SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission File No. 1-10308
Cendant Corporation
(Exact name of Registrant as specified in its charter)
Delaware 06-0918165
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
9 W 57th Street 10019
New York, NY (Zip Code)
(Address of principal
executive office)
(212) 413-1800
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if applicable)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed in Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the Registrant's classes of common
stock was 720,331,470 shares of Common Stock outstanding as of August 6, 1999.
<PAGE>
Cendant Corporation and Subsidiaries
Index
Part 1 Financial Information
Item 1. Financial Statements
Consolidated Statements of Income -
Three and Six Months Ended June 30, 1999 and 1998
Consolidated Balance Sheets - June 30, 1999
and December 31, 1998
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part II Other Information
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Certain statements in this Quarterly Report on Form 10-Q constitute "forward
looking statements" within the meaning of the Private Litigation Reform Act of
1995. Such forward looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance,
or achievements of the Company to be materially different from any future
results, performance, or achievements expressed or implied by such forward
looking statements. These forward looking statements were based on various
factors and were derived utilizing numerous important assumptions and other
important factors that could cause actual results to differ materially from
those in the forward looking statements. Important assumptions and other
important factors that could cause actual results to differ materially from
those in the forward looking statements, include, but are not limited to: the
resolution or outcome of the pending litigation and government investigation
relating to the previously announced accounting irregularities; uncertainty as
to the Company's future profitability; the Company's ability to develop and
implement operational and financial systems to manage rapidly growing
operations; competition in the Company's existing and potential future lines of
business; the Company's ability to integrate and operate successfully acquired
and merged businesses and the risks associated with such businesses, including
the merger that created Cendant and the National Parking Corporation
acquisition; the Company's ability to successfully divest non-strategic assets;
the Company's ability to obtain financing on acceptable terms to finance the
Company's growth strategy and for the Company to operate within the limitations
imposed by financing arrangements; and the ability of the Company and its
vendors to complete the necessary actions to achieve a year 2000 conversion for
its computer systems and applications and other factors. Other factors and
assumptions not identified above were also involved in the derivation of these
forward looking statements, and the failure of such other assumptions to be
realized as well as other factors may also cause actual results to differ
materially from those projected. The Company assumes no obligation to publicly
correct or update these forward looking statements to reflect actual results,
changes in assumptions or changes in other factors affecting such forward
looking statements or if the Company later becomes aware that they are not
likely to be achieved.
<PAGE>
Cendant Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30
----------------------- ---------------------
1999 1998 1999 1998
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Revenues
Membership and service fees, net $ 1,333.2 $ 1,237.8 $ 2,573.7 $ 2,286.6
Fleet leasing (net of depreciation and interest costs
of $343.3, $318.1, $669.7, and $629.7) 11.3 19.1 29.9 39.0
Other 32.8 15.4 78.6 66.6
--------- --------- --------- ---------
Net revenues 1,377.3 1,272.3 2,682.2 2,392.2
--------- --------- --------- ---------
Expenses
Operating 435.0 437.0 867.4 748.6
Marketing and reservation 287.9 291.3 550.1 556.1
General and administrative 182.2 150.3 342.8 292.4
Depreciation and amortization 94.2 84.3 185.2 147.9
Other charges
Merger-related costs and other unusual charges (credits) 23.0 (27.5) 21.7 (24.4)
Investigation-related financing costs - 12.7 - 12.7
Other investigation-related costs 6.5 19.5 8.2 19.5
Termination of proposed acquisition - - 7.0 -
Interest, net 54.1 22.9 102.4 41.8
--------- --------- --------- ---------
Total expenses 1,082.9 990.5 2,084.8 1,794.6
--------- --------- --------- ---------
Net gain on disposition of businesses 749.5 - 749.5 -
Income from continuing operations before income taxes and
minority interest 1,043.9 281.8 1,346.9 597.6
Provision for income taxes 143.8 100.1 250.3 214.7
Minority interest, net of tax 15.1 14.9 30.2 19.8
--------- --------- --------- ---------
Income from continuing operations 885.0 166.8 1,066.4 363.1
Loss from discontinued operations, net of tax (4.1) (13.8) (16.2) (37.2)
(Loss) gain on sale of discontinued operations, net of tax (18.6) - 174.1 -
--------- --------- --------- ---------
Net income $ 862.3 $ 153.0 $ 1,224.3 $ 325.9
========= ========= ========= =========
Income (loss) per share
Basic
Income from continuing operations $ 1.15 $ 0.20 $ 1.36 $ 0.43
Loss from discontinued operations (0.01) (0.02) (0.02) (0.04)
(Loss) gain on sale of discontinued operations (0.02) - 0.22 -
---------- --------- --------- ---------
Net income $ 1.12 $ 0.18 $ 1.56 $ 0.39
========= ========= ========= =========
Diluted
Income from continuing operations $ 1.08 $ 0.19 $ 1.28 $ 0.41
Loss from discontinued operations (0.01) (0.01) (0.02) (0.04)
(Loss) gain on sale of discontinued operations (0.02) - 0.21 -
---------- --------- --------- ---------
Net income $ 1.05 $ 0.18 $ 1.47 $ 0.37
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Cendant Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In millions)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 1,448.8 $ 1,007.1
Receivables, net 1,157.2 1,490.5
Deferred membership commission costs 229.8 253.0
Deferred income taxes 216.7 460.6
Other current assets 1,043.5 898.7
Net assets of discontinued operations 63.5 462.5
------------- -------------
Total current assets 4,159.5 4,572.4
------------- -------------
Property and equipment, net 1,301.3 1,420.3
Franchise agreements, net 1,398.2 1,363.2
Goodwill, net 3,622.3 3,911.0
Other intangibles, net 695.2 743.5
Other assets 1,073.6 679.8
------------- -------------
Total assets exclusive of assets under programs 12,250.1 12,690.2
------------- -------------
Assets under management and mortgage programs
Cash (Note 7) 1,614.5 -
Due from Avis Rent A Car, Inc. (Note 7) 30.6 -
Net investment in leases and leased vehicles - 3,801.1
Relocation receivables 571.0 659.1
Mortgage loans held for sale 2,160.0 2,416.0
Mortgage servicing rights 835.9 635.7
------------- -------------
5,212.0 7,511.9
------------- -------------
Total assets $ 17,462.1 $ 20,202.1
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Cendant Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities
Accounts payable and other current liabilities $ 1,234.9 $ 1,502.6
Deferred income 1,442.6 1,354.2
------------- -------------
Total current liabilities 2,677.5 2,856.8
------------- -------------
Deferred income 264.5 233.9
Long-term debt 3,344.0 3,362.9
Deferred income taxes 54.7 77.4
Other non-current liabilities 82.6 125.6
------------- -------------
Total liabilities exclusive of liabilities under programs 6,423.3 6,656.6
------------- -------------
Liabilities under management and mortgage programs
Debt 4,541.7 6,896.8
------------- -------------
Deferred income taxes 198.3 341.0
------------- -------------
Mandatorily redeemable preferred securities issued by subsidiary 1,474.6 1,472.1
Commitments and contingencies (Note 9)
Shareholders' equity
Preferred stock, $.01 par value - authorized 10 million shares;
none issued and outstanding - -
Common stock, $.01 par value - authorized 2 billion shares;
issued 864,985,213 and 860,551,783 shares 8.7 8.6
Additional paid-in capital 3,995.7 3,863.4
Retained earnings 2,704.5 1,480.2
Accumulated other comprehensive loss (95.1) (49.4)
Treasury stock, at cost, 95,905,374 and 27,270,708 shares (1,789.6) (467.2)
------------- --------------
Total shareholders' equity 4,824.2 4,835.6
------------- -------------
Total liabilities and shareholders' equity $ 17,462.1 $ 20,202.1
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Cendant Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1999 1998
------------ -------------
<S> <C> <C>
Operating Activities
Net income $ 1,224.3 $ 325.9
Adjustments to reconcile net income to net cash
provided by operating activities from continuing operations:
Loss from discontinued operations, net of tax 16.2 37.2
Gain on sale of discontinued operations, net of tax (174.1) -
Depreciation and amortization 185.2 147.9
Merger-related costs and other unusual charges (credits) (1.3) (24.4)
Payments of merger-related costs and other unusual
charge liabilities (10.7) (115.2)
Net gain on disposition of businesses (749.5) -
Other, net (163.2) (176.5)
------------- --------------
Net cash provided by continuing operations exclusive of
management and mortgage programs 326.9 194.9
------------ -------------
Management and mortgage programs:
Depreciation and amortization 639.1 610.7
Origination of mortgage loans (14,519.7) (11,477.0)
Proceeds on sale and payments from mortgage loans
held for sale 14,775.7 10,359.4
------------ -------------
895.1 (506.9)
------------ --------------
Net cash provided by (used in) operating activities of
continuing operations 1,222.0 (312.0)
------------ --------------
Investing Activities
Property and equipment additions (127.7) (164.6)
Investments - (107.2)
Net change in marketable securities - (11.2)
Net assets acquired (net of cash acquired) and
acquisition-related payments (141.5) (2,669.9)
Net proceeds from sale of businesses 2,614.7 -
Other, net 30.4 48.7
------------ -------------
Net cash provided by (used in) investing activities of continuing operations
exclusive of management and mortgage programs 2,375.9 (2,904.2)
------------ --------------
Management and mortgage programs:
Investment in leases and leased vehicles (2,378.1) (1,337.3)
Proceeds from disposal of leases and leased vehicles 1,529.2 475.2
Proceeds from sales and transfers of leases and leased vehicles
to third parties 74.8 27.3
Equity advances on homes under management (3,474.8) (3,293.4)
Repayment on advances on homes under management 3,505.4 3,483.1
Additions to mortgage servicing rights (371.1) (220.4)
Proceeds from sales of mortgage servicing rights 124.3 53.6
------------ -------------
(990.3) (811.9)
------------- --------------
Net cash provided by (used in) investing activities of continuing operations 1,385.6 (3,716.1)
------------ --------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Cendant Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Financing Activities
Principal payments on borrowings, net $ (1.4) $ (369.0)
Proceeds from borrowings under term loan facility - 3,266.9
Debt financing costs (5.3) -
Issuance of common stock 52.2 128.2
Purchases of common stock (1,342.1) -
Proceeds from mandatorily redeemable preferred securities
issued by subsidiary, net - 1,470.8
------------- -------------
Net cash (used in) provided by financing activities of continuing
operations exclusive of management and mortgage programs (1,296.6) 4,496.9
------------- -------------
Management and mortgage programs:
Proceeds received for debt repayment
in connection with fleet segment disposition 3,016.9 -
Proceeds from debt issuance or borrowings 3,067.6 1,659.5
Principal payments on borrowings (4,654.5) (1,125.5)
Net change in short-term borrowings (763.2) 693.4
------------- -------------
666.8 1,227.4
------------ -------------
Net cash (used in) provided by financing activities of continuing
operations (629.8) 5,724.3
------------- -------------
Effect of changes in exchange rates on cash and cash
equivalents 67.4 (15.6)
Cash provided by (used in) discontinued operations 11.0 (217.1)
------------ --------------
Net increase in cash and cash equivalents 2,056.2 1,463.5
Cash and cash equivalents, beginning of period 1,007.1 65.3
------------ -------------
Cash and cash equivalents, end of period $ 3,063.3 $ 1,528.8
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Cendant Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated balance sheet of Cendant Corporation and subsidiaries (the
"Company") as of June 30, 1999, the consolidated statements of income for
the three and six months ended June 30, 1999 and 1998 and the consolidated
statements of cash flows for the six months ended June 30, 1999 and 1998
are unaudited. In the opinion of management, all adjustments necessary for
a fair presentation of such financial statements are included. There were
no adjustments of an unusual nature except for those discussed in Note 6
and also, during the three months ended June 30, 1999, the Company changed
the amortization period for customer acquisition costs related to
accidental death and dismemberment insurance products, which resulted in a
reduction in expenses of $8.2 million ($5.3 million, after tax or $0.01 per
diluted share). The change was based upon new information becoming
available to determine customer retention rates. The accompanying
consolidated financial statements include the accounts and transactions of
the Company and all wholly owned subsidiaries. All intercompany balances
and transactions have been eliminated in consolidation. The accompanying
unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions of Form 10-Q and Rule 10-01
of Regulation S-X promulgated under the Securities Exchange Act of 1934.
The December 31, 1998 consolidated balance sheet was derived from the
Company's audited financial statements included in the Company's Annual
Report on Form 10-K/A for the year ended December 31, 1998, as restated to
reflect the reclassification of Entertainment Publications, Inc., a Company
subsidiary, as a discontinued operation (see Note 5), and should be read in
conjunction with such consolidated financial statements and notes thereto.
The consolidated financial statements of the Company include the assets and
liabilities of Ramada Franchise Systems, Inc., an entity controlled by the
Company by virtue of its ownership of 100% of common stock of such entity.
The assets of Ramada Franchise Systems, Inc. are not available to satisfy
the claims of any creditors of the Company or any of its other affiliates,
except as otherwise specifically agreed by Ramada Franchise Systems, Inc.
Operating results for the three and six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1999 or any subsequent interim periods.
Certain reclassifications have been made to the 1998 consolidated
financial statements to conform with the presentation used in 1999.
2. Earnings Per Share
Basic earnings per share ("EPS") is computed based solely on the weighted
average number of common shares outstanding during the period. Diluted EPS
reflects all potential dilution of common stock, including the assumed
exercise of stock options using the treasury method and convertible debt.
At June 30, 1999, 59.4 million stock options outstanding with a weighted
average exercise price of $25.62 per option were excluded from the
computation of diluted EPS because the options' exercise prices were
greater than the average market price of the Company's common stock and
would therefore be antidilutive. Basic and diluted EPS from continuing
operations are calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ---------------------
(In millions, except per share amounts) 1999 1998 1999 1998
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Income from continuing operations $ 885.0 $ 166.8 $1,066.4 $ 363.1
Convertible debt interest, net of tax 2.8 3.2 5.6 8.0
-------- -------- -------- ---------
Income from continuing operations, as adjusted $ 887.8 $ 170.0 $1,072.0 $ 371.1
======== ======== ======== =========
Weighted average shares
Basic 769.5 850.8 784.7 844.8
Potential dilution of common stock:
Stock options 36.2 29.1 36.2 38.1
Convertible debt 18.0 21.0 18.0 24.9
-------- -------- -------- --------
Diluted 823.7 900.9 838.9 907.8
======== ======== ======== ========
EPS - continuing operations
Basic $ 1.15 $ 0.20 $ 1.36 $ 0.43
======== ======== ======== ========
Diluted $ 1.08 $ 0.19 $ 1.28 $ 0.41
======== ======== ======== ========
</TABLE>
<PAGE>
3. Comprehensive Income
Components of comprehensive income are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
(In millions) 1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 862.3 $ 153.0 $ 1,224.3 $ 325.9
Other comprehensive income (loss):
Currency translation adjustment 15.1 0.2 (53.3) (10.1)
Unrealized holding gains on marketable securities 10.0 0.2 7.6 0.2
--------- --------- --------- ---------
Comprehensive income $ 887.4 $ 153.4 $ 1,178.6 $ 316.0
========= ========= ========= =========
</TABLE>
The components of accumulated other comprehensive loss for the six months
ended June 30, 1999 are as follows:
<TABLE>
<CAPTION>
Net Unrealized Accumulated
Gain on Currency Other
Marketable Translation Comprehensive
(In millions) Securities Adjustment Loss
-------------- ---------- --------------
<S> <C> <C> <C>
Balance, January 1, 1999 $ - $ (49.4) $ (49.4)
Current period change 7.6 (53.3) (45.7)
-------------- ------------ ---------------
Balance, June 30, 1999 $ 7.6 $ (102.7) $ (95.1)
============== ============ ===============
</TABLE>
4. Pro Forma Information
The following table reflects the operating results of the Company for the
six months ended June 30, 1998 on a pro forma basis, which gives effect to
the April 1998 acquisition of National Parking Corporation Limited ("NPC").
