As filed with the Securities and Exchange Commission on October 7, 1996
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
CUC INTERNATIONAL INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 06-0918165
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
707 Summer Street
Stamford, Connecticut 06901
(203) 324-9261
(Address, Including Zip Code, and Telephone Number,
including Area Code, of Registrant's Principal Executive Offices)
Cosmo Corigliano Amy N. Lipton, Esq.
Senior Vice President and Chief Financial Officer Senior Vice President and General Counsel
CUC International Inc. CUC International Inc.
707 Summer Street 707 Summer Street
Stamford, Connecticut 06901 Stamford, Connecticut 06901
(203) 324-9261 (203) 324-9261
(Name and Address, Including Zip Code,
and Telephone Number, Including Area Code, of Agents For Service)
Copies to:
Stephen E. Jacobs, Esq. Robert E. Buckholz, Jr., Esq.
Weil, Gotshal & Manges LLP Sullivan & Cromwell
767 Fifth Avenue 125 Broad Street
New York, New York 10153 New York, New York 10004
(212) 310-8000 (212) 558-4000
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement is declared
effective by order of the Securities and Exchange Commission.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [_]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] __________________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
==================================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Securities to Amount to be Offering Price Per Aggregate Offering Amount of
be Registered Registered (1) Unit (2) Price (2) Registration Fee
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value 12,650,000 $40.56 $513,084,000 $155,480.00
==================================================================================================================================
(1) Includes 1,650,000 shares as to which the Underwriters have been granted an
option by certain of the Selling Stockholders solely to cover
over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act based on the average high
and low price of CUC International Inc. common stock, $.01 par value, on
October 3, 1996, as reported on the New York Stock Exchange, Inc. Composite
Transactions.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED OCTOBER 7, 1996
16,500,000 Shares*
[LOGO] CUC International Inc.
Common Stock
(par value $.01 per share)
All of the shares of Common Stock offered hereby are being sold by the
Selling Stockholders. See "Selling Stockholders". Of the 16,500,000 shares of
Common Stock being offered by the Selling Stockholders, 13,200,000 shares are
being offered hereby in the United States and 3,300,000 shares are being offered
in a concurrent international offering outside the United States. The public
offering price and the aggregate underwriting discount per share will be
identical for both offerings. See "Underwriting". The Company will not receive
any of the proceeds from the sale of the shares offered hereby. See "Use of
Proceeds".
The last reported sale price of the Common Stock (which is listed under
the symbol "CU") on the New York Stock Exchange, Inc. Composite Transactions on
October 4, 1996 was $26 5/8 per share. See "Price Range of Common Stock and
Dividend Policy".
* Unless otherwise indicated, all information included in this
Prospectus has been adjusted for the three-for-two split of the Common Stock to
be effected on October 21, 1996, and further assumes that the Underwriters'
over-allotment options will not be exercised.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Proceeds to
Public Underwriting Selling
Offering Price Discount(1) Stockholders(2)
-------------- ----------- ---------------
Per Share................................ $ $ $
Total(3)................................. $ $ $
- ---------------------
(1) Each of the Company and the Selling Stockholders has agreed to indemnify
the Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
(2) Before deducting estimated expenses of $_______________ payable by the
Company and $_______________ payable by the Selling Stockholders.
(3) Certain of the Selling Stockholders have granted to the U.S. Underwriters
an option exercisable on or before November 12, 1996 to purchase up to an
additional 1,980,000 shares at the public offering price per share, less
the underwriting discount, solely to cover over-allotments. Additionally,
certain of the Selling Stockholders have granted to the International
Underwriters an option exercisable on or before November 12, 1996 to
purchase up to an additional 495,000 shares at the public offering price
per share, less the underwriting discount, solely to cover over-allotments.
If such options are exercised in full, the total initial public offering
price, underwriting discount, and proceeds to the Selling Stockholders will
be $__________, $__________ and $___________ respectively. See
"Underwriting".
The shares offered hereby are offered severally by the U.S. Underwriters,
as specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York, on
or about October __, 1996, against payment therefor in immediately available
funds.
Goldman, Sachs & Co. Morgan Stanley & Co.
Bear, Stearns & Co. Inc. Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
The date of this Prospectus is October ___, 1996.
AVAILABLE INFORMATION
CUC International Inc. (the "Company" or "CUC") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the United States Securities and Exchange
Commission (the "Commission"). The reports, proxy statements and other
information filed by the Company with the Commission may be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: New York Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048; and Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and at the Commission's Web site at
(http://www.sec.gov). Copies of such material also may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, material filed by the
Company may be inspected at the offices of the New York Stock Exchange, Inc.
(the "NYSE") at 20 Broad Street, New York, New York 10005, on which the shares
of the common stock, par value $.01 per share, of the Company (the "Common
Stock") are listed.
The Prospectus constitutes a part of a Registration Statement on Form S-3
filed by the Company with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"). This Prospectus omits certain of the information
contained in the Registration Statement, and reference is hereby made to the
Registration Statement and to the exhibits relating thereto for further
information with respect to the Company and the Common Stock. Any statements
contained herein concerning the provisions of any document are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such reference.
-------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NYSE OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents (and the amendments thereto) filed by the Company
(File No. 1-10308) with the Commission pursuant to the Exchange Act are
incorporated herein by reference and are made a part hereof:
(i) The Company's Annual Report on Form 10-K for its fiscal year
ended January 31, 1996, filed with the Commission on April 26,
1996 (the "CUC 10-K");
(ii) The Company's Quarterly Report on Form 10-Q for its fiscal
quarter ended April 30, 1996, filed with the Commission on
June 14, 1996;
(iii) The Company's Quarterly Report on Form 10-Q for its fiscal
quarter ended July 31, 1996, filed with the Commission on
September 16, 1996;
(iv) The Company's Current Reports on Form 8-K, filed with the
Commission on February 21, 1996, February 22, 1996, March 12,
1996, April 22, 1996, August 5, 1996, August 14, 1996,
September 17, 1996, September 19, 1996 and September 26, 1996;
and
(v) The description of the Common Stock contained in the Company's
Registration Statements on Form 8-A, filed with the Commission
on July 27, 1984 and August 15, 1989, including any amendment
or report filed for the purposes of updating such description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering made hereby shall be deemed to be incorporated
herein by reference and to be a part hereof on and from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference in this Prospectus shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or incorporated herein by reference or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
Copies of all documents incorporated by reference, other than exhibits
to such documents (unless such exhibits are specifically incorporated by
reference into such documents), will be provided without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered upon the written or oral request of such person. Requests for such
copies should be directed to the Company, 707 Summer Street, Stamford,
Connecticut 06901, Attention: Secretary, telephone: (203) 324-9261.
----------------------
3
THE COMPANY
General
The Company is a leading technology-driven, membership-based consumer
services company that provides more than 62.5 million customers worldwide with
access to home shopping, travel, insurance, automobile, dining, home
improvement, lifestyle club, checking account enhancement and discount coupon
programs. In partnership with leading banks, retailers, oil companies, credit
unions, charitable organizations and other institutions, the Company offers
significant savings and convenience shopping for a wide array of high-quality
goods and services.
The Company's goal is to be the leading consumer services content
provider as well as to broaden its membership base through untapped distribution
channels, global expansion and the interactive marketplace. Management believes
that the Company is uniquely positioned to lead in the expanding interactive
marketplace by combining its existing direct marketing expertise with exciting
new electronic media. The Company recently completed the acquisitions of two
interactive media companies, Davidson & Associates, Inc. ("Davidson") and Sierra
On-Line, Inc. ("Sierra"). See "-Recent Developments". These acquisitions will
enable the Company to offer content in several additional major areas of
consumer spending and, more importantly, to enhance its existing product
offerings in the electronic marketplace. Management believes the creative
development teams of Davidson and Sierra will enable the Company to design an
Internet World Wide Web site (or "Web site") that will integrate the Company's
current service offerings with creative and attractive entertainment features.
The Web site will be an important marketing tool in the Company's effort to
maximize the number of consumers using its interactive services.
Membership-Based Consumer Services. The Company's primary line of
business is providing consumer services through individual, wholesale and
discount program memberships ("memberships"). Individual memberships, in which
members pay directly for services and the Company pays the associated marketing
costs, include Shoppers Advantage(R), Travelers Advantage(R), AutoVantage(R) and
insurance products, which are sold at prices generally ranging between $10 and
$250 per year. Wholesale memberships include enhancement packages sold through
banks and credit unions, and insurance products sold through credit unions, for
which the Company acts as a third-party administrator. The fees for these
memberships which generally range between $6 and $50 per year. Discount Program
memberships, which are sold primarily through fundraising institutions,
merchants or general advertising, include the Entertainment(R) and Gold C(R)
coupon book programs. Fees for these memberships generally range from $10 to $50
per year.
Distribution Channels. The Company markets its memberships through a
variety of distribution channels. The Company reaches consumers through
financial institutions or other organizations (by direct marketing or direct
sales force), merchant sponsored general advertising, and fundraising
institutions such as schools and charitable organizations.
The table below illustrates the Company's principal membership services
and the distribution channels through which such services are currently offered.
