EX-99.3 7 y05226exv99w3.htm UNAUDITED PRO FORMA FINANCIAL INFORMATION EX-99.3
 

Exhibit 99.3

                         UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following Unaudited Pro Forma Condensed Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003 and the Unaudited Pro Forma Condensed Consolidated Statements of Operations for the nine months ended September 30, 2004 and for the years ended December 31, 2003, 2002 and 2001 have been derived from our historical financial statements and adjusted to give effect to the following, all of which were consummated in connection with the distribution of PHH Corporation common stock to Cendant stockholders by Cendant on January 31, 2005:

    Ÿ     the equity contribution from us to PHH of $100 million in cash and our assumption of $55 million of pension-related liabilities for which PHH was previously responsible; and

    Ÿ     the subsequent distribution of our mortgage, fleet leasing and appraisal business as PHH Corporation to our common stockholders.

The Unaudited Pro Forma Condensed Consolidated Balance Sheets assume that the above-mentioned transactions occurred on the date of such balance sheet and the Unaudited Pro Forma Condensed Consolidated Statements of Operations assume that the above-mentioned transactions occurred on January 1 of each period presented.

Management believes that the assumptions used to derive the Unaudited Pro Forma Condensed Consolidated Financial Statements are reasonable under the circumstances and given the information available. The Unaudited Pro Forma Condensed Consolidated Financial Statements have been provided for information purposes and are not necessarily indicative of the future financial condition or results of future operations or the actual financial condition or results that would have been achieved had the transactions occurred on the dates indicated. These Unaudited Pro Forma Condensed Consolidated Financial Statements (together with the footnotes thereto) should be read in conjunction with our historical consolidated financial statements and accompanying notes thereto, which can be found in our quarterly report on Form 10-Q for the period ended September 30, 2004 filed with the Securities and Exchange Commission on November 2, 2004, our current report on Form 8-K filed with the Securities and Exchange Commission on August 2, 2004 and our annual report on Form 10-K for the fiscal year ended December 31, 2003 filed with the Securities and Exchange Commission on March 1, 2004.

The Unaudited Pro Forma Condensed Consolidated Statements of Operations do not reflect material non-recurring charges which will impact net income within the 12 months following the transaction, including: (i) any non-cash impairment charge that we may be required to record to reflect any difference between PHH’s carrying value and PHH’s market value, which, based upon currently available information, we estimate will be in the range of $535 million to $590 million after tax ($0.50 to $0.55 per diluted share); (ii) any tax provision associated with separating the appraisal business from us upon spin-off, which we currently estimate to be approximately $24 million ($0.02 per diluted share) and (iii) any transaction costs, which we currently estimate to be approximately $15 million ($0.01 per diluted share).

 

 

CENDANT CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2004
(in millions)

                                             
    Historical     Spin-off of     Equity     Pro Forma         Pro Forma  
    As Reported     PHH Corporation (a)     Contribution (b)     Adjustments         Cendant  
Assets
                                            
Cash and cash equivalents
   $ 1,633     $ (243 )   $ (100 )   $ 3     (c)   $ 1,293  
Restricted cash
     364       (231 )     —       —           133  
Receivables, net
     1,544       (329 )     —       —           1,215  
Deferred income taxes
     502       (51 )     —       (14 )   (d)     437  
Other current assets
     812       (41 )     —       —           771  
 
                                  
Total current assets
     4,855       (895 )     (100 )     (11 )         3,849  
 
                                  

Property and equipment, net

     1,749       (101 )     —       —           1,648  
Deferred income taxes
     1,848       20       —       —           1,868  
Goodwill
     10,981       (504 )     —       208     (e)     10,685  
Other intangibles, net
     2,494       (58 )     —       —           2,436  
Other non-current assets
     830       (223 )     —       29     (f)     636  
 
                                  
Total assets exclusive of assets under programs
     22,757       (1,761 )     (100 )     226           21,122  
 
                                  

Assets under management and mortgage programs:

