82 EXHIBIT 99.2 RESTATEMENT OF QUARTERLY PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 83 CENDANT CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) SEPTEMBER 30, DECEMBER 31, 1997 1996 --------------- -------------- ASSETS Current assets Cash and cash equivalents $ 902,777 $ 633,903 Marketable securities 308,947 94,200 Receivables, net 1,538,415 1,290,625 Other current assets 630,657 510,865 --------------- -------------- Total current assets 3,380,796 2,529,593 --------------- -------------- Deferred membership acquisition costs 389,870 401,564 Franchise agreements, net 942,780 995,947 Goodwill, net 1,913,478 2,302,226 Other intangibles, net 1,438,537 636,230 Other assets 1,329,370 993,574 --------------- -------------- Total assets exclusive of assets under programs 9,394,831 7,859,134 --------------- -------------- Assets under management and mortgage programs Net investment in leases and leased vehicles 3,547,217 3,418,666 Relocation receivables 587,310 773,326 Mortgage loans held for sale 1,162,220 1,248,299 Mortgage servicing rights and fees 305,428 288,943 --------------- -------------- 5,602,175 5,729,234 --------------- -------------- TOTAL ASSETS $ 14,997,006 $ 13,588,368 =============== ============== See accompanying notes to supplemental consolidated financial statements. 84 CENDANT CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA) SEPTEMBER 30, DECEMBER 31, 1997 1996 --------------- -------------- LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable, accrued expenses and other current liabilities $ 1,358,767 $ 1,664,946 --------------- -------------- Deferred income 1,091,649 1,099,393 Long-term debt 2,422,524 1,004,584 Other noncurrent liabilities 262,407 124,885 --------------- -------------- Total liabilities exclusive of liabilities under programs 5,135,347 3,893,808 --------------- -------------- Liabilities under management and mortgage programs Debt 4,952,083 5,089,943 Deferred income taxes 300,683 281,948 --------------- -------------- 5,252,766 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 824,544,641 and 804,655,850 shares, respectively 8,245 8,047 Additional paid-in capital 3,017,461 2,870,422 Retained earnings 1,890,452 1,556,300 Net unrealized gain on marketable securities -- 4,334 Currency translation adjustment (27,024) (12,452) Restricted stock, deferred compensation (28,664) (28,212) Treasury stock, at cost (13,964,693 and 6,911,757 shares, respectively) (251,577) (75,770) ---------------- -------------- Total shareholders' equity 4,608,893 4,322,669 ---------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 14,997,006 $ 13,588,368 ================ ============== See accompanying notes to supplemental consolidated financial statements. 85 CENDANT CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- ----------------------------- 1997 1996 1997 1996 ------------ ------------- ------------- ------------- REVENUES Membership and service fees, net $ 1,288,092 $ 924,246 $ 3,502,423 $ 2,513,994 Fleet leasing (net of depreciation and interest costs of $307,908, $283,086, $892,186 and $839,080, respectively) 13,148 14,297 42,905 41,016 Other 130,064 104,358 344,687 244,941 ------------ ------------- ------------- ----------- Net revenues 1,431,304 1,042,901 3,890,015 2,799,951 ------------ ------------- ------------- ----------- EXPENSES Operating 464,483 363,426 1,317,841 1,004,391 Marketing and reservation 360,900 283,529 963,349 776,908 General and administrative 105,859 83,811 324,076 255,765 Merger and related costs and other unusual charges - 147,200 303,000 175,835 Depreciation and amortization 70,240 49,903 190,599 119,529 Interest, net 15,562 2,463 43,920 17,224 ------------ ------------- ------------- ----------- Total expenses 1,017,044 930,332 3,142,785 2,349,652 ------------ ------------- ------------- ----------- Income before income taxes 414,260 112,569 747,230 450,299 Provision for income taxes 165,996 44,103 346,536 184,795 ------------ ------------- ------------- ------------- Net income $ 248,264 $ 68,466 $ 400,694 $ 265,504 ============ ============= ============= ============= PER SHARE INFORMATION Net income per share Primary $ 0.29 $ 0.08 $ 0.47 $ 0.34 ============ ============= ============= =========== Fully diluted $ 0.28 $ 0.08 $ 0.47 $ 0.33 ============ ============= ============= =========== Weighted average common and common equivalent shares outstanding Primary 888,061 834,441 874,379 800,716 Fully diluted 899,447 838,483 877,419 807,607 See accompanying notes to supplemental consolidated financial statements. 86 CENDANT CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- 1997 1996 ------------ -------------- OPERATING ACTIVITIES: Net income $ 400,694 $ 265,504 Merger related charge 303,000 -- Merger related payments (137,000) -- Depreciation and amortization 168,083 93,606 Increase (decrease) from changes in assets under management programs Depreciation and amortization under management and mortgage programs 812,309 764,173 Mortgage loans held for sale 86,079 (318,767) Other (314,955) 61,310 ------------- -------------- Net cash provided by operating activities 1,318,210 865,826 ------------- -------------- INVESTING ACTIVITIES: Assets under management and mortgage programs Investment in leases and leased vehicles (1,565,857) (1,217,700) Payments received on investment in leases and leased vehicles 615,153 470,193 Equity advances on homes under management (4,185,486) (2,347,351) Repayment