Cendant Reports Record Operating Results for the Third Quarter of 2003, Exceeding Projections
NEW YORK, Cendant Corporation
- 3Q 2003 EPS From Continuing Operations Increased 96% to $0.47 Versus $0.24 in 3Q 2002
- 3Q 2003 Net Cash Provided by Operating Activities Increased to $1.06 Billion Versus $1.05 Billion in 3Q 2002
- 3Q 2003 Free Cash Flow Increased 94% to $1.0 Billion Versus $0.5 Billion in 3Q 2002
- 2003 EPS From Continuing Operations Projection Raised to $1.40 - $1.41
As a result of the better than expected third quarter results, the Company raised its EPS from Continuing Operations projection for full year 2003 to $1.40 - $1.41 from its prior projection of $1.37 - $1.39, an increase of approximately 40% versus the prior year. The Company also forecasts 2003 Net Cash Provided by Operating Activities exceeding $5 billion and Free Cash Flow approaching $2.5 billion. These projections reflect prolonged strength in the residential real estate market and modestly improving travel activity, balanced by lower mortgage refinancing volumes and the challenges of the current economic environment.
Cendant's Chairman, Chief Executive Officer and President, Henry R. Silverman, stated: "During the third quarter, residential real estate sales and mortgage volumes continued to show robust year over year growth, and leisure travel trends continued to firm, enabling us to exceed our projections for the quarter. Despite a challenging environment, our diversified portfolio on the whole generated organic growth.
"In 2004, we expect that continued strong results from our real estate franchise and brokerage businesses, improving travel trends, and the successful completion of the integration of the principal car and truck rental operations of Budget Group, Inc. will more than offset the likely decline in mortgage refinancing from which Cendant has benefited in 2003. We continue to expect that the Company will generate in excess of $2 billion of Free Cash Flow per year for the foreseeable future. We intend to deploy our cash primarily to reduce corporate debt and repurchase common stock and, as previously announced, in first quarter 2004, we intend to begin paying a quarterly cash dividend on our common shares."
Third Quarter Achievements
The Company made considerable progress towards its cash flow generation, debt reduction and share repurchase goals during the quarter:
- Generated Net Cash Provided by Operating Activities of approximately 1.06 billion and Free Cash Flow of approximately $1.0 billion due to avorable operating results and, in part, to the timing of cash inflows nd a tax refund advance of $175 million, which will be partially ffset in fourth quarter 2003 by tax payments. See Table 7 for a escription of Free Cash Flow and a reconciliation to Net Cash Provided y Operating Activities.
- Reduced corporate debt net of cash on the balance sheet by 878 million, including the prepayment of our $375 million mandatorily edeemable debt securities at par. Corporate debt excludes Debt under anagement and Mortgage Programs. See Table 5 for more detailed information.
- Utilized $249 million of cash for the repurchase of common stock.
In addition:
- The Company's Board of Directors authorized an additional $500 million, plus proceeds from stock option exercises, for the repurchase of common stock.
- The Company completed its analysis with respect to Trilegiant Corporation and Bishop's Gate Residential Mortgage Trust pursuant to FASB Interpretation No. 46, and consolidated those entities effective July 1, 2003. As previously disclosed, the consolidation of Trilegiant resulted in a non-cash charge of $293 million, to reflect the cumulative effect of accounting change in third quarter 2003, which had no impact on cash flow or income from continuing operations or the related per share amounts.
Third 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 depreciation and amortization, non-program related interest, amortization of pendings and listings, income taxes and minority interest. 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. See Table 8 for details on the organic growth of our reportable operating segments for third quarter 2003.
Real Estate Services - (Consisting of the Company's real estate franchise brands, brokerage operations, mortgage services, settlement services and relocation services)
2003 2002 %change
Revenue $1,998 $1,331 50%
EBITDA $436 $59 639%
Revenue and EBITDA increased due to strong organic growth in substantially all of our real estate businesses. In particular, we generated growth in our mortgage business as a result of an increase of 107% in mortgage loan production revenue and the absence of the $275 million mortgage servicing rights asset write-down recorded in third quarter 2002. Real estate franchise royalty and marketing fund revenues increased 18%, primarily due to a 10% increase in home sale transactions and a 12% increase in average price, and revenue generated by our NRT real estate brokerage business increased 18% organically, primarily due to increases in home sale transactions and average price. Acquisitions by NRT subsequent to second quarter 2002 and increased volumes of settlement services also contributed to the quarter-over-quarter increase in revenue and EBITDA.
