Cendant Corporation 10-Q Summary: Quarter Ended September 30, 2000
Business Context and Reporting Period
This Form 10-Q covers Cendant Corporation and its subsidiaries for the quarterly period ended September 30, 2000. The company operates through multiple segments including Travel, Real Estate Franchise, Relocation, Mortgage, Insurance/Wholesale, and the Move.com Group. The reporting period is significantly impacted by the planned spin-off of the Individual Membership segment (reported as discontinued operations), the adoption of new revenue recognition standards (SAB 101), and ongoing litigation settlements related to prior accounting irregularities.
Key Financial Metrics
| Metric | Q3 2000 | Q3 1999 | 9M 2000 | 9M 1999 |
|---|---|---|---|---|
| Net Revenues | $1,044M | $1,154M | $2,962M | $3,427M |
| Net Income | $214M | $202M | $457M | $1,426M |
| Income from Continuing Ops | $188M | $233M | $450M | $1,246M |
| Adjusted EBITDA | $444M | $475M | $1,164M | $1,338M |
| Cash & Equivalents | $1,215M | $619M (End of 9M) | $1,215M | $619M (End of 9M) |
| Long-Term Debt | $2,074M | $2,445M | $2,074M | $2,445M |
| EPS (CD Common, Diluted) | $0.29 | $0.26 | $0.62 | $1.75 |
Note: Move.com common stock reported a loss per share of $(0.55) for the quarter and $(0.55) for the nine months ended Sept 30, 2000.
Material Changes vs. Prior Period
- Revenue Decline: Net revenues decreased 10% in Q3 and 14% for the nine months compared to 1999. This is primarily due to the disposition of non-strategic businesses in 1999 (notably the Fleet segment). Excluding these dispositions, revenues increased 3% in Q3 and 4% for the nine months.
- Profitability Volatility: While Net Income increased slightly in Q3 ($214M vs $202M), the nine-month Net Income dropped significantly ($457M vs $1,426M). The 1999 period included a $799M gain on the disposition of the Fleet segment, which is absent in 2000.
- Restructuring Charges: The company incurred $89M in restructuring and unusual charges for the nine months ended Sept 30, 2000, compared to $27M in the prior year. This includes a $106M charge in Q1 2000 for strategic initiatives and employee terminations.
- Accounting Change: Adoption of SAB 101 resulted in a non-cash cumulative effect charge of $56M (net of tax) in the first quarter of 2000, impacting the nine-month comparison.
Guidance, Outlook, and Risks
- Strategic Transactions:
- Dispositions: Agreed to sell the Move.com Group and Welcome Wagon to Homestore.com for approx. $761M in stock (expected Q1 2001). Committed to a tax-free spin-off of the Individual Membership segment (expected mid-2001).
- Acquisitions: Agreed to acquire remaining shares of Avis Group Holdings for approx. $935M and Fairfield Communities for approx. $635M (both expected early 2001).
- Litigation and Contingencies:
- A $2.85B settlement for the principal securities class action was approved by the court. The company posted $2.5B in collateral (surety bonds and letters of credit) in November 2000. Appeals regarding allocation and fees are pending, but the settlement amount is not under appeal.
- Ongoing investigations by the SEC and U.S. Attorney regarding accounting irregularities in former CUC business units.
- Liquidity: The company maintains $1.75B in a new revolving credit facility and $750M in other committed bank facilities. Management believes liquidity is sufficient to fund operations and strategic transactions.
- Segment Outlook: Management expects mortgage market conditions to improve in Q4 2000. The Move.com Group continues to invest heavily in marketing, resulting in operating losses.
Investor Verification Checklist
- Settlement Funding: Verify the status of the $2.85B class action settlement collateral and any potential additional liabilities from unresolved litigation.
- Transaction Closing: Monitor the regulatory approval and closing dates for the Avis, Fairfield, and Homestore transactions, as these significantly alter the company's asset base.
- Spin-off Impact: Assess the financial impact of the Individual Membership segment spin-off on future revenue and earnings per share.
- Move.com Performance: Review the trajectory of the Move.com Group's losses and the valuation of the Homestore stock received in the sale.
- Debt Covenants: Confirm compliance with financial ratios in credit facilities, particularly given the large pending acquisitions and litigation settlements.