CENDANT CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
COMMISSION FILE NO. 1-10308
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CENDANT CORPORATION
(Exact name of Registrant as specified in its charter)

DELAWARE 06-0918165
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9 WEST 57TH STREET
NEW YORK, NY 10019
(Address of principal executive office) (Zip Code)
212-413-1800
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------- ------------------------------------
CD Common Stock, Par Value $.01 New York Stock Exchange
Upper DECS (sm) New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

7 3/4% Notes due 2003
6.875% Notes due 2006
3 7/8% Convertible Senior Debentures due 2011
Zero Coupon Senior Convertible Contingent Notes due 2021
Zero Coupon Convertible Debentures due 2021
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

The aggregate market value of the Common Stock issued and outstanding and held
by nonaffiliates of the Registrant, based upon the closing price for the Common
Stock on the New York Stock Exchange on March 15, 2002 was $18,334,910,460. All
executive officers and directors of the registrant have been deemed, solely for
the purpose of the foregoing calculation, to be "affiliates" of the registrant.

The number of shares outstanding of the Registrant's common stock was
982,020,341 as of March 15, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement to be mailed to
stockholders in connection with our annual stockholders meeting to be held
May 21, 2002 (the "Annual Proxy Statement") are incorporated by reference into
Part III hereof.

DOCUMENT CONSTITUTING PART OF SECTION 10(A) PROSPECTUS
FOR FORM S-8 REGISTRATION STATEMENTS

This document constitutes part of a prospectus covering securities that have
been registered under the Securities Act of 1933.

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TABLE OF CONTENTS

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PART I

ITEM 1. BUSINESS

EXCEPT AS EXPRESSLY INDICATED OR UNLESS THE CONTEXT OTHERWISE REQUIRES, THE
"COMPANY", "CENDANT", "WE", "OUR" OR "US" MEANS CENDANT CORPORATION, A DELAWARE
CORPORATION, AND ITS SUBSIDIARIES.

We are one of the foremost providers of travel and real estate services in the
world. Our businesses provide a wide range of consumer and business services and
are intended to complement one another and create cross-marketing opportunities
both within and among our following five business segments:

- Our Real Estate Services segment franchises the real estate brokerage
businesses of the CENTURY 21-Registered Trademark-, Coldwell
Banker-Registered Trademark-, Coldwell Banker
Commercial-Registered Trademark- and ERA-Registered Trademark- brands;
provides home buyers with mortgages through Cendant Mortgage Corporation
and assists in employee relocations through Cendant Mobility Services
Corporation.

- Our Hospitality segment operates the Days Inn-Registered Trademark-,
Ramada-Registered Trademark- (in the United States), Super 8
Motel-Registered Trademark-, Howard Johnson-Registered Trademark-, Wingate
Inn-Registered Trademark-, Knights Inn-Registered Trademark-,
Travelodge-Registered Trademark- (in North America), Villager
Lodge-Registered Trademark-/Village
Premier-Registered Trademark-/Hearthside by Villager and AmeriHost
Inn-Registered Trademark- lodging franchise systems, facilitates the sale
and exchange of vacation ownership intervals through Resort Condominiums
International, LLC, Fairfield Resorts, Inc. and Equivest Finance, Inc. and
markets vacation rental properties in Europe through Holiday Cottages and
Cuendet.

- Our Vehicle Services segment operates and franchises our
Avis-Registered Trademark- car rental business; provides fleet management
and fuel card services to corporate clients and government agencies
through PHH Arval and Wright Express and operates parking facilities in
the United Kingdom through our National Car Parks subsidiary.

- Our Travel Distribution segment provides global distribution and computer
reservation services to airlines, hotels, car rental companies and other
travel suppliers and provides our travel agent customers the ability to
electronically access airline schedule and fare information, book
reservations, and issue tickets through Galileo International, provides
travel services through our Cendant Travel and Cheap Tickets travel agency
businesses, and provides reservations processing, connectivity and
information management services through WizCom.

- Our Financial Services segment provides enhancement packages to financial
institutions through FISI*Madison LLC, provides insurance-based products
to consumers through Benefit Consultants, Inc. and Long Term Preferred
Care, Inc., provides loyalty solutions to businesses through Cims Ltd.,
operates and franchises tax preparation services through Jackson
Hewitt Inc. and provides a variety of membership programs offering
discounted products and services to consumers through our relationship
with Trilegiant Corporation.

* * *

We seek organic growth augmented by the acquisition and integration of
complementary businesses. As a result, we are currently engaged in a number of
preliminary discussions concerning possible acquisitions and intend to
continually explore and conduct discussions with regard to other acquisitions
and other strategic corporate transactions. The purchase price for any possible
transaction may be paid in cash, stock, other securities, borrowings, or a
combination thereof. Prior to consummating any transaction, we will need to,
among other things, initiate and satisfactorily complete our due diligence
investigations; negotiate the financial and other terms (including price) and
conditions of such transactions; obtain appropriate board of directors,
regulatory and shareholder or other necessary consents and approvals; and, if
necessary, secure financing. No assurance can be given with respect to the
timing, likelihood or business effect of any possible transaction. In the past,
we have been involved in both relatively small and significant acquisitions.

In addition, we continually review and evaluate our portfolio of existing
businesses to determine if they continue to meet our business objectives. As
part of our ongoing evaluation of such businesses, we intend from time to time
to explore and conduct discussions with regard to joint ventures, divestitures
and related

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corporate transactions. However, we can give no assurance with respect to the
magnitude, timing, likelihood or financial or business effect of any possible
transaction. We also cannot predict whether any divestitures or other
transactions will be consummated or, if consummated, will result in a financial
or other benefit to us. We intend to use a portion of the proceeds from any such
dispositions and cash from operations to retire indebtedness, make acquisitions
and for other general corporate purposes.

This 10-K Report includes certain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are based on management's current expectations and are subject to
uncertainty and changes in circumstances. Actual results may differ materially
from these expectations due to changes in global economic, business,
competitive, market and regulatory factors. Please refer to "Management's
Discussion and Analysis of Results of Operations" for additional factors and
assumptions that could cause actual results to differ from the forward-looking
statements contained in this 10-K Report.

We were created through the merger of HFS Incorporated into CUC
International, Inc. in December 1997 with the resultant corporation being
renamed Cendant Corporation. Our principal executive office is located at 9 West
57th Street, New York, New York 10019 (telephone number: (212) 413-1800).

SEGMENTS

REAL ESTATE SERVICES SEGMENT (21%, 31% and 23% of revenue for 2001, 2000 and
1999, respectively)

REAL ESTATE FRANCHISE BUSINESS (7%, 13% and 9% of revenue for 2001, 2000 and
1999, respectively)

We are the world's largest real estate brokerage franchisor. We franchise real
estate brokerage businesses under the following franchise systems:

- CENTURY 21-Registered Trademark-, the world's largest residential real
estate brokerage franchisor, with approximately 6,600 independently owned
and operated franchised offices and approximately 101,000 active sales
agents located in 34 countries and territories;

- ERA-Registered Trademark-, a leading residential real estate brokerage
franchisor, with approximately 2,500 independently owned and operated
franchise offices, and more than 29,000 sales agents located in 27
countries;

- Coldwell Banker-Registered Trademark-, one of the world's leading brands
for the sale of million-dollar-plus homes and the third largest
residential real estate brokerage franchisor, with approximately 3,200
independently owned and operated franchise offices in the United States,
Canada and 15 other countries and approximately 89,000 sales agents; and

- Coldwell Banker Commercial-Registered Trademark-, a leading commercial
real estate brokerage franchisor with approximately 100 independently
owned and operated franchise offices, and approximately 1,000 sales agents
in the United States.

Service and marketing fees on commissions from real estate transactions comprise
the primary component of revenue for our real estate franchise business. We also
offer service providers an opportunity to market their products to our brokers
through our Preferred Alliance(sm) program. To participate in this program,
service providers generally pay us an up-front fee, commissions or both.

Each of our brands has a consumer Web site that offers real estate listing
contacts and services. century21.com, coldwellbanker.com,
coldwellbankercommercial.com and era.com are the official Web sites for the
CENTURY 21, Coldwell Banker, Coldwell Banker Commercial and ERA real estate
franchise systems, respectively. In addition, all of the aggregated listings of
our CENTURY 21, Coldwell Banker and ERA national real estate franchises are
available through the Realtor.com-Registered Trademark- Web site.

GROWTH. We market real estate brokerage franchises primarily to independent,
unaffiliated owners of real estate brokerage companies as well as individuals
who are interested in establishing real estate brokerage businesses. We believe
that our existing franchisee base represents another source of potential growth,
as

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franchisees seek to expand their existing business geographically. Our largest
franchisee, NRT Incorporated, is an active acquirer of independent real estate
brokerage companies. Therefore, our sales strategy focuses on maintaining the
satisfaction of our franchisees by providing services such as training, ongoing
support, volume discounts and increasing brand awareness by providing each brand
with a dedicated marketing staff. Our real estate brokerage franchise systems
employ a national franchise sales force, compensated primarily by commissions on
sales, consisting of approximately 100 sales personnel.

COMPETITION. Competition among the national real estate brokerage brand
franchisors to grow their franchise systems is intense. Our chief competitors in
this industry include the Prudential-Registered Trademark-, GMAC Real Estate(sm)
and RE/MAX-Registered Trademark- real estate brokerage brands. In addition, a
real estate broker may choose to affiliate with a regional chain or choose not
to affiliate with a franchisor but to remain independent. We believe that
competition for the sale of franchises in the real estate brokerage industry is
based principally upon the perceived value and quality of the brand and services
offered to franchisees.

The ability of our real estate brokerage franchisees to compete in the industry
is important to our prospects for growth. The ability of an individual
franchisee to compete may be affected by the location and real estate agent
service quality of its office, the number of competing offices in the vicinity,
its affiliation with a recognized brand name, community reputation and other
factors. A franchisee's success may also be affected by general, regional and
local economic conditions. The potential negative effect of these conditions on
our results of operations is generally reduced by virtue of the diverse
geographical locations of our franchisees, although 2001 did have year-over-year
declines in California. At December 31, 2001, the combined real estate franchise
systems had approximately 8,200 franchised brokerage offices in the United
States and approximately 12,400 offices worldwide. The real estate franchise
systems have offices in 50 countries and territories in North and South America,
Europe, Asia, Africa and Australia.

NRT RELATIONSHIP. NRT Incorporated, the largest real estate brokerage firm in
the United States, is a joint venture between us and Apollo Management, L.P.
Apollo owns 100% of the common stock of NRT and we own all of NRT's preferred
stock which is convertible into an equal equity ownership with Apollo. We have
the option to purchase the NRT common stock held by Apollo for $20 million,
which is conditional upon Apollo receiving a payment of $166 million from NRT.
If NRT is unable to make the payment to Apollo, we would be required to make the
payment on behalf of NRT and would receive additional NRT preferred stock in
exchange. NRT is the largest real estate franchisee in our brokerage system
based on gross commission income and represents approximately 42% of the Real
Estate Franchise Business revenue. NRT's strategy is to grow through the
acquisition of independent real estate brokerages which it then converts to one
of our brands. NRT operates its offices under two 50-year franchise agreements
for our brands that, except for the term and lack of royalty rebate provision,
are similar to those utilized by our other real estate franchisees. These
agreements are recorded as an asset on our balance sheet. During 2001, we
received from NRT approximately $220 million in royalties for the use of our
real estate trademarks. Additionally, during 2001, we received $16 million of
other fees from NRT, which included a fee paid in connection with the
termination of a franchise agreement. During 2001, we also received $37 million
of real estate referral fees from NRT in connection with clients referred to NRT
by our relocation business. These fees are also paid to us by all other real
estate brokerages (both affiliates and non-affiliates) who receive referrals
from our relocation business. At December 31, 2001, NRT had $291 million in
debt, which is non-recourse to us. NRT has informed us, for the twelve months
ended September 30, 2001, its leverage ratio (debt/EBITDA as defined in its
credit agreement) was 2.6 to 1. Certain officers of Cendant serve on the Board
of Directors of NRT.

RELOCATION BUSINESS (5%, 9% and 7% of revenue for 2001, 2000 and 1999,
respectively)

Cendant Mobility(sm) is the leading provider of employee relocation services in
the world and assists more than 128,000 affinity customers, transferring
employees and global assignees annually, including over 23,000 employees
internationally each year in over 125 countries.

We offer corporate and government clients employee relocation services, such as
the evaluation, inspection, selling or purchasing of a transferee's home, the
issuance of equity advances (generally guaranteed by

5

the corporate client), certain home management services, assistance in locating
a new home, immigration support, intercultural and language training and
repatriation counseling. We also provide clients with relocation-related
accounting services. Our services allow clients to outsource their relocation
programs.

Clients pay a fee for the services performed and/or permit Cendant Mobility to
retain referral fees collected from brokers. The majority of our clients pay
interest on equity advances and broker referral fees and reimburse all costs
associated with our services, including, if necessary, repayment of equity
advances and reimbursement of losses on the sale of homes purchased. This limits
our exposure on such items to the credit risk of our corporate clients and not
on the potential changes in value of residential real estate. We believe such
risk is minimal due to the credit quality of our corporate clients. In
transactions where we assume the risk for losses on the sale of homes (primarily
government clients), which comprise less than 3% of net revenue for our
relocation business, we control all facets of the resale process, thereby
limiting our exposure.

Our group move management service provides coordination for moves involving a
large number of employees over a short period of time. Our moving service, with
over 72,000 shipments annually, provides support for all aspects of moving an
employee's household goods. We also handle insurance and claim assistance,
invoice auditing and quality control of van line, driver, and overall service.

Our affinity services provide real estate and relocation services, including
home buying and selling assistance, as well as mortgage assistance and moving
services, to organizations, such as insurance and airline companies that have
established members. Often these organizations offer our affinity services to
their members at no cost. This service helps the organizations attract new
members and retain current members. Personal assistance is provided to over
50,000 individuals, with approximately 26,000 real estate transactions annually.

GROWTH. Our strategy is to grow by generating business from corporations and
government agencies seeking to outsource their relocation function due to
downsizing, cost containment initiatives and increased need for expense
tracking. Our growth strategy has been driven by domestic and international
acquisitions and market expansion, and we continually explore acquisitions and
other strategic corporate transactions that would complement our relocation
business.

COMPETITION. Competition is based on service, quality and price. We are a
leader in the United States, United Kingdom, and Australia/Southeast Asia for
outsourced relocations. In the United States, we compete with in-house
relocation solutions and with numerous providers of outsourced relocation
services, the largest of which are GMAC Relocation Services and Prudential
Relocation Management. Internationally, we compete with in-house solutions,
local relocation providers and the international accounting firms.

MORTGAGE BUSINESS (9%, 9% and 7% of revenue for 2001, 2000 and 1999,
respectively)

We originate, sell and service residential first mortgage loans in the United
States. For 2001, Cendant Mortgage(sm) was the second largest lender of retail
originated residential mortgages, and the sixth largest retail lender of
residential mortgages in the United States. Cendant Mortgage is a centralized
mortgage lender conducting its business in all 50 states.

We market our mortgage products to consumers through:

- an 800-number teleservices operation under programs for real estate
organizations (Phone In, Move In-Registered Trademark-) and relocation
clients and private label programs for financial institutions;

- a Web interface, containing educational materials, rate quotes and a full
mortgage application, made available to the customers of our businesses
such as Century 21, Coldwell Banker, ERA, Cendant Mobility, and our
financial institution private label relationships, including American
Express Centurion Bank, GE Financial Network and Merrill Lynch Credit
Corporation;

- field sales professionals with processing, underwriting and other
origination activities generally located in real estate offices around the
U.S. equipped with software to obtain product information, quote interest
rates and to help customers prepare mortgage applications; and

- purchasing closed loans from financial institutions and mortgage banks
after underwriting the loans.

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Cendant Mortgage customarily sells all mortgages it originates to investors
(which include a variety of institutional investors) either as individual loans,
mortgage-backed securities or participation certificates issued or guaranteed by
Fannie Mae Corp., the Federal Home Loan Mortgage Corporation or the Government
National Mortgage Association. Cendant Mortgage earns revenue from the sale of
the mortgage loans to investors, as well as on the servicing of the loans for
investors. Mortgage servicing consists of collecting loan payments, remitting
principal and interest payments to investors, holding escrow funds for payment
of mortgage related expenses such as taxes and insurance, and administering our
mortgage loan servicing portfolio.

GROWTH. Our strategy is to increase sales by expanding all of our sources of
business with emphasis on purchase mortgage volume through our teleservices and
Internet programs. The Phone In, Move In program was developed in 1997 and has
been established in over 5,600 real estate offices.

We will also expand our volume of mortgage originations resulting from corporate
employee relocations by working with financial institutions which desire to
outsource their mortgage origination operations through increased linkage with
Cendant Mobility. Each of these growth opportunities is driven by our low cost
teleservices platform. The competitive advantage of using a centralized,
efficient and high quality teleservices platform allows us to more cost
effectively capture a greater percentage of the highly fragmented mortgage
marketplace.

COMPETITION. Competition is based on service, quality, products and price.
Cendant Mortgage has increased its share of retail mortgage originations in the
United States to 4.4% in 2001 from 2.1% in 2000. According to INSIDE MORTGAGE
FINANCE, the industry leader for 2001 reported a 12.4% share in the United
States. Competitive conditions can also be impacted by shifts in consumer
preference for variable rate mortgages from fixed rate mortgages, depending upon
the current interest rate market.

REAL ESTATE SERVICES SEASONALITY

The principal sources of revenue for our real estate franchise and mortgage
businesses are based upon the timing of residential real estate sales, which are
generally lower in the first calendar quarter each year. The principal sources
of revenue for our relocation business are based upon the timing of transferee
moves, which are generally lower in the first and last quarter of each year.

REAL ESTATE SERVICES TRADEMARKS AND INTELLECTUAL PROPERTY

The trademarks "CENTURY 21-Registered Trademark-", "Coldwell
Banker-Registered Trademark-", "Coldwell Banker
Commercial-Registered Trademark-", "ERA-Registered Trademark-", "Cendant
Mobility-Registered Trademark-", and "Cendant Mortgage" and related trademarks
and logos are material to our real estate franchise, relocation and mortgage
businesses, respectively. Our franchisees and subsidiaries in our real estate
services business actively use these marks and all of the material marks are
registered (or have applications pending for registration) with the United
States Patent and Trademark Office as well as major countries worldwide where
these businesses have significant operations and are owned by us.

REAL ESTATE SERVICES EMPLOYEES

The businesses that make up our Real Estate Services segment employed
approximately 8,893 persons as of December 31, 2001.

HOSPITALITY SEGMENT (17%, 20% and 15% of revenue for 2001, 2000 and 1999,
respectively)

LODGING FRANCHISE BUSINESS (5%, 11% and 8% of revenue for 2001, 2000 and 1999,
respectively)

We are the world's largest hotel franchisor, operating nine lodging franchise
systems.

The lodging industry can be divided into four broad sectors based on price and
services: upper upscale, with room rates above $110 per night; upscale, with
room rates between $80 and $110 per night; middle market, with room rates
generally between $55 and $79 per night; and economy, with room rates generally
less than $55 per night. The following is a summary description of our lodging
franchise systems properties that are open and operating as of December 31,
2001.

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- ------------------------------
* Description of rights owned or licensed.
(1) Includes properties in Canada, China, Colombia, Czech Republic, Egypt,
England, Hungary, India, Jordan, Mexico, Philippines, South Africa,
Scotland and Uruguay.
(2) Includes properties in Argentina, Canada, China, Dominican Republic,
Ecuador, England, Israel, Jordan, Lebanon, Malta, Mexico, Oman, Venezuela
and United Arab Emirates.
(3) Includes properties in Canada.
(4) Limited to the Continental U.S., Alaska and Hawaii.
(5) Includes properties in Canada and Mexico.

Our Lodging Franchise business derives substantially all of its revenue from
initial franchise fees and continuing franchise fees, which are comprised of
royalty and marketing/reservation fees and are normally charged as a percentage
of the franchisee's gross room revenue. The royalty fee is intended to cover our
operating expenses and the cost of the trademark, such as expenses incurred for
franchise services, including group purchasing, administrative support and
design and construction advice, and to provide the franchisor with operating
profits. The marketing/reservation fee is intended to reimburse the franchisor
for expenses associated with providing such franchise services as a central
reservation system, national advertising and marketing programs and certain
training programs.

Our lodging franchisees are dispersed geographically, which minimizes our
exposure to any one hotel owner or geographic region. Of the more than 6,600
properties and 4,900 franchisees in our lodging systems, no individual hotel
owner accounts for more than 2% of our franchised lodging properties.

On March 1, 2002, we entered into a venture with Marriott International, Inc.
where we contributed our Days Inn trademarks and an amended license agreement
relating to the Days Inn trademarks and Marriott contributed the domestic Ramada
trademarks and the master license agreement relating to Cendant's license of the
Ramada trademarks. As a result of the transaction, we have a 50.0001% interest
in the venture and Marriott has a 49.9999% interest in the venture. Pursuant to
the terms of the venture, we will share income from the venture with Marriott on
a substantially equal basis. We currently expect the venture to redeem
Marriott's interest for approximately $200 million, the projected fair market
value, in March 2004. We expect to loan the venture approximately $200 million
in March 2004 to meet its obligations to Marriott. Upon such redemption, we will
own 100% of the venture. Under the terms of the venture agreement, we control
the venture and therefore we will consolidate the venture into our results of
operations, financial position and cash flows beginning on March 1, 2002. The
venture has no third party liabilities.

GROWTH. The sale of long-term franchise agreements to operators of existing and
newly constructed hotels is the leading source of revenue and earnings growth in
our lodging franchise business. We also continue to seek opportunities to
acquire or license additional hotel franchise systems, including established
brands in the upper upscale and upscale sectors, where we are not currently
represented.

8

We market franchises principally to independent hotel and motel owners, as well
as to owners who have the right to terminate franchise affiliations of their
properties with other hotel brands. We believe that our existing franchisees
also represent a significant potential growth opportunity because many own, or
may own in the future, other hotels, which can be converted to our brand names.
Accordingly, a significant factor in our sales strategy is maintaining the
satisfaction of our existing franchisees by providing quality services. We
employ a national franchise sales force, compensated primarily through
commissions, consisting of approximately 90 sales personnel.

We seek to expand our franchise systems on an international basis through
license agreements with developers and franchisors based outside the United
States. As of December 31, 2001, our franchising subsidiaries (other than Ramada
and AmeriHost) have entered into international licensing agreements for part or
all of approximately 24 countries on five continents.

In 2001, we repurchased master licenses for the Howard Johnson and Days Inn
brands covering the United Kingdom. We assumed the obligations to existing
franchisees and commenced a direct franchising program for these brands in the
United Kingdom and Ireland similar to our direct franchise program in the United
States. We established an office in London and a reservation center in Cork,
Ireland to support this activity.

CENTRAL RESERVATION SYSTEMS. The lodging business is characterized by remote
purchasing through travel agencies and through the use by consumers of toll-free
telephone numbers and the Internet. We maintain five reservation centers that
are located in: Knoxville and Elizabethton, Tennessee; Aberdeen, South Dakota;
Saint John, New Brunswick, Canada; and Cork, Ireland. In 2001, our brand Web
sites had approximately 222 million page views and booked an aggregate of
approximately 2.0 million roomnights from Internet booking sources, compared
with approximately 134 million page views and 1.3 million roomnights booked in
2000, increases of 66% and 54%, respectively.

COMPETITION. Competition among the national lodging brand franchisors to grow
and maintain their franchise systems is intense. Our primary national lodging
brand competitors are the Holiday Inn-Registered Trademark- and Best
Western-Registered Trademark- brands and Choice Hotels, which franchises seven
brands, including the Comfort Inn-Registered Trademark-, Quality
Inn-Registered Trademark- and Econo Lodge-Registered Trademark- brands. Our Days
Inn, Travelodge and Super 8 brands principally compete with Comfort Inn, Red
Roof Inn-Registered Trademark- and Econo Lodge in the economy sector. The chief
competitors of our Ramada, Howard Johnson, Wingate Inn and AmeriHost Inn brands
are Holiday Inn-Registered Trademark- and Hampton Inn-Registered Trademark- in
the middle market sector. Our Knights Inn and Travelodge brands compete with
Motel 6-Registered Trademark- properties. In addition, a lodging facility owner
may choose not to affiliate with a franchisor but to remain independent.

We believe that competition for the sale of franchises in the lodging industry
is based principally upon the perceived value and quality of the brand and
services offered to franchisees. We believe that prospective franchisees value a
franchise based upon their view of the relationship between affiliation and
conversion costs and future charges to the potential for increased revenue and
profitability and the reputation of the franchisor. We also believe that the
perceived value of brand names to prospective franchisees is, to some extent, a
function of the success of the brand's existing franchisees.

The ability of an individual franchisee to compete may be affected by the
location and quality of its property, the number of competing properties in the
vicinity, its affiliation with a recognized brand name, community reputation and
other factors. A franchisee's success may also be affected by general, regional
and local economic conditions. The potential negative effect of these conditions
on our results of operations is substantially reduced by virtue of the diverse
geographical locations of our franchised properties.

TIMESHARE EXCHANGE BUSINESS (6%, 9% and 7% of revenue for 2001, 2000 and 1999,
respectively)

Our Resort Condominiums International LLC ("RCI") subsidiary is the world's
largest provider of timeshare vacation exchange opportunities and services for
approximately 2.9 million timeshare members from more than 3,700 resorts in
nearly 100 countries around the world. Our RCI-Registered Trademark- business
consists primarily of the operation of two exchange programs for owners of
condominium timeshares or whole

9

units at affiliated resorts both in and outside the U.S., the publication of
magazines and other periodicals related to the vacation and timeshare industry,
travel-related services, resort management, and consulting services. RCI has
significant operations in North America, Europe, the Middle East, Latin America,
Africa, Australia and the Pacific Rim. RCI charges its members an annual
membership fee and an exchange fee for each exchange resulting in fees totaling
approximately $390 million during 2001.

GROWTH. The timeshare exchange industry has experienced significant growth over
the past decade. We believe that the factors driving this growth include the
demographic trend toward older, more affluent Americans who travel more
frequently; the entrance of major hospitality and entertainment companies into
timeshare development; a worldwide acceptance of the timeshare concept; and an
increasing focus on leisure activities, family travel and a desire for value,
variety and flexibility in a vacation experience. We believe that future growth
of the timeshare exchange industry will be determined by general economic
conditions both in the United States and worldwide, the public image of the
industry, improved approaches to marketing and sales and a greater variety of
products and price points. Accordingly, we cannot predict if future growth
trends will continue at rates comparable to those of the recent past. Most RCI
members are acquired through developers; only a small percentage of members are
acquired through our direct solicitation activities. As a result, the growth of
the timeshare exchange business is dependent on the sale of timeshare units by
affiliated resorts. RCI affiliates consist of international brand names and
independent developers, owners' associations and vacation clubs.

COMPETITION. The global timeshare exchange industry is comprised of a number of
entities, including resort developers and owners. RCI's competitors include
Interval International Inc., formerly our wholly owned subsidiary, as well as
vacation club products and internal exchange programs offered by the Walt Disney
Co., Marriott, Starwood, Hilton and Hyatt. RCI also competes with regional and
local time share exchange companies and developers.

TIMESHARE SALES AND MARKETING BUSINESS (6% of revenue for 2001)

We acquired Fairfield Resorts, Inc. (formerly known as Fairfield
Communities, Inc.) in April 2001. Fairfield Resorts is one of the largest
vacation ownership companies in the United States in terms of property owners,
vacation units constructed and revenue from sales of vacation ownership
interests. Fairfield sells and markets vacation products that provide quality
recreational experiences to its more than 365,000 property owners. As of
December 31, 2001, our portfolio of resorts consisted of 35 resorts located in
12 states. Of those resorts which are in various stages of development, 25 are
located in destination areas with popular vacation attractions and 10 are
located in scenic locations. We also provide consumer financing to individuals
purchasing vacation ownership interests.

We derive revenue from the sale of vacation ownership interests and from the
interest income earned on notes receivable and contracts receivable generated by
providing financing to purchasers of those vacation ownership interests.

On February 11, 2002, we acquired Equivest Finance, Inc. Equivest is a timeshare
vacation services company that develops, markets and sells vacation services and
vacation ownership interests to consumers at 29 resorts and will be integrated
into Fairfield Resorts.

On April 1, 2002, we announced that we entered into definitive agreements to
acquire all of the outstanding common stock of Trendwest Resorts, Inc. through a
tax-free exchange of our CD common stock. Trendwest, through its WorldMark Club,
markets, sells, and finances vacation ownership interests and will provide
significant geographic diversification to our company, as our existing timeshare
operations, Fairfield Resorts and Equivest, are principally located in the
eastern United States. Trendwest's 48 properties are located primarily in the
western United States, British Columbia, Mexico, Hawaii and the South Pacific.
The transaction is subject to the satisfaction of customary regulatory and
closing conditions. For terms of the transaction, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

GROWTH. The growth strategy for our timeshare sales and marketing business is
driven primarily by acquisitions and further development. We also continually
explore strategic corporate alliances and other

10

transactions that would complement our timeshare sales and marketing business.
We also plan to continue to further develop our existing destination resorts as
well as develop additional resort locations.

COMPETITION. The timeshare sales and marketing industry is highly competitive
and is comprised of a number of companies specializing primarily in timeshare
development, sales and marketing. In addition, a number of national hospitality
chains develop and sell vacation ownership interests to consumers. Our primary
competitors are Disney, Marriott, Starwood, Hilton and Hyatt.

RELATIONSHIP WITH FFD DEVELOPMENT COMPANY, LLC. Prior to our acquisition of
Fairfield Resorts, Fairfield's internal development function and much of its
inventory were contributed to a new, separate company, FFD Development Company,
LLC ("FFD"). Fairfield received convertible preferred interests in FFD that may
be converted into FFD's common equity interest and a warrant to purchase
additional common equity interests in exchange for approximately $60 million of
vacation ownership units and $4 million of cash. The warrant is not exercisable
until April 2004, except upon the occurence of specified events, including
Fairfield's conversion of more than half of its preferred equity interest into
common equity interests. If Fairfield exercises its preferred interests and
warrant, Fairfield will own approximately 75% of FFD, on a fully diluted basis.
During 2001, we received $6 million in preferred equity as a dividend on our
preferred equity interest in FFD. FFD's common equity is held by an independent
trust. FFD is our primary acquirer and developer of timeshare inventory.
Fairfield Resorts utilizes FFD to develop new resorts or expand existing units
as required by Fairfield or Equivest. We are only obligated to purchase the
resort upon completion to the contractual specifications, upon delivery of a
certificate of occupancy and when clear title is obtained. As of December 31,
2001, subject to FFD's completion of the construction of timeshare inventory in
accordance with the contractual specifications and delivery of a certificate of
occupancy with clear title, we would be obligated to purchase approximately
$98 million of timeshare inventory from FFD. Certain officers of Cendant serve
on the Board of Directors of FFD.

FFD has its own $125 million syndicated bank facility which is non-recourse to
us. At December 31, 2001, $4 million was outstanding under the facility. We
anticipate that FFD will increase its borrowings in 2002. Subsequent to
December 31, 2001, as is customary in "build to suit" agreements, when we
contract with FFD for the development of a property, we will issue a letter of
credit for up to 20% of our purchase price for such property. Drawing under all
letters of credit will only be permitted if we fail to meet our payment
obligations with respect to any such property. While we intend to issue such
letters of credit in 2002, no such letters of credit are currently outstanding.

VACATION HOME RENTAL BUSINESS

In January, 2001, we acquired Holiday Cottages Group Ltd. ("Holiday Cottages"),
a leading marketer of vacation rental homes in Europe, promoted under eight
brands. Holiday Cottages has relationships with over 9,000 independent property
owners in the United Kingdom, France and Ireland. These property owners contract
annually with Holiday Cottages on an exclusive basis to market their rental
properties. In 2001, Holiday Cottages sold approximately 175,000 rental weeks on
behalf of vacation property owners. Holiday Cottages also markets boat rentals
in the UK, the Netherlands and France.

In September, 2001, we acquired Cuendet Cie SpA, a leading Italian brand
specializing in the marketing and renting of over 3,500 private vacation homes
in Italy, France, Spain and Portugal. Our acquisition of Cuendet increased our
vacation home rental portfolio to approximately 15,000 properties. Cuendet
markets its properties through tour operators and travel agents in Italy,
France, Germany and North America.

Our strategy is to provide sophisticated brand marketing and reservations for
the benefit of owners of vacation home accommodations. We intend to increase our
contract property portfolio and to make all contract inventory in our portfolio
available to the global marketplace. Marketing strategies include establishing
an optimal balance between direct partner and travel agent marketing.

HOSPITALITY TRADEMARKS AND INTELLECTUAL PROPERTY

The service marks "Days Inn," "Ramada," "Howard Johnson," "Super 8,"
"Travelodge," "Wingate Inn," "Villager," "Knights Inn," "AmeriHost Inn", "RCI",
"Resort Condominiums International", "Fairfield"

11

and related trademarks and logos are material to our hospitality businesses. The
subsidiaries that operate our timeshare businesses and our franchisees actively
use the marks which are registered (or have applications pending) with the
United States Patent and Trademark Office as well as major countries worldwide
where our hospitality business has significant operations. We own all the marks
listed above other than the "Ramada" and "Days Inn" marks. In connection with
the creation of a venture with Marriott International in March 2002, in which we
own a 50.0001% interest, we contributed to the venture our "Days Inn" marks and
Marriott contributed its domestic "Ramada" marks. We now license the "Ramada"
and "Days Inn" marks from the venture. Prior to March 2002, we licensed the
"Ramada" marks from Marriott. We are limited to using the Ramada marks in the
Continental U.S., Alaska and Hawaii market. During 2001, we received
approximately $44 million in royalties from Ramada franchisees and paid
$24 million in licensing fees to Marriott. We own the Travelodge mark only in
North America.

HOSPITALITY SEASONALITY

Our lodging franchise business generates higher revenue during the summer months
because of increased leisure travel. Therefore, any occurrence that disrupts
travel patterns during the summer period could have a material adverse effect on
our lodging franchisee's annual performance and consequently our annual
performance. A principal source of timeshare exchange revenue relates to
exchange services to members. Since members have historically shown a tendency
to plan their vacations in the first quarter of the year, revenues are generally
slightly higher in the first quarter. In timeshare sales, we rely upon tour flow
in order to generate timeshare sales, consequently, sales volume tends to
increase in the summer months as increased tourist travel results in additional
increased tour flow. We cannot predict whether these trends will continue in the
future as the timeshare sales business expands outside of the United States and
Europe, and as global travel patterns shift with the aging of the world
population.

HOSPITALITY EMPLOYEES

The businesses that make up our Hospitality segment employed approximately
13,724 persons as of December 31, 2001.

VEHICLE SERVICES SEGMENT (41%, 12% and 24% of revenue for 2001, 2000 and 1999,
respectively)

With the acquisition of Avis Group Holdings, Inc. on March 1, 2001, the Vehicle
Services Segment now consists of the car rental operations and fleet management
services business of Avis Group in addition to the Avis franchise system and our
parking facility business.

CAR RENTAL OPERATIONS AND FRANCHISE BUSINESSES (23%, 5%, 4% of revenue for 2001,
2000 and 1999, respectively)

We operate and/or franchise portions of the Avis-Registered Trademark- car
rental system (the "Avis System"), which represents the second largest general
use car rental brand in the world, based on total revenue and volume of rental
transactions. The Avis System is comprised of approximately 4,800 rental
locations (of which 1,713 are operated and/or franchised by us), including
locations at some of the largest airports and cities in the United States and
foreign countries. We operate 867 Avis car rental locations in both airport and
non-airport (downtown and suburban) locations in the United States, Canada,
Puerto Rico, the U.S. Virgin Islands, Argentina, Australia and New Zealand. For
the period March 1, 2001, the date we acquired Avis, through December 31, 2001,
our Avis car rental operations had an average fleet of approximately 216,000
vehicles and generated total vehicle rental revenue of approximately
$2.04 billion, of which approximately 90% was derived from U.S. operations.

We also franchise the Avis System to individual business owners in approximately
846 locations including locations in the United States, Latin America, Central
America, South America and the Pacific region. Approximately 99.7% of the Avis
System rental revenues in the United States are received from locations operated
by us either directly or under agency arrangements, with the remainder being
received from locations operated by independent franchisees. Independent
franchisees pay fees based either on total time and mileage charges or total
revenue. The Avis System in Europe, Africa, part of Asia and the Middle East is
operated under franchise by Avis Europe Ltd., an unaffiliated third party.

12

The Avis System provides franchisees and our corporate locations access to the
benefits of a variety of services, including: (i) the "Avis
Cares-Registered Trademark-" driver and travel safety program, (ii) a
standardized system identity for rental location presentation and uniforms;
(iii) a training program, business policies, quality of service standards and
data designed to monitor service commitment levels; (iv) marketing/advertising/
public relations support for national consumer promotions including Frequent
Flyer/Frequent Stay programs and the avis.com site; and (v) brand awareness of
the Avis System through the familiar "We Try Harder-Registered Trademark-"
service announcements.

Avis System franchisees have access to the Wizard-Registered Trademark- System,
which provides (i) global reservations processing, (ii) rental agreement
generation and administration and (iii) fleet accounting and control.
Franchisees pay a fee for each use of the Wizard System. We also offer Avis
InterActive-Registered Trademark-, which provides corporate customers real-time
access to aggregated information on car rental expenses to better manage their
car rental expenditures.