                                            
Program cash
     457       (309 )     —       —           148  
Mortgage loans held for sale
     2,150       (2,150 )     —       —           —  
Relocation receivables
     761       —       —       —           761  
Vehicle-related, net
     11,242       (3,684 )     —       —           7,558  
Timeshare-related, net
     2,306       —       —       —           2,306  
Mortgage servicing rights, net
     1,653       (1,653 )     —       —           —  
Other
     283       (151 )     —       —           132  
 
                                  
 
     18,852       (7,947 )     —       —           10,905  
 
                                  

Total assets

   $ 41,609     $ (9,708 )   $ (100 )   $ 226         $ 32,027  
 
                                  

Liabilities and stockholders’ equity

                                            
Accounts payable and other current liabilities
   $ 4,429     $ (73 )   $ —     $ (16 )   (g)   $ 4,340  
Current portion of long-term debt
     864       (3 )     —       —           861  
Deferred income
     809       (1 )     —       —           808  
 
                                  
Total current liabilities
     6,102       (77 )     —       (16 )         6,009  
 
                                  

Long-term debt

     3,601       (5 )     —       —           3,596  
Deferred income
     316       (6 )     —       —           310  
Other non-current liabilities
     830       (78 )     55       —           807  
 
                                  
Total liabilities exclusive of liabilities under programs
     10,849       (166 )     55       (16 )         10,722  
 
                                  

Liabilities under management and mortgage programs:

                                            
Debt
     15,570       (6,706 )     —       —           8,864  
Deferred income taxes
     2,712       (943 )     —       —           1,769  
Other
     67       (67 )     —       —           —  
 
                                  
 
     18,349       (7,716 )     —       —           10,633  
 
                                  

Commitments and contingencies

                                            

Stockholders’ equity

     12,411       (1,826 )     (155 )     242     (h)     10,672  
 
                                  
Total liabilities and stockholders’ equity
   $ 41,609     $ (9,708 )   $ (100 )   $ 226         $ 32,027  
 
                                  

 

 

CENDANT CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2003
(in millions)

                                             
    Historical     Spin-off of     Equity     Pro Forma         Pro Forma  
    As Reported     PHH Corporation (a)     Contribution (b)     Adjustments         Cendant  
Assets
                                            
Cash and cash equivalents
   $ 839     $ (58 )   $ (100 )   $ (10 )   (c)   $ 671  
Restricted cash
     448       (214 )     —       —           234  
Receivables, net
     1,665       (369 )     —       —           1,296  
Deferred income taxes
     454       (48 )     —       (86 )   (d)     320  
Assets of discontinued operations
     556       —       —       —           556  
Other current assets
     1,060       (56 )     —       —           1,004  
 
                                  
Total current assets
     5,022       (745 )     (100 )     (96 )         4,081  
 
                                  

Property and equipment, net

     1,763       (104 )     —       —           1,659  
Deferred income taxes
     1,040       12       —       —           1,052  
Goodwill
     10,716       (481 )     —       200     (e)     10,435  
Other intangible assets
     2,311       (52 )     —       —           2,259  
Other non-current assets
     965       (256 )     —       29     (f)     738  
 
                                  
Total assets exclusive of assets under programs
     21,817       (1,626 )     (100 )     133           20,224  
 
                                  

Assets under management and mortgage programs:

                                            
Program cash
     542       (441 )     —       —           101  
Mortgage loans held for sale
     2,508       (2,508 )     —       —           —  
Relocation receivables
     534       —       —       —           534  
Vehicle-related, net
     10,143       (3,405 )     —       —           6,738  
Timeshare-related, net
     1,803       —       —       —           1,803  
Mortgage servicing rights, net
     1,641       (1,641 )     —       —           —  
Other
     468       (465 )     —       —           3  
 
                                  
 
     17,639       (8,460 )     —       —           9,179  
 
                                  

Total assets

   $ 39,456     $ (10,086 )   $ (100 )   $ 133         $ 29,403  
 
                                  

