Cendant Reports First Quarter Results - Company Continues to Project 2003 Net Cash Provided by Operating Activities in Excess of $2 Billion and Free Cash Flow of Approximately $2 Billion
NEW YORK, Cendant Corporation CD today reported first quarter 2003 EPS from Continuing Operations of $0.30, versus $0.31 in first quarter 2002, in line with the high end of the Company's previous projection. As expected, EPS from Continuing Operations declined slightly year over year due to extinguishment costs from the early retirement of debt and the acquisitions of NRT and Budget after the first quarter of 2002, as those businesses are...
- 1Q 2003 EPS from Continuing Operations of $0.30 Versus $0.31 in 1Q 2002
- 1Q 2003 Net Cash Provided By Operating Activities of $1.1 Billion
- 1Q 2003 Free Cash Flow of $440 Million
- 2003 EPS from Continuing Operations Projection Revised to $1.35 - $1.37
- Company Continues to Project 2003 Net Cash Provided by Operating Activities in Excess of $2 Billion and Free Cash Flow of Approximately $2 Billion
NEW YORK, Cendant Corporation
The Company also announced revised projections for 2003, which, unlike prior projections, reflect reduced travel volumes, due to the conflict with Iraq and SARS, and the anticipated consolidation of Trilegiant as of July 1, 2003. These projections also reflect continued strength in the residential real estate and mortgage refinancing markets, challenging economic conditions, and the assumption that travel volumes begin to recover in the third quarter. Based on these expectations, the Company now projects full year 2003 EPS from Continuing Operations of $1.35 - $1.37, an increase of approximately 35% year over year, versus its prior projection of $1.46. Despite the decrease in projected earnings, the Company continues to forecast 2003 net cash provided by operating activities in excess of $2 billion and free cash flow of approximately $2 billion, due to successful capital management Company-wide.
Cendant's Chairman, President and CEO, Henry R. Silverman, stated: "Despite the very challenging travel environment, our diversified portfolio continued to perform well during the first quarter as our mortgage, tax preparation, settlement services and fuel card management businesses made significant contributions. The diversity of our businesses enables us to continue to expect significant growth, year over year, for the remainder of 2003.
"In addition, we continued to execute on our commitment to simplify our business model, curtail acquisitions, generate free cash flow, reduce corporate debt net of cash, and repurchase stock. We also strengthened our liquidity by replacing short-term debt and convertible bonds with long-term debt. During the quarter we generated net cash provided by operating activities of $1.1 billion and free cash flow of $440 million, both up significantly compared to first quarter 2002. We are well on our way toward achieving our stated 2003 goals of generating in excess of $2 billion in net cash provided by operating activities and approximately $2 billion in free cash flow, and deploying that capital to reduce debt by $1 billion and repurchase $500 million of common stock."
First Quarter Achievements
The Company had several important achievements during the first quarter
of 2003:
* Announced additional enhancements in corporate governance designed to
strengthen the Board of Directors' oversight of management and to serve
the long-term interests of stockholders.
* Issued $2.6 billion in corporate bonds with maturities from 2008 to
2015.
* Although aggregate corporate debt increased, we reduced corporate debt,
net of cash on the balance sheet, by $163 million, as the Company
retired approximately $2.3 billion of debt including $600 million
borrowed under our revolving credit line primarily in connection with
the Budget acquisition, $737 million of our 7-3/4% notes due December
2003, $456 million carrying amount of our zero coupon convertible
debentures due May 2021, $396 million of our 3-7/8% convertible senior
debentures due November 2011, and $95 million carrying amount of our
11% senior subordinated notes due May 2009. As a result, we recorded a
loss on the early extinguishments of debt of $30 million, after tax, or
$0.03 per diluted share. See Table 5 for more detailed information.
* Repurchased 12.7 million shares of common stock at an average price of
$11.93 per share.
* Acquired the common interests of FFD Development Company, LLC from an
independent trust for approximately $24 million in cash, net of
$3 million in cash acquired, plus approximately $58 million in acquired
debt. FFD is the primary developer of timeshare inventory for our
Fairfield Resorts subsidiary.
* Sold our minority equity investment in Entertainment Publications, Inc.
for $33 million in cash, resulting in a gain of $14 million, after tax,
or $0.01 per diluted share.
* Acquired a majority interest in Trip Network, Inc. (TNI) through the
conversion of our preferred stock investment. In April 2003, we also
acquired the remaining outstanding common interest of TNI from an
independent business trust. TNI operates
First Quarter 2003 Results of Reportable Operating Segments
The following discussion of operating results focuses on revenue and EBITDA for each of our reportable operating segments. EBITDA is defined as earnings from continuing operations before non-program related interest, minority interest, income taxes, non-program related depreciation and amortization, and amortization of pendings and listings. EBITDA is the measure that we use to evaluate performance in each of our reportable operating segments in accordance with generally accepted accounting principles. Revenue and EBITDA are expressed in millions.
