59
EXHIBIT 99.2
RESTATEMENT OF QUARTERLY PERIODS
ENDED MARCH 31, 1997 AND 1996
60
CENDANT CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
1997 1996
------------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 842,041 $ 633,903
Marketable securities 347,451 94,200
Receivables, net 1,258,317 1,290,625
Other current assets 526,211 510,865
------------- ------------
Total current assets 2,974,020 2,529,593
------------- ------------
Deferred membership acquisition costs 392,493 401,564
Franchise agreements, net 956,012 995,947
Goodwill, net 1,820,234 2,302,226
Other intangibles, net 1,160,589 636,230
Other assets 1,077,175 993,574
------------- ------------
Total assets exclusive of assets under programs 8,380,523 7,859,134
------------- ------------
Assets under management and mortgage programs
Net investment in leases and leased vehicles 3,484,445 3,418,666
Relocation receivables 684,207 773,326
Mortgage loans held for sale 1,215,422 1,248,299
Mortgage servicing rights and fees 244,904 288,943
------------- ------------
5,628,978 5,729,234
------------- ------------
TOTAL ASSETS $ 14,009,501 $ 13,588,368
============= ============
See accompanying notes to supplemental consolidated financial statements
61
CENDANT CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
1997 1996
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued expenses and other
current liabilities $ 1,542,668 $ 1,664,946
-------------- --------------
Deferred income 1,104,850 1,099,393
Long-term debt 1,757,205 1,004,584
Other noncurrent liabilities 127,207 124,885
-------------- --------------
Total liabilities exclusive of liabilities under programs 4,531,930 3,893,808
-------------- --------------
Liabilities under management and mortgage programs
Debt 4,952,815 5,089,943
Deferred income taxes 244,800 281,948
-------------- --------------
5,197,615 5,371,891
-------------- --------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value - authorized
10 million shares; none issued and outstanding -- --
Common stock, $.01 par value - authorized
2 billion shares; issued 812,949,119
and 804,655,850 shares, respectively 8,129 8,047
Additional paid-in capital 2,918,776 2,870,422
Retained earnings 1,655,573 1,556,300
Net unrealized gain on marketable securities -- 4,334
Currency translation adjustment (25,681) (12,452)
Restricted stock, deferred compensation (28,935) (28,212)
Treasury stock, at cost (13,587,712 and
6,911,757 shares, respectively) (247,906) (75,770)
--------------- ---------------
Total shareholders' equity 4,279,956 4,322,669
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 14,009,501 $ 13,588,368
============== ==============
See accompanying notes to supplemental consolidated financial statements
62
CENDANT CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1997 1996
------------ -------------
REVENUES
Membership and service fees, net $ 1,036,011 $ 663,003
Fleet leasing (net of depreciation and interest costs of
$286,075 and $283,123, respectively) 15,319 70,948
Other 112,776 87,460
------------- -------------
Net revenues 1,164,106 821,411
------------- -------------
EXPENSES
Operating 420,725 306,519
Marketing and reservation 286,693 239,335
General and administrative 105,232 77,531
Depreciation and amortization 54,272 32,224
Interest, net 19,066 7,502
------------- -------------
Total expenses 885,988 663,111
------------- -------------
Income before income taxes 278,118 158,300
Provision for income taxes 112,250 62,326
------------- -------------
Net income $ 165,868 $ 95,974
============= =============
PER SHARE INFORMATION:
Net income per share
Primary $ 0.19 $ 0.13
============= =============
Fully diluted $ 0.19 $ 0.13
============= =============
Weighted average common and common equivalent shares outstanding
Primary 871,488 768,918
Fully diluted 874,573 778,279
See accompanying notes to supplemental consolidated financial statements
63
CENDANT CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
------------------------------
1997 1996
------------ ------------
OPERATING ACTIVITIES:
Net income $ 165,868 $ 95,974
Depreciation and amortization 52,648 26,021
Increase (decrease) from changes in
assets under management programs:
Depreciation and amortization under management
and mortgage programs 281,412 254,058
Mortgage loans held for sale 32,876 (544,731)
Other (116,795) (5,101)
------------- -------------
Net cash provided by (used in) operating activities 416,009 (173,779)
------------- -------------
INVESTING ACTIVITIES:
Assets under management and mortgage programs:
Investment in leases and leased vehicles (626,731) (570,257)
Payments received on investment in leases and leased vehicles 290,134 197,577
Equity advances on homes under management (900,583) (590,175)
Repayment of advances on homes under management 962,122 667,146
