Realogy Reports Financial Results For First Quarter 2014

-- Residential Real Estate Leader Reports Quarterly Revenue of $1.0 Billion

-- Core Business Transaction Volume Increases 10% Year-over-Year

-- Broad Industry Decline in Mortgage Refinancing Activity Impacted Q1

-- Realogy Strategically Reducing Run-Rate Interest Expense and Refinancing High-Cost Debt

MADISON, N.J. - May 5, 2014 // PRNewswire // - Realogy Holdings Corp. (NYSE: RLGY), a global leader in residential real estate franchising and provider of real estate brokerage, relocation, and title and settlement services, today reported financial results for the quarter ended March 31, 2014, including the following highlights:

  • Realogy's net revenue for first quarter 2014 was $1.0 billion, a 5% increase compared to first quarter of 2013.
  • Realogy's Adjusted EBITDA1 for first quarter 2014 was $53 million, down from $71 million in the first quarter of 2013, primarily due to an approximately $20 million reduction in earnings related to the decrease in refinancing activity at our mortgage origination joint venture and within the Company's title and settlement services segment.
  • Net loss for first quarter 2014 was $46 million, which includes $70 million of interest expense, $46 million of depreciation and amortization expense and $10 million in pre-tax charges related to the repricing of its term loan and repurchases of $44 million of senior secured notes during the quarter.
  • Realogy reduced its annualized run-rate corporate cash interest expense to approximately $215 million with the completion of its term loan repricing and other refinancing actions completed to date in 2014.
  • Realogy has reduced its outstanding senior secured notes by $398 million this year, and intends to use remaining net proceeds of its April debt offering as well as free cash flow to continue to retire high-cost debt.

"Realogy achieved homesale transaction volume growth of 10% year-over-year in the first quarter, which is at the midpoint of our prior guidance range," said Richard A. Smith, Realogy's chairman, chief executive officer and president. "Our volume growth was driven by a 13% increase in average sales price that was partially offset by a 3% decline in transaction sides. We saw two opposing trends in the first quarter that caused an overall shift in Realogy's mix of business resulting in a higher average sale price and reduced transaction sides. Demand at the higher price points in markets served by our franchisees and company-owned brokerages was strong, while difficult credit standards and rapid home price appreciation, primarily caused by low inventory levels, constrained activity at the entry level of the housing market."

"Our Adjusted EBITDA was lower than the same period in 2013 primarily due to the broad industry decline in mortgage refinance volume and the resulting impact on our mortgage origination joint venture and our title agency, TRG," continued Smith. "This trend, which is expected to continue for much of 2014, along with a pause in the rate of growth in the housing recovery we are seeing this year, could make for challenging near-term comparisons, although current industry forecasts for 2015 are more favorable."

Business Drivers

For the first quarter of 2014, combined full-year homesale transaction volume (transaction sides times average sale price) increased by 10%, as compared to first quarter of 2013. The Realogy Franchise Group (RFG), our franchise segment, and NRT, the operator of our company-owned brokerage offices, reported homesale transaction declines of 3% and 2%, respectively, in the first quarter of 2014. Average homesale price improved 12% at RFG and 14% at NRT compared to the first quarter of 2013. NRT's first quarter 2014 average homesale price of approximately $489,000 is double the national average of $240,500.

At Cartus, initiations for first quarter 2014 increased 5% and referrals increased 5% compared to first quarter 2013. At TRG, first quarter 2014 purchase unit volume decreased 3% year over year, which was consistent with NRT homesale transaction declines. Average fee per transaction improved 30% due to the shift in mix to home purchase transactions from refinancing transactions. TRG's refinance title and closing units decreased 71% in first quarter 2014 compared to 2013, which was expected given lower refinancing trends.

"The seasonality of residential real estate is always most apparent in the first quarter results, which are not indicative of full-year results," said Anthony E. Hull, Realogy's executive vice president, chief financial officer and treasurer. "Historically, the first quarter EBITDA of every year has been the smallest contributor of the four quarters. This is the case largely because the fixed costs of the business are generally spread evenly throughout the year, while the first quarter normally has the lowest transaction volume."

"Looking ahead, for the second quarter of 2014 we expect to see our homesale transaction volume in the range of -2% to +2% year-over-year," continued Hull. "Based on our closed sales activity in April, along with contracts opened in March and April, we expect homesale sides to be down -5% to -7% year-over-year for RFG and NRT combined, and average sale price to increase +5% to +7% on a combined basis. At this point, RFG and NRT expectations for Q2 are different -- RFG transaction volume is expected to come in at or above the high end of volume guidance of -2% to +2%, while NRT transaction volume is currently expected to come in at or below the low end of the range."

"As we have moved into our spring selling season, thus far the level of open activity we expected has not materialized, particularly as it relates to homesale transaction sides," continued Hull. "Having said that, we expect our aggregate number of homesale transaction sides to increase sequentially from 260,000 in the first quarter of 2014 to between 367,600 to 375,500 in the second quarter."

Balance Sheet Information as of March 31, 2014

The Company ended the quarter with a cash and cash equivalents balance of $119 million and $145 million in outstanding borrowings under its revolving credit facility under its senior secured credit agreement. Total long-term corporate debt, including the short term portion, net of cash and cash equivalents totaled $3.9 billion at March 31, 2014.
In the first quarter, the Company completed the repricing of its term loan and repurchased $44 million of senior secured notes. In April, the Company issued $450 million of 4.50% unsecured notes and used a portion of the net proceeds to repurchase $354 million of senior secured notes for aggregate consideration of $387 million, before accrued interest. To date in 2014, the Company has reduced its senior secured notes balance by $398 million.

"We continue to opportunistically improve our capital structure," said Hull. "We intend to continue to pay down high-cost debt and reduce interest costs and we are focused on reducing our overall leverage."

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

Investor Conference Call

Today, May 5, at 8:30 a.m. (EDT), Realogy will hold a conference call via webcast to review its first quarter 2014 results. The call will be hosted by Richard A. Smith, chairman, chief executive officer and president, and Anthony E. Hull, executive vice president, chief financial officer and treasurer, and will conclude with an investor Q&A period with management.

Investors may access the conference call live via webcast at www.realogy.com under "Investors" or by dialing (888) 895-3527 (toll free); international participants should dial (706) 679-2250. Please dial in at least 5 to 10 minutes prior to start time. A webcast replay also will be available from May 6 through May 19, 2014.

About Realogy Holdings Corp.

Realogy Holdings Corp. (NYSE: RLGY) is a global leader in residential real estate franchising with company-owned real estate brokerage operations doing business under its franchise systems as well as relocation and title services. Realogy's 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 system members operate approximately 13,600 offices with 247,000 independent sales associates doing business in 104 countries around the world. Realogy is headquartered in Madison, N.J.

Forward-Looking Statements

Certain statements in this press release constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Realogy Holdings Corp. 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: adverse developments or the absence of sustained improvement in general business, economic and political conditions; 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 stagnant or declining home prices, low levels of consumer confidence, the impact of slow economic growth or future recessions and related high levels of unemployment in the U.S. and abroad, continued low inventory levels, renewed high levels of foreclosures, seasonal fluctuations in the residential real estate brokerage business, and increasing mortgage rates and down payment requirements and/or constraints on the availability of mortgage financing; the Company's geographic and high-end market concentration, particularly with respect to its Company-owned brokerage operations; the Company's failure to enter into or renew franchise agreements or maintain its brands; risks relating to our outstanding debt and interest obligations; variable rate indebtedness which subjects the Company to interest rate risk; the Company's inability to access capital; 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 and/or the Internal Revenue Code and changes in state or federal employment laws or regulations that would require classification of independent contractor sales associates to employee status, and wage and hour regulations; the Company's inability to realize benefits from future acquisitions; the Company's inability to sustain improvements in its operating efficiency; and the final resolution or outcomes with respect to Cendant's (our former parent) remaining contingent liabilities.

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 filings with the Securities and Exchange Commission, including our Quarterly Report filed on Form 10-Q for the quarter ended March 31, 2014 and Annual Report on Form 10-K for the year ended December 31, 2013, and our other filings made 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.

1See Table 9 for definitions of these non-GAAP financial measures and Table 7 for reconciliations of these non-GAAP financial measures to their most comparable GAAP terms.

Contacts: 

Alicia Swift
Investor Relations
(973) 407-4669
alicia.swift@realogy.com

Jennifer Pepper
Investor Relations
(973) 407-7487
jennifer.pepper@realogy.com

Mark Panus
Media Relations
(973) 407-7215
mark.panus@realogy.com

 

Table 1

REALOGY HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)

   
 

Three Months Ended
March 31,

 

2014

 

2013

Revenues

         

Gross commission income

$

738

   

$

676

 

Service revenue

165

   

183

 

Franchise fees

63

   

57

 

Other

41

   

41

 

Net revenues

1,007

   

957

 

Expenses

         

Commission and other agent-related costs

500

   

454

 

Operating

336

   

327

 

Marketing

51

       

50

 

General and administrative

70

   

67

 

Former parent legacy costs, net

1

   

1

 

Depreciation and amortization

46

   

42

 

Interest expense, net

70

   

89

 

Loss on the early extinguishment of debt

10

   

3

 

Total expenses

1,084

   

1,033

 

Loss before income taxes, equity in earnings and noncontrolling interests

(77)

   

(76)

 

Income tax (benefit) expense

(34)

   

7

 

Equity in (earnings) losses of unconsolidated entities

3

   

(9)

 

Net loss

(46)

   

(74)

 

Less: Net income attributable to noncontrolling interests

   

(1)

 

Net loss attributable to Realogy Holdings

$

(46)

   

$

(75)

 
           

Loss per share attributable to Realogy Holdings:

         

Basic loss per share:

$

(0.32)

   

$

(0.52)

 

Diluted loss per share:

$

(0.32)

   

$

(0.52)

 

Weighted average common and common equivalent shares outstanding:

Basic:

145.8

   

145.1

 

Diluted:

145.8

   

145.1

 

  

Table 2

REALOGY HOLDINGS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)

       
 

March 31,
 2014

 

December 31,
 2013

ASSETS

         

Current assets:

         

Cash and cash equivalents

$

119

   

$

236

 

Trade receivables (net of allowance for doubtful accounts of $32 and $37)

131

   

121

 

Relocation receivables

277

   

270

 

Deferred income taxes

186

   

186

 

Other current assets

105

   

104

 

Total current assets

818

   

917

 

Property and equipment, net

199

   

205

 

Goodwill

3,359

   

3,335

 

Trademarks

736

   

732

 

Franchise agreements, net

1,545

   

1,562

 

Other intangibles, net

362

   

365

 

Other non-current assets

208

   

210

 

Total assets

$

7,227

   

$

7,326

 
           

LIABILITIES AND EQUITY

         

Current liabilities:

         

Accounts payable

$

138

   

$

123

 

Securitization obligations

194

   

252

 

Due to former parent

63

   

63

 

Revolving credit facilities and current portion of long-term debt

164

   

19

 

Accrued expenses and other current liabilities

363

   

454

 

Total current liabilities

922

   

911

 

Long-term debt

3,839

   

3,886

 

Deferred income taxes

299

   

337

 

Other non-current liabilities

192

   

179

 

Total liabilities

5,252

   

5,313

 

Commitments and contingencies

         

Equity:

         

Realogy Holdings preferred stock: $.01 par value; 50,000,000 shares authorized, none issued and outstanding at March 31, 2014 and December 31, 2013.

   

 

Realogy Holdings common stock: $.01 par value; 400,000,000 shares authorized, 146,161,257 shares outstanding at March 31, 2014 and 146,125,337 shares outstanding at December 31, 2013.

1

   

1

 

Additional paid-in capital

5,644

   

5,635

 

Accumulated deficit

(3,653)

   

(3,607)

 

Accumulated other comprehensive loss

(19)

   

(19)

 

Total stockholders' equity

1,973

   

2,010

 

Noncontrolling interests

2

   

3

 

Total equity

1,975

   

2,013

 

Total liabilities and equity

$

7,227

   

$

7,326

 

 

Table 3

 

REALOGY HOLDINGS CORP.
2014 vs. 2013 KEY DRIVERS

 
     
 

For Three Months Ended March 31,

 
 

2014

    

2013

    

% Change

 

Real Estate Franchise Services (a)

           

Closed homesale sides

203,972

 

209,779

 

(3%)

 

Average homesale price

$

236,711

 

$

210,919

 

12%

 

Average homesale broker commission rate

2.53%

 

2.56%

 

(3)

bps

Net effective royalty rate

4.49%

 

4.57%

 

(8)

bps

Royalty per side

$

282

 

$

258

 

9%

 

Company Owned Real Estate Brokerage Services

         

Closed homesale sides

56,685

 

58,060

 

(2%)

 

Average homesale price

$

489,053

 

$

427,812

 

14%

 

Average homesale broker commission rate

2.50%

 

2.52%

 

(2)

bps

Gross commission income per side

$

13,041

 

$

11,630

 

12%

 

Relocation Services

           

Initiations

37,898

 

35,951

 

5%

 

Referrals

16,496

 

15,677

 

5%

 

Title and Settlement Services

           

Purchase title and closing units

20,775

 

21,506

 

(3%)

 

Refinance title and closing units

7,199

 

24,500

 

(71%)

 

Average fee per closing unit

$

1,715

 

$

1,322

 

30%

 

_______________

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

 

Table 4

   

REALOGY HOLDINGS CORP.
2013 KEY DRIVERS

   
         
   

Quarter Ended

 

Year Ended

   

March 31,
 2013

    

June 30,
 2013

    

September 30,
 2013

    

December 31,
 2013

    

December 31,
 2013

Real Estate Franchise Services (a)

                             

Closed homesale sides

 

209,779

   

302,420

   

315,432

   

255,793

   

1,083,424

 

Average homesale price

 

$

210,919

   

$

236,590

   

$

240,408

   

$

237,776

   

$

233,011

 

Average homesale broker commission rate

 

2.56

%

 

2.55

%

 

2.53

%

 

2.53

%

 

2.54

%

Net effective royalty rate

 

4.57

%

 

4.51

%

 

4.46

%

 

4.44

%

 

4.49

%

Royalty per side

 

$

258

   

$

281

   

$

281

   

$

278

   

$

276

 

Company Owned Real Estate Brokerage Services

Closed homesale sides

 

58,060

   

92,878

   

93,083

   

72,619

   

316,640

 

Average homesale price

 

$

427,812

   

$

478,280

   

$

475,823

   

$

490,666

   

$

471,144

 

Average homesale broker commission rate

 

2.52

%

 

2.49

%

 

2.49

%

 

2.49

%

 

2.50

%

Gross commission income per side

 

$

11,630

   

$

12,598

   

$

12,527

   

$

12,856

   

$

12,459

 

Relocation Services

                             

Initiations

 

35,951

   

51,311

   

42,788

   

35,655

   

165,705

 

Referrals

 

15,677

   

26,258

   

28,406

   

21,032

   

91,373

 

Title and Settlement Services

                             

Purchase title and closing units

 

21,506

   

34,157

   

33,540

   

26,369

   

115,572

 

Refinance title and closing units

 

24,500

   

23,123

   

17,625

   

10,948

   

76,196

 

Average price per closing unit

 

$

1,322

   

$

1,490

   

$

1,579

   

$

1,649

   

$

1,504

 

_______________

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

 

Table 5a

REALOGY HOLDINGS CORP.
SELECTED 2014 FINANCIAL DATA
(In millions)

   
 

For the Three Months

 Ended

 

March 31,
 2014

Net revenues (a)

   

Real Estate Franchise Services

$

144

 

Company Owned Real Estate Brokerage Services

750

 

Relocation Services

86

 

Title and Settlement Services

81

 

Corporate and Other

(54)

 

Total Company

$

1,007

 
     

EBITDA (b)

   

Real Estate Franchise Services

$

79

 

Company Owned Real Estate Brokerage Services

(20)

 

Relocation Services

7

 

Title and Settlement Services

(5)

 

Corporate and Other

(25)

 

Total Company

$

36

 

Less:

   

Depreciation and amortization

46

 

Interest expense, net

70

 

Income tax benefit

(34)

 

Net loss attributable to Realogy Holdings

$

(46)

 

_______________

(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 $54 million for the three months ended March 31, 2014.  Such amounts are eliminated through the Corporate and Other line.

      Revenues for the Relocation Services segment include $7 million of intercompany referral commissions paid by the Company Owned Real Estate Brokerage Services segment during the three months ended March 31, 2014.  Such amounts are recorded as contra-revenues by the Company Owned Real Estate Brokerage Services segment.

(b)  The three months ended March 31, 2014 includes $10 million related to the loss on early extinguishment of debt, $1 millionrelated to the Phantom Value Plan and $1 million of former parent legacy costs. 

 

Table 5b

REALOGY HOLDINGS CORP.
SELECTED 2013 FINANCIAL DATA
(In millions)

       
 

For the Three Months Ended

 

For the Year Ended

 

March 31,

 

June 30,

 

September 30,

   

December 31,

   

December 31,

 

2013

 

2013

   

2013

 

2013

 

2013

Net revenues (a)

                             

Real Estate Franchise Services

$

135

   

$

193

   

$

193

   

$

169

   

$

690

 

Company Owned Real Estate Brokerage Services

686

   

1,182

   

1,178

   

944

   

3,990

 

Relocation Services

87

   

108

   

127

   

97

   

419

 

Title and Settlement Services

100

   

130

   

134

   

103

   

467

 

Corporate and Other

(51)

   

(80)

   

(79)

   

(67)

   

(277)

 

Total Company

$

957

   

$

1,533

   

$

1,553

   

$

1,246

   

$

5,289

 
                             

EBITDA (b) (c)

                           

Real Estate Franchise Services

$

72

   

$

133

   

$

133

   

$

110

   

$

448

 

Company Owned Real Estate Brokerage Services

(8)

   

102

   

91

   

21

   

206

 

Relocation Services

10

   

27

   

45

   

22

   

104

 

Title and Settlement Services

4

   

20

   

17

   

9

   

50

 

Corporate and Other

(15)

   

(78)

   

(50)

   

(12)

   

(155)

 

Total Company

$

63

   

$

204

   

$

236

   

$

150

   

$

653

 

Less:

                           

Depreciation and amortization

42

   

44

   

44

   

46

   

176

 

Interest expense, net

89

   

67

   

74

   

51

   

281

 

Income tax expense (benefit)

7

   

9

   

9

   

(267)

   

(242)

 

Net income (loss) attributable to Realogy

$

(75)

   

$

84

   

$

109

   

$

320

   

$

438

 

_______________

(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 $51 million$80 million$79 million and $67 million for the three months ended March 31, 2013June 30, 2013September 30, 2013and December 31, 2013, respectively.  Such amounts are eliminated through the Corporate and Other line.

     Revenues for the Relocation Services segment include $8 million$12 million$14 million and $9 million of intercompany referral commissions paid by the Company Owned Real Estate Brokerage Services segment during the three months endedMarch 31, 2013June 30, 2013September 30, 2013 and December 31, 2013, respectively.  Such amounts are recorded as contra-revenues by the Company Owned Real Estate Brokerage Services segment.

(b)  The three months ended March 31, 2013 includes $3 million related to the loss on early extinguishment of debt and $1 millionof former parent legacy costs.

      The three months ended June 30, 2013 includes $43 million related to the loss on early extinguishment of debt, $26 millionrelated to the Phantom Value Plan and $4 million restructuring costs, partially offset by a net benefit of $2 million of former parent legacy items.

      The three months ended September 30, 2013 includes $22 million related to the loss on early extinguishment of debt, $19 million related to the Phantom Value Plan and a net cost of $1 million of former parent legacy items.

      The three months ended December 31, 2013 includes $2 million related to the Phantom Value Plan and a net benefit of $4 million of former parent legacy items.

 

Table 6a

REALOGY HOLDINGS CORP.
2014 EBITDA AND ADJUSTED EBITDA
(In millions)


A reconciliation of net income (loss) attributable to Realogy Group to EBITDA and Adjusted EBITDA for the twelve months ended March 31, 2014 is set forth in the following table:

                     
       

Less

 

Equals

 

Plus

 

Equals

 

Year Ended

 

Three Months

Ended

 

Nine Months
Ended

 

Three Months

Ended

 

Twelve Months
Ended

 

December 31,
 2013

March 31,
 2013

December 31,
 2013

March 31,
 2014

March 31,
 2014

Net income (loss) attributable to Realogy Group (a)

$

438

   

$

(75)

   

$

513

   

$

(46)

   

$

467

 

Income tax (benefit) expense

(242)

   

7

   

(249)

   

(34)

   

(283)

 

Income (loss) before income taxes

196

   

(68)

   

264

   

(80)

   

184

 

Interest expense, net

281

   

89

   

192

   

70

   

262

 

Depreciation and amortization

176

   

42

   

134

   

46

   

180

 

EBITDA (b)

653

   

63

   

590

   

36

   

626

 

Covenant calculation adjustments:

     

Restructuring costs and former parent legacy benefit, net (c)

 

 

Loss on the early extinguishment of debt

 

76

 

Pro forma effect of business optimization initiatives (d)

 

12

 

Non-cash charges (e)

 

44

 

Pro forma effect of acquisitions and new franchisees (f)

 

17

 

Fees for secondary equity offerings

 

2

 

Incremental securitization interest costs (g)

 

4

 

Adjusted EBITDA

 

$

781

 

Total senior secured net debt (h)

 

$

2,590

 

Senior secured leverage ratio

 

3.32x

 
                                       

_______________

(a)  Net income (loss) attributable to Realogy consists of:  (i) income of $84 million for the second quarter of 2013, (ii) income of$109 million for the third quarter of 2013, (iii) income of $320 million for the fourth quarter of 2013 and (iv) a loss of $46 million for the first quarter of 2014.

(b)  EBITDA consists of:  (i) $204 million for the second quarter of 2013, (ii) $236 million for the third quarter of 2013, (iii) $150 million for the fourth quarter of 2013 and (iv) $36 million for the first quarter of 2014.

(c)  Consists of $4 million of restructuring costs offset by a net benefit of $4 million of former parent legacy items.

(d)  Represents the twelve-month pro forma effect of business optimization initiatives including $7 million related to business cost cutting initiatives, $2 million related to our Relocation Services integration costs, $2 million related to vendor renegotiations and $1 million of other items.

(e)  Represents the elimination of non-cash expenses, including $67 million of stock-based compensation expense and $3 millionof other items less $26 million for the change in the allowance for doubtful accounts and notes reserves from April 1, 2013 through March 31, 2014.

(f)  Represents the estimated impact of acquisitions and new franchisees as if they had been acquired or signed on April 1, 2013.  Franchisee sales activity is comprised of new franchise agreements as well as growth acquired by existing franchisees with our assistance.  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 April 1, 2013.

(g)  Incremental borrowing costs incurred as a result of the securitization facilities refinancing for the twelve months ended March 31, 2014.

(h)  Represents total borrowings under the senior secured credit facility and borrowings secured by a first priority lien on our assets of $2,639 million plus $18 million of capital lease obligations less $67 million of readily available cash as of March 31, 2014.  Pursuant to the terms of our senior secured credit facility, total senior secured net debt does not include the First and a Half Lien Notes, other indebtedness secured by a lien on our assets that is pari passu or junior in priority to the First and a Half Lien Notes, our securitization obligations or unsecured indebtedness, including the 3.375% Senior Notes and the 4.50% Senior Notes.

