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8-K - FORM 8-K - REALOGY GROUP LLCd8k.htm

Exhibit 99.1

LOGO

REALOGY REPORTS RESULTS FOR FULL YEAR 2010

Real Estate Leader Posts Net Revenue of $4.1 Billion in 2010,

Successfully Completed Debt Refinancing Transactions and

Continues to Focus on Strategic Growth

PARSIPPANY, N.J., March 4, 2011 – Realogy Corporation, a global leader in real estate and relocation services, today reported results for the full year ended December 31, 2010. Realogy’s net revenue for the year was $4.1 billion, an increase of 4% compared to 2009. The growth is attributed to an increase in the average sales price of homes sold by our franchisees and owned real estate offices as well as the impact of the January 2010 acquisition of Primacy Relocation. Reported EBITDA for the year was $835 million. EBITDA before restructuring and other items for the year was $534 million, an increase of $107 million, or 25%, year-over-year. For the year, Realogy recorded a net loss attributable to the Company of $99 million.

“In spite of another difficult year in housing and the economy, management remained highly focused on our strategic growth initiatives,” said Richard A. Smith, Realogy’s chief executive officer. “The Realogy Franchise Group increased its domestic franchise sales by 56% in 2010 compared to 2009, adding new franchisees and sales associates with $332 million in franchisee gross commission income (GCI). NRT, our owned brokerage company, added $60 million of annualized GCI through the acquisition of nine companies encompassing 23 offices and more than 1,000 sales associates. Cartus strengthened its position as a global provider of relocation services through the acquisition of Primacy, as well as adding more than 140 new clients and expanding relationships with approximately 300 of its existing clients. Title Resource Group continued to develop both its lender channel and title underwriting business, further diversifying its revenue base.”

Looking at Realogy’s core business drivers, both RFG and NRT outperformed the national market in terms of average sales price. Due to our mix of business, the average home sale price increased at both RFG and NRT in 2010 by 4% and 11% year-over-year, respectively, compared to the 1% increase in average home price reported by the National Association of Realtors (NAR). The number of home sale sides decreased 6% year-over-year at the Realogy Franchise Group (RFG) and decreased 7% at NRT, the company-owned brokerage unit. These results were consistent with the 5% decrease in existing domestic home sale units reported by NAR. Cartus experienced a 29% increase in relocation initiations primarily due to increased volume from corporate clients principally from the Primacy Relocation acquisition. Title Resource Group had a 5% increase in the average price per closing unit, which was offset by an 11% decrease in refinance title and closing units and a 10% decrease in its purchase title and closing units.

Industry forecasts from NAR and Fannie Mae continue to anticipate a weak first half of 2011 compared to 2010 for existing home sales. This is mainly because the first


Realogy Reports Results for Full Year 2010    Page 2

 

half of 2010 had an atypical sales pattern due to the existence of the federal homebuyer tax credit that pulled forward sales from the third quarter of 2010. For the same reasons, industry forecasts project double-digit gains in the second half of 2011 in terms of year-over-year comparisons in home sales, which could offset the anticipated weak first half.

Balance Sheet Information and Covenant Compliance as of December 31, 2010

In February 2011, the Company successfully completed a series of refinancing transactions designed to improve Realogy’s capital structure and debt maturity profile. The highlights of the transactions include:

 

   

We extended the maturities by at least three years on the majority of our secured and unsecured debt. Consequently, the due dates for most of our debt have been extended to 2016 or later.

 

   

After completing an amendment to our senior secured credit agreement, we raised $700 million in a senior secured bond offering. The senior secured bonds mature in 2019, and we used the proceeds from the offering to prepay a like amount of our term loans under the credit agreement.

 

   

The new senior secured bonds are not included in the calculation of senior secured net debt for compliance with our senior secured leverage ratio maintenance covenant under our senior secured credit facility. Accordingly, the prepayment of $700 million dollars of term loans enabled us to increase our operating cushion under the leverage ratio.

 

   

Lastly, we completed a debt exchange of $2.1 billion principal amount of unsecured notes for an equivalent amount of convertible notes that are convertible into equity of our parent company. As a result, these convertible notes represent a potential future reduction of a substantial portion of our outstanding debt if and when such convertible notes are converted.

“These transactions have resulted in improved financial flexibility for our Company in the future,” said Anthony Hull, Realogy’s chief financial officer. “We believe our success in completing these transactions at a modest increase in our interest expense reflects both investor confidence in Realogy’s future and the strength of our business model.”