Real Estate Services
(Consisting of the Company's real estate franchise brands, brokerage operations, mortgage services, settlement services and relocation services.)
2003 2002 % change
Revenues $1,350 $410 229%
EBITDA $ 225 $182 24%
Revenue increased primarily due to the acquisitions of real estate brokerages (primarily NRT in April 2002). In addition, revenue and EBITDA increased due to strong organic growth in our mortgage business, including a 61% increase in mortgage production revenue. See Table 8 for details on organic growth. EBITDA growth was partially offset by a loss at our owned real estate brokerage business NRT, which is seasonally weakest in the first quarter.
Hospitality
(Consisting of the Company's nine franchised lodging brands, timeshare exchange and timeshare sales and marketing, and vacation rental businesses.)
2003 2002 % change
Revenues $580 $403 44%
EBITDA $144 $112 29%
Revenue and EBITDA increased primarily due to the acquisitions of Trendwest, Equivest and European vacation rental companies in 2002.
Travel Distribution
(Consisting of electronic global distribution services for the travel industry and travel agency services.)
2003 2002 % change
Revenues $416 $444 (6%)
EBITDA $128 $146 (12%)
Revenue and EBITDA declined primarily due to an 11% decrease in Galileo air travel booking volume, partially offset by a 1% increase in pricing and the acquisition of national distribution partners (NDCs) in Europe during 2002. Like most other industry participants, we are seeing a decline in travel demand affecting volumes and revenues across the majority of our travel distribution businesses due to a number of factors, including apprehension due to military conflict in Iraq, terrorist threat alerts, continuing economic pressures and SARS. To offset the lower than expected revenue, we have initiated an aggressive global effort to reduce costs.
Vehicle Services
(Consisting of car rental, vehicle management services and fleet card services.)
2003 2002 % change
Revenues $1,324 $933 42%
EBITDA $ 50 $ 70 (29%)
Revenue increased primarily due to the acquisition of certain assets of Budget Group, Inc. in November 2002 and also due to organic growth in Wright Express' fuel card management business. Revenue and EBITDA were negatively impacted by seasonal losses at Budget, as expected, and lower car rental revenues at Avis, as a 1% increase in pricing was more than offset by a 3% decrease in rental day volume due to the weak environment for travel.
Financial Services
(Consisting of individual membership products, insurance-related services, financial services enhancement products and tax preparation services.)
2003 2002 % change
Revenues $389 $419 (7%)
EBITDA $165 $164 1%
Revenue decreased while EDITDA increased modestly due to growth in our Jackson Hewitt tax preparation business offset by lower operating results at our individual membership business. As expected, the EBITDA impact of the reduction in membership revenues in connection with the 2001 outsourcing of the membership business to Trilegiant was partially mitigated by a net reduction in expenses from servicing fewer members.
Other Items
* Net cash provided by operating activities for first quarter 2003 was
approximately $1.1 billion. Free cash flow for first quarter 2003 was
$440 million. See Table 7 for a reconciliation of free cash flow to
net cash provided by operating activities.
* As of March 31, 2003, the Company had $580 million of cash and cash
equivalents and approximately $6.8 billion of corporate debt, including
$863 million of mandatorily convertible Upper DECS securities
outstanding. In addition, the Company had $375 million of a preferred
minority interest outstanding.
* As of March 31, 2003, the Company had unused credit facilities of
$1.8 billion.
* As of March 31, 2003, the Company's net debt (calculated as total
corporate debt, including Upper DECS, net of cash on the balance sheet)
to total capitalization (calculated as total stockholders' equity plus
net debt plus preferred minority interest) ratio was 38.4%, as compared
to 39.5% as of March 31, 2002 (see calculation on Table 5). The
Company's interest coverage ratio was 9 to 1 for first quarter 2003
(see calculation on Table 1).
* Weighted average common shares outstanding, including dilutive
securities, used to calculate EPS was 1.04 billion for first quarter
2003 compared with 1.02 billion for first quarter 2002. The increase
was primarily from the issuance of common shares in connection with the
acquisitions of Trendwest and NRT in 2002, partially offset by the
impact of share repurchases in 2002 and 2003.
Subsequent Events
Since March 31, 2003, the Company has:
* Received authorization from the Board of Directors for an additional
$500 million in share repurchases.
* Concluded that Trilegiant will be consolidated into Cendant's financial
statements as of July 1, 2003, pursuant to FASB Interpretation No. 46.
We expect Trilegiant to be $0.01-0.02 dilutive to EPS from Continuing
Operations in 2003 and $0.01-0.02 accretive in 2004.
* Appointed Ronald L. Nelson as Chief Financial Officer (CFO) and member
of the Board of Directors. Mr. Nelson will assume his responsibilities
as CFO effective May 12, 2003, at which time Kevin M. Sheehan, the
Company's current CFO, will focus exclusively on his duties as Chairman
and Chief Executive Officer of the Company's Vehicle Services Division.
