CENDANT CORP - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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 (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

9 WEST 57TH STREET 10019
NEW YORK, NY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

(212) 413-1800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed in Section 13 or 15(d) of the Securities 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 / /

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of the Registrant's common stock was
1,040,187,369 shares as of July 31, 2002.

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CENDANT CORPORATION AND SUBSIDIARIES

INDEX

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INDEPENDENT ACCOUNTANTS' REPORT

To the Board of Directors and Stockholders of
Cendant Corporation
New York, New York

We have reviewed the accompanying consolidated condensed balance sheet of
Cendant Corporation and subsidiaries (the "Company") as of June 30, 2002 and the
related consolidated condensed statements of income and cash flows for the three
and six month periods ended June 30, 2002 and 2001. These financial statements
are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to such consolidated condensed financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of December 31, 2001, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 7, 2002 (April 1, 2002 as to
the subsequent events described in Note 28 and August 12, 2002 as to the effects
of the discontinued operation described in Notes 1 and 5 and as to the pro forma
effect of the non-amortization of goodwill disclosed in Note 1), we expressed an
unqualified opinion (and included explanatory paragraphs relating to the
modification of the accounting treatment relating to securitization
transactions, the accounting for derivative instruments and hedging activities
and the revision of certain revenue recognition policies, as discussed in Note 1
and as to the effects of the discontinued operation as discussed in Notes 1 and
5 to the consolidated financial statements) on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated condensed balance sheet as of December 31, 2001 is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.

/s/ Deloitte & Touche LLP
New York, New York
August 12, 2002

1

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

See Notes to Consolidated Condensed Financial Statements.

2

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

See Notes to Consolidated Condensed Financial Statements.

3

CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN MILLIONS)

See Notes to Consolidated Condensed Financial Statements.

4

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

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION
The accompanying unaudited Consolidated Condensed Financial Statements
include the accounts and transactions of Cendant Corporation and its
subsidiaries (collectively, the "Company" or "Cendant").

In management's opinion, the Consolidated Condensed Financial Statements
contain all normal recurring adjustments necessary for a fair presentation
of interim results reported. The results of operations reported for interim
periods are not necessarily indicative of the results of operations for the
entire year or any subsequent interim period. In addition, management is
required to make 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. The Consolidated Condensed Financial Statements should be
read in conjunction with the Company's Annual Report on Form 10-K/A dated
August 14, 2002.

On May 22, 2002, the Company sold its car parking facility business,
National Car Parks ("NCP"). In connection with the disposition, the account
balances and activities of NCP have been segregated and reported as a
discontinued operation for all periods presented. In addition, certain
other reclassifications have been made to prior period amounts to conform
to the current period presentation.

REVENUE RECOGNITION FOR REAL ESTATE BROKERAGE BUSINESS
In connection with the Company's acquisitions of NRT Incorporated ("NRT")
and Arvida Realty Services ("Arvida"), real estate commissions are recorded
as revenue on a gross basis upon the closing of a purchase or sale of a
home. The amounts paid to real estate agents are recorded as a component
of operating expenses. During the six months ended June 30, 2002, the
amounts paid to real estate agents approximated $657 million.

CHANGES IN ACCOUNTING POLICIES
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," in its
entirety. Prior to the adoption of SFAS No. 142, all intangible assets were
amortized on a straight-line basis over their estimated periods to be
benefited. Subsequent to the adoption, the Company did not amortize any
goodwill or indefinite-lived intangible assets during 2002.

In connection with the implementation of SFAS No. 142, the Company is
required to assess goodwill and indefinite-lived intangible assets for
impairment annually, or more frequently if circumstances indicate
impairment may have occurred. 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 did not result in a charge and, as such,
did not impact the Company's results of operations during 2002.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." Such
standard is effective for exit or disposal activities initiated after
December 31, 2002, with earlier application encouraged. SFAS No. 146
addresses financial accounting and reporting for costs incurred in
connection with exit or disposal activities, including restructurings, and
nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a Restructuring)."
Under SFAS No. 146, a liability related to an exit or disposal activity is
not recognized until such liability has actually been incurred, as opposed
to a liability being recognized at the time of a commitment to an exit
plan, which was the standard for liability recognition under EITF Issue No.
94-3. The Company does not expect the adoption of SFAS No. 146 to have a
material effect on its financial condition or results of operations.

2. EARNINGS PER SHARE

Earnings per share ("EPS") for the three and six months ended June 30, 2001
was calculated using the two-class method as shares of Move.com common
stock were outstanding during such periods. The Company

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ceased using the two-class method upon the repurchase of all outstanding
Move.com shares on June 30, 2001. Accordingly, the calculation for the
three and six months ended June 30, 2002 does not reflect the application
of the two-class method.

Income per common share from continuing operations for CD 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.

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

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(a) The weighted average exercise prices for antidilutive options at
June 30, 2002 and 2001 were $21.56 and $22.81, respectively.
(b) The weighted average exercise price for antidilutive warrants at
June 30, 2002 and 2001 was $21.31.
(c) The appreciation price for antidilutive Upper DECS at June 30, 2002 was
$28.42.

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The Company's contingently convertible debt securities issued during first
quarter 2001, which provided for the potential issuance of approximately 36
million and 49 million shares of CD common stock as of June 30, 2002 and
2001, respectively, were not included in the computation of diluted EPS for
the three and six months ended June 30, 2002 and 2001, respectively, as the
related contingency provisions were not satisfied during such periods.
Additionally, the Company's contingently convertible debt securities issued
during the second quarter of 2001, which provide for the potential issuance
of approximately 39 million shares of CD common stock as of June 30, 2002
and 2001, were not included in the computation of diluted EPS for the three
and six months ended June 30, 2002 and 2001 as the related contingency
provisions were not satisfied during such periods. Further, the Company's
contingently convertible debt securities issued during the fourth quarter
of 2001, which provide for the potential issuance of approximately 50
million shares of CD common stock as of June 30, 2002, were not included in
the computation of diluted EPS for the three and six months ended June 30,
2002 as the related contingency provisions were not satisfied during such
periods.

Income per common share from continuing operations for Move.com common
stock was computed as follows:

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(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.

3. ACQUISITIONS

NRT INCORPORATED. On April 17, 2002, the Company acquired all of the
outstanding common stock of NRT, the largest residential real estate
brokerage firm in the United States, for $230 million, including $3 million
of estimated transaction costs and expenses and $11 million related to the
conversion of NRT employee stock appreciation rights to CD common stock
options. The acquisition consideration was funded through a tax-free
exchange of 11.5 million shares of CD common stock then-valued at $216
million, which included approximately 1.5 million shares of CD common stock
then-valued at $30 million in exchange for existing NRT options. As part of
the acquisition, the Company also assumed approximately $320 million of NRT
debt, which was subsequently repaid. Prior to the acquisition, NRT operated
as a joint venture between the Company and Apollo Management, L.P. that
acquired independent real estate brokerages, converted them to one of the
Company's real estate brands and operated under the brand pursuant to two
50-year franchise agreements with the Company. Management believes that NRT
as a wholly-owned subsidiary of the Company will be a more efficient
acquisition vehicle, experience greater opportunities to enhance mortgage
and title penetration and achieve greater financial and operational
synergies.

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The preliminary allocation of the purchase price is summarized as follows:

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(*) Primarily represents the allocation of the purchase price to the
pendings and listings intangible asset.

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

A portion of the purchase price ($198 million) was allocated to the value
associated with NRT's pendings and listings at the acquisition date. This
intangible asset is being amortized over the related contract closing
period, which is not expected to exceed five months from the date of
acquisition. As of June 30, 2002, the Company had amortized $173 million of
this asset. The goodwill was assigned to the Company's Real Estate Services
segment. The Company expects $177 million of such goodwill to be deductible
for tax purposes.

ARVIDA REALTY SERVICES. On April 17, 2002, the Company acquired all of the
outstanding common stock of Arvida, the largest residential real estate
brokerage firm in Florida, for approximately $160 million in cash,
resulting in goodwill of $158 million. Management believes that this
acquisition will further enhance the Company's residential real estate
position in Florida. This acquisition was not significant.

TRENDWEST RESORTS, INC. On April 30, 2002, the Company acquired
approximately 90% of the outstanding common stock of Trendwest Resorts,
Inc. ("Trendwest") for $849 million, including $20 million of estimated
transaction costs and expenses and $25 million related to the conversion of
Trendwest employee stock options into CD common stock options. The
acquisition consideration was funded through a tax-free exchange of
approximately 42.6 million shares of CD common stock then-valued at $804
million. As part of the acquisition, the Company assumed $89 million of
Trendwest debt, which was subsequently repaid. The Company purchased the
remaining 10% of the outstanding Trendwest shares through a short form
merger on June 3, 2002 for approximately $87 million, which was funded
through a tax-free exchange of approximately 4.8 million shares of CD
common stock then-valued at $87 million. The minority interest recorded in
connection with Trendwest's results between April 30, 2002 and June 30,
2002 was not material. Trendwest markets, sells and finances vacation
ownership interests and is now part of the Company's Hospitality segment.
Management believes that this acquisition will provide the Company with
significant geographic diversification and global presence in the timeshare
industry.

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The preliminary allocation of the purchase price is summarized as follows:

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(*) Primarily represents deferred tax liabilities for book-tax differences,
largely offset by the allocation of the purchase price to identifiable
intangible assets.

