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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
Commission File No. 1-10308

Cendant Corporation
(Exact name of Registrant as specified in its charter)

(212) 413-1800
(Registrant's telephone number, including area code)

 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 ý    No o

 Indicate by check mark whether the Registrant is an accelerated filer (as defined in the Exchange Act Rule 12b-2): Yes ý    No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

 The number of shares outstanding of the Registrant's common stock was 1,018,518,986 shares as of April 30, 2003.

Cendant Corporation and Subsidiaries

Table of Contents

FORWARD-LOOKING STATEMENTS

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

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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 and our financial results and could also result in a disruption in our business;



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the effect of economic or political conditions or any outbreak or escalation of hostilities on the economy on a national, regional or international basis and the impact thereof on our businesses;



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



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the effects of a decline in the volume or value of U.S. existing home sales, due to adverse economic changes or otherwise, on our real estate related businesses;



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



•

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



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



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



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our ability to reduce quickly our substantial technology costs and other overhead costs in response to a reduction in revenue, particularly in our computer reservations, global distribution systems, vehicle rental and real estate brokerage businesses;



•

our ability 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 Trendwest Resorts, Inc. and substantially all of the assets of Budget Group, 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;

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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;



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competitive and pricing pressures in the travel industry, including the vehicle rental and global distribution services industries;



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changes, if any, in the vehicle manufacturer repurchase arrangements in our Avis and Budget vehicle rental business;



•

the performance of Trilegiant Corporation, which is anticipated to be included in our consolidated results as of July 1, 2003 despite our limited ability to control the operations of Trilegiant;



•

filing of bankruptcy by or the loss of business of any of our significant customers, including our airline customers, and the ultimate disposition of UAL Corporation's bankruptcy reorganization; and



•

changes in laws and regulations, including changes in accounting standards, global distribution services rules, telemarketing and timeshare sales regulations, state and federal tax laws 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.

 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.

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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 March 31, 2003, and the related consolidated condensed statements of income and cash flows for the three-month periods ended March 31, 2003 and 2002. These financial statements are the responsibility of the Company's management.

 We conducted our reviews 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 reviews, 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, 2002, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 5, 2003 (March 3, 2003 as to the subsequent events described in Note 31), we expressed an unqualified opinion (and included an explanatory paragraph with respect to the adoption of the non-amortization provisions for goodwill and other indefinite lived intangible assets, the modification of the accounting treatment relating to securitization transactions and the accounting for derivative instruments and hedging activities and the revision of certain revenue recognition policies, as discussed in Note 1 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, 2002 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
May 8, 2003

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Cendant Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In millions, except per share data)

See Notes to Consolidated Condensed Financial Statements.

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Cendant Corporation and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions, except share data)

See Notes to Consolidated Condensed Financial Statements.

5

Cendant Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)

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See Notes to Consolidated Condensed Financial Statements.

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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"), as well as affiliates in which the Company directly or indirectly has a controlling financial interest. 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 judgments and available information. Accordingly, actual results could differ from those estimates. Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

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

The Consolidated Condensed Financial Statements should be read in conjunction with the Company's Annual Report on Form 10-K filed on March 5, 2003.

Changes in Accounting Policies
Stock-Based Compensation.    On January 1, 2003, the Company adopted the fair value method of accounting for stock-based compensation provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," which is considered by the Financial Accounting Standards Board ("FASB") to be the preferable accounting method for stock-based employee compensation. The Company also adopted SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure," in its entirety on January 1, 2003.

Under the fair value method of accounting provisions of SFAS No. 123, the Company is required to expense all employee stock options over their vesting period based upon the fair value of the award on the date of grant. Under SFAS No. 148, which amended SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting provisions, the Company elected to use the prospective transition method when adopting SFAS No. 123. Accordingly, the Company is only required to expense employee stock options that were granted subsequent to December 31, 2002. During first quarter 2003, the Company did not recognize any compensation expense for employee stock awards as there were no such options granted during the quarter.

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Prior to the adoption of SFAS No. 123 and SFAS No. 148, the Company measured its stock-based compensation using the intrinsic value approach under Accounting Principles Board ("APB") Opinion No. 25, as permitted by SFAS No. 123. Accordingly, the Company did not recognize compensation expense upon the issuance of its stock options because the option terms were fixed and the exercise price equaled the market price of the underlying CD common stock on the grant date. The Company complied with the provisions of SFAS No. 123 by providing pro forma disclosures of net income and related per share data giving consideration to the fair value method provisions of SFAS No. 123.