2003 Outlook
The Company projects the following ranges of EPS from continuing operations for the remainder of 2003:
Second Third Fourth Full
Quarter Quarter Quarter Year
2003 $0.35 $0.44 - 0.45 $0.26 - 0.27 $1.35 - 1.37
2002 (a) $0.23 $0.24 $0.24 $1.01
(a) Reflects the reclassification of extraordinary losses on the early
extinguishments of debt ($0.02 in second quarter and $0.03 for full
year) to continuing operations in accordance with the adoption of a
new accounting pronouncement under generally accepted accounting
principles effective January 1, 2003.
The comparability of the Company's earnings from 2002 to 2003 is impacted by the acquisitions of NRT in April 2002, Trendwest in May 2002, and Budget's car and truck rental operations in November 2002; the mortgage servicing rights asset write-down in third quarter 2002; the securities litigation charge recorded in fourth quarter 2002; the debt extinguishment costs incurred in second quarter 2002 and first quarter 2003, which is partially mitigated by reduced interest expense in subsequent quarters; and the gain on sale of our equity investment in Entertainment Publications, Inc. in first quarter 2003.
The Company also announced the following detailed financial projections for full year 2003 (in millions):
Full Year 2002 Full Year 2003
Actual Projected
Revenue
Real Estate Services $4,687 $6,300 - 6,500
Hospitality 2,180 2,550 - 2,650
Travel Distribution 1,695 1,650 - 1,750
Vehicle Services 4,175 5,600 - 5,750
Financial Services 1,325 1,350 - 1,400
Total Reportable Operating Segments $14,062 $17,450 - 18,050
Corporate and Other 26 25 - 50
Total Revenue $14,088 $17,475 - 18,100
EBITDA
Real Estate Services $832 $1,175 - 1,225
Hospitality 625 675 - 725
Travel Distribution 526 475 - 525
Vehicle Services 408 400 - 450
Financial Services 450 350 - 375
Total Reportable Operating Segments $2,841 $3,125 - 3,250
Corporate and Other (198) (75 - 50)
Depreciation and amortization(a) (466) (580 - 550)
Amortization of pendings/listings (256) (30 - 25)
Interest expense, net (b) (304) (380 - 360)
Pretax income $1,617 $2,060 - 2,265
Provision for income taxes (544) (680 - 747)
Minority interest (22) (25 - 20)
Income from continuing operations $1,051 $1,355 - 1,498
Diluted weighted average shares
outstanding (c) 1,043 1,055 - 1,040
* Projections assume that travel volumes begin to recover in third
quarter 2003 and do not reflect any impact from additional military
conflict, additional terrorist attacks, pandemic illness or substantial
changes to current economic conditions. Projections may not add
because we do not expect the actual results of all segments to be at
the lowest or highest end of any projected range simultaneously.
* As previously disclosed, we expect the consolidation of Trilegiant in
third quarter 2003 to result in a non-cash charge, now expected to be
approximately $290 million, which will be recorded as a cumulative
effect of accounting change and, therefore, will have no impact on
income or earnings per share from continuing operations, but will
impact net income.
* The effective tax rate is expected to be approximately 33% in 2003.
(a) Depreciation and amortization and interest expense exclude program
related amounts, which are already reflected in EBITDA.
(b) 2002 interest expense includes $42 million of losses on the early
extinguishment of debt in connection with the adoption of a new
accounting pronouncement under generally accepted accounting
principles effective January 1, 2003, which required the
reclassification of such losses from extraordinary items to continuing
operations. 2003 interest expense includes $62 million of losses on
the early extinguishment of debt.
(c) Diluted weighted average shares outstanding are expected to increase
marginally in 2003 due to the full-year impact of the Trendwest and
NRT acquisitions, which were completed in 2002 for stock, offset by
anticipated common stock repurchases.
Investor Conference Call
Cendant will host a conference call to discuss the first quarter results on Tuesday, April 22, 2003, at 11:00 a.m. (EST). Investors may access the call live at
Cendant Corporation is primarily a provider of travel and residential real estate services. With approximately 90,000 employees, New York City-based Cendant provides these services to businesses and consumers in over 100 countries.
More information about Cendant, its companies, brands and current SEC filings may be obtained by visiting the Company's Web site at
Such forward-looking statements include projections. Such projections were not prepared in accordance with published guidelines of the American Institute of Certified Public Accountants or the SEC regarding projections and forecasts, nor have such projections been audited, examined or otherwise reviewed by independent auditors of Cendant or its affiliates. In addition, such projections are based upon many estimates and are inherently subject to significant economic, competitive and other uncertainties and contingencies, including but not limited to the impact of war, terrorism or pandemics, which are beyond the control of management of Cendant and its affiliates. Accordingly, actual results may be materially higher or lower than those projected. The inclusion of such projections herein should not be regarded as a representation by Cendant or its affiliates that the projections will prove to be correct. This release includes certain non-GAAP financial measures as defined under SEC rules. As required by SEC rules, we have provided a reconciliation of those measures to the most directly comparable GAAP measures, which is contained in the tables to this release and on our web site at