SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT FORM
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
July 31, 1995
Ideon Group, Inc.
--------------------------------------------------
(Exact name of registrant as specified in charter).
Delaware 1-11465 59-3293212
---------------------------- ----------- ------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
7596 Centurion Parkway, Jacksonville, Florida 32256
--------------------------------------------- ----------
(Address of principal executive offices) (zip code)
Registrant's telephone number,
including area code: (904) 218-1800
N/A
-------------------------------------------------------------
(Former name or former address, if changed since last report).
Item 5. Other Events.
Reference is made to Registrant's press release filed as an exhibit to
this Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(c) Exhibits.
(20) Press Release dated July 31, 1995.
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 hereunto duly authorized.
IDEON GROUP, INC.
By: G. THOMAS FRANKLAND
-----------------------
Name: G. Thomas Frankland
Title: Vice Chairman and
Chief Financial Officer
August 3, 1995
FOR IMMEDIATE RELEASE
CONTACTS:
Holly Anderson (Ideon Media Relations)
904-218-1784
Bill Lackey (Ideon Investor Relations)
904-218-1836
IDEON DISCONTINUES TWO NEW PRODUCTS
Reports $46.7 Million Loss For The Second Quarter
Total staff reduced by 27 percent
JACKSONVILLE, FL, July 31, 1995 -- Ideon Group, Inc. (NYSE:IQ) today
announced that it is discontinuing its child registration and missing child
search service and is redesigning and test marketing its PGA TOUR Partners
program. In addition, the company said it is significantly reducing its
corporate staff and streamlining its SafeCard Services business unit. These
actions will eliminate approximately 375 jobs and result in a charge of $34.2
million in the second quarter.
The company reported a net loss of $46.7 million, or $1.62 per share,
for the second quarter ended June 30, 1995. The $34.2 million charge covers
costs related to severance, facilities abandonment and the write-down of
equipment and other assets. The company also expects to take a charge of up
to $5 million in the third quarter, as required by accounting rules, to cover
costs associated with streamlining SafeCard Services and downsizing Ideon
corporate headquarters staff. Ideon expects to report a loss for the year
ending December 31, 1995.
The second quarter loss compares to net income of $3.8 million, or $.14
per share, for the fiscal quarter ended April 30, 1994. Total revenues for
the 1995 second quarter of $57.7 million compare with $49.3 million in the
1994 period.
For the six months ended June 30, 1995, the company reported revenues
of $117.5 million and a net loss of $46.4 million, or $1.60 per share,
compared with $93.0 million in revenues and net income of $12.2 million, or
$.45 per share, in the first six months of fiscal 1994. The first six months
of fiscal 1994 included a $2.0 million, or $.07 per share, benefit as a
result of the cumulative effect of a change in accounting for income taxes.
Ideon Group, Inc. resulted from the reorganization of SafeCard
Services, Inc. approved by shareholders on April 27, 1995. Its subsidiaries
include SafeCard Services, Inc., Wright Express Corporation, National Leisure
Group, Inc., Family Protection Network, Inc. and Ideon Marketing and Services
Company.
Family Protection Network to Close
Family Protection Network, a nationwide child registration and missing
child search service, began marketing initiatives in April. The product
failed to generate acceptable consumer response rates, and in late May, the
company reduced promotional efforts and began additional market testing. Due
to continued poor consumer acceptance, the company will close Family
Protection Network and return all enrollment fees and materials to its
subscribers. Approximately 100 jobs will be eliminated as a result of this
action. Ideon's SafeCard Services business unit is evaluating the
possibility of offering child registration as an enhancement service to
credit card issuers.
As a result of these actions, Family Protection Network reported a
pretax loss of $26.3 million for the 1995 second quarter, of which $17.3
million related to marketing and operational costs incurred during the
quarter, and $9.0 million covered costs of severance, facilities abandonment
and the write-off of equipment and other assets. Marketing and operational
costs incurred for the first six months of 1995 totaled $20.8 million.
Ideon Marketing and Services to Dramatically Reduce Developmental Activities
Ideon will dramatically downsize its Ideon Marketing and Services
business unit which primarily supports the PGA TOUR Partners program and
evaluates additional co-branded credit card marketing and servicing
opportunities. While the company has discontinued marketing of the Partners
product launched in March due to low consumer response rates, it plans to
continue to re-design and test market various alternatives during the third
quarter, including membership and credit card, credit card only, and
membership only products.
