<Page>
================================================================================
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 March 31, 2002
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 ORGANIZATION) IDENTIFICATION NUMBER)
9 WEST 57TH STREET 10019
NEW YORK, NY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
(212) 413-1800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------
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 the Registrant's common stock was
1,037,692,184 shares as of April 30, 2002.
================================================================================
<Page>
CENDANT CORPORATION AND SUBSIDIARIES
INDEX
<Table>
<Caption>
PAGE
PART I Financial Information
Item 1. Financial Statements
Independent Accountants' Report 1
Consolidated Condensed Statements of Income for the three months
ended March 31, 2002 and 2001 2
Consolidated Condensed Balance Sheets as of March 31, 2002 and
December 31, 2001 3
Consolidated Condensed Statements of Cash Flows for the three months
ended March 31, 2002 and 2001 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures About Market Risks 26
PART II Other Information
Item 2. Changes in Securities and Use of Proceeds 27
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28
</Table>
<Page>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Cendant Corporation
New York, New York
We have reviewed the accompanying consolidated condensed balance sheet of
Cendant Corporation and subsidiaries (the "Company") as of March 31, 2002, and
the related consolidated condensed statements of income and cash flows for the
three-month periods ended March 31, 2002 and 2001. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated condensed financial statements for them to be in
conformity with accounting principles generally accepted in the United States
of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of December 31, 2001, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 7, 2002 (April 1, 2002 as to
Note 28), we expressed an unqualified opinion (and included an explanatory
paragraph relating to the modification of the accounting for interest income and
impairment of beneficial interests in securitization transactions, the
accounting for derivative instruments and hedging activities and the revision of
certain revenue recognition policies, as discussed in Note 1 to the consolidated
financial statements) on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated condensed
balance sheet as of December 31, 2001 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
/s/ Deloitte & Touche LLP
New York, New York
May 9, 2002
<Page>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
------------------------------
2002 2001
-------------- --------------
REVENUES
Service fees and membership, net $ 1,715 $ 1,076
Vehicle-related 961 398
Other 37 12
-------------- --------------
Net revenues 2,713 1,486
-------------- --------------
EXPENSES
Operating 945 427
Vehicle depreciation, lease charges and interest, net 502 180
Marketing and reservation 290 249
General and administrative 279 187
Non-program related depreciation and amortization 107 101
Other charges:
Litigation settlement and related costs, net 11 11
Restructuring and other unusual charges - 185
Acquisition and integration related costs - 8
Non-program related interest, net 66 60
-------------- ---------------
Total expenses 2,200 1,408
-------------- --------------
Net gain on dispositions of businesses - 435
-------------- --------------
INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND EQUITY
IN HOMESTORE.COM 513 513
Provision for income taxes 169 205
Minority interest, net of tax 2 13
Losses related to equity in Homestore.com, net of tax - 18
-------------- --------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 342 277
Cumulative effect of accounting change, net of tax - (38)
-------------- --------------
NET INCOME $ 342 $ 239
============== ==============
CD COMMON STOCK INCOME PER SHARE
BASIC
Income before cumulative effect of accounting change $ 0.35 $ 0.32
Net income 0.35 0.28
DILUTED
Income before cumulative effect of accounting change $ 0.34 $ 0.30
Net income 0.34 0.26
</Table>
See Notes to Consolidated Condensed Financial Statements.
2
<Page>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2002 2001
-------------- --------------
ASSETS
Current assets
Cash and cash equivalents $ 1,138 $ 1,971
Receivables, net 1,430 1,339
Stockholder litigation settlement trust - 1,410
Deferred income taxes 701 697
Other current assets 1,018 1,075
-------------- --------------
Total current assets 4,287 6,492
Property and equipment, net 1,930 1,951
Deferred income taxes 674 679
Franchise agreements, net 1,687 1,656
Goodwill, net 8,113 7,978
Other intangibles, net 1,361 1,210
Other non-current assets 1,590 1,536
-------------- --------------
Total assets exclusive of assets under programs 19,642 21,502
-------------- --------------
Assets under management and mortgage programs
Mortgage loans held for sale 930 1,244
Relocation receivables 231 292
Vehicle-related, net 7,861 8,115
Timeshare receivables 494 262
Mortgage servicing rights 2,188 2,037
-------------- --------------
11,704 11,950
-------------- --------------
TOTAL ASSETS $ 31,346 $ 33,452
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and other current liabilities $ 3,104 $ 3,521
Current portion of long-term debt 10 401
Stockholder litigation settlement 1,190 2,850
Deferred income 838 916
-------------- --------------
Total current liabilities 5,142 7,688
Long-term debt, excluding Upper DECS 5,710 5,731
Upper DECS 863 863
Deferred income 296 297
Other non-current liabilities 706 536
-------------- --------------
Total liabilities exclusive of liabilities under programs 12,717 15,115
-------------- --------------
Liabilities under management and mortgage programs
Debt 9,666 9,844
Deferred income taxes 1,028 1,050
-------------- --------------
10,694 10,894
-------------- --------------
Mandatorily redeemable preferred interest in a subsidiary 375 375
-------------- --------------
Commitments and contingencies (Note 9)
Stockholders' equity
Preferred stock, $.01 par value - authorized 10
million shares; none issued and outstanding - -
CD common stock, $.01 par value - authorized 2
billion shares; issued 1,175,300,772 and 1,166,492,626
shares 11 11
Additional paid-in capital 8,901 8,676
Retained earnings 2,754 2,412
Accumulated other comprehensive loss (283) (264)
CD treasury stock, at cost, 191,977,679 and 188,784,284
shares (3,823) (3,767)
-------------- --------------
Total stockholders' equity 7,560 7,068
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 31,346 $ 33,452
============== ==============
</Table>
See Notes to Consolidated Condensed Financial Statements.
3
<Page>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2002 2001
------------- -------------
OPERATING ACTIVITIES
Net income $ 342 $ 239
Adjustments to arrive at income before cumulative effect
of accounting change - 38
------------- ------------
Income before cumulative effect of accounting change 342 277
Adjustments to reconcile income before cumulative effect
of accounting change to net cash provided by (used in)
operating activities:
Non-program related depreciation and amortization 107 101
Net (payments) non-cash portion of other charges (21) 38
Net gain on dispositions of businesses - (435)
Deferred income taxes (2) 185
Proceeds from sales of trading securities - 110
Payment of stockholder litigation settlement liability (1,660) -
Net change in assets and liabilities, excluding the
impact of acquisitions and dispositions:
Receivables (103) (172)
Income taxes 102 (16)
Accounts payable and other current liabilities (252) (122)
Deferred income (78) 8
Other, net 167 -
------------- -------------
NET CASH USED IN OPERATING ACTIVITIES EXCLUSIVE OF
MANAGEMENT AND MORTGAGE PROGRAMS (1,398) (26)
------------- -------------
MANAGEMENT AND MORTGAGE PROGRAMS:
Depreciation and amortization 524 181
Origination of mortgage loans (9,017) (7,326)
Proceeds on sale of and payments from mortgage loans
held for sale 9,332 7,276
------------- -------------
839 131
------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (559) 105
------------- -------------
INVESTING ACTIVITIES
Property and equipment additions (55) (68)
Proceeds from (payments to) stockholder litigation
settlement trust 1,410 (250)
Net assets acquired (net of cash acquired) and
acquisition-related payments (239) (978)
Other, net (1) (17)
-------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
EXCLUSIVE OF MANAGEMENT AND MORTGAGE PROGRAMS 1,115 (1,313)
------------- -------------
MANAGEMENT AND MORTGAGE PROGRAMS:
Investment in vehicles (3,506) (832)
Payments received on investment in vehicles 3,154 681
Origination of timeshare receivables (172) -
Principal collection of timeshare receivables 155 -
Equity advances on homes under management (1,295) (1,268)
Repayment on advances on homes under management 1,354 1,261
Additions to mortgage servicing rights and related
hedges, net (257) (48)
Proceeds from sales of mortgage servicing rights 11 13
------------- -------------
(556) (193)
------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 559 (1,506)
------------- -------------
FINANCING ACTIVITIES
Proceeds from borrowings - 1,600
Principal payments on borrowings (491) (316)
Issuances of common stock 63 657
Repurchases of common stock (57) (10)
Other, net (8) (34)
------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
EXCLUSIVE OF MANAGEMENT AND MORTGAGE PROGRAMS (493) 1,897
------------- -------------
MANAGEMENT AND MORTGAGE PROGRAMS:
Proceeds from borrowings 2,518 2,712
Principal payments on borrowings (3,052) (2,081)
Net change in short-term borrowings 195 26
------------- -------------
(339) 657
------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (832) 2,554
------------- -------------
Effect of changes in exchange rates on cash and cash
equivalents (1) (5)
------------- -------------
Net increase (decrease) in cash and cash equivalents (833) 1,148
Cash and cash equivalents, beginning of period 1,971 944
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,138 $ 2,092
============= =============
See Notes to Consolidated Condensed Financial Statements.
</Table>
4
<Page>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNLESS OTHERWISE NOTED, ALL AMOUNTS ARE IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited Consolidated Condensed Financial Statements
include the accounts and transactions of Cendant Corporation and its
subsidiaries (collectively, the "Company" or "Cendant").