The pro forma results are not necessarily indicative of the operating
results that would have occurred had the NPC acquisition been consummated
on January 1, 1998, nor are they intended to be indicative of results that
may occur in the future. The underlying pro forma information includes the
amortization expense associated with the assets acquired, the Company's
financing arrangements, certain purchase accounting adjustments and related
income tax effects.
Six Months Ended
June 30, 1998
----------------
(In millions, except per share amounts)
Net revenues $ 2,593.7
Income from continuing operations 360.5
Net income (1) 323.3
Per share information:
Basic
Income from continuing operations $ 0.43
Net income (1) $ 0.38
Weighted average shares 844.8
Diluted
Income from continuing operations $ 0.41
Net income (1) $ 0.37
Weighted average shares 907.8
-------------
(1) Includes a loss from discontinued operations, net of tax, of 37.2 million
($0.04 per diluted share).
<PAGE>
5. Discontinued Operations
On April 21, 1999 (the "Measurement Date"), the Company announced that its
Board of Directors approved management's plan to pursue the sale of the
Company's Entertainment Publications, Inc. ("EPub") business segment, a
wholly owned subsidiary of the Company, and has engaged a third party to
manage the sale process. The Company anticipates a gain on the sale of EPub
(including the results of operations from the Measurement Date to the sale
date). The Company has deferred $6.9 million of net operating losses from
the Measurement Date through June 30, 1999, as an offset to the expected
gain on the sale. EPub sells discount programs to schools, community groups
and other organizations, which typically offer the discount programs to
individuals in the form of local discount coupon books, gift wrap and other
seasonal items. EPub solicits restaurants, hotels, theaters, sporting
events, retailers and other businesses which agree to offer services and/or
merchandise at discount prices.
On January 12, 1999, the Company completed the sale of Cendant Software
Corporation ("CDS") for $800.0 million in cash. The Company realized an
after tax net gain of $371.9 million on the disposition of CDS of which
$192.7 million was recognized in the first quarter of 1999, coincident with
the closing of the transaction. The Company recorded an $18.6 million
reduction to the gain during the second quarter of 1999, in connection with
the settlement of certain post closing adjustments. The gain recognition
during 1999 associated with the sale of CDS is reported as gain on sale of
discontinued operations in the consolidated statements of income for the
three and six months ended June 30, 1999. The remaining $197.8 million of
realized after tax net gain was recognized in the fourth quarter of 1998,
substantially in the form of a tax benefit and corresponding deferred tax
asset. CDS was a developer, publisher and distributor of educational and
entertainment software.
In December 1998, the Company completed the sale of Hebdo Mag
International, Inc. ("Hebdo Mag"), the Company's former business unit which
published and distributed classified advertising information.
<PAGE>
Summarized financial data of discontinued operations are as follows:
Statement of Income:
(In millions)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998
----------- ----------------------------------------------
EPub EPub CDS Hebdo Mag
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Net revenues $ 3.2 $ 5.7 $ 130.4 $ 74.4
----------- ----------- ----------- ------------
Income (loss) before income taxes (6.4) (19.7) (10.5) 11.4
Provision for (benefit from) income taxes (2.3) (7.8) (3.5) 6.3
------------ ----------- ----------- ------------
Net income (loss) $ (4.1) $ (11.9) $ (7.0) $ 5.1
============ =========== ============ ============
Six Months Ended June 30,
1999 1998
----------- ----------------------------------------------
EPub EPub CDS Hebdo Mag
----------- ----------- ---------- -------------
Net revenues $ 15.7 $ 15.1 $ 226.3 $ 137.2
----------- ----------- ---------- -------------
Income (loss) before income taxes (25.1) (39.2) (37.1) 20.6
Provision for (benefit from) income taxes (8.9) (14.9) (13.2) 9.6
------------ ----------- ---------- -------------
Net income (loss) $ (16.2) $ (24.3) $ (23.9) $ 11.0
============ =========== ========== =============
</TABLE>
The Company allocated $0.3 million and $10.3 million of interest expense to
discontinued operations for the six months ended June 30, 1999 and 1998,
respectively. Such interest expense represents the cost of funds associated
with businesses acquired by the discontinued business segments at an
interest rate consistent with the Company's consolidated effective
borrowing rate.
Balance Sheet:
(In millions)
<TABLE>
<CAPTION>
EPub CDS
---------------------------------------- --------------------
June 30, 1999 December 31, 1998 December 31, 1998
------------- ----------------- --------------------
<S> <C> <C> <C>
Current assets $ 34.6 $ 63.3 $ 284.9
Goodwill 12.8 12.1 105.7
Other assets 25.9 27.9 88.2
Total liabilities (9.8) (14.4) (105.2)
-------------- ----------------- --------------------
Net assets of discontinued operations $ 63.5 $ 88.9 $ 373.6
============= ================= ====================
</TABLE>
6. Other Charges
Investigation-Related Costs. During the three and six months ended June 30,
1999, the Company incurred $6.5 million and $8.2 million, respectively, of
professional fees (primarily litigation-related) and other miscellaneous
expenses in connection with accounting irregularities in the former
business units of CUC International Inc. ("CUC") and resulting
investigations into such matters ("investigation-related costs"). During
the three and six months ended June 30, 1998, the Company incurred $32.2
million of investigation-related costs, which included $12.7 million of
incremental financing costs.
Merger-Related Costs and Other Unusual Charges (Credits). In second quarter
1999, the Company incurred a $23.0 million non-recurring charge to fund a
contribution to the trust responsible for completing the transition of the
Company's lodging franchisees to a Company-sponsored property management
system.
In January 1999, the Company completed the sale of its Essex Corporation
("Essex") subsidiary for $8.0 million and recognized a $1.3 million gain on
sale. Such gain has been reported as a credit to merger-related costs and
other unusual charges in the consolidated statement of income for the six
months ended June 30, 1999. Coincident to the merger which formed Cendant
Corporation, the Company had previously recorded an unusual charge related
to certain intangible assets of Essex which were determined to be impaired.
During the three and six months ended June 30, 1998, the Company recorded a
net credit of $27.5 million and $24.4 million, respectively, associated
with changes in the estimate of costs to be incurred in connection with
previously recorded merger-related costs and other unusual charges.
Termination of Proposed Acquisition. On February 4, 1999, the Company
announced its intention not to proceed with the acquisition of RAC Motoring
Services ("RACMS") due to certain conditions imposed by the UK Secretary of
State of Trade and Industry that the Company determined to be commercially
infeasible. The Company originally announced on May 21, 1998 its definitive
agreement with the Board of Directors of Royal Automobile Club Limited to
acquire RACMS for approximately $735.0 million in cash. The Company
wrote-off $7.0 million of deferred acquisition costs in the first quarter
of 1999 in connection with the termination of the proposed acquisition of
RACMS.
7. Businesses Sold
Fleet Segment
On June 30, 1999, the Company completed the disposition of the fleet
business segment ("fleet segment" or "fleet businesses"), which included
PHH Vehicle Management Services Corporation, Wright Express Corporation,
The Harpur Group, Ltd., and other subsidiaries pursuant to an agreement
between PHH Corporation ("PHH"), a wholly-owned subsidiary of the Company,
and Avis Rent A Car, Inc. ("ARAC"). Pursuant to the agreement, ARAC
acquired net assets of the fleet businesses through the assumption and
subsequent repayment of $1.44 billion of intercompany debt and the issuance
of $360.0 million of convertible preferred stock of Avis Fleet Leasing and
Management Corporation ("Avis Fleet"), a wholly-owned subsidiary of ARAC.
The transaction followed a competitive bidding process. Coincident to the
closing of the transaction, ARAC refinanced the assumed debt under
management programs which was payable to the Company. Accordingly, on June
30, 1999, the Company received additional consideration from ARAC of
$3,047.5 million comprised of $3,016.9 million of cash proceeds and a $30.6
million note receivable. On such date, the Company used proceeds of
$1,809.4 million to repay outstanding fleet segment financing arrangements.
Additionally, in July 1999, the Company utilized cash proceeds from the
transaction of $1,033.0 million (received in the form of a dividend payment
from PHH) to substantially execute the "Dutch Auction" tender offer by the
Company to purchase 50 million shares of Company common stock (See Note 10
- Shareholders' Equity). As of June 30, 1999, the remaining proceeds were
designated to repay outstanding corporate debt as it matures (the
borrowings of which had been loaned to the fleet segment to finance the
purchases of leased vehicles and to finance other assets under management
and mortgage programs.
The convertible preferred stock of Avis Fleet is convertible into common
stock of ARAC at the Company's option upon the satisfaction of certain
conditions, including the per share price of ARAC Class A common stock
equaling or exceeding $50 per share and the fleet segment attaining certain
EBITDA (earnings before interest, taxes, depreciation and amortization)
thresholds, as defined. There are additional circumstances upon which the
shares of Avis Fleet convertible preferred stock are automatically or
mandatorily convertible into ARAC common stock. At June 30, 1999, the
Company beneficially owned approximately 19% of the outstanding Class A
common stock of ARAC. If all of the Avis Fleet convertible preferred stock
was converted into common stock of ARAC, as of the closing date, the
Company would have owned approximately 34% of ARAC's outstanding common
equity (although the voting interest would be limited, in most instances to
20%).
The Company realized a net gain on the disposition of $881.4 million
($865.7 million, after tax) of which $714.8 million ($702.1 million, after
tax) was recognized in the second quarter of 1999 and $166.6 million
($163.6 million, after tax) was deferred at June 30, 1999. The realized
gain is net of approximately $90.0 million of transaction costs. The
Company deferred the portion of the realized net gain which was equivalent
to its common equity ownership percentage in ARAC at the time of closing.
The deferred net gain is included in deferred income as presented in the
consolidated balance sheet at June 30, 1999. The fleet segment disposition
was structured in accordance with applicable tax law to be treated as a
tax-free reorganization and, accordingly, no tax provision has been
recorded on a majority of the gain. Should the transaction be deemed
taxable, the resultant tax liability could be material.
See Note 12 - Segment Information - Fleet for a description of the services
which were provided within the fleet segment.
Other
During the second quarter of 1999, the Company completed the dispositions
of certain businesses, including Match.com, National Leisure Group and
National Library of Poetry. Aggregate consideration received on the
dispositions of such businesses was comprised of $26.8 million in cash and
$43.3 million of common stock. The Company realized a net gain of $34.7
million ($21.5 million, after tax), which is included in net gain on the
disposition of businesses in the consolidated statements of income for the
three and six months ended June 30, 1999.
Pending
On June 30, 1999, the Company entered into a definitive agreement to sell
its Central Credit, Inc. ("CCI") business unit for $44.0 million in cash.
Upon executing the agreement, the Company recorded an additional tax
provision of $14.5 million with a corresponding deferred tax liability in
the second quarter of 1999, which was when the recognition of such deferred
tax liability became apparent. CCI is the leading provider of gaming patron
credit information services to casinos. The transaction is subject to
regulatory approvals and is expected to be completed during the third
quarter of 1999.
Subsequent Event
On August 12, 1999, the Company completed the sale of its Spark Services
subsidiary for approximately $35.0 million in cash.
8. Litigation Settlement
On March 17, 1999, the Company reached a final agreement to settle the
class action lawsuit that was brought on behalf of the holders of Income or
Growth FELINE PRIDES ("PRIDES") securities who purchased their securities
on or prior to April 15, 1998, the date on which the Company announced the
discovery of accounting irregularities in the former business units of CUC.
Under the terms of the final agreement only holders who owned PRIDES at the
close of business on April 15, 1998 will be eligible to receive a new
additional "Right" for each PRIDES security held. Right holders may (i)
sell them or (ii) exercise them by delivering to the Company, three Rights
together with two PRIDES in exchange for two New PRIDES (the "New PRIDES"),
for a period beginning upon distribution of the Rights and concluding upon
expiration of the Rights (February 2001).
The terms of the New PRIDES will be the same as the original PRIDES except
that the conversion rate will be revised so that, at the time the Rights
are distributed, each New PRIDES will have a value equal to $17.57 more
than each original PRIDES, or, in the aggregate, approximately $351.0
million. The final agreement also requires the Company to offer to sell
four million additional PRIDES (having identical terms to currently
outstanding PRIDES) to holders of Rights for cash, at a value which will be
based on the valuation model that will be utilized to set the conversion
rate of the New PRIDES. The offering of additional PRIDES will be made only
pursuant to a prospectus filed with the Securities and Exchange Commission
("SEC"). The Company currently expects to use the proceeds of such offering
to repay indebtedness, repurchase Company common stock and for other
general corporate purposes. The arrangement to offer additional PRIDES is
designed to enhance the trading value of the Rights by removing up to six
million Rights from circulation via exchanges associated with the offering
and to enhance the open market liquidity of New PRIDES by creating four
million New PRIDES via exchanges associated with the offering. If holders
of Rights do not acquire all such additional PRIDES, under certain
circumstances they will be offered to the public. Under the settlement
agreement, the Company also agreed to file a shelf registration statement
for an additional 15 million special PRIDES, which could be issued by the
Company at any time for cash. However, during the last 30 days prior to the
expiration of the Rights in February 2001, the Company will be required to
offer these special additional PRIDES to holders of Rights at a price in
cash equal to 105% of their theoretical value. The special PRIDES, if
issued, would have the same terms as the currently outstanding PRIDES and
could be used to exercise Rights.
Based on a market price of $18.625 the closing price per share of the
Company's common stock on August 9, 1999, the effect of the issuance of the
New PRIDES will be to distribute approximately 18 million more shares of
Company common stock when the mandatory purchase of Company common stock
associated with the PRIDES occurs in February 2001.
On June 15, 1999, the United States District Court for the District of New
Jersey entered an order and judgment approving the settlement described
above and awarding fees to counsel to the class. One objector, who objected
to a portion of the settlement notice concerning fees to be sought by
counsel to the class and the amount of fees to be sought by counsel to the
class, has filed an appeal to the U.S. Court of Appeals for the Third
Circuit from the District Court order approving the settlement and awarding
fees to counsel to the class. Although under the settlement the Rights are
required to be distributed following the conclusion of court proceedings,
including appeals, the Company believes that the appeal is without merit.
