<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
Commission File No. 0-21527
MEMBERWORKS INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 06-1276882
(State of Incorporation) (I.R.S. Employer
Identification No.)
9 West Broad Street;
Stamford, Connecticut 06902
(Address of principal executive offices) (Zip Code)
</TABLE>
(203) 324-7635
(Registrant's telephone number,
including area code)
Indicate by checkmark 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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
------- -----
The number of shares outstanding of the Registrant's capital stock:
15,434,185 shares of Common Stock, $0.01 par value as of November 2, 2000.
<PAGE> 2
MEMBERWORKS INCORPORATED
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2000
and June 30, 2000 2
Condensed Consolidated Statements of Operations for the three
months ended September 30, 2000 and 1999 3
Condensed Consolidated Statements of Cash Flows for the three
months ended September 30, 2000 and 1999 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Forward Looking Statements 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
1
<PAGE> 3
MEMBERWORKS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,273 $ 30,169
Marketable securities 2,353 6,326
Accounts receivable 24,687 17,836
Prepaid membership materials 6,851 4,891
Prepaid expenses 5,835 3,837
Membership solicitation and other deferred costs 182,678 128,767
-------- --------
Total current assets 238,677 191,826
Fixed assets, net 35,291 34,615
Intangible and other assets 85,885 90,331
-------- --------
Total assets $359,853 $316,772
======== ========
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Current maturities of long-term obligations $ 159 $ 665
Accounts payable 43,928 49,693
Accrued liabilities 63,940 62,642
Due to related parties 1,883 1,852
Deferred membership fees 249,223 165,437
-------- --------
Total current liabilities 359,133 280,289
Long-term obligations 2,208 1,083
-------- --------
Total liabilities 361,341 281,372
-------- --------
Minority interest 13,845 16,379
Shareholders' (deficit) equity:
Preferred stock, $0.01 par value -- 1,000 shares
authorized; no shares issued -- --
Common stock, $0.01 par value -- 40,000 shares authorized;
16,551 shares issued (16,507 shares at June 30, 2000) 165 165
Capital in excess of par value 91,151 91,398
Deferred compensation - (44)
Accumulated deficit (60,597) (27,709)
Accumulated other comprehensive loss
Cumulative translation adjustments (229) (145)
Unrealized loss on marketable securities (532) --
Treasury stock, 1,609 shares at cost (1,585 shares at June 30, 2000) (45,291) (44,644)
-------- --------
Total shareholders' (deficit) equity (15,333) 19,021
-------- --------
Total liabilities and shareholders' (deficit) equity $359,853 $316,772
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
2
<PAGE> 4
MEMBERWORKS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the three months ended
September 30,
-------------
2000 1999
---- ----
<S> <C> <C>
Revenues $ 97,799 $ 71,658
Expenses:
Operating 20,239 12,996
Marketing 61,254 40,660
General and administrative 23,630 14,704
Amortization of goodwill and other intangibles 2,256 1,211
Gain on sale of investment (229) --
Other income, net (92) (359)
--------- ---------
Total expenses 107,058 69,212
--------- ---------
(Loss) income before equity in affiliate and minority interest (9,259) 2,446
Equity in income (loss) of affiliate 83 (112)
Minority interest (Note 5) 2,018 --
--------- ---------
(Loss) income before income taxes (7,158) 2,334
Provision for income taxes -- --
--------- ---------
Net (loss) income before cumulative effect of accounting change (7,158) 2,334
Cumulative effect of accounting change (Note 4) (25,730) --
--------- ---------
Net (loss) income $ (32,888) $ 2,334
========= =========
Basic (loss) earnings per share:
(Loss) income before cumulative effect of accounting change $ (0.48) $ 0.15
Cumulative effect of accounting change (1.72) --
--------- ---------
Basic (loss) earnings per share $ (2.20) $ 0.15
========= =========
Diluted (loss) earnings per share:
(Loss) income before cumulative effect of accounting change $ (0.48) $ 0.13