In management's opinion, the Consolidated Condensed Financial Statements
contain all normal recurring adjustments necessary for a fair presentation
of interim results reported. The results of operations reported for interim
periods are not necessarily indicative of the results of operations for the
entire year or any subsequent interim period. In addition, management is
required to make estimates and assumptions that affect the amounts reported
and related disclosures. Estimates, by their nature, are based on judgment
and available information. Accordingly, actual results could differ from
those estimates. The Consolidated Condensed Financial Statements should be
read in conjunction with the Company's Annual Report on Form 10-K dated
April 1, 2002.
Certain reclassifications have been made to prior period amounts to conform
to the current period presentation.
CHANGES IN ACCOUNTING POLICIES
BUSINESS COMBINATIONS. On July 1, 2001, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations,"
which prohibits the use of the pooling of interests method of accounting
for all business combinations initiated after June 30, 2001. SFAS No. 141
also addresses the initial recognition and measurement of goodwill and
other intangible assets acquired in a business combination and requires
additional disclosures for material business combinations completed after
such date. Upon adoption of SFAS No. 142, "Goodwill and Other Intangible
Assets," on January 1, 2002, intangible assets required to be reclassified
to goodwill were not material.
GOODWILL AND OTHER INTANGIBLE ASSETS. During first quarter 2001, all
intangible assets were amortized on a straight-line basis over their
estimated periods to be benefited. On January 1, 2002, the Company adopted
SFAS No. 142 in its entirety. Pursuant to such adoption, the Company did
not amortize any goodwill or indefinite-lived intangible assets during
first quarter 2002. The Company is required to assess goodwill and
indefinite-lived intangible assets for impairment annually, or more
frequently if circumstances indicate impairment may have occurred.
The Company reviewed the carrying value of all its goodwill and other
intangible assets by comparing such amounts to their fair value and
determined that the carrying amounts of such assets did not exceed their
respective fair values. Accordingly, the initial implementation of this
standard did not result in a charge and, as such, did not impact the
Company's results of operations for the first quarter 2002.
2. EARNINGS PER SHARE
Earnings per share ("EPS") for the first quarter 2001 was calculated using
the two-class method as shares of Move.com common stock were outstanding
during such period. The Company ceased using the two-class method upon the
repurchase of all outstanding Move.com shares on June 30, 2001.
5
<Page>
Income per common share before cumulative effect of accounting change for
each class of common stock was computed as follows:
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
------------------------
2002 2001
---------- -----------
CD COMMON STOCK
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE:
Cendant Group $ 342 $ 22
Cendant Group's retained interest in Move.com Group - 234
---------- -----------
Income before cumulative effect of accounting change
for basic EPS 342 256
Convertible debt interest, net of tax 1 3
Adjustment to Cendant Group's retained interest in
Move.com Group (a) - (6)
---------- -----------
Income before cumulative effect of accounting change
for diluted EPS $ 343 $ 253
========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 979 790
Stock options, warrants and non-vested shares 33 22
Convertible debt 6 18
---------- -----------
Diluted 1,018 830
---------- -----------
</Table>
----------
(a) Represents the change in Cendant Group's retained interest in Move.com
Group due to the dilutive impact of Move.com common stock options.
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31, 2001
------------------
Move.com COMMON STOCK
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE:
Move.com Group $ 255
Less: Cendant Group's retained interest in Move.com Group 234
-----------
Income before cumulative effect of accounting change for basic EPS 21
Adjustment to Cendant Group's retained interest in Move.com Group (a) 6
-----------
Income before cumulative effect of accounting change for diluted EPS $ 27
===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 2
Stock options 1
-----------
Diluted 3
===========
INCOME PER SHARE:
Basic
Income before cumulative effect of accounting change $ 10.41
Net income $ 10.34
Diluted
Income before cumulative effect of accounting change $ 10.13
Net income $ 10.07
</Table>
----------
(a) Represents the change in Cendant Group's retained interest in Move.com
Group due to the dilutive impact of Move.com common stock options.
Basic and diluted loss per share of CD common stock from the cumulative
effect of an accounting change was $0.04 for the first quarter 2001.
6
<Page>
The following table summarizes the Company's outstanding common stock
equivalents, which were antidilutive and therefore excluded from the
computation of diluted EPS:
<Table>
<Caption>
MARCH 31,
---------------
2002 2001
------ ------
CD COMMON STOCK
Options (a) 98 109
Warrants (b) 2 2
Upper DECS (c) 17 -
Move.com COMMON STOCK
Options (d) - 2
</Table>
----------
(a) The weighted average exercise prices for antidilutive options at March
31, 2002 and 2001 were $22.83 and $22.00, respectively.
(b) The weighted average exercise price for antidilutive warrants at March
31, 2002 and 2001 was $21.31.
(c) The appreciation price for antidilutive Upper DECS at March 31, 2002
was $28.42.
(d) The weighted average exercise prices for antidilutive options at March
31, 2001 was $24.21.
The Company's contingently convertible debt securities issued during first
quarter 2001, which provide for the potential issuance of approximately 49
million shares of CD common stock, were not included in the computation of
diluted EPS for the first quarters of 2002 and 2001 as the related
contingency provisions were not satisfied during such periods.
Additionally, contingently convertible debt securities issued during the
second and fourth quarters of 2001, which provided for the potential
issuance of approximately 89 million shares of CD common stock, were not
included in the computation of diluted EPS for first quarter 2002 as the
related contingency provisions were not satisfied during such period.
3. OTHER CHARGES
LITIGATION SETTLEMENT AND RELATED COSTS
During first quarters 2002 and 2001, the Company recorded charges of $11
million for litigation settlement and related costs in connection with
previously discovered accounting irregularities in the former business
units of CUC International, Inc. and resulting investigations into such
matters.
RESTRUCTURING AND OTHER UNUSUAL CHARGES
During first quarter 2001, the Company incurred unusual charges totaling
$185 million. Such charges primarily consisted of (i) $95 million related
to the funding of an irrevocable contribution to an independent technology
trust, (i) $85 million related to the funding of Trip Network, Inc. and
(iii) $7 million related to a contribution to the Cendant Charitable
Foundation.
ACQUISITION AND INTEGRATION RELATED COSTS
During first quarter 2001, the Company incurred charges of $8 million in
connection with the acquisition and integration of Avis Group Holdings,
Inc.
7
<Page>
4. INTANGIBLE ASSETS
Intangible assets consisted of:
<Table>
<Caption>
MARCH 31, 2002 DECEMBER 31, 2001
----------------------------- ----------------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
----------- --------------- ------------ --------------
AMORTIZED INTANGIBLE ASSETS
Franchise agreements $ 2,023 $ 336 $ 1,978 $ 322
=========== =============== ============ ==============
Customer lists 574 127 552 68
Other 87 41 84 37
----------- --------------- ------------ --------------
$ 661 $ 168 $ 636 $ 105
=========== =============== ============ ==============
UNAMORTIZED INTANGIBLE ASSETS
Goodwill $ 8,113 $ 8,524 $ 546
=========== ============ ==============
Trademarks $ 849 $ 773 $ 113
Other 19 19 -
----------- ------------ --------------
$ 868 $ 792 $ 113
=========== ============ ==============
</Table>
Additionally, the Company's mortgage servicing rights approximated $2.2
billion and $2.0 billion as of March 31, 2002 and December 31, 2001. During
first quarter 2002, the Company acquired a trademark of approximately $200
million, which related to its venture with Marriott International, Inc. and
is not amortized, and $300 million of mortgage servicing rights, which have
a weighted average amortization period of approximately eight years.
Amortization expense relating to all intangible assets, including mortgage
servicing rights, during first quarters 2002 and 2001 was approximately
$120 million and $90 million, respectively. Based on the Company's
amortizable intangible assets as of March 31, 2002, the Company expects
related amortization expense for the remainder of 2002 and the five
succeeding fiscal years to approximate $260 million, $360 million, $340
million, $320 million, $300 million and $260 million.
The changes in the carrying amount of goodwill for the first quarter 2002
are as follows:
<Table>
<Caption>
BALANCE GOODWILL BALANCE
AS OF ACQUIRED AS OF
JANUARY 1, DURING MARCH 31,
2002 2002 OTHER 2002
----------- --------------- ------------ --------------
Real Estate Services $ 814 $ - $ 23 $ 837
Hospitality 1,437 84 (16) 1,505
Travel Distribution 2,411 - 4 2,415
Vehicle Services 2,767 8 (21) 2,754
Financial Services 549 54 (1) 602
----------- --------------- ------------- --------------
Total Company $ 7,978 $ 146 $ (11) $ 8,113
=========== =============== ============ ==============
</Table>
8
<Page>
Had the Company applied the non-amortization provisions of SFAS No. 142 for
the first quarter 2001, net income and per share data would have been as
follows:
<Table>
<Caption>
AMOUNT
---------------
Reported net income $ 239
Add back: Goodwill amortization, net of tax 29
Add back: Trademark amortization, net of tax 2
---------------
Pro forma net income $ 270
===============
NET INCOME PER SHARE:
Basic
Reported net income $ 0.28
Add back: Goodwill amortization, net of tax 0.04
Add back: Trademark amortization, net of tax -
---------------
Pro forma net income $ 0.32
===============
Diluted
Reported net income $ 0.26
Add back: Goodwill amortization, net of tax 0.04
Add back: Trademark amortization, net of tax -
---------------
Pro forma net income $ 0.30
===============
</Table>
5. FOURTH QUARTER 2001 RESTRUCTURING
The liability resulting from the Company's restructuring plan committed to
in fourth quarter 2001 as a result of changes in business and consumer
behavior following the September 11th terrorist attacks is classified as a
component of accounts payable and other current liabilities. Such liability
approximated $58 million and $80 million as of March 31, 2002 and December
31, 2001, respectively. The initial recognition of the charge and the
corresponding utilization from inception are summarized by category as
follows:
<Table>
<Caption>
2001 BALANCE AT BALANCE AT
RESTRUCTURING CASH OTHER DECEMBER 31, CASH OTHER MARCH 31,
CHARGE PAYMENTS REDUCTIONS 2001 PAYMENTS REDUCTIONS 2002
------------- ----------- ---------- -------------- ---------- ------------ -----------
Personnel related $ 68 $ 11 $ 5 $ 52 $ 18 $ - $ 34
Asset impairments and
contract terminations 17 3 10 4 - 1 3
Facility related 25 1 - 24 3 - 21
------------- ----------- ---------- -------------- ---------- ------------ -----------
Total $ 110 $ 15 $ 15 $ 80 $ 21 $ 1 $ 58
============= =========== ========== ============== ========== ============ ===========
</Table>
Personnel related costs primarily included severance resulting from the
rightsizing of certain businesses and corporate functions. The Company
formally communicated the termination of employment to approximately 3,000
employees, representing a wide range of employee groups, and as of March
31, 2002, the Company had terminated approximately 2,140 employees. The
Company anticipates the majority of the remaining personnel related costs
will be paid during second quarter 2002. All other costs were incurred
primarily in connection with facility closures and lease obligations
resulting from the consolidation of business operations. These initiatives
were substantially completed as of March 31, 2002.