As a result, the Company presently intends to distribute the Rights in
September or October 1999 after the effectiveness of the registration
statement filed with the SEC covering the New PRIDES.
9. Commitments and Contingencies
Litigation
Accounting Irregularities. Since the April 15, 1998 announcement of the
discovery of potential accounting irregularities in the former business
units of CUC, more than 70 lawsuits claiming to be class actions, two
lawsuits claiming to be brought derivatively on the Company's behalf and
several other lawsuits and arbitration proceedings have commenced in
various courts and other forums against the Company and other defendants
by or on behalf of persons claiming to have purchased or otherwise acquired
securities or options issued by CUC or the Company between May 1995 and
August 1998. The Court has ordered consolidation of many of the actions.
In addition, in October 1998, an action claiming to be a class action was
filed against the Company and four of the Company's former officers and
directors by persons claiming to have purchased American Bankers' stock
between January and October 1998. The complaint claimed that the Company
made false and misleading public announcements and filings with the SEC in
connection with the Company's proposed acquisition of American Bankers
allegedly in violation of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, as amended, and that the plaintiff and the alleged
class members purchased American Bankers' securities in reliance on these
public announcements and filings at inflated prices. On April 26, 1999, the
United States District Court for New Jersey found that the class action
failed to state a claim upon which relief could be granted and,
accordingly, dismissed the complaint. The plaintiff has appealed the
District Court's findings to the U.S. Court of Appeals for the Third
Circuit.
As previously disclosed, the Company reached a final agreement with
plaintiff's counsel representing the class of holders of its PRIDES
securities who purchased their securities on or prior to April 15, 1998 to
settle their class action lawsuit against the Company through the issuance
of a new "Right" for each PRIDES security held. (See Note 8 - Litigation
Settlement for a more detailed description of the settlement).
The SEC and the United States Attorney for the District of New Jersey are
conducting investigations relating to the matters referenced above. The SEC
advised the Company that its inquiry should not be construed as an
indication by the SEC or its staff that any violations of law have
occurred. As a result of the findings from the investigations, the Company
made all adjustments considered necessary which are reflected in its
restated financial statements. The Company does not expect that additional
adjustments will be necessary as a result of these government
investigations.
Other than with respect to the PRIDES class action litigation, the Company
does not believe it is feasible to predict or determine the final outcome
or resolution of these proceedings or to estimate the amounts or potential
range of loss with respect to these proceedings and investigations. In
addition, the timing of the final resolution of these proceedings and
investigations is uncertain. The possible outcomes or resolutions of these
proceedings and investigations could include judgements against the Company
or settlements and could require substantial payments by the Company.
Management believes that material adverse outcomes with respect to such
proceedings and investigations could have a material adverse impact on the
Company's financial position, results of operations or cash flows.
Other Pending Litigation. The Company and its subsidiaries are involved in
pending litigation in the usual course of business. In the opinion of
management, such other litigation will not have a material adverse effect
on the Company's consolidated financial position, results of operations or
cash flows.
10. Shareholders' Equity
During the six months ended June 30, 1999, the Company's Board of Directors
authorized an additional $600 million of Company common stock to be
repurchased under a common share repurchase program, increasing the total
authorized amount to be repurchased under the program to $1.6 billion. The
Company has executed this program through open market purchases or
privately negotiated transactions, subject to bank credit facility
covenants and certain rating agency constraints. As of June 30, 1999, the
Company repurchased $1.6 billion (83.9 million shares) of Company common
stock under the program. In July 1999, the Company's Board of Directors
authorized an additional $200 million of Company common stock to be
repurchased under this common share repurchase program.
In July 1999, pursuant to a Dutch Auction self tender offer to its
shareholders, the Company purchased 50 million shares of Company common
stock through its wholly owned subsidiary Cendant Stock Corporation at a
price of $22.25 per share. Under the terms of the offer, which commenced
June 16, 1999 and expired July 15, 1999, the Company had invited
shareholders to tender their shares at prices of Company common stock
between $19.75 and $22.50 per share.
11. New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities". The Company will adopt SFAS No. 133
effective January 1, 2001. SFAS No. 133 requires the Company to record all
derivatives in the consolidated balance sheet as either assets or
liabilities measured at fair value. If the derivative does not qualify as a
hedging instrument, the change in the derivative fair values will be
immediately recognized as a gain or loss in earnings. If the derivative
does qualify as a hedging instrument, the gain or loss on the change in the
derivative fair values will either be recognized (i) in earnings as offsets
to the changes in the fair value of the related item being hedged or (ii)
be deferred and recorded as a component of other comprehensive income and
reclassified to earnings in the same period during which the hedged
transactions occur. The Company has not yet determined what impact the
adoption of SFAS No. 133 will have on its financial statements.
12. Segment Information
Management evaluates each segment's performance on a stand-alone basis
based on a modification of earnings before interest, income taxes,
depreciation and amortization. For this purpose, Adjusted EBITDA is defined
as earnings before non-operating interest, income taxes, depreciation and
amortization, adjusted to exclude net gains on businesses sold and other
items which are of a non-recurring or unusual nature, and are not measured
in assessing segment performance or are not segment specific. The Company
determined its reportable operating segments based primarily on the types
of services it provides, the consumer base to which marketing efforts are
directed and the methods used to sell services. Subsequent to the Company's
June 30, 1999 disposition of its fleet segment, the Company has seven
reportable operating segments which collectively comprise the Company's
continuing operations. Inter-segment net revenues were not significant to
the net revenues of any one segment or the consolidated net revenues of the
Company. A description of the services provided within each of the
Company's reportable operating segments is as follows:
Travel
Travel services include the franchising of lodging properties and car
rental locations, as well as vacation/timeshare exchange services. As a
franchiser of guest lodging facilities and car rental agency locations, the
Company licenses the independent owners and operators of hotels and car
rental agencies to use its brand names. Operational and administrative
services are provided to franchisees, which include access to a national
reservation system, national advertising and promotional campaigns,
co-marketing programs and volume purchasing discounts. As a provider of
vacation and timeshare exchange services, the Company enters into
affiliation agreements with resort property owners/developers (developers)
to allow owners of weekly timeshare intervals (subscribers) to trade their
owned weeks with other subscribers. In addition, the Company provides
publications and other travel-related services to both developers and
subscribers.
Real Estate Franchise
The Company licenses the owners and operators of independent real estate
brokerage businesses to use its brand names. Operational and administrative
services are provided to franchisees, which are designed to increase
franchisee revenue and profitability. Such services include advertising and
promotions, referrals, training and volume purchasing discounts.
Relocation
Relocation services are provided to client corporations for the transfer of
their employees. Such services include appraisal, inspection and selling of
transferees' homes and providing equity advances to transferees (generally
guaranteed by the corporate customer). Additional services provided include
certain home management services, assistance in locating a new home at the
transferee's destination, consulting services and other related services.
Mortgage
Mortgage services primarily include the origination, sale and servicing of
residential mortgage loans. Revenues are earned from the sale of mortgage
loans to investors as well as from fees earned on the servicing of loans
for investors. The Company markets a variety of mortgage products to
consumers through relationships with corporations, affinity groups,
financial institutions, real estate brokerage firms and other mortgage
banks.
The Company customarily sells all mortgages it originates to investors
(which include a variety of institutional investors) either as individual
loans, as mortgage-backed securities or as participation certificates
issued or guaranteed by Fannie Mae, the Federal Home Loan Mortgage
Corporation or the Government National Mortgage Association while generally
retaining mortgage servicing rights. Mortgage servicing consists of
collecting loan payments, remitting principal and interest payments to
investors, holding escrow funds for payment of mortgage-related expenses
such as taxes and insurance, and otherwise administering the Company's
mortgage loan servicing portfolio.
Individual Membership
Individual membership provides customers with access to a variety of
services and discounted products in such areas as retail shopping, travel,
auto, dining, home improvement, credit information and special
interest/outdoor clubs. The Company affiliates with business partners such
as leading financial institutions and retailers to offer membership as an
enhancement to their credit card customers. Individual memberships are
marketed primarily using direct marketing techniques. Through the Company's
membership based online consumer sites, similar products and services are
offered over the internet.
Insurance/Wholesale
Insurance/Wholesale markets and administers competitively priced insurance
products, primarily accidental death and dismemberment insurance and term
life insurance. The Company also provides services such as checking account
enhancement packages, various financial products and discount programs to
financial institutions, which in turn provide these services to their
customers. The Company affiliates with financial institutions, including
credit unions and banks, to offer their respective customer bases such
products and services.
<PAGE>
Other Services
In addition to the previously described business segments, the Company also
derives revenues from providing a variety of other consumer and business
products and services which include the Company's tax preparation services
franchise, information technology services, car park facilities, vehicle
emergency support and rescue services, credit information services,
financial products, published products, welcoming packages to new
homeowners, value added-tax refund services to travelers and other
consumer-related services.
Fleet
As disclosed in Note 7, on June 30, 1999, the Company completed the
disposition of its fleet segment for aggregate consideration of $1.8
billion. The fleet segment provided fleet and fuel card related products
and services to corporate clients and government agencies. Fleet related
services included management and leasing of vehicles, fuel card payment and
reporting and other fee-based services for clients' vehicle fleets. The
Company leased vehicles primarily to corporate fleet users under operating
and direct financing lease arrangements.
<PAGE>
Segment Information
(In millions)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998
---------------------------- ------------------------------
Adjusted Adjusted
Revenues EBITDA Revenues EBITDA (6)
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Travel $ 289.6 $ 146.5 (2) $ 263.6 $ 135.7
Real Estate Franchise 158.9 113.9 131.5 103.1
Relocation 106.8 34.2 110.2 26.4
Mortgage 106.6 49.7 94.0 44.8
Individual Membership 243.8 17.1 (3) 209.6 (40.9) (3)
Insurance/Wholesale 143.0 50.0 (4) 136.8 35.5
Other (1) 223.0 19.7 (3,5) 230.6 45.4 (3,7)
Fleet 105.6 41.1 96.0 43.7
--------- ----------- ---------- ----------
Total $ 1,377.3 $ 472.2 $ 1,272.3 $ 393.7
========= =========== =========== =========
Six Months Ended June 30,
1999 1998
---------------------------- ------------------------------
Adjusted Adjusted
Revenues EBITDA Revenues EBITDA (9)
-------- ----------- -------- -----------
Travel $ 561.6 $ 291.2 (2) $ 529.2 $ 284.8
Real Estate Franchise 255.5 185.3 215.8 162.3
Relocation 197.7 52.1 209.9 52.0
Mortgage 199.8 93.7 172.0 82.3
Individual Membership 487.2 29.0 (3) 413.7 (56.8) (3)
Insurance/Wholesale 282.7 88.3 (4) 270.8 74.6
Other (1) 490.3 101.5 (3,8) 388.2 104.6 (3,7)
Fleet 207.4 80.8 192.6 91.3
--------- ----------- ---------- ----------
Total $ 2,682.2 $ 921.9 $ 2,392.2 $ 795.1
========= =========== =========== =========
</TABLE>
---------------
(1) Includes the financial results of NPC from the April 27, 1998
acquisition date.
(2) Excludes a $23.0 million non-recurring charge in connection with
the transition of the Company's lodging franchisees to a
Company-sponsored property management system.
(3) Excludes a pre-tax gain of $34.1 million recorded within the
Individual Membership segment on the disposition of Match.com and
a pre-tax gain of $715.4 million recorded within the Other segment
on the dispositions of the fleet segment, National Library of
Poetry and National Leisure Group, which were sold in the second
quarter of 1999.
(4) Includes an $8.2 million reduction in expenses resulting from a
change in the estimated amortization lives of accidental death and
dismemberment customer acquisition costs.
(5) Excludes $6.5 million of investigation-related costs.
(6) Excludes a net credit of $27.5 million associated with changes in
the estimate of costs to be incurred in connection with previously
recorded merger-related costs and other unusual charges. The
aforementioned net credit was comprised of $5.4 million, $1.0
million, $25.3 million and $1.3 million of credits within the
Travel, Real Estate Franchise, Other and Fleet segments,
respectively, and $3.7 million and $1.8 million of charges
incurred within the Relocation and Mortgage segments, respectively.
(7) Excludes $32.2 million of investigation-related costs, including
$12.7 million of incremental financing costs.
(8) Excludes (i) $8.2 million of investigation-related costs; (ii) a
$7.0 million write-off of deferred acquisition costs incurred in
connection with the termination of the proposed acquisition
of RACMS; and (iii) a $1.3 million gain on the sale of Essex which
has been recorded as a credit to merger-related costs and other
unusual charges.
(9) Excludes a net credit of $24.4 million associated with changes in
the estimate of costs to be incurred in connection with previously
recorded merger-related costs and other unusual charges. The
aforementioned net credit was comprised of $5.4 million, $1.0
million, $24.1 million and $1.3 million of credits within the
Travel, Real Estate Franchise, Other and Fleet segments,
respectively, and $3.7 million and $3.7 million of charges
incurred within the Relocation and Mortgage segments, respectively.
<PAGE>
Provided below is a reconciliation of total Adjusted EBITDA for reportable
operating segments for the three and six months ended June 30, 1999 and
1998 to the consolidated amounts.
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------
(In millions) 1999 1998
----------- ---------
<S> <C> <C>
Adjusted EBITDA for reportable segments $ 472.2 $ 393.7
Depreciation and amortization 94.2 84.3
Other charges
Merger-related costs and other unusual charges (credits) 23.0 (27.5)
Investigation-related financing costs - 12.7
Other investigation-related costs 6.5 19.5
Interest, net 54.1 22.9
Net gain on disposition of businesses (749.5) -
------------ --------
Consolidated income from continuing operations before
income taxes and minority interest $ 1,043.9 $ 281.8
=========== ========
Six Months Ended June 30,
-----------------------------
(In millions) 1999 1998
----------- ---------
Adjusted EBITDA for reportable segments $ 921.9 $ 795.1
Depreciation and amortization 185.2 147.9
Other charges
Merger-related costs and other unusual charges (credits) 21.7 (24.4)
Investigation-related financing costs - 12.7
Other investigation-related costs 8.2 19.5
Termination of proposed acquisition 7.0 -
Interest, net 102.4 41.8
Net gain on disposition of businesses (749.5) -
------------ --------
Consolidated income from continuing operations before
income taxes and minority interest $ 1,346.9 $ 597.6
=========== ========
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
We are one of the foremost consumer and business services companies in the
world. We provide business services to our customers, many of which are consumer
services companies, and also provide fee-based services directly to consumers,
generally without owning the assets or sharing the risks associated with the
underlying businesses of our customers or collaborative partners.
We operate in four principal divisions - travel related services, real estate
related services, direct marketing related services and other consumer and
business services. Our businesses provide a wide range of complementary consumer
and business services, which together represent seven business segments. The
travel related services businesses facilitate vacation timeshare exchanges and
franchise car rental and hotel businesses; the real estate related services
businesses franchise real estate brokerage businesses, provide home buyers with
mortgages and assist in employee relocation; and the direct marketing related
services businesses provide an array of value driven products and services. Our
other consumer and business services include our tax preparation services
franchise, information technology services, car parking facility services,
vehicle emergency support and rescue services, credit information services,
financial products and other consumer-related services.