Cumulative effect of accounting change (1.72) --
--------- ---------
Diluted (loss) earnings per share $ (2.20) $ 0.13
========= =========
Weighted average common shares used in (loss) earnings per share calculations:
Basic 14,973 15,432
========= =========
Diluted 14,973 17,454
========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE> 5
MEMBERWORKS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
For the three months ended
September 30,
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $(32,888) $ 2,334
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Cumulative effect of accounting change 25,730 --
Gain on sale of investment (229) --
Minority interest (2,018) --
Equity in (income) loss of affiliate (83) 112
Membership solicitation and other deferred costs (67,156) (43,368)
Amortization of membership solicitation and other deferred costs 55,666 38,454
Deferred membership fees 15,592 3,602
Depreciation and amortization 4,493 2,435
Other 313 118
Change in assets and liabilities:
Accounts receivable (5,879) 309
Prepaid membership materials (1,960) 284
Prepaid expenses (1,969) 129
Other assets 940 (379)
Related party obligations 92 --
Accounts payable (5,781) (3,094)
Accrued liabilities 1,137 6,032
-------- --------
Net cash (used in) provided by operating activities (14,000) 6,968
-------- --------
INVESTING ACTIVITIES
Acquisition of fixed assets (2,982) (3,244)
Business combinations, net of cash acquired and other investments 2,996 (15,790)
-------- --------
Net cash provided by (used in) investing activities 14 (19,034)
-------- --------
FINANCING ACTIVITIES
Net proceeds from issuance of stock and warrants 443 348
Borrowings from credit facility 24,748 --
Repayments of credit facility (24,433) --
Treasury stock purchases (647) (1,030)
Payments of long-term obligations (18) (16)
-------- --------
Net cash provided by (used in) financing activities 93 (698)
-------- --------
Effect of exchange rate changes on cash and cash equivalents (3) 6
-------- --------
Net decrease in cash and cash equivalents (13,896) (12,758)
Cash and cash equivalents at beginning of period 30,169 50,939
-------- --------
Cash and cash equivalents at end of period $ 16,273 $ 38,181
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE> 6
MEMBERWORKS INCORPORATED
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. Accordingly, such statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the fiscal year ending June 30, 2001. For further information,
refer to the financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K with respect to the fiscal year ended June
30, 2000.
NOTE 2 - EARNINGS PER SHARE
Basic and diluted (loss) earnings per share amounts are determined in accordance
with the provisions of FASB Statement No. 128 "Earnings Per Share". The
following table sets forth the reconciliation of the numerators and denominators
in the computation of basic and diluted (loss) earnings per share (in thousands,
except per share data):
<TABLE>
<CAPTION>
Three months ended
September 30,
-------------
2000 1999
---- ----
<S> <C> <C>
Numerator for basic and diluted (loss) earnings per share:
Net (loss) income before cumulative effect of accounting change $ (7,158) $ 2,334
Cumulative effect of accounting change (25,730) --
-------- --------
Net (loss) income available to common shareholders $(32,888) $ 2,334
======== ========
Denominator for basic (loss) earnings per share:
Weighted average number of common shares outstanding - basic 14,973 15,432
Effect of dilutive securities:
Options and warrants -- 2,022
-------- --------
Weighted average number of common shares outstanding - diluted 14,973 17,454
======== ========
Basic (loss) earnings per share $ (2.20) $ 0.15
======== ========
Diluted (loss) earnings per share $ (2.20) $ 0.13
======== ========
</TABLE>
The diluted net income per common share calculation excludes the effect of
potentially dilutive shares when their effect is antidilutive. At September 30,
2000 the Company had 1,329,000 shares of potentially dilutive stock options
outstanding that are not included in the calculation as they are antidilutive.
