fifteen cases in which Ideon or its
subsidiaries is a party to 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.
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 nonpublic 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.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 5 -- CONTINGENCIES - IDEON (continued)
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 briefs 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 SafeCard's investor
relations program. The complaint also includes individual claims made by
Peter Halmos in connection with the sale of stock by two trusts
controlled by him. SafeCard and the individual defendants have filed
a motion to dismiss. There has been limited discovery on class certification
and identification of "John Doe" defendant issues. Ideon filed its opposition
to the pending motion for class certification on December 11, 1995.
Plaintiffs' reply was filed March 19, 1996. On September 9, 1996, the Court
entered an order abating the action until December 9, 1996 to permit the
parties to engage in settlement negotiations. The parties filed a joint
status report on December 10, 1996 requesting an order abating the action
until January 24, 1997 to permit further settlement discussions.
On February 11, 1997, the Court entered an order abating the stay and
setting the case for trial beginning September 2, 1997.
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 amended
complaint filed on June 14, 1995 seeking monetary damages adds to the prior
claims certain claims by Nicholas Rubino that principally relate to the
allegation that SafeCard's Pet Registration Product was conceived by
Mr. Rubino and has been improperly copied. The Company has filed an
appropriate answer.
On June 13, 1997, the Company entered into an agreement (the "Agreement")
with Peter Halmos, the co-founder of SafeCard, which was reorganized in 1995
as Ideon. The Company acquired Ideon in August 1996. The Agreement,
which, among other matters, provides for the settlement of all of the
outstanding litigations involving Peter Halmos, SafeCard and Ideon
previously described in the Company's Form 10-K, is subject to the
confirmation of certain matters by a court in Wyoming in which certain
of these litigations are pending, and will not become effective unless and
until such confirmation is obtained. There can be no assurance that such
confirmation will be obtained, and in the event it is not, the litigation
will remain outstanding and no payments will be made to Mr. Halmos. The
Agreement calls for the dismissal with prejudice of these outstanding
litigation matters and the payment to Peter Halmos, over a six-year period,
of $70.5 million. Specifically, the Agreement requires that the Company
pay Peter Halmos one up-front payment of $13.5 million and six subsequent
annual payments of $9.5 million each, commencing at such time as the court's
confirmation may be obtained. The three class action matters involving,
among other parties, SafeCard, Ideon, the Company and certain Ideon and
SafeCard directors and officers remain pending.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 5 -- CONTINGENCIES - IDEON (continued)
A suit seeking monetary damages and declatory 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. On December 5, 1996, plaintiffs filed a motion
for leave to file an amended complaint, name additional parties (previously
named as "John Does") and include additional legal claims. The amended
complaint is a purported buyer and class action under the securities
and racketeering laws alleging Ideon and others engaged in a stock
manipulation scheme to artificially inflate the price of SafeCard/Ideon
stock between January 1993 and December 1995. On February 11, 1997,
the Court entered an order abating the stay and setting this case for
trial beginning on September 2, 1997. On February 27, 1997, the Company
filed a response in opposition to plaintiffs' motion for leave to file
an amended complaint.
A purported shareholder derivative action initiated by Michael P. Pisano,
on behalf of himself and other stockholders of SafeCard and Ideon against
SafeCard, Ideon, two of their officers, and Ideon's directors in United
States District Court, Southern District of Florida. This litigation
involves claims that the officers and directors of SafeCard have
improperly refused to accede Peter Halmos' litigation and indemnification
demands against Ideon. Ideon and the individual defendants have filed
motions to dismiss the first amended complaint. On September 29, 1995,
Pisano filed a second amended complaint which made additional
allegations of waste and mismanagement against Ideon's officers and
directors in connection with the Family Protection Network and PGA Tour
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. Plaintiff filed initial and reply briefs and Ideon
filed an answer brief. On June 6, 1997, the Appellate Court affirmed
the dismissal.
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 declatory 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. Ideon filed an answer and affirmative defenses to the
amended counterclaims on May 6, 1996.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 5 -- CONTINGENCIES - IDEON (continued)
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 merit 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.
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 filed its answer on September 30, 1996.