As a franchisor of hotels, real estate brokerage offices, car rental operations
and tax preparation services, we license the owners and operators of independent
businesses to use our brand names. We do not own or operate hotels, real estate
brokerage offices, car rental operations or tax preparation offices (except for
certain company-owned Jackson Hewitt offices, which we intend to franchise).
Instead, we provide our franchisee customers with services designed to increase
their revenue and profitability.
We have changed our focus from making strategic acquisitions of new businesses
to maximizing the opportunities and growth potential of our existing businesses.
In connection with this change in focus, we have previously announced our
strategy to divest non-strategic businesses and assets. Accordingly, we intend
from time to time to explore and discuss internally and with third parties
potential divestitures and enter into related transactions. However, we can give
no assurance that any divestiture or other transaction will be consummated or,
if consummated, with respect to the magnitude, timing, likelihood, credit
implications or other financial or business effect on us of such transactions,
any or all of which could be material. Among the factors considered in
determining whether or not to consummate any transaction is the strategic and
financial impact of such transaction on us. We intend to use the majority of the
proceeds from future dispositions, if any, together with cash flow from
operations, to repurchase our common stock and to retire indebtedness. As a
result of our aforementioned change in focus and since the implementation of our
program to divest non-strategic businesses and assets, which commenced in 1998,
we completed the sale of three of our business segments; announced our intention
to dispose of a fourth business segment; and divested or announced our intention
to divest certain other businesses (see "Liquidity and Capital Resources -
Divestitures").
<PAGE>
Results of Operations - Three Months Ended June 30, 1999
vs.
Three Months Ended June 30, 1998
Consolidated Results
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------------------------
(Dollars in millions) 1999 1998 % Change
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues $ 1,377.3 $ 1,272.3 8%
---------- -----------
Expenses
Operating 435.0 437.0 -
Marketing and reservation 287.9 291.3 (1%)
General and administrative 182.2 150.3 21%
---------- ----------- ----------
905.1 878.6 3%
---------- ----------- ----------
Adjusted EBITDA 472.2 393.7 20%
Other charges
Merger-related costs and other unusual
charges (credits) 23.0 (27.5) *
Investigation-related financing costs - 12.7 *
Other investigation-related costs 6.5 19.5 *
Depreciation and amortization expense 94.2 84.3 12%
Interest expense, net 54.1 22.9 136%
Net gain on disposition of businesses (749.5) - *
----------- -----------
Pre-tax income from continuing operations
before minority interest 1,043.9 281.8 *
Provision for income taxes 143.8 100.1 44%
Minority interest, net of tax 15.1 14.9 1%
---------- -----------
Income from continuing operations 885.0 166.8 *
Loss from discontinued operations, net of tax (4.1) (13.8) *
Loss on sale of discontinued operations, net of tax (18.6) - *
----------- -----------
Net income $ 862.3 $ 153.0 *
========== ===========
</TABLE>
- ---------
* Not meaningful.
<PAGE>
Revenues and Adjusted EBITDA
Revenues increased $105.0 million (8%) in second quarter 1999 compared to second
quarter 1998, which reflected growth in substantially all of our reportable
operating segments. Adjusted EBITDA also increased $78.5 million (20%) for the
same periods. Significant contributing factors which gave rise to such increases
included substantial growth in the volume of mortgage services provided and an
increase in the amount of royalty fees received from our franchised brands,
within both our travel and real estate franchise segments. In addition, we
experienced strong growth and efficiencies within our direct marketing
businesses. A detailed discussion of revenues and Adjusted EBITDA trends from
1998 to 1999 is included in the section entitled "Results of Reportable
Operating Segments - Second Quarter 1999 vs. Second Quarter 1998."
Other Charges
Investigation-Related Costs. During second quarter 1999, we incurred $6.5
million of professional fees and other miscellaneous expenses in connection with
our previously announced discovery of accounting irregularities in the former
business units of CUC International Inc. ("CUC") and the resulting
investigations into such matters ("investigation-related costs"). During second
quarter 1998, we incurred $32.2 million of investigation-related costs,
including $12.7 million of incremental financing costs.
Merger-Related Costs and Other Unusual Charges (Credits). In second quarter
1999, we recorded a $23.0 million non-recurring charge in connection with the
transition of our lodging franchisees to a Company-sponsored property management
system. In second quarter 1998, we recorded a net credit of $27.5 million
associated with changes in the estimate of costs to be incurred in connection
with previously recorded merger-related costs and other unusual charges.
Depreciation and amortization expense
Depreciation and amortization expense increased $9.9 million (12%) in second
quarter 1999 compared to second quarter 1998 primarily as a result of increased
capital spending during 1998 to support continued growth and enhance marketing
opportunities in our businesses.
Interest expense, net and minority interest, net of tax
Interest expense, net, increased $31.2 million (136%) while minority interest,
net of tax, remained relatively unchanged in second quarter 1999 compared to
second quarter 1998. The increase in interest expense is principally
attributable to higher borrowing costs as well as an increase in the average
debt balances outstanding during 1999 as compared to 1998. The average debt
balances in 1999 were comprised of longer-term fixed rate debt as compared to
1998, which substantially contributed to the increase in cost of funds. Minority
interest, net of tax reflects the preferred dividends payable in cash on our
FELINE PRIDES and the trust preferred securities issued in March 1998 (see
"Liquidity and Capital Resources - Financing Exclusive of Management and
Mortgage Financing FELINE PRIDES and Trust Preferred Securities").
Net Gain on Disposition of Businesses
See "Liquidity and Capital Resources - Divestitures" for a discussion regarding
the dispositions of certain businesses during second quarter 1999 and the
resulting net gain from such dispositions.
Provision for income taxes
Our effective tax rate was reduced from 35.5% in 1998 to 13.8% in 1999 due to
the impact of the disposition of our fleet businesses which was accounted for as
a tax-free merger for tax purposes. Accordingly, minimal income taxes were
provided on the net gain realized upon disposition.
Discontinued operations
Pursuant to our program to divest non-strategic businesses and assets, we sold
our consumer software and classified advertising businesses in January 1999 and
December 1998, respectively, and on April 21,1999 (the "Measurement Date"), we
committed to selling our Entertainment Publications, Inc. ("EPub") business (see
"Liquidity and Capital Resources - Divestitures - Discontinued Operations"). We
anticipate an after tax gain on the sale of EPub (including the results of
operations from the Measurement Date to the sale date). We deferred $6.9 million
of operating losses from the Measurement Date through June 30, 1999, as an
offset to the expected gain on the sale. Loss from discontinued operations, net
of tax, was $4.1 million in 1999 compared to $13.8 million in 1998 and was
comprised of the following operating results:
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------------------------------------------------
1999 1998
-------------- ------------------------------------------------
Entertainment Entertainment Consumer Classified
(In millions) Publications Publications Software Advertising
-------------- -------------- --------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 3.2 $ 5.7 $ 130.4 $ 74.4
Net income (loss) (4.1) (11.9) (7.0) 5.1
</TABLE>
During second quarter 1999, we recorded an $18.6 million reduction to the
gain on sale of discontinued operations related to the disposition of our
consumer software business, in connection with the settlement of certain
post closing adjustments.
Results of Reportable Operating Segments - Second Quarter 1999 vs.
Second Quarter 1998
The underlying discussions of each segment's operating results focuses on
Adjusted EBITDA, which is defined as earnings before non-operating interest,
income taxes, depreciation and amortization, adjusted to exclude net gains on
businesses sold and other items which are of a non-recurring or unusual nature,
and are not included in assessing segment performance or are not segment
specific. Our management believes such discussion is the most informative
representation of how management evaluates performance. We identified our
reportable operating segments based primarily on the types of services we
provide, the consumer base to which marketing efforts are directed and the
methods we use to sell services. Subsequent to the June 30, 1999 disposition of
our fleet segment, we have seven reportable operating segments which
collectively comprise our continuing operations. For additional information,
including a description of the services provided in each of our reportable
operating segments, see Note 12 to the consolidated financial statements.
Three Months Ended June 30,
(Dollars in millions)
<TABLE>
<CAPTION>
Revenues Adjusted EBITDA Adjusted EBITDA
----------------------------------- --------------------------------------- --------------------
% % Margin
1999 1998 Change 1999 1998 (5) Change 1999 1998
--------- ---------- --------- ------------ ---------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Travel $ 289.6 $ 263.6 10% $ 146.5 (1) $ 135.7 8% 51% 51%
Real Estate
Franchise 158.9 131.5 21% 113.9 103.1 11% 72% 78%
Relocation 106.8 110.2 (3%) 34.2 26.4 30% 32% 24%
Mortgage 106.6 94.0 13% 49.7 44.8 11% 47% 48%
Individual
Membership 243.8 209.6 16% 17.1 (2) (40.9) * 7% (20%)
Insurance/
Wholesale 143.0 136.8 5% 50.0 (3) 35.5 41% 35% 26%
Other 223.0 230.6 (3%) 19.7 (2,4) 45.4 (6) (57%) 9% 20%
Fleet 105.6 96.0 10% 41.1 43.7 (6%) 39% 46%
--------- --------- -------- ----------
Total $ 1,377.3 $ 1,272.3 8% $ 472.2 $ 393.7 20% 34% 31%
========= ========= ======== ==========
</TABLE>
- -----------------
(1) Excludes a $23.0 million non-recurring charge in connection with the
transition of our lodging franchisees to a Company-sponsored property
management system.
(2) Excludes a pre-tax gain of $34.1 million recorded within the Individual
Membership segment on the disposition of Match.com and a pre-tax gain of
$715.4 million recorded within the Other segment on the dispositions of the
fleet segment, National Library of Poetry and National Leisure Group, which
were sold in the second quarter of 1999.
(3) Includes an $8.2 million reduction in expenses resulting from a change in
the estimated amortization lives of accidental death and dismemberment
customer acquisition costs.
(4) Excludes $6.5 million of investigation-related costs.
(5) Excludes a net credit of $27.5 million associated with changes in the
estimate of costs to be incurred in connection with previously recorded
merger-related costs and other unusual charges. The aforementioned net
credit was comprised of $5.4 million, $1.0 million, $25.3 million and $1.3
million of credits within the Travel, Real Estate Franchise, Other and
Fleet segments, respectively, and $3.7 million and $1.8 million of charges
incurred within the Relocation and Mortgage segments, respectively.
(6) Excludes $32.2 million of investigation-related costs, including $12.7
million of incremental financing costs. * Not meaningful.
<PAGE>
Travel
Revenues and Adjusted EBITDA increased $26.0 million (10%) and $10.8 million
(8%), respectively, in second quarter 1999 compared to second quarter 1998.
Contributing to the revenue and Adjusted EBITDA increase was a $13.3 million
(9%) increase in franchise fees, consisting of increases in lodging and car
rental franchise fees of $8.4 million (8%) and $4.9 million (12%), respectively.
Our franchise businesses experienced incremental growth in second quarter 1999
compared to second quarter 1998 primarily due to increases in available rooms
(22,500 incremental rooms domestically), revenue per available room and car
rental days. Timeshare subscription and exchange revenue increased $5.2 million
(7%) as a result of increased volume. Total expenses increased $15.3 million as
a result of increased volumes. However, an 8% increase in marketing and
reservation fund expenses were offset by increased marketing and reservation
revenues received from franchisees. In addition, operating expenses increased 5%
in 1999. The Adjusted EBITDA margin remained unchanged at 51%.
Real Estate Franchise
Revenues and Adjusted EBITDA increased $27.4 million (21%) and $10.8 million
(11%), respectively, in second quarter 1999 compared to second quarter 1998.
Royalty fees increased for the CENTURY 21(R), COLDWELL BANKER(R) and ERA(R)
franchise brands collectively by $13.2 million (12%) primarily as a result of a
5% increase in home sale transactions by franchisees and a 6% increase in the
average price of homes sold. Home sales by franchisees benefited from strong
second quarter 1999 existing U.S. home sales, as well as from expansion of our
franchise system. In second quarter 1999, the financial results of the national
advertising funds for the COLDWELL BANKER and ERA brands (the "Advertising
Funds") were consolidated into the financial results of the Real Estate
Franchise segment, which increased revenues by $14.7 million (11%) and increased
expenses by the same amount, with no impact on Adjusted EBITDA. The Advertising
Funds spend most of their revenues on marketing and advertising expenses for
their respective franchise brands. The consolidation of the advertising funds
resulted in a 7% decline in the Adjusted EBITDA margin. Revenues from Preferred
Alliances declined $9.8 million as a result of significant initial fees received
in 1998. This decrease was offset by a $10.0 million gain on the sale of
preferred stock of NRT Incorporated, the independent company we helped form in
1997 to serve as a consolidator of residential real estate brokerages. Since
most costs associated with the real estate franchise business do not vary
significantly with home sale volume or revenues, the increase in revenues
contributed to an improvement of the Adjusted EBITDA margin from 78% in 1998 to
79% in 1999, prior to the consolidation of the Advertising Funds.
Relocation
Revenues decreased $3.4 million (3%) while Adjusted EBITDA increased $7.8
million (30%) in the second quarter 1999 compared to the second quarter 1998.
The Adjusted EBITDA margin increased from 24% in 1998 to 32% in 1999 primarily
due to the sale in second quarter 1999 of a minority interest in our Fairtide
insurance subsidiary, which resulted in $7.2 million of additional revenue and
Adjusted EBITDA. In addition, the sale in third quarter 1998 of certain
niche-market asset management operations reduced second quarter 1999 revenues
and Adjusted EBITDA by $4.0 million and $1.8 million, respectively. As a result
of management's efforts to renegotiate certain contracts, ancillary service fees
have increased, offsetting reduced volumes in home sales. Operating expenses
decreased $11.2 million (13%), principally from cost savings in regional
operations, reduced government home sale expenses and the sale of the asset
management operations discussed above.
Mortgage
Revenues and Adjusted EBITDA increased $12.6 million (13%) and $4.9 million
(11%), respectively, in second quarter 1999 compared to second quarter 1998,
primarily due to substantial growth in mortgage originations and increases in
average servicing fees. The Adjusted EBITDA margin decreased from 48% in 1998 to
47% in 1999, as higher revenues were offset by higher operating expenses related
to increases in hiring, technology and capacity, which we planned to support
continued growth. Mortgage closings increased $1.2 billion (19%) to $7.8
billion, while average production fees decreased 13 basis points, resulting in a
$4.9 million net increase in production revenues. The decrease in the average
production fees resulted from a shift to more profitable sales and processing
channels being offset by increased competitive pressures in the mortgage lending
market. The servicing portfolio grew $9.7 billion (29%), and recurring servicing
revenue increased $8.9 million (60%), with average servicing fees increasing one
basis point.
