70
EXHIBIT 99.2
RESTATEMENT OF QUARTERLY PERIODS
ENDED JUNE 30, 1997 AND 1996
71
CENDANT CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
1997 1996
--------------- ---------------
ASSETS
Current assets
Cash and cash equivalents $ 791,001 $ 633,903
Marketable securities 473,501 94,200
Receivables, net 1,409,026 1,290,625
Other current assets 581,973 510,865
--------------- ---------------
Total current assets 3,255,501 2,529,593
--------------- ---------------
Deferred membership acquisition costs 382,081 401,564
Franchise agreements, net 948,753 995,947
Goodwill, net 1,868,438 2,302,226
Other intangibles, net 1,192,028 636,230
Other assets 1,180,159 993,574
--------------- ---------------
Total assets exclusive of assets under programs 8,826,960 7,859,134
--------------- ---------------
Assets under management and mortgage programs
Net investment in leases and leased vehicles 3,643,601 3,418,666
Relocation receivables 579,575 773,326
Mortgage loans held for sale 820,615 1,248,299
Mortgage servicing rights and fees 272,042 288,943
--------------- ---------------
5,315,833 5,729,234
--------------- ---------------
TOTAL ASSETS $ 14,142,793 $ 13,588,368
=============== ===============
See accompanying notes to supplemental consolidated financial statements.
72
CENDANT CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
1997 1996
---------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued expenses and other
current liabilities $ 1,768,450 $ 1,664,946
--------------- ---------------
Deferred income 944,149 1,099,393
Long-term debt 1,928,394 1,004,584
Other noncurrent liabilities 131,684 124,885
--------------- ---------------
Total liabilities exclusive of liabilities under programs 4,772,677 3,893,808
--------------- ---------------
Liabilities under management and mortgage programs
Debt 4,776,153 5,089,943
Deferred income taxes 301,200 281,948
--------------- ---------------
5,077,353 5,371,891
--------------- ---------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value - authorized 10 million shares;
none issued and outstanding -- --
Common stock, $.01 par value - authorized 2 billion shares;
issued 818,401,590 and 804,655,850 shares, respectively 8,184 8,047
Additional paid-in capital 2,939,075 2,870,422
Retained earnings 1,642,188 1,556,300
Net unrealized gain on marketable securities -- 4,334
Currency translation adjustment (21,064) (12,452)
Restricted stock, deferred compensation (27,714) (28,212)
Treasury stock, at cost (13,587,712 and 6,911,757 shares, respectively) (247,906) (75,770)
---------------- -----------------
Total shareholders' equity 4,292,763 4,322,669
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 14,142,793 $ 13,588,368
=============== ===============
See accompanying notes to supplemental consolidated financial statements.
73
CENDANT CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
1997 1996 1997 1996
-------------- ----------- ------------- -------------
REVENUES
Membership and service fees, net $ 1,084,475 $ 764,972 $ 2,015,473 $ 1,427,975
Fleet leasing (net of depreciation and
interest costs of $298,200, $272,871,
$584,275 and $555,994, respectively) 65,786 62,822 146,581 133,770
Other 150,252 107,845 296,657 195,305
------------ ------------- ------------- -----------
Net revenues 1,300,513 935,639 2,458,711 1,757,050
------------ ------------- ------------- -----------
EXPENSES
Operating 438,541 334,446 853,356 640,965
Marketing and reservation 315,756 254,044 602,449 493,379
General and administrative 112,984 94,423 218,217 171,954
Merger and related costs and other
unusual charges 303,000 28,635 303,000 28,635
Depreciation and amortization 59,422 37,402 120,359 69,626
Interest, net 15,957 7,259 28,358 14,761
------------ ------------- ------------- -----------
Total expenses 1,245,660 756,209 2,125,739 1,419,320
------------ ------------- ------------- -----------
Income before income taxes 54,853 179,430 332,972 337,730
Provision for income taxes 68,290 78,366 180,540 140,692
------------ ------------- ------------- -------------
Net income (loss) $ (13,437) $ 101,064 $ 152,432 $ 197,038
============== ============= ============= =============
PER SHARE INFORMATION
Net income (loss) per share
Primary $ (0.02) $ 0.13 $ 0.18 $ 0.25
============== ============= ============= ===========
Fully diluted $ (0.02) $ 0.13 $ 0.18 $ 0.25
============== ============= ============= ===========
Weighted average common and common
equivalent shares outstanding
Primary 804,246 797,678 875,496 784,106
Fully diluted 804,246 803,484 878,391 792,694
See accompanying notes to supplemental consolidated financial statements.
