-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KFAKpBEKFexoy5ggv45f0/NTO7XSr7wkWaVzbnS5YTH1lDgHu16kb54z8KSMvK6Y AecXzxasuKita70yLVfUQg== 0000723612-97-000020.txt : 19971216 0000723612-97-000020.hdr.sgml : 19971216 ACCESSION NUMBER: 0000723612-97-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19971215 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CUC INTERNATIONAL INC /DE/ CENTRAL INDEX KEY: 0000723612 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 060918165 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10308 FILM NUMBER: 97738590 BUSINESS ADDRESS: STREET 1: 707 SUMMER ST CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: 2033249261 MAIL ADDRESS: STREET 1: 707 SUMMER ST CITY: STAMFORD STATE: CT ZIP: 06901 FORMER COMPANY: FORMER CONFORMED NAME: COMP U CARD INTERNATIONAL INC DATE OF NAME CHANGE: 19870914 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended October 31, 1997 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number: 1-10308 CUC International Inc. (Exact name of registrant as specified in its charter) Delaware 06-0918165 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 707 Summer Street Stamford, Connecticut 06901 (Address of principal executive offices) (Zip Code) (203) 324-9261 (Registrant's telephone number, including area code) Not applicable (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No . APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 par value - 426,473,398 shares as of November 28, 1997 INDEX CUC INTERNATIONAL INC. AND SUBSIDIARIES PARTI. FINANCIAL INFORMATION PAGE Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - October 31, 1997 and January 31, 1997. 3 Condensed Consolidated Statements of Income - Three months ended October 31, 1997 and 1996. 4 Condensed Consolidated Statements of Income - Nine months ended October 31, 1997 and 1996. 5 Condensed Consolidated Statements of Cash Flows - Nine months ended October 31, 1997 and 1996. 6 Notes to Condensed Consolidated Financial Statements. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings 22 Item 2. Changes in Securities and Use of Proceeds 22 Item 4. Submission of Matters to a Vote of Security Holders 22 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 23 SIGNATURES 26 INDEX TO EXHIBITS 27 PART I. FINANCIAL INFORMATION CUC INTERNATIONAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) October 31, January 31, 1997 1997 (Unaudited) Assets Current Assets Cash and cash equivalents $986,892 $564,362 Marketable securities 139,893 75,673 Receivables, net of allowances 686,415 602,718 Prepaid membership materials 55,764 39,470 Prepaid expenses, deferred income taxes and other 248,035 192,928 Total Current Assets 2,116,999 1,475,151 Membership solicitations in process 68,714 76,281 Deferred membership acquisition costs 419,807 401,564 Contract renewal rights and intangible assets - net of accumulated amortization of $185,940 and $163,882 676,848 550,512 Properties, at cost, less accumulated depreciation of $179,806 and $152,270 192,025 172,228 Deferred income taxes and other 70,479 58,812 $3,544,872 $2,734,548 Liabilities and Shareholders' Equity Current Liabilities Accounts payable and accrued expenses $463,819 $445,888 Federal and state income taxes 24,722 78,956 Total Current Liabilities 488,541 524,844 Deferred membership income 723,235 702,359 Convertible debt - net of unamortized original issue discount of $7,355 and $488 561,685 23,487 Long-term debt 67,872 201,276 Other 56,979 6,044 Contingencies (Note 6) Shareholders' Equity Common stock-par value $.01 per share; authorized 600 million shares; issued 433,299,044 shares and 423,214,578 shares 4,333 4,232 Additional paid-in capital 752,566 636,237 Retained earnings 999,768 725,343 Treasury stock, at cost, 6,545,362 shares and 6,136,757 shares (67,944) (56,618) Other (42,163) (32,656) Total Shareholders' Equity 1,646,560 1,276,538 $3,544,872 $2,734,548 See notes to condensed consolidated financial statements. CUC INTERNATIONAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share amounts) Three Months Ended October 31, 1997 1996 REVENUES Membership and service fees $649,485 $534,719 Software 125,223 98,611 Total Revenues 774,708 633,330 EXPENSES Operating 233,574 189,655 Marketing 275,615 233,485 General and administrative 103,590 90,843 Other interest (income) expense, net (5,207) 1,393 Merger costs 147,200 Interest expense, 3% convertible notes 4,125 Total Expenses 611,697 662,576 INCOME (LOSS) BEFORE INCOME TAXES 163,011 (29,246) Provision for (benefit from) income taxes 62,107 (12,838) NET INCOME (LOSS) $100,904 $(16,408) Net Income (Loss) Per Common Share $0.23 $(0.04) Weighted Average Number of Common and Dilutive Common Equivalent Shares Outstanding 456,217 421,235 See notes to condensed consolidated financial statements. CUC INTERNATIONAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share amounts) Nine Months Ended October 31, 1997 1996 REVENUES Membership and service fees $1,870,890 $1,539,240 Software 297,423 228,096 Total Revenues 2,168,313 1,767,336 EXPENSES Operating 667,324 535,237 Marketing 759,807 660,914 General and administrative 311,127 255,823 Other interest (income) expense, net (15,074) 5,388 Merger costs 175,835 Interest expense, 3% convertible notes 11,884 Total Expenses 1,735,068 1,633,197 INCOME BEFORE INCOME TAXES 433,245 134,139 Provision for income taxes 165,259 56,697 NET INCOME $267,986 $77,442 Net Income Per Common Share $0.61 $0.19 Weighted Average Number of Common and Dilutive Common Equivalent Shares Outstanding 452,366 416,057 See notes to condensed consolidated financial statements. CUC INTERNATIONAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Nine Months Ended October 31, 1997 1996 OPERATING ACTIVITIES: Net income $267,986 $77,442 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Membership acquisition costs (474,103) (467,325) Amortization of membership acquisition costs 455,860 478,762 Deferred membership income 20,737 (9,263) Membership solicitations in process 7,567 (9,436) Amortization of contract renewal rights and excess cost 22,644 25,923 Deferred income taxes 13,351 (41,056) Amortization of restricted stock and original issue discount on convertible notes 5,968 2,880 Depreciation 37,008 31,400 Net loss during change in fiscal year-ends (592) (4,268) Changes in working capital items, net of acquisitions: Receivables (75,202) (73,794) Prepaid membership materials (13,372) (9,992) Prepaid expenses and other current assets (58,750) 9,961 Accounts payable, accrued expenses and federal & state income taxes payable (122,588) 102,765 Product abandonment and related liabilities (10,841) Other, net (20,991) (11,813) Net cash provided by operating activities 65,523 91,345 INVESTING ACTIVITIES: Proceeds from marketable securities 393,868 108,071 Purchases of marketable securities (458,088) (96,517) Acquisitions, net of cash acquired (76,401) (43,138) Acquisitions of properties (52,291) (57,426) Net cash used in investing activities (192,912) (89,010) FINANCING ACTIVITIES: Issuance of Common Stock 69,822 41,879 Long-term obligations, net (62,866) (14,368) Dividends paid (2,798) Net proceeds from the issuance of convertible notes 542,963 Net cash provided by financing activities 549,919 24,713 Net increase in cash and cash equivalents 422,530 27,048 Cash and cash equivalents at beginning of period 564,362 358,326 Cash and cash equivalents at end of period $986,892 $385,374 See notes to condensed consolidated financial statements. CUC INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management of CUC International Inc. (the "Company"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The January 31, 1997 consolidated balance sheet was derived from the Company's audited financial statements. Operating results for the three and nine months ended October 31, 1997 are not necessarily indicative of the results that may be expected for the year ending January 31, 1998 (see Note 2). For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Form 10-K filing for the year ended January 31, 1997. NOTE 2 -- PENDING MERGER WITH HFS INCORPORATED On May 27, 1997, the Company entered into an agreement to merge with HFS Incorporated ("HFS") in a tax-free exchange of common shares. Under the terms of the agreement and plan of merger with HFS (the "Merger"), the Company plans to exchange 2.4031 shares of the Company's common stock, par value $.01 per share ("Common Stock"), for each outstanding share of HFS common stock. The consummation of this Merger is subject to certain customary closing conditions, and has been approved by the shareholders of both companies at a special meeting held on October 1, 1997. The transaction will be accounted for in accordance with the pooling- of-interests method of accounting and is expected to be completed in December 1997. Pursuant to the merger agreement, HFS shall be merged with and into the Company at the effective time of the Merger. Following the effective time of the Merger, the Company shall be the surviving corporation and shall succeed to and assume all of the rights and obligations of HFS. Also, following consummation of the Merger, the Company will change its name to "Cendant Corporation". In connection with the Merger, the Company intends to change its fiscal year end from January 31 to December 31. On October 29, 1997, the Company entered into an agreement to sell its wholly-owned subsidiary, Interval International, Inc., and certain related entities ("Interval") for approximately $200 million, subject to certain adjustments. The agreement contemplates that the Company will continue to provide existing