A suit by First Capital Partners, Thomas F. Frist III and Patricia F. Elcan
against Ideon and two of its employees in the United States District Court
for the Southern District of New York. The litigation involves claims
against Ideon, its former CEO and its Vice President of Investor Relations
for alleged material misrepresentations and omissions in connection with
announcements relating to Ideon's expected earnings per share in 1995 and
its new product sales, which included the PGA Tour Card Program, Family
Protection Network and Collections of the Vatican Museums. On July 15, 1996,
Ideon filed a motion to dismiss. The Company withdrew its motion to
dismiss and answered the complaint on December 5, 1996.
The Company established a reserve upon the consummation of the merger with
Ideon during the third quarter of fiscal 1997 related, in part, to these
litigation matters. The Company is also involved in certain other claims
and litigation arising in the ordinary course of business which are not
considered material to the financial position, operations or cash flows of
the Company. Although management used their best estimates, if the
Agreement discussed above is not confirmed by the court, there can be no
assurance that the actual aggregate amount of such settlement will not
exceed the amount accrued. Although not anticipated, the outcome of the
class action matters discussed above could also exceed the amount accrued.
NOTE 6 -- SUBSEQUENT EVENT
On May 27, 1997, the Company entered into an agreement to merge with
HFS Incorporated ("HFS") in a tax-free exchange of common shares. Under
the terms of the agreement and plan of merger with HFS, the Company plans to
exchange 2.4031 shares of Common Stock for each outstanding share of
HFS Common Stock (158.1 million shares at April 30, 1997). The consummation
of the merger is subject to certain customary closing conditions, including
the approval of the shareholders of both companies. The transaction will be
accounted for in accordance with the pooling-of-interests method of
accounting and is expected to be completed during the Fall of 1997. Pursuant
to the merger agreement, HFS shall be merged with and into CUC at the
effective time. Following the effective time, CUC shall be the surviving
corporation and shall succeed to and assume all the rights and obligations
of HFS.
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 April 30, 1997, and the related condensed
consolidated statements of income and cash flows for the three-month periods
ended April 30, 1997 and 1996. 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, 1997, 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 10, 1997, we expressed an unqualified
opinion on these consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance
sheet as of January 31, 1997, is fairly stated, in all material respects,
in relation to the consolidated balance sheet from which it has been
derived.
ERNST & YOUNG LLP
June 13, 1997
Stamford, Connecticut
ITEM 2.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended April 30, 1997 vs.
Three Months Ended April 30, 1996
The Company's overall membership base continues to grow at a rapid rate
(from 60.9 million members at April 30, 1996 to 68.6 million members at
April 30, 1997), which is the largest contributing factor to the 20%
increase in membership revenues (from $455 million for the quarter ended
April 30, 1996 to $544 million for the quarter ended April 30, 1997).
While the overall membership base increased by approximately 2.2 million
members during the quarter, the average annual fee collected for the
Company's membership services increased by approximately 3%. The Company
divides its memberships into three categories: individual, wholesale and
discount program memberships. Individual memberships consist of members
that pay directly for the services and the Company pays for the marketing
costs to solicit the member, primarily using direct marketing techniques.
Wholesale memberships include members that pay directly for the services
to their sponsor and the Company does not pay for the marketing costs to
solicit the members. Discount program memberships are generally marketed
through a direct sales force, participating merchant or general advertising
and the related fees are either paid directly by the member or the
local retailer. All of these categories share various aspects of the
Company's marketing and operating resources.
Compared to the previous year's first quarter, individual, wholesale
and discount program memberships grew by 10%, 24% and 12%, respectively.
Wholesale memberships have grown in part due to the success of the Company's
international business in Europe. For the quarter ended April 30, 1997,
individual, wholesale and discount program memberships represented 67%, 14%
and 19% of membership revenues, respectively. The Company maintains a
flexible marketing plan so that it is not dependent on any one service for
the future growth of the total membership base.
Software revenues increased 33% from $60.5 million for the quarter
ended April 30, 1996 to $80.6 million for the quarter ended April 30, 1997.
Distribution revenue, which consists principally of third-party software and
typically has low operating margins, increased 8% from $14.9 million for
the quarter ended April 30, 1996 to $16.1 million for the quarter ended
April 30, 1997. The Company's software operations continue to grow by
focusing on selling titles through retailers. Excluding distribution
revenue, core software revenue grew by 42%. Contributing to the
software revenue growth in fiscal 1998 is the availability of a larger
number of titles as well as the significant increase in the installed base
of CD-ROM personal computers.
