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Previous: PENTAIR INC, 8-K, 1994-03-14 |
Next: PSI ENERGY INC, DEF 14C, 1994-03-14 |
<PAGE>
WASHINGTON D.C. 20549
---------------
FORM 10-Q
---------------
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended JANUARY 31, 1994
OR
--- TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ---------------------- to ---------------------
---------------
Commission File Number 0-1631-2
---------------
PHH CORPORATION
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-0551284
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
11333 McCormick Road, Hunt 21031
Valley, Maryland (Zip Code)
(Address of principal executive
offices)
(410) 771-3600
(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 or 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
Number of shares of PHH Corporation common stock outstanding on February 28,
1994 was 17,472,838.
Total number of pages -- 14
<PAGE>
PHH CORPORATION
INDEX
----------------------------------------------------------------
Page No.
---------
Part I. Financial Information:
Item 1 - Financial Statements
Consolidated Condensed
Statements of Income--Three Months
Ended and Nine Months Ended January
31, 1994 and 1993 3
Consolidated Condensed Balance
Sheets--January 31, 1994 and April
30, 1993 4
Consolidated Condensed
Statements of Cash Flows--Nine
Months Ended January 31, 1994 and
1993 5
Notes to Consolidated Condensed
Financial Statements 6
Item 2 - Management's Discussion and
Analysis of Financial Position and
Operations 7
Part II. Other Information
Item 6 - Exhibits and Reports on
Form 8-K 10
Index to Exhibits 11
Signatures 14
<PAGE>
PART I. FINANCIAL INFORMATION
PHH CORPORATION AND SUBSIDIARIES
--------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(thousands of dollars except per share data)
---------------
Three Months Nine Months
Ended January 31, Ended January 31,
1994 1993 1994 1993
------------------- --------------------
Revenues:
Vehicle management
services $281,080 $262,978 $ 859,062 $787,989
Relocation and real
estate services 194,212 194,925 619,299 623,763
------------------- --------------------
Mortgage banking
services 41,517 30,615 122,392 94,089
------------------- --------------------
516,809 488,518 1,600,753 1,505,841
------------------- --------------------
Operating expenses:
Direct costs of operating
leases 196,056 176,587 601,474 518,152
Costs, including
interest, of carrying and
reselling homes 170,233 175,030 547,895 553,901
Direct costs of mortgage
banking services 14,966 10,402 44,832 35,563
Interest 35,682 35,452 106,692 117,902
Selling, general and
administrative 73,024 66,600 219,139 212,266
------------------- --------------------
489,961 464,071 1,520,032 1,437,784
------------------- --------------------
Operating income 26,848 24,447 80,721 68,057
Other expense, net (520) (537) (1,520) (1,561)
------------------- --------------------
Income before income taxes 26,328 23,910 79,201 66,496
Income taxes 10,917 9,512 32,798 26,702
------------------- --------------------
Net income $15,411 $14,398 $46,403 $39,794
------------------- --------------------
------------------- --------------------
Net income per share $.87 $.83 $2.61 $2.30
------------------- --------------------
Note: Certain reclassifications have been made to the prior year amounts for
comparative purposes.
See accompanying notes.