4
CUC's Services and Distribution Channels
====================================================================================================================================
| DISTRIBUTION CHANNELS
|
SERVICES | Small
| Large Banks Credit Airlines Inter-
| Banks Retail Oil & S&Ls Unions & Hotels Active
|
- -----------------------|------------------------------------------------------------------------------------------------------------
Shopping | * * * * * *
- -----------------------|------------------------------------------------------------------------------------------------------------
Dining | * * * * *
- -----------------------|------------------------------------------------------------------------------------------------------------
Auto | * * * * * * *
- -----------------------|------------------------------------------------------------------------------------------------------------
Travel | * * * * * * *
- -----------------------|------------------------------------------------------------------------------------------------------------
Home | * * * *
- -----------------------|------------------------------------------------------------------------------------------------------------
Health | * T *
- -----------------------|------------------------------------------------------------------------------------------------------------
Privacy | * * * * T
- -----------------------|------------------------------------------------------------------------------------------------------------
Lifestyle |
- -----------------------|------------------------------------------------------------------------------------------------------------
Entertainment/ | * * * T *
Coupons |
- -----------------------|------------------------------------------------------------------------------------------------------------
Credit Card | * * * *
Protection |
- -----------------------|------------------------------------------------------------------------------------------------------------
Financial | * T
Services |
- -----------------------|------------------------------------------------------------------------------------------------------------
Buyers | * * * *
- -----------------------|------------------------------------------------------------------------------------------------------------
New Services | T T T T T
- -----------------------|------------------------------------------------------------------------------------------------------------
Interactive Media | *
====================================================================================================================================
*= Currently Available
T= Testing
[CHART RESTUBBED FROM ABOVE]
====================================================================================================================================
| DISTRIBUTION CHANNELS
|
SERVICES | New
| Charities/ Vacation New House-
| Clubs Schools Direct Owner- Channels TV holds
| ship
- -----------------------|------------------------------------------------------------------------------------------------------------
Shopping | T T *
- -----------------------|------------------------------------------------------------------------------------------------------------
Dining | * T
- -----------------------|------------------------------------------------------------------------------------------------------------
Auto | T T T
- -----------------------|------------------------------------------------------------------------------------------------------------
Travel | * * T T
- -----------------------|------------------------------------------------------------------------------------------------------------
Home |
- -----------------------|------------------------------------------------------------------------------------------------------------
Health |
- -----------------------|------------------------------------------------------------------------------------------------------------
Privacy |
- -----------------------|------------------------------------------------------------------------------------------------------------
Lifestyle | *
- -----------------------|------------------------------------------------------------------------------------------------------------
Entertainment/ | * * T T *
Coupons |
- -----------------------|------------------------------------------------------------------------------------------------------------
Credit Card |
Protection |
- -----------------------|------------------------------------------------------------------------------------------------------------
Financial |
Services |
- -----------------------|------------------------------------------------------------------------------------------------------------
Buyers |
- -----------------------|------------------------------------------------------------------------------------------------------------
New Services | T
- -----------------------|------------------------------------------------------------------------------------------------------------
Interactive Media | T * * T
====================================================================================================================================
*= Currently Available
T= Testing
Interactive Media. As discussed below under "--Recent Developments",
the Company recently completed the acquisitions of Davidson and Sierra.
Davidson and Sierra develop, publish, manufacture and distribute
high-quality educational, entertainment and personal productivity (or "how to")
interactive multimedia products for home and school use. Their products
incorporate characters, themes, sound, graphics, music and speech in ways that
the Company believes are engaging to the user. These products are designed for
multimedia PC's, including CD-ROM-based PC systems, and selected emerging
platforms. Davidson's and Sierra's products are offered through a variety of
distribution channels, including specialty retailers, mass merchandisers,
discounters and schools.
Growth Strategy
Management anticipates that the Company's continued growth will derive
from:
o Building its Core Business. Management intends to access new
distribution channels, develop new services and enhance existing
services. For example, the Company recently introduced its "Transfer
Plus" program through which the Company's services are cross-marketed
to customers of other providers that offer products and services which
complement those offered by the Company. Using this new distribution
channel, a hotel chain, for example, can "transfer" a customer who has
made a hotel reservation by telephone to a marketing representative of
the Company who, in turn, markets CUC's discount travel services to
that consumer. Examples of new and enhanced services recently
introduced by the Company include the Gardening Club (through which
consumers gain access to a variety of gardening information and
purchasing discounts) and Entertainment Gold (an enhanced version of
the Company's traditional Entertainment product).
o Acquiring Complementary Businesses. The Company has completed multiple
acquisitions in recent years. Management intends to continue to
aggressively pursue the Company's expansion through the selective
acquisition of complementary businesses. Such acquisitions enable the
Company to offer additional services (such as the hunting, fishing,
gardening and other lifestyle club memberships offered by North
American Outdoor Group, Inc.) and acquire new distribution channels
(such as the "new mover" distribution channel acquired through the
Company's acquisitions of Welcome Wagon International, Inc. and Getko
Group Inc.). More recently, the Company acquired Ideon Group, Inc.,
which strengthened the Company's existing credit card registration and
loss notification services.
o Expanding Internationally. The Company plans to continue the rapid
expansion of its business outside of the United States. In Europe, for
example, five major European banks currently participate in the
Company's enhancement business (representing access to more than 15
million consumers) and the Company has continued to develop
relationships with other major European financial institutions, as well
as marketing additional services to these institutions. The Company is
also expanding in Japan and other Asian countries.
o Developing Interactive Media Channels. Management believes that the
ability to deliver its services via interactive multimedia channels
(e.g., the Internet, consumer online services, interactive television
and other emerging channels) represents a significant opportunity.
Members who access the Company's services by interactive media channels
renew memberships at higher rates and are less costly to service than
those members who access by telephone. Management has positioned
virtually all of the Company's services to make them accessible through
a wide range of interactive media. Management plans to create a single,
all-encompassing Web site that will enable consumers to access the full
spectrum of the Company's consumer services. Management anticipates
that the Davidson and Sierra creative teams will enable the Company to
develop a Web site that combines its transaction-based consumer service
offerings with the entertainment features necessary to attract
consumers.
6
Recent Developments
Davidson Acquisition. On July 24, 1996, the Company acquired all of the
outstanding capital stock of Davidson for a purchase price of approximately $1.0
billion (the "Davidson Acquisition"). Pursuant to the Davidson Acquisition,
approximately 45.1 million shares of Common Stock were issued to the former
holders of Davidson common stock, including approximately 32.7 million shares of
Common Stock issued to the Selling Stockholders. See "Selling Stockholders". The
Davidson Acquisition was accounted for as a pooling-of-interests. See "The
Company-Interactive Media".
Sierra Acquisition. In addition, on July 24, 1996, the Company acquired
all of the outstanding capital stock of Sierra for a purchase price of
approximately $858.0 million (the "Sierra Acquisition"). Pursuant to the Sierra
Acquisition, approximately 38.4 million shares of Common Stock were issued to
the former holders of Sierra common stock. The Sierra Acquisition was accounted
for as a pooling-of-interests. See "The Company -- Interactive Media".
Ideon Acquisition. On August 7, 1996, the Company acquired all of the
outstanding capital stock of Ideon Group, Inc. ("Ideon") for a purchase price of
approximately $393.0 million (the "Ideon Acquisition"). Pursuant to the Ideon
Acquisition, approximately 16.6 million shares of Common Stock were issued to
the former holders of Ideon common stock. The Ideon Acquisition was accounted
for as a pooling-of-interests. Ideon is a holding company with three principal
business units, i.e., SafeCard Services, Incorporated ("SafeCard"), Wright
Express Corporation ("Wright Express") and National Leisure Group, Inc. ("NLG").
SafeCard, which is the largest subsidiary of Ideon, is a provider of credit card
enhancement and continuity products and services. Wright Express is a provider
of information processing, information management and financial services to
commercial car, van and truck fleets in the United States. NLG is a provider of
vacation travel packages and cruises directly to consumers in association with
established retailers and warehouse clubs throughout New England, New York and
New Jersey and with credit card issuers and travel club members nationwide.
The Company's executive offices are located at 707 Summer Street,
Stamford, Connecticut 06901, and its telephone number is (203) 324-9261.
7
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of July 31, 1996 which has been adjusted to give effect to (i) the
Company's three-for-two stock split to be effected on October 21, 1996 for
holders of record of Common Stock on October 7, 1996 and (ii) the Ideon
Acquisition(a). The Company will not receive any proceeds from the sale of the
Common Stock offered hereby.
Adjusted July 31, 1996
----------------------
(In thousands)
Short-term debt
Revolving credit facility.....................................................$ 31,452
Bank term loans .............................................................. 1,382
-------------
Total short-term debt....................................................$ 32,834
=============
Long-term debt (excluding current installments)
Bank term loans ..............................................................$ 4,654
-------------
Total long-term debt..................................................... 4,654
-------------
Convertible debt .............................................................. 23,428
-------------
Shareholders' equity
Common stock - par value $.01 per share;
authorized 600 million shares; issued
397,926,730 shares....................................................... 3,979
Additional paid-in capital.................................................... 552,956
Retained earnings............................................................. 687,058
Treasury stock, at cost, 5,968,642 shares..................................... (52,291)
Deferred compensation......................................................... (30,485)
Unrealized loss on marketable securities...................................... (41)
Foreign currency translation.................................................. (2,678)
-------------
Total shareholders' equity........................................... 1,158,498
-------------
Total capitalization................................................. $1,186,580
=============
__________________
(a) For a discussion of certain costs and expenses associated with the
Ideon Acquisition, see Note e to "Selected Financial Data", and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources; Inflation;
Seasonality".
8
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Common
Stock being offered hereby. See "Selling Stockholders".
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the NYSE under the symbol "CU".
The following table sets forth high and low closing sale prices for the Common
Stock as reported on the NYSE Composite Transactions for the periods indicated,
adjusted to give effect to the Company's three-for-two stock split to be
effected on October 21, 1996 for holders of record of Common Stock on October 7,
1996:
Fiscal Year Ended: High Low
---- ---
January 1995
First Quarter........................................ 14 5/8 12
Second Quarter....................................... 13 5/8 11 3/8
Third Quarter........................................ 15 3/8 13 5/8
Fourth Quarter....................................... 16 1/8 12 3/4
January 1996
First Quarter........................................ 18 1/8 15 3/8
Second Quarter....................................... 20 3/4 16 3/8
Third Quarter........................................ 24 1/4 19 7/8
Fourth Quarter....................................... 25 3/8 20
Fiscal Year Ending: High Low
---- ---
January 1997
First Quarter........................................ 26 1/8 18 5/8
Second Quarter....................................... 26 1/4 21 1/4
Third Quarter (through October 4, 1996).............. 27 3/8 22 3/8
The last reported sale price of the Common Stock on the NYSE Composite
Transactions on October 4, 1996 was $26 5/8 per share.
