<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, 1995
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 February
28, 1995 was 16,866,073.
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Total number of pages - - 15
<PAGE>
PHH CORPORATION
INDEX
________________________________________________
Page No.
PART I FINANCIAL INFORMATION:
Item 1 - Financial Statements
Condensed Consolidated Statements of Income--Three
Months and Nine Months Ended January 31, 1995
and 1994 3
Condensed Consolidated Balance Sheets --
January 31, 1995 and April 30, 1994 4
Condensed Consolidated Statements of Cash Flows--
Nine Months Ended January 31, 1995 and 1994 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
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<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
PHH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues:
Vehicle management services $ 313,151 $ 281,080 $ 922,394 $ 859,062
Relocation and real estate services 151,458 194,212 508,184 619,299
Mortgage banking services 29,532 41,517 94,008 122,392
494,141 516,809 1,524,586 1,600,753
Operating expenses:
Depreciation on vehicles under
operating leases 215,866 196,056 642,103 601,474
Costs, including interest, of
carrying and reselling homes 123,811 170,233 426,002 547,895
Direct costs of mortgage banking
services 10,352 14,966 28,962 44,832
Interest 46,147 35,682 127,840 106,692
Selling, general and administrative 69,711 73,544 213,516 220,659
465,887 490,481 1,438,423 1,521,552
Income before income taxes 28,254 26,328 86,163 79,201
Income taxes 11,492 10,917 35,274 32,798
Net income $ 16,762 $ 15,411 $ 50,889 $ 46,403
Net income per share $ .98 $ .87 $ 2.94 $ 2.61
</TABLE>
See accompanying notes.
-3-
<PAGE>
Item 1. Financial Statements (Continued).
PHH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
January 31, 1995 April 30, 1994
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 9,053 $ 25
Accounts receivable, less allowance for
doubtful accounts of $6,800 at January 31,
1995 and $6,525 at April 30, 1994 479,199 470,756
Carrying costs on homes under management 45,962 36,085
Mortgages held for resale 645,381 705,888
Property and equipment, net 102,785 108,158
Unamortized goodwill 52,714 54,797
Other assets 181,753 148,060
1,516,847 1,523,769
ASSETS UNDER MANAGEMENT PROGRAMS
Net investment in leases and leased vehicles 2,853,275 2,766,983
Equity advances on homes 519,491 474,525
Other assets under management programs 1,210 1,506
3,373,976 3,243,014
$ 4,890,823 $ 4,766,783
LIABILITIES
Accounts payable and accrued expenses $ 371,943 $ 533,943
Advances from clients 75,604 49,765
Deferred revenue 25,292 29,435
Other debt 699,102 719,822
Deferred income taxes 105,000 93,600
1,276,941 1,426,565
LIABILITIES UNDER MANAGEMENT PROGRAMS 3,092,460 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 16,861,243 shares at January 31,
1995 and 17,245,673 shares at April 30,
1994 78,072 92,139
Cumulative foreign currency translation
adjustment (18,855) (21,627)
Retained earnings 462,205 427,801
521,422 498,313
$ 4,890,823 $ 4,766,783
</TABLE>
-4-
See accompanying notes.
<PAGE>
Item 1. Financial Statements (Continued).
PHH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended January 31,
1995 1994
<S> <C> <C>
Operating Activities:
Net income $ 50,889 $ 46,403
Adjustments to reconcile income to cash
provided by operating activities:
Depreciation and amortization 679,140 619,353
Deferred income taxes 11,133 11,031
Changes in:
Accounts receivable (4,855) (32,907)
Carrying costs on homes under management (9,860) 7,784
Mortgages held for resale 60,507 (209,285)
Accounts payable and accrued expenses (165,411) (97,177)
Advances from clients 25,840 (8,202)
Deferred revenue (4,224) (2,414)
All other operating activity (47,765) (23,698)
Cash provided by operating activities 595,394 310,888
Investing Activities:
Investment in leases and leased vehicles (1,140,003) (1,015,034)
Repayment of investment in leases and
leased vehicles 418,655 374,762
Value of homes acquired (4,073,721) (3,185,662)
Value of homes sold 4,027,290 3,269,802
Additions to property and equipment,
net of dispositions (10,967) (25,827)
Acquisition accounted for as a purchase -- (2,594)
All other investing activities (989) (106)
Cash used in investing activities (779,735) (584,659)
Financing Activities:
Net change in borrowings with terms of
less than 90 days 89,048 233,451
Proceeds from issuance of other borrowings 940,589 765,232
Principal payment on other borrowings (801,457) (728,699)
Stock option plan transactions 2,670 7,077
Repurchases of common shares (16,737) (13)
Payment of dividends (16,485) (15,654)
Cash provided by financing activities 197,628 261,394
Effect of exchange rate changes on cash (4,259) 12,182
Increase in cash 9,028 (195)
Cash at beginning of period 25 522
Cash at end of period $ 9,053 $ 327
Supplemental disclosures of cash flow
information:
Cash paid for interest $ 147,194 $ 127,050
Net cash paid for income taxes $ 24,088 $ 32,823
<PAGE>
See accompanying notes.