Individual Membership
Revenues and Adjusted EBITDA increased $34.2 million (16%) and $58.0 million,
respectively, in second quarter 1999 compared to second quarter 1998. The
Adjusted EBITDA margin improved from negative 20% to a positive 7% for the same
periods. The revenue growth is principally due to a greater number of members
and increases in the average price of a membership. The increase in Adjusted
EBITDA margin is primarily due to the revenue increases, since many of the
infrastructure costs associated with providing services to members are not
dependent on revenue volume. Results also benefited from reduced solicitation
spending, as we further refined the targeted audiences for our direct marketing
efforts and achieved greater efficiencies in reaching potential new members. The
online membership business contributed $15.2 million to revenues, but reduced
Adjusted EBITDA by $9.7 million in second quarter 1999.
Insurance/Wholesale
Revenues and Adjusted EBITDA increased $6.2 million (5%) and $14.5 million
(41%), respectively, in second quarter 1999 compared to second quarter 1998
primarily due to customer growth, which resulted from increases in affiliations
with financial institutions. The increase in revenues was principally
attributable to international expansion, while the Adjusted EBITDA improvement
was due to improved profitability in international markets and a $9.2 million
marketing expense decrease related to longer amortization periods for certain
customer acquisition costs. International revenues and Adjusted EBITDA increased
$7.6 million (26%) and $5.0 million, respectively, primarily due to a 43%
increase in customers. For the segment as a whole, the Adjusted EBITDA margin
increased from 26% in 1998 to 35% in 1999. The Adjusted EBITDA margin for
domestic operations was 42% in 1999, versus 32% in 1998. The Adjusted EBITDA
margin for international operations was 15% for 1999, versus 2% in 1998.
Domestic operations, which comprised 74% of segment revenues in 1999, generated
higher Adjusted EBITDA margins than international operations as a result of
continued expansion costs incurred internationally to penetrate new markets.
International operations, however, have become increasingly profitable as they
have expanded over the last 18 months.
Other Services
Revenues and Adjusted EBITDA decreased $7.6 million (3%) and $25.7 million
(57%), respectively, in second quarter 1999 compared to second quarter 1998.
Revenues decreased primarily as a result of a decrease in income from financial
investments and the impact of divested operations, including the sales of our
Essex financial products distribution business in January 1999 and our National
Leisure Group travel-package subsidiary in May 1999. The revenue decreases were
partially offset by increased revenues from National Parking Corporation
("NPC"), the largest private car park operator in the UK, which we acquired in
April 1998. NPC contributed an incremental $13.4 million of revenues in second
quarter 1999 compared to second quarter 1998. The decrease in Adjusted EBITDA
was primarily due to the revenue decreases discussed above and lower earnings
from Jackson Hewitt, our tax preparation franchise subsidiary. The decreases in
Adjusted EBITDA were partially offset by a $13.1 million increase from NPC,
which was included for all three months of second quarter 1999.
Fleet
On June 30, 1999 we completed the disposition of our fleet segment for aggregate
consideration of $1.8 billion (see "Liquidity and Capital Resources -
Divestitures - Disposition of Fleet Segment"). Fleet segment revenues increased
$9.6 million (10%) and Adjusted EBITDA decreased $2.6 million (6%) in second
quarter 1999 compared to second quarter 1998. Contributing to the revenue
increase was a 7% increase in service fee revenue. The number of service cards
and leased vehicles increased by approximately 666,800 (18%) and 12,700 (4%),
respectively. The Adjusted EBITDA margin decreased from 46% in 1998 to 39% in
1999. Increased operating expenses and higher borrowing costs contributed to the
decrease in Adjusted EBITDA from second quarter 1998 to second quarter 1999.
<PAGE>
Results of Operations - Six Months Ended June 30, 1999
vs.
Six Months Ended June 30, 1998
Consolidated Results
(Dollars in millions)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------------------
1999 1998 % Change
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues $ 2,682.2 $ 2,392.2 12%
Expenses
Operating 867.4 748.6 16%
Marketing and reservation 550.1 556.1 (1%)
General and administrative 342.8 292.4 17%
---------- ----------- ----------
1,760.3 1,597.1 10%
---------- ----------- ----------
Adjusted EBITDA 921.9 795.1 16%
Other charges
Merger-related costs and other unusual
charges (credits) 21.7 (24.4) *
Investigation-related financing costs - 12.7 *
Other investigation-related costs 8.2 19.5 *
Termination of proposed acquisition 7.0 - *
Depreciation and amortization expense 185.2 147.9 25%
Interest expense, net 102.4 41.8 145%
Net gain on disposition of businesses (749.5) - *
----------- -----------
Pre-tax income from continuing operations
before minority interest 1,346.9 597.6 *
Provision for income taxes 250.3 214.7 17%
Minority interest, net of tax 30.2 19.8 53%
---------- -----------
Income from continuing operations 1,066.4 363.1 *
Loss from discontinued operations, net of tax (16.2) (37.2) *
Net gain on sale of discontinued operations, net of tax 174.1 - *
---------- -----------
Net income $ 1,224.3 $ 325.9 *
========== ===========
</TABLE>
- ---------
* Not meaningful.
<PAGE>
Revenues and Adjusted EBITDA
Revenues increased $290.0 million (12%) during the six months ended June 30,
1999 compared to the six months ended June 30, 1998, which reflected growth in
substantially all of our reportable operating segments. Adjusted EBITDA also
increased $126.8 million (16%) for the same periods. Significant contributing
factors which gave rise to such increases included substantial growth in the
volume of mortgage services provided and an increase in the amount of royalty
fees received from our franchised brands, within both our travel and real estate
franchise segments. In addition, we experienced strong growth and efficiences
within our direct marketing businesses. Revenues and Adjusted EBITDA included
the operating results of National Parking Corporation Limited ("NPC"), which was
acquired in April 1998, for all six months in 1999 compared to the
post-acquisition period in 1998. A detailed discussion of revenues and Adjusted
EBITDA trends from 1998 to 1999 is included in the section entitled "Results of
Reportable Operating Segments - Six Months Ended June 30, 1999 vs. Six Months
Ended June 30, 1998."
Other charges
Investigation-Related Costs. During the six months ended June 30, 1999 and 1998,
we incurred $8.2 million and $32.2 million (including $12.7 million of
incremental financing costs) of investigation-related costs, respectively.
Merger-Related Costs and Other Unusual Charges (Credits). During the six months
ended June 30, 1999, we recorded a net charge of $21.7 million which was
comprised of a $23.0 million, non-recurring charge in connection with the
transition of our lodging franchisees to a Company-sponsored property management
system partially offset by a $1.3 million pre-tax gain on the sale of our Essex
Corporation subsidiary ("Essex"). In January 1999, we completed the sale of
Essex for $8.0 million. Coincident to the merger which formed Cendant
Corporation, we had previously recorded an unusual charge related to certain
intangible assets of Essex which were determined to be impaired.
During the six months ended June 30, 1998, we recorded a net credit of $24.4
million associated with changes in the estimate of costs to be incurred in
connection with previously recorded merger-related costs and other unusual
charges.
Termination of Proposed Acquisition. On February 4, 1999, we announced our
intention not to proceed with the acquisition of RAC Motoring Services ("RACMS")
due to certain conditions imposed by the UK Secretary of State for Trade and
Industry that we determined to be commercially infeasible. We wrote-off $7.0
million of deferred acquisition costs in the first quarter of 1999 in connection
with the termination of the proposed acquisition of RACMS.
Depreciation and amortization expense
Depreciation and amortization expense increased $37.3 million (25%) during the
six months ended June 30, 1999 compared to the prior year period as a result of
incremental amortization of goodwill and other intangible assets from 1998
acquisitions and increased capital spending in 1998 primarily to support
continued growth and enhance marketing opportunities in our businesses.
Interest expense, net and minority interest, net of tax
Interest expense, net, increased $60.6 million (145%) primarily as a result of
higher borrowing costs as well as an increase in the average debt balances
outstanding during the six months ended June 30, 1999 when compared with the
same period in 1998. The composition of average debt balances during 1999
included longer-term fixed rate debt carrying higher interest rates as compared
to 1998. The average debt balance carried during 1999 is principally reflective
of incremental borrowings used to finance the April 1998 acquisition of NPC. In
addition, minority interest, net of tax, increased $10.4 million (53%). Minority
interest, net of tax, is primarily related to the preferred dividends payable in
cash on our FELINE PRIDES and the trust preferred securities issued in March
1998 (see "Liquidity and Capital Resources - Financing Exclusive of Management
and Mortgage Financing - FELINE PRIDES and Trust Preferred Securities").
Net Gain on Disposition of Businesses
See "Liquidity and Capital Resources - Divestitures" for a discussion regarding
the dispositions of certain businesses during the six months ended June 30, 1999
and the resulting net gain from such dispositions.
Provision for income taxes
Our effective tax rate was reduced from 35.9% in 1998 to 18.6% in 1999 due to
the impact of the disposition of our fleet businesses which were accounted for
as a tax-free merger for tax purposes. Accordingly, minimal income taxes were
provided on the net gain realized upon disposition.
Discontinued operations
Pursuant to our program to divest non-strategic businesses and assets, we sold
our consumer software and classified advertising businesses in January 1999 and
December 1998, respectively, and on April 21, 1999 (the "Measurement Date"), we
committed to selling our Entertainment Publications, Inc. ("EPub") business (see
"Liquidity and Capital Resources - Divestitures - Discontinued Operations"). We
anticipate an after tax gain on the sale of EPub (including the results of
operations from the Measurement Date to the sale date). We deferred $6.9 million
of operating losses from the Measurement Date through June 30, 1999, as an
offset to the expected gain on the sale. Loss from discontinued operations, net
of tax, was $16.2 million in 1999 compared to $37.2 million in 1998 and was
comprised of the following operating results:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------------------------------------------
1999 1998
-------------- ----------------------------------------------
Entertainment Entertainment Consumer Classified
(In millions) Publications Publications Software Advertising
-------------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Net revenues $ 15.7 $ 15.1 $ 226.3 $ 137.2
Net income (loss) (16.2) (24.3) (23.9) 11.0
</TABLE>
We recorded a $192.7 million gain, net of tax, on the sale of discontinued
operations in the first quarter of 1999, related to the disposition of our
consumer software business, coincident with the closing of the transaction. We
recorded a $18.6 million reduction to the gain in the second quarter of 1999 in
connection with the settlement of certain post closing adjustments.
Results of Reportable Operating Segments - Six Months Ended June 30, 1999
vs.
Six Months Ended June 30, 1998
Six Months Ended June 30,
(Dollars in millions)
<TABLE>
<CAPTION>
Revenues Adjusted EBITDA Adjusted EBITDA
----------------------------------- --------------------------------------- --------------------
% % Margin
1999 1998 Change 1999 1998 (5) Change 1999 1998
--------- ---------- --------- ------------ ---------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Travel $ 561.6 $ 529.2 6% $ 291.2 (1) $ 284.8 2% 52% 54%
Real Estate
Franchise 255.5 215.8 18% 185.3 162.3 14% 73% 75%
Relocation 197.7 209.9 (6%) 52.1 52.0 - 26% 25%
Mortgage 199.8 172.0 16% 93.7 82.3 14% 47% 48%
Individual
Membership 487.2 413.7 18% 29.0 (2) (56.8) * 6% *
Insurance/
Wholesale 282.7 270.8 4% 88.3 (3) 74.6 18% 31% 28%
Other 490.3 388.2 26% 101.5 (1,2,4) 104.6 (6) (3%) 21% 27%
Fleet 207.4 192.6 8% 80.8 91.3 (12%) 39% 47%
--------- --------- -------- --------
Total $ 2,682.2 $ 2,392.2 12% $ 921.9 $ 795.1 16% 34% 33%
========= ========= ======== ========
</TABLE>
- -----------------
(1) Excludes a $23.0 million non-recurring charge incurred within the
Travel segment in connection with the transition of our lodging franchisees
to a Company-sponsored property management system segment.
(2) Excludes a pre-tax gain of $34.1 million recorded within the Individual
Membership segment on the disposition of Match.com and a pre-tax gain of
$715.4 million recorded within the Other segment on the dispositions of the
fleet segment, National Library of Poetry and National Leisure Group, which
were sold in the second quarter of 1999.
(3) Includes an $8.2 million reduction in expenses resulting from a change in
the estimated amortization lives of accidental death and dismemberment
customer acquisition costs.
(4) Excludes (i) $8.2 million of investigation-related costs; (ii) a $7.0
million write-off of deferred acquisition costs in connection with the
termination of the proposed acquisition of RACMS; and (iii) a $1.3 million
gain on the sale of Essex which has been recorded as a credit to merger-
related costs and other unusual charges.
(5) Excludes a net credit of $24.4 million associated with changes in the
estimate of costs to be incurred in connection with previously recorded
merger-related costs and other unusual charges. The aforementioned net
credit was comprised of $5.4 million, $1.0 million, $24.1 and $1.3 million
million of credits within the Travel, Real Estate Franchise, Other and
Fleet segments, respectively, and $3.7 million and $3.7 million of charges
incurred within the Relocation and Mortgage segments, respectively.
(6) Excludes $32.2 million of investigation-related costs, including $12.7
million of incremental financing costs.
* Not meaningful.
<PAGE>
Travel
Revenues and Adjusted EBITDA increased $32.4 million (6%) and $6.4 million (2%),
respectively, in the first six months of 1999 compared to the first six months
of 1998. Excluding a $7.5 million decrease in gains from the sale of portions of
our equity investment in Avis Rent A Car, Inc. ("ARAC") from $17.7 million in
1998 to $10.3 million in 1999, revenues increased $39.9 million (8%) and
Adjusted EBITDA increased $13.9 million (5%) in 1999 over 1998. Contributing to
the revenue and Adjusted EBITDA increase were increases in lodging and car
rental franchise fees of $14.9 million (8%) and $9.2 million (12%),
respectively. Our franchise businesses experienced incremental growth in the
first six months of 1999 compared to the first six months of 1998, primarily due
to increases in available rooms (24,500 incremental rooms domestically), revenue
per available room and car rental days. Timeshare subscription and exchange
revenue increased $13.8 million (8%) as a result of increased volume. An 11%
increase in operating expenses and a 9% increase in marketing and reservation
fund expenses, which were attributable to increased volumes and were offset by
increased marketing and reservation revenues received from franchisees,
substantially contributed to a $26.1 million increase in total expenses. The
Adjusted EBITDA margin decreased to 52% in 1999 from 54% in 1998. Excluding the
gains from our aforementioned sales of ARAC stock, the Adjusted EBITDA margin
was 51% in 1999 and 52% in 1998.