The Company has not paid any dividends with respect to the Common Stock
since inception, other than an extraordinary dividend of cash and convertible
subordinated debentures paid in connection with a recapitalization of the
Company effected in fiscal year 1990.
9
SELECTED FINANCIAL DATA
The following selected financial data are derived from the supplemental
consolidated financial statements of the Company and the related notes thereto.
This data should be read in conjunction with the Consolidated Financial
Statements and the Supplemental Consolidated Financial Statements, and the
related notes thereto, incorporated herein by reference to the CUC 10-K and to
the Company's Current Report on Form 8-K filed with the Commission on September
17, 1996, and Managements' Discussion and Analysis of Financial Condition and
Results of Operations, included elsewhere in this Prospectus.
(In thousands, except for per common share data)
Year Ended January 31, Six Months Ended July 31,
----------------------------------------------------------------------------------------------------------
1996(b) 1995(l) 1994 1993(m) 1992 1996 1995
----------------------------------------------------------------------------------------------------------
(Unaudited)
INCOME STATEMENT DATA (a)
Total revenues $1,935,232 $1,554,611 $1,278,664 $1,043,311 $904,052 $1,071,223 $896,707
Income from continuing
operations before
income taxes 235,312(c) 256,931(f) 198,319 117,434 100,896(g) 161,341(e) 60,514(k)
Income from continuing
operations 144,975(c) 162,057(f) 124,705 80,239 70,479(g) 92,582(e) 35,936(k)
Income per common share
from continuing
operations (d) $ .37(c) $ .43(f) $ .34 $ .24 $ .24(g) $ .23(e) $ .09(k)
Cash dividends per common
share (i) $ .01 $ .01 $ .01 $ .01 $ .01 $ .01 $ .01
========================================================================================================
Weighted average number of
common and dilutive
common equivalent
shares outstanding (d) 392,208 379,263 365,915 340,712 288,162 399,267 388,674
========================================================================================================
BALANCE SHEET DATA (a)
Total assets $2,068,196 $1,772,122 $1,199,805 $1,032,269 $814,961 $2,137,452 -
Long-term obligations (h) 6,481 22,872 24,235 30,091 16,336 6,036 -
Zero coupon convertible
notes 14,410 15,046 22,176 37,295 69,228 - -
Convertible debt 23,389 34,634 - - - 23,428 -
Stockholders' equity (e) 1,002,523(j) 826,083 558,181 389,461 235,675 1,158,498 -
Working capital 759,271 523,996 298,230 147,475 167,394 868,367 -
(a) During the six months ended July 31, 1996, the Company acquired Davidson,
Sierra and Ideon. These acquisitions were accounted for in accordance
with the pooling-of-interests method. Accordingly, all financial data has
been restated for all prior periods to include Davidson, Sierra and
Ideon. See "The Company--Recent Developments".
(b) During the fiscal year ended January 31, 1996, the Company acquired
Welcome Wagon, CUC Europe Limited, and Credit Card Sentinel, and Ideon
acquired NLG. These acquisitions were accounted for in accordance with
the purchase method and, accordingly, have been included in the Company's
results of operations from the respective dates of acquisition. The
results of operations of these acquired entities for the periods prior to
their acquisition were not significant to the historical financial
statements of the Company.
(c) Includes provision for costs incurred in connection with the acquisition
of Advance Ross Corporation ("Advance Ross"). The charge aggregated $5.2
million ($4.2 million or $.01 per common share after-tax effect). Also
during fiscal 1996, Ideon recorded pre-tax charges of $43.8 million
related to the abandonment of certain new product development efforts and
the restructuring of its SafeCard division and its corporate
infrastructure.
10
(d) Adjusted to give effect to the three-for-two stock split to be effected
on October 21, 1996 for holders of record of Common Stock on October 7,
1996.
(e) Includes provision for costs incurred in connection with the acquisitions
of Davidson and Sierra. The charge aggregated $28.6 million ($25.1
million or $.06 per common share after-tax effect). All costs related to
the Ideon Acquisition have not been reflected in the Company's
supplemental consolidated financial statements included in its Current
Report on Form 8-K, filed with the Commission on September 17, 1996 (the
"Supplemental Consolidated Financial Statements"), but will be reflected
in the Company's consolidated statement of income during the period the
Ideon Acquisition is completed. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources; Inflation; Seasonality". Such costs are non-recurring and
include integration and transaction costs as well as costs relating to
certain outstanding litigation matters, (see Note 6 to the Supplemental
Consolidated Financial Statements as of and for the six months ended July
31, 1996) giving consideration to the Company's intended approach to
these matters, which are estimated by Management to approximate $125.0
million ($80.0 million after tax effect).
(f) During fiscal 1995, Ideon recorded a pre-tax charge of $7.9 million for
various severance agreements and a lease termination in connection with a
reorganization of its operations and senior management team.
(g) Includes provision for costs incurred in connection with the integration
of the operations of the Company and Entertainment Publishing Corp.
(acquired during fiscal 1992 in a transaction accounted for in accordance
with the pooling-of-interests method) and costs of professional fees and
other expenses related to the merger with Entertainment Publishing Corp.
The charge aggregated $20.7 million ($15 million or $.05 per common share
after-tax effect). Also includes a gain from the sale of an
unconsolidated affiliate of Advance Ross. The gain aggregated $11.7
million ($7 million or $.02 per common share after-tax effect). In
addition, includes a pre-tax charge of $17.5 million in connection with
Ideon's relocation of an operations center.
(h) Includes current portion of long-term debt of $1.4 million, $9 million,
$6.3 million, $3.4 million, $1.2 million and $1.4 million at January 31,
1996, 1995, 1994, 1993, 1992 and July 31, 1996, respectively. Excludes
$15.4 million, $11.8 million, $5.5 million, $23.2 million, $26.7 million
and $31.5 million of amounts due under revolving credit facilities at
January_31, 1996, 1995, 1994, 1993, 1992 and July 31, 1996, respectively,
and $6 million due at January 31, 1993 under a note payable issued in
connection with the acquisition of Sally Foster Gift Wrap, LP ("Sally
Foster").
(i) Represents cash dividends paid to Ideon common stockholders. No Common
Stock cash dividends have been paid or declared during the five years
ended January 31, 1996 and the six-month periods ended July 31, 1996 and
1995. However, an insignificant amount of cash dividends were paid in
respect of the North American Outdoor Group, Inc. common stock for the
fiscal years ended January 31, 1994, 1993 and 1992.
(j) Effective January 1, 1995, Ideon changed its fiscal year end from October
31 to December 31 (the "Ideon Transition Period"). The Ideon Transition
Period has been excluded from the accompanying supplemental consolidated
statement of income. Ideon's revenues and net loss for the Ideon
Transition Period were $34.7 million and $(49.9) million, respectively.
The net loss for the Ideon Transition Period was principally the result
of a $65.5 million one-time, non-cash, pretax charge recorded in
connection with a change in accounting for deferred membership
acquisition costs.
(k) Includes Ideon pre-tax charges of $34.2 million related to the
abandonment of certain new product development efforts and the
restructuring of its SafeCard division and its corporate infrastructure.
Also includes marketing and operational costs incurred for Ideon products
abandoned of $47 million.
(l) During the fiscal year ended January 31, 1995, the Company acquired Essex
Corporation ("Essex") and subsidiaries and Ideon acquired Wright Express.
These acquisitions were accounted for in accordance with the purchase
method and, accordingly, have been included in the Company's results of
operations from the respective dates of acquisition. The results of
operations of these acquired entities for the periods prior to their
acquisition were not significant to the historical financial statements
of the Company.
(m) During the fiscal year ended January 31, 1993, the Company acquired
Leaguestar plc and Sally Foster. These acquisitions were accounted for in
accordance with the purchase method and, accordingly, have been
11
included in the Company's results of operations from the respective dates
of acquisition. The results of operations of these acquired entities for
the periods prior to their acquisition were not significant to the
historical financial statements of the Company.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On September 17, 1996, the Company published (in its Current Report on
Form 8-K, filed with the Commission on such date) its Supplemental Consolidated
Financial Statements giving retroactive effect to consummation of each of the
Davidson Acquisition, the Sierra Acquisition and the Ideon Acquisition using the
pooling-of-interests method of accounting as if each of such acquired
corporations and the Company had operated as one since inception. The
Supplemental Consolidated Financial Statements will constitute the primary
historical consolidated financial statements of the Company upon the publication
of Company financial statements, on or about December 15, 1996, that include the
respective dates of consummation of the Davidson Acquisition (July 24, 1996),
the Sierra Acquisition (July 24, 1996) and the Ideon Acquisition (August 7,
1996).
Six Months Ended July 31, 1996 vs. Six Months Ended July 31, 1995
The Company's overall membership base continues to grow at a rapid rate
(from 51.2 million members at July 31, 1995 to 62.3 million members at July 31,
1996), which is the largest contributing factor to the 20% increase in
membership revenues (from $786.7 million for the six months ended July 31, 1995
to $942.2 million for the six months ended July 31, 1996). While the overall
membership base increased by approximately 2.7 million members during the six
months ended July 31, 1996, the average annual fee collected for the Company's
membership services increased by 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 members 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 six months, individual, wholesale
and discount program memberships grew by 9%, 20% and 61%, respectively,
including members which came from acquisitions completed during fiscal 1996
(members obtained through acquisitions being hereafter referred to as "Acquired
Members"). Discount program memberships have experienced the largest increase
from Acquired Members, principally from Advance Ross, acquired in fiscal 1996,
which provides local discounts to consumers. For the six months ended July 31,
1996, individual, wholesale and discount coupon program memberships represented
68%, 12% and 20%, respectively, of membership revenues. 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 17% from $110 million for the six months
ended July 31, 1995 to $129.1 million for the six months ended July 31, 1996.