Hospitality - (Consisting of the Company's nine franchised lodging brands, timeshare exchange and timeshare sales and marketing, and vacation rental businesses)
2003 2002 %change
Revenue $696 $671 4%
EBITDA $189 $204 (7%)
Revenue and EBITDA were positively impacted by 10% growth in timeshare sales revenue and 7% growth in RCI timeshare subscription and exchange revenue. As previously announced, the principal securitization structure for our timeshare receivables was amended in third quarter 2003, which resulted in our consolidation of that structure and, in turn, increased the transparency of our operating results. Subsequent to consolidation, we no longer recognize gains upon the securitization of timeshare receivables, which had a negative impact on EBITDA for third quarter 2003. EBITDA also declined due to higher product costs on developed timeshare inventory and an increased investment in timeshare marketing, which should generate incremental revenues and EBITDA in future periods. EBITDA was reduced by approximately $30 million due to these three factors; however, in fourth quarter 2003, we expect Hospitality operating results to exceed the prior year period's levels.
Travel Distribution - (Consisting of electronic global distribution services for the travel industry and on-line and off-line travel agency services)
2003 2002 %change
Revenue $424 $432 (2%)
EBITDA $119 $129 (8%)
Revenue and EBITDA were negatively impacted by decreased international travel volumes, including a 3% reduction in Galileo air travel booking fees. In addition, Trip Network, Inc., which operates the on-line travel business of Cheap Tickets and was acquired in March 2003, contributed incremental revenue but negatively affected EBITDA. The global travel industry continued to be subjected to negative economic pressures and geopolitical concerns; however, successful cost reduction efforts have mitigated the EBITDA impact from reduced travel demand.
Vehicle Services - (Consisting of vehicle rental, vehicle management services and fleet card services)
2003 2002 %change
Revenue $1,574 $1,085 45%
EBITDA $187 $143 31%
Revenue and EBITDA increased due to the acquisition of the principal car and truck rental operations of Budget Group, Inc. in fourth quarter 2002 and due to organic growth in Wright Express' fuel card management business. Lower domestic car rental volume at Avis was partially offset by a 2% increase in car rental pricing. The integration of Budget, which represents a significant growth opportunity in 2004, is proceeding according to plan.
Financial Services - (Consisting of individual membership products, insurance-related services, financial services enhancement products and tax preparation services)
2003 2002 %change
Revenue $370 $322 15%
EBITDA $62 $122 (49%)
Revenue increased primarily due to the consolidation of Trilegiant on July 1, 2003 pursuant to FASB Interpretation No. 46; however, there was minimal impact on EBITDA. Revenue and EBITDA were reduced, as expected, by the continued attrition of the base of members that we retained at the time of the 2001 outsourcing of our membership business to Trilegiant. The effect on EBITDA was partially mitigated by a net reduction in expenses from servicing fewer members. In addition, revenue and EBITDA were positively impacted by growth in our insurance-wholesale businesses and negatively impacted by the timing of revenue at Jackson Hewitt, our tax preparation business, and by restructuring costs at Cims, our international membership business, during third quarter 2003, which will benefit operating results in future periods. Although the year-over-year EBITDA comparisons for Financial Services have been negative throughout much of 2003, we expect the EBITDA of this division in 2004 to exceed 2003 levels.
Other Items
- As of September 30, 2003, the Company had approximately $1.0 billion of cash and cash equivalents and approximately $6.3 billion of corporate debt outstanding, including $863 million of mandatorily convertible Upper DECS securities.
- As of September 30, 2003, the Company's $2.9 billion credit facility was supporting $1.2 billion in letters of credit used primarily as credit enhancement for our debt under management and mortgage programs. The Company had $1.7 billion of availability for use as of September 30, 2003.
- As of September 30, 2003, the Company's net debt to total capitalization ratio was 34.6%, versus 41.9% as of December 31, 2002 (see calculation on Table 5). The Company's interest coverage ratio was 13 to 1 for third quarter 2003 (see calculation on Table 1).
- Weighted average common shares outstanding, including dilutive securities, used to calculate EPS was 1.039 billion for third quarter 2003, versus 1.058 billion for third quarter 2002.
2003 Outlook - The Company projects the following EPS from Continuing Operations for the remainder of 2003:
Fourth Full
Quarter Year
2003 $0.27 $1.40 - 1.41(a)
2002 $0.24 $1.01(b)
(a) The projected result is presented as a range to reflect the potential
variance from rounding the quarterly amounts.