Additions to originated mortgage servicing rights (41,691) (34,068)
Proceeds from sales of mortgage servicing rights -- 4,589
Property and equipment additions (32,305) (26,458)
Loans and investments (24,803) (10,000)
Proceeds from sale of assets 21,750 --
Proceeds from sales of marketable securities 42,570 46,922
Purchases of marketable securities (314,348) (28,832)
Due to Avis Rent A Car, Inc. (16,192) --
Net assets acquired, exclusive of cash acquired (84,744) (103,067)
Other 1,519 35,346
------------ ------------
Net cash used in investing activities (723,302) (411,277)
------------- -------------
FINANCING ACTIVITIES:
Proceeds from borrowings 560,907 968,972
Principal payments on borrowings (911,151) (453,585)
Net proceeds from issuance of convertible notes 542,655 --
Redemption of series A preferred stock -- (80,000)
Net change in short-term borrowings under management and mortgage programs 422,622 235,053
Issuance of common stock, net 36,215 15,201
Purchases of common stock (171,318) --
Stock option plan transactions 5,366 3,113
Payments of dividends of pooled entities (6,644) (5,860)
------------- -------------
Net cash provided by financing activities 478,652 682,894
------------ ------------
Effect of changes in exchange rates on cash and cash equivalents 36,779 6,512
------------ ------------
Net increase in cash and cash equivalents 208,138 104,350
Cash and cash equivalents, beginning of period 633,903 355,959
------------ ------------
Cash and cash equivalents, end of period $ 842,041 $ 460,309
============ ============
See accompanying notes to supplemental consolidated financial statements
64
CENDANT CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The supplemental consolidated balance sheet of Cendant Corporation and
subsidiaries, formerly CUC International Inc. (the "Company"), as of March
31, 1997 and supplemental consolidated statements of income and cash
flows, for the three months ended March 31, 1997 and 1996 are unaudited.
In the opinion of management, all adjustments necessary for a fair
presentation of such financial statements are included. There were no
adjustments of an unusual nature recorded during the three months ended
March 31, 1997 and 1996.
The accompanying supplemental consolidated financial statements
include the accounts and transactions of the Company and all wholly-owned
and majority owned subsidiaries and joint ventures except for the
Company's ownership of Avis Rent A Car, Inc. ("ARAC"), which is accounted
for under the equity method (See Note 5). The accompanying supplemental
consolidated financial statements have been restated for the business
combinations accounted for as poolings of interests (See Note 2) as if
such combined companies had operated as one entity since inception. All
material intercompany balances and transactions have been eliminated in
consolidation. These supplemental consolidated financial statements will
become the Company's primary historical financial statements for the
periods presented.
The accompanying supplemental consolidated financial statements and
notes thereto are presented in accordance with interim financial reporting
requirements as required by Form 10-Q and do not include all of the
information and notes required by generally accepted accounting principles
for complete financial statements. The December 31, 1996 supplemental
consolidated balance sheet was derived from the Company's audited
supplemental consolidated financial statements. For further information,
refer to the audited supplemental consolidated financial statements and
notes thereto included as Exhibit 99.1 in this Form 8-K. Interim results
are not indicative of results for a full year.
Certain reclassifications have been made to the historical financial
statements of the pooled companies to conform to the restated
presentation.
2. BUSINESS COMBINATIONS
1997 POOLINGS
On December 17, 1997, the Company completed a merger with HFS
Incorporated ("HFS") (the "Cendant Merger") by issuing 440.0 million
shares of its common stock in exchange for all of the outstanding common
stock of HFS. Pursuant to the terms of the agreement and plan of merger,
HFS stockholders received 2.4031 shares of Company common stock for each
share of HFS common stock. Upon consummation of the Cendant Merger, the
Company changed its name from CUC International Inc. to Cendant
Corporation.
65
In connection with the Cendant Merger, the Company changed its fiscal
year end from January 31 to December 31. HFS has a calendar year end and
the Company has only recalendarized its 1997 results. Accordingly, the HFS
statements of income for the periods ended March 31, 1997 and 1996 have
been combined with the Company's statements of income for the three month
periods ended March 31, 1997 and April 30, 1996, respectively.