6. STOCKHOLDER LITIGATION SETTLEMENT LIABILITY
On March 18, 2002, the Supreme Court denied all final petitions relating to
the Company's principal securities class action lawsuit. As a result of the
Supreme Court's decision, the Company no longer has the right of return to
the amounts deposited into the trust established for the benefit of the
plaintiffs in the class action lawsuit. Accordingly, as of March 31, 2002,
the liability reflected on the Company's Consolidated Condensed Balance
Sheet is net of approximately $1.7 billion of cash payments made by the
Company to the trust. The Company will be required to fund the remaining
amount of the liability by July 16, 2002.
7. LONG-TERM DEBT
Based on the Company's intent and ability to refinance certain short-term
borrowings on a long-term basis, debt aggregating $1.0 billion and having a
current redemption date has been reclassified to long-term on the Company's
Consolidated Balance Sheets at March 31, 2002 and December 31, 2001.
9
<Page>
Long-term debt consisted of:
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2002 2001
------------------ ------------------
7 3/4% notes $ 1,150 $ 1,150
6.875% notes 850 850
11% senior subordinated notes 577 584
3 7/8% convertible senior debentures 1,200 1,200
Zero coupon senior convertible contingent notes 925 920
Zero coupon convertible debentures 1,000 1,000
3% convertible subordinated notes - 390
Other 18 38
------------------ ------------------
5,720 6,132
Less: Current portion 10 401
------------------ ------------------
Long-term debt, excluding Upper DECS 5,710 5,731
Upper DECS 863 863
------------------ ------------------
$ 6,573 $ 6,594
================== ==================
</Table>
On February 15, 2002, the Company redeemed the remaining $390 million of
its 3% convertible subordinated notes.
As of March 31, 2002, the Company maintained $2.9 billion of revolving
credit facilities, under which $946 million of letters of credit were
issued including $615 million of letters of credit issued as collateral for
a portion of Company's stockholder litigation settlement liability. As of
March 31, 2002, the Company had approximately $2.0 billion of availability
under these facilities.
8. LIABILITIES UNDER MANAGEMENT AND MORTGAGE PROGRAMS
Debt under management and mortgage programs consisted of:
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2002 2001
------------------ ------------------
SECURED BORROWINGS
Term notes $ 6,323 $ 6,237
Short-term borrowings 671 582
Commercial paper 110 120
Other 304 295
------------------ ------------------
Total secured borrowings 7,408 7,234
------------------ ------------------
UNSECURED BORROWINGS
Medium-term notes 663 679
Short-term borrowings 448 983
Commercial paper 1,117 917
Other 30 31
------------------ ------------------
Total unsecured borrowings 2,258 2,610
------------------ ------------------
$ 9,666 $ 9,844
================== ==================
</Table>
SECURED BORROWINGS
Amounts outstanding under the Company's AESOP and Chesapeake Funding
(formerly Greyhound Funding) programs, which are included in the above
table primarily as a component of secured term notes, approximated $3.6
billion and $3.0 billion, respectively. As of March 31, 2002, the Company
had an additional $850 million and $88 million of availability under the
AESOP and Chesapeake Funding programs, respectively.
During first quarter 2002, the Company entered into a secured short-term
financing agreement to sell mortgage loans under a repurchase arrangement,
which is renewable on an annual basis at the discretion of the lender. The
loan is collateralized by the underlying mortgage loans held in safekeeping
by the custodian to the agreement. The total commitment under the agreement
is $100 million. Mortgage loans financed under this agreement at March 31,
2002 totaled $62 million and are included in mortgage loans held for sale
in the Consolidated Condensed Balance Sheet. During first quarter 2002, the
approximate weighted average interest rate on
10
<Page>
borrowings under this agreement was 2.89%. The related debt is recorded by
the Company as a component of secured short-term borrowings.
UNSECURED BORROWINGS AND CREDIT FACILITIES
During first quarter 2002, PHH renewed its $750 million facility, which
matured in February 2002, and also repaid $480 million of outstanding
borrowings under its credit facility maturing in February 2005. The new
facility bears interest at LIBOR plus an applicable margin, as defined in
the agreement, and terminates on February 21, 2004. PHH is required to pay
a per annum utilization fee of 25 basis points if usage under the new
facility exceeds 25% of aggregate commitments. As of March 31, 2002,
outstanding borrowings under all of PHH's credit facilities, which are
included in the above table as a component of unsecured short-term
borrowings, approximated $270 million and PHH had approximately $1.6
billion of availability under these facilities.
During first quarter 2002, the Company issued $200 million of commercial
paper with a weighted average interest rate of 2.86%.
OTHER SECURITIZATION FACILITIES
As of March 31, 2002, the Company was servicing $472 million of timeshare
receivables sold to special purpose entities. Additionally, PHH was
servicing $521 million of relocation receivables sold to a special purpose
entity as of March 31, 2002. As of March 31, 2002, the maximum funding
capacity under the PHH relocation securitization facility is $650 million
and PHH had available capacity of $173 million. During first quarters 2002
and 2001, the Company recognized pre-tax gains of approximately $2 million
on the securitization of timeshare and relocation receivables.
PHH was also servicing approximately $1.9 billion of mortgage loans sold to
a special purpose entity as of March 31, 2002. As of March 31, 2002, the
maximum funding capacity through this special purpose entity is $3.2
billion and PHH had available capacity of approximately $1.3 billion. In
addition to the mortgage loans sold to the special purpose entity, as of
March 31, 2002, PHH was servicing $100.4 billion of mortgage loans sold to
the secondary market. During first quarters 2002 and 2001, the Company
recognized pre-tax gains of $123 million and $84 million, respectively, on
$8.5 billion and $5.9 billion, respectively, of mortgage loans sold into
the secondary market, substantially all of which were sold without
recourse. The sale of mortgage loans into the secondary market is customary
practice in the mortgage industry.
9. COMMITMENTS AND CONTINGENCIES
The June 1999 disposition of the Company's fleet businesses was structured
as a tax-free reorganization and, accordingly, no tax provision was
recorded on a majority of the gain. However, pursuant to an interpretive
ruling, the Internal Revenue Service ("IRS") has taken the position that
similarly structured transactions do not qualify as tax-free
reorganizations under the Internal Revenue Code Section 368(a)(1)(A). If
the transaction is not considered a tax-free reorganization, the resultant
incremental liability could range between $10 million and $170 million
depending upon certain factors, including utilization of tax attributes.
Notwithstanding the IRS interpretive ruling, the Company believes that,
based upon analysis of current tax law, its position would prevail, if
challenged.
The Company is involved in litigation asserting claims associated with the
accounting irregularities discovered in former CUC business units outside
of the principal common stockholder class action litigation. The Company
does not believe that it is feasible to predict or determine the final
outcome or resolution of these unresolved proceedings. An adverse outcome
from such unresolved proceedings could be material with respect to earnings
in any given reporting period. However, the Company does not believe that
the impact of such unresolved proceedings should result in a material
liability to the Company in relation to its consolidated financial position
or liquidity.
The Company is 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.
11
<Page>
10. STOCKHOLDERS' EQUITY
During first quarter 2002, the Company repurchased $57 million (3.1 million
shares) of CD common stock under its common stock repurchase program. As of
March 31, 2002, the Company had approximately $205 million in remaining
availability for repurchases under this program.