(b) Reflects the reclassification of extraordinary losses on the early
extinguishments of debt ($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 are partially mitigated by reduced interest expense in subsequent quarters; the gain on sale of our equity investment in Entertainment Publications, Inc. in first quarter 2003; and the consolidation of Trilegiant on July 1, 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 $6,550 - 6,650
Hospitality 2,180 2,500 - 2,550
Travel Distribution 1,695 1,650 - 1,700
Vehicle Services 4,175 5,650 - 5,750
Financial Services 1,325 1,375 - 1,400
Total Reportable Operating Segments $14,062 $17,775 - 18,000
Corporate and Other 26 50 - 75
Total Revenue $14,088 $17,825 - 18,075
EBITDA
Real Estate Services $832 $1,250 - 1,275
Hospitality 625 635 - 660
Travel Distribution 526 450 - 475
Vehicle Services 408 450 - 475
Financial Services 450 350 - 375
Total Reportable Operating Segments $2,841 $3,185 - 3,210
Corporate and Other (198) (75 - 50)
Depreciation and amortization(a) (466) (535 - 520)
Amortization of pendings/listings (256) (20 - 15)
Interest expense, net (b) (304) (375 - 365)
Pretax income $1,617 $2,180 - 2,260
Provision for income taxes (544) (725 - 755)
Minority interest (22) (25 - 20)
Income from continuing operations $1,051 $1,430 - 1,485
Diluted weighted average shares
outstanding (c) 1,043 1,041 - 1,038
* Projections do not total because we do not expect the actual results
of all segments to be at the lowest or highest end of any projected
range simultaneously.
* The effective tax rate is expected to be 33.3% in 2003.
(a) Depreciation and amortization excludes amounts related to our assets
under management and mortgage programs, and interest expense excludes
amounts related to our debt under management and mortgage programs,
both of 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 $58 million of losses on
the early extinguishment of debt.
(c) Diluted weighted average shares outstanding forecasted for 2003
reflect the full-year impact of the Trendwest and NRT acquisitions,
which were completed in 2002 for stock, offset by actual and
anticipated common stock repurchases.
Cendant will host a conference call to discuss the third quarter results on Tuesday, October 21, 2003, at 11:00 a.m. (EDT). 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
Statements about future results made in this release, including the projections, and the statements attached hereto constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and the current economic environment. The Company cautions that these statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements. Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements are specified in Cendant's Form 10-Q for the period ended June 30, 2003.
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
Table 1
Cendant Corporation and Subsidiaries
SUMMARY DATA SHEET
(Dollars in millions, except per share data)
2003 2002 %Change
Income Statement Items for Third Quarter
Net Revenues $5,062 $3,839 32%
Pretax Income (A) 738 379 95%
Income from Continuing Operations 486 250 94%
EPS from Continuing Operations (diluted) 0.47 0.24 96%
Balance Sheet Items as of September 30, 2003
and December 31, 2002
Total Corporate Debt (Excluding Upper DECS) $5,419 $5,976
Cash and Cash Equivalents 1,004 126
Total Stockholders' Equity 9,955 9,315
Net Debt to Total Capitalization Ratio 34.6% 41.9%
Cash Flow Items for Third Quarter
Net Cash Provided by Operating Activities $1,061 $1,047
Free Cash Flow (B) 1,019 524
Net Cash Provided by (Used in) Management
and Mortgage Program Activities (C) 48 (61)
Payments Made for Current Period
Acquisitions, Net of Cash Acquired (36) (324)
Net Debt Repayments (444) (336)
Net Repurchases of Common Stock (128) (64)
Interest Coverage Ratios for Third Quarter
Total EBITDA $951 $617
Non-program related Interest Expense, net 75 68
Interest Coverage 13 to 1 9 to 1
Reportable Operating Segment Results
Third Quarter % Change
Net Revenues 2003 2002 As Reported Organic (D)
Real Estate Services $1,998 $1,331 50% 45%
Hospitality 696 671 4% 5%
Travel Distribution 424 432 (2%) (6%)
Vehicle Services 1,574 1,085 45%
Financial Services 370 322 15% (21%)
Total Reportable Segments 5,062 3,841 32% 14%
Corporate and Other -- (2) *
Total Company $5,062 $3,839 32%
EBITDA
Real Estate Services $436 $59 639% 629%
Hospitality 189 204 (7%) (8%)
Travel Distribution 119 129 (8%) (2%)
Vehicle Services 187 143 31%
Financial Services 62 122 (49%) (50%)
Total Reportable Segments 993 657 51% 48%
Corporate and Other (E) (42) (40)
Total Company 951 617
Less Non-program related
depreciation and
amortization 129 121
Non-program related
interest expense, net 75 68
Early extinguishment of debt 4 4
Amortization of pendings and
listings 5 45
Pretax Income (A) $738 $379 95%
* Not meaningful.
(A) Referred to as "Income before income taxes and minority interest" on
the Consolidated Condensed Statements of Income presented on Table 2.
(B) See Table 7 for the underlying calculations and reconciliations.
(C) Included as a component of Free Cash Flow. This amount represents the
net cash flows from the operating, investing and financing activities
of management and mortgage programs.