As the Company's membership services continue to mature, a greater
percentage of the total individual membership base is in its renewal years.
This results in increased profit margins for the Company due to the
significant decrease in certain marketing costs incurred on renewing
members. Improved response rates for new members also favorably impacted
profit margins. As a result, operating income before other interest income,
net, interest expense on 3% convertible notes and income taxes
("EBIT") increased from $81.9 million to $109.0 million and EBIT margins
improved from 15.9% to 17.4%.
Individual membership usage continues to increase, which contributes to
additional service fees and indirectly contributes to the Company's strong
renewal rates. Historically, an increase in overall membership usage has
had a favorable impact on renewal rates. The Company records its deferred
revenue net of estimated cancellations which are anticipated in the
Company's marketing programs. Included in total revenues for the quarter
ended April 30, 1997, are revenues resulting from acquisitions which were
completed during the quarter. However, total revenues contributed from these
acquisitions are not material to the Company's total reported revenues.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Three Months Ended April 30, 1997 vs.
Three Months Ended April 30, 1996 (continued)
Operating costs increased 32% (from $158.3 million to $209.5 million). The
major components of the Company's membership operating costs continue to
be personnel, telephone, computer processing and participant insurance
premiums (the cost of obtaining insurance coverage for members).
Historically, the Company has seen a direct correlation between providing
a high level of service to its members and improved retention. The
major components of the Company's software operating costs are material
costs, manufacturing labor and overhead, royalties paid to developers and
affiliated label publishers and research and development costs related
to designing, developing and testing new software products. The increase
in overall operating costs is due principally to the variable nature of
many of these costs and, therefore, the additional costs incurred to
support the growth in the membership base and software sales.
Marketing costs decreased as a percentage of revenue, from 40% to 35%. This
decrease is primarily due to improved per member acquisition costs and an
increase in renewing members. Membership acquisition costs incurred
decreased 19% (from $164.3 million to $133.1 million) primarily due to
increased conversion rates in the Company's various membership marketing
programs. Marketing costs include the amortization of membership acquisition
costs and other marketing costs, which primarily consist of membership
communications and sales expenses. Amortization of membership acquisition
costs decreased by 6% (from $160.4 million to $151.3 million). Other
marketing costs increased by 53% (from $44.8 million to $68.5 million).
The overall increase in marketing costs resulted primarily from the
costs of servicing a larger membership base and expenses incurred when
selling and marketing a larger number of software titles. The marketing
functions for the Company's membership services are combined for its
various services, and, accordingly, there are no significant changes in
marketing costs by membership service.
The Company routinely reviews all membership renewal rates and has not
seen any material change over the last year in the average renewal rate.
Renewal rates are calculated by dividing the total number of renewing
members not requesting a refund during their renewal year by the total
members eligible for renewal.
General and administrative costs remained constant as a percentage of
revenue (14%). This is a result of the Company's ongoing focus on
controlling overhead. Other interest income, net, increased from
$2.2 million to $8.7 million primarily due to the increased level of
cash generated by the Company from the proceeds of its issuance of 3%
convertible subordinated notes in February 1997 (see "Liquidity And
Capital Resources; Inflation; Seasonality").
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Membership Information
The following chart sets forth the approximate number of members and net
additions for the respective periods. All membership data has been restated
to reflect the acquisition of Ideon Group, Inc. ("Ideon") in August 1996;
however it has not been restated to reflect other members added through
acquisitions ("Acquired Members").
Net New Member
Number of Additions
Period Members for the Period
Quarter Ended April 30, 1997 68,560,000 2,225,000
Year Ended January 31, 1997 66,335,000 6,685,000
Quarter Ended April 30, 1996 60,875,000 1,225,000
Year Ended January 31, 1996 59,650,000 12,750,000*
*Includes approximately 8 million Acquired Members.
The membership acquisition costs incurred applicable to obtaining a new
member, for memberships other than coupon book memberships, generally
approximate the initial membership fee. Initial membership fees for
coupon book memberships generally exceed the membership acquisition costs
incurred applicable to obtaining a new member.
Membership cancellations processed by certain of the Company's clients
report membership information only on a net basis. Accordingly, the
Company does not receive actual numbers of gross additions and gross
cancellations for certain types of memberships. In calculating the number
of members, the Company has deducted its best estimate of cancellations
which may occur during the trial membership periods offered in its
marketing programs. Typically, these periods range from one to three months.