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

The goodwill was assigned to the Company's Hospitality segment. The Company
does not expect any of this goodwill to be deductible for tax purposes.

OTHER. During 2002, the Company also completed other acquisitions for
aggregate consideration of approximately $487 million in cash, resulting in
goodwill of $338 million, the majority of which was allocated to the
Company's Hospitality segment. Such other acquisitions included Equivest
Finance, Inc., a timeshare developer, for approximately $98 million in
cash; Novasol AS, a marketer of privately owned vacation properties, for
approximately $66 million and Sigma, a distribution partner of the
Company's Galileo International, Inc. subsidiary, for approximately $112
million. These acquisitions were not significant.

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 Trendwest and NRT 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 Trendwest and NRT and are not necessarily
indicative of what actually would have occurred if the acquisition

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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 costs relating to such integrations. These 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 Condensed Balance Sheet as adjustments to the purchase price
or on the Company's Consolidated Condensed Statement of Income as expenses,
as appropriate.

These acquisitions were accounted for using the purchase method of
accounting; accordingly, assets acquired and liabilities assumed were
recorded in the Company's Consolidated Condensed Balance Sheet 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. 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 Condensed Statements of Income since their
respective dates of acquisition.

4. DISCONTINUED OPERATIONS

As previously discussed in Note 1, on May 22, 2002, the Company sold its
car parking facility business, NCP, a then-wholly-owned subsidiary within
its Vehicle Services segment, for approximately $1.2 billion in cash. The
Company recorded an after-tax loss of approximately $256 million on the
sale of this business. NCP operated off-street commercial parking
facilities and managed on-street parking and related operations on behalf
of town and city administration in England.

Summarized statement of income data for NCP consisted of:

Summarized balance sheet data for NCP consisted of:

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As NCP was sold on May 22, 2002, there is no balance sheet data to present
as of June 30, 2002.

5. OTHER CHARGES

ACQUISITION AND INTEGRATION RELATED COSTS. During second quarter 2002, the
Company incurred charges of $207 million primarily related to the
acquisition and integration of NRT and Arvida. Such charges principally
consisted of $185 million related to the amortization of the contractual
real estate pendings and listings intangible assets acquired as part of the
acquisitions of NRT and Arvida. Given the nature of such assets, the
amortization period is typically less than six months. Accordingly, the
Company has segregated such amortization to enhance comparability of its
results of operations. See Note 3 - Acquisitions for a more detailed
description of such asset.

During first quarter 2001, the Company incurred charges of $8 million in
connection with the acquisition and integration of Avis Group Holdings,
Inc., including severance costs incurred in connection with the
rationalization of duplicative functions.

LITIGATION SETTLEMENT AND RELATED COSTS. During the three months ended June
30, 2002 and 2001, the Company recorded charges of $8 million and $9
million, respectively, for litigation settlement and related costs in
connection with investigations relating to the 1998 discovery of accounting
irregularities in the former business units of CUC International, Inc.
("CUC"). During the six months ended June 30, 2002 and 2001, the Company
recorded charges of $19 million and $33 million, respectively, for such
costs. Also, during the six months ended June 30, 2001, the Company
recorded a non-cash credit of $14 million to reflect an adjustment to the
PRIDES class action litigation settlement charge recorded by the Company in
1998, which partially offsets the $33 million charge recorded.

RESTRUCTURING AND OTHER UNUSUAL CHARGES. During first quarter 2001, the
Company incurred unusual charges totaling $185 million, which primarily
consisted of (i) $95 million related to the funding of an irrevocable
contribution to the Real Estate Technology Trust, an independent 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, Inc. ("Trip Network"),
which is contingently repayable to the Company only if certain financial
targets related to Trip Network are achieved and (iii) $7 million related
to a charitable contribution of $1.5 million in cash and stock in a
publicly traded company valued at $5.5 million (based upon its then-current
fair value) to the Cendant Charitable Foundation, which the Company
established in September 2000 to serve as a vehicle for making charitable
contributions to worthy charitable causes that are of particular interest
to the Company's employees, customers and franchisees.

6. RESTRICTED CASH

The Company is required to set aside certain amounts of cash primarily
related to various agreements under which its real estate brokerage and
mortgage businesses operate. Such amounts are segregated and reported as
restricted cash on the Company's Consolidated Condensed Balance Sheets.

7. INTANGIBLE ASSETS

Intangible assets consisted of:

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(a) The change in the balance at June 30, 2002 reflects the elimination of
$923 million of franchise agreements as a result of the acquisition of
NRT (see Note 3 - Acquisitions.)
(b) The change in the balance at June 30, 2002 reflects the acquisition of
the pendings and listings intangible asset primarily in connection with
the Company's acquisition of NRT (see Note 3 - Acquisitions).
(c) The change in the balance at June 30, 2002 reflects the acquisition of
a trademark valued at approximately $200 million related to the
Company's venture with Marriott International, Inc.

Additionally, the Company's mortgage servicing rights portfolio, including
qualifying hedges, approximated $2.2 billion and $2.0 billion as of June
30, 2002 and December 31, 2001, respectively. During the six months ended
June 30, 2002, the Company generated $429 million of mortgage servicing
rights, with a weighted average amortization period of approximately eight
years. In addition, the carrying value of the mortgage servicing rights
portfolio was reduced by amortization and valuation adjustments of $259
million.

The changes in the carrying amount of goodwill for the six months ended
June 30, 2002 are as follows:

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(a) Goodwill acquired during 2002 primarily relates to the acquisition of
NRT.
(b) Goodwill acquired during 2002 primarily relates to the acquisition of
Trendwest.
(c) Goodwill acquired during 2002 primarily relates to the acquisition of
Sigma.
(d) Goodwill acquired during 2002 primarily relates to the acquisition
of Tax Services of America, Inc.

Amortization expense relating to all intangible assets (including mortgage
servicing rights and pendings and listings) during the three and six months
ended June 30, 2002 was approximately $298 million and $421 million,
respectively. Amortization expense relating to all intangible assets
(including mortgage servicing rights) during the three and six months ended
June 30, 2001 was approximately $129 million and $219 million,
respectively, including the amortization of goodwill and trademarks of $41
million and $68 million, respectively. Based on the Company's amortizable
intangible assets as of June 30, 2002, the Company expects related
amortization expense for the remainder of 2002 and the five succeeding
fiscal years to approximate $267 million, $400 million, $365 million, $336
million, $310 million and $273 million.

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Had the Company applied the non-amortization provisions of SFAS No. 142 for
the three and six months ended June 30, 2001, net income and per share data
would have been as follows:

8. FOURTH QUARTER 2001 RESTRUCTURING

The liability resulting from the Company's restructuring plan committed to
in fourth quarter 2001 as a result of changes in business and consumer
behavior following the September 11th terrorist attacks is classified as a
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 included severance resulting from the
rightsizing of certain businesses and corporate functions. The Company
formally communicated the termination of employment to approximately 3,000
employees, representing a wide range of employee groups and as of June 30,
2002, the Company had terminated approximately 2,700 employees. All other
costs were incurred primarily in connection with facility closures and
lease obligations resulting from the consolidation of business operations.
These initiatives were substantially completed as of June 30, 2002. The
majority of the remaining personnel related costs are expected to be paid
by the end of fourth quarter 2002.

9. STOCKHOLDER LITIGATION SETTLEMENT LIABILITY

On March 18, 2002, the Supreme Court denied all final petitions relating to
the Company's principal securities class action lawsuit. 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
made an additional payment of $250 million to the trust during March 2002
and funded the remaining balance of the liability with a cash payment of
$1.2 billion on May 24, 2002.

10. LONG-TERM DEBT

The zero coupon convertible debentures have been reclassified to long-term
debt on the Company's Consolidated Condensed Balance Sheets at June 30,
2002 and December 31, 2001 based upon the Company's

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intent and ability to refinance such debentures on a long-term basis. The
Company has the ability to refinance such debt with borrowings under its
revolving credit facilities (see below for capacity and availability
terms).

Long-term debt consisted of:

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(a) The change in the balance at June 30, 2002 reflects the redemption of
$79 million of these notes for $82 million of cash. In connection with
such redemption, the Company recorded an extraordinary loss of
approximately $3 million ($2 million, after tax).
(b) The change in the balance at June 30, 2002 reflects the redemption of
$253 million in accreted value of these notes, with a face value of
$402 million, for $283 million of cash. In connection with such
redemption, the Company recorded an extraordinary loss of approximately
$35 million ($25 million, after tax).
(c) On May 2, 2002, the Company amended the interest and redemption terms
of these debentures. In connection with such amendments, the Company
will make cash interest payments of 3% per annum, beginning May 5, 2002
and continuing through May 4, 2003, to the holders of the debentures on
a semi-annual basis and the holders were granted an additional option
to put the debentures to the Company on May 4, 2003. On May 4, 2002,
holders had the right to require the Company to redeem these
debentures. On such date, virtually all holders declined to exercise
this put option and retained their debentures.
(d) The change in the balance at June 30, 2002 reflects the redemption of
$390 million of these notes upon maturity in February 2002 in cash.

As of June 30, 2002, the Company maintained $2.9 billion of revolving
credit facilities under which there were no outstanding borrowings,
however, letters of credit of $336 million were issued. Accordingly, as of
June 30, 2002, the Company had approximately $2.6 billion of availability
under these facilities and $3.0 billion of availability for public debt or
equity issuances under a shelf registration statement. The Company was in
compliance with all of the related debt covenants as of June 30, 2002.