74
CENDANT CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
-------------------------------
1997 1996
------------- -------------
OPERATING ACTIVITIES:
Net income $ 152,432 $ 197,038
Merger related charge 303,000 --
Merger related payments (132,500) --
Depreciation and amortization 107,033 53,219
Increase (decrease) from changes in
assets under management programs:
Depreciation and amortization under management
and mortgage programs 531,646 483,578
Mortgage loans held for sale 427,684 (351,657)
Other (224,306) 39,407
------------- ------------
Net cash provided by operating activities 1,164,989 421,585
------------- ------------
INVESTING ACTIVITIES:
Assets under management and mortgage programs:
Investment in leases and leased vehicles (1,179,905) (936,225)
Payments received on investment in leases and leased vehicles 437,239 339,680
Equity advances on homes under management (2,136,739) (1,415,655)
Repayment of advances on homes under management 2,203,671 1,498,277
Additions to originated mortgage servicing rights (85,995) (89,872)
Proceeds from sales of mortgage servicing rights 29,134 7,113
Property and equipment additions (61,676) (51,087)
Loans and investments (16,325) (10,000)
Proceeds from sales of marketable securities 60,260 75,460
Purchases of marketable securities (458,088) (66,947)
Due to Avis Rent A Car, Inc. (47,285) --
Net assets acquired, exclusive of cash acquired (344,030) (1,004,137)
Other 40,199 35,099
---------- ------------
Net cash used in investing activities (1,559,540) (1,618,294)
----------- -------------
FINANCING ACTIVITIES:
Proceeds from borrowings 1,284,196 1,073,675
Principal payments on borrowings (1,174,217) (612,144)
Net proceeds from issuance of convertible notes 566,083 --
Redemption of series A preferred stock -- (80,000)
Net change in short-term borrowings under management and mortgage programs (54,948) 78,958
Issuance of common stock, net 66,778 1,182,454
Purchases of common stock (171,318) --
Stock option plan transactions 22,014 7,074
Payment of dividends of pooled entities (6,644) (14,556)
----------- -------------
Net cash provided by financing activities 531,944 1,635,461
----------- -----------
Effect of changes in exchange rates on cash and cash equivalents 19,705 (3,003)
----------- ------------
Net increase in cash and cash equivalents 157,098 435,749
Cash and cash equivalents, beginning of period 633,903 355,959
----------- ------------
Cash and cash equivalents, end of period $ 791,001 $ 791,708
=========== ============
See accompanying notes to supplemental consolidated financial statements.
75
CENDANT CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The supplemental consolidated balance sheet of Cendant Corporation and
subsidiaries, formerly CUC International Inc. (the "Company"), as of June
30, 1997, the supplemental consolidated statements of income for the three
and six months ended June 30, 1997 and 1996, and the supplemental
consolidated statements of cash flows for the six months ended June 30,
1997 and 1996, are unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of such financial statements
are included. There were no adjustments of an unusual nature recorded
during the three and six months ended June 30, 1997 and 1996, except for a
one-time charge of $303.0 million ($227.0 million after tax), recorded in
the second quarter of 1997 representing merger and related costs incurred
in connection with the merger of HFS Incorporated ("HFS") with PHH
Corporation ("PHH") and a non-recurring charge of $28.6 million ($25.1
million after tax), recorded in the second quarter of 1996, representing
merger and related costs incurred in connection with the 1996 mergers of
the Company with Davidson & Associates, Inc. ("Davidson") and
Sierra-On-Line, Inc. ("Sierra") (See Note 3) and a $5.0 million
restructuring charge recorded in June 1996, related primarily to the
contribution of owned Coldwell Banker brokerage offices to an independent
trust.
