INDEX TO PRO FORMA FINANCIAL STATEMENTS
PAGE
Section A: Unaudited pro forma combining financial statements of HFS giving effect to
the merger of HFS with and into CUC International Inc. ("CUC") (the "Merger")
as of June 30, 1997 and for the year ended December 31, 1996 and the six
months ended June 30, 1997................................................... 2-7
Section B: Unaudited pro forma statement of income of HFS excluding the Merger for
the year ended December 31, 1996 ............................................ 8-18
Section C: Unaudited historical combining financial statements of HFS giving
effect to the Merger as of June 30, 1997 and for each of the years
ended December 31, 1994, 1995 and 1996 and each of the six months ended
June 30, 1996 and 1997....................................................... 19-27
1
SECTION A
CENDANT CORPORATION
UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS
FOR THE MERGER
The following unaudited pro forma combining financial statements give
effect to the proposed merger of HFS with and into CUC (the postmerger
company "Cendant Corporation"), which will be accounted for as a pooling of
interests. Upon consummation of the Merger, CUC intends to change its fiscal
year end from January 31 to December 31. The underlying pro forma combining
balance sheet as of June 30, 1997 and statement of income for the six months
ended June 30, 1997 reflect the combining of the historical financial results
of CUC with the historical financial results of HFS and give effect to the
conversion of HFS Common Stock into CUC Common Stock. The underlying pro
forma combining statement of income for the year ended December 31, 1996
reflects the combining of the historical financial results of CUC with the pro
forma financial results of HFS. The pro forma financial results of HFS
include all of HFS's transactions prior to the Merger.
The pro forma combining financial statements of Cendant Corporation
reflect adjustments for the pooling of CUC and HFS, including
reclassifications to conform to the presentation expected to be used by the
merged companies and shares issued in connection with the Merger.
The pro forma combining financial statements do not purport to present the
results of operations of (i) Cendant Corporation, had the Merger occurred or
(ii) HFS had the business combinations described in Section B occurred on the
dates specified, nor are they necessarily indicative of the operating results
that may be achieved in the future.
The unaudited pro forma combining financial statements of Cendant
Corporation are based on certain assumptions and adjustments described in the
pro forma financial statements of HFS excluding the Merger, as set forth in
Section B herein, and should be read in conjunction therewith and with the
consolidated financial statements and related notes thereto of HFS, as
included in the Current Report on Form 8-K of HFS Incorporated dated July 16,
1997 and CUC, as included in the Annual Report on Form 10-K of CUC
International Inc. for the fiscal year ended January 31, 1997. The financial
statements and related notes thereto of certain of the acquired companies
previously filed with the SEC pursuant to Regulation S-X Rule 3-05,
"Financial Statements of Businesses Acquired or to be Acquired."
TERMS OF THE MERGER
The Agreement and Plan of Merger between CUC and HFS provides, among other
things, for a "merger of equals" transaction involving the merger of HFS with
and into CUC, with CUC surviving the Merger and changing its name to Cendant
Corporation.
In the Merger, each issued and outstanding share of HFS Common Stock,
other than HFS Common Stock owned by HFS or CUC, will be converted into the
right to receive 2.4031 shares of CUC Common Stock.
2
SECTION A
PAGE 1 OF 2
CENDANT CORPORATION
UNAUDITED PRO FORMA COMBINING BALANCE SHEET
(IN THOUSANDS)
AT
---------------------------
7/31/97 6/30/97
------------ ------------- PRO FORMA
HISTORICAL HISTORICAL PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENTS COMPANIES
------------ ------------- ------------- -----------
ASSETS
Current assets
Cash and cash equivalents............. $ 725,634 $ 58,511 $ 784,145
Restricted cash....................... 23,742 23,742
Marketable securities................. 468,810 468,810
Receivables, net...................... 582,293 840,941 1,423,234
Other current assets.................. 296,578 252,331 548,909
------------ ------------- ------------
Total current assets................. 2,073,315 1,175,525 3,248,840
------------ ------------- ------------
Deferred membership acquisition costs . 383,177 383,177
Franchise agreements, net.............. 948,753 948,753
Excess of costs over fair value of net
assets acquired, net.................. 449,503 1,868,438 2,317,941
Other intangible assets, net........... 28,710 588,710 617,420
Other assets........................... 297,456 848,357 1,145,813
------------ ------------- ------------
3,232,161 5,429,783 8,661,944
------------ ------------- ------------
Assets under management and mortgage
programs
Net investment in leases and leased
vehicles............................. 3,643,601 3,643,601
Relocation receivables ............... 579,575 579,575
Mortgage loans held for sale.......... 820,615 820,615
Mortgage servicing rights and fees ... 272,042 272,042
------------- ------------
5,315,833 5,315,833
------------ ------------- ------------
Total assets........................... $3,232,161 $10,745,616 $13,977,777
============ ============= ============
- ------------
(1) Certain reclassifications have been made to the historical CUC and HFS
financial statements to conform to the presentation expected to be used
by the combined companies.
See notes to unaudited pro forma combining financial statements.
3
SECTION A
PAGE 2 OF 2
CENDANT CORPORATION
UNAUDITED PRO FORMA COMBINING BALANCE SHEET
(IN THOUSANDS)
AT
---------------------------
7/31/97 6/30/97
------------ ------------- PRO FORMA
HISTORICAL HISTORICAL PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENTS COMPANIES
------------ ------------- -------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities--accounts payable,
accrued expenses, and other current
liabilities.............................. $ 472,779 $ 1,279,038 $ 1,751,817
Deferred income........................... 692,855 250,525 943,380
Long-term debt............................ 562,882 1,173,967 1,736,849
Other non-current liabilities............. 8,746 120,165 128,911
------------ ------------- ------------
1,737,262 2,823,695 4,560,957
------------ ------------- ------------
Liabilities under management and mortgage
programs
Debt..................................... 4,776,153 4,776,153
Deferred income taxes.................... 301,200 301,200
------------- ------------
5,077,353 5,077,353
------------- ------------
Shareholders' equity
Common stock............................. 4,164 1,614 $ 2,190 (a) 7,968
Additional paid-in capital............... 696,929 2,234,646 (192,660)(a) 2,738,915
Retained earnings........................ 892,168 808,982 1,701,150
Treasury stock........................... (57,436) (190,470) 190,470 (a) (57,436)
Restricted stock, deferred compensation . (27,357) (27,357)
Foreign currency translation adjustment . (13,569) (10,204) (23,773)
------------ ------------- ------------
Total shareholders' equity............... 1,494,899 2,844,568 4,339,467
------------ ------------- -------------- ------------
Total liabilities and shareholders'
equity.................................... $3,232,161 $10,745,616 $ $13,977,777
============ ============= ============== ============
- ------------
(1) Certain reclassifications have been made to the historical CUC and HFS
financial statements to conform to the presentation expected to be used
by the combined companies.
See notes to unaudited pro forma combining financial statements.