(D) See Table 8 for underlying calculations.
(E) Principally reflects unallocated corporate overhead.
Table 2
Cendant Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In millions, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Revenues
Service fees and membership
related, net $3,516 $2,799 $9,476 $7,299
Vehicle-related 1,538 1,034 4,211 2,905
Other 8 6 49 34
Net revenues 5,062 3,839 13,736 10,238
Expenses
Operating 2,596 2,008 7,010 4,701
Vehicle depreciation, lease
charges and interest, net 651 523 1,865 1,532
Marketing and reservation 491 379 1,312 1,059
General and administrative 358 301 1,038 876
Non-program related depreciation
and amortization 129 121 387 337
Non-program related interest, net:
Interest expense, net 75 68 234 194
Early extinguishment of debt 4 4 58 42
Acquisition and integration
related costs:
Amortization of pendings and
listings 5 45 12 239
Other 15 11 30 24
Total expenses 4,324 3,460 11,946 9,004
Income before income taxes and
minority interest 738 379 1,790 1,234
Provision for income taxes 248 121 596 414
Minority interest, net of tax 4 8 17 16
Income from continuing operations 486 250 1,177 804
Income from discontinued operations,
net of tax -- -- -- 51
Loss on disposal of discontinued
operations, net of tax -- -- -- (256)
Income before cumulative effect of
accounting change 486 250 1,177 599
Cumulative effect of accounting
change, net of tax (293) -- (293)
Net income $193 $250 $884 $599
Earnings per share
Basic
Income from continuing
operations $0.48 $0.24 $1.15 $0.79
Cumulative effect of accounting
change (0.29) -- (0.28)
Net income 0.19 0.24 0.87 0.59
Diluted
Income from continuing
operations $0.47 $0.24 $1.13 $0.77
Cumulative effect of accounting
change (0.28) -- (0.28)
Net income 0.19 0.24 0.85 0.58
Weighted average shares
Basic 1,013 1,039 1,019 1,014
Diluted 1,039 1,058 1,039 1,043
Table 3
Cendant Corporation and Affiliates
SEGMENT REVENUE DRIVER ANALYSIS
(Revenue dollars in thousands)
Third Quarter
2003 2002 %Change
REAL ESTATE SERVICES SEGMENT
Real Estate Franchise
Closed Sides - Domestic 620,567 562,645 10%
Average Price $220,748 $197,645 12%
Royalty and Marketing Revenue(A) $213,310 $180,614 18%
Total Revenue $222,410 $187,639 19%
Real Estate Brokerage
Net Revenue from Real Estate
Transactions (B) $1,240,620 $1,005,057 23%
Other Revenue $11,054 $9,610 15%
Total Revenue $1,251,674 $1,014,667 23%
Relocation
Service Based Revenue
(Referrals, Outsourcing, etc.) $81,657 $78,710 4%
Asset Based Revenue (Home Sale
Closings and Financial Income) $37,562 $38,642 (3%)
Total Revenue $119,219 $117,352 2%
Mortgage
Production Loans Closed to be
Securitized (millions) $21,121 $9,870 114%
Other Production Loans Closed
(millions) $6,473 $5,149 26%
Production Loans Sold (millions) $19,228 $9,156 110%
Average Servicing Loan Portfolio
(millions) $125,244 $108,333 16%
Production Revenue $428,206 $207,209 107%
Gross Recurring Servicing
Revenue $112,096 $103,173 9%
Amortization and Impairment of
Mortgage Servicing Rights (C) $(282,285) $(420,781) *
Hedging Activity for Mortgage
Servicing Rights $18,295 $25,460 *
Other Servicing Revenue (D) $(1,064) $3,433 *
Total Revenue (C) $275,248 $(81,506) *
Settlement Services
Title and Appraisal Units 156,401 120,464 30%
Total Revenue $131,396 $93,299 41%
HOSPITALITY SEGMENT
Lodging
RevPAR $30.97 $29.99 3%
Weighted Average Rooms Available 485,491 517,903 (6%)
Royalty, Marketing and
Reservation Revenue $108,828 $112,981 (4%)
Total Revenue $123,124 $128,175 (4%)
RCI (E)
Average Subscriptions 2,954,236 2,884,272 2%
Average Subscription Fee $58.63 $57.68 2%
Subscription Revenue $43,305 $41,588 4%
Timeshare Exchanges 445,922 459,864 (3%)
Average Exchange Fee $160.65 $144.02 12%
Exchange Fee Revenue $71,638 $66,228 8%
Total Revenue $146,179 $148,187 (1%)
Fairfield Resorts
Tours 164,880 150,057 10%
Total Revenue $237,807 $230,761 3%
Trendwest Resorts
Tours 109,863 105,005 5%
Total Revenue $157,663 $141,834 11%
Vacation Rental Group
Cottage Weeks Sold 132,148 130,178 2%
Total Revenue (F) $31,807 $22,658 40%
* Not meaningful.