The company expects to invest up to $4.9 million during the third
quarter in the PGA TOUR Partners program, of which $2.4 has already been
committed. Ideon will re-evaluate its role in the program once re-design and
test marketing have been completed.
Approximately 130 jobs will be eliminated in this business unit.
Dorothy S. Schechter, executive vice president of marketing, will leave the
company, effective today, as a result of the downsizing. John R. Birk,
Ideon's president and chief operating officer, also will serve as interim
president of Ideon Marketing and Services.
The company will continue test marketing its Collections of the Vatican
Museums program, with catalog mailings scheduled for later this summer and
fall. The company has spent $1 million on this program in the first six
months of 1995, of which $700,000 was spent during the second quarter. The
company expects to incur an additional $1.5 million in 1995 to complete test
marketing efforts, nearly all of which has been committed. Once catalog test
results are evaluated, the company will decide on future strategy for the
program.
For the 1995 second quarter, Ideon Marketing and Services reported a
pretax loss of $39.0 million, including $21.0 million related to marketing
and operational costs incurred, and $18.0 million of costs to cover
severance, facilities abandonment and the write-off of equipment and other
assets. Marketing and operational costs incurred for the first six months of
1995 totaled $25.2 million.
Corporate Staff to be Reduced by 60 percent
The company also will reduce its corporate headquarters staff by 60
percent, eliminating approximately 75 of 125 jobs. In addition, the company
has instituted a cost-cutting program designed to reduce overall corporate
expenses, facilities and equipment needs. The company recorded a charge of
$7.2 million in the second quarter related to the write-off of corporate
equipment and other assets.
Existing Businesses
SafeCard Services to Streamline Operations
After reviewing SafeCard Services operations, the company has decided
to eliminate approximately 70 jobs in that unit by year-end. This action
will reduce marketing and new product development costs, increase operational
efficiencies and consolidate technology and finance functions.
SafeCard reported revenues of $46.8 million in the second quarter of
1995 compared with $42.6 million for the second fiscal quarter of 1994.
Pretax income totaled $8.3 million for this year's period compared with $11.0
million for the 1994 quarter. Pretax income in 1995 was affected
approximately $500,000 by the change in amortization of subscriber
acquisition costs announced earlier this year. SafeCard reported record paid
memberships of 13,139,000 at June 30, 1995, up from 12,635,000 at the end of
fiscal 1994 second quarter.
For the six months ended June 30, 1995, SafeCard reported revenues of
$93.2 million compared to $84.1 million in the first half of fiscal 1994.
Pretax income was $18.6 million for the 1995 six months and $22.1 million for
the 1994 comparable period. The change in amortization had a $1.7 million
impact in the 1995 six-month period.
Wright Express and National Leisure Group Report Continued Growth
Wright Express, acquired in September 1994, reported $5.8 million in
revenues and pretax income of $701,000 for the quarter. It reported $10.7
million in revenues and $1.4 million in pre-tax income for six months ended
June 30 1995. National Leisure Group, acquired in the first quarter of 1995,
contributed $3.4 million in revenues and pretax income of $360,000 for the
quarter, and reported $9.1 million in revenues and pretax income of $2.0
million for the six-month period. Stock buy-back Program in Effect
As announced on May 30, the company's board of directors reinstated a
stock repurchase program that authorized the purchase of up to 2.5 million
shares of common stock on the open market. To date, the company has
purchased 469,800 shares at a cost of $4.6 million.
Strategic Focus
Ideon said the changes announced today will enable it to better focus
on serving its existing clients. The company plans to concentrate future
product developments within its existing business units. It is continuing to
evaluate and consider strategic acquisitions that leverage its core
competencies and provide value to the existing business units, and is
continuing to evaluate additional partnerships for marketing and servicing
co-branded credit card or membership programs.
"Our priority for the past 60 days has been to make a rigorous
evaluation of our businesses, as well as our corporate strategy and
structure, and to make the changes needed to improve our financial
performance," said Paul G. Kahn, Ideon's chairman and chief executive
officer. "Today is a difficult day for everyone at Ideon, and I am
disappointed about the failure of our recent product initiatives and the
resulting impact on the company, our employees and shareholders. However,
the changes we're making are critical to returning Ideon to profitability and
to ensuring our long-term success."
<TABLE>
IDEON GROUP, INC.