4
SECTION A
CENDANT CORPORATION
UNAUDITED PRO FORMA COMBINING STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR ENDED
--------------------------
1/31/97 12/31/96
------------ ------------ PRO FORMA
HISTORICAL PRO FORMA PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENT COMPANIES
------------ ------------ ----------- -----------
REVENUES
Membership and service fees, net ..... $1,972,430 $1,915,999 $3,888,429
Software.............................. 375,225 375,225
Fleet leasing (net of depreciation
and interest costs of $1,132,408) ... 56,660 56,660
Other................................. 30,279 30,279
------------ ------------ ------------
Net revenues.......................... 2,347,655 2,002,938 4,350,593
------------ ------------ ------------
EXPENSES
Operating............................. 688,280 916,041 1,604,321
Marketing and reservation............. 887,852 285,954 1,173,806
General and administrative............ 266,228 73,373 339,601
Depreciation and amortization......... 58,658 164,212 222,870
Merger and restructuring charges .... 179,945 179,945
Interest, net......................... (9,549) 42,460 32,911
Other ................................ 5,698 5,698
------------ ------------ ------------
Total expenses........................ 2,071,414 1,487,738 3,559,152
------------ ------------ ------------
Income before income taxes............ 276,241 515,200 791,441
Provision for income taxes............ 112,142 208,141 320,283
------------ ------------ ------------
Net income ........................... $ 164,099 $ 307,059 $ 471,158
============ ============ ============
PER SHARE INFORMATION (B)
Net income per share
Primary.............................. $ 0.41 $ 1.76 $ 0.57
Fully diluted........................ 0.40 1.75 0.57
Weighted average shares outstanding
Primary.............................. 405,073 177,072 248,450 830,595
Fully diluted ....................... 409,521 177,840 249,527 836,888
- ------------
(1) Certain reclassifications have been made to the historical CUC and pro
forma HFS financial statements to conform to the presentation expected
to be used by the combined companies.
See notes to unaudited pro forma combining financial statements.
5
SECTION A
CENDANT CORPORATION
UNAUDITED PRO FORMA COMBINING STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE SIX MONTHS ENDED
--------------------------
7/31/97 6/30/97
------------ ------------ PRO FORMA
HISTORICAL HISTORICAL PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENT COMPANIES
------------ ------------ ----------- ------------
REVENUES
Membership and service fees, net.......... $1,125,159 $ 830,346 $1,955,505
Software.................................. 172,200 172,200
Fleet leasing (net of depreciation and
interest costs of $584,275).............. 146,581 146,581
Other..................................... 122,670 122,670
------------ ------------ ------------
Net revenues.............................. 1,297,359 1,099,597 2,396,956
------------ ------------ ------------
EXPENSES
Operating................................. 408,990 435,062 844,052
Marketing and reservation................. 461,906 130,481 592,387
General and administrative................ 140,991 57,112 198,103
Merger and restructuring charge
associated with business combination (c) 303,000 303,000
Depreciation and amortization............. 33,397 86,534 119,931
Interest, net............................. (11,206) 30,747 19,541
------------ ------------ ------------
Total expenses............................ 1,034,078 1,042,936 2,077,014
------------ ------------ ------------
Income before income taxes................ 263,281 56,661 319,942
Provision for income taxes................ 100,498 72,005 172,503
------------ ------------ ------------
Net income ............................... $ 162,783 $ (15,344) $ 147,439
============ ============ ============
PER SHARE INFORMATION (B)
Net income per common share
Primary and fully diluted ............... $ 0.38 $ (0.10) $ 0.18
Weighted average number of common and
dilutive common equivalent shares
outstanding
Primary.................................. 436,237 158,342 266,714 861,293
Fully diluted ........................... 439,166 158,342 266,680 864,188
- ------------
(1) Certain reclassifications have been made to the historical CUC and HFS
financial statements to conform to the presentation expected to be used
by the combined companies.
See notes to unaudited pro forma combining financial statements.
6
SECTION A
CENDANT CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINING
FINANCIAL STATEMENTS
(A) EQUITY
In connection with the Merger, each outstanding share of HFS Common Stock
will be converted into the right to receive 2.4031 shares of CUC Common
Stock. In addition each share of HFS Common Stock that is owned by HFS or
CUC will be cancelled and retired. The pro forma adjustment assumes that
all 158.3 million shares of HFS Common Stock outstanding at June 30, 1997
(exclusive of 3.1 million shares of HFS Common Stock in treasury which
will be cancelled and retired in connection with the Merger) will be
converted into approximately 380.4 million shares of CUC Common Stock in
accordance with the Exchange Ratio.
(B) PER SHARE INFORMATION
Net income per share has been computed based upon the combined weighted
average outstanding shares of CUC Common Stock and HFS Common Stock for
each period. The historical weighted average number of equivalent
outstanding shares of HFS Common Stock for each period has been adjusted
to reflect the Exchange Ratio of 2.4031 shares of CUC Common Stock for
each share of HFS Common Stock.
(C) HFS/PHH MERGER COSTS AND RESTRUCTURING
Includes a one-time pre-tax merger and restructuring charge of $303
million (after-tax of $227 million or $.26 per common share for the six
months ended June 30, 1997) recorded by HFS in connection with its merger
with PHH Corporation ("PHH").
CUC/HFS MERGER COSTS
It is expected that Cendant Corporation will incur pre-tax transaction
costs associated with the Merger which are expected to range from $600
million to $650 million, of which approximately $150 million will be lump
sum payments. These costs associated with the Merger are being
established by the combined management. In determining the amount of the
reserve for these costs, management is considering the costs relating to
facility and systems consolidations and the costs associated with exiting
certain activities.
7
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF INCOME OF HFS
EXCLUDING THE MERGER
The accompanying unaudited pro forma statement of income gives effect to
the April 30, 1997 business combination of HFS and PHH which was accounted
for as a pooling of interests (the "PHH Merger"). Accordingly, the underlying
historical consolidated statement of income of HFS for the year ended
December 31, 1996, reflects the combining of the historical financial results
of PHH with the historical financial results of HFS.