Liabilities and stockholders’ equity

                                            
Accounts payable and other current liabilities
   $ 4,668     $ (112 )   $ —     $ (75 )   (g)   $ 4,481  
Current portion of long-term debt
     1,629       (1 )     —       —           1,628  
Liabilities of discontinued operations
     61       —       —       —           61  
Deferred income
     854       (1 )     —       —           853  
 
                                  
Total liabilities exclusive of liabilities under programs
     7,212       (114 )     —       (75 )         7,023  
 
                                  

Long-term debt

     4,373       (1 )     —       —           4,372  
Deferred income
     311       (2 )     —       —           309  
Other non-current liabilities
     883       (84 )     55       —           854  
 
                                  
Total liabilities exclusive of liabilities under programs
     12,779       (201 )     55       (75 )         12,558  
 
                                  

Liabilities under management and mortgage programs:

                                            
Debt
     14,785       (6,868 )     —       —           7,917  
Deferred income taxes
     1,429       (943 )     —       —           486  
Other
     277       (277 )     —       —           —  
 
                                  
 
     16,491       (8,088 )     —       —           8,403  
 
                                  

Commitments and contingencies

                                            

Stockholders’ equity

     10,186       (1,797 )     (155 )     208     (i)     8,442  
 
                                  

Total liabilities and stockholders’ equity

   $ 39,456     $ (10,086 )   $ (100 )   $ 133         $ 29,403  
 
                                  

 

 

CENDANT CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
(Dollars in millions)

     
(a)
  Represents the assets, liabilities and equity of our mortgage, fleet and appraisal businesses, which have been distributed to our shareholders. The fuel card and relocation operations of PHH were distributed to Cendant prior to the spin-off.
 
    
(b)
  Represents our equity contribution to PHH, comprising (i) a cash contribution of $100 million from us and (ii) our assumption of $55 million of PHH’s pension-related liabilities. Cendant’s contribution of its appraisal business to PHH is reflected in the column entitled “Spin-off of PHH Corporation(a).”
 
    
(c)
  Represents a cash inflow relating to the settlement of intercompany liabilities due from PHH ($32 million and $19 million at September 30, 2004 and December 31, 2003, respectively), offset by a cash outflow relating to our purchase of a 49.9% ownership interest in the mortgage venture to be established with PHH ($29 million at September 30, 2004 and December 31, 2003).
 
    
(d)
  Represents an adjustment to reflect an estimate of the tax benefit of net operating losses we expect to allocate to PHH at the time of spin-off.
 
    
(e)
  Represents the reallocation of goodwill from PHH relating to the separation of entities that will not be included within the PHH ownership structure following the spin-off ($208 million and $200 million as of September 30, 2004 and December 31, 2003, respectively).
 
    
(f)
  Represents an estimate of our 49.9% ownership interest in the mortgage venture.
 
    
(g)
  Represents an adjustment to reflect the forgiveness of an estimated intercompany tax payable to PHH as of the date of the spin-off ($48 million and $94 million at September 30, 2004 and December 31, 2003, respectively), after giving effect to the current estimate of $24 million of taxes associated with separating the appraisal business from us; partially offset by the cash settlement of intercompany liabilities from PHH ($32 million and $19 million at September 30, 2004 and December 31, 2003, respectively).
 
    
(h)
  Represents (i) the reallocation of $208 million of goodwill and (ii) the $48 million forgiveness of the intercompany tax payable; partially offset by the $14 million tax benefit adjustment.
 
    
(i)
  Represents (i) the reallocation of $200 million of goodwill and (ii) the $94 million forgiveness of the intercompany tax payable; partially offset by the $86 million tax benefit adjustment.