11. LIABILITIES UNDER MANAGEMENT AND MORTGAGE PROGRAMS

Debt under management and mortgage programs consisted of:

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(a) The balance at June 30, 2002 primarily represents borrowings of $3.6
billion and $2.7 billion outstanding under the Company's AESOP and
Chesapeake Funding (formerly Greyhound Funding) programs,
respectively.
(b) The balance at June 30, 2002 principally relates to mortgage loans
sold under repurchase agreements.
(c) The balance at June 30, 2002 primarily represents borrowings
outstanding under the Company's AESOP Funding program.
(d) The balance at June 30, 2002 reflects the issuance during second
quarter 2002 of (i) $443 million of unsecured medium-term notes at the
Company's PHH subsidiary, with maturities ranging from May 2005
through May 2012 and (ii) $128 million of unsecured medium-term notes
at the Company's PHH subsidiary, with maturities ranging from June 2005
to June 2017, of which approximately $85 million may be subject to
repurchase by PHH in third quarter 2002.
(e) The balance at June 30, 2002 reflects the repayment of $750 million
during second quarter 2002 of outstanding borrowings under a revolving
credit facility scheduled to mature in February 2005.

As of June 30, 2002, the Company had an additional $291 million and $500
million of available capacity under the AESOP and Chesapeake Funding
programs, respectively, to fund vehicles under management programs and
related receivables. Additionally, the Company has $299 million of
available capacity under its mortgage warehouse facilities.

During first quarter 2002, the Company's PHH subsidiary renewed its $750
million credit facility, which matured in February 2002. The new facility
bears interest at LIBOR plus an applicable margin, as defined in the
agreement, and terminates on February 21, 2004. PHH is required to pay a
per annum utilization fee of 25 basis points if usage under the new
facility exceeds 25% of aggregate commitments. During second quarter 2002,
PHH terminated $250 million of its revolving credit facilities, which were
scheduled to mature in November and December 2002. As of June 30, 2002,
there were no outstanding borrowings under any of PHH's credit facilities
and PHH had approximately $1.6 billion of availability under these
facilities and $2.2 billion of availability for public debt issuances under
its shelf registration statements. The Company was in compliance with all
of the related debt covenants as of June 30, 2002.

OTHER SECURITIZATION FACILITIES
As of June 30, 2002, the Company was servicing $485 million of Fairfield
timeshare receivables and $605 million of Trendwest timeshare receivables
sold to special purpose entities. Additionally, PHH was servicing $590
million of relocation receivables sold to a special purpose entity. The
maximum funding capacity through the special purpose entity used to
securitize relocation receivables is $600 million. As of June 30, 2002, PHH
had available capacity of $85 million under this facility. The special
purpose entities used to securitize the majority of timeshare receivables
do not have maximum funding capacities. During the three and six months
ended June 30, 2002 and 2001, the Company recognized pre-tax gains of
approximately $4 million and $6 million, respectively, on the
securitization of timeshare receivables. Gains recognized on the
securitization of relocation receivables during the three and six months
ended June 30, 2002 and 2001 were not material.

As of June 30, 2002, PHH was also servicing approximately $1.6 billion of
mortgage loans sold to a special purpose entity on a non-recourse basis. In
addition to the mortgage loans sold to the special purpose entity, as of
June 30, 2002, PHH was servicing $106 billion of mortgage loans sold to the
secondary market, substantially all of which were sold on a non-recourse
basis. The maximum funding capacity through this special purpose entity is
$3.2 billion and PHH had available capacity of approximately $1.6 billion
as of June 30, 2002. In addition to the capacity through the special
purpose entity, PHH has the capacity, under a registration statement with
the Securities and Exchange Commission, to securitize approximately $1.0
billion of mortgage loans. During the three months ended June 30, 2002 and
2001, the Company recognized pre-tax gains of $76 million and $125 million,
respectively, on $8.1 billion and $9.9 billion, respectively, of mortgage
loans sold into the secondary market. During the six months ended June 30,
2002 and 2001, the Company recognized pre-tax gains of $199 million and
$209 million, respectively, on $16.7 billion and $15.8 billion,
respectively, of mortgage loans sold into the secondary market. The sale of
mortgage loans into the secondary market is customary practice in the
mortgage industry.

12. COMMITMENTS AND CONTINGENCIES

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

15

$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 continues to be involved in litigation asserting claims
associated with the accounting irregularities discovered in former CUC
business units outside of the principal securities class action litigation.
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 us 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.

13. STOCKHOLDERS' EQUITY

During the six months ended June 30, 2002, the Company repurchased $137
million (7.7 million shares) of CD common stock under its common stock
repurchase program. As of June 30, 2002, the Company had approximately $120
million in remaining availability for repurchases under this program.

COMPREHENSIVE INCOME
The components of comprehensive income are summarized as follows:

The after-tax components of accumulated other comprehensive loss for the
six months ended June 30, 2002 are as follows:

14. SEGMENT INFORMATION

Management evaluates each segment's performance based upon earnings before
non-program related interest, income taxes, non-program related
depreciation and amortization, minority interest and in 2001 equity in
Homestore.com, all of which are not measured in assessing segment
performance or are not segment specific. Such measure is then adjusted to
exclude certain items which are of a non-recurring or unusual nature and
are also 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

16

performance. However, the Company's presentation of Adjusted EBITDA may not
be comparable with similar measures used by other companies.

----------
(a) Included in Corporate and Other are the results of operations of the
Company's non-strategic businesses, unallocated corporate overhead and
the elimination of transactions between segments.

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

15. RELATED PARTY TRANSACTIONS

NRT INCORPORATED
As discussed in Note 3 - Acquisitions, on April 17, 2002, the Company
purchased all the outstanding common stock of NRT from Apollo Management.
L.P. Prior to the Company's acquisition of NRT, NRT paid royalty and
marketing fees of $13 million and $62 million during the three months ended
June 30, 2002 and 2001, respectively, and $66 million and $102 million
during the six months ended June 30, 2002 and 2001, respectively. The
Company also received real estate referral fees from NRT of $1 million and
$9 million during the three months ended June 30, 2002 and 2001,
respectively, and $9 million and $16 million during the six months ended
June 30, 2002 and 2001, respectively. Additionally, during the six months
ended June 30, 2002, the Company recorded $16 million of other fees from
NRT in connection with the partial termination of a franchise agreement
under which NRT operated the Company's ERA real estate brand. Such amounts
are

17

recorded by the Company in its Consolidated Condensed Statements of Income
as revenues. NRT has been included in the Company's consolidated results of
operations and financial position since April 17, 2002.

FFD DEVELOPMENT COMPANY, LLC.
At June 30, 2002 and December 31, 2001, the Company's preferred equity
interest in FFD Development Company ("FFD") approximated $65 million and
$59 million, respectively. The Company recognized non-cash dividend income
of $3 million and $1 million during the three months ended June 30, 2002
and 2001, respectively, relating to this preferred equity interest. The
Company recognized non-cash dividend income of $6 million and $1 million
during the six months ended June 30, 2002 and 2001, respectively, relating
to this preferred equity interest. Such amounts were paid-in-kind and
recorded by the Company in its Consolidated Condensed Statements of Income
as revenues. The Company did not recognize dividend income during the three
or six months ended June 30, 2001.

During the six months ended June 30, 2002, the Company purchased $33
million of timeshare interval inventory and land from FFD, bringing the
total cumulative amount purchased to $73 million as of June 30, 2002. As of
June 30, 2002, the Company was obligated to purchase an additional $243
million of timeshare interval inventory and land from FFD.

As is customary in "build to suit" agreements, when the Company contracts
with FFD for the development of a property, the Company issues 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. As of June 30, 2002, the
Company had issued approximately $42 million of such letters of credit.

TRILEGIANT CORPORATION
At June 30, 2002, Trilegiant had an outstanding balance of $72 million due
to the Company related to amounts drawn on the $75 million loan facility
the Company provided in connection with certain marketing agreements under
which the Company expects to receive commissions. Such amount is recorded
on the Company's Consolidated Condensed Balance Sheet as a component of
other non-current assets.

During the three and six months ended June 30, 2002, Trilegiant paid the
Company $29 million and $80 million, respectively, in connection with
services provided under the Third Party Administrator agreement. During the
six months ended June 30, 2002, Trilegiant collected $101 million of cash
on the Company's behalf in connection with membership renewals.
Additionally, as of June 30, 2002, Trilegiant owed the Company an
additional $15 million in connection with the Third Party Administration
Agreement.

AVIS GROUP HOLDINGS, INC.
Prior to the Company's acquisition of Avis Group Holdings, Inc. ("Avis") on
March 1, 2001, during the six months ended June 30, 2001, the Company
received royalty fees of $16 million and recorded $5 million of equity in
earnings. Such amounts are recorded by the Company in its Consolidated
Condensed Statement of Income as revenues. Avis has been included in the
Company's consolidated results of operations and financial position since
April 1, 2001.

TAX SERVICES OF AMERICA, INC.
On January 18, 2002, the Company acquired all the common stock of Tax
Services of America, Inc. ("TSA") for approximately $4 million.
Accordingly, TSA has been included in the Company's consolidated results
of operations and financial position since January 18, 2002.

16. SUBSEQUENT EVENTS

On July 25, 2002, the Company issued $750 million of rental car
asset-backed notes, under its AESOP Funding program.