-5-
<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 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.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Position
and Operations.
PHH CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS - Nine Months Ended January 31, 1995 vs. January 31, 1994
Net income and net income per share for the third quarter of fiscal 1995
were $16.8 million and $.98, respectively, increases of
nine and 13 percent over the third quarter of fiscal 1994. Net
income and net income per share for the first nine months of
fiscal 1995 were $50.9 million and $2.94, respectively, an increase
of 10 and 13 percent over the first nine months 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 first
nine months of fiscal 1995 includes interest income, net of
income taxes, of $1.8 million, relating to interest received in
connection with a refund of US federal income taxes.
Consolidated revenues decreased four percent to $494 million and
five percent to $1.5 billion for the third quarter and first nine
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 nine
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 11 percent for
the third quarter and seven percent for the first nine months
of fiscal 1995 to $313 million and $922 million, respectively,
compared to the same periods a year ago.
Leasing revenues increased 13 percent to $264 million and
seven percent to $774 million for the third quarter and first nine
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, leasing
revenues would have increased four percent for the third
quarter and decreased one percent for the first nine months of fiscal
1995 compared to the same periods a year ago. The increase
in pro forma leasing revenues for the third quarter was primarily due
to an increase in the average cost of vehicles managed and
higher interest rates, partially offset by a decrease in the number of
leased vehicles under management.
Other vehicle management services revenues increased four percent to
$49 million for the third quarter and seven percent to $148
million for the first nine 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 other driver
services. Additionally, revenues in the first nine months of
fiscal 1995 were positively affected by a favorable US and UK resale market
for disposition of vehicles under closed-end operating
leases.
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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 (cont'd)
Vehicle management services operating income for the third quarter
increased four percent to $12.4 million compared to the same
period a year ago. Globally, the increases were due to growth in
fee-based services as well as increases in vehicle purchases and
the average cost of vehicles. Additionally, operating results on a
geographic basis reflect the following: North American results
included costs to consolidate office space in North America and
other costs incurred integrating our US and Canadian operations
partially offset by other cost reductions; UK results were favorably
effected by increased fuel prices, increased market
penetration for fee-based services as well as cost containment efforts;
while German results improved due to cost reductions in
line with a revised marketing plan.
Vehicle management services operating income for the first nine months of
fiscal 1995 increased 20 percent to $36.3 million over
the same period a year ago. In addition to the items noted above in the
discussion of the third quarter results, operating income
increased primarily due to a favorable resale market in the US and UK
for disposition of vehicles under closed-end operating
leases, a higher level of domestic spending for technology improvements
in the prior year s first quarter and vehicle management
services portion of interest income relating to interest received in
connection with a refund of US federal income taxes.
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 third quarter
decreased 22 percent to $151 million and for the first nine
months of fiscal 1995 decreased 18 percent to $508 million, compared
to the same periods a year ago. Revenue decreases were
primarily due to a reduction in the number of transferee homes sold as
well as a reduction in costs of carrying and reselling
homes which are charged to the Company s clients. These decreases were
partially offset by an increase in fee-based relocation
and real estate services such as household-goods moves and residential
properties managed for financial institutions. Also,
revenues were positively affected by an increase in the average value of
transferee homes sold in the US for the first nine months
and higher interest rates.
Costs, including interest, of carrying and reselling homes for the
third quarter decreased 27 percent to $124 million and for the
first nine months of fiscal 1995 decreased 22 percent to
$426 million from the same periods a year ago. The decreases were
primarily due to a smaller number of transferee
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Position and
Operations (Continued).
PHH CORPORATION AND SUBSIDIARIES
Relocation and Real Estate Services (cont'd)
homes sold and a lower level of funding on homes closed resulting in
lower interest costs charged to the Company's clients.
Additionally, costs decreased due to lower 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 third quarter
increased 104 percent to $9.6 million and for the first
nine months of fiscal 1995 increased 87 percent to $27.5 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 productivity gains on a global basis.
Additionally, the first nine 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.
