(X)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended March 31, 2006 | ||
OR | ||
( )
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Delaware | 06-0918165 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
|
9 West
57th Street New York, NY (Address of principal executive offices) |
10019 (Zip Code) |
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o |
| terrorist attacks, such as the September 11, 2001 terrorist attacks on New York City and Washington, D.C. and the July 2005 bombings in London, which may negatively affect the travel and transportation industries and our financial results and which could also result in a disruption in our business; | |
| the effect of economic or political conditions or any outbreak or escalation of hostilities on the economy on a national, regional or international basis and the impact thereof on our businesses; | |
| the effects of a decline in travel, due to political instability, adverse economic conditions, pandemics, substantial increases in fuel prices or otherwise, on our travel related businesses; | |
| the effects of a decline in the volume or value of U.S. existing home sales, due to adverse economic changes or otherwise, on our real estate related businesses; | |
| the effects of changes in current interest rates, particularly on our real estate franchise and real estate brokerage businesses; | |
| the final resolution or outcome of our unresolved pending litigation relating to the previously announced accounting irregularities (which were discovered and addressed in 1998); | |
| our ability to develop and implement operational, technological and financial systems to manage growing operations and to achieve enhanced earnings or effect cost savings; | |
| competition in our existing and potential future lines of business and the financial resources of, and products offered by, competitors; | |
| our failure to reduce quickly our substantial technology costs and other overhead costs, if required, in response to a reduction in revenue in any future period, particularly with respect to our reservations systems, and in our global distribution systems, vehicle rental and real estate brokerage businesses; | |
| our failure to provide fully integrated disaster recovery technology solutions in the event of a disaster or other business interruption; | |
| our ability to successfully integrate and operate acquired and merged businesses and risks associated with such businesses, including the acquisitions of ebookers plc and Gullivers Travel Associates, the compatibility of the operating systems of the combining companies, and the degree to which our existing administrative and back-office functions and costs and those of the acquired companies are complementary or redundant; | |
| our ability to obtain financing on acceptable terms to finance our growth strategy and to operate within the limitations imposed by financing arrangements and to maintain our credit ratings; | |
| in relation to our assets under management programs, (i) the deterioration in the performance of the underlying assets of such programs and (ii) our inability to access the secondary market for certain of our securitization facilities and to act as servicer thereto; | |
| competitive and pricing pressures in the travel industry, including the car rental and global distribution services industries; | |
| changes in the vehicle manufacturer arrangements in our Avis and Budget car rental business, including but not limited to the failure of the manufacturers to meet their obligations under repurchase arrangements, or changes in the credit quality of such vehicle manufacturers, each of which could have a material adverse effect on our results and the principal financing program for our car rental business; |
1
| filing of bankruptcy by, or the loss of business from, any of our significant customers or suppliers, including our airline customers, and the ultimate disposition of any such bankruptcy, including the bankruptcy reorganization of Delta Air Lines, Inc. and Northwest Airlines Corporation; | |
| changes in laws and regulations, including changes in global distribution services rules, telemarketing and timeshare sales regulations and real estate related regulations, state, federal and international tax laws and privacy policy regulation; | |
| changes in accounting principles and/or business practices that may result in changes in the method in which we account for transactions and may affect comparability between periods and changes to the estimates and assumptions that we use to prepare our financial statements due to subsequent developments, such as court or similar rulings and actual experience; and | |
| substantial damage to, or interruption of business related to, our timeshare properties, our rental cars or hotel properties of our franchisees due to natural disasters, such as hurricanes, floods, fires or earthquakes. |
| risks inherent in the contemplated separation and related transactions, including risks related to increased borrowings, and costs related to the proposed transaction (including a possible sale of our Travel Distribution business); | |
| changes in business, political and economic conditions in the U.S. and in other countries in which Cendant and its companies currently do business; | |
| changes in Cendants overall operating performance and changes in the operating performance of any of Cendants business segments; | |
| access to financing sources, required changes to existing financings, and changes in credit ratings, including those that may result from the proposed transaction; | |
| the ability of Cendant to obtain the financing necessary to consummate all or a portion of the transaction; | |
| new costs, which may be greater than the general corporate overhead expenses currently allocated, due to each of the separating companies being operated as a stand-alone company, rather than as part of an integrated group; | |
| the terms of agreements among the separating companies, including the allocations of assets and liabilities, including contingent liabilities and guarantees, and commercial arrangements; | |
| increased demands on Cendants management team as a result of executing the proposed transactions, in addition to their regular day-to-day management responsibilities; and | |
| our ability to complete all or a portion of the contemplated separation plan and related transactions (including a possible sale of our Travel Distribution business), which will be subject to certain conditions precedent, including final approval by our Board of Directors, negotiation and execution of definitive agreements, receipt of tax opinions of counsel, receipt of solvency opinions and the filing and effectiveness of registration statements. |
2
Item 1. | Financial Statements |
3
Three Months Ended | ||||||||||
March 31, | ||||||||||
2006 | 2005 | |||||||||
Revenues
|
||||||||||
Service fees and membership, net
|
$ | 2,884 | $ | 2,756 | ||||||
Vehicle-related
|
1,319 | 1,166 | ||||||||
Other
|
14 | 32 | ||||||||
Net revenues
|
4,217 | 3,954 | ||||||||
Expenses
|
||||||||||
Operating
|
2,473 | 2,329 | ||||||||
Vehicle depreciation, lease charges and interest, net
|
421 | 324 | ||||||||
Marketing and reservation
|
477 | 424 | ||||||||
General and administrative
|
396 | 336 | ||||||||
Non-program related depreciation and amortization
|
138 | 137 | ||||||||
Non-program related interest expense (income), net
|
70 | (18 | ) | |||||||
Acquisition and integration related costs:
|
||||||||||
Amortization of pendings and listings
|
6 | 3 | ||||||||
Other
|
1 | 11 | ||||||||
Separation costs
|
43 | | ||||||||
Restructuring and transaction-related charges
|
| 49 | ||||||||
Valuation charge associated with PHH spin-off
|
| 180 | ||||||||
Total expenses
|
4,025 | 3,775 | ||||||||
Income before income taxes and minority interest
|
192 | 179 | ||||||||
Provision for income taxes
|
57 | 115 | ||||||||
Minority interest, net of tax
|
| 1 | ||||||||
Income from continuing operations
|
135 | 63 | ||||||||
Loss from discontinued operations, net of tax
|
| (8 | ) | |||||||
Gain (loss) on disposal of discontinued operations, net of tax:
|
||||||||||
PHH valuation and transaction-related charges
|
| (312 | ) | |||||||
Gain (loss) on disposals
|
(1 | ) | 175 | |||||||
Income (loss) before cumulative effect of accounting
changes
|
134 | (82 | ) | |||||||
Cumulative effect of accounting changes, net of tax
|
(64 | ) | | |||||||
Net income (loss)
|
$ | 70 | $ | (82 | ) | |||||
Earnings per share
|
||||||||||
Basic
|
||||||||||
Income from continuing operations
|
$ | 0.13 | $ | 0.06 | ||||||
Net income (loss)
|
0.07 | (0.08 | ) | |||||||
Diluted
|
||||||||||
Income from continuing operations
|
$ | 0.13 | $ | 0.06 | ||||||
Net income (loss)
|
0.07 | (0.08 | ) |
4
March 31, | December 31, | ||||||||
2006 | 2005 | ||||||||
Assets | |||||||||
Current assets:
|
|||||||||
Cash and cash equivalents
|
$ | 445 | $ | 835 | |||||
Restricted cash
|
70 | 71 | |||||||
Receivables, net
|
1,417 | 1,271 | |||||||
Deferred income taxes
|
685 | 604 | |||||||
Other current assets
|
943 | 645 | |||||||
Total current assets
|
3,560 | 3,426 | |||||||
Property and equipment, net
|
1,774 | 1,791 | |||||||
Deferred income taxes
|
598 | 649 | |||||||
Goodwill
|
12,185 | 12,026 | |||||||
Other intangibles, net
|
3,265 | 3,241 | |||||||
Other non-current assets
|
595 | 560 | |||||||
Total assets exclusive of assets under programs
|
21,977 | 21,693 | |||||||
Assets under management programs:
|
|||||||||
Program cash
|
159 | 126 | |||||||
Relocation receivables
|
828 | 855 | |||||||
Vehicle-related, net
|
8,951 | 8,485 | |||||||
Timeshare-related, net
|
2,677 | 2,723 | |||||||
Vacation rental
|
219 | 216 | |||||||
Other
|
12 | 6 | |||||||
12,846 | 12,411 | ||||||||
Total assets
|
$ | 34,823 | $ | 34,104 | |||||
Liabilities and stockholders equity | |||||||||
Current liabilities:
|
|||||||||
Accounts payable and other current liabilities
|
$ | 4,232 | $ | 4,314 | |||||
Current portion of long-term debt
|
1,281 | 1,021 | |||||||
Deferred income
|
644 | 382 | |||||||
Total current liabilities
|
6,157 | 5,717 | |||||||
Long-term debt
|
2,834 | 2,915 | |||||||
Deferred income
|
280 | 279 | |||||||
Other non-current liabilities
|
1,257 | 1,292 | |||||||
Total liabilities exclusive of liabilities under programs
|
10,528 | 10,203 | |||||||
Liabilities under management programs:
|
|||||||||
Debt
|
3,775 | 3,716 | |||||||
Debt due to Cendant Rental Car Funding (AESOP) LLCrelated
party
|
7,513 | 6,957 | |||||||
Deferred income taxes
|
1,768 | 1,723 | |||||||
Other
|
141 | 214 | |||||||
13,197 | 12,610 | ||||||||
Commitments and contingencies (Note 13)
|
|||||||||
Stockholders equity:
|
|||||||||
Preferred stock, $.01 par valueauthorized 10 million
shares; none issued and outstanding
|
| | |||||||
CD common stock, $.01 par valueauthorized 2 billion
