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 JULY 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)
Maryland 52-0551284
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
11333 McCormick Road, Hunt Valley, Maryland 21031
(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 August 31,
1994 was 17,256,743.
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Total number of pages - - 14<PAGE>
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PHH CORPORATION AND SUBSIDIARIES
Index
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<TABLE>
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Page No.
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PART I FINANCIAL INFORMATION:
Item 1 - Financial Statements
Condensed Consolidated Statements of Income--
Three Months Ended July 31, 1994 and 1993 3
Condensed Consolidated Balance Sheets --
July 31, 1994 and April 30, 1994 4
Consolidated Statements of Cash Flows--
Three Months Ended July 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 4 - Submission of Matters to a Vote of Security Holders 10
Item 6 - Exhibits and Reports on Form 8-K 10
Index to Exhibits 11
Signatures 14
</TABLE>
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<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
PHH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended July 31,
(In thousands except per share date) 1994 1993
<S> <C> <C>
Revenues:
Vehicle management services $ 300,266 $ 288,939
Relocation and real estate services 182,209 212,021
Mortgage banking services 33,058 37,610
515,533 538,570
Operating expenses:
Depreciation on vehicles under operating leases 212,511 200,417
Costs, including interest, of carrying
and reselling homes 156,636 189,884
Direct costs of mortgage banking services 9,361 11,652
Interest 35,574 37,892
Selling, general and administrative 73,416 73,781
487,498 513,626
Income before income taxes 28,035 24,944
Income taxes 11,520 10,155
Net income $ 16,515 $14,789
Net income per share $ .95 $ .84
</TABLE>
See accompanying notes.
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<PAGE>
Item 1. Financial Statements (Continued).
PHH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
July 31, 1994 April 30, 1994
(In thousands) (unaudited)
<S> <C> <C>
ASSETS
Cash $ 3,139 $ 25
Accounts receivable, less allowance for
doubtful accounts of $7,054 at July 31,
1994 and $6,525 at April 30, 1994 498,268 470,756
Carrying costs on homes under management 31,762 36,085
Mortgages held for resale 950,761 705,888
Property and equipment, net 106,178 108,158
Unamortized goodwill 54,300 54,797
Other assets 156,291 148,060
1,800,699 1,523,769
ASSETS UNDER MANAGEMENT PROGRAMS
Net investment in leases and leased vehicles 2,776,665 2,766,983
Equity advances on homes 478,740 474,525
Other assets under management programs 1,625 1,506
3,257,030 3,243,014
$ 5,057,729 $ 4,766,783
LIABILITIES
Accounts payable and accrued expenses $ 461,084 $ 533,943
Advances from clients 37,136 49,765
Deferred revenue 28,612 29,435
Other debt 968,209 719,822
Deferred income taxes 91,300 93,600
1,586,341 1,426,565
LIABILITIES UNDER MANAGEMENT PROGRAMS 2,961,400 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 17,246,243 shares at July 31,
1994 and 17,245,673 shares at April 30,
1994 91,691 92,139
Cumulative foreign currency translation
adjustment (20,476) (21,627)
Retained earnings 438,773 427,801
509,988 498,313
$ 5,057,729 $ 4,766,783
</TABLE>
See accompanying notes.
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<PAGE>
Item 1. Financial Statements (Continued).
PHH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended July 31,
(In thousands) 1994 1993
<S> <C> <C>
Operating Activities:
Net income $ 16,515 $ 14,789
Adjustments to reconcile income to cash
provided by operating activities:
Depreciation and amortization 225,751 207,104
Deferred income taxes (2,418) (1,329)
Changes in:
Accounts receivable (25,725) (2,744)
Carrying costs on homes under management 4,347 4,647
Mortgages held for resale (244,873) (168,865)
Accounts payable and accrued expenses (74,557) (70,693)
Advances from clients (12,641) (8,479)
Deferred revenue (854) 332
All other operating activity (12,485) (16,053)
Cash used in operating activities (126,940) (41,291)
Investing Activities:
Investment in leases and leased vehicles (374,245) (380,497)
Repayment of investment in leases and
leased vehicles 157,479 160,883
Proceeds from sales and transfers of
vehicle management-related assets 1,225 --
Value of homes acquired (1,161,009) (1,168,124)
Value of homes sold 1,156,267 1,164,790
Proceeds from sales of relocation and real
estate management-related assets 3,862
Additions to property and equipment,
net of dispositions (8,651) (9,622)
Acquisition accounted for as a purchase (2,594)
All other investing activities (842) (1,413)
Cash used in investing activities (229,776) (232,715)
Financing Activities:
Net change in borrowings with terms of
less than 90 days 657,500 228,880
Proceeds from issuance of other borrowings 117,074 269,040
Principal payment on other borrowings (411,731) (218,636)
Stock option plan transactions (448) 3,767
Payment of dividends (5,543) (5,200)
Cash provided by financing activities 356,852 277,851
Effect of exchange rate changes on cash 2,978 (3,611)
Increase in cash 3,114 234
Cash at beginning of period 25 522
Cash at end of period $ 3,139 $ 756
Supplemental disclosures of cash flow
information:
Cash paid for interest $ 46,818 $ 43,015
Cash paid for income taxes $ 1,534 $ 12,755
</TABLE>
See accompanying notes.