The Company ended 2010 with $166 million of readily available cash and no outstanding balance on its revolving credit facility under its senior secured credit agreement. There was $60 million outstanding as of March 1, 2011 due to normal seasonal activity. The Company expects these borrowings to be substantially repaid prior to the end of the first quarter.

A complete balance sheet is included as Table 2 of this press release.

As of December 31, 2010, the Company’s senior secured leverage ratio (SSLR) was 4.59 to 1, which is below the 5.0 to 1 maximum ratio required to be in compliance with its senior secured credit agreement. The SSLR is determined by dividing Realogy’s senior secured net debt of $2.9 billion at December 31, 2010 by the Company’s Adjusted EBITDA of $633 million for the 12 months ended December 31, 2010. After giving effect to the refinancing transactions completed in February 2011, the SSLR would have been 3.51 to 1 as of December 31, 2010. (Please see Table 8


Realogy Reports Results for Full Year 2010    Page 3

 

for the definition of non-GAAP financial measures, Adjusted EBITDA and EBITDA before restructuring and other items and Tables 6 and 7 for a reconciliation of these non-GAAP measures to their most comparable GAAP financial measure, net loss attributable to Realogy.)

Investor Webcast

Realogy will hold a Webcast to review its full year 2010 results at 10:00 a.m. (EST) March 4th. The call will be hosted by Richard A. Smith, president and CEO, and Anthony E. Hull, executive vice president, CFO and treasurer. The conference call will be made available live via Webcast on the Investor Information section of the Realogy.com Web site. A replay of the Webcast will be available at www.realogy.com from March 4 through March 18.

About Realogy Corporation

Realogy Corporation, a global provider of real estate and relocation services, has a diversified business model that includes real estate franchising, brokerage, relocation and title services. Realogy’s world-renowned brands and business units include Better Homes and Gardens® Real Estate, CENTURY 21®, Coldwell Banker®, Coldwell Banker Commercial®, The Corcoran Group®, ERA®, Sotheby’s International Realty®, NRT LLC, Cartus and Title Resource Group. Collectively, Realogy’s franchise systems have approximately 14,700 offices and 264,000 sales associates doing business in 100 countries and territories around the world. Headquartered in Parsippany, N.J., Realogy is owned by affiliates of Apollo Management, L.P., a subsidiary of Apollo Global Management, LLC, a leading global alternative asset manager.

Forward-Looking Statements

Certain statements in this press release constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Realogy Corporation to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements preceded by, followed by or that otherwise include the words “believes”, “expects”, “anticipates”, “intends”, “projects”, “estimates” and “plans” 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. Any statements that refer to expectations or other characterizations of future events, circumstances or results are forward-looking statements.

Various factors that could cause actual future results and other future events to differ materially from those estimated by management include, but are not limited to: our substantial amount of outstanding debt; our ability to comply with the affirmative and negative covenants contained in our debt agreements; adverse developments or the absence of improvement in the residential real estate markets, including, but not limited to, the lack of sustained improvement in the number of home sales and/or further declines in home prices, low levels of consumer confidence, the impact of the ongoing or future recessions and related high levels of unemployment in the U.S. and abroad, continuing high levels of foreclosures, and reduced availability of mortgage financing or financing availability at rates not sufficiently attractive to homebuyers; the final resolution or outcomes with respect to Cendant’s contingent liabilities; adverse developments or the absence of sustained improvement in general business, economic and political conditions, including, but


Realogy Reports Results for Full Year 2010    Page 4

 

not limited to, changes in short-term or long-term interest rates, or any outbreak or escalation of hostilities on a national, regional or international basis; government regulation as well as legislative, tax or regulatory changes that would adversely impact the residential real estate market, including but not limited to potential reform of the financing of the U.S. housing and mortgage markets; our failure to enter into or renew franchise agreements, maintain our brands or the inability of franchisees to survive the current real estate cycle; our inability to realize benefits from future acquisitions; our inability to sustain improvements in our operating efficiency; and our inability to access the capital and/or securitization markets.

Consideration should be given to the areas of risk described above, as well as those risks set forth under the headings “Forward-Looking Statements” and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010 and in our other periodic reports filed from time to time, in connection with considering 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 we are required to do so by law.

This release includes certain non-GAAP financial measures as defined under SEC rules. As required by SEC rules, important information regarding such measures is contained in the Tables attached to this release.