shares; issued 1,351,982,190 and 1,350,852,215 shares
|
14 | 14 | |||||||
Additional paid-in capital
|
12,040 | 12,009 | |||||||
Retained earnings
|
5,903 | 5,946 | |||||||
Accumulated other comprehensive income
|
66 | 40 | |||||||
CD treasury stock, at cost351,744,123 and 339,246,211
shares
|
(6,925 | ) | (6,718 | ) | |||||
Total stockholders equity
|
11,098 | 11,291 | |||||||
Total liabilities and stockholders equity
|
$ | 34,823 | $ | 34,104 | |||||
5
Three Months Ended March 31, | ||||||||||
2006 | 2005 | |||||||||
Operating Activities
|
||||||||||
Net income (loss)
|
$ | 70 | $ | (82 | ) | |||||
Adjustments to arrive at income from continuing operations
|
65 | 145 | ||||||||
Income from continuing operations
|
135 | 63 | ||||||||
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities exclusive of
management programs:
|
||||||||||
PHH valuation charge
|
| 180 | ||||||||
Non-program related depreciation and amortization
|
138 | 137 | ||||||||
Amortization of pendings and listings
|
6 | 3 | ||||||||
Net change in assets and liabilities, excluding the impact of
acquisitions and dispositions:
|
||||||||||
Receivables
|
(105 | ) | (225 | ) | ||||||
Income taxes and deferred income taxes
|
(44 | ) | 93 | |||||||
Accounts payable and other current liabilities
|
(95 | ) | 21 | |||||||
Other, net
|
(24 | ) | 20 | |||||||
Net cash provided by operating activities exclusive of
management programs
|
11 | 292 | ||||||||
Management programs:
|
||||||||||
Vehicle depreciation
|
317 | 250 | ||||||||
Amortization and impairment of mortgage servicing rights
|
| 101 | ||||||||
Net loss on mortgage servicing rights and related derivatives
|
| (83 | ) | |||||||
Origination of timeshare-related assets
|
(244 | ) | (241 | ) | ||||||
Principal collection of investment in timeshare-related assets
|
160 | 146 | ||||||||
Origination of mortgage loans
|
| (2,062 | ) | |||||||
Proceeds on sale of and payments from mortgage loans held for
sale
|
| 2,150 | ||||||||
Other
|
(1 | ) | 5 | |||||||
232 | 266 | |||||||||
Net cash provided by operating activities
|
243 | 558 | ||||||||
Investing Activities
|
||||||||||
Property and equipment additions
|
(93 | ) | (78 | ) | ||||||
Net assets acquired, net of cash acquired, and
acquisition-related payments
|
(156 | ) | (455 | ) | ||||||
Proceeds received on asset sales
|
14 | 6 | ||||||||
Proceeds from dispositions of businesses, net of
transaction-related payments
|
(19 | ) | 958 | |||||||
Other, net
|
(6 | ) | 26 | |||||||
Net cash provided by (used in) investing activities exclusive
of management programs
|
(260 | ) | 457 | |||||||
Management programs:
|
||||||||||
Increase in program cash
|
(33 | ) | (143 | ) | ||||||
Investment in vehicles
|
(3,932 | ) | (3,270 | ) | ||||||
Payments received on investment in vehicles
|
3,091 | 1,777 | ||||||||
Equity advances on homes under management
|
(1,028 | ) | (1,003 | ) | ||||||
Repayment of advances on homes under management
|
1,058 | 1,000 | ||||||||
Additions to mortgage servicing rights
|
| (23 | ) | |||||||
Cash received on derivatives related to mortgage servicing
rights, net
|
| 44 | ||||||||
Other, net
|
(7 | ) | (9 | ) | ||||||
(851 | ) | (1,627 | ) | |||||||
Net cash used in investing activities
|
(1,111 | ) | (1,170 | ) | ||||||
Financing Activities
|
||||||||||
Principal payments on borrowings
|
(7 | ) | (63 | ) | ||||||
Net short-term borrowings
|
218 | 660 | ||||||||
Issuances of common stock
|
22 | 120 | ||||||||
Repurchases of common stock
|
(243 | ) | (231 | ) | ||||||
Payment of dividends
|
(113 | ) | (96 | ) | ||||||
Cash reduction due to spin-off of PHH
|
| (259 | ) | |||||||
Other, net
|
(2 | ) | 2 | |||||||
Net cash provided by (used in) financing activities exclusive
of management programs
|
(125 | ) | 133 | |||||||
Management programs:
|
||||||||||
Proceeds from borrowings
|
3,794 | 3,846 | ||||||||
Principal payments on borrowings
|
(3,229 | ) | (2,451 | ) | ||||||
Net change in short-term borrowings
|
43 | (39 | ) | |||||||
Other, net
|
(4 | ) | (6 | ) | ||||||
604 | 1,350 | |||||||||
Net cash provided by financing activities
|
479 | 1,483 | ||||||||
Effect of changes in exchange rates on cash and cash equivalents
|
(1 | ) | (27 | ) | ||||||
Cash provided by (used in) discontinued operations
(RevisedSee Note 1)
|
||||||||||
Operating activities
|
| 172 | ||||||||
Investing activities
|
| (186 | ) | |||||||
Financing activities
|
| 46 | ||||||||
Effect of exchange rate changes
|
| (2 | ) | |||||||
| 30 | |||||||||
Net increase (decrease) in cash and cash equivalents
|
(390 | ) | 874 | |||||||
Cash and cash equivalents, beginning of period
|
835 | 467 | ||||||||
Cash and cash equivalents, end of period
|
$ | 445 | $ | 1,341 | ||||||
6
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | Treasury Stock | Stockholders | |||||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income | Shares | Amount | Equity | |||||||||||||||||||||||||
Balance at January 1, 2006
|
1,351 | $ | 14 | $ | 12,009 | $ | 5,946 | $ | 40 | (339) | $ | (6,718) | $ | 11,291 | ||||||||||||||||||
Comprehensive income:
|
||||||||||||||||||||||||||||||||
Net income
|
| | | 70 | | | | |||||||||||||||||||||||||
Currency translation adjustment, net of tax of $7
|
| | | | 4 | | | |||||||||||||||||||||||||
Unrealized gains on cash flow hedges, net of tax of $13
|
| | | | 22 | | | |||||||||||||||||||||||||
Total comprehensive income
|
96 | |||||||||||||||||||||||||||||||
Net activity related to restricted stock units
|
| | 15 | | | | | 15 | ||||||||||||||||||||||||
Exercise of stock options
|
1 | | 2 | | | 1 | 20 | 22 | ||||||||||||||||||||||||
Tax benefit from exercise of stock options
|
| | 5 | | | | | 5 | ||||||||||||||||||||||||
Repurchases of CD common stock
|
| | | | | (14) | (243) | (243) | ||||||||||||||||||||||||
Payment of dividends
|
| | | (113) | | | | (113) | ||||||||||||||||||||||||
Other
|
| | 9 | | | | 16 | 25 | ||||||||||||||||||||||||
Balance at March 31, 2006
|
1,352 | $ | 14 | $ | 12,040 | $ | 5,903 | $ | 66 | (352) | $ | (6,925) | $ | 11,098 | ||||||||||||||||||
7
1. | Basis of Presentation and Recently Issued Accounting Pronouncements |
Basis of Presentation |
Cendant Corporation is a global provider of real estate and travel services. The accompanying unaudited Consolidated Condensed Financial Statements include the accounts and transactions of Cendant Corporation and its subsidiaries (Cendant), as well as entities in which Cendant directly or indirectly has a controlling financial interest (collectively, the Company). | |
The Company operates in the following business segments: |
| Realogy (formerly known as the Real Estate Services segment)franchises the real estate brokerage businesses of four residential and one commercial brands, provides real estate brokerage services, facilitates employee relocations and provides home buyers with title and closing services. | |
| Hospitality Servicesfranchises nine lodging brands, facilitates the exchange of vacation ownership intervals and markets vacation rental properties. | |
| Timeshare Resortsmarkets and sells vacation ownership interests, provides property management services to property owners associations, provides consumer financing to individuals purchasing vacation ownership interests and develops resort properties. | |
| Avis Budget Group (formerly known as the Vehicle Rental segment)operates and franchises the Companys car and truck rental brands. | |
| Travel Distribution Servicesprovides global distribution services for the travel industry, corporate and consumer online travel services and travel agency services. | |
| Mortgage Servicesprovided home buyers with mortgage lending services through January 31, 2005 (see Note 17Spin-off of PHH Corporation). |
In presenting the Consolidated Condensed Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgments and available information. Accordingly, actual results could differ from those estimates. In managements opinion, the Consolidated Condensed Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. The Company made a reclassification to reflect an immaterial correction to prior year vehicle-related revenues and operating expenses to conform to the current year gross reporting presentation for vehicle licensing and airport concession fees, which resulted in additional vehicle-related revenues and operating expenses of $77 million in first quarter 2005. Such amounts had been previously presented on a net basis. This correction had no effect on previously reported pretax income. Additionally, for first quarter 2005, the Company has separately disclosed the operating, investing and financing portions of cash flows attributable to its discontinued operations (as described in more detail below), which in prior periods were reported on a combined basis as a single amount. These financial statements should be read in conjunction with the Companys 2005 Annual Report on Form 10-K filed on March 1, 2006. | |
Discontinued Operations. In January 2005, the Company completed the spin-off of its former mortgage, fleet leasing and appraisal businesses in a tax-free distribution of the common stock of PHH Corporation (PHH) to the Companys stockholders. In February 2005, the Company completed an initial public offering of Wright Express Corporation, its former fuel card subsidiary, and in October 2005, the Company sold its former Marketing Services division, which was comprised of its individual membership and loyalty/insurance marketing businesses. Pursuant to Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the account balances and activities of Wright Express, the former fleet leasing and appraisal businesses, and the former Marketing Services division have been segregated and reported as discontinued operations for all periods presented. The Companys former mortgage business cannot be classified as a discontinued operation due to the Companys participation in a mortgage origination venture that was established with PHH in connection with the spin-off (see Note 17Spin-off of PHH Corporation for more information on the venture). Summarized financial data for the aforementioned disposed businesses are provided in Note 2Discontinued Operations. | |
Management Programs. The Company presents separately the financial data of its management programs. These programs are distinct from the Companys other activities since the assets are generally funded through the issuance of |
8