The following table illustrates the effect on net income and earnings per share as if the fair value based method had been applied by the Company to all employee stock awards granted prior to January 1, 2003:

Pro forma compensation expense reflected for prior period grants is not indicative of future compensation expense that would be recorded by the Company. Future expense may vary based upon factors such as the number of awards granted by the Company and the then-current fair market value of such awards.

Early Extinguishment of Debt.    On January 1, 2003, the Company adopted SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Such standard requires any gain or loss on the early extinguishment of debt to be presented as a component of continuing operations (unless specific criteria are met) whereas SFAS No. 4 required that such gain or loss be classified as an extraordinary item in determining net income. Accordingly, on January 1, 2003, the Company reclassified $42 million of 2002 pretax net losses on the early extinguishments of debt to continuing operations as a component of net non-program related interest ($38 million and $4 million were recorded during the second and third quarters of 2002, respectively).

Costs Associated with Exit or Disposal Activities.    On January 1, 2003, the Company adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." Such standard requires costs associated with exit or disposal activities (including restructurings) initiated after December 31, 2002 to be recognized when the costs are incurred, rather than at a date of commitment to an exit or disposal plan. This standard nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity

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(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 whereas under EITF Issue No. 94-3 a liability was recognized at the time of a commitment to an exit or disposal plan.

Guarantees.    On January 1, 2003, the Company adopted FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," in its entirety. Such Interpretation elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees issued. It also clarifies that a guarantor is required to recognize, at the inception of any guarantee issued or modified after December 31, 2002, a liability for the fair value of the obligation undertaken in issuing the guarantee. The impact of adopting this Interpretation was not material to the Company's results of operations or financial position.

Recently Issued Accounting Pronouncements
Consolidation of Variable Interest Entities.    On January 17, 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). Such Interpretation addresses consolidation of entities that are not controllable through voting interests or in which the equity investors do not bear the residual economic risks and rewards. These entities have been commonly referred to as special purpose entities ("SPE"), although other non-SPE-type entities may be subject to the Interpretation. This Interpretation provides guidance related to identifying variable interest entities and determining whether such entities should be consolidated. It also requires disclosures for both the primary beneficiary of a variable interest entity and other parties with significant variable interests in the entity. Transferors to a qualifying SPE ("QSPE") and certain other interests in QSPEs are not subject to this Interpretation.

For variable interest entities created, or interests in variable interest entities obtained, subsequent to January 31, 2003, the Company is required to apply the consolidation provisions of this Interpretation immediately. The Company has not created a variable interest entity nor obtained an interest in a variable interest entity for which the Company would be required to apply the consolidation provisions of this Interpretation immediately. For variable interest entities created, or interests in variable interest entities obtained, on or before January 31, 2003, the consolidation provisions of this Interpretation are first required to be applied in the Company's financial statements as of July 1, 2003. For these variable interest entities, the Company expects to apply the prospective transition method whereby the consolidation provisions of this Interpretation are applied prospectively with a cumulative-effect adjustment, if necessary, as of July 1, 2003.

The Company is currently evaluating the impact of adopting this Interpretation. Thus far, the Company has concluded that the adoption of this Interpretation will result in the consolidation of its mortgage securitization facility, Bishop's Gate Residential Mortgage Trust ("Bishop's Gate"), as of July 1, 2003. The consolidation of Bishop's Gate is not expected to affect the Company's results of operations. However, had the Company consolidated Bishop's Gate as of March 31, 2003, its total assets and liabilities under management and mortgage programs would have each increased by approximately $2.0 billion. See Note 9—Off-Balance Sheet Financing Arrangements for more information regarding the Bishop's Gate mortgage securitization facility.

Additionally, the Company believes that upon adoption of this Interpretation, it will be required to consolidate Trilegiant Corporation as of July 1, 2003. This assessment is based upon facts and circumstances in existence as of the date of this filing. The Company believes that the consolidation of Trilegiant would cause its total assets and total liabilities to increase by approximately $100 million and $390 million (approximately $230 million of which represents deferred income), respectively, on July 1, 2003. The consolidation of Trilegiant is expected to result in a non-cash charge of approximately $290 million, which would be recorded on July 1, 2003 as a

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cumulative effect of accounting change but would not impact income from continuing operations. As the provisions of this Interpretation will be applied prospectively by the Company, the consolidation of Trilegiant would not result in any changes to the Company's consolidated financial statements for any prior periods (including first and second quarters of 2003). Although the Company would be recording Trilegiant's profits and losses in its consolidated results of operations (beginning July 1, 2003), the Company is not obligated to infuse capital or otherwise fund or cover any losses incurred by Trilegiant. Therefore, the Company's maximum exposure to loss as a result of its involvement with Trilegiant is limited to the assets recorded on the Company's Consolidated Balance Sheet as such amounts may not be recoverable if Trilegiant ceases operations. As of March 31, 2003, the Company had $104 million of assets recorded on its Consolidated Condensed Balance Sheet in connection with advances and loans made to Trilegiant, as well as net receivables due from Trilegiant. See Note 12—Related Party Transactions for more information regarding the Company's relationship with Trilegiant.