NOTE 3 - ALLOWANCE FOR MEMBERSHIP CANCELLATIONS
Accrued liabilities set forth in the accompanying condensed consolidated balance
sheets as of September 30, 2000 and June 30, 2000 include an allowance for
membership cancellations of $33,290,000 and $33,477,000, respectively.
5
<PAGE> 7
MEMBERWORKS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4 - CUMULATIVE EFFECT OF ACCOUNTING CHANGE
For over a year, the Company has disclosed in its public reporting that the
Securities and Exchange Commission staff (the "Staff") planned to issue guidance
on revenue recognition and that such guidance could have a material impact on
the way the Company has historically recognized revenue. The Staff issued SAB
101 in December 1999. SAB 101 establishes the Staff's preference that membership
fees should not be recognized in earnings prior to the expiration of refund
privileges. Notwithstanding the Staff's preference described above, it is also
stated in SAB 101 that the Staff will not object to the recognition of
refundable membership fees, net of estimated refunds, as earned revenue over the
membership period (the Company's historical method) in limited circumstances
where all of certain criteria set forth in SAB 101 have been met.
Effective July 1, 2000, the Company changed its method of accounting for
membership fee revenue to comply with the Staff's preferred method as outlined
in SAB 101. Membership fees, and the related direct costs associated with
acquiring the underlying memberships, are no longer recognized on a pro-rata
basis over the corresponding membership period, but instead are recognized in
earnings upon the expiration of membership refund privileges. The cumulative
effect of this change in accounting principle as of July 1, 2000 of $25,730,000
was recorded in the fiscal quarter ended September 30, 2000. The membership
fees, net of estimated refunds and associated direct costs, which are deferred
as part of the cumulative effect adjustment at July 1, 2000 will be recognized
in earnings during fiscal year 2001 as the underlying refund privileges expire.
During the first quarter ended September 30, 2000, the Company recognized
$31,735,000 of revenue which was included as a component of the cumulative
effect of accounting change booked July 1, 2000. The effect of the adoption of
SAB 101 on reported revenue, net loss before the cumulative effect of accounting
change and net loss per share before the cumulative effect of accounting change
for the first quarter of 2001 is a decrease of $8,383,000, and an increase of
$2,771,000 and $0.19, respectively.
The following pro forma net (loss) income and (loss) earnings per share have
been prepared assuming SAB 101 was adopted as of July 1, 1999 (in thousands,
except per share data).
<TABLE>
<CAPTION>
Three Months Ended
------------------
9/30/00 9/30/99
------- -------
<S> <C> <C>
Net (loss) income $(7,158) $4,332
Basic (loss) earnings per share $ (0.48) $ 0.28
Diluted (loss) earnings per share $ (0.48) $ 0.25
</TABLE>
NOTE 5 - MINORITY INTEREST
As of September 30, 2000, the Company is the majority shareholder of iPlace,
Inc. with an approximate 58% ownership share. Minority interest in the Statement
of Operations represents approximately 42% of iPlace's losses for the quarter
ending September 30, 2000.
NOTE 6 - COMPREHENSIVE INCOME
The components of comprehensive (loss) income are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------
2000 1999
---- ----
<S> <C> <C>
Net (loss) income $(32,888) $2,334
Unrealized loss on marketable securities (532) --
Foreign currency translation (losses) gain (84) 6
-------- ------
Comprehensive (loss) income $(33,504) $2,340
======== ======
</TABLE>
6
<PAGE> 8
MEMBERWORKS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 7 - LEGAL PROCEEDINGS
Except as set forth below, in management's opinion, there are no significant
legal proceedings, to which the Company or any of its subsidiaries is a party or
to which any of their properties is subject. The Company is involved in other
lawsuits and claims generally incidental to its business. The Company may be
involved in other litigation or proceedings regarding claims arising in the
normal course of business, the adverse outcome of which, could potentially
require substantial payments by the Company.