(A) Includes intercompany royalties paid by Real Estate Brokerage.
(B) Net of intercompany royalties paid to Real Estate Franchise.
(C) The 2002 amounts includes $275 million of impairment related to
reductions in interest rates and accelerations in loan repayments, as
well as an update to the Company's loan prepayment model, all of which
occurred during third quarter 2002. There was no impairment recorded
in third quarter 2003.
(D) Includes net interest expense of $16 million for both 2003 and 2002.
(E) Includes weeks and points members.
(F) The 2003 amount includes the revenue of a company acquired in October
2002. Accordingly, third quarter 2002 revenue is not comparable to
the current period amount.
Cendant Corporation and Affiliates
SEGMENT REVENUE DRIVER ANALYSIS
(Revenue dollars in thousands)
Third Quarter
2003 2002 % Change
TRAVEL DISTRIBUTION SEGMENT
Galileo Domestic Booking Volume
(000's)
Air (A) 20,578 20,382 1%
Car/Hotel 4,487 4,491
Galileo International Booking
Volume (000's)
Air (A) 42,428 44,262 (4%)
Car/Hotel 1,286 1,237 4%
Galileo Worldwide Booking Volume
(000's)
Air (A) 63,006 64,644 (3%)
Car/Hotel 5,773 5,728 1%
Galileo Revenue $379,277 $395,485 (4%)
Travel Services On-line Gross
Bookings (000's) $288,252 $223,871 29%
Travel Services Off-line Gross
Bookings (000's) $128,539 $116,527 10%
Total Revenue (B) $423,968 $432,080 (2%)
VEHICLE SERVICES SEGMENT
Avis
Rental Days (000's) 15,784 16,619 (5%)
Time and Mileage Revenue per Day $41.21 $40.21 2%
Average Length of Rental (stated
in Days) 3.77 3.94 (4%)
Total Revenue $705,475 $715,191 (1%)
Budget (C)
Car Rental Days (000's) 8,380 8,193 2%
Time and Mileage Revenue per Day $35.06 $35.09
Average Length of Rental (stated
in Days) 4.50 4.51
Car Rental Revenue $330,035 (D)
Truck Rental Revenue $162,364 (D)
Total Revenue $492,399 (D)
Vehicle Management and Fuel Card
Services
Average Fleet (Leased) 313,858 318,725 (2%)
Average Number of Cards (000's) 3,833 3,657 5%
Service Based Revenue $58,824 $50,103 17%
Asset Based Revenue $317,282 $319,578 (1%)
Total Revenue $376,106 $369,681 2%
FINANCIAL SERVICES SEGMENT
Insurance/Wholesale-related
Revenue $155,472 $134,653 15%
Individual Membership
Revenue (E) (F) $203,178 $155,561 *
Trilegiant Royalty Paid to
Cendant (G) $11,829 $2,829 *
Total Revenue (F) $369,965 $322,109 *
* Not meaningful.
(A) The 2002 amounts have been revised to reflect segments on a basis
consistent with 2003 and with industry standards.
(B) The 2003 amount includes the revenues of businesses acquired during or
subsequent to the third quarter of 2002. Accordingly, third quarter
2002 revenue is not comparable to the current period amount.
(C) The methodology for calculating Budget's revenue drivers currently
differs from the methodology used for the Avis business as Budget has
not yet been integrated onto our system. Due to the methodology
difference, Budget's length of rental will be longer than Avis' based
on a rental of the same duration and, accordingly, Budget's time and
mileage per day will be lower than Avis' for the same rental. The
integration is expected to occur by the end of second quarter 2004.
(D) The operations of this business were acquired subsequent to the third
quarter of 2002.
(E) Includes membership fee revenues that the Company continues to collect
from the members that existed as of July 2001, as well as membership
fee revenues (including the royalty paid to Cendant) generated from
Trilegiant's members.
(F) As of July 1, 2003, Cendant began consolidating the results of
Trilegiant pursuant to a new accounting standard. Accordingly, third
quarter 2002 revenues are not comparable to the current period
amounts.
(G) Reflects only Cendant's royalty received from Trilegiant on revenues
generated by Trilegiant's members (those who joined the clubs and
programs subsequent to July 2001). As the Company now consolidates
Trilegiant (as of July 1, 2003), this royalty is eliminated in
consolidation.