services to Interval's developers and members. The sale of Interval is being proposed to address Federal Trade Commission ("FTC") concerns regarding the impact of the Merger on the timeshare exchange business. The consummation of the sale is subject to customary conditions as well as the Company and HFS having entered into a consent decree with the FTC in connection with the Merger. The following information reflects unaudited pro forma combined condensed financial statements of the Company and HFS. These financial statements include certain pro forma adjustments which give effect to the Merger and certain reclassifications to conform to the presentation to be used by the Company, post Merger. The pro forma balance sheet at October 31, 1997 reflects the historical financial position of the Company and HFS as of October 31, 1997 and September 30, 1997, respectively. The pro forma statements of income for the three and nine months ended October 31, 1997 include the historical operating results of the Company and HFS for the three and nine months ended October 31, 1997 and September 30, 1997, respectively. The pro forma statements of income for the three and nine months ended October 31, 1996 include the historical operating results of the Company and HFS for the three and nine months ended October 31, 1996 and September 30, 1996, respectively. CUC INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) NOTE 2 -- PENDING MERGER WITH HFS INCORPORATED (continued) Pro Forma Combined Condensed Balance Sheet (In thousands) At 10/31/97 9/30/97 Pro Forma Combined CUC HFS Adjustments Companies Assets Current Assets Cash and cash equivalents $ 986,892 $ 93,667 $1,080,559 Restricted cash 23,825 23,825 Marketable securities 139,893 139,893 Receivables, net 686,415 857,338 1,543,753 Other current assets 303,799 289,519 593,318 Total Current Assets 2,116,999 1,264,349 3,381,348 Deferred membership acquisition costs 419,807 419,807 Franchise agreements, net 942,780 942,780 Excess of cost over fair value of net assets acquired, net 649,652 1,913,478 2,563,130 Other intangible assets, net 27,196 769,497 796,693 Other assets 331,218 983,601 1,314,819 3,544,872 5,873,705 9,418,577 Assets under management and mortgage programs: Net investment in leases and leased vehicles 3,547,217 3,547,217 Relocation receivables 587,310 587,310 Mortgage loans held for sale 1,162,220 1,162,220 Mortgage servicing rights and fees 305,428 305,428 5,602,175 5,602,175 Total assets $3,544,872 $11,475,880 $15,020,752 Liabilities and Shareholders' Equity Current Liabilities - accounts payable, accrued expenses and other current liabilities $ 488,541 $ 915,216 $1,403,757 Deferred income 723,235 397,754 1,120,989 Long-term debt 629,557 1,662,169 2,291,726 Other non-current liabilities 56,979 204,608 261,587 1,898,312 3,179,747 5,078,059 Liabilities under management and mortgage programs: Debt 4,952,083 4,952,083 Deferred income taxes 300,683 300,683 5,252,766 5,252,766 Shareholders' Equity Common stock 4,333 1,628 $2,210(a) 8,171 Additional paid-in capital 752,566 2,277,933 (192,680)(a) 2,837,819 Retained earnings 999,768 966,385 1,966,153 Treasury stock (67,944) (190,470) 190,470(a) (67,944) Restricted stock, deferred compensation (28,272) (28,272) Foreign currency translation adjustment (13,891) (12,109) (26,000) Total Shareholders' Equity 1,646,560 3,043,367 4,689,927 Total liabilities and shareholders' equity $3,544,872 $11,475,880 $15,020,752 CUC INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) NOTE 2 -- PENDING MERGER WITH HFS INCORPORATED (continued) Pro Forma Combined Condensed Statements of Income (In thousands, except per share amounts) For the Three Months Ended 10/31/97 9/30/97 Pro Forma Combined CUC HFS Adjustment Companies Revenues Membership and service fees, net $649,485 $597,872 $1,247,357 Software 125,223 125,223 Fleet leasing (net of depreciation and interest costs of $307,908) 13,148 13,148 Other 38,860 38,860 Net revenues 774,708 649,880 1,424,588 Expenses Operating 233,574 222,771 456,345 Marketing and reservation 275,615 80,897 356,512 General and administrative 77,891 18,670 96,561 Depreciation and amortization 25,699 44,541 70,240 Interest, net (1,082) 17,239 16,157 Total expenses 611,697 384,118 995,815 Income before income taxes 163,011 265,762 428,773 Provision for income taxes 62,107 108,359 170,466 Net income $100,904 $157,403 $258,307 Per share information (d) Net income per share $0.23 $0.89 $0.30 Weighted average shares outstanding 456,217 179,703 252,141 888,061 For the Three Months Ended 10/31/96 9/30/96 Pro Forma Combined CUC HFS Adjustment Companies Revenues Membership and service fees, net $534,719 $389,527 $924,246 Software 98,611 98,611 Fleet leasing (net of depreciation and interest costs of $283,086) 14,297 14,297 Other 5,747 5,747 Net revenues 633,330 409,571 1,042,901 Expenses Operating 189,655 173,771 363,426 Marketing and reservation 233,485 50,044 283,529 General and administrative 66,164 17,647 83,811 Merger costs (c) 147,200 147,200 Depreciation and amortization 24,679 25,224 49,903 Interest, net 1,393 1,070 2,463 Total expenses 662,576 267,756 930,332 Income (loss) before income taxes (29,246) 141,815 112,569 Provision for (benefit from) income taxes (12,838) 56,941 44,103 Net income (loss) ($16,408) $84,874 $68,466 Per share information (d) Net income (loss) per share ($0.04) $0.50 $0.08 Weighted average shares outstanding 421,235 171,947 241,259 834,441 CUC INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) NOTE 2 -- PENDING MERGER WITH HFS INCORPORATED (continued) Pro Forma Combined Condensed Statements of Income (In thousands, except per share amounts) For the Nine Months Ended 10/31/97 9/30/97 Pro Forma Combined CUC HFS Adjustment Companies Revenues Membership and service fees, net $1,870,890 $1,627,076 $3,497,966 Software 297,423 297,423 Fleet leasing (net of depreciation and interest costs of $892,186) 42,905 42,905 Other, net 79,496 79,496 Net revenues 2,168,313 1,749,477 3,917,790 Expenses Operating 667,324 657,835 1,325,159 Marketing and reservation 759,807 211,378 971,185 General and administrative 251,475 75,782 327,257 Merger and restructuring charge associated with business combination (b) 303,000 303,000 Depreciation and amortization 59,652 131,075 190,727 Interest, net (3,190) 47,986 44,796 Total expenses 1,735,068 1,427,056 3,162,124 Income before income taxes 433,245 322,421 755,666 Provision for income taxes 165,259 180,364 345,623 Net income $267,986 $142,057 $410,043 Per share information (d) Net income per share $0.61 $0.83 $0.47 Weighted average shares outstanding 452,366 175,611 258,360 886,337 For the Nine Months Ended 10/31/96 9/30/96 Pro Forma Combined CUC HFS Adjustment Companies Revenues Membership and service fees, net $1,539,240 $ 974,754 $2,513,994 Software 228,096 228,096 Fleet leasing (net of depreciation and interest costs of $839,080) 41,016 41,016 Other, net 16,845 16,845 Net revenues 1,767,336 1,032,615 2,799,951 Expenses Operating 535,237 469,154 1,004,391 Marketing and reservation 660,914 115,994 776,908 General and administrative 198,500 56,836 255,336 Merger costs (c) 175,835 175,835 Depreciation and amortization 57,323 62,206 119,529 Interest, net 5,388 11,836 17,224 Total expenses 1,633,197 716,026 2,349,223 Income before income taxes 134,139 316,589 450,728 Provision for income taxes 56,697 128,098 184,795 Net income $77,442 $188,491 $265,933 Per share information (d) Net income per share $0.19 $1.20 $0.34 Weighted average shares outstanding 416,057 160,068 224,591 800,716 CUC INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) NOTE 2 -- PENDING MERGER WITH HFS INCORPORATED (continued) (a) In connection with the Merger, each outstanding share of HFS common stock will be converted into the right to receive 2.4031 shares of Common Stock. In addition, each share of HFS common stock that is owned by HFS or the Company will be cancelled and retired. The pro forma adjustments assume that all 159.7 million shares of HFS common stock outstanding at September 30, 1997 (exclusive of 3.1 million shares of HFS common stock in treasury which will be cancelled and retired in connection with the Merger) will be converted into approximately 383.8 million shares of Common Stock in accordance with the exchange ratio. (b) Includes a one-time pre-tax merger and restructuring charge of $303 million (after-tax of $227 million or $.26 per common share for the nine months ended October 31, 1997) recorded by HFS in connection with its merger with PHH Corporation. (c) Includes a one-time pre-tax merger and restructuring charge for the three and nine months ended October 31, 1996 of $147.2 million and $175.8 million, respectively (after-tax of $89.6 million and $114.6 million or $.11 and $.14 per common share for the three and nine months ended October 31, 1996, respectively), recorded by the Company in connection with the mergers with Davidson & Associates, Inc. ("Davidson"), Sierra On-Line, Inc. ("Sierra") and Ideon Group, Inc. ("Ideon"). (d) Net income per share has been computed based upon the combined weighted average outstanding shares of Common Stock and HFS common stock for each period. The historical weighted average number of outstanding shares of HFS common stock has been adjusted to reflect the exchange ratio of 2.4031 shares of Common Stock for each share of HFS common stock. It is expected that the Company will incur transaction costs associated with the Merger (including merger, transaction and restructuring costs related to the acquisition of Hebdo Mag International Inc. ("Hebdo Mag") - see Note 3 to condensed consolidated