COMPREHENSIVE INCOME
The components of comprehensive income are summarized as follows:
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
-------------------
2002 2001
-------- -------
Net income $ 342 $ 239
Other comprehensive income (loss):
Currency translation adjustments (30) (74)
Unrealized gains (losses) on cash flow hedges, net of tax 17 (3)
Minimum pension liability adjustment (1) -
Unrealized losses on marketable securities, net of tax:
Unrealized gains (losses) arising during period (5) 32
Reclassification adjustment for losses realized in net income - 45
-------- ------
Total comprehensive income $ 323 $ 239
======== ======
</Table>
The after-tax components of accumulated other comprehensive loss for the
three months ended March 31, 2002 are as follows:
<Table>
<Caption>
UNREALIZED MINIMUM GAINS ACCUMULATED
CURRENCY GAINS (LOSSES) PENSION (LOSSES) ON OTHER
TRANSLATION ON CASH FLOW LIABILITY AVAILABLE-FOR- COMPREHENSIVE
ADJUSTMENTS HEDGES ADJUSTMENT SALE SECURITIES LOSS
------------- -------------- ----------- --------------- -------------
Balance, January 1, 2002 $ (230) $ (33) (21) $ 20 $ (264)
Current period change (30) 17 (1) (5) (19)
------------- -------------- ----------- --------------- -------------
Balance, March 31, 2002 $ (260) $ (16) $ (22) $ 15 $ (283)
============= ============== =========== =============== =============
</Table>
11. SEGMENT INFORMATION
Management evaluates each segment's performance based upon earnings before
non-program related interest, income taxes, non-program related
depreciation and amortization, minority interest and equity in
Homestore.com, adjusted to exclude certain items which are of a
non-recurring or unusual nature and are not measured in assessing segment
performance or are not segment specific ("Adjusted EBITDA"). Management
believes such discussions are the most informative representation of how
management evaluates performance. However, the Company's presentation of
Adjusted EBITDA may not be comparable with similar measures used by other
companies.
<Table>
<Caption>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------
2002 2001
---------------------------- -----------------------------
ADJUSTED ADJUSTED
REVENUES EBITDA REVENUES EBITDA
----------- -------------- ------------ --------------
Real Estate Services $ 410 $ 182 $ 339 $ 132
Hospitality 403 112 240 102
Travel Distribution 444 146 25 2
Vehicle Services 1,030 104 454 93
Financial Services 419 164 390 131
----------- -------------- ------------ --------------
Total Reportable Segments 2,706 708 1,448 460
Corporate and Other (a) 7 (11) 38 (17)
----------- -------------- ------------ --------------
Total Company $ 2,713 $ 697 $ 1,486 $ 443
=========== ============== ============ ==============
</Table>
---------
(a) Included in Corporate and Other are the results of operations of the
Company's non-strategic businesses, unallocated corporate overhead and
the elimination of transactions between segments.
12
<Page>
Provided below is a reconciliation of Adjusted EBITDA to income before
income taxes, minority interest and equity in Homestore.com.
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
------------------------
2002 2001
---------- -----------
Adjusted EBITDA $ 697 $ 443
Non-program related depreciation and amortization (107) (101)
Other charges:
Litigation settlement and related (11) (11)
Restructuring and other unusual - (185)
Acquisition and integration related - (8)
Non-program related interest, net (66) (60)
Net gain on dispositions of businesses - 435
----------- ------------
Income before income taxes, minority interest and equity in Homestore.com $ 513 $ 513
=========== ============
</Table>
12. SUBSEQUENT EVENTS
NRT INCORPORATED. On April 17, 2002, the Company acquired all of the common
stock of NRT Incorporated ("NRT"), the largest residential real estate
brokerage firm in the United States, through the issuance of approximately
12 million shares of CD common stock then valued at approximately $230
million. As part of the acquisition, the Company also assumed approximately
$320 million of NRT debt, which was subsequently repaid. Prior to the
acquisition, NRT operated as a joint venture between the Company and Apollo
Management, L.P ("Apollo") that acquired independent real estate
brokerages, converted them to one of Company's real estate brands and
operated the brand under a 50-year franchise agreement with the Company.
Management believes that NRT as a wholly-owned subsidiary of the Company
will be a more efficient acquisition vehicle, experience greater
opportunities to enhance mortgage and title penetration and achieve greater
financial and operational synergies.
ARVIDA REALTY SERVICES. On April 17, 2002, the Company acquired all of the
common stock of Arvida Realty Services, the largest residential real estate
brokerage firm in Florida, for approximately $160 million in cash.
Management believes that this acquisition will further enhance the
Company's residential real estate position in Florida.
TRENDWEST RESORTS, INC. On April 30, 2002 the Company acquired
approximately 90% of the outstanding common stock of Trendwest Resorts,
Inc. ("Trendwest") for approximately $850 million, including $20 of
estimated transaction costs and expenses and $30 million related to the
conversion of Trendwest employee stock options into CD common stock
options. The merger consideration was funded through a tax-free exchange of
approximately 43 million shares of CD common stock then valued at
approximately $800 million. As part of the acquisition, the Company assumed
approximately $90 million of Trendwest net debt, which was subsequently
repaid.
The purchase of the remaining 10% of the outstanding Trendwest shares will
close upon the effectiveness of a registration statement relating to the
issuance of CD common stock to such Trendwest stockholders, which was filed
with the Securities and Exchange Commission on April 29, 2002, though no
earlier than May 30, 2002. The number of shares of CD common stock to be
paid to the shareholders of the remaining 10% of the outstanding Trendwest
shares will fluctuate between 4.7 million and 5.3 million shares, within a
collar of $16.15 to $18.50 per share of CD common stock.
Trendwest markets, sells and finances vacation ownership interests.
Management believes that this acquisition will provide the Company with
significant geographic diversification and global presence in the timeshare
industry.
ZERO COUPON CONVERTIBLE DEBENTURES. On May 2, 2002, the Company amended
certain terms of its zero coupon convertible debentures. In connection with
these amendments, the Company will make cash interest payments of 3% per
annum beginning May 5, 2002 and continuing through May 4, 2003 to the
holders of the debentures on a semi-annual basis and the holders were
granted an additional option to put the debentures to the Company on May 4,
2003.
13
<Page>
On May 4, 2002, holders had the right to require the Company to redeem
their debentures. On such date, virtually all holders declined to exercise
this put option and retained their debentures.
TERM NOTES. On May 3, 2002, PHH issued $443 million of unsecured term notes
with maturities ranging from May 2005 through May 2012. Such notes bear
interest at a blended rate of 7.64%.
REVOLVING CREDIT FACILITIES. On May 3, 2002, PHH terminated $250 million of
its revolving credit facilities, which were scheduled to mature in November
2002.
****
14
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES THERETO INCLUDED ELSEWHERE
HEREIN. UNLESS OTHERWISE NOTED, ALL DOLLAR AMOUNTS ARE IN MILLIONS.
We are one of the foremost providers of travel and real estate services in the
world. Our businesses provide a wide range of consumer and business services and
are intended to complement one another and create cross-marketing opportunities
both within and among our following five business segments. Our Real Estate
Services segment franchises our three real estate brands, provides home buyers
with mortgages and facilitates employee relocations; our Hospitality segment
franchises our nine lodging brands, facilitates the sale and exchange of
vacation ownership intervals and markets vacation rental properties in Europe;
our Travel Distribution segment provides global distribution and computer
reservation and travel agency services; our Vehicle Services segment operates
and franchises the Avis car rental brand, provides fleet management and fuel
card services and operates car parking facilities in the United Kingdom; and our
Financial Services segment provides enhancement products, insurance-based and
loyalty solutions, franchises tax preparation services and provides a variety of
membership programs through an outsourcing arrangement with Trilegiant
Corporation.
We seek organic growth augmented by the acquisition and integration of
complementary businesses and routinely review and evaluate our portfolio of
existing businesses to determine if they continue to meet our current
objectives. As a result, we are currently engaged in a number of preliminary
discussions concerning possible acquisitions, divestitures, joint ventures and
related corporate transactions. We intend to continually explore and conduct
discussions with regard to such transactions.
On April 17, 2002, we acquired all of the common stock of NRT Incorporated, the
largest residential real estate brokerage firm in the United States, through the
issuance of approximately 12 million shares of CD common stock then valued at
approximately $230 million. As part of the acquisition, we also assumed
approximately $320 million of NRT debt, which was subsequently repaid. Prior to
the acquisition, NRT operated as a joint venture between us and Apollo
Management, L.P. that acquired independent real estate brokerages, converted
them to one of our real estate brands and operated the brand under a 50-year
franchise agreement with us. On April 17, 2002, we also acquired all of the
common stock of Arvida Realty Services, the largest residential real estate
brokerage firm in Florida, for approximately $160 million in cash. NRT and
Arvida will become part of our Real Estate Services segment.
On April 30, 2002, we acquired approximately 90% of the outstanding common stock
of Trendwest Resorts, Inc. for approximately $850 million, including $20 of
estimated transaction costs and expenses and $30 million related to the
conversion of Trendwest employee stock options into CD common stock options. The
merger consideration was funded through a tax-free exchange of approximately 43
million shares of CD common stock then valued at approximately $800 million. As
part of the acquisition, we assumed approximately $90 million of Trendwest net
debt, which was subsequently repaid. The purchase of the remaining 10% of the
outstanding Trendwest shares will close upon the effectiveness of a registration
statement relating to the issuance of CD common stock to such Trendwest
stockholders, which was filed with the Securities and Exchange Commission on
April 29, 2002, though no earlier than May 30, 2002. The number of shares of CD
common stock to be paid to the shareholders of the remaining 10% of the
outstanding Trendwest shares will fluctuate between 4.7 million and 5.3 million
shares, within a collar of $16.15 to $18.50 per share of CD common stock.
Trendwest markets, sells and finances vacation ownership interests. We believe
that this acquisition will provide us with significant geographic
diversification and global presence in the timeshare industry. Trendwest will
become part of our Hospitality segment.