Investor Contact:

Alicia Swift

(973) 407-4669

alicia.swift@realogy.com

Media Contact:

Mark Panus

(973) 407-7215

mark.panus@realogy.com


Realogy Reports Results for Full Year 2010    Page 5

 

Table 1

REALOGY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions)

 

     Year Ended December 31,  
     2010     2009     2008  

Revenues

      

Gross commission income

   $ 2,965      $ 2,886      $ 3,483   

Service revenue

     700        621        737   

Franchise fees

     263        273        323   

Other

     162        152        182   
                        

Net revenues

     4,090        3,932        4,725   
                        

Expenses

      

Commission and other agent-related costs

     1,932        1,850        2,275   

Operating

     1,241        1,263        1,607   

Marketing

     179        161        207   

General and administrative

     238        250        236   

Former parent legacy costs (benefit), net

     (323     (34     (20

Restructuring costs

     21        70        58   

Merger costs

     1        1        2   

Impairment of intangible assets, goodwill and investments in unconsolidated entities

     —          —          1,789   

Depreciation and amortization

     197        194        219   

Interest expense/(income), net

     604        583        624   

Gain on extinguishment of debt

     —          (75     —     

Other (income)/expense, net

     (6     3        (9
                        

Total expenses

     4,084        4,266        6,988   
                        

Income (loss) before income taxes, equity in earnings and noncontrolling interests

     6        (334     (2,263

Income tax expense (benefit)

     133        (50     (380

Equity in (earnings) losses of unconsolidated entities

     (30     (24     28   
                        

Net loss

     (97     (260     (1,911

Less: Net income attributable to noncontrolling interests

     (2     (2     (1
                        

Net loss attributable to Realogy

   $ (99   $ (262   $ (1,912
                        


Realogy Reports Results for Full Year 2010    Page 6

 

Table 2

REALOGY CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions)

 

     December 31,  
     2010     2009  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 192      $ 255   

Trade receivables (net of allowance for doubtful accounts of $67 and $66)

     114        102   

Relocation receivables

     386        334   

Relocation properties held for sale

     21        —     

Deferred income taxes

     76        85   

Other current assets

     109        98   
                

Total current assets

     898        874   

Property and equipment, net

     186        211   

Goodwill

     2,611        2,577   

Trademarks

     732        732   

Franchise agreements, net

     2,909        2,976   

Other intangibles, net

     478        453   

Other non-current assets

     215        218   
                

Total assets

   $ 8,029      $ 8,041   
                

LIABILITIES AND EQUITY (DEFICIT)

    

Current liabilities:

    

Accounts payable

   $ 203      $ 96   

Securitization obligations

     331        305   

Due to former parent

     104        505   

Revolving credit facility and current portion of long-term debt

     194        32   

Accrued expenses and other current liabilities

     525        502   
                

Total current liabilities

     1,357        1,440   

Long-term debt

     6,698        6,674   

Deferred income taxes

     883        760   

Other non-current liabilities

     163        148   
                

Total liabilities

     9,101        9,022   
                

Commitments and contingencies

    

Equity (deficit):

    

Common stock

     —          —     

Additional paid-in capital

     2,026        2,020   

Accumulated deficit

     (3,070     (2,971

Accumulated other comprehensive loss

     (30     (32
                

Total Realogy stockholder’s deficit

     (1,074     (983
                

Noncontrolling interests

     2        2   
                

Total equity (deficit)

     (1,072     (981
                

Total liabilities and equity (deficit)

   $ 8,029      $ 8,041   
                


Realogy Reports Results for Full Year 2010    Page 7

 

Table 3

REALOGY CORPORATION

2010 KEY DRIVERS

 

     Quarter Ended     Year Ended  
     March 31,
2010
    June 30,
2010
    September 30,
2010
    December 31,
2010
    December 31,
2010
 

Real Estate Franchise Services (a)

          

Closed homesale sides

     193,340        288,479        229,241        211,281        922,341   

Average homesale price

   $ 188,478      $ 197,637      $ 202,272      $ 202,906      $ 198,076   

Average homesale broker commission rate

     2.55     2.54     2.53     2.53     2.54

Net effective royalty rate

     5.04     5.04     4.95     4.97     5.00

Royalty per side

   $ 252      $ 261      $ 267      $ 267      $ 262   

Company Owned Real Estate Brokerage Services

          

Closed homesale sides

     52,532        83,583        61,092        58,080        255,287   

Average homesale price

   $ 417,782      $ 424,442      $ 457,782      $ 444,000      $ 435,500   

Average homesale broker commission rate

     2.48     2.49     2.47     2.48     2.48

Gross commission income per side

   $ 11,161      $ 11,247      $ 12,209      $ 11,736      $ 11,571   

Relocation Services

          