GROWTH. The existing rental patterns of our business cause us to have excess
capacity from Friday through Sunday. We intend to increase business during this
period through a combination of advertising, targeted marketing programs to
associations and customers of other Cendant brands and increased presence in the
online arena. Our own Internet site, avis.com, as well as other Internet travel
sites, including our cheaptickets. com Web site, present good opportunities to
grow our business and improve our profitability through enhanced utilization of
our fleet. We also intend to continue to grow our share of the corporate market
through normal contract negotiations and by seeking clients that may be affected
by fleet constraints of certain of our competitors.

FLEET MANAGEMENT. With respect to the car rental operations owned and operated
by us, we participate in a variety of vehicle purchase programs with major
domestic and foreign manufacturers, principally General Motors Corporation.
Under the terms of our agreement with GM, which expires in 2004, we are required
to purchase a certain number of vehicles from GM and maintain at least 51% GM
vehicles in our U.S. fleet. Our current operating strategy is to maintain an
average fleet age of approximately six months. For model year 2001,
approximately 99% of our domestic fleet vehicles were subject to repurchase
programs. Under these programs, subject to certain conditions, such as mileage
and vehicle condition, a manufacturer is required to repurchase those vehicles
at a pre-negotiated price thereby eliminating our risk on the resale of the
vehicles. In 2001, approximately 3% of repurchase program vehicles did not meet
the conditions for repurchase.

MARKETING. In 2001, approximately 75% of vehicle rental transactions generated
from our owned and operated car rental locations were generated in the United
States by travelers who used the Avis System under contracts between the Company
and their employers or organizations of which they were members. Unaffiliated
business travelers are solicited by direct mail, telesales and advertising
campaigns.

Travel agents can make Avis System reservations by telephone, via our Web site,
or through all major global distribution systems and can obtain access through
these systems to our rental location, vehicle availability and applicable rate
structures. An automated link between these systems and the Wizard System gives
them the ability to reserve and confirm rentals directly through these systems.
We also maintain strong links to the travel industry. We have arrangements with
frequent traveler programs of airlines such as Delta-Registered Trademark-,
American-Registered Trademark-, Continental-Registered Trademark- and
United-Registered Trademark-, and of hotels including the Hilton Corporation,
Hyatt Corporation, Best Western, and Starwood Hotels and Resorts. These
arrangements provide various incentives to all program participants and
cooperative marketing opportunities for Avis and the partner. We also have an
arrangement with our lodging brands whereby lodging customers who are making
reservations by telephone will be transferred to Avis if they desire to rent a
vehicle.

Internationally, we utilize a multi-faceted approach to sales and marketing
throughout our global network by employing teams of trained and qualified
account executives to negotiate contracts with major corporate accounts and
leisure and travel industry partners. In addition, we utilize centralized
telemarketing and direct mail initiatives to continuously broaden our customer
base. Sales efforts are designed to secure customer commitment and support
customer requirements for both domestic and international car rental needs. Our
international operations maintain close relationships with the travel industry
including

13

participation in several airline frequent flyer programs, such as those operated
by Air Canada-Registered Trademark-, Varig-Registered Trademark- Brazilian
Airlines, as well as participation in Avis Europe programs with British
Airways-Registered Trademark-, Lufthansa-Registered Trademark- and other
carriers.

AVIS.COM. Avis has a strong brand presence on the Internet through our Web
site, www.avis.com. A steadily increasing number of Avis vehicle rental
customers obtain rate, location and fleet information and then reserve their
Avis rentals directly on the avis.com Web site. In addition, customers electing
to use other Internet services such as Expedia-Registered Trademark-,
Travelocity-Registered Trademark- and America Online-Registered Trademark- for
their travel plans also have access to Avis reservations. During 2001,
reservations through Internet sources increased to 9.5% of total reservations
from 7.4% in the prior year for our owned operations.

COMPETITION. The vehicle rental industry is characterized by intense price and
service competition. In any given location, we and our franchisees may encounter
competition from national, regional and local companies, many of which,
particularly those owned by the major automobile manufacturers, have greater
resources than the Avis System. Nationally, our principal competitor is The
Hertz Corporation, however, we also compete with Budget Rent A Car Corporation,
National Car Rental System, Inc., Alamo Rent-A-Car, LLC, Dollar Rent A Car
System, Inc. and Thrifty Rent-A-Car System, Inc. In addition, we compete with a
large number of regional and local smaller vehicle rental companies throughout
the country.

Competition in the U.S. vehicle rental operations business is based primarily
upon price, reliability, ease of rental and return and other elements of
customer service. In addition, competition is influenced strongly by advertising
and marketing. In part, because of the Wizard System and Avis Interactive, we
have been particularly successful in competing for commercial accounts.

FLEET MANAGEMENT SERVICES BUSINESS (14% and 15% of revenue for 2001 and 1999,
respectively)

PHH Vehicle Management Services LLC (d/b/a PHH Arval), a leader in the fleet
management services business, and Wright Express LLC, a leading proprietary fuel
card service provider in the United States comprise our fleet management
services business.

We provide corporate clients and government agencies the following services and
products for which we are generally paid a monthly fee:

- FLEET LEASING AND FLEET MANAGEMENT. Services include vehicle leasing,
fleet policy analysis and recommendations, benchmarking, vehicle
recommendations, ordering and purchasing vehicles, arranging for vehicle
delivery, administration of the title and registration process, as well as
tax and insurance requirements, pursuing warranty claims and remarketing
used vehicles. We also offer various leasing plans, financed primarily
through the issuance of floating rate notes and borrowings through an
asset backed structure. In 2001, we leased in excess of 315,000 units. The
majority of the residual risk on the value of the vehicle at the end of
the lease term remains with the lessee for approximately 97% of the
vehicles financed by us in North America.

- FUEL AND EXPENSE MANAGEMENT. For the effective management and control of
automotive business travel expenses, we provide charge cards permitting a
client's representatives to purchase gasoline or other fleet related
products through a network of company-owned, distributor and independent
merchant locations. The cards operate as a universal card with centralized
billing designed to measure and manage costs. In the United States, Wright
Express is the leading fleet charge card supplier with over 160,000 fuel
facilities in its network and in excess of 3.1 million cards issued.
Wright Express distributes its fleet cards and related offerings through
three primary channels: (i) the Wright
Express-Registered Trademark--branded universal card, which is issued
directly to fleets by Wright Express; (ii) the private label card, under
which Wright Express provides private label fuel cards and related
services to commercial fleet customers of major petroleum companies; and
(iii) the co-branded card, under which Wright Express fuel cards are
co-branded and issued in conjunction with products and services of
partners such as commercial vehicle leasing companies, including PHH
Arval. Wright Express also issues MasterCard branded fleet, purchasing and
travel and entertainment commercial charge cards.

14

- MAINTENANCE SERVICES. We offer customers vehicle maintenance charge cards
that are used to facilitate repairs and maintenance payments. The vehicle
maintenance cards provide customers with benefits such as (i) negotiated
discounts off full retail prices through our convenient supplier network,
(ii) access to our in-house team of certified maintenance experts that
monitor card transactions for policy compliance, reasonability, and cost
effectiveness, and (iii) inclusion of vehicle maintenance card
transactions in a consolidated information and billing database that helps
evaluate overall fleet performance and costs. We maintain an extensive
network of service providers in the United States and Canada to ensure
ease of use by the client's drivers.

- ACCIDENT MANAGEMENT SERVICES. We also provide our clients with
comprehensive accident management services such as (i) immediate
assistance after receiving the initial accident report from the driver
(e.g., facilitating emergency towing services and car rental assistance),
(ii) organizing the entire vehicle appraisal and repair process through a
network of preferred repair and body shops, and (iii) coordinating and
negotiating potential accident claims. Customers receive significant
benefits from our accident management services such as (a) convenient
coordinated 24-hour assistance from our call center, (b) access to our
advantageous relationships with the repair and body shops included in our
preferred supplier network, which typically provides customers with
extremely favorable repair terms and (c) expertise of our damage
specialists, who ensure that vehicle appraisals and repairs are
appropriate, cost-efficient, and in accordance with each customer's
specific repair policy. On February 6, 2002, we acquired driversshield.com
FS Corp. to compliment our accident management business.

GROWTH. We intend to focus our efforts for growth on the large fleet segment
and middle market fleets as well as fee based services to new and existing
clients. We also intend to increase cross marketing the products offered by
Wright Express and PHH Arval to our customers.

COMPETITION. The principal factors for competition in vehicle management
services are service, quality and price. We are competitively positioned as a
fully integrated provider of fleet management services with a broad range of
product offerings. Among providers of outsourced fleet management services, we
rank second in North America in the number of leased vehicles under management
and first in the number of proprietary fuel and maintenance cards for fleet use
in circulation. There are four other major providers of outsourced fleet
management services in the United States, GE Capital Fleet Services, Wheels Inc.
Automotive Resources International (ARI), and CitiCapital, hundreds of local and
regional competitors, and numerous niche competitors who focus on only one or
two products and do not offer the fully integrated range of products provided by
us. In the United States, it is estimated that only 50% of fleets are leased by
third-party providers. The unpenetrated demand and the continued focus by
corporations on cost efficiency and outsourcing will provide the growth platform
in the future.

PARKING FACILITY BUSINESS (4%, 7% and 5% of revenue for 2001, 2000 and 1999,
respectively)

Our National Car Parks subsidiary is the largest private parking operator in the
United Kingdom. NCP operates off-street commercial parking facilities and
manages on-street parking and related operations on behalf of town and city
administrations. NCP has over 60 years' experience of owning and/or managing a
portfolio of approximately 535 car parks, located in major cities, towns and
airports in the U.K.

NCP provides a high-quality, professional service, developing a total solution
for its customers and for organizations such as town and city administrations
that wish to develop modern and professionally managed parking and traffic
management operations.

15

NCP is a leader in airport parking facilities at United Kingdom airports, with
over 41,000 car parking spaces in facilities close to passenger terminals at ten
airports across the United Kingdom. Booking facilities are available through
NCP's telesales service for convenient car parking reservation at these
airports.

GROWTH. NCP is utilizing its recognized expertise in parking as a platform for
delivering a wider range of services to local authorities and commercial
property developers. Through this platform, NCP seeks to grow and diversify its
income streams through affiliations with local authorities and the private
sector in car parks, on-street parking enforcement and other broader parking and
traffic management-related services.

COMPETITION. NCP's main competition is from non-commercial, local government
authorities who manage parking operations in their respective cities and towns.

VEHICLE SERVICES TRADEMARKS AND INTELLECTUAL PROPERTY

The service mark "Avis," related marks incorporating the word "Avis", and
related logos are material to our car rental business. Our subsidiaries and
franchisees, actively use these marks. All of the material marks used in the
Avis business are registered (or have applications pending for registration)
with the United States Patent and Trademark Office as well as major countries
worldwide where Avis franchises are in operation. We own the marks used in the
Avis business. The service marks "Wright Express," "WEX," "PHH" and related
trademarks and logos are material to our fleet services business. Wright
Express, PHH Arval and their licensees actively use these marks. All of the
material marks used by Wright Express and PHH Arval are registered (or have
applications pending for registration) with the United States Patent and
Trademark Office. All of the material marks used by PHH Arval are also
registered in major countries throughout the world where the fleet management
services are offered by Arval PHH. We own the marks used in Wright Express' and
PHH Arval's business.

The service mark NCP-Registered Trademark- and related logos are owned by us and
registered (or have applications pending for registration) with the UK Trademark
Office and throughout the European Community.

VEHICLE SERVICES SEASONALITY

For our Avis vehicle rental business, the third quarter of the year, which
covers the summer vacation period, represents the peak season for vehicle
rentals. Any occurrence that disrupts travel patterns during the summer period
could have a material adverse effect on Avis' annual performance. The fourth
quarter is generally the weakest financial quarter for the Avis System. In 2001,
our average monthly rental fleet, excluding franchisees, ranged from a low of
184,000 vehicles in November to a high of 244,000 vehicles in August. Rental
utilization, which is based on the number of hours vehicles are rented compared
to the total number of hours vehicles are available for rental, ranged from
66.7% in December to 82.6% in August and averaged 74.4% for all of 2001.

The fleet management services businesses are generally not seasonal.

NCP's business has a distinct seasonal trend with revenue from parking in city
and town centers being closely associated with levels of retail business.
Therefore, peaks in revenue are experienced particularly around the Christmas
period. In respect of the airport parking side of the business, seasonal peaks
are experienced in line with summer vacations.

VEHICLE SERVICES EMPLOYEES

The businesses that make up our Vehicle Services segment employed approximately
21,109 persons as of December 31, 2001.

TRAVEL DISTRIBUTION SEGMENT (5%, 2% and 1% of revenue for 2001, 2000 and 1999,
respectively)

With the acquisitions of Galileo International, Inc. and Cheap Tickets, Inc. in
October 2001, we added a new Travel Distribution segment which is comprised of
(i) our global distribution services business through

16

Galileo International, (ii) our travel agency business, including Cheap Tickets,
and (iii) our reservations processing, connectivity and information management
services business through Wizcom.

GLOBAL DISTRIBUTION SERVICES BUSINESS (4% of revenue for 2001)

We provide, through Galileo, electronic global distribution and computer
reservation services ("GDS") for the travel industry utilizing a computerized
reservation system. Through our Apollo-Registered Trademark- and
Galileo-Registered Trademark- computerized reservation systems, our GDS
subsidiary provides travel agencies and other subscribers at approximately
45,000 locations, numerous Internet travel sites, as well as corporations and
consumers who use our self-booking products, with the ability to access schedule
and fare information, book reservations and issue tickets for more than 500
airlines. Our GDS subsidiary also provides subscribers with information and
booking capabilities covering approximately 30 car rental companies and more
than 200 hotel companies with approximately 52,000 properties throughout the
world. Since our acquisition of Galileo, our GDS subsidiary completed
approximately 60.4 million bookings. Our GDS subsidiary operates in 118
countries. Approximately 59% of our distribution revenues are generated outside
the United States.

On December 3, 2001, we entered into an information technology services
arrangement with IBM Global Services, pursuant to which IBM Global Services will
manage information technology services for our various business units, including
the Galileo GDS. Such services include the outsourcing of certain third party
services provided by us.

Substantially all of our electronic GDS revenue is derived from booking fees
paid by travel suppliers, such as airlines, car rental companies and hotel
companies. Travel suppliers store, display, manage and sell their services
through our systems. Airlines and other travel suppliers are offered varying
levels of functionality at which they can participate in our systems. Our Apollo
system is utilized in North America and Japan, and our Galileo system is
utilized in the rest of the world. In 2001, approximately 93% of our booking fee
revenues were generated from airlines. United Airlines is the largest single
travel supplier utilizing our systems, generating revenues that accounted for
approximately 12% of our total GDS revenues in 2001.

Travel agencies access our systems using hardware and software typically
provided by us or by independent national distribution companies ("NDCs"),
although travel agencies can choose to purchase their own hardware and certain
software. We, internally or through our NDCs, also provide technical support and
other assistance to travel agencies. Multinational travel agencies constitute an
important category of subscribers due to the high volume of business that can be
generated through a single relationship. Bookings generated by our five largest
travel agency customers constituted 20% of the bookings made through our systems
in 2001.

PRODUCT DISTRIBUTION. We distribute our products to subscribers primarily
through our internal sales and marketing organization and our relationships with
independent NDCs. Our local sales and marketing groups distribute our products
in North America, the United Kingdom, Belgium, France, Germany, Spain, Portugal,
the Netherlands, Switzerland, Sweden, Finland, Norway, Russia, Australia, New
Zealand, Hong Kong, Singapore, the Philippines, Brazil and Venezuela. Bookings
made in these countries collectively accounted for approximately 69% of our 2001
bookings.

In regions not supported directly by our sales and marketing organization, we
provide services through our independent NDCs. The NDC is responsible for
cultivating the relationship with subscribers in its territory, installing
subscribers' computer equipment, maintaining the hardware and software supplied
to the subscribers and providing ongoing customer support. The NDC earns a share
of the booking fees generated in the NDC's territory, as well as all subscriber
fees billed in that marketplace. NDCs, which are typically owned or operated by
the national airline of the relevant country or a local travel-related business,
accounted for approximately 31% of our booking volume in 2001.

GROWTH. In order to grow our GDS business, we intend to capitalize on our
competitive strengths, the key elements of which are: (i) Cendant's business to
business expertise and relationships, (ii) a diversified global presence,
(iii) established relationships with a diverse group of travel suppliers and
subscribers, (iv) a comprehensive offering of innovative products, and (v) new
product initiatives with unique appeal to

17

travel consumers, agencies and suppliers. We believe that the distribution
network established through our independent NDCs provides us with a local
presence in countries throughout the world. In addition, we continue to
strengthen our presence in developing and emerging economies that provide future
growth opportunities, such as Eastern Europe, Africa, the Middle East and Asia.
We believe that in-depth knowledge of the local travel economies in which we
distribute our products is essential to developing and strengthening our ties to
travel suppliers and the local travel agencies that generate significant booking
volumes.

We will continue to assess opportunities to acquire distributors in mature,
highly automated markets, where we can realize attractive economic returns and
enhance our customer service. Consistent with this strategy, in April 2001,
Galileo International acquired Southern Cross Distribution Systems Pty Limited,
its NDC for Australia and New Zealand, from an entity owned by the Qantas
Airways group, Ansett Airlines and Air New Zealand. This acquisition raised the
number of wholly owned sales and marketing organizations to 19, representing
approximately 69% of our distribution.

We intend to continue to pursue opportunities to further open up our
computerized reservation system to distribute travel through a variety of means
and to continue to develop leading technologies, integrate additional travel
content into our products, further strengthen our relationships with our agency
and supplier customers and maintain our position as a leading player in the
integrated electronic travel distribution marketplace. In October 2001, we
acquired Highwire, Inc., a developer of corporate Internet travel tools and
technology, which we expect will complement our product offerings and create new
opportunities in the corporate online channel.

INFORMATION SERVICES. We currently provide fare quotation services through our
GlobalFares-TM- quotation system to approximately 68 airlines worldwide.
GlobalFares is used in conjunction with each airline's internal reservation
system and provides pricing information.

We also provide internal reservation services to United Airlines pursuant to a
computer services agreement which terminates at the end of 2004. Such services
include the display of schedules and availability, the reservation, sale and
ticketing of travel services and the display of other travel-related information
to United Airlines' airport offices, city ticket offices and reservation centers
internationally. In addition, we provide certain other internal management
services to United Airlines, including network management, departure control,
availability displays, inventory management, database management and software
development.

COMPETITION. Our competitors include the three major global distribution system
companies: Sabre-Registered Trademark-, Amadeus-Registered Trademark- and
Worldspan-Registered Trademark-, the regional reservation systems including
Abacus-Registered Trademark-, Axess(SM), Infini(SM) and Topas(SM), other travel
infrastructure companies such as Pegasus Systems and Datalex, firms that operate
in the virtual travel services sector such as Expedia-Registered Trademark-,
Travelocity-Registered Trademark- and Orbitz(SM) and alternative channels by
which travel products and services are distributed.

Competition to attract and retain travel agency subscribers is intense. As a
result, we and other computerized reservation system service providers offer
incentives to travel agency subscribers if certain productivity or booking
volume growth targets are achieved. Although continued expansion of the use of
such incentive payments could adversely affect our profitability, our failure to
continue to make such incentive payments could result in the loss of some travel
agency subscribers.

TRAVEL AGENCY SERVICES BUSINESS (1%, 2% and 1% of revenue for 2001, 2000 and
1999, respectively)

We provide travel services, through our travel agency subsidiaries RCI
Travel, LLC, Cendant Travel, Inc. and Cheap Tickets, Inc. We are a full service
travel agency operation providing airline, car rental, hotel and other travel
reservation and fulfillment services. Such services are provided to members of
Resort Condominiums International, LLC, our timeshare exchange company, as well
as in connection with the travel programs offered through Trilegiant
Corporation, an individual membership business, and Trip Network, Inc., an
independent affiliate of Cendant and the operator of the cheaptickets.com(sm)
and Trip.com(sm) travel Web sites.

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We work directly with travel suppliers, such as airlines, car rental companies,
hotel companies and tour and cruise operators to secure both non-published and
regularly available fares, rates and tariffs to supply the best possible rates
and discounted travel to our customers. Cheap Tickets' non-published fares are
not available to consumers directly from the airlines. Rates are made available
to customers through our call centers and through our branded sites,
cheaptickets.com and trip.com, which are operated by Trip Network, Inc. See
"Relationship with Trip Network, Inc." discussion below. Transactions are booked
via global distribution service and fulfilled through our call center network
and ticketing operations. As of December 31, 2001, we maintained a total of nine
call centers located in: Lakeport, California, Colorado Springs, Denver and
Englewood, Colorado, Tampa, Florida, Honolulu, Hawaii, Indianapolis (Carmel)
Indiana, Moore, Oklahoma and Nashville, Tennessee.

COMPETITION. As we provide services to our RCI members and to Trilegiant
members through an outsourcing agreement, our primary competitors consist of
other membership related travel services providers such as Memberworks, Quest,
Encore Marketing and Damark. In addition, we compete with a large number of
leisure travel agencies, including Liberty Travel, American Express Travel and
AAA Travel Services, and Internet travel Web sites, such as Orbitz, Expedia,
Travelocity, Priceline and Hotwire.

RELATIONSHIP WITH TRIP NETWORK, INC. Trip Network, Inc. ("TNI") was established
in 2001 to develop and launch an Internet travel portal initiative, and is
expected to significantly expand the Internet presence of our travel brands for
the benefit of certain of our current and future franchisees. TNI was
established with a $20 million contribution of assets by us in return for a
preferred stock investment, which is convertible into approximately 80% of TNI's
common stock. Additionally, we also funded TNI in the first quarter of 2001 with
approximately $85 million, including $45 million in cash and 1.5 million shares
of Homestore common stock, then valued at $34 million. Following our
acquisitions of Galileo and Cheap Tickets, TNI licensed the rights for the
online businesses, Trip.com and Cheaptickets.com, respectively, which combined
provide access to 20 million registered users. TNI currently operates these
online travel businesses and we provide TNI with call center, supplier
relationship management and GDS services. TNI is developing Trip.com as its
primary consumer portal and released a new version of Trip.com in December 2001
as a "soft launch." It is anticipated TNI will launch an extensive Trip.com
marketing campaign later this year as TNI further develops Trip.com with
improved technology, greater discounted travel inventory and personalized
customer services.

At December 31, 2001, TNI had no debt outstanding nor are we contingently liable
for any debt which TNI may incur. Certain officers of Cendant serve on the Board
of Directors of TNI.

WIZCOM BUSINESS

WizCom is a global provider of electronic reservations processing, connectivity
and computerized reservation system services for the travel industry. WizCom
provides hotels, car rental businesses and tour/leisure travel operators,
including Internet travel companies, with electronic distribution to the Global
Distribution Systems (such as our Galileo GDS), Internet or other travel
reservations systems, linking customers to all the major travel networks on six
continents through telephone lines and satellite communications. These products
allow for real time processing for travel agents, corporate travel departments
and consumers. In addition, WizCom offers information management services that
permit customers to maintain current information on property, vehicle or tour
packages (such as rental rates and room amenity descriptions) and deliver the
most current data to external distribution systems. Revenues are primarily
comprised of up-front implementation fees and ongoing transaction and support
fees.

GROWTH. WizCom expects to increase its Internet distribution reach, allowing
hotel and car rental companies to further optimize their sales mix. WizCom is
also planning enhancements to its product and service portfolio aimed at the
hospitality sector. For example, WizCom will launch a new product to enable
hotels to reduce rate description management resources and generate revenue
growth for WizCom.

COMPETITION. In providing electronic distribution services to hotel customers,
WizCom competes with third party connectivity providers such as Pegasus
Solutions, and also with supplier direct connection

19

technology. WizCom competes with many companies to provide computerized
reservation system services to hotel customers, including other hotels. Some of
our competitors include Hotel Data Systems, Synix and Micros Systems.

TRAVEL DISTRIBUTION TRADEMARKS AND INTELLECTUAL PROPERTY

The trademarks and service marks "Galileo," "Apollo," "Cheap Tickets,"
"Trip.com" and "WizCom" and related trademarks and logos are material to the
businesses in our travel distribution segment. Galileo, Cheap Tickets, Trip.com,
WizCom and their subsidiaries and licensees actively use these marks. All of the
material marks used by Galileo, Cheap Tickets, Trip.com and WizCom are
registered (or have applications pending for registration) with the United
States Patent and Trademark Office as well as major countries throughout the
world where these businesses operate. We own the marks used in the travel
distribution segment.

TRAVEL DISTRIBUTION SEASONALITY

We experience a seasonal pattern in our operating results, with the fourth
quarter typically having the lowest total revenues and operating income due to
early bookings by customers for holiday travel and a decrease in business travel
during the holiday season.

TRAVEL DISTRIBUTION EMPLOYEES

The businesses that make up our Travel Distribution segment employed
approximately 6,022 persons as of December 31, 2001.

FINANCIAL SERVICES SEGMENT (16%, 30% and 25% of our revenue for 2001, 2000 and
1999, respectively)

INSURANCE/WHOLESALE BUSINESS (5%, 10% and 7% of our revenue for 2001, 2000 and
1999, respectively)

Our insurance/wholesale business provides (i) enhancement packages for financial
institutions through FISI Madison, (ii) marketing for accidental death and
dismemberment insurance and certain other insurance products through FISI and
BCI and (iii) marketing for long term care insurance products through LTPC. With
nearly 39 million customers, we offer the following products and services:

ENHANCEMENT PACKAGE SERVICE. We sell enhancement packages for financial
institution consumer and business checking and deposit account holders primarily
through our FISI subsidiary. FISI's financial institution clients select a
customized package of our products and services and then usually add their own
services (such as unlimited check writing privileges, personalized checks,
cashiers' or travelers' checks without issue charge, or discounts on safe
deposit box charges or installment loan interest rates). With our marketing and
promotional assistance, the financial institution then offers the complete
package of enhancements to its checking account holders as a special program for
a monthly fee. Most of these financial institutions choose a standard
enhancement package, which generally includes $10,000 of common carrier
insurance and travel discounts. Others may include Trilegiant's shopping and
credit card registration services, a travel newsletter or pharmacy, eyewear or
entertainment discounts as enhancements. The common carrier coverage is
underwritten under group insurance policies with two referral underwriters. We
generally charge a financial institution client an initial fee to implement this
program and monthly fees thereafter based on the number of customer accounts
participating in that financial institution's program. In January 2001, FISI
acquired certain assets of MarketTrust, Inc., including its agreements to
provide checking account enhancement packages to over 320 financial institutions
located across the United States.

AD&D INSURANCE. Through our FISI and BCI subsidiaries, we serve as an agent and
third-party administrator for marketing accidental death and dismemberment
insurance throughout the country to the customers of financial institutions.
These products are primarily marketed through direct mail solicitations which
generally offer $1,000 of accidental death and dismemberment insurance at no
cost to the customers and the opportunity to choose additional coverage of up to
$250,000. The annual premium generally

20

ranges from $10 to $250. BCI also acts as an administrator for, and markets,
term life and hospital accident insurance. FISI's and BCI's insurance products
and other services are offered to customers of banks, credit unions, credit card
issuers and mortgage companies.

LONG TERM CARE INSURANCE. Through our LTPC subsidiary, we are one of the
largest independent marketers of long term care insurance products in the United
States representing five national underwriters. LTPC's sales efforts are
supported by over 350 captive agents and 1,300 brokers across the United States.

DISTRIBUTION CHANNELS. We market our products to consumers: (i) of financial
institutions or other associations through direct marketing; (ii) of financial
institutions or other associations through a direct sales force, participating
merchants or general advertising; and (iii) through companies and various other
entities.

GROWTH. Primary growth drivers include expanding our customer base to include
larger financial institutions and targeted non-financial partners. In addition,
we are expanding the array of products and services sold through the direct
marketing channels to existing clients.

COMPETITION. Our checking account enhancement services compete with similar
services offered by other companies, including insurance companies and other
third-party marketers. In larger financial institutions, we may also compete
with a financial institution's own marketing staff. Competition for the offering
of our insurance products through financial institutions is growing and intense.
Our competitors include other third-party marketers and large national insurance
companies with established reputations that offer products with rates, benefits
and compensation similar to ours. The long term care insurance industry is
highly competitive. Our competition primarily includes large national insurance
companies, such as General Electric Financial Assurance Company.

LOYALTY SOLUTIONS (2%, 3% and 2% of our revenue for 2001, 2000 and 1999,
respectively)

Our Cims subsidiary has developed customer loyalty solutions and insurance
products for the benefit of financial institutions and businesses in other
industries. As of December 31, 2001, Cims has expanded its clients' membership
and customer base to approximately 15.3 million individuals. Cims clients
include over 50 financial institutions throughout Europe, South Africa and Asia.
Cims offers travel and real estate benefits and other services within its
loyalty packages for the benefit of consumers. Cims also leverages its internal
insurance competencies and strategic relationships to provide insurance benefits
to consumers. We also have exclusive licensing agreements covering the use of
our merchandising systems in Australia, Japan and certain other Asian countries
under which licensees pay initial license fees and agree to pay royalties to us
based on membership fees, access fees and merchandise service fees paid to them.

GROWTH. The primary growth drivers for Cims are (i) to increase the number of
consumers, from within our existing client base, who participate in loyalty
programs for their particular financial institution, (ii) to increase the number
of financial institutions we partner with for their respective loyalty marketing
programs, (iii) to develop marketing relationships with clients in other
industries (wireless providers for example) and (iv) to offer multiple loyalty
solutions to our clients.

COMPETITION. Cims represents an outsourcing alternative to marketing
departments of large retail organizations. Cims competes with certain other
niche loyalty solution providers throughout Europe.

TAX PREPARATION BUSINESS (1%, 1% and 1% of our revenue for 2001, 2000 and 1999,
respectively)

Our Jackson Hewitt Inc. subsidiary ("Jackson Hewitt") is the second largest tax
preparation service system in the United States. The Jackson
Hewitt-Registered Trademark- franchise system is comprised of a 47-state network
(and the District of Columbia) with approximately 3,800 offices operating under
the trade name and service mark "Jackson Hewitt Tax
Service-Registered Trademark-." Office locations range from stand-alone store
front offices to kiosk offices within Wal-Mart-Registered Trademark- and
Kmart-Registered Trademark- stores. Through the use of proprietary interactive
tax preparation software, we are engaged in the preparation and electronic
filing of federal and state individual income tax returns. During 2001, Jackson
Hewitt prepared over 2.2 million tax returns, which represented an increase of
22.0% from the approximately 1.8 million tax returns prepared during 2000. To
complement our tax

21

preparation services, we also offer accelerated check refunds and refund
anticipation loans to our tax preparation customers through a designated bank.
Franchisees pay a minimum initial fee and royalty and marketing fees.

H&R Block's recent shift to an owner/operator business model has resulted in
Jackson Hewitt becoming the leading franchisor of tax preparation services.

GROWTH. We believe revenue and share growth in the tax preparation industry
will come primarily from selling new franchises, the application of proven
management techniques for existing franchise systems, and new product and
service offerings.

During 1999, Jackson Hewitt, in conjunction with two of its largest franchisees,
created an independent joint venture, Tax Services of America, Inc. ("TSA"), to
maximize Jackson Hewitt's ability to add independent tax preparation firms to
its franchise system. Jackson Hewitt initially contributed approximately 80
company-owned stores and as of December 31, 2001 had an approximate 89% interest
in the form of preferred stock. On January 18, 2002, Jackson Hewitt purchased
all of the common stock of TSA for approximately $4.0 million. TSA currently has
over 400 offices and is expected to prepare over 350,000 tax returns in 2002.
TSA's objective is to grow by acquiring independent tax preparation firms in
areas where TSA is licensed to operate and convert them to the Jackson Hewitt
system.

COMPETITION. Tax preparation businesses are highly competitive. There are a
substantial number of tax preparation firms and accounting firms that offer tax
preparation services. Commercial tax preparers are highly competitive with
regard to price, service and reputation for quality. Our largest competitor, H&R
Block, is a nationwide tax preparation service with approximately 9,000
locations.

INDIVIDUAL MEMBERSHIP BUSINESS (8%, 16% and 15% of our revenue for 2001, 2000
and 1999, respectively)

On July 2, 2001, we entered into 40-year outsourcing and licensing agreements
with Trilegiant Corporation, a direct marketing company established by former
management of our Cendant Membership Services and Cendant Incentives
subsidiaries. Pursuant to such agreements, we retain the economic benefits from
existing members of our individual membership business and Trilegiant provides
fulfillment services to these members for a servicing fee. Trilegiant will
retain the economic benefits and service obligations for new members. We will
receive a royalty fee (initially 5% increasing to approximately 16% over ten
years) from Trilegiant in connection with those new members. Certain officers of
Cendant serve on the Board of Directors of Trilegiant.

As of December 31, 2001, Trilegiant had approximately 23.8 million memberships,
18.9 million of which consist of our existing memberships. Trilegiant provides
members with access to a variety of discounted products and services in such
areas as retail shopping, travel, personal finance and auto and home
improvement. Trilegiant also affiliates with business partners such as leading
financial institutions, retailers, and oil companies to offer membership as an
enhancement to their credit card, charge card or other customers. Participating
institutions generally receive commissions on initial and renewal memberships,
based on a percentage of the net membership fees. Individual membership programs
offer consumers discounts on many brand categories by providing shop at home
convenience in areas such as retail shopping, travel, automotive, dining and
home improvement.

Trilegiant offers the following membership programs from which we receive a
royalty on sales to new members: Shoppers Advantage-Registered Trademark-, a
discount shopping program; Travelers Advantage-Registered Trademark-, a discount
travel service program; The AutoVantage-Registered Trademark- Service, a program
which offers preferred prices on new cars and discounts on maintenance, tires
and parts; AutoVantage Gold-Registered Trademark-, a program which provides a
premium version of the AutoVantage-Registered Trademark- Service; Credit Card
Guardian-Registered Trademark- and "Hot-Line", services which enable consumers
to register their credit and debit cards to keep the account numbers securely in
one place; The PrivacyGuard-Registered Trademark- and
Credentials-Registered Trademark-, services which provide monitoring of a
member's credit history, driving records and medical files; The Buyers
Advantage-Registered Trademark-, a service which extends manufacturer's
warranties; CompleteHome-Registered Trademark-, a service designed to save
members time and money in maintaining and improving their homes; The Family
FunSaver Club-Registered Trademark-, a program which provides the opportunity to
purchase family travel services and other family related products at a discount;
and The HealthSaver(sm), a program which provides

22

discounts on prescription drugs, eyewear, eye care, dental care, selected
health-related services and fitness equipment.

INVESTMENT IN TRILEGIANT. We own preferred stock, convertible into
approximately 20% of Trilegiant. We also advanced approximately $100 million to
support Trilegiant's marketing activities. We expense the marketing advance as
Trilegiant incurs qualified marketing costs. As of December 31, 2001, we had
expensed $66 million of this marketing advance. In addition, we have provided
Trilegiant with a $35 million revolving line of credit under which advances are
at our sole and unilateral discretion. At December 31, 2001, there were no
advances outstanding under this line of credit. We are not obligated or
contingently liable for any debt incurred by Trilegiant.

In connection with marketing agreements entered into with a third party, we
provided a $75 million loan facility to Trilegiant under which we will advance
funds to Trilegiant for marketing performed by Trilegiant on behalf of the third
party. Under the terms of the agreements, Trilegiant will provide certain
services to the third party in exchange for commissions. As part of our royalty
arrangement with Trilegiant, we will participate in those commissions.
Trilegiant will repay borrowings under this facility as commissions are received
by Trilegiant from the third party. As of December 31, 2001, the outstanding
balance under this loan facility was $24 million.

COMPETITION. The membership services industry is highly competitive.
Competitors include membership services companies, as well as large retailers,
travel agencies, insurance companies and financial service institutions, some of
which have financial resources, product availability, technological capabilities
or customer bases that may be greater than ours.

FINANCIAL SERVICES TRADEMARKS AND OTHER INTELLECTUAL PROPERTY.

The service marks "Jackson Hewitt" and "Jackson Hewitt Tax Service" and related
marks and logos are material to Jackson Hewitt's business. We, through our
franchisees, actively use these marks. The trademarks and logos are registered
(or have applications pending for registration) with the United States Patent
and Trademark Office. We own the marks used in the Jackson Hewitt business. The
individual membership business trademarks and service marks listed above and
related logos are material to the individual membership business. In connection
with the Trilegiant outsourcing arrangement, we license the individual
membership business trademarks and service marks listed above to Trilegiant in
exchange for the licensing fee mentioned above. Individual membership business
trademarks and logos are registered (or have applications pending for
registration) with the United States Patent and Trademark Office, unless
otherwise indicated above. We own the marks used in the individual membership
business.

FINANCIAL SERVICES SEASONALITY.

Our direct marketing and individual membership businesses are generally not
seasonal. However, since most of our franchisees' customers file their tax
returns during the period from January through April of each year, substantially
all franchise royalties are received during the first and second quarters of
each year. As a result, Jackson Hewitt operates at a loss for the remainder of
the year. Historically, such losses primarily reflect payroll of year-round
personnel, the update of tax software and other costs and expenses relating to
preparation for the following tax season.

FINANCIAL SERVICES EMPLOYEES

The businesses that make up our Financial Services segment employed
approximately 2,470 persons as of December 31, 2001.

GEOGRAPHIC SEGMENTS

Financial data for geographic segments are reported in Note 26 to our
Consolidated Financial Statements included in Item 8 of this Form 10-K.