STATEMENT OF OPERATIONS
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- -----------------------
June 30, April 30, June 30, April 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues
Membership and subscription revenue, net $ 44,106,000 $ 39,791,000 $ 87,703,000 $ 78,619,000
Card acquisition and services revenue 5,791,000 - 10,701,000 -
Consumer marketing revenue 6,049,000 2,764,000 14,222,000 5,327,000
Gain from litigation settlements - 4,257,000 - 4,257,000
Interest income 1,703,000 2,051,000 3,588,000 4,052,000
Other income 83,000 449,000 1,246,000 752,000
----------- ----------- ----------- -----------
57,732,000 49,312,000 117,460,000 93,007,000
----------- ----------- ----------- -----------
Costs and expenses
Subscriber acquistion costs and related 27,601,000 24,030,000 54,527,000 47,583,000
Other costs of revenue 5,416,000 1,955,000 11,433,000 3,840,000
Research and product development costs 3,088,000 - 5,104,000 -
Service costs and other operating expens 9,434,000 5,669,000 17,843,000 10,382,000
General and administrative expenses 11,983,000 4,498,000 19,853,000 8,889,000
Costs relating to products abandoned
and restructuring 73,091,000 7,900,000 81,152,000 7,900,000
----------- ----------- ----------- -----------
130,613,000 44,052,000 189,912,000 78,594,000
----------- ----------- ----------- -----------
Income before provision for income taxes (72,881,000) 5,260,000 (72,452,000) 14,413,000
Provision for income taxes (26,211,000) 1,456,000 (26,083,000) 4,165,000
----------- ----------- ----------- -----------
Income before cumulative effect
of change in accounting for
income taxes (46,670,000) 3,804,000 (46,369,000) 10,248,000
Cumulative effect of change in
accounting for income taxes - - - 2,000,000
Net income $(46,670,000) $ 3,804,000 $(46,369,000) $ 12,248,000
=========== =========== =========== ===========
Earnings per share
Income before cumulative effect
of accounting change $ (1.62) $ .14 $ (1.60) $ .38
Cumulative effect of accounting
change - - - .07
----------- ----------- ----------- -----------
Net income $ (1.62) $ .14 $ (1.60) $ .45
=========== =========== =========== ===========
Weighted average common and
common equivalent shares 28,860,000 27,761,000 28,900,000 27,472,000
=========== =========== =========== ===========
</TABLE>
IDEON GROUP, INC.
CONDENSED BALANCE SHEET
June 30, October 31,
1995 1994
ASSETS
Current Assets:
Cash and cash equivalents $ 29,191,000 $17,921,000
Securities available for sale,
maturing within one year 47,370,000 39,249,000
Receivables, net 53,903,000 42,449,000
Income taxes receivable 621,000 2,114,000
Deferred subscriber acquisition costs and
related commissions amortizing
within one year 104,493,000 83,449,000
Deferred income tax assets 36,526,000 8,540,000
Other current assets 2,852,000 799,000
----------- -----------
Total current assets 274,956,000 194,521,000
Securities available for sale,
maturing after one year 21,331,000 127,363,000
Deferred subscriber acquisition costs and
related commissions amortizing
after one year 25,180,000 111,948,000
Property and equipment, net 35,038,000 16,410,000
Excess of cost over fair value
of net assets acquired 45,566,000 28,739,000
Other assets 1,955,000 1,392,000
----------- -----------
$404,026,000 $480,373,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities:
Notes payable to bank $ 16,947,000 $11,793,000
Accounts payable 32,072,000 30,833,000
Accrued expenses 41,539,000 24,654,000
Product abandonment and related liabilities 25,587,000
Subscribers' advance payments, amortizing
within one year 116,451,000 106,563,000
Allowance for cancellations 6,076,000 7,656,000
----------- -----------
Total current liabilities 238,672,000 181,499,000
Subscriber advance payments, amortizing
after one year 46,539,000 51,991,000
Deferred income tax liability 5,119,000 29,291,000
----------- -----------
Total liabilities 290,330,000 262,781,000
----------- -----------
STOCKHOLDERS' EQUITY 113,696,000 217,592,000
----------- -----------
$404,026,000 $480,373,000
=========== ===========
<TABLE>
IDEON GROUP, INC.