Liquidity And Capital Resources; Inflation; Seasonality
Funds for the Company's operations have been provided principally through
cash flows from operations and credit facilities, while acquisitions have
also been funded through the issuance of Common Stock. The Company entered
into a credit agreement effective March 26, 1996 which provides for
a $500 million revolving credit facility with a variety of different types
of loans available thereunder ("Credit Agreement"). At April 30, 1997, no
borrowings under the Credit Agreement were outstanding. The Credit
Agreement is scheduled to expire March 26, 2001.
On February 11, 1997, the Company issued $550 million in principal amount
of 3% convertible subordinated notes (the "3% Notes") due February 15, 2002.
Interest on the 3% Notes is payable semi-annually on February 15 and
August 15 of each year, commencing August 15, 1997. As of April 30, 1997,
interest expense on the 3% Notes was $3.6 million.
The Company invested approximately $47 million in acquisitions, net of cash
acquired, during the three months ended April 30, 1997. Substantially all
acquisitions have been fully integrated into the Company's operations. The
Company is not aware of any trends, demands or uncertainties that will have
a material effect on the Company's liquidity other than those relating to
the abovementioned litigation matters. The Company anticipates that cash
flows from operations and its credit facilities will be sufficient
to achieve its current long-term objectives.
The Company does not anticipate any material capital expenditures for the
next year. Total capital expenditures were $15 million for the three months
ended April 30, 1997.
The Company intends to continue to review potential acquisitions that it
believes would enhance the Company's growth and profitability. Any
acquisitions will initially be financed through the issuance of
Common Stock, excess cash flows from operations, the Company's Credit
Agreement and from the proceeds of the issuance of the 3% Notes.
However, depending on the financing necessary to complete an acquisition,
additional funding may be required.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Liquidity And Capital Resources; Inflation; Seasonality (continued)
To date, the overall impact of inflation on the Company has not been
material. Except for the cash receipts from the sale of coupon book
memberships, the Company's membership business is generally not seasonal.
Most cash receipts from these coupon book memberships are received in the
fourth quarter and, to a lesser extent, in the first and the third quarters
of each fiscal year. As is typical in the consumer software industry,
the Company's software business is highly seasonal. Net revenues and
operating income are highest during the third and fourth quarters and
are lowest in the first and second quarters. This seasonal pattern is
primarily due to the increased demand for the Company's software
products during the year-end holiday selling season.
For the three months ended April 30, 1997, the Company's international
businesses represented less than 10% of EBIT. Operating in international
markets involves dealing with sometimes volatile movements in
currency exchange rates. The economic impact of currency exchange rate
movements on the Company is complex because it is linked to variability
in real growth, inflation, interest rates and other factors. Because the
Company operates in a mix of membership services and numerous countries,
management believes currency exposures are fairly well diversified.
To date, currency exposure has not been a significant competitive factor
at the local market operating level. As international operations continue
to expand and the number of cross-border transactions increases, the
Company intends to continue monitoring its currency exposures closely
and take prudent actions as appropriate.
Forward-Looking Statements
Except for historical information contained herein, the above discussion
contains certain forward-looking statements that involve potential risks
and uncertainties. The Company's future results could differ materially
from those discussed herein. Factors that could cause or contribute to
such differences include, but are not limited to, changes in market
conditions, effects of state and federal regulations and risks inherent
in international operations. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to revise or update
these forward-looking statements to reflect events or circumstances that
arise after the date hereof or to reflect the occurrence of unanticipated
events.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Ideon and certain of its subsidiaries are defending or prosecuting
fifteen complex lawsuits, twelve of which involve the former Chairman
of the Board and Executive Management Consultant to SafeCard (See Note 5
to Condensed Consolidated Financial Statements).
ITEM 2. CHANGES IN SECURITIES
During the fiscal quarter ended April 30, 1997, the Company issued the
following equity securities that were not registered under the
Securities Act:
(a) On February 13, 1997, the Company issued 3,445,851 shares
of Common Stock to Numa in connection with the acquisition by
the Company of substantially all of the assets of Numa and
the Company's assumption of specific liabilities of Numa.
This issuance was made pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act,
as this issuance of Common Stock did not involve a "public
offering" pursuant to the Securities Act given the limited
number and scope of persons to whom the securities were
issued. The Company has filed a Registration Statement with
the Commission, which has been declared effective by the
Commission, with respect to the resale of the Common Stock
received from the Company in connection with this
acquisition.