<PAGE>
PHH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(thousands of dollars)
- ------------------------------------------------------------------
January 31, 1994 April 30, 1993
---------------- ----------------
(unaudited)
ASSETS
Cash $327 $522
Accounts receivable, less
allowance for doubtful accounts
of $7,486 at January 31, 1994
and $8,453 at April 30, 1993 431,492 402,581
Carrying costs on homes under
management 43,949 52,042
Mortgages held for resale 687,943 478,658
Property and equipment, net 107,806 98,886
Unamortized goodwill 54,030 55,209
Other assets 149,573 131,705
---------------- ----------------
1,475,120 1,219,603
---------------- ----------------
ASSETS UNDER MANAGEMENT
PROGRAMS
Net investment in leases and
leased vehicles 2,694,062 2,716,956
Equity advances on homes 592,422 674,799
Other assets under management
programs 1,602 1,670
---------------- ----------------
3,288,086 3,393,425
---------------- ----------------
$4,763,206 $4,613,028
---------------- ----------------
---------------- ----------------
LIABILITIES
Accounts payable and accrued
expenses $443,705 $545,244
Advances from clients 64,843 73,190
Deferred revenue 30,936 33,449
Other debt 712,746 511,128
Deferred income taxes 102,000 91,600
---------------- ----------------
1,354,230 1,254,611
---------------- ----------------
LIABILITIES UNDER MANAGEMENT
PROGRAMS 2,916,955 2,900,934
---------------- ----------------
STOCKHOLDERS' EQUITY
Preferred stock, authorized
3,000,000 shares -- --
Common stock, no par value,
authorized 50,000,000 shares;
issued and outstanding
17,440,824 shares at January
31, 1994 and 17,197,785 shares
at April 30, 1993 98,370 91,306
Cumulative foreign currency
translation adjustment (21,191) (17,916)
Retained earnings 414,842 384,093
---------------- ----------------
492,021 457,483
---------------- ----------------
$4,763,206 $4,613,028
---------------- ----------------
---------------- ----------------
See accompanying notes.
<PAGE>
PHH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended January
31,
(thousands of dollars)
---------------------------
1994 1993
------------- -------------
Operating Activities:
Net income $46,403 $39,794
Adjustments to reconcile
income to cash provided by
operating activities:
Depreciation and amortization 619,353 540,371
Deferred income taxes 11,031 (2,557)
Changes in:
Accounts receivable (32,907) 64,622
Carrying costs on homes
under management 7,784 8,079
Mortgages held for resale (209,285) 63,796
Accounts payable and
accrued expenses (97,177) (13,435)
Advances from clients (8,202) 3,902
Deferred revenue (2,414) 3,896
All other operating
activity (23,698) (25,015)
------------- -------------
Cash provided by
operating activities 310,888 683,453
------------- -------------
Investing Activities:
Investment in leases and
leased vehicles (1,035,165) (1,167,449)
Repayment of investment in
leases and leased vehicles 374,762 358,448
Proceeds from sales and
transfers of vehicle management
- related assets 20,131 44,114
Value of homes acquired (3,185,662) (3,204,262)
Value of homes sold 3,269,802 3,081,731
Proceeds from sale of
relocation and real estate
management - related assets -- 35,456
Additions to property and
equipment, net of dispositions (25,827) (13,878)
Acquisitions accounted for as
a purchase (2,594) --
All other investing
activities (106) 2,489
------------- -------------
Cash used in investing
activities (584,659) (863,351)
------------- -------------
Financing Activities:
Net change in borrowings with
terms of less than 90 days 233,451 27,572
Proceeds from issuance of
other borrowings 765,232 761,757
Principal payment on other
borrowings (728,699) (653,619)
Stock option plan
transactions 7,064 5,554
Payment of dividends (15,654) (15,280)
------------- -------------
Cash provided by financing
activities 261,394 125,984
------------- -------------
Effect of exchange rate changes
on cash 12,182 53,291
------------- -------------
Increase (decrease) in cash (195) (623)
Cash at beginning of period 522 1,183
------------- -------------
Cash at end of period $327 $560
------------- -------------
------------- -------------
Supplemental disclosures of
cash flow information:
Cash paid for interest $127,050 $131,080
------------- -------------
------------- -------------
Cash paid for income taxes $32,823 $27,778
------------- -------------
------------- -------------
See accompanying notes.
<PAGE>
PHH CORPORATION AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
---------------
SUMMARY OF ACCOUNTING POLICIES
- ------------------------------
Basis of Presentation
- ---------------------
In the opinion of management, the accompanying unaudited consolidated
financial statements included in this Form 10-Q reflect all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation of the results of operations for the periods presented. The
results of operations for the periods presented are not necessarily indicative
of the results to be expected for the full year.
For further information, refer to the consolidated financial statements and
footnotes included in the Company's annual report included as part of Form
10-K for the year ended April 30, 1993.
