================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ Form 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------ OCTOBER 20, 2003 (OCTOBER 20, 2003) (DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)) CENDANT CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 1-10308 06-0918165 (STATE OR OTHER JURISDICTION (COMMISSION FILE NO.) (I.R.S. EMPLOYER OF INCORPORATION OR IDENTIFICATION NUMBER) ORGANIZATION) 9 WEST 57TH STREET NEW YORK, NY 10019 (ADDRESS OF PRINCIPAL (ZIP CODE) EXECUTIVE OFFICE) (212) 413-1800 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) NONE (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT) ================================================================================ ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibits. See Exhibit Index. ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION On October 20, 2003, we reported our third quarter 2003 results. Our third quarter 2003 results are discussed in detail in the press release attached hereto as Exhibit 99, which is incorporated by reference in its entirety. The information furnished under Item 12 of this Current Report on Form 8-K, including Exhibit 99, shall be deemed to be "filed" for purposes of the Securities Exchange Act of 1934, as amended, and incorporated by reference in any of our filings under the Securities Act of 1933, as amended, as may be specified in such filing. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CENDANT CORPORATION BY: /s/ Virginia M. Wilson --------------------------- Virginia M. Wilson Executive Vice President and Chief Accounting Officer Date: October 20, 2003 CENDANT CORPORATION CURRENT REPORT ON FORM 8-K REPORT DATED OCTOBER 20, 2003 (OCTOBER 20, 2003) EXHIBIT INDEX EXHIBIT NO. DESCRIPTION --- ----------- 99 Press Release: Cendant Reports Record Operating Results for the Third Quarter of 2003, Exceeding Projections
EXHIBIT 99 [LOGO] CENDANT REPORTS RECORD OPERATING RESULTS FOR THE THIRD QUARTER OF 2003, EXCEEDING PROJECTIONS 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 NEW YORK, NY, OCTOBER 20, 2003 - Cendant Corporation (NYSE: CD) today reported third quarter 2003 EPS from Continuing Operations of $0.47, versus $0.24 in third quarter 2002, an increase of 96%. This result exceeded the Company's prior projection of $0.44 - $0.45. 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: o Generated Net Cash Provided by Operating Activities of approximately $1.06 billion and Free Cash Flow of approximately $1.0 billion due to favorable operating results and, in part, to the timing of cash inflows and a tax refund advance of $175 million, which will be partially offset in fourth quarter 2003 by tax payments. See Table 7 for a description of Free Cash Flow and a reconciliation to Net Cash Provided by Operating Activities. o Reduced corporate debt net of cash on the balance sheet by $878 million, including the prepayment of our $375 million mandatorily redeemable debt securities at par. Corporate debt excludes Debt under Management and Mortgage Programs. See Table 5 for more detailed information. o Utilized $249 million of cash for the repurchase of common stock. In addition: o The Company's Board of Directors authorized an additional $500 million, plus proceeds from stock option exercises, for the repurchase of common stock. o 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) 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 $ 1,998 $ 1,331 50% ----------- ----------- ----- EBITDA $ 436 $ 59 639% =========== =========== ===== 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.
2003 2002 % CHANGE ---- ---- -------- REVENUE $ 696 $ 671 4% ----------- ----------- ----- EBITDA $ 189 $ 204 (7%) =========== =========== ===== TRAVEL DISTRIBUTION (Consisting of electronic global distribution services for the travel industry and on-line and off-line travel agency services) 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 $ 424 $ 432 (2%) ----------- ----------- --- EBITDA $ 119 $ 129 (8%) =========== =========== === 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 $ 1,574 $ 1,085 45% ----------- ----------- -- EBITDA $ 187 $ 143 31% =========== =========== == 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
2003 2002 % CHANGE ---- ---- -------- REVENUE $ 370 $ 322 15% ----------- ----------- --- EBITDA $ 62 $ 122 (49%) =========== =========== === have been negative throughout much of 2003, we expect the EBITDA of this division in 2004 to exceed 2003 levels. OTHER ITEMS o 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. o 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. o 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). o 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: (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.
FOURTH FULL QUARTER YEAR ------- ---- 2003 $0.27 $1.40 - 1.41(a) 2002 $0.24 $1.01(b) The Company also announced the following detailed financial projections for full year 2003 (in millions): * 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.
FULL YEAR 2002 FULL YEAR 2003 REVENUE ACTUAL PROJECTED ------- ------ --------- 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 INVESTOR CONFERENCE CALL Cendant will host a conference call to discuss the third quarter results on Tuesday, October 21, 2003, at 11:00 a.m. (EST). Investors may access the call live at WWW.CENDANT.COM or by dialing (719) 457-2679. A web replay will be available at WWW.CENDANT.COM following the call. A telephone replay will be available from 2:00 p.m. (EST) on October 21, 2003 until 8:00 p.m. (EST) on October 28, 2003 at (719) 457-0820, access code: 582271. 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 WWW.CENDANT.COM or by calling 877-4-INFOCD (877-446-3623). 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 WWW.CENDANT.COM. MEDIA CONTACT: INVESTOR CONTACTS: Elliot Bloom Sam Levenson 212-413-1832 212-413-1834 Henry A. Diamond 212-413-1920 # # # Tables Follow 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 - --------- * 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.
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% ========= ========= 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 (page 1 of 2) CENDANT CORPORATION AND AFFILIATES SEGMENT REVENUE DRIVER ANALYSIS (REVENUE DOLLARS IN THOUSANDS) ----------------- * 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.
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 include $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. Table 3 (page 2 of 2) 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 * Table 4 CENDANT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (IN BILLIONS) - -------------- (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.
AS OF AS OF SEPTEMBER 30, 2003 DECEMBER 31, 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 30, JUNE 30, MARCH 31, DECEMBER 31, REDEMPTION DATE MATURITY DATE 2003 2003 2003 2002 - ------------------ ------------- ------------ ------- -------- ------------ NET DEBT December 2003 December 2003 7 3/4% notes $ 229 $ 229 $ 229 $ 966 February 2004 February 2021 Zero coupon senior convertible contingent notes (B) 428 425 422 420 May 2004 May 2021 Zero coupon convertible debentures (C) 7 7 401 857 November 2004 November 2011 3 7/8% convertible senior debentures (D) 804 804 804 1,200 August 2006 August 2006 6 7/8% notes 849 849 849 849 January 2008 January 2008 6 1/4% notes 796 796 796 - May 2009 May 2009 11% senior subordinated notes 337 398 435 530 March 2010 March 2010 6 1/4% notes 348 348 348 - January 2013 January 2013 7 3/8% notes 1,190 1,190 1,189 - March 2015 March 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% Table 6 CENDANT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (IN MILLIONS)
THREE MONTHS ENDED NINE MONTHS 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. - --------------- (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 ---------- ---------- -------- --------- 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) 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.
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 ========= 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. - ---------- * 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).
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% ======= ======= ======= ========