23

REGULATION

FRANCHISE REGULATION. The sale of franchises is regulated by various state
laws, as well as by the Federal Trade Commission (the "FTC"). The FTC requires
that franchisors make extensive disclosure to prospective franchisees but does
not require registration. Although no assurance can be given, proposed changes
in the FTC's franchise rule should have no adverse impact on our franchised
businesses. A number of states require registration or disclosure in connection
with franchise offers and sales. In addition, several states have "franchise
relationship laws" or "business opportunity laws" that limit the ability of the
franchisor to terminate franchise agreements or to withhold consent to the
renewal or transfer of these agreements. While our franchising operations have
not been materially adversely affected by such existing regulation, we cannot
predict the effect of any future federal or state legislation or regulation.

REAL ESTATE REGULATION. The federal Real Estate Settlement Procedures Act
(RESPA) and state real estate brokerage laws restrict payments which real estate
and mortgage brokers and other parties may receive or pay in connection with the
sales of residences and referral of settlement services (e.g., mortgages,
homeowners insurance, title insurance). Such laws may to some extent restrict
preferred alliance arrangements involving our real estate brokerage franchisees,
mortgage business and relocation business. Our mortgage business is also subject
to numerous federal, state and local laws and regulations, including those
relating to real estate settlement procedures, fair lending, fair credit
reporting, truth in lending, federal and state disclosure and licensing.
Currently, there are local efforts in certain states which could limit referral
fees to our relocation business.

It is a common practice for online mortgage and real estate related companies to
enter into advertising, marketing and distribution arrangements with other
Internet companies and Web sites, whereby the mortgage and real estate related
companies pay fees for advertising, marketing and distribution services and
other goods and facilities. The applicability of RESPA's referral fee
prohibitions to the compensation provisions of these arrangements is unclear and
the Department of Housing and Urban Development has provided no guidance to date
on the subject.

TIMESHARE EXCHANGE REGULATION. Our timeshare exchange business is subject to
foreign, federal, state and local laws and regulations including those relating
to taxes, consumer credit, environmental protection and labor matters. In
addition, we are subject to state statutes in those states regulating timeshare
exchange services, and must prepare and file annually certain disclosure guides
with regulators in states where required. While our timeshare exchange business
is not subject to those state statutes governing the development of timeshare
condominium units and the sale of timeshare interests, such statutes directly
affect both our timeshare sales and marketing business (see below) and the other
members and resorts that participate in the RCI exchange programs. Therefore,
the statutes indirectly impact our timeshare exchange business.

TIMESHARE SALES AND MARKETING REGULATION. Our timeshare sales and marketing
business is subject to extensive regulation by the states in which our resorts
are located and in which its vacation ownership interests are marketed and sold.
In addition, we are subject to federal legislation, including without
limitation, the Federal Trade Commission Act; the Fair Housing Act; the
Truth-in-Lending Act and Regulation Z promulgated thereunder, which require
certain disclosures to borrowers regarding the terms of their loans; the Real
Estate Settlement Procedures Act and Regulation X promulgated thereunder which
require certain disclosures to borrowers regarding the settlement and servicing
of loans; the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination in the extension of credit on the
basis of age, race, color, sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any right under the Consumer
Credit Protection Act, the Telemarketing and Fraud and Abuse Prevention Act, and
the Civil Rights Acts of 1964, 1968 and 1991.

Many states have laws and regulations regarding the sale of vacation ownership
interests. The laws of most states require a designated state authority to
approve a timeshare public report, a detailed offering statement describing the
resort operator and all material aspects of the resort and the sale of vacation
ownership interests. In addition, the laws of most states in which we sell
vacation ownership interests grant

24

the purchaser of such an interest the right to rescind a contract of purchase at
any time within a statutory rescission period, which generally ranges from three
to ten days. Furthermore, most states have other laws that regulate our
timeshare sales and marketing activities, such as real estate licensing laws,
travel sales licensing laws, anti-fraud laws, telemarketing laws, prize, gift
and sweepstakes laws, labor laws and various regulations governing access and
use of our resorts by disabled persons.

INTERNET REGULATION. Although our business units' operations on the Internet
are not currently regulated by any government agency in the United States beyond
regulations discussed above and applicable to businesses generally, it is likely
that a number of laws and regulations may be adopted governing the Internet. In
addition, existing laws may be interpreted to apply to the Internet in ways not
currently applied. Regulatory and legal requirements are subject to change and
may become more restrictive, making our business units' compliance more
difficult or expensive or otherwise restricting their ability to conduct their
businesses as they are now conducted.

VEHICLE RENTAL AND FLEET LEASING REGULATION. We are subject to federal, state
and local laws and regulations including those relating to taxing and licensing
of vehicles, franchising, consumer credit, environmental protection and labor
matters. The principal environmental regulatory requirements applicable to our
vehicle and rental operations relate to the ownership or use of tanks for the
storage of petroleum products, such as gasoline, diesel fuel and waste oils; the
treatment or discharge of waste waters; and the generation, storage,
transportation and off-site treatment or disposal of solid or liquid wastes. We
operate 271 locations at which petroleum products are stored in underground or
aboveground tanks. We have instituted an environmental compliance program
designed to ensure that these tanks are in compliance with applicable technical
and operational requirements, including the replacement and upgrade of
underground tanks to comply with the December 1998 EPA upgrade mandate and
periodic testing and leak monitoring of underground storage tanks. We believe
that the locations where we currently operate are in compliance, in all material
respects, with such regulatory requirements.

We may also be subject to requirements related to the remediation of, or the
liability for remediation of, substances that have been released to the
environment at properties owned or operated by us or at properties to which we
send substances for treatment or disposal. Such remediation requirements may be
imposed without regard to fault and liability for environmental remediation can
be substantial.

We may be eligible for reimbursement or payment of remediation costs associated
with future releases from its regulated underground storage tanks and have
established funds to assist in the payment of remediation costs for releases
from certain registered underground tanks. Subject to certain deductibles, the
availability of funds, compliance status of the tanks and the nature of the
release, these tank funds may be available to us for use in remediating future
releases from its tank systems.

A traditional revenue source for the vehicle rental industry has been the sale
of loss damage waivers, by which rental companies agree to relieve a customer
from financial responsibility arising from vehicle damage incurred during the
rental period. Approximately 3.2% of our vehicle operations revenue during 2001
was generated by the sale of loss damage waivers. Approximately 40 states have
considered legislation affecting the loss damage waivers. To date, 24 states
have enacted legislation which requires disclosure to each customer at the time
of rental that damage to the rented vehicle may be covered by the customer's
personal automobile insurance and that loss damage waivers may not be necessary.
In addition, in the late 1980's, New York enacted legislation which eliminated
our right to offer loss damage waivers for sale and limited potential customer
liability to $100. Moreover Nevada has capped rates for loss damage waivers at
$15.00 per day. California has capped these rates at either $9.00 per day for
cars with an MSRP of $19,000 or less, or $15.00 per day for cars with an MSRP of
$19,000 to $34,999, but there is no cap for cars with an MSRP of $35,000 or
more.

We are also subject to regulation under the insurance statutes, including
insurance holding company statutes, of the jurisdictions in which its insurance
company subsidiaries are domiciled. These regulations vary from state to state,
but generally require insurance holding companies and insurers that are
subsidiaries of insurance holding companies to register and file certain reports
including information concerning their capital structure, ownership, financial
condition and general business operations with the

25

state regulatory authority, and require prior regulatory agency approval of
changes in control of an insurer and intercorporate transfers of assets within
the holding company structure. Such insurance statutes also require that we
obtain limited licenses to sell optional insurance coverage to our customers at
the time of rental.

The payment of dividends to us by our insurance company subsidiaries is
restricted by government regulations in Colorado, Bermuda and Barbados affecting
insurance companies domiciled in those jurisdictions.

MARKETING REGULATION. Primarily through our insurance/wholesale business, we
market our products and services via a number of distribution channels,
including direct mail, telemarketing and online. These channels are regulated on
the state and federal levels and we believe that these activities will
increasingly be subject to such regulation. Such regulation may limit our
ability to solicit new members or to offer one or more products or services to
existing members. In addition to direct marketing, our insurance/wholesale
business is subject to various state and local regulations including, as
applicable, those of state insurance departments. While we have not been
adversely affected by existing regulations, we cannot predict the effect of any
future federal, state or local legislation or regulation.

In November 1999, the Federal Gramm-Leach-Bliley Act became law. This Act and
its implementing regulations modernized the regulatory structure affecting the
delivery of financial services to consumers and provided for new requirements
and limitations relating to direct marketing by financial institutions to their
customers. Compliance with the Act was required beginning July 1, 2001, and we
have taken various steps to ensure our compliance; however, since specific
aspects of the implementing regulations relating to this Act remain to be
clarified, it is unclear what conclusive effect, if any, such regulations might
have on our business.

We are also aware of, and are actively monitoring the status of, certain
proposed privacy-related state legislation that might be enacted in the future;
it is unclear at this point what effect, if any, such state legislation might
have on our businesses.

GLOBAL DISTRIBUTION SERVICES REGULATION. Our global distribution services
business is subject to regulation primarily in the United States, the European
Union and Canada. Each jurisdiction's rules are largely based on the same set of
core premises: that a computerized reservation system must treat all
participating airlines equally, whether or not they are owners of the system;
that airlines owning computerized reservations systems must not discriminate
against the computerized reservation systems they do not own; and that
computerized reservation system relationships with travel agencies should not be
an impediment to competition from other computerized reservation systems or to
the provision of services to the traveler. While each jurisdiction has focused
on the computerized reservation system industry's role in the airline industry,
the United States' and EC rules have the greatest impact on us because of the
volume of business transacted by us in the United States and the European Union.
Neither jurisdiction currently seeks to regulate computerized reservation system
relationships with non-airline participants such as hotel and car rental
companies, although the EC rules allow computerized reservation systems to
incorporate rail services into computerized reservation system displays and such
rail services are therefore subject to certain sections of the EC rules.

Both the United States and the European Union require systems to provide airline
displays for travel agencies that are ordered on the basis of neutral principles
and that all airlines must be charged the same fees for the same level of
participation. The EC rules go further and require that fees must be reasonably
structured and reasonably related to the cost of the service provided and used.
Moreover, under the EC rules, airlines have the ability to disallow certain
types of bookings, unless they have already been accepted.

Both the United States and European Union regulators seek to redress the
potential that a computerized reservation system used for internal reservation
purposes would offer a travel agency subscriber superior access to the hosted
airline and inferior access to all other airlines. The EC rules require a GDS to
ensure that its distribution facilities are separated from any carrier's private
inventory hosted on the system. If a connection between distribution facilities
and private inventory is permitted by an application interface,

26

any such interface must be available to all carriers on a non-discriminatory
basis. While the United States rules contain several principles outlining the
requirement of unbiased displays, the EC rules prescribe a specific formula that
a computerized reservation system must use to order its display of flights. U.S.
regulations also require functional equivalence between the functionality
offered to airlines whose internal reservation systems are hosted in the
computerized reservation system and those provided to all other airlines. The EC
rules require the owner airlines to provide the same data, and accept and
confirm bookings with equal timeliness in all computerized reservation systems,
when requested to do so. U.S. regulations contain no counterpart to the European
requirement that subscribers be offered access to the computerized reservation
system on a nondiscriminatory basis. Although U.S. regulations extend only to
use of computerized reservation systems by travel agencies, European and
Canadian rules apply to all subscriber uses of computerized reservation systems,
whether by travel agencies, individuals or corporate travel departments. To the
extent rules relating to computerized reservation systems are proposed or
adopted by other countries, we expect they will be similar to the existing rules
in other jurisdictions.

TRAVEL AGENCY REGULATION. The products and services we provide are subject to
various federal, state and local regulations. We must comply with laws and
regulations relating to our sales and marketing activities, including those
prohibiting unfair and deceptive advertising or practices. Our travel service is
subject to laws governing the offer and/or sale of travel products and services,
including laws requiring us to register as a "seller of travel," to comply with
disclosure. In addition, many of our travel suppliers and global distribution
systems are heavily regulated by the United States and other governments and we
are indirectly affected by such regulation.

EMPLOYEES

As of December 31, 2001, we employed approximately 53,000 people. Management
considers our employee relations to be satisfactory.

ITEM 2. PROPERTIES

Our principal executive offices are located in leased space at 9 West 57th
Street, New York, NY 10019 with a lease term expiring in 2013. Many of our
general corporate functions are conducted at leased offices at One Campus Drive,
1 Sylvan Way and 10 Sylvan Way and one owned facility located at 6 Sylvan Way,
Parsippany, New Jersey 07054. Executive offices are also located at Landmark
House, Hammersmith Bridge Road, London, England W69EJ.

Our lodging franchise business leases space for its reservations centers and
data warehouse in Aberdeen, South Dakota; Phoenix, Arizona; Knoxville and
Elizabethton, Tennessee; St. John, New Brunswick, Canada pursuant to leases that
expire in 2004, 2007, 2004, 2002, and 2009 respectively. In addition, our
lodging and real estate businesses share approximately four leased office spaces
within the United States.

Our timeshare exchange business has three properties which we own; a 200,000
square foot facility in Carmel, Indiana, which serves as an administrative
office; a 200,000 square foot call center in Cork, Ireland and a property
located in Kettering, UK, which is RCI's European office. Our timeshare exchange
business also has approximately 10 leased offices located within the United
States and approximately 38 additional leased spaces in various countries
outside the United States.

Our timeshare sales and marketing business owns a 60,500 square foot facility in
Little Rock, Arkansas and leases space for call center and administrative
functions in Las Vegas, Nevada and Orlando, Florida, pursuant to leases expiring
in 2006 and 2011, respectively. In addition, approximately 33 marketing and
sales offices are leased throughout the United States.

27

Our relocation business has its main corporate operations in three leased
buildings in Danbury, Connecticut with lease terms expiring in 2004, 2005, and
2008. There are also three regional offices located in Mission Viejo,
California; Chicago, Illinois; and Irving, Texas, which provide operation
support services. We own the office in Mission Viejo and the others we operate
pursuant to leases that expire in 2004 and 2003 respectively. International
offices are located in Hammersmith, Wexham and Swindon, United Kingdom;
Melbourne and Brisbane, Australia; Hong Kong; and Singapore pursuant to leases
that expire in 2012, 2012, 2013, 2005, 2003, 2002 and 2002, respectively.

Our mortgage business has centralized its operations to one main area occupying
various leased offices in Mt. Laurel, New Jersey for a total of approximately
848,000 square feet. The lease terms expire over the next three years. Our
mortgage business has recently entered into a lease for a new building expected
to be completed in the beginning of 2003. This new building is expected to add
47,500 square feet to, and replace approximately 127,500 square feet at, the Mt.
Laurel location. The lease for this new building expires in 2013. Regional sales
offices are located in Englewood, Colorado; Jacksonville, Florida and Santa
Monica, California, pursuant to leases that expire in 2002, 2005 and 2005,
respectively.

Our vehicle services segment owns a 158,000 square foot facility in Virginia
Beach, Virginia, which serves as a satellite administrative and reservations
facility for WizCom and Avis rental car operations. Our Vehicle Services segment
also leases space for its car reservations center in Tulsa, Oklahoma and
Fredericton, New Brunswick, Canada pursuant to leases that expire in 2006 and
2009, respectively. In addition, there are approximately 19 leased office
locations in the United States. Internationally, we lease office space in the
United Kingdom and own one building in Birmingham, UK to support National Car
Parks.

WizCom operates out of leased space in Garden City, New York.

We lease or have vehicle rental concessions relating to space at 676 locations
in the United States and 191 locations outside the United States utilized in
connection with our vehicle rental operation. Of those locations, 224 in the
United States and 82 outside the United States are airports. Typically, an
airport receives a percentage of vehicle rental revenues, with a guaranteed
minimum. Because there is a limit to the number of vehicle rental locations in
an airport, vehicle rental companies frequently bid for the available locations,
usually on the basis of the size of the guaranteed minimums. We and other
vehicle lease firms also lease parking space at or near airports and at their
other vehicle rental locations.

PHH Arval leases office space and marketing centers in eight locations in the
United States and Canada, with approximately 102,000 square feet in the
aggregate. PHH Arval maintains a 200,000 square foot regional/processing office
in Hunt Valley, Maryland. In addition, Wright Express leases approximately
187,000 square feet of office space in two domestic locations.

Our insurance/wholesale business leases five domestic office spaces in Brentwood
and Franklin, Tennessee with lease terms ending in 2002, 2003, and 2009. In
addition, there are ten leased locations internationally that function as sales
and administrative office for Cims with the main office located in Portsmouth,
UK.

Our leased space in Parsippany, New Jersey also supports our tax preparation
business.

Our travel distribution business has three properties, which we own; a 256,000
square foot data center in Greenwood, Colorado; a 32,000 square foot facility in
Atlanta, Georgia and a 20,000 square foot facility in Lakeport, California. The
travel distribution business also leases 121,000 square feet of office space in
Rosemont, Illinois; 256,000 square feet of office space among six locations in
the Denver, Colorado area; approximately 20 additional properties within the
United States and 50 leased spaces in various countries outside the United
States.

Our travel operations have leased locations in Aurora, Colorado; Nashville,
Tennessee; Arlington, Texas and Moore, Oklahoma. They occupy a total of
approximately 152,000 square feet pursuant to leases expiring in 2006, 2006,
2002 and 2003, respectively.

We believe that such properties are sufficient to meet our present needs and we
do not anticipate any difficulty in securing additional space, as needed, on
acceptable terms.

28

ITEM 3. LEGAL PROCEEDINGS

A. CLASS ACTION AND OTHER LITIGATION AND GOVERNMENT INVESTIGATIONS

After the April 15, 1998 announcement of the discovery of accounting
irregularities in the former CUC business units, and prior to the date of this
Annual Report on Form 10-K, approximately 70 lawsuits claiming to be class
actions, three lawsuits claiming to be brought derivatively on our behalf and
several other lawsuits and arbitration proceedings were filed in various courts
against us and other defendants.

IN RE CENDANT CORPORATION LITIGATION, Master File No. 98-1664 (WHW) (D.N.J.)
(the "Securities Action"), is a consolidated class action consisting of over
sixty constituent class action lawsuits. The Securities Action is brought on
behalf of all persons who acquired securities of the Company and CUC, except our
PRIDES securities, between May 31, 1995 and August 28, 1998. Named as defendants
are the Company; twenty-eight current and former officers and directors of the
Company, CUC and HFS; and Ernst & Young LLP, CUC's former independent accounting
firm.

The Amended and Consolidated Class Action Complaint in the Securities Action
alleges that, among other things, the lead plaintiffs and members of the class
were damaged when they acquired securities of the Company and CUC because, as a
result of accounting irregularities, the Company's and CUC's previously issued
financial statements were materially false and misleading, and the allegedly
false and misleading financial statements caused the prices of the Company's and
CUC's securities to be inflated artificially. The Amended and Consolidated
Complaint alleges violations of Sections 11, 12(a)(2), and 15 of the Securities
Act of 1933 (the "Securities Act") and Sections 10(b), 14(a), 20(a), and 20A of
the Securities Exchange Act of 1934 (the "Exchange Act").

On January 25, 1999, the Company answered the Amended Consolidated Complaint and
asserted Cross-Claims against Ernst & Young alleging that Ernst & Young failed
to follow professional standards to discover, and recklessly disregarded, the
accounting irregularities, and is therefore liable to the Company for damages in
unspecified amounts. The Cross-Claims assert claims for breaches of Ernst &
Young's audit agreements with the Company, negligence, breaches of fiduciary
duty, fraud, and contribution.

On March 26, 1999, Ernst & Young filed Cross-Claims against the Company and
certain of the Company's present and former officers and directors, alleging
that any failure to discover the accounting irregularities was caused by
misrepresentations and omissions made to Ernst & Young in the course of its
audits and other reviews of the Company's financial statements. Ernst & Young's
Cross-Claims assert claims for breach of contract, fraud, fraudulent inducement,
negligent misrepresentation and contribution. Damages in unspecified amounts are
sought for the costs to Ernst & Young associated with defending the various
shareholder lawsuits and for harm to Ernst & Young's reputation.

On December 7, 1999, we announced that we had reached an agreement to settle the
Securities Action for approximately $2.85 billion in cash which we will be
required to fully fund by mid-July 2002. (See "Litigation Settlements" below and
Note 14 to the Consolidated Financial Statements).

WELCH & FORBES, INC. V. CENDANT CORP., ET AL., No. 98-2819 (WHW) (the "PRIDES
Action"), is a consolidated class action filed on June 15, 1998 on behalf of
purchasers of the Company's PRIDES securities between February 24 and
August 28, 1998. Named as defendants are the Company; Cendant Capital I, a
statutory business trust formed by the Company to participate in the offering of
PRIDES securities; seventeen current and former officers and directors of the
Company, CUC and HFS; Ernst & Young; and the underwriters for the PRIDES
offering, Merrill Lynch & Co.; Merrill Lynch, Pierce, Fenner & Smith
Incorporated; and Chase Securities Inc.

The allegations in the Amended Consolidated Complaint in the PRIDES Action are
substantially similar to those in the Securities Action. The PRIDES Action
states claims under Sections 11, 12(a)(2) and 15 of the Securities Act and
Sections 10(b) and 20(a) of the Exchange Act, and seeks damages in an
unspecified amount. In January 2000, we announced a partial settlement of the
PRIDES Action. (See Litigation Settlements below and Note 14 to the Consolidated
Financial Statements).

29

SEMERENKO V. CENDANT CORP., ET AL., Civ. Action No. 98-5384 (D.N.J.), and P.
SCHOENFIELD ASSET MANAGEMENT LLC V. CENDANT CORP., ET AL., Civ. Action
No. 98-4734 (D.N.J.) (the "ABI Actions"), were initially commenced in October
and November of 1998, respectively, on behalf of a putative class of persons who
purchased securities of American Bankers Insurance Group, Inc. ("ABI") between
January 27, 1998 and October 13, 1998. Named as defendants are the Company, four
former CUC officers and directors and Ernst & Young. The complaints in the ABI
actions, as amended on February 8, 1999, assert violations of Sections 10(b),
14(e) and 20(a) of the Exchange Act. The plaintiffs allege that they purchased
shares of ABI common stock at prices artificially inflated by the accounting
irregularities after we announced a cash tender offer for 51% of ABI's
outstanding shares of common stock in January 1998. Plaintiffs also allege that
after the disclosure of the accounting irregularities, we misstated our
intention to complete the tender offer and a second step merger pursuant to
which the remaining shares of ABI stock were to be acquired by us. Plaintiffs
seek, among other things, unspecified compensatory damages. On April 30, 1999,
the United States District Court for the District of New Jersey dismissed the
complaints on motions of the defendants. In an opinion dated August 10, 2000,
the United States Court of Appeals for the Third Circuit vacated the District
Court's judgment and remanded the ABI Actions for further proceedings. On
December 15, 2000, we filed a motion to dismiss those claims based on ABI
purchases after April 15, 1998, and the District Court granted this motion on
May 7, 2001. The plaintiffs subsequently moved for leave to file a Second
Amended Complaint. The Court has not yet ruled on that motion, which has been
fully briefed.

B. OTHER LITIGATION

Prior to April 15, 1999, actions and other proceedings making substantially
similar allegations to the allegations in the Securities Action were filed by
various plaintiffs on their own behalf. Set forth below are summaries of certain
of these matters.

DEUTCH V. SILVERMAN, ET AL., No. 98-1998 (WHW) (the "Deutch Action"), is a
shareholder derivative action, purportedly filed on behalf of, and for the
benefit of the Company. The Deutch Action was commenced on April 27, 1998 in the
District of New Jersey against certain of the Company's current and former
directors and officers; and, as a nominal defendant, the Company. The complaint
in the Deutch Action alleges that individual officers and directors of the
Company breached their fiduciary duties by selling shares of the Company's stock
while in possession of non-public material information concerning the accounting
irregularities, and by, among other things, causing and/or allowing the Company
to make a series of false and misleading statements regarding the Company's
financial condition, earnings and growth; entering into an agreement to acquire
ABI and later paying $400 million to ABI in connection with termination of that
agreement; re-pricing certain stock options previously granted to certain
Company executives; and entering into certain severance and other agreements
with Walter Forbes, the Company's former Chairman, under which Mr. Forbes
received approximately $51 million from the Company pursuant to an employment
agreement we had entered into with him in connection with the merger of HFS and
CUC. Damages are sought on behalf of Cendant in unspecified amounts.

RESNIK V. SILVERMAN, ET. AL., No. 18329 (NC) (Del. Ch.) (the "Resnik Action"),
is a purported derivative action filed in the Court of Chancery for the State of
Delaware on or about September 19, 2000. The Complaint names as defendants those
current and former members of Cendant's Board of Directors (the "Director
Defendants") who were both named as defendants in, and approved the settlement
of, the Securities Action (the "Settlement"). The Complaint alleges that the
decision of the Director Defendants to approve the Settlement constituted a
breach of their fiduciary duties of loyalty and good faith, and seeks a monetary
judgment in an unspecified amount in favor of nominal defendant Cendant. On or
about November 16, 2000, Cendant moved to dismiss the Resnik Action on the
grounds that any challenge to the Director Defendants' decision to approve the
Settlement is not ripe because Cendant has not yet incurred any liability under
the Settlement, and may never do so if the District Court's approval of the
Settlement is not affirmed on appeal. Also on or about November 16, 2000, the
Director Defendants moved to stay the Resnik Action pending resolution of the
Deutch Action. The plaintiff in the Resnik Action has not yet responded to
either of these motions.

30

The SEC and the United States Attorney for the District of New Jersey conducted
investigations relating to accounting irregularities. The investigation of the
SEC as to Cendant concluded on June 14, 2000 when Cendant consented to an entry
of an Order Instituting Public Administration Proceedings in which the SEC found
that Cendant had violated certain record-keeping provisions of the federal
securities laws, Sections 13(a) and 13(b) of the Exchange Act and Rules 12b-20,
13a-1, 13a-13, 13b2-1, and ordered Cendant to cease and desist from committing
or causing any violation and any future violation of those provisions.

C. LITIGATION SETTLEMENTS.

SETTLEMENT OF COMMON STOCK CLASS ACTION LITIGATION

On December 7, 1999, the Company announced that it reached an agreement in
principle to settle the Securities Action pending against the Company in the
United States District Court for the District of New Jersey. In a settlement
agreement executed March 17, 2000, the Company agreed to pay the class members
approximately $2.85 billion in cash. On August 15, 2000, the District Court
approved the settlement and the plan of allocation of the settlement proceeds
and awarded fees and expenses to counsel for the Class. Certain parties who
objected to the settlement, the plan of allocation or the award of attorneys'
fees and expenses appealed the District Court's orders to the United States
Court of Appeals for the Third Circuit. In August 2001, the Third Circuit
affirmed the District Court's order approving the settlement and plan of
allocation. On January 2, 2002, one party who had objected to the plan of
allocation before the District Court and unsuccessfully appealed the District
Court's approval of the plan of allocation filed a petition for a writ of
certiorari in the United States Supreme Court seeking review of the Third
Circuit's decision affirming the approval of the plan of allocation. The Supreme
Court denied the petition in an order dated March 18, 2002.

As of December 31, 2001, we have made payments totaling $1.41 billion to a fund
established for the benefit of the plaintiffs in this lawsuit. We intend to
continue making quarterly payments of $250 million to such fund. We will be
required to fund the remaining balance by mid-July 2002. We anticipate funding
such amount from a combination of available cash, operating cash flow and, if
necessary, revolving credit facility borrowings.

PARTIAL SETTLEMENT OF PRIDES CLASS ACTION LITIGATION

On March 17, 1999, we entered into an agreement to settle the claims of those
Class members in the PRIDES Action who purchased their securities on or prior to
April 15, 1998 ("eligible persons"). The settlement did not resolve claims based
upon purchases of PRIDES after April 16, 1998. Under the settlement, each
eligible person was entitled to receive a new security--a Right--for each PRIDES
held on April 15, 1998. On June 15, 1999, the United States District Court for
the District of New Jersey approved the settlement.

In April 2000, The Chase Manhattan Bank ("Chase"), acting as custodian of three
mutual funds that sought a total of 2,020,000 Rights, filed a motion seeking
relief from an order of the District Court that rejected the claims filed by
Chase on behalf of the mutual funds. On June 7, 2000, the District Court denied
Chase's motion, but on December 1, 2000 the Third Circuit vacated that order and
remanded the case to the District Court for further proceedings. In
August 2001, the District Court issued a decision that again rejected Chase's
claims. Chase has appealed again to the Third Circuit. As the Rights expired on
February 14, 2001, if Chase's claim is successful it will be satisfied with our
CD Common Stock.

Pursuant to the settlement, we distributed 24,107,038 Rights to eligible
persons. The Rights provided that we issue two New PRIDES to every person who
delivered to us by February 14, 2001 three rights and two original PRIDES. The
terms of the New PRIDES were the same as the original PRIDES, except that the
conversion rate was revised so that, at the time the Rights were distributed,
each of the New PRIDES had a value equal to $17.57 more than each original
PRIDES, based upon a generally accepted valuation model. We issued approximately
15,485,000 New PRIDES upon exercise of Rights. Under the terms of the New
PRIDES, each holder of a New PRIDES was required to purchase 2.3036 shares of
our Common

31

Stock on February 16, 2001. In connection with this mandatory purchase, we
distributed approximately 14,745,000 more shares of our Common Stock on
February 16, 2001 than we otherwise would have under the terms of the original
PRIDES.

In connection with the settlement, we recorded a charge of approximately
$351 million ($228 million, after tax) in the fourth quarter of 1998. Such
charge was reduced by $14 million ($9 million, after tax) and $41 million
($26 million, after tax) during 2001 and 2000, respectively, resulting from
adjustments to the original estimate of the number of rights to be issued.

The settlements do not encompass all litigation asserting claims associated with
the accounting irregularities. We do not believe that it is feasible to predict
or determine the final outcome or resolution of these unresolved proceedings. An
adverse outcome from such unresolved proceedings could be material with respect
to earnings in any given reporting period. However, we do not believe that the
impact of such unresolved proceedings should result in a material liability to
us in relation to our consolidated financial position or liquidity.

OTHER SETTLEMENTS

On March 6, 2002, we entered into an agreement to settle the claims under a
pending arbitration proceeding filed on December 17, 1998, by Janice G. and
Robert M. Davidson, former majority shareholders of a California-based computer
software firm acquired by the Company in a July 1996 stock merger (the "Davidson
Merger"). The Davidsons' Demand for Arbitration asserted claims against Cendant
based upon allegations that the value of the Company securities they acquired in
the Davidson Merger and through a May 1997 settlement agreement settling all
disputes arising out of the Davidson Merger was artificially inflated due to the
accounting irregularities.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET PRICE ON COMMON STOCK

Our common stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "CD". At March 15, 2002 the number of stockholders of record was
approximately 10,093. The following table sets forth the quarterly high and low
sales prices per share of CD common stock as reported by the NYSE for 2001 and
2000.

On March 15, 2002, the last sale price of our CD common stock on the NYSE was
$18.86 per share.

DIVIDEND POLICY

We expect to retain our earnings for the development and expansion of our
businesses and the repayment of indebtedness and do not anticipate paying
dividends on common stock in the foreseeable future.

33

ITEM 6. SELECTED FINANCIAL DATA

- ------------------------------

See Notes 4 and 7 to the Consolidated Financial Statements for a detailed
discussion of net gains (losses) on dispositions of businesses and impairment of
investments and other charges recorded for the years ended December 31, 2001,
2000 and 1999.

During 1998, we recorded restructuring and other unusual charges of
$838 million ($545 million, after tax or $0.62 per diluted share) primarily
associated with the termination of a proposed acquisition and the PRIDES
litigation settlement.

During 1997, we recorded restructuring and other unusual charges of
$704 million ($505 million, after tax or $0.58 per diluted share) primarily
associated with the merger of HFS Incorporated and CUC International Inc. and
the merger with PHH Corporation in April 1997.

Income (loss) from discontinued operations, net of tax includes the after tax
results of discontinued operations and the gain on disposal of discontinued
operations.

34

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND ACCOMPANYING NOTES THERETO INCLUDED ELSEWHERE HEREIN.
UNLESS OTHERWISE NOTED, ALL DOLLAR AMOUNTS ARE IN MILLIONS AND THOSE RELATING TO
OUR RESULTS OF OPERATIONS ARE PRESENTED BEFORE TAXES.

We are one of the foremost providers of travel and real estate services in the
world. Our businesses provide a wide range of consumer and business services and
are intended to complement one another and create cross-marketing opportunities
both within and among our following five business segments. Our Real Estate
Services segment franchises our three real estate brands, provides home buyers
with mortgages and facilitates employee relocations; our Hospitality segment
franchises our nine lodging brands, facilitates the sale and exchange of
vacation ownership intervals and markets vacation rental properties in Europe;
our Vehicle Services segment operates and franchises the Avis car rental brand,
provides fleet management and fuel card services and operates car parking
facilities in the United Kingdom; our Travel Distribution segment provides
global distribution, computer reservation and travel agency services and our
Financial Services segment provides enhancement products, insurance-based
products and loyalty solutions, franchises tax preparation services and provides
a variety of membership programs.

We seek organic growth augmented by the acquisition and integration of
complementary businesses and routinely review and evaluate our portfolio of
existing businesses to determine if they continue to meet our current
objectives. As a result, we are currently engaged in a number of preliminary
discussions concerning possible acquisitions, divestitures, joint ventures and
related corporate transactions. We intend to continually explore and conduct
discussions with regard to such transactions.

On April 1, 2002, we announced that we had entered into agreements to acquire
all of the outstanding common stock of Trendwest Resorts, Inc. through a
tax-free exchange of our CD common stock. Trendwest markets, sells and finances
vacation ownership interests. As part of the planned acquisition, we will assume
approximately $74 million of Trendwest net debt, which we intend to repay. The
number of shares of CD common stock to be paid to Trendwest stockholders will
fluctuate between 55.4 million and 48.3 million shares, within a collar of
$16.15 to $18.50 per share of CD common stock. The first step of the
transaction, the purchase of more than 90% of the outstanding shares from
certain Trendwest stockholders, is expected to close in May 2002, subject to
customary regulatory approvals and the satisfaction of closing conditions. The
purchase of the remaining 10% of the outstanding Trendwest shares will close
upon the effectiveness of a registration statement relating to the issuance of
CD common stock to such Trendwest stockholders.

On March 1, 2002, we entered into a venture with Marriott International, Inc.
whereby we contributed our Days Inn trademark and an amended license agreement
relating to such trademark and Marriott contributed the Ramada trademark and the
master license agreement relating to such trademark. We received a 50.0001%
interest in the venture and Marriott received 49.9999% interest in the venture.
Pursuant to the terms of the venture, we will share income from the venture with
Marriott on a substantially equal basis. We currently expect the venture to
redeem Marriott's interest for approximately $200 million, the projected fair
market value, in March 2004. We expect to loan the venture such amount in March
2004 to enable the venture to meet its obligations to Marriott. Upon redemption,
we will own 100% of the venture. Under the terms of the venture agreement, we
control the venture and, therefore, will consolidate the venture into our
results of operations, financial position and cash flows beginning on March 1,
2002. The venture has no third party liabilities.

During 2001, we acquired several businesses, which substantially contributed to
our revenue growth and overall improvement in the cash flows we generate from
operations. Avis Group Holdings, Inc., one of the world's leading service and
information providers for comprehensive automotive transportation and vehicle
management solutions, was acquired on March 1, 2001 for approximately
$994 million and Fairfield Resorts, Inc. (formerly, Fairfield
Communities, Inc.), one of the largest vacation ownership companies in the
United States, was acquired on April 2, 2001 for approximately $760 million. In
addition, on October 1, 2001 and October 5, 2001, we acquired Galileo
International, Inc., a leading provider of electronic global

35

distribution services for the travel industry, for approximately $1.9 billion
and Cheap Tickets, Inc., a leading seller of discount leisure travel products,
for approximately $313 million, respectively.

During 2001, we also completed the sale of our real estate Internet portal,
move.com, along with certain ancillary businesses to Homestore.com, Inc (see
discussion in "Results of Consolidated Operations 2001 vs. 2000--Net Loss on
Dispositions of Businesses and Impairment of Investments") and outsourced our
individual membership and loyalty business to Trilegiant Corporation (see
discussion in "Liquidity and Capital Resources").

The consolidated results of operations of the businesses we acquired have been
included in our consolidated results of operations since their respective dates
of acquisition and the consolidated results of operations of businesses we
disposed of have only been included in our consolidated results of operations
through their respective dates of disposition.

CRITICAL ACCOUNTING POLICIES

In presenting our financial statements in conformity with generally accepted
accounting principles, we are required to make estimates and assumptions that
affect the amounts reported therein. Certain of the estimates and assumptions we
are required to make relate to matters that are inherently uncertain as they
pertain to future events. While we believe the estimates and assumptions used
were the most appropriate, actual results could differ significantly from those
estimates under different assumptions and conditions. Accordingly, we have
reviewed the accounting policies of all our businesses to identify those
policies where we are required to make particularly subjective and complex
judgments.

The majority of our businesses operate in environments where we are paid a fee
for a service performed, and therefore, the majority of our recurring operations
are recorded in our financial statements using accounting policies that are not
particularly subjective, nor complex. Following is a description of those
accounting policies which we believe require subjective and complex judgments
and could potentially affect reported results.

