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 OCTOBER 31, 1994
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ______ to _____
_________
Commission File Number 1-7797
_________
PHH CORPORATION
(Exact name of registrant as specified in its charter)
Maryland52-0551284
(State or other jurisdiction of(IRS Employer
Incorporation or organization)Identification No.)
11333 McCormick Road, Hunt Valley, Maryland21031
(Address of principal executive offices)(Zip Code)
(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 November 30,
1994 was 17,044,443.
<PAGE>
PHH CORPORATION
INDEX
________________________________________________
Page No.
PART I FINANCIAL INFORMATION:
Item 1 - Financial Statements
Condensed Consolidated Statements of Income--Three
Months and Six Months Ended October 31, 1994
and 1993 3
Condensed Consolidated Balance Sheets --
October 31, 1994 and April 30, 1994 4
Condensed Consolidated Statements of Cash Flows--
Six Months Ended October 31, 1994 and 1993 5
Notes to Condensed Consolidated 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 11
Index to Exhibits 12
Signatures 15
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
PHH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands except per share data)
Three Months Ended Six Months Ended
October 31, October 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues:
Vehicle management services $ 304,202 $ 289,043 $ 609,243 $ 577,982
Relocation and real estate services 174,517 213,066 356,726 425,087
Mortgage banking services 31,418 43,265 64,476 80,875
510,137 545,374 1,030,445 1,083,944
Operating expenses:
Depreciation on vehicles under
operating leases 213,726 205,001 426,237 405,418
Costs, including interest, of
carrying and reselling homes 145,555 187,778 302,191 377,662
Direct costs of mortgage banking
services 9,249 18,214 18,610 29,866
Interest 41,344 33,118 81,693 71,010
Selling, general and administrative 70,389 73,334 143,805 147,115
480,263 517,445 972,536 1,031,071
Income before income taxes 29,874 27,929 57,909 52,873
Income taxes 12,262 11,726 23,782 21,881
Net income $ 17,612 $ 16,203 $ 34,127 $ 30,992
Net income per share $ 1.01 $ .90 $ 1.96 $ 1.74
</TABLE>
See accompanying notes.
<PAGE>
Item 1. Financial Statements (Continued).
<TABLE>
PHH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
October 31, 1994 April 30, 1994
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 7,403 $ 25
Accounts receivable, less allowance for
doubtful accounts of $7,089 at October 31,
1994 and $6,525 at April 30, 1994 397,123 470,756
Carrying costs on homes under management 37,213 36,085
Mortgages held for resale 595,828 705,888
Property and equipment, net 105,585 108,158
Unamortized goodwill 53,590 54,797
Other assets 177,045 148,060
1,373,787 1,523,769
ASSETS UNDER MANAGEMENT PROGRAMS
Net investment in leases and leased vehicles 2,821,344 2,766,983
Equity advances on homes 511,653 474,525
Other assets under management programs 1,215 1,506
3,334,212 3,243,014
$ 4,707,999 $ 4,766,783
LIABILITIES
Accounts payable and accrued expenses $ 391,755 $ 533,943
Advances from clients 58,697 49,765
Deferred revenue 26,950 29,435
Other debt 635,696 719,822
Deferred income taxes 92,791 93,600
1,205,889 1,426,565
LIABILITIES UNDER MANAGEMENT PROGRAMS 2,979,451 2,841,905
STOCKHOLDERS' EQUITY
Preferred stock, authorized 3,000,000 shares -- --
Common stock, no par value, authorized
50,000,000 shares; issued and out-
standing 17,108,743 shares at October 31,
1994 and 17,245,673 shares at April 30,
1994 86,711 92,139
Cumulative foreign currency translation
adjustment (14,932) (21,627)
Retained earnings 450,880 427,801
522,659 498,313
$ 4,707,999 $ 4,766,783
</TABLE>
See accompanying notes.
<TABLE>
PHH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended October 31,
1994 1993
<S> <C> <C>
Operating Activities:
Net income $ 34,127 $ 30,992
Adjustments to reconcile income to cash
provided by operating activities:
Depreciation and amortization 448,633 416,762
Deferred income taxes (894) 5,429
Changes in:
Accounts receivable 74,172 32,660
Carrying costs on homes under management
(1,055) 7,609
Mortgages held for resale 110,060 (228,019)
Accounts payable and accrued expenses
(142,793) (69,548)
Advances from clients 8,896 (7,754)
Deferred revenue (2,491) (2,040)
All other operating activity (30,929) (23,641)
Cash provided by operating activities
497,726 162,450
Investing Activities:
Investment in leases and leased vehicles
(720,692) (575,919)
Repayment of investment in leases and
leased vehicles 272,591 247,199
Value of homes acquired (2,270,696) (2,251,987)
Value of homes sold 2,235,630 2,286,186
Proceeds from sales of relocation and
real estate management-related assets -- 3,862
Additions to property and equipment,
net of dispositions (12,379) (18,881)
Acquisition accounted for as a purchase (2,594)
All other investing activities (1,302) (788)
Cash used in investing activities
(496,848) (312,922)
Financing Activities:
Net change in borrowings with terms of
less than 90 days (111,017) 36,781
Proceeds from issuance of other borrowings
738,660 459,758
Principal payment on other borrowings (598,320) (358,767)
Stock option plan transactions 2,591 6,178
Repurchases of common shares (8,019)
Payment of dividends (11,048) (10,423)
Cash provided by financing activities
12,847 133,527
Effect of exchange rate changes on cash
(6,347) 16,851
Increase in cash 7,378 (94)
Cash at beginning of period 25 522
Cash at end of period $ 7,403 $ 428
Supplemental disclosures of cash flow
information:
Cash paid for interest $ 95,494 $ 84,190
Net cash paid for income taxes $ 18,443 $ 15,714
</TABLE>
See accompanying notes.
PHH CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
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, 1994.
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.
Item 2. Management's Discussion and Analysis of Financial Position and
Operations.
PHH CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS - Six Months Ended October 31, 1994 vs. October 31, 1993
Net income and net income per share for the second quarter of fiscal 1995 were
$17.6 million and $1.01, respectively, increases of nine and 12 percent over
the second quarter of fiscal 1994. Net income and net income per share for the
first half of fiscal 1995 were $34.1 million and $1.96, respectively, an
increase of 10 and 13 percent over the first half of fiscal 1994. These
increases were due to increases in the Company's relocation and real estate
services and vehicle management services business segments, partially
offset by a decrease in its mortgage banking services business segment. Net
income for the second quarter and first six months of fiscal 1995 includes
interest income, net of income taxes, of $1.4 million and $1.8 million,
respectively, relating to interest received in conjunction with a refund of US
federal income taxes.
Consolidated revenues decreased six percent to $510 million and five percent
to $1.0 billion for the second quarter and first six months of fiscal 1995,
respectively, as compared to the same periods a year ago.
The Company's effective tax rate was 41 percent for the first six months of
fiscal 1995 and fiscal 1994.
Vehicle Management Services
Vehicle management services primarily consist of the management,
purchase, leasing and resale of vehicles for corporate clients and
governmental agencies, including fuel and expense management programs and
other fee-based services for clients' vehicle fleets.
Total vehicle management services revenues increased five percent for the
second quarter and first six months of fiscal 1995 to $304 million and $609
million, respectively, compared to the same periods a year ago.
Leasing revenues increased five percent to $256 million and $509 million for
the second quarter and first six months, respectively, of fiscal 1995,
compared to the same periods a year ago. The increases were primarily due to a
reduced amount, in comparison to prior years, of leases and leased vehicles
sold or transferred to third parties, for which management and servicing
responsibility is retained by the Company. Had these assets not been sold or
transferred in prior years, the related rental payments would have been
included in revenues, and the related depreciation on vehicles under operating
leases and interest would have been included in expenses. On a pro forma basis,
the result would have been a decrease in leasing revenues of two percent
for both the second quarter and first six months of fiscal 1995 compared to
the same periods a year ago. The decrease in pro forma leasing revenues was
primarily due to a decrease in the number of leased vehicles under
management, partially offset by an increase in the average cost of vehicles
managed and higher interest rates.
