<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR APRIL 30, 1995 COMMISSION FILE NUMBER 1-7797
PHH CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 52-0551284
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11333 McCormick Road, Hunt Valley, Maryland 21031
(Address of principal executive offices) (Zip Code)
(410) 771-3600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, no par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
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 AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K [X]
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF JUNE 30, 1995: $758,377,633. NUMBER OF SHARES OF PHH
CORPORATION OUTSTANDING ON JUNE 30, 1995: 17,042,194.
Documents Incorporated by Reference
Part III -- Proxy Statement for 1995 Annual Meeting of Stockholders
<PAGE>
PHH CORPORATION
PART I
ITEM 1. BUSINESS
GENERAL
The Company provides a broad range of integrated management services,
expense management programs and mortgage banking services to more than 3,000
clients, including many of the world's largest corporations, as well as
government agencies and affinity groups. Its primary business service segments
consist of vehicle management, real estate and mortgage banking. Information as
to revenues, operating income and identifiable assets by business segment is
included in the Business Segments note in the Notes to Consolidated Financial
Statements.
As of June 30, 1995, the Company and its subsidiaries had approximately
5,000 employees.
VEHICLE MANAGEMENT SERVICES
Vehicle management services consist primarily of the management, purchase,
leasing and remarketing of vehicles for corporate clients and government
agencies, including fuel and cost management programs and other fee-based
services for clients' vehicle fleets.
FLEET MANAGEMENT SERVICES
The Company provides fully integrated vehicle management and leasing
programs through PHH Vehicle Management Services Corporation and other vehicle
management services subsidiaries. These programs were developed to address the
needs of clients using cars and trucks and consist of managerial, leasing and
advisory services, aimed at effectively managing the cost of operating their
vehicles and improving the productivity within their organizations.
The Company's advisory services for automobile fleet management programs
are primarily for cars, vans and light-duty trucks. They include
recommendations on the makes and models of vehicles and options best suited to
the client's needs, the determination of persons eligible for operating their
vehicles, the method of reimbursing their employees for actual expenses, the
care and maintenance of their vehicles and the personal use of company-provided
vehicles.
Managerial services for automobile fleet programs include purchasing
automobiles, arranging for their delivery through new car dealers located
throughout North America, primarily the United States and Canada, the United
Kingdom, the Republic of Ireland and Germany, complying with various local
registration, title, tax and insurance requirements, pursuing warranty claims
with automobile manufacturers and remarketing used vehicles at replacement time.
The Company offers similar programs and services for medium- and
heavy-duty truck fleets. Advisory services offered include the determination of
the vehicle specifications, makes, models and equipment best suited to perform
the functions required by the client. Managerial services include purchasing
new trucks, trailers, truck bodies and equipment from manufacturers and
franchised dealers, the performance of title, registration, tax and insurance
functions, arranging for them to be titled, licensed and delivered to locations
designated by clients, verifying invoices and remarketing used vehicles at
replacement time.
The Company offers various leasing plans for its vehicle leasing programs.
Under these plans, the Company provides for the financing primarily through the
issuance of commercial paper and medium-term notes and through unsecured
borrowings under revolving credit agreements and bank lines of credit. See the
Liabilities Under Management Programs note in Notes to Consolidated Financial
Statements.
The Company leases vehicles for minimum lease terms of twelve months or
more under either direct financing or operating lease agreements. The Company's
experience indicates that the full term of the leases may vary considerably due
to extensions beyond the minimum lease term. Under the direct financing lease
agreements, resale of the vehicles upon termination of the lease is generally
for the account of the lessee. The Company has two distinct types of operating
leases. Under one type, the open-end operating lease, resale of the vehicles
upon termination of the lease is for the account of the lessee except for a
minimum residual value which the Company has guaranteed. The Company's
experience has been that vehicles under this type of lease agreement have
consistently been sold for amounts exceeding residual value guarantees. Under
the other type of operating lease, the closed-end operating lease, resale of
the vehicle on termination of the lease is for the account of the Company.
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The Company's fleet management services may be the same whether the client
owns or leases the vehicles. In either case, the client generally operates the
vehicles on a net basis, paying all the actual costs incidental to their
operation, including gasoline, oil, repairs, tires, depreciation, vehicle
licenses, insurance and taxes. The fee charged by the Company for its services
is based upon either a percentage of the original cost of the vehicle or a
stated management fee and, in the case of a leasing client, includes the
interest cost incurred in financing the vehicle.