Real Estate Franchise
Revenues and Adjusted EBITDA increased $39.7 million (18%) and $23.0 million
(14%), respectively, in the first six months of 1999 compared to the first six
months of 1998. Royalty fees increased for the COLDWELL BANKER(R) and ERA(R)
franchise brands collectively by $25.3 million (14%) primarily as a result of a
9% increase in home sale transactions by franchisees and a 7% increase in the
average price of homes sold. Home sales by franchisees benefited from strong
first half 1999 existing U.S. home sales, as well as from expansion of our
franchise system. Also, in second quarter 1999, the financial results of the
national advertising funds for the COLDWELL BANKER and ERA brands (the
"Advertising Funds") were consolidated into the Real Estate Franchise segment,
which increased revenues by $14.7 million (7%) and increased expenses by the
same amount, with no impact on Adjusted EBITDA. Revenues from Preferred Alliance
declined $8.4 million compared to the first six months 1998 in which we received
significant initial fees. This decrease was offset by a $10.0 million gain on
the sale of preferred stock of NRT Incorporated, the independent company we
helped form in 1997 to serve as a consolidator of residential real estate
brokerages. Since most costs associated with the real estate franchise business
do not vary significantly with home sale volume or revenues, the increase in
revenues contributed to an improvement of the Adjusted EBITDA margin from 75% in
1998 to 77% in 1999, prior to the consolidation of the Advertising Funds. The
Advertising Funds spend most of their revenues on marketing and advertising
expenses. The inclusion of the Advertising Funds in revenues and expenses
reduced the Adjusted EBITDA margin to 73% in 1999.
Relocation
Revenues decreased $12.2 million (6%) while Adjusted EBITDA remained unchanged
in the first six months of 1999 compared to the first six months of 1998. The
sale in third quarter 1998 of certain niche-market asset management operations
reduced 1999 revenues and Adjusted EBITDA by $9.7 million and $5.8 million,
respectively. As a result of management's efforts to renegotiate certain
contracts, ancillary service fees have increased, offsetting reduced volumes in
home sales and household goods moves. In 1998, revenues and Adjusted EBITDA
benefited from an improvement in receivable collections, which permitted a $4.7
million reduction in billing allowances. Operating expenses, excluding
information technology, decreased $15.0 million, principally from cost savings
in regional operations, reduced government home sale expenses and the sale of
certain asset management operations discussed above. These expense reductions
were partially offset by increased investment in information technology. The
Adjusted EBITDA margin increased from 25% in 1998 to 26% in 1999 primarily due
to the sale in second quarter 1999 of a minority interest in our Fairtide
insurance subsidiary, which resulted in $7.2 million of additional revenue and
Adjusted EBITDA.
Mortgage
Revenues and Adjusted EBITDA increased $27.8 million (16%) and $11.4 million
(14%), respectively, in the first six months of 1999 compared to the first six
months of 1998, primarily due to substantial growth in mortgage originations.
The Adjusted EBITDA margin decreased from 48% in 1998 to 47% in 1999 as higher
revenues were offset by higher operating expenses related to increases in
hiring, technology and capacity, which we planned to support continued growth.
Mortgage closings increased $3.2 billion (28%) to $14.6 billion, while average
production fees decreased 8 basis points, resulting in a $24.3 million net
increase in production revenues. The decrease in the average fees resulted from
the shift to more profitable sales and processing channels being offset by
increased competitive pressures in the mortgage lending market. The servicing
portfolio grew $12.1 billion (37%), with recurring servicing revenue increasing
$5.5 million (18%) and average servicing fees declining one basis point.
Individual Membership
Revenues and Adjusted EBITDA increased $73.5 million (18%) and $85.8 million,
respectively, in the first six months of 1999 compared to the first six months
of 1998. The Adjusted EBITDA margin improved from negative 14% to a positive 6%
for the same periods. The revenue growth is principally due to a greater number
of members added year over year and increases in the average price of a
membership. Also contributing to the revenue growth was a $12.8 million increase
due to the acquisition of a company in April 1998 that, among other services,
provides members with access to their personal credit information. In addition,
membership retention rates in the first six months of 1999 met, or exceeded, our
expectations. The increase in Adjusted EBITDA margin is primarily due to the
revenue increases, since many of the infrastructure costs associated with
providing services to members are not dependent on revenue volume. Results also
benefited from a reduction in solicitation spending, as we further refined the
targeted audiences for our direct marketing efforts and achieved greater
efficiencies in reaching potential new members. The online membership business
contributed $32.9 million to revenues, but reduced Adjusted EBITDA by $16.3
million in the first six months of 1999.
Insurance/Wholesale
Revenues and Adjusted EBITDA increased $11.9 million (4%) and $13.7 million
(18%), respectively, in the first six months of 1999 compared to the first six
months of 1998 primarily due to customer growth, which resulted from increases
in affiliations with financial institutions. Excluding non-recurring benefits
incurred in the first quarter of 1998 related to the negotiation of new terms on
a primary reinsurance contract, revenues and Adjusted EBITDA increased $14.9
million (6%) and $16.7 million (22%), respectively, in 1999 over 1998. The
increase in revenues was attributable principally to international expansion,
while the Adjusted EBITDA increase was due to improved profitability in
international markets as well as a $9.2 million expense decrease related to
longer amortization periods for certain customer acquisition costs.
International revenues and Adjusted EBITDA increased $15.4 million (28%) and
$6.6 million (158%), respectively, primarily due to a 44% increase in customers.
For the segment as a whole, the Adjusted EBITDA margin increased from 28% in
1998 to 31% in 1999. The Adjusted EBITDA margin for domestic operations was 37%
in 1999, versus 33% in 1998. The Adjusted EBITDA margin for international
operations was 15% for 1999, versus 7% in 1998. Domestic operations, which
comprised 75% of segment revenues in 1999, generated higher Adjusted EBITDA
margins than international operations as a result of continued expansion costs
incurred internationally to penetrate new markets. International operations,
however, have become increasingly profitable as they have expanded over the last
18 months.
Other Services
Revenues increased $102.1 million (26%) and Adjusted EBITDA decreased $3.1
million (3%) in the first six months of 1999 compared to the first six months of
1998. Revenues increased primarily as a result of the April 1998 acquisition of
NPC, which contributed $143.5 million of additional revenues in 1999 compared to
1998. The revenue increase attributable to the NPC acquisition was partially
offset by decreases in insurance recoveries and income from financial
investments and the impact of divested operations, including the sales of our
Essex financial products distribution business in January 1999 and our National
Leisure Group travel-package subsidiary in May 1999. The decrease in Adjusted
EBITDA was primarily due to the revenue items discussed above and increased
operating and infrastructure costs, offset by earnings related to the NPC
acquisition.
Fleet
On June 30, 1999, we completed the disposition of our fleet segment (see
"Liquidity and Capital Resources - Divestitures Disposition of Fleet Segment").
Revenues increased $14.8 million (8%) and Adjusted EBITDA decreased $10.5
million (12%) in the first six months of 1999 compared to the first six months
of 1998. Contributing to the revenue increase was an 8% increase in service fee
revenue. The number of service cards and leased vehicles increased by
approximately 614,600 (17%) and 17,400 (5%), respectively. Increased operating
expenses, higher borrowing costs and the receipt in 1998 of access fees related
to a key vendor arrangement contributed to the decrease in Adjusted EBITDA from
the first six months of 1998 to the first six months of 1999. The Adjusted
EBITDA margin decreased from 47% in 1998 to 39% in 1999.
Liquidity and Capital Resources
Divestitures
Discontinued Operations. Pursuant to our program to divest non-strategic
businesses and assets (see "Overview"), on April 21, 1999, we announced that our
Board of Directors approved our plan to pursue the sale of our Entertainment
Publications, Inc. ("EPub") business segment. We engaged a third party to manage
the sale process. EPub sells discount programs to schools, community groups and
other organizations, which typically provide the discount programs to
individuals in the form of local discount coupon books, gift wrap and other
seasonal items. EPub solicits restaurants, hotels, theaters, sporting events,
retailers and other businesses which agree to offer services and/or merchandise
at discount prices.
On January 12, 1999, we completed the sale of Cendant Software Corporation
("CDS") for $800.0 million in cash. We realized a net gain of $371.9 million on
the disposition of CDS of which $192.7 million was recognized in the first
quarter of 1999, coincident with the closing of the transaction. We recorded an
$18.6 million reduction to the gain during the second quarter of 1999, in
connection with the settlement of certain post closing adjustments. The
remaining $197.8 million of realized net gain was recognized in the fourth
quarter of 1998, substantially in the form of a tax benefit and corresponding
deferred tax asset. CDS was a developer, publisher and distributor of
educational and entertainment software.
In December 1998, we completed the sale of Hebdo Mag International, Inc. ("Hebdo
Mag") to its former 50% owners for $314.8 million in cash and 7.1 million shares
of our common stock. Hebdo Mag was our former business unit which published and
distributed classified advertising information.
Disposition of Fleet Segment. Pursuant to our program to divest non-strategic
businesses and assets, on June 30, 1999, we completed the disposition of our
fleet business segment ("fleet segment" or "fleet businesses"), which included
PHH Vehicle Management Services Corporation, Wright Express Corporation, The
Harpur Group, Ltd., and other subsidiaries pursuant to an agreement between PHH
Corporation ("PHH"), our wholly-owned subsidiary, and Avis Rent A Car, Inc.
("ARAC"). Pursuant to the agreement, ARAC acquired the net assets of our fleet
businesses through the assumption and subsequent repayment of $1.44 billion of
intercompany debt and the issuance of $360.0 million of convertible preferred
stock of Avis Fleet Leasing and Management Corporation ("Avis Fleet"), a
wholly-owned subsidiary of ARAC. The transaction followed a competitive bidding
process. Coincident to the closing of the transaction, ARAC refinanced the
assumed debt under management programs which was payable to us. Accordingly, on
June 30, 1999, we received additional consideration from ARAC of $3,047.5
million comprised of $3,016.9 million of cash proceeds and a $30.6 million note
receivable. On such date, we used proceeds of $1,809.4 million to repay
outstanding fleet segment financing arrangements. Additionally, in July 1999,
the Company utilized cash proceeds from the transaction of $1,033.0 million
(received in the form of a dividend payment from PHH) to substantially execute
the "Dutch Auction" tender offer by us to purchase 50 million shares of our
common stock (See "Common Share Repurchases"). As of June 30, 1999, proceeds
remaining from the transaction were designated to repay outstanding corporate
debt as it matures (the borrowings of which had been loaned to the fleet
segment to finance the purchases of leased vehicles) and to finance other
assets under management and mortgage programs.
The convertible preferred stock of Avis Fleet is convertible into common stock
of ARAC at our option upon the satisfaction of certain conditions, including the
per share price of ARAC Class A common stock equaling or exceeding $50 per share
and the fleet segment attaining certain EBITDA (earnings before interest, taxes,
depreciation and amortization) thresholds, as defined. There are additional
circumstances upon which the shares of Avis Fleet convertible preferred stock
are automatically or mandatorily convertible into ARAC common stock. At June 30
1999, we beneficially owned approximately 19% of the outstanding Class A common
stock of ARAC. If all of the Avis Fleet convertible preferred stock was
converted into common stock of ARAC, as of the closing date, we would have owned
approximately 34% of ARAC's outstanding common equity (although the voting
interest would be limited, in most instances to 20%).
We realized a net gain on disposition of $881.4 million ($865.7 million, after
tax) of which $714.8 million ($702.1 million, after tax) was recognized in the
second quarter of 1999 and $166.6 million ($163.6 million, after tax) was
deferred at June 30, 1999. The realized gain is net of approximately $90.0
million of transaction costs. We deferred the portion of the realized net gain
which was equivalent to our common equity ownership percentage in ARAC at the
time of closing. The fleet segment disposition was structured in accordance with
applicable tax law to be treated as a tax-free reorganization and, accordingly,
no tax provision has been recorded on a majority of the gain. Should the
transaction be deemed taxable, the resultant tax liability could be material.
Other. During the second quarter of 1999, we completed the dispositions of
certain businesses, including Match.com, National Leisure Group and National
Library of Poetry. Aggregate consideration received on the dispositions of such
businesses was comprised of $26.8 million in cash and $43.3 million of common
stock. We realized a net gain of $34.7 million ($21.5 million, after tax) on the
dispositions of the businesses.
On August 12, 1999, we completed the sale of our Spark Services subsidiary for
approximately $35.0 million in cash.
Pending disposition. On June 30, 1999, we entered into a definitive agreement to
sell our Central Credit Inc. ("CCI") business unit for $44.0 million in cash.
CCI is the leading provider of gaming patron credit information services to
casinos. The transaction is subject to regulatory approvals and is expected to
be completed during the third quarter of 1999.
Financing (exclusive of Management and Mortgage Program Financing)
We believe that we have sufficient liquidity and access to liquidity through
various sources, including our ability to access public equity and debt markets
and financial institutions. We currently have a $1.25 billion term loan facility
in place as well as committed back-up facilities totaling $1.75 billion, of
which $1.72 billion is currently undrawn and available and $2.45 billion of
availability under existing shelf registration statements. Our long-term debt
was $3.3 billion at June 30, 1999 which substantially consisted of $2.1 billion
of publicly issued fixed rate debt and $1.25 billion of borrowings under a term
loan facility. In addition, we had $1.5 billion of equity-linked FELINE PRIDES
securities outstanding at June 30, 1999.
Credit Facilities
Our primary credit facility consists of (i) a $750 million, five-year revolving
credit facility (the "Five Year Revolving Credit Facility") and (ii) a $1
billion, 364-day revolving credit facility (the "364 Day Revolving Credit
Facility") (collectively the "Revolving Credit Facilities"). The 364 Day
Revolving Credit Facility will mature on October 29, 1999 but may be renewed on
an annual basis for an additional 364 days upon receiving lender approval. The
Five-Year Revolving Credit Facility will mature on October 1, 2001. Borrowings
under the Revolving Credit Facilities, at our option, bear interest based on
competitive bids of lenders participating in the facilities, at prime rates or
at LIBOR, plus a margin of approximately 75 basis points. We are required to pay
a per annum facility fee of .175% and .15% of the average daily unused
commitments under the Five Year Revolving Credit Facility and 364 Day Revolving
Credit Facility, respectively. The interest rates and facility fees are subject
to change based upon credit ratings on our senior unsecured long-term debt by
nationally recognized debt rating agencies. The Revolving Credit Facilities
contain certain restrictive covenants including restrictions on indebtedness,
mergers, liquidations and sale and leaseback transactions and requires the
maintenance of certain financial ratios, including a 3:1 minimum interest
coverage ratio and a maximum debt-to-capitalization ratio of 0.5:1.
Term Loan Facilities
On February 9, 1999, we replaced a 364-day, $3.25 billion term loan facility
with a new two-year term loan facility (the "Term Loan Facility") which provides
for borrowings of up to $1.25 billion. The Term Loan Facility bears interest at
LIBOR plus a margin of approximately 100 basis points and is payable in five
consecutive quarterly installments beginning on the first anniversary of the
closing date. At June 30, 1999, borrowings under the Term Loan Facility, which
were due within one year, were classified as long-term based on our intent and
ability to refinance such borrowings on a long-term basis. The Term Loan
Facility contains certain restrictive covenants, which are substantially similar
to and consistent with the covenants in effect for our Revolving Credit
Facilities. We used $1.25 billion of the proceeds from the Term Loan Facility to
refinance a portion of the outstanding borrowings under the former term loan
facility.