MORTGAGE SERVICING RIGHTS. A mortgage servicing right is the right to receive a
portion of the interest coupon and fees collected from the mortgagor for
performing specified servicing activities. The value of mortgage servicing
rights is estimated based on expected future cash flows considering market
prepayment estimates, historical prepayment rates, portfolio characteristics,
interest rates and other economic factors. We estimate future prepayment rates
based on current interest rate levels, other economic conditions and market
forecasts, as well as relevant characteristics of the servicing portfolio, such
as loan types, interest rate stratification and recent prepayment experience. To
the extent that fair value is less than carrying value, we would consider the
portfolio to have been impaired and record a related charge. During 2001, we
determined that impairment had occurred due to interest rate reductions, which
results in a greater level of mortgage prepayments than expected. Accordingly,
we recorded net aggregate write-downs of $144 million through a valuation
allowance, of which $94 million was directly related to unprecedented interest
rate reductions subsequent to the September 11th terrorist attacks and
$50 million was related to changes in estimates in the ordinary course of
business. Further reductions in interest rates would have caused us to use
different assumptions in the valuation of our mortgage servicing rights
resulting in additional corresponding write-downs through a valuation allowance.
We use derivatives to mitigate the prepayment risk associated with mortgage
servicing rights. Such derivatives tend to increase in value as interest rates
decline and conversely decline in value as interest rates increase.
Additionally, as interest rates are reduced, we have historically experienced a
greater level of refinancings, which partially mitigates the impact of the
decline in the valuation of our mortgage servicing rights portfolio.

SECURITIZATIONS. We sell a significant portion of our residential mortgage
loans, relocation receivables and timeshare receivables into securitization
entities as part of our financing strategy. We retain the servicing rights and,
in some instances, subordinated residual interests in the mortgage loans and
relocation and timeshare receivables. The investors have no recourse to our
other assets for failure of debtors to pay when due. Gains or losses relating to
the assets sold are allocated between such assets and the retained interests
based on their relative fair values at the date of transfer. We estimate fair
value of retained interests based

36

upon the present value of expected future cash flows. The value of the retained
interests is subject to the prepayment risks, expected credit losses and
interest rate risks of the transferred financial assets. The effects of any
adverse changes in the fair value of our retained interests are detailed in
Note 24--Transfers and Servicing of Financial Assets to the Consolidated
Financial Statements.

FINANCIAL INSTRUMENTS. We use derivative instruments as part of our overall
strategy to manage and reduce the interest rate risk primarily related to our
mortgage-related assets. Effective January 1, 2001, we account for our
derivatives at fair value on the balance sheet in accordance with SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." The application
of SFAS No. 133 is complex, as evidenced by amendments and significant
interpretations to the original standard, which continue to evolve. Most of our
derivatives and other financial instruments we use are not exchange traded.
Values are determined by reference to dealer price indications, which involve
significant judgments and estimates in the absence of quoted market prices.
These estimates are based on valuation methodologies deemed appropriate in the
circumstances, however, the use of different assumptions may have a material
effect on the estimated fair value amounts recorded in the financial statements.
In addition, hedge accounting requires that at the beginning of each hedge
period, we justify an expectation that the relationship between the changes in
fair value of derivatives designated as hedges compared to changes in the fair
value of the underlying hedged items be highly effective. This effectiveness
assessment involves estimation of changes in fair value resulting from changes
in interest rates and corresponding changes in prepayment levels, as well as the
probability of the occurrence of transactions for cash flow hedges. Use of
different assumptions and changing market conditions may impact the results of
the effectiveness assessment and ultimately the timing of when changes in
derivative fair values and the underlying hedged items are recorded in earnings.

GOODWILL AND OTHER INTANGIBLE ASSETS. We have reviewed the carrying value of
all our goodwill and other intangible assets in connection with the
implementation of SFAS No. 142, "Goodwill and Other Intangible Assets," by
comparing such amounts to their fair values. We determined that the carrying
amounts of all our goodwill and other intangible assets did not exceed their
respective fair values. Accordingly, the initial implementation of this standard
will not impact earnings during 2002. We are required to perform this comparison
at least annually, or more frequently if circumstances indicate possible
impairment. When determining fair value, we utilize various assumptions,
including projections of future cash flows. A change in these underlying
assumptions will cause a change in the results of the tests and, as such, could
cause fair value to be less than the carrying amounts. In such event, we would
then be required to record a corresponding charge, which would impact earnings.

RESULTS OF CONSOLIDATED OPERATIONS--2001 VS. 2000

Our consolidated results from continuing operations comprised the following:

Net revenues increased primarily as a result of the impact of acquired
businesses (Avis, Fairfield, Galileo and Cheap Tickets), as well as substantial
growth in mortgage refinancing activity and mortgage purchase volume. A detailed
discussion of revenue trends is included in "Results of Reportable
Segments--2001 vs.

37

2000." Total expenses also increased primarily as a result of the impact of
acquired businesses, as well as other charges (discussed below) and an increase
in net non-vehicle interest expense, which primarily resulted from interest
expense accrued on our stockholder litigation settlement liability.

Our overall effective tax rate was 31.0% and 32.7% for 2001 and 2000,
respectively. The effective rate for 2001 was lower, as the benefit from the
recognition of foreign tax credits exceeded the negative impact of acquisitions.
Minority interest, net of tax, decreased by $60 million due to the maturity of
the Feline PRIDES in February 2001, at which time holders used the interest
bearing trust preferred security to satisfy their obligation to purchase CD
common stock. Additionally, we recorded after-tax charges of $77 million related
to our equity ownership in Homestore, which was received in connection with the
sale of move.com and certain ancillary businesses to Homestore in
February 2001.

As a result of the above-mentioned items, income from continuing operations
decreased $237 million, or 36%, during 2001.

OTHER CHARGES

RESTRUCTURING AND OTHER UNUSUAL CHARGES

RESTRUCTURING COSTS. During 2001 and 2000, we incurred restructuring charges of
$110 million and $60 million, respectively. The 2001 charges were primarily
recorded as a result of actions taken in response to the September 11th
terrorist attacks, while the 2000 charges primarily related to the consolidation
of business operations and rationalization of certain existing processes.

As a result of changes in business and consumer behavior following the
September 11th terrorist attacks, we formally committed to various strategic
initiatives during fourth quarter 2001, which were generally aimed at aligning
cost structures in our underlying businesses in response to anticipated levels
of volume. Accordingly, we incurred restructuring charges of $110 million, of
which $21 million were non-cash, ($40 million, $30 million, $22 million,
$8 million, $7 million and $3 million of charges were recorded within
Hospitality, Real Estate Services, Corporate and Other, Financial Services,
Vehicle Services and Travel Distribution, respectively). We anticipate that
these initiatives will be completed by the end of fourth quarter 2002. The
initiatives are anticipated to increase pre-tax income by approximately
$95 million to $100 million annually, commencing in first quarter 2002. The
initial recognition of the charge and the corresponding utilization from
inception are summarized by category as follows:

Personnel related costs primarily include severance resulting from the
rightsizing of certain businesses and corporate functions. As of December 31,
2001, we formally communicated the termination of employment to approximately
3,000 employees, representing a wide range of employee groups, and approximately
2,100 employees were terminated. We anticipate the majority of the personnel
related costs will be paid during first quarter 2002. All other costs were
incurred primarily in connection with facility closures and lease obligations
resulting from the consolidation of our operations. Cash payments made during
2001 were funded from operations and we anticipate funding remaining cash
requirements from operations.

During first quarter 2000, we incurred restructuring charges of $60 million in
connection with various strategic initiatives (such liability was reduced by
$4 million during 2001 as a result of a change in the original estimate of costs
to be incurred). These initiatives were generally aimed at improving the overall
level of organizational efficiency, consolidating and rationalizing existing
processes, and reducing cost structures in our underlying businesses. The
initiatives primarily affected our Hospitality and Financial

38

Services segments and were completed by the end of first quarter 2001. The
initial recognition of the charge and the corresponding utilization from
inception are summarized by category as follows:

Personnel related costs primarily included severance resulting from the
consolidation of our operations and certain corporate functions. We formally
communicated the termination of employment to approximately 970 employees,
representing a wide range of employee groups, all of whom were terminated by
March 31, 2001. Asset impairments and contract terminations were incurred in
connection with the exit of our timeshare software development business.
Facility related costs consisted of facility closures and lease obligations also
resulting from the consolidation of our operations. All cash payments were
funded from operations.

OTHER UNUSUAL CHARGES. During 2001 and 2000, we incurred unusual charges of
$273 million and $49 million, respectively. The 2001 charges primarily consisted
of (i) $95 million related to the funding of an irrevocable contribution to an
independent technology trust responsible for providing technology initiatives
for the benefit of certain of our current and future real estate franchisees,
(ii) $85 million related to the funding of Trip Network, Inc., formerly, Travel
Portal, Inc., (see discussion in "Liquidity and Capital Resources"),
(iii) $41 million related to the rationalization of the Avis fleet in response
to the September 11th terrorist attacks (including the reduction in the fleet,
as well as corresponding personnel reductions), (iv) $8 million related to the
abandonment of certain software projects also in response to the September 11th
terrorist attacks and (v) $7 million related to a contribution to the Cendant
Charitable Foundation, which we established in September 2000 to serve as a
vehicle for making charitable contributions to qualified organizations. The 2000
charges primarily consisted of (i) $21 million of costs to fund an irrevocable
contribution to an independent technology trust responsible for completing the
transition of our lodging franchisees to a common property management system,
(ii) $11 million of executive termination costs, (iii) $7 million of costs
primarily related to the abandonment of certain computer system applications,
(iv) $3 million of costs related to stock option contract modifications and
(v) $3 million of costs related to the postponement of the initial public
offering of Move.com common stock.

ACQUISITION AND INTEGRATION RELATED COSTS

During 2001, we incurred charges of $112 million primarily in connection with
the outsourcing of our information technology operations and the integration of
our existing travel agency businesses to Galileo's computerized reservations
system. We outsourced our data operations, including our global distribution
system, desktop support and other related services in order to provide high
quality services to our customers and to support our future endeavors, while
achieving significant annual cost reductions. Included in this charge are the
costs of certain actions taken by management in connection with the acquisitions
that did not meet the accounting criteria for capitalization.

MORTGAGE SERVICING RIGHTS IMPAIRMENT

As previously discussed, during fourth quarter 2001, we determined that an
impairment of our mortgage servicing rights portfolio had occurred due to
unprecedented interest rate reductions subsequent to the September 11th
terrorist attacks that we deemed not to be in the ordinary course of business.
Accordingly, we recorded an impairment charge of $94 million.

39

LITIGATION SETTLEMENT AND RELATED COSTS

During 2001 and 2000, we recorded $86 million and $2 million, respectively, of
litigation settlement and related charges net of credits discussed below. The
2001 charges are comprised of $67 million related to the settlement of
litigation (outside of the principal common stockholder litigation) resulting
from previously discovered accounting irregularities in the former business
units of CUC International, Inc. and $33 million related to investigations into
those accounting irregularities. Such charges were partially offset by a credit
of $14 million related to an adjustment to the PRIDES class action litigation
settlement charge we recorded in 1998 (see Note 18--Mandatorily Redeemable Trust
Preferred Securities Issued by Subsidiary Holding Solely Senior Debentures
Issued by the Company for a detailed discussion regarding the PRIDES
settlement). The 2000 charges are comprised of $23 million related to
investigations into the previously discovered accounting irregularities in the
former business units of CUC and $20 million related to the settlement of
litigation resulting from those accounting irregularities (outside of the
principal common stockholder litigation). Such charges were partially offset by
a credit of $41 million also related to an adjustment to the PRIDES class action
litigation settlement charge we recorded in 1998.

NET LOSS ON DISPOSITIONS OF BUSINESSES AND IMPAIRMENT OF INVESTMENTS

During 2001 and 2000, we recorded net losses of $24 million and $8 million,
respectively, in connection with the dispositions of businesses and the
impairment of certain investments. The 2001 losses are net of a $436 million
gain originally recorded on the sale of our real estate Internet portal and
certain ancillary businesses to Homestore. Ultimately, we recorded a loss of
$407 million during fourth quarter 2001 as a result of a decline in the value of
our investment in Homestore. At December 31, 2001, our investment in Homestore
was recorded at zero and we had no future obligations relating to this
investment. Additionally, during fourth quarter 2001, we recorded losses of
$34 million in connection with declines in the value of our investments in
certain other businesses and $19 million in connection with the dispositions of
certain non-strategic businesses in 1999. The 2000 losses related to the
dispositions of certain non-strategic businesses and were partially offset by
the recognition of $35 million of the deferred gain that resulted from the 1999
sale of our fleet management business (see Note 4--Dispositions of Businesses
and Impairment of Investments).

RESULTS OF REPORTABLE SEGMENTS--2001 VS. 2000

Our discussion of each of our segment's operating results focuses on Adjusted
EBITDA, which is defined as earnings before non-vehicle interest, income taxes,
non-vehicle depreciation and amortization, minority interest and equity in
Homestore.com, and is adjusted to exclude certain items, which are of a
non-recurring or unusual nature and are not measured in assessing segment
performance or are not segment specific. Our management believes such
discussions are the most informative representation of how management evaluates
performance. However, our presentation of Adjusted EBITDA may not be comparable
with similar measures used by other companies.

In connection with the acquisitions of Avis and Galileo and the disposition of
our real estate Internet portal, we realigned the operations and management of
certain of our businesses during 2001. Accordingly, our segment reporting
structure now encompasses the following five reportable segments: Real Estate
Services, Hospitality, Vehicle Services, Travel Distribution and Financial
Services. The periods presented herein have been reclassified to reflect this
change in our segment reporting structure.

40

- --------------------------
* Not meaningful.
(a) Excludes charges of $192 million primarily in connection with restructuring
and other initiatives undertaken as a result of the September 11th
terrorist attacks ($31 million, $51 million, $58 million, $7 million,
$10 million and $35 million of charges were recorded within Real Estate
Services, Hospitality, Vehicle Services, Travel Distribution, Financial
Services and Corporate and Other, respectively).
(b) Excludes charges of $109 million in connection with restructuring and other
initiatives ($2 million, $63 million, $31 million and $13 million of
charges were recorded within Real Estate Services, Hospitality, Financial
Services and Corporate and Other, respectively).
(c) Adjusted EBITDA for 2001 excludes charges of $95 million related to the
funding of an irrevocable contribution to an independent technology trust
responsible for providing technology initiatives for the benefit of certain
of our current and future franchisees and $94 million related to the
impairment of our mortgage servicing rights portfolio.
(d) Adjusted EBITDA for 2001 excludes a charge of $11 million related to the
impairment of certain of our investments in part due to the September 11th
terrorist attacks. Adjusted EBITDA for 2000 excludes $12 million of losses
related to the dispositions of businesses.
(e) Adjusted EBITDA for 2001 excludes charges of $5 million related to the
acquisition and integration of Avis and $2 million related to the
impairment of certain of our investments due to the September 11th terrorist
attacks.
(f) Adjusted EBITDA for 2001 excludes charges of $23 million related to the
acquisition and integration of Galileo and Cheap Tickets.
(g) Represents the results of operations of our non-strategic businesses,
unallocated corporate overhead and the elimination of transactions between
segments. Adjusted EBITDA for 2001 excludes charges of (i) $427 million
primarily related to the impairment of our investment in Homestore,
(ii) $86 million for net litigation settlement and related costs,
(iii) $85 million related to the funding of Trip Network.,
(iv) $80 million related to the outsourcing of our information technology
operations to IBM in connection with the acquisition of Galileo,
(v) $19 million related the dispositions of certain non-strategic businesses
in 1999, (vi) $7 million related to a non-cash contribution to the Cendant
Charitable Foundation and (vii) $4 million related to the acquisition and
integration of Avis. Such charges were partially offset by a gain of
$436 million primarily related to the sale of our real estate Internet
portal, move.com. Adjusted EBITDA for 2000 excludes a gain of $35 million,
which represents the recognition of a portion of our previously recorded
deferred gain from the sale of our former fleet business due to the
disposition of VMS Europe by Avis in August 2000. Such amounts were
partially offset by $31 million of losses related to the disposition of
certain non-strategic businesses and $2 million of net litigation settlement
and related costs.

REAL ESTATE SERVICES

Revenues and Adjusted EBITDA increased $398 million (27%) and $187 million
(25%), respectively. The increase in operating results was primarily driven by
substantial growth in mortgage loan production due to increased refinancing
activity and purchase volume. Higher franchise fees from our Century 21,
Coldwell Banker and ERA franchise brands and increases in relocation services
also contributed to the favorable operating results. Offsetting the revenue
increases, operating and administrative expenses within this segment increased
$208 million primarily to support the higher volume of mortgage originations and
related servicing activities.

Collectively, mortgage loans sold increased $14.8 billion (70%) to
$35.9 billion, generating incremental revenues of $367 million, a 117% increase.
Closed mortgage loans increased $22.4 billion (101%) to $44.5 billion in 2001.
Such growth consisted of a $17.6 billion increase (approximately ten-fold) in
refinancings and a $4.8 billion increase (24%) in purchase mortgage closings. A
significant portion of mortgage loans closed in any quarter will generate
revenues in future periods as those loans closed are packaged and sold and
revenue is recognized upon the sale of the loan, which is typically 45 to
60 days after closing. Beginning in January 2001, Merrill Lynch outsourced its
mortgage origination and servicing operations to us, which accounted for 17% of
our mortgage closings in 2001. Partially offsetting record

41

production revenues was a $26 million (24%) decline in net loan servicing
revenue. The average servicing portfolio grew $28 billion (45%) resulting from
the high volume of mortgage loan originations and our outsourcing arrangement
with Merrill Lynch; however, accelerated servicing amortization expenses during
2001, due primarily to refinancing activity, more than offset the increase in
recurring servicing fees from the portfolio growth.

Franchise fees from our real estate franchise brands also contributed to revenue
and Adjusted EBITDA growth. Royalties and other franchise fees increased
$41 million (8%), despite only modest industry-wide growth and a year-over-year
industry decline in California, principally due to a 4% increase in the average
price of homes sold and $16 million of other fees received in 2001, including
the termination of a franchise agreement. Service-based fees from relocation
activities also contributed to the increase in revenues and Adjusted EBITDA
principally due to a $14 million increase in referral fees resulting from
increased volume, which included the execution of new service contracts. In
addition, asset-based relocation revenues decreased by $3 million, which was
comprised of a $10 million revenue decline due to lower corporate and government
homesale closings, partially offset by a $7 million increase in net interest
income from relocation operations due to reduced debt levels in 2001.

HOSPITALITY

Revenues and Adjusted EBITDA increased $604 million (66%) and $128 million
(33%), respectively. While our April 2001 acquisition of Fairfield produced the
bulk of this growth, our pre-existing timeshare exchange operations also made
contributions. Fairfield contributed revenues and Adjusted EBITDA of
$568 million and $144 million, respectively, during 2001. In addition, the first
quarter 2001 acquisition of Holiday Cottages Group Limited, the leading UK brand
in holiday cottage rentals, contributed incremental revenues and Adjusted EBITDA
of $34 million and $13 million, respectively, in 2001. Notwithstanding the
negative impact that the September 11th terrorist attacks had on the economy's
travel sector, timeshare subscription and transaction fees increased
$41 million supported by increases in both members and exchange transactions. A
corresponding increase in timeshare-related staffing costs was incurred to
support volume growth and meet anticipated service levels. Revenues and Adjusted
EBITDA in this segment include a decline in preferred alliance fees of
$8 million, principally due to the expiration of a vendor contract in 2000.
Royalties and marketing fund revenues from our lodging franchise operations
declined $13 million (6%) and $14 million (7%), respectively, due to a 7%
decrease in revenue per available room. Lower marketing fund revenues received
from franchisees were directly offset by lower expenses incurred on the
marketing of our nine lodging brands. The September 11th terrorist attacks
caused a decline in the occupancy levels and room rates of our franchised
lodging properties in the fourth quarter of 2001. While we expect the events of
September 11th to suppress the growth of this segment in the near term, we also
expect that the percentage impact will continue to decline over time, absent any
further negative events affecting the travel industry. Furthermore, since many
of our timeshare operations and franchised lodging properties principally serve
road travelers (rather than air travelers), we believe that the effects of
September 11th on this segment's operations will be less severe than on the
travel industry as a whole.

VEHICLE SERVICES

Revenues and Adjusted EBITDA increased $3.1 billion and $97 million,
respectively, substantially due to the acquisition of Avis in March 2001. Prior
to the acquisition of Avis, revenues and Adjusted EBITDA of this segment
consisted principally of earnings from our 18% equity investment in Avis,
franchise royalties received from Avis and the operations of our National Car
Parks subsidiary. The acquisition of Avis contributed incremental revenues and
Adjusted EBITDA of $3.1 billion and $112 million, respectively, in 2001. Avis'
results in 2001 were negatively impacted by reduced demand at airport locations
due to a general decline in commercial travel throughout the year, which was
further exacerbated by the September 11th terrorist attacks. In response to the
slowdown in commercial travel and in the wake of the September 11th terrorist
attacks, we believe that we have rightsized our car rental operations to meet

42

anticipated business levels, which included reductions in workforce and fleet
(fleet was downsized by approximately 10%). We expect that seasonally adjusted
car rental volumes will continue to increase as air travel volumes rebound. Our
fleet management, fuel card management and UK parking businesses were not
materially impacted by the September 11th terrorist attacks. The remaining
segment results reflect the operations of our National Car Parks subsidiary,
which had lower income due to a reduction in property disposals.

TRAVEL DISTRIBUTION

Prior to the acquisitions of Galileo and Cheap Tickets, revenue and Adjusted
EBITDA for this segment principally comprised the operations of Cendant Travel,
our travel agent subsidiary. Galileo and Cheap Tickets contributed revenues and
Adjusted EBITDA of $345 million and $101 million, respectively. The
September 11th terrorist attacks caused a decline in demand for travel-related
services and, accordingly, reduced the booking volumes for Galileo and our
travel agency businesses below fourth quarter 2000 levels. Galileo worldwide
booking volume for air travel declined 19% in fourth quarter 2001 compared with
fourth quarter 2000 and other travel-related bookings (car, hotel, etc.) were
down 23% for the comparable periods. Upon completing the acquisitions of Galileo
and Cheap Tickets, in response to the existing economic conditions, we not only
moved aggressively to integrate these businesses and achieve expected synergies,
but we also re-examined their cost structures and streamlined their operations
through workforce reductions and other means to meet expected business volumes.
Absent any further shock to the travel industry, we expect travel volumes to
continue to improve over time.

FINANCIAL SERVICES

Revenues increased $22 million (2%) while Adjusted EBITDA decreased $63 million
(17%). While the royalties we will receive from Trilegiant will benefit segment
results in future periods, the outsourcing of our individual membership business
to Trilegiant caused a decrease in Adjusted EBITDA during 2001, largely due to
$41 million of transaction-related expenses and $66 million of marketing
spending by Trilegiant, which we were contractually required to fund and, as
such, expensed (see discussion in "Liquidity and Capital Resources--Trilegiant
Corporation"). Excluding these items, Adjusted EBITDA increased $44 million
(12%). Membership volumes and revenues declined; however, commissions increased
due to higher commission rates. Conversely, the cost savings from servicing
fewer members, as well as Trilegiant's absorption of its share of fixed overhead
expenses subsequent to the outsourcing, more than offset the lower membership
revenues and higher commissions. In addition, we acquired Netmarket, an online
membership business, during fourth quarter 2000, which was immediately
integrated into our existing membership business. Netmarket contributed
incremental revenues of $53 million in 2001. Jackson Hewitt, our tax preparation
franchise business, contributed incremental revenues of $18 million, principally
comprised of higher royalties due to a 22% increase in tax return volume, with
relatively no corresponding increases in expenses due to the significant
operating leverage within our franchise operations. Revenues and Adjusted EBITDA
in 2000 included $8 million of fees recognized from the sale of certain referral
agreements.

CORPORATE AND OTHER

Revenues decreased $162 million while Adjusted EBITDA increased $32 million. Our
real estate Internet portal and certain ancillary businesses, which were sold to
Homestore in February 2001, collectively accounted for a decline in revenues of
$87 million and an improvement to Adjusted EBITDA of $82 million because we were
investing in the development and marketing of the portal during 2000. Revenues
and Adjusted EBITDA were negatively impacted by $36 million less income from
financial investments. In addition, revenues recognized from providing
electronic reservation processing services to Avis ceased coincident with our
acquisition of Avis, contributing to a reduction in revenues of $43 million with
no Adjusted EBITDA impact since Avis had been billed for such services at cost.
In December 2001, we entered into a ten-year, information technology services
relationship with IBM whereby IBM will

43

manage all of our data center operations. Adjusted EBITDA in 2001 benefited from
the absence of $13 million of costs incurred in 2000 to pursue Internet
initiatives and also reflects increased unallocated corporate overhead costs
principally due to infrastructure expansion to support company growth.

RESULTS OF CONSOLIDATED OPERATIONS--2000 VS. 1999

Our consolidated results from continuing operations comprised the following:

Net revenues decreased primarily as a result of the impact of businesses we
disposed of during 1999 (primarily our former fleet management and entertainment
publications businesses), as well as growth attributable to higher relocation
service-based fees, increased mortgage production and loan servicing revenues
and greater royalty fees generated from our real estate franchised brands. A
detailed discussion of revenue trends is included in "Results of Reportable
Segments--2000 vs. 1999." Total expenses decreased primarily due to other
charges (discussed below), as well as the impact of businesses we disposed of
during 1999 and a decrease in net non-vehicle interest expense primarily
resulting from a decrease in our average debt balance outstanding, which was
partially offset by interest expense accrued on our stockholder litigation
settlement liability during 2000.

Our provision for income taxes was $362 million in 2000, or an effective tax
rate of 32.7%, compared to a benefit of $406 million in 1999, or an effective
tax rate of 70.7%. The effective tax rate variance represents the impact of the
disposition of our fleet businesses in 1999, which was accounted for as a
tax-free merger.

As a result of the above-mentioned items, income from continuing operations
increased $889 million.

OTHER CHARGES

RESTRUCTURING AND OTHER UNUSUAL CHARGES

RESTRUCTURING COSTS. During 2000, we incurred restructuring charges of
$60 million. A detailed discussion of such charges is included in "Results of
Consolidated Operations--2001 vs. 2000."

OTHER UNUSUAL CHARGES. During 2000 and 1999, we incurred unusual charges of
$49 million and $117 million, respectively. A detailed discussion of the 2000
unusual charges is included in "Results of Consolidated Operations--2001 vs.
2000." The 1999 charge primarily consisted of (i) $85 million incurred in
connection with the creation of Netmarket Group, Inc., a then-independent
company that was created to pursue the development and expansion of interactive
businesses, (ii) $23 million primarily related to an irrevocable contribution to
an independent technology trust responsible for completing the transition of our
lodging franchisees to a common property management system and
(iii) $7 million primarily related to the termination of a proposed acquisition.

44

LITIGATION SETTLEMENT AND RELATED COSTS

During 2000 and 1999, we recorded net charges of $2 million and $2.9 billion,
respectively, for litigation settlement and related costs. A detailed discussion
of the 2000 charge is included in "Results of Consolidated Operations--2001 vs.
2000." The 1999 charge primarily represented the settlement of our principal
common stockholder class action lawsuit, as well as $21 million of charges
related to investigations into previously discovered accounting irregularities
in the former business units of CUC.

NET GAIN (LOSS) ON DISPOSITIONS OF BUSINESSES

During 2000 and 1999, we recorded a net loss of $8 million and a gain of
$1.1 billion, respectively, related to the dispositions of businesses. A
detailed discussion of the 2000 net loss is included in "Results of Consolidated
Operations--2001 vs. 2000." The 1999 gain was recognized primarily in connection
with the disposal of our fleet and entertainment publications businesses.

RESULTS OF REPORTABLE SEGMENTS--2000 VS. 1999

- ------------------------------

(*) Not meaningful

(a) Excludes a charge of $109 million in connection with restructuring and
other initiatives ($2 million, $63 million, $31 million and $13 million of
charges were recorded within Real Estate Services, Hospitality, Financial
Services and Corporate and Other, respectively).
(b) Adjusted EBITDA for 2000 excludes $12 million of losses related to the
dispositions of businesses. Adjusted EBITDA for 1999 excludes a charge of
$23 million related to the funding of an irrevocable contribution to an
independent technology trust responsible for providing technology
initiatives for the benefit of certain of our current and future
franchisees.
(c) Adjusted EBITDA for 1999 excludes $131 million of gains related to the
dispositions of businesses and a charge of $85 million associated with the
creation of Netmarket.
(d) Represents the results of operations of our non-strategic businesses,
unallocated corporate overhead and the elimination of transactions between
segments. Adjusted EBITDA for 2000 excludes a gain of $35 million, which
represents the recognition of a portion of our previously recorded deferred
gain from the sale of our former fleet business due to the disposition of
VMS Europe by Avis in August 2000. Such amounts were partially offset by
$31 million of losses related to the disposition of certain non-strategic
businesses and $2 million of net litigation settlement and related costs.
Adjusted EBITDA for 1999 excludes charges of (i) $2,915 million primarily
related to the settlement of the principal common stockholder class action
lawsuit and (ii) $7 million related to the termination of a proposed
acquisition. Such charges were partially offset by a net gain of
$978 million related to the dispositions of businesses.

45

REAL ESTATE SERVICES

Revenues and Adjusted EBITDA increased $78 million (6%) and $25 million (3%),
respectively. The increase in operating results was principally due to increased
royalties from our real estate franchise brands and growth in service-based fees
generated from client relocations. Royalty fees for the CENTURY
21-Registered Trademark-, Coldwell Banker-Registered Trademark-, and
ERA-Registered Trademark- franchise brands collectively increased $31 million
(7%) resulting from an 11% increase in the average price of homes sold (net of a
3% reduction in the volume of homes sold). Increases in royalties and franchise
fees are recognized with minimal corresponding increases in expenses due to the
significant operating leverage within our franchise operations. Service-based
fees from relocation related operations also significantly contributed to the
increase in revenues and Adjusted EBITDA. Service-based relocation fees
increased $33 million and are reflective of increased penetration into both
destination and departure markets and expanded services provided to our clients.

Revenues from mortgage loans closed increased $16 million as the impact of
favorable production margins exceeded the effect of a reduction in mortgage loan
closings. The average production fee increased 25 basis points (21%) due to a
reduction in the direct costs per loan. Mortgage loan closings declined
$3.4 billion (13%) to $22.1 billion, consisting of $20.2 billion in purchase
mortgages and $1.9 billion in refinancing mortgages. The decline in loan
closings was primarily the result of a $4.2 billion reduction in mortgage
refinancings due to the continued high volume of industry-wide refinancing
activity in 1999. Lower loan origination volume during the first half of 2000
contributed to a reduction in the Adjusted EBITDA margin in 2000. Purchase
mortgage closings in our retail lending business (where we interact directly
with the consumer) increased $1.0 billion to $16.6 billion. Retail mortgage
lending has been our primary focus and accounted for more than 80% of loan
volume in 2000.

Loan servicing revenues in 1999 included an $8 million gain on the sale of
servicing rights. Excluding such gain, recurring loan servicing revenue
increased $19 million (20%). The increase in loan servicing revenue was
principally attributable to a corresponding increase in the average servicing
portfolio, which grew approximately $14.3 billion (31%).

The aforementioned increases in our core business operations were partially
offset by a reduction of $10 million in gains recognized from the sale of
portions of our preferred stock investments in NRT Incorporated, a $7 million
gain recognized in 1999 on the sale of a minority interest in an insurance
subsidiary, an $8 million gain on the sale of mortgage servicing rights and a
$9 million increase in corporate overhead allocations due to a refinement of
allocation methods used in 2000. Excluding the aforementioned gains on asset
sales and increase in corporate overhead allocations, revenues and Adjusted
EBITDA increased $103 million (8%) and $59 million (8%), respectively, and the
Adjusted EBITDA margin remained constant at 52%.

HOSPITALITY

Revenues remained relatively constant while Adjusted EBITDA decreased
$35 million, or 8%. However, the primary drivers impacting our franchise and
timeshare operations reflected growth. Royalties from our lodging business
increased $8 million (4%) principally due to a 3% increase in available rooms.
Timeshare exchange revenues grew $12 million (6%) primarily due to a 6% growth
in memberships and a 6% increase in the average exchange fee. Timeshare
subscription revenues remained constant, despite the membership growth, due to
the impact of the January 1, 2000 implementation of Staff Accounting Bulletin
No. 101, which modified and extended the timing of revenue recognition for
subscriptions and certain other fees. Accounting under SAB No. 101 resulted in
non-cash reductions in timeshare subscription revenues and preferred alliance
revenues of $11 million and $6 million, respectively. Also during 2000, Adjusted
EBITDA declined in part due to $24 million of incremental overhead allocations
due to a refinement of allocation methods used in 2000. During 1999, revenues
and Adjusted EBITDA benefited by $11 million from the execution of a bulk
timeshare exchange transaction and also by $6 million from the generation of a
master license agreement and joint venture.

46

VEHICLE SERVICES

Prior to the acquisition of Avis on March 1, 2001, revenues and Adjusted EBITDA
of this segment consisted principally of earnings from our equity investment in
Avis, royalties received from Avis and the results of operations of our National
Car Parks subsidiary. Revenues and Adjusted EBITDA decreased $862 million and
$58 million, respectively. Such decreases are significantly due to the
disposition of our fleet businesses in June 1999 which contributed revenues and
Adjusted EBITDA of $881 million and $81 million, respectively, to our 1999
operating results, prior to its disposition. Excluding the impact of fleet
operations in 1999, revenues and Adjusted EBITDA increased $19 million (3%) and
$23 million (8%), respectively. National Car Parks, our subsidiary in the United
Kingdom that provides car parking services, contributed a $16 million increase
in revenues principally due to increased occupancy of owned and leased car
parking spaces and increased income from property disposals. The existing
infrastructure of our car parks business absorbed the volume increase with no
corresponding increases in expenses. Franchise royalties increased $4 million
(3%) primarily due to a 4% increase in the volume of car rental transactions at
Avis. Additionally, an increase in revenues and Adjusted EBITDA of $10 million,
due to incremental dividend income recognized on our preferred stock investment
in Avis, was offset by $11 million of gains recognized in 1999 on the sale of a
portion of our common equity interest in Avis.

TRAVEL DISTRIBUTION

Revenues and Adjusted EBITDA increased $8 million (9%) and $3 million (43%),
respectively. Prior to the acquisitions of Galileo and Cheap Tickets in
October 2001, revenues and Adjusted EBITDA of this segment consisted of our
travel services business.

FINANCIAL SERVICES

Revenues decreased $138 million (9%), while Adjusted EBITDA increased
$68 million (22%). During 1999, we disposed of four individual membership
businesses. Excluding the operating results of these businesses, revenues and
Adjusted EBITDA increased $36 million (3%) and $52 million (16%), respectively.
During 2000, our membership solicitation strategy was to focus on profitability
by targeting our marketing efforts and reducing expenses incurred to reach
potential new members. Accordingly, a favorable mix of products and programs
with marketing partners in 2000 positively impacted revenues and Adjusted
EBITDA. Additionally, we acquired and integrated Netmarket Group, an online
membership business, in the fourth quarter of 2000, which contributed
$12 million to revenues but also decreased Adjusted EBITDA by $7 million. Such
increases were partially offset by a decrease in membership expirations during
2000 (revenue is generally recognized upon expiration of the membership), which
was partially mitigated by a reduction in operating and marketing expenses,
including commissions, which directly related to servicing fewer members.

Jackson Hewitt, our tax preparation franchise business, contributed incremental
revenues of $16 million, which were recognized with minimal corresponding
increases in expenses due to our significant operating leverage within our
franchise operations. Jackson Hewitt experienced a 33% increase in tax return
volume and a 10% increase in the average price of a return. Additionally, we
incurred costs of approximately $9 million during 2000 to consolidate our
domestic insurance wholesale business operations in Tennessee. The majority of
such costs were offset by economies and related cost savings realized from such
consolidation.

CORPORATE AND OTHER

Revenues and Adjusted EBITDA decreased $501 million and $197 million,
respectively. Revenues decreased primarily as a result of the 1999 dispositions
of several businesses, the operating results of which were included through
their respective disposition dates in 1999. The absence of such divested
businesses from 2000 operations resulted in a reduction in revenues and Adjusted
EBITDA of $502 million and $78 million, respectively. Excluding the impact of
divested businesses on 1999 operating results, revenues remained constant while
Adjusted EBITDA decreased $119 million in 2000. Our real estate Internet

47

portal, move.com, which was sold during first quarter 2001, contributed
incremental revenues of $41 million, with a reduction in Adjusted EBITDA of
$72 million. The increase in revenues principally reflects an increase in
sponsorship revenues resulting from the launch of the move.com(SM) portal. The
decline in Adjusted EBITDA primarily reflects our increased investment in
marketing and development of the move.com network. Additionally, revenues and
Adjusted EBITDA in 2000 were negatively impacted by $30 million less income
recognized from financial investments and $19 million of costs incurred to
pursue Internet initiatives.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Within our car rental, vehicle management, relocation, mortgage services and
timeshare development businesses, we purchase assets or finance the purchase of
assets on behalf of our clients. Assets generated in this process are classified
as assets under management and mortgage programs. We seek to offset the interest
rate exposures inherent in these assets by matching them with financial
liabilities that have similar term and interest rate characteristics. As a
result, we minimize the interest rate risk associated with managing these assets
and create greater certainty around the financial income that they produce. Fees
generated from our clients are used, in part, to repay the interest and
principal associated with the financial liabilities. Funding for our assets
under management and mortgage programs is also provided by both unsecured
borrowings and secured financing arrangements, which are classified as
liabilities under management and mortgage programs, as well as securitization
facilities with special purpose entities. Cash inflows and outflows relating to
the generation or acquisition of assets and the principal debt repayment or
financing of such assets are classified as activities of our management and
mortgage programs.

FINANCIAL CONDITION

Total assets exclusive of assets under management and mortgage programs
increased primarily due to an increase in goodwill resulting from the
acquisitions of Avis and Galileo, various other increases in assets also due to
the impact of acquired businesses and cash proceeds received from debt and
equity issuances during 2001 (including the Upper DECS). Assets under management
and mortgage programs increased primarily due to vehicles acquired in the
acquisition of Avis, as well as vehicles acquired during 2001 for use in our car
rental and fleet management operations.