The pro forma statement of income for the year ended December 31, 1996 is
also presented as if the following transactions had occurred on January 1,
1996: (i) the acquisition of Avis, Inc. ("Avis") and the November 1996
issuance of HFS Common Stock (the "Avis Offering") as partial consideration
for Avis; (ii) the September 1997 initial public offering of a majority
interest in the corporation which owns all company-owned Avis car rental
locations; (iii) the acquisition of Resort Condominiums International, Inc.
and its affiliates ("RCI") and the issuance of HFS common stock as partial
consideration for RCI; (iv) the May 31, 1996 acquisition of the common stock
of Coldwell Banker and the related contribution of Coldwell Banker's owned
real estate brokerage offices (the "Owned Brokerage Business") to a newly
created independent trust (the "Trust") (the "Coldwell Banker Transaction");
(v) the receipt of proceeds from an offering of HFS's common stock (the
"Second Quarter 1996 Offering") to the extent necessary to fund (a) the
acquisition of Coldwell Banker and the related repayment of indebtedness and
acquisition expenses and (b) the cash consideration portion in the Avis
acquisition; (vi) the acquisitions of: the six non-owned Century 21 NORS
during the second quarter of 1996, Travelodge on January 23, 1996 and ERA on
February 12, 1996 (collectively, the "Other 1996 Acquisitions"); and (vii)
the February 22, 1996 issuance of $240 million of 4 3/4% Convertible Senior
Notes Due 2003 to the extent such proceeds were used to finance the Other
1996 Acquisitions.
All of HFS's aforementioned acquisitions (other than PHH) have been
accounted for using the purchase method of accounting. Accordingly, assets
acquired and liabilities assumed have been recorded at their estimated fair
values, with appropriate recognition given to the effect of current interest
rates and income taxes. Management believes that the accounting used to
reflect the above transactions provides a reasonable basis on which to
present the unaudited pro forma statement of income of HFS for the year ended
December 31, 1996. HFS has entered into certain immaterial transactions which
are not reflected in the pro forma statement of income.
The pro forma statement of income does not purport to present the
financial position or results of operations of HFS had the transactions and
events assumed therein occurred on the dates specified, nor are they
necessarily indicative of the results of operations that may be achieved in
the future. The pro forma statement of income does not reflect cost savings
and revenue enhancements that management believes have been and may continue
to be realized following the acquisitions. These cost savings have been and
are expected to be realized primarily through the restructuring of operations
as well as revenue enhancements realized through the leveraging of HFS's
preferred alliance programs. No assurances can be made as to the amount of
cost savings or revenue enhancements, if any, that were actually realized or
will be realized.
The pro forma statement of income is based on certain assumptions and
adjustments described in the Notes to Unaudited Pro Forma Statement of Income
and should be read in conjunction therewith and with the consolidated
financial statements and related notes thereto of HFS, as included in the
Current Report on Form 8-K of HFS Incorporated dated July 16, 1997, and the
financial statements and related notes of the acquired companies previously
filed with the Securities and Exchange Commission pursuant to Regulation S-X
Rule 3-05, "Financial Statements of Businesses Acquired or to be Acquired."
8
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF INCOME
For the Year Ended December 31, 1996
(In thousands, except per share amounts)
HISTORICAL
-------------------------
ACQUIRED PRO FORMA
HFS COMPANIES ADJUSTMENTS PRO FORMA
------------ ----------- -------------- ------------
NET REVENUES
Service fees, net ..................... $1,340,534 $623,159 $ 11,835 (a) $1,915,999
(235,625)(b)
176,096 (d)
Fleet leasing (net of depreciation
and interest costs of $1,132,408) ... 56,660 56,660
Other.................................. 40,717 5,718 46,435
Equity in earnings (loss) of Avis Inc.
car rental operations................. 2,261 (18,417)(d) (16,156)
------------ ----------- -------------- ------------
Net revenues............................ 1,440,172 628,877 (66,111) 2,002,938
------------ ----------- -------------- ------------
EXPENSES
Operating.............................. 660,079 479,075 79,886 (d)
(75,636)(e)
(227,363)(f) 916,041
Marketing and reservation.............. 157,347 128,607 285,954
General and administrative............. 73,373 73,373
Depreciation and amortization.......... 97,811 40,884 25,517 (g) 164,212
Interest, net.......................... 19,695 (17,728) 11,718 (h) 42,460
6,000 (d)
22,775 (c)
Other.................................. 6,114 (416)(i) 5,698
------------ ----------- -------------- ------------
Total expenses.......................... 1,008,305 636,952 (157,519) 1,487,738
------------ ----------- -------------- ------------
Income (loss) before income taxes ...... 431,867 (8,075) 91,408 515,200
Provision (benefit) for income taxes ... 174,626 (6,689) 40,204 (j) 208,141
------------ ----------- -------------- ------------
Net income (loss)....................... $ 257,241 $ (1,386) $ 51,204 $ 307,059
============ =========== ============== ============
PER SHARE INFORMATION (PRIMARY)
Net income ............................ $ 1.59 $ 1.76
============ ============
Weighted average shares outstanding .. 164,378 12,694 (k) 177,072
============ ============== ============
PER SHARE INFORMATION (FULLY DILUTED)
Net income ............................ $ 1.58 $ 1.75
============ ============
Weighted average shares outstanding . 165,146 12,694 (k) 177,840
============ ============== ============
- ------------
Note: Certain reclassifications have been made to the historical results
of HFS and acquired companies to conform to HFS's pro forma
classification.
See notes to unaudited pro forma financial statements.
9
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
UNAUDITED HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS
OF ACQUIRED COMPANIES
For the Year Ended December 31, 1996
(In thousands)
HISTORICAL (1)
-----------------------------------------------------
AVIS, (2) COLDWELL OTHER 1996 TOTAL
AS ADJUSTED RCI BANKER ACQUISITIONS HISTORICAL
------------- ---------- ----------- -------------- ------------
NET REVENUES
Service fees ........................ $32,335 $284,996 $295,478 $10,350 $623,159
Other ............................... 4,067 1,651 5,718
------------- ---------- ----------- -------------- ------------
Net revenues ....................... 32,335 284,996 299,545 12,001 628,877
------------- ---------- ----------- -------------- ------------
EXPENSES
Operating ........................... 25,379 130,113 312,348 11,235 479,075
Marketing and reservation............ 128,607 128,607
Depreciation and amortization ...... 15,345 16,097 9,021 421 40,884
Interest, net ....................... (22,376) 3,155 1,493 (17,728)
Other ............................... 4,838 512 764 6,114
------------- ---------- ----------- -------------- ------------
Total expenses ..................... 40,724 257,279 325,036 13,913 636,952
------------- ---------- ----------- -------------- ------------
Income (loss) before income taxes ... (8,389) 27,717 (25,491) (1,912) (8,075)
Provision (benefit) for income taxes 99 3,644 (10,432) (6,689)
------------- ---------- ----------- -------------- ------------
Net income (loss) .................... $(8,488) $ 24,073 $(15,059) $(1,912) $ (1,386)
============= ========== =========== ============== ============
- ------------
(1) Reflects results of operations for the period from January 1, 1996
to the respective dates of acquisition.
(2) The historical consolidated statement of operations of Avis, as
adjusted, has been adjusted to present only the historical operating
results of the portion of Avis intended to be retained by HFS.
Note: Certain reclassifications have been made to the historical results of
acquired companies to conform to HFS's pro forma classification.
See notes to unaudited pro forma financial statements.