7 1/2% and 7 3/4% Senior Notes
We filed a shelf registration statement with the Securities and Exchange
Commission ("SEC"), effective November 1998, which provided for the aggregate
issuance of up to $3 billion of debt and equity securities. Pursuant to such
registration statement, we issued $1.55 billion of Senior Notes (the "Notes") in
two tranches, consisting of $400 million principal amount of 7 1/2% Senior Notes
due December 1, 2000 and $1.15 billion principal amount of 7 3/4% Senior Notes
due December 1, 2003. Interest on the Notes is payable on June 1 and December 1
of each year, beginning on June 1, 1999. The Notes may be redeemed, in whole or
in part, at any time, at our option at a redemption price plus accrued interest
to the date of redemption. The redemption price is equal to the greater of (i)
the face value of the Notes or (ii) the sum of the present values of the
remaining scheduled payments discounted at the treasury rate plus a spread as
defined in the indenture. The offering was a component of a plan designed to
refinance an aggregate of $3.25 billion of borrowings under our former term loan
facility, based on provisions contained in the indenture. Net proceeds from the
offering were used to repay $1.3 billion of borrowings under such term loan
facility and for general corporate purposes, which included the purchase of our
common stock.
FELINE PRIDES and Trust Preferred Securities
Through our wholly owned subsidiary, Cendant Capital I (the "Trust"), a
statutory business Trust formed under the laws of the State of Delaware, we have
an outstanding issuance of 29.9 million FELINE PRIDES, each with a face amount
of $50 per PRIDE and 2.3 million trust preferred securities. Proceeds of $1.5
billion from the original issuance of the FELINE PRIDES were invested by the
Trust in our 6.45% Senior Debentures due 2003 (the "Debentures), which
represents the sole asset of the Trust. The obligations of the Trust related to
the FELINE PRIDES and trust preferred securities are unconditionally guaranteed
by us to the extent we make payments pursuant to the Debentures. The issuance of
the FELINE PRIDES and trust preferred securities, resulted in the utilization of
approximately $3 billion of availability under a $4 billion shelf registration
statement. At June 30, 1999, the FELINE PRIDES consisted of approximately 27.8
million Income PRIDES and 2.1 million Growth PRIDES (Income PRIDES and Growth
PRIDES hereinafter referred to as "PRIDES"). The Income PRIDES consist of trust
preferred securities and forward purchase contracts under which the holders are
required to purchase our common stock in February 2001. The Growth PRIDES
consist of zero coupon U.S. Treasury securities and forward purchase contracts
under which the holders are required to purchase our common stock in February
2001. The stand-alone trust preferred securities and the trust preferred
securities forming a part of the Income PRIDES, each with a face amount of $50,
bear interest, in the form of preferred stock dividends, at the annual rate of
6.45%, payable in cash. Payments under the forward purchase contract forming a
part of the Income PRIDES are made by us in the form of a contract adjustment
payment at an annual rate of 1.05%. Payments under the forward purchase contract
forming a part of the Growth PRIDES are made by us in the form of a contract
adjustment payment at an annual rate of 1.30%. The forward purchase contracts
require the holder to purchase a minimum of 1.0395 shares and a maximum of
1.3514 shares of our common stock per PRIDES security, depending upon the
average of the closing price per share of our common stock for a 20 consecutive
day period ending in mid-February of 2001. We have the right to defer the
contract adjustment payments and the payment of interest on its Debentures to
the Trust. Such election will subject us to certain restrictions, including
restrictions on making dividend payments on our common stock until all such
payments in arrears are settled.
On March 17, 1999, we reached a final agreement to settle a class action lawsuit
that was brought on behalf of the holders of PRIDES securities who purchased
their securities on or prior to April 15, 1998. Under the terms of the final
agreement, only holders who owned PRIDES at the close of business on April 15,
1998 will be eligible to receive a new additional "Right" for each PRIDES
security held. At any time during the life of the Rights (expires February
2001), holders may (i) sell them or (ii) exercise them by delivering to us three
Rights together with two PRIDES in exchange for two new PRIDES (the "New
PRIDES"). The terms of the New PRIDES will be the same as the original PRIDES
except that the conversion rate will be revised so that, at the time the Rights
are distributed, each New PRIDES will have a value equal to $17.57 more than
each original PRIDES, or, in the aggregate, approximately $351.0 million. The
final agreement also requires us to offer to sell four million additional PRIDES
(having identical terms to currently outstanding PRIDES) to holders of Rights
for cash, at a value which will be based on the valuation model that was
utilized to set the conversion rate of the New PRIDES. The offering of
additional PRIDES will be made only pursuant to a prospectus filed with the SEC.
We currently expect to use the proceeds of such an offering for general
corporate purposes. The arrangement to offer additional PRIDES is designed to
enhance the trading value of the Rights by removing up to six million Rights
from circulation via exchanges associated with the offering and to enhance the
open market liquidity of New PRIDES by creating four million New PRIDES via
exchanges associated with the offering. If holders of Rights do not acquire all
such PRIDES, they will be offered to the public. Under the settlement agreement,
we also agreed to file a shelf registration statement for an additional 15
million special PRIDES, which could be issued by us at any time for cash.
However, during the last 30 days prior to the expiration of the Rights in
February 2001, we will be required to make these additional PRIDES available to
holders of Rights at a price in cash equal to 105% of their theoretical value.
The special PRIDES, if issued, would have the same terms as the currently
outstanding PRIDES and could be used to exercise Rights. Based on a market price
of $18.625 the closing price per share of our common stock on August 9, 1999 the
effect of the issuance of the New PRIDES will be to distribute approximately 18
million more shares of our common stock when the mandatory purchase of our
common stock associated with the PRIDES occurs in February 2001. This represents
approximately 2.5% more shares of our common stock than are currently
outstanding.
On June 15, 1999, the United States District Court for the District of New
Jersey entered an order and judgment approving the settlement described above
and awarding fees to counsel to the class. One objector, who objected to a
portion of the settlement notice concerning fees to be sought by counsel to the
class and the amount of fees to be sought by counsel to the class, has filed an
appeal to the U.S. Court of Appeals for the Third Circuit from the District
Court order approving the settlement and awarding fees to counsel to the class.
Although under the settlement the Rights are required to be distributed
following the conclusion of court proceedings, including appeals, we believe
that the appeal is without merit. As a result, we presently intend to distribute
the Rights in September or October 1999 after the effectiveness of the
registration statement filed with the SEC covering the New PRIDES.
3% Convertible Subordinated Notes
We have an outstanding issuance of $550.0 million principal amount of 3%
Convertible Subordinated Notes (the "3% Notes") due 2002. Each $1,000 principal
amount of 3% Notes is convertible into 32.6531 shares of our common stock
subject to adjustment in certain events. The 3% Notes may be redeemed at our
option at any time on or after February 15, 2000, in whole or in part, at the
appropriate redemption prices (as defined in the indenture governing the 3%
Notes) plus accrued interest to the redemption date. The 3% Notes will be
subordinated in right of payment to all existing and future Senior Debt (as
defined in our indenture governing the 3% Notes).
Financing Related to Management and Mortgage Programs
Our PHH subsidiary operates our mortgage and relocation services businesses as a
separate public reporting entity and supports originated mortgages and advances
under relocation contracts primarily by issuing commercial paper and medium term
notes and maintaining securitized obligations. Such financing is not classified
based on contractual maturities, but rather is included in liabilities under
management and mortgage programs rather than long-term debt since such debt
corresponds directly with high quality related assets. Prior to the June 30,
1999 disposition of our fleet segment, fleet business operations were also
funded using such financing arrangements. Upon the disposition, we received cash
proceeds equivalent to the outstanding debt applicable to our fleet segment (see
"Liquidity and Capital Resources - Divestitures - Disposition of Fleet
Segment"). PHH continues to pursue opportunities to reduce its borrowing
requirements by securitizing increasing amounts of its high quality assets. We
currently have an agreement, expiring 2001 under which an unaffiliated buyer,
Bishops Gate Residential Mortgage Trust, a special purpose entity, (the "Buyer")
commits to purchase, at our option, mortgage loans originated by us on a daily
basis, up to the Buyer's asset limit of $2.4 billion. Under the terms of this
sale agreement, we retain the servicing rights on the mortgage loans sold to the
Buyer and provide the Buyer with options to sell or securitize the mortgage
loans into the secondary market. At June 30, 1999, we were servicing
approximately $1.7 billion of mortgage loans owned by the Buyer.
PHH debt is issued without recourse to the parent company. Our PHH subsidiary
expects to continue to maximize its access to global capital markets by
maintaining the quality of its assets under management. This is achieved by
establishing credit standards to minimize credit risk and the potential for
losses. PHH minimizes its exposure to interest rate and liquidity risk by
effectively matching floating and fixed interest rate and maturity
characteristics of funding to related assets, varying short and long-term
domestic and international funding sources, and securing available credit under
committed banking facilities. Depending upon asset growth and financial market
conditions, our PHH subsidiary utilizes the United States, European and Canadian
commercial paper markets, as well as other cost-effective short-term
instruments. In addition, our PHH subsidiary will continue to utilize the public
and private debt markets as sources of financing. Augmenting these sources, our
PHH subsidiary will continue to manage outstanding debt with the potential sale
or transfer of managed assets to third parties while retaining fee-related
servicing responsibility.
PHH's aggregate borrowings at the underlying balance sheet dates were
as follows:
June 30, December 31,
(In billions) 1999 1998
--------- -------------
Commercial paper $ 1.6 $ 2.5
Medium-term notes 2.0 2.3
Securitized obligations 0.8 1.9
Other 0.1 0.2
--------- ------------
$ 4.5 $ 6.9
========= ============
PHH has an effective shelf registration statement on file with the SEC providing
for the aggregate issuance of up to $3.0 billion of medium-term note debt
securities. These securities may be offered from time to time, together or
separately, based on terms to be determined at the time of sale. As of June 30,
1999, PHH had approximately $2.0 billion of medium-term notes outstanding under
this shelf registration statement. Proceeds from future offerings will continue
to be used to finance assets PHH manages for its clients and for general
corporate purposes.
Securitized Obligations
Our PHH subsidiary maintains three separate financing facilities, the
outstanding borrowings of which are securitized by corresponding assets under
management and mortgage programs. Such securitized obligations are described
below.
Mortgage Facility. Our PHH subsidiary maintains a 364-day financing agreement,
expiring in December 1999, to sell mortgage loans under an agreement to
repurchase such mortgages (the "Mortgage Agreement"). The Mortgage Agreement is
collateralized by the underlying mortgage loans held in safekeeping by the
custodian to the Mortgage Agreement. The total commitment under the Mortgage
Agreement is $500.0 million and is renewable on an annual basis at the
discretion of the Lender in accordance with the securitization agreement.
Mortgage loans financed under the Mortgage Agreement at June 30, 1999 totaled
$458.1 million.
Relocation Facilities. Our PHH subsidiary maintains a 364-day asset
securitization agreement, expiring in December 1999 under which an unaffiliated
buyer has committed to purchase an interest in the rights to payment related to
certain relocation receivables of PHH. The revolving purchase commitment
provides for funding up to a limit of $325.0 million and is renewable on an
annual basis at the discretion of the lender in accordance with the
securitization agreement. Under the terms of this agreement, our PHH subsidiary
retains the servicing rights related to the relocation receivables. At June 30,
1999, our PHH subsidiary was servicing $248.3 million of assets which were
funded under this agreement.
Our PHH subsidiary also maintains an asset securitization agreement, with a
separate unaffiliated buyer, which has a purchase commitment up to a limit of
$350.0 million. The terms of this agreement are similar to the aforementioned
facility, with PHH retaining the servicing rights on the right of payment
related to certain relocation receivables of PHH. At June 30, 1999, PHH was
servicing $85.0 million of assets eligible for purchase under this agreement.
Other Credit Facilities
To provide additional financial flexibility, PHH's current policy is to ensure
that minimum committed facilities aggregate 100 percent of the average
outstanding commercial paper. This policy will be maintained subsequent to the
divestiture of the fleet businesses. PHH maintains $2.65 billion of unsecured
committed credit facilities, which are backed by a consortium of domestic and
foreign banks. The facilities are comprised of $1.25 billion of syndicated lines
of credit maturing in March 2000 and $1.25 billion of syndicated lines of credit
maturing in the year 2002. In addition, PHH has a $150 million revolving credit
facility, which matures in December 1999, and other uncommitted lines of credit
with various financial institutions, which were unused at June 30, 1999. Our
management closely evaluates not only the credit of the banks but also the terms
of the various agreements to ensure ongoing availability. Our management
believes that our current policy provides adequate protection should volatility
in the financial markets limit PHH's access to commercial paper or medium-term
notes funding. PHH continuously seeks additional sources of liquidity to
accommodate PHH asset growth and to provide further protection from volatility
in the financial markets.
In the event that the public debt market is unable to meet PHH's funding needs,
we believe that PHH has appropriate alternative sources to provide adequate
liquidity, including current and potential future securitized obligations and
its $2.65 billion of revolving credit facilities.
Pursuant to a covenant in PHH's Indenture with The First National Bank of
Chicago, as trustee, relating to PHH's medium-term notes, PHH is restricted from
paying dividends, making distributions or making loans to us to the extent that
such payments are collectively in excess of 40% of PHH's consolidated net income
(as defined in the covenant) for each fiscal year, provided however, that PHH
can distribute to us 100% of any extraordinary gains from asset sales and
capital contributions previously made to PHH by us. Notwithstanding the
foregoing, PHH is prohibited under such covenant from paying dividends or making
loans to us if upon giving effect to such dividends and/or loan, PHH's debt to
equity ratio exceeds 8 to 1, at the time of the dividend or loan, as the case
may be.
Litigation
Since the April 15, 1998 announcement of the discovery of potential accounting
irregularities in the former business units of CUC, more than 70 lawsuits
claiming to be class actions, two lawsuits claiming to be brought derivatively
on our behalf and several other lawsuits and arbitration proceedings have
commenced in various courts and other forums against us and other defendants by
or on behalf of persons claiming to have purchased or otherwise acquired
securities or options issued by CUC or us between May 1995 and August 1998. The
Court has ordered consolidation of many of the actions.
In addition, in October 1998, an action claiming to be a class action was filed
against us and four of our former officers and directors by persons claiming to
have purchased American Bankers' stock between January and October 1998. The
complaint claimed that we made false and misleading public announcements and
filings with the SEC in connection with our proposed acquisition of American
Bankers allegedly in violation of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, as amended, and that the plaintiff and the alleged class
members purchased American Bankers' securities in reliance on these public
announcements and filings at inflated prices. On April 26, 1999, the United
States District Court for New Jersey found that the class action failed to state
a claim upon which relief could be granted and, accordingly, dismissed the
complaint. The plaintiff has appealed the District Court's findings to the U.S.
Court of Appeals for the Third Circuit.
As previously disclosed, we reached an agreement with plaintiffs' counsel
representing the class of holders of our PRIDES securities who purchased their
securities on or prior to April 15, 1998 to settle their class action lawsuit
against us through the issuance of a new "Right" for each PRIDES security held.
See "Liquidity and Capital Resources - FELINE PRIDES and Trust Preferred
Securities" for a more detailed description of the settlement.