debt that is collateralized by such assets. Specifically, in the Companys vehicle rental, relocation, and vacation ownership and rental businesses, assets under management programs are funded through borrowings under asset-backed funding or other similar arrangements. Such borrowings are classified as debt under management programs. Additionally, through January 31, 2005, in the Companys former mortgage services business, assets under management programs were funded through borrowings under asset-backed funding arrangements or unsecured borrowings at its former PHH subsidiary. The income generated by these assets is used, in part, to repay the principal and interest associated with the debt. Cash inflows and outflows relating to the generation or acquisition of such assets and the principal debt repayment or financing of such assets are classified as activities of the Companys management programs. The Company believes it is appropriate to segregate the financial data of its management programs because, ultimately, the source of repayment of such debt is the realization of such assets. |
Separation Plan |
In October 2005, the Companys Board of Directors preliminarily approved a plan to separate Cendant into four independent, publicly traded companies: |
| Realogy Corporationwill encompass the Companys current Realogy segment. | |
| Wyndham Worldwide Corporationwill encompass the Companys current Hospitality Services and Timeshare Resorts segments. | |
| Travel Distributionwill encompass the Companys current Travel Distribution Services segment. | |
| Avis Budget Group, Inc.will encompass the Companys current Avis Budget Group segment. |
The separation is expected to be effected through the spin-offs of Realogy Corporation, Wyndham Worldwide Corporation and Travel Distribution and is expected to be tax-free for Cendant and its stockholders. The Company expects to incur material costs in connection with executing this plan (during first quarter 2006, these costs amounted to $43 million and consisted primarily of legal, accounting, other professional and consulting fees and various employee costs). On April 24, 2006, the Company announced a modification to its plan of separation. In addition to continuing to pursue its original plan to spin-off its Travel Distribution business to its stockholders, the Company will also explore opportunities for the sale of such business. There can be no assurances that all or any portion of the Companys plan of separation, including the potential sale of its Travel Distribution business, will be completed. |
Changes in Accounting Policies during 2006 |
Timeshare Transactions. In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 152, Accounting for Real Estate Time-Sharing Transactions, in connection with the previous issuance of the American Institute of Certified Public Accountants Statement of Position No. 04-2, Accounting for Real Estate Time-Sharing Transactions (SOP 04-2). SFAS No. 152 provides guidance on revenue recognition for timeshare transactions, accounting and presentation for the uncollectibility of timeshare contract receivables, accounting for costs of sales of vacation ownership interests and related costs, accounting for operations during holding periods, and other transactions associated with timeshare operations. | |
The Companys revenue recognition policy for timeshare transactions has historically mandated a 10% minimum down payment (initial investment) as a prerequisite to recognizing revenue on the sale of a vacation ownership interest. SFAS No. 152 requires that the Company consider the fair value of certain incentives provided to the buyer when assessing whether such threshold has been achieved. If the buyers investment has not met the minimum investment criteria of SFAS No. 152, the revenue associated with the sale of the vacation ownership interest and the related cost of sales and direct costs are deferred until the buyers commitment satisfies the requirements of SFAS No. 152. In addition, certain costs previously included in the Companys percentage-of-completion calculation prior to the adoption of SFAS No. 152 are now expensed as incurred rather than deferred until the corresponding revenue is recognized. | |
SFAS No. 152 requires the Company to record the estimate of uncollectible timeshare contract receivables at the time a timeshare transaction is consummated as a reduction of net revenue. Prior to the adoption of SFAS No. 152, the Company recorded such provisions within operating expense on the accompanying Consolidated Condensed Statements of Income. | |
SFAS No. 152 also requires that revenue in excess of costs associated with the rental of unsold units be accounted for as a reduction to the carrying value of timeshare inventory (which reduces the costs of such inventory when it is sold) and that costs in excess of revenues associated with the rental of unsold units be charged to expense as incurred. Prior to the adoption of SFAS No. 152, rental revenues and expenses were separately recorded in the Consolidated Condensed Statements of Income. | |
The Company adopted the provisions of SFAS No. 152 effective January 1, 2006, as required, and recorded an after tax charge of $65 million ($0.06 per diluted share) during first quarter 2006 as a cumulative effect of an accounting change, which consists of a pretax charge of $105 million representing the deferral of revenue and costs associated with sales of |
9
vacation ownership interests that were recognized prior to January 1, 2006, the recognition of certain expenses that were previously deferred and an associated tax benefit of $40 million. There was no impact to cash flows from the adoption of SFAS No. 152. | |
Stock-Based Compensation. On January 1, 2003, the Company adopted the fair value method of accounting for stock-based compensation of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123) and the prospective transition method of SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure. Accordingly, the Company has recorded stock-based compensation expense for all employee stock awards that were granted or modified subsequent to December 31, 2002. | |
In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment (SFAS No. 123R) which eliminates the alternative to measure stock-based compensation awards using the intrinsic value approach permitted by APB Opinion No. 25 and by SFAS No. 123. The Company adopted SFAS No. 123R on January 1, 2006, as required by the Securities and Exchange Commission, under the modified prospective application method. Because the Company recorded stock-based compensation expense for all outstanding employee stock awards prior to the adoption of SFAS No. 123R, the adoption of such standard did not have a significant impact on the Companys results of operations. However, the Company recorded an after tax credit of $1 million during first quarter 2006 as a cumulative effect of an accounting change, which represents the Companys estimate of total future forfeitures of stock-based awards outstanding as of January 1, 2006 (see Note 15Stock-Based Compensation for further information). |
2. | Discontinued Operations |
The $1 million loss on disposal of discontinued operations in the three months ended March 31, 2006 represents costs incurred by the Company in connection with the disposal of its former Marketing Services division. Summarized statement of income data for discontinued operations for the three months ended March 31, 2005, is as follows: |
Fleet and | Marketing | |||||||||||||||
Wright | Appraisal | Services | ||||||||||||||
Express (a) | Businesses (a)(b) | Division | Total | |||||||||||||
Net revenues |
$ | 29 | $ | 134 | $ | 337 | $ | 500 | ||||||||
Income (loss) before income taxes |
$ | (7 | ) | $ | 7 | $ | 27 | $ | 27 | |||||||
Provision (benefit) for income taxes |
(3 | ) | 28 | 10 | 35 | |||||||||||
Income (loss) from discontinued operations, net of tax |
$ | (4 | ) | $ | (21 | ) | $ | 17 | $ | (8 | ) | |||||
Gain (loss) on disposal of discontinued operations |
$ | 501 | $ | (312 | ) | $ | 189 | |||||||||
Provision for income taxes |
326 | | 326 | |||||||||||||
Gain (loss) on disposal of discontinued operations, net of tax |
$ | 175 | $ | (312 | ) | $ | (137 | ) | ||||||||
(a) | Results are through the dates of disposition. | |
(b) | The provision for income taxes reflects a $24 million charge associated with separating the appraisal business from the Company in connection with the PHH spin-off. |
3. | Earnings Per Share |
The following table sets forth the computation of basic and diluted earnings per share (EPS). |
Three Months Ended | |||||||||
March 31, | |||||||||
2006 | 2005 | ||||||||
Income from continuing operations
|
$ | 135 | $ | 63 | |||||
Loss from discontinued operations
|
| (8 | ) | ||||||
Gain (loss) on disposal of discontinued operations:
|
|||||||||
PHH valuation and transaction-related charges
|
| (312 | ) | ||||||
Gain (loss) on disposals
|
(1 | ) | 175 | ||||||
Cumulative effect of accounting changes
|
(64 | ) | | ||||||
Net income (loss)
|
$ | 70 | $ | (82 | ) | ||||
Basic weighted average shares outstanding
|
1,006 | 1,053 | |||||||
Stock options, warrants and restricted stock
units (*)
|
10 | 26 | |||||||
Diluted weighted average shares outstanding
|
1,016 | 1,079 | |||||||
10
Three Months Ended | ||||||||||
March 31, | ||||||||||
2006 | 2005 | |||||||||
Earnings per share:
|
||||||||||
Basic
|
||||||||||
Income from continuing operations
|
$ | 0.13 | $ | 0.06 | ||||||
Loss from discontinued operations
|
| (0.01 | ) | |||||||
Gain (loss) on disposal of discontinued operations:
|
||||||||||
PHH valuation and transaction-related charges
|
| (0.30 | ) | |||||||
Gain (loss) on disposals
|
| 0.17 | ||||||||
Cumulative effect of accounting changes
|
(0.06 | ) | | |||||||
Net income (loss)
|
$ | 0.07 | $ | (0.08 | ) | |||||
Diluted
|
||||||||||
Income from continuing operations
|
$ | 0.13 | $ | 0.06 | ||||||
Loss from discontinued operations
|
| (0.01 | ) | |||||||
Gain (loss) on disposal of discontinued operations:
|
||||||||||
PHH valuation and transaction-related charges
|
| (0.29 | ) | |||||||
Gain (loss) on disposals
|
| 0.16 | ||||||||
Cumulative effect of accounting changes
|
(0.06 | ) | | |||||||
Net income (loss)
|
$ | 0.07 | $ | (0.08 | ) | |||||
(*) | Excludes restricted stock units for which performance based vesting criteria have not been achieved. Also does not reflect 89 million and 24 million outstanding common stock options during first quarter 2006 and 2005, respectively, and 2 million outstanding warrants during first quarter 2006 that were antidilutive. The increase in the number of antidilutive options for first quarter 2006 represents approximately 65 million options that became out-the-money as a result of a decrease in the average stock price between first quarter 2006 ($16.65) and first quarter 2005 ($21.69). The weighted average exercise price for antidilutive options at March 31, 2006 and 2005 was $21.46 and $28.62, respectively. The weighted average exercise price for antidilutive warrants at March 31, 2006 was $21.31. |
4. | Acquisitions |