During July and August 2002, the Company redeemed $264 million of its zero
coupon senior convertible contingent notes with a face value of
approximately $419 million for approximately $265 million in cash.

On August 12, 2002, the Company signed a definitive agreement to acquire
all of the outstanding common stock of The DeWolfe Companies, Inc. for
approximately $149 million in cash. The acquisition is expected to

18

close in September 2002, subject to the satisfaction of closing conditions.
Management believes that this acquisition will provide the Company with
greater penetration in the New England residential real estate market.

****

19

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES THERETO INCLUDED ELSEWHERE
HEREIN. UNLESS OTHERWISE NOTED, ALL DOLLAR AMOUNTS ARE IN MILLIONS.

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, operates real estate
brokerage offices, 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 Travel Distribution segment provides
global distribution and computer reservation and travel agency services; our
Vehicle Services segment operates and franchises the Avis car rental brand and
provides fleet management and fuel card services; and our Financial Services
segment provides enhancement products, insurance-based and loyalty solutions,
operates and franchises tax preparation services and provides a variety of
membership programs through an outsourcing arrangement with Trilegiant
Corporation.

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/or related corporate transactions. We intend to continually explore and
conduct discussions with regard to such transactions.

ACQUISITIONS
On April 17, 2002, we acquired all of the outstanding common stock of NRT, the
largest residential real estate brokerage firm in the United States, for $230
million, including $3 million of estimated transaction costs and expenses and
$11 million related to the conversion of NRT employee stock appreciation rights
to CD common stock options. The acquisition consideration was funded through a
tax-free exchange of 11.5 million shares of CD common stock then-valued at $216
million, which included approximately 1.5 million shares of CD common stock
then-valued at $30 million in exchange for existing NRT options. As part of the
acquisition, we also assumed approximately $320 million of NRT debt, which was
subsequently repaid. Prior to the acquisition, NRT operated as a joint venture
between us and Apollo Management, L.P. that acquired independent real estate
brokerages, converted them to one of the Company's real estate brands and
operated under the brand pursuant to two 50-year franchise agreements with the
Company. On April 17, 2002, we also acquired all of the outstanding common stock
of Arvida Realty Services, the largest residential real estate brokerage firm in
Florida, for approximately $160 million in cash. Management believes that NRT
and Arvida as wholly-owned subsidiaries will be a more efficient acquisition
vehicle, experience greater opportunities to enhance mortgage and title
penetration and achieve greater financial and operational synergies. NRT and
Arvida are part of the Real Estate Services segment.

On April 30, 2002, we acquired approximately 90% of the outstanding common stock
of Trendwest Resorts, Inc. for $849 million, including $20 million of estimated
transaction costs and expenses and $25 million related to the conversion of
Trendwest employee stock options into CD common stock options. The acquisition
consideration was funded through a tax-free exchange of approximately 42.6
million shares of CD common stock then-valued at $804 million. As part of the
acquisition, we assumed $89 million of Trendwest debt, which was subsequently
repaid. We purchased the remaining 10% of the outstanding Trendwest shares
through a short form merger on June 3, 2002 for approximately $87 million, which
was funded through a tax-free exchange of approximately 4.8 million shares of CD
common stock then-valued at $87 million. Trendwest markets, sells and finances
vacation ownership interests and is now part of our Hospitality segment.
Management believes that this acquisition will provide us with significant
geographic diversification and global presence in the timeshare industry.

DISPOSITIONS
On May 22, 2002, we sold our car parking facility business, NCP, a wholly-owned
subsidiary within our Vehicle Services segment, for approximately $1.2 billion
in cash. We recorded an after-tax loss of $256 million on the sale of this
business principally related to foreign currency translation, as U.S. dollar
strengthened significantly against the U.K. pound since Cendant's acquisition of
NCP in 1998. NCP operated off-street commercial parking facilities and managed
on-street parking and related operations on behalf of town and city
administration in England. NCP's results of operations are classified as a
discontinued operation for all periods presented.

20

THREE MONTHS ENDED JUNE 30, 2002 VS. THREE MONTHS ENDED JUNE 30, 2001

RESULTS OF CONSOLIDATED OPERATIONS

Our consolidated results from continuing operations comprised the following:

Strong contributions from all of our segments and the acquisition of Galileo
International, Inc. in October 2001, as well as NRT and Trendwest in 2002
produced revenue growth of $1.5 billion (63%), of which approximately $1.4
billion (61%) was contributed from the above-mentioned acquisitions. A detailed
discussion of revenue trends is included in "Results of Reportable Segments."

Total expenses increased $1.4 billion (73%), primarily as a result of the
acquired businesses contributing $1.2 million (62%), as well as an increase in
other charges of $206 million primarily related to $185 million of costs
associated with the non-cash amortization of the pendings and listings
intangible asset resulting from our acquisitions of NRT and Arvida.

Our overall effective tax rate was 34% for the second quarter 2002 and 2001.

As a result of the above-mentioned items, income from continuing operations
increased $46 million, or 21%, in the second quarter 2002.

RESULTS OF REPORTABLE SEGMENTS

The underlying discussions of each segment's operating results focuses on
Adjusted EBITDA, which is defined as earnings before non-program related
interest, income taxes, non-program related depreciation and amortization,
minority interest and, in 2001, equity in Homestore.com, adjusted to exclude
certain items that 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.

- ----------
* Not meaningful as the periods are not comparable due to the acquisitions
or dispositions of businesses.
(a) Included in Corporate and Other are the results of operations of our
non-strategic businesses, unallocated corporate overhead and the
elimination of transactions between segments.

21

(b) Excludes a charge of $8 million related to the acquisition and integration
of NRT Incorporated and Arvida Realty Services.
(c) Excludes $8 million of litigation settlement and related costs and $5
million of acquisition and integration related costs.
(d) Excludes $9 million of litigation settlement and related costs.

REAL ESTATE SERVICES
Revenues and Adjusted EBITDA increased $966 million and $92 million,
respectively, substantially due to the April 17, 2002 acquisitions of NRT and
Arvida, as discussed above. Prior to our acquisitions of NRT and Arvida, this
segment franchised our three real estate brands, provided home buyers with
mortgages and facilitated employee relocations. The operating results of NRT and
Arvida were included from the acquisition date forward. Accordingly, NRT and
Arvida contributed revenues, expenses and Adjusted EBITDA of $960 million, $871
million and $89 million, respectively, to second quarter 2002 results.

On a comparable basis, including post-acquisition intercompany royalties paid by
NRT, our real estate franchise brands generated incremental royalties and
franchise fees of $28 million in second quarter 2002, an increase of 18% over
second quarter 2001. The increase in royalties from our real estate franchise
brands primarily resulted from a 10% increase in home sale transactions by
franchisees and NRT, as well as an 11% increase in the average price of homes
sold. Revenue increases in the real estate franchise business are recognized
with little or no corresponding increase in expenses due to the significant
operating leverage within our franchise operations.

Revenues from mortgage-related activities held relatively constant in second
quarter 2002 compared with second quarter 2001 as increased revenues from
mortgage production were offset by a decline in net revenues from mortgage
servicing. Revenues from mortgage loans sold increased $18 million (11%) in
second quarter 2002 compared with the prior year quarter, as a 59 basis point
increase in the average origination margin more than offset a $1.8 billion (18%)
reduction in mortgage loans sold. Closed mortgage loans increased $606 million
(5%) to $12.4 billion, substantially due to an increase in the volume of
purchase mortgage closings. Purchase mortgage closings grew 14% to $8.2 billion,
while refinancings declined from $4.7 billion to $4.3 billion. A significant
portion of mortgages closed in any quarter will generate revenues in future
periods as such loans are packaged and sold (revenues are recognized upon the
sale of the loan, typically 45-60 days after closing).

Net revenues from servicing mortgage loans declined $15 million. Recurring
servicing fees (fees received for servicing existing loans in the portfolio)
increased $18 million (21%) due to a quarter-over-quarter increase in the
average servicing portfolio. However, such recurring activity was more than
offset by increased mortgage servicing rights amortization and a reduction in
the valuation of our mortgage servicing rights portfolio due to the high levels
of current and projected loan prepayments, resulting from a lower interest rate
environment.

Partially offsetting revenue and Adjusted EBITDA increases within this segment
was a $19 million revenue reduction from relocation activities, as a result of a
decline in relocation-related homesale closings and lower interest rates charged
to our clients.

HOSPITALITY
Revenues and EBITDA increased $117 million (26%) and $17 million (11%),
respectively, primarily due to the acquisition of Trendwest, as discussed above,
as well as our February 2002 acquisition of Equivest Finance, Inc. for
approximately $160 million. Prior and subsequent to our acquisitions of
Trendwest and Equivest, this segment franchised our nine lodging brands,
facilitated the sale and exchange of vacation ownership intervals and
facilitated the leasing of vacation properties in Europe. The operating results
of Trendwest and Equivest were included from the acquisition date forward.
Accordingly, Trendwest contributed revenues, expenses and Adjusted EBITDA of $94
million, $75 million and $19 million, respectively, to second quarter 2002
results, while Equivest contributed revenues, expenses and Adjusted EBITDA of
$31 million, $24 million and $7 million, respectively.