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<PAGE>
Item 1. Financial Statements (Continued).
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 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.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Position and
Operations.
PHH CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS - Three Months Ended July 31, 1994 vs. July 31, 1993
Net income and net income per share for the first three months of fiscal
1995 were $16.5 million and $.95, respectively, an increase of 12 and 13
percent, respectively, over the first three months of fiscal 1994. The
increase in net income for the first three months was 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.
Consolidated revenues decreased four percent for the first three months of
fiscal 1995 to $515.5 million compared to the same period a year ago.
The Company's effective tax rate was 41 percent for both the first quarter
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 four percent to $300.3
million for the first three months of fiscal 1995, compared to the same
period a year ago.
Leasing revenues increased three percent to $247.7 million for the first
three months of fiscal 1995, compared to the same period a year ago. The
increase was 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 six percent for the first three
months of fiscal 1995 compared to the same period a year ago. The decrease
in pro forma leasing revenues was primarily due to a decrease in the number
of leased vehicles under management.
Other vehicle management services revenues increased ten percent to $52.6
million for the first three months of fiscal 1995, compared to the same
period a year ago. The increase was primarily due to a favorable resale
market for disposition of vehicles under closed-end leases, and growth in
fee-based vehicle services such as fuel, maintenance and accident
management. Vehicle purchases for the first quarter of fiscal 1995
increased one percent while total units under management at July 31, 1994,
were unchanged from the prior year.
Vehicle management services operating income for the first three months of
fiscal 1995 was $12.6 million, compared to $8.5 million for the same period
a year ago. The increase was primarily due to the continuing positive
effects of a favorable resale market for disposition of vehicles under
closed-end leases and growth in fee-based vehicle services. Additionally,
the prior year's first quarter included a higher level of spending for
technology improvements than in the first quarter of fiscal 1995.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Position and
Operations (Continued).
PHH CORPORATION AND SUBSIDIARIES
Vehicle Management Services (continued)
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 first three months of
fiscal 1995 decreased 14 percent to $182.2 million. 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 revenue increases due
to a greater number of homes sold in Canada, reflecting the full integration
of an acquisition in fiscal 1994; an increase in fee-based relocation and
real estate services such as home marketing programs, household goods moving
and residential properties managed for financial institutions and
governmental agencies in North America; 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
three months of fiscal 1995 decreased 17 percent from the same period a year
ago. The decrease was 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.
Relocation and real estate services operating income for the first three
months of fiscal 1995 was $6.8 million as compared to $3.7 million for the
same period a year ago. The increase was primarily due to a greater amount
of spending for technology improvements in the prior year's first quarter,
as well as improvements in fee-based relocation and real estate services and
an increase in the value of transferee homes sold in the US. 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.
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Item 2. Management's Discussion and Analysis of Financial Position and
Operations (Continued).
PHH CORPORATION AND SUBSIDIARIES
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 decreased 12 percent to $33.1 million for
the first three months of fiscal 1995, compared to the same period a year
ago. The decrease was primarily due to a 45 percent decrease in loan
closing volume to $1.2 billion resulting from rising interest rates and a
decline in the level of refinanced mortgage loans processed. The decrease
was partially offset by increases in servicing fee revenue due to a 35
percent increase in the servicing portfolio to $17.1 billion and a gain on
sale of mortgage servicing rights of $6.6 million.
Direct costs of mortgage banking services decreased 20 percent for the first
three months of fiscal 1995 over the comparable prior year period. The
decrease reflects 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 first three months of
fiscal 1995 was $8.6 million, compared to $12.7 million for the same period
a year ago. The decrease was primarily due to the decrease in revenues,
increase in interest costs due to a rise in interest rates slightly offset
by a decrease in direct costs. Selling, general and administrative expenses
remained relatively the same in both years.