(b) On March 17, 1997, the Company issued 908,703 shares of
Common Stock to Tango Communications ("Tango") in connection
with the acquisition by the Company of substantially all of
the assets and the assumption of the liabilities of Tango.
This issuance was made pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act,
as this issuance of Common Stock did not involve a "public
offering" pursuant to the Securities Act given the limited
number and scope of persons to whom the securities were issued.
(c) On April 11, 1997, the Company issued 595,664 shares of
Common Stock to Berkeley Systems, Incorporated ("Berkeley")
in connection with the acquisition by the Company of all of
the outstanding capital stock of Berkeley. This issuance was
made pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act, as this issuance of
Common Stock did not involve a "public offering" pursuant to
the Securities Act given the limited number and scope of
persons to whom the securities were issued. The Company has
filed a Registration Statement with the Commission with
respect to the resale of the Common Stock received from the
Company in connection with this acquisition.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Matters as specified in the Company's Proxy Statement dated May 5, 1997,
a copy of which has previously been filed with the Securities and Exchange
Commission, were considered and approved by the Company's shareholders at the
annual shareholders' meeting held on June 11, 1997. The results of such
matters are as follows:
Proposal 1: To elect Messrs. Bartlett Burnap, Walter A. Forbes
and Robert P. Rittereiser to the Board of Directors of the
Company, each for a term to expire at the 2000 Annual Meeting.
Results: Total Vote For Total Vote Withheld
Bartlett Burnap 338,775,954 4,084,602
Walter A. Forbes 338,825,540 4,035,016
Robert P. Rittereiser 338,814,275 4,046,281
The terms of office as a director of each of T. Barnes Donnelley,
Stephen A. Greyser, Christopher K. McLeod, Burton C. Perfit,
Stanley M. Rumbough, Jr., E. Kirk Shelton and Kenneth A. Williams
continued after the meeting.
Proposal 2: To approve the Company's 1997 Stock Option Plan.
Results: For Against Abstain
233,528,464 106,444,921 1,338,979
Proposal 3: To ratify the appointment of Ernst & Young LLP as the
Company's Independent Auditors for the fiscal year
ending January 31, 1998.
Results: For Against Abstain
342,305,022 135,646 419,888
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibit
No. Description
3.1 Amended and Restated Certificate of Incorporation of the Company,
as filed June 5, 1996 (filed as Exhibit 3.1 to the Company's
Form 10-Q for the period ended April 30, 1996).*
3.2 By-Laws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement, No. 33-44453, on Form S-4 dated
December 19, 1991).*
4.1 Form of Stock Certificate (filed as Exhibit 4.1 to the Company's
Registration Statement, No. 33-44453, on Form S-4 dated
December 19, 1991).*
4.2 Indenture dated as of February 11, 1997, between CUC International
Inc. and Marine Midland Bank, as trustee (filed as Exhibit 4(a) to
the Company's Report on Form 8-K filed February 13, 1997).*
10.1-10.26 Management Contracts, Compensatory Plans
and Arrangements
10.1 Agreement with E. Kirk Shelton, dated as of May 15, 1996 (filed
as Exhibit 10.1 to the Company's Form 10-Q for the period ended
July 31, 1996).*
10.2 Agreement with Christopher K. McLeod, dated as of May 15, 1996
(filed as Exhibit 10.2 to the Company's Form 10-Q for the period
ended July 31, 1996).*
10.3 Amended and Restated Employment Contract with Walter A. Forbes,
dated as of May 15, 1996 (filed as Exhibit 10.3 to the Company's
Form 10-Q for the period ended July 31, 1996).*
10.4 Agreement with Cosmo Corigliano, dated February 1, 1994 (filed as
Exhibit 10.6 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1995).*
10.5 Amendment to Agreement with Cosmo Corigliano, dated
February 21, 1996 (filed as Exhibit 10.7 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1996).*
10.6 Amendment to Agreement with Cosmo Corigliano, dated