10
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
UNAUDITED HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS
OF OTHER 1996 ACQUISITIONS
For the Year Ended December 31, 1996
(In thousands)
CENTURY 21
NORS (1) TRAVELODGE (1) ERA (1) TOTAL
------------ -------------- ---------- ---------
NET REVENUES
Service fees ..................... $6,668 $688 $ 2,994 $10,350
Other ............................ 449 1,202 1,651
------------ -------------- ---------- ---------
Net revenues .................... 7,117 688 4,196 12,001
------------ -------------- ---------- ---------
EXPENSES
Operating......................... 7,566 552 3,117 11,235
Depreciation and amortization ... 285 136 421
Interest, net .................... 2 1,491 1,493
Other............................. 764 764
------------ -------------- ---------- ---------
Total expenses .................. 7,853 552 5,508 13,913
------------ -------------- ---------- ---------
Income (loss) before income taxes (736) 136 (1,312) (1,912)
Provision for income taxes ........
------------ -------------- ---------- ---------
Net income (loss) ................. $ (736) $136 $(1,312) $(1,912)
============ ============== ========== =========
- ------------
(1) Reflects results of operations for the period from January 1, 1996
to the respective dates of acquisition.
Note: Certain reclassifications have been made to the historical results
of acquired companies to conform to HFS's pro forma classification.
See notes to unaudited pro forma financial statements.
11
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
A. SERVICE FEE REVENUE:
The pro forma adjustment reflects the elimination of franchise revenue
paid by the Century 21 NORS to Century 21 under sub-franchise agreements
(offset against operating expense--see Note e) and the addition of franchise
fees to be received under franchise contracts with owned brokerage offices
upon contribution of the Owned Brokerage Business to the Trust. Pro forma
adjustments to service fee revenue consist of the following ($000's):
FOR THE YEAR ENDED
DECEMBER 31,
1996
------------------
Eliminate:
Century 21 revenue included as Century 21 NORS operating expense $(1,003)
Add:
Franchise fees from Owned Brokerage Business..................... 12,838
------------------
Total........................................................... $11,835
==================
The Franchise fees from the Owned Brokerage Business, which are based on
the franchise contracts with the Trust, are calculated at approximately 5.7%
of gross commissions earned by the Owned Brokerage Business on sales of real
estate properties.
B. OWNED BROKERAGE BUSINESS REVENUE:
The pro forma adjustment reflects the elimination of revenue generated
from Coldwell Banker's 318 formerly owned brokerage offices. HFS contributed
the net assets of the Owned Brokerage Business to the Trust upon consummation
of the Coldwell Banker acquisition. The free cash flow of the Trust is
expended at the discretion of the trustees to enhance the growth of funds
available for advertising and promotion.
C. OTHER REVENUE:
The pro forma adjustment reflects the elimination of revenue associated
with investment income generated from RCI cash and marketable securities
which were distributed in the form of a dividend to the former shareholder of
RCI prior to consummation of the RCI acquisition.
D. CAR RENTAL OPERATING COMPANY OPERATIONS:
At the time HFS acquired Avis, it had developed and announced a plan (the
"Plan") to do the following:
1. Retain certain assets acquired, including the reservation system,
franchise agreements, trademarks and tradenames and certain
liabilities.
2. Segregate the assets used in the car rental operations in ARAC and to
dispose of approximately 75% of ARAC within one year through an initial
public offering ("IPO") thereby diluting HFS's interest to
approximately 25%. All of the proceeds from the IPO would be retained
by ARAC.
3. Enter into a license agreement with ARAC licencing its use of the
trademarks and tradename under which HFS is to provide other franchise
services.
12
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME--(CONTINUED)
D. CAR RENTAL OPERATING COMPANY OPERATIONS: (Continued)
The pro forma adjustments are comprised of the following ($000's):
FOR THE PERIOD JANUARY 1, 1996 FOR THE PERIOD OCTOBER 17, 1996
THROUGH OCTOBER 16, 1996 THROUGH DECEMBER 31, 1996 TOTAL
------------------------------ -------------------------------- ------------
Historical income before taxes from ARAC car
rental operations................................. $ 69,799 --
ADJUSTMENTS TO ARAC:
ELIMINATION OF HISTORICAL EXPENSE ASSOCIATED
WITH:
Reservation and information technology services
(HFS Expense)(i)................................ $ 63,594 $ 16,292 $ 79,886
============
Depreciation and amortization.................... 27,425 --
ADDITION OF PRO FORMA EXPENSES ASSOCIATED WITH:
Depreciation and amortization (ii)............... (14,504) --
Increased financing costs (iii).................. (803) 75,712 -- $ 16,292
---------- ----------
HFS SERVICE FEE ADJUSTMENTS:
Reservation and information technology services
(i)............................................ (63,594) (16,292)
Service fees from franchised locations (iv) .... (15,562) (4,289)
Royalty payment from Avis Inc. to HFS (v) ...... (61,505) (140,661) (14,854) (35,435) $(176,096)
---------- ----------- ---------- ----------- ============
Adjusted income (loss) before taxes from ARAC .... 4,850 (19,143)
Provision for income taxes........................ 1,945 --
----------- -----------
Adjusted net income (loss) from ARAC ............. 2,905 (19,143)
HFS ownership percentage........................... 25% 100%
----------- -----------
HFS's equity in earnings (loss) of Avis Inc.'s car
rental operations................................. $ 726 $(19,143) $ (18,417)
=========== =========== ============
OTHER REVENUE ADJUSTMENT:
Elimination of historical interest income related
to cash consideration portion of Avis
acquisition (vi)................................. $ 6,000 -- $ 6,000
=========== =========== ============
- ------------
(i) Subsequent to the IPO, HFS will retain and operate the
telecommunications and computer processing system which services ARAC
for reservations, rental agreement processing, accounting and fleet
control. The pro forma adjustment reflects a planned contractual
agreement with ARAC, under which HFS will charge ARAC at cost for
reservation and information technology services provided.
(ii) The estimated fair value of Avis property and equipment intended to
be retained by ARAC is $101.0 million, comprised primarily of
furniture, fixtures, and leasehold improvements, which is amortized
on a straight-line basis over the estimated useful lives, which
average seven years. Excess of cost over fair value of net assets
acquired by ARAC is valued at $154.0 million and is amortized on a
straight line basis over a benefit period of 40 years.
(iii) In connection with the acquisition of Avis, approximately $1 billion
of tax-advantaged debt was repaid and replaced by a similar amount of
non tax-advantaged debt. This resulted in an increase in interest
rates, due to the loss of tax benefits from the Employee Stock
Ownership Plan ("ESOP") financing which were passed through from
various lenders to Avis ($000's):
FOR THE YEAR ENDED
DECEMBER 31,
1996
------------------
Eliminate former
facilities ............... $(127,018)
Add current facilities ... 127,821
------------------
Increased financing cost . $ 803
==================
13
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME--(CONTINUED)
D. CAR RENTAL OPERATING COMPANY OPERATIONS: (Continued)
(iv) Reflects historical franchise fee revenue from third parties.