Derivative Instruments and Hedging Activities.    On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." Such standard amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The provisions of this statement are generally effective for contracts entered into or modified after June 30, 2003. The Company is in the process of assessing the impact of adopting this standard on its consolidated results of operations and financial position.

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2.     Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share ("EPS").

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

---

^(a)

The weighted average exercise prices for antidilutive options at March 31, 2003 and 2002 were $19.88 and $22.83, respectively.

^(b)

The weighted average exercise price for antidilutive warrants at March 31, 2003 and 2002 was $21.31.

^(c)

The appreciation price for antidilutive Upper DECS at March 31, 2003 and 2002 was $28.42.

The Company's contingently convertible debt securities, which provided for the potential issuance of approximately 71 million and 138 million shares of CD common stock as of March 31, 2003 and 2002, respectively, were not included in the computation of diluted EPS for such periods as the related contingency provisions were not satisfied.

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3.     Acquisitions

2003 Acquisitions
On February 3, 2003, the Company acquired all of the common interests of FFD Development Company LLC ("FFD") from an independent business trust for approximately $27 million in cash. As part of the acquisition, the Company also assumed approximately $58 million of debt, which was subsequently repaid. The goodwill resulting from the allocation of the purchase price approximated $18 million and was allocated to the Company's Hospitality segment. FFD, which was formed prior to the Company's April 2001 acquisition of Fairfield Resorts, Inc. ("Fairfield"), is the primary developer of timeshare inventory for Fairfield. See Note 12—Related Party Transactions for more information regarding the Company's relationship with FFD.

On March 31, 2003, the Company acquired a majority interest in Trip Network, Inc. ("Trip Network") through the conversion of its preferred stock investment. The Company recorded $34 million of goodwill in connection with this transaction, which was allocated to the Travel Distribution segment. Trip Network is an online travel agent that operates through a licensing agreement with the Company. See Note 12—Related Party Transactions for more information regarding the Company's relationship with Trip Network.

These acquisitions were not significant to the Company's results of operations, financial position or cash flows on a pro forma basis.

2002 Acquisitions
In April 2002, the Company acquired NRT Incorporated ("NRT") for $230 million resulting in goodwill of approximately $1.6 billion and Trendwest Resorts, Inc. ("Trendwest") for $936 million resulting in goodwill of $687 million. The following table sets forth the Company's results of operations on a pro forma basis for the first quarter of 2002 as if the acquisitions of NRT and Trendwest had occurred on January 1, 2002:

These pro forma results do not give effect to any synergies expected to result from the acquisitions of NRT and Trendwest, are not necessarily indicative of what actually would have occurred if the acquisitions had been consummated on January 1, 2002, and are not necessarily indicative of future consolidated results. Although the Company acquired other businesses during 2002 (including certain assets of Budget Group, Inc. ("Budget") in November), such businesses were not significant to the Company's results of operations on a pro forma basis and, as such, have not been reflected in the above table.

Utilization of Purchase Acquisition Liabilities for Exiting Activities
In connection with the Company's acquisitions of the following businesses, the Company established purchase accounting liabilities in prior periods for costs associated with exiting activities that are currently in progress. These exiting activities were formally committed to by the

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Company's management in connection with strategic initiatives primarily aimed at creating synergies between the cost structures of the Company and the acquired entity. The Company anticipates that the majority of personnel related costs will be paid during 2003.

The recognition of such costs and the corresponding utilization are summarized by category as follows:

Budget Group, Inc. (assets acquired in November 2002)

The major area of cost reduction is expected to result from the relocation of the Budget corporate headquarters and selected Budget employees and the involuntarily termination of Budget employees in connection with such relocation. To complete these initiatives, the Company will (i) involuntarily terminate Budget employees, (ii) abandon assets in connection with the relocation of Budget corporate headquarters and other offices and (iii) terminate contractual service agreements. As a result, the Company incurred severance and other personnel costs related to the involuntary termination or relocation of employees, contract termination costs primarily related to the cancellation of an information technology contract and facility related costs primarily representing future lease payments for abandoned facilities due to relocation. The Company formally communicated the termination of employment to approximately 952 employees, representing a wide range of employee groups. The Company expects to complete this plan in fourth quarter 2003.