On May 5, 2000, Eye Care International, Inc. filed a complaint against the
Company in the United States District Court, Middle District of Florida. The
complaint seeks monetary damages based upon the alleged breach of a vendor
contract. The Company believes that the allegations made in this lawsuit are
unfounded and the Company will vigorously defend its interests against this
suit.
On July 7, 1999, a purported class action was instituted by plaintiffs Kathryn
Rosebear and Anne Bergman against the Company and other defendants in the United
States District Court, District of Minnesota. The suit, which seeks unspecified
monetary damages, alleges that the Company and the other defendants violated
their privacy policies and Minnesota consumer law. The Company believes that the
allegations made in this lawsuit are unfounded and the Company will vigorously
defend its interests against this suit.
NOTE 8 - SUBSEQUENT EVENT
The Company increased its ownership of Discount Development Services, L.L.C. and
its subsidiary Uni-Care, Inc. ("DDS") from 19% to 100%. The Company acquired the
81% interest in two separate transactions on October 12, 2000 and October 20,
2000. The Company paid $8,150,000 in cash and 425,232 shares of MemberWorks
Common Stock with an approximate fair market value of $13,641,000 as of the
closing date. DDS is in the business of marketing and administration of
healthcare network membership programs which provide its members access to
various healthcare networks including hearing, vision, prescription and
chiropractic. The acquisition will be accounted for under the purchase method of
accounting during the quarter ended December 31, 2000.
7
<PAGE> 9
MEMBERWORKS INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
MemberWorks addresses the needs of organizations seeking to leverage the
expertise of an outside provider in offering membership service programs.
Membership service programs offer selected products and services from a variety
of vendors intended to enhance existing relationships between businesses and
consumers. The Company derives its revenues principally from annually renewable
membership fees. The Company receives full payment of annual fees at or near the
beginning of the membership period, but recognizes revenue as the member's
refund privilege expires. Similarly, the costs associated with soliciting each
new member, as well as the cost of royalties, are recognized as the related
revenue is recognized. Profitability and cash flow generated from renewal
memberships exceed that of new memberships due to the absence of solicitation
costs associated with new member procurement.
THREE MONTHS ENDED SEPTEMBER 30, 2000 VS. THREE MONTHS ENDED SEPTEMBER 30, 1999
REVENUES. Revenues increased 36% to $97.8 million for the quarter ended
September 30, 2000 from $71.7 million for the quarter ended September 30, 1999
due to an increase in the Company's membership base and an increase in the
weighted average program fee. Excluding the effects of "Staff Accounting
Bulletin No. 101-Revenue Recognition in Financial Statements" ("SAB 101"),
revenues would have increased 48% to $106.2 million in 2000. The Company's
membership base increased to approximately 7.3 million members at September 30,
2000 from 5.5 million members at September 30, 1999. The increase in the
Company's membership base was due to increased demand for the Company's existing
programs. The increase in the weighted average program fee was due to an
increase in program pricing and introduction of new programs with higher fees.
Revenues from renewals increased to $32.1 million in 2000 from $27.5 million in
1999. As a percentage of individual membership revenues, these amounts
represented 37% in 2000 and 42% in 1999. The decreased ratio was primarily due
to the adoption of SAB 101.
OPERATING EXPENSES. Operating expenses increased 56% to $20.2 million in 2000
from $13.0 million in 1999 due to the servicing requirements of the larger
membership base. As a percentage of revenues, operating expenses increased to
20.7% in 2000 from 18.1% in 1999. Excluding the effect of SAB 101, operating
expenses would have been 18.9% of revenues in 2000. Operating expenses, as a
percentage of revenues, increased primarily due to expansion of the call center
capacity.
