EXHIBIT 99
CENDANT CORPORATION
TO REDUCE VALUATION OF MORTGAGE SERVICING ASSET
Company Adopts New Valuation Model
Will Result in a Non-Cash Reduction in Third Quarter
Adjusted Earnings of $175 Million, or $0.17 per Share,
Principally Reflecting Increased Mortgage Prepayment Expectations
Reduction Partially Offset by Strength of Other Business Units
Company Now Expects Adjusted EPS of $0.28 in Third Quarter
Compared to Prior Expectation of $0.42
Fourth Quarter 2002 Adjusted EPS Outlook Unchanged
Full Year 2003 Preliminary Adjusted EPS Forecast $1.55 to $1.60
NEW YORK, NY, SEPTEMBER 25, 2002 - Cendant Corporation today announced that it's
earnings will be reduced by approximately $175 million, or $0.17 per share, in
third quarter 2002 due to a non-cash write-down of the carrying value of its
mortgage servicing rights (MSR) asset, which is the capitalized value of
expected future servicing earnings.
The impact of this reduction in earnings is partially offset by strength in
other Cendant business units. As a result, the Company's forecast for third
quarter Adjusted EPS has been reduced from $0.42 to $0.28 per share. Cendant's
previously announced projection for fourth quarter 2002 Adjusted EPS of $0.29 is
unchanged. For 2003, the Company's preliminary Adjusted EPS expectation is $1.55
to $1.60. As a result of the revision to the Company's third quarter forecast,
the Adjusted EPS from continuing operations for 2002 is now expected to be
$1.26.
In the third quarter, a steep decline in the interest rates on ten-year Treasury
Notes and 30-year mortgages has resulted in the lowest interest rate levels in
41 years. As a result, the Company said, mortgage loan prepayments and
refinancings by homeowners have increased to record levels. This rise in
mortgage prepayments has, in turn, caused Cendant to determine that its MSR
asset will be reduced in accordance with generally accepted accounting
principles (GAAP), which require a revaluation to the lower of cost or market
value at each quarter end.
"Based on the unprecedented amount of refinancing caused by historically low
interest rates, it now appears that the models we have used to value the MSR
asset in the past are not as effective in estimating the volume of prepayments
and refinancings that are occurring in this new environment. While the level of
prepayment activity of our servicing portfolio remains below the industry
average, our existing valuation model and the risk management strategies used to
hedge against reductions in interest rates under-estimated
the velocity of refinancing due to the rate shocks experienced in the last 30 to
40 days. As a result, we are adopting a recently released valuation model and
revising certain of our assumptions in order to better reflect the sensitivity
of our MSR asset value to consumer behavior," said Kevin M. Sheehan, Cendant's
Chief Financial Officer. "With our continuing risk management activities, and
the adoption of the new valuation model with revised assumptions, we believe the
Company has enhanced its ability to value our MSR portfolio."
The charge reflects both the adoption of the new valuation model and an
adjustment to the value under the existing model due to the lower interest
rates. However, the Company is currently benefiting, and will continue to
benefit, from the increase in refinancing activity, as mortgage originations
remain at record levels.
Cendant will announce its third quarter results on Monday, October 21 after the
market close and will host an investor conference call to discuss third quarter
results on Tuesday, October 22 at 11 a.m. (EDT). Investors may access the call
live at www.cendant.com or by dialing 913-981-4900.
Adjusted EPS excludes items that are of a non-recurring or unusual nature,
including acquisition and integration related costs consisting primarily of the
non-cash amortization of the pendings and listings intangible asset from real
estate brokerage acquisitions and securities litigation costs. Adjusted EPS is a
non-GAAP measure, but the Company believes that it is useful to assist investors
in gaining an understanding of the trends and results of operations for the
Company's core business. Adjusted EPS should be viewed in addition to, and not
in lieu of, the Company's reported results.
Cendant Corporation is primarily a provider of travel and residential real
estate services. With approximately 70,000 employees, New York City-based
Cendant provides these services to businesses and consumers in over 100
countries.
More information about Cendant, its companies, brands and current SEC filings
may be obtained by visiting the Company's Web site at www.cendant.com or by
calling 877-4-INFOCD (877-446-3623).
STATEMENTS ABOUT FUTURE RESULTS MADE IN THIS RELEASE CONSTITUTE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. THESE STATEMENTS ARE BASED ON CURRENT EXPECTATIONS AND THE CURRENT
ECONOMIC ENVIRONMENT. THE COMPANY CAUTIONS THAT THESE STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE EXPRESSED OR IMPLIED IN THE FORWARD-LOOKING STATEMENTS. IMPORTANT
ASSUMPTIONS AND OTHER IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS ARE SPECIFIED IN
CENDANT'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2002.
SUCH FORWARD-LOOKING STATEMENTS INCLUDE PROJECTIONS. SUCH PROJECTIONS WERE NOT
PREPARED IN ACCORDANCE WITH PUBLISHED GUIDELINES OF THE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS OR THE SEC REGARDING PROJECTIONS AND FORECASTS, NOR
HAVE SUCH PROJECTIONS BEEN AUDITED, EXAMINED OR OTHERWISE REVIEWED BY
INDEPENDENT AUDITORS OF CENDANT OR ITS
AFFILIATES. IN ADDITION, SUCH PROJECTIONS ARE BASED UPON MANY ESTIMATES AND ARE
INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE UNCERTAINTIES AND
CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF MANAGEMENT OF CENDANT AND
ITS AFFILIATES. ACCORDINGLY, ACTUAL RESULTS MAY BE MATERIALLY HIGHER OR LOWER
THAN PROJECTED. THE INCLUSION OF SUCH PROJECTIONS HEREIN SHOULD NOT BE REGARDED
AS A REPRESENTATION BY CENDANT OR ITS AFFILIATES THAT THE PROJECTIONS WILL PROVE
TO BE CORRECT.
MEDIA CONTACT: INVESTOR CONTACTS:
Elliot Bloom Sam Levenson
212-413-1832
212-413-1834
Henry A. Diamond
212-413-1920
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