15
<Page>
RESULTS OF CONSOLIDATED OPERATIONS
Our consolidated results comprised the following during the first quarter of:
<Table>
<Caption>
2002 2001 CHANGE
---------- ---------- -----------
Net revenues $ 2,713 $ 1,486 $ 1,227
---------- ---------- -----------
Expenses, excluding other charges and non-program related interest, net 2,123 1,144 979
Other charges 11 204 (193)
Non-program related interest, net 66 60 6
---------- ---------- -----------
Total expenses 2,200 1,408 792
---------- ---------- -----------
Net gain on dispositions of businesses - 435 (435)
---------- ---------- -----------
Income before income taxes, minority interest and
equity in Homestore.com 513 513 -
Provision for income taxes 169 205 (36)
Minority interest, net of tax 2 13 (11)
Losses related to equity in Homestore.com, net of tax - 18 (18)
---------- ---------- -----------
Income before cumulative effect of accounting change $ 342 $ 277 $ 65
========== ========== ===========
</Table>
Strong contributions from all of our segments and the addition of the operations
of businesses we acquired during 2001 (principally, Avis Group Holdings, Inc. on
March 1, 2001, Fairfield Resorts, Inc. on April 2, 2001, Galileo International,
Inc. on October 1, 2001 and Cheap Tickets, Inc. on October 5, 2001) produced
revenue growth of $1.2 billion, or 83%, for the first quarter of 2002. A
detailed discussion of revenue trends is included in "Results of Reportable
Segments." Total expenses increased $792 million, or 56%, primarily as a result
of the impact of businesses acquired during 2001. Such increase was partially
offset by a decrease in other charges recorded by us during first quarter 2002.
During first quarter 2001, we recorded other charges of (i) $185 million
substantially related to the funding of an irrevocable contribution to an
independent technology trust ($95 million) and the creation of Trip Network,
Inc. ($85 million), (ii) $11 million for securities litigation and (iii) $8
million related to the acquisition and integration of Avis. During first quarter
2002, we did not incur any charges of an unusual nature, with the exception of
$11 million of charges related to securities litigation.
During first quarter 2001, we sold our real estate Internet portal, move.com,
along with certain ancillary businesses, to Homestore.com in exchange for
approximately 21 million shares of Homestore.com common stock then valued at
$718 million. We recognized a gain of $436 million ($262 million, after tax) on
the sale of these businesses at the time of closing. Such gain was substantially
offset during fourth quarter 2001 by a loss of $407 million resulting from a
decline in the value of our investment in Homestore.
Our overall effective tax rate was 33% and 40% for the first quarter 2002 and
2001, respectively. The effective tax rate for first quarter 2002 was lower
primarily due to the elimination of non-deductible goodwill amortization and the
absence of higher state taxes on the gain on the disposition of our Internet
real estate portal.
As a result of the above-mentioned items, income before cumulative effect of
accounting change increased $65 million, or 23%, in the first quarter 2002.
RESULTS OF REPORTABLE SEGMENTS
The underlying discussions of each segment's operating results focuses on
Adjusted EBITDA, which is defined as earnings before non-program related
interest, income taxes, non-program related depreciation and amortization,
minority interest and equity in Homestore.com, adjusted to exclude certain items
which are of a non-recurring or unusual nature and are not measured in assessing
segment performance or are not segment specific. Our management believes such
discussions are the most informative representation of how management evaluates
performance. However, our presentation of Adjusted EBITDA may not be comparable
with similar measures used by other companies.
16
<Page>
THREE MONTHS ENDED MARCH 31, 2002 VS. THREE MONTHS ENDED MARCH 31, 2001
<Table>
<Caption>
REVENUES ADJUSTED EBITDA
----------------------------------------- -------------------------------------
% %
2002 2001 CHANGE 2002 2001 CHANGE
----------- ----------- ----------- ---------- --------- ------
Real Estate Services $ 410 $ 339 21% $ 182 $ 132(c) 38%
Hospitality 403 240 68 112 102 10
Travel Distribution 444 25 * 146 2 *
Vehicle Services 1,030 454 127 104 93(d) 12
Financial Services 419 390 7 164 131 25
----------- ----------- ---------- ---------
Total Reportable Segments 2,706 1,448 708 460
Corporate and Other (a) 7 38 * (11)(b) (17)(e) *
----------- ---------- ---------- ---------
Total Company $ 2,713 $ 1,486 83% $ 697 $ 443 57%
=========== =========== ========== ==========
</Table>
- ---------
* Not meaningful.
(a) Included in Corporate and Other are the results of operations of our
non-strategic businesses, unallocated corporate overhead and the
elimination of transactions between segments.
(b) Excludes $11 million of litigation settlement and related costs.
(c) Excludes a charge of $95 million to fund an irrevocable contribution to an
independent technology trust.
(d) Excludes a charge of $4 million related to the acquisition and integration
of Avis.
(e) Excludes (i) a net gain of $435 million primarily related to the sale of
our real estate Internet portal, move.com, and (ii) a credit of $14 million
to reflect an adjustment to the settlement charge recorded in the fourth
quarter of 1998 for the PRIDES class action litigation. Such amounts were
partially offset by charges of (i) $85 million incurred in connection with
the creation of Trip Network, Inc., (ii) $25 million for securities
litigation, (iii) $7 million related to a contribution to the Cendant
Charitable Foundation and (iv) $4 million related to the acquisition and
integration of Avis.
REAL ESTATE SERVICES
Revenues and Adjusted EBITDA increased $71 million (21%) and $50 million (38%),
respectively. The increase in operating results was primarily driven by
increased franchise fees from our Century 21(R), Coldwell Banker(R) and ERA(R)
franchise brands and continued record growth in mortgage loan production during
the first quarter of 2002.
Royalties from our real estate franchise brands increased $19 million (19%)
primarily as a result of a 10% increase in home sale transactions by franchisees
and an 8% increase in the average price of homes sold. In addition, real estate
franchise fees increased $17 million, including a termination payment received
in connection with the conversion of certain ERA real estate brokerage offices
into Coldwell Banker offices. Revenue increases in the real estate franchise
business are recognized with little or no corresponding increase in expenses due
to the significant operating leverage within our franchise operations.
Mortgage-related activities also contributed significantly to the increase in
segment results in first quarter 2002. Revenues from mortgage loans sold
increased $104 million (119%) and mortgage loans sold increased $2.6 billion
(45%) to $8.5 billion. Closed mortgage loans increased $5.0 billion (66%) to
$12.6 billion consisting of a $4.4 billion (157%) increase in refinancings and a
$630 million increase (13%) in purchase mortgage closings. A significant portion
of mortgages closed in any quarter will generate revenues in future periods as
such loans are packaged and sold (revenues are recognized upon the sale of the
loan, typically 45-60 days after closing). Partially offsetting unprecedented
mortgage loan production was a $66 million decline in net revenues related to
the servicing of mortgage loans, as the amortization of mortgage servicing
rights assets increased in first quarter 2002, principally due to the
substantial increase in refinancing activity. However, recurring servicing fees
increased $18 million (23%), and the average servicing portfolio grew $18.1
billion (22%) in first quarter 2002 as a result of the high volume of mortgage
loan originations over the last twelve months. Operating and administrative
expenses within this segment increased $20 million to support the high volume of
mortgage originations and related servicing activities.
HOSPITALITY
Revenues and EBITDA increased $163 million (68%) and $10 million (10%),
respectively, primarily due to the acquisitions of Fairfield Resorts in April
2001 and Equivest Finance, Inc. in February 2002. Fairfield and Equivest
collectively contributed revenues of $158 million and EBITDA of $24 million in
first quarter 2002. Holiday Cottages and Cuendet (which comprise our Vacation
Rental Group) collectively contributed incremental revenues and EBITDA of $13
million and $6 million, respectively, primarily due to increased cottage and
leisure rental volume (principally in the UK) during first quarter 2002.
Notwithstanding the continuing impacts of the September 11th terrorist attacks
on the travel industry, timeshare subscription and transaction revenues
increased $11 million (10%) primarily due to increases in both members and
exchange transactions. As our timeshare exchange business
17
<Page>
continues to grow, the infrastructure in this business has been expanded to
support anticipated volumes although increased expenses have been partially
offset by recent cost reduction efforts within our timeshare and lodging
businesses. Accordingly, operating expenses within these businesses increased
$15 million, which was principally comprised of timeshare staffing and related
costs. Franchise fees and marketing fund revenues from our lodging franchise
operations collectively decreased $14 million (15%) in first quarter 2002.
However, travel volumes during first quarter 2002 have begun to rebound from the
levels experienced as a result of the September 11th terrorist attacks and,
accordingly, year-over-year occupancy levels and room rates in our lodging
brands have also improved during first quarter 2002 compared to fourth quarter
2001. Revenue per available room ("RevPAR") is first quarter 2002 is down 11%
from the comparable prior year quarter, whereas in fourth quarter 2001, RevPAR
declined 19% from the comparable prior year quarter. Absent any further shock to
the travel industry, we expect travel volumes within this segment to return to
normalized levels over time.
TRAVEL DISTRIBUTION
Revenues and EBITDA increased $419 million and $144 million, respectively,
almost entirely due to the October 2001 acquisitions of Galileo International,
Inc. and Cheap Tickets, Inc. The terrorist attacks of September 11th caused a
significant decrease in the demand for travel-related services and, accordingly,
reduced the booking volumes of Galileo and our travel agency businesses below
anticipated levels during the third and fourth quarters of 2001. However, travel
volumes and travel related bookings have begun to rebound during first quarter
2002. During fourth quarter 2001, Galileo booking volumes for air travel were
down 19% versus the comparable prior year quarter, whereas during first quarter
2002, air travel booking volumes were down 13% compared with first quarter 2001.