MARKETING EXPENSES. Marketing expenses increased 51% to $61.3 million in 2000
from $40.7 million in 1999 due to increased expenses required to grow the
membership base. As a percentage of revenues, marketing expenses increased to
62.6% in 2000 from 56.7% in 1999. Excluding the effect of SAB 101, marketing
expenses would have been 63.1% of revenues in 2000. Marketing expenses, as a
percentage of revenues, increased primarily due to reduced MemberLink margins
and higher cancellation rates.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 61% to $23.6 million in 2000 from $14.7 million in 1999. As a
percentage of revenues, general and administrative expenses increased to 24.2%
in 2000 from 20.5% in 1999. Expenses increased in 2000 compared to 1999 due to
higher staff related expenses and occupancy costs related to the expansion of
our online and international business initiatives.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Intangible amortization
increased to $2.3 million in 2000 from $1.2 million in 1999 due to the
acquisition of two companies since September 30, 1999.
8
<PAGE> 10
MEMBERWORKS INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OTHER INCOME, NET. Other income, net is primarily composed of interest income
from cash and cash equivalents. Other income decreased to $0.1 million in 2000
from $0.4 million in 1999 due to a decrease in the Company's cash position. The
Company's cash position decreased to $16.3 million at September 30, 2000 from
$38.2 million at September 30, 1999 primarily due to purchases made under the
Company's stock repurchase program. The Company invests in short-term,
investment-grade, interest-bearing securities, and the amount of interest income
fluctuates based upon the amount of funds available for investment and
prevailing interest rates.
PROVISION FOR INCOME TAXES. The Company was not required to record a provision
for income taxes for the three months ended September 30, 2000 and 1999 due to
tax losses realized in those periods.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations was $14.0 million for the quarter ended September 30,
2000 compared to $7.0 million provided in 1999 primarily due to changes in
working capital items which decreased cash in 2000 by $13.4 million but
increased cash in 1999 by $3.3 million. Operating cash flow before changes in
working capital decreased in 2000 versus 1999 primarily due to increased
spending to expand the Company's online and international initiatives. Working
capital decreased in 2000 due to timing of accounts receivable collections and
the timing of accounts payable terms.
Net cash provided by investing activities was $14,000 in 2000 versus a $19.0
million use of cash in 1999. Net cash provided by investing activities increased
due to the receipt of $3.0 million in proceeds from the sale of a portion of the
Company's investment in 24/7 Media, Inc. During the September 1999 quarter, the
Company completed its purchase of ConsumerInfo.com for $15.9 million in cash.
The Company's capital expenditures were $3.0 million in 2000 and $3.2 million in
1999.
The Company generated $0.1 million from financing activities in 2000 versus a
use of $0.7 million in 1999 primarily due to the decrease in the number of
treasury stock shares repurchased in 2000, partially offset by an increase in
the average cost of the shares purchased of approximately 17% from 1999 to 2000.
The Company purchased 24,000 shares of treasury stock in 2000 and 30,000 shares
in 1999.
As of September 30, 2000, the Company had cash and cash equivalents of $16.3
million and marketable securities of $2.4 million. In addition, the Company has
a $20 million bank credit facility which bears interest at the higher of the
base commercial lending rate for the bank or the Federal Funds Rate plus 0.5%
per annum. There were $0.8 million outstanding under this bank credit facility
as of September 30, 2000. The Company believes that existing cash balances,
together with its available bank credit facility, will be sufficient to meet its
funding requirements for at least the next twelve months.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
For over a year, the Company has disclosed in its public reporting that the
Securities and Exchange Commission staff (the "Staff") planned to issue guidance
on revenue recognition and that such guidance could have a material impact on
the way the Company has historically recognized revenue. The Staff issued SAB
101 in December 1999. SAB 101 establishes the Staff's preference that membership
fees should not be recognized in earnings prior to the expiration of refund
privileges. Notwithstanding the Staff's preference described above, it is also
stated in SAB 101 that the Staff will not object to the recognition of
refundable membership fees, net of estimated refunds, as earned revenue over the
membership period (the Company's historical method) in limited circumstances
where all of certain criteria set forth in SAB 101 have been met.
