SOURCE: Realogy Corporation

Realogy Corporation

August 03, 2011 07:00 ET

Realogy Reports Results for Second Quarter 2011

Real Estate Leader Posts Net Revenue of $1.2 Billion

PARSIPPANY, NJ--(Marketwire - Aug 3, 2011) - Realogy Corporation, a global leader in real estate and relocation services, today reported results for the second quarter ended June 30, 2011. Realogy's net revenue for the second quarter was $1.2 billion, a decrease of 6% compared to the second quarter of 2010. This was largely attributable to a decrease in transaction volume in the franchised and company-owned real estate services segments in line with reported industry trends. EBITDA before restructuring and other items for the quarter was $178 million, a decrease of $56 million, or 24%, year-over-year. Realogy's reported EBITDA for the quarter was $187 million. For the quarter, Realogy recorded a net loss attributable to the Company of $22 million.

"We had anticipated that the first quarter weakness in home sales would continue into the second quarter of 2011 and that Realogy's average homesale price would increase compared to the second quarter of 2010, both of which happened as expected," said Richard A. Smith, Realogy's chief executive officer. "The comparative weakness in the second quarter of 2011 was primarily related to the unfavorable year-over-year comparisons to the second quarter of 2010, which experienced a significant spike in unit sales directly related to the Homebuyer Tax Credit. Sluggish macroeconomic conditions such as weak GDP growth, continued high unemployment rates and low consumer confidence also contributed to a suppressed demand for housing this past quarter."

Looking at Realogy's core business drivers, Realogy Franchise Group (RFG) and NRT, the company-owned brokerage unit, both had year-over-year 13% decreases in the number of homesale sides. These results were consistent with the 13% decrease in nationwide existing homesale units reported by the National Association of Realtors (NAR) for the quarter. The decline in sides at Realogy was partially offset by increases at both RFG and NRT in average sales price. Both NRT and RFG outperformed the national market in terms of average sales price. The average homesale price increased 2% at RFG and 5% at NRT in the second quarter of 2011, compared to the flat average home price reported by NAR for the quarter. Cartus experienced a 1% increase in relocation initiations with a 7% decrease in broker referrals, while Title Resource Group experienced a 4% increase in refinance title and closing units and a 4% increase in the average price per closing unit, which partially offset a 13% decrease in purchase title and closing units. The decrease in Cartus broker referrals and TRG purchase units was directly correlated to the downward national trend in existing homesale units in the second quarter.

"Looking ahead to the third quarter of 2011, the results we experienced in July indicate strong increases in homesale sides and average sales price to be flat on a comparative basis to third quarter 2010," said Anthony E. Hull, Realogy's chief financial officer. "The gains in unit sales anticipated in Q3 2011 are again a reflection of the impact of the 2010 Homebuyer Tax Credit, which caused homesales to drop dramatically in Q3 2010 -- thus the difference in year-over-year swings between the second and third quarters. Although we expect the third quarter of 2011 to show year-over-year improvement, we do not believe it will be as significant as we had anticipated earlier in the year because of a stalling economy and regulatory and legislative risks that seem to be delaying or dampening further improvement in the housing market."

Balance Sheet Information and Covenant Compliance as of June 30, 2011

The Company ended the quarter with $117 million of readily available cash and $180 million outstanding on its revolving credit facility under its senior secured credit agreement. The Company expects approximately two-thirds of these borrowings to be repaid by the end of the third quarter.

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

As of June 30, 2011, the Company's senior secured leverage ratio (SSLR) was 4.38 to 1, which is below the 4.75 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 $2.5 billion at June 30, 2011 by the Company's Adjusted EBITDA of $578 million for the 12 months ended June 30, 2011. (Please see Table 8 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 second quarter 2011 results on August 3 at 10:00 a.m. (EDT). 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, together with corresponding slides, will be made available live via Webcast on the Investor Information section of the Realogy website. A replay of the Webcast also will be available on the website from August 4 through August 11.

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 system members operate approximately 14,400 offices with 256,000 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 homesales 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; seasonal fluctuations in the residential real estate brokerage business; 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 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 Prospectus dated June 16, 2011 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 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.