Initiations (b)

     32,429        46,189        36,743        32,943        148,304   

Referrals (c)

     12,109        21,770        19,625        16,101        69,605   

Title and Settlement Services

          

Purchase title and closing units

     19,947        30,133        22,963        21,247        94,290   

Refinance title and closing units

     11,935        10,378        17,546        22,366        62,225   

Average price per closing unit

   $ 1,353      $ 1,472      $ 1,381      $ 1,336      $ 1,386   

 

(a) Includes all franchisees except for our Company Owned Real Estate Brokerage Services segment.
(b) Includes initiations of 5,177, 7,612, 6,516 and 6,782 for the three months ended March 31, June 30, September 30, and December 31, 2010, respectively, related to the Primacy acquisition in 2010.
(c) Includes referrals of 716, 1,527, 1,513 and 1,241 for the three months ended March 31, June 30, September 30, and December 31, 2010, respectively, related to the Primacy acquisition in 2010.


Realogy Reports Results for Full Year 2010    Page 8

 

Table 4

REALOGY CORPORATION

2009 KEY DRIVERS

 

     Quarter Ended     Year Ended  
     March 31,
2009
    June 30,
2009
    September 30,
2009
    December 31,
2009
    December 31,
2009
 

Real Estate Franchise Services (a)

          

Closed homesale sides

     178,233        259,476        281,973        263,834        983,516   

Average homesale price

   $ 182,865      $ 188,489      $ 194,881      $ 192,604      $ 190,406   

Average homesale broker commission rate

     2.57     2.57     2.53     2.54     2.55

Net effective royalty rate

     5.15     5.10     5.11     5.04     5.10

Royalty per side

   $ 253      $ 256      $ 260      $ 255      $ 257   

Company Owned Real Estate Brokerage Services

          

Closed homesale sides

     47,499        72,362        81,025        72,931        273,817   

Average homesale price

   $ 355,838      $ 378,870      $ 407,398      $ 406,549      $ 390,688   

Average homesale broker commission rate

     2.55     2.52     2.49     2.51     2.51

Gross commission income per side

   $ 9,909      $ 10,292      $ 10,816      $ 10,814      $ 10,519   

Relocation Services

          

Initiations

     27,677        33,074        28,326        25,607        114,684   

Referrals

     10,719        17,349        20,320        16,607        64,995   

Title and Settlement Services

          

Purchase title and closing units

     18,811        28,148        30,653        27,077        104,689   

Refinance title and closing units

     19,933        22,693        14,493        12,808        69,927   

Average price per closing unit

   $ 1,211      $ 1,258      $ 1,405      $ 1,396      $ 1,317   

 

(a) Includes all franchisees except for our Company Owned Real Estate Brokerage Services segment.


Realogy Reports Results for Full Year 2010    Page 9

 

Table 5a

REALOGY CORPORATION

SELECTED 2010 FINANCIAL DATA

(In millions)

 

     For the Three
Months  Ended
March 31, 2010
    For the Three
Months  Ended
June 30, 2010
    For the Three
Months  Ended
September 30, 2010
    For the Three
Months  Ended
December 31, 2010
    For the  Year
Ended
December 31, 2010
 

Revenue (a)

          

Real Estate Franchise Services

   $ 122      $ 173      $ 138      $ 127      $ 560   

Company Owned Real Estate Brokerage Services

     601        956        762        697        3,016   

Relocation Services

     76        106        122        101        405   

Title and Settlement Services

     65        86        84        90        325   

Corporate and Other

     (45     (68     (54     (49     (216
                                        

Total Company

   $ 819      $ 1,253      $ 1,052      $ 966      $ 4,090   
                                        

EBITDA (b)

          

Real Estate Franchise Services

   $ 65      $ 123      $ 90      $ 74      $ 352   

Company Owned Real Estate Brokerage Services

     (34     84        31        (1     80   

Relocation Services

     4        27        51        27        109   

Title and Settlement Services

     (5     11        8        11        25   

Corporate and Other

     (19     299        (3     (8     269   
                                        

Total Company

   $ 11      $ 544      $ 177      $ 103      $ 835   
                                        

Depreciation and amortization

     50        49        49        49        197   

Interest expense, net

     152        155        151        146        604   

Income tax expense (benefit)

     6        118        10        (1     133   
                                        

Net income (loss) attributable to Realogy

   $ (197   $ 222      $ (33   $ (91   $ (99
                                        

 