January 1, 1997 (filed as Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1997).*
10.7 Agreement with Amy N. Lipton, dated February 1, 1996 (filed as
Exhibit 10.8 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996).*
10.8 Amendment to Agreement with Amy N. Lipton, dated January 1, 1997
(filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1997).*
10.9 Employment Agreement with Robert M. Davidson, dated July 24, 1996
(filed as Exhibit 10.7 to the Company's Form 10-Q for the period
ended July 31, 1996).* +
10.10 Employment Agreement with Janice G. Davidson, dated July 24, 1996
(filed as Exhibit 10.8 to the Company's Form 10-Q for the period
ended July 31, 1996).* +
10.11 Non-Competition Agreement with Robert M. Davidson, dated
July 24, 1996 (filed as Exhibit 10.9 to the Company's Form 10-Q
for the period ended July 31, 1996).* +
10.12 Non-Competition Agreement with Janice G. Davidson, dated
July 24, 1996 (filed as Exhibit 10.10 to the Company's Form 10-Q
for the period ended July 31, 1996).* +
10.13 Employment Agreement with Kenneth A. Williams, dated July 24, 1996
(filed as Exhibit 10.11 to the Company's Form 10-Q for the
period ended July 31, 1996).*
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
(a) Exhibit
No. Description
10.14 Non-Competition Agreement with Kenneth A. Williams, dated
July 24, 1996 (filed as Exhibit 10.12 to the Company's Form 10-Q
for the period ended July 31, 1996).*
10.15 Form of Employee Stock Option under the 1987 Stock Option Plan,
as amended (filed as Exhibit 10.13 to the Company's Form 10-Q
for the period ended October 31, 1996).*
10.16 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).*
10.17 Form of Director Stock Option for 1994 Directors Stock Option
Plan, as amended (filed as Exhibit 10.15 to the Company's
Form 10-Q for the period ended October 31, 1996).*
10.18 1987 Stock Option Plan, as amended (filed as Exhibit 10.16 to
the Company's Form 10-Q for the period ended October 31, 1996).*
10.19 1990 Directors Stock Option Plan, as amended (filed as Exhibit
10.17 to the Company's Form 10-Q for the period ended
October 31, 1996).*
10.20 1992 Directors Stock Option Plan, as amended (filed as Exhibit
10.18 to the Company's Form 10-Q for the period ended
October 31, 1996).*
10.21 1994 Directors Stock Option Plan, as amended (filed as Exhibit
10.19 to the Company's Form 10-Q for the period ended
October 31, 1996).*
10.22 1996 Executive Retirement Plan.
10.23 1997 Stock Option Plan.
10.24 Form of Employee Stock Option under the 1997 Stock Option Plan.
10.25 Settlement Agreement dated as of May 27, 1997 by and among
Janice G. Davidson; Robert M. Davidson; the Janice G. Davidson
Charitable Remainder Unitrust; the Robert M. Davidson Charitable
Remainder Unitrust; the Elizabeth A. Davidson Irrevocable Trust;
the Emilie A. Davidson Irrevocable Trust; the John R. Davidson
Irrevocable Trust; the Emilie A. Davidson Charitable Remainder
Unitrust; and the John R. Davidson Charitable Remainder Unitrust
and CUC International Inc. +
10.26 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).*
10.27 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).*
10.28 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).*
10.29 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).*
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
(a) Exhibit
No. Description
10.30 Amendment No.1 dated as of July 24, 1996, among Davidson
& Associates, Inc., CUC International Inc. and Stealth
Acquisition I Corp. (filed as Exhibit 2.2 to the Company's Report
on Form 8-K filed August 5, 1996).*
10.31 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).*
10.32 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).*
10.33 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).*
10.34 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).* +
10.35 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).*
10.36 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 10K for the fiscal year ended January 31, 1996).*
10.37 Form of U.S. Underwriting Agreement dated October 1996, among CUC
International Inc., certain selling stockholders and the U.S.