On October 3, 1997, the Company, through a wholly-owned subsidiary
("Acquisition Sub"), acquired all of the outstanding capital stock of
Hebdo Mag International Inc. ("Hebdo Mag") pursuant to the terms of a
share purchase agreement dated August 13, 1997 among the Company,
Acquisition Sub, Hebdo Mag and other parties thereto. The purchase price
of approximately $440 million was satisfied by the issuance of 14.2
million shares of Company common stock. Hebdo Mag is a leading publisher
and distributor of classified advertising information.
On April 30, 1997, prior to being merged with and into the Company,
HFS acquired PHH Corporation ("PHH") by merger (the "HFS/PHH Merger")
which was satisfied by the issuance of 72.8 million equivalent shares of
Company common stock in exchange for all of the outstanding common stock
of PHH. PHH is the world's largest provider of corporate relocation
services and also provides mortgage services and fleet management
services. In connection with the HFS/PHH Merger, PHH changed its fiscal
year end from April 30 to December 31.
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 Company common stock. Numa publishes personalized
heritage publications and markets and sells personalized merchandise.
Upon entering into a definitive merger agreement to acquire Avis, Inc.
in July 1996, HFS announced its strategy to dilute its interest in ARAC's
car rental operations while retaining assets associated with the franchise
business, including trademarks, reservation system assets and franchise
agreements with ARAC and other licensees. Since HFS's control was planned
to be temporary, HFS accounted for its 100% investment in ARAC under the
equity method.
The following table presents the historical results of the Company and
the respective pooled entities for the last complete periods prior to
their respective mergers ($000's):
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1997 1996
------------------ ------------------
Net revenues
The Company $ 598,944 $ 515,479
HFS (inclusive of PHH) 525,885 277,727
Hebdo Mag 39,277 28,205
------------------ ------------------
$ 1,164,106 $ 821,411
================== ==================
66
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1997 1996
------------------ ------------------
Net income
The Company $ 73,624 $ 52,121
HFS (inclusive of PHH) 91,104 43,678
Hebdo Mag 1,140 175
------------------ ------------------
$ 165,868 $ 95,974
================== ==================
The following table presents the historical results of HFS and PHH for
the periods prior to the HFS/PHH Merger ($000's):
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1997 1996
------------------ ------------------
Net revenues
HFS $ 347,962 $ 124,545
PHH 177,923 153,182
------------------ ------------------
$ 525,885 $ 277,727
================== ==================
Net income
HFS $ 58,940 $ 22,818
PHH 32,164 20,860
------------------ ------------------
$ 91,104 $ 43,678
================== ==================
PURCHASE BUSINESS COMBINATIONS
During the quarter ended March 31, 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 Company common stock. The goodwill 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 acquisitions. The results of
operations for the periods prior to the respective dates of acquisition
were not significant to the Company's operations.
3. MERGER AND RELATED COSTS AND OTHER UNUSUAL CHARGES
In connection with the Company's 1996 acquisitions of Davidson &
Associates Inc., Sierra On-Line, Inc. and Ideon Group, Inc., accounted for
as poolings of interests, the Company recorded a non-recurring charge of
approximately $179.9 million ($118.7 million, after tax) for the year
ended December 31, 1996. Such charge is comprised of transaction costs,
exit costs and a provision relating to certain litigation matters giving
consideration to the Company's intended approach to these matters. As of
March 31, 1997, such charges amounted to $96.0 million.
67
4. PRO FORMA INFORMATION
The following table reflects the unaudited operating results of the
Company for the three months ended March 31, 1996 on a pro forma basis,
which gives effect to HFS's 1996 acquisitions, accounted for under the
purchase method of accounting as if they had occurred on January 1, 1996:
Net revenue $ 973,490
Net income 115,339
Net income per share (fully diluted) $ 0.14
5. INVESTMENT IN ARAC
Upon entering into a definitive merger agreement to acquire Avis, Inc.
in July 1996, HFS announced its strategy to dilute its interest in ARAC's
car rental operations while retaining assets associated with the franchise
business, including trademarks, reservation system assets and franchise
agreements with ARAC and other licensees. Since HFS's control was planned
to be temporary, HFS accounted for its 100% investment in ARAC under the
equity method. Summarized financial information of ARAC is as follows
($000's):
AVIS RENT A CAR, INC.