Assets acquired and liabilities assumed in business combinations were recorded on the Companys Consolidated Condensed Balance Sheets as of the respective acquisition dates based upon their estimated fair values at such dates. The results of operations of businesses acquired by the Company have been included in the Companys Consolidated Condensed Statements of Income since their respective dates of acquisition. The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed was allocated to goodwill. In certain circumstances, the allocations of the excess purchase price are based upon preliminary estimates and assumptions. Accordingly, the allocations may be subject to revision when the Company receives final information, including appraisals and other analyses. Any revisions to the fair values, which may be significant, will be recorded by the Company as further adjustments to the purchase price allocations. The Company is also in the process of integrating the operations of its acquired businesses and expects to incur costs relating to such integrations. These costs may result from integrating operating systems, relocating employees, closing facilities, reducing duplicative efforts and exiting and consolidating other activities. These costs will be recorded on the Companys Consolidated Condensed Balance Sheets as adjustments to the purchase price or on the Companys Consolidated Condensed Statements of Income as expenses, as appropriate. | |
Texas American Title Company. On January 6, 2006, the Company completed the acquisition of multiple title companies in Texas in a single transaction for $32 million in cash, net of cash acquired of $60 million, plus a $10 million note (subject to potential downward adjustment) payable within two years of the closing date. These entities provide title and closing services, including title searches, title insurance, home sale escrow and other closing services. This acquisition resulted in goodwill (based on the preliminary purchase price) of $44 million, none of which is expected to be deductible for tax purposes. Such goodwill was assigned to the Companys Realogy segment. This acquisition also resulted in $10 million of other intangible assets. This acquisition expands the Companys agency business into Texas and adds a wholly owned underwriter of title insurance to the title and settlement services portfolio. | |
Other. During first quarter 2006, the Company also acquired nine real estate brokerage operations through its wholly-owned subsidiary, NRT Incorporated (NRT), for $70 million in cash, in the aggregate, which resulted in goodwill (based on the preliminary allocation of the purchase price) of $65 million that was assigned to the Companys Realogy segment, all of which is expected to be deductible for tax purposes. These acquisitions also resulted in $4 million of other intangible assets. The acquisition of real estate brokerages by NRT is a core part of its growth strategy. |
11
In addition, the Company acquired seven other individually non-significant businesses during first quarter 2006 for aggregate consideration of $44 million in cash, which resulted in goodwill (based on the preliminary allocation of the purchase price) of $36 million, $2 million of which is expected to be deductible for tax purposes. The goodwill was assigned to the Companys Travel Distribution Services ($34 million) and Realogy ($2 million) segments. These acquisitions also resulted in $15 million of other intangible assets. | |
These acquisitions were not significant to the Companys results of operations, financial position or cash flows. |
Acquisition and Integration Related Costs |
Amortization of Pendings and Listings. During first quarter 2006 and 2005, the Company amortized $6 million and $3 million, respectively, of its contractual pendings and listings intangible assets, all of which were acquired in connection with the acquisitions of real estate brokerages by NRT. The Company segregated the pendings and listings amortization to enhance the comparability of its results of operations since these intangible assets are amortized over a short period of time (generally four to five months). | |
Other. During first quarter 2006 and 2005, the Company incurred other acquisition and integration related costs of $1 million and $11 million, respectively. The 2006 amount principally reflects the integration of real estate brokerages acquired by NRT. The 2005 amount was incurred principally to combine the internet booking technology of the Companys Orbitz, ebookers and Cheap Tickets businesses into one common platform and to merge certain booking and distribution functionality within the Companys recently acquired travel distribution businesses. |
5. | Intangible Assets |
Intangible assets consisted of: |
As of March 31, 2006 | As of December 31, 2005 | ||||||||||||||||||||||||
Gross | Net | Gross | Net | ||||||||||||||||||||||
Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | ||||||||||||||||||||
Amount | Amortization | Amount | Amount | Amortization | Amount | ||||||||||||||||||||
Amortized Intangible Assets
|
|||||||||||||||||||||||||
Franchise agreements
|
$ | 1,166 | $ | 408 | $ | 758 | $ | 1,160 | $ | 399 | $ | 761 | |||||||||||||
Customer lists
|
437 | 158 | 279 | 435 | 152 | 283 | |||||||||||||||||||
Customer relationships
|
401 | 36 | 365 | 379 | 28 | 351 | |||||||||||||||||||
Below market contracts acquired
|
42 | 11 | 31 | 42 | 10 | 32 | |||||||||||||||||||
License agreement
|
47 | 3 | 44 | 47 | 3 | 44 | |||||||||||||||||||
Other
|
85 | 15 | 70 | 91 | 23 | 68 | |||||||||||||||||||
$ | 2,178 | $ | 631 | $ | 1,547 | $ | 2,154 | $ | 615 | $ | 1,539 | ||||||||||||||
Unamortized Intangible Assets
|
|||||||||||||||||||||||||
Goodwill
|
$ | 12,185 | $ | 12,026 | |||||||||||||||||||||
Trademarks
|
$ | 1,718 | $ | 1,702 | |||||||||||||||||||||
The changes in the carrying amount of goodwill are as follows: |
Goodwill | Adjustments | ||||||||||||||||||||
Balance at | Acquired | to Goodwill | Foreign | Balance at | |||||||||||||||||
January 1, | during | Acquired | Exchange and | March 31, | |||||||||||||||||
2006 | 2006 | during 2005 | Other | 2006 | |||||||||||||||||
Realogy
|
$ | 3,163 | $ | 111 | (a) | $ | 4 | (c) | $ | 6 | (e) | $ | 3,284 | ||||||||
|
|||||||||||||||||||||
Hospitality Services
|
1,316 | | | 1 | 1,317 | ||||||||||||||||
Timeshare Resorts
|
1,322 | | 1 | | 1,323 | ||||||||||||||||
Wyndham Worldwide
|
2,638 | | 1 | 1 | 2,640 | ||||||||||||||||
|
|||||||||||||||||||||
Avis Budget Group
|
2,137 | | | | 2,137 | ||||||||||||||||
Travel Distribution Services
|
4,088 | 34 | (b) | (6 | )(d) | 8 | (f) | 4,124 | |||||||||||||
Total Company
|
$ | 12,026 | $ | 145 | $ | (1 | ) | $ | 15 | $ | 12,185 | ||||||||||
(a) | Primarily relates to the acquisitions of real estate brokerages by NRT (January 2006 and forward) and the acquisition of Texas American Title Company (see Note 4Acquisitions). | |
(b) | Relates to the acquisition of a travel distribution services business (February 2006). | |
(c) | Primarily relates to the acquisitions of real estate brokerages by NRT, including earnouts. | |
(d) | Primarily relates to the acquisitions of ebookers (February 2005) and Gullivers (April 2005). | |
(e) | Relates to earnouts for the acquisitions of real estate brokerages by NRT prior to 2005. |
(f) | Primarily relates to foreign exchange translation adjustments. |
12
Amortization expense relating to all intangible assets was as follows: |
Three Months Ended | ||||||||
March 31, | ||||||||
2006 | 2005 | |||||||
Franchise agreements
|
$ | 9 | $ | 9 | ||||
Customer lists
|
6 | 6 | ||||||
Customer relationships
|
8 | 4 | ||||||
Below market contracts acquired
|
1 | 1 | ||||||
Other (*)
|
9 | 5 | ||||||
Total
|
$ | 33 | $ | 25 | ||||
(*) | Includes pendings and listings amortization expense of $6 million and $3 million during first quarter 2006 and 2005, respectively. |
Based on the Companys amortizable intangible assets as of March 31, 2006, the Company expects related amortization expense for the remainder of 2006 and the five succeeding fiscal years to approximate $80 million, $90 million, $90 million, $80 million, $80 million and $80 million, respectively. |
6. | Restructuring and Transaction-Related Charges |
During first quarter 2005, the Company recorded $49 million of restructuring and transaction-related charges, of which $46 million was incurred as a result of restructuring activities undertaken following the PHH spin-off and the IPO of Wright Express and $3 million relates to transaction costs incurred during first quarter 2005 in connection with the PHH spin-off. The restructuring activities were targeted principally at reducing costs, enhancing organizational efficiency and consolidating and rationalizing existing processes and facilities. The more significant areas of cost reduction include the closure of a call center and field locations of the Companys truck rental business, consolidation of processes and offices in the Companys real estate brokerage business and reductions in staff within the Travel Distribution Services and Hospitality Services segments and the Companys corporate functions. The remaining liability relating to these actions was $4 million and $6 million at March 31, 2006 and December 31, 2005, respectively, and primarily relates to obligations under terminated leases. |
7. | Vehicle Rental Activities |
The components of the Companys vehicle-related assets under management programs are as follows: |
As of | As of | |||||||
March 31, | December 31, | |||||||
2006 | 2005 | |||||||
Rental vehicles
|
$ | 8,888 | $ | 8,247 | ||||
Vehicles held for sale
|
142 | 165 | ||||||
9,030 | 8,412 | |||||||
Less: Accumulated depreciation
|
(806 | ) | (903 | ) | ||||
Total investment in vehicles, net
|
8,224 | 7,509 | ||||||
Plus: Investment in Cendant Rental Car Funding (AESOP) LLC
|
416 | 374 | ||||||
Plus: Receivables from manufacturers
|
311 | 602 | ||||||
Total vehicle-related, net
|
$ | 8,951 | $ | 8,485 | ||||
The components of vehicle depreciation, lease charges and interest, net are summarized below: |
Three Months Ended | ||||||||
March 31, | ||||||||
2006 | 2005 | |||||||
Depreciation expense
|
$ | 317 | $ | 250 | ||||
Interest expense, net
|
91 | 62 | ||||||
Lease charges
|
16 | 18 | ||||||
Gain on sales of vehicles, net
|
(3 | ) | (6 | ) | ||||
$ | 421 | $ | 324 | |||||
8. | Income Taxes |
The Companys effective tax rate from continuing operations for first quarter 2006 was 29.7%. Such rate differs from the federal statutory rate of 35.0% primarily due to the recognition of one-time tax benefits resulting from foreign net operating losses and the recognition of tax benefits associated with foreign tax structuring. |
13
The Companys effective tax rate from continuing operations for first quarter 2005 was 64.2%. Such rate differs from the federal statutory rate of 35.0% primarily due to (i) an increase associated with the non-deductibility of the $180 million valuation charge associated with the PHH spin-off, (ii) an increase associated with a one-time tax expense of $42 million associated with the then-planned repatriation of $555 million of unremitted foreign earnings and (iii) a decrease associated with a tax benefit of $55 million related to asset basis differences. |
9. | Other Current Assets |
Other current assets consisted of: |
As of | As of | |||||||
March 31, | December 31, | |||||||
2006 | 2005 | |||||||
Prepaid expenses
|
$ | 406 | $ | 352 | ||||
Timeshare inventory
(a)
|
181 | 29 | ||||||
Other
|
356 | 264 | ||||||
$ | 943 | $ | 645 | |||||
(a) | The increase in timeshare inventory at March 31, 2006 is primarily due to increased timeshare activity and the adoption of SFAS No. 152. |
10. | Accounts Payable and Other Current Liabilities |
Accounts payable and other current liabilities consisted of: |
As of | As of | |||||||
March 31, | December 31, | |||||||
2006 | 2005 | |||||||
Accounts payable
|
$ | 1,041 | $ | 942 | ||||
Income taxes payable
|
694 | 768 | ||||||
Accrued payroll and related
|
417 | 587 | ||||||
Accrued legal settlements
|
281 | 326 | ||||||
Accrued advertising and marketing
|
227 | 189 | ||||||
Acquisition and integration-related
|
133 | 73 | ||||||
Accrued interest
|
77 | 129 | ||||||
Other
|
1,362 | 1,300 | ||||||
$ | 4,232 | $ | 4,314 | |||||
11. | Long-term Debt and Borrowing Arrangements |
Long-term debt consisted of: |
As of | As of | ||||||||||
Maturity | March 31, | December 31, | |||||||||
Date | 2006 | 2005 | |||||||||
Term notes:
|
|||||||||||
67/8
% notes
|
August 2006 | $ | 850 | $ | 850 | ||||||
4.89% notes
|
August 2006 | 100 | 100 | ||||||||
61/4
% notes
|
January 2008 | 798 | 798 | ||||||||
61/4
% notes
|
March 2010 | 349 | 349 | ||||||||
73/8
% notes
|
January 2013 | 1,192 | 1,192 | ||||||||
71/8
% notes
|
March 2015 | 250 | 250 | ||||||||
Other:
|
|||||||||||
Revolver borrowings
|
November 2009 | 575 | 357 | ||||||||
Net hedging
losses (a)
|
(91 | ) | (47 | ) | |||||||
Other
|
92 | 87 | |||||||||
Total long-term debt
|
4,115 | 3,936 | |||||||||
Less: Current
portion (b)
|
1,281 | 1,021 | |||||||||
Long-term debt
|
$ | 2,834 | $ | 2,915 | |||||||
(a) | As of March 31, 2006, this balance represents $189 million of mark-to-market adjustments on current interest rate hedges, partially offset by $98 million of net gains resulting from the termination of interest rate hedges, which will be amortized by the Company to reduce future interest expense. As of December 31, 2005, the balance represents $153 million of net mark-to-market adjustments on current interest rate hedges, partially offset by $106 million of net gains resulting from the termination of interest rate hedges. |
14
(b) | The balances as of March 31, 2006 and December 31, 2005 include $850 million and $100 million of borrowings under the Companys 67/8 % and 4.89% notes, respectively, due in August 2006. The balance at March 31, 2006 also includes $275 million of borrowings under the Companys $3.5 billion revolving credit facility. |
Aggregate maturities of debt are as follows: |
As of | ||||
March 31, | ||||
2006 | ||||
Within 1 year
|
$ | 1,281 | ||
Between 1 and 2 years
|
823 | |||
Between 2 and 3 years
|
6 | |||
Between 3 and 4 years
|
629 | |||
Between 4 and 5 years
|
11 | |||
Thereafter
|
1,365 | |||
$ | 4,115 | |||
At March 31, 2006, the committed credit facilities and commercial paper program available to the Company at the corporate level were as follows: |
Total | Outstanding | Letters of | Available | |||||||||||||
Capacity | Borrowings | Credit Issued | Capacity | |||||||||||||
Revolving credit facility and commercial paper
program (a)
|
$ | 3,500 | $ | 575 | $ | 1,610 | $ | 1,315 | ||||||||
Letter of credit
facility (b)
|
303 | | 303 | | ||||||||||||
Short-term borrowing
facilities (c)
|
585 | | | 585 |
(a) | Outstanding borrowings include $575 million under the Companys $3.5 billion revolving credit facility, which has a final maturity date of November 2009. In addition to the letters of credit issued as of March 31, 2006, the revolving credit facility contains the committed capacity to issue an additional $140 million in letters of credit. The letters of credit outstanding under this facility at March 31, 2006 were issued primarily to support the Companys vehicle rental business. Total capacity under this program was reduced to $2.0 billion in 2006 (see Note 18Subsequent Events for further information). | |
(b) | Final maturity date is July 2010. | |
(c) | Maintained within the Companys settlement services and real estate brokerage businesses in connection with escrow activities. |
As of March 31, 2006, the Company also had $400 million of availability for public debt or equity issuances under a shelf registration statement. | |
Certain of the Companys debt instruments and credit facilities contain restrictive covenants, including restrictions on indebtedness of material subsidiaries, mergers, limitations on liens, liquidations and sale and leaseback transactions, and also require the maintenance of certain financial ratios. At March 31, 2006, the Company was in compliance with all restrictive and financial covenants. The Companys debt instruments permit the debt issued thereunder to be accelerated upon certain events, including the failure to pay principal when due under any of the Companys other debt instruments or credit facilities subject to materiality thresholds. The Companys credit facilities permit the loans made thereunder to be accelerated upon certain events, including the failure to pay principal when due under any of the Companys debt instruments subject to materiality thresholds. |
15
12. | Debt Under Management Programs and Borrowing Arrangements |
Debt under management programs (including related party debt due to Cendant Rental Car Funding (AESOP) LLC (Cendant Rental Car Funding)) consisted of: |
As of | As of | ||||||||
March 31, | December 31, | ||||||||
2006 | 2005 | ||||||||
Vehicle rental program
|
|||||||||
Cendant Rental Car
Funding (a)
|
$ | 7,513 | $ | 6,957 | |||||
Other
|
975 | 952 | |||||||
Timeshare program
|
1,850 | 1,800 | |||||||
Relocation program
|
743 | 757 | |||||||
Vacation rental program
|
207 | 207 | |||||||
$ | 11,288 | $ | 10,673 | ||||||
(a) | The change in the balance at March 31, 2006 principally reflects the issuance of floating rate asset-backed notes at various interest rates to support the acquisition of vehicles used in the Companys vehicle rental business. During April 2006, the Company repaid approximately $1.8 billion of outstanding borrowings under this facility (see Note 18Subsequent Events for further information). |
The following table provides the contractual maturities of the Companys debt under management programs (including related party debt due to Cendant Rental Car Funding) at March 31, 2006 (except for notes issued under the Companys timeshare program where the underlying indentures require payments based on cash inflows relating to the corresponding assets under management programs and for which estimates of repayments have been used): |
As of | ||||
March 31, | ||||
2006 | ||||
Within 1 year
|
$ | 4,063 | ||
Between 1 and 2 years
|
1,889 | |||
Between 2 and 3 years
|
2,502 | |||
Between 3 and 4 years
|
665 | |||
Between 4 and 5 years
|
1,448 | |||
Thereafter
|
721 | |||
$ | 11,288 | |||
As of March 31, 2006, available funding under the Companys management programs (including related party debt due to Cendant Rental Car Funding consisted of: |
Total | Outstanding | Available | |||||||||||
Capacity (a) | Borrowings | Capacity | |||||||||||
Vehicle rental program
|
|||||||||||||
Cendant Rental Car
Funding (b)
|
$ | 7,583 | $ | 7,513 | $ | 70 | |||||||
Other (c)
|
1,294 | 975 | 319 | ||||||||||
Timeshare
program (d)
|
2,183 | 1,850 | 333 | ||||||||||
Relocation
program (e)
|
849 | 743 | 106 | ||||||||||
Vacation rental
program (f)
|
207 | 207 | | ||||||||||
$ | 12,116 | $ | 11,288 | $ | 828 | ||||||||
(a) | Capacity is subject to maintaining sufficient assets to collateralize debt. | |
(b) | The outstanding debt is collateralized by approximately $8.1 billion of underlying vehicles (the majority of which are subject to manufacturer repurchase obligations) and related assets. | |
(c) | The outstanding debt is collateralized by approximately $1.1 billion of underlying vehicles (the majority of which are subject to manufacturer repurchase obligations) and related assets. | |
(d) | The outstanding debt is collateralized by approximately $3.0 billion of timeshare-related assets. Borrowings under the Companys asset-linked facility ($575 million) are also recourse to Cendant. | |
(e) | The outstanding debt is collateralized by $826 million of underlying relocation receivables and related assets. |
(f) | The outstanding debt consists of $144 million of capital leases and $63 million of bank debt. The bank debt is collateralized by $120 million of land and related vacation rental assets. The capital lease obligations have corresponding assets classified within assets under management programs on the Companys Consolidated Condensed Balance Sheet as of March 31, 2006. |
Certain of the Companys debt instruments and credit facilities related to its management programs contain restrictive covenants, including restrictions on dividends paid to the Company by certain of its subsidiaries and indebtedness of |
16
material subsidiaries, mergers, limitations on liens, liquidations, and sale and leaseback transactions, and also require the maintenance of certain financial ratios. At March 31, 2006, the Company was in compliance with all financial covenants of its debt instruments and credit facilities related to management programs. |
13. | Commitments and Contingencies |
The Internal Revenue Service (IRS) is currently examining the Companys taxable years 1998 through 2002. Over the course of this audit, the Company has responded to various requests for information, primarily focused on the 1999 statutory merger of the Companys former fleet business; the calculation of the stock basis in the 1999 sale of a subsidiary; and the deductibility of expenses associated with the shareholder class action litigation. To date, the Company has not received any IRS proposed adjustments related to such period. Although the Company believes it has appropriate support for the positions taken on its tax returns, the Company has recorded a liability for its best estimate of the probable loss on certain of these positions. The Company believes that its accruals for tax liabilities are adequate for all open years, based on its assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. Although the Company believes its recorded assets and liabilities are reasonable, tax regulations are subject to interpretation and tax litigation is inherently uncertain; therefore the Companys assessments can involve a series of complex judgments about future events and rely heavily on estimates and assumptions. While the Company believes that the estimates and assumptions supporting its assessments are reasonable, the final determination of tax audits and any related litigation could be materially different than that which is reflected in historical income tax provisions and recorded assets and liabilities. Based on the results of an audit or litigation, a material effect on our income tax provision, net income or cash flows in the period or periods for which that determination is made could result. | |