(a) Transactions between segments are eliminated in consolidation. Revenues for the Real Estate Franchise Services segment include intercompany royalties and marketing fees paid by the Company Owned Real Estate Brokerage Services segment of $45 million, $68 million, $54 million and $49 million for the three months ended March 31, June 30, September 30, and December 31 2010, respectively. Such amounts are eliminated through the Corporate and Other line. Revenues for the Relocation Services segment include $7 million, $10 million, $12 million and $8 million of intercompany referral and relocation fees paid by the Company Owned Real Estate Brokerage Services segment during the three months ended March 31, June 30, September 30, and December 31 2010, respectively. Such amounts are recorded as contra-revenues by the Company Owned Real Estate Brokerage Services segment. Revenues for the Real Estate Franchise Services segment include intercompany royalties and marketing fees paid by the Company Owned Real Estate Brokerage Services segment of $216 million for the year ended December 31, 2010. Revenues for the Relocation Services segment include intercompany referral and relocation fees paid by the Company Owned Real Estate Brokerage Services segment of $37 million for the year ended December 31, 2010. There are no other material inter-segment transactions.
(b) Includes $6 million and $5 million of restructuring costs and former parent legacy items, respectively, for the three months ended March 31, 2010, $4 million of restructuring costs offset by a net benefit of $314 million of former parent legacy items primarily as a result of tax and other liability adjustments for the three months ended June 30, 2010, $2 million of restructuring costs offset by a net benefit of $6 million of former parent legacy items for the three months ended September 30, 2010 and $9 million of restructuring and $1 million of merger costs, offset by a net benefit of $8 million of former parent legacy items for the three months ended December 31, 2010. EBITDA for the year ended December 31, 2010 includes $21 million of restructuring costs and $1 million of merger costs, offset by a net benefit of $323 million of former parent legacy items primarily as a result of tax and other liability adjustments broken down by business units as follows:

 

     For the Three
Months  Ended
March 31, 2010
     For the Three
Months  Ended
June 30, 2010
    For the Three
Months  Ended
September 30, 2010
    For the Three
Months  Ended
December 31, 2010
    For the  Year
Ended
December 31, 2010
 

Real Estate Franchise Services

   $ —         $ —        $ —        $ —          —     

Company Owned Real Estate Brokerage Services

     3         2        2        5        12   

Relocation Services

     2         1        —          —          3   

Title and Settlement Services

     1         —          —          2        3   

Corporate and Other

     5         (313     (6     (5     (319
                                         

Total Company

   $ 11       $ (310   $ (4   $ 2      $ (301
                                         

EBITDA by segment before restructuring and other items detailed above for the three months ended March 31, 2010 was: RFG $65 million, NRT ($31) million, Cartus $6 million, TRG ($4) million and Corporate ($14) million. EBITDA by segment before restructuring and other items detailed above for the three months ended June 30, 2010 was: RFG $123 million, NRT $86 million, Cartus $28 million, TRG $11 million and Corporate ($14) million. EBITDA by segment before restructuring and other items detailed above for the three months ended September 30, 2010 was: RFG $90 million, NRT $33 million, Cartus $51 million, TRG $8 million and Corporate ($9) million. EBITDA by segment before restructuring and other items detailed above for the three months ended December 31, 2010 was: RFG $74 million, NRT $4 million, Cartus $27 million, TRG $13 million and Corporate ($13) million. EBITDA by segment before restructuring and other items detailed above for the corresponding year ended December 31, 2010 was as follows: RFG $352 million, NRT $92 million, Cartus $112 million, TRG $28 million, and Corporate ($50) million.


Realogy Reports Results for Full Year 2010    Page 10

 

Table 5b

REALOGY CORPORATION

SELECTED 2009 FINANCIAL DATA

(In millions)

 

     For the Three
Months  Ended
March 31, 2009
    For the Three
Months  Ended
June 30, 2009
    For the Three
Months  Ended
September 30, 2009
    For the Three
Months  Ended
December 31, 2009
    For the  Year
Ended
December 31, 2009
 

Revenue (a)

          

Real Estate Franchise Services

   $ 105      $ 143      $ 151      $ 139      $ 538   

Company Owned Real Estate Brokerage Services

     491        764        896        808        2,959   

Relocation Services

     71        80        92        77        320   

Title and Settlement Services

     68        88        91        81        328   

Corporate and Other

     (38     (57     (61     (57     (213
                                        

Total Company

   $ 697      $ 1,018      $ 1,169      $ 1,048      $ 3,932   
                                        

EBITDA (b)

          