BUSINESS UNIT FINANCIAL DATA
<CAPTION>
For the three months ended June 30, 1995
SafeCard Wright National Developmental Corporate
Services Express Leisure Group Operations and Other Total
<S> <C> <C> <C> <C> <C> <C>
Membership and subscription revenue $ 44,106,000 $ 44,106,000
Card acquisition and services revenue - $ 5,791,000 5,791,000
Consumer marketing revenue 2,625,000 - $ 3,424,000 6,049,000
Interest and other income 82,000 - 4,000 $ 1,700,000 1,786,000
----------- ----------- ----------- ----------- -----------
Total revenue 46,813,000 5,791,000 3,428,000 1,700,000 57,732,000
Costs and expenses 38,547,000 5,090,000 3,068,000 $ 65,915,000 17,993,000 130,613,000
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before provision
for income taxes $ 8,266,000 $ 701,000 $ 360,000 $(65,915,000) $(16,293,000) $(72,881,000)
=========== =========== =========== =========== =========== ===========
For the three months ended April 30, 1994
SafeCard Wright National Developmental Corporate
Services Express Leisure Group Operations and Other Total
Membership and subscription revenue $ 39,791,000 $ 39,791,000
Card acquisition and services revenue - -
Consumer marketing revenue 2,764,000 2,764,000
Interest and other income 55,000 $ 6,702,000 6,757,000
----------- ----------- -----------
Total revenue 42,610,000 6,702,000 49,312,000
Costs and expenses 31,593,000 12,459,000 44,052,000
----------- ----------- -----------
Income (loss) before provision
for income taxes $ 11,017,000 $ (5,757,000) $ 5,260,000
=========== =========== ===========
For the six months ended June 30, 1995
SafeCard Wright National Developmental Corporate
Services Express Leisure Group Operations and Other Total
Membership and subscription revenue $ 87,703,000 $ 87,703,000
Card acquisition and services revenue - $ 10,701,000 10,701,000
Consumer marketing revenue 5,171,000 $ 9,051,000 14,222,000
Interest and other income 293,000 - 24,000 $ 4,517,000 4,834,000
----------- ----------- ----------- ----------- -----------
Total revenue 93,167,000 10,701,000 9,075,000 4,517,000 $117,460,000
Costs and expenses 74,527,000 9,330,000 7,035,000 $ 73,976,000 25,044,000 189,912,000
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before provision
for income taxes $ 18,640,000 $ 1,371,000 $ 2,040,000 $(73,976,000) $(20,527,000) $(72,452,000)
=========== =========== =========== =========== =========== ===========
For the six months ended April 30, 1994
SafeCard Wright National Developmental Corporate
Services Express Leisure Group Operations and Other Total
Membership and subscription revenue $ 78,619,000 $ 78,619,000
Card acquisition and services revenue - -
Consumer marketing revenue 5,327,000 5,327,000
Interest and other income 149,000 $ 8,912,000 9,061,000
----------- ----------- -----------
Total revenue 84,095,000 8,912,000 93,007,000
Costs and expenses 62,017,000 16,577,000 78,594,000
----------- ----------- -----------
Income (loss) before provision
for income taxes $ 22,078,000 $ (7,665,000) $ 14,413,000
=========== =========== ===========
</TABLE>
IDEON GROUP, INC.
SUPPLEMENTAL QUESTIONS AND ANSWERS
JULY 31, 1995
FAMILY PROTECTION NETWORK
Q. Why did Family Protection Network fail?
A number of factors contributed to the program's failure. First, we believe
there was significant and consistent emotional bias in the market research
that was not adequately taken into account. Absence of a brand
identification and several other factors also contributed to the failure.
PGA TOUR PARTNERS PROGRAM
Q. What went wrong with the PGA TOUR Partners program?
Consumer response to our initial Partners program fell significantly short of
our market projections based on our research. We believe our initial
offering was too complicated and confusing for consumers and our initial
pricing was too high. Also, the credit card market has been in a state of
flux over the past year, so many of the market assumptions used were invalid.
As a result, we have discontinued the PGA TOUR Partners product as initially
configured.
Q. What are your plans for PGA TOUR Partners?
We are returning to a developmental mode and are test marketing new product
offerings. We will honor commitments we have made, nevertheless, we hope to
renegotiate our existing agreements with our business partners in this
venture. We will make our decisions about whether to continue our role in
the program once we've completed our negotiations and market testing.
SAFECARD SERVICES
Q. How was the financial performance of SafeCard Services for the quarter
and year to date?
For the quarter, revenue and membership levels have increased 10% and 4%
respectively, and for the six month period, revenue has increased 11%.
Billings for the quarter, however, have decreased $5.3 million from the
second quarter 1994. This primarily reflects the impact of the renegotiation
of contracts with certain large issuers and a resulting sharper focus in new
marketing. New marketing began increasing at the end of the second quarter.
Accordingly, we believe billings should resume their growth in the third and
fourth quarters.