Table 4
Cendant Corporation and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(In billions)
As of As of
September 30, December 31,
2003 2002
Assets
Current assets:
Cash and cash equivalents $1.0 $0.1
Other current assets 3.2 3.3
Total current assets 4.2 3.4
Property and equipment, net 1.7 1.8
Goodwill, net 10.9 10.7
Other non-current assets 4.3 4.9
Total assets exclusive of assets
under programs 21.1 20.8
Assets under management and mortgage programs 20.0 15.1
Total assets $41.1 $35.9
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt $0.7 $
Other current liabilities 5.3 5.0
Total current liabilities 6.0 5.0
Long-term debt, excluding Upper DECS 4.7 5.6
Upper DECS 0.9 0.9
Other non-current liabilities 1.2 0.9
Total liabilities exclusive of
liabilities under programs 12.8 12.4
Liabilities under management and
mortgage programs 18.3 13.8
Mandatorily redeemable preferred
interest in a subsidiary -- 0.4
Total stockholders' equity 10.0 9.3
Total liabilities and stockholders' equity $41.1 $35.9
Table 5
Cendant Corporation and Subsidiaries
SCHEDULE OF CORPORATE DEBT (A)
(In millions)
Earliest
Mandatory September June March December
Redemption Maturity 30, 30, 31, 31,
Date Date 2003 2003 2003 2002
Net Debt
December December
2003 2003 7-3/4% notes $229 $229 $229 $966
Zero coupon senior
February February convertible contingent
2004 2021 notes (B) 428 425 422 420
May 2004 May 2021 Zero coupon
convertible
debentures (C) 7 7 401 857
November November 3-7/8% convertible
2004 2011 senior debentures (D) 804 804 804 1,200
August August
2006 2006 6-7/8% notes 849 849 849 849
January January
2008 2008 6-1/4% notes 796 796 796
May 2009 May 2009 11% senior
subordinated notes 337 398 435 530
March March
2010 2010 6-1/4% notes 348 348 348
January January
2013 2013 7-3/8% notes 1,190 1,190 1,189
March March
2015 2015 7-1/8% notes 250 250 250
December
2005 Revolver borrowings -- -- -- 600
Net hedging gains (E) 80 163 81 89
Other 101 86 88 90
5,419 5,545 5,892 5,601
Plus: Mandatorily
redeemable preferred
interest -- 375 375 375
Total corporate debt,
excluding Upper DECS 5,419 5,920 6,267 5,976
Less: Cash and cash
equivalents 1,004 627 580 126
4,415 5,293 5,687 5,850
Plus: Upper DECS 863 863 863 863
Net Debt $5,278 $6,156 $6,550 $6,713
Total Capitalization
Total Stockholders'
Equity $9,955 $9,776 $9,529 $9,315
Net Debt (per above) 5,278 6,156 6,550 6,713
Total Capitalization $15,233 $15,932 $16,079 $16,028
Net Debt to Total
Capitalization Ratio 34.6% 38.6% 40.7% 41.9%
(A) Amounts presented herein exclude debt under management and mortgage
programs.
(B) Each $1,000 principal amount is convertible into 33.4 shares of CD
common stock during the fourth quarter of 2003 if the average price of
CD common stock exceeds $21.45 during the stipulated measurement
periods. The average price of CD common stock at which the notes are
convertible increases on a quarterly basis by a stipulated percentage.
Redeemable by the Company after February 13, 2004. Holders may
require the Company to repurchase the notes on February 13, 2004, 2009
and 2014. Issued at a discount resulting in a yield-to-maturity of
2.5%.
(C) Each $1,000 principal amount is convertible into 39.08 shares of CD
common stock if the average price of CD common stock exceeds $28.15
during the stipulated measurement periods. Redeemable by the Company
after May 4, 2004. Holders may require the Company to repurchase the
debentures on May 4, 2004, 2006, 2008, 2011 and 2016. The 2003 year
to date redemptions eliminated approximately 33 million shares of
potential dilution.
(D) Each $1,000 principal amount is convertible into 41.58 shares of CD
common stock during 2003 if the average price of CD common stock
exceeds $28.59 during the stipulated measurement periods. The average
price of CD common stock at which the debentures are convertible
decreases annually by a stipulated percentage. Redeemable by the
Company after November 27, 2004. Holders may require the Company to
repurchase the debentures on November 27, 2004 and 2008. The 2003
year to date repurchases eliminated approximately 16 million shares of
potential dilution.
(E) As of September 30, 2003, represents $213 million of realized gains
resulting from fair value hedges that will be amortized by the Company
to reduce future interest expense, partially offset by $133 million of
mark to market adjustments on current fair value interest rate hedges.