Other vehicle management services revenues increased seven percent to $48
million for the second quarter and nine percent to $100 million for the
first six months of fiscal 1995, compared to the same periods a year ago.
The increases were primarily due to growth in fee-based vehicle
services such as fuel and accident management. Additionally, revenues in
the first six months of fiscal 1995 were positively affected by a favorable US
and UK resale market for disposition of vehicles under closed-end operating
leases.
Vehicle management services operating income for the second quarter increased
15 percent to $11.3 million and for the first six months of fiscal 1995
increased 30 percent to $23.9 million, compared to the same periods a year ago.
The increases were primarily due to growth in fee-based vehicle services,
increases in purchases and average cost of vehicles, a favorable resale market
for disposition of vehicles, as well as a higher level of spending for
technology improvements in the prior year's first quarter. Partially
offsetting the increases was a slight reduction in vehicles under management.
The Company's profitability from vehicle management services is affected by
the number of vehicles managed and related services provided for clients.
Therefore, profitability can be affected by the general economy as corporate
clients exercise a higher degree of fiscal caution by decreasing the size of
their vehicle fleets or by extending the service period of existing fleet
vehicles. At the same time, operating results should be positively affected
as clients increasingly choose to outsource their vehicle management
services operations and as the Company expands into new markets, further
enhances its product diversity, broadens its client base and continues its
productivity and quality improvement efforts.
Relocation and Real Estate Services
Relocation and real estate services primarily consist of the purchase,
management and resale of homes for transferred employees of corporations,
governmental agencies and affinity groups. Other programs include fee-based
services which provide assistance to the transferring employee, real estate
services to financial institutions and other consulting services.
Relocation and real estate services revenues for the second quarter decreased
18 percent to $175 million and for the first six months of fiscal 1995
decreased 16 percent to $357 million, compared to the same periods a year
ago. Revenue decreases were primarily due to a reduction in the number of
transferee homes sold in the US and UK. These decreases were partially
offset by an increase in fee-based relocation and real estate services such as
home finding assistance, household goods moving and residential properties
managed for financial institutions in North America. Also, revenues were
positively affected by an increase in the average value of transferee homes
sold in the US and higher interest rates.
Costs, including interest, of carrying and reselling homes for the second
quarter decreased 22 percent to $146 million and for the first six months
of fiscal 1995 decreased 20 percent to $302 million from the same periods a year
ago. The decreases were primarily due to a smaller number of transferee homes
sold in the US and UK as well as a reduction in resale losses and other direct
carrying costs due to a reduction in the number of days homes were held for
resale, partially offset by higher interest rates.
Relocation and real estate services operating income for the second quarter
increased 75 percent to $11.1 million and for the first six months of
fiscal 1995 increased 79 percent to $18.0 million, compared to the same periods
a year ago. The increases were primarily due to improvements in
fee-based relocation and real estate services and an increase in the value of
transferee homes sold in the US. Additionally, the first six months of fiscal
1995 reflects a lower amount of spending for technology improvements than
the comparable period a year ago. Partially offsetting the increase was a
decrease in the number of transferee homes sold in the US and UK.
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. At the
same time, operating results should be positively affected as clients
increasingly choose to outsource their relocation services and as the Company
expands into new markets, enhances its product diversity, broadens its
client base and continues its productivity and quality improvement efforts.
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, real estate brokerage
firms and other mortgage banks.
Mortgage banking services revenues for the second quarter decreased 27
percent to $31 million and for the first six months of fiscal 1995 decreased
20 percent to $64 million, compared to the same periods a year ago. The
decreases were primarily due to reduced margins on sale of mortgages to
permanent investors as well as decreases in loan closing volume of 60 percent
in the second quarter and 53 percent in the first six months versus prior
year comparable periods. The decreases were partially offset by higher
servicing fee revenue due to an increase in the servicing portfolio to $17.2
billion and gains on sale of mortgage servicing rights of $11.3 million in
the second quarter and $17.9 million in the first six months of fiscal 1995.