DECEMBER 31,
Balance sheet data: MARCH 31, 1997 1996
---------------- --------------
Vehicles $ 2,159,684 $ 2,243,492
Total assets 3,001,275 3,131,357
Debt 2,175,357 2,295,474
Total liabilities 2,921,177 3,054,817
Shareholders' equity 80,098 76,540
THREE MONTHS
ENDED MARCH 31
Statement of income data: 1997
----------------
Revenues $ 456,014
Income before provision
for income taxes 6,983
Net income 4,205
6. SOFTWARE RESEARCH AND DEVELOPMENT COSTS AND COSTS OF SOFTWARE REVENUE
Software research and development costs are included in operating expenses
and aggregated $23.1 million and $14.9 million for the three months ended
March 31, 1997 and 1996, respectively. Software net revenue included in
Other was $94.1 million and $60.5 million for the three months ended March
31, 1997 and 1996, respectively. Costs of software revenue are included in
operating expenses and aggregated $27.1 million and $24.8 million for the
three months ended March 31, 1997 and 1996, respectively.
68
7. ISSUANCE OF 3% CONVERTIBLE SUBORDINATED NOTES
On February 11, 1997, the Company issued $550.0 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. Each $1,000
principal amount of 3% Notes is convertible into 32.6531 shares of Company
common stock subject to adjustment in certain events. The 3% Notes may be
redeemed at the option of the Company at any time on or after February 15,
2000, in whole or in part, at the appropriate redemption prices (as
defined in the indenture governing the 3% Notes) plus accrued interest to
the redemption date. The 3% Notes will be subordinated in right of payment
to all existing and future Senior Debt (as defined in the indenture
governing the 3% Notes) of the Company. Issuance costs are being amortized
on a straight-line basis over five years.
8. SHAREHOLDERS' EQUITY
A. AUTHORIZED SHARES
In conjunction with the Cendant Merger, effective on December 17,
1997, the Company's shareholders approved an amendment to the Company's
restated certificate of incorporation to increase the number of authorized
shares of common stock and preferred stock to 2 billion shares and 10
million shares, respectively. The Company has never issued shares of
preferred stock.
B. TREASURY PURCHASES
In January 1997, HFS's Board of Directors authorized the purchase of
6.2 million equivalent shares of Company common stock to satisfy stock
option exercises and conversions of convertible debt securities and to
fund future acquisitions. The Company acquired approximately 6.2 million
equivalent treasury shares in January and February 1997 for $179.4 million
with revolving credit borrowings.
9. CONTINGENCIES - IDEON
On June 13, 1997, the Company entered into an agreement (the
"Agreement") with Peter Halmos, the co-founder of SafeCard Services,
Incorporated ("SafeCard"), which was reorganized in 1995 as Ideon. The
Company acquired Ideon in August 1996. The Agreement provides for the
settlement of all of the outstanding litigation matters involving Peter
Halmos, SafeCard and Ideon as set forth below. The Agreement became
effective in July 1997. The Agreement calls for the dismissal with
prejudice of these outstanding litigation matters and the payment to Peter
Halmos, over a six-year period, of $70.5 million. Specifically, the
Agreement requires that the Company pay Peter Halmos one up-front payment
of $13.5 million and six subsequent annual payments of $9.5 million each.
The Agreement also calls for the transfer to the Company of assets related
to SafeCard's CreditLine business, including the transfer by CreditLine
Corporation to the Company of all of the CreditLine Corporation's rights
under a marketing agreement between it and SafeCard dated November 1,
1988.
The following Halmos related cases have been dismissed pursuant to the
Agreement:
1. Halmos Trading & Investing Company v. SafeCard Services, Inc. and
Gerald Cahill v. Peter A. Halmos and Steven J. Halmos and Halmos
Trading & Investment Co., Case No. 93-04354 (06) in the Circuit Court
for the 17th Judicial Circuit in and for Broward County, Florida.
2. SafeCard Services, Inc. v. Peter Halmos, a Florida resident; High
Plains Capital Corporation, a Wyoming Corporation; and CreditLine
Corporation, a Wyoming corporation which is pending in the District
Court, First Judicial District of Laramie County, Wyoming; Case No.
Doc. 134, No. 192.
3. Peter Halmos, CreditLine Corporation and Continuity Marketing
Corporation v. Paul G. Kahn, William T. Bacon, Robert L.
Dilenschneider, Eugene Miller and SafeCard Services, Inc., in the
United States District Court, Southern District of Florida, Case No.
94-6920 CG-NESBITT.
4. Peter Halmos v SafeCard Services, Inc., William T. Bacon, Jr., Barry
I. Tillis and Barry Natter, Case No. 95-6325 (AJ) filed in the
Circuit Court, Fifteenth Judicial Circuit, in and for Palm Beach
County Florida.