Distribution revenue, which typically has low operating margins, decreased to
$25.7 million from $41.7 million. The Company's software operations continue to
focus on the growth of selling titles through retailers. Excluding distribution
revenue, core software revenue grew by 57%. Contributing to the strong software
revenue growth in fiscal 1997 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 impact profit margins. As a
result, operating income before interest, amortization of restricted stock
compensation, costs related to products abandoned and restructuring, gain on
sale of and equity in loss from ImagiNation Network, and income taxes ("EBIT")
increased from $135.9 million to $185.9 million, and EBIT margins improved from
15.2% to 17.4%.
Individual membership usage continues to increase, which contributes to
additional service fees and indirectly contributes to the Company's strong
renewal rate. 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.
Operating costs increased 18% (from $277.6 million to $326.3 million).
The major components of the Company's membership operating costs continue to be
personnel, telephone, computer processing and participant
13
insurance premiums(the cost of obtaining insurance coverage for members). 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. Historically, the Company has seen a direct correlation
between providing a high level of service to its members and improved retention.
Marketing costs remained constant as a percentage of revenue (39%).
This is due primarily to maintained per member acquisition costs and an increase
in renewing members. Membership acquisition costs incurred increased 18% (from
$263 million to $310.4 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 consist primarily of membership communications and sales expenses.
Amortization of membership acquisition costs increased by 17% (from $272.4
million to $319.5 million). Other marketing costs increased by 23% (from $77.6
million to $95.2 million). These increases 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 consumer services are combined for its various services and,
accordingly, there are no significant changes in marketing costs by service.
The Company routinely reviews all 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 up for renewal.
General and administrative costs decreased as a percentage of revenue
(from 15% to 13%). This is the result of the Company's ongoing ability to
control overhead. Interest income, net, decreased from $5.8 million to $4.1
million primarily due to cash used to fund acquisitions during fiscal 1996 and
the first six months of fiscal 1997.
Included in costs related to products abandoned and restructuring for
the six months ended July 31, 1995, are special charges totaling $34.2 million,
related to the abandonment of certain new product developmental efforts and the
related impairment of certain assets and the restructuring of the SafeCard
division of Ideon and the Ideon corporate infrastructure. The charge of $34.2
million was composed of accrued liabilities of $25.6 million and asset
impairments of $8.6 million. Also included in costs related to products
abandoned and restructuring are marketing and operational costs of $47 million
incurred for Ideon products abandoned.
Merger costs are non-recurring and are comprised primarily of
transaction costs, professional fees and integration costs associated with the
Davidson Acquisition and the Sierra Acquisition.
Membership Information
The following table sets forth the approximate number of members and
net additions for the respective periods:
Net New Member
Number of Additions
Period Members for the Period
- ------ ------- --------------
Six Months Ended July 31, 1996 62,315,000 2,665,000
Year Ended January 31, 1996 59,650,000 12,750,000*
Six Months Ended July 31, 1995 51,165,000 4,265,000**
Year Ended January 31, 1995 46,900,000 3,820,000
Quarter Ended July 31, 1996 62,315,000 1,440,000
Quarter Ended July 31, 1995 51,165,000 1,290,000
*Includes approximately 8 million Acquired Members.
**Includes approximately 2.1 million Acquired Members.
14
The membership acquisition costs incurred to obtain 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 to obtain 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 and acquisitions have been provided
through cash flow from operations. The Company also is party to a credit
agreement, dated March 26, 1996, with certain 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 (the "Credit Agreement"). The Credit Agreement
provides for a $500 million revolving credit facility with a variety of
different types of loans available thereunder. The Credit Agreement contains
certain customary restrictive covenants including, without limitation, financial
covenants and restrictions on certain corporate transactions, and also contains
various event of default provisions including, without limitation, defaults
arising from certain changes in control of the Company. The amount of borrowings
available to the Company under the Credit Agreement was $500 million at July 31,
1996, as there were no borrowings under the Credit Agreement at that date. The
Credit Agreement is scheduled to expire on March 26, 2001.
In February 1996, Wright Express entered into a revolving credit
facility agreement which has an available line of $75 million of which $50
million may be used to finance working capital requirements and for general
corporate and $25 million of which may be used for acquisition financing. This
facility expires on December 1, 1998.
In fiscal 1996, Sierra entered into an unsecured bank line of credit
that provides for borrowings of up to $10 million, expiring on August 31, 1996.
The line contains covenants requiring Sierra to maintain certain financial
ratios and minimum balances of cash and cash equivalents. There have been no
borrowings by Sierra under this line of credit to date. This line of credit
expired August 31, 1996.
All costs related to the Ideon Acquisition have not been reflected in
the Company's Consolidated Supplemental Financial Statements but will be
reflected in the Company's consolidated statement of income during the period
the Ideon Acquisition is completed. Such costs are non-recurring and include
integration and transaction costs as well as costs relating to certain
outstanding litigation matters, (see Note 6 to the Supplemental Consolidated
Financial Statements as of and for the six months ended July 31, 1996) giving
consideration to the Company's intended approach to these matters, which are
estimated by the Company's management to approximate $125.0 million ($80.0
million after tax effect). Most of the reserve is related to these outstanding
litigation matters. In determining such portion, the Company estimated the cost
of settling these litigation matters. In estimating such cost, the Company
considered potential liabilities related to these matters and the estimated cost
of prosecuting and defending them (including out-of-pocket costs, such as
attorneys' fees, and the cost to the Company of having its management involved
in numerous complex litigation matters). The Company is unable at this time to
determine the estimated timing of the future cash outflows with respect to this
liability. Although the Company has attempted to estimate the amounts that will
be required to settle these litigation matters, there can be no assurance that
the actual aggregate amount of such settlements will not exceed the amount of
the reserve to be accrued.
The Company invested approximately $33 million in acquisitions, net of
cash acquired, during the six months ended July 31, 1996. These 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 flow from
operations and borrowings under the Credit Agreement will be sufficient to
achieve its current long-term objectives.
The Company does not anticipate any material capital expenditures for
the next year. Total capital expenditures were $24 million for the six months
ended July 31, 1996.
15
The Company intends to continue to review potential acquisitions that
it believes would enhance the Company's growth and profitability. Any
acquisitions paid for in cash will initially be financed through excess cash
flow from operations and the Credit Agreement. However, depending on the
financing necessary to complete a particular acquisition, additional funding may
be required.
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 due primarily to the increased demand for the Company's
software products during the year-end holiday season.
For the six months ended July 31, 1996, the Company's international
businesses represented less than 5% 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.
Year Ended January 31, 1996 vs. Year Ended January 31, 1995
The Company's overall membership base continues to grow at a rapid rate
(from 47 million members at January 31, 1995 to 59.7 million members at January
31, 1996), which is the largest contributing factor to the 20% increase in
membership revenues (from $1,363.6 million in fiscal 1995 to $1,629.8 million in
fiscal 1996). While the overall membership base increased by 12.7 million
members, or 27%, during the year (of which approximately 8 million members came
from acquisitions completed during the year), the average annual fee charged for
the Company's membership services increased by 3%.
In the 1996 fiscal year, individual, wholesale and discount program
memberships grew by 8%, 19% and 11%, respectively, in addition to the increase
due to Acquired Members. For the year ended January 31, 1996, individual,
wholesale and discount program memberships represented 68%, 12% and 20% of
membership revenues, respectively. Discount program memberships have incurred
the largest increase from Acquired Members. Welcome Wagon, the Getko Group Inc.
and Advance Ross, all acquired in fiscal 1996, are classified in this membership
category as their businesses provide local discounts to consumers. 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. The Company
completed a number of acquisitions accounted for under the purchase method of
accounting during fiscal 1996. The total revenues contributed by these
acquisitions are not material to the Company's total reported revenues (see Note
B to the Supplemental Consolidated Financial Statements as of and for the year
ended January 31, 1996).
Software revenues increased 60% to $305.4 million in fiscal 1996 from
$191.1 million in fiscal 1995. Contributing to the strong software growth in
fiscal 1996 was the release of 63 new titles and an additional 18 titles which
were acquired compared to 34 new products released in fiscal 1995. Also
contributing to the software revenue growth is the significant increase in the
installed base of CD-ROM personal computers as well as increases in affiliated
label and distribution revenues.
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 impact profit margins. As a
result, EBIT increased from $239.1 million to $322.7 million and EBIT margins
improved from 15.4% to 16.7%.
Individual membership usage continues to increase, which contributes to
additional service fees and indirectly contributes to the Company's strong
renewal rate. Historically, an increase in overall membership usage has had a
favorable impact on renewal rates. Actual membership cancellations were $376
million, $354 million and $319 million, respectively, for the fiscal years ended
January 31, 1996, 1995 and 1994. This
16
represents 19%, 21% and 22%, respectively, of the gross membership revenues
accrued for all services. The Company records its deferred revenue net of
estimated cancellations which are anticipated in the Company's marketing
programs. The number of cancellations has increased due to the increased level
of marketing efforts, but has decreased as a percentage of the total number of
members.
Operating costs increased 25% (from $474.1 million to $593.5 million).
The major components of the Company's membership operating costs continue to be
personnel, telephone, computer processing and participant insurance premiums
(the cost of obtaining insurance coverage for members). 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.
Historically, the Company has seen a direct correlation between providing a high
level of service to its members and improved retention.
Marketing costs decreased as a percentage of revenues, from 40% to 38%.