 

 

CENDANT CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(in millions, except per share data)

                                     
    Historical     Spin-off of     Pro Forma         Pro Forma  
    As Reported     PHH Corporation (a)     Adjustments         Cendant  
Revenues
                                    
Net revenues
   $ 14,881     $ (1,753 )   $ 10     (b)   $ 13,138  
 
                            

Expenses

                                    
Operating
     7,717       (516 )     —           7,201  
Vehicle depreciation, lease charges and interest, net
     1,882       (947 )     —           935  
Marketing and reservation
     1,514       (5 )     —           1,509  
General and administrative
     1,122       (145 )     23     (c)     1,000  
Non-program related depreciation and amortization
     395       (34 )     —           361  
Non-program related interest, net
     202       —       —           202  
Acquisition and integration related costs:
                                    
Amortization of pendings and listings
     13       —       —           13  
Other
     (3 )     —       —           (3 )
 
                            
Total expenses
     12,842       (1,647 )     23           11,218  
 
                            

Income before income taxes and minority interest

     2,039       (106 )     (13 )         1,920  
Provision for income taxes
     570       (41 )     (4 )   (d)     525  
Minority interest, net of tax
     6       —       —           6  
 
                            
Income from continuing operations
   $ 1,463     $ (65 )   $ (9 )       $ 1,389  
 
                            

Weighted average shares outstanding (e)

                                    
Basic
     1,024                           1,024  
Diluted
     1,059                           1,059  

Earnings per share (e)

                                    
Basic
   $ 1.43                         $ 1.36  
Diluted
   $ 1.38                         $ 1.31  

 

 

CENDANT CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2003
(in millions, except per share data)

                                     
    Historical     Spin-off of     Pro Forma         Pro Forma  
    As Reported     PHH Corporation (a)     Adjustments         Cendant  
Revenues
                                    
Net revenues
   $ 18,015     $ (2,505 )   $ 76     (b)   $ 15,586  
 
                            

Expenses

                                    
Operating
     9,341       (730 )     —           8,611  
Vehicle depreciation, lease charges and interest, net
     2,487       (1,176 )     —           1,311  
Marketing and reservation
     1,732       (8 )     —           1,724  
General and administrative
     1,352       (221 )     32     (c)     1,163  
Non-program related depreciation and amortization
     507       (38 )     —           469  
Non-program related interest, net
     364       —       —           364  
Acquisition and integration related costs:
                                    
Amortization of pendings and listings
     20       —       —           20  
Other
     34       —       —           34  
Litigation and related charges, net
     11       —       —           11  
Restructuring and other unusual charges
     (6 )     —       —           (6 )
 
                            
Total expenses
     15,842       (2,173 )     32           13,701  
 
                            

Income before income taxes and minority interest

     2,173       (332 )     44           1,885  
Provision for income taxes
     722       (131 )     14     (d)     605  
Minority interest, net of tax
     21       —       —           21  
 
                            
Income from continuing operations
   $ 1,430     $ (201 )   $ 30         $ 1,259  
 
                            

Weighted average shares outstanding (e)

                                    
Basic
     1,017                           1,017  
Diluted
     1,040                           1,040  

Earnings per share (e)

                                    
Basic
   $ 1.41                         $ 1.24  
Diluted
   $ 1.38                         $ 1.21  

 

 

CENDANT CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2002
(in millions, except per share data)

                                     
    Historical     Spin-off of     Pro Forma         Pro Forma  
    As Reported     PHH Corporation (a)     Adjustments         Cendant  
Revenues
                                    
Net revenues
   $ 14,025     $ (1,904 )   $ 54     (b)   $ 12,175  
 
                            

Expenses

                                    
Operating
     6,765       (495 )     —           6,270  
Vehicle depreciation, lease charges and interest, net
     2,094       (1,173 )     —           921  
Marketing and reservation
     1,374       (7 )     —           1,367  
General and administrative
     1,112       (183 )     24     (c)     953  
Non-program related depreciation and amortization
     455       (32 )     —           423  
Non-program related interest, net
     304       —       —           304  
Acquisition and integration related costs:
                                    
Amortization of pendings and listings
     256       —       —           256  
Other
     29       —       —           29  
Litigation and related charges, net
     103       —       —           103  
Restructuring and other unusual charges
     (14 )     —       —           (14 )
 
                            
Total expenses
     12,478       (1,890 )     24           10,612  
 
                            

Income before income taxes and minority interest

     1,547       (14 )     30           1,563  
Provision for income taxes
     516       (7 )     11     (d)     520  
Minority interest, net of tax
     22       (1 )     —           21  
 