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 July 31, 1994, the Company had outstanding $2,961
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 $370 million for the first three months of fiscal 1995,
while repayments of equity advances on homes were $540 million. Lease
repayments and repayments of equity advances on homes for the twelve months
ended July 31, 1994 were $1,367 million and $2,227 million, respectively.
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<PAGE>
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
PHH CORPORATION AND SUBSIDIARIES
At the Company's Annual Stockholders' Meeting held on August 22, 1994, the
stockholders elected the following three directors to three-year terms:
Andrew F. Brimmer (14,235,004 shares voted for, 832,990 shares withheld),
Paul X. Kelley (15,039,100 shares voted for, 28,894 shares withheld) and
Robert D. Kunisch (15,036,263 shares voted for, 31,731 share withheld).
The names of the Directors whose terms in office have continued are: James
S. Beard, George L. Bunting, Barbara S. Feigin, L. Patton Kline, Francis P.
Lucier, Kent C. Nelson, Donald J. Shepard and Alexander B. Trowbridge.
Item 6. Exhibits and Reports on Form 8-K
Report on Form 8-K was filed with the Securities and Exchange Commission on
May 24, 1994 transmitting the Company's fourth quarter earnings release for
fiscal year ended April 30, 1994.
(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.
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<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: September 9, 1994
Roy A. Meierhenry
Senior Vice President and
Chief Financial Officer
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PHH CORPORATION AND SUBSIDIARIES
Index to Exhibits
_________________
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<CAPTION>
Exhibit No. Page No.
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Exhibit (11) - Schedule containing information used in
the computation of net income per share 12
Exhibit (12) - Schedule containing information used in the
computation of the ratio of earnings to fixed charges 13
</TABLE>
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EXHIBIT (11)
PHH CORPORATION AND SUBSIDIARIES
Information Used in the Computation of Net Income Per Share
<TABLE>
<CAPTION>
Three Months Ended July 31,
(In thousands except per share data) 1994 1993
<S> <C> <C>
NET INCOME - as reported $ 16,515 $ 14,789
Weighted average number of shares outstanding 17,268 17,283
Give effect to the exercise of dilutive options
determined under the treasury stock method 137 368
Reflect the period-end market price when greater
than the average market price during the
quarter 25 26
Number of shares used in the computation of net
income per share 17,430 17,677
NET INCOME PER SHARE $ .95 $ .84
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</TABLE>
EXHIBIT (12)
PHH CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Three
Months Ended Year Ended April 30,
(In thousands) 07/31/94 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations
before income taxes $ 28,035 $ 109,796 94,238 $ 83,117 $ 77,759 $ 89,698
Add:
Interest expense 40,904 162,108 193,935 237,058 302,853 352,469
Interest portion of rentals* 1,989 9,088 8,456 8,665 7,796 6,251
Earnings available for fixed charges $ 70,928 $ 280,992 $ 296,629 $ 328,840 $ 388,408 $ 448,418
Fixed charges:
Interest expense $ 40,904 $ 162,108 $ 193,935 $ 237,058 $ 302,853 $ 352,469
Interest portion of rentals* 1,989 9,088 8,456 8,665 7,796 6,251
$ 42,893 $ 171,196 $ 202,391 $ 245,723 $ 310,649 $ 358,720
Ratio of earnings to fixed charges 1.65 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.<PAGE>
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.
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PHH
CORPORATION'S FINANCIAL STATEMENTS FILED IN FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED JULY 31, 1994" AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000077776
<NAME> PHH CORPORATION
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> QTR-1 YEAR
<FISCAL-YEAR-END> APR-30-1995 APR-30-1995
<PERIOD-START> MAY-01-1994 MAY-01-1994
<PERIOD-END> JUL-31-1994 JUL-31-1994
<CASH> 3139 3139
<SECURITIES> 0 0
<RECEIVABLES> 505322 505322
<ALLOWANCES> 7054 7054
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 106178 106178
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 5057729 5057729
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
<COMMON> 91691 91691
0 0
0 0
<OTHER-SE> 418297 418297
<TOTAL-LIABILITY-AND-EQUITY> 5057729 5057729
<SALES> 0 0
<TOTAL-REVENUES> 515533 515533
<CGS> 0 0
<TOTAL-COSTS> 451924 451924
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 35574 35574
<INCOME-PRETAX> 28035 28035
<INCOME-TAX> 11520 11520
<INCOME-CONTINUING> 16515 16515
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 16515 16515
<EPS-PRIMARY> .95 .95
<EPS-DILUTED> .95 .95
</TABLE>