FUEL AND COST MANAGEMENT PROGRAMS
The Company offers fuel and cost management programs to corporations and
government agencies for the control of automotive business expenses in each of
the United States, Canada, United Kingdom, Republic of Ireland and Germany.
Through a service card and billing service, a client's employees are able to
purchase various products and services such as gasoline, tires, batteries,
glass and maintenance services at prescribed network providers. The Company
also provides a series of safety and accident management related programs,
statistical control reports detailing expenses related to the general operation
of vehicles, and a program which monitors and controls the type and cost of
vehicle maintenance for individual automobiles.
The Company also provides fuel and cost management programs and a
centralized billing service for companies operating truck fleets in each of the
United States, Canada, United Kingdom, Republic of Ireland and Germany. Drivers
of the clients' trucks are furnished with courtesy cards together with a
directory listing the names of strategically located truck stops and service
garages which participate in this program. Service fees are earned for billing,
collection and record keeping services and for assuming credit risk. These fees
are paid by the truck stop or service garages and/or the fleet operator and are
based upon the total dollar amount of fuel purchased or the number of
transactions processed.
COMPETITIVE CONDITIONS
The principal methods of competition within vehicle management services
are quality of service, range of product and service offering and price.
In the United States and Canada, an estimated 50% of the market for
vehicle management services is served by third-party providers. There are 5
major providers of such services in North America, as well as an estimated
several hundred local and regional competitors. The Company is the second
largest provider of comprehensive vehicle management services in North America.
In the United Kingdom, the portion of the fuel card services and vehicle
management services markets served by third-party providers is an estimated 37%
and 35%, respectively. The Company is the market leader among the 4 major
nationwide providers of fuel card services, and the 7 major nationwide
providers of vehicle management services. Numerous local and regional
competitors serve each such market element.
The following sets forth certain statistics concerning automobiles, vans,
light, medium and heavy-duty trucks for which the Company provides managerial,
leasing and/or advisory services primarily in the United States, Canada, the
United Kingdom, the Republic of Ireland and Germany at the end of the fiscal
years shown:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Ending number of vehicles under management..................... 463,200 450,400 454,300 467,000 462,700
Average cost of vehicles....................................... $ 19,164 $ 18,012 $ 17,198 $ 16,067 $ 14,791
Number of vehicles purchased................................... 113,800 108,000 115,800 117,900 128,400
Number of fuel and service card transactions
(in thousands)............................................... 50,600 47,300 45,600 44,100 43,100
Gallons of fuel processed (in thousands)....................... 1,129,000 1,073,000 1,039,000 1,076,000 1,065,000
</TABLE>
REAL ESTATE SERVICES
The Company provides employee real estate services principally to large
international corporations, government agencies, affinity groups and financial
institutions in the United States, Canada, the United Kingdom and the Republic
of Ireland through PHH Real Estate Services Corporation and other real estate
services subsidiaries. Principal services consist of counseling transferred
employees of clients and the purchase, management and resale of
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their homes. The Company's real estate services offer clients the opportunity
to reduce employee relocation costs and facilitate employee relocation.
The Company may pay a transferring employee his/her equity in a home based
upon a value determined by independent appraisals or based on a contract to
sell which has been agreed with the employee. In most circumstances the
employee's mortgage is retired concurrently with the purchase of the equity;
otherwise the Company accepts the administrative responsibility for making
payments on any mortgages. The corporate client normally pays the Company an
advance billing to cover costs to be incurred during the period the home is
held for resale, including debt service on any existing mortgage. These costs
are paid by the Company and, after ultimate resale, a settlement is made with
the corporate client reconciling the advance billing and the expense payments.
Under the terms of the client contracts, the Company is generally protected
against losses from changes in market conditions.
Funds to finance the purchase of homes are provided primarily through the
issuance of commercial paper and medium-term notes and through unsecured
borrowings under revolving credit agreements and bank lines of credit, or may
be provided by the client. Interest costs are billed directly to the Company's
clients. See the Liabilities Under Management Programs note in Notes to
Consolidated Financial Statements.
The Company's real estate services subsidiaries also offer employee
programs which provide group move planning and implementation, home marketing
assistance, property management, household goods movement, destination services
and asset management for financial institutions and government agencies.
Through its PHH Fantus Corporation subsidiary, the Company provides
strategic facilities planning services, site selection and location consulting
for corporate clients and economic development consulting for state and local
government agencies. Additionally, the Company provides consulting services in
the areas of general business strategy, marketing and management for
transnational clients.