Upon completing the acquisitions of Galileo and Cheap Tickets, in response to
the economic and travel industry conditions post September 11th, we not only
moved aggressively to integrate the businesses and achieve expected synergies,
but we also streamlined their operations through headcount reductions and other
means to reflect expected business volumes. Absent any further shock to the
travel industry, we expect travel volumes to continue to improve to normalized
levels over time.
VEHICLE SERVICES
Revenues and Adjusted EBITDA increased $576 million (127%) and $11 million
(12%), respectively, substantially due to the acquisition of Avis Group Holdings
on March 1, 2001. The operations of Avis are comprised of the Avis car rental
business and fleet management programs. Avis' reported operating results were
included from the acquisition date and therefore our results in 2001 reflect
only one month of Avis' operations. Accordingly, the Avis acquisition
contributed incremental revenues of $554 million and an Adjusted EBITDA
reduction of $1 million in first quarter 2002 compared with first quarter 2001.
Due to the seasonality of the car rental industry, Avis typically shows little
or no operating profit in the months of January and February. The Avis car
rental business continued to be negatively impacted by reduced demand at airport
locations as a result of the September 11th terrorist attacks but the impact is
diminishing over time. In first quarter 2002, Avis rental days decreased 7%
compared with first quarter 2001, whereas in fourth quarter 2001, Avis rental
days declined 14% from the comparable prior year quarter. Time and mileage
revenue per day during first quarter 2002 remained relatively constant compared
with first quarter 2001 and was 8% better than fourth quarter 2001. During the
third and fourth quarters of 2001, Avis management streamlined the car rental
operations to meet anticipated business levels, which included reductions in
workforce and fleet. Accordingly, the average fleet in first quarter 2002 is 9%
lower than in the prior year quarter, which effectively reduced vehicle-related
expenses in 2002. Our fleet management and UK parking businesses were not
materially impacted by the September 11th terrorist attacks. National Car Parks
contributed incremental revenues in 2002 of $23 million, including an increased
level of property disposals during the current year quarter. While we expect the
continuing effects of September 11th to continue to suppress significant growth
of our car rental operations for the foreseeable future, we believe that we have
effectively right-sized the operations to meet anticipated business levels and
we expect that the percentage impact of September 11th will continue to decline
over time, absent any further shocks to the travel industry.
FINANCIAL SERVICES
Revenues and EBITDA increased $29 million (7%) and $33 million (25%),
respectively, primarily due to an increased contribution from Jackson Hewitt,
our tax preparation franchise brand. Jackson Hewitt generated incremental
revenues of $49 million principally driven by a 14% increase in tax return
volume, a 13% increase in the average price per return and the January 2002
acquisition of our largest tax preparation franchisee, Tax Services of America
("TSA"), for $4 million. TSA contributed incremental revenues and EBITDA of $30
million and $15 million, respectively, to Jackson Hewitt's results in first
quarter 2002. In our individual membership business, the comparability of the
quarter-over-quarter operating results was significantly impacted by the
outsourcing of this business to Trilegiant on July 2, 2001. Accordingly,
marketing expenses were $23 million favorable as the absence of new member
marketing costs significantly exceeded the total expenses we were obligated to
incur to support Trilegiant's solicitation efforts. In addition, membership
operating expenses were $13 million favorable due to cost
18
<Page>
savings from servicing fewer members. Conversely, revenues and EBITDA were
unfavorably impacted by a decrease in membership expirations during first
quarter 2002 (revenue is generally recognized upon expiration of the membership)
compared with the prior year quarter, however, a favorable mix of products and
programs with marketing partners partially offset this Revenue and EBITDA
impact. Revenues within our insurance-wholesale business remained relatively
constant.
CORPORATE AND OTHER
Revenues decreased $31 million while Adjusted EBITDA increased $6 million. In
February 2001, we sold Move.com Group, our real estate Internet portal, and
certain ancillary businesses. Such businesses collectively accounted for a
quarter-over-quarter decline in revenues of $14 million and an improvement in
EBITDA of $8 million. In addition, revenues recognized from providing electronic
reservation processing services to Avis ceased subsequent to the Avis
acquisition, which resulted in a $14 million revenue decrease with no Adjusted
EBITDA impact as Avis was billed for such services at cost.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Within our car rental, vehicle management, relocation, mortgage services and
timeshare development businesses, we purchase assets or finance the purchase of
assets on behalf of our clients. Assets generated in this process are classified
as assets under management and mortgage programs. We seek to offset the interest
rate exposures inherent in these assets by matching them with financial
liabilities that have similar term and interest rate characteristics. As a
result, we minimize the interest rate risk associated with managing these assets
and create greater certainty around the financial income that they produce. Fees
generated from our clients are used, in part, to repay the interest and
principal associated with the financial liabilities. Funding for our assets
under management and mortgage programs is also provided by both unsecured
borrowings and secured financing arrangements, which are classified as
liabilities under management and mortgage programs, as well as securitization
facilities with special purpose entities. Cash inflows and outflows relating to
the generation or acquisition of assets and the principal debt repayment or
financing of such assets are classified as activities of our management and
mortgage programs.
FINANCIAL CONDITION
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2002 2001 CHANGE
--------------- --------------- ------------
Total assets exclusive of assets under management and
mortgage programs $ 19,642 $ 21,502 $ (1,860)
Assets under management and mortgage programs 11,704 11,950 (246)
Total liabilities exclusive of liabilities under management
and mortgage programs $ 12,717 $ 15,115 $ (2,398)
Liabilities under management and mortgage programs 10,694 10,894 (200)
Mandatorily redeemable preferred interest 375 375 -
Stockholders' equity 7,560 7,068 492
</Table>
Total assets exclusive of assets under management and mortgage programs
decreased primarily due to (i) the application of $1.41 billion of prior
payments made to the stockholder litigation settlement trust to extinguish a
portion of our stockholder litigation settlement liability and (ii) a reduction
in cash (see "Cash Flows" below for a detailed discussion of such reduction).
Total liabilities exclusive of liabilities under management and mortgage
programs decreased primarily due to (i) the extinguishment of $1.7 billion of
our stockholder litigation settlement liability and (ii) the $390 million
repayment of our 3% convertible notes. Stockholders' equity increased primarily
due to $342 million of net income generated during first quarter 2002.
The liability resulting from the restructuring plan we committed to in fourth
quarter 2001 as a result of changes in business and consumer behavior following
the September 11th terrorist attacks approximated $58 million and $80 million as
of March 31, 2002 and December 31, 2001, respectively.
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The initial recognition of the charge and the corresponding utilization from
inception are summarized by category as follows:
<Table>
<Caption>
2001 BALANCE AT BALANCE AT
RESTRUCTURING CASH OTHER DECEMBER 31, CASH OTHER MARCH 31,
CHARGE PAYMENTS REDUCTIONS 2001 PAYMENTS REDUCTIONS 2002
-------------- -------- ----------- ------------ -------- ---------- ----------
Personnel related $ 68 $ 11 $ 5 $ 52 $ 18 $ - $ 34
Asset impairments and
contract terminations 17 3 10 4 - 1 3
Facility related 25 1 - 24 3 - 21
-------------- -------- ----------- ------------- -------- ---------- -----------
Total $ 110 $ 15 $ 15 $ 80 $ 21 $ 1 $ 58
============== ======== =========== ============= ======== ========== ===========
</Table>
Personnel related costs primarily included severance resulting from the
rightsizing of certain businesses and corporate functions. As of March 31, 2002,
we formally communicated the termination of employment to approximately 3,000
employees, representing a wide range of employee groups, and as of March 31,
2002, we had terminated approximately 2,140 employees. We anticipate the
majority of the remaining personnel related costs will be paid during second
quarter 2002. All other costs were incurred primarily in connection with
facility closures and lease obligations resulting from the consolidation of
business operations. These initiatives were substantially completed as of March
31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are cash on hand, our ability to generate
cash through operations and financing activities, as well as available credit
and securitization facilities. At March 31, 2002, we had approximately $1.1
billion of cash on hand, a decrease of $833 million from approximately $2.0
billion at December 31, 2001. The following table summarizes such decrease:
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
-------------------------------------------------
2002 2001 CHANGE
------------- ------------- ------------
Cash provided by (used in):
Operating activities $ (559)(a) $ 105 $ (664)
Investing activities 559 (b) (1,506) 2,065
Financing activities (832) 2,554 (3,386)
Effects of exchange rate changes on cash and cash equivalents (1) (5) 4
------------- ------------- ------------
Net change in cash and cash equivalents $ (833) $ 1,148 $ (1,981)
============= ============= ============
</Table>
- --------
(a) Includes the application of prior payments made to the stockholder
litigation settlement trust of $1.41 billion and the March 2002 payment of
$250 million.
(b) Includes $1.41 billion of proceeds from the stockholder litigation
settlement trust, which were used to extinguish a portion of the
stockholder litigation settlement liability.
During first quarter 2002, we used $559 million of net cash in operating
activities as compared to generating $105 million of cash during first quarter
2001. Reflected in the use during first quarter 2002 is $1.41 billion of cash
payments made in prior periods to the stockholder litigation settlement trust
that were used during first quarter 2002 to extinguish a portion of our
stockholder litigation settlement liability. Partially offsetting the
application of these prior payments were positive contributions from businesses
we acquired during 2001, as well as growth in our mortgage business.