The SEC and the United States Attorney for the District of New Jersey are
conducting investigations relating to the matters referenced above. The SEC
advised us that its inquiry should not be construed as an indication by the SEC
or its staff that any violations of law have occurred. As a result of the
findings from the investigations, we made all adjustments considered necessary
which are reflected in our restated financial statements. We do not expect that
additional adjustments will be necessary as a result of these government
investigations.
Other than the PRIDES class action litigation, we do not believe that it is
feasible to predict or determine the final outcome of these proceedings or
investigations or to estimate the amounts or potential range of loss with
respect to these proceedings or investigations. The possible outcomes or
resolutions of the proceedings could include a judgment against us or
settlements and could require substantial payments by us. In addition, the
timing of the final resolution of the proceedings or investigations is
uncertain. We believe that material adverse outcomes with respect to such
proceedings or investigations could have a material impact on our financial
position, results of operations or cash flows.
Credit Ratings
Our long-term debt credit ratings by Duff & Phelps Credit Rating Co. ("DCR"),
Standard & Poor's Corporation ("S&P") and Moody's Investors Service Inc.
("Moody's") remain A-, BBB and Baal, respectively.
Following the execution of our agreement to dispose of our fleet segment, Fitch
IBCA lowered PHH's long-term debt rating from A+ to A and affirmed PHH's
short-term debt rating at F1, and S&P affirmed PHH's long-term and short-term
debt ratings at A-/A2. Also in connection with the closing of the transaction,
DCR lowered PHH's long-term debt rating from A+ to A and PHH's short-term debt
rating was reaffirmed at D1. Moody's lowered PHH's long-term debt rating from A3
to Baa1 and affirmed PHH's short-term debt rating at P2. (A security rating is
not a recommendation to buy, sell or hold securities and is subject to revision
or withdrawal at any time).
Common Share Repurchases
During the six months ended June 30, 1999, our Board of Directors authorized an
additional $600.0 million of our common stock to be repurchased under a common
share repurchase program, increasing the total authorized amount that can be
repurchased under the program to $1.6 billion. We have executed this program
through open-market purchases or privately negotiated transactions. As of June
30, 1999, we repurchased a total of $1.6 billion (83.9 million shares) of our
common stock under the program. In July 1999, our Board of Directors authorized
an additional $200.0 million of our common stock to be repurchased under the
common share repurchase program. Subject to bank credit facility covenants,
certain rating agency constraints and authorization from our Board of Directors,
we anticipate further expanding the program, although we can give no assurance
with respect to the timing, likelihood or amount of future repurchases under the
program.
In July 1999, pursuant to a Dutch Auction self tender offer to our shareholders,
we purchased 50 million shares of our common stock through our wholly owned
subsidiary Cendant Stock Corporation at a price of $22.25 per share. Under the
terms of the offer, which commenced June 16, 1999 and expired July 15, 1999, we
had invited shareholders to tender their shares of our common stock at prices
between $19.75 and $22.50 per share. We financed the purchase of shares costing
$1.11 billion with proceeds received from our June 30, 1999 disposition of our
fleet segment.
Since the inception of our share repurchase program, inclusive of the
self-tender offer and including the 7.1 million shares of our common stock
received as partial consideration in connection with the sale of our Hebdo Mag
subsidiary, we have reduced our shares outstanding by 17%.
Cash Flows
We generated $1.2 billion of cash flows from operations during the six months
ended June 30, 1999 representing a $1.5 billion increase from the six months
ended June 30, 1998. The increase in cash flows from operations was primarily
due to a $1.4 billion net reduction in mortgage loans held for sale which
reflects larger loan sales to the secondary markets in proportion to loan
originations.
We generated $1.4 billion in cash flows from investing activities during the six
months ended June 30, 1999 representing a $5.1 billion increase from the six
months ended June 30, 1998. The incremental cash flows from investing activities
was primarily attributable to $2.6 billion of net cash proceeds received from
the disposition of the net assets of our fleet segment as well as the dispostion
of other businesses during 1999, including our consumer software business,
National Library of Poetry, National Leisure Group and Essex. In addition,
during 1998, we used net cash of $2.7 billion for the purchases of businesses
and other acquisition related payments. Companies acquired in 1998 included NPC
and Jackson Hewitt.
We used net cash of $0.6 billion in financing activities during the six months
ended June 30, 1999 compared to providing net cash of $5.7 billion from such
activities in the comparable prior year period. Cash flows used in financing
activities during 1999 included $1.3 billion in Company common stock repurchases
pursuant to our share repurchase program partially offset by $1.2 billion
related to the timing of debt repayments to third parties from ARAC's
refinancing of debt under management programs, which ARAC assumed in connection
with our fleet segment disposition. (See "Liquidity and Capital Resources -
Divestitures - Disposition of Fleet Segment") Cash flows provided by financing
activities during 1998 principally consisted of $3.3 billion of proceeds from
borrowings under a term loan facility and proceeds of $1.5 billion from the
issuance of our FELINE PRIDES. During 1999, we had net repayments of $0.6
billion on fundings of our investments in assets under management programs
compared to net borrowings of $1.2 billion in 1998.
Capital Expenditures
During the six months ended June 30, 1999, $127.7 million was invested in
property and equipment to support operational growth and enhance marketing
opportunities. In addition, technological improvements were made to improve
operating efficiencies. Capital spending in 1999 has included the development of
integrated business systems and other investments in information systems within
several of our segments as well as additions to car park properties for our NPC
subsidiary. We anticipate investing approximately $260 million in capital
expenditures in 1999.
Year 2000 Compliance
The following disclosure is a Year 2000 readiness disclosure statement pursuant
to the Year 2000 Readiness and Disclosure Act.
The Year 2000 presents the risk that information systems will be unable to
recognize and process date-sensitive information properly from and after January
1, 2000. To minimize or eliminate the effect of the Year 2000 risk on our
business systems and applications, we are continually identifying, evaluating,
implementing and testing changes to our computer systems, applications and
software necessary to achieve Year 2000 compliance. We implemented a Year 2000
initiative in March 1996 that has now been adopted by all of our business units.
As part of such initiative, we selected a team of managers to identify, evaluate
and implement a plan to bring all of our critical business systems and
applications into Year 2000 compliance prior to December 31, 1999. The Year 2000
initiative consists of four phases: (i) identification of all critical business
systems subject to Year 2000 risk (the "Identification Phase"); (ii) assessment
of such business systems and applications to determine the method of correcting
any Year 2000 problems (the "Assessment Phase"); (iii) implementing the
corrective measures (the "Implementation Phase"); and (iv) testing and
maintaining system compliance (the "Testing Phase"). We have substantially
completed the Identification and Assessment Phases and have identified and
assessed five areas of risk: (i) internally developed business applications;
(ii) third party vendor software, such as business applications, operating
systems and special function software; (iii) computer hardware components; (iv)
electronic data transfer systems between our customers and us; and (v) embedded
systems, such as phone switches, check writers and alarm systems. Although no
assurances can be made, we believe that substantially all of our systems,
applications and related software that are subject to Year 2000 compliance risk
have been identified and that we have either implemented or initiated the
implementation of a plan to correct such systems that are not Year 2000
compliant. In addition, as part of our assessment process we are developing
contingency plans as considered necessary. Substantially all of our mission
critical systems have been remediated during 1998. However, we cannot directly
control the timing of certain Year 2000 compliant vendor products and in certain
situations, exceptions to the December 1998 date have been authorized. We are
closely monitoring those situations and intend to complete testing efforts and
any contingency implementation efforts prior to December 31, 1999. Although we
have begun the Testing Phase, we do not anticipate completion of the Testing
Phase until sometime prior to December 1999.
We rely on third party service providers for services such as
telecommunications, internet service, utilities, components for our embedded and
other systems and other key services. Interruption of those services due to Year
2000 issues could have a material adverse impact on our operations. We initiated
an evaluation of the status of such third party service providers' efforts to
determine alternative and contingency requirements. While approaches to reducing
risks of interruption of business operations vary by business unit, options
include identification of alternative service providers available to provide
such services if a service provider fails to become Year 2000 compliant within
an acceptable timeframe prior to December 31, 1999.
The total cost of our Year 2000 compliance plan is anticipated to be $55
million. Approximately $44 million of these costs had been incurred through June
30, 1999, and we expect to incur the balance of such costs to complete the
compliance plan. We have been expensing and capitalizing the costs to complete
the compliance plan in accordance with appropriate accounting policies.
Variations from anticipated expenditures and the effect on our future results of
operations are not anticipated to be material in any given year. However, if
Year 2000 modifications and conversions are not made, including modifications by
our third party service providers, or are not completed in time, the Year 2000
problem could have a material impact on our operations, cash flows and financial
condition. At this time, we believe the most likely "worst case" scenario
involves potential disruptions in our operations as a result of the failure of
services provided by third parties.
The estimates and conclusions herein are forward-looking statements and are
based on our best estimates of future events. Risks of completing the plan
include the availability of resources, the ability to discover and correct the
potential Year 2000 sensitive problems which could have a serious impact on
certain operations and the ability of our service providers to bring their
systems into Year 2000 compliance.
Impact of New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities". We will adopt SFAS No. 133 effective
January 1, 2001. SFAS No. 133 requires us to record all derivatives in the
consolidated balance sheet as either assets or liabilities measured at fair
value. If the derivative does not qualify as a hedging instrument, the change in
the derivative fair values will be immediately recognized as gain or loss in
earnings. If the derivative does qualify as a hedging instrument, the gain or
loss on the change in the derivative fair values will either be recognized (i)
in earnings as offsets to the changes in the fair value of the related item
being hedged or (ii) be deferred and recorded as a component of other
comprehensive income and reclassified to earnings in the same period during
which the hedged transactions occur. We have not yet determined what impact the
adoption of SFAS No. 133 will have on our financial statements.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
In recurring operations, we must deal with effects of changes in interest rates
and currency exchange rates. The following discussion presents an overview of
how such changes are managed and a view of their potential effects.
We use various financial instruments, particularly interest rate and currency
swaps and currency forwards, to manage our respective interest rate and currency
risks. We are exclusively an end user of these instruments, which are commonly
referred to as derivatives. We do not engage in trading, market making or other
speculative activities in the derivatives markets. Established practices require
that derivative financial instruments relate to specific asset, liability or
equity transactions or to currency exposures.
The SEC requires that registrants include information about potential effects of
changes in interest rates and currency exchange on their financial statements.
Although the rules offer alternatives for presenting this information, none of
the alternatives is without limitations. The following discussion is based on
so-called "shock tests," which model effects of interest rate and currency
shifts on the reporting company. Shock tests, while probably the most meaningful
analysis permitted, are constrained by several factors, including the necessity
to conduct the analysis based on a single point in time and by their inability
to include the extraordinarily complex market reactions that normally would
arise from the market shifts modeled. While the following results of shock tests
for interest rate and currencies may have some limited use as benchmarks, they
should not be viewed as forecasts.
o One means of assessing exposure to interest rate changes is a
duration-based analysis that measures the potential loss in net earnings
resulting from a hypothetical 10% change in interest rates across all
maturities (sometimes referred to as a "parallel shift in the yield
curve"). Under this model, it is estimated that, all else constant, such a
decrease would not materially impact our 1999 net earnings based on current
positions.
o One means of assessing exposure to changes in currency exchange rates is to
model effects on future earnings using a sensitivity analysis. Year-end
1998 consolidated currency exposures, including financial instruments
designated and effective as hedges, were analyzed to identify our assets
and liabilities denominated in other than their relevant functional
currency. Net unhedged exposures in each currency were then remeasured
assuming a 10% change in currency exchange rates compared with the U.S.
dollar. Under this model, it is estimated that, all else constant, such a
decrease would not materially impact our 1999 net earnings based on current
positions.
The categories of primary market risk exposure to us are: (i) long-term U.S.
interest rates due to mortgage loan origination commitments and an investment in
mortgage loans held for resale; (ii) short-term interest rates as they impact
vehicle and relocation receivables; and (iii) LIBOR and commercial paper
interest rates due to their impact on variable rate borrowings.
<PAGE>
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held an Annual Meeting of Stockholders on May 27, 1999, pursuant to a Notice
of Annual Meeting of Stockholders and Proxy Statement dated March 31, 1999, a
copy of which has been filed previously with the Securities and Exchange
Commission, at which our stockholders approved the election of five directors
for a term of three years, the ratification of the appointment of Deloitte &
Touche LLP as the auditors of the Company's financial statements for the fiscal
year 1999, certain amendments to the Company's by-laws and a stockholders's
proposal relating to the classification of the Board of Directors. The results
of such matters are as follows:
Proposal 1. Election of Directors
Results: Votes
- --------------------- --------------
Leonard Coleman 689,861,976
Robert E. Nederlander 670,402,315
Leonard Schutzman 687,009,774
Robert F. Smith 686,956,727
Craig R. Stapleton 687,791,907
Proposal 2. Ratification of Selection of Auditors for Fiscal Year 1999
Financial Statements
Results: For Against Abstain
- -------- -------------- -------------- --------------
711,006,803 1,612,783 1,682,750
Proposal 3. Amendments to Company's By-laws
Results: For Against Abstain
- -------- -------------- -------------- --------------
702,522,495 8,532,611 3,247,230
Proposal 4. Stockholder Proposal Relating to Classification of Board of
Directors
Results: For Against Abstain
- -------- -------------- -------------- --------------
289,422,825 265,624,485 6,308,894
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The discussions contained under the headings "Litigation Settlement" in
Note 8 and "Litigation - Accounting Irregularities" in Note 9 contained in Part
1 - FINANCIAL INFORMATION, Item 1 - Financial Statements, are incorporated
herein by reference in their entirety.
<PAGE>
ITEM 6 - EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits
27 Financial data schedule (electronic transmission only)
(b) Reports on Form 8-K
Form 8-K, dated April 22, 1999, reporting in Item 5 our 1999 first
quarter results.
Form 8-K, dated May 25, 1999, reporting in Item 5 our strategic
realignment and articulating our core operations.
Form 8-K, dated June 2, 1999, reporting in Item 5 amendments to our
By-Laws.
Form 8-K, dated June 22, 1999, reporting in Item 5 the incorporation by
reference of our unaudited pro forma financial statements giving effect
to the disposition of our fleet business segment and the use of
proceeds from the disposition for the purchase of 50 million shares of
our common stock pursuant to a Dutch Auction self-tender offer.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CENDANT CORPORATION
By: /s/ David M. Johnson
David M. Johnson
Senior Executive Vice President and
Chief Financial Officer
By: /s/ Jon F. Danski
Jon F. Danski
Executive Vice President, Finance
Date: August 16, 1999 (Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated balance sheet and statement of income of the Company as of and for
the six months ended June 30, 1999 and is qualified in its entirety to be
referenced to such financial statements. Amounts are in millions.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
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<SECURITIES> 0
<RECEIVABLES> 1,157
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<CURRENT-ASSETS> 4,162
<PP&E> 1,691
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<TOTAL-ASSETS> 17,462
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0
0
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