(v) In connection with HFS's plan to dispose of approximately 75% of
ARAC, HFS will enter into a franchise agreement with ARAC for ARAC's
use of the Avis trademarks and tradename. The royalty payment to be
made to HFS from ARAC for use of the Avis trademarks and tradename is
calculated at 4.0% of the revenues generated by ARAC which is the net
royalty percentage HFS expects to receive pursuant to the franchise
agreement. Such payments are calculated as follows ($000's):
FOR THE YEAR ENDED
DECEMBER 31,
1996
----
Revenues generated by
ARAC...................... $1,908,985
Royalty percentage......... 4.0%
------------------
Royalty payment to HFS .... $ 76,359
==================
(vi) The pro forma adjustment eliminates historical interest income on the
portion of cash generated from the Second Quarter 1996 Offering which
was used to finance the Avis acquisition.
In September 1997, HFS completed the IPO of ARAC which diluted HFS's
ownership interest to approximately 27.5%. The actual results of the IPO and
its related impact on the unaudited pro forma statement of income for the
year ended December 31, 1996 does not differ materially from the pro forma
effects of the assumptions and estimates used in the preparation of such
financial statement.
E. OPERATING EXPENSE:
The pro forma adjustments reflects the elimination of; (i) royalty
payments made by the Century 21 NORS to Century 21 under subfranchise
agreements (offset against service fee revenue--see Note a); (ii) the payment
of Coldwell Banker stock options as a result of change in control provisions
in connection with the acquisition of Coldwell Banker by HFS and; (iii) a
one-time bonus payment paid to RCI employees by the former shareholder of RCI
pursuant to the stock purchase agreement in connection with the acquisition
of RCI by HFS ($000's).
FOR THE YEAR ENDED
DECEMBER 31,
1996
------------------
Franchise fees ....... $ 1,003
Stock option expense 40,801
Bonus payment......... 33,832
------------------
Total................ $75,636
==================
F. OPERATING EXPENSE:
The pro forma adjustment reflects the elimination of expenses associated
with Coldwell Banker's formerly owned brokerage offices (see Note b). The
majority of Owned Brokerage Business expenses are directly attributable to
the business. Based on HFS's due diligence of Coldwell Banker the Company
determined that common expenses were allocated to the owned brokerage
business based on a reasonable allocation method. Such allocations were based
on the ratio of number of employees, the amount of space occupied and revenue
generated by the Owned Brokerage Business relative to Coldwell Banker in the
aggregate and multiplied by corresponding common costs as appropriate to
determine allocable expenses.
14
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME--(CONTINUED)
G. DEPRECIATION AND AMORTIZATION:
The pro forma adjustment for depreciation and amortization is comprised of
($000's):
For the year ended December 31, 1996:
COLDWELL OTHER 1996
RCI AVIS BANKER ACQUISITIONS TOTAL
----------- ----------- ---------- -------------- -----------
Elimination of historical
expense.................. $(16,097) $(15,345) $(9,021) $ (421) $(40,884)
Property, equipment and
furniture and fixtures .. 6,686 4,924 482 -- 12,092
Intangible assets......... 20,114 24,658 8,495 1,042 54,309
----------- ----------- ---------- -------------- -----------
Total.................... $ 10,703 $ 14,237 $ (44) $ 621 $ 25,517
=========== =========== ========== ============== ===========
RCI
The fair value of RCI's property and equipment is estimated at
approximately $55.7 million and is amortized on a straight-line basis over
the estimated useful lives, ranging from seven to thirty years.
RCI's intangible assets consist of customer lists and excess of cost over
fair value of net assets acquired. Estimated fair value of RCI's customer
lists are approximately $100 million and are amortized on a straight-line
basis over the period to be benefited which is 10 years. The fair value
ascribed to customer lists is determined based on the historical renewal
rates of RCI members. The excess of cost over fair value of net assets
acquired is estimated at approximately $477.7 million and is determined to
have a benefit period of forty years, which is based on RCI being a leading
provider of services to the timeshare industry, which includes being the
world's largest provider of timeshare exchange programs.
Avis
The estimated fair value of Avis's property and equipment retained by HFS
is $96.0 million, comprised primarily of reservation equipment and related
assets and to the Avis Headquarters office. Such property and equipment is
amortized on a straight-line basis over the estimated benefit periods ranging
from 5 to 30 years. Avis's intangible assets recorded by HFS (not applicable
to ARAC) are comprised of the Avis trademark, a reservation system and
customer data base, and excess of cost over fair value of net assets
acquired. The estimated fair value of the Avis trademark is approximately
$400 million and is amortized on a straight-line basis over a benefit period
of 40 years. The estimated fair value of the reservation system and customer
data base are approximately $95.0 million and $14.0 million, respectively and
are amortized on a straight line basis over the periods to be benefited which
are 10 years and 6.5 years, respectively.
The excess of cost over fair value of net assets acquired applicable to
the allocated portion of the business to be retained by HFS is estimated at
approximately $317.6 million and is determined to have a benefit period of 40
years, which is based on Avis' position as the second largest car rental
system in the world, the recognition of its brand name in the car rental
industry and the longevity of the car rental business.
Coldwell Banker
The estimated fair value of Coldwell Banker's property and equipment
(excluding land) of $15.7 million, is amortized on a straight-line basis over
the estimated benefit periods ranging from five to 25 years. Coldwell
Banker's intangible assets are comprised of franchise agreements and excess
of cost over fair value of net assets acquired. The franchise agreements with
the brokerage offices comprising the Trust
15
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME--(CONTINUED)
G. DEPRECIATION AND AMORTIZATION: (Continued)
are valued independently of all other franchise agreements with Coldwell
Banker affiliates. Franchise agreements within the Trust and independent of
the Trust are valued at $218.5 million and $218.7 million, respectively, and
are amortized on a straight line basis over the respective benefit periods of
40 years and 35 years, respectively. The benefit period associated with Trust
franchise agreements was based upon a long history of gross commission
sustained by the Trust. The benefit period associated with the Coldwell
Banker affiliates' franchise agreements was based upon the historical
profitability of such agreements and historical renewal rates. The excess of
cost over fair value of net assets acquired is estimated at approximately
$347.0 million and is determined to have a benefit period of 40 years, which
is based on Coldwell Banker's position as the largest gross revenue producing
real estate company in North America, the recognition of its brand name in
the real estate brokerage industry and the longevity of the real estate
brokerage business.
Other 1996 Acquisitions
The estimated fair values of Other 1996 Acquisitions franchise agreements
aggregate $61.0 million and are being amortized on a straight-line basis over
the periods to be benefited, which range from twelve to thirty years. The
estimated fair values of Other Acquisitions excess of cost over fair value of
net assets acquired aggregate $187.4 million and are each being amortized on
a straight-line basis over the periods to be benefited, which are 40 years.