Table 1
REALOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions)
Three Months Ended Six Months Ended
June 30, June 30,
2011 2010 2011 2010
Revenues
Gross commission income $ 873 $ 941 $ 1,448 $ 1,529
Service revenue 192 185 356 321
Franchise fees 70 81 121 136
Other 44 46 85 86
Net revenues 1,179 1,253 2,010 2,072
Expenses
Commission and other agent-related costs 577 612 951 989
Operating 317 310 635 610
Marketing 54 50 97 96
General and administrative 56 57 127 135
Former parent legacy costs (benefit), net (12 ) (314 ) (14 ) (309 )
Restructuring costs 3 4 5 10
Depreciation and amortization 47 49 93 99
Interest expense/(income), net 161 155 340 307
Loss on the early extinguishment of debt - - 36 -
Other (income)/expense, net - (3 ) - (6 )
Total expenses 1,203 920 2,270 1,931
Income (loss) before income taxes, equity in earnings and noncontrolling interests (24 ) 333 (260 ) 141
Income tax expense 1 118 2 124
Equity in earnings of unconsolidated entities (4 ) (8 ) (4 ) (9 )
Net income (loss) (21 ) 223 (258 ) 26
Less: Net income attributable to noncontrolling interests (1 ) (1 ) (1 ) (1 )
Net income (loss) attributable to Realogy $ (22 ) $ 222 $ (259 ) $ 25
Table 2
REALOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
June 30, December 31,
2011 2010
ASSETS
Current assets:
Cash and cash equivalents $ 154 $ 192
Trade receivables (net of allowance for doubtful accounts of $66 and $67) 149 114
Relocation receivables 428 386
Relocation properties held for sale 19 21
Deferred income taxes 68 76
Other current assets 104 109
Total current assets 922 898
Property and equipment, net 174 186
Goodwill 2,612 2,611
Trademarks 732 732
Franchise agreements, net 2,875 2,909
Other intangibles, net 461 478
Other non-current assets 204 215
Total assets $ 7,980 $ 8,029
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 199 $ 203
Securitization obligations 328 331
Due to former parent 80 104
Revolving credit facilities and current portion of long-term debt 294 194
Accrued expenses and other current liabilities 519 525
Total current liabilities 1,420 1,357
Long-term debt 6,839 6,698
Deferred income taxes 880 883
Other non-current liabilities 157 163
Total liabilities 9,296 9,101
Commitments and contingencies
Equity (deficit):
Realogy common stock: $.01 par value, 100 shares authorized, issued and outstanding
-

-
Additional paid-in capital 2,030 2,026
Accumulated deficit (3,329 ) (3,070 )
Accumulated other comprehensive loss (18 ) (30 )
Total Realogy stockholder's deficit (1,317 ) (1,074 )
Noncontrolling interests 1 2
Total equity (deficit) (1,316 ) (1,072 )
Total liabilities and equity (deficit) $ 7,980 $ 8,029
Table 3
REALOGY CORPORATION
2011 KEY DRIVERS
Three Months Ended June 30, Six Months Ended June 30,
2011 2010 % Change 2011 2010 % Change
Real Estate Franchise Services (a)
Closed homesale sides 251,045 288,479 (13 %) 435,688 481,820 (10 %)
Average homesale price $ 202,045 $ 197,637 2 % $ 198,513 $ 193,962 2 %
Average homesale broker commission rate 2.55 % 2.54 % 1 bps 2.55 % 2.54 % 1 bps
Net effective royalty rate 4.83 % 5.04 % (21 bps) 4.85 % 5.04 % (19 bps)
Royalty per side $ 258 $ 261 (1 %) $ 255 $ 258 (1 %)
Company Owned Real Estate Brokerage Services
Closed homesale sides 73,061 83,583 (13 %) 124,261 136,115 (9 %)
Average homesale price $ 445,550 $ 424,442 5 % $ 432,618 $ 421,872 3 %
Average homesale broker commission rate 2.49 % 2.49 % - bps 2.49 % 2.49 % - bps
Gross commission income per side $ 11,931 $ 11,247 6 % $ 11,625 $ 11,214 4 %
Relocation Services
Initiations 46,433 46,189 1 % 81,541 78,618 4 %
Referrals 20,282 21,770 (7 %) 33,095 33,879 (2 %)
Title and Settlement Services
Purchase title and closing units 26,219 30,133 (13 %) 45,190 50,080 (10 %)
Refinance title and closing units 10,840 10,378 4 % 27,666 22,313 24 %
Average price per closing unit $ 1,525 $ 1,472 4 % $ 1,457 $ 1,419 3 %
(a) Includes all franchisees except for our Company Owned Real Estate Brokerage Services segment.
Table 4
REALOGY CORPORATION
2010 KEY DRIVERS
Quarter Ended Year Ended
March 31, June 30, September 30, December 31, December 31,
2010 2010 2010 2010 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 periods ended March 31, June 30, September 30, and December 31, 2010, respectively, related to the Primacy acquisition on January 21, 2010.
(c) Includes referrals of 716, 1,527, 1,513 and 1,241 for the periods ended March 31, June 30, September 30, and December 31, 2010, respectively, related to the Primacy acquisition on January 21, 2010.
Table 5a
REALOGY CORPORATION
SELECTED 2011 FINANCIAL DATA
(In millions)