Underwriters (filed as Exhibit 1.1 (a) to the Company's
Registration Statement on Form S-3, Registration No. 333-13537,
filed on October 9, 1996).*
10.38 Form of International Underwriting Agreement dated October 1996,
among CUC International Inc., certain selling stockholders and the
International Underwriters (filed as Exhibit 1.1 (b) to the
Company's Registration Statement on Form S-3, Registration
No. 333-13537, filed on October 9, 1996).*
10.39 Registration Rights Agreement dated as of February 11, 1997,
between CUC International Inc. and Goldman, Sachs & Co. (for
itself and on behalf of the other purchasers party thereto) (filed
as Exhibit 4(b) to the Company's Report on Form 8-K filed
February 13, 1997).*
10.40 Agreement and Plan of Merger between CUC International Inc. and
HFS Incorporated, dated as of May 27, 1997 (filed as Exhibit 2.1
to the Company's Report on Form 8-K filed on May 29, 1997).*
10.41 Plan for Corporate Governance of CUC International Inc. following
the Effective Time (filed as Exhibit 99.2 to the Company's Report
on Form 8-K filed on May 29, 1997).*
11 Statement re: Computation of Per Share Earnings (Unaudited)
15 Letter re: Unaudited Interim Financial Information
27 Financial data schedule
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
(b) During the quarter ended April 30, 1997, the Company filed the
following Current Reports on Form 8-K:
(1) Current Report on Form 8-K, filed on February 4, 1997, reporting
an Item 9 ("Sales of Equity Securities Pursuant to Regulation S")
event.
(2) Current Report on Form 8-K, filed on February 13, 1997, reporting
an Item 7 ("Financial Statements and Exhibits") event and an Item 9
("Sales of Equity Securities Pursuant to Regulation S") event.
(3) Current Report on Form 8-K, filed on February 26, 1997, reporting
an Item 5 ("Other Events") event.
(4) Current Report on Form 8-K, filed on March 17, 1997, reporting
an Item 5 ("Other Events") event.
*Incorporated by reference
+These documents have been amended, supplemented and/or superseded
by the Settlement Agreement set forth as Exhibit 10.25 hereto.
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: June 16, 1997 By: WALTER A. FORBES
Walter A. Forbes - Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
Date: June 16, 1997 By: COSMO CORIGLIANO
Cosmo Corigliano - Senior Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
INDEX TO EXHIBITS
Exhibit
No. Description Page
3.1 Amended and Restated Certificate of Incorporation of the
Company, as filed June 5, 1996 (filed as Exhibit 3.1 to
the Company's Form 10-Q for the period ended April 30, 1996).*
3.2 By-Laws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement, No. 33-44453, on Form S-4 dated
December 19, 1991).*
4.1 Form of Stock Certificate (filed as Exhibit 4.1 to the
Company's Registration Statement, No. 33-44453, on Form S-4
dated December 19, 1991).*
4.2 Indenture dated as of February 11, 1997, between CUC
International Inc. and Marine Midland Bank, as trustee (filed
as Exhibit 4(a) to the Company's Report on Form 8-K filed
February 13, 1997).*
10.1-10.26 Management Contracts, Compensatory Plans and Arrangements
10.1 Agreement with E. Kirk Shelton, dated as of May 15, 1996
(filed as Exhibit 10.1 to the Company's Form 10-Q for the
period ended July 31, 1996).*
10.2 Agreement with Christopher K. McLeod, dated as of May 15, 1996
(filed as Exhibit 10.2 to the Company's Form 10-Q for the
period ended July 31, 1996).*
10.3 Amended and Restated Employment Contract with Walter A. Forbes,
dated as of May 15, 1996 (filed as Exhibit 10.3 to the
Company's Form 10-Q for the period ended July 31, 1996).*
10.4 Agreement with Cosmo Corigliano, dated February 1, 1994
(filed as Exhibit 10.6 to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1995).*
10.5 Amendment to Agreement with Cosmo Corigliano, dated
February 21, 1996 (filed as Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1996).*
10.6 Amendment to Agreement with Cosmo Corigliano, dated
January 1, 1997 (filed as Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1997).*
10.7 Agreement with Amy N. Lipton, dated February 1, 1996
(filed as Exhibit 10.8 to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1996).*
10.8 Amendment to Agreement with Amy N. Lipton, dated
January 1, 1997 (filed as Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1997).*
10.9 Employment Agreement with Robert M. Davidson, dated July 24,
1996 (filed as Exhibit 10.7 to the Company's Form 10-Q
for the period ended July 31, 1996).* +
INDEX TO EXHIBITS
Exhibit
No. Description Page
10.10 Employment Agreement with Janice G. Davidson, dated July 24,