COMPETITIVE CONDITIONS
The principal methods of competition within real estate services are
quality of service, range of product and service offering and price. In the
United States and Canada, and the United Kingdom, an estimated 25% and 50%,
respectively, of the market for real estate services is served by third-party
providers.
In the United States there are 5 major national providers of such services
and in each of Canada and the United Kingdom there are 4 major national
providers. In addition, there are an estimated several dozen local, regional
and smaller national competitors in each such country. The Company is the
market leader in the United States and Canada, and third in the United Kingdom.
The following sets forth certain statistics concerning real estate
services in the United States, Canada and the United Kingdom for the fiscal
years shown:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Asset-based services:
Home purchase authorizations......................... 31,000 31,800 31,800 30,400 31,300
Transferee homes sold................................ 25,300 28,900 28,400 28,100 28,200
Average value of U.S. transferee homes sold(1)....... $ 171,000 $ 165,000 $ 156,000 $ 156,600 $ 150,200
Fee-based services transactions:
Home finding...................................... 24,020 23,180 15,620 10,540 7,720
Home marketing.................................... 18,330 14,970 8,050 6,170 4,160
Household goods moves............................. 14,700 13,720 8,730 7,170 7,520
Property dispositions............................. 7,250 4,180 3,610 2,690 1,490
64,300 56,050 36,010 26,570 20,890
Total homes under management:
Acquisitions...................................... 34,710 32,520 32,590 31,780 28,390
Dispositions...................................... 32,560 33,080 32,020 30,800 29,690
Ending.......................................... 11,380 9,230 9,790 9,220 8,240
</TABLE>
(1) Revenues for real estate services in the United States are significantly
determined based on the value of homes sold, while revenues for the United
Kingdom and Canadian segments are not related to the value of homes sold;
therefore, this table only includes the average value of U.S. homes sold.
3
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MORTGAGE BANKING SERVICES
The Company provides U.S. residential mortgage banking services through
PHH Mortgage Services Corporation. These services 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, credit unions, real estate brokerage firms and
other mortgage banks.
PHH Mortgage Services is a centralized mortgage lender conducting business
in all 50 states. It utilizes its computer system and an extensive
telemarketing operation to allow the consumer to complete the entire mortgage
transaction over the telephone. Through its own network of appraisers, title
companies and closing attorneys, the Company can effectively administer its
products and services anywhere in the nation.
The mortgage unit customarily sells all mortgages it originates to
investors (which include a variety of institutional investors) either as
individual loans, as mortgage-backed securities or as participation
certificates issued or guaranteed by the Federal National Mortgage Association
(FNMA), the Federal Home Loan Mortgage Corporation (FHLMC), or the Government
National Mortgage Association (GNMA) while generally retaining mortgage
servicing rights. The guarantees provided by FNMA and FHLMC are on a
non-recourse basis to the Company. Guarantees provided by GNMA are to the
extent recoverable from certain government insurance programs.
Mortgage servicing consists of collecting loan payments, remitting
principal and interest payments to investors, holding escrow funds for payment
of mortgage-related expenses such as taxes and insurance, and otherwise
administering the Company's mortgage loan servicing portfolio.
COMPETITIVE CONDITIONS
The principal methods of competition in mortgage banking services are
quality of service, range of product and service offering and price. There are
an estimated 20,000 national, regional or local providers of mortgage banking
services across the United States. The Company ranked nineteenth among loan
originators for both the calendar year 1994 and the three months ended March
31, 1995.
The following sets forth certain statistics concerning mortgage banking
services for the fiscal years shown:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Mortgage loan closings
(in millions).................................... $ 3,432 $ 8,074 $ 5,618 $ 3,797 $ 2,331
Mortgage servicing portfolio at April 30
(in millions).................................... $ 16,017 $ 16,645 $ 11,047 $ 7,517 $ 5,007
Delinquency rate................................... 1.3% 1.2% 1.1% 1.8% 2.3%
</TABLE>
SIGNIFICANT CUSTOMERS
No customer purchased services totaling 10% or more of consolidated
revenues in 1995, 1994, or 1993.
ITEM 2. PROPERTIES
The corporate offices of the Company are located at 11333 McCormick Road,
Hunt Valley, Maryland, in an eight-story building which is owned by the Company
and contains approximately 163,000 square feet of office space.