The Company is involved in litigation asserting claims associated with accounting irregularities discovered in 1998 at former CUC business units outside of the principal common stockholder class action litigation. While the Company has an accrued liability of approximately $45 million recorded on its Consolidated Condensed Balance Sheet as of March 31, 2006 for these claims based upon its best estimates, it does not believe that it is feasible to predict or determine the final outcome or resolution of any unresolved proceedings. An adverse outcome from any unresolved proceedings could be material with respect to earnings in any given reporting period. However, the Company does not believe that the impact of any unresolved proceedings should result in a material liability to the Company in relation to its consolidated financial position or liquidity. | |
In addition to the matters discussed above, the Company is also involved in claims, legal proceedings and governmental inquiries related to contract disputes, business practices, intellectual property, environmental issues and other commercial, employment and tax matters. Such matters include but are not limited to various suits relating to wages paid to sales representatives at the Companys timeshare resort business. The Company believes that it has adequately accrued for such matters as appropriate or, for matters not requiring accrual, believes that they will not have a material adverse effect on its results of operations, financial position or cash flows based on information currently available. However, litigation is inherently unpredictable and, although the Company believes that its accruals are adequate and/or that it has valid defenses in these matters, unfavorable resolutions could occur, which could have a material adverse effect on the Companys results of operations or cash flows in a particular reporting period. |
14. | Stockholders Equity |
Dividend Payments |
During first quarter 2006 and 2005, the Company paid cash dividends of $0.11 and $0.09, respectively, per common share ($113 million and $96 million, respectively, in the aggregate). |
Share Repurchases |
During first quarter 2006, the Company used $221 million of available cash and $22 million of proceeds primarily received in connection with option exercises to repurchase $243 million (approximately 14 million shares) of Cendant common stock under its common stock repurchase program. During first quarter 2005, the Company used $111 million of available cash and $120 million of proceeds primarily received in connection with option exercises to repurchase $231 million (approximately 10 million shares) of Cendant common stock under its common stock repurchase program. |
17
Accumulated Other Comprehensive Income |
The after-tax components of accumulated other comprehensive income are as follows: |
Minimum | Accumulated | |||||||||||||||
Currency | Unrealized | Pension | Other | |||||||||||||
Translation | Gains on Cash | Liability | Comprehensive | |||||||||||||
Adjustments | Flow Hedges | Adjustment | Income | |||||||||||||
Balance, January 1, 2006
|
$ | 77 | $ | 43 | $ | (80 | ) | $ | 40 | |||||||
Current period change
|
4 | 22 | | 26 | ||||||||||||
Balance, March 31, 2006
|
$ | 81 | $ | 65 | $ | (80 | ) | $ | 66 | |||||||
15. | Stock-Based Compensation |
The Company records compensation expense for all outstanding employee stock awards. The Company recorded pre-tax stock-based compensation expense of $24 million and $22 million ($15 million and $14 million, after tax, respectively) during first quarter 2006 and 2005, respectively, related to employee stock awards that were granted or modified by Cendant. The expense recorded in first quarter 2006 includes a pre-tax charge of $7 million relating to the extension of the exercisable life of certain stock options. The expense recorded in first quarter 2005 includes $5 million related to the accelerated vesting of restricted stock units (RSUs) of individuals terminated in connection with the Companys 2005 restructuring initiatives (See Note 6Restructuring and Transaction-Related Charges). | |
The activity related to the Companys RSU and stock option plans consisted of: |
Three Months Ended March 31, 2006 | |||||||||||||||||
RSUs | Options | ||||||||||||||||
Weighted | |||||||||||||||||
Weighted | Average | ||||||||||||||||
Number of | Average | Number of | Exercise | ||||||||||||||
RSUs (c) | Grant Price | Options (d) | Price | ||||||||||||||
Balance at January 1, 2006
|
23 | $ | 20.65 | 129 | $ | 18.09 | |||||||||||
Vested/
exercised (a)
|
| | (2 | ) | 10.30 | ||||||||||||
Canceled
|
| | (1 | ) | 18.96 | ||||||||||||
Balance at March 31,
2006 (b)
|
23 | $ | 20.65 | 126 | $ | 18.22 | |||||||||||
(a) | Stock options exercised during first quarter 2006 had an intrinsic value of approximately $14 million. | |
(b) | As of March 31, 2006, the Companys outstanding in the money stock options and RSUs had aggregate intrinsic value of $259 million and $391 million, respectively. Aggregate unrecognized compensation expense related to outstanding stock options and RSUs amounted to $443 million as of March 31, 2006. | |
(c) | As a result of the Companys planned separation into four independent, publicly-traded companies, approximately 13 million of the RSUs outstanding at March 31, 2006 are expected to convert into shares of the new companies based upon the pro rata market value of each new company. An additional 10 million RSUs are expected to be cancelled in connection with the planned separation. | |
(d) | Options outstanding as of March 31, 2006 have a weighted average remaining contractual life of 3.2 years and include 125 million exercisable options, with a weighted average remaining contractual life of 3.2 years. As a result of the Companys planned separation into four independent, publicly-traded companies, approximately 125 million of the options outstanding at March 31, 2006 are expected to be accelerated and converted into options of the new companies based upon the pro rata market value of each new company. |
16. | Segment Information |
The reportable segments presented below represent the Companys operating segments for which separate financial information is available and which is utilized on a regular basis by its chief operating decision maker to assess performance and to allocate resources. In identifying its reportable segments, the Company also considers the nature of services provided by its operating segments. Management evaluates the operating results of each of its reportable segments based upon revenue and EBITDA, which is defined as income from continuing operations before non-program related depreciation and amortization, non-program related interest, amortization of pendings and listings, |
18
income taxes and minority interest. The Companys presentation of EBITDA may not be comparable to similarly-titled measures used by other companies. |
Three Months Ended March 31, | |||||||||||||||||
2006 | 2005 | ||||||||||||||||
Revenues | EBITDA | Revenues | EBITDA | ||||||||||||||
Realogy
|
$ | 1,425 | $ | 121 | $ | 1,410 | $ | 161 | |||||||||
|
|||||||||||||||||
Hospitality Services
|
409 | 116 | 395 | 125 | |||||||||||||
Timeshare Resorts
|
407 | 67 | 368 | 40 | |||||||||||||
Wyndham Worldwide
|
816 | 183 | 763 | 165 | |||||||||||||
|
|||||||||||||||||
Avis Budget Group
|
1,319 | 55 | 1,166 | 66 | |||||||||||||
Travel Distribution Services
|
645 | 105 | 552 | 129 | |||||||||||||
Mortgage
Services (a)
|
| | 46 | (181 | ) | ||||||||||||
Total Reportable Segments
|
4,205 | 464 | 3,937 | 340 | |||||||||||||
Corporate and
Other (b)
|
12 | (58 | ) | 17 | (39 | ) | |||||||||||
Total Company
|
$ | 4,217 | 406 | $ | 3,954 | 301 | |||||||||||
Less: Non-program related depreciation and amortization
|
138 | 137 | |||||||||||||||
Non-program related interest expense (income),
net (c)
|
70 | (18 | ) | ||||||||||||||
Amortization of pendings and listings
|
6 | 3 | |||||||||||||||
Income before income taxes and minority interest
|
$ | 192 | $ | 179 | |||||||||||||
(a) | Includes the results of operations of the Companys former mortgage business prior to the spin-off of PHH. EBITDA in first quarter 2005 also includes a $180 million non-cash valuation charge associated with the PHH spin-off. | |
(b) | Includes unallocated corporate overhead, the elimination of transactions between segments and the results of operations of certain non-strategic businesses. Additionally, first quarter 2005 includes a gain of $18 million on the sale of Homestore, Inc. common stock. | |
(c) | The first quarter 2005 amount includes the reversal of $73 million of accrued interest associated with the resolution of amounts due under a litigation settlement reached in 1999. |
17. | Spin-off of PHH Corporation |
As previously discussed, on January 31, 2005, the Company completed the spin-off of its former mortgage, fleet leasing and appraisal businesses in a tax-free distribution to the Companys stockholders of one share of PHH common stock per every twenty shares of Cendant common stock held on January 19, 2005. Pursuant to SFAS No. 144, the Company was required to perform an impairment analysis upon completion of the PHH spin-off. Accordingly, the Company recorded a non-cash impairment charge of $488 million in first quarter 2005, to reflect the difference between PHHs carrying value and PHHs initial market value, as determined by the average trading price of PHH common stock on February 1, 2005. The charge was recorded as a reduction to net income with an offsetting increase to retained earnings since the impaired assets had been disposed of on January 31, 2005. Of the $488 million total charge, approximately $180 million ($0.17 per diluted share) was allocated to the mortgage business and, therefore, recorded within continuing operations. The remaining charge, approximately $308 million ($0.29 per diluted share), was allocated to the fleet leasing and appraisal businesses and, therefore, recorded within discontinued operations. There were no tax benefits recorded in connection with these charges, as such charges are not tax deductible. | |