This decrease is primarily due to improved per member acquisition costs and an
increase in renewing members. Membership acquisition costs incurred increased
19% (from $508.8 million to $605.1 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 increased by 19%
(from $467 million to $556.5 million). Other marketing costs increased by 20%
(from $151.3 million to $180.9 million). This increase 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 up for
renewal.
General and administrative costs increased as a percentage of revenues,
from 14% to 15%. This is principally due to acquisitions completed during fiscal
1996. Interest income, net, increased from $7.9 million to $9.7 million due to
the reduced level of amortization associated with the Company's restricted stock
and zero coupon convertible notes and the net interest income from the increased
level of cash generated by the Company for investment.
Included in costs related to products abandoned and restructuring for
the year ended January 31, 1996, are special charges totaling $43.8 million, net
of recoveries, related to the abandonment of certain new product developmental
efforts and the related impairment of certain assets and the restructuring of
the SafeCard division of Ideon and the Ideon corporate infrastructure. The
original charge of $45 million was composed of accrued liabilities of $36.2
million and asset impairments of $8.8 million. Also included in costs related to
products abandoned and restructuring are marketing and operational costs
incurred for Ideon products abandoned of $53.2 million.
Year Ended January 31, 1995 vs. Year Ended January 31, 1994
The Company's overall membership base continues to grow at a rapid rate
(from 42.9 million members at January 31, 1994 to 47 million members at January
31, 1995), which is the largest contributing factor to the 19% increase in
membership revenues (from $1,143.2 million in fiscal 1994 to $1,363.6 million in
fiscal 1995). While the overall membership base increased by 4.1 million members
before adjustment for Acquired Members resulting from the fiscal 1996
pooling-of-interests transactions, or 10%, during the past year, the average
annual fee charged for the Company's membership services increased by 3%. The
Company divides its memberships into three categories: individual, wholesale and
discount program memberships. All of these categories share various aspects of
the Company's marketing and operating resources. In the 1995 fiscal year,
individual, wholesale and discount program memberships grew by 11%, 6% and 11%,
respectively. For the year ended January 31, 1995, individual, wholesale and
discount program memberships represented 70%, 11% 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. The Company completed an acquisition of
17
Essex, a privately owned third-party marketer of financial products for banks,
and certain other entities, during fiscal 1995. The total revenues contributed
by this acquisition are not material to the Company's total reported revenues.
This acquisition was 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 date of acquisition (see Note B to
the Supplemental Consolidated Financial Statements as of and for the year ended
January 31, 1996).
Software revenues increased 41% to $191.1 million in fiscal 1995 from
$135.5 million in fiscal 1994. Contributing to the strong software growth in
fiscal 1995 was the release of 34 new titles. Also contributing to the software
growth was the expansion in the installed base of personal computers as well as
an increase in affiliated label revenues.
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. As a result,
EBIT increased from $200.2 million to $239.1 million, however EBIT margins
decreased slightly from 15.7% to 15.4%, due principally to increased software
research and development.
Individual membership usage continues to increase, which contributes to
additional service fees and indirectly contributes to the Company's strong
renewal rate. Historically, an increase in overall membership usage has had a
favorable impact on renewal rates. Actual membership cancellations were $354
million, $319 million and $292 million, respectively, for the fiscal years ended
January 31, 1995, 1994 and 1993. This represents approximately 21%, 22% and 24%
of the gross membership revenues accrued for all services. The Company records
its deferred revenue net of estimated cancellations which are anticipated in the
Company's marketing programs. The number of cancellations has increased due to
the increased level of marketing efforts, but has decreased as a percentage of
the total number of members.
Operating costs increased 29% (from $368.8 million to $474.1 million).
The major components of the Company's membership operating costs continue to be
personnel, telephone, computer processing, participant insurance premiums (the
cost of obtaining insurance coverage for members). 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.
Historically, the Company has seen a direct correlation between providing a high
level of service to its members and improved retention.
Marketing costs remained constant as a percentage of revenue (40%).
This is primarily due to improved per member acquisition costs and an increase
in renewing members. Membership acquisition costs incurred increased 11% (from
$457.3 million to $508.8 million). 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 increased by 14% (from
$409.5 million to $467 million). Other marketing costs increased by 44% (from
$105.1 million to $151.3 million). This increase resulted primarily from the
costs of servicing a larger membership base, costs to establish the American
Airlines AAdvantage Dining program 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. Based
on current information, the Company does not anticipate that the average renewal
rate will change significantly. Renewal rates are calculated by dividing the
total number of renewing members not requesting a refund during their renewal
year by the total members up for renewal.
General and administrative costs decreased as a percentage of revenue,
from 15% to 14%. This is the result of the Company's ongoing ability to control
overhead. Interest income, net, increased from $3.2 million to $7.9 million
primarily due to the reduction of the Company's average outstanding loan balance
and the net interest income from the increased level of cash generated by the
Company for investment.
18
SELLING STOCKHOLDERS
The following table below sets forth information as of October 1, 1996
regarding the "beneficial" ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of Common Stock by each Selling Stockholder and as adjusted to
give effect to the sale of all of the Shares offered hereby. The table assumes
that the Underwriters will not exercise their over-allotment options. See
"Underwriting".
Common Stock Common Stock to be
Beneficially Owned Beneficially Owned
Prior to the Offerings After the Offerings(1)
---------------------- ----------------------
Common Stock
Selling Stockholders and Number to be Sold Number
Relationship to the Company of Shares Percent in the Offerings of Shares Percent
- --------------------------- --------- ------- ---------------- --------- -------
Robert M. Davidson 20,622,550(2) 5.2% 300,000 11,922,550 5.1%
Vice-Chairman of the Board
of Directors of the Company
c/o Davidson & Associates, Inc.
19840 Pioneer Avenue
Torrance, CA 90503
Janice G. Davidson 20,622,208(3) 5.2% 300,000 11,922,208 5.1%
Director of the Company
c/o Davidson & Associates, Inc.
19840 Pioneer Avenue
Torrance, CA 90503
Robert M. Davidson Charitable 11,475,000(4) 2.9% 7,500,000 3,975,000 1.0%
Remainder Unitrust
dated March 30, 1995
c/o Robert M. Davidson
Davidson & Associates, Inc.
19840 Pioneer Avenue
Torrance, CA 90503
Janice G. Davidson Charitable 11,475,000(5) 2.9% 7,500,000 3,975,000 1.0%
Remainder Unitrust
dated March 30, 1995
c/o Janice G. Davidson
Davidson & Associates, Inc.
19840 Pioneer Avenue
Torrance, CA 90503
The John R. Davidson Trust 2,765,155(6) 0.7% 300,000 2,465,155 0.6%
c/o Robert M. Davidson
Davidson & Associates, Inc.
19840 Pioneer Avenue
Torrance, CA 90503
The Elizabeth Davidson Trust 2,765,155(7) 0.7% 300,000 2,465,155 0.6%
c/o Robert M. Davidson
Davidson & Associates, Inc.
19840 Pioneer Avenue
Torrance, CA 90503
The Emilie A. Davidson Trust 2,765,155(8) 0.7% 300,000 2,465,155 0.6%
c/o Robert M. Davidson
Davidson & Associates, Inc.
19840 Pioneer Avenue
Torrance, CA 90503
All Selling Stockholders
as a Group 32,727,494(9) 8.3% 16,500,000 16,227,494 4.1%
____________________________
(1) If the Underwriters' over-allotment options are exercised in full, the
Robert M. Davidson Charitable Remainder Unitrust dated March 30, 1995
and the Janice G. Davidson Charitable Remainder Unitrust dated March
30, 1995 will each sell an additional 1,237,500 shares in the offering
made hereby and will beneficially own 2,737,500 (or 0.7%) and 2,737,500
(or 0.7%), respectively, of the total shares of Common Stock
outstanding.
(2) Robert M. Davidson directly owns 630,286 shares of Common Stock, with
respect to which he has sole voting and dispositive power. Mr.
Davidson, as trustee with sole voting and dispositive power, may be
deemed the beneficial owner of the 11,475,000 shares of Common Stock
held in the Robert M. Davidson Charitable Remainder Unitrust dated
March 30, 1995. Mr. Davidson also serves as a trustee with shared
voting and dispositive power of The Elizabeth Davidson Trust, The
Emilie A. Davidson Trust
19
and The John R. Davidson Trust, each of which holds 2,765,155 shares of
Common Stock, and he may be deemed to beneficially own the shares of
Common Stock owned by such trusts. Mr. Davidson also owns 221,799
shares of Common Stock together with his wife, Janice G. Davidson, with
respect to which he shares voting and dispositive power. In the
aggregate, Mr. Davidson may be deemed to beneficially own 20,622,550
shares of Common Stock, which represents 5.2% of the outstanding Common
Stock.
(3) Janice G. Davidson directly owns 629,944 shares of Common Stock, with
respect to which she has sole voting and dispositive power. Mrs.
Davidson, as trustee with sole voting and dispositive power, may be
deemed the beneficial owner of the 11,475,000 shares of Common Stock
held in the Janice G. Davidson Charitable Remainder Unitrust dated
March 30, 1995. Mrs. Davidson also serves as a trustee with shared
voting and dispositive power of The Elizabeth Davidson Trust, The
Emilie A. Davidson Trust and The John R. Davidson Trust, each of which
holds 2,765,155 shares of Common Stock, and she may be deemed to
beneficially own the shares of Common Stock owned by such trusts. Mrs.
Davidson also owns 221,799 shares of Common Stock together with her
husband, Robert M. Davidson, with respect to which she shares voting
and dispositive power. In the aggregate, Mrs. Davidson may be deemed to
beneficially own 20,622,208 shares of Common Stock, which represents
5.2% of the outstanding Common Stock.