Net Income Per Share
- --------------------
Net income per share is computed on the basis of the weighted average number
of shares of common stock outstanding during each period and common stock
equivalents arising from the assumed exercise of outstanding stock options
under the treasury stock method. See Exhibit 11 to this Form 10-Q which
details the computation of net income per share.
CONTINGENT LIABILITIES
- ----------------------
The Company and its subsidiaries are involved in pending litigation of the
usual character incidental to the business transacted by them. In the opinion
of management, such litigation will not have a material effect on the
Company's consolidated financial statements.
<PAGE>
PHH CORPORATION AND SUBSIDIARIES
--------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND OPERATIONS
---------------
RESULTS OF OPERATIONS - Nine Months Ended January 31, 1994 vs. January 31,
1993
- ------------------------------------------------------------------------------
Net income and net income per share for the first nine months of fiscal 1994
were $46.4 million and $2.61, respectively, an increase of 17 and 13 percent,
respectively, over the first nine months of fiscal 1993. Net income and net
income per share for the third quarter of fiscal 1994 were $15.4 million and
$0.87, respectively, an increase of seven and five percent, respectively, over
the third quarter of fiscal 1993. The increase in net income for the first
nine months and third quarter was due to increases in the Company's mortgage
banking services and vehicle management services business segments, partially
offset by a decrease in its relocation and real estate services business
segment.
Consolidated revenues increased six percent for both the first nine months and
third quarter of fiscal 1994 to $1.6 billion and $516.8 million, respectively,
as compared to the same periods a year ago.
The Company's effective tax rate was 41.4 and 41.5 percent, respectively, for
the first nine months and third quarter of fiscal 1994 compared with 40.2 and
39.8 percent for the comparable prior year periods. The higher effective tax
rate reflects the increase in the US statutory rate to 35 percent.
Vehicle Management Services
- ---------------------------
Vehicle management services primarily consist of the management, purchase,
leasing and resale of vehicles for corporate clients, including fuel and
expense management programs and other fee-based services for their vehicle
fleets.
Total vehicle management services revenues increased nine percent to $859.1
million and seven percent to $281.1 million for the first nine months and
third quarter of fiscal 1994, respectively, as compared to the same periods a
year ago.
Leasing revenues increased nine percent to $720.5 million and six percent to
$233.8 million for the first nine months and third quarter of fiscal 1994,
respectively, as compared to the same periods a year ago. The increase was due
to a decrease, in comparison to prior years, in the amount of leases and
leased vehicles sold or transferred to third parties for which management and
servicing responsibility is retained. Had these assets not been sold or
transferred in prior years, the related rental payments would have been
included in revenues and related direct costs of operating leases, and
interest would have been included in operating expenses. The result would have
been that, on a pro forma basis, leasing revenues would have decreased six
percent for the first nine months and eight percent for the third quarter of
fiscal 1994 compared to the same periods a year ago. The decrease in leasing
revenues, on a pro forma basis, was primarily due to a lower rental interest
component charged on certain leases and leased vehicles due to reduced
interest rates as well as a slight decrease in the number of vehicles under
management.
Other vehicle management services revenues increased nine percent to $138.6
million for the first nine months and 14 percent to $47.3 million for the
third quarter of fiscal 1994, as compared to the same periods a year ago. The
increase was due to growth in domestic fee-based vehicle services such as
vehicle maintenance management programs. Additionally, revenues for the
nine-month period include increases from the continuing effects of a favorable
used car market.
<PAGE>
Vehicle management services operating income increased two percent for the
first nine months of fiscal 1994, as compared to the same period a year ago.
The increase was primarily due to increases from the continuing positive
effects of a favorable used car market, growth in domestic fee-based vehicle
services as well as the favorable effect of productivity efforts. Partially
offsetting the increase improvements as well as a decrease in the number of
vehicles under management.
For the third quarter of fiscal 1994, vehicle management services operating
income increased 19 percent over the comparable prior year period. The
increase was primarily due to growth in domestic fee-based vehicle services as
well as the favorable effect of productivity efforts.
The Company's profitability from vehicle management services is affected by
the number of vehicles managed and related services provided for clients.