The accompanying supplemental consolidated financial statements include
the accounts and transactions of the Company and all wholly-owned and
majority owned subsidiaries and joint ventures, except for the Company's
ownership of Avis Rent A Car, Inc. ("ARAC"), which is accounted for under
the equity method (See Note 5). The accompanying supplemental consolidated
financial statements have been restated for the business combinations
accounted for as poolings of interests (See Note 2) as if such combined
companies had operated as one entity since inception. All material
intercompany balances and transactions have been eliminated in
consolidation. These supplemental consolidated financial statements will
become the Company's primary historical financial statements for the
periods presented.
The accompanying supplemental consolidated financial statements and
notes thereto are presented in accordance with interim financial reporting
requirements as required by Form 10-Q and do not include all of the
information and the notes required by generally accepted accounting
principles for complete financial statements. The December 31, 1996
supplemental consolidated balance sheet was derived from the Company's
audited supplemental consolidated financial statements. For further
information, refer to the audited supplemental consolidated financial
statements and notes thereto included herein as Exhibit 99.1 in this Form
8-K. Interim results are not necessarily indicative of results for a full
year.
Certain reclassifications have been made to the historical financial
statements of the pooled companies to conform to the restated
presentation.
2. BUSINESS COMBINATIONS
1997 POOLINGS
On December 17, 1997, the Company completed a merger with HFS
Incorporated ("HFS") (the "Cendant Merger") by issuing 440.0 million
shares of its common stock in exchange for all of the
76
outstanding common stock of HFS. Pursuant to the terms of the agreement
and plan of merger, HFS stockholders received 2.4031 shares of Company
common stock for each share of HFS common stock. Upon consummation of the
Cendant Merger, the Company changed its name from CUC International Inc.
to Cendant Corporation.
In connection with the Cendant Merger, the Company changed its fiscal
year end from January 31 to December 31. HFS has a calendar year end and
the Company has only recalendarized its 1997 results. Accordingly, the HFS
statements of income for the three and six months ended June 30, 1997 and
1996 have been combined with the Company's statements of income for the
three and six months ended June 30, 1997 and July 31, 1996, respectively.
On October 3,1997, the Company, through a wholly-owned subsidiary
("Acquisition Sub"), acquired all of the outstanding capital stock of
Hebdo Mag International Inc. ("Hebdo Mag") pursuant to the terms of a
share purchase agreement dated August 13, 1997 among the Company,
Acquisition Sub, Hebdo Mag and other parties thereto. The purchase price
of approximately $440.0 million was satisfied by the issuance of 14.2
million shares of Company common stock. Hebdo Mag is a leading publisher
and distributor of classified advertising information.
On April 30, 1997, prior to being merged with and into the Company, HFS
acquired PHH by merger (the "HFS/PHH Merger") which was satisfied by the
issuance of 72.8 million equivalent shares of Company common stock in
exchange for all of the outstanding common stock of PHH. PHH is the
world's largest provider of corporate relocation services and also
provides mortgage services and fleet management services. In connection
with the HFS/PHH Merger, PHH changed its fiscal year end from April 30 to
December 30.
During February 1997, the Company acquired substantially all of the
assets and assumed specific liabilities of Numa Corporation ("Numa") for
$73.5 million. The purchase price was satisfied by the issuance of 3.4
million shares of Company common stock. Numa publishes personalized
heritage publications and markets and sells personalized merchandise.