Total liabilities exclusive of liabilities under management and mortgage
programs increased primarily due to $4.8 billion of debt issued during 2001
(including the Upper DECS), approximately $600 million of debt assumed in the
acquisition of Avis and various other increases in liabilities due to the impact
of acquired businesses. Liabilities under management and mortgage programs
increased primarily due to $5.1 billion of debt assumed in the acquisition of
Avis and $2.2 billion of debt issued during 2001, as well as $750 million of
borrowings in 2001 under a revolving credit facility.

Mandatorily redeemable securities decreased due to the settlement of the
purchase contracts underlying the FELINE PRIDES during 2001, whereby we issued
61 million shares of CD common stock in satisfaction of our obligation under the
forward purchase contracts and received, in exchange, the trust preferred
securities forming a part of the PRIDES.

Stockholders' equity increased primarily due to the issuance of approximately
117 million shares of CD common stock valued at $12.72 per share to fund a
portion of the purchase price of Galileo, the above-mentioned issuance of
approximately 61 million shares of CD common stock, the issuance during first

48

quarter 2001 of 46 million shares of CD common stock at $13.20 per share for
aggregate proceeds of approximately $607 million and net income of $385 million
generated during 2001.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are cash on hand, our ability to generate
cash through operations and financing activities, as well as available credit
and securitization facilities. At December 31, 2001, we had approximately
$2.0 billion of cash on hand, an increase of approximately $1.0 billion from
$944 million at December 31, 2000. The following table summarizes such increase:

Net cash provided by operating activities increased primarily due to cash
generated by acquired operations, as well as growth in our mortgage business. We
used more cash in 2001 for investing activities primarily to fund the
acquisitions of Avis, Fairfield, Galileo and Cheap Tickets and a portion of our
stockholder litigation settlement liability. Additionally, we used $1.6 billion
of cash during 2001 to acquire vehicles used in our car rental and fleet
management programs. We also generated cash from financing activities during
2001 as compared to using cash in financing activities during 2000 primarily due
to proceeds received from debt and equity issuances, the issuance of the Upper
DECS and borrowings under our revolving credit facilities. Capital expenditures
during 2001 amounted to $349 million and were utilized to support operational
growth, enhance marketing opportunities and develop operating efficiencies
through technological improvements. We anticipate capital expenditure
investments during 2002 of approximately $375 million. Such amount represents an
increase from 2001 primarily due to capital expenditures related to businesses
we acquired during 2001. During February 2002, we used $390 million of available
cash to redeem all our outstanding 3% convertible notes. During first quarter
2002, we used $36 million of available cash to repurchase approximately
2.0 million shares of our CD common stock. We anticipate using cash on hand and
operating cash flow generated in 2002 to continue repurchasing our CD common
stock in order to offset the impact of employee stock option exercises. We
currently have approximately $226 million of remaining availability under our
board-authorized CD common stock repurchase program. We also anticipate using
cash on hand, operating cash flow generated in 2002 and, if necessary, revolving
credit facility borrowings to fund the remainder of our stockholder litigation
settlement liability during 2002. Our net funding obligation for the stockholder
litigation settlement liability was $1.44 billion at December 31, 2001. We
intend to make quarterly payments of $250 million to this trust until mid-July
2002, at which time we will fund the remaining obligation.

At December 31, 2001, we had $2.8 billion of available credit facilities
(including availability of $1.7 billion at the corporate level and $1.1 billion
at our PHH subsidiary). The credit facilities at the corporate level comprise a
$1.75 billion revolving credit facility maturing in August 2003 and a
$1.15 billion revolving credit facility maturing in February 2004. Borrowings
under the $1.75 billion facility bear interest at LIBOR plus a margin of 60
basis points. In addition, we are required to pay a per annum facility fee of 15
basis points under this facility and a per annum utilization fee of 12.5 basis
points if usage under the facility exceeds 33% of aggregate commitments. In the
event that the credit ratings assigned to us by nationally recognized debt
rating agencies are downgraded to a level below our ratings as of December 31,
2001 but still above investment grade, the interest rate and facility fees on
our $1.75 billion facility are subject to incremental upward adjustments of 10
and 2.5 basis points, respectively. In the event that such credit ratings are
downgraded below investment grade, the interest rate and facility fees are
subject to further upward adjustments of 47.5 and 15 basis points, respectively.
This facility also contains the committed capacity to issue up to $1.75 billion
in letters of credit. As of December 31, 2001, letters of credit of
$1.1 billion were outstanding under this facility, of which $865 million were
used as collateral for our

49

stockholder litigation settlement liability. Under the terms of this facility,
in August 2002, the revolving line will be reduced by $500 million to
$1.25 billion. The $1.15 billion facility contains the committed capacity to
issue up to $300 million in letters of credit, of which $82 million were
outstanding as of December 31, 2001. Borrowings under this facility bear
interest at LIBOR plus a margin of 82.5 basis points. In addition, we are
required to pay a per annum facility fee of 17.5 basis points under this
facility and a per annum utilization fee of 25 basis points if usage under the
facility exceeds 33% of aggregate commitments. In the event that the credit
ratings assigned to us by nationally recognized debt rating agencies are
downgraded below investment grade, the interest rate and facility fees on our
$1.15 billion facility are subject to upward adjustments of 35 and 15 basis
points, respectively.

The credit facilities at our PHH subsidiary are comprised of two $750 million
revolving credit facilities maturing in February 2004 and February 2005, a
$100 million revolving credit facility maturing in December 2002 and
$275 million of other revolving credit facilities maturing in November 2002.
Borrowings under these facilities currently bear interest at LIBOR plus a margin
of approximately 62.5 basis points. In addition, we are currently required to
pay a per annum facility fee of approximately 12.5 basis points under these
facilities and a per annum utilization fee of approximately 25 basis points if
usage under the facilities exceeds 25% of aggregate commitments. In the event
that the credit ratings assigned to PHH by nationally recognized debt rating
agencies are downgraded to a level below PHH's ratings as of December 31, 2001,
the interest rate and facility fees on these facilities are subject to
incremental upward adjustments of approximately 12.5 basis points. In the event
that the credit ratings are downgraded below investment grade, the interest rate
and facility fees are subject to further upward adjustments of approximately
62.5 basis points. At December 31, 2001, we had outstanding borrowings of
$750 million under our facility maturing in February 2005.

We also currently have $3.0 billion of availability for public debt or equity
issuances under a shelf registration statement at the corporate level and
$2.4 billion of availability for public debt issuances under shelf registration
statements at the PHH level.

At December 31, 2001, we had approximately $17.2 billion of indebtedness
(including corporate indebtedness of $7.0 billion, debt related to our
management and mortgage programs of $9.8 billion and our mandatorily redeemable
interest of $375 million). Our net debt (excluding the Upper DECS and net of
cash and cash equivalents) to total capital (including debt and the Upper DECS)
ratio was 36% and the ratio of Adjusted EBITDA to net non-vehicle interest
expense was 9 to 1 for 2001.

The following table summarizes the components of our corporate indebtedness:

- ------------------------

(a) On February 15, 2002, we redeemed the entire outstanding balance of 3%
convertible subordinated notes.

During 2001, we generated cash of $4.8 billion from the issuance of contingently
convertible debt securities, the 6.875% notes and the Upper DECS. The proceeds
from these issuances were used, in part,

50

to prepay a portion of our stockholder litigation settlement liability, reduce
or extinguish certain borrowings, fund a portion of the purchase price of
certain acquisitions and for general corporate purposes. During 2001, we used
$160 million of cash to redeem a portion of our 3% convertible subordinated
notes. We redeemed the remaining balance at maturity on February 15, 2002. Our
7 3/4% notes are due in December 2003 and may be redeemed by us, in whole or in
part, at any time at our option. Our 6.875% notes, which were issued during 2001
for net proceeds of $843 million, are due in August 2006. Our 7 3/4% and 6.875%
notes are senior unsecured obligations and rank equally in right of payment with
all our existing and future unsecured senior indebtedness. The interest rates on
these notes are subject to upward adjustments of 150 basis points in the event
that the credit ratings assigned to us by nationally recognized debt rating
agencies are downgraded below investment grade. Our 11% senior subordinated
notes are due in May 2009 and may be redeemed by us in part prior to May 2002
upon the occurrence of specific events, or at any time, in whole or in part,
after May 2004. These notes are subordinated in the right of payment to all our
existing and future senior indebtedness of Avis and are unconditionally
guaranteed on a senior subordinated basis by certain of our car rental
subsidiaries.

Our contingently convertible debt securities, which were all issued during 2001,
comprised the following:

- ------------------------

(a) We may be required to pay additional interest on these notes commencing in
2004 if the average price of CD common stock is less than a stipulated
amount during a specified time period. The notes are only convertible upon
the satisfaction of specific contingencies. Such contingencies include the
satisfaction of a specific market price condition, notice of redemption or
the occurrence of specified corporate transactions. The notes are not
redeemable by us prior to November 27, 2004, but will be redeemable
thereafter. In addition, holders of the notes may require us to repurchase
the notes on November 27, 2004 and 2008. In such circumstance, we have the
option of paying the repurchase price in cash, shares of our CD common
stock, or any combination thereof. These debentures are senior unsecured
obligations and rank equally in right of payment with all our existing and
future senior unsecured indebtedness.

(b) These notes were issued at a discount representing a yield-to-maturity of
2.5%. We will not make periodic payments of interest on the notes, but may
be required to make nominal cash payments in specified circumstances. The
notes are only convertible upon the satisfaction of specific contingencies.
Such contingencies include the satisfaction of a specific market price
condition, notice of redemption, a credit rating downgrade below investment
grade or the occurrence of specified corporate transactions. The notes are
not redeemable by us prior to February 13, 2004, but will be redeemable
thereafter at the issue price of $608.41 per note plus accrued discount
through the redemption date. In addition, holders of the notes may require
us to repurchase the notes on February 13, 2004, 2009 or 2014 at stipulated
prices. In such circumstance, we have the option of paying the repurchase
price in cash, shares of our CD common stock, or any combination thereof.
These notes are senior unsecured obligations and rank equally in right of
payment with all our existing and future senior unsecured and unsubordinated
indebtedness.

(c) We are required to pay interest on these notes commencing in 2004 if the
average price of CD common stock is less than a stipulated amount during a
specified time period. The notes are only convertible upon the satisfaction
of specific contingencies. Such contingencies include the satisfaction of a
specific market price condition, the satisfaction of a specific trading
price condition, notice of redemption, a credit rating downgrade below
investment grade or the occurrence of specified corporate transactions. The
notes will not be redeemable by us prior to May 4, 2004, but will be
redeemable thereafter. In addition, holders of the notes may require us to
repurchase the notes on May 4, 2002, 2004, 2006, 2008, 2011 and 2016. In
such circumstance, we have the option of paying the repurchase price in
cash, shares of our CD common stock, or any combination thereof. These
debentures are senior unsecured obligations and rank equally in right of
payment with all our existing and future senior unsecured indebtedness.

The Upper DECS each consist of both a senior note and a forward purchase
contract. The senior notes initially bear interest at an annual rate of 6.75%,
which will be reset based upon a remarketing in either May or August 2004. The
senior notes have a term of five years and represent senior unsecured debt,
which ranks equally in right of payment with all our existing and future
unsecured and unsubordinated debt and ranks senior to any future subordinated
indebtedness. The forward purchase contract component requires the holder to
purchase a minimum of 1.7593 shares and a maximum of 2.3223 shares of CD common
stock, based upon the average closing price of CD common stock during a
stipulated period, in

51

August 2004. The minimum and maximum number of shares to be issued under the
forward purchase contracts are 30.3 million and 40.1 million, respectively. The
forward purchase contracts also require quarterly cash distributions to each
holder at an annual rate of 1.00% through August 2004 (the date the forward
purchase contracts are required to be settled).

The following table summarizes the components of our debt related to management
and mortgage programs:

Debt related to our management and mortgage programs increased $7.8 billion
during 2001 primarily resulting from the assumption of Avis debt aggregating
$5.1 billion (principally comprising $4.7 billion of secured term notes and
$415 million of secured commercial paper and other borrowings), debt issuances
during 2001 aggregating approximately $2.2 billion and unsecured borrowings
under our revolving credit facility during 2001 aggregating $750 million. The
proceeds from these issuances were used to fund the purchase of assets under
management and mortgage programs and retire maturing debt under management and
mortgage programs.

Secured borrowings primarily represent asset-backed funding arrangements whereby
we or our wholly-owned and consolidated special purpose entities issue debt or
enter into loans supported by the cash flows derived from specific pools of
assets classified as assets under management and mortgage programs. These
borrowings are primarily issued under our AESOP Funding or Greyhound Funding
programs. AESOP Funding is a domestic financing program that provides for the
issuance of up to $4.45 billion of variable rate notes to support our car rental
operations. Greyhound Funding is also a domestic financing program that provides
for the issuance of up to $3.19 billion of variable rate notes, preferred
membership interests and term notes to support our fleet leasing operations.
Under both programs, the debt issued is collateralized by vehicles owned by
either our car rental subsidiary or our fleet leasing subsidiary. In the AESOP
Funding program, the vehicles financed are generally covered by agreements where
manufacturers guarantee a specified repurchase price for the vehicles. However,
the program will allow funding for 25% of vehicles not covered by such
agreements. The titles to all the vehicles supporting these facilities is held
in bankruptcy remote trusts and we act as a servicer of all the vehicles. For
the Greyhound Funding facility, the bankruptcy remote trust also acts as lessor
under both operating and financing lease agreements. At December 31, 2001, we
had $3.5 billion of term notes outstanding under the AESOP Funding program. At
December 31, 2001, we had $2.2 billion of outstanding debt under the Greyhound
Funding program, of which $1.9 billion and $295 million were included as
components of secured term notes and other secured borrowings, respectively, in
the above table. All debt issued under these programs is classified as
liabilities under management and mortgage programs on our Consolidated Balance
Sheet. Also included in secured term notes are $450 million of variable-rate
notes maturing in 2011 and $285 million of variable-rate notes maturing in 2006.
These notes are collaterized by vehicles owned by our fleet leasing subsidiary.

Secured short-term borrowings primarily consist of financing arrangements to
sell mortgage loans under a repurchase agreement, which is renewable on an
annual basis at the discretion of the lender. Such loans are collateralized by
underlying mortgage loans held in safekeeping by the custodian to the agreement.
The total commitment under this agreement is $500 million. Secured commercial
paper matures within 270 days and is supported by rental vehicles owned by our
car rental subsidiary.

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Unsecured medium-term notes primarily bear interest at a rate of 8 1/8% per
annum. Such interest rate is generally subject to incremental upward adjustments
of 50 basis points in the event that the credit ratings assigned to PHH by
nationally recognized credit rating agencies are downgraded to a level below
PHH's ratings as of December 31, 2001. In the event that the credit ratings are
downgraded below investment grade, the interest rate is subject to an upward
adjustment not to exceed 300 basis points. Unsecured short-term borrowings
primarily represent borrowings under revolving credit facilities. Unsecured
commercial paper matures within 270 days and is fully supported by the committed
revolving credit agreements described above.

Also included in out total indebtedness in addition to corporate indebtedness
and debt related to our management and mortgage program, is a mandatorily
redeemable senior preferred interest, which is mandatorily redeemable by the
holder in 2015 and may not be redeemed by us prior to March 2005, except upon
the occurrence of specified circumstances. We are required to pay distributions
on the senior preferred interest based on three-month LIBOR plus a margin of
1.77%. In the event of default, or other specified events, including a downgrade
in our credit ratings below investment grade, holders of the senior preferred
interest have certain remedies and liquidation preferences, including the right
to demand payment by us.

In addition to our on-balance sheet borrowings and available credit facilities,
we enter into transactions where special purpose entities are used as a means of
securitizing financial assets generated or acquired in the normal course of
business under our management and mortgage programs. We utilize these special
purpose entities because they are highly efficient for the sale of financial
assets and represent conventional practice in the securitization industry. In
accordance with generally accepted accounting principles, the assets sold to the
special purpose entities and the related liabilities are not reflected on our
balance sheet as such assets are legally isolated from creditor claims and
removed from our effective control.

At the corporate level, we sell timeshare receivables in securitizations to
bankruptcy remote qualifying special purpose entities under revolving sales
agreements in exchange for cash. Our maximum funding capacity under these
securitization facilities is $500 million. These facilities are non-recourse to
us. However, we retain a subordinated residual interest and the related
servicing rights and obligations in the transferred timeshare receivables. We
receive monthly servicing fees of approximately 100 basis points of the
outstanding balance of the transferred timeshare receivables. At December 31,
2001, we were servicing approximately $492 million of timeshare receivables
transferred under these agreements.

Additionally, our PHH subsidiary customarily sells all mortgage loans we
originate into the secondary market, primarily to government-sponsored entities,
in exchange for cash. These mortgage loans are placed into the secondary market
either by PHH or through an unaffiliated bankruptcy remote special purpose
entity. Our maximum funding capacity through the special purpose entity is
$3.2 billion. The loans sold to the secondary market are generally non-recourse
to us and to PHH. However, we generally retain the servicing rights on the
mortgage loans sold and receive an annual servicing fee of approximately 47
basis points on such loans. At December 31, 2001, we were servicing
$96.3 billion of mortgage loans sold to the secondary market and $2.5 billion
sold to the special purpose entity.

Our PHH subsidiary also sells relocation receivables in securitizations to a
bankruptcy remote qualifying special purpose entity in exchange for cash. Our
maximum funding capacity under this securitization facility is $650 million.
This facility is non-recourse to us and to PHH. However, we retain a
subordinated residual interest and the related servicing rights and obligations
in the relocation receivables and receive an annual servicing fee of
approximately 75 basis points on the outstanding balance of relocation
receivables transferred. At December 31, 2001, we were servicing $620 million of
relocation receivables transferred under this agreement.

Neither we nor our affiliates officers, directors or employees hold any equity
interest in any of the above special purpose entities, nor do we or our
affiliates provide any financial support or financial guarantee arrangements to
the above special purpose entities.

PHH also sells certain interests in operating leases and the underlying vehicles
to two independent Canadian third parties. PHH repurchases the leased vehicles
and leases such vehicles under direct

53

financing leases to the Canadian third parties. The Canadian third parties
retain the lease rights and prepay all the lease payments except for an agreed
upon residual amount, which is typically 0% to 8% of the total lease payments.
The residual amounts represent our only exposure in connection with these
transactions. At December 31, 2001, the balance of outstanding lease receivables
which were sold to the Canadian third parties was $341 million. The total
outstanding prepaid rent and our subordinated residual interest under these
leasing arrangements were $320 million and $21 million, respectively, as of
December 31, 2001. We recognized $108 million of revenues related to these
leases during 2001.

Additionally, PHH leases certain office buildings on an annual basis from an
unaffiliated finance company which holds the title to the property. PHH has the
option to renew this lease each year through 2004. At December 31, 2004, or
prior to such date should we elect not to renew the lease, PHH will be required
to purchase the property at an amount to be determined, which approximated
$80 million as of December 31, 2001. PHH also has the option to purchase the
property at any time during the lease term. We bear all the residual risk
resulting from this lease.

Our liquidity position may be negatively affected by unfavorable conditions in
any one of the industries in which we operate as we may not have the ability to
generate sufficient cash flows from operating activities due to those
unfavorable conditions. Additionally, our liquidity as it relates to both
management and mortgage programs could be adversly affected by a deteroriation
in the performance of the underlying assets of such programs. Access to the
principal financing program for our car rental subsidiary may also be impaired
should General Motors Corporation not be able to honor its obligations to
repurchase a substantial number of our vehicles. Our liquidity as it relates to
mortgage programs is highly dependent on the secondary markets for mortgage
loans. Access to certain of our securitization facilities and our ability to act
as servicer thereto also may be limited in the event that our or PHH's credit
ratings are downgraded below investment grade and, in certain circumstances,
where we or PHH fail to meet certain financial ratios. However, we do not
believe that our or PHH's credit ratings are likely to fall below such
thresholds. Additionally, we monitor the maintenance of these financial ratios
and as of December 31, 2001, we were in compliance with all covenants under
these facilities.

Currently our credit ratings are as follows:

In February 2002, the credit ratings assigned to us and to PHH by Moody's
Investors Service and Standard & Poor's were affirmed. A security rating is not
a recommendation to buy, sell or hold securities and is subject to revision or
withdrawal at any time.

AFFILIATED ENTITIES

We also maintain certain relationships with affiliated entities principally to
support our business model of growing earnings and cash flow with minimal asset
risk. We do not have the ability to control the operating and financial policies
of these entities and, accordingly, do not consolidate these entities in our
results of operations, financial position or cash flows. Certain of our officers
serve on the Board of Directors of these entities, but in no instances do they
constitute a majority of the Board, nor do they receive any economic benefits.

NRT INCORPORATED. NRT Incorporated is a joint venture between us and Apollo
Management, L.P. NRT acquires independent real estate brokerages, converts them
to one of our real estate brands and operates the brand under a 50-year
franchise agreement with us. We participate in acquisitions made by NRT by

54

acquiring intangible assets and, in some cases, mortgage operations of the real
estate brokerage firms acquired by NRT. Franchise agreements of $854 million and
other intangible assets of $29 million, which resulted from the acquisition of
mortgage operations through NRT, are recorded on our Consoldiated Balance Sheet
as of December 31, 2001. Except for the term and the lack of a royalty rebate
provision, these franchise agreements are similar to those of our other real
estate franchisees. NRT pays us royalty and advertising fees in connection with
these franchise agreements, which approximated $220 million, $198 million and
$172 million during 2001, 2000 and 1999, respectively. Additionally, during
2001, we received $16 million of other fees from NRT, which included a fee paid
in connection with the termination of a franchise agreement. The mortgage
operations we acquired through NRT were immediately integrated into our existing
mortgage operations. We also receive real estate referral fees from NRT in
connection with clients referred to NRT by our relocation business. During 2001,
2000 and 1999, such fees were approximately $37 million, $25 million and
$15 million, respectively. These fees are also paid to us by all other real
estate brokerages (both affiliates and non-affiliates) who receive referrals
from our relocation business. In February 1999, we advanced $35 million to NRT
for services to be provided related to the identification of potential
acquisition candidates, the negotiation of agreements and other services in
connection with future brokerage acquisitions by NRT. As NRT makes acquisitions,
we capitalize a proportionate share of this advance, which is then amortized
over the term of the franchise agreement. As of December 31, 2001, the remaining
balance of this advance was $12 million. Such amount is refundable in the event
that services are not provided and therefore is accounted for as a prepaid asset
until services are rendered by NRT.

NRT's common stock is owned by Apollo. We own all of NRT's preferred stock,
which approximated $384 million as of December 31, 2001. We have the option,
upon the occurrence of certain events, to convert a portion of our preferred
stock investment into no more than 50% of NRT's common stock. We also have the
option to purchase all of NRT's common stock from Apollo for $20 million. This
option is not exercisable until August 11, 2002 and is conditional upon NRT's
payment of $166 million to Apollo. We may exercise the option prior to
August 11, 2002 if we satisfy NRT's obligation. If NRT is unable to make the
$166 million payment to Apollo, we would be required to make the payment on
behalf of NRT and would receive additional NRT preferred stock in exchange. As
of December 31, 2001, NRT had $291 million in debt, which is non-recourse to us.

TRIP NETWORK, INC. During March 2001, we funded the creation of Trip Network
with a contribution of assets valued at approximately $20 million in exchange
for all of the common and preferred stock of Trip Network. We transferred all
the common shares of Trip Network to an independent technology trust. The
preferred stock investment, which is convertible into approximately 80% of Trip
Network's common stock on a fully diluted basis, is not convertible prior to
March 31, 2003, except upon a change of control of Trip Network. Subsequently,
we contributed $85 million, including $45 million in cash and 1.5 million shares
of Homestore common stock, then-valued at $34 million, to Trip Network to pursue
the development of an online travel business for the benefit of certain of our
current and future franchisees. Such amount was expensed during 2001. We also
received warrants to purchase up to 28,250 shares of Trip Network's common
stock, which are exercisable upon the achievement of certain valuations
beginning on March 31, 2003 or upon a change of control at Trip Network.

During October 2001, we entered into two separate lease and licensing agreements
with Trip Network, whereby, Trip Network was granted a license to operate the
online businesses of Trip.com, Inc. and Cheap Tickets (both wholly-owned
subsidiaries of Cendant) and a lease or sublease, as applicable, to all the
assets of these companies necessary to operate such businesses. The Trip.com
license agreement has a one-year term and is renewable at Trip Network's option
for 40 additional one-year periods. The Cheaptickets.com license agreement has a
40-year term. Under these agreements, we receive a license fee of 3% of revenues
generated by Trip.com and Cheaptickets.com during the term of the agreements. We
also received warrants to purchase up to 46,000 shares of Trip Network common
stock, which are exercisable upon achievement of certain financial results
beginning in October 2003 or upon a change of control of Trip Network. Also
during October 2001, we entered into a travel services agreement with Trip
Network, whereby we provide Trip Network with call center services. In addition,
we process and support Trip Network's booking and fulfillment of travel
transactions and provide travel-related products and services

55

to maintain and develop relationships, discounts and favorable commissions with
travel vendors. For these services, we receive a fee of cost plus an applicable
mark-up. During 2001, the revenue we received in connection with these
agreements was not material. Additionally, during October 2001, we entered into
a 40-year global distribution services subscriber agreement with Trip Network,
whereby we provide all global distribution services for Trip Network. We are not
obligated or contingently liable for any debt incurred by Trip Network. We
recorded a prepaid asset of approximately $40 million in connection with this
agreement, which is being amortized over 40 years.

FFD DEVELOPMENT COMPANY, LLC. Prior to our acquisition of Fairfield in
April 2001, Fairfield contributed approximately $60 million of timeshare
inventory and $4 million of cash to FFD Development Company LLC, a company
created by Fairfield to acquire real estate for construction of vacation
ownership units, which are sold to Fairfield upon completion. In exchange for
this contribution, Fairfield received all of the common and preferred equity
interests of FFD. Fairfield then contributed all the common equity interest to
an independent trust and retained a convertible preferred equity interest, which
is convertible at any time, and a warrant to purchase FFD's common equity. The
warrant is not exercisable until April 2004, except upon the occurrence of
specified events, including our conversion of more than half of our preferred
equity interest into common equity interests. In connection with our acquisition
of Fairfield in April 2001, we now own the preferred equity interest, which
approximated $59 million as of December 31, 2001, and the warrant to purchase a
common equity interest in FFD. During 2001, we recognized dividend income of
$6 million, which was paid-in-kind, related to our preferred equity interest in
FFD. Upon the conversion of such preferred equity interests and the exercise of
such warrant, we would own approximately 75% of FFD's common equity interests on
a fully diluted basis. Additionally, we are now obligated to fulfill Fairfield's
purchase commitments with FFD. However, under the development contracts with
FFD, we are not obligated to purchase a resort property until construction is
completed to the contractual specifications, a certificate of occupancy is
delivered and clear title is obtained. During 2001, we purchased $40 million of
timeshare interval inventory and land from FFD and as of December 31, 2001 are
obligated to purchase an additional $98 million. Subsequent to December 31,
2001, as is customary in "build to suit" agreements, when we contract with FFD
for the development of a property, we will issue a letter of credit for up to
20% of our purchase price for such property. Drawing under all such letters of
credit will only be permitted if we fail to meet our obligation under any
purchase commitment. While we intend to issue such letters of credit in 2002, no
such letters of credit are currently outstanding. We are not obligated or
contingently liable for any other debt incurred by FFD.

TRILEGIANT CORPORATION. On July 2, 2001, we entered into an agreement with
Trilegiant Corporation, a newly-formed company owned by the former management of
our Cendant Membership Services and Cendant Incentives subsidiaries, whereby we
outsourced our individual membership and loyalty business to Trilegiant.
Trilegiant operates membership-based clubs and programs and other
incentive-based programs. As part of this agreement, Trilegiant provides
fulfillment services to members of our individual membership business that
existed as of the transaction date in exchange for a servicing fee and licenses
and/or leases from us the assets of our individual membership business in order
to service these members and also to obtain new members. We continue to collect
membership fees from, and are obligated to provide membership benefits to,
existing members as of July 2, 2001, including their renewals. Trilegiant
retains the economic benefits and service obligations for those new members who
join the membership based clubs and programs and all other incentive programs
subsequent to July 2, 2001 and will recognize the related revenue and expenses.
Beginning in third quarter 2002, we will recognize as revenue the related
royalty income received from Trilegiant for membership fees generated by the new
members (initially 5%, increasing to approximately 16% over 10 years). We also
licensed various tradenames, trademarks, logos, service marks, and other
intellectual property relating to our membership business to Trilegiant for
40 years. Upon expiration of the 40-year term, Trilegiant will have the option
to purchase any or all of the intellectual property licenses at their then-fair
market values.

In connection with the foregoing arrangements, we advanced approximately
$100 million to support Trilegiant's marketing activities and made a
$20 million convertible preferred stock investment in Trilegiant, which is
convertible into approximately 20% of Trilegiant's common stock on a fully
diluted basis. We

56

expense the marketing advance as Trilegiant incurs qualified marketing costs.
During 2001, we expensed $66 million of the marketing advance. The preferred
stock investment is convertible at any time at our option and we are entitled to
receive a 12% cumulative non-cash dividend annually through July 2006. During
third quarter 2001, we wrote-off the entire amount of our preferred stock
investment due to operating losses incurred by Trilegiant. During 2001, we paid
Trilegiant $128 million in connection with services provided under the new
servicing arrangement and Trilegiant collected $212 million of cash on the
Company's behalf in connection with membership renewals.

We also provide Trilegiant with a $35 million revolving line of credit under
which advances are at our sole and unilateral discretion. As of December 31,
2001, Trilegiant had not drawn on this line. During August 2001, Trilegiant
entered into marketing agreements with a third party, whereby Trilegiant will
provide certain marketing services to the third party in exchange for a
commission. As part of our royalty arrangement with Trilegiant, we will
participate in those commissions. In connection with these marketing agreements,
we provided Trilegiant with a $75 million loan facility bearing interest at a
rate of 9% under which we will advance funds to Trilegiant for marketing
performed by Trilegiant on behalf of the third party. As of December 31, 2001,
the outstanding balance under this facility was $24 million. Such amount will be
repaid to us as commissions are received by Trilegiant from the third party.

Additionally, we maintain warrants to purchase up to 2.1 million shares of
Trilegiant's common stock, which are exercisable, upon the achievement of
certain financial results, into a majority ownership interest in Trilegiant. We
are not obligated or contingently liable for any debt incurred by Trilegiant.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

GOODWILL AND OTHER INTANGIBLE ASSETS. On January 1, 2002, we adopted SFAS
No. 142, "Goodwill and Other Intangible Assets" in its entirety. SFAS No. 142
addresses the financial accounting and reporting standards for the acquisition
of intangible assets outside of a business combination and for goodwill and
other intangible assets subsequent to their acquisition. This standard
eliminates the amortization of goodwill and indefinite lived intangible assets.
Intangible assets with finite lives will continue to be amortized over their
estimated useful lives. We will be required to assess goodwill and indefinite
lived intangible assets for impairment annually, or more frequently if
circumstances indicate impairment may have occurred. We have reassessed the
useful lives assigned to our intangible assets acquired in transactions
consummated prior to July 1, 2001 and the related amortization methodology.
Accordingly, we identified those intangible assets that have indefinite lives,
adjusted the future amortization periods of certain intangible assets
appropriately and changed our amortization methodology where appropriate.

In accordance with SFAS No. 142, we did not amortize goodwill and indefinite
lived intangible assets acquired after June 30, 2001. As of January 1, 2002, we
discontinued the amortization of all goodwill and indefinite lived intangible
assets. Based upon a preliminary assessment, we expect that the increase in pre-
tax net income from the application of the non-amortization provisions of SFAS
No. 142 would have approximated $215 million, $110 million and $126 million for
2001, 2000 and 1999, respectively.

As previously described, the initial implementation of this standard will not
impact our results of operations during 2002.

IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. During October 2001, the FASB
issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and replaces the
accounting and reporting provisions of APB Opinion No. 30, "Reporting Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," as
it relates to the disposal of a segment of a business. SFAS No. 144 requires the
use of a single accounting model for long-lived assets to be disposed of by
sale, including discontinued operations, by requiring those long-lived assets to
be measured at the lower of carrying amount or fair value less cost to sell. The
impairment recognition and measurement provisions of SFAS No. 121 were retained
for all long-lived assets to be held and used with the exception of goodwill. We
adopted this standard on January 1, 2002.

57

FORWARD-LOOKING STATEMENTS

Forward-looking statements in our public filings or other public statements are
subject to known and unknown risks, uncertainties and other factors which may
cause our actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. These forward-looking statements were based on
various factors and were derived utilizing numerous important assumptions and
other important factors that could cause actual results to differ materially
from those in the forward-looking statements. Forward-looking statements include
the information concerning our future financial performance, business strategy,
projected plans and objectives.

Statements preceded by, followed by or that otherwise include the words
"believes", "expects", "anticipates", "intends", "project", "estimates",
"plans", "may increase", "may fluctuate" and similar expressions or future or
conditional verbs such as "will", "should", "would", "may" and "could" are
generally forward-looking in nature and not historical facts. You should
understand that the following important factors and assumptions could affect our
future results and could cause actual results to differ materially from those
expressed in such forward-looking statements:

- the impacts of the September 11, 2001 terrorist attacks on New York City
and Washington, D.C. on the travel industry in general, and our travel
businesses in particular, are not fully known at this time, but are
expected to include negative impacts on financial results due to reduced
demand for travel in the near term; other attacks, acts of war; or
measures taken by governments in response thereto may negatively affect
the travel industry, our financial results and could also result in a
disruption in our business;

- the effect of economic conditions and interest rate changes on the economy
on a national, regional or international basis and the impact thereof on
our businesses;

- the effects of a decline in travel, due to political instability, adverse
economic conditions or otherwise, on our travel related businesses;

- the effects of changes in current interest rates, particularly on our real
estate franchise and mortgage businesses;

- the resolution or outcome of our unresolved pending litigation relating to
the previously announced accounting irregularities and other related
litigation;

- our ability to develop and implement operational, technological and
financial systems to manage growing operations and to achieve enhanced
earnings or effect cost savings;

- competition in our existing and potential future lines of business and the
financial resources of, and products available to, competitors;

- failure to reduce quickly our substantial technology costs in response to
a reduction in revenue, particularly in our computer reservations and
global distribution systems businesses;

- our failure to provide fully integrated disaster recovery technology
solutions in the event of a disaster;

- our ability to integrate and operate successfully acquired and merged
businesses and risks associated with such businesses, including the
acquisitions of Galileo International, Inc. and Cheap Tickets, Inc., the
compatibility of the operating systems of the combining companies, and the
degree to which our existing administrative and back-office functions and
costs and those of the acquired companies are complementary or redundant;

- our ability to obtain financing on acceptable terms to finance our growth
strategy and to operate within the limitations imposed by financing
arrangements and to maintain our credit ratings;

- competitive and pricing pressures in the vacation ownership and travel
industries, including the car rental industry;

- changes in the vehicle manufacturer repurchase arrangements in our Avis
car rental business in the event that used vehicle values decrease;

- and changes in laws and regulations, including changes in accounting
standards and privacy policy regulation.

58

Other factors and assumptions not identified above were also involved in the
derivation of these forward-looking statements, and the failure of such other
assumptions to be realized as well as other factors may also cause actual
results to differ materially from those projected. Most of these factors are
difficult to predict accurately and are generally beyond our control.

You should consider the areas of risk described above in connection with any
forward-looking statements that may be made by us and our businesses generally.
Except for our ongoing obligations to disclose material information under the
federal securities laws, we undertake no obligation to release publicly any
revisions to any forward-looking statements, to report events or to report the
occurrence of unanticipated events unless required by law. For any
forward-looking statements contained in any document, we claim the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We use various financial instruments, particularly swap contracts, forward
delivery commitments and futures and options contracts to manage and reduce the
interest rate risk related specifically to our committed mortgage pipeline,
mortgage loan inventory, mortgage servicing rights, mortgage-backed securities,
debt and certain other interest bearing liabilities. Foreign currency forwards
are also used to manage and reduce the foreign currency exchange rate risk
associated with our foreign currency denominated receivables and forecasted
royalties, forecasted earnings of foreign subsidiaries and forecasted foreign
currency denominated acquisitions.

We are exclusively an end user of these instruments, which are commonly referred
to as derivatives. We do not engage in trading, market-making, or other
speculative activities in the derivatives markets. More detailed information
about these financial instruments is provided in Note 23--Financial Instruments
to our Consolidated Financial Statements.

Our principal market exposures are interest and foreign currency rate risks.

- Interest rate movements in one country, as well as relative interest rate
movements between countries can materially impact our profitability. Our
primary interest rate exposure is to interest rate fluctuations in the
United States, specifically long-term U.S. Treasury and mortgage interest
rates due to their impact on mortgage-related assets and commitments and
also LIBOR and commercial paper interest rates due to their impact on
variable rate borrowings and other interest rate sensitive liabilities. We
anticipate that such interest rates will remain a primary market exposure
for the foreseeable future.

- Our primary foreign currency rate exposure is to exchange rate
fluctuations in the British pound sterling. We anticipate that such
foreign currency exchange rate risk will remain a primary market exposure
for the foreseeable future.

We assess our market risk based on changes in interest and foreign currency
exchange rates utilizing a sensitivity analysis. The sensitivity analysis
measures the potential loss in earnings, fair values and cash flows based on a
hypothetical 10% change (increase and decrease) in interest and currency rates.