(4) The Robert M. Davidson Charitable Remainder Unitrust dated March 30,
1995 directly beneficially owns 11,475,000 shares of Common Stock,
which represents 2.9% of the outstanding shares of Common Stock. Robert
M. Davidson, as trustee of the Robert M. Davidson Charitable Remainder
Unitrust dated March 30, 1995, has sole power to vote and dispose of
the shares owned by such trust.
(5) The Janice G. Davidson Charitable Remainder Unitrust dated March 30,
1995 directly beneficially owns 11,475,000 shares of Common Stock,
which represents 2.9% of the outstanding shares of Common Stock. Janice
G. Davidson, as trustee of the Janice G. Davidson Charitable Remainder
Unitrust dated March 30, 1995, has sole power to vote and dispose of
the shares owned by such trust.
(6) The John R. Davidson Trust directly beneficially owns 2,765,155 shares
of Common Stock, which represents 0.7% of the outstanding shares of
Common Stock. Robert M. Davidson and Janice G. Davidson, as co-trustees
of The John R. Davidson Trust, share voting and dispositive power of
the shares owned by such trust.
(7) The Elizabeth Davidson Trust directly beneficially owns 2,765,155
shares of Common Stock, which represents 0.7% of the outstanding shares
of Common Stock. Robert M. Davidson and Janice G. Davidson, as
co-trustees of The Elizabeth Davidson Trust, share voting and
dispositive power of the shares owned by such trust.
(8) The Emilie A. Davidson Trust directly beneficially owns 2,765,155
shares of Common Stock, which represents 0.7% of the outstanding shares
of Common Stock. Robert M. Davidson and Janice G. Davidson, as
co-trustees of The Emilie A. Davidson Trust, share voting and
dispositive power of the shares owned by such trust.
(9) The Selling Stockholders may be deemed a "group" for purposes of
Section 13(d) under the Exchange Act. The Selling Stockholders in the
aggregate directly beneficially own 32,727,494 shares of Common Stock,
which represents 8.3% of the outstanding Common Stock. Nothing
contained herein shall be deemed an admission as to the existence of a
"group" under Section 13(d).
On July 24, 1996, the Company completed the Davidson Acquisition. In
connection therewith, the Company entered into a registration rights agreement
(the "Registration Rights Agreement") with the Selling Stockholders, including
Robert M. Davidson and Janice G. Davidson (Mr. and Mrs. Davidson being
hereinafter referred to collectively as the "Davidsons") and the other Selling
Stockholders identified in the table above. As more fully discussed below, the
Registration Rights Agreement entitles the Selling Stockholders to effect the
registration of the shares they received pursuant to the Davidson Acquisition,
including those shares received by the Davidsons in connection with the sale of
certain real property owned by them to a wholly owned subsidiary of the Company.
Registration Rights Agreement
Demand Registration. Pursuant to the Registration Rights Agreement, the
Company agreed, among other things, that at any time, and from time to time,
commencing on July 24, 1996 (the "Davidson Effective Date") and ending on July
24, 2002 (such six-year period, the "Davidson Effective Period"), upon the
written request of any of the Selling Stockholders requesting that the Company
effect the registration under the Securities Act of Registrable Securities (as
defined in the Registration Rights Agreement) which, in the aggregate,
constitute at least 2,000,000 shares of Common Stock, the Company will use its
best efforts to register under the Securities Act (a "Demand Registration"), as
expeditiously as may be practicable, the Registrable Securities which the
Company has been requested to register, all to the extent requisite to permit
the disposition of such Registrable Securities in accordance with the methods
intended by the Selling Stockholders; provided that (A) no Selling Stockholder
may exercise a Demand Registration within three months of the effective date of
any registration statement covering
20
equity securities of the Company (other than on Form S-4 or Form S-8 or any
successor or similar registration form) and (B) the Company will not be required
to effect any Demand Registration if the Company reasonably determines that the
sale of the Registrable Securities would be likely to cause the Davidson
Acquisition not to be accounted for as a "pooling of interests". The Company has
filed a registration statement covering the resale of Common Stock issued by the
Company in connection with a certain acquisition, which registration statement
was declared effective by the Commission on September 18, 1996. The Company,
however, has agreed to waive the condition described in clause (A) above in
order to allow the Selling Stockholders to exercise the Demand Registration to
which this offering relates.
In addition to the above restrictions, the Registration Rights
Agreement provides that if the Company has previously effected a Demand
Registration, it is not required to effect a subsequent Demand Registration
until a period of at least 120 days has elapsed from the effective date of the
registration statement used in connection with such previous Demand
Registration, and the Company is not required to effect more than three Demand
Registrations during any 36-month period during the Davidson Effective Period.
Pursuant to the Registration Rights Agreement, the Company also may
defer the filing or effectiveness of any registration statement related to a
Demand Registration for a reasonable period of time not to exceed 90 days after
such request if (A) the Company is, at such time, conducting an underwritten
public offering of Common Stock and is advised by the managing underwriter(s)
that such offering would be adversely affected by such filing or (B) the Company
determines, in its good faith and reasonable judgment, that any such filing or
the offering of any Registrable Securities would materially impede, delay or
interfere with any material proposed financing, offer or sale of securities,
acquisition, corporate reorganization or other significant transaction involving
the Company; provided, however, with respect to clauses (A) and (B) above, that
the Company is not entitled to postpone such filing or effectiveness if, within
the preceding 12 months, it has effected two postponements, and following such
postponements the Registrable Securities to be sold pursuant to the postponed
registration statements were not sold (for any reason); and provided further,
that during the period commencing on the Davidson Effective Date and ending 120
days thereafter, the Company may not defer the filing or effectiveness of the
first Demand Registration requested for more than 30 days.
Incidental ("Piggyback") Registration. The Company has further agreed
that if at any time it proposes to register shares of Common Stock under the
Securities Act for its own account (other than a registration on Form S-4 or
Form S-8, or any successor or similar registration forms) in a manner that would
permit registration of Registrable Securities for sale to the public under the
Securities Act, it will promptly give written notice to all Selling Stockholders
of its intention to do so and will use its best efforts to include in the
proposed Company registration all Registrable Securities that the Company is
requested in writing to register by the Selling Stockholders.
In connection with the foregoing rights of demand and incidental
registration, the Company has agreed to pay certain registration, printing and
NYSE listing fees and expenses incident thereto and to indemnify the holders of
Registrable Securities against certain liabilities, including liabilities
arising under the Securities Act.
Pursuant to the Underwriting Agreement, the Company, the Selling
Stockholders and the Underwriters severally have agreed to indemnify each other
against certain liabilities, including certain liabilities arising under the
Securities Act. See "Underwriting".
Other Material Relationships of Selling Stockholders with the Company
Directorships. Immediately following the Davidson Acquisition, the
Company increased the size of the Company's Board of Directors (the "CUC Board")
by three directors and caused Robert M. Davidson and Janice G. Davidson to be
appointed to the CUC Board to fill two of the vacancies so created, for initial
terms expiring two years and one year, respectively, following the date of the
Company's first annual meeting of shareholders next following February 19, 1996,
and further caused Robert M. Davidson to be elected as a Vice Chairman of the
CUC Board. From and after the Davidson Effective Date, and for so long as the
Selling Stockholders collectively beneficially own (as such term is defined in
Section 13 of the Exchange Act and the rules and regulations thereunder) 25% of
the shares of Common Stock received by them in the Davidson Acquisition, the
Company has agreed to cause at least one of the Davidsons to be included in the
slate of nominees for election to the CUC Board at each annual meeting of
holders of Common Stock and at any special meeting of such holders at which
directors are to be elected (unless one of the Davidsons is then a member of a
director class whose term does not expire at such meeting).
21
Employment and Noncompetition Agreements. In connection with the
Davidson Acquisition, the Davidsons entered into separate employment and
noncompetition agreements with the Company.
Pursuant to his employment agreement with the Company, Mr. Davidson
serves (i) as a Vice Chairman of the CUC Board and as Davidson's Chief Executive
Officer and a director of Davidson and (ii) as a director, Chairman and Chief
Executive Officer of CUC's educational and entertainment software division. In
addition, Mr. Davidson is responsible for the overall management of Davidson and
CUC's educational and entertainment software division. Pursuant to her
employment agreement with the Company, Mrs. Davidson serves as Davidson's
President and as a director of Davidson. In addition, Mrs. Davidson serves as a
director of CUC's educational and entertainment software division. The term of
each of the Davidsons' employment continues through July 24, 1999, subject to
extension or termination as provided in their agreements. The Davidsons are
eligible for discretionary annual incentive compensation awards and are entitled
to participate in all compensation or employee benefit plans or programs and
receive all benefits and perquisites for which salaried employees of the Company
are eligible under any plan or program now in effect or later established by the
Company for salaried employees generally.
The non-competition agreements with the Davidsons provide that, until
July 24, 2001, without the prior written approval by the CUC Board, the
Davidsons must abstain from (i) engaging in competition, or directly or
indirectly owning or holding a proprietary interest in or being employed by, or
consulting with or receiving compensation from, any party which competes in any
way or manner with the business of Davidson or any of its subsidiaries, as such
business or businesses may be conducted from time to time; (ii) soliciting any
clients of Davidson or any of its subsidiaries for any business of Davidson or
any of its subsidiaries or discussing with any employee of CUC or any of its
affiliates information or operations of any business intended to compete with
CUC or any of its affiliates; and (iii) soliciting or inducing any person who is
an employee of Davidson or any of its subsidiaries to terminate any relationship
such person may have with Davidson or any of its subsidiaries. In addition, the
Davidsons have agreed that during such period, they will not directly or
indirectly engage, employ or compensate, or cause or permit any person with whom
they may be affiliated to engage, employ or compensate, any employee of CUC or
any of its affiliates.