The following table presents the historical results of the Company and
the respective pooled entities for the last complete periods prior to
their respective mergers ($000's):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- -----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
Net revenues
The Company $ 666,586 $ 555,744 $ 1,265,530 $ 1,071,223
HFS (inclusive of PHH) 579,620 345,317 1,099,597 623,044
Hebdo Mag 54,307 34,578 93,584 62,783
------------- ------------- ------------- -------------
$ 1,300,513 $ 935,639 $ 2,458,711 $ 1,757,050
============= ============= ============= =============
77
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- -----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
Net income (loss)
The Company $ 90,905 $ 40,461 $ 164,529 $ 92,582
HFS (inclusive of PHH) (106,449) 59,939 (15,344) 103,617
Hebdo Mag 2,107 664 3,247 839
------------- ------------- ------------- -------------
$ (13,437) $ 101,064 $ 152,432 $ 197,038
============= ============= ============= =============
The following table presents the historical results of HFS and PHH for
the periods prior to the HFS/PHH Merger ($000's):
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, 1997 JUNE 30, 1996
-------------------- ---------------------
Net revenues
HFS $ 347,962 $ 300,403
PHH 177,923 322,641
------------- -------------
Total $ 525,885 $ 623,044
============= =============
Net income
HFS $ 58,940 $ 61,619
PHH 32,164 41,998
------------- -------------
Total $ 91,104 $ 103,617
============= =============
PURCHASE BUSINESS COMBINATIONS
During the six months ended June 30, 1997, the Company acquired certain
entities for an aggregate purchase price of $49.0 million, satisfied by
the payment of $11.2 million in cash and the issuance of 1.5 million
shares of Company common stock. The goodwill resulting from these
acquisitions aggregated $68.8 million. These acquisitions were accounted
for in accordance with the purchase method of accounting and, accordingly,
the results of operations have been included in the consolidated results
of operations from the respective dates of acquisitions. The results of
operations for the periods prior to the respective dates of acquisition
were not significant to the Company's operations.
3. MERGER AND RELATED COSTS AND OTHER UNUSUAL CHARGES
PHH MERGER CHARGE
HFS recorded a one-time merger and related charge (the "PHH Merger
Charge") of $303.0 million ($227.0 million, after tax) during the second
quarter of 1997 in connection with the HFS/PHH Merger. Excluding the PHH
Merger Charge, net income was $213.6 million and $379.4 million for the
three and six months ended June 30, 1997, respectively. The PHH Merger
Charge is summarized by type as follows (in millions):
78
Personnel related $ 142.4
Professional fees 36.8
Business terminations 44.7
Facility related 57.1
Other costs 22.0
-----------
Total $ 303.0
===========
Personnel related charges are comprised of costs incurred in connection
with employee reductions associated with the combination of HFS's
relocation service business and the consolidation of corporate activities.
Personnel related charges include termination benefits such as severance,
medical and other benefits. Also included in personnel related charges are
supplemental retirement benefits resulting from the change of control.
Several grantor trusts were established and funded by HFS to pay such
benefits in accordance with the terms of the HFS/PHH merger agreement.
Full implementation of the restructuring plan will result in the
termination of approximately 500 employees substantially all of whom are
located in North America, of which 126 employees were terminated as of
June 30, 1997. Professional fees are primarily comprised of investment
banking, accounting and legal fees incurred in connection with the HFS/PHH
Merger. Business termination charges relate to the exit from certain
activities associated with fleet management, mortgage services and
ancillary operations. Facility related expenses include costs associated
with contract and lease terminations, asset disposals and other charges
incurred in connection with the consolidation and closure of excess space.
The Company anticipates that approximately $236.0 million will be paid
in cash in connection with the PHH Merger Charge of which $132.5 million
was paid through June 30, 1997. The remaining cash portion of the PHH
Merger Charge will be financed through cash generated from operations and
borrowings under the Company's revolving credit facilities. It is
currently anticipated that the restructuring plan will be completed during
the first quarter of 1998. Revenue and operating results from activities
that will not be continued are not material to the results of operations
of the Company.
1996 POOLINGS
Principally in connection with the Company's 1996 acquisitions of
Davidson, Sierra and Ideon Group, Inc. ("Ideon"), which were accounted for
as poolings of interests, the Company recorded a non-recurring charge of
approximately $179.9 million ($118.7 million, after tax) for the year
ended December 31, 1996. Such charge is comprised of transaction costs,
exit costs and a provision relating to certain litigation matters giving
consideration to the Company's intended approach to these matters. As of
June 30, 1997, such charges amounted to $125.9 million.
4. PRO FORMA INFORMATION
The following table reflects the unaudited operating results of the
Company for the six months ended June 30, 1996 on a pro forma basis, which
gives effect to HFS's 1996 acquisitions, accounted for under the purchase
method of accounting as if they occurred on January 1, 1996.