The Company is generally not at risk on its carrying value of homes should
there be a downturn in the housing market. Management
anticipates its clients will continue to reassess their relocation plans as
part of cost control measures authorizing fewer home
purchase transactions and utilizing a greater portion of fee-based
relocation services. 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 third quarter decreased 29
percent to $30 million and for the first nine months of
fiscal 1995 decreased 23 percent to $94 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 interest rate driven decreases
in loan closing volume of 71 percent in the third quarter and 59
percent in the first nine months versus prior year comparable periods.
The decreases were partially offset by higher servicing
fee revenue due to an increase in the average servicing portfolio and
gains on sale of mortgage servicing rights of $10.2 million
in the third quarter and $28.1 million in the first nine months of fiscal 1995.
Direct costs of mortgage banking services for the third quarter decreased
31 percent and for the first nine months of fiscal 1995
decreased 35 percent over the comparable prior year periods. The
decreases reflect the reduction in loan closing volume as well
as an additional amount of unscheduled amortization of excess
mortgage servicing fees of $3.8 million and $11.3 million in the
third quarter and nine-month period, respectively, of the prior year.
-9-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Position and
Operations (Continued).
PHH CORPORATION AND SUBSIDIARIES
Mortgage Banking Services (cont'd)
Mortgage banking services operating income for the third quarter
decreased 35 percent to $6.3 million and for the first nine
months of fiscal 1995 decreased 35 percent to $22.3 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 discussed above and lower
selling, general and administrative expenses reflecting decreased
mortgage volume.
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 selected
mortgage servicing rights.
FINANCIAL CONDITION
The Company maintains adequate committed credit facilities to support
future requirements. As of January 31, 1995, the Company
had outstanding $3,092 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 $1,061 million for the first nine months of
fiscal 1995, while repayments of equity advances on homes were
$1,362 million.
-10-
<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.
-11-
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: March 15, 1995
Roy A. Meierhenry
Senior Vice President and
Chief Financial Officer
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<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
-12-
</TABLE>
<PAGE>
EXHIBIT (11)
PHH CORPORATION AND SUBSIDIARIES
Information Used in the Computation of Net Income Per Share
<TABLE>
<CAPTION>
Nine Months Ended January 31,
<S> <C> <C>
(In thousands except per share data) 1995 1994
NET INCOME - as reported $ 50,889 $ 46,403
Weighted average number of shares outstanding 17,139 17,368
Give effect to the exercise of dilutive options
determined under the treasury stock method 128 390
Reflect the period-end market price when greater
than the average market price during the
quarter 25 37
Number of shares used in the computation of net
income per share 17,292 17,795
NET INCOME PER SHARE $ 2.94 $ 2.61
</TABLE>
<PAGE>
EXHIBIT (12)
PHH CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Nine
Months Ended Year Ended April 30,
(In thousands) January 31, 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations
before income taxes $ 86,163 $ 109,796 $ 94,238 $ 83,117 $ 77,759 $ 89,698
Add:
Interest expense 142,629 162,108 193,935 237,058 302,853 352,469
Interest portion of rentals* 6,139 9,088 8,456 8,665 7,796 6,251
Earnings available for fixed charges $ 234,931 $ 280,992 $ 296,629 $ 328,840 $ 388,408 $ 448,418
Fixed charges:
Interest expense $ 142,629 $ 162,108 $ 193,935 $ 237,058 $ 302,853 $ 352,469
Interest portion of rentals* 6,139 9,008 8,456 8,665 7,796 6,251
$ 148,768 $ 171,196 $ 202,391 $ 245,723 $ 310,649 $ 358,720
Ratio of earnings to fixed charges 1.58 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 JANUARY 31, 1995 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000077776
<NAME> PHH CORPORATION
<MULTIPLIER> 1000
<CURRENCY> 0
<S> <C> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-START> MAY-01-1994
<PERIOD-END> JAN-31-1995
<EXCHANGE-RATE> .001
<CASH> 9053
<SECURITIES> 0
<RECEIVABLES> 485999
<ALLOWANCES> 6800
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 102785
<DEPRECIATION> 0
<TOTAL-ASSETS> 4890823
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 78072
0
0
<OTHER-SE> 443350
<TOTAL-LIABILITY-AND-EQUITY> 4890823
<SALES> 0
<TOTAL-REVENUES> 1524586
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1566263
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127840
<INCOME-PRETAX> 86163
<INCOME-TAX> 35274
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50889
<EPS-PRIMARY> 2.94
<EPS-DILUTED> 2.94
</TABLE>