During first quarter 2002, we generated $559 million of net cash from investing
activities as compared to using $1.5 billion of cash during first quarter 2001.
Reflected in the cash we generated during first quarter 2002 is the proceeds of
$1.41 billion of prior payments made to the stockholder litigation settlement
trust that were used to extinguish a portion of our stockholder litigation
settlement liability. Additionally, during first quarter 2002, we used less cash
for acquisitions. Partially offsetting the decrease in cash used in investing
activities was an increase in cash used to acquire vehicles for our car rental
and fleet management operations. Capital expenditures during first quarter 2002
amounted to $55 million and were utilized to support operational growth, enhance
marketing opportunities and develop operating efficiencies through technological
improvements. We continue to anticipate aggregate capital expenditure
investments during 2002 of approximately $375 million.
We used cash in financing activities during first quarter 2002 primarily for the
repayment of borrowings under revolving credit facilities and our 3% convertible
notes in February 2002 as compared to generating cash from financing activities
during first quarter 2001 through the issuance of debt and equity securities.
Additionally, during first quarter 2002, we used $57 million of cash in
financing activities to repurchase approximately 3.1 million shares
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of our CD common stock. We anticipate using cash on hand and operating cash flow
generated during the year to continue repurchasing our CD common stock in order
to offset the impact of employee stock option exercises. We currently have
approximately $205 million of remaining availability under our board-authorized
CD common stock repurchase program.
We also anticipate using cash on hand and operating cash flow generated during
the year to reduce our outstanding indebtedness and to fund the remainder of our
stockholder litigation settlement liability, which approximated $1.19 billion at
March 31, 2002, by July 16, 2002. Additionally, we may borrow under our
revolving credit facilities, if necessary, to fund any remaining liability
related to our stockholder litigation settlement.
At March 31, 2002, we had approximately $4.5 billion of available funding
arrangements and credit facilities (including availability of approximately $2.0
billion at the corporate level and approximately $2.5 billion available for use
in our management and mortgage programs).
As of March 31, 2002, the credit facilities at the corporate level comprise:
<Table>
<Caption>
TOTAL LETTERS OF AVAILABLE
CAPACITY CREDIT ISSUED CAPACITY
--------------- --------------- ------------
Maturing in February 2004 $ 1,150 $ 90 $ 1,060
Maturing in August 2003 1,750 856 894
--------------- --------------- ------------
$ 2,900 $ 946 $ 1,954
=============== =============== ============
</Table>
Under the terms of our $1.75 billion facility, the revolving line will be
reduced by $500 million to $1.25 billion in August 2002. Additionally, this
facility contains the committed capacity to issue letters of credit we can use
as collateral for the remaining liability relating to our stockholder litigation
settlement. As of March 31, 2002, included within the $856 million of letters of
credit issued under this facility is $615 million issued for this purpose. As we
make deposits to the stockholder litigation settlement trust, the amount of
collateral we are required to post is reduced by a corresponding amount.
Therefore, as we are required to fund the entire remaining balance of the
stockholder litigation settlement liability by July 16, 2002, we would expect
that as of such date, the availability under this facility would increase by
$615 million.
As of March 31, 2002, available funding arrangements and credit facilities
related to our management and mortgage programs consisted of:
<Table>
<Caption>
TOTAL OUTSTANDING AVAILABLE
CAPACITY BORROWINGS CAPACITY
--------------- ---------------- ------------
ASSET-BACKED FUNDING ARRANGEMENTS
AESOP Funding $ 4,450 $ 3,600 $ 850
Chesapeake Funding (formerly Greyhound Funding) 3,091 3,003 88
--------------- ---------------- ------------
7,541 6,603 938
--------------- ---------------- ------------
CREDIT FACILITIES
Maturing in November 2002 275 - 275
Maturing in December 2002 100 - 100
Maturing in February 2004 750 - 750
Maturing in February 2005 750 270 480
--------------- ---------------- ------------
1,875 270 1,605
--------------- ---------------- ------------
$ 9,416 $ 6,873 $ 2,543
=============== ================ ============
</Table>
On May 3, 2002, PHH terminated $250 million of revolving credit facilities,
which were scheduled to mature in November 2002.
We also currently have $3.0 billion of availability for public debt or equity
issuances under a shelf registration statement at the corporate level and $2.4
billion of availability for public debt issuances under shelf registration
statements at the PHH level.
At March 31, 2002, we had approximately $16.5 billion of indebtedness (including
corporate indebtedness of $6.6 billion, debt related to our management and
mortgage programs of $9.5 billion and our mandatorily redeemable interest of
$375 million). Our net debt (excluding the Upper DECS and debt related to our
management and mortgage programs and net of cash and cash equivalents) to total
capital (including net debt and the Upper DECS) ratio was 37% as of March 31,
2002 and the ratio of Adjusted EBITDA to net non-program related interest
expense was 10.5 to 1 for first quarter 2002.
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<Page>
Corporate indebtedness consisted of:
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2002 2001 CHANGE
--------------- ---------------- ------------
7 3/4% notes $ 1,150 $ 1,150 $ -
6.875% notes 850 850 -
11% senior subordinated notes 577 584 (7)
3 7/8% convertible senior debentures 1,200 1,200 -
Zero coupon senior convertible contingent notes 925 920 5
Zero coupon convertible debentures 1,000 1,000 -
3% convertible subordinated notes - 390 (390)
Other 18 38 (20)
--------------- ---------------- ------------
5,720 6,132 (412)
Less: Current portion 10 401 (391)
--------------- ---------------- ------------
Long-term debt, excluding Upper DECS 5,710 5,731 (21)
Upper DECS 863 863 -
--------------- ---------------- ------------
$ 6,573 $ 6,594 $ (21)
=============== ================ ============
</Table>
On February 15, 2002, we redeemed our 3% convertible subordinated notes for $390
million in cash. On May 2, 2002, we amended certain terms of our zero coupon
convertible debentures. In connection with these amendments, we will make cash
interest payments of 3% per annum beginning May 5, 2002 and continuing through
May 4, 2003 to the holders of the debentures on a semi-annual basis and the
holders were granted an additional option to put the debentures to us on May 4,
2003. On May 4, 2002, holders had the right to require us to redeem their zero
coupon convertible debentures. On such date, virtually all holders declined to
exercise this put option and retained their debentures.
Debt related to our management and mortgage programs consisted of:
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2002 2001 CHANGE
--------------- ---------------- ------------
SECURED BORROWINGS
Term notes $ 6,323 $ 6,237 $ 86
Short-term borrowings 671 582 89
Commercial paper 110 120 (10)
Other 304 295 9
--------------- ---------------- ------------
Total secured borrowings 7,408 7,234 174
--------------- ---------------- ------------
UNSECURED BORROWINGS
Medium-term notes 663 679 (16)
Short-term borrowings 448 983 (535)
Commercial paper 1,117 917 200
Other 30 31 (1)
--------------- ---------------- ------------
Total unsecured borrowings 2,258 2,610 (352)
--------------- ---------------- ------------
$ 9,666 $ 9,844 $ (178)
=============== ================ ============
</Table>
Our debt related to management and mortgage programs decreased $178 million.
Such decrease primarily related to the repayment of $480 million of outstanding
borrowings under revolving credit facilities, partially offset by the issuance
of $200 million of commercial paper. During first quarter 2002, we also entered
into a secured short-term financing agreement to sell mortgage loans under a
repurchase arrangement, which is renewable on an annual basis at the discretion
of the lender. The loan is collateralized by the underlying mortgage loans held
in safekeeping by the custodian to the agreement. The total commitment under the
agreement is $100 million. Mortgage loans financed under this agreement at March
31, 2002 totaled $62 million. During first quarter 2002, the approximate
weighted average interest rate on borrowings under this agreement was 2.89%. The
related debt is recorded as a component of secured short-term borrowings.
On May 3, 2002, PHH issued $443 million of unsecured term notes with maturities
ranging from May 2005 through May 2012. Such notes bear interest at a blended
rate of 7.64%.
In addition to our on-balance sheet borrowings and available credit facilities,
we securitize certain financial assets. As of March 31, 2002, we were servicing
$472 million of timeshare receivables sold to special purpose entities.
Additionally, PHH was servicing $521 million of relocation receivables sold to a
special purpose entity as of March
22
<Page>
31, 2002. The maximum funding capacity under the PHH relocation securitization
facility is $650 million and as of March 31, 2002, PHH had available capacity of
$173 million. PHH was also servicing approximately $1.9 billion of mortgage
loans sold to a special purpose entity as of March 31, 2002. The maximum funding
capacity through this special purpose entity is $3.2 billion and as of March 31,
2002, we had available capacity of approximately $1.3 billion. In addition to
the mortgage loans sold to the special purpose entity, as of March 31, 2002, PHH
was servicing $100.4 billion of mortgage loans sold to the secondary market.
Our liquidity position may be negatively affected by unfavorable conditions in
any one of the industries in which we operate, as we may not have the ability to
generate sufficient cash flows from operating activities due to those
unfavorable conditions. Additionally, our liquidity as it relates to both
management and mortgage programs could be adversely affected by a deteroriation
in the performance of the underlying assets of such programs. Access to the
principal financing program for our car rental subsidiary may also be impaired
should General Motors Corporation not be able to honor its obligations to
repurchase a substantial number of our vehicles. Our liquidity as it relates to
mortgage programs is highly dependent on the secondary markets for mortgage
loans. Access to certain of our securitization facilities and our ability to act
as servicer thereto also may be limited in the event that our or PHH's credit
ratings are downgraded below investment grade and, in certain circumstances,
where we or PHH fail to meet certain financial ratios. However, we do not
believe that our or PHH's credit ratings are likely to fall below such
thresholds. Additionally, we monitor the maintenance of these financial ratios
and as of March 31, 2002, we were in compliance with all covenants under these
facilities.
Currently our credit ratings are as follows:
<Table>
<Caption>
MOODY'S
INVESTOR STANDARD FITCH
SERVICE & POOR'S RATINGS
-------- -------- -------
CENDANT
Senior unsecured debt Baa1 BBB BBB+
Subordinated debt Baa2 BBB- BBB
PHH
Senior debt Baa1 A- BBB+
Short-term debt P-2 A-2 F-2
</Table>
A security rating is not a recommendation to buy, sell or hold securities and is
subject to revision or withdrawal at any time.
AFFILIATED ENTITIES
We also maintain certain relationships with affiliated entities principally to
support our business model of growing earnings and cash flow with minimal asset
risk. We do not have the ability to control the operating and financial policies
of these entities and, accordingly, do not consolidate these entities in our
results of operations or financial position. Certain of our officers serve on
the Board of Directors of these entities, but in no instances do they constitute
a majority of the Board, nor do they receive any economic benefits therefrom.
NRT INCORPORATED. Royalty and advertising fees paid by NRT in connection with
franchise agreements approximated $53 million and $40 million during first
quarters 2002 and 2001, respectively. Additionally, during first quarter 2002
and 2001, we received $16 million and $1 million of other fees from NRT, which
included fees paid in connection with the termination of a franchise agreement.
We also receive real estate referral fees from NRT in connection with clients
referred to NRT by our relocation business. During first quarters 2002 and 2001,
we recognized approximately $7 million of such fees. As previously discussed, we
acquired NRT on April 17, 2002. Accordingly, NRT will be included in our
consolidated results of operations and financial position as of such date.
FFD DEVELOPMENT COMPANY, LLC. During first quarter 2002, we recorded non-cash
dividend income of $3 million, which will be paid-in-kind, relating to our
preferred equity interest in FFD Development Company, LLC. Such preferred equity
interest approximated $62 million as of March 31, 2002. During first quarter
2002, we purchased $24 million of timeshare interval inventory and land from
FFD, bringing the total cumulative amount purchased to $64 million as of March
31, 2002. We are obligated to purchase an additional $232 million of timeshare
interval inventory and land from FFD. As is customary in "build to suit"
agreements, when we contract with FFD for the development of a property, we
issue a letter of credit for up to 20% of our purchase price for such property.
Drawing under all such letters of credit will only be permitted if we fail to
meet our obligation under any purchase
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<Page>
commitment. While we intend to issue such letters of credit in 2002, no such
letters of credit are currently outstanding. We are not obligated or
contingently liable for any other debt incurred by FFD.
TRILEGIANT CORPORATION. As of March 31, 2002, Trilegiant had an outstanding
balance of $60 million due to us related to amounts drawn on the $75 million
loan facility we have provided in connection with certain marketing agreements
under which we expect to receive commissions. Such amount will be repaid to us
as commissions are received by Trilegiant from the third party.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in our public filings or other public statements are
subject to known and unknown risks, uncertainties and other factors which may
cause our actual results, performance or achievements 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. Forward-looking statements include
the information concerning our future financial performance, business strategy,
projected plans and objectives.
Statements preceded by, followed by or that otherwise include the words
"believes", "expects", "anticipates", "intends", "project", "estimates",
"plans", "may increase", "may fluctuate" and similar expressions or future or
conditional verbs such as "will", "should", "would", "may" and "could" are
generally forward-looking in nature and not historical facts. You should
understand that the following important factors and assumptions could affect our
future results and could cause actual results to differ materially from those
expressed in such forward-looking statements:
- the impacts of the September 11, 2001 terrorist attacks on New York
City and Washington, D.C. on the travel industry in general, and our
travel businesses in particular, are not fully known at this time, but
are expected to include negative impacts on financial results due to
reduced demand for travel in the near term; other attacks, acts of war;
or measures taken by governments in response thereto may negatively
affect the travel industry, our financial results and could also result
in a disruption in our business;
- the effect of economic conditions and interest rate changes on the
economy on a national, regional or international basis and the impact
thereof on our businesses;
- the effects of a decline in travel, due to political instability,
adverse economic conditions or otherwise, on our travel related
businesses;
- the effects of changes in current interest rates, particularly on our
real estate franchise and mortgage businesses;
- the resolution or outcome of our unresolved pending litigation relating
to the previously announced accounting irregularities and other related
litigation;
- our ability to develop and implement operational, technological and
financial systems to manage growing operations and to achieve enhanced
earnings or effect cost savings;
- competition in our existing and potential future lines of business and
the financial resources of, and products available to, competitors;
- failure to reduce quickly our substantial technology costs in response
to a reduction in revenue, particularly in our computer reservations
and global distribution systems businesses;
- our failure to provide fully integrated disaster recovery technology
solutions in the event of a disaster;
- our ability to integrate and operate successfully acquired and merged
businesses and risks associated with such businesses, including the
acquisitions of Galileo International, Inc. and Cheap Tickets, Inc.,
the compatibility of the operating systems of the combining companies,
and the degree to which our existing administrative and back-office
functions and costs and those of the acquired companies are
complementary or redundant;
- our ability to obtain financing on acceptable terms to finance our
growth strategy and to operate within the limitations imposed by
financing arrangements and to maintain our credit ratings;
- competitive and pricing pressures in the vacation ownership and travel
industries, including the car rental industry;
- changes in the vehicle manufacturer repurchase arrangements in our Avis
car rental business in the event that used vehicle values decrease;
- and changes in laws and regulations, including changes in accounting
standards and privacy policy regulation.
24
<Page>
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. Most of these factors are
difficult to predict accurately and are generally beyond our control.
You should consider the areas of risk described above in connection with any
forward-looking statements that may be made by us and our businesses generally.
Except for our ongoing obligations to disclose material information under the
federal securities laws, we undertake no obligation to release publicly any
revisions to any forward-looking statements, to report events or to report the
occurrence of unanticipated events unless required by law. For any
forward-looking statements contained in any document, we claim the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
25
<Page>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
As previously discussed in our 2001 Annual Report on Form 10-K, we assess our
market risk based on changes in interest and foreign currency exchange rates
utilizing a sensitivity analysis. The sensitivity analysis measures the
potential loss in earnings, fair values, and cash flows based on a hypothetical
10% change (increase and decrease) in our market risk sensitive positions. We
used March 31, 2002 market rates to perform a sensitivity analysis separately
for each of our market risk exposures. The estimates assume instantaneous,
parallel shifts in interest rate yield curves and exchange rates. We have
determined, through such analyses, that the impact of a 10% change in interest
and foreign currency exchange rates and prices on our earnings, fair values and
cash flows would not be material.
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<Page>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 1, 2002, we entered into a Supplemental Indenture with The Bank of New
York, as trustee to amend the terms of our Zero Coupon Convertible Debentures
due 2021 to add cash interest payments of 3% per annum beginning May 5, 2002
through and including May 4, 2003 and to permit holders to require us to
repurchase the Debentures on May 4, 2003. We will pay the cash interest
semi-annually on November 4, 2002 and May 5, 2003 to holders of record at the
close of business on October 4, 2002 and April 4, 2003, respectively. Holders
may require us to repurchase the Debentures on May 4, 2003, 2004, 2006, 2008,
2011 and 2016.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
See Exhibit Index
(b) REPORTS ON FORM 8-K
On January 31, 2002, we filed a current report on Form 8-K to report under Item
5 the posting of information regarding our investments in affiliated entities on
our corporate Web site.
On February 7, 2002, we filed a current report on Form 8-K to report under Item
5 our fourth quarter and full year 2001 financial results.
On February 14, 2002, we filed a current report on Form 8-K to report under Item
5 our Consolidated Condensed Statements of Cash Flows and our Consolidated
Schedule of Free Cash Flow for the years ended December 31, 2000 and 2001 and
our projected Consolidated Schedules of Free Cash Flow for the years ended
December 31, 2002, 2003 and 2004.
On March 19, 2002, we filed a current report on Form 8-K to report under Item 5
that in connection with the decision by the Supreme Court of the United States
on March 18, 2002 to deny review of the settlement of our shareholder class
action relating to the accounting irregularities at the former business units of
CUC International, we will fund our remaining obligation by mid-July with cash
on hand and, if necessary, existing available credit facilities.
27
<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
/s/ Kevin M. Sheehan
--------------------------
Kevin M. Sheehan
Senior Executive Vice President and
Chief Financial Officer
/s/ Tobia Ippolito
--------------------------
Tobia Ippolito
Executive Vice President and
Chief Accounting Officer
Date: May 9, 2002
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<Page>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's Form
10-Q/A for the quarterly period ended March 31, 2000, dated July
28, 2000).
3.2 Amended and Restated By-Laws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Form 10-Q/A for the
quarterly period ended March 31, 2000, dated July 28, 2000).
4.1 First Supplemental Indenture, dated as of May 1, 2002, to the
Indenture dated as of May 4, 2001 between Cendant Corporation and
The Bank of New York, as Trustee (incorporated by reference to
Exhibit 4.1 to the Company's Form 8-K dated May 1, 2002).
12 Statement Re: Computation of Ratio of Earnings to Fixed Charges.
15 Letter Re: Unaudited Interim Financial Information.