H. INTEREST EXPENSE:
FOR THE YEAR ENDED
DECEMBER 31,
1996
------------------
Elimination of historical interest expense of ($000's):
Other 1996 Acquisitions...................................................... $(1,493)
RCI.......................................................................... (399)
Reversal of Coldwell Banker................................................... (3,155)
RCI........................................................................... 15,495
4 3/4% Notes to finance Other 1996 Acquisitions .............................. 1,270
------------------
Total....................................................................... $11,718
==================
Coldwell Banker
The pro forma adjustment reflects the reversal of historical interest
expense relating to the following ($000's):
FOR THE YEAR ENDED
DECEMBER 31,
1996
------------------
Expense associated with the Owned Brokerage Business (i) ..................... $ (179)
Expense associated with revolving credit facility borrowings which were
repaid with proceeds from offering (ii)...................................... 3,334
------------------
Total........................................................................ $3,155
==================
(i) HFS paid substantially all outstanding debt of Coldwell Banker at the
consummation date of the acquisition. Therefore, a determination as
to the reasonableness of allocated Coldwell Banker interest to the
Owned Brokerage Business is unnecessary.
(ii) At the date of acquisition, HFS repaid $105 million of Coldwell
Banker indebtedness which represented borrowings under a revolving
credit facility at a variable rate of interest (LIBOR plus a margin
ranging from .5% to 1.25%).
16
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME--(CONTINUED)
H. INTEREST EXPENSE: (Continued)
RCI
The pro forma adjustment reflects the recording of interest expense on
$285 million of borrowings under HFS's revolving credit facilities at an
interest rate of 6.3% which is the variable rate in effect on the date of
borrowing. Borrowings represent the amount used as partial consideration in
the RCI acquisition.
4 3/4% Notes
The pro forma adjustment reflects interest expense and amortization of
deferred financing costs related to the February 22, 1996 issuance of the 4
3/4% Notes (5.0% effective interest rate) to the extent that such proceeds
were used to finance the acquisitions of ERA ($36.8 million), Travelodge
($39.3 million), and the Century 21 NORS ($95.0 million).
Effect of a 1/8% variance in variable interest rates
As mentioned above, interest expense was incurred on borrowings under the
HFS's revolving credit facility which partially funded the acquisition of
RCI. HFS recorded interest expense using the variable interest rate in effect
on the respective borrowing dates. The effect on pro forma net income
assuming a 1/8% variance in the variable interest rate used to calculate
interest expense is immaterial.
I. OTHER EXPENSES:
The pro forma adjustment eliminates charitable contributions made by the
former stockholder of RCI.
J. INCOME TAXES:
The pro forma adjustment to income taxes is comprised of ($000's):
FOR THE YEAR ENDED
DECEMBER 31,
1996
------------------
Reversal of historical (provision) benefit of:
HFS........................................... $(174,626)
RCI........................................... (3,644)
Avis.......................................... (99)
Coldwell Banker............................... 10,432
Pro forma provision............................ 208,141
------------------
Total........................................ $ 40,204
==================
The pro forma provisions for taxes were computed using pro forma pre-tax
amounts and the provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes."
17
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME--(CONTINUED)
K. WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING:
The pro forma adjustment to weighted average shares consists of the
following (000's):
WEIGHTED AVERAGE
SHARES
ISSUANCE FOR THE YEAR ENDED
PRICE PER DECEMBER 31, ACQUISITION
SHARE 1996 DATE
----------- ------------------ -----------------
Avis Offering.................................. $74.06 3,621 October 17, 1996
RCI............................................ $75.00 863 November 12, 1996
Second Quarter 1996 Offering--Coldwell Banker . $59.99 5,350 May 31, 1996
Second Quarter 1996 Offering--Avis............. $59.99 2,550 October 17, 1996
Century 21 NORS................................ $49.83 310 April 3, 1996
------------------ -----------------
Total......................................... 12,694
==================
The unaudited Pro Forma Statement of Income of HFS for the year ended
December 31, 1996 is presented as if the acquisitions took place at the
beginning of the period thus, the stock issuances referred to above are
considered outstanding as of the beginning of the period for purposes of per
share calculations.
18
SECTION C
CENDANT CORPORATION
UNAUDITED HISTORICAL COMBINING FINANCIAL STATEMENTS FOR THE MERGER
The following unaudited historical combining financial statements give
effect to the proposed merger of HFS with and into CUC (the postmerger
company "Cendant Corporation"), which will be accounted for as a pooling of
interests. Upon consummation of the Merger, CUC intends to change its fiscal
year end from January 31 to December 31. The underlying historical combining
balance sheet as of June 30, 1997 and historical combining statements of
income for the six months ended June 30, 1996 and 1997 and for each of the
years in the three year period ended December 31, 1996 reflect the combining
of the historical financial results of CUC with the historical financial
results of HFS and give effect to the conversion of HFS Common Stock into CUC
Common Stock.
The unaudited historical combining financial statements of Cendant
Corporation reflect adjustments for the pooling of CUC and HFS, including
reclassifications to conform to the presentation expected to be used by the
merged companies and shares issued in connection with the Merger.
The unaudited historical combining financial statements do not purport to
present the results of operations of Cendant Corporation, had the Merger
occurred, nor are they necessarily indicative of the operating results that
may be achieved in the future.
The unaudited historical combining financial statements of Cendant
Corporation should be read in conjunction with the consolidated financial
statements and related notes thereto of HFS, as included in the Current
Report on Form 8-K of HFS Incorporated dated July 16, 1997 and CUC, as
included in the Annual Report on Form 10-K of CUC International Inc. for the
fiscal year ended January 31, 1997.
TERMS OF THE MERGER
The Agreement and Plan of Merger between CUC and HFS provides, among other
things, for a "merger of equals" transaction involving the merger of HFS with
and into CUC, with CUC surviving the Merger and changing its name to Cendant
Corporation.
In the Merger, each issued and outstanding share of HFS Common Stock,
other than HFS Common Stock owned by HFS or CUC, will be converted into the
right to receive 2.4031 shares of CUC Common Stock.
19
SECTION C
PAGE 1 OF 2
CENDANT CORPORATION
UNAUDITED HISTORICAL COMBINING BALANCE SHEET
(IN THOUSANDS)
AT
---------------------------
7/31/97 6/30/97 PRO FORMA
------------ ------------- PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENTS COMPANIES
------------ ------------- ------------- -----------
ASSETS
Current assets
Cash and cash equivalents .................. $ 725,634 $ 58,511 $ 784,145
Restricted cash ............................ 23,742 23,742
Marketable securities ...................... 468,810 468,810
Receivables, net ........................... 582,293 840,941 1,423,234
Other current assets ....................... 296,578 252,331 548,909
------------ ------------- ------------
Total current assets ......................... 2,073,315 1,175,525 3,248,840
------------ ------------- ------------
Deferred membership acquisition costs ...... 383,177 383,177
Franchise agreements, net ................... 948,753 948,753
Excess of cost over fair value of net assets
acquired, net .............................. 449,503 1,868,438 2,317,941
Other intangible assets, net ................ 28,710 588,710 617,420
Other assets ................................ 297,456 848,357 1,145,813
------------ ------------- ------------
3,232,161 5,429,783 8,661,944
------------ ------------- ------------
Assets under management and mortgage programs
Net investment in leases and leased vehicles 3,643,601 3,643,601
Relocation receivables ...................... 579,575 579,575
Mortgage loans held for sale ................ 820,615 820,615
Mortgage servicing rights and fees ......... 272,042 272,042
------------- ------------
5,315,833 5,315,833
------------ ------------- ------------
Total assets ................................. $3,232,161 $10,745,616 $13,977,777
============ ============= ============
- ------------
(1) Certain reclassifications have been made to the historical CUC and HFS
financial statements to conform to the presentation expected to be used
by the combined companies.