We use a discounted cash flow model in determining the fair values of relocation
receivables, timeshare receivables, equity advances on homes, mortgage loans,
commitments to fund mortgages, mortgage servicing rights, mortgage-backed
securities and our retained interests in securitized assets. The primary
assumptions used in these models are prepayment speeds, estimated loss rates,
and discount rates. In determining the fair value of mortgage servicing rights
and mortgage-backed securities, the models also utilize credit losses and
mortgage servicing revenues and expenses as primary assumptions. In addition,
for commitments to fund mortgages, the borrower's propensity to close their
mortgage loan under the commitment is used as a primary assumption. For mortgage
loans, commitments to fund mortgages, forward delivery contracts and options, we
rely on prices sourced from Bloomberg in determining the impact of interest rate
shifts. We also utilize an option-adjusted spread ("OAS") model to determine the
impact of interest rate shifts on mortgage servicing rights and mortgage-backed
securities. The primary

59

assumption in an OAS model is the implied market volatility of interest rates
and prepayment speeds and the same primary assumptions used in determining fair
value.

We use a duration-based model in determining the impact of interest rate shifts
on our debt portfolio, certain other interest bearing liabilities and interest
rate derivatives portfolios. The primary assumption used in these models is that
a 10% increase or decrease in the benchmark interest rate produces a parallel
shift in the yield curve across all maturities.

We use a current market pricing model to assess the changes in the value of the
U.S. dollar on foreign currency denominated monetary assets and liabilities and
derivatives. The primary assumption used in these models is a hypothetical 10%
weakening or strengthening of the U.S. dollar against all our currency exposures
at December 31, 2001, 2000 and 1999.

Our total market risk is influenced by a wide variety of factors including the
volatility present within the markets and the liquidity of the markets. There
are certain limitations inherent in the sensitivity analyses presented. While
probably the most meaningful analysis permitted, these "shock tests" are
constrained by several factors, including the necessity to conduct the analysis
based on a single point in time and the inability to include the complex market
reactions that normally would arise from the market shifts modeled.

We used December 31, 2001, 2000 and 1999 market rates on our instruments to
perform the sensitivity analyses separately for each of our market risk
exposures--interest and currency rate instruments. The estimates are based on
the market risk sensitive portfolios described in the preceding paragraphs and
assume instantaneous, parallel shifts in interest rate yield curves and exchange
rates.

We have determined that the impact of a 10% change in interest and foreign
currency exchange rates and prices on our earnings, fair values and cash flows
would not be material.

While these results may be used as benchmarks, they should not be viewed as
forecasts.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Financial Statements and Financial Statement Index commencing on Page F-1
hereof.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information contained in the Company's Annual Proxy Statement under the
sections titled "Executive Officers", "Election of Directors", "Executive
Officers" and "Compliance with Section 16(a) of the Exchange Act" are
incorporated herein by reference in response to this item.

ITEM 11. EXECUTIVE COMPENSATION

The information contained in the Company's Annual Proxy Statement under the
section titled "Executive Compensation and Other Information" is incorporated
herein by reference in response to this item.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information contained in the Company's Annual Proxy Statement under the
section titled "Security Ownership of Certain Beneficial Owners and Management"
is incorporated herein by reference in response to this item.

60

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information contained in the Company's Annual Proxy Statement under the
section titled "Certain Relationships and Related Transactions" is incorporated
herein by reference in response to this item.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

ITEM 14(A)(1) FINANCIAL STATEMENTS

See Financial Statements and Financial Statements Index commencing on page F-1
hereof.

ITEM 14(A)(3) EXHIBITS

See Exhibit Index commencing on page G-1 hereof.

ITEM 14(B) REPORTS ON FORM 8-K

On October 2, 2001, we filed a current report on Form 8-K to report under Item 5
the issuance of a press release updating our operations, estimating the impact
of the September 11, 2001 terrorist attacks on our financial results and to
provide an update on our planned acquisitions of Galileo International, Inc. and
Cheap Tickets, Inc.

On October 15, 2001, we filed a current report on Form 8-K to report under Item
5 the acquisition of Galileo International, Inc.

On October 18, 2001, we filed a current report on Form 8-K to report under Item
5 third quarter 2001 results.

On October 23, 2001, we filed a current report on Form 8-K to report under Item
5 consolidated free cash flows for the nine months and twelve months ended
September 30, 2001 and 2000, respectively.

On December 6, 2001, we filed a current report on Form 8-K to report under Item
5 the sale of $1 billion aggregate principal amount of 3 7/8% convertible senior
debentures due 2011.

61

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

CENDANT CORPORATION

By: _______/s/ JAMES E. BUCKMAN_______
James E. Buckman
VICE CHAIRMAN AND GENERAL COUNSEL
Date: March 31, 2002

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.

63

INDEX TO FINANCIAL STATEMENTS

F-1

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Cendant Corporation

We have audited the accompanying consolidated balance sheets of Cendant
Corporation and subsidiaries (the "Company") as of December 31, 2001 and 2000,
and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the three years in the period ended
December 31, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at December 31, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States of America.

As discussed in Note 1 to the consolidated financial statements, in 2001, the
Company modified the accounting for interest income and impairment of beneficial
interests in securitization transactions and the accounting for derivative
instruments and hedging activities. Also, as discussed in Note 1, in 2000, the
Company revised certain revenue recognition policies.

/s/ Deloitte & Touche LLP
New York, New York
February 7, 2002
(April 1, 2002 as to Note 28)

F-2

CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)

See Notes to Consolidated Financial Statements

F-3

CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 3,521 $ 1,413
Current portion of long-term debt 401 --
Stockholder litigation settlement 2,850 --
Deferred income 916 1,023
------- -------
Total current liabilities 7,688 2,436

Long-term debt, excluding Upper DECS 5,731 1,948
Upper DECS 863 --
Stockholder litigation settlement -- 2,850
Deferred income 297 411
Other noncurrent liabilities 536 79
------- -------
Total liabilities exclusive of liabilities under programs 15,115 7,724
------- -------
Liabilities under management and mortgage programs:
Debt 9,844 2,040
Deferred income taxes 1,050 476
------- -------
10,894 2,516
------- -------
Mandatorily redeemable preferred interest in a subsidiary 375 375
------- -------
Mandatorily redeemable preferred securities issued by
subsidiary holding solely senior debentures issued by the
Company -- 1,683
------- -------
Commitments and contingencies (Note 19)

Stockholders' equity:
Preferred stock, $.01 par value--authorized 10 million
shares; none issued and outstanding -- --
CD common stock, $.01 par value--authorized 2 billion
shares; issued 1,166,492,626 and 914,655,918 shares 11 9
Move.com common stock, $.01 par value--authorized 500
million shares; issued and outstanding none and
2,181,586 shares; notional issued shares with respect to
Cendant Group's retained interest 22,500,000 -- --
Additional paid-in capital 8,676 4,540
Retained earnings 2,412 2,027
Accumulated other comprehensive loss (264) (234)
CD treasury stock, at cost--188,784,284 and 178,949,432
shares (3,767) (3,568)
------- -------
Total stockholders' equity 7,068 2,774
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $33,452 $15,072
======= =======

See Notes to Consolidated Financial Statements

F-4

CENDANT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)

F-5

CENDANT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN MILLIONS)

See Notes to Consolidated Financial Statements.

F-6

CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN MILLIONS)

F-7

CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
(IN MILLIONS)

See Notes to Consolidated Financial Statements.

F-8

CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNLESS OTHERWISE NOTED, ALL AMOUNTS ARE IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Cendant Corporation is a global provider of a wide range of complementary
consumer and business services. The Consolidated Financial Statements
include the accounts of Cendant Corporation and its subsidiaries
(collectively, "the Company").

In presenting the Consolidated Financial Statements, management makes
estimates and assumptions that affect the amounts reported and related
disclosures. Estimates, by their nature, are based on judgment and available
information. Accordingly, actual results could differ from those estimates.
Certain reclassifications have been made to prior year amounts to conform to
the current year presentation.

The Company segregates the financial data related to its management and
mortgage programs as such activities are autonomous and distinct from the
Company's other activities. Assets classified under management and mortgage
programs are assets generated in the operations of the Company's car rental,
vehicle management, relocation, mortgage services and timeshare development
businesses. The Company seeks to offset the interest rate exposures inherent
in these assets by matching them with financial liabilities that have
similar term and interest rate characteristics. Fees generated from these
assets are used, in part, to repay the interest and principal associated
with the financial liabilities. Funding for the Company's assets under
management and mortgage programs is also provided by both unsecured
borrowings and secured financing arrangements, which are classified as
liabilities under management and mortgage programs, as well as
securitization facilities with special purpose entities. Cash inflows and
outflows relating to the generation or acquisition of assets and the
principal debt repayment or financing of such assets are classified as
activities of the Company's management and mortgage programs.

CASH AND CASH EQUIVALENTS

The Company considers highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.

INVESTMENTS

Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such
determination at each balance sheet date. The Company's non-marketable
preferred stock investments are classified as available-for-sale debt
securities or accounted for at cost, as appropriate. All other
non-marketable securities are carried at cost. Common stock investments in
affiliates over which the Company has the ability to exercise significant
influence but not a controlling interest are carried on the equity method of
accounting. Available-for-sale securities are carried at current fair value
with unrealized gains or losses reported net of taxes as a separate
component of stockholders' equity. During 2000 and 1999, the Company
reported net realized gains of $32 million and $65 million, respectively,
related to its available-for-sale securities. Trading securities are
recorded at fair value with unrealized gains and losses reported currently
in earnings. During 2001, 2000 and 1999, the Company reported net realized
gains of $77 million, $5 million and $8 million, respectively, related to
its trading securities.

All of the Company's short-term investments are included in other current
assets on the Company's Consolidated Balance Sheets and all long-term
investments are included in other noncurrent assets. All realized gains and
losses and preferred dividend income are recorded within other revenues in
the Consolidated Statements of Operations. Gains and losses on securities
sold are based on the specific

F-9

identification method. Declines in market value that are judged to be "other
than temporary" are recorded as a component of net gain (loss) on
dispositions of businesses and impairment of investments.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation, recorded as a
component of non-vehicle depreciation and amortization on the Consolidated
Statements of Operations, is computed utilizing the straight-line method
over the estimated useful lives of the related assets. Useful lives range
from 5 to 50 years for buildings and improvements and 2 to 11 years for
furniture, fixtures and equipment. Amortization of leasehold improvements,
also recorded as a component of non-vehicle depreciation and amortization,
is computed utilizing the straight-line method over the estimated benefit
period of the related assets or the lease term, if shorter, generally
ranging from 2 to 15 years.

GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

All intangible assets acquired prior to July 1, 2001 and intangible assets
with finite lives acquired after June 30, 2001 were amortized on a
straight-line basis over their estimated periods to be benefited. Franchise
agreements are generally amortized over a period ranging from 12 to 40
years, while all other intangible assets with finite lives are generally
amortized over a period ranging from 5 to 40 years. Goodwill resulting from
purchase business combinations consummated prior to June 30, 2001 was
amortized on a straight-line basis over the estimated periods to be
benefited, substantially ranging from 25 to 40 years. For business
combinations consummated after June 30, 2001, goodwill and indefinite-lived
intangible assets were not amortized during 2001 in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets." Pursuant to SFAS No. 142, as of January 1, 2002,
the Company will not amortize any goodwill or indefinite-lived intangible
assets. The recoverability of goodwill and intangible assets was evaluated
on a separate basis for each acquisition by comparing the respective
carrying value to the current and expected future cash flows, on an
undiscounted basis. Pursuant to SFAS No. 142, as of January 1, 2002, the
Company will be required to assess goodwill and indefinite-lived intangible
assets for impairment annually, or more frequently if circumstances indicate
impairment may have occurred.

ASSET IMPAIRMENTS

The Company periodically evaluates the recoverability of its long-lived
assets, with the exception of goodwill and identifiable intangible assets,
by comparing the respective carrying values of the assets to the current and
expected future cash flows, on an undiscounted basis, to be generated from
such assets. Property and equipment is evaluated separately within each
business.

DERIVATIVE INSTRUMENTS

The Company uses derivative instruments as part of its overall strategy to
manage its exposure to market risks associated with fluctuations in interest
rates, foreign currency exchange rates, prices of mortgage loans held for
sale, anticipated mortgage loan closings arising from commitments issued and
changes in the fair value of its mortgage servicing rights. As a matter of
policy, the Company does not use derivatives for trading or speculative
purposes.

- All derivatives are recorded at fair value either as assets or
liabilities.

- Changes in fair value of derivatives not designated as hedging
instruments and of derivatives designated as fair value hedging
instruments are recognized currently in earnings and included either as
a component of net revenues or net non-vehicle interest expense, based
upon the nature of the hedged item, in the Consolidated Statement of
Operations.

- Changes in fair value of the hedged item in a fair value hedge are
recorded as an adjustment to the carrying amount of the hedged item and
recognized currently in earnings as a component

F-10

of net revenues or net non-vehicle interest expense, based upon the
nature of the hedged item, in the Consolidated Statement of Operations.

- The effective portion of changes in fair value of derivatives
designated as cash flow hedging instruments is recorded as a component
of other comprehensive income. The ineffective portion is reported
currently in earnings as a component of net revenues or net non-vehicle
interest expense, based upon the nature of the hedged item.

- Amounts included in other comprehensive income are reclassified into
earnings in the same period during which the hedged item affects
earnings.

The Company is also party to certain contracts containing embedded
derivatives. As required by SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," certain embedded derivatives have been
bifurcated from their host contracts and are recorded at fair value in the
Consolidated Balance Sheet. The total fair value of the Company's embedded
derivatives and changes in fair value during 2001 were not material to the
Company's financial position or results of operations.

SECURITIZATIONS

The Company sells a significant portion of its residential mortgage loans,
its relocation receivables and its timeshare receivables into securitization
entities as part of its financing strategy. The Company retains the
servicing rights and, in some instances, subordinated residual interests in
the mortgage loans and relocation and timeshare receivables. The investors
have no recourse to the Company's other assets for failure of debtors to pay
when due. The retained interests are classified as either trading or
available-for-sale securities. Gains or losses relating to the assets sold
are allocated between such assets and the retained interests based on their
relative fair values at the date of transfer. The Company estimates fair
value of retained interests based upon the present value of expected future
cash flows. The value of these retained interests is subject to the
prepayment risks, expected credit losses and interest rate risks of the
transferred financial assets.

The Company applies generally accepted accounting principles and
interpretations when evaluating whether it should consolidate the
securitization entities. Typically, if the Company does not retain both
control of the assets transferred to the securitization entities, as well as
the risks and rewards of those assets, the Company will not consolidate such
entities. In determining whether the securitization entity should be
consolidated, the Company considers whether the entity is a qualifying
special purpose entity, as defined by SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities--a replacement of FASB Statement No. 125."

REVENUE RECOGNITION

FRANCHISING. Franchise revenue principally consists of royalties, as well
as marketing and reservation fees, which are primarily based on a percentage
of franchisee commissions and/or gross revenue. Royalty, marketing and
reservation fees are accrued as the underlying franchisee revenue is earned.
Annual rebates given to certain franchisees on royalty fees are recorded as
a reduction to revenues and are accrued for in direct proportion to the
recognition of the underlying gross franchise revenue. Franchise revenue
also includes initial franchise fees, which are recognized as revenue when
all material services or conditions relating to the sale have been
substantially performed, which is generally when a franchised unit is
opened.

MORTGAGE. Loan origination fees, commitment fees paid in connection with
the sale of loans and certain direct loan origination costs associated with
loans are deferred until such loans are sold. Mortgage loans are recorded at
the lower of cost or market value on an aggregate basis. Sales of mortgage
loans are generally recorded on the date a loan is delivered to an investor.
Gains or losses on sales of mortgage loans are recognized based upon the
difference between the selling price and the carrying value of the related
mortgage loans sold. Fees received for servicing loans are recognized for
servicing mortgage loans owned by investors upon receipt and are recorded
net of guaranty fees. Costs associated with loan servicing are charged to
expense as incurred.

F-11

A mortgage servicing right ("MSR") is the right to receive a portion of the
interest coupon and fees collected from the mortgagor for performing
specified servicing activities. The total cost of loans originated or
acquired is allocated between the MSR and the mortgage loan, without the
servicing rights, based on relative fair values. Gains or losses on the sale
of MSRs are recognized when title and all risks and rewards have irrevocably
passed to the buyer and there are no significant unresolved contingencies.
MSRs are initially recorded at relative fair value and subsequently
amortized over the estimated life of the related loan portfolio in
proportion to projected net servicing revenues. Such amortization, which is
recorded as a reduction of net servicing revenue in the Consolidated
Statements of Operations, was $237 million, $153 million and $118 million
during 2001, 2000 and 1999, respectively. For purposes of performing its
impairment evaluation, the Company stratifies its portfolio on the basis of
interest rates of the underlying mortgage loans. The Company measures
impairment for each stratum by comparing estimated fair value to the
carrying amount. Fair value is estimated based on expected cash flows
considering market prepayment estimates, historical prepayment rates,
portfolio characteristics, interest rates and other economic factors. The
Company estimates future prepayment rates based on current interest rate
levels, other economic conditions and market forecasts, as well as relevant
characteristics of the servicing portfolio, such as loan types, interest
rate stratification and recent prepayment experience. Temporary impairment
is recorded through a valuation allowance in the period of occurrence.
During 2001, the Company recorded net aggregate write-downs of $144 million
through a valuation allowance, of which $94 million was directly related to
unprecedented interest rate reductions subsequent to the September 11th
terrorist attacks and $50 million was related to changes in estimates in the
ordinary course of business.

RELOCATION. Revenues and related costs associated with the purchase and
resale of a transferee's residence are recognized as services are provided.
Relocation services revenue is generally recorded net of costs reimbursed by
client corporations and interest expense incurred to fund the purchase of a
transferee's residence. Such interest expense totaled $1 million,
$2 million and $40 million during 2001, 2000 and 1999, respectively. Revenue
for other fee-based programs, such as home marketing assistance, household
goods moves and destination services, are recognized over the periods in
which the services are provided and the related expenses are incurred.

TIMESHARE EXCHANGE. Timeshare exchange revenue principally consists of
exchange fees and subscription revenue. Exchange fees are recognized as
revenue when the exchange request has been confirmed to the subscribing
members. Subscription revenue represents the fees from subscribing members.
As of January 1, 2000, the Company recognized subscription revenue on a
straight-line basis over the subscription period during which delivery of
publications and other services are provided to the subscribing members.
Costs to procure the subscriptions are expensed as incurred. Prior to
January 1, 2000, the Company recognized non-refundable subscription revenue
at the time of contract execution and cash receipt. Refundable subscription
revenue was recognized over the subscription period, except for the portion
that was equal to procurement costs, which was recognized upon initiation of
a subscription.

TIMESHARE SALES AND MARKETING. Vacation ownership interests sold by the
Company consist of either undivided fee simple interests or specified fixed
week interval ownership in fully furnished vacation units. The Company
recognizes sales of vacation ownership interests on a full accrual basis
after a binding sales contract has been executed, a 10% minimum down payment
has been received, the statutory rescission period has expired and title to
the real estate inventory has passed to the Company. During the construction
phase, the Company recognizes revenues using the percentage-of-completion
method of accounting as inventory is purchased. The completion percentage is
determined by the proportion of real estate inventory and certain sales and
marketing costs incurred to total estimated costs. The remaining revenue and
related costs of sales, including commissions and direct expenses, are
deferred and recognized as the remaining costs are incurred. Until a
contract for sale qualifies for revenue recognition, all payments received
are accounted for as deposits. Commissions and other direct selling costs
are deferred until the sale is recorded. If a contract is cancelled before
qualifying as a sale, non-recoverable expenses are charged to the current
period and deposits forfeited are credited to income.

F-12

CAR RENTAL. Revenue is recognized over the period the vehicle is rented.

FLEET LEASING. The Company leases its vehicles under three standard
arrangements: open-end operating leases, closed-end operating leases or
open-end finance leases (direct financing leases). Each lease is either
classified as an operating lease or a direct financing lease, as
appropriate. Lease revenues, which contain a depreciation component, an
interest component and a management fee component, are recognized based on
the lease term of the vehicle, which generally ranges from 48 to 72 months.
Amounts charged to the lessees for interest are generally calculated on a
floating rate basis and can vary month to month in accordance with changes
in the floating rate index. Amounts charged to lessees for interest can also
be based on a fixed rate that would remain constant for the life of the
lease. Amounts charged to the lessees for depreciation are based on the
straight-line depreciation of the vehicle over its expected lease term.
Management fees and other fleet management services revenues are recognized
over the period in which services are provided and the related expenses are
incurred.

TRAVEL DISTRIBUTION. Revenues generated from fees charged to airline, car
rental, hotel and other travel suppliers for bookings made through the
Company's computerized reservation system are recognized at the time the
reservation is made for air bookings, at the time of pick-up for car
bookings and at the time of check-out for hotel bookings.

INDIVIDUAL MEMBERSHIP. In July 2001, the Company outsourced its individual
membership business to Trilegiant Corporation (see Note 25--Related Party
Transactions for a detailed description of this transaction). Prior to this
transaction, the Company generally recognized membership revenue upon the
expiration of the membership period, as memberships are generally cancelable
for a full refund of the membership fee during the entire membership period,
which is generally one year. Revenues generated from certain memberships,
which were subject to a pro rata refund were recognized ratably over the
membership period. Subsequent to the outsourcing of the individual
membership business, the Company continued to recognize revenue in the same
manner for its members that existed as of the transaction date.

INSURANCE/WHOLESALE. Commissions received from the sale of third party
accidental death and dismemberment insurance are recognized over the
underlying policy period. The Company also receives a share of the excess of
premiums paid to insurance carriers less claims experience to date, claims
incurred but not reported and carrier management expenses. The Company's
share of this excess is accrued based on claims experience to date,
including an estimate of claims incurred but not reported.

VEHICLE DEPRECIATION, LEASE CHARGES AND INTEREST, NET

Vehicles owned by the Company are stated at cost, net of accumulated
depreciation. Rental vehicles are depreciated at rates ranging from 11% to
28% per annum based on manufacturer repurchase programs. Leased vehicles are
depreciated on a straight-line basis over their estimated useful lives,
ranging from 3 to 6 years. Depreciation expense is net of the amortization
of certain incentives and allowances provided by various vehicle
manufacturers. Gains or losses on the sale of vehicles are reflected as an
adjustment to depreciation. Interest expense directly associated with the
funding of vehicles was $329 million and $90 million during 2001 and 1999,
respectively, and recorded as a component of vehicle depreciation, lease
charges and interest, net on the Consolidated Statements of Operations.

ADVERTISING EXPENSES

Advertising costs, including direct response advertising related to
membership and timeshare sales programs, are generally expensed in the
period incurred. Advertising expenses in 2001, 2000 and 1999 were
$632 million, $549 million and $582 million, respectively.

STOCK-BASED COMPENSATION

The Company utilizes the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" and applies Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations in accounting for its stock option plans to
employees.

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CHANGES IN ACCOUNTING POLICIES

BUSINESS COMBINATIONS. On July 1, 2001, the Company adopted SFAS No. 141,
"Business Combinations," which prohibits the use of the pooling of interests
method of accounting for all business combinations initiated after June 30,
2001. SFAS No. 141 also addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination and
requires additional disclosures for material business combinations completed
after such date. Upon adoption of SFAS No. 142 on January 1, 2002,
intangible assets required to be reclassified to goodwill were not material.

RECOGNITION OF INTEREST INCOME AND IMPAIRMENT ON PURCHASED AND RETAINED
INTERESTS IN SECURITIZED FINANCIAL ASSETS. On January 1, 2001, the Company
adopted the provisions of the Emerging Issues Task Force ("EITF") Issue
No. 99-20, "Recognition of Interest Income and Impairment on Purchased and
Retained Interests in Securitized Financial Assets." EITF Issue No. 99-20
modified the accounting for interest income and impairment of beneficial
interests in securitization transactions, whereby beneficial interests
determined to have an other-than-temporary impairment are required to be
written down to fair value. The adoption of EITF Issue No. 99-20 resulted in
the recognition of a non-cash charge of $46 million ($27 million, after tax)
during first quarter 2001 to account for the cumulative effect of the
accounting change.

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. On
January 1, 2001, the Company adopted the provisions of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133, as amended and interpreted, establishes accounting and reporting
standards for derivative instruments and hedging activities. As required by
SFAS No. 133, the Company has recorded all such derivatives at fair value in
the Consolidated Balance Sheet. The adoption of SFAS No. 133 resulted in the
recognition of a non-cash charge of $16 million ($11 million, after tax) in
the Consolidated Statement of Operations on January 1, 2001 to account for
the cumulative effect of the accounting change relating to derivatives
designated in fair value type hedges prior to adopting SFAS No. 133, to
derivatives not designated as hedges and to certain embedded derivatives. As
provided for in SFAS No. 133, the Company also reclassified certain
financial investments as trading securities at January 1, 2001, which
resulted in a pre-tax net benefit of $10 million recorded in other revenues
within the Consolidated Statement of Operations.

ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. On December 31, 2000, the Company adopted
the disclosure requirements of SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities--a
replacement of FASB Statement No. 125." On April 1, 2001, the Company
adopted the remaining provisions of this standard, as required. SFAS
No. 140 revised the criteria for accounting for securitizations, other
financial asset transfers and collateral and introduced new disclosures, but
otherwise carried forward most of the provisions of SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" without amendment. The impact of adopting
the remaining provisions of this standard was not material to the Company's
financial position or results of operations.

REVENUE RECOGNITION. On January 1, 2000, the Company revised certain
revenue recognition policies regarding the recognition of non-refundable
one-time fees and the recognition of pro rata refundable subscription
revenue as a result of the adoption of Staff Accounting Bulletin ("SAB")
No. 101, "Revenue Recognition in Financial Statements." The adoption of SAB
No. 101 also resulted in a non-cash charge of approximately $89 million
($56 million, after tax) on January 1, 2000 to account for the cumulative
effect of the accounting change.

The impact of adopting these standards was not material to the Company's
consolidated results of operations or financial position.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

GOODWILL AND OTHER INTANGIBLE ASSETS. On January 1, 2002, the Company
adopted SFAS No. 142 in its entirety. SFAS No. 142 addresses the financial
accounting and reporting standards for the acquisition of intangible assets
outside of a business combination and for goodwill and other intangible
assets

F-14

subsequent to their acquisition. This standard eliminates the amortization
of goodwill and indefinite-lived intangible assets. Intangible assets with
finite lives will continue to be amortized over their estimated useful
lives. The Company will be required to assess goodwill and indefinite-lived
intangible assets for impairment annually, or more frequently if
circumstances indicate impairment may have occurred. The Company has
reassessed the useful lives assigned to its intangible assets acquired in
transactions consummated prior to July 1, 2001 and the related amortization
methodology. Accordingly, the Company identified those intangible assets
that have indefinite lives, adjusted the future amortization periods of
certain intangible assets appropriately and changed amortization
methodologies where appropriate.

Based upon a preliminary assessment, the Company expects that the increase
in pre-tax net income from the application of the non-amortization
provisions of SFAS No. 142 would have approximated $215 million,
$110 million and $126 million for 2001, 2000 and 1999, respectively.

The Company reviewed the carrying value of all its goodwill and other
intangible assets by comparing such amounts to their fair value and
determined that the carrying amounts of such assets did not exceed their
respective fair values. Accordingly, the initial implementation of this
standard will not result in a charge and, as such, will not impact the
Company's results of operations during 2002.

IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. During October 2001, the FASB
issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," and replaces the accounting and reporting provisions of APB Opinion
No. 30, "Reporting Results of Operations--Reporting the Effects of Disposal
of a Segment of a Business and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," as it relates to the disposal of a
segment of a business. SFAS No. 144 requires the use of a single accounting
model for long-lived assets to be disposed of by sale, including
discontinued operations, by requiring those long-lived assets to be measured
at the lower of carrying amount or fair value less cost to sell. The
impairment recognition and measurement provisions of SFAS No. 121 were
retained for all long-lived assets to be held and used with the exception of
goodwill. The Company adopted this standard on January 1, 2002.

2. EARNINGS PER SHARE

On March 21, 2000, the Company's stockholders approved a proposal
authorizing a new series of common stock to track the performance of the
Move.com Group. The Company's existing common stock was reclassified as CD
common stock, which reflects the performance of the Company's other
businesses and also a retained interest in the Move.com Group (collectively
referred to as the "Cendant Group").

Earnings per share ("EPS") for periods after March 31, 2000, the date of the
original issuance of Move.com common stock, has been calculated using the
two-class method. The two-class method is an earnings allocation formula
that determines EPS for each class of common stock according to the related
earnings participation rights. Under the two-class method, basic EPS for
Move.com common stock is calculated by dividing earnings attributable to
Move.com common stockholders by the weighted average number of Move.com
shares outstanding during the period. Earnings attributable to Move.com
common stockholders is calculated as the percentage of the number of shares
of Move.com common stock outstanding compared to the number of shares that,
if issued, would represent 100% of the equity (and would include the
22,500,000 notional shares of Move.com common stock representing Cendant
Group's retained interest in Move.com Group) in the earnings or losses of
Move.com Group.

F-15

Income (loss) per common share from continuing operations for each class of
common stock was computed as follows:

----------------------------------
(a) Represents the change in Cendant Group's retained interest in Move.com
Group due to the dilutive impact of Move.com common stock options.

Basic and diluted loss per share of CD common stock from the cumulative
effect of accounting changes was $0.05 and $0.04, respectively, for 2001 and
$0.08 each for 2000. Basic and diluted gain per share of CD common stock
from the disposal of discontinued operations was $0.23 each for 1999.

F-16

The following table summarizes the Company's outstanding common stock
equivalents which were antidilutive and therefore excluded from the
computation of diluted EPS:

----------------------------------
(a) The weighted average exercise prices for antidilutive options at
December 31, 2001, 2000 and 1999 were $22.59, $22.27 and $15.24,
respectively.

(b) The weighted average exercise prices for antidilutive warrants at
December 31, 2001, 2000 and 1999 were $21.31, $21.31 and $16.77,
respectively.

(c) The appreciation price for antidilutive Upper DECS at December 31,
2001 was $28.42.

(d) The weighted average exercise price for antidilutive options at
December 31, 2000 was $18.60.

The Company's contingently convertible debt securities, which provide for
the potential issuance of approximately 138 million shares of CD common
stock, were not included in the computation of diluted EPS for 2001 as the
related contingency provisions were not satisfied during such period (see
Note 15--Long-term Debt and Borrowing Arrangements for a detailed discussion
of the contingency provisions).

3. ACQUISITIONS

AVIS GROUP HOLDINGS, INC. On March 1, 2001, the Company acquired all of the
outstanding shares of Avis Group Holdings, Inc. ("Avis"), one of the world's
leading service and information providers for comprehensive automotive
transportation and vehicle management solutions, for approximately
$994 million. The allocation of the purchase price is summarized as follows:

FAIRFIELD RESORTS, INC. On April 2, 2001, the Company acquired all of the
outstanding shares of Fairfield Resorts, Inc., formerly Fairfield
Communities, Inc. ("Fairfield"), one of the largest vacation ownership
companies in the United States, for approximately $760 million in cash,
including $20 million of transaction costs and expenses and $46 million
related to the conversion of Fairfield employee stock options into CD common
stock options. As part of the acquisition, the Company also assumed
approximately $146 million of Fairfield debt, $125 million of which has been
repaid. This acquisition was not significant on a pro forma basis.

F-17

GALILEO INTERNATIONAL, INC. On October 1, 2001, the Company acquired all of
the outstanding shares of Galileo International, Inc. ("Galileo"), a leading
provider of electronic global distribution services for the travel industry,
for approximately $1.9 billion, including approximately $36 million of
estimated transaction costs and expenses and approximately $32 million
related to the conversion of Galileo employee stock options into CD common
stock options. The Company expects the acquisition to enhance its growth
prospects in the global market for travel services due to Galileo's global
presence in air travel bookings. Approximately $1.5 billion of the merger
consideration was funded through the issuance of approximately 117 million
shares of CD common stock, with the remainder being financed from available
cash. As part of the acquisition, the Company also assumed approximately
$586 million of Galileo debt, $555 million of which has been repaid. The
preliminary allocation of the purchase price is summarized as follows:

The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition.

Total current assets $ 293
Property and equipment, net 330
Intangible assets 444
Goodwill 2,126
Other noncurrent assets 175
------
TOTAL ASSETS ACQUIRED 3,368
------
Total current liabilities 741
Long-term debt 453
Other noncurrent liabilities 266
------
TOTAL LIABILITIES ASSUMED 1,460
------
NET ASSETS ACQUIRED $1,908
======

The intangible assets acquired comprised customer lists of $300 million,
which are being amortized over 25 years, and a registered trademark of
$125 million, which is not subject to amortization as its useful life is
indefinite. The goodwill was assigned to the Company's Travel Distribution
segment. The Company expects $162 million of such goodwill to be deductible
for tax purposes.

CHEAP TICKETS, INC. On October 5, 2001, the Company acquired all of the
outstanding common stock of Cheap Tickets, Inc. ("Cheap Tickets"), a leading
provider of discount leisure travel products, for approximately
$313 million, net of cash acquired (approximately $286 million in cash),
including $18 million of estimated transaction costs and expenses and
$27 million related to the conversion of Cheap Tickets employee stock
options into CD common stock options. This acquisition was not significant
on a pro forma basis.

F-18

OTHER. The Company also completed the acquisitions of certain other
businesses during 2001, 2000 and 1999 for approximately $241 million,
$63 million and $46 million primarily in cash, respectively. These
acquisitions were not significant on a pro forma basis.

These acquisitions were accounted for using the purchase method of
accounting; accordingly, assets acquired and liabilities assumed were
recorded in the Company's Consolidated Balance Sheets as of the respective
acquisition dates based upon their estimated fair values at such date. The
excess of the purchase price over the estimated fair value of the underlying
assets acquired and liabilities assumed was allocated to goodwill. Goodwill
resulting from the acquisitions of Avis and Fairfield was being amortized
over 40 years on a straight-line basis until the adoption of SFAS No. 142 on
January 1, 2002.

In certain circumstances, the allocations of the excess purchase price are
based upon preliminary estimates and assumptions and are subject to revision
when appraisals have been finalized. Accordingly, revisions to the
allocations, which may be significant, will be recorded by the Company as
further adjustments to the purchase price allocations. The results of
operations of these businesses have been included in the Company's
Consolidated Statement of Operations since their respective dates of
acquisition.

Pro forma net revenues, income from continuing operations, net income and
the related per share data would have been as follows had the acquisitions
of Avis and Galileo occurred on January 1st of each period presented:

These pro forma results do not give effect to any synergies expected to
result from the acquisitions of Avis and Galileo and are not necessarily
indicative of what actually would have occurred if the acquisitions had been
consummated on January 1st of each period, nor are they necessarily
indicative of future consolidated results.

The Company is in the process of integrating the operations of its acquired
businesses and expects to incur transition costs relating to such
integrations. Transition costs may result from integrating operating
systems, relocating employees, closing facilities, reducing duplicative
efforts and exiting and consolidating certain other activities. These costs
will be recorded on the Company's Consolidated Balance Sheet as adjustments
to the purchase price or on the Company's Consolidated Statement of
Operations as expenses, as appropriate.

4. DISPOSITIONS OF BUSINESSES AND IMPAIRMENT OF INVESTMENTS

DISPOSITIONS OF BUSINESSES

HOMESTORE.COM, INC. On February 16, 2001, the Company completed the sale of
its real estate Internet portal, move.com, along with certain ancillary
businesses to Homestore.com, Inc. ("Homestore") in exchange for
approximately 21 million shares of Homestore common stock, then-valued at
$718 million. The operations of these businesses were not material to the
Company's financial

F-19

position, results of operations or cash flows. The Company recorded a gain
of $548 million on the sale of these businesses, of which $436 million
($262 million, after tax) was recognized at the time of closing. The Company
deferred $112 million of the gain, which represented the portion that was
equivalent to its common equity ownership percentage in Homestore at the
time of closing. The deferred gain was being recognized into income over
five years as a component of equity in Homestore.com within the Consolidated
Statement of Operations. During 2001, the Company recognized $35 million of
this deferred gain. The difference between the value of the Company's
investment in Homestore and the underlying equity in the net assets of
Homestore was $431 million, which was also being amortized over five years
as a component of equity in Homestore.com within the Consolidated Statement
of Operations. Such difference was reduced by $135 million during 2001, of
which $67 million represented amortization. The remaining $68 million
primarily related to the contribution of approximately 1.5 million shares of
Homestore common stock to Trip Network, Inc. ("Trip Network"), formerly
Travel Portal, Inc. and the distribution of 1.7 million shares of Homestore
common stock to former Move.com common stockholders in exchange for
then-outstanding shares of Move.com common stock (see Note 25--Related Party
Transactions for a detailed discussion of the Company's relationship with
Trip Network).

In connection with a protracted decline in the value of Homestore's common
stock since July 2001, the Company reviewed its investment in Homestore for
other-than-temporary impairment during fourth quarter 2001. After
consideration of several indicators, including the extent to which the
market value of Homestore had declined, the Company determined that an
other-than-temporary impairment had occurred and, as a result, revalued its
investment to the Company's estimate of Homestore's fair value. Accordingly,
the Company recorded a net impairment charge of $407 million ($244 million,
after tax) during fourth quarter 2001 in connection with this revaluation.
During fourth quarter 2001, the Company also recorded its proportionate
share of Homestore's estimated fourth quarter 2001 losses to the extent that
such amount did not reduce the Company's investment in Homestore beyond
zero. Such amount is included as a component of losses related to equity in
Homestore.com on the Consolidated Statement of Operations. At December 31,
2001, the Company's investment in Homestore was recorded at zero.