For the Three
Months ended
March 31, 2011
For the Three
Months ended
June 30, 2011
Revenue (a)
Real Estate Franchise Services $ 118 $ 160
Company Owned Real Estate
Brokerage Services 587 884
Relocation Services 87 110
Title and Settlement Services 83 90
Corporate and Other (44 ) (65 )
Total Company $ 831 $ 1,179
EBITDA (b)
Real Estate Franchise Services $ 62 $ 97
Company Owned Real Estate
Brokerage Services (37 ) 48
Relocation Services 10 32
Title and Settlement Services 2 12
Corporate and Other (48 ) (2 )
Total Company $ (11 ) $ 187
Depreciation and amortization 46 47
Interest expense, net 179 161
Income tax expense 1 1
Net loss attributable to Realogy $ (237 ) $ (22 )
(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 $44 million and $65 million for the three months ended March 31, 2011 and June 30, 2011, respectively. Such amounts are eliminated through the Corporate and Other line. Revenues for the Relocation Services segment include $7 million and $11 million of intercompany referral and relocation fees paid by the Company Owned Real Estate Brokerage Services segment during the three months ended March 31, 2011 and June 30, 2011, respectively. Such amounts are recorded as contra-revenues by the Company Owned Real Estate Brokerage Services segment. There are no other material inter-segment transactions.
(b) Includes $2 million of restructuring costs and $36 million related to loss on the early extinguishment of debt, partially offset by $2 million of former parent legacy benefits for the three months ended March 31, 2011, $3 million of restructuring costs offset by a net benefit of $12 million o former parent legacy items for the three months ended June 30, 2011 broken down by business units as follows:
For the Three
Months ended
March 31, 2011
For the Three
Months ended
June 30, 2011
Real Estate Franchise Services $ - $ -
Company Owned Real Estate
Brokerage Services 2 2
Relocation Services - -
Title and Settlement Services - 1
Corporate and Other 34 (12 )
Total Company $ 36 $ (9 )

EBITDA by segment before restructuring and other items detailed above for the three months ended March 31, 2011 was: RFG $62 million, NRT ($35) million, Cartus $10 million, TRG $2 million and Corporate ($14) million. EBITDA by segment before restructuring and other items detailed above for the three months ended June 30, 2011 was: RFG $97 million, NRT $50 million, Cartus $32 million, TRG $13 million and Corporate ($14) million.

Table 5b
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.

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 twelve months ended June 30, 2011 is set forth in the following table:

Year
Ended
December 31,
2010

Less
Six Months
Ended
June 30,
2010

Equals
Six Months
Ended
December 31,
2010

Plus
Six Months
Ended
June 30,
2011

Equals
Twelve Months
Ended
June 30,
2011
Net income (loss) attributable to Realogy $ (99 ) $ 25 $ (124 ) $ (259 ) $ (383 ) (a )
Income tax expense 133 124 9 2 11
Income (loss) before income taxes 34 149 (115 ) (257 ) (372 )
Interest expense, net 604 307 297 340 637
Depreciation and amortization 197 99 98 93 191
EBITDA 835 555 280 176 456 (b )
Covenant calculation adjustments:
Restructuring costs, merger costs and former parent legacy cost (benefit) items, net (c) (11 )
Pro forma cost-savings for 2011 restructuring initiatives (d) 8
Pro forma cost-savings for 2010 restructuring initiatives (e) 7
Pro forma effect of business optimization initiatives (f) 48
Non-cash charges (g) 3
Non-recurring fair value adjustments for purchase accounting (h) 4
Pro forma effect of acquisitions and new franchisees (i) 10
Apollo management fees (j) 15
Incremental securitization interest costs (k) 2
Loss on the early extinguishment of debt 36
Adjusted EBITDA $ 578
Total senior secured net debt (l) $ 2,530
Senior secured leverage ratio 4.38x