financial statements) which will be finalized upon completion of the Merger. NOTE 3 -- OTHER MERGERS AND ACQUISITIONS During October 1997, the Company, through a wholly-owned subsidiary ("Acquisition Sub"), acquired all of the outstanding capital stock of Hebdo Mag, pursuant to the terms of a Share Purchase Agreement dated August 13, 1997 among the Company, Acquisition Sub, Hebdo Mag and other parties thereto. The purchase price of approximately $440 million was satisfied by the issuance of approximately 14.2 million shares of Common Stock. In connection with this acquisition, the Company assumed long-term debt, with interest at LIBOR plus .27%, of which, at October 31, 1997, approximately $63.6 million of the assumed debt was outstanding. Hebdo Mag is a leading publisher and distributor of classified advertising information. The merger with Hebdo Mag has been accounted for in accordance with the pooling-of-interests method of accounting and, accordingly, the accompanying interim condensed consolidated financial statements have been retroactively adjusted as if Hebdo Mag and the Company had operated as one since inception. The following represents revenues and net income of the Company and Hebdo Mag for the nine months ended October 31, 1996 and the last complete interim period preceding the merger with Hebdo Mag (unaudited, in thousands). Six months ended Nine months ended July 31, 1997 October 31, 1996 Revenues: The Company $1,297,359 $1,673,426 Hebdo Mag 96,246 93,910 $1,393,605 $1,767,336 Net Income: The Company $162,783 $74,573 Hebdo Mag 4,299 2,869 $167,082 $77,442 CUC INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) NOTE 3 -- OTHER MERGERS AND ACQUISITIONS (continued) To conform to the Company's January 31 fiscal year-end, Hebdo Mag's operating results for January 1997 have been excluded from the nine months ended October 31, 1997 operating results in the accompanying financial statements. The excluded period has been adjusted by a $.6 million charge to retained earnings at October 31, 1997. During February 1997, the Company acquired substantially all of the assets and assumed specific liabilities of Numa Corporation for $73.5 million. The purchase price was satisfied by the issuance of 3.4 million shares of Common Stock. This acquisition was accounted for as a pooling-of-interests; however, financial statements for periods prior to the date of acquisition have not been restated due to immateriality. During the nine months ended October 31, 1997, the Company acquired certain other entities for an aggregate purchase price of $63.3 million, satisfied by the payment of $27.5 million in cash and the issuance of 1.5 million shares of Common Stock. The excess of cost over net assets acquired resulting from these acquisitions aggregated $89.9 million. These acquisitions were accounted for in accordance with the purchase method of accounting and, accordingly, the results of operations have been included in the consolidated results of operations from the respective dates of acquisition. The results of operations for the periods prior to the respective dates of acquisition were not significant to the Company's operations. Principally in connection with the Davidson, Sierra and Ideon mergers which occurred during fiscal 1997, the Company charged approximately $179.9 million to operations as merger, integration, restructuring and litigation charges during the year ended January 31, 1997. Such costs in connection with the Davidson and Sierra mergers with the Company (approximately $48.6 million) are non-recurring and are comprised primarily of transaction costs, other professional fees and integration costs. Such costs associated with the Company's merger with Ideon (approximately $127.2 million) are non-recurring and include integration and transaction costs as well as a provision relating to certain litigation matters (see Note 6) giving consideration to the Company's intended approach to these matters. To date, such charges amounted to $155.7 million. NOTE 4 -- SHAREHOLDERS' EQUITY AND NET INCOME PER COMMON SHARE The change in common stock, additional paid-in capital and treasury stock relates principally to acquisitions and stock option activity. Net income per common share, assuming the conversions of subordinated convertible notes during the three and nine months ended October 31, 1997 occurred at the beginning of such period, would not differ significantly from the Company's actual earnings per share for such period. Net income per common share includes the weighted average number of common and common equivalent shares outstanding during the respective periods. Common stock equivalents for the three and nine month periods ended October 31, 1997 includes the dilutive effect of the 3% convertible subordinated notes issued February 11, 1997 using the if-converted method. At the end of fiscal year, the Company is required to adopt Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". This new rule requires the Company to change the method currently used to compute earnings per share and requires restatement of all prior periods. Under the new requirements, the dilutive effect of stock options and convertible securities are excluded from computing primary earnings per share. The impact of SFAS No. 128 on the calculation of primary and fully diluted earnings per share for the three and nine months ended October 31, 1997 and 1996 is not expected to be material. NOTE 5 -- SOFTWARE RESEARCH AND DEVELOPMENT COSTS AND COSTS OF SOFTWARE REVENUE Software research and development costs are included in operating expenses and aggregated $32 million and $15.9 million for the three months ended October 31, 1997 and 1996, respectively, and $84.9 million and $46.1 million for the nine months ended October 31, 1997 and 1996, respectively. Costs of software revenue are included in operating expenses and aggregated $31.8 million and $24 million for the three months ended October 31, 1997 and 1996, respectively, and $88.7 million and $69.9 million for the nine months ended October 31, 1997 and 1996, respectively. CUC INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) NOTE 6 -- CONTINGENCIES - IDEON On June 13, 1997, the Company entered into an agreement (the "Agreement") with Peter Halmos, the co-founder of SafeCard Services, Incorporated ("SafeCard"), which was reorganized in 1995 as Ideon. The Company acquired Ideon in August 1996. The Agreement, provides for the settlement of all of the outstanding litigations involving Peter Halmos, SafeCard and Ideon previously described in the Company's Form 10-K. The Agreement became effective in July 1997. The Agreement calls for the dismissal with prejudice of these outstanding litigation matters and the payment to Peter Halmos, over a six-year period, of $70.5 million. Specifically, the Agreement requires that the Company pay Peter Halmos one up-front payment of $13.5 million and six subsequent annual payments of $9.5 million each. The Agreement also calls for the transfer to the Company of assets related to SafeCard's CreditLine business, including the transfer by CreditLine Corporation to the Company of all of CreditLine Corporation's rights under a marketing agreement between it and SafeCard dated November 1, 1988. The following Halmos related cases have been dismissed pursuant to the Agreement: 1. Halmos Trading & Investing Company v. SafeCard Services, Inc. and Gerald Cahill v. Peter A. Halmos and Steven J. Halmos and Halmos Trading & Investment Co., Case No. 93- 04354 (06) in the Circuit Court for the 17th Judicial Circuit in and for Broward County, Florida. 2. SafeCard Services, Inc. v. Peter Halmos, a Florida resident; High Plains Capital Corporation, a Wyoming corporation; and CreditLine Corporation, a Wyoming corporation, in the District Court, First Judicial District of Laramie County, Wyoming; Case No. Doc. 134, No. 192. 3. Peter Halmos, CreditLine Corporation and Continuity Marketing Corporation v. Paul G. Kahn, William T. Bacon, Robert L. Dilenschneider, Eugene Miller and SafeCard Services, Inc., in the United States District Court, Southern District of Florida, Case No. 94-6920 CG-NESBITT. 4. Peter Halmos v. SafeCard Services, Inc., William T. Bacon, Jr., Barry I. Tillis and Barry Natter, Case No. 95-6325 (AJ) filed in the Circuit Court, Fifteenth Judicial Circuit, in and for Palm Beach County, Florida. 5. High Plains Capital Corporation f/k/a Halmos & Company, Inc. v. Ideon Group, Inc., SafeCard Services, Inc., Eugene Miller, Robert L. Dillenschneider, and the Dilenschneider Group, Inc., Palm Beach County, Florida, Civil Action No. CL 95 8313 AE (Hon. Walter Colbath). 