Profitability for SafeCard is down compared to 1994, reflecting both the
impact of the change in amortization and research and product development
expenditures. The amortization change has reduced gross margins by 1.0% for
the three months and 1.8% for the six months ended June 30, 1995, versus the
prior year. The remainder of the decrease in profitability reflects new
product development costs incurred to expand our product lines and better
target new customers as well as additional depreciation associated with the
increased capital expenditures in the current year. New product development
is our highest priority in this business. However, given what we've learned
from the PGA TOUR Partners and Family Protection Network projects, the new
product development process will be rigorous and the costs will be closely
controlled.
Q. What specific actions are you taking in restructuring SafeCard?
The new product development process will be more client focused, rigorous and
controlled. In addition, given our investment in information technology,
operational efficiencies will also be obtained from the automation programs
recently implemented. Several functions will be restructured and positions
eliminated, including consolidation of finance and technology functions.
Q. What new business have you obtained at SafeCard?
New contracts have been signed with six clients, including an extension of
our contract with Citibank through the year 2000. Finally, we have expanded
our existing business with ten clients for 1995 and 14 clients for 1996.
Partially offsetting these increases is the loss of new marketing at Texaco.
Q. Have you completed your capital expenditure program for SafeCard?
Yes, we are substantially complete with the renovations and expansion of the
Cheyenne facility, which provides additional capacity as well as
substantially improving our technological platform. Since October 1994,
SafeCard has purchased property and equipment totaling $12.4 million,
primarily due to the Cheyenne operating center ($7.5 million). The remainder
represents upgraded computer equipment and systems.
WRIGHT EXPRESS AND NATIONAL LEISURE GROUP
Q. What is the impact of today's announcement on Wright Express and National
Leisure Group?
Other than our general corporate mandate to be vigilant in expense control,
there will be no impact on these two subsidiaries. These two recent
acquisitions have continued their historical growth patterns, are performing
well and are meeting their 1995 business and financial goals.
IDEON GROUP, INC.
Q. What are Ideon's financial goals and plans going forward?
Our goal is to return to profitability as quickly as possible, grow revenues
and earnings at a competitive rate and limit exposure relative to new product
initiatives.
Q. Why are you providing more detailed financial information about your
business units this quarter?
As a result of the reorganization approved by stockholders in April, Ideon,
as a holding company, now has separate operating subsidiaries. In an effort
to be responsive to the requests of our investors, we now break out
information about those subsidiaries.
Q. What is the plan for corporate infrastructure and overhead and how were
those parameters determined?
Ideon's corporate staff will determine overall corporate strategy, structure,
values and policies. In addition, it will provide support services that can
only be effectively and economically performed centrally. Senior management
and the board of directors made a careful review of all corporate staff and
functions and believe that we have the people and structure in place to
execute our business plans.
Q. Given the reduction in force, how are you addressing your facilities
needs and what are your plans regarding the acquisition of the American
Express Regional Operating Center?
We will consolidate our Jacksonville operations from five locations to two by
the end of the year, and we are continuing to evaluate our options with
respect to the AMEX building. While it would be inappropriate to discuss
specific strategies at this time, we will act in the best interest of the
company and its stockholders.
Q. Why did cash decrease so dramatically since the end of fiscal 1994?
We invested $22 million in Ideon Marketing and Services and for the
development of the PGA TOUR Partners program, $17 million in Family
Protection Network and $3 million on its Collections of the Vatican Museum
test marketing. We also acquired National Leisure Group earlier this year
for $15 million. Since the end of fiscal 1994, we spent $25 million in
improving and expanding the Cheyenne, Wyoming, operations center and
enhancing the company's technology. We also spent $5 million on the stock
repurchase program. Excess cash generated by our core businesses (SafeCard,
Wright Express and National Leisure Group) and interest received from our
investment portfolio were used to pay quarterly dividends and general
corporate expenses, including litigation and legal fees.
Q. What will future cash levels be?
We believe that our cash flow from operations and our cash and investment
balances are adequate to meet the company's current and long-term liquidity
needs. We expect to continue to maintain significant cash and investment
balances. Cash and investments may decline during the third quarter as a
result of severance and other restructuring payments and the stock repurchase
program. In addition, alternative uses of cash, such as acquisitions, are
regularly evaluated by management. However, the downsizing of the company
and the closing of Family Protection Network will significantly reduce our
operating cash needs and our core businesses will continue to contribute
positive cash flow.
Q. What are the company's plans regarding future dividends?
There are no plans to change the company's dividend policy.