The offices of PHH Vehicle Management Services North American operations
are located throughout the US and Canada. Primary office facilities are located
in a six-story, 200,000-square foot office building in Hunt Valley, Maryland,
leased until September 2003; and offices in Mississauga, Canada, having 31,600
square feet, leased until February 2003. Other facilities include office space
totaling 17,700 square feet in five cities leased as full-service branch
offices for fleet management activities for various terms to April 2003; two
dealerships, one located in Williamsburg, Virginia, having 101,000 square feet,
leased until March 1998 and the other in Edenton, North Carolina, having
337,100 square feet, leased until December 1998; offices in Fort Worth, Texas,
having 63,000 square feet, leased until March 2002; and regional offices
located in Montreal, Calgary, Vancouver, Mississauga & Quebec, Canada, having a
total of 43,100 square feet, leased for various terms to December 2002.
The offices of PHH Real Estate Services North American operations are
located throughout the US and Canada. Primary office facilities are located in
offices located in Wilton, Connecticut, having 42,000 square feet, leased until
January 1996 and offices in Danbury, Connecticut, having 92,500 square feet,
leased until January 2000. Other facilities include office space totaling
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54,000 square feet in Oak Brook, Illinois leased until April 2003; 23,350 square
feet in Concord, California leased until October 1998; 42,300 square feet in
Dallas, Texas leased until November 1998; 59,000 square feet in ten other
cities for various terms to June 2002; and office space totaling 26,500 square
feet in Toronto, Montreal, Vancouver, Ottawa and Nova Scotia, leased for
various terms to September 1999.
The offices of PHH Fantus are located in Florham Park, New Jersey, in
offices having 14,200 square feet, leased until May 1996 and offices in
Chicago, Illinois, having 8,800 square feet, leased until September 2004.
The offices of PHH Mortgage Services are located primarily in a
127,000-square foot building in Mount Laurel, New Jersey, which is owned by the
Company; and offices in Englewood, Colorado, having 27,900 square feet, leased
until June 1997.
The offices of Vehicle Management Services and Real Estate Services
operations located in the United Kingdom and Europe are as follows: a
129,000-square foot building which is owned by the Company located in Swindon,
United Kingdom; and field offices having 30,400 square feet located in Swindon
and Manchester, United Kingdom; Munich, Germany; and Dublin, Ireland, are
leased for various terms to February 2016.
The Company considers that its properties are generally in good condition
and well maintained and are generally suitable and adequate to carry on the
Company's business.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to various litigation arising in the ordinary course
of business and is plaintiff in several collection matters which are not
considered material either individually or in the aggregate.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended April 30, 1995.
5
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock is publicly traded on the New York Stock
Exchange under the symbol "PHH ". The common stock is entitled to dividends
when and as declared by the Board of Directors. The payment of future dividends
will depend upon earnings, the financial condition of the Company and other
relevant factors. At April 30, 1995, there were 1,902 holders of common stock.
The dividends and high and low prices for each quarter during the Company's
1995 and 1994 fiscal years were as follows:
<TABLE>
<CAPTION>
DIVIDEND PRICE
1995 PAID HIGH LOW
<S> <C> <C> <C>
First quarter................... $.32 $38 3/4 $35
Second quarter.................. $.32 $38 $34 7/8
Third quarter................... $.32 $38 1/8 $33 5/8
Fourth quarter.................. $.32 $40 1/2 $35 1/4
1994
First quarter................... $.30 $42 1/2 $39 1/2
Second quarter.................. $.30 $46 3/4 $41 3/8
Third quarter................... $.30 $46 3/4 $40 5/8
Fourth quarter.................. $.30 $43 1/4 $33 1/4
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands except per share data)
Years ended April 30, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Revenues:
Vehicle management services $ 1,257,696 $ 1,162,483 $ 1,069,484 $ 992,514 $ 1,023,857
Real estate services 686,836 816,261 829,336 849,871 923,536
Mortgage banking services 126,094 155,935 122,111 89,099 70,232
$ 2,070,626 $ 2,134,679 $ 2,020,931 $ 1,931,484 $ 2,017,625
Income before income taxes $ 121,318 $ 109,796 $ 94,238 $ 83,117 $ 77,759
Net income $ 71,662 $ 64,558 $ 56,417 $ 49,979 $ 47,079
Net income per share $ 4.15 $ 3.64 $ 3.25 $ 2.92 $ 2.78
Cash dividends per share $ 1.28 $ 1.20 $ 1.20 $ 1.20 $ 1.20
Selected Balance Sheet Data
As of April 30, 1995 1994 1993 1992 1991
Total assets