6. High Plains Capital Corporation v. Ideon Group, Inc., and SafeCard Services, Inc., Civil Action No. 95 015024, Seventeenth Judicial Circuit, Broward County, Florida. The following Halmos related case will also be dismissed pursuant to the Agreement: 7. Ideon Group, Inc., SafeCard Services, Inc., Paul G. Kahn, William T. Bacon, Jr., Marshall L. Burman, John Ellis (Jeb) Bush, Robert L. Dilenschneider, Adam W. Herbert, Eugene Miller, and Thomas F. Petway, III v. Peter Halmos, Civil Action No. 14600, filed in the Court of Chancery of New Castle County, Delaware. CUC INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) NOTE 6 -- CONTINGENCIES - IDEON (continued) On October 22, 1997, the plaintiffs, the Company and all of the Company's indemnitees, entered into a Memorandum of Understanding and thereafter filed final settlement agreements in James B. Chambers and Peter A. Halmos v. SafeCard Services, Inc.; Ideon Group, Inc.; Paul G. Kahn; William T. Bacon, Jr.; Robert L. Dilenschneider; The Dilenschneider Group; Eugene Miller; G. Thomas Frankland; Francis J. Marino; John R. Birk; Marshall Burman; Thomas F. Petway III; John Ellis Bush; Adam W. Herbert, Jr.; Price Waterhouse LLP; Mahoney Adams & Criser, P.A. and John Does 1 through 25, United States District Court, Southern District of Florida, Case No. 95-1298-CIV-NESBITT ("Chambers"); Lois Hekker v. Ideon Group, Inc. and Paul G. Kahn, United States District Court, Middle District of Florida, Jacksonville Division, Case No. 95-681-CIV-J ("Hekker"); and James L. Binder, individually, as custodian for Elizabeth Binder, and as custodian for the James L. Binder, D.D.S., P.C. Profit Sharing Trust; Edward Dubois; Sheila Ann Dubois, as Personal Representative for The Estate of Winifred Dubois; G. Neal Goolsby; John E. Masters, individually and as custodian for Gregory Halmos and Nicholas Halmos; J.B. McKinney; on behalf of themselves and all others similarly situated, and Peter A. Halmos, as Trustee for the Peter A. Halmos Revocable Trust Dated January 24, 1990, and The Halmos Foundation, Inc., individually, v. Safecard Services, Inc., a Delaware corporation; Paul G. Kahn; William T. Bacon, Jr.; Robert L. Dilenschneider; The Dilenschneider Group, a Delaware corporation; Eugene Miller; Gerald R. Cahill; Oppenheimer & Co., Inc., a Delaware corporation; and John Does 1 through 100, inclusive, United States District Court for the Southern District of Florida, (Miami Division) Case No. 94-2604-CIV-MOORE ("Binder"). The above referenced settlement in the Chambers and Hekker matters calls for payment by the Company to class members of $15 million. The settlement in the Binder litigation calls for the payment by the Company to class members of $3 million. These settlements must be approved by the court at hearings anticipated in January and February 1998. The following actions remaining pending, in whole or in part, as described below: A suit initiated by Peter Halmos, related entities, and Myron Cherry (a former lawyer for SafeCard) in July 1993 in Cook County Circuit Court in Illinois against SafeCard and one of Ideon's directors, purporting to state claims aggregating in excess of $100 million, principally relating to alleged rights to "incentive compensation," stock options or their equivalent, indemnification, wrongful termination and defamation. On February 7, 1995, the court dismissed with prejudice Peter Halmos' claim regarding alleged rights to "incentive compensation," stock options or their equivalent, wrongful termination and defamation. Mr. Halmos has appealed this ruling. SafeCard has filed an answer to the remaining indemnification claims. Its obligation to file an answer to the claims of Myron Cherry have been stayed pending settlement discussions. On December 28, 1995, the court stayed Halmos' indemnification claims pending resolution of a declaratory judgment action filed by Ideon in Delaware Chancery Court. As a result of the Halmos settlement described above only the claims of Myron Cherry remain pending. A suit seeking monetary damages and injunctive relief by LifeFax, Inc. and Continuity Marketing Corporation, companies affiliated with Peter Halmos, in the State Circuit Court in Palm Beach County, Florida in July 1995 against Ideon, Family Protection Network, Inc., SafeCard, one of Ideon's directors and Ideon's Chief Executive Officer purporting to state various statutory and tort claims. The claims principally relate to the allegation by these companies that SafeCard's Family Protection Network was conceived and commercialized by, among others, Peter Halmos and have been improperly copied. An amended complaint filed on June 14, 1995 seeking monetary damages adds to the prior claims certain claims by Nicholas Rubino that principally relate to the allegation that SafeCard's Pet Registration Product was conceived by Mr. Rubino and has been improperly copied. The Company has filed an appropriate answer. As a result of the Halmos settlement, all claims of Continuity Marketing Corporation will be dismissed, leaving pending only the claims related to Family Protection Network and the Pet Registration Program. A suit by Frist Capital Partners, Thomas F. Frist III and Patricia F. Elcan against Ideon and two of its employees in the United States District Court for the Southern District of New York. The litigation involves claims against Ideon, its former CEO and its Vice President of Investor Relations for alleged material misrepresentations and omissions in connection with announcements relating to Ideon's expected earnings per share in 1995 and its new product sales, which included the PGA Tour Card Program, Family Protection Network and Collections of the Vatican Museums. On July 15, 1996, Ideon filed a motion to dismiss. The Company withdrew its motion to dismiss and answered the complaint on December 5, 1996. CUC INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) NOTE 6 -- CONTINGENCIES - IDEON (continued) The Company established a reserve upon the consummation of the merger with Ideon during the third quarter of fiscal 1997 related, in part, to these litigation matters. Although not anticipated, in the event the foregoing class action settlements are not approved by the Court, the outcome of the class action matters described above as well as the other pending Ideon matters could also exceed the amount accrued. The Company is also involved in certain other claims and litigation arising in the ordinary course of business, which are not considered material to the financial position, operations or cash flows of the Company. ITEM 2. CUC INTERNATIONAL INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended October 31, 1997 vs. Three Months Ended October 31, 1996 The Company's overall membership base continues to grow at a rapid rate (from 63.8 million members at October 31, 1996 to 72.9 million members at October 31, 1997), which is the largest contributing factor to the 21% increase in membership revenues (from $534.7 million for the quarter ended October 31, 1996 to $649.5 million for the quarter ended October 31, 1997). While the overall membership base increased by approximately 2.2 million members during the quarter, the average annual fee collected for the Company's membership services increased by approximately 1%. The Company divides its memberships into three categories: individual, wholesale and discount program memberships. Individual memberships consist of members that pay directly for the services and the Company pays for the marketing costs to solicit the member, primarily using direct marketing techniques. Wholesale memberships include members that pay directly for the services to their sponsor and the Company does not pay for the marketing costs to solicit the members. Discount program memberships are generally marketed through a direct sales force, participating merchant or general advertising and the related fees are either paid directly by the member or the local retailer. All of these categories share various aspects of the Company's marketing and operating resources. Compared to the previous year's third quarter, individual, wholesale and discount program memberships grew by 13%, 21% and 13%, respectively. Wholesale memberships have grown in part due to the success of the Company's international business in Europe. For the quarter ended October 31, 1997, individual, wholesale and discount program memberships represented 67%, 14% and 19% of membership revenues, respectively. The Company maintains a flexible marketing plan so that it is not dependent on any one service for the future growth of the total membership base. Software revenues increased 27% from $98.6 million for the quarter ended October 31, 1996 to $125.2 million for the quarter ended October 31, 1997. Distribution revenue, which consists principally of third-party software and typically has low operating margins, increased 45% from $11 million for the quarter ended October 31, 1996 to $16 million for the quarter ended October 31, 1997. The Company's software operations continue to grow by focusing on selling titles through retailers. Excluding distribution revenue, core software revenue grew by 25%. Contributing to the software revenue growth in the current fiscal year is the availability of a larger number of titles as well as the significant increase in the installed base of CD-ROM personal computers. As the Company's membership services continue to mature, a greater percentage of the total individual membership base is in its renewal years. This results in increased profit margins for the Company due to the significant decrease in certain marketing costs incurred on renewing members. Improved response rates for new members also favorably impacted profit margins. As a result, operating income before other interest (income) expense, net, interest expense on 3% convertible notes, merger costs and income taxes ("EBIT") increased from $119.3 million to $161.9 million and EBIT margins improved from 18.8% to 20.9%. Individual membership usage continues to increase, which contributes to additional service fees and indirectly contributes to the Company's strong renewal rates. Historically, an increase in overall membership usage has had a favorable impact on renewal rates. The Company records its deferred revenue net of estimated cancellations which are anticipated in the Company's marketing programs. Included in total revenues for the quarter ended October 31, 1997, are revenues resulting from acquisitions which were completed during the nine months ended October 31, 1997. However, total revenues contributed from these