The gains reflect a $175-million mortgage-assets writedown, which played against profits from some $2 billion in acquisitions made by the company over the last two years, nearly $400 million of which were made during the third quarter.
"On a cash basis, our business segments performed at or ahead of expectations this quarter, despite a challenging environment for commercial travel and corporate spending," says Cendant chairman, president and CEO Henry R. Silverman. "Upside was driven primarily by our residential real estate brokerage and Avis car rental businesses. Although our reported mortgage servicing earnings were negatively impacted by unprecedented levels of refinancing activity, our servicing portfolio grew and recurring cash flow increased."
After placing his faith in Baby Boomers' increasing vacation needs by cramming Cendant's portfolio with high-profile company's such as Avis, as well as a number timeshare operators and other travel-related companies, Silverman now says he wants to put acquisitions on the back burner.
"During the third quarter we continued to deploy our free cash flow to create shareholder value," Silverman notes. "We retired over $300 million in debt and invested over $375 million in acquisitions expected to be immediately accretive. However, going forward, we plan to change that mix and substantially curtail acquisition activity in order to deploy our free cash flow primarily to reduce debt and repurchase stock. To that end, our board of directors has authorized a share repurchase program of $200 million."
For 2003, Cendant says that about 50% of its free cash flow will be applied toward debt reduction, with the remainder divided between share repurchases and small-scale acquisitions. While a share-repurchase program likely will slow progress toward strengthening its balance sheet, Cendant's credit measures have improved this year, falling roughly in line with analysts' expectations.
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