1996 (filed as Exhibit 10.8 to the Company's Form 10-Q
for the period ended July 31, 1996).* +
10.11 Non-Competition Agreement with Robert M. Davidson, dated
July 24, 1996 (filed as Exhibit 10.9 to the Company's
Form 10-Q for the period ended July 31, 1996).* +
10.12 Non-Competition Agreement with Janice G. Davidson, dated
July 24, 1996 (filed as Exhibit 10.10 to the Company's
Form 10-Q for the period ended July 31, 1996).* +
10.13 Employment Agreement with Kenneth A. Williams, dated
July 24, 1996 (filed as Exhibit 10.11 to the Company's
Form 10-Q for the period ended July 31, 1996).*
10.14 Non-Competition Agreement with Kenneth A. Williams, dated
July 24, 1996 (filed as Exhibit 10.12 to the Company's
Form 10-Q for the period ended July 31, 1996).*
10.15 Form of Employee Stock Option under the 1987 Stock Option
Plan, as amended (filed as Exhibit 10.13 to the Company's
Form 10-Q for the period ended October 31, 1996).*
10.16 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).*
10.17 Form of Director Stock Option for 1994 Directors Stock Option
Plan, as amended (filed as Exhibit 10.15 to the Company's
Form 10-Q for the period ended October 31, 1996).*
10.18 1987 Stock Option Plan, as amended (filed as Exhibit 10.16
to the Company's Form 10-Q for the period ended
October 31, 1996).*
10.19 1990 Directors Stock Option Plan, as amended (filed as
Exhibit 10.17 to the Company's Form 10-Q for the period
ended October 31, 1996).*
10.20 1992 Directors Stock Option Plan, as amended (filed as
Exhibit 10.18 to the Company's Form 10-Q for the period
ended October 31, 1996).*
10.21 1994 Directors Stock Option Plan, as amended (filed as
Exhibit 10.19 to the Company's Form 10-Q for the period
ended October 31, 1996).*
10.22 1996 Executive Retirement Plan.
10.23 1997 Stock Option Plan.
10.24 Form of Employee Stock Option under the 1997 Stock
Option Plan.
INDEX TO EXHIBITS
Exhibit
No. Description Page
10.25 Settlement Agreement dated as of May 27, 1997 by and among
Janice G. Davidson; Robert M. Davidson; the Janice G.
Davidson Charitable Remainder Unitrust; the Robert M. Davidson
Charitable Remainder Unitrust; the Elizabeth A. Davidson
Irrevocable Trust; the Emilie A. Davidson Irrevocable Trust;
the John R. Davidson Irrevocable Trust; the Emilie A. Davidson
Charitable Remainder Unitrust; and the John R. Davidson
Charitable Remainder Unitrust and CUC International Inc. +
10.26 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).*
10.27 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).*
10.28 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).*
10.29 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).*
10.30 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).
10.31 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).*
10.32 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).*
10.33 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).*
10.34 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).* +
10.35 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).*
INDEX TO EXHIBITS
Exhibit
No. Description Page
10.36 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).*
10.37 Form of U.S. Underwriting Agreement dated October 1996,
among CUC International Inc., certain selling stockholders
and the U.S. Underwriters (filed as Exhibit 1.1 (a) to the
Company's Registration Statement on Form S-3, Registration
No. 333-13537, filed on October 9, 1996).*
10.38 Form of International Underwriting Agreement dated October
1996, among CUC International Inc., certain selling
stockholders and the International Underwriters (filed as
Exhibit 1.1 (b) to the Company's Registration Statement on
Form S-3, Registration No. 333-13537, filed on
October 9, 1996).*
10.39 Registration Rights Agreement dated as of February 11, 1997,
between CUC International Inc. and Goldman, Sachs & Co. (for
itself and on behalf of the other purchasers party thereto)
(filed as Exhibit 4(b) to the Company's Report on Form 8-K
filed February 13, 1997).*
10.40 Agreement and Plan of Merger between CUC International Inc.
and HFS Incorporated, dated as of May 27, 1997 (filed as
Exhibit 2.1 to the Company's Report on Form 8-K filed on
May 29, 1997).*
10.41 Plan for Corporate Governance of CUC International Inc.
following the Effective Time (filed as Exhibit 99.2 to
the Company's Report on Form 8-K filed on May 29, 1997).*
11 Statement re: Computation of Per Share Earnings (Unaudited)
15 Letter re: Unaudited Interim Financial Information
27 Financial data schedule
*Incorporated by reference
+These documents have been amended, supplemented and/or superseded
by the Settlement Agreement set forth as Exhibit 10.25 hereto.