acquisitions are not material to the Company's total reported revenues. CUC INTERNATIONAL INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Three Months Ended October 31, 1997 vs. Three Months Ended October 31, 1996 (continued) Operating costs increased 23% (from $189.7 million to $233.6 million). The major components of the Company's membership operating costs continue to be personnel, telephone, computer processing and participant insurance premiums (the cost of obtaining insurance coverage for members). Historically, the Company has seen a direct correlation between providing a high level of service to its members and improved retention. The major components of the Company's software operating costs are material costs, manufacturing labor and overhead, royalties paid to developers and affiliated label publishers and research and development costs related to designing, developing and testing new software products. The increase in overall operating costs is due principally to the variable nature of many of these costs and, therefore, the additional costs incurred to support the growth in the membership base and software sales. Marketing costs decreased as a percentage of revenue, from 37% to 36%. This decrease is primarily due to improved per member acquisition costs and an increase in renewing members. Membership acquisition costs incurred increased 22% (from $156.9 million to $190.9 million) as a result of the increased marketing effort which resulted in an increased number of new members acquired. Marketing costs include the amortization of membership acquisition costs and other marketing costs, which primarily consist of membership communications and sales expenses. Amortization of membership acquisition costs decreased by 3% (from $159.2 million to $154.3 million), which reflects a reduction in membership acquisition costs period to period resulting from increased conversion rates in the Company's membership marketing programs. Other marketing costs increased by 63% (from $74.3 million to $121.3 million). The overall increase in marketing costs resulted primarily from the costs of servicing a larger membership base and expenses incurred when selling and marketing a larger number of software titles. The marketing functions for the Company's membership services are combined for its various services, and, accordingly, there are no significant changes in marketing costs by membership service. The Company routinely reviews all membership renewal rates and has not seen any material change over the last year in the average renewal rate. Renewal rates are calculated by dividing the total number of renewing members not requesting a refund during their renewal year by the total members eligible for renewal. General and administrative costs decreased as a percentage of revenue (from 14% to 13%). This is a result of the Company's ongoing focus on controlling overhead. Other interest, net, increased from an expense of $1.4 million to income of $5.2 million primarily due to the increased level of cash generated by the Company from the proceeds of its issuance of 3% convertible subordinated notes in February 1997 (see "Liquidity And Capital Resources; Inflation; Seasonality"). CUC INTERNATIONAL INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Nine Months Ended October 31, 1997 vs. Nine Months Ended October 31, 1996 The Company's overall membership base continues to grow at a rapid rate (from 63.8 million members at October 31, 1996 to 72.9 million members at October 31, 1997), which is the largest contributing factor to the 22% increase in membership revenues (from $1,539.2 million for the nine months ended October 31, 1996 to $1,870.9 million for the nine months ended October 31, 1997). While the overall membership base increased by approximately 6.6 million members during the nine months ended October 31, 1997, the average annual fee collected for the Company's membership services increased by approximately 3%. The Company divides its memberships into three categories: individual, wholesale and discount program memberships. Individual memberships consist of members that pay directly for the services and the Company pays for the marketing costs to solicit the member, primarily using direct marketing techniques. Wholesale memberships include members that pay directly for the services to their sponsor and the Company does not pay for the marketing costs to solicit the members. Discount program memberships are generally marketed through a direct sales force, participating merchant or general advertising and the related fees are either paid directly by the member or the local retailer. All of these categories share various aspects of the Company's marketing and operating resources. Compared to the previous year's first nine months, individual, wholesale and discount program memberships grew by 10%, 23% and 12%, respectively. Wholesale memberships have grown in part due to the success of the Company's international business in Europe. For the nine months ended October 31, 1997, individual, wholesale and discount program memberships represented 67%, 14% and 19% of membership revenues, respectively. The Company maintains a flexible marketing plan so that it is not dependent on any one service for the future growth of the total membership base. Software revenues increased 30% from $228.1 million for the nine months ended October 31, 1996 to $297.4 million for the nine months ended October 31, 1997. Distribution revenue, which consists principally of third-party software and typically has low operating margins, increased 35% from $38.5 million for the nine months ended October 31, 1996 to $51.8 million for the nine months ended October 31, 1997. The Company's software operations continue to grow by focusing on selling titles through retailers. Excluding distribution revenue, core software revenue grew by 30%. Contributing to the software revenue growth in the current fiscal year is the availability of a larger number of titles as well as the significant increase in the installed base of CD-ROM personal computers. As the Company's membership services continue to mature, a greater percentage of the total individual membership base is in its renewal years. This results in increased profit margins for the Company due to the significant decrease in certain marketing costs incurred on renewing members. Improved response rates for new members also favorably impacted profit margins. As a result, EBIT increased from $315.4 million to $430.1 million and EBIT margins improved from 17.8% to 19.8%. Individual membership usage continues to increase, which contributes to additional service fees and indirectly contributes to the Company's strong renewal rates. Historically, an increase in overall membership usage has had a favorable impact on renewal rates. The Company records its deferred revenue net of estimated cancellations which are anticipated in the Company's marketing programs. Included in total revenues for the nine months ended October 31, 1997, are revenues resulting from acquisitions which were completed during the nine months ended October 31, 1997. However, total revenues contributed from these acquisitions are not material to the Company's total reported revenues. CUC INTERNATIONAL INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Nine Months Ended October 31, 1997 vs. Nine Months Ended October 31, 1996 (continued) Operating costs increased 25% (from $535.2 million to $667.3 million). The major components of the Company's membership operating costs continue to be personnel, telephone, computer processing and participant insurance premiums (the cost of obtaining insurance coverage for members). Historically, the Company has seen a direct correlation between providing a high level of service to its members and improved retention. The major components of the Company's software operating costs are material costs, manufacturing labor and overhead, royalties paid to developers and affiliated label publishers and research and development costs related to designing, developing and testing new software products. The increase in overall operating costs is due principally to the variable nature of many of these costs and, therefore, the additional costs incurred to support the growth in the membership base and software sales. Marketing costs decreased as a percentage of revenue, from 37% to 35%. This decrease is primarily due to improved per member acquisition costs and an increase in renewing members. Membership acquisition costs incurred increased 1% (from $467.3 million to $474.1 million) primarily due to the increased marketing effort which resulted in an increased number of new members acquired. Marketing costs include the amortization of membership acquisition costs and other marketing costs, which primarily consist of membership communications and sales expenses. Amortization of membership acquisition costs decreased by 5% (from $478.8 million to $455.9 million), which reflects a reduction in membership acquisition costs period to period resulting from increased conversion rates in the Company's membership marketing programs. Other marketing costs increased by 67% (from $182.1 million to $303.9 million). The overall increase in marketing costs resulted primarily from the costs of servicing a larger membership base and expenses incurred when selling and marketing a larger number of software titles. The marketing functions for the Company's membership services are combined for its various services, and, accordingly, there are no significant changes in marketing costs by membership service. The