Real Estate Franchise Services

   $ 44      $ 85      $ 107      $ 87      $ 323   

Company Owned Real Estate Brokerage Services

     (84     24        48        18        6   

Relocation Services

     —          72        34        16        122   

Title and Settlement Services

     (5     12        10        3        20   

Corporate and Other

     (17     (8     54        (35     (6
                                        

Total Company

   $ (62   $ 185      $ 253      $ 89      $ 465   
                                        

Depreciation and amortization

     51        48        48        47        194   

Interest expense, net

     144        147        139        153        583   

Income tax expense (benefit)

     2        5        8        (65     (50
                                        

Net income (loss) attributable to Realogy

   $ (259   $ (15   $ 58      $ (46   $ (262
                                        

 

(a) Transactions between segments are eliminated in consolidation. Revenues for the Real Estate Franchise Services segment include intercompany royalties and marketing fees paid by the Company Owned Real Estate Brokerage Services segment of $38 million, $57 million, $61 million and $57 million for the three months ended March 31, 2009, June 30, 2009, September 30, 2009 and December 31, 2009, respectively. Such amounts are eliminated through the Corporate and Other line. Revenues for the Relocation Services segment include $6 million, $9 million, $11 million and $8 million of intercompany referral and relocation fees paid by the Company Owned Real Estate Brokerage Services segment during the three months ended March 31, 2009, June 30, 2009, September 30, 2009 and December 31, 2009, respectively. Such amounts are recorded as contra-revenues by the Company Owned Real Estate Brokerage Services segment. Revenues for the Real Estate Franchise Services segment include intercompany royalties and marketing fees paid by the Company Owned Real Estate Brokerage Services segment of $213 million for the year ended December 31, 2009. Revenues for the Relocation Services segment include intercompany referral and relocation fees paid by the Company Owned Real Estate Brokerage Services segment of $34 million for the year ended December 31, 2009. There are no other material inter-segment transactions.
(b) Includes $34 million and $4 million of restructuring costs and former parent legacy items, respectively, for the three months ended March 31, 2009, $10 million of restructuring costs offset by a benefit of $46 million of former parent legacy items (comprised of a benefit of $55 million recorded at Cartus related to Wright Express Corporation partially offset by $9 million of expenses recorded at Corporate) for the three months ended June 30, 2009, $15 million and $5 million of restructuring costs and former legacy items along with a $75 million gain on extinguishment of debt for the three months ended September 30, 2009 and $11 million, $3 million and $1 million of restructuring costs, former legacy items and merger cost, respectively for the three months ended December 31, 2009. EBITDA for the year ended December 31, 2009 includes $70 million of restructuring costs and $1 million of merger costs offset by a benefit of $34 million of former parent legacy items (comprised of a benefit of $55 million recorded at Cartus related to Wright Express Corporation partially offset by $21 million of expenses recorded at Corporate) and a gain on the extinguishment of debt of $75 million.

 

     For the Three
Months  Ended
March 31, 2009
     For the Three
Months  Ended
June 30, 2009
    For the Three
Months  Ended
September 30, 2009
    For the Three
Months  Ended
December 31, 2009
     For the  Year
Ended
December 31, 2009
 

Real Estate Franchise Services

   $ 1       $ 1      $ 1      $ —           3   

Company Owned Real Estate Brokerage Services

     25         5        13        4         47   

Relocation Services

     5         (52     —          2         (45

Title and Settlement Services

     1         1        —          1         3   

Corporate and Other

     6         9        (69     8         (46
                                          

Total Company

   $ 38       $ (36   $ (55   $ 15       $ (38
                                          

EBITDA by segment before restructuring and other items detailed above for the three months ended March 31, 2009 was: RFG $45 million, NRT ($59) million, Cartus $5 million, TRG ($4) million and Corporate ($11) million. EBITDA by segment before restructuring and other items detailed above for the corresponding three months ended June 30, 2009 was as follows: RFG $86 million, NRT $29 million, Cartus $20 million, TRG $13 million, and Corporate $1 million. EBITDA by segment before restructuring and other items detailed above for the corresponding three months ended September 30, 2009 was as follows: RFG $108 million, NRT $61 million, Cartus $34 million, TRG $10 million, and Corporate ($15) million. EBITDA by segment before restructuring and other items detailed above for the corresponding three months ended December 31, 2009 was as follows: RFG $87 million, NRT $22 million, Cartus $18 million, TRG $4 million, and Corporate ($27) million. EBITDA by segment before restructuring and other items detailed above for the corresponding year ended December 31, 2009 was as follows: RFG $326 million, NRT $53 million, Cartus $77 million, TRG $23 million, and Corporate ($52) million.