of advances on homes under management 4,341,295 2,377,103 Additions to originated mortgage servicing rights (147,608) (115,219) Proceeds from sales of mortgage servicing rights 48,974 7,113 Property and equipment additions (112,608) (93,381) Proceeds from sales of marketable securities 233,902 108,071 Purchases of marketable securities (467,176) (96,517) Investment in preferred stock (181,191) -- Due from Avis Rent A Car, Inc. (124,440) -- Net assets acquired, exclusive of cash acquired (567,438) (990,668) Other (6,789) 19,853 ------------ -------------- Net cash used in investing activities (2,119,269) (1,878,503) ------------ --------------- FINANCING ACTIVITIES: Proceeds from borrowings 3,046,657 1,538,130 Principal payments on borrowings (1,767,264) (1,212,446) Net proceeds from issuance of convertible notes 542,830 -- Redemption of series A preferred stock -- (80,000) Net change in short term borrowings under management and mortgage programs (693,891) 114,518 Issuance of common stock, net 119,977 1,218,689 Purchases of common stock (171,318) (8,025) Payment of dividends of pooled entities (6,644) (21,154) ------------ --------------- Net cash provided by financing activities 1,070,347 1,549,712 ----------- ------------- Effect of changes in exchange rates on cash and cash equivalents (414) (17,104) ------------ -------------- Net increase in cash and cash equivalents 268,874 519,931 Cash and cash equivalents, beginning of period 633,903 355,959 ----------- -------------- Cash and cash equivalents, end of period $ 902,777 $ 875,890 =========== ============== See accompanying notes to supplemental consolidated financial statements. 87 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 September 30, 1997, the supplemental consolidated statements of income for the three and nine months ended September 30, 1997 and 1996, and the supplemental consolidated statements of cash flows for the nine months ended September 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 nine months ended September 30, 1997 and 1996 except for (i) 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"); (ii) non-recurring charges of $147.2 ($89.6 million, after tax) and $28.6 million ($25.1 million, after tax) recorded in the third and second quarters of 1996, respectively, representing merger and related costs incurred in connection with the 1996 mergers of the Company with Davidson & Associates, Inc. ("Davidson"), Sierra On-Line, Inc. ("Sierra") and Ideon Group, Inc. ("Ideon") and (iii) a $5.0 million restructuring charge recorded in June 1996, related to the contribution of owned Coldwell Banker brokerage offices to an independent trust. The 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 interest (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. Interim results are not necessarily indicative of results for a full year. 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 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 supplemental consolidated financial statements and notes thereto included herein as Exhibit 99.1 in this Form 8-K. Certain reclassifications have been made to the historical financial statements of the pooled companies to conform to the restated presentation. 88 2. BUSINESS COMBINATIONS 1997 POOLINGS On December 17, 1997, the Company completed a merger with HFS (the "Cendant Merger") by issuing 440.0 million shares of its common stock in exchange for all of the 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 nine months ended September 30, 1997 and September 30, 1996 have been combined with the Company's statements of income for the three and nine months ended September 30, 1997 and October 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 merger, PHH changed its fiscal year end from April 30 to December 31. 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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ----------------------------- 1997 1996 1997 1996 ------------- ------------- ------------- ------------- Net revenues The Company $ 737,067 $ 602,203 $ 2,002,597 $ 1,673,426 HFS (inclusive of PHH) 649,880 409,571 1,749,477 1,032,615 Hebdo Mag 44,357 31,127 137,941 93,910 ------------- ------------- ------------- ------------- $ 1,431,304 $ 1,042,901 $ 3,890,015 $ 2,799,951 ============= ============= ============= ============= 89 THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ----------------------------- 1997 1996 1997 1996 ------------- ------------- ------------- ------------- Net income The Company $ 87,553 $ (18,009) $ 252,082 $ 74,573 HFS (inclusive of PHH) 157,403 84,874 142,057 188,491 Hebdo Mag 3,308 1,601 6,555 2,440 ------------- ------------- ------------- ------------- $ 248,264 $ 68,466 $ 400,694 $ 265,504 ============= ============= ============= ============= The following table presents the historical results of HFS and PHH for the periods prior to the HFS/PHH Merger ($000's): THREE MONTHS NINE MONTHS ENDED ENDED MARCH 31, 1997 SEPTEMBER 30, 1996 --------------- ------------------ Net revenues HFS $ 347,962 $ 550,010 PHH 177,923 482,605 --------------- ------------------- $ 525,885 $ 1,032,615 =============== =================== Net income HFS $ 58,940 $ 130,960 PHH 32,164 57,531 --------------- ------------------- $ 91,104 $ 188,491 =============== =================== PURCHASE BUSINESS COMBINATIONS During the nine months ended September 30, 1997, the Company acquired certain entities for an aggregate purchase price of $63.3 