Net revenues $ 2,097,948
Net income 262,690
Net income per share (fully diluted) $ 0.31
79
5. INVESTMENT IN ARAC
Upon entering into a definitive merger agreement to acquire Avis, Inc.
in July 1996, HFS announced its strategy to dilute its interest in ARAC's
car rental operations while retaining assets associated with the franchise
business, including trademarks, reservation system assets and franchise
agreements with ARAC and other licensees. Since HFS's control was planned
to be temporary, HFS accounted for its 100% investment in ARAC under the
equity method. Summarized financial information for ARAC is as follows
($000's):
AVIS RENT A CAR, INC.
Balance sheet data: JUNE 30, 1997 DECEMBER 31, 1996
-------------- -----------------
Vehicles $ 2,312,109 $ 2,243,492
Total assets 3,029,073 3,131,357
Debt 2,183,769 2,295,474
Total liabilities 2,941,987 3,054,817
Shareholders' equity 87,086 76,540
THREE MONTHS SIX MONTHS
ENDED ENDED
Statement of income data: JUNE 30, 1997 JUNE 30, 1997
-------------- -------------
Revenues $ 489,633 $ 945,647
Income before provision
for income taxes 17,374 24,360
Net income 9,733 13,106
6. SOFTWARE RESEARCH AND DEVELOPMENT COSTS AND COSTS OF SOFTWARE REVENUE
Software research and development costs are included in operating expenses
and aggregated $26.6 million and $15.3 million for the three months ended
June 30, 1997 and 1996, respectively, and $49.7 million and $30.2 million
for the six months ended June 30, 1997 and 1996, respectively. Software
net revenue included in Other was $174.0 million and $129.1 million for
the six months ended June 30, 1997 and 1996, respectively. Costs of
software revenue are included in operating expenses and aggregated $28.3
million and $21.1 million for the three months ended June 30, 1997 and
1996, respectively, and $55.4 million and $45.9 million for the six months
ended June 30, 1997 and 1996, respectively.
7. ISSUANCE OF 3% CONVERTIBLE SUBORDINATED NOTES
On February 11, 1997, the Company issued $550.0 million in principal
amount of 3% Convertible Subordinated Notes (the "3% Notes") due February
15, 2002. Interest on the 3% Notes is payable semi-annually. Each $1,000
principal amount of 3% Notes is convertible into 32.6531 shares of Company
common stock subject to adjustment in certain events. The 3% Notes may be
redeemed at the option of the Company at any time on or after February 15,
2000, in whole or in part, at the appropriate redemption prices (as
defined in the indenture governing the 3% Notes) plus accrued interest to
the redemption date. The 3% Notes will be subordinated in right of payment
to all existing and future Senior Debt (as defined in the indenture
governing the 3% Notes) of the Company. Issuance costs are being amortized
on a straight-line basis over five years.
80
8. SHAREHOLDERS' EQUITY
A. AUTHORIZED SHARES
In conjunction with the Cendant Merger effective on December 17, 1997,
the Company's shareholders approved an amendment to the Company's restated
certificate of incorporation to increase the number of authorized shares
of common stock and preferred stock to 2 billion shares and 10 million
shares, respectively. The Company has never issued shares of preferred
stock.
B. TREASURY PURCHASES
In January 1997, HFS's Board of Directors authorized the purchase of
6.2 million equivalent shares of Company common stock to satisfy stock
option exercises and conversions of convertible debt securities and to
fund future acquisitions. The Company acquired approximately 6.2 million
equivalent treasury shares in January and February 1997 for $179.4 million
with revolving credit borrowings.
9. CONTINGENCIES - IDEON
On June 13, 1997, the Company entered into an agreement (the
"Agreement") with Peter Halmos, the co-founder of SafeCard Services,
Incorporated ("SafeCard"), which was reorganized in 1995 as Ideon. The
Agreement calls for the dismissal with prejudice of certain outstanding
litigation matters between Peter Halmos and certain of the Company's
subsidiaries and the payment to Peter Halmos, over a six-year period, of
$70.5 million. Specifically, the Agreement requires that the Company pay
Peter Halmos one up-front payment of $13.5 million and six subsequent
annual payments of $9.5 million each. For additional disclosure, see
Footnote 13 --Commitments and Contingencies to Exhibit 99.1 -- Supplemental
Consolidated Financial Statements.
81