See notes to unaudited historical combining financial statements.
20
SECTION C
PAGE 2 OF 2
CENDANT CORPORATION
UNAUDITED HISTORICAL COMBINING BALANCE SHEET
(IN THOUSANDS)
AT
--------------------------
7/31/97 6/30/97 PRO FORMA
------------ ------------- PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENTS COMPANIES
------------ ------------- ------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities--accounts
payable, accrued expenses, and
other current liabilities ......... $ 472,779 $ 1,279,038 $ 1,751,817
Deferred income .................... 692,855 250,525 943,380
Long-term debt ..................... 562,882 1,173,967 1,736,849
Other non-current liabilities ..... 8,746 120,165 128,911
------------ ------------- ------------
1,737,262 2,823,695 4,560,957
------------ ------------- ------------
Liabilities under management and
mortgage programs ..................
Debt ............................... 4,776,153 4,776,153
Deferred income taxes .............. 301,200 301,200
------------- ------------
5,077,353 5,077,353
------------- ------------
SHAREHOLDERS' EQUITY
Common stock ....................... 4,164 1,614 $ 2,190 (a) 7,968
Additional paid-in capital ......... 696,929 2,234,646 (192,660)(a) 2,738,915
Retained earnings .................. 892,168 808,982 1,701,150
Treasury stock ..................... (57,436) (190,470) 190,470 (a) (57,436)
Restricted stock, deferred
compensation ...................... (27,357) (27,357)
Foreign currency translation
adjustment ........................ (13,569) (10,204) (23,773)
------------ ------------- ------------
Total shareholders' equity .......... 1,494,899 2,844,568 4,339,467
------------ ------------- ------------
Total liabilities and shareholders'
equity ............................. $3,232,161 $10,745,616 $13,977,777
============ ============= ============
- ------------
(1) Certain reclassifications have been made to the historical CUC and HFS
financial statements to conform to the presentation expected to be used
by the combined companies.
See notes to unaudited historical combining financial statements.
21
SECTION C
CENDANT CORPORATION
UNAUDITED HISTORICAL COMBINING STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR ENDED
--------------------------
1/31/95 12/31/94
----------- ------------ PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENT COMPANIES
----------- ------------ ---------- ------------
REVENUES
Membership and service fees, net ........ $1,363,561 $815,423 $2,178,984
Software.................................. 191,050 191,050
Fleet leasing (net of depreciation and
interest costs of $976,244) ............. 47,860 47,860
Other..................................... 28,837 28,837
------------ ---------- ------------
Net revenues.............................. 1,554,611 892,120 2,446,731
------------ ---------- ------------
EXPENSES
Operating................................. 463,370 458,462 921,832
Marketing and reservation................. 618,330 124,603 742,933
General and administrative................ 190,303 29,452 219,755
Depreciation and amortization............. 43,463 53,712 97,175
Costs related to Ideon products abandoned
and restructuring........................ 7,900 7,900
Interest, net............................. (7,937) 18,490 10,553
Other..................................... (17,749) (17,749)
------------ ---------- ------------
Total expenses............................ 1,297,680 684,719 1,982,399
------------ ---------- ------------
Income before income taxes................ 256,931 207,401 464,332
Provision for income taxes................ 94,874 84,868 179,742
------------ ---------- ------------
Net income before cumulative effect of
accounting change for income taxes ...... 162,057 122,533 284,590
Cumulative effect of accounting change
for income taxes......................... 2,000 2,000
------------ ---------- ------------
Net income ............................... $ 164,057 $122,533 $ 286,590
============ ========== ============
PER SHARE INFORMATION (D)
Net income per share
Primary ................................. $ 0.43 $ 0.95 $ 0.42
Fully diluted ........................... $ 0.43 $ 0.95 $ 0.41
Weighted average shares outstanding
Primary ................................. 379,261 129,535 181,751 690,547
Fully diluted............................ 390,856 129,563 181,790 702,209
- ------------
(1) Certain reclassifications have been made to the historical CUC and
historical HFS financial statements to conform to the presentation
expected to be used by the combined companies.
See notes to unaudited historical combining financial statements.
22
SECTION C
CENDANT CORPORATION
UNAUDITED HISTORICAL COMBINING STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR ENDED
--------------------------
1/31/96 12/31/95
----------- ------------ PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENT COMPANIES
----------- ------------ ---------- ------------
REVENUES
Membership and service fees, net ....... $1,643,242 $ 962,954 $2,606,196
Software................................. 291,990 291,990
Fleet leasing (net of depreciation and
interest costs of $1,088,993) .......... 52,079 52,079
Other.................................... 41,857 41,857
------------ ----------- ------------
Net revenues............................. 1,935,232 1,056,890 2,992,122
------------ ----------- ------------
EXPENSES
Operating................................ 582,357 528,571 1,110,928
Marketing and reservation................ 737,440 137,715 875,155
General and administrative............... 243,043 36,457 279,500
Depreciation and amortization............ 49,736 63,178 112,914
Costs related to Ideon products
abandoned and restructuring............. 97,029 97,029
Interest, net............................ (9,685) 22,949 13,264
------------ ----------- ------------
Total expenses........................... 1,699,920 788,870 2,488,790
------------ ----------- ------------
Income before income taxes............... 235,312 268,020 503,332
Provision for income taxes............... 90,337 110,170 200,507
------------ ----------- ------------
Net income .............................. $ 144,975 $ 157,850 $ 302,825
============ =========== ============
PER SHARE INFORMATION (D)
Net income per share
Primary................................. $ 0.37 $ 1.14 $ 0.42
Fully diluted........................... $ 0.37 $ 1.12 $ 0.41
Weighted average shares outstanding
Primary................................. 392,208 142,490 199,927 734,625
Fully diluted........................... 401,483 144,489 202,733 748,705
- ------------
(1) Certain reclassifications have been made to the historical CUC and
historical HFS financial statements to conform to the presentation
expected to be used by the combined companies.
See notes to unaudited historical combining financial statements.