million, satisfied by the payment of $27.5 million in cash and the issuance of 1.5 million shares of Company common stock. The goodwill resulting from these acquisitions aggregated $89.9 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 restructuring 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 $627.7 million for the nine months ended September 30, 1997. The PHH Merger Charge is summarized by type as follows (in millions): 90 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 businesses 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 369 employees were terminated as of September 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 $137.0 million was paid through September 30, 1997. The remaining cash portion of the PHH Restructuring 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 In connection with the Company's 1996 acquisitions of Davidson, Sierra and 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 September 30, 1997, such charges amounted to $155.7 million. 4. PRO FORMA INFORMATION The following table reflects the unaudited operating results of the Company for the nine months ended September 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 had occurred on January 1, 1996: Net revenues $ 3,284,158 Net income 319,439 Net income per share (fully diluted) $ 0.38 91 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. In September 1997, ARAC completed an initial public offering ("IPO") of a subsidiary that operated the car rental operations of HFS Car Rental Inc., which diluted HFS's equity interest in such subsidiary to approximately 27.5%. Net proceeds from the IPO approximating $359.3 million retained by ARAC were used to fund its August 20, 1997 acquisition of The First Gray Line Corporation and repay ARAC indebtedness. The Company licenses the Avis trademark to ARAC pursuant to a 50-year master license agreement and receives royalty fees based upon 4% of ARAC revenue, escalating to 4.5% of ARAC revenue over a 5-year period. In addition, the Company operates the telecommunications and computer processing system which services ARAC for reservations, rental agreement processing, accounting and fleet control for which the Company charges ARAC at cost. Summarized financial information of ARAC is as follows ($000's): AVIS RENT A CAR, INC. Balance sheet data: SEPTEMBER 30, 1997 DECEMBER 31, 1996 ------------------- ----------------- Vehicles $ 3,364,660 $ 2,243,492 Total assets 4,717,107 3,131,357 Debt 3,285,548 2,295,474 Total liabilities 4,263,001 3,054,817 Shareholders' equity 454,106 76,540 THREE MONTHS ENDED NINE MONTHS ENDED Statement of income data: SEPTEMBER 30, 1997 SEPTEMBER 30, 1997 ------------------- ------------------ Revenues $ 580,049 $ 1,525,696 Income before provision for income taxes 24,953 49,313 Net income 13,868 26,974 6. SOFTWARE RESEARCH AND DEVELOPMENT COSTS AND COSTS OF SOFTWARE REVENUE Software research and development costs are included in operating expenses and aggregated $30.0 million and $15.9 million for the three months ended September 30, 1997 and 1996, respectively, and $79.7 million and $46.1 million for the nine months ended September 30, 1997 and 1996, respectively. Software revenue included in Other was $265.2 million and $228.1 million for the nine months ended September 30, 1997 and 1996, respectively. Costs of software revenue are included in operating expenses and aggregated $26.7 million and $24.0 million for the three months ended September 30, 1997 and 1996, respectively, and $82.1 million and $69.9 million for the nine months ended September 30, 1997 and 1996, respectively. 92 7. REDEMPTION OF 4-1/2% NOTES On September 22, 1997, HFS exercised its option to redeem the outstanding 4-1/2% Convertible Senior Notes ("4-1/2% Notes") effective on October 15, 1997 in accordance with the provisions of the indenture under which the 4-1/2% Notes were issued. Prior to the redemption date, all of the outstanding 4-1/2% Notes were converted. Accordingly, 19.7 million equivalent shares of Company common stock were issued (0.2 million shares as of September 30, 1997) as a result of the conversion of such notes. 8. 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. 9. INVESTMENT IN NRT During the third quarter of 1997, HFS acquired $182.0 million of preferred stock (included in other assets) of NRT Incorporated ("NRT"), a newly formed corporation created to acquire residential real estate brokerage firms. HFS acquired $216.1 million of certain intangible assets including trademarks associated with real estate brokerage firms acquired by NRT in 1997. HFS, at its discretion, may acquire up to $81.3 million of additional NRT preferred stock and may also purchase up to $229.9 million of certain intangible assets of real estate brokerage firms acquired by NRT. In September 1997, NRT, acquired the real estate brokerage business and operations of National Realty Trust (the "Trust"), and two other regional real estate brokerage businesses. The Trust is an independent trust to which HFS contributed the brokerage offices formerly owned by Coldwell Banker Corporation in connection with HFS's acquisition of Coldwell Banker Corporation. NRT is the largest residential brokerage firm in the United States. 10. 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. 93 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. 11. 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 of 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. 94