FLEET BUSINESSES. During 1999, the Company sold its fleet businesses to
Avis, whereby Avis acquired the net assets of the fleet businesses through
the assumption and subsequent repayment of $1.44 billion of intercompany
debt and the issuance to the Company of $360 million of non-voting
convertible preferred stock of Avis Fleet Leasing and Management
Corporation, a wholly-owned subsidiary of Avis. Coincident with the closing
of the transaction, Avis refinanced the assumed debt which was payable to
the Company. Accordingly, the Company received additional consideration of
$3.0 billion in cash and a $30 million receivable from Avis, which was
repaid by Avis during 2000.

The Company realized a net gain of $881 million ($866 million, after tax) on
the sale of its fleet businesses, of which $715 million ($702 million, after
tax) was recognized at the time of closing and $166 million ($164 million,
after tax) was deferred at the date of disposition. The realized gain was
net of approximately $90 million of transaction costs. The Company deferred
the portion of the realized net gain equivalent to its common equity
ownership percentage in Avis at the time of closing, which was included in
deferred income in the Consolidated Balance Sheet at December 31, 2000. The
deferred gain was being recognized into income over 40 years (from the date
of sale through March 1, 2001, the date the Company acquired Avis), which
was consistent with the period Avis was amortizing the goodwill generated
from the transaction. During 2000, the Company recognized $35 million of the
deferred gain due to the sale by Avis of its European vehicle management
services business in 2000. During 1999, the Company recognized $9 million of
the deferred gain due to the sale of a portion of the Company's equity
ownership in Avis in 1999. On March 1, 2001, in connection with the
Company's acquisition of Avis, the common and preferred stock held by the
Company and the unamortized deferred gain, which aggregated $409 million,
were accounted for as components of Cendant's net investment in Avis (see
Note 25--Related Party Transactions).

F-20

OTHER. During 2001 and 2000, the Company recorded net losses of
$19 million and $43 million related to the disposition of certain
non-strategic businesses. The Company also reviewed its other investments
during 2001 and determined that other-than-temporary impairments had
occurred for certain of these investments and, as a result, recorded
impairment charges of $34 million ($21 million, after tax).

During 1999, the Company also completed the sale of its Green Flag business
unit and approximately 85% of its Entertainment Publications, Inc. business
unit for cash of $401 million and $281 million, respectively. The Company
realized a net gain of approximately $27 million and $156 million
($8 million and $78 million, after tax), respectively, on the sale of these
businesses. Additionally, during 1999, the Company completed the
dispositions of certain other businesses, including North American Outdoor
Group, Central Credit, Inc., Global Refund Group, Spark Services, Inc.,
Match.com, National Leisure Group and National Library of Poetry. Aggregate
consideration received on such dispositions was comprised of approximately
$407 million in cash. The Company realized a net gain of $202 million
($81 million, after tax) on the dispositions of these businesses.

5. DISCONTINUED OPERATIONS

During 1999, the Company completed the sale of Cendant Software Corporation,
which was classified as a discontinued operation during 1998, for net cash
proceeds of $770 million and recognized a gain on the disposal of this
business of $299 million ($174 million, after tax).

6. FRANCHISING AND MARKETING/RESERVATION ACTIVITIES

Franchising revenues received from lodging properties, car rental locations,
tax preparation offices and real estate brokerage offices were
$787 million, $857 million and $839 million for 2001, 2000 and 1999,
respectively. During 2001, the Company's tax preparation subsidiary sold
approximately 700 franchised units, increasing the total units franchised by
this subsidiary to approximately 4,000.

The Company also receives marketing and reservation fees primarily from its
lodging and real estate franchisees, which are calculated based on a
specified percentage of gross room revenues or based on a specified
percentage of gross closed commissions earned on the sale of real estate,
subject to certain minimum and maximum payments. Such fees totaled
$222 million, $290 million and $280 million during 2001, 2000 and 1999,
respectively, and were included within service fees and membership-related
revenues on the Consolidated Statements of Operations. As provided for in
the franchise agreements and generally at the Company's discretion, all of
these fees are to be expended for marketing purposes and the operation of a
centralized brand-specific reservation system for the respective franchisees
and are controlled by the Company until disbursement.

7. OTHER CHARGES

RESTRUCTURING AND OTHER UNUSUAL CHARGES

2001 RESTRUCTURING CHARGE. As a result of changes in business and consumer
behavior following the September 11th terrorist attacks, the Company's
management formally committed to various strategic initiatives during fourth
quarter 2001, which were generally aimed at aligning cost structures in the
Company's underlying businesses in response to anticipated levels of volume.
Accordingly, the Company incurred restructuring charges of $110 million, of
which $21 million were non-cash ($40 million, $30 million, $22 million,
$8 million, $7 million and $3 million of charges were recorded within
Hospitality, Real Estate Services, Corporate and Other, Financial Services,
Vehicles Services and Travel Distribution, respectively). The Company
anticipates that these initiatives will be completed by the end of fourth
quarter 2002. Liabilities associated with these initiatives are classified
as a

F-21

component of accounts payable and other current liabilities. The initial
recognition of the charge and the corresponding utilization from inception
are summarized by category as follows:

Personnel related costs primarily include severance resulting from the
rightsizing of certain businesses and corporate functions. As of
December 31, 2001, the Company formally communicated the termination of
employment to approximately 3,000 employees, representing a wide range of
employee groups, and approximately 2,100 employees were terminated. The
Company anticipates the majority of the personnel related costs will be paid
during first quarter 2002. All other costs were incurred primarily in
connection with facility closures and lease obligations resulting from the
consolidation of business operations.

2001 UNUSUAL CHARGES. During 2001, the Company also incurred unusual
charges totaling $273 million, of which $76 million were non-cash. Such
charges primarily consisted of (i) $95 million related to the funding of an
irrevocable contribution to an independent technology trust responsible for
providing technology initiatives for the benefit of certain of the Company's
current and future real estate franchisees, (ii) $85 million related to the
funding of Trip Network (see Note 25--Related Party Transactions for a
detailed description of this charge), (iii) $41 million related to the
rationalization of the Avis fleet in response to the September 11th
terrorist attacks (including the reduction in the fleet, as well as
corresponding personnel reductions), (iv) $8 million related to the
abandonment of certain software projects also in response to the
September 11th terrorist attacks and (v) $7 million related to a
contribution to the Cendant Charitable Foundation, which the Company
established in September 2000 to serve as a vehicle for making charitable
contributions to qualified organizations.

2000 RESTRUCTURING CHARGE. During first quarter 2000, the Company incurred
restructuring charges of $60 million in connection with various strategic
initiatives (such liability was reduced by $4 million during 2001 as a
result of a change in the original estimate of costs to be incurred). These
initiatives were generally aimed at improving the overall level of
organizational efficiency, consolidating and rationalizing existing
processes, and reducing cost structures in the Company's underlying
businesses. These initiatives primarily affected the Company's Hospitality
and Financial Services segments and were completed by the end of first
quarter 2001. Liabilities associated with these initiatives were classified
as a component of accounts payable and other current liabilities as of
December 31, 2000. The initial recognition of the charge and the
corresponding utilization from inception are summarized by category as
follows:

F-22

Personnel related costs primarily included severance resulting from the
consolidation of business operations and certain corporate functions. The
Company formally communicated the termination of employment to approximately
970 employees, representing a wide range of employee groups, all of whom
were terminated by March 31, 2001. Asset impairments and contract
terminations were incurred in connection with the exit of the Company's
timeshare software development business. Facility related costs consisted of
facility closures and lease obligations also resulting from the
consolidation of business operations.

2000 UNUSUAL CHARGES. During 2000, the Company also incurred unusual
charges totaling $49 million. Such charges primarily included
(i) $21 million of costs to fund an irrevocable contribution to an
independent technology trust responsible for completing the transition of
the Company's lodging franchisees to a common property management system,
(ii) $11 million of executive termination costs, (iii) $7 million of costs
primarily related to the abandonment of certain computer system
applications, (iv) $3 million of costs related to stock option contract
modifications and (v) $3 million of costs for the postponement of the
initial public offering of Move.com common stock.

1999 UNUSUAL CHARGES. During 1999, the Company incurred unusual charges
totaling $117 million. Such charges primarily represented (i) $85 million
incurred in connection with the creation of Netmarket Group, Inc., a company
that was created to pursue the development and expansion of interactive
businesses, (ii) $23 million primarily related to an irrevocable
contribution to an independent technology trust responsible for completing
the transition of the Company's lodging franchisees to a common property
management system and (iii) $7 million primarily related to the termination
of a proposed acquisition.

ACQUISITION AND INTEGRATION RELATED COSTS

During 2001, the Company incurred charges of $112 million primarily in
connection with the outsourcing of its information technology operations and
the integration of existing travel agency businesses to Galileo's
computerized reservations system. The Company outsourced its data
operations, including its global distribution system, desktop support and
other related services. Included in this charge are the costs of certain
actions taken by management in connection with the acquisitions that did not
meet the accounting criteria for capitalization.

MORTGAGE SERVICING RIGHTS IMPAIRMENT

As previously discussed, during fourth quarter 2001, the Company determined
that an impairment of its mortgage servicing rights portfolio had occurred
due to unprecedented interest rate reductions subsequent to the
September 11th terrorist attacks that the Company deemed not to be in the
ordinary course of business. Accordingly, the Company recorded an impairment
charge of $94 million.

LITIGATION SETTLEMENTS AND RELATED COSTS

During 2001, 2000 and 1999, the Company recorded charges of $100 million,
$43 million and $21 million, respectively, for litigation settlement and
related costs in connection with previously discovered accounting
irregularities in the former business units of CUC and resulting
investigations into such matters.

During 2001 and 2000, the Company recorded non-cash credits of $14 million
and $41 million, respectively, to reflect adjustments to the PRIDES class
action litigation settlement charge recorded by the Company in 1998. Such
adjustments represented a reduction in the number of Rights to be issued in
connection with the settlement (see Note 18--Mandatorily Redeemable Trust
Preferred Securities Issued by Subsidiary Holding Solely Senior Debentures
Issued by the Company for a detailed discussion regarding the settlement).

F-23

During 1999, the Company incurred charges of approximately $2.89 billion in
connection with the agreement to settle its principal common stockholder
class action lawsuit (see Note 14--Stockholder Litigation Settlement for a
detailed discussion regarding this settlement).

8. INCOME TAXES

The income tax provision (benefit) consists of:

Pre-tax income (loss) for domestic and foreign operations consisted of the
following:

Deferred income tax assets and liabilities are comprised of:

F-24

----------------------------
(a) The valuation allowance of $378 million at December 31, 2001
relates to deferred tax assets for state net operating loss carryforwards
and capital loss carryforwards of $273 million and $105 million,
respectively. The valuation allowance will be reduced when and if the
Company determines that the deferred income tax assets are likely to be
realized.

As of December 31, 2001, the Company had federal net operating loss
carryforwards of approximately $2.5 billion, which primarily expire in 2018
and 2020. Additionally, the Company has alternative minimum tax credit
carryforwards of $67 million.

No provision has been made for U.S. federal deferred income taxes on
approximately $320 million of accumulated and undistributed earnings of
foreign subsidiaries at December 31, 2001 since it is the present intention
of management to reinvest the undistributed earnings indefinitely in those
foreign operations. In addition, the determination of the amount of
unrecognized U.S. federal deferred income tax liability for unremitted
earnings is not practicable.

F-25

The Company's effective income tax rate for continuing operations differs
from the U.S. federal statutory rate as follows:

9. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of:

10. OTHER INTANGIBLES, NET

Other intangibles, net consisted of:

11. MORTGAGE LOANS HELD FOR SALE AND MORTGAGE SERVICING RIGHTS

Upon the closing of a residential mortgage loan or shortly thereafter, the
Company will securitize the majority of its mortgage loan originations.
Mortgage loans held for sale represent mortgage loans originated by the
Company and held pending sale to permanent investors. The Company sells
mortgage loans insured or guaranteed by various government sponsored
entities and private insurance agencies. The insurance or guaranty is
provided primarily on a non-recourse basis to the Company, except where
limited by the Federal Housing Administration and Veterans Administration
and their respective loan programs. At December 31, 2001 and 2000, the
Company serviced approximately

F-26

$99 billion and $82 billion, respectively, of mortgage loans sold to the
secondary market, of which $154 million and $138 million, respectively, were
sold with recourse. The Company believes adequate allowances are maintained
to cover any potential losses on such loans sold with recourse.

Capitalized MSRs consisted of:

12. VEHICLE-RELATED

At December 31, 2001, the Company's investment in vehicles comprised the
following:

During 2001, depreciation expense for car rental vehicles and fleet leasing
vehicles was $560 million and $879 million, respectively.

At December 31, 2001, future minimum lease payments to be received on the
Company's open-end and closed-end operating leases are as follows:

F-27

The Company sells certain interests in operating leases and the underlying
vehicles to two independent Canadian third parties. The Company repurchases
the leased vehicles and leases such vehicles under direct financing leases
to the Canadian third parties. The Canadian third parties retain the lease
rights and prepay all the lease payments except for an agreed upon residual
amount, which is typically 0% to 8% of the total lease payments. The
residual amounts represent the Company's only exposure in connection with
these transactions. At December 31, 2001, the balance of outstanding lease
receivables which were sold to the Canadian third parties was $341 million.
The total outstanding prepaid rent and the Company's subordinated residual
interest under these leasing arrangements were $320 million and
$21 million, respectively, as of December 31, 2001. The Company recognized
$108 million of revenues related to these leases during 2001.

13. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES

Accounts payable and other current liabilities consisted of:

14. STOCKHOLDER LITIGATION SETTLEMENT

On August 14, 2000, the U.S. District Court approved the Company's agreement
(the "Settlement Agreement") to settle the principal securities class action
pending against the Company, which was brought on behalf of purchasers of
all Cendant and CUC publicly traded securities, other than Feline PRIDES,
between May 1995 and August 1998. Under the Settlement Agreement, the
Company agreed to pay the class members approximately $2.85 billion in cash.
On August 28, 2001, the United States Court of Appeals for the Third Circuit
approved the $2.85 billion settlement, overruled all objections to the
settlement, approved a plan of allocation for the settlement proceeds and
awarded attorneys' fees and expenses to the plaintiffs. As of December 31,
2001, the Company deposited cash totaling $1.41 billion to a trust
established for the benefit of the plaintiffs in this lawsuit. The Company
will be required to fund the remaining balance of the liability in mid-July
2002.

15. LONG-TERM DEBT AND BORROWING ARRANGEMENTS

Based upon the Company's intent and ability to refinance certain short-term
borrowings on a long-term basis, debt aggregating $1.0 billion and having a
current redemption date has been reclassified to long-term debt on the
Company's Consolidated Balance Sheet as of December 31, 2001.

F-28

Long-term debt consisted of:

3% CONVERTIBLE SUBORDINATED NOTES

During 1997, the Company issued $550 million aggregate principal amount of
3% convertible subordinated notes due in February 2002. During 2001, the
Company redeemed $160 million of these notes. The remaining amount was
redeemed in February 2002 (see Note 28--Subsequent Events).

7 3/4% NOTES

During 1998, the Company issued $1.15 billion of senior notes due
December 2003. The interest rate on these notes is subject to an upward
adjustment of 150 basis points in the event that the credit ratings assigned
to the Company by nationally recognized credit rating agencies are
downgraded below investment grade. Such notes may be redeemed, in whole or
in part, at any time at the option of the Company, at a redemption price
plus accrued interest through the date of redemption. These notes are senior
unsecured obligations and rank equally in right of payment with all the
Company's existing and future unsecured senior indebtedness.

6.875% NOTES

During 2001, the Company issued $850 million aggregate principal amount of
6.875% notes for net proceeds of $843 million due in August 2006. The
interest rate on these notes is subject to an upward adjustment of
150 basis points in the event that the credit ratings assigned to the
Company by nationally recognized credit rating agencies are downgraded below
investment grade. These notes are senior unsecured obligations and rank
equally in right of payment with all the Company's existing and future
unsecured senior indebtedness.

11% SENIOR SUBORDINATED NOTES

In connection with the acquisition of Avis in March 2001, the Company
assumed $500 million of 11% senior subordinated notes due in May 2009, which
was recorded at fair value. These notes are subordinated in the right of
payment to all existing and future senior indebtedness of Avis and are
unconditionally guaranteed on a senior subordinated basis by certain of
Avis' domestic subsidiaries. The notes are redeemable at the Company's
option at the appropriate redemption prices plus accrued

F-29

interest through the redemption date either (i) in part prior to May 1, 2002
upon the occurrence of specific events or (ii) at any time, in whole or in
part, after May 1, 2004.

3 7/8% CONVERTIBLE SENIOR DEBENTURES

During 2001, the Company issued 3 7/8% convertible senior notes for gross
proceeds of $1.2 billion. The notes mature in November 2011. The Company may
be required to pay additional interest on these notes commencing in 2004 if
the average price of CD common stock is less than a stipulated amount during
a specified time period. Each $1,000 principal amount at maturity may be
converted, subject to satisfaction of specific contingencies, into 41.58
shares of CD common stock. Such contingencies include the satisfaction of a
specific market price condition, notice of redemption or the occurrence of
specified corporate transactions. The notes are not redeemable by the
Company prior to November 27, 2004, but will be redeemable thereafter at the
issue price plus accrued interest, if any. In addition, holders of the notes
may require the Company to repurchase the notes on November 27, 2004 and
2008 at the issue price plus accrued interest, if any. In such circumstance,
the Company, at its option, may pay the repurchase price in cash, shares of
its CD common stock, or any combination thereof. These debentures are senior
unsecured obligations and rank equally in right of payment with all the
Company's existing and future senior unsecured indebtedness.

ZERO COUPON SENIOR CONVERTIBLE CONTINGENT NOTES

During 2001, the Company issued approximately $1.5 billion aggregate
principal amount at maturity of zero-coupon senior convertible notes for
aggregate gross proceeds of approximately $900 million. The notes mature in
February 2021 and were issued at a discount resulting in a yield-to-maturity
of 2.5%. During 2001, the Company had amortized $20 million of this
discount, which is included as a component of net non-vehicle interest
expense on the Consolidated Statement of Operations. The Company will not
make periodic payments of interest on the notes, but may be required to make
nominal cash payments in specified circumstances. Each $1,000 principal
amount at maturity may be converted, subject to satisfaction of specific
contingencies, into 33.4 shares of CD common stock. Such contingencies
include the satisfaction of a specific market price condition, notice of
redemption, a credit rating downgrade below investment grade or the
occurrence of specified corporate transactions. The notes are not redeemable
by the Company prior to February 13, 2004, but will be redeemable thereafter
at the issue price of $608.41 per note plus accrued discount through the
redemption date. In addition, holders of the notes may require the Company
to repurchase the notes on February 13, 2004, 2009 or 2014 at stipulated
prices. In such circumstance, the Company, at its option, may pay the
repurchase price in cash, shares of its CD common stock, or any combination
thereof. These notes are senior unsecured obligations and rank equally in
right of payment with all the Company's existing and future unsecured and
unsubordinated indebtedness.

ZERO COUPON CONVERTIBLE DEBENTURES

During 2001, the Company issued zero-coupon zero-yield senior convertible
notes for gross proceeds of $1.0 billion. The notes mature in May 2021. The
Company may be required to pay interest on these notes commencing in 2004 if
the average price of CD common stock is less than a stipulated amount during
a specified time period. Each $1,000 principal amount at maturity may be
converted, subject to satisfaction of specific contingencies, into 39.08
shares of CD common stock. Such contingencies include the satisfaction of a
specific market price condition, the satisfaction of a specific trading
price condition, notice of redemption, a credit rating downgrade below
investment grade or the occurrence of specified corporate transactions. The
notes are not redeemable by the Company prior to May 4, 2004, but will be
redeemable thereafter at the issue price plus accrued interest, if any. In
addition, holders of the notes may require the Company to repurchase the
notes on May 4, 2002, 2004, 2006, 2008, 2011 and 2016 at the issue price
plus accrued interest, if any. In such circumstance, the Company may, at its
option, pay the repurchase price in cash, shares of our CD common stock, or
any

F-30

combination thereof. These debentures are senior unsecured obligations and
rank equally in right of payment with all the Company's existing and future
senior unsecured indebtedness.

UPPER DECS

During 2001, the Company issued approximately 17 million Upper DECS, each
consisting of both a senior note and a forward purchase contract,
aggregating $863 million principal amount. The senior notes initially bear
interest at an annual rate of 6.75%, which will be reset based upon a
remarketing in either May or August 2004. The senior notes have a term of
five years and represent senior unsecured debt, which ranks equally in right
of payment with all the Company's existing and future unsecured and
unsubordinated debt and ranks senior to any future subordinated
indebtedness. The forward purchase contracts require the holder to purchase
a minimum of 1.7593 shares and a maximum of 2.3223 shares of CD common
stock, based upon the average closing price of CD common stock during a
stipulated period, in August 2004. The minimum and maximum number of shares
to be issued under the forward purchase contracts are 30.3 million and
40.1 million, respectively. The forward purchase contracts also require
quarterly cash distributions to each holder at an annual rate of 1.00%
through August 2004 (the date the forward purchase contracts are required to
be settled). The discounted expected future cash flows recorded by the
Company associated with these distributions approximated $26 million.

CREDIT FACILITIES

As of December 31, 2001, the Company maintained $2.9 billion of revolving
credit facilities. During 2001, the Company converted its then-existing
$650 million term loan into a revolving credit facility and increased such
facility by $500 million to establish a $1.15 billion committed revolving
credit facility. Subsequent to the conversion, the Company repaid the
original $650 million term loan from available cash which then increased its
capacity under this facility to the maximum amount. The converted facility
matures in February 2004 and now contains the committed capacity to issue up
to $300 million in letters of credit. The remaining $1.75 billion of the
Company's revolving credit facilities represents a three-year competitive
advance maturing in August 2003. Under the terms of this facility, in
August 2002, the revolving line will be reduced by $500 million to
$1.25 billion. The facility contains the committed capacity to issue up to
$1.75 billion in letters of credit, which can be used as part of the
collateral required to be posted under the Settlement Agreement. Letters of
credit of $865 million and $1.71 billion were utilized for this purpose and
were outstanding at December 31, 2001 and 2000, respectively. Additionally,
letters of credit of $328 million used for general corporate purposes were
outstanding under these facilities at December 31, 2001. Borrowings under
these facilities bear interest at LIBOR plus a margin of 60 to 82.5 basis
points. The Company is required to pay a per annum facility fee of 15 to
17.5 basis points under these facilities and a per annum utilization fee of
12.5 to 25 basis points if usage under these facilities exceeds 33% of
aggregate commitments. The interest rates and facility fees are subject to
change based upon credit ratings assigned to the Company by nationally
recognized debt rating agencies. At December 31, 2001, the Company had
$1.7 billion of availability under these facilities.

Certain of these debt instruments and credit facilities contain restrictive
covenants, including restrictions on indebtedness of material subsidiaries,
mergers, limitations on liens, liquidations and sale and leaseback
transactions, and also require the maintenance of certain financial ratios.
At December 31, 2001, the Company was in compliance with all restrictive and
financial covenants.

F-31

DEBT MATURITIES

As of December 31, 2001, aggregate maturities of debt, including Upper DECS,
are as follows:

----------------------------------
(a) Represents Upper DECS, which will be settled in shares of CD common
stock.

16. LIABILITIES UNDER MANAGEMENT AND MORTGAGE PROGRAMS AND BORROWING
ARRANGEMENTS

Borrowings to fund assets under management and mortgage programs, which are
not classified based on contractual maturities since such debt corresponds
directly with assets under management and mortgage programs, consisted of:

SECURED BORROWINGS

Secured borrowings primarily represent asset-backed funding arrangements
whereby the Company or its wholly-owned and consolidated special purpose
entities issue debt or enter into loans supported by the cash flows derived
from specific pools of assets classified as assets under management and
mortgage programs. These borrowings are primarily issued under the Company's
AESOP Funding or Greyhound Funding programs. AESOP Funding is a domestic
financing program that provides for the issuance of up to $4.45 billion of
variable rate notes to support the Company's car rental operations.
Greyhound Funding is also a domestic financing program that provides for the
issuance of up to $3.19 billion of variable rate notes, preferred membership
interests and term notes to support the Company's fleet leasing operations.
Under both programs, the debt issued is collateralized by vehicles owned by
either the Company's car rental subsidiary or fleet leasing subsidiary. In
the AESOP Funding program, the vehicles financed are generally covered by
agreements where manufacturers guarantee a specified repurchase price for
the vehicles. However, the program will allow funding for 25% of vehicles
not covered by such agreements. The titles to all the vehicles supporting
these facilities is held in bankruptcy remote trusts and the Company acts as
a servicer of all the vehicles. For the Greyhound Funding facility, the
bankruptcy remote trust also acts as lessor under both operating and
financing lease agreements. At December 31, 2001, the Company had
$3.5 billion of term notes outstanding under the AESOP funding program. At
December 31, 2001, the Company had $2.2

F-32

billion of outstanding debt under the Greyhound Funding program, of which
$1.9 billion and $295 million were included as components of secured term
notes and other secured borrowings, respectively, in the above table. All
debt issued under these programs is classified as liabilities under
management and mortgage programs on the Company's Consolidated Balance
Sheet. Also included in secured term notes are $450 million of variable-rate
notes maturing in 2011 and $285 million of variable-rate notes maturing in
2006. These notes are collateralized by vehicles owned by the Company's
fleet leasing subsidiary. During 2001, the weighted average interest rate on
all secured notes was approximately 3%.

Secured short-term borrowings primarily consist of financing arrangements to
sell mortgage loans under a repurchase agreement, which is renewable on an
annual basis at the discretion of the lender. Such loans are collateralized
by underlying mortgage loans held in safekeeping by the custodian to the
agreement. The total commitment under this agreement is $500 million.
Mortgage loans financed under this agreement at December 31, 2001 and 2000
totaled $500 million and $292 million, respectively, and are included in
mortgage loans held for sale in the Consolidated Balance Sheets. During 2001
and 2000, the approximate weighted average interest rates on all short-term
secured borrowings were 5.0% and 6.1%, respectively.

Secured commercial paper matures within 270 days and is supported by rental
vehicles owned by the Company's car rental subsidiary. During 2001, the
weighted average interest rate on the Company's outstanding commercial paper
was approximately 2.0%.

UNSECURED BORROWINGS

As of December 31, 2001, unsecured medium-term notes primarily bear interest
at a rate of 8 1/8% per annum. Such interest rate is generally subject to
incremental upward adjustments of 50 basis points in the event that the
credit ratings assigned to PHH by nationally recognized credit rating
agencies are downgraded to a level below PHH's ratings as of December 31,
2001. In the event that the credit ratings are downgraded below investment
grade, the interest rate is subject to an upward adjustment not to exceed
300 basis points. During 2001 and 2000, the weighted average interest rates
on these notes were approximately 8% and 6.8%, respectively. Unsecured
short-term borrowings primarily represent borrowings under revolving credit
facilities, as described below. During 2001, the weighted average interest
rate on these borrowings was approximately 4.5%. Unsecured commercial paper
generally matures within 270 days and is fully supported by the committed
revolving credit agreements described below. During 2001 and 2000, the
weighted average interest rates on the Company's unsecured outstanding
commercial paper were 4.8% and 6.7%, respectively.

CREDIT FACILITIES

As of December 31, 2001, the Company, through its PHH subsidiary, maintained
$1.875 billion of committed and unsecured credit facilities. The facilities
comprise two $750 million revolving credit facilities maturing in
February 2002 and February 2005, a $100 million revolving credit facility
maturing in December 2002 and $275 million of other revolving credit
facilities maturing in November 2002. During 2001, borrowings under these
facilities bore interest at LIBOR plus a margin of approximately 40 basis
points. The Company was also required to pay a per annum facilty fee of
approximately 12.5 basis points under these facilities. The interest rates
and facility fees are subject to change based upon credit ratings assigned
to PHH by nationally recognized debt rating agencies.The Company is also
required to pay a per annum utilization fee of approximately 25 basis points
if usage under these facilities exceeds 25% of aggregate commitments. At
December 31, 2001, the Company had outstanding borrowings of $750 million
under its $750 million facility maturing in 2005. At December 31, 2001, the
Company had $1.1 billion of availability under these facilities.

Certain of these debt instruments and credit facilities contain restrictive
covenants, including restrictions on dividends paid to the Company by
certain of its subsidiaries and indebtedness of material

F-33

subsidiaries, mergers, limitations on liens, liquidations, and sale and
leaseback transactions, and also require the maintenance of certain
financial ratios. At December 31, 2001, the Company was in compliance with
all restrictive and financial covenants.

OTHER SECURITIZATION FACILITIES

The Company also sells mortgage loans, relocation receivables and timeshare
receivables in securitizations to special purpose entities under revolving
sales agreement in exchange for cash.

TIMESHARE RECEIVABLES. The Company sells timeshare receivables in
securitizations to bankruptcy remote qualifying special purpose entities.
The maximum funding capacity under these securitization facilities is
$500 million. These facilities are non-recourse to the Company. However, the
Company retains a subordinated residual interest and the related servicing
rights and obligations in the transferred timeshare receivables. At
December 31, 2001, the Company was servicing approximately $492 million of
timeshare receivables transferred under these agreements, which generally
expire in July 2003.

MORTGAGE LOANS. The company customarily sells all mortgage loans it
originates into the secondary market, primarily to government-sponsored
entities. These mortgage loans are placed into the secondary market either
by the Company or through an unaffiliated bankruptcy remote special purpose
entity. The maximum funding capacity through the special purpose entity is
$3.2 billion. The loans sold to the secondary market are generally
non-recourse to the Company and to PHH. However, the Company generally
retains the servicing rights on the mortgage loans sold. At December 31,
2001, the Company was servicing $96.3 billion of mortgage loans sold to the
secondary market and $2.5 billion sold to the special purpose entity. As of
December 31, 2000, the Company was servicing $81.2 billion of mortgage loans
sold to the secondary market and $1.0 billion sold to the special purpose
entity. Additionally, on September 5, 2001, a wholly-owned special purpose
subsidiary of PHH filed a registration statement with the Securities and
Exchange Commission to enhance the Company's ability to securitize mortgages
loans.

RELOCATION RECEIVABLES. The Company sells relocation receivables in
securitizations to a bankruptcy remote qualifying special purpose entity.
The maximum funding capacity under this securitization facility is
$650 million. This facility is non-recourse to the Company and to PHH.
However, the Company retains a subordinated residual interest and the
related servicing rights and obligations in the relocation receivables. At
December 31, 2001 and 2000, the Company was servicing approximately
$620 million and $591 million, respectively, of relocation receivables
transferred under this agreement, which expires in March 2007.

DEBT MATURITIES

As of December 31, 2001, aggregate maturities of debt under management and
mortgage programs are as follows:

F-34

17. MANDATORILY REDEEMABLE PREFERRED INTEREST IN A SUBSIDIARY

During 2000, a limited liability corporation formed by the Company through
the contribution of certain trademarks issued a senior preferred interest to
an independent third party in exchange for $375 million in cash. Such amount
is classified as a mandatorily redeemable preferred interest in a subsidiary
in the Company's Consolidated Balance Sheets. The senior preferred interest
is mandatorily redeemable by the holder in 2015 and may not be redeemed by
the Company prior to March 2005, except upon the occurrence of specified
circumstances. The Company is required to pay distributions on the senior
preferred interest based on the three-month LIBOR plus a margin of 1.77%,
which are reflected as minority interest in the Consolidated Statements of
Operations. In the event of a default or other specified events, including a
downgrade of the Company's credit ratings below investment grade, holders of
the senior preferred interest have certain remedies and liquidation
preferences, including the right to demand payment by the Company. The
subsidiary is subject to restrictive covenants, including restrictions on
the issuance of senior capital securities, mergers, distributions on the
common interest and limitations on debt incurred, and also requires the
maintenance of certain financial ratios. At December 31, 2001, the Company
was in compliance with all restrictive and financial covenants.

18. MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES ISSUED BY SUBSIDIARY
HOLDING SOLELY SENIOR DEBENTURES ISSUED BY THE COMPANY

At January 1, 2000, the Company had 30 million PRIDES outstanding. During
2000, the Company issued 4 million additional PRIDES with a face value of
$50 per additional PRIDES in exchange for approximately $91 million in cash
proceeds. Upon the issuance of the additional PRIDES, the Company recorded a
reduction to stockholders' equity of $108 million, representing the total
future contract adjustment payments to be made.

During 2001, the Company offered to sell 15 million special PRIDES at a
price in cash equal to 105% of their theoretical value, or $20.56 per
special PRIDES. Pursuant to such offer, the Company issued 104,890 special
PRIDES for proceeds of approximately $2 million, which were immediately
converted into 241,624 shares of CD common stock. Subsequently, the Company
settled the purchase contracts underlying all PRIDES. Accordingly, during
2001, the Company issued approximately 61 million shares of its CD common
stock in satisfaction of its obligation to deliver common stock to
beneficial owners of all PRIDES and received, in exchange, the trust
preferred securities forming a part of the PRIDES.

Preferred stock dividends of $14 million ($9 million, after tax),
$106 million ($66 million, after tax) and $96 million ($60 million, after
tax) were recorded during 2001, 2000 and 1999, respectively, and are
presented as minority interest, net of tax, in the Consolidated Statements
of Operations.

19. COMMITMENTS AND CONTINGENCIES

The Company is committed to making rental payments under noncancelable
operating leases covering various facilities and equipment. Future minimum
lease payments required under noncancelable operating leases as of
December 31, 2001 are as follows:

F-35

During 2001, 2000 and 1999, the Company incurred total rental expense of
$413 million, $187 million and $200 million, respectively, inclusive of
contingent rental expense of $97 million, $45 million and $49 million,
respectively, principally based on car rental volume or profitability at
certain parking facilities. The Company has been granted rent abatements for
varying periods on certain facilities. Deferred rent relating to those
abatements is amortized on a straight-line basis over the applicable lease
terms. The Company maintains certain agreements with airports that allow the
Company to conduct its car rental operations on-site. Such agreements
require the Company to guarantee a minimum amount of fees to be paid to the
airports regardless of the amount of revenue generated by the on-site car
rental operations. Such fees are recorded by the Company as a component of
total rental expense. During 2002, the Company is required to pay a minimum
amount of $152 million under these agreements. Commitments under capital
leases are not significant.

The Company leases certain office buildings on an annual basis from an
unaffiliated finance company which holds the title to the property. The
Company has the option to renew this lease each year through 2004. At
December 31, 2004, or prior to such date should the Company elect not to
renew the lease, the Company will be required to purchase the property at an
amount to be determined, which approximated $80 million as of December 31,
2001. The Company also has the option to purchase the property at any time
during the lease term. The Company bears all the residual risk resulting
from this lease. During 2001, the Company recorded $4 million of rent
expense in connection with this lease.

The Company maintains agreements with certain vehicle manufacturers, whereby
the Company is required to purchase approximately $930 million of vehicles
from these manufacturers during 2002. Under the terms of these agreements,
which expire in 2004, the Company is required to purchase a certain number
of vehicles principally from General Motors Corporation ("GM") and maintain
at least 51% of its domestic fleet in GM vehicles.

The Company may be required to purchase $98 million of timeshare inventory
from an affiliated entity during 2002 (see Note 25--Related Party
Transactions for a detailed description of this relationship).

The June 1999 disposition of the Company's fleet businesses was structured
as a tax-free reorganization and, accordingly, no tax provision was recorded
on a majority of the gain. However, pursuant to an interpretive ruling, the
Internal Revenue Service ("IRS") has taken the position that similarly
structured transactions do not qualify as tax-free reorganizations under the
Internal Revenue Code Section 368(a)(1)(A). If the transaction is not
considered a tax-free reorganization, the resultant incremental liability
could range between $10 million and $170 million depending upon certain
factors, including utilization of tax attributes. Notwithstanding the IRS
interpretive ruling, the Company believes that, based upon analysis of
current tax law, its position would prevail, if challenged.

The Company is involved in litigation asserting claims associated with the
accounting irregularities discovered in former CUC business units outside of
the principal common stockholder class action litigation (see
Note 14--Stockholder Litigation Settlement). The Company does not believe
that it is feasible to predict or determine the final outcome or resolution
of these unresolved proceedings. An adverse outcome from such unresolved
proceedings could be material with respect to earnings in any given
reporting period. However, the Company does not believe that the impact of
such unresolved proceedings should result in a material liability to the
Company in relation to its consolidated financial position or liquidity.

The Company is involved in pending litigation in the usual course of
business. In the opinion of management, such other litigation will not have
a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.

F-36

20. STOCKHOLDERS' EQUITY

ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss are as follows:

The currency translation adjustments exclude income taxes related to
indefinite investments in foreign subsidiaries.

COMMON STOCK TRANSACTIONS

In addition to the issuance of approximately 117 million shares of CD common
stock in connection with the acquisition of Galileo and approximately
61 million shares of CD common stock to settle the purchase contracts
underlying the PRIDES, the Company also issued 46 million shares of its CD
common stock at $13.20 per share for aggregate proceeds of approximately
$607 million during 2001. During 2000, Liberty Media Corporation ("Liberty
Media") invested a total of $450 million in cash to purchase 24.4 million
shares of CD common stock. Additionally, Liberty Media's Chairman purchased
one million shares of CD common stock for approximately $17 million in cash
during 2000. Liberty Media's Chairman is also a director of the Company.