Company routinely reviews all membership renewal rates and has not seen any material change over the last year in the average renewal rate. Renewal rates are calculated by dividing the total number of renewing members not requesting a refund during their renewal year by the total members eligible for renewal. General and administrative costs remained constant as a percentage of revenue (14%). This is a result of the Company's ongoing focus on controlling overhead. Other interest, net, increased from an expense of $5.4 million to income of $15.1 million primarily due to the increased level of cash generated by the Company from the proceeds of its issuance of 3% convertible subordinated notes in February 1997 (see "Liquidity And Capital Resources; Inflation; Seasonality"). CUC INTERNATIONAL INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Membership Information The following chart sets forth the approximate number of members and net additions for the respective periods. All membership data has been restated to reflect the acquisition of Ideon in August 1996; however it has not been restated to reflect other members added through acquisitions ("Acquired Members"). Net New Member Number of Additions Period Members for the Period Nine Months Ended October 31, 1997 72,910,000 6,575,000 Year Ended January 31, 1997 66,335,000 6,685,000 Nine Months Ended October 31, 1996 63,835,000 4,185,000 Year Ended January 31, 1996 59,650,000 12,750,000* Quarter Ended October 31, 1997 72,910,000 2,225,000 Quarter Ended October 31, 1996 63,835,000 1,520,000 *Includes approximately 8 million Acquired Members. The membership acquisition costs incurred applicable to obtaining a new member, for memberships other than coupon book memberships, generally approximate the initial membership fee. Initial membership fees for coupon book memberships generally exceed the membership acquisition costs incurred applicable to obtaining a new member. Membership cancellations processed by certain of the Company's clients report membership information only on a net basis. Accordingly, the Company does not receive actual numbers of gross additions and gross cancellations for certain types of memberships. In calculating the number of members, the Company has deducted its best estimate of cancellations which may occur during the trial membership periods offered in its marketing programs. Typically, these periods range from one to three months. Liquidity And Capital Resources; Inflation; Seasonality Funds for the Company's operations have been provided principally through cash flows from operations and credit facilities, while acquisitions have also been funded through the issuance of Common Stock. The Company entered into a credit agreement effective March 26, 1996 which provides for a $500 million revolving credit facility with a variety of different types of loans available thereunder ("Credit Agreement"). At October 31, 1997, no borrowings under the Credit Agreement were outstanding. The Credit Agreement currently is scheduled to expire March 26, 2001; however, the Company has agreed with the lenders to terminate the Credit Agreement upon the consummation of the Merger. On February 11, 1997, the Company issued $550 million in principal amount of 3% convertible subordinated notes (the "3% Notes") due February 15, 2002. Interest on the 3% Notes is payable semi- annually on February 15 and August 15 of each year, commencing August 15, 1997. For the nine month period ended October 31, 1997, interest expense on the 3% Notes was $11.9 million. The Company invested approximately $76.4 million in acquisitions, net of cash acquired, during the nine months ended October 31, 1997. Substantially all acquisitions have been fully integrated into the Company's operations. The Company is not aware of any trends, demands or uncertainties that will have a material effect on the Company's liquidity. The Company anticipates that cash flows from operations and its credit facilities will be sufficient to achieve its current long-term objectives. The Company does not anticipate any material capital expenditures for the remainder of the year. Total capital expenditures were $52.3 million for the nine months ended October 31, 1997. The Company intends to continue to review potential acquisitions that it believes would enhance the Company's growth and profitability. Any acquisitions will initially be financed through the issuance of Common Stock, excess cash flows from operations, the Company's Credit Agreement or from the proceeds of the issuance of the 3% Notes. However, depending on the financing necessary to complete an acquisition, additional funding may be required. CUC INTERNATIONAL INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Liquidity And Capital Resources; Inflation; Seasonality (continued) To date, the overall impact of inflation on the Company has not been material. Except for the cash receipts from the sale of coupon book memberships, the Company's membership business is generally not seasonal. Most cash receipts from these coupon book memberships are received in the fourth quarter and, to a lesser extent, in the first and the third quarters of each fiscal year. As is typical in the consumer software industry, the Company's software business is highly seasonal. Net revenues and operating income are highest during the third and fourth quarters and are lowest in the first and second quarters. This seasonal pattern is primarily due to the increased demand for the Company's software products during the year-end holiday selling season. For the nine months ended October 31, 1997, the Company's international businesses represented less than 10% of EBIT. Operating in international markets involves dealing with sometimes volatile movements in currency exchange rates. The economic impact of currency exchange rate movements on the Company is complex because it is linked to variability in real growth, inflation, interest rates and other factors. Because the Company operates in a mix of membership services and numerous countries, management believes currency exposures are fairly well diversified. To date, currency exposure has not been a significant competitive factor at the local market operating level. As international operations continue to expand and the number of cross-border transactions increases, the Company intends to continue monitoring its currency exposures closely and take prudent actions as appropriate. On October 29, 1997, the Company entered into an agreement to sell Interval for approximately $200 million, subject to certain adjustments. The agreement contemplates that the Company will continue to provide existing services to Interval's developers and members. The sale of Interval is being proposed to address FTC concerns regarding the impact of the Merger on the timeshare exchange business. The consummation of the sale is subject to customary conditions as well as the Company and HFS having entered into a consent decree with the FTC in connection with the Merger. Forward-Looking Statements Except for historical information contained herein, the above discussion contains certain forward-looking statements that involve potential risks and uncertainties. The Company's future results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, changes in market conditions, effects of state and federal regulations and risks inherent in international operations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof or to reflect the occurrence of unanticipated events. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Ideon and certain of its subsidiaries are defending or prosecuting a number of complex lawsuits (See Note 6 to Condensed Consolidated Financial Statements). ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS During the fiscal quarter ended October 31, 1997, the Company issued the following equity securities that were not registered under the Securities Act: (a) On October 2, 1997, the Company issued 14,202,924 shares of Common Stock to the shareholders of Hebdo Mag in connection with the acquisition by the Company of all of the outstanding capital stock of Hebdo Mag. The issuance was made pursuant to the exemption from registration provided by Section 4(2) of the Securities Act, as this issuance of Common Stock did not involve a "public offering" pursuant to the Securities Act given the limited number and scope of persons to whom the securities were issued. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held a special meeting of its shareholders on October 1, 1997, pursuant to a Notice of Special Meeting and Proxy Statement dated August 28, 1997, a copy of which has been filed previously with the Securities and Exchange Commission, at which shareholders of the Company considered and approved the proposed Merger of the Company and HFS (and related transactions contemplated thereby) and the Company's 1997 Stock Incentive Plan. The results of such matters are as follows: Proposal 1: To approve the proposed Merger of the Company and HFS (and related transactions contemplated thereby). Results: For Against Abstain 280,653,487 630,695 911,958 Proposal 2: To approve the Company's 1997 Stock Incentive Plan. Results: For Against Abstain 214,725,702 65,934,965 1,535,472 ITEM 5. OTHER INFORMATION On May 27, 1997, the Company entered into an agreement to merge with HFS. The consummation of this Merger is subject to certain customary closing conditions, and has been approved by the shareholders of both companies. See Note 2 to Condensed Consolidated Financial Statements for additional information relating to the Merger including unaudited pro forma combined condensed financial statements as of October 31, 1997 and for the three and nine months ended October 31, 1997 and 1996. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a)Exhibit No. Description 3.1 Amended and Restated Certificate of Incorporation of the Company, as filed June 5, 1996 (filed as Exhibit 3.1 to the Company's Form 10-Q for the period ended April 30, 1996).* 3.2 By-Laws of the Company (filed as Exhibit 3.2 to the Company's Registration Statement, No. 33-44453, on Form S-4 dated December 19, 1991).* 4.1 Form of Stock Certificate (filed as Exhibit 4.1 to the Company's Registration Statement, No. 33-44453, on Form S-4 dated December 19, 1991).* 4.2 Indenture dated as of February 11, 1997, between CUC International Inc. and Marine Midland Bank, as trustee (filed as Exhibit 4(a) to the Company's Report on Form 8-K filed February 13, 1997).* 10.1-10.21 Management Contracts, Compensatory Plans and Arrangements 10.1 Agreement with E. Kirk Shelton, dated as of May 15, 1996 (filed as Exhibit 10.1 to the Company's Form 10-Q for the period ended July 31, 1996).* 10.2 Agreement with Christopher K. McLeod, dated as of May 15, 1996 (filed as Exhibit 10.2 to the Company's Form 10-Q for the period ended July 31, 1996).* 10.3 Amended and Restated Employment Contract with Walter A. Forbes, dated as of May 15, 1996 (filed as Exhibit 10.3 to the Company's Form 10-Q for the period ended July 31, 1996).* 10.4 Agreement with Cosmo Corigliano, dated February 1, 1994 (filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1995).* 10.5 Amendment to Agreement with Cosmo Corigliano, dated February 21, 1996 (filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996).* 10.6 Amendment to Agreement with Cosmo Corigliano, dated January 1, 1997 (filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1997).* 10.7 Agreement with Amy N. Lipton, dated February 1, 1996 (filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996).* 10.8 Amendment to Agreement with Amy N. Lipton, dated January 1, 1997 (filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1997).* 10.9 Employment Agreement with Kenneth A. Williams, dated July 24, 1996 (filed as Exhibit 10.11 to the Company's Form 10-Q for the period ended July 31, 1996).* 10.10 Non-Competition Agreement with Kenneth A. Williams, dated July 24, 1996 (filed as Exhibit 10.12 to the Company's Form 10-Q for the period ended July 31, 1996).* 10.11 Form of Employee Stock Option under the 1987 Stock Option Plan, as amended (filed as Exhibit 10.13 to the Company's Form 10-Q for the period ended October 31, 1996).* 10.12 Form of Director Stock Option for 1990 and 1992 Directors Stock Options Plans (filed as Exhibit 10.4 to the Company's Annual Report for the fiscal year ended January 31, 1991, as amended December 12, 1991 and December 19, 1991).* 10.13 Form of Director Stock Option for 1994 Directors Stock Option Plan, as amended (filed as Exhibit 10.15 to the Company's Form 10-Q for the period ended October 31, 1996).* PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued) (a) Exhibit No. Description 10.14 1987 Stock Option Plan, as amended (filed as Exhibit 10.16 to the Company's Form 10-Q for the period ended October 31, 1996).* 10.15 1990 Directors Stock Option Plan, as amended (filed as Exhibit 10.17 to the Company's Form 10-Q for the period ended October 31, 1996).* 10.16 1992 Directors Stock Option Plan, as amended (filed as Exhibit 10.18 to the Company's Form 10-Q for the period ended October 31, 1996).* 10.17 1994 Directors Stock Option Plan, as amended (filed as Exhibit 10.19 to the Company's Form 10-Q for the period ended October 31, 1996).* 10.18 1996 Executive Retirement Plan (filed as Exhibit 10.22 to the Company's Form 10-Q for the period ended April 30, 1997).* 10.19 1997 Stock Option Plan (filed as Exhibit 10.23 to the Company's Form 10-Q for the period ended April 30, 1997).* 10.20 Form of Employee Stock Option under the 1997 Stock Option Plan (filed as Exhibit 10.24 to the Company's Form 10-Q for the period ended April 30, 1997).* 10.21 Restricted Stock Plan and Form of Restricted Stock Plan Agreement (filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1991, as amended December 12, 1991 and December 19, 1991).* 10.22 Credit Agreement, dated as of March 26, 1996, among: CUC International Inc.; the banks signatory thereto; The Chase Manhattan Bank, N.A., Bank of Montreal, Morgan Guaranty Trust Company of New York, and The Sakura Bank, Limited as Co-Agents; and The Chase Manhattan Bank, N.A., as Administrative Agent (filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996).* 10.23 Agreement and Plan of Merger, dated October 17, 1995, among CUC International Inc., Retreat Acquisition Corporation and Advance Ross Corporation (filed as Exhibit 2 to the Company's Registration Statement on Form S-4, Registration No. 33-64801, filed on December 7, 1995).* 10.24 Agreement and Plan of Merger, dated as of February 19, 1996, by and among Davidson & Associates, Inc., CUC International Inc. and Stealth Acquisition I Corp. (filed as Exhibit 2(a) to the Company's Report on Form 8-K filed March 12, 1996).* 10.25 Amendment No.1 dated as of July 24, 1996, among Davidson & Associates, Inc., CUC International Inc. and Stealth Acquisition I Corp. (filed as Exhibit 2.2 to the Company's Report on Form 8-K filed August 5, 1996).* 10.26 Agreement and Plan of Merger, dated as of February 19, 1996, by and among Sierra On-Line, Inc., CUC International Inc. and Larry Acquisition Corp. (filed as Exhibit 2(b) to the Company's Report on Form 8-K filed March 12, 1996).* 10.27 Amendment No.1 dated as of March 27, 1996, among Sierra On-Line, Inc., CUC International Inc. and Larry Acquisition Corp. (filed as Exhibit 2.4 to the Company's Report on Form 8-K filed August 5, 1996).* 10.28 Amendment No.2 dated as of July 24, 1996, among Sierra On-Line, Inc., CUC International Inc. and Larry Acquisition Corp. (filed as Exhibit 2.5 to the Company's Report on Form 8-K filed August 5, 1996).* PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued) (a) Exhibit No. Description 10.29 Agreement of Sale dated July 23, 1996, between Robert M. Davidson and Janice G. Davidson and CUC Real Estate Holdings, Inc. (filed as Exhibit 10.2 to the Company's Report on Form 8-K filed August 5, 1996).* 10.30 Agreement and Plan of Merger, dated as of July 19, 1996, by and among Ideon Group, Inc., CUC International Inc. and IG Acquisition Corp. (filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996).* 10.31 Form of U.S. Underwriting Agreement dated October 1996, among CUC International Inc., certain selling stockholders and the U.S. Underwriters (filed as Exhibit 1.1 (a) to the Company's Registration Statement on Form S-3, Registration No. 333-13537, filed on October 9, 1996).* 10.32 Form of International Underwriting Agreement dated October 1996, among CUC International Inc., certain selling stockholders and the International Underwriters (filed as Exhibit 1.1 (b) to the Company's Registration Statement on Form S-3, Registration No. 333-13537, filed on October 9, 1996).* 10.33 Registration Rights Agreement dated as of February 11, 1997, between CUC International Inc. and Goldman, Sachs & Co. (for itself and on behalf of the other purchasers party thereto) (filed as Exhibit 4(b) to the Company's Report on Form 8-K filed February 13, 1997).* 10.34 Agreement and Plan of Merger between CUC International Inc. and HFS Incorporated, dated as of May 27, 1997 (filed as Exhibit 2.1 to the Company's Report on Form 8-K filed on May 29, 1997).* 10.35 Plan for Corporate Governance of CUC International Inc. following the Effective Time (filed as Exhibit 99.2 to the Company's Report on Form 8-K filed on May 29, 1997).* 11 Statement re: Computation of Per Share Earnings (Unaudited) 27 Financial data schedule (b) During the quarter ended October 31, 1997, the Company filed the following Current Reports on Form 8-K: (1) Current Report on Form 8-K, filed on August 15, 1997, reporting an Item 5 ("Other Events") event and an Item 7 ("Financial Statements, Pro Forma Financial Information and Exhibits") event. (2) Current Report on Form 8-K, filed on October 31, 1997, reporting an Item 5 ("Other Events") event and an Item 7 ("Financial Statements, Pro Forma Financial Information and Exhibits") event. *Incorporated by reference SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CUC INTERNATIONAL INC. (Registrant) Date: December 15, 1997 By: WALTER A. FORBES Walter A. Forbes - Chief Executive Officer and Chairman of the Board (Principal Executive Officer) Date: December 15, 1997 By: COSMO CORIGLIANO Cosmo Corigliano - Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) INDEX TO EXHIBITS Exhibit No. Description Page 3.1 Amended and Restated Certificate of Incorporation of the Company, as filed June 5, 1996 (filed as Exhibit 3.1 to the Company's Form 10-Q for the period ended April 30, 1996).* 3.2 By-Laws of the Company (filed as Exhibit 3.2 to the Company's Registration Statement, No. 33-44453, on Form S-4 dated December 19, 1991).* 4.1 Form of Stock Certificate (filed as Exhibit 4.1 to the Company's Registration Statement, No. 33-44453, on Form S-4 dated December 19, 1991).* 4.2 Indenture dated as of February 11, 1997, between CUC International Inc. and Marine Midland Bank, as trustee (filed as Exhibit 4(a) to the Company's Report on Form 8-K filed February 13, 1997).* 10.1-10.21 Management Contracts, Compensatory Plans and Arrangements 10.1 Agreement with E. Kirk Shelton, dated as of May 15, 1996 (filed as Exhibit 10.1 to the Company's Form 10-Q for the period ended July 31, 1996).