Realogy Reports Results for Full Year 2010    Page 11

 

Table 6

REALOGY CORPORATION

EBITDA AND ADJUSTED EBITDA

(In millions)

A reconciliation of net loss attributable to Realogy to EBITDA and Adjusted EBITDA for the year ended December 31, 2010 is set forth in the following table:

 

     For the Year  Ended
December 31, 2010
 

Net loss attributable to Realogy

   $ (99

Income tax expense (benefit)

     133   
        

Income before income taxes

     34   

Interest expense (income), net

     604   

Depreciation and amortization

     197   
        

EBITDA

     835   

Covenant calculation adjustments:

  

Restructuring costs, merger costs and former parent legacy costs (benefit), net (a)

     (301

Pro forma cost savings for 2010 restructuring initiatives (b)

     20   

Pro forma effect of business optimization initiatives (c)

     49   

Non-cash charges (d)

     (4

Non-recurring fair value adjustments for purchase accounting (e)

     4   

Pro forma effect of acquisitions and new franchisees (f)

     13   

Apollo management fees (g)

     15   

Incremental securitization interest costs (h)

     2   
        

Adjusted EBITDA

   $ 633   
        

Total senior secured net debt (i)

   $ 2,905   

Senior secured leverage ratio

     4.59

Pro forma total senior secured net debt (j)

   $ 2,219   

Pro forma senior secured leverage ratio

     3.51

 

(a) Consists of $21 million of restructuring costs and $1 million of merger costs offset by a benefit of $323 million of former parent legacy items.
(b) Represents actual costs incurred that are not expected to recur in subsequent periods due to restructuring activities initiated during 2010. From this restructuring, we expect to reduce our operating costs by approximately $34 million on a twelve-month run-rate basis and estimate that $14 million of such savings were realized from the time they were put in place. The adjustment shown represents the impact the savings would have had on the period from January 1, 2010 through the time they were put in place, had those actions been effected on January 1, 2010.
(c) Represents the twelve-month pro forma effect of business optimization initiatives that have been completed to reduce costs, including $12 million related to our Relocation Services new business start-ups, integration costs and acquisition related non-cash adjustments, $6 million related to vendor renegotiations, $23 million for employee retention accruals and $8 million of other initiatives. The employee retention accruals reflect the employee retention plans that have been implemented in lieu of our customary bonus plan, due to the ongoing and prolonged downturn in the housing market in order to ensure the retention of executive officers and other key personnel, principally within our corporate services unit and the corporate offices of our four business units.
(d) Represents the elimination of non-cash expenses, including $6 million of stock-based compensation expense, less $8 million for the change in the allowance for doubtful accounts and notes reserves from January 1, 2010 through December 31, 2010 and $2 million of other non-cash items.
(e) Reflects the adjustment for the negative impact of fair value adjustments for purchase accounting at the operating business segments primarily related to deferred rent for the twelve months ended December 31, 2010.
(f) Represents the estimated impact of acquisitions and new franchisees as if they had been acquired or signed on January 1, 2010. We have made a number of assumptions in calculating such estimate and there can be no assurance that we would have generated the projected levels of EBITDA had we owned the acquired entities or entered into the franchise contracts as of January 1, 2010.
(g) Represents the elimination of annual management fees payable to Apollo for the twelve months ended December 31, 2010.
(h) Reflects the incremental borrowing costs incurred as a result of the securitization facilities refinancing for the twelve months ended December 31, 2010.
(i) Represents total borrowings under the senior secured credit facility, including the revolving credit facility, of $3,059 million plus $12 million of capital lease obligations less $166 million of readily available cash as of December 31, 2010.
(j) Reflects the prepayment of $700 million of outstanding extended term loans from proceeds from the senior secured bonds (which we also refer to as First and a Half Lien Notes) less $14 million of estimated expenses related to the issuance of the First and Half Lien Notes.