The Company is authorized to repurchase $2.8 billion of CD common stock
under its common share repurchase program. During 2001, 2000 and 1999, the
Company repurchased $226 million (12.3 million shares), $306 million
(17.5 million shares) and $1.75 billion (90.4 million shares), respectively,
of CD common stock under the program. As of December 31, 2001, the Company
had approximately $262 million remaining availability for repurchases under
its board-authorized common share repurchase program.

During 2000, the Company issued approximately 3.7 million shares of Move.com
common stock in exchange for $49 million in cash and a common stock
investment then-valued at approximately $40 million. The Company
subsequently repurchased 1.6 million of these shares during 2000 for
$75 million in cash and a $25 million preferred stock investment. During
2001, the Company repurchased all the remaining outstanding shares of
Move.com common stock for $29 million in cash and the transfer of
1.7 million shares of Homestore common stock then-valued at $46 million.

21. STOCK PLANS

Under its existing stock plans, the Company may grant stock options, stock
appreciation rights and restricted shares to its employees, including
directors and officers of the Company and its affiliates. Options granted
under these plans generally have a ten-year term with vesting periods
ranging from 20% to 50% per year. The Company generally grants employee
stock options at then-current market rates. The Company is authorized to
grant up to 347 million shares of its common stock under these plans. At
December 31, 2001 and 2000, approximately 63 million and 53 million shares,
respectively, were available for future grants under the terms of these
plans.

F-37

The annual activity of the Company's stock option plans consisted of:

The table below summarizes information regarding the Company's outstanding
and exercisable stock options as of December 31, 2001:

The weighted-average grant-date fair value of CD common stock options
granted during 2001, 2000 and 1999 were $5.27, $9.99 and $11.36,
respectively. The weighted-average grant-date fair value of Move.com common
stock options granted during 2000 and 1999 were $24.37 and $7.28,
respectively.

Had the Company elected to recognize and measure compensation expense for
its stock option grants to employees based on the calculated fair value at
the grant dates, consistent with the method prescribed by SFAS No. 123, net
income (loss) and per share data would have been as follows:

F-38

The fair values of the Company's stock options are estimated on the dates of
grant using the Black-Scholes option-pricing model with the following
weighted average assumptions for stock options granted in 2001, 2000 and
1999:

22. EMPLOYEE BENEFIT PLANS

The Company sponsors several defined contribution pension plans that provide
certain eligible employees of the Company an opportunity to accumulate funds
for retirement. The Company matches the contributions of participating
employees on the basis specified in the plans. The Company's cost for
contributions to these plans was $68 million, $29 million and $31 million
during 2001, 2000 and 1999, respectively.

The Company maintains domestic non-contributory defined benefit pension
plans covering certain eligible employees. Additionally, the Company
sponsors contributory defined benefit pension plans in certain foreign
subsidiaries with participation in the plans at the employees' option. Under
both the domestic and foreign plans, benefits are based on an employee's
years of credited service and a percentage of final average compensation.
The Company's policy for all plans is to contribute amounts sufficient to
meet the minimum requirements plus other amounts as deemed appropriate. The
projected benefit obligations of the plans were $402 million and
$149 million at December 31, 2001 and 2000, respectively. The fair value of
the plan assets was $306 million and $146 million at December 31, 2001 and
2000, respectively. The net pension cost and recorded liability were not
material to the accompanying Consolidated Financial Statements.

23. FINANCIAL INSTRUMENTS

Consistent with its risk management policies, the Company manages foreign
currency and interest rate risks using derivative instruments.

FOREIGN CURRENCY RISK

The Company uses foreign currency forward contracts to manage its exposure
to changes in foreign currency exchange rates associated with its foreign
currency denominated receivables and forecasted royalties, forecasted
earnings of foreign subsidiaries and forecasted foreign currency denominated
acquisitions. The Company primarily hedges its foreign currency exposure to
the British pound, Canadian dollar and Euro. The majority of forward
contracts utilized by the Company do not qualify for hedge accounting
treatment under SFAS No. 133. The fluctuations in the value of these forward
contracts do, however, effectively offset the impact of changes in the value
of the underlying risk that they are intended to economically hedge. Forward
contracts that are used to hedge certain forecasted royalty receipts and
forecasted disbursements up to 12 months are designated and do qualify as
cash flow hedges. The impact of these forward contracts was not material to
the Company's results of operations or financial position at December 31,
2001.

INTEREST RATE RISK

The Company's mortgage-related assets, its retained interests in certain
qualifying special purpose entities and the debt used to finance much of the
Company's operations are exposed to interest rate fluctuations. The Company
uses various hedging strategies and derivative financial instruments to
create a desired mix of fixed and floating rate assets and liabilities and
to protect recognized assets

F-39

from unexpected changes in fair value that could affect reported earnings.
Derivative instruments currently used in managing the Company's interest
rate risks include swaps, forward delivery commitments and instruments with
option features. A combination of fair value hedges, cash flow hedges and
financial instruments that do not qualify for hedge accounting treatment
under SFAS No. 133 are used to manage the Company's portfolio of interest
rate sensitive assets and liabilities.

The Company uses fair value hedges to manage its mortgage servicing rights,
mortgage loans held for sale and certain fixed rate debt. During 2001, the
net impact of these fair value hedges was a gain of $3 million. These gains
are included in net revenues within the Consolidated Statement of Operations
and consist of losses of $57 million to reflect the ineffective portion of
these fair value hedges and gains of $60 million resulting from the
component of the derivatives fair value excluded from the determination of
effectiveness. The derivatives used to manage the Company's fixed rate debt
were perfectly effective and had no net impact on the Company's results of
operations except to create the accrual of interest at variable rates.

The Company uses cash flow hedges to manage the interest expense incurred on
its floating rate debt and on a portion of its principal common stockholder
litigation settlement liability. During 2001, the amount of gains or losses
reclassified from other comprehensive income to earnings, resulting from
ineffectiveness or from excluding a component of the derivatives gain or
loss from the effectiveness calculation, was not material to the Company's
results of operations.

CREDIT RISK AND EXPOSURE

The Company is exposed to risk in the event of nonperformance by
counterparties. The Company manages such risk by periodically evaluating the
financial position and creditworthiness of counterparties and spreading its
positions among multiple counterparties. The Company presently does not
anticipate nonperformance by any of the counterparties and no material loss
would be expected from such nonperformance. However, in the event of
nonperformance, changes in fair value of the hedging instruments would be
reflected in the Consolidated Statements of Operations during the period in
which the nonperformance occurred. There were no significant concentrations
of credit risk with any individual counterparties or groups of
counterparties at December 31, 2001 and 2000. Concentrations of credit risk
associated with trade receivables are considered minimal due to the
Company's diverse customer base. Bad debts have been minimal. The Company
does not normally require collateral or other security to support credit
sales.

FAIR VALUE

The carrying amounts of cash and cash equivalents, restricted cash,
available-for-sale debt securities, accounts receivable, relocation
receivables, accounts payable and accrued liabilities approximate fair value
due to the short-term maturities of these assets and liabilities.

The fair value of financial instruments is generally determined by reference
to market values resulting from trading on a national securities exchange or
in an over-the-counter market. In cases where quoted market prices are not
available, fair value is based on estimates using present value or other
valuation techniques, as appropriate.

F-40

The carrying amounts and estimated fair values of all financial instruments
at December 31, are as follows:

----------------------------------
(a) Carrying amounts and gains (losses) on mortgage-related positions are
already included in the determination of respective carrying amounts and
fair values of mortgage loans held for sale and mortgage servicing
rights, respectively. Forward delivery commitments are used to manage
price risk on sale of all mortgage loans to end investors, including
commitments to complete securitizations on loans held by an unaffiliated
buyer.

24. TRANSFERS AND SERVICING OF FINANCIAL ASSETS

The Company securitizes, sells and services interests in residential
mortgage loans, relocation receivables and timeshare receivables. Upon the
securitization of such assets, the Company may retain servicing rights and
subordinated residual interests, all of which are considered retained
interests in the securitized assets (see Note 1--Summary of Significant
Accounting Policies for a more detailed description of securitizations).

F-41

Key economic assumptions used during 2001 to measure the fair value of the
Company's retained interests at the time of securitization were as follows:

Key economic assumptions used in subsequently measuring the fair value of
the Company's retained interests at December 31, 2001 and the effect on the
fair value of those interests from adverse changes in those assumptions are
as follows:

----------------------------------
(a) Excludes fair value of MSR hedge position of $100 million.

These sensitivities are hypothetical and presented for illustrative purposes
only. Changes in fair value based on a 10% variation in assumptions
generally cannot be extrapolated because the relationship of the change in
assumption to the change in fair value may not be linear. Also, the effect
of a variation in a particular assumption is calculated without changing any
other assumption; in reality, changes in one assumption may result in
changes in another, which may magnify or counteract the sensitivities.
Further, this analysis does not assume any impact resulting from
management's intervention to mitigate these variations.

The Company receives annual servicing fees of approximately 47 basis points
of the outstanding balance of mortgage loans sold. The Company receives
annual servicing fees of approximately 75 basis points and 75 to 100 basis
points on the outstanding balance of relocation and timeshare receivables
transferred, respectively. During 2001, the Company recognized pre-tax gains
on the securitization of relocation and timeshare receivables of $1 million
and $8 million, respectively. Additionally, during 2001, the Company
recognized pre-tax gains of $483 million on $36 billion of mortgage loans
sold into the secondary market, substantially all of which were sold without
recourse. The sale of mortgage loans into the secondary market is customary
practice in the mortgage industry.

F-42

The following table summarizes cash flow activity between securitization
trusts and the Company during 2001:

----------------------------------
(a) Represents cash flows received on retained interests other than
servicing fees.

The following table presents information about delinquencies and components
of securitized and other managed assets as of and for the year ended
December 31, 2001:

----------------------------------
(a) Amounts are based on total securitized and other managed assets at
December 31, 2001.

(b) Excludes securitized mortgage loans that the Company continues to
service but as to which it has no other continuing involvement.

(c) Represents the principal amounts of the assets. All retained interests
in securitized assets have been excluded from the table.

25. RELATED PARTY TRANSACTIONS

The Company has certain relationships with affiliated entities principally
to support its business model of growing earnings and cash flow with minimal
asset risk. Following is a description of these relationships, including the
Company's investments in such entities. The Company does not have the
ability to control the operating and financial policies of these entities.
Accordingly, these investments are classified as available-for-sale debt
securities or accounted for using the equity method or at cost, as
appropriate. Certain of the Company's officers may serve on the Board of
Directors of these entities, but in no instances do they constitute a
majority of the Board.

NRT INCORPORATED

NRT Incorporated ("NRT") is a joint venture between the Company and Apollo
Management, L.P. ("Apollo") that acquires independent real estate
brokerages, converts them to one of the Company's real estate brands and
operates the brand under a 50-year franchise agreement with the Company. The
Company participates in acquisitions made by NRT by acquiring intangible
assets and, in some cases, mortgage operations of the real estate brokerage
firms acquired by NRT. Franchise agreements of $854 million and
$607 million are recorded on the Company's Consolidated Balance Sheet in

F-43

connection with this relationship as of December 31, 2001 and 2000,
respectively. Except for the term and the lack of a royalty rebate
provision, these franchise agreements are similar to those of the Company's
other real estate franchisees. NRT pays royalty and advertising fees to the
Company in connection with these franchise agreements, which are recorded by
the Company in its Consolidated Statements of Operations and approximated
$220 million, $198 million and $172 million during 2001, 2000 and 1999,
respectively. Additionally, during 2001, the Company received $16 million of
other fees from NRT, which included a fee paid in connection with the
termination of a franchise agreement. Other intangible assets resulting from
the acquisition of mortgage operations through NRT approximated $29 million
and $25 million as of December 31, 2001 and 2000, respectively, and are
recorded in the Company's Consolidated Balance Sheets. Such mortgage
operations were immediately integrated into the Company's existing mortgage
operations. The Company also receives real estate referral fees from NRT in
connection with clients referred to NRT by the Company's relocation
business. During 2001, 2000 and 1999, such fees were approximately
$37 million, $25 million and $15 million, respectively, and are recorded by
the Company in its Consolidated Statements of Operations. These fees are
also paid to the Company by all other real estate brokerages (both
affiliates and non-affiliates) who receive referrals from the Company's
relocation business. In February 1999, the Company advanced $35 million to
NRT for services to be provided related to the identification of potential
acquisition candidates, the negotiation of agreements and other services in
connection with future brokerage acquisitions by NRT. As NRT makes
acquisitions, the Company capitalizes a proportionate share of this advance,
which is then amortized over the term of the franchise agreement. As of
December 31, 2001, the remaining balance of this advance was $12 million.
Such amount is refundable in the event that services are not provided and
therefore is accounted for as a prepaid asset until services are rendered by
NRT.

NRT's common stock is owned by Apollo. The Company owns all of NRT's
preferred stock, which is mandatorily redeemable and, therefore, classified
as an available-for-sale debt security and accounted for at fair value. The
Company's initial preferred stock investment in NRT was $182 million. During
2001 and 2000, the Company acquired additional non-convertible preferred
stock in the amounts of $99 million and $50 million, respectively. During
2001 and 2000, the Company recognized $27 million and $17 million,
respectively, of dividend income, which increased the basis of the
underlying preferred stock investment. During 1999, the Company recognized
$16 million of dividend income, of which $8 million increased the basis of
the underlying preferred stock and $8 million was received in cash. The
Company sold $1 million and $2 million of its convertible preferred interest
and recognized a gain of $10 million and $20 million during 2000 and 1999,
respectively. At December 31, 2001 and 2000, the Company's investment in
NRT's preferred stock was $384 million and $258 million, respectively. The
Company has the option, upon the occurrence of certain events, to convert
$21 million of its preferred stock investment into no more than 50% of NRT's
common stock.

The Company also has the option to purchase all of NRT's common stock from
Apollo for $20 million. This option is not exercisable until August 11, 2002
and is conditional upon NRT's payment of $166 million to Apollo. The Company
may exercise the option prior to August 11, 2002 if it satisfies NRT's
obligation. If NRT is unable to make the $166 million payment to Apollo, the
Company would be required to make the payment on behalf of NRT and would
receive additional NRT preferred stock in exchange.

TRIP NETWORK, INC.

During March 2001, the Company funded the creation of Trip Network, Inc.
("Trip Network"), formerly Travel Portal, Inc., with a contribution of
assets valued at approximately $20 million in exchange for all of the common
and preferred stock of Trip Network. The Company transferred all of the
common shares of Trip Network to an independent technology trust. The
Company's preferred stock investment, which is convertible into
approximately 80% of Trip Network's common stock on a fully diluted basis,
is accounted for using the cost method. The preferred stock investment is
not convertible prior to March 31, 2003, except upon a change of control of
Trip Network. Subsequently, the Company contributed $85 million, including
$45 million in cash and 1.5 million shares of Homestore common stock,
then-valued at $34 million, to Trip Network to pursue the development of an
online travel business for the benefit of certain of its current and future
franchisees. Since the advance is repayable to the Company only if the
development results in the achievement of certain

F-44

financial results, such amount was expensed by the Company during 2001 and
is included as a component of restructuring and other unusual charges in the
Consolidated Statement of Operations. The Company also received warrants to
purchase up to 28,250 shares of Trip Network's common stock, which are
exercisable upon the achievement of certain financial results beginning on
March 31, 2003 or upon a change of control of Trip Network.

During October 2001, the Company entered into two separate lease and
licensing agreements with Trip Network, whereby, Trip Network was granted a
license to operate the online businesses of Trip.com, Inc. and Cheap Tickets
(both wholly-owned subsidiaries of the Company) and a lease or sublease, as
applicable, to all the assets of these companies necessary to operate such
businesses. The Trip.com license agreement has a one-year term and is
renewable at Trip Network's option for 40 additional one-year periods. The
Cheaptickets.com license agreement has a 40-year term. Under these
agreements, the Company receives a license fee of 3% of revenues generated
by Trip.com and Cheaptickets.com during the term of the agreements. The
Company also received warrants to purchase up to 46,000 shares of Trip
Network common stock, which are exercisable upon the achievement of certain
financial results beginning in October 2003 or upon a change of control of
Trip Network. Also during October 2001, the Company entered into a travel
services agreement with Trip Network, whereby the Company provides Trip
Network with call center services. In addition, the Company processes and
supports Trip Network's booking and fulfillment of travel transactions and
provides travel-related products and services to maintain and develop
relationships, discounts and favorable commissions with travel vendors. For
these services, the Company receives a fee of cost plus an applicable
mark-up. During 2001, the revenue received by Company in connection with
these agreements was not material. Additionally, during October 2001, the
Company entered into a 40-year global distribution services subscriber
agreement with Trip Network, whereby the Company provides all global
distribution services for Trip Network. The Company is not obligated or
contingently liable for any debt incurred by Trip Network. The Company
recorded a prepaid asset of approximately $40 million in connection with
this agreement, which is being amortized over 40 years.

FFD DEVELOPMENT COMPANY, LLC

Prior to the Company's acquisition of Fairfield in April 2001, Fairfield
contributed approximately $60 million of timeshare inventory and $4 million
of cash to FFD Development Company LLC. ("FFD"), a company created by
Fairfield to acquire real estate for construction of vacation ownership
units, which are sold to Fairfield upon completion. In exchange for this
contribution, Fairfield received all of the common and preferred equity
interests of FFD. Fairfield then contributed all the common equity interest
to an independent trust and retained a convertible preferred equity
interest, which is convertible at any time, and a warrant to purchase FFD's
common equity. The warrant is not exercisable until April 2004, except upon
the occurrence of specified events, including the Company's conversion of
more than half of its preferred equity interests into common equity
interests. In connection with the Company's acquisition of Fairfield in
April 2001, the Company now owns the preferred equity interest and the
warrant to purchase a common equity interest in FFD. The Company's preferred
equity interest, which approximated $59 million at December 31, 2001, is
accounted for using the cost method. During 2001, the Company recognized
dividend income of $6 million, which was paid-in-kind, related to its
preferred equity interest in FFD. Upon the conversion of such preferred
equity interests and the exercise of such warrant, the Company would own
approximately 75% of FFD's common equity interests on a fully diluted basis.
The Company is also now obligated to fulfill Fairfield's purchase
commitments with FFD. However, under the development contracts with FFD, the
Company is not obligated to purchase a resort property from FFD until
construction is completed to the contractual specifications, a certificate
of occupancy is delivered and clear title is obtained. During 2001, the
Company purchased $40 million of timeshare interval inventory and land from
FFD and as of December 31, 2001, is obligated to purchase an additional
$98 million. Subsequent to December 31, 2001, as is customary in "build to
suit" agreements, when the Company contracts with FFD for the development of
a property, the Company will issue a letter of credit for up to 20% of its
purchase price for such property. Drawing under all such letters of credit
will only be permitted if the Company fails to meet its obligation under any
purchase commitment. The Company is not obligated or contingently liable for
any other debt incurred by FFD.

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TRILEGIANT CORPORATION

On July 2, 2001, the Company entered into an agreement with Trilegiant
Corporation ("Trilegiant"), a newly-formed company owned by the former
management of the Company's Cendant Membership Services and Cendant
Incentives subsidiaries, whereby the Company outsourced its individual
membership and loyalty business to Trilegiant. Trilegiant operates
membership-based clubs and programs and other incentive-based programs. As
part of this agreement, Trilegiant provides fulfillment services to members
of the Company's individual membership business that existed as of the
transaction date in exchange for a servicing fee and licenses and/or leases
from the Company the assets of the Company's individual membership business
in order to service these members and also to obtain new members. The
Company continues to collect membership fees from, and is obligated to
provide membership benefits to, existing members as of July 2, 2001,
including their renewals. Trilegiant retains the economic benefits and
service obligations for those new members who join the membership based
clubs and programs and all other incentive programs subsequent to July 2,
2001 and will recognize the related revenue and expenses. Beginning in third
quarter 2002, the Company will recognize as revenue the royalty income
received from Trilegiant for membership fees generated by the new members
(initially 5%, increasing to approximately 16% over 10 years). The Company
licensed various tradenames, trademarks, logos, service marks, and other
intellectual property relating to its membership business to Trilegiant for
40 years. Upon expiration of the 40 year term, Trilegiant will have the
option to purchase any or all of the intellectual property licenses at their
then-fair market values.

In connection with the foregoing arrangements, the Company advanced
approximately $100 million to support Trilegiant's marketing activities and
made a $20 million convertible preferred stock investment in Trilegiant,
which is convertible into approximately 20% of Trilegiant's common stock on
a fully diluted basis. The Company expenses the marketing advance as
Trilegiant incurs qualified marketing costs. During 2001, the Company
expensed $66 million of the marketing advance. The Company's preferred stock
investment is mandatorily redeemable and, therefore, classified as an
available-for-sale debt security and accounted for at fair value. The
preferred stock investment is convertible at any time at the Company's
option and the Company is entitled to receive a 12% cumulative non-cash
dividend annually through July 2006. During third quarter 2001, the Company
wrote off the entire amount of its preferred stock investment due to
operating losses incurred by Trilegiant. Such amount is included as a
component of operating expenses in the Company's Consolidated Statement of
Operations. During 2001, the Company paid Trilegiant $128 million in
connection with services provided under the outsourcing arrangement and
Trilegiant collected $212 million of cash on the Company's behalf in
connection with membership renewals.

The Company also provides Trilegiant with a $35 million revolving line of
credit under which advances are at the sole and unilateral discretion of the
Company. As of December 31, 2001, Trilegiant had not drawn on this line.
During August 2001, Trilegiant entered into marketing agreements with a
third party, whereby Trilegiant will provide certain marketing services to
the third party in exchange for a commission. As part of its royalty
arrangement with Trilegiant, the Company will participate in those
commissions. In connection with these marketing agreements, the Company
provided Trilegiant with a $75 million loan facility bearing interest at a
rate of 9% under which the Company will advance funds to Trilegiant for
marketing performed by Trilegiant on behalf of the third party. As of
December 31, 2001, the outstanding balance under this facility was
$24 million. Such amount will be repaid to the Company as commissions are
received by Trilegiant from the third party.

Additionally, the Company maintains warrants to purchase up to 2.1 million
shares of Trilegiant's common stock, which are exercisable, upon the
achievement of certain financial results, into a majority ownership interest
in Trilegiant. The Company is not obligated or contingently liable for any
debt incurred by Trilegiant.

F-46

AVIS GROUP HOLDINGS, INC.

Prior to the Company's acquisition of Avis on March 1, 2001, the Company
maintained both a common and preferred equity interest in Avis and licensed
its Avis-Registered Trademark- trademark to Avis pursuant to a license
agreement. Under such agreement, the Company received royalty fees of
$16 million, $103 million and $102 million during 2001, 2000 and 1999,
respectively, which are recorded in the Company's Consolidated Statements of
Operations.

The Company recorded equity in earnings of $5 million, $17 million and
$18 million during 2001, 2000 and 1999, respectively, in connection with its
common equity ownership. Such amounts are included as a component of other
revenue in the Consolidated Statements of Operations. The Company's common
stock investment in Avis, which approximated $128 million, and the Company's
preferred equity interest, which approximated $394 million, were included as
components of Cendant's net investement in Avis upon consummation of the
acquisition.

TAX SERVICES OF AMERICA, INC.

Tax Services of America, Inc. ("TSA") was formed as a joint venture between
the Company and several of its Jackson Hewitt franchisees for the purpose of
acquiring independent tax practices and converting them into Jackson Hewitt
franchisees. In 1999, the Company initially funded TSA with 80 stores and
$5 million in cash in exchange for a preferred stock investment. As of
December 31, 2001, the Company's preferred stock investment of $37 million
was accounted for using the cost method.

HOMESTORE.COM, INC.

The Company's relationship with Homestore is limited to its equity ownership
interest. In connection with the write-down during 2001, this investment is
recorded at zero as of December 31, 2001 (see Note 4--Dispositions of
Businesses and Impairment of Investments).

ENTERTAINMENT PUBLICATIONS, INC.

The Company retains approximately 15% of the common equity ownership in
Entertainment Publications, Inc., the remaining common equity of which was
sold by the Company in 1999. As of December 31, 2001, the Company's
investment of $2 million was accounted for using the equity method. The
Company has no other commitments relating to this investment.

26. SEGMENT INFORMATION

In connection with significant acquisitions and dispositions of businesses
completed during 2001, the Company realigned the operations and management
of certain of its businesses. Accordingly, the Company's segment reporting
structure now encompasses the following five reportable segments: Real
Estate Services, Hospitality, Travel Distribution, Vehicle Services and
Financial Services. The periods presented herein have been reclassified to
reflect this change in the Company's segment reporting structure.

Management evaluates each segment's performance based upon earnings before
non-vehicle interest, income taxes, non-vehicle depreciation and
amortization, minority interest and equity in Homestore.com, adjusted to
exclude certain items which are of a non-recurring or unusual nature and are
not measured in assessing segment performance or are not segment specific
("Adjusted EBITDA"). Management believes such discussions are the most
informative representation of how management evaluates performance. However,
the Company's presentation of Adjusted EBITDA may not be comparable with
similar measures used by other companies.

F-47

A description of the services provided within each of the Company's
reportable segments is as follows:

REAL ESTATE SERVICES

The Real Estate Services segment franchises the Company's three real estate
brands, provides home buyers with mortgages and facilitates employee
relocations. The Company licenses the owners and operators of independent
real estate brokerage businesses to use its brand names. Operational and
administrative services are provided to franchisees, which are designed to
increase franchisee revenue and profitability. Such services include
advertising and promotions, referrals, training and volume purchasing
discounts. Mortgage services includes the origination, sale and servicing of
residential mortgage loans. The Company markets a variety of mortgage
products to consumers through relationships with corporations, affinity
groups, financial institutions, real estate brokerage firms and other
mortgage banks. The Company customarily sells all mortgages it originates to
investors while generally retaining mortgage servicing rights. Mortgage
servicing consists of collecting loan payments, remitting principal and
interest payments to investors, holding escrow funds for payment of
mortgage-related expenses such as taxes and insurance, and otherwise
administering the Company's mortgage loan servicing portfolio. Relocation
services are provided to client corporations for the transfer of their
employees. Such services include appraisal, inspection and selling of
transferees' homes, providing equity advances to transferees (generally
guaranteed by the corporate customer), purchasing of a transferee's home,
certain home management services, assistance in locating a new home for the
transferee at the transferee's destination, consulting services and other
related services. The transferee's home is purchased under a contract of
sale and the Company obtains a deed to the property; however, it does not
generally record the deed or transfer title. Transferring employees are
provided equity advances on the home based on their ownership equity of the
appraised home value. The mortgage is generally retired concurrently with
the advance of the equity and the purchase of the home. Based on its client
agreements, the Company is given parameters under which it negotiates for
the ultimate sale of the home. The gain or loss on resale is generally borne
by the client corporation. In certain transactions, the Company will assume
the risk of loss on the sale of homes; however, in such transactions, the
Company will control all facets of the resale process, thereby limiting its
exposure.

HOSPITALITY

The Hospitality segment franchises the Company's nine lodging brands,
facilitates the sale and exchange of vacation ownership intervals and
facilitates the leasing of vacation properties in Europe. As a franchiser of
guest lodging facilities, the Company licenses the independent owners and
operators of hotels to use its brand names. Operation and administrative
services are provided to franchisees, which include access to a national
reservation system, national advertising and promotional campaigns,
co-marketing programs and volume purchasing discounts. As a provider of
vacation and timeshare exchange services, the Company enters into
affiliation agreements with resort property owners/developers to allow
owners of weekly timeshare intervals to trade their owned weeks with other
subscribers. As an owner of vacation resort properties and inventory, the
Company markets and sells vacation ownership interests, operates vacation
ownership resorts and provides consumer financing to individuals purchasing
vacation ownership interests.

TRAVEL DISTRIBUTION

The Travel Distribution segment provides global distribution and travel
agency services. The Company provides scheduling, fare and other information
to global travel agencies, Internet travel sites, corporations and
individuals to assist them with the placement of airline, car rental and
hotel reservations. Such services are provided through the use of a
computerized reservation system. The Company also provides airline, car
rental, hotel and other companies travel reservation and fulfillment
services to members of its timeshare exchange programs and members of
certain of Trilegiant's

F-48

programs. Further, the Company provides hotels, car rental businesses and
tour/leisure travel operators, including Internet travel companies, with
access to reservation systems and processing.

VEHICLE SERVICES

The Vehicle Services segment operates and franchises the Avis car rental
brand, provides fleet management and fuel card services and operates car
parking facilities in the United Kingdom. The Company owns and operates the
Avis car rental franchise system and franchises vehicle rentals to business
and leisure travelers. The Company also provides fleet and fuel card related
products and services to corporate clients and government agencies. These
services included management and leasing of vehicles, fuel card payment and
reporting and other fee-based services for clients' vehicle fleets. The
Company leases vehicles primarily to corporate fleet users under operating
and direct financing lease arrangements where the customer bears
substantially all of the vehicle's residual value risk. In limited
circumstances, the Company leases vehicles under closed-end leases where the
Company bears all of the vehicle's residual value risk.

FINANCIAL SERVICES

The Financial Services segment provides insurance-based products, franchises
tax preparation services and provides a variety of membership programs. The
Company affiliates with business partners, such as leading financial
institutions and retailers, to offer membership as an enhancement to their
credit card customers. The Company also markets and administers insurance
products, primarily accidental death and dismemberment insurance and term
life insurance, and provides services such as checking account enhancement
packages, various financial products and discount programs, to financial
institutions, which, in turn, provide these services to their customers. The
Company franchises tax preparation services through its Jackson Hewitt brand
name. The Company, through its relationship with Trilegiant Corporation,
also provides consumers with a variety of membership programs offering
discounted products and services in such areas as retail shopping, auto,
dining, home improvement and credit information.

YEAR ENDED DECEMBER 31, 2001

F-49

YEAR ENDED DECEMBER 31, 2000

YEAR ENDED DECEMBER 31, 1999

----------------------------------
(a) Net revenues and Adjusted EBITDA include the equity in earnings from
the Company's investment in Avis of $5 million, $17 million and
$18 million in 2001, 2000 and 1999, respectively. Net revenues and
Adjusted EBITDA for 1999 include a pre-tax gain of $11 million and
$18 million, respectively, as a result of the sale of a portion of the
Company's equity interest. Segment assets include such equity method
investment in the amount of $132 million and $118 million at
December 31, 2000 and 1999, respectively.

F-50

(b) Net revenues include gains of $23 million, $33 million and
$23 million during 2001, 2000 and 1999, respectively, on the sales of car
parking facilities.

(c) Segment assets include the Company's equity investment of $2 million
and $1 million in Entertainment Publication, Inc. at December 31, 2001 and
2000, respectively.

(d) Inter-segment net revenues were not significant to the net revenues of
any one segment.

Provided below is a reconciliation of Adjusted EBITDA to income (loss)
before income taxes, minority interest and equity in Homestore.com.

The geographic segment information provided below is classified based on the
geographic location of the Company's subsidiaries.

27. SELECTED QUARTERLY FINANCIAL DATA--(UNAUDITED)

Provided below is selected unaudited quarterly financial data for 2001 and
2000. The underlying diluted per share information is calculated from the
weighted average common and common stock equivalents outstanding during each
quarter, which may fluctuate based on quarterly income levels,

F-51

market prices and share repurchases. Therefore, the sum of the quarters' per
share information may not equal the total year amounts presented on the
Consolidated Statements of Operations.

----------------------------------
(a) Includes a net gain of $435 million ($261 million, after tax or $0.28
per diluted share) related to the dispositions of businesses and a non-cash
credit of $14 million ($9 million, after tax or $0.01 per diluted share)
in connection with an adjustment to the PRIDES settlement. Such amounts
were partially offset by charges of (i) $95 million ($62 million, after
tax or $0.07 per diluted share) to fund an irrevocable contribution to an
independent technology trust, (ii) $85 million ($56 million, after tax or
$0.07 per diluted share) incurred in connection with the creation of
Travel Portal, Inc., (iii) $25 million ($15 million, after tax or $0.02
per diluted share) for litigation settlement and related costs,
(iv) $7 million ($5 million, after tax or $0.01 per diluted share)
related to a non-cash contribution to the Cendant Charitable Foundation
and (v) $8 million ($5 million, after tax or $0.01 per diluted share)
related to the acquisition and integration of Avis Group.

(b) Includes $9 million ($5 million, after tax or $0.01 per diluted share)
of litigation settlement and related costs.

(c) Includes charges of $77 million ($50 million, after tax or $0.05 per
diluted share) related to the September 11th terrorist attacks and
$9 million ($6 million, after tax or $0.01 per diluted share) of
litigation settlement and related costs.

(d) Includes charges of (i) $116 million ($73 million, after tax or $0.07
per diluted share) in connection with restructuring and other initiatives
undertaken as a result of the September 11th terrorist attacks,
(ii) $104 million ($65 million, after tax or $0.07 per diluted share)
related to the acquisition and integration of Galileo
International, Inc. and Cheap Tickets, Inc., (iii) $94 million
($55 million, after tax or $0.06 per diluted share) related to the
impairment of the Company's mortgage servicing rights portfolio,
(iv) $58 million ($37 million, after tax or $0.04 per diluted share) for
litigation settlement and related costs, (v) $441 million ($265 million,
after tax or $0.27 per diluted share) related to impairment of certain of
the Company's investments and (vi) losses of $18 million ($20 million,
after tax or $0.02 per diluted share) related to the dispositions of
non-strategic businesses.

F-52

----------------------------------
(a) Includes (i) restructuring and other unusual charges of $106 million
($70 million, after tax or $0.09 per diluted share) in connection with
various strategic initiatives, (ii) losses of $13 million ($9 million,
after tax or $0.01 per diluted share) related to the disposition of
businesses and (iii) $3 million ($2 million, after tax) of litigation
settlement and related costs. Such amounts were partially offset by a
non-cash credit of $41 million ($26 million, after tax or $0.03 per
diluted share) in connection with an adjustment to the PRIDES settlement,

(b) Includes $5 million ($3 million, after tax) of litigation settlement
and related costs and $4 million ($2 million, after-tax) related to the
dispositions of businesses.

(c) Includes (i) losses of $32 million ($20 million, after tax or $0.03
per diluted share) related to the dispositions of businesses,
(ii) $27 million ($16 million, after tax or $0.02 per diluted share) of
litigation settlement and related costs and (iii) charges of $3 million
($2 million, after tax) related to the postponement of the initial public
offering of Move.com common stock. Such amounts were partially offset by
a gain of $35 million ($35 million, after tax or $0.05 per diluted share)
resulting from the recognition of a portion of the Company's previously
recorded deferred gain from the sale of its fleet businesses.

(d) Includes $8 million ($5 million, after tax or $0.01 per diluted share)
of litigation settlement and related costs.

28. SUBSEQUENT EVENTS

On January 18, 2002, the Company acquired all the common stock of TSA for
approximately $4 million in cash. TSA was the largest franchisee within the
Jackson Hewitt franchise system. Accordingly, TSA will be included in the
Company's consolidated results of operations and financial position
beginning in the first quarter of 2002.

On February 11, 2002, the Company acquired all of the outstanding common
stock of Equivest Finance, Inc. ("Equivest") for approximately $98 million
in cash. Equivest is a timeshare vacation services company that develops,
markets and sells vacation services and vacation ownership interest to
consumers.

On February 15, 2002, the Company redeemed the remaining $390 million of its
3% convertible subordinated notes.

F-53

On February 21, 2002, PHH entered into a $750 million committed revolving
credit facility maturing in February 2004. This facility replaces PHH's
$750 million revolving credit facility, which matured on February 21, 2002.
Borrowings under this facility bear interest at LIBOR plus a margin of 62.5
basis points. All other terms of this facility are similar to the terms of
PHH's $750 million revolving credit facility maturing in February 2005.

On March 1, 2002, the Company entered into a venture with Marriott
International, Inc. ("Marriott") whereby the Company contributed its Days
Inn trademark and an amended license agreement relating to such trademark
and Marriott contributed the Ramada trademark and the master license
agreement relating to such trademark. The Company received a 50.0001%
interest in the venture and Marriott received 49.9999% interest in the
venture. Pursuant to the terms of the venture, the Company and Marriott will
share income from the venture on a substantially equal basis. The Company
currently expects the venture to redeem Marriott's interest for
approximately $200 million, the projected fair market value, in March 2004.
The Company expects to loan the venture such amount in March 2004 to enable
the venture to meet its obligations to Marriott. Upon redemption, the
Company will own 100% of the venture. Under the terms of the venture
agreement, the Company controls the venture and, therefore, will consolidate
the venture into its results of operations, financial position and cash
flows beginning on March 1, 2002. The venture has no third party
liabilities.

On April 1, 2002, the Company announced that it had entered into agreements
to acquire all of the outstanding common stock of Trendwest Resorts, Inc.
("Trendwest") through a tax-free exchange of the Company's CD common stock.
Trendwest markets, sells and finances vacation ownership interests. As part
of the planned acquisition, the Company will assume approximately
$74 million of Trendwest net debt, which it intends to repay. The number of
shares of CD common stock to be paid to Trendwest stockholders will
fluctuate between 55.4 million and 48.3 million shares, within a collar of
$16.15 to $18.50 per share of CD common stock. The first step of the
transaction, the purchase of more than 90% of the outstanding shares from
certain Trendwest stockholders, is expected to close in May 2002, subject to
customary regulatory approvals and the satisfaction of closing conditions.
The purchase of the remaining 10% of the outstanding Trendwest shares will
close upon the effectiveness of a registration statement relating to the
issuance of CD common stock to such Trendwest stockholders. Management
believes that this acquisition will provide the Company with significant
geographic diversification and global presence in the timeshare industry.

* * * *

F-54

EXHIBIT INDEX

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G-2

G-3

G-4

G-5

G-6

G-7

G-8

G-9