* 10.2 Agreement with Christopher K. McLeod, dated as of May 15, 1996 (filed as Exhibit 10.2 to the Company's Form 10-Q for the period ended July 31, 1996).* 10.3 Amended and Restated Employment Contract with Walter A. Forbes, dated as of May 15, 1996 (filed as Exhibit 10.3 to the Company's Form 10-Q for the period ended July 31, 1996).* 10.4 Agreement with Cosmo Corigliano, dated February 1, 1994 (filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1995).* 10.5 Amendment to Agreement with Cosmo Corigliano, dated February 21, 1996 (filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996).* 10.6 Amendment to Agreement with Cosmo Corigliano, dated January 1, 1997 (filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1997).* 10.7 Agreement with Amy N. Lipton, dated February 1, 1996 (filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996).* 10.8 Amendment to Agreement with Amy N. Lipton, dated January 1, 1997 (filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1997).* 10.9 Employment Agreement with Kenneth A. Williams, dated July 24, 1996 (filed as Exhibit 10.11 to the Company's Form 10-Q for the period ended July 31, 1996).* 10.10 Non-Competition Agreement with Kenneth A. Williams, dated July 24, 1996 (filed as Exhibit 10.12 to the Company's Form 10-Q for the period ended July 31, 1996).* INDEX TO EXHIBITS Exhibit No. Description Page 10.11 Form of Employee Stock Option under the 1987 Stock Option Plan, as amended (filed as Exhibit 10.13 to the Company's Form 10-Q for the period ended October 31, 1996).* 10.12 Form of Director Stock Option for 1990 and 1992 Directors Stock Option Plans (filed as Exhibit 10.4 to the Company's Annual Report for the fiscal year ended January 31, 1991, as amended December 12, 1991 and December 19, 1991).* 10.13 Form of Director Stock Option for 1994 Directors Stock Option Plan, as amended (filed as Exhibit 10.15 to the Company's Form 10-Q for the period ended October 31, 1996).* 10.14 1987 Stock Option Plan, as amended (filed as Exhibit 10.16 to the Company's Form 10-Q for the period ended October 31, 1996).* 10.15 1990 Directors Stock Option Plan, as amended (filed as Exhibit 10.17 to the Company's Form 10-Q for the period ended October 31, 1996).* 10.16 1992 Directors Stock Option Plan, as amended (filed as Exhibit 10.18 to the Company's Form 10-Q for the period ended October 31, 1996).* 10.17 1994 Directors Stock Option Plan, as amended (filed as Exhibit 10.19 to the Company's Form 10-Q for the period ended October 31, 1996).* 10.18 1996 Executive Retirement Plan (filed as Exhibit 10.22 to the Company's Form 10-Q for the period ended April 30, 1997).* 10.19 1997 Stock Option Plan (filed as Exhibit 10.23 to the Company's Form 10-Q for the period ended April 30, 1997).* 10.20 Form of Employee Stock Option under the 1997 Stock Option Plan (filed as Exhibit 10.24 to the Company's Form 10-Q for the period ended April 30, 1997).* 10.21 Restricted Stock Plan and Form of Restricted Stock Plan Agreement (filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1991, as amended December 12, 1991 and December 19, 1991).* 10.22 Credit Agreement, dated as of March 26, 1996, among: CUC International Inc.; the Banks signatory thereto; The Chase Manhattan Bank, N.A., Bank of Montreal, Morgan Guaranty Trust Company of New York, and the Sakura Bank, Limited as Co-Agents; and The Chase Manhattan Bank, N.A., as Administrative Agent (filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996).* 10.23 Agreement and Plan of Merger, dated October 17, 1995, among CUC International Inc., Retreat Acquisition Corporation and Advance Ross Corporation (filed as Exhibit 2 to the Company's Registration Statement on Form S-4, Registration No. 33-64801, filed on December 7, 1995).* 10.24 Agreement and Plan of Merger, dated as of February 19, 1996, by and among Davidson & Associates, Inc., CUC International Inc. and Stealth Acquisition I Corp. (filed as Exhibit 2(a) to the Company's Report on Form 8-K filed March 12, 1996).* INDEX TO EXHIBITS Exhibit No. Description Page 10.25 Amendment No.1 dated as of July 24, 1996, among Davidson & Associates, Inc., CUC International Inc. and Stealth Acquisition I Corp. (filed as Exhibit 2.2 to the Company's Report on Form 8-K filed August 5, 1996). * 10.26 Agreement and Plan of Merger, dated as of February 19, 1996, by and among Sierra On- Line, Inc., CUC International Inc. and Larry Acquisition Corp. (filed as Exhibit 2(b) to the Company's Report on Form 8-K filed March 12, 1996).* 10.27 Amendment No.1 dated as of March 27, 1996, among Sierra On-Line, Inc., CUC International Inc. and Larry Acquisition Corp.(filed as Exhibit 2.4 to the Company's Report on Form 8-K filed August 5, 1996).* 10.28 Amendment No.2 dated as of July 24, 1996, among Sierra On-Line, Inc., CUC International Inc. and Larry Acquisition Corp. (filed as Exhibit 2.5 to the Company's Report on Form 8-K filed August 5, 1996).* 10.29 Agreement of Sale dated July 23, 1996, between Robert M. Davidson and Janice G. Davidson and CUC Real Estate Holdings, Inc. (filed as Exhibit 10.2 to the Company's Report on Form 8-K filed August 5, 1996).* 10.30 Agreement and Plan of Merger, dated as of July 19, 1996, by and among Ideon Group, Inc., CUC International Inc. and IG Acquisition Corp. (filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996).* 10.31 Form of U.S. Underwriting Agreement dated October 1996, among CUC International Inc., certain selling stockholders and the U.S. Underwriters (filed as Exhibit 1.1 (a) to the Company's Registration Statement on Form S-3, Registration No. 333-13537, filed on October 9, 1996).* 10.32 Form of International Underwriting Agreement dated October 1996, among CUC International Inc., certain selling stockholders and the International Underwriters (filed as Exhibit 1.1 (b) to the Company's Registration Statement on Form S-3, Registration No. 333-13537, filed on October 9, 1996).* 10.33 Registration Rights Agreement dated as of February 11, 1997, between CUC International Inc. and Goldman, Sachs & Co. (for itself and on behalf of the other purchasers party thereto) (filed as Exhibit 4(b) to the Company's Report on Form 8-K filed February 13, 1997).* 10.34 Agreement and Plan of Merger between CUC International Inc. and HFS Incorporated, dated as of May 27, 1997 (filed as Exhibit 2.1 to the Company's Report on Form 8-K filed on May 29, 1997).* 10.35 Plan for Corporate Governance of CUC International Inc. following the Effective Time (filed as Exhibit 99.2 to the Company's Report on Form 8-K filed on May 29, 1997).* 11 Statement re: Computation of Per Share Earnings (Unaudited) 27 Financial data schedule *Incorporated by reference EX-11 2 CUC INTERNATIONAL INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS (UNAUDITED) (In thousands, except per share amounts) Three Months Ended October 31, -------------------------- 1997 1996 -------------------------- PRIMARY Average shares outstanding 425,316 408,096 Net effect of dilutive stock options and restricted stock - based on the treasury stock method using average market price 12,942 13,139 Assumed conversion of 3% convertible notes 17,959 ---------- ---------- Total 456,217 421,235 ======= ======= Net income (loss) $100,904 $(16,408) Interest expense on 3% convertible notes, net of tax benefit 2,553 --------- ---------- $103,457 $(16,408) ======== ======== Net income (loss) per common share $0.227 $(0.039) ===== ====== FULLY DILUTED Average shares outstanding 425,316 408,096 Net effect of dilutive stock options and restricted stock - based on the treasury stock method using the period - end market price, if higher than the average market price 13,704 13,155 Assumed conversion of convertible notes 20,458 3,147 --------- ---------- Total 459,478 424,398 ======= ======= Net income (loss) $100,904 $(16,408) Interest expense on convertible notes, net of tax benefit 2,785 452 --------- ---------- $103,689 $(15,956) ======== ======== Net income (loss) per common share $0.226 $(0.038) ====== ======= CUC INTERNATIONAL INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS (UNAUDITED) (In thousands, except per share amounts) Nine Months Ended October 31, -------------------------- 1997 1996 -------------------------- PRIMARY Average shares outstanding 423,557 402,722 Net effect of dilutive stock options and restricted stock - based on the treasury stock method using average market price 11,848 13,335 Assumed conversion of 3% convertible notes 16,961 --------- ---------- Total 452,366 416,057 ======= ======= Net income $267,986 $77,442 Interest expense on 3% convertible notes, net of tax benefit 7,350 --------- ---------- $275,336 $77,442 ======== ======= Net income per common share $0.609 $0.186 ====== ====== FULLY DILUTED Average shares outstanding 423,557 402,722 Net effect of dilutive stock options and restricted stock - based on the treasury stock method using the period - end market price, if higher than the average market price 12,137 13,568 Assumed conversion of convertible notes 19,712 4,680 --------- ---------- Total 455,406 420,970 ======= ======= Net income $267,986 $77,442 Interest expense on convertible notes, net of tax benefit 8,030 1,443 --------- ---------- $276,016 $78,885 ======== ======= Net income per common share $0.606 $0.187 ====== ====== EX-27 3
5 0000723612 CUC INTERNATIONAL INC. 1,000 9-MOS JAN-31-1998 OCT-31-1997 986,892 139,893 686,415 0 0 2,116,999 371,831 179,806 3,544,872 488,541 561,685 4,333 0 0 1,642,227 3,544,872 2,168,313 2,168,313 0 1,738,258 0 0 (3,190) 433,245 165,259 267,986 0 0 0 267,986 .61 .61
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