Real Property Agreement. Pursuant to a certain agreement dated July 23,
1996, the Davidsons sold to a subsidiary of the Company, simultaneously with the
closing of the Davidson Acquisition, certain real property then owned by them
and leased to Davidson. The purchase price was paid by delivery of 221,799
shares of Common Stock, which shares constitute Registrable Securities pursuant
to the Registration Rights Agreement.
22
UNDERWRITING
Subject to the terms and conditions of the U.S. Underwriting Agreement,
the Selling Stockholders have severally agreed to sell to each of the U.S.
Underwriters named below, and each of such U.S. Underwriters has severally
agreed to purchase from the Selling Stockholders, the respective number of
shares of Common Stock set forth opposite its name below:
Number of Shares
Underwriter of Common Stock
----------- ---------------
Goldman, Sachs & Co..........................................
Morgan Stanley & Co. Incorporated............................
Bear, Stearns & Co. Inc. ....................................
Donaldson, Lufkin & Jenrette Securities Corporation..........
Smith Barney Inc. ........................................... __________
Total............................. 16,500,000
===========
Under the terms and conditions of the U.S. Underwriting Agreement, the
U.S. Underwriters are committed to take and pay for all of the shares of Common
Stock offered hereby, if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in
part directly to the public at the public offering price set forth on the cover
page of this Prospectus, and in part to certain securities dealers at such price
less a concession of $ per share. The U.S. Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the representatives.
The Company and the Selling Stockholders have entered into an
underwriting agreement (the "International Underwriting Agreement") with the
underwriters of the international offering (the "International Underwriters")
providing for the concurrent offer and sale of 3,300,000 shares of Common Stock
in an offering conducted outside the United States. The offering price and
aggregate underwriting discounts and commissions per share for the two offerings
are identical. The closing of the offering made hereby is a condition to the
closing of the international offering, and vice versa. The representatives of
the International Underwriters are Goldman Sachs International, Morgan Stanley &
Co. International Limited, Bear, Stearns International Limited, Donaldson,
Lufkin & Jenrette Securities Corporation and Smith Barney Inc.
Pursuant to an Agreement between the U.S. and International
Underwriting Syndicates (the "Agreement Between") relating to the two offerings,
each of the U.S. Underwriters named herein has agreed that, as a part of the
distribution of the shares offered hereby and subject to certain exceptions, it
will offer, sell or deliver the shares of Common Stock, directly or indirectly,
only in the United States (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(collectively the "United States") and to U.S. persons, which term shall mean,
for purposes hereof: (a) any individual who is a resident of the United States
or (b) any corporation, partnership or other entity organized in or under the
laws of the United States or any political subdivision thereof and whose office
most directly involved with the purchase is located in the United States. Each
of the International Underwriters has agreed pursuant to the Agreement Between
that, as a part of the distribution of the shares of Common Stock offered as a
part of the international offering, and subject to certain exceptions, it will
(i) not, directly or indirectly, offer, sell or deliver shares of Common Stock
(a) in the United States or to any U.S. persons or (b) to any person whom it
believes intends to reoffer, resell or deliver the shares in the United States
or to any U.S. persons, and (ii) cause any dealer to whom it may sell such
shares at any concession to agree to observe a similar restriction.
23
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the public offering price, less an amount not greater than the selling
concession.
Certain of the Selling Stockholders have granted the U.S. Underwriters
an option exercisable on or before November 12, 1996 for the purchase of up to
an aggregate of 1,980,000 additional shares of Common Stock, solely to cover
over-allotments, if any. If the U.S. Underwriters exercise such over-allotment
option, the U.S. Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the total number of shares of Common Stock offered hereby. In
addition, certain of the Selling Stockholders have granted the International
Underwriters a similar option exercisable for up to an aggregate of 495,000
additional shares of Common Stock.
The Company and the Selling Stockholders have agreed that, during the
period beginning on the date of this Prospectus and continuing to and including
the date 90 days after the date of this Prospectus, they will not offer, sell,
contract to sell or otherwise dispose of any securities of the Company (other
than pursuant to employee stock option and purchase plans existing, or on the
conversion or exchange of convertible or exchangeable securities outstanding, on
the date of this Prospectus, or shares in connection with the acquisition by the
Company of the business, assets or capital stock of another company or pursuant
to a purchase, business combination or merger agreement, pursuant to which, in
any single transaction, not more than 25,000,000 shares of Common Stock are
issued or exchanged) which are substantially similar to the shares of Common
Stock or which are convertible into or exchangeable for securities which are
substantially similar to the shares of Common Stock, without the prior written
consent of the representatives, except for shares of Common Stock offered in
connection with the concurrent U.S. and international offerings.
The Company and the Selling Stockholders have agreed to indemnify the
U.S. Underwriters and the International Underwriters against certain
liabilities, including liabilities under the Securities Act.
This Prospectus may be used by underwriters and dealers in connection
with offers and sales of the Common Stock, including shares initially sold in
the international offering, to persons located in the United States.
Goldman, Sachs & Co. has provided various investment banking and
financial advisory services for the Company, in respect of which it has received
certain fees.
Smith Barney Inc. has provided various investment banking and financial
advisory services for Davidson & Associates, Inc., in respect of which it has
received certain fees.
The U.S. Underwriters and the International Underwriters have agreed to
reimburse certain Selling Stockholders for certain expenses incurred by them in
connection with the offering.
24
VALIDITY OF COMMON STOCK
The validity of the shares offered hereby will be passed upon for the
Company by Weil, Gotshal & Manges LLP, New York, New York, and for the
Underwriters by Sullivan & Cromwell, New York, New York.
EXPERTS
The consolidated financial statements and schedule of the Company
appearing in the CUC 10-K have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference which, as to the years 1995 and 1994, are based in part on
the report of Deloitte & Touche LLP, independent auditors. The Supplemental
Consolidated Financial Statements of the Company included in its Current Report
on Form 8-K dated July 24, 1996 have also been audited by Ernst & Young LLP, as
set forth in their report included therein and incorporated herein by reference
which, as to the years 1996, 1995 and 1994, are based in part on the reports of
Deloitte & Touche LLP, KPMG Peat Marwick LLP and Price Waterhouse LLP,
independent auditors. The financial statements and schedule and the Supplemental
Consolidated Financial Statements referred to above are incorporated herein by
reference in reliance upon such reports given upon the authority of such firms
as experts in accounting and auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three-month periods ended April 30, 1996 and April 30, 1995,
and the three-month periods and the six-month periods ended July 31, 1996 and
July 31, 1995, incorporated by reference in this Prospectus, Ernst & Young LLP
have reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their separate
report, included in the Company's Quarterly Reports on Form 10-Q for the
quarters ended April 30, 1996 and July 31, 1996, incorporated herein by
reference, state that they did not audit and they do not express an opinion on
that interim financial information. Accordingly, the degree of reliance on their
report on such information should be restricted considering the limited nature
of the review procedures applied. The independent auditors are not subject to
the liability provisions of Section 11 of the Securities Act for their report on
the unaudited interim financial information because that report is not a
"report" or a "part" of the Registration Statement prepared or certified by the
auditors within the meaning of Sections 7 and 11 of the Securities Act.
The consolidated financial statements and the Supplemental Consolidated
Financial Statements included in the CUC 10-K and the Company's Current Report
on Form 8-K filed on September 17, 1996, respectively, and the unaudited
condensed consolidated interim financial information included in the Company's
Quarterly Reports referred to above have not been adjusted to give effect to the
three-for-two stock split to be effected on October 21, 1996 (see Note d to
"Selected Financial Data").
The consolidated financial statements of Ideon as of December 31, 1995
and 1994 and for the year ended December 31, 1995, the two months ended December
31, 1994 and each of the two years in the period ended October 31, 1994,
incorporated in this Prospectus by reference to the Company's Current Report on
Form 8-K filed with the Commission on September 17, 1996, have been so
incorporated in reliance upon the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements and related financial statement
schedules of Davidson, incorporated in this Prospectus by reference to the
Company's Current Report on Form 8-K filed with the Commission on September 17,
1996, have been audited by KPMG Peat Marwick LLP, independent auditors, as
stated in their report which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements and related financial statement
schedule of Sierra, incorporated in this Prospectus by reference to the
Company's Current Report on Form 8-K filed with the Commission on September 17,
1996, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report which is incorporated herein by reference, and has been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements and the related financial
statement schedule of Advance Ross, incorporated in this Prospectus by reference
to the Company's Current Report on Form 8-K filed with the Commission on
September 17, 1996, have been audited by Deloitte & Touche LLP, independent
auditors, as
25
stated in their report which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
26
================================================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date.
------------------------------------
Table of Contents
Page
----
Available Information..................................................
Incorporation of Certain Documents by
Reference........................................................
The Company............................................................
Capitalization.........................................................
Use of Proceeds........................................................
Price Range of Common Stock and
Dividend Policy..................................................
Selected Financial Data................................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.......................................................
Selling Stockholders...................................................
Underwriting...........................................................
Validity of Common Stock...............................................
Experts................................................................
16,500,000 Shares
CUC International Inc.
Common Stock
(par value $.01 per share)
[LOGO]
Goldman, Sachs & Co.
Morgan Stanley & Co. Incorporated
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
-------------------------------
Representatives of the Underwriters
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The table below sets forth the expenses expected to be incurred and
borne solely by the Company in connection with the registration of the shares of
Common Stock offered hereby. All amounts, except the SEC Registration Fee, are
estimated.
SEC Registration Fee........................................$ 155,480.00
Legal Fees and Expenses...................................... 65,000.00
Blue Sky Fees and Expenses .................................. 10,000.00
Accounting Fees and Expenses................................. 25,000.00
Printing Fees and Expenses................................... 65,000.00
Miscellaneous............................................... 10,000.00
---------
Total.....................................$ 330,480.00
==========
The Company has agreed to bear certain costs of registering the shares
of Common Stock under the Securities Act, including the registration fee under
the Securities Act, all other registration and filing fees, all fees and
disbursements of counsel and accountants retained by the Company and all other
expenses incurred by the Company in connection with the Company's performance of
or compliance with the Registration Rights Agreement; such costs (or estimates
thereof) have been set forth above. The Selling Stockholders will bear certain
other costs relating to the registration of the shares of Common Stock under the
Securities Act, including all underwriting discounts and commissions, all
transfer taxes and all costs of any separate legal counsel or other advisors
retained by the Selling Stockholders.