Excluding the acquisitions of Trendwest and Equivest, revenue and EBITDA
declined $8 million and $9 million, respectively, quarter-over-quarter.
Preferred Alliance revenues declined $8 million in second quarter 2002 compared
with second quarter 2001, primarily due to a contract termination payment
received in the prior year. Timeshare subscription and transaction revenues
increased $8 million (8%), primarily due to an increase in the average exchange
fee, while memberships and the number of exchange transactions held relatively
constant. Further, royalties and marketing fund revenues within our lodging
franchise operations are down $4 million (4%) in second quarter 2002 compared
with second quarter 2001. Results within our lodging franchise operations
continue to be depressed subsequent to the September 11, 2001 terrorist attacks
and their impact on the travel industry. However, comparable
quarter-over-quarter travel volumes and related occupancy levels in our
franchised lodging brands have continued to rebound from the levels experienced
following the September 11th terrorist attacks.

22

TRAVEL DISTRIBUTION
Revenues and EBITDA increased $412 million and $127 million, respectively, in
second quarter 2002 compared with second quarter 2001, due to the October 2001
acquisitions of Galileo International, Inc. and Cheap Tickets, Inc. Prior to our
acquisitions of Galileo and Cheap Tickets, the results of this segment
principally comprised the operations of Cendant Travel, our travel agent
subsidiary. The operating results of Galileo and Cheap Tickets were included
from the acquisition date forward. Accordingly, Galileo contributed revenues,
expenses and EBITDA of $404 million, $269 million and $135 million,
respectively, while Cheap Tickets contributed revenues, expenses and EBITDA
losses of $13 million, $17 million and $4 million, respectively.

The September 11th terrorist attacks caused a significant decrease in the demand
for travel-related services, and, accordingly have reduced the booking volumes
of Galileo and our travel agency businesses below anticipated levels. However,
comparable quarter-over-quarter travel volumes and travel related bookings have
progressively improved in each quarter subsequent to September 11th. During
second quarter 2002, air travel booking volumes were down 13% compared with
second quarter 2001, although, due to a higher effective yield per booking, air
booking fee revenues were only down 7% for the same periods.

VEHICLE SERVICES
Revenues remained relatively constant while EBITDA increased $11 million (10%)
in second quarter 2002 compared with the comparable prior year quarter.
Increased revenues in our Avis car rental business were offset by lower revenues
from vehicle leasing activities. Avis car rental revenues increased $19 million
(3%) in second quarter 2002 compared with second quarter 2001, primarily due to
a 4% increase in time and mileage revenue per rental day. In our vehicle leasing
business, revenues declined $17 million, principally due to lower interest
expense on vehicle funding, which is substantially passed through to clients and
therefore results in lower revenues but has minimal EBITDA impact. This was
partially offset by an increase in depreciation on leased vehicles that is also
passed through to clients. The comparable operating statistics in our car rental
business have significantly improved in second quarter 2002 versus recent prior
quarters. In addition, Avis has increased its market share, as Avis' domestic
airport revenue through May 2002 (the last period for which information is
available) increased 0.4% versus the comparable prior year period, while the
total market declined 4.6% over the same periods.

Our fleet management and other fee-based services were not materially impacted
by the September 11th terrorist attacks.

Our National Car Parks subsidiary was classified as a discontinued operation
and, accordingly, its results are excluded from the results of this segment for
all periods.

FINANCIAL SERVICES
EBITDA increased $18 million (26%), in second quarter 2002 compared with second
quarter 2001, despite a $21 million (6%) decline in revenues.

Revenues and EBITDA were unfavorably impacted by a lower membership base as a
result of the outsourcing of our individual membership business, however,
marketing expenses were $35 million favorable in second quarter 2002 compared
with second quarter 2001 as the absence of new member marketing costs
significantly exceeded our portion of the total expenses incurred for
Trilegiant's solicitation efforts in second quarter 2002. In addition,
membership operating expenses were approximately $17 million favorable due to
cost savings from servicing fewer members.

Jackson Hewitt, the franchiser and operator of tax preparation offices,
generated incremental revenues of $7 million in second quarter 2002 principally
as a result of the acquisition of our largest tax preparation franchisee, Tax
Services of America in January 2002. However, quarter-over-quarter expenses
exceeded incremental revenues over the same periods as most of the annual
revenues and EBITDA is generated during the first quarter of the year.

CORPORATE AND OTHER
Revenues and Adjusted EBITDA decreased $11 million and $22 million,
respectively, in second quarter 2002 compared with second quarter 2001. The
revenue decline principally reflects incremental intercompany revenue
eliminations and reductions in information technology services provided to
customers. Adjusted EBITDA reflects higher unallocated corporate overhead costs
due to increased administrative expenses and infrastructure expansion to support
company growth.

23

SIX MONTHS ENDED JUNE 30, 2002 VS. SIX MONTHS ENDED JUNE 30, 2001

RESULTS OF CONSOLIDATED OPERATIONS

Our consolidated results from continuing operations comprised the following:

Strong contributions from all of our segments and the addition of the operations
of businesses we acquired during 2001 (principally, Avis Group Holdings, Inc. on
March 1, 2001, Fairfield Resorts, Inc. on April 2, 2001, Galileo International,
Inc. on October 1, 2001 and Cheap Tickets, Inc. on October 5, 2001), as well as
NRT and Trendwest in 2002 produced revenue growth of $2.7 billion, (72%), of
which approximately $2.3 billion (62%) was contributed from the above-mentioned
acquired businesses. A detailed discussion of revenue trends is included in
"Results of Reportable Segments."

Total expenses increased approximately $2.2 billion (67%), primarily as a result
of the acquired businesses contributing $2.0 billion (59%), as well as an
increase in other charges of $14 million. The other charges we recorded during
the six months ended June 30, 2002 primarily consisted of $185 million of costs
associated with the non-cash amortization of the pendings and listings
intangible asset resulting from NRT and Arvida acquisitions, while the charges
recorded during the six months ended June 30, 2001 primarily consisted of $185
million substantially related to the funding of an irrevocable contribution to
an independent technology trust ($95 million) and the creation of Trip Network,
Inc. ($85 million).

Also during the six months ended June 30, 2001, we sold our real estate Internet
portal, move.com, along with certain ancillary businesses, to Homestore.com in
exchange for approximately 21 million shares of Homestore.com common stock then
valued at $718 million. We recognized a gain of $436 million ($262 million,
after tax) on the sale of these businesses at the time of closing. Such gain was
substantially offset during fourth quarter 2001 by a loss of $407 million
resulting from an other-than-temporary decline in the value of our investment in
Homestore.

Our overall effective tax rate was 34% and 38% for the six months ended June 30,
2002 and 2001, respectively. The effective tax rate for the six months ended
June 30, 2002 was lower primarily due to the elimination of goodwill
amortization and the absence of higher state taxes on the gain on the
disposition of our Internet real estate portal.

As a result of the above-mentioned items, income from continuing operations
increased $100 million, or 21%, in the six months ended June 30, 2002.

24

RESULTS OF REPORTABLE SEGMENTS

- ---------
* Not meaningful as the periods are not comparable due to the acquisitions
or dispositions of businesses.
(a) Included in Corporate and Other are the results of operations of our
non-strategic businesses, unallocated corporate overhead and the
elimination of transactions between segments.
(b) Excludes a charge of $8 million related to the acquisition and integration
of NRT Incorporated and Arvida Realty Services.
(c) Excludes $19 million of litigation settlement and related costs and $5
million of acquisition and integration related costs.
(d) Excludes a charge of $95 million related to the funding of an irrevocable
contribution to an independent technology trust.
(e) Excludes a charge of $4 million related to the acquisition and integration
of Avis Group Holdings, Inc.
(f) Excludes (i) a net gain of $435 million primarily related to the sale of
our real estate Internet Portal, move.com, and (ii) a credit of $14
million to reflect an adjustment to the settlement charge recorded in the
fourth quarter of 1998 for the PRIDES class action litigation. Such
amounts were partially offset by charges of (i) $85 million incurred in
connection with the creation of Trip Network, Inc., (ii) $33 million for
securities litigation, (iii) $7 million related to a contribution to the
Cendant Charitable Foundation and (iv) $4 million related to the
acquisition and integration of Avis.

REAL ESTATE SERVICES
Revenues and Adjusted EBITDA increased $1.0 billion and $142 million,
respectively, substantially due to the April 17, 2002 acquisition of NRT
Incorporated, the largest residential real estate brokerage firm in the United
States, and increased franchise fees from our Century 21, Coldwell Banker and
ERA franchise brands. The operating results of NRT and Arvida were included from
the acquisition date forward. Accordingly, NRT and Arvida contributed revenues,
expenses and Adjusted EBITDA of $960 million, $871 million and $89 million,
respectively, to second quarter 2002 results.

On a comparable basis, including post-acquisition intercompany royalties paid by
NRT, our real estate franchise brands generated incremental royalties of $50
million in six months 2002, an increase of 21% over six months 2001. The
increase in royalties from our real estate franchise brands primarily resulted
from a 10% increase in home sale transactions by franchisees and NRT, and a 10%
increase in the average price of homes sold. In addition, real estate franchise
fees increased $13 million, principally due to a termination payment received
from NRT (prior to our acquisition of NRT) in connection with the conversion of
certain ERA real estate brokerage offices into Coldwell Banker offices. Revenue
increases in the real estate franchise business are recognized with little or no
corresponding increase in expenses due to the significant operating leverage
within our franchise operations.

Mortgage-related activities also contributed to the increase in segment results
for six months 2002 compared with six months 2001 as a significant increase in
revenues from mortgage production was partially offset by a decline in net
revenues from mortgage servicing. Revenues from mortgage loans sold increased
$118 million (47%) in six months 2002 versus the comparable prior year period
due to an $838 million (5%) increase in the volume of loans sold and a 63 basis
point increase in the average origination margin. The increased margin on the
sale of mortgage loans to the secondary market is consistent with higher
mortgage loan production environments. Closed mortgage loans in six months 2002
increased $5.6 billion (29%) to $25.1 billion, consisting of a $1.6 billion
(14%) increase in purchase mortgage closings and a $4.0 billion (53%) increase
in refinancings.

Net revenues from mortgage servicing declined $83 million in six months 2002
versus the comparable prior year period. Recurring servicing fees (fees received
for servicing existing loans in the portfolio) increased $35 million (21%) due
to a corresponding 21% increase in the average servicing portfolio. However,
such recurring activity was more than offset by increased mortgage servicing
rights amortization and a reduction in the valuation of our mortgage servicing
rights portfolio due to the high levels of current and projected loan
prepayments, resulting from a lower interest rate environment.

25

Partially offsetting revenue and Adjusted EBITDA increases within this segment
was a $25 million revenue reduction from relocation activities as a result of a
decline in relocation-related homesale closings and lower interest rates charged
to our clients. Excluding the acquisition of NRT, operating and administrative
expenses increased $24 million principally to support the higher volume of
mortgage originations and related servicing activities.

HOSPITALITY
Revenues and EBITDA increased $282 million (41%) and $27 million (10%),
respectively, primarily due to the acquisitions of Fairfield in April 2001,
Trendwest in June 2002 and Equivest in February 2002. Prior to our acquisitions
of Fairfield, Trendwest and Equivest, this segment franchised our nine lodging
brands, facilitated the exchange of vacation ownership intervals and facilitated
the leasing of vacation properties in Europe. The operating results of
Fairfield, Trendwest and Equivest were included from the acquisition date
forward. Therefore, the results for six months 2001 only included three months
of Fairfield's results (April through June). Fairfield contributed incremental
revenues, expenses and Adjusted EBITDA of $138 million, $120 million and $18
million, respectively, in six months 2002 over six months 2001. Additionally,
Trendwest contributed revenues, expenses and Adjusted EBITDA of $94 million, $75
million and $19 million, respectively, to 2002 results, while Equivest
contributed revenues, expenses and Adjusted EBITDA of $51 million, $38 million
and $13 million, respectively.

Excluding the impact from these acquisitions, revenues remained relatively
constant while EBITDA declined $23 million quarter-over-quarter. Our Vacation
Rental Group contributed incremental revenues of $22 million in six months 2002,
primarily due to an increase in weeks sold attributable to improved direct
marketing and other European property contract portfolios acquired in 2001 and
2002. Preferred Alliance revenues and EBITDA declined $12 million in six months
2002 compared with six months 2001, primarily from contract expirations and a
contract termination payment received in the prior year. Timeshare subscription
and transaction revenues increased $19 million (9%), primarily due to increases
in members, exchange transactions and the average exchange fee. Excluding
acquisitions, operating and administrative expenses within this segment
increased approximately $22 million in six months 2002, principally to support
continued volume-related growth in our timeshare exchange business. Further,
royalties and marketing fund revenues within our lodging franchise operations
are down $14 million (7%) in six months 2002 compared with six months 2001.
Results within our lodging franchise operations continue to be depressed
subsequent to the September 11, 2001 terrorist attacks and their impact on the
travel industry. However, comparable quarter-over-quarter travel volumes and
related occupancy levels in our franchised lodging brands have continued to
rebound from the levels experienced following the September 11th terrorist
attacks.

TRAVEL DISTRIBUTION
Revenues and EBITDA increased $832 million and $270 million, respectively, in
six months 2002 compared with six months 2001, due to the October 2001
acquisitions of Galileo and Cheap Tickets. The operating results of Galileo and
Cheap Tickets were included from the acquisition date forward. Accordingly,
Galileo contributed revenues, expenses and EBITDA of $812 million, $532 million
and $280 million, respectively, while Cheap Tickets contributed revenues,
expenses and EBITDA losses of $26 million, $31 million and $5 million,
respectively.

During six months 2002, air travel booking volumes were down 12% compared with
six months 2001, as the September 11th terrorist attacks caused a significant
reduction in the demand for travel-related services. Accordingly, despite a
progressive rebound in travel post-September 11th, our travel-related booking
volumes have not yet reached pre-September 11th levels. Partially offsetting the
impact of lower booking volumes was a higher effective yield per booking,
resulting in only a 9% reduction in air booking fee revenues over the comparable
six month periods.

VEHICLE SERVICES
Revenues and Adjusted EBITDA increased $556 million (40%) and $12 million (7%)
in six months 2002 versus the comparable prior year six month period primarily
due to the March 2001 acquisition of Avis Group Holdings, Inc. Prior to our
acquisition of Avis, the results of this segment principally consisted of
earnings from our 18% equity investment in Avis and franchise royalties received
from Avis. The operating results of Avis were included from the acquisition date
forward. Accordingly, the results for six months 2001 only included four months
of Avis' results (March through June). Avis contributed incremental revenues,
expenses and Adjusted EBITDA losses of $339 million, $346 million and $7
million, respectively, in six months 2002 over six months 2001.

Due to the seasonality of the car rental business, Avis' operating results in
the first two months of the calendar year are usually minimal or negative. See
"Three Months Ended June 30, 2002 vs. Three Months Ended June 30, 2001 - Vehicle
Services" for a further discussion of the comparable quarter-over-quarter
results.

26

FINANCIAL SERVICES
EBITDA increased $51 million (25%) on a revenue increase of $8 million (1%) in
six months 2002 compared with six months 2001.

Revenues and EBITDA were impacted by the outsourcing of the individual
membership business to Trilegiant, which resulted in a lower membership base and
related fees period-over-period, however, membership operating expenses were $21
million favorable due to cost savings from servicing fewer members and marketing
expenses declined $58 million in six months 2002 compared with six months 2001.

Jackson Hewitt generated incremental revenues of $55 million in six months 2002
principally as a result of the acquisition of our largest tax preparation
franchisee, Tax Services of America ("TSA") in January 2002. TSA contributed
incremental revenues of $34 million and EBITDA of approximately $13 million to
Jackson Hewitt's six month results. Additionally, Jackson Hewitt's favorable
results were principally driven by a 13% increase in tax return volume, and an
11% increase in the average price per return. Additional operating and overhead
costs were incurred in six months 2002 due to an expansion of Jackson Hewitt's
infrastructure to support increased business activity and a reorganization and
relocation of the Jackson Hewitt technology group. The Jackson Hewitt franchise
and tax preparation business is seasonal, whereby most of the annual revenues
and EBITDA is generated during the first quarter of the year.

CORPORATE AND OTHER
Revenue and Adjusted EBITDA decreased $45 million and $15 million, respectively,
in six months 2002 compared with six months 2001. In February 2001, we sold our
former on-line real estate portal and Welcome Wagon, a new mover service
business. Such businesses collectively accounted for a quarter-over-quarter
decline in revenues of $14 million and an improvement in Adjusted EBITDA of $8
million.

In addition, revenues recognized from providing electronic reservation
processing services to Avis prior to the acquisition of Avis resulted in a $14
million revenue decrease with no Adjusted EBITDA impact as Avis paid royalties
but was billed for reservation services at cost.

Revenues also included incremental intersegment revenue eliminations in six
months 2002 due to increased intercompany business activities, principally
resulting from acquisitions. Adjusted EBITDA includes higher unallocated
corporate overhead costs due to increased administrative expenses and
infrastructure expansion to support company growth.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

As we provide a wide range of consumer and business services, we are active in
many types of industries. The majority of our businesses operate in environments
where we are paid a fee for services provided. 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.
We seek to manage the interest rate exposures inherent in these assets by
matching them with financial liabilities that have similar terms and interest
rate characteristics. We classify these activities as assets under management
and mortgage programs and liabilities under management and mortgage programs.

Such activities are conducted and managed by legally separate finance and/or
mortgage companies. Accordingly, the financial results of our finance activities
vary from the rest of our businesses based upon the impact of the relative
business and financial risks and asset attributes, as well as the nature and
timing associated with the respective cash flows. We believe that it is
appropriate to segregate our assets under management and mortgage programs and
our liabilities under management and mortgage programs separately from the
assets and liabilities of the rest of our businesses because, ultimately, the
source of repayment of such liabilities is the realization of such assets.

27

FINANCIAL CONDITION

Total assets exclusive of assets under management and mortgage programs
decreased primarily due to (i) the application of $1.66 billion of prior
payments made to the stockholder litigation settlement trust to extinguish a
portion of our stockholder litigation settlement liability, (ii) the sale of
$1.3 billion of NCP assets and (iii) a $1.5 billion reduction in cash (see
"Liquidity and Capital Resources" below for a detailed discussion of such
reduction). Such decreases were partially offset by a $2.3 billion increase in
goodwill resulting primarily from the acquisitions of Trendwest and NRT.

Assets under management and mortgage programs increased primarily due to (i) an
increase of $452 million in timeshare receivables primarily resulting from the
acquisition of Trendwest, (ii) an increase of $215 million in vehicles in order
to meet seasonal demand and (iii) the addition of $180 million of mortgage
servicing rights (net of related amortization and valuation adjustments). Such
increases were partially offset by a decrease of $444 million in mortgage loans
held for sale primarily due to timing differences arising between the
origination and sales of such loans.

Total liabilities exclusive of liabilities under management and mortgage
programs decreased primarily due to (i) the $2.85 billion payment of our
stockholder litigation settlement liability as described below, (ii) the $390
million repayment of our 3% convertible notes, (iii) the repurchase of $253
million of our zero coupon senior convertible contingent notes and (iv) the
repurchase of $79 million of our 7 3/4% notes. On March 18, 2002, the Supreme
Court denied all final petitions relating to our principal securities class
action lawsuit. As of December 31, 2001, we had deposited cash totaling $1.41
billion to a trust established for the benefit of the plaintiffs in this
lawsuit. In March 2002, we made an additional payment of $250 million to the
trust. We completely funded all remaining obligations arising out of the
principal securities class action lawsuit on May 24, 2002 with a final payment
of approximately $1.2 billion to the trust. As of June 30, 2002, we had no
remaining obligations relating to the principal securities class action lawsuit
and, as such, no related balances recorded on our Consolidated Condensed Balance
Sheet.

Liabilities under management and mortgage programs increased primarily due to
(i) net issuance of $102 million in secured term notes under the Chesapeake
Funding program, (ii) a net increase of $62 million in secured term notes under
the AESOP Funding program, (iii) an increase of $105 million in secured
short-term borrowings to fund timeshare receivables related to our acquisition
of Equivest Finance, Inc. in February 2002, (iv) $64 million of borrowings to
fund relocation receivables and (v) the issuance during 2002 of $571 million of
unsecured term notes bearing interest and $179 million of commercial paper. Such
increases were partially offset by (i) a decrease of $104 million in secured
short-term mortgage borrowings due to lower mortgage warehousing needs and (ii)
the repayment of $750 million of outstanding borrowings under revolving credit
facilities.

Stockholders' equity increased primarily due to (i) $581 million of income from
continuing operations generated during the six months ended June 30, 2002, (ii)
the issuance of $916 million (47.4 million shares) in CD common stock in
connection with the Trendwest acquisition and (iii) the issuance of $227 million
(11.5 million shares) in CD common stock in connection with the acquisition of
NRT. Such increases were partially offset by our repurchase of $137 million (7.7
million shares) in CD common stock.

28

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.

CASH FLOWS
At June 30, 2002, we had $486 million of cash on hand, a decrease of
approximately $1.5 billion from approximately $1.9 billion at December 31, 2001
reflecting management's efforts to apply our cash balances to reduce outstanding
indebtedness and liabilities. The following table summarizes such decrease:

- ----------
(a) Includes the application of prior payments made to the stockholder
litigation settlement trust of $1.41 billion, the March 2002 payment of
$250 million to the trust and the May 2002 payment of $1.2 billion to the
trust to fund the remaining balance of the settlement liability.
(b) Includes $1.41 billion of proceeds from the stockholder litigation
settlement trust, which were used to extinguish a portion of the
stockholder litigation settlement liability.

During the six months ended June 30, 2002, we used $728 million of cash in
operating activities as compared to generating approximately $1.2 billion of
cash during the six months ended June 30, 2001. Reflected in the use during the
six months ended June 30, 2002 is (i) $1.41 billion of cash payments made in
prior periods to the stockholder litigation settlement trust that were used
during first quarter 2002 to extinguish a portion of the stockholder litigation
settlement liability and (ii) $1.44 billion of payments made in first and second
quarters 2002 to pay off the remaining balance of the stockholder litigation
settlement liability. Partially offsetting these uses were positive
contributions from businesses we acquired during 2001, as well as growth in our
mortgage business.

Also, during the six months ended June 30, 2002, we made cash payments of $26
million and $6 million for personnel related and facility related costs,
respectively, resulting from the restructuring charge we recorded in fourth
quarter 2001 as a result of changes in business and consumer behavior following
the September 11th terrorist attacks. Such liability approximated $47 million as
of June 30, 2002. As of June 30, 2002, the initiatives committed to by
management in this restructuring plan were substantially completed. The majority
of the remaining personnel related costs are expected to be paid by the end of
fourth quarter 2002.

During the six months ended June 30, 2002, we generated $260 million of cash
from investing activities as compared to using approximately $3.8 billion of
cash during the six months ended June 30, 2001. Reflected in the cash we
generated during the six months ended June 30, 2002 is (i) the proceeds of $1.41
billion of prior payments made to the stockholder litigation settlement trust
that were used to extinguish a portion of our stockholder litigation settlement
liability and (ii) the proceeds of $1.2 billion from the sale of NCP.
Additionally, during the six months ended June 30, 2002, we used less cash for
acquisitions. Partially offsetting the decrease in cash used in investing
activities was an increase in cash used to acquire vehicles for our car rental
and fleet management operations in connection with the acquisition of Avis on
March 1, 2001. Capital expenditures during the six months ended June 30, 2002
amounted to $139 million and were utilized to support operational growth,
enhance marketing opportunities and develop operating efficiencies through
technological improvements. We continue to anticipate aggregate capital
expenditure investments during 2002 of approximately $375 million.

During the six months ended June 30, 2002, we used approximately $1.0 billion of
cash in financing activities as compared to generating approximately $3.6
billion of cash during the six months ended June 30, 2001. Reflected in the cash
we used during the six months ended June 30, 2002 are (i) repayments of
outstanding borrowings of $750 million under revolving credit facilities, (ii)
debt redemptions of $332 million and (iii) stock repurchases of $137 million. We
anticipate using cash on hand and operating cash flow generated during the year
to continue to reduce our outstanding indebtedness and also to continue to
repurchase CD common stock in order to offset the impact of

29

employee stock option exercises. We currently have approximately $120 million of
remaining availability under our board-authorized CD common stock repurchase
program.

AVAILABLE CREDIT AND SECURITIZATION FACILITIES
At June 30, 2002, we had approximately $5.3 billion of available funding
arrangements and credit facilities (including availability of approximately $2.6
billion at the corporate level and approximately $2.7 billion available for use
in our management and mortgage programs).

As of June 30, 2002, the credit facilities at the corporate level comprise:

Under the terms of our $1.75 billion facility, the revolving line will be
reduced by $500 million to $1.25 billion in August 2002. The availability of our
$1.75 billion facility increased by $873 million during the six months ended
June 30, 2002 primarily as a result of our paying off the entire stockholder
litigation settlement liability.

As of June 30, 2002, available funding arrangements and credit facilities
related to our management and mortgage programs consisted of:

We also sell a significant portion of residential mortgage loans generated in
our mortgage business and receivables generated in our relocation and timeshare
businesses into securitization entities, generally on a non-recourse basis, 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 generally have no recourse to our other
assets for failure of debtors to pay when due.

As of June 30, 2002, we were servicing $485 million of Fairfield timeshare
receivables and $605 million of Trendwest timeshare receivables sold to special
purpose entities. Additionally, PHH was servicing $590 million of relocation
receivables sold to a special purpose entity. The maximum funding capacity
through the special purpose entity used to securitize relocation receivables is
$600 million and, as of June 30, 2002, PHH had available capacity of $85 million
under this facility. The special purpose entities used to securitize the
majority of timeshare receivables do not have maximum funding capacities.

PHH was also servicing approximately $1.6 billion of mortgage loans sold to a
special purpose entity as of June 30, 2002. In addition to the mortgage loans
sold to the special purpose entity, as of June 30, 2002, PHH was servicing $106
billion of mortgage loans sold to the secondary market. The maximum funding
capacity through this special purpose entity is $3.2 billion and, as of June 30,
2002, we had available capacity of approximately $1.6 billion. In addition to
the capacity through the special purpose entity, PHH has the capacity, under a
registration statement with the Securities and Exchange Commission, to
securitize approximately $1.0 billion of mortgage loans. The sale of mortgage
loans into the secondary market is customary practice in the mortgage industry.

FINANCIAL OBLIGATIONS
At June 30, 2002, we had approximately $16.8 billion of indebtedness (including
corporate indebtedness of $6.3 billion, debt related to our management and
mortgage programs of $10.1 billion and our mandatorily redeemable

30

interest of $375 million). Our net debt (excluding the Upper DECS and debt
related to our management and mortgage programs and net of cash and cash
equivalents) to total capital (including net debt and the Upper DECS) ratio was
35% and 37% as of June 30, 2002 and 2001, respectively, and the ratio of
Adjusted EBITDA to net non-program related interest expense was 13 to 1 and 9.5
to 1 for the six months ended June 30, 2002 and 2001, respectively.

Corporate indebtedness consisted of:

- ----------
(a) Subsequent to June 30 2002, we redeemed $264 million of these notes
(with a face value of approximately $419 million) for approximately
$265 million in cash.

Our corporate indebtedness decreased $666 million primarily due to the (i)
redemption of our 3% convertible subordinated notes for $390 million, (ii)
repurchase of $253 million of our zero coupon senior convertible contingent
notes with a face value of approximately $402 million and (iii) repurchase of
$79 million of our 7 3/4% notes. In connection with the repurchase of our zero
coupon and 7 3/4% notes, we recorded extraordinary losses of $35 million and $3
million, respectively ($25 million and $2 million, respectively, after tax).