Table 6
Cendant Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
Three Months Nine Months
Ended Ended
September 30, September 30,
2003 2002 2003 2002
Operating Activities
Net cash provided by (used in)
operating activities exclusive of
management
and mortgage programs $1,048 $680 $2,366 $(1,595)
Net cash provided by operating
activities of management
and mortgage programs 13 367 1,059 1,958
Net Cash Provided by Operating
Activities 1,061 1,047 3,425 363
Investing Activities
Property and equipment additions (111) (96) (309) (235)
Net assets acquired, net of cash
acquired, and acquisition-related
payments (99) (392) (234) (1,015)
Proceeds from stockholder litigation
settlement trust -- -- -- 1,410
Proceeds from disposition of
business, net of transaction-related
payments -- (25) -- 1,175
Proceeds received on asset sales 34 6 120 9
Other, net 19 (9) 88 (33)
Net cash provided by (used in)
investing activities exclusive of
management
and mortgage programs (157) (516) (335) 1,311
Management and mortgage programs:
Net investment in vehicles (251) (674) (1,821) (1,854)
Net timeshare receivables and
inventory 160 (1) 127 (85)
Net relocation receivables 36 (25) (56) 40
Net mortgage servicing rights,
related derivatives and mortgage
backed securities (600) (1) (519) (413)
(655) (701) (2,269) (2,312)
Net Cash Used in Investing Activities (812) (1,217) (2,604) (1,001)
Financing Activities
Proceeds from borrowings -- -- 2,588 3
Principal payments on borrowings (444) (336) (3,215) (1,462)
Issuances of common stock 121 6 247 102
Repurchases of common stock (249) (70) (710) (197)
Other, net -- (12) (86) (30)
Net cash used in financing activities
exclusive of management
and mortgage programs (572) (412) (1,176) (1,584)
Management and mortgage programs:
Proceeds from borrowings 8,945 2,070 22,570 9,425
Principal payments on borrowings (8,216) (2,025) (21,041) (9,212)
Net change in short-term borrowings (38) 230 (276) 194
Other (1) (2) (10) (8)
690 273 1,243 399
Net Cash Provided by (Used in)
Financing Activities 118 (139) 67 (1,185)
Effect of changes in exchange rates
on cash and cash equivalents 10 28 (10) 12
Cash provided by discontinued
operations -- -- -- 74
Net increase (decrease) in cash and
cash equivalents 377 (281) 878 (1,737)
Cash and cash equivalents, beginning
of period 627 486 126 1,942
Cash and cash equivalents, end of
period $1,004 $205 $1,004 $205
Table 7
Cendant Corporation and Subsidiaries
CONSOLIDATED SCHEDULES OF FREE CASH FLOWS
(In millions)
Free Cash Flow is useful to management and the Company's investors in
measuring the cash generated by the Company that is available to be used
to repurchase stock, repay debt obligations, pay dividends and invest in
future growth through new business development activities or
acquisitions. Free Cash Flow should not be construed as a substitute in
measuring operating results or liquidity. Such metric may not be
comparable to similarly titled measures used by other companies and is
not a measurement recognized under generally accepted accounting
principles. A reconciliation of Free Cash Flow to the appropriate
measure recognized under generally accepted accounting principles (Net
Cash Provided by Operating Activities) is presented below.
Three Months Nine Months
Ended Ended
September 30, September 30,
2003 2002 2003 2002
Pretax income $738 $379 $1,790 $1,234
Addback of non-cash depreciation and
amortization:
Non-program related 129 121 387 337
Pendings and listings 5 45 12 239
Tax refunds (payments), net 107 (7) 58 (77)
Working capital (A) 83 (133) 199 (431)
Capital expenditures (111) (96) (309) (235)
Other 20 276 40 (40)
Management and mortgage programs (B) 48 (61) 33 45
Free Cash Flow before Stockholder
Litigation Payments 1,019 524 2,210 1,072
Stockholder litigation payments -- -- -- (1,440)
Free Cash Flow 1,019 524 2,210 (368)
Current period acquisitions, net of
cash acquired (36) (324) (80) (867)
Payments related to prior period
acquisitions (63) (68) (154) (148)
Net repurchases of common stock (128) (64) (463) (95)
Net proceeds from (payments related
to) disposition of business -- (25) -- 1,175
Investments and other 29 12 (8) 25
Net repayments of borrowings (444) (336) (627) (1,459)
Net increase (decrease) in cash and
cash equivalents (per Table 6) $377 $(281) $878 $(1,737)
(A) The nine months ended September 30, 2003 include approximately
$200 million of proceeds received from the termination of interest
rate swaps on corporate debt instruments. The Company reset these
hedge positions to create a desired balance between its floating rate
debt and floating rate assets.