Similarly, the Company incurred $7 million of transaction costs during first quarter 2005 associated with the PHH spin-off, of which $3 million was allocated to continuing operations (which is recorded within the restructuring and transaction-related costs line item on the Consolidated Condensed Statement of Income within the Mortgage Services segment) and $4 million was allocated to discontinued operations (which is recorded within the valuation charge associated with the PHH spin-off line item on the Companys Consolidated Condensed Statement of Income). There were no tax benefits recorded in connection with these charges, as such charges are not tax deductible. | |
The account balances and activities of the Companys former fleet leasing and appraisal businesses, as well as the $308 million impairment charge described above and $4 million of transaction costs also described above, have been presented as discontinued operations (see Note 2Discontinued Operations for summary financial data for these entities). However, as previously discussed, the Companys mortgage business cannot be classified as a discontinued operation. |
18. | Subsequent Events |
During April 2006, the Companys vehicle rental subsidiary: (i) issued $1.0 billion of fixed and floating rate senior unsecured notes and (ii) borrowed $875 million under a new $2.4 billion secured credit facility, consisting of a |
19
$1.5 billion revolving credit facility with a five-year maturity and a term loan of $875 million with a six-year maturity. The fixed rate notes bear interest at an average annual rate of 7.7% and are due in 2014 and 2016. The floating rate notes bear interest at LIBOR plus 250 basis points and are due in 2014. The secured credit facility provides financing for the Companys vehicle rental business, which utilized the proceeds from the issuance of the fixed and floating rate notes and the borrowing under the secured credit facility to repay approximately $1.8 billion of outstanding debt under its vehicle rental program. In connection with the establishment of the secured credit facility, capacity under the Companys $3.5 billion revolving credit facility was reduced to $2.0 billion. |
20
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
| Realogy (formerly known as the Real Estate Services segment) franchises the real estate brokerage businesses of our four residential brands and one commercial brand, provides real estate brokerage services, facilitates employee relocations and provides home buyers with title and closing services. | |
| Hospitality Services franchises nine lodging brands, facilitates the exchange of vacation ownership intervals and markets vacation rental properties. | |
| Timeshare Resorts markets and sells vacation ownership interests, provides property management services to property owners associations, provides consumer financing to individuals purchasing vacation ownership interests and develops resort properties. | |
| Avis Budget Group (formerly known as the Vehicle Rental segment) operates and franchises our car and truck rental brands. | |
| Travel Distribution Services provides global distribution services for the travel industry, corporate and consumer online travel agency services. | |
| Mortgage Services provided home buyers with mortgage lending services (this business was disposed of in January 2005). |
| Realogy Corporation will encompass our current Realogy segment. | |
| Wyndham Worldwide Corporation will encompass our current Hospitality Services and Timeshare Resorts segments. | |
| Travel Distribution will encompass our current Travel Distribution Services segment. | |
| Avis Budget Group, Inc. will encompass our current Avis Budget Group segment. |
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Three Months Ended March 31, | |||||||||||||
2006 | 2005 | Change | |||||||||||
Net revenues
|
$ | 4,217 | $ | 3,954 | $ | 263 | |||||||
Total expenses
|
4,025 | 3,775 | 250 | ||||||||||
Income before income taxes and minority interest
|
192 | 179 | 13 | ||||||||||
Provision for income taxes
|
57 | 115 | (58 | ) | |||||||||
Minority interest, net of tax
|
| 1 | (1 | ) | |||||||||
Income from continuing operations
|
135 | 63 | 72 | ||||||||||
Loss from discontinued operations, net of tax
|
| (8 | ) | 8 | |||||||||
Gain (loss) on disposal of discontinued operations, net of
tax:
PHH valuation and transaction-related charges |
| (312 | ) | 312 | |||||||||
Gain (loss) on disposals
|
(1 | ) | 175 | (176 | ) | ||||||||
Cumulative effect of accounting changes, net of tax
|
(64 | ) | | (64 | ) | ||||||||
Net income (loss)
|
$ | 70 | $ | (82 | ) | $ | 152 | ||||||
Contribution to | Contribution to | |||||||||||
Acquired Business | Date of Acquisition | Net Revenues | Total Expenses | |||||||||
Gullivers
|
April 2005 | $ | 50 | $ | 62 | |||||||
Wyndham
|
October 2005 | 31 | 30 | |||||||||
Real estate brokerages
|
* | 71 | 69 | |||||||||
$ | 152 | $ | 161 | |||||||||
(*) | These businesses were acquired at various dates during or subsequent to first quarter 2005. |
22
Revenues | EBITDA | ||||||||||||||||||||||||
% | % | ||||||||||||||||||||||||
2006 | 2005 | Change | 2006 | 2005 | Change | ||||||||||||||||||||
Realogy
|
$ | 1,425 | $ | 1,410 | 1 | % | $ | 121 | $ | 161 | (25 | )% | |||||||||||||
Hospitality Services
|
409 | 395 | 4 | 116 | 125 | (7 | ) | ||||||||||||||||||
Timeshare Resorts
|
407 | 368 | 11 | 67 | 40 | 68 | |||||||||||||||||||
Wyndham Worldwide
|
816 | 763 | 7 | 183 | 165 | 11 | |||||||||||||||||||
Avis Budget Group
|
1,319 | 1,166 | 13 | 55 | 66 | (17 | ) | ||||||||||||||||||
Travel Distribution Services
|
645 | 552 | 17 | 105 | 129 | (19 | ) | ||||||||||||||||||
Mortgage
Services (a)
|
| 46 | * | | (181 | ) | * | ||||||||||||||||||
Total Reportable Segments
|
4,205 | 3,937 | 7 | 464 | 340 | ||||||||||||||||||||
Corporate and
Other (b)
|
12 | 17 | * | (58 | ) | (39 | ) | ||||||||||||||||||
Total Company
|
$ | 4,217 | $ | 3,954 | 7 | 406 | 301 | ||||||||||||||||||
Less: Non-program related depreciation and amortization | 138 | 137 | |||||||||||||||||||||||
Non-program related interest expense (income), net (c) |
70 | (18 | ) | ||||||||||||||||||||||
Amortization of pendings and listings |
6 | 3 | |||||||||||||||||||||||
Income before income taxes and minority interest | $ | 192 | $ | 179 | |||||||||||||||||||||
(a) | Our former mortgage business was disposed in connection with the spin-off of PHH in January 2005. |
(b) | Includes unallocated corporate overhead, the elimination of transactions between segments and the results of operations of certain non- strategic businesses. Additionally, first quarter 2005 includes a gain of $18 million on the sale of Homestore, Inc. common stock. |
(c) | The first quarter 2005 amounts include the reversal of $73 million of accrued interest associated with the resolution of amounts due under a litigation settlement reached in 1999. |
23
24
25
26
March 31, | December 31, | |||||||||||
2006 | 2005 | Change | ||||||||||
Total assets exclusive of assets under management programs
|
$ | 21,977 | $ | 21,693 | $ | 284 | ||||||
Total liabilities exclusive of liabilities under management
programs
|
10,528 | 10,203 | 325 | |||||||||
Assets under management programs
|
12,846 | 12,411 | 435 | |||||||||
Liabilities under management programs
|
13,197 | 12,610 | 587 | |||||||||
Stockholders equity
|
11,098 | 11,291 | (193 | ) |
27
Three Months Ended March 31, | |||||||||||||
2006 | 2005 | Change | |||||||||||
Cash provided by (used in):
|
|||||||||||||
Operating activities
|
$ | 243 | $ | 558 | $ | (315 | ) | ||||||
Investing activities
|
(1,111 | ) | (1,170 | ) | 59 | ||||||||
Financing activities
|
479 | 1,483 | (1,004 | ) | |||||||||
Effects of exchange rate changes
|
(1 | ) | (27 | ) | 26 | ||||||||
Cash provided by discontinued operations
|
| 30 | (30 | ) | |||||||||
Net change in cash and cash equivalents
|
$ | (390 | ) | $ | 874 | $ | (1,264 | ) | |||||
28
As of | As of | |||||||||||||||
March 31, | December 31, | |||||||||||||||
Maturity Date | 2006 | 2005 | Change | |||||||||||||
67/8
% notes
|
August 2006 | $ | 850 | $ | 850 | $ | | |||||||||
4.89% notes
|
August 2006 | 100 | 100 | | ||||||||||||
61/4
% notes
|
January 2008 | 798 | 798 | | ||||||||||||
61/4
% notes
|
March 2010 | 349 | 349 | | ||||||||||||
73/8
% notes
|
January 2013 | 1,192 | 1,192 | | ||||||||||||
71/8
% notes
|
March 2015 | 250 | 250 | | ||||||||||||
Revolver borrowings
|
November 2009 | 575 | 357 | 218 | ||||||||||||
Net hedging
losses (a)
|
(91 | ) | (47 | ) | (44 | ) | ||||||||||
Other
|
92 | 87 | 5 | |||||||||||||
$ | 4,115 | $ | 3,936 | $ | 179 | |||||||||||
(a) | As of March 31, 2006, this balance represents $189 million of mark-to-market adjustments on current interest rate hedges, partially offset by $98 million of net gains resulting from the termination of interest rate hedges, which we will amortize to reduce future interest expense. As of December 31, 2005, the balance represents $153 million of net mark-to-market adjustments on current interest rate hedges, partially offset by $106 million of net gains resulting from the termination of interest rate hedges. |
As of | As of | ||||||||||||
March 31, | December 31, | ||||||||||||
2006 | 2005 | Change | |||||||||||
Vehicle rental program
|
|||||||||||||
Cendant Rental Car
Funding (a)
|
$ | 7,513 | $ | 6,957 | $ | 556 | |||||||
Other
|
975 | 952 | 23 | ||||||||||
Timeshare program
|
1,850 | 1,800 | 50 | ||||||||||
Relocation program
|
743 | 757 | (14 | ) | |||||||||
Vacation rental program
|
207 | 207 | | ||||||||||
$ | 11,288 | $ | 10,673 | $ | 615 | ||||||||
(a) | The change in the balance at March 31, 2006 principally represents the issuance of floating rate asset-backed notes at various interest rates to support the acquisition of vehicles used in our vehicle rental business. During April 2006, we repaid approximately $1.8 billion of outstanding borrowings under this facility. See Note 18 to our Consolidated Condensed Financial Statements for further information. |
29
Debt Under | ||||||||
Corporate | Management | |||||||
Debt | Programs | |||||||
Within 1 year
|
$ | 1,281 | $ | 4,063 | ||||
Between 1 and 2 years
|
823 | 1,889 | ||||||
Between 2 and 3 years
|
6 | 2,502 | ||||||
Between 3 and 4 years
|
629 | 665 | ||||||
Between 4 and 5 years
|
11 | 1,448 | ||||||
Thereafter
|
1,365 | 721 | ||||||
$ | 4,115 | $ | 11,288 | |||||
Total | Outstanding | Letters of | Available | |||||||||||||
Capacity | Borrowings | Credit Issued | Capacity | |||||||||||||
Revolving credit facility and commercial paper
program (a)
|
$ | 3,500 | $ | 575 | $ | 1,610 | $ | 1,315 | ||||||||
Letter of credit
facility (b)
|
303 | | 303 | | ||||||||||||
Short-term borrowing
facilities (c)
|
585 | | | 585 |
(a) | Outstanding borrowings include $575 million under our $3.5 billion revolving credit facility, which has a final maturity date of November 2009. In addition to the letters of credit issued as of March 31, 2006, the revolving credit facility contains the committed capacity to issue an additional $140 million in letters of credit. The letters of credit outstanding under this facility at March 31, 2006 were issued primarily to support our vehicle rental business. Total capacity under this program was reduced to $2.0 billion in 2006. See Note 18 to our Consolidated Condensed Financial Statements for further information. | |