23
SECTION C
CENDANT CORPORATION
UNAUDITED HISTORICAL COMBINING STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR ENDED
--------------------------
1/31/97 12/31/96
----------- ------------ PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENT COMPANIES
----------- ------------ ---------- ------------
REVENUES
Membership and service fees, net .............. $1,972,430 $1,340,534 $3,312,964
Software ...................................... 375,225 375,225
Fleet leasing (net of depreciation and
interest costs of $1,132,408) ................ 56,660 56,660
Other ......................................... 42,978 42,978
------------ ------------ ------------
Net revenues .................................. 2,347,655 1,440,172 3,787,827
------------ ------------ ------------
EXPENSES
Operating ..................................... 688,280 660,079 1,348,359
Marketing and reservation ..................... 887,852 157,347 1,045,199
General and administrative .................... 266,228 73,373 339,601
Depreciation and amortization ................. 58,658 97,811 156,469
Merger and restructuring costs ................ 179,945 179,945
Interest, net ................................. (9,549) 19,695 10,146
------------ ------------ ------------
Total expenses ................................ 2,071,414 1,008,305 3,079,719
------------ ------------ ------------
Income before income taxes .................... 276,241 431,867 708,108
Provision for income taxes .................... 112,142 174,626 286,768
------------ ------------ ------------
Net income .................................... $ 164,099 $ 257,241 $ 421,340
============ ============ ============
PER SHARE INFORMATION (D)
Net income per share
Primary ...................................... $ 0.41 $ 1.59 $ 0.53
Fully diluted ................................ $ 0.40 $ 1.58 $ 0.53
Weighted average shares outstanding
Primary ...................................... 405,073 164,378 230,639 800,090
Fully diluted ................................ 409,521 165,146 231,716 806,383
- ------------
(1) Certain reclassifications have been made to the historical CUC and
historical HFS financial statements to conform to the presentation
expected to be used by the combined companies.
See notes to unaudited historical combining financial statements.
24
SECTION C
CENDANT CORPORATION
UNAUDITED HISTORICAL COMBINING STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE SIX MONTHS
ENDED
-----------------------
7/31/96 6/30/96
----------- ---------- PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENT COMPANIES
----------- ---------- ---------- ------------
REVENUES
Membership and service fees, net ...... $ 942,170 $423,022 $1,365,192
Software............................... 129,053 129,053
Fleet leasing (net of depreciation and
interest costs of $555,994)........... 133,770 133,770
Other.................................. 66,252 66,252
----------- ---------- ------------
Net revenues............................ 1,071,223 623,044 1,694,267
EXPENSES
Operating.............................. 326,341 295,383 621,724
Marketing and reservation.............. 414,705 65,950 480,655
General and administrative ............ 118,129 39,189 157,318
Merger costs (c)....................... 28,635 28,635
Depreciation and amortization.......... 26,147 36,982 63,129
Interest, net.......................... (4,075) 10,766 6,691
----------- ---------- ------------
Total expenses......................... 909,882 448,270 1,358,152
----------- ---------- ------------
Income before income taxes............. 161,341 174,774 336,115
Provision for income taxes............. 68,759 71,157 139,916
----------- ---------- ------------
Net income............................. $ 92,582 $103,617 $ 196,199
=========== ========== ============
PER SHARE INFORMATION (D)
Net income per share
Primary................................ $ 0.23 $ 0.69 $ 0.26
Fully diluted.......................... $ 0.23 $ 0.68 $ 0.26
Weighted average shares outstanding
Primary ............................... 399,267 154,232 216,403 769,902
Fully diluted.......................... 405,054 155,398 218,039 778,491
- ------------
(1) Certain reclassifications have been made to the historical CUC and
historical HFS financial statements to conform to the presentation
expected to be used by the combined companies.
See notes to unaudited historical combining financial statements.
25
SECTION C
CENDANT CORPORATION
UNAUDITED HISTORICAL COMBINING STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE SIX MONTHS ENDED
--------------------------
7/31/97 6/30/97 PRO FORMA
------------ ------------- PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENTS COMPANIES
------------ ------------- ------------- -----------
REVENUES
Membership and service fees, net........... $1,125,159 $ 830,346 $1,955,505
Software................................... 172,200 172,200
Fleet leasing (net of depreciation and
interest costs of $584,275)............... 146,581 146,581
Other...................................... 122,670 122,670
------------ ------------ ------------
Net revenues................................ 1,297,359 1,099,597 2,396,956
EXPENSES
Operating.................................. 408,990 435,062 844,052
Marketing and reservation.................. 461,906 130,481 592,387
General and administrative................. 140,991 57,112 198,103
Merger and restructuring charge associated
with business combination (b)............. 303,000 303,000
Depreciation and amortization.............. 33,397 86,534 119,931
Interest, net.............................. (11,206) 30,747 19,541
------------ ------------ ------------
Total expenses.............................. 1,034,078 1,042,936 2,077,014
Income before income taxes................. 263,281 56,661 319,942
Provision for income taxes................. 100,498 72,005 172,503
------------ ------------ ------------
Net income................................. $ 162,783 $ (15,344) $ 147,439
PER SHARE INFORMATION (D)
Net income per common share ...............
Primary and fully diluted................. $ 0.38 $ (0.10) $ 0.18
Weighted average shares outstanding
Primary................................... 436,237 158,342 266,714 861,293
Fully diluted............................. 439,166 158,342 266,680 864,188
- ------------
(1) Certain reclassifications have been made to the historical CUC and HFS
financial statement to conform to the presentation expected to be used
by the combined companies.
See notes to unaudited historical combining financial statements.
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SECTION C
CENDANT CORPORATION
NOTES TO UNAUDITED HISTORICAL COMBINING
FINANCIAL STATEMENTS
(A) EQUITY
In connection with the Merger, each outstanding share of HFS common stock
will be converted into the right to receive 2.4031 shares of Common
Stock. In addition, each share of HFS common stock that is owned by HFS
or CUC will be cancelled and retired. The pro forma adjustments assume
that all 158.3 million shares of HFS common stock outstanding at June 30,
1997, respectively, (exclusive of 3.1 million shares of HFS common stock
in treasury which will be cancelled and retired in connection with the
Merger) will be converted into approximately 380.4 million shares of CUC
Common Stock in accordance with the exchange ratio.
(B) HFS/PHH MERGER COSTS AND RESTRUCTURING
Includes a one-time pre-tax merger and restructuring charge of $303
million (after-tax of $227 million or $.26 per common share for the six
months ended June 30, 1997) recorded by HFS in connection with its merger
with PHH Corporation ("PHH").
(C) CUC MERGER COSTS AND RESTRUCTURING
Includes a one-time pre-tax merger and restructuring charge of $28.6
million (after-tax of $25.1 million or $.03 per common share for the six
months ended July 31, 1996) recorded by CUC in connection with its
mergers with Davidson & Associates, Inc. ("Davidson") and Sierra On-Line
("Sierra").
(D) PER SHARE INFORMATION
Net income per share has been computed based upon the combined weighted
average outstanding shares of CUC Common Stock and HFS common stock for
each period. The historical weighted average number of outstanding shares
of HFS stock has been adjusted to reflect the average ratio of 2.4031
shares of CUC Common Stock for each share of HFS common stock.
CUC/HFS MERGER COSTS
It is expected that Cendant Corporation will incur pre-tax transaction
costs associated with the Merger which are expected to range from $600
million to $650 million, of which approximately $150 million will be lump
sum payments. These costs associated with the Merger are being
established by the combined management. In determining the amount of the
reserve for these costs, management is considering the costs relating to
facility and systems consolidations and the costs associated with exiting
certain activities.
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