                            
Income from continuing operations
   $ 1,009     $ (6 )   $ 19         $ 1,022  
 
                            

Weighted average shares outstanding (e)

                                    
Basic
     1,019                           1,019  
Diluted
     1,043                           1,043  

Earnings per share (e)

                                    
Basic
   $ 0.99                         $ 1.00  
Diluted
   $ 0.97                         $ 0.98  

 

 

CENDANT CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2001
(in millions, except per share data)

                                     
    Historical     Spin-off of     Pro Forma         Pro Forma  
    As Reported     PHH Corporation (a)     Adjustments         Cendant  
Revenues
                                    
Net revenues
   $ 8,612     $ (2,014 )   $ 55     (b)   $ 6,653  
 
                            

Expenses

                                    
Operating
     2,718       (362 )     —           2,356  
Vehicle depreciation, lease charges and interest, net
     1,789       (1,020 )     —           769  
Marketing and reservation
     1,100       (7 )     —           1,093  
General and administrative
     957       (174 )     16     (c)     799  
Non-program related depreciation and amortization
     462       (44 )     —           418  
Non-program related interest, net
     254       —       —           254  
Acquisition and integration related costs:
                                    
Amortization of pendings and listings
     —       —       —           —  
Other
     112       —       —           112  
Litigation and related charges, net
     86       —       —           86  
Restructuring and other unusual charges
     378       —       —           378  
Mortgage servicing rights impairment
     94       (94 )     —           —  
 
                            
Total expenses
     7,950       (1,701 )     16           6,265  
 
                            

Net losses relating to impairments of investments and dispositions of businesses

     (24 )     —       —           (24 )
 
                            

Income before income taxes, minority interest and equity in Homestore

     638       (313 )     39           364  
Provision for income taxes
     207       (128 )     14     (d)     93  
Minority interest, net of tax
     24       —       —           24  
Losses related to equity in Homestore, net of tax
     77       —       —           77  
 
                            
Income from continuing operations
   $ 330     $ (185 )   $ 25         $ 170  
 
                            

Weighted average shares outstanding(e)

                                   
Basic
     869                           869  
Diluted
     917                           917  

Earnings per share(e)

                                    
Basic
   $ 0.36                         $ 0.18  
Diluted
   $ 0.35                         $ 0.17  

 

 

CENDANT CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

     
(a)
  Represents the results of operations of our mortgage, fleet and appraisal businesses, which have been distributed to our shareholders. The fuel card and relocation operations of PHH were distributed to Cendant prior to the spin-off.
 
    
(b)
  Represents (i) our portion of the mortgage venture’s earnings based upon our 49.9% ownership interest ($15 million and $84 million for the nine months ended September 30, 2004 and the year ended December 31, 2003, respectively, and $63 million for both the years ended December 31, 2002 and 2001) and (ii) income associated with marketing services and license agreements executed with PHH ($3 million for the nine months ended September 30, 2004 and $4 million for each of the years ended December 31, 2003, 2002 and 2001); partially offset by the elimination of interest expense allocations to PHH ($8 million, $12 million, $13 million and $12 million for the nine months ended September 30, 2004 and the years ended December 31, 2003, 2002 and 2001, respectively).
 
    
(c)
  Represents (i) the elimination of general corporate overhead allocations to PHH ($20 million $28 million, $25 million and $19 million for the nine months ended September 30, 2004 and the years ended December 31, 2003, 2002 and 2001, respectively) and (ii) the assumption by us of a portion of PHH’s pension plan and the related expense (income) ($3 million, $4 million, $(1) million and $(3) million for the nine months ended September 30, 2004 and the years ended December 31, 2003, 2002 and 2001, respectively).
 
    
(d)
  Represents the tax effects of (b) and (c) above.
 
    
(e)
  Earnings per share and weighted average shares outstanding do not reflect any adjustments required to be made to existing Cendant common stock options and restricted stock units in connection with the spin-off of PHH. We estimate that an incremental six million common stock options and one million restricted stock units will be issued to Cendant employees as an equitable adjustment to existing equity awards.