Profitability can also be affected as corporate clients exercise a higher
degree of caution by re-evaluating the size of their vehicle fleets or by
extending the service period of existing fleet vehicles. Management
anticipates that continued downsizing of major corporate fleets, as businesses
institute cost control and productivity enhancements to face intensified
global competition, may continue to impact worldwide vehicle management
services results in the near-term. However, as the Company expands into new
markets, enhances its product diversity, broadens its client base and
continues its productivity and quality efforts, operating results should be
positively affected.
Relocation and Real Estate Services
- -----------------------------------
Relocation and real estate services primarily consist of the purchase,
management and resale of homes for transferred employees of corporate,
governmental agencies and affinity group clients. Other programs include
fee-based services which provide assistance to the transferring employee as
well as real estate and consulting services.
Relocation and real estate services revenues for the first nine months of
fiscal 1994 decreased one percent to $619.3 million, and for the third quarter
were $194.2 million, approximately the same as a year ago. Revenue decreases
were primarily due to a reduction in the number of transferee homes sold in
the US and UK and a reduction in interest rates and other direct costs of
carrying and reselling homes which are charged to the Company's clients. These
decreases were partially offset by revenue increases due to an increase in the
number of homes sold in Canada resulting from an acquisition in fiscal 1994;
an increase in domestic fee-based relocation services such as home marketing
programs, group move planning and household goods moving; and an increase in
the average value of transferee homes sold in the US.
Costs, including interest, of carrying and reselling homes for the first nine
months and third quarter of fiscal 1994 decreased one percent and three
percent, respectively, from the same periods a year ago. The decrease was
primarily due to a decrease in interest expense caused by a reduction in
interest rates as noted above, as well as a reduction in other direct costs of
carrying and reselling homes. The decreases were partially offset by increased
costs incurred in the first quarter to enhance the Company's global
information technology as well as increased costs due to an increase in homes
sold in Canada resulting from the Company's acquisition.
<PAGE>
Relocation and real estate services operating income decreased 12 percent and
22 percent for the first nine months and third quarter of fiscal 1994,
respectively, as compared to the same periods a year ago. The decrease was
primarily due to costs incurred by the Company to broaden its worldwide
consulting business, enhance its global information technology and consolidate
office space in North America as well as integration costs from its
acquisition in Canada. The decrease was partially offset by improvement in
other fee-based relocation and real estate services and an increase in the
value of transferee homes sold in the US.
The Company is generally not at risk on its carrying value of homes should
there be a downturn in the housing market. Management anticipates that as
businesses continue to reassess their relocation plans as part of cost control
measures, relocation services results may be impacted. However, as the Company
expands into new markets, enhances its product diversity, broadens its client
base and continues its productivity and quality efforts, operating results
should be positively affected.
Mortgage Banking Services
- -------------------------
Mortgage banking services primarily consist of the origination, sale and
servicing of residential first mortgage loans. A variety of first mortgage
products are marketed to consumers through relationships with corporations,
affinity groups, governmental agencies, credit unions, real estate brokerage
firms and other mortgage banks.
Mortgage banking services revenues increased 30 percent to $122.4 million and
36 percent to $41.5 million for the first nine months and third quarter of
fiscal 1994, respectively, as compared to the same periods a year ago. The
increase was primarily due to a large percentage increase in loan closing
volume as well as a 54 percent increase in the servicing portfolio. The value
of loan closings increased 58 percent for the first nine months and 41 percent
for the third quarter of fiscal 1994 from the previous year, due to growth in
volume from established customer relationships, increased market penetration,
as well as volume generated from residential mortgage refinancings.
Direct costs of mortgage banking services increased 26 percent and 44 percent
for the first nine months and third quarter of fiscal 1994, respectively, over
the comparable prior year periods. The increase was primarily due to increased
costs to support increased loan closings as well as increased amortization of
excess mortgage servicing fees.
Mortgage banking services operating income increased 70 percent and 25 percent
for the first nine months and third quarter of fiscal 1994, respectively, as
compared to the same periods a year ago. The increase was primarily due to
increases in revenues as discussed above partially offset by increased
selling, general and administrative expenses to support growth in this
business segment.