9
<PAGE> 11
MEMBERWORKS INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Effective July 1, 2000, the Company changed its method of accounting for
membership fee revenue to comply with the Staff's preferred method as outlined
in SAB 101. Membership fees, and the related direct costs associated with
acquiring the underlying memberships, are no longer recognized on a pro-rata
basis over the corresponding membership period, but instead will be recognized
in earnings upon the expiration of membership refund privileges. The cumulative
effect of this change in accounting principle as of July 1, 2000 of $25.7
million was recorded in the fiscal quarter ended September 30, 2000. The
membership fees, net of estimated refunds and associated direct costs, which
will be deferred as part of the cumulative effect adjustment at July 1, 2000,
will be recognized in earnings during fiscal year 2001 as the underlying refund
privileges expire. During the first quarter ended September 30, 2000, the
Company recognized $31.7 million of revenue which was included as a component of
the cumulative effect of accounting change booked July 1, 2000. The effect of
the adoption of SAB 101 on reported revenue, net loss before the cumulative
effect of accounting change and net loss per share before the cumulative effect
of accounting change for the first quarter of 2001 is a decrease of $8.4
million, and an increase of $2.8 million and $0.19, respectively.
This change in accounting for the recognition of membership fees in income has
no impact on the Company's cash flows or on the value of the underlying
memberships.
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains various forward-looking statements
and includes assumptions about future market conditions, operations and results.
These statements are based on current expectations and are subject to
significant risks and uncertainties. They are made pursuant to safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Among the
many factors that could cause actual results to differ materially from the
forward-looking statements are:
- Further changes in the already competitive environment for the
Company's products or competitors' responses to the Company's
strategies;
- The Company's ability to integrate into the Company's
management and operations and to successfully operate acquired
businesses, including iPlace;
- Economic conditions in areas outside the United States;
- Continued growth within the United States;
- The Company's ability to develop and implement operational and
financial systems to manage rapidly growing operations;
- The Company's ability to obtain financing on acceptable terms
to finance the Company's growth strategy and to operate within
the limitations imposed by financing arrangements;
- Additional government regulation of the Company's industry;
and
- New accounting pronouncements.
The Company undertakes no obligation to publicly update or revise any
forward-looking statement as a result of new information, future events or
otherwise.
10
<PAGE> 12
MEMBERWORKS INCORPORATED
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as set forth below, in management's opinion, there are no significant
legal proceedings to which the Company or any of its subsidiaries is a party or
to which any of their properties are subject. The Company is involved in other
lawsuits and claims generally incidental to its business.
On May 5, 2000, Eye Care International, Inc. filed a complaint against the
Company in the United States District Court, Middle District of Florida. The
complaint seeks monetary damages based upon the alleged breach of a vendor
contract. The Company believes that the allegations made in this lawsuit are
unfounded and the Company will vigorously defend its interests against this
suit.
On July 7, 1999, a purported class action was instituted by plaintiffs Kathryn
Rosebear and Anne Bergman against the Company and other defendants in the United
States District Court, District of Minnesota. The suit, which seeks unspecified
monetary damages, alleges that the Company and the other defendants violated
their privacy policies and Minnesota consumer law. The Company believes that the
allegations made in this lawsuit are unfounded and the Company will vigorously
defend its interests against this suit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27 - Financial Data Schedule (included in Edgar copy only).
b) Reports on Form 8-K
None
11
<PAGE> 13
MEMBERWORKS INCORPORATED
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.
<TABLE>
<S> <C> <C>
MEMBERWORKS INCORPORATED
(Registrant)
Date: November 14, 2000 By: /s/ Gary A. Johnson
---------------------------------------------
Gary A. Johnson, President, Chief
Executive Officer and Director
November 14, 2000 By: /s/ James B. Duffy
--------------------------------------------
James B. Duffy, Executive Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
</TABLE>
12