Galileo International, Inc. (acquired October 2001)

The major areas of cost reductions are expected to result from (i) rightsizing the core business functions of Galileo International, Inc. ("Galileo") and relocating the corporate and other offices (including the back office support functions) and (ii) exiting certain activities and certain acquired businesses, including the sale of assets. To complete these initiatives, the Company (i) involuntarily terminated Galileo employees, (ii) relocated the Galileo corporate headquarters, back office support functions and other offices, (iii) merged numerous offices in Europe to a single European headquarters and (iv) abandoned assets in connection with such relocation, as well as terminated contractual service agreements associated with the activities to be exited. Consistent with the original integration plan to streamline Galileo's worldwide operations and due to the extent and breadth of these global efforts, the full evaluation of exiting activities was not completed until third

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quarter 2002. The Company formally communicated the termination of employment to approximately 880 employees, representing a wide range of employee groups, and as of December 31, 2002, the Company had terminated all such employees.

Acquisition and Integration Related Costs
During first quarter 2003, the Company incurred $10 million of costs primarily related to the acquisition and integration of real estate brokerages by NRT, as well as costs related to Budget. Such costs consisted of (i) $3 million of non-cash amortization related to the contractual pendings and listings intangible assets acquired and (ii) $7 million of other costs primarily related to the integration of Budget's reservation system with the Avis reservation system.

4.     Discontinued Operations

On May 22, 2002, the Company sold its car parking facility business, National Car Parks ("NCP"), a then wholly-owned subsidiary within its Vehicle Services segment, for $1.2 billion in cash and recognized an after-tax loss of approximately $256 million, which was recorded in second quarter 2002. NCP operated off-street commercial parking facilities and managed on-street parking and related operations on behalf of town and city administration in England. Pursuant to SFAS No. 144, "Accounting for the Impariment or Disposal of Long-Lived Assets," the activities of NCP were segregated and reported as a discontinued operation for first quarter 2002. During first quarter 2002, NCP generated net revenues and income from discontinued operations of $97 million and $32 million ($27 million, after tax), respectively.

5.     Intangible Assets

Intangible assets consisted of:

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The changes in the carrying amount of goodwill are as follows:

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^(a)

Relates to the acquisition of FFD.

^(b)

Relates to the acquisition of Trip Network.

^(c)

Relates to the acquisition of NRT and other real estate brokerages (April 17, 2002 and forward).

^(d)

Primarily relates to the acquisition of Equivest Finance, Inc. (February 2002).

^(e)

Primarily relates to the acquisition of distribution partners by the Company's Galileo subsidiary (June 2002 and forward).

^(f)

Relates to the acquisition of Budget (November 2002).

Amortization expense relating to all intangible assets excluding mortgage servicing rights (See Note 6—Mortgage Servicing Activities) was as follows:

Based on the Company's amortizable intangible assets as of March 31, 2003, the Company expects related amortization expense for the remainder of 2003 and the five succeeding fiscal years to approximate $60 million, $80 million, $80 million, $80 million, $60 million and $50 million, respectively.

6.     Mortgage Servicing Activities

The activity in the Company's residential first mortgage loan servicing portfolio consisted of:

---

^(*)

Does not include approximately $1.8 billion and $1.6 billion of second-home equity mortgages serviced by the Company as of March 31, 2003 and 2002, respectively.

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Substantially all of the mortgage loans serviced by the Company were sold without recourse. However, approximately $2.0 billion (approximately 1.7%) of the Company's total servicing portfolio at March 31, 2003 were sold with recourse. The majority of such loans were sold under a program where the Company retains the credit risk for a limited period of time and only for a specific default event. For these loans, the Company accrues a provision (equal to the fair value of the recourse obligation) for expected losses. As of March 31, 2003, the provision approximated $3 million and was recorded as a component of accounts payable and other current liabilities on the Consolidated Condensed Balance Sheet. There was no significant activity that would cause the Company to utilize this provision in the first quarter of 2003. The Company believes that this provision is adequate to cover expected losses and that such losses would not be material to its results of operations.

The weighted average note rate on all the underlying mortgages serviced by the Company as of March 31, 2003 and 2002 was 5.93% and 6.70%, respectively.