The Company's profitability from mortgage banking services may be affected by
such external factors as the level of interest rates and the condition of
residential real estate markets. Management believes the Company's broad-based
marketing strategies and quality efforts as well as its general practice of
retaining servicing rights should continue to positively affect operating
results.
FINANCIAL CONDITION
- -------------------
The Company maintains adequate committed credit facilities to support future
requirements. As of January 31, 1994, the Company had outstanding $2,917
million of debt for "Assets Under Management Programs". Repayment of
outstanding principal balances is funded from client lease payments, repayment
of equity advances under home relocation and real estate management contracts,
repayment of other assets under management programs, and the sale or transfer
of certain assets to third parties. Lease repayments totalled $976 million for
the first nine months of fiscal 1994, while repayments of equity advances on
homes were $1,829 million.
<PAGE>
PHH CORPORATION
---------------
PART II. OTHER INFORMATION
---------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit (11) - Schedule containing information used in the computation of
net income per share.
(b) Exhibit (12) - Schedule containing information used in the computation of
the ratio of earnings to fixed charges.
<PAGE>
PHH CORPORATION
---------------
INDEX TO EXHIBITS
---------------
Exhibit No. Page No.
- ---------------- --------
Exhibit (11) - Schedule containing information 12
used in the computation of net
income per share
Exhibit (12) - Schedule containing information 13
used in the computation of the
ratio of earnings to fixed
charges
<PAGE>
PHH CORPORATION
---------------
SIGNATURES
---------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHH CORPORATION
Date: March 11, 1994 ---------------------------------------
-------------- Roy A. Meierhenry
Senior Vice President and
Chief Financial Officer
<PAGE>
Exhibit (11)
PHH CORPORATION AND SUBSIDIARIES
--------------------------------
INFORMATION USED IN THE COMPUTATION OF NET INCOME PER SHARE
(thousands except per share data)
---------------
Nine Months Ended January 31,
-----------------------------
1994 1993
------------- -------------
NET INCOME - as reported $46,403 $39,794
------------- -------------
------------- -------------
Weighted average number of
shares outstanding 17,368 16,955
Give effect to the exercise of
dilutive options determined
under the treasury stock method 390 283
Reflect the period-end market
price when greater than the
average market price during the
quarter 37 58
------------- -------------
Number of shares used in the
computation of net income per
share 17,795 17,296
------------- -------------
------------- -------------
NET INCOME PER SHARE $2.61 $2.30
------------- -------------
------------- -------------
<PAGE>
Exhibit (12)
<TABLE>
PHH CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
<CAPTION>
Nine Months Year Ended April 30,
Ended ---------------------------------------------------------------------
01/31/94 1993 1992 1991 1990 1989
------------- ------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing
operations before income
taxes $79,201 94,238$ 83,117 $77,759 $89,698 $77,525
Add:
Interest expense 124,979 193,935 237,058 302,853 352,469 284,845
Interest portion of 6,638 8,456 8,665 7,796 6,251 6,224
rentals* ------------- ------------- ------------- ------------- ------------- -------------
Earnings available for
fixed charges $210,818 $296,629 $328,840 $388,408 $448,418 $368,594
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
Fixed charges:
Interest expense $124,979 $193,935 $237,058 $302,853 $352,469 $284,845
Interest portion of
rentals* 6,638 8,456 8,665 7,796 6,251 6,224
------------- ------------- ------------- ------------- ------------- -------------
$131,617 $202,391 $245,723 $310,649 $358,720 $291,069
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
Ratio of earnings to fixed
charges 1.60 1.47 1.34 1.25 1.25 1.27
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
<FN>
*Amounts reflect a one-third portion of rentals, the portion deemed
representative of the interest factor.
Note: The interest included in fixed charges consists of the amounts
identified as interest expense in the Consolidated Statements of
Income, the substantial portion of which represents interest on debt
incurred to finance leasing activities and mortgage banking activities,
as well as the interest costs associated with home relocation services
which are ordinarily recovered through direct billings to clients and
are included with "Costs, including interest, of carrying and reselling
homes" in the Consolidated Financial Statements.
</TABLE>
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