On May 2, 2002, we amended certain terms of our zero coupon convertible
debentures. In connection with these amendments, we will make cash interest
payments of 3% per annum, beginning May 5, 2002 and continuing through May 4,
2003, to the holders of the debentures on a semi-annual basis and the holders
were granted an additional option to put the debentures to us on May 4, 2003.
Holders had the right to require us to redeem their zero coupon convertible
debentures on May 4, 2002. On such date, virtually all holders declined to
exercise this put option and retained their debentures.

Debt related to our management and mortgage programs consisted of:

- ----------
(a) On July 25, 2002, we issued $750 million of rental car asset-backed notes.

Our debt related to management and mortgage programs increased $265 million
primarily due to (i) net issuance of $102 million in secured term notes under
the Chesapeake Funding program, (ii) a net increase of $62 million in secured
term notes under the AESOP Funding program, (iii) an increase of $105 million in
secured short-term borrowings to fund timeshare receivables related to our
acquisition of Equivest Finance, Inc. in February 2002, (iv) $64 million of
borrowings to fund relocation receivables and (v) the issuance during 2002 of
$571 million of unsecured term notes bearing interest and $179 million of
commercial paper. Such increases were partially offset by

31

(i) a decrease of $104 million in secured short-term mortgage borrowings due to
lower mortgage warehousing needs and (ii) the repayment of $750 million of
outstanding borrowings under revolving credit facilities.

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 $2.2
billion of availability for public debt issuances under shelf registration
statements at the PHH level.

LIQUIDITY RISK
Our liquidity position may be negatively affected by unfavorable conditions in
any one of the industries in which we operate, as our ability to generate cash
flows from operating activities may be reduced due to those unfavorable
conditions. Additionally, our liquidity as it relates to both management and
mortgage programs could be adversely affected by deterioration 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 June 30, 2002, we
were in compliance with all covenants under these facilities.

Currently our credit ratings are as follows:

A security rating is not a recommendation to buy, sell or hold securities and is
subject to revision or withdrawal at any time by the rating agency.

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 or financial position. 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 therefrom.

FFD DEVELOPMENT COMPANY, LLC. During the three and six months ended June 30,
2002, we recorded non-cash dividend income of $3 million and $6 million,
respectively, which is paid-in-kind, relating to our preferred equity interest
in FFD Development Company, LLC. Such preferred equity interest approximated $65
million as of June 30, 2002. During the six months ended June 30, 2002, we
purchased $33 million of timeshare interval inventory and land from FFD,
bringing the total cumulative amount purchased to $73 million as of June 30,
2002. We are obligated to purchase an additional $243 million of timeshare
interval inventory and land from FFD, approximately $150 million of which is
estimated to be payable within the next 12 months. As is customary in "build to
suit" agreements, when we contract with FFD for the development of a property,
we 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. As of June 30, 2002,
Cendant had issued approximately $42 million of such letters of credit. We are
not obligated or contingently liable for any debt incurred by FFD.

TRILEGIANT CORPORATION. As of June 30, 2002, Trilegiant had an outstanding
balance of $72 million due to us related to amounts drawn on the $75 million
loan facility we have provided in connection with certain marketing agreements
under which we expect to receive commissions. Such amount will be repaid to us
as commissions are received by Trilegiant from the third party. During the three
and six months ended June 30, 2002, Trilegiant paid us

32

$29 million and $80 million, respectively, in connection with services provided
under the Third Party Administrator agreement. During the six months ended June
30, 2002, Trilegiant collected $101 million of cash on our behalf in connection
with membership renewals. Additionally, as of June 30, 2002, Trilegiant owed us
an additional $15 million in connection with the Third Party Administration
Agreement.

FORWARD-LOOKING STATEMENTS - RISK FACTORS

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:

- terrorist attacks, such as the September 11, 2001 terrorist attacks on
New York City and Washington, D.C., 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 NRT Incorporated, Arvida Realty Services, Trendwest
Resorts, Inc., 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.

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.

33

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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

As previously discussed in our 2001 Annual Report on Form 10-K/A, 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 our market risk sensitive positions. We
used June 30, 2002 market rates to perform a sensitivity analysis separately for
each of our market risk exposures. The estimates assume instantaneous, parallel
shifts in interest rate yield curves and exchange rates. We have determined,
through such analyses, 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.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

In connection with our $2.85 billion settlement of our principal securities
class action litigation, IN RE CENDANT CORPORATION LITIGATION, Master File No.
98-1664 (WHW) (D.N.J.), we completed the funding of the trust established for
the benefit of the plaintiffs of such litigation on May 28, 2002. In completing
this funding, we satisfied our liability arising from such litigation.

We continue to be involved in litigation asserting claims associated with the
accounting irregularities discovered in former CUC business units outside of the
principal securities class action litigation described above. 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.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On April 17, 2002, pursuant to Section 4(2) of the Securities Act of 1933, as
amended, we issued 9,920,000 shares of our CD common stock to holders of NRT
Incorporated common stock in connection with our acquisition of NRT. Such shares
were subsequently registered on a Form S-3 Registration Statement with the
Securities and Exchange Commission. Such Registration Statement was declared
effective on May 21, 2002.

On April 29, 2002 and April 30, 2002, pursuant to Section 4(2) of the Securities
Act of 1933, as amended, we issued 42,551,199 shares of our CD Common Stock in
the aggregate to holders of Trendwest Resorts, Inc. common stock in connection
with our acquisition of Trendwest Resorts, Inc. Such shares were subsequently
registered on a Form S-3 Registration Statement with the Securities and Exchange
Commission. Such Registration Statement was declared effective on May 23, 2002.

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

We held an Annual Meeting of Stockholders on May 21, 2002, pursuant to a Notice
of Annual Meeting of Stockholders and Proxy Statement dated March 29, 2002, a
copy of which has been filed previously with the Securities and Exchange
Commission, at which our stockholders approved the election of five directors
for a term of three years and the ratification for the appointment of Deloitte &
Touche LLP as the auditors of the financial statements for fiscal year 2002. The
proposal to declassify the Board of Directors did not receive the requisite
affirmative vote of 80% of the votes entitled to be cast in an election of
Directors.

34

Proposal 1: To elect five directors for a three year term.

RESULTS:

Proposal 2: To ratify and approve the appointment of Deloitte & Touche LLP as
our Independent Auditors for the year ending December 31, 2002.

RESULTS:

Proposal 3: To declassify the Board of Directors.

RESULTS:

- ----------
* Represents 70.11% of the outstanding shares entitled to vote in an election of
Directors on the date of the Annual Meeting of Stockholders.

ITEM 5. OTHER INFORMATION

We received initial comments from the SEC as a result of the SEC's previously
announced policy to review the 2001 Form 10-K's of all Fortune 500 companies.
A copy of our response to the SEC's initial comment letter (which includes
the text of the SEC's comments) is attached as Exhibit 99.1 hereto and is
incorporated by reference herein. Although we believe that this Form 10-Q is
in compliance with applicable SEC and accounting rules, the SEC has informed
us that it is not finished reviewing our response to its initial comments or
our Form 10-K/A and that it may have additional comments. Accordingly,
modifications to this Form 10-Q may be required.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

See Exhibit Index

(B) REPORTS ON FORM 8-K

On April 1, 2002, we filed a current report on Form 8-K to report under Item 5
our planned acquisition of Trendwest Resorts, Inc.

On April 18, 2002, we filed a current report on Form 8-K to report under Item 5
our first quarter 2002 financial results.

On May 1, 2002, we filed a current report on Form 8-K to report under Item 5 the
amendments made to the terms of our Zero Coupon Convertible Debentures due 2021.

On May 3, 2002, we filed a current report on Form 8-K to report under Item 5 the
completion of the acquisition of approximately 90.1% of outstanding shares of
Trendwest Resorts, Inc.

On May 23, 2002, we filed a current report on Form 8-K to report under Item 5
the completion of the sale of our National Car Parks business.

On May 31, 2002, we filed a current report on Form 8-K to report under Item 5
that we completed funding of our principal securities class action litigation
liability.

35

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

/s/ Kevin M. Sheehan
--------------------------
Kevin M. Sheehan
Senior Executive Vice President and
Chief Financial Officer

/s/ Tobia Ippolito
--------------------------
Tobia Ippolito
Executive Vice President and
Chief Accounting Officer

Date: August 14, 2002

36

EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION

3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's Form
10-Q/A for the quarterly period ended March 31, 2000, dated July
28, 2000).

3.2 Amended and Restated By-Laws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Form 10-Q/A for the
quarterly period ended March 31, 2000, dated July 28, 2000).

4.1 PHH Corporation $443 million Note Purchase Agreement dated as of
May 3, 2002 (incorporated by reference to Exhibit 4.1 of PHH's
Form 10-Q dated August 14, 2002).

4.2 Supplemental Indenture No. 3 dated as of May 30, 2002 to the
Senior Debt Securities Indenture dated as of November 6, 2000
between PHH Corporation and Bank One Trust Company, N.A; as
Trustee (incorporated by reference to Exhibit 4.1 to PHH
Corporation's Current Report on Form 8-K dated June 4, 2002).

12 Statement Re: Computation of Ratio of Earnings to Fixed Charges.

15 Letter Re: Unaudited Interim Financial Information.

99.1 Press release issued by Cendant Corporation on August 14, 2002
announcing the certification by certain executives of Cendant's
financial statements.