(a) Net loss attributable to Realogy consists of: (i) a loss of $33 million for the third quarter of 2010; (ii) a loss of $91 million for the fourth quarter of 2010; (iii) a loss of $237 million for the first quarter of 2011 and (iv) a loss of $22 million for the second quarter of 2011.
(b) EBITDA consists of: (i) $177 million for the third quarter of 2010; (ii) $103 million for the fourth quarter of 2010; (iii) negative $11 million for the first quarter of 2011 and (iv) $187 million for the second quarter of 2011.
(c) Consists of $16 million of restructuring costs and $1 million of merger costs offset by a net benefit of $28 million for former parent legacy items.
(d) Represents actual costs incurred that are not expected to recur in subsequent periods due to restructuring activities initiated during the first six months of 2011. From this restructuring, we expect to reduce our operating costs by approximately $10 million on a twelve-month run-rate basis and estimate that $2 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 July 1, 2010 through the time they were put in place had those actions been effected on July 1, 2010.
(e) Represents actual costs incurred that are not expected to recur in subsequent periods due to restructuring activities initiated during the year ended December 31, 2010. From this restructuring, we expect to reduce our operating costs by approximately $20 million on a twelve-month run-rate basis and estimate that $13 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 July 1, 2010 through the time they were put in place had those actions been effected on July 1, 2010.
(f) Represents the twelve-month pro forma effect of business optimization initiatives that have been completed to reduce costs, including $5 million related to our Relocation Services integration costs, new business start-ups and acquisition related non-cash adjustments, $4 million related to vendor renegotiations, $32 million for employee retention accruals and $7 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.
(g) Represents the elimination of non-cash expenses, including $7 million of stock-based compensation expense less $4 million for the change in the allowance for doubtful accounts and notes reserves from July 1, 2010 through June 30, 2011.
(h) Reflects the adjustment for the negative impact of fair value adjustments for purchase accounting at the operating business segments primarily related to deferred rent.
(i) Represents the estimated impact of acquisitions and new franchisees as if they had been acquired or signed on July 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 July 1, 2010.
(j) Represents the elimination of annual management fees payable to Apollo for the twelve months ended June 30, 2011.
(k) Incremental borrowing costs incurred as a result of the securitization facilities refinancing for the twelve months ended June 30, 2011.
(l) Represents total borrowings under the Senior Secured Credit Facility which are secured by a first priority lien on our assets of $2,635 million plus $12 million of capital lease obligations less $117 million of readily available cash as of June 30, 2011. Pursuant to the terms of the Senior Secured Credit Facility, senior secured net debt does not include First and a Half Lien Notes, Second Lien Loans, other bank indebtedness not secured by a first lien on our assets, securitization obligations or Unsecured Notes.

Table 7
Reconciliation of net loss attributable to Realogy to EBITDA and EBITDA before restructuring and other items (in millions)
A reconciliation of net loss attributable to Realogy to EBITDA and EBITDA before restructuring and other items for the second quarter and six months ended June 30, 2011 and 2010 is set forth in the following table:
Three Months Ended June 30,
2011 2010
Net income (loss) attributable to Realogy $ (22 ) $ 222
Income tax expense 1 118
Income (loss) before income taxes (21 ) 340
Interest expense, net 161 155
Depreciation and amortization 47 49
EBITDA $ 187 $ 544
Legacy costs (benefits), net (12 ) (314 )
Restructuring costs 3 4
Total restructuring and other items (9 ) (310 )
EBITDA before restructuring and other items $ 178 $ 234
Six Months Ended
June 30,
2011 2010
Net income (loss) attributable to Realogy $ (259 ) $ 25
Income tax expense 2 124
Income (loss) before income taxes (257 ) 149
Interest expense, net 340 307
Depreciation and amortization 93 99
EBITDA $ 176 $ 555
Legacy costs (benefits), net (14 ) (309 )
Restructuring costs 5 10
Loss on the early extinguishment of debt 36 -
Total restructuring and other items 27 (299 )
EBITDA before restructuring and other items $ 203 $ 256

Table 8

Definitions
EBITDA is defined by us as net income (loss) 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 loss on the early extinguishment of debt as described in Tables 6 and 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, uses 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 Tables 6 & 7 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. Some of these limitations are:

• 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.

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