(b) | Final maturity date is July 2010. | |
(c) | Maintained within our settlement services and real estate brokerage businesses in connection with escrow activities. |
Total | Outstanding | Available | |||||||||||
Capacity (a) | Borrowings | Capacity | |||||||||||
Vehicle rental program
|
|||||||||||||
Cendant Rental Car
Funding (b)
|
$ | 7,583 | $ | 7,513 | $ | 70 | |||||||
Other (c)
|
1,294 | 975 | 319 | ||||||||||
Timeshare
program (d)
|
2,183 | 1,850 | 333 | ||||||||||
Relocation
program (e)
|
849 | 743 | 106 | ||||||||||
Vacation rental
program (f)
|
207 | 207 | | ||||||||||
$ | 12,116 | $ | 11,288 | $ | 828 | ||||||||
(a) | Capacity is subject to maintaining sufficient assets to collateralize debt. | |
(b) | The outstanding debt is collateralized by approximately $8.1 billion of underlying vehicles (the majority of which are subject to manufacturer repurchase obligations) and related assets. | |
(c) | The outstanding debt is collateralized by approximately $1.1 billion of underlying vehicles (the majority of which are subject to manufacturer repurchase obligations) and related assets. | |
(d) | The outstanding debt is collateralized by approximately $3.0 billion of timeshare-related assets. Borrowings under our asset-linked facility ($575 million) are also recourse to us. | |
(e) | The outstanding debt is collateralized by $826 million of underlying relocation receivables and related assets. | |
(f) | The outstanding debt consists of $144 million of capital leases and $63 million of bank debt. The bank debt is collateralized by $120 million of land and related vacation rental assets. The capital lease obligations have corresponding assets classified within assets under management programs on our Consolidated Condensed Balance Sheet as of March 31, 2006. |
30
Moodys | ||||||
Investors | Standard & | Fitch | ||||
Service | Poors | Ratings | ||||
Senior unsecured debt
|
Baa1 | BBB+ | BBB+ | |||
Short-term debt
|
P-2 | A-2 | F-2 |
| SFAS No. 152, Accounting for Real Estate Time-Sharing Transactions and Statement of Position No. 04-2, Accounting for Real Estate Time-Sharing Transactions | |
| SFAS No. 123R, Share-Based Payment |
31
(a) | Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this quarterly report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective. |
(b) | Internal Controls Over Financial Reporting. There have been no changes in our internal control over financial reporting (as such term is defined in rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. |
32
33
Approximate Dollar | ||||||||||||||||||||||
Number of Shares | Value of Shares that | |||||||||||||||||||||
Total Number | Purchased as Part of | May Yet Be | ||||||||||||||||||||
of Shares | Average Price | Publicly Announced | Purchased Under | |||||||||||||||||||
Period | Purchased | Paid per Share | Plan (a) | Plan | ||||||||||||||||||
January 1 31, 2006 |
4,390,265 | $ | 17.05 | 4,390,265 | $ | 633,209,008 | ||||||||||||||||
February 1 28, 2006 |
4,522,706 | $ | 16.43 | 4,522,706 | $ | 560,832,238 | ||||||||||||||||
March 1 31, 2006 |
4,755,172 | $ | 17.10 | 4,755,172 | $ | 489,611,184 | ||||||||||||||||
Total |
13,668,143 | $ | 16.86 | 13,668,143 | $ | 489,611,184 | ||||||||||||||||
(a) | Our share repurchase program, which does not have an expiration date, was first publicly announced on October 13, 1998 in the amount of $1 billion and has been increased from time to time and each such increase has been publicly announced, including an increase to include all stock option exercise proceeds in the program. The most recent increase, in the amount of $500 million, was approved by our Board of Directors in July 2005. No shares were purchased outside our share repurchase program during the periods set forth in the table above. |
34
CENDANT CORPORATION | ||||
Date: May 3, 2006
|
/s/ Ronald L. Nelson | |||
Ronald L. Nelson | ||||
President and Chief Financial Officer | ||||
Date: May 3, 2006
|
/s/ Virginia M. Wilson | |||
Virginia M. Wilson | ||||
Executive Vice President and | ||||
Chief Accounting Officer |
35
Exhibit No. | Description | |||
3 | .1 | Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 to the Companys Form 10-Q for the quarterly period ended March 31, 2004). | ||
3 | .2 | Amended and Restated By-Laws of the Company (Incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K dated October 20, 2004). | ||
10 | .1 | First Amendment, dated as of March 9, 2006, to the Five Year Competitive Advance and Revolving Credit Agreement dated as of November 22, 2004, among Cendant Corporation, as Borrower, certain subsidiaries of the Borrower from time to time party thereto, the lenders referred to therein, and JPMorgan Chase Bank, N.A., as administrative agent (Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated March 27, 2006). | ||
10 | .2 | Seventh Amendment, dated as of March 21, 2006, to the Amended and Restated Series 2002-2 Supplement dated as of November 22, 2002, among Cendant Rental Car Funding (AESOP) LLC (formerly known as AESOP Funding II L.L.C.), as Issuer, Cendant Car Rental Group, LLC (formerly known as Cendant Car Rental Group, Inc.), as Administrator, certain CP Conduit Purchasers, certain APA Banks and the Funding Agents named therein and The Bank of New York, as Trustee and Series 2002-2 Agent, to the Second Amended and Restated Base Indenture, dated as of June 3, 2004, between Cendant Rental Car Funding (AESOP) LLC, as Issuer, and The Bank of New York, as Trustee (Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated March 27, 2006). | ||
10 | .3 | First Amendment, dated as of March 8, 2006, to the Three Year Senior Asset-Linked Revolving Credit Agreement dated as of June 17, 2004, among Cendant Corporation, as Borrower, the lenders referred to therein, Citicorp USA, Inc., as syndication agent, and Bank of America, N.A., as administrative agent (Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated March 31, 2006). | ||
10 | .4 | Amendment No. 2, dated as of March 31, 2006, to the Amended and Restated Limited Liability Company Operating Agreement, dated as of January 31, 2005, of PHH Home Loans, LLC, by and between PHH Broker Partner Corporation and Cendant Real Estate Services Venture Partner, Inc. (Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated April 4, 2006). | ||
10 | .5 | Amendment No. 1, dated as of May 12, 2005, to the Amended and Restated Limited Liability Company Operating Agreement, dated as of January 31, 2005, of PHH Home Loans, LLC, by and between PHH Broker Partner Corporation and Cendant Real Estate Services Venture Partner, Inc. | ||
10 | .6 | Employment Agreement, dated as of April 17, 2006, by and between Cendant Travel Distribution Services Group, Inc. and Jeff Clarke (Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated April 17, 2006). | ||
10 | .7 | Credit Agreement, dated as of April 19, 2006, among Avis Budget Holdings, LLC and Avis Budget Car Rental, LLC, as Borrower, the lenders referred to therein, JPMorgan Chase Bank, N.A., as Administrative Agent, Deutsche Bank Securities Inc., as Syndication Agent, Bank of America, N.A., Calyon New York Branch and Citicorp USA, Inc., as Documentation Agents, and Wachovia Bank, National Association, as Co-Documentation Agent (Incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K dated April 17, 2006). | ||
10 | .8 | Guarantee and Collateral Agreement, dated as of April 19, 2006, made by Avis Budget Holdings, LLC, Avis Budget Car Rental, LLC and certain of its Subsidiaries in favor of JPMorgan Chase Bank, N.A., as Administrative Agent (Incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K dated April 17, 2006). | ||
10 | .9 | Indenture, dated as of April 19, 2006, between Avis Budget Car Rental, LLC and Avis Budget Finance, Inc., as Issuers, the Guarantors from time to time parties thereto, and The Bank of Nova Scotia Trust Company of New York, as Trustee (Incorporated by reference to Exhibit 10.4 to the Companys Current Report on Form 8-K dated April 17, 2006). | ||
12 | Statement Re: Computation of Ratio of Earnings to Fixed Charges. | |||
15 | Letter Re: Unaudited Interim Financial Information. | |||
31 | .1 | Certification of Chief Executive Officer Pursuant to Rules 13(a)-14(a) and 15(d)-14(a) Promulgated Under the Securities Exchange Act of 1934, as amended. | ||
31 | .2 | Certification of Chief Financial Officer Pursuant to Rules 13(a)-14(a) and 15(d)-14(a) Promulgated Under the Securities Exchange Act of 1934, as amended. | ||
32 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
36
2
CENDANT REAL ESTATE SERVICES VENTURE PARTNER, INC. | ||||||
By: | /s/ David Weaving | |||||
Name: | David Weaving | |||||
Title: | Senior Vice President | |||||
PHH BROKER PARTNER CORPORATION | ||||||
By: | /s/ Joseph E. Suter | |||||
Name: | Joseph E. Suter | |||||
Title: | President |
3
Three Months Ended March 31, | ||||||||||
2006 | 2005 | |||||||||
Earnings before fixed charges: | ||||||||||
Income before income taxes and minority interest | $ | 192 | $ | 179 | ||||||
Plus:
|
Fixed charges
|
250 | 197 | |||||||
Amortization of capitalized interest
|
1 | 1 | ||||||||
Less:
|
Capitalized interest
|
3 | 1 | |||||||
Earnings available to cover fixed charges | $ | 440 | $ | 376 | ||||||
Fixed charges (a): | ||||||||||
Interest, including amortization of deferred financing costs (b) | $ | 208 | $ | 160 | ||||||
Interest portion of rental payment | 42 | 37 | ||||||||
Total fixed charges | $ | 250 | $ | 197 | ||||||
Ratio of earnings to fixed charges | 1.76x | 1.91x | ||||||||
(a) | Consists of interest expense on all indebtedness (including amortization of deferred financing costs and capitalized interest) and the portion of operating lease rental expense that is representative of the interest factor. Interest expense on all indebtedness is detailed as follows: |
Three Months Ended | ||||||||
March 31, | ||||||||
2006 | 2005 | |||||||
Related to the debt under management programs incurred by the
Companys vehicle rental business
|
$ | 97 | $ | 63 | ||||
All other
|
111 | 97 |
(b) | Does not include interest expense from discontinued operations of $11 million for the three months ended March 31, 2005. |
1. | I have reviewed this quarterly report on Form 10-Q of Cendant Corporation; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants Board of Directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
1. | I have reviewed this quarterly report on Form 10-Q of Cendant Corporation; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants Board of Directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Henry R. Silverman
|
||
Chief Executive Officer |
||
May 3, 2006 |
||
/s/ Ronald L. Nelson |
||
President and Chief Financial Officer | ||
May 3, 2006 |