The activity in the Company's capitalized mortgage servicing rights ("MSR") asset consisted of:

As of March 31, 2003, the Company expects MSR amortization expense for the remainder of 2003 and the five succeeding fiscal years to approximate $250 million, $290 million, $230 million, $200 million, $180 million and $160 million, respectively. As of March 31, 2003, the MSR portfolio had a weighted average life of approximately 4.6 years.

The Company uses derivatives to mitigate the impact that accelerated prepayments have on the fair value of its MSR asset. Such derivatives, which are primarily designated as fair value hedging instruments, tend to increase in value as interest rates decline and conversely decline in value as

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interest rates increase. The activity in the Company's derivatives related to mortgage servicing rights asset consisted of:

The net impact of the changes in fair value of the Company's MSR asset after giving effect to the changes in fair value of the related derivatives was a gain of $63 million during first quarter 2003 and a loss of $6 million during first quarter 2002. During first quarter 2003 and 2002, the Company recorded $61 million and $31 million, respectively, of impairment through the MSR valuation allowance. Such amounts are included within net revenues in the Consolidated Condensed Statements of Income.

7.     Long-term Debt and Borrowing Arrangements

Long-term debt consisted of:

---

^(*)

Indicates earliest mandatory redemption date.

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^(a)

The change in the balance at March 31, 2003 reflects the redemption of $737 million of these notes for approximately $771 million in cash. In connection with such redemption, the Company recorded a pretax charge of approximately $22 million.

^(b)

The change in the balance at March 31, 2003 reflects (i) the redemption of $81 million in face value of these notes, with a carrying value of $91 million, for $91 million in cash and (ii) $4 million related to the amortization of a premium. The loss recorded by the Company in connection with this redemption was not material.

^(c)

These notes, issued in January 2003, are senior unsecured obligations and rank equally in right of payment with all the Company's existing and future unsecured senior indebtedness.

^(d)

These notes, issued in March 2003, are senior unsecured obligations and rank equally in right of payment with all the Company's existing and future unsecured senior indebtedness.

^(e)

The change in the balance at March 31, 2003 reflects the redemption of $456 million of these debentures for approximately $457 million in cash. In connection with such redemption, the Company recorded a pretax charge of approximately $7 million.

^(f)

The change in the balance at March 31, 2003 reflects the redemption of $396 million of these debentures for approximately $408 million in cash. In connection with such redemption, the Company recorded a pretax charge of approximately $19 million.

^(g)

Reflects the repayment of outstanding revolver borrowings during first quarter 2003.

^(h)

The balance as of March 31, 2003 reflects the reclassification of the outstanding balances for the Company's 7³/4% notes, zero coupon convertible debentures and zero coupon senior convertible contingent notes to long-term debt based upon the Company's determination that it had the intent and ability to refinance these amounts with borrowings under its revolving credit facilities. The balance as of December 31, 2002 reflects the reclassification of the outstanding balances for the Company's 7³/4% notes and zero coupon convertible debentures to long-term debt based upon the Company's determination that it had the intent and ability to refinance these amounts with borrowings under its revolving credit facilities and proceeds received from the issuance of $2.0 billion of notes in January 2003 (described in note (c) above).

The number of shares of CD common stock potentially issuable for each of the Company's contingently convertible debt securities are detailed below (in millions):

Available Funding Arrangements and Committed Credit Facilities
As of March 31, 2003, the Company maintained $2.9 billion of revolving credit facilities, under which there were no outstanding borrowings; however, letters of credit of $1.1 billion were issued and outstanding. These letters of credit were issued primarily as credit enhancements to provide additional collateralization for the Company's vehicle rental financing arrangements. Accordingly, as of March 31, 2003, the Company had approximately $1.8 billion of availability under these facilities (including $132 million of additional capacity to issue letters of credit). Additionally, as of March 31, 2003, the Company had $400 million of availability for public debt or equity issuances under a shelf registration statement.

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Debt Maturities and Covenants
Aggregate maturities of debt (excluding the Upper DECS), after giving effect to the reclassifications previously discussed, are as follows:

---

^(a)

Excludes $863 million of Upper DECS. If the Upper DECS are not successfully remarketed in August 2004, the senior notes would be retired (without any payment of cash by the Company) in August 2004 in satisfaction of the related forward purchase contract, whereby holders of the Upper DECS are required to purchase shares of CD common stock (based upon the price of CD common stock on March 31, 2003, approximately 40 million shares would be purchased).

At March 31, 2003, the Company was in compliance with all restrictive and financial covenants of its debt instruments and credit facilities.

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8.     Debt Under Management and Mortgage Programs and Borrowing Arrangements

Debt under management and mortgage programs consisted of: