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Realogy Group LLC – ‘10-Q’ for 6/30/08

On:  Tuesday, 8/12/08, at 1:25pm ET   ·   For:  6/30/08   ·   Accession #:  1193125-8-174562   ·   File #:  333-148153

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 8/12/08  Realogy Group LLC                 10-Q        6/30/08   12:2.5M                                   RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report for the Period Ended June 30,      HTML   1.45M 
                          2008                                                   
 2: EX-4.1      Supplemental Indenture No. 5 Dated as of May 12,    HTML     38K 
                          2008                                                   
 3: EX-4.2      Supplemental Indenture No. 5 Dated as of May 12,    HTML     38K 
                          2008                                                   
 4: EX-4.3      Supplemental Indenture No. 5 Dated as of May 12,    HTML     38K 
                          2008                                                   
 5: EX-4.4      Supplemental Indenture No. 6 Dated as of June 4,    HTML     38K 
                          2008                                                   
 6: EX-4.5      Supplemental Indenture No. 6 Dated as of June 4,    HTML     38K 
                          2008                                                   
 7: EX-4.6      Supplemental Indenture No. 6 Dated as of June 4,    HTML     38K 
                          2008                                                   
 8: EX-10.1     Deed of Amendment, Dated May 12, 2008               HTML    586K 
 9: EX-10.2     Amendment Executed July 8, 2008 and Effective as    HTML     37K 
                          of July 28, 2006                                       
10: EX-31.1     Certification of the Chief Executive Officer        HTML     15K 
                          Pursuant to Section 302                                
11: EX-31.2     Certification of the Chief Financial Officer        HTML     15K 
                          Pursuant to Section 302                                
12: EX-32       Certification Pursuant to 18 Usc Section 1350       HTML     11K 

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2008

OR

For the transition period from                      to                     

Commission File No. 333-148153

REALOGY CORPORATION

(Exact name of registrant as specified in its charter)

(973) 407-2000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares outstanding of the registrant’s common stock, $0.01 par value, as of August 8, 2008 was 100.

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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 that 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 or other public statements. These forward-looking statements are based on various facts and were derived utilizing numerous important assumptions and other important factors, and changes in such facts, assumptions or factors 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,” “hope,” “may fluctuate,” and similar expression 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 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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Other factors not identified above, including the risk factors described under the headings “Forward-Looking Statements” and “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2007 (the “2007 Form 10-K”) filed with the Securities and Exchange Commission (“SEC”), may also cause actual results to differ materially from those projected by our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our control.

You should consider the areas of risk described above, as well as those set forth under the heading “Risk Factors” in the 2007 Form 10-K and this report, 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. For any forward-looking statement contained in our public filings or other public statements, 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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder of Realogy Corporation

Parsippany, New Jersey

We have reviewed the accompanying condensed consolidated balance sheet of Realogy Corporation (the “Company”) as of June 30, 2008 (successor), and the related condensed consolidated statements of operations for the three-month and six-month periods ended June 30, 2008 (successor), the period from April 10, 2007 to June 30, 2007 (successor), the period from April 1, 2007 to April 9, 2007 (predecessor) and the period from January 1, 2007 to April 9, 2007 (predecessor) and cash flows for the six-month period ended June 30, 2008 (successor), the period from April 10, 2007 to June 30, 2007 (successor), and the period from January 1, 2007 to April 9, 2007 (predecessor). These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), 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 condensed consolidated interim 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 the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2007 (successor), and the related combined statements of operations, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 19, 2008, we expressed an unqualified opinion on those consolidated financial statements and included explanatory paragraphs related to the fact that (i) as discussed in Note 1 to the consolidated and combined financial statements, prior to its separation from Cendant Corporation (“Cendant”), the Company was comprised of the assets and liabilities used in managing and operating the real estate services businesses of Cendant, (ii) included in Notes 14 and 15 of the consolidated and combined financial statements is a summary of transactions with related parties, (iii) as discussed in Note 15 to the consolidated and combined financial statements, in connection with its separation from Cendant, the Company entered into certain guarantee commitments with Cendant and has recorded the fair value of these guarantees as of July 31, 2006, (iv) as discussed in Note 1 to the consolidated and combined financial statements, effective April 10, 2007, the Company was acquired through a merger in a business combination accounted for as a purchase, and (v) as discussed in Note 2 to the consolidated and combined financial statements, effective January 1, 2007, the Company adopted FASB Interpretation 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement 109. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2007 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Deloitte and Touche LLP

Parsippany, New Jersey

August 12, 2008

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REALOGY CORPORATION AND THE PREDECESSOR

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions)

(Unaudited)

See Notes to Condensed Consolidated Financial Statements.

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REALOGY CORPORATION AND THE PREDECESSOR

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions)

(Unaudited)

See Notes to Condensed Consolidated Financial Statements.

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REALOGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

See Notes to Condensed Consolidated Financial Statements.

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REALOGY CORPORATION AND THE PREDECESSOR

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

See Notes to Condensed Consolidated Financial Statements.

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REALOGY CORPORATION AND THE PREDECESSOR

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise noted, all amounts are in millions)

(Unaudited)

Realogy Corporation (“Realogy” or “the Company”), a Delaware corporation, was incorporated on January 27, 2006 to facilitate a plan by Cendant Corporation (“Cendant”) to separate Cendant into four independent companies—one for each of Cendant’s real estate services, travel distribution services (“Travelport”), hospitality services (including timeshare resorts) (“Wyndham Worldwide”), and vehicle rental businesses (“Avis Budget Group”). Prior to July 31, 2006, the assets of the real estate services businesses of Cendant were transferred to Realogy and on July 31, 2006, Cendant distributed all of the shares of the Company’s common stock held by it to the holders of Cendant common stock issued and outstanding on the record date for the distribution, which was July 21, 2006 (the “Separation”). The Separation was effective on July 31, 2006.

On December 15, 2006, the Company entered into an agreement and plan of merger with Domus Holdings Corp. (“Holdings”) and Domus Acquisition Corp., which are affiliates of Apollo Management VI, L.P., an entity affiliated with Apollo Management, L.P. (“Apollo”). In connection with the merger agreement, Holdings established a direct wholly owned subsidiary, Domus Intermediate Holdings Corp. (“Intermediate”), to hold all of Realogy’s issued and outstanding common stock acquired by Holdings in the merger of Domus Acquisition Corp. with and into Realogy with Realogy being the surviving entity (the “Merger”). The Merger was consummated on April 10, 2007.

The Company incurred indebtedness in connection with the Merger, the aggregate proceeds of which were sufficient to pay the aggregate Merger consideration, repay a portion of the Company’s then outstanding indebtedness and pay fees and expenses related to the Merger. See Note 6 “Short and Long Term Debt” for additional information on the indebtedness incurred related to the Merger and for additional information related to the Company’s senior secured leverage ratio that it is required to maintain. In addition, investment funds affiliated with Apollo and an investment fund of co-investors managed by Apollo as well as members of the Company’s management who purchased Holdings common stock with cash or through rollover equity contributed $2,001 million to the Company to complete the Merger. We also refinanced the credit facilities covering our relocation securitization facilities (“the Securitization Facilities Refinancing”). The term “Transactions” refers to, collectively, (1) the Merger, (2) the offering of the notes, (3) the initial borrowings under our senior secured credit facility, including our synthetic letter of credit facility, (4) the equity investment, and (5) the Securitization Facilities Refinancings.

Although Realogy continues as the same legal entity after the Merger, the accompanying Condensed Consolidated Statements of Operations and Cash Flows for 2007 are presented for two periods: January 1, 2007 through April 9, 2007 (the “Predecessor Period” or “Predecessor,” as context requires) and April 10, 2007 through June 30, 2007 (the “Successor Period” or “Successor,” as context requires), which relate to the periods preceding and succeeding the Merger, respectively. The results of the Successor Period are not comparable to the results of the Predecessor Period due to the difference in the basis of presentation of purchase accounting as compared to historical cost as well as the effect of the Transactions.

The accompanying Condensed Consolidated Financial Statements of the Company and its Predecessor have been prepared in accordance with accounting principles generally accepted in the United States of America and with Article 10 of Regulation S-X. In the Company’s opinion, the accompanying Condensed Consolidated Financial Statements reflect all normal and recurring adjustments necessary to present fairly our financial position as of June 30, 2008 and December 31, 2007, and the results of our operations and cash flows for the periods presented herein. Interim results may not be indicative of fiscal year performance because of seasonal and short-term variations. We have eliminated all intercompany transactions and balances between entities consolidated in these financial statements.

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These interim Condensed Consolidated Financial Statements of the Company and its Predecessor should be read in conjunction with the Consolidated and Combined Financial Statements of the Company and its Predecessor for the fiscal year ended December 31, 2007 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

In presenting the Condensed Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ materially from those estimates.

Business Description

The Company reports its operations in the following business segments:

Purchase Price Allocation

We accounted for the Merger in accordance with the provisions of Statement of Financial Accounting Standard (“SFAS”) No. 141, “Business Combinations”, whereby the purchase price paid to effect the Merger is allocated to recognize the acquired assets and liabilities at fair value. The purchase price of $6,761 million included the purchase of 217.8 million shares of outstanding common stock, the settlement of outstanding stock-based awards and $68 million in direct acquisition costs.

In accordance with the provisions of SFAS No. 141, the total purchase price was allocated to the Company’s net tangible and identifiable intangible assets based on their estimated fair values as set forth below. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill. The following table summarizes the fair values of the assets acquired and liabilities assumed:

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Pro Forma Financial Information

The Company’s pro forma results of operations for the six months ended June 30, 2007, assuming that the Merger occurred as of January 1, 2007, results in revenues of $3.2 billion and a net loss of $0.5 billion. This pro forma information should not be relied upon as indicative of the historical results that would have been obtained if the Merger had actually occurred at the beginning of each period presented, or of the results that may be obtained in the future. The pro forma adjustments include the effect of purchase accounting adjustments, depreciation and amortization, interest expense and related tax effects.

Impairment of Goodwill and Other Indefinite Life Intangibles

In connection with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company is required to assess goodwill and other indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. The Company performs its required annual impairment testing as of October 1^st of each year subsequent to completing its annual forecasting process. During the fourth quarter of 2007, the Company performed its annual impairment review of goodwill and unamortized intangible assets. This review resulted in an impairment charge for the year ended December 31, 2007 of $667 million ($445 million net of income tax benefit). The impairment charge reduced intangible assets by $550 million and reduced goodwill by $117 million. The Company continues to assess events and circumstances that would indicate an impairment has occurred given the current state of the housing market. The Company believes that no events or circumstances have occurred during the six months ended June 30, 2008 that would require the Company to reassess goodwill and other intangible assets for impairment.

Derivative Instruments

The Company accounts for derivatives and hedging activities in accordance with SFAS No. 133, “Accounting for Derivative Investments and Hedging Activities,” as amended (“SFAS No. 133”), which requires that all derivative instruments be recorded on the balance sheet at their respective fair values. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument is dependent upon whether the derivative has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship.

The Company uses foreign currency forward contracts largely to manage its exposure to changes to foreign currency exchange rates associated with its foreign currency denominated receivables and payables. The Company primarily manages its foreign currency exposure to the British Pound, Euro, Hong Kong Dollar and Swiss Franc. In accordance with SFAS No. 133, the Company has chosen not to elect hedge accounting for these forward contracts; therefore, any change in fair value is recorded in the Condensed Consolidated Statements of Operations. The fluctuations in the value of these forward contracts do, however, generally offset the impact of changes in the value of the underlying risk that they are intended to economically hedge.

On May 1, 2007, the Company entered into several floating to fixed interest rate swaps with varying expiration dates with an aggregate notional value of $775 million to hedge the variability in cash flows resulting from the term loan facility entered into on April 10, 2007. The Company is utilizing pay-fixed interest rate (and receives 3-month LIBOR) swaps to perform this hedging strategy. The derivatives are being accounted for as cash flow hedges in accordance with SFAS No. 133 and the unfavorable fair market value of the swaps of $12 million, net of income taxes, is recorded in Accumulated Other Comprehensive Loss at June 30, 2008.

Financial Instruments

Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value and expands disclosures about the use of fair value measurements. In accordance with Financial Accounting Standards Board Staff Position

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FAS No. 157-2, “Effective Date of FASB Statement No. 157,” the Company deferred the adoption of SFAS No. 157 for the Company’s nonfinancial assets and nonfinancial liabilities, except those items recognized or disclosed at fair value on an annual or more frequently recurring basis, until January 1, 2009. The partial adoption of SFAS No. 157 did not have a material impact on the Company’s fair value measurements.

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value.

The following table summarizes fair value measurements by level at June 30, 2008 for assets/liabilities measured at fair value on a recurring basis:

The following table summarizes the carrying amount of the Company’s indebtedness compared to the estimated fair value at June 30, 2008:

The fair value of financial instruments is generally determined by reference to quoted market values. In cases where quoted market prices are not available, fair value is based on estimates using present value or other valuation techniques, as appropriate. The carrying amounts of cash and cash equivalents, trade receivables, relocation receivables, relocation properties held for sale, accounts payable and accrued liabilities and other current liabilities approximate fair value due to the short-term maturities of these assets and liabilities.

Defined Benefit Pension Plan

The net periodic pension benefit for both the three months ended June 30, 2008 and 2007 was less than $1 million and is comprised of a benefit of $2 million for the expected return on assets offset by interest cost of approximately $2 million.

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Recently Issued Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”), which provides guidance for using fair value to measure assets and liabilities, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years. In February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157,” which delayed for one year the applicability of SFAS No. 157’s fair value measurements to certain nonfinancial assets and liabilities. The Company adopted SFAS No. 157 on January 1, 2008, except as it applies to those nonfinancial assets and liabilities affected by the one-year delay. The partial adoption of SFAS No. 157 did not have a material impact on the Company’s consolidated financial position or results of operations. The Company is currently evaluating the potential impact of adopting the remaining provisions of SFAS No. 157 on its consolidated financial position and results of operations.

In December 2007, the FASB issued SFAS No. 141(R) “Business Combinations” (“SFAS No. 141(R)”) and SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 141(R) and SFAS No. 160 introduced significant changes in the accounting for and reporting of business acquisitions and noncontrolling interests in a subsidiary. These pronouncements are effective for business acquisitions consummated after the fiscal year beginning on or after December 15, 2008. In addition, SFAS No. 160 requires retrospective application to the presentation and disclosure for all periods presented in the financial statements. The Company intends to adopt these pronouncements on January 1, 2009 and is currently evaluating the impact on the consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). The new standard is intended to improve financial reporting of derivative instruments and hedging activities by requiring enhanced disclosures enabling investors to better understand their effects on an entity’s financial condition, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. SFAS No. 161 will impact disclosures only and will not have an impact on the Company’s consolidated financial condition, results of operations or cash flows.

In April 2008, The FASB issued Staff Position No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”). This FSP allows an entity to use its own assumption or historical experience about renewal or extension of an arrangement for a recognized intangible asset when determining the useful life of the asset, even when there is likely to be substantial cost or material modifications to the arrangement. In the absence of past experience, the entity shall consider the assumptions that market participants would use about renewal and extension and adjust for the entity-specific factors. The FSP is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. The Company intends to adopt the guidance on January 1, 2009 and is currently evaluating the impact on the consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). The guidance addresses the sources of generally accepted accounting principles (“GAAP”) by grouping them into four descending categories. It provides the framework for selecting the principles used in the preparation of financial statements of non-governmental entities that are presented in conformity with the US GAAP. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. It is expected that SFAS No. 162 will not impact the Company’s consolidated financial condition, results of operations or cash flows.

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Comprehensive loss consisted of the following:

The Company does not provide for income taxes for foreign currency translation adjustments related to investments in foreign subsidiaries where the Company intends to reinvest the undistributed earnings indefinitely in those foreign operations.

Assets acquired and liabilities assumed in business combinations were recorded in the Company’s Consolidated Balance Sheets as of the respective acquisition dates based upon their estimated fair values at such dates. The results of operations of businesses acquired by the Company have been included in the Company’s Consolidated Statements of Operations since their respective dates of acquisition. The Company is also in the process of integrating the operations of its acquired businesses and expects to incur costs relating to such integrations. These costs may result from integrating operating systems, relocating employees, closing facilities, reducing duplicative efforts and exiting and consolidating other activities. These costs will be recorded in the Company’s Consolidated Balance Sheets as adjustments to the purchase price or in the Company’s Consolidated Statements of Operations as expenses, as appropriate.

In connection with the Company’s acquisition of real estate brokerage operations, the Company obtains contractual pendings and listings intangible assets, which represent the estimated fair values of homesale transactions that are pending closing or homes listed for sale by the acquired brokerage operations. Pendings and listings intangible assets are amortized over the estimated closing period of the underlying contracts and homes listed for sale, which in most cases, is approximately five months.

For the six months ended June 30, 2008 and the periods April 10, 2007 through June 30, 2007 and January 1, 2007 through April 9, 2007, the Company made earnout payments for previously acquired businesses of $4 million, less than $1 million and $18 million, respectively.

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2008 ACQUISITIONS

During the six months ended June 30, 2008, the Company acquired four real estate brokerage operations through its wholly-owned subsidiary, NRT, for approximately $2 million of cash, in the aggregate, which resulted in goodwill (based on the preliminary allocation of the purchase price) of less than $2 million that was assigned to the Company Owned Real Estate Brokerage Services segment.

2007 ACQUISITIONS

During the period April 10, 2007 to June 30, 2007, the Company acquired four real estate brokerage operations through its wholly-owned subsidiary, NRT, for $4 million of cash, in the aggregate, which resulted in goodwill of $3 million that was assigned to the Company Owned Real Estate Brokerage Services segment. During the period January 1, 2007 to April 9, 2007, the Company acquired three real estate brokerage operations through its wholly-owned subsidiary, NRT, for $1 million of cash, in the aggregate, which resulted in goodwill of less than $1 million that was assigned to the Company Owned Real Estate Brokerage Services segment.

In May 2007, the Company also acquired a Canadian real estate franchise operation through its Real Estate Franchise Services segment for $13 million in cash which resulted in goodwill of $4 million.

None of the 2008 or 2007 acquisitions were significant to the Company’s results of operations, financial position or cash flows individually or in the aggregate.

Intangible assets consisted of:

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