(B) Cash flows related to management and mortgage programs may fluctuate
significantly from period to period due to the timing of the
underlying management and mortgage program transactions (i.e., timing
of mortgage loan origination versus sale). For the three months ended
September 30, 2003 and 2002, the net cash flows from the activities of
management and mortgage programs is reflected on Table 6 as follows:
(i) net cash provided by operating activities of $13 million and
$367 million, respectively, (ii) net cash used in investing activities
of $655 million and $701 million, respectively, and (iii) net cash
provided by financing activities of $690 million and $273 million,
respectively. For the nine months ended September 30, 2003 and 2002,
the net cash flows from the activities of management and mortgage
programs is reflected on Table 6 as follows: (i) net cash provided by
operating activities of $1,059 million and $1,958 million,
respectively, (ii) net cash used in investing activities of
$2,269 million and $2,312 million, respectively, and (iii) net cash
provided by financing activities of $1,243 million and $399 million,
respectively.
RECONCILIATION OF FREE CASH FLOW TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
(In millions)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Free Cash Flow (per above) $1,019 $524 $2,210 $(368)
Cash (inflows) outflows included
in Free Cash Flow but not
reflected in Net Cash Provided by
Operating Activities:
Investing activities of
management and mortgage
programs 655 701 2,269 2,312
Financing activities of
management and mortgage
programs (690) (273) (1,243) (399)
Capital expenditures 111 96 309 235
Proceeds received on asset
sales (34) (6) (120) (9)
Reductions to Net Cash Provided by
Operating Activities but not
reflected in Free Cash Flow:
Funds released from
stockholder litigation
settlement trust (a) -- -- -- (1,410)
Other -- 5 -- 2
Net Cash Provided by Operating
Activities (per Table 6) $1,061 $1,047 $3,425 $363
Projected 2003
(Full Year)
Free Cash Flow $2,500
Cash (inflows) outflows included
in Free Cash Flow but not
reflected in Net Cash Provided by
Operating Activities:
Investing and financing
activities of management and
mortgage programs 2,250
Capital expenditures 465
Proceeds received on asset
sales (130)
Net Cash Provided by Operating
Activities $5,085
(a) Represents payments made by the Company to the stockholder litigation
settlement trust in 2001. Such funds were then released directly from
the trust in 2002 to pay off a portion of the Company's stockholder
litigation settlement liability. The extinguishment of the liability
was reported as a reduction to net cash provided by operating
activities during 2002 but is not reflected in Free Cash Flow during
2002, as such amount did not represent payments made by the Company
during 2002.
Table 8
Cendant Corporation and Subsidiaries
ORGANIC GROWTH BY SEGMENT
(In millions)
Organic growth represents the results of our reportable operating
segments excluding the impact of acquisitions, dispositions and other
items that would affect the comparability of the period over period
results. See Table 1 for the reported results of each of our operating
segments.
REVENUES EBITDA
Third Quarter Third Quarter
2003 2002 %* 2003 2002 %*
Real Estate Services (A) $1,938 $1,334 45% $436 $60 629%
Hospitality (B) 657 628 5% 153 167 (8%)
Travel Distribution (C) 408 432 (6%) 126 129 (2%)
Vehicle Services (D) 1,082 1,084 - 143 144
Financial Services (E) 256 322 (21%) 61 122 (50%)
Total Reportable Segments $4,341 $3,800 14% $919 $622 48%
* Amounts may not calculate due to rounding in millions.
(A) Includes reductions to revenue and EBITDA growth of $63 million and $1
million, respectively, primarily related to the acquisition of real
estate brokerage businesses during or subsequent to third quarter
2002. The 2002 amounts reflect a $275 million provision for
impairment of the Company's mortgage servicing rights asset related to
reductions in interest rates and accelerations in loan repayments, as
well as an update to the Company's loan prepayment model, all of which
occurred during third quarter 2002. There was no impairment recorded
in third quarter 2003.
(B) Includes increases to revenue and EBITDA growth of $4 million and $1
million, respectively, primarily related to the acquisition of a
European vacation rental company (October 2002), the acquisition of
FFD Development Company, LLC (February 2003) and the consolidation of
Sierra Receivables Funding Corporation (September 2003, pursuant to
FASB Interpretation No. 46).
(C) Includes a reduction to revenue growth of $16 million and an increase
to EBITDA growth of $7 million primarily related to the acquisitions
of Lodging.com (August 2002), Trip Network, Inc. (March 2003), Neat
Group (May 2003) and several national distribution companies in Europe
during or subsequent to third quarter 2002.
(D) Includes reductions to revenue and EBITDA growth of $491 million and
$45 million, respectively, primarily related to the November 2002
acquisition of certain assets of Budget Group, Inc.
(E) Includes a reduction to revenue growth of $114 million and an increase
to EBITDA growth of $1 million primarily related to the consolidation
of Trilegiant Corporation (July 2003, pursuant to FASB Interpretation
No. 46).