Item 15. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware
empowers a Delaware corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. A Delaware corporation may indemnify directors, officers, employees
and other agents of such corporation in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the person to be indemnified has been
adjudged to be liable to the corporation. Where a director, officer, employee or
agent of the corporation is successful on the merits or otherwise in the defense
of any action, suit or proceeding referred to above or in defense of any claim,
issue or matter therein, the corporation must indemnify such person against the
expenses (including attorneys' fees) which he or she actually and reasonably
incurred in connection therewith.
II-1
The Company's By-laws contain provisions that provide for
indemnification of officers and directors and their heirs and distributees to
the fullest extent permitted by, and in the manner permissible under, the
General Corporation Law of the State of Delaware.
As permitted by Section 102(b)(7) of the General Corporation Law of the
State of Delaware, the Company's Amended and Restated Certificate of
Incorporation contains a provision eliminating the personal liability of a
director to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, subject to certain exceptions.
The Company maintains policies insuring its officers and directors
against certain civil liabilities, including liabilities under the Securities
Act.
Pursuant to the U.S. and International Underwriting Agreements, the
Underwriters have agreed to indemnify the Company and the Selling Stockholders
against certain liabilities, including liabilities under the Securities Act.
Pursuant to Registration Rights Agreements, the Selling Stockholders have agreed
to indemnify the Company and its officers, directors and control persons against
certain liabilities.
Item 16. Exhibits and Financial Schedules
(a) Exhibits
*1.1(a) Form of U.S. Underwriting Agreement dated October ___, 1996, among CUC
International Inc., the Selling Stockholders and the U.S. Underwriters.
*1.1(b) Form of International Underwriting Agreement dated October ___, 1996,
among CUC International Inc., the Selling Stockholders, and the
International Underwriters.
4.1 Registration Rights Agreement dated July 24, 1996, among CUC
International Inc. and the other parties signatory thereto
(incorporated herein by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K, filed with the Commission on August 5,
1996).
*5.1 Opinion as to validity of the Shares.
15.1 Letter re: Unaudited Interim Financial Information.
23.1 Consent of Counsel (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Price Waterhouse LLP (relating to the Ideon Group, Inc.
financial statements).
23.4 Consent of KPMG Peat Marwick LLP (relating to the Davidson &
Associates, Inc. financial statements).
23.5 Consent of Deloitte & Touche LLP (relating to the Sierra On-Line, Inc.
financial statements).
23.6 Consent of Deloitte & Touche LLP (relating to the Advance Ross
Corporation financial statements).
24.1 Power of Attorney (included as part of the Signature Page of this
Registration Statement).
- --------
*To be filed by amendment.
II-2
Item 17. Undertakings
1. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
2. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
offered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
3. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
4. For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Stamford, State of Connecticut on this 4th day of
October 1996.
CUC INTERNATIONAL INC.
By:/s/ Walter A. Forbes
-------------------------------
Walter A. Forbes
Chief Executive Officer and
Chairman of the Board of
Directors
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Walter A. Forbes and E. Kirk
Shelton, and each and either of them, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including, without limitation,
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Walter A. Forbes Chief Executive Officer October 7, 1996
- ----------------------------- and Chairman of the Board
Walter A. Forbes (Principal Executive Officer)
/s/ Cosmo Corigliano Senior Vice President October 7, 1996
- ----------------------------- and Chief Financial Officer
Cosmo Corigliano (Principal Financial and Accounting Officer)
/s/ Bartlett Burnap Director October 7, 1996
- -----------------------------
Bartlett Burnap
/s/ T. Barnes Donnelley Director October 7, 1996
- -----------------------------
T. Barnes Donnelley
/s/ Stephen A. Greyser Director October 7, 1996
- -----------------------------
Stephen A. Greyser
II-4
/s/ Christopher K. McLeod Director October 7, 1996
- ------------------------------
Christopher K. McLeod
/s/ Burton C. Perfit Director October 7, 1996
- ------------------------------
Burton C. Perfit
/s/ Robert P. Rittereiser Director October 7, 1996
- ------------------------------
Robert P. Rittereiser
/s/ Stanley M. Rumbough, Jr. Director October 7, 1996
- ------------------------------
Stanley M. Rumbough, Jr.
/s/ E. Kirk Shelton Director October 7, 1996
- ------------------------------
E. Kirk Shelton
/s/ Kenneth A. Williams Director October 7, 1996
- ------------------------------
Kenneth A. Williams
/s/ Janice G. Davidson Director October 7, 1996
- ------------------------------
Janice G. Davidson
/s/ Robert M. Davidson Director October 7, 1996
- ------------------------------
Robert M. Davidson
II-5
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
*1.1(a) Form of U.S. Underwriting Agreement dated October ___, 1996, among CUC
International Inc., the Selling Shareholders, the U.S. Underwriters.
*1.1(b) Form of International Underwriting Agreement dated October __, 1996,
among CUC International Inc., the Selling Stockholders, and the
International Underwriters.
4.1 Registration Rights Agreement dated July 24, 1996, among CUC
International Inc. and the other parties signatory thereto
(incorporated herein by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K, filed with the Commission on August 5,
1996).
*5.1 Opinion as to validity of the Shares.
15.1 Letter re: Unaudited Interim Financial Information.
23.1 Consent of Counsel (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Price Waterhouse LLP (relating to the Ideon Group, Inc.
financial statements).
23.4 Consent of KPMG Peat Marwick LLP (relating to the Davidson &
Associates, Inc. financial statements).
23.5 Consent of Deloitte & Touche LLP (relating to the Sierra On-Line, Inc.
financial statements).
23.6 Consent of Deloitte & Touche LLP (relating to the Advance Ross
Corporation financial statements).
24.1 Power of Attorney (included as part of the Signature Page of this
Registration Statement).
- --------
*To be filed by amendment.
II-6
CUC INTERNATIONAL INC. AND SUBSIDIARIES
EXHIBIT 15 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION
October 4, 1996
Shareholders and Board of Directors
CUC International Inc.
We are aware of the incorporation by reference in the Registration
Statement (Form S-3) of CUC International Inc. for the registration of
12,650,000 shares (pre-stock split) of its common stock of our reports
dated May 22, 1996 and September 4, 1996 relating to the unaudited
condensed consolidated interim financial statements of CUC International
Inc. that are included in its Quarterly Reports on Form 10-Q for the
quarters ended April 30, 1996 and July 31, 1996.
Pursuant to Rule 436(c) of the Securities Act of 1933, our reports are
not a part of the registration statement prepared or certified by
accountants within the meaning of Section 7 or 11 of the Securities
Act of 1933.
ERNST & YOUNG LLP
Stamford, Connecticut
NYFS01...:\01\39801\0028\1710\EXH0036U.070
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-3) and related Prospectus of CUC
International Inc. for the registration of 12,650,000 shares (pre-stock
split) of its common stock and to the incorporation by reference therein of
our report dated March 19, 1996, with respect to the consolidated financial
statements of CUC International Inc. included in its Annual Report on
Form 10-K for the year ended January 31, 1996 and our report dated
September 12, 1996 with respect to the supplemental consolidated
financial statements of CUC International Inc. included in its Current
Report on Form 8-K dated July 24, 1996, filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
Stamford, Connecticut
October 4, 1996
NYFS01...:\01\39801\0028\1710\CON0036U.230
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (No. 333-
____) of CUC International Inc. of our reports dated February 2, 1996
and December 5, 1994, relating to the consolidated financial
statements of Ideon Group, Inc., which appears in the Current Report
on Form 8-K of CUC International Inc. filed with the Securities and
Exchange Commission on or about September 12, 1996. We also consent
to the reference to us under the heading "Experts."
PRICE WATERHOUSE LLP
Tampa, Florida
October 4, 1996
NYFS01...:\01\39801\0028\1710\CON0036U.330
EXHIBIT 23.4
ACCOUNTANTS' CONSENT
The Board of Directors
Davidson & Associates, Inc.
We consent to the incorporation by reference herein of our report
dated February 21, 1996 with respect to the consolidated balance
sheets of Davidson & Associates, Inc. and subsidiaries as of December
31, 1995 and 1994, and the related consolidated statements of
earnings, shareholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1995, and to the reference
to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Long Beach, California
October 4, 1996
NYFS01...:\01\39801\0028\1710\CON0036U.400
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement of CUC International Inc. on Form S-3 of our report dated
June 24, 1996 (relating to the consolidated financial statements of
Sierra On-Line, Inc. and subsidiaries for the year ended March 31,
1996, not presented separately therein), appearing in the CUC
International Inc. Current Report on Form 8-K (filed with the
Securities and Exchange Commission on September 17, 1996) and to the
reference to us under the heading "Experts" in the Prospectus, which
is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Seattle, Washington
October 2, 1996
NYFS01...:\01\39801\0028\1710\CON0036U.510
EXHIBIT 23.6
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement of CUC International Inc. on Form S-3 of our report dated
March 13, 1995 (relating to the financial statements of Advance Ross
Corporation as of December 31, 1994 and for the years ended December
31, 1994 and 1993, not presented separately therein), appearing in the
CUC International Inc. Form 8-K (filed with the Securities and
Exchange Commission on September 17, 1996), and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
DELOITTE & TOUCHE LLP
Chicago, Illinois
October 4, 1996
NYFS01...:\01\39801\0028\1710\CON0036V.040