Direct costs of mortgage banking services for the second quarter decreased 49
percent and for the first six months of fiscal 1995 decreased 38 percent over
the comparable prior year periods. The decreases reflect the reduction in loan
closing volume as well as the results of the Company's continuing productivity
efforts.
Mortgage banking services operating income for the second quarter decreased
36 percent to $7.5 million and for the first six months of fiscal 1995
decreased 34 percent to $16.1 million, compared to the same periods a year ago.
The decreases were primarily due to the decline in revenues discussed above
and increases in interest costs due to a rise in interest rates, partially
offset by lower direct costs and selling, general and administrative expenses
reflecting productivity efforts.
The Company's profitability from mortgage banking services may be affected
by such external factors as the level of interest rates, the strength of
the various segments of the economy and the condition of residential real
estate markets. As expected, the Company has experienced a slowdown in
refinancing activity due to a rise in interest rates. Management believes the
Company's broad-based marketing strategies and continuous quality improvement
efforts should continue to positively affect operating results. Additionally,
management will continue to monitor market conditions for opportunities to
realize value through sales of mortgage servicing rights.
FINANCIAL CONDITION
The Company maintains adequate committed credit facilities to support future
requirements. As of October 31, 1994, the Company had outstanding $2,979
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 totaled
$699 million for the first six months of fiscal 1995, while repayments of
equity advances on homes were $998 million.
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
PHH CORPORATION AND SUBSIDIARIES
(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 AND SUBSIDIARIES
Index to Exhibits
_________________
Exhibit No. Page No.
Exhibit (11) - Schedule containing information used in the
computation of net income per share 13
Exhibit (12) - Schedule containing information used in the
computation of the ratio of earnings to fixed
charges 14
<PAGE>
SIGNATURES
PHH CORPORATION AND SUBSIDIARIES
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: December 13, 1994 Roy A. Meierhenry
Senior Vice President and
Chief Financial Officer
EXHIBIT (11)
<TABLE>
PHH CORPORATION AND SUBSIDIARIES
Information Used in the Computation of Net Income Per Share
Six Months Ended October 31,
(In thousands except per share data) 1994 1993
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NET INCOME - as reported $ 34,127 $ 30,992
Weighted average number of shares outstanding 17,230 17,336
Give effect to the exercise of dilutive options
determined under the treasury stock method 135 400
Reflect the period-end market price when greater
than the average market price during the
quarter 26 42
Number of shares used in the computation of net
income per share 17,391 17,778
NET INCOME PER SHARE $ 1.96 $ 1.74
</TABLE>
Exhibit (12)
<TABLE>
PHH CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
Six
Months Ended Year Ended April 30,
(In thousands) 10/31/94 1994 1993 1992 1991 1990
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Income from continuing operations
before income taxes $57,909 $109,796 $ 94,238 $ 83,117 $ 77,759 $89,698
Add:
Interest expense 91,908 162,108 193,935 237,058 302,853 352,469
Interest portion of rentals* 3,940 9,088 8,456 8,665 7,796 6,251
Earnings available for fixed charges $153,757 $280,992 $296,629 $328,840 $388,408 $448,418
Fixed charges:
Interest expense $ 91,908 $162,108 $193,935 $237,058 $302,853 $352,469
Interest portion of rentals* 3,940 9,008 8,456 8,665 7,796 6,251
$ 95,848 $171,196 $202,391 $245,723 $310,649 $358,720
Ratio of earnings to fixed charges 1.60 1.64 1.47 1.34 1.25 1.25
</TABLE>
* 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> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF PHH CORPORATION FILED ON FORM
10-Q FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000077776
<NAME> PHH CORPORATION
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> APR-30-1995 APR-30-1995
<PERIOD-START> AUG-01-1994 MAY-01-1994
<PERIOD-END> OCT-31-1994 OCT-31-1994
<EXCHANGE-RATE> .001 .001
<CASH> 7403 25
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<RECEIVABLES> 404212 477281
<ALLOWANCES> 7089 6525
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<PP&E> 105585 108158
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