 

 

Table 6b

REALOGY HOLDINGS CORP.
2013 EBITDA AND ADJUSTED EBITDA
(In millions)

 

A reconciliation of net income attributable to Realogy to EBITDA and Adjusted EBITDA for the year ended December 31, 2013 is set forth in the following table:

   
 

For the Year Ended December 31, 2013

Net income attributable to Realogy Holdings

$

438

 

Income tax benefit

(242)

 

Income before income taxes

196

 

Interest expense, net

281

 

Depreciation and amortization

176

 

EBITDA

653

 

Covenant calculation adjustments:

   

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

 

Loss on the early extinguishment of debt

68

 

Pro forma cost savings for 2013 restructuring initiatives (b)

1

 

Pro forma effect of business optimization initiatives (c)

16

 

Non-cash charges (d)

39

 

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

1

 

Pro forma effect of acquisitions and new franchisees (f)

11

 

Fees for secondary equity offerings

2

 

Incremental securitization interest costs (g)

5

 

Adjusted EBITDA

$

796

 

Total senior secured net debt (h)

$

2,346

 

Senior secured leverage ratio

2.95x

 

_______________

(a)  Consists of $4 million of restructuring costs offset by a benefit of $4 million of former parent legacy items.

(b)  Represents incremental costs incurred for the corporate headquarters that are not expected to recur in subsequent periods.

(c)  Represents the twelve-month pro forma effect of business optimization initiatives including $9 million related to business cost cutting initiatives, $2 million related to our Relocation Services integration costs, $3 million related to vendor renegotiations, and $2 million of other items.

(d)  Represents the elimination of non-cash expenses, including $61 million of stock-based compensation expense and $1 millionof other items less $23 million for the change in the allowance for doubtful accounts and notes reserves from January 1, 2013 through December 31, 2013.

(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.

(f)   Represents the estimated impact of acquisitions and new franchisees as if they had been acquired or signed on January 1, 2013.  Franchisee sales activity is comprised of new franchise agreements as well as growth acquired by existing franchisees with our assistance.  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, 2013.

(g)  Incremental borrowing costs incurred as a result of the securitization facilities refinancing for the twelve months ended December 31, 2013.

(h)  Represents total borrowings under the senior secured credit facility and borrowings secured by a first priority lien on our assets of $2,498 million plus $19 million of capital lease obligations less $171 million of readily available cash as of December 31, 2013.  Pursuant to the terms of our senior secured credit facility, total senior secured net debt does not include the First and a Half Lien Notes, other indebtedness secured by a lien on our assets that is pari passu or junior in priority to the First and a Half Lien Notes, our securitization obligations or unsecured indebtedness, including the 3.375% Senior Notes.

 

Table 7

REALOGY HOLDINGS CORP.
EBITDA AND ADJUSTED EBITDA
THREE MONTHS ENDED MARCH 31 
(In millions)

 

Set forth in the table below is a reconciliation of net loss attributable to Realogy Group to Adjusted EBITDA for the three-month periods ended March 31, 2014 and 2013:

   
 

Three Months Ended

 

March 31,
 2014

 

March 31,
 2013

Net loss attributable to Realogy

$

(46)

   

$

(75)

 

Income tax (benefit) expense

(34)

   

7

 

Loss before income taxes

(80)

   

(68)

 

Interest expense, net

70

   

89

 

Depreciation and amortization

46

   

42

 

EBITDA

36

   

63

 

Former parent legacy costs, net

1

   

1

 

Loss on the early extinguishment of debt

10

   

3

 

Non-cash charges

2

   

(2)

 

Pro forma effect of business optimization initiatives

2

   

4

 

Pro forma effect of acquisitions and new franchisees

1

   

1

 

Incremental securitization interest costs

1

   

1

 

Adjusted EBITDA

53

   

71

 

 

Table 8

REALOGY HOLDINGS CORP.
FREE CASH FLOW

 