5. High Plains Capital Corporation f/k/a Halmos & Company, Inc v. Ideon
Group, Inc., SafeCard Services, Inc., Eugene Miller, Robert L.
Dilenschneider, and the Dilenschneider Group, Inc., Palm Beach
County, Florida, Civil Action No. CL 95 8313 AE (Hon. Walter
Colbath).
6. High Plains Capital Corporation v. Ideon Group, Inc., and SafeCard
Services, Inc., Civil Action No. 95 015024, Seventeenth Judicial
Circuit, Broward County, Florida.
The following Halmos related case will also be dismissed pursuant to the
Agreement:
7. Ideon Group, Inc., SafeCard Services, Inc., Paul G. Kahn, William T.
Bacon, Jr., Marshall L. Burman, John Ellis (Jeb) Bush, Robert L.
Dilenschneider, Adam W. Herbert, Eugene Miller, and Thomas F. Petway,
III v. Peter Halmos, Civil Action No. 14600, filed in the Court of
Chancery of New Castle County, Delaware.
On October 22, 1997, the plaintiffs, the Company and all of the Company's
indemnitees, entered into a Memorandum of Understanding and thereafter
filed final settlement agreements in James B. Chambers and Peter A. Halmos
v. SafeCard Services, Inc; Ideon Group, Inc.; Paul G. Kahn; William T.
Bacon, Jr.,; Robert L. Dilenschneider; The Dilenschneider Group; Eugene
Miller; G. Thomas Frankland; Francis J. Marino; John R. Birk; Marshall
Burman; Thomas F. Petway III; John Ellis Bush; Adam W. Herbert, Jr.; Price
Waterhouse LLP; Mahoney Adams & Criser, P.A. and John Does 1 through 25,
United States District Court, Southern District of Florida, Case No.
95-1298-CIV-NESBITT ("Chambers"); Lois Hekker v. Ideon Group, Inc. and
Paul G. Kahn, United States District Court, Middle District of Florida,
Jacksonville Division, Case No. 95-681-CIV-J ("Hekker"); and James L.
Binder, individually, as custodian for Elizabeth Binder, and as custodian
for the James L. Binder, D.D.S., P.C. Profit Sharing Trust; Edward Dubois;
Sheila Ann Dubois, as Personal Representative for The Estate of Winifred
Dubois; G. Neal Goolsby; John E. Masters, individually and as custodian
for Gregory Halmos and Nicholas Halmos; J.B. McKinney; on behalf of
themselves and all others similarly situated, and Peter A. Halmos, as
Trustee for the Peter A. Halmos Revocable Trust Dated January 24, 1990,
and The Halmos Foundation, Inc., individually, v. SafeCard Services, Inc.,
a Delaware corporation; Paul G. Kahn; William T. Bacon, Jr.; Robert L.
Dilenschneider; The Dilenschneider Group, a Delaware corporation; Eugene
Miller; Gerald R. Cahill; Oppenheimer & Co., Inc., a Delaware corporation;
and John Does 1 through 100, inclusive. United States District Court for
the Southern District of Florida, (Miami Division) Case No.
94-2604-CIV-MOORE ("Binder"). The above referenced settlement in the
Chambers and Hekker matters was for payment by the Company to class
members of $15.0 million. The settlement in the Binder litigation calls
for the payment by the Company to class members of $3.0 million. These
settlements must be approved by the court at hearings anticipated during
the first quarter of 1998.
The following actions remain pending, in whole or in part, as described
below:
A suit initiated by Peter Halmos, related entities, and Myron Cherry (a
former lawyer for SafeCard) in 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 $100.0 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 declaratory judgment action filed by Ideon in Delaware
Chancery Court. As a result of the Halmos settlement described above, only
the claims of Myron Cherry remain pending.
A suit seeking monetary damages and injunctive relief by LifeFax, Inc. and
Continuity Marketing Corporation, companies affiliated with Peter Halmos,
in the State Circuit Court in Palm Beach County, Florida in 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. As a
result of the Halmos settlement, all claims of Continuity Marketing
Corporation will be dismissed, leaving pending only the claims related to
Family Protection Network and the Pet Registration Program.
A suit by 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 1996 related, in part, to these
litigation matters. Although not anticipated, in the event the foregoing
class action settlements are not approved by the Court, the outcome of the
class action matters described above as well as the other pending Ideon
matters could also exceed the amount accrued. The Company is also involved
in certain other claims and litigation arising in the ordinary course of
business, which are not considered material to the financial position,
operations or cash flows of the Company.
69