Realogy Reports Results for Full Year 2010    Page 12

 

Table 7

Reconciliation of net income (loss) attributable to Realogy to EBITDA before restructuring and other items (In millions)

A reconciliation of net income (loss) attributable to Realogy to EBITDA and EBITDA before restructuring and other items for the three and twelve months ended December 31, 2010 and 2009 are set forth in the following tables:

 

     Three Months  Ended
December 31,
 
     2010     2009  

Net loss attributable to Realogy

   $ (91   $ (46

Income tax benefit

     (1     (65
                

Loss before income taxes

     (92     (111

Interest expense, net

     146        153   

Depreciation and amortization

     49        47   
                

EBITDA

   $ 103      $ 89   
                

Legacy costs (benefits), net

     (8     3   

Restructuring and merger costs

     10        12   
                

Total restructuring and other items

     2        15   
                

EBITDA before restructuring and other items

   $ 105      $ 104   
                
     Twelve Months Ended
December 31,
 
     2010     2009  

Net loss attributable to Realogy

   $ (99   $ (262

Income tax expense (benefit)

     133        (50
                

Income (loss) before income taxes

     34        (312

Interest expense, net

     604        583   

Depreciation and amortization

     197        194   
                

EBITDA

   $ 835      $ 465   
                

Legacy costs (benefits), net

     (323     (34

Restructuring and merger costs

     22        71   

Gain on extinguishment of debt

     —          (75
                

Total restructuring and other items

     (301     (38
                

EBITDA before restructuring and other items

   $ 534      $ 427   
                


Realogy Reports Results for Full Year 2010    Page 13

 

Table 8

Definitions

EBITDA is defined by us as net income before depreciation and amortization, interest (income) expense, net (other than relocation services interest for securitization assets and securitization obligations) and income taxes. EBITDA before restructuring and other items is defined by us as EBITDA adjusted for merger costs, restructuring costs, former parent legacy cost (benefit) items, net, and gain on extinguishment of debt as described in Table 7 above. Adjusted EBITDA is presented to demonstrate our compliance with the senior secured leverage ratio covenant in the senior secured credit facility. We present EBITDA, EBITDA before restructuring and other items and Adjusted EBITDA because we believe EBITDA, EBITDA before restructuring and other items and Adjusted EBITDA are useful as supplemental measures in evaluating the performance of our operating businesses and provides greater transparency into our results of operations. Our management, including our chief operating decision maker, use EBITDA and EBITDA before restructuring and other items as a factor in evaluating the performance of our business. EBITDA, EBITDA before restructuring and other items and Adjusted EBITDA should not be considered in isolation or as a substitute for net income or other statement of operations data prepared in accordance with GAAP. See table 6 for a presentation of net income (loss) as calculated under GAAP and a reconciliation to our EBITDA, EBITDA before restructuring and other items and Adjusted EBITDA.

We believe EBITDA facilitates company-to-company operating performance comparisons by backing out potential differences caused by variations in capital structures (affecting net interest expense), taxation, the age and book depreciation of facilities (affecting relative depreciation expense) and the amortization of intangibles, which may vary for different companies for reasons unrelated to operating performance. We believe EBITDA before restructuring and other items also facilitates company-to-company operating performance comparisons by backing out those items in EBITDA as well as certain historical cost (benefit) items which may vary for different companies for reasons unrelated to operating performance. We further believe that EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present an EBITDA measure when reporting their results.

EBITDA and EBITDA before restructuring and other items have limitations as analytical tools, and you should not consider EBITDA or EBITDA before restructuring and other items either in isolation or as substitutes for analyzing our results as reported under GAAP. The limitations include the following:

 

   

these measures do not reflect changes in, or cash requirement for, our working capital needs;

 

   

these measures do not reflect our interest expense (except for interest related to our securitization obligations), or the cash requirements necessary to service interest or principal payments, on our debt;

 

   

these measures do not reflect our income tax expense or the cash requirements to pay our taxes;

 

   

these measures do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often require replacement in the future, and these measures do not reflect any cash requirements for such replacements; and

 

   

other companies in our industry may calculate these measures differently so they may not be comparable.

Adjusted EBITDA as used herein corresponds to the definition of “EBITDA,” calculated on a “pro forma basis,” used in the senior secured credit facility to calculate the senior secured leverage ratio.

Like EBITDA and EBITDA before restructuring and other items, Adjusted EBITDA has limitations as an analytical tool, and you should not consider Adjusted EBITDA either in isolation or as a substitute for analyzing our results as reported under GAAP. In addition to the limitations described above with respect to EBITDA and EBITDA before restructuring and other items, Adjusted EBITDA includes pro forma cost savings, the pro forma effect of business optimization initiatives and the pro forma full year effect of acquisitions and new franchisees. These adjustments may not reflect the actual cost savings or pro forma effect recognized in future periods.

EBITDA, EBITDA before restructuring and other items and Adjusted EBITDA are not necessarily comparable to other similarly titled financial measures of other companies due to the potential inconsistencies in the method of calculation.