A reconciliation of net loss attributable to Realogy Holdings to free cash flow is set forth in the following table:

   
 

For the three months ended

 

March 31, 2014

 

($ in millions)

 

($ per share)

Net loss attributable to Realogy Holdings / Basic loss per share

$

(46)

   

$

(0.32)

 

Income tax benefit, net of payments

(36)

   

(0.25)

 

Interest expense, net

70

   

0.48

 

Cash interest payments

(88)

   

(0.60)

 

Depreciation and amortization

46

   

0.32

 

Capital expenditures

(13)

   

(0.09)

 

Restructuring costs and legacy, net of payments

(1)

   

(0.01)

 

Loss on the early extinguishment of debt

10

   

0.07

 

Working capital adjustments

(58)

   

(0.40)

 

Relocation assets, net of securitization

(65)

   

(0.44)

 

Free Cash Flow / Cash Loss Per Share

$

(181)

   

$

(1.24)

 
           

Basic weighted average number of common shares outstanding (in millions)

     

145.8

 

Table 9

Non-GAAP Definitions

EBITDA is defined by us as net income (loss) before depreciation and amortization, interest expense, net (other than relocation services interest for securitization assets and securitization obligations) and income taxes. Adjusted EBITDA calculated for a twelve-month period is presented to demonstrate our compliance with the senior secured leverage ratio covenant in the senior secured credit facility. Adjusted EBITDA calculated for a twelve-month period 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. Adjusted EBITDA includes adjustments to EBITDA for restructuring costs, former parent legacy cost (benefit) items, net, loss on the early extinguishment of debt, non-cash charges, non-recurring fair value adjustments for purchase accounting, fees for the secondary equity offerings and incremental securitization interest costs, as well as pro forma cost savings for restructuring initiatives, the pro forma effect of business optimization initiatives and the pro forma effect of acquisitions and new franchisees, in each case calculated as of the beginning of the twelve-month period. Adjusted EBITDA calculated for a three-month period adjusts for the same items as for a twelve-month period, except that the pro forma effect of cost savings, business optimizations and acquisitions and new franchisees are calculated as of the beginning of the three-month period instead of the twelve-month period.
We present EBITDA and Adjusted EBITDA because we believe EBITDA and Adjusted EBITDA are useful as supplemental measures in evaluating the performance of our operating businesses and provide greater transparency into our results of operations. Our management, including our chief operating decision maker, uses EBITDA as a factor in evaluating the performance of our business. EBITDA 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.
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 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 Adjusted EBITDA have limitations as analytical tools, and you should not consider EBITDA or Adjusted EBITDA either in isolation or as substitutes for analyzing our results as reported under GAAP. Some of these limitations are:

  • these measures do not reflect changes in, or cash required 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 may calculate these measures differently so they may not be comparable.

In addition to the limitations described above, Adjusted EBITDA includes pro forma cost savings, the pro forma effect of business optimization initiatives and the pro forma full period effect of acquisitions and new franchisees. These adjustments may not reflect the actual cost savings or pro forma effect recognized in future periods.

Free Cash Flow is defined as net income (loss) attributable to Realogy before income tax (benefit) expense, net of payments, interest expense, net, depreciation and amortization, capital expenditures, restructuring costs and former parent legacy costs (benefits), net of payments, loss on the early extinguishment of debt, working capital adjustments and relocation assets, net of change in securitization obligations. Cash Earnings Per Share is defined as Free Cash Flow divided by the weighted average basic shares outstanding. We use Free Cash Flow and Cash Earnings Per Share in our internal evaluation of operating effectiveness and decisions regarding the allocation of resources. Free Cash Flow and Cash Earnings Per Share are not defined by GAAP and should not be considered in isolation or as an alternative to net income (loss), net cash provided by (used in) operating, investing and financing activities or other financial data prepared in accordance with GAAP or as an indicator of the Company's operating performance. Free Cash Flow and Cash Earnings Per Share may differ from similarly titled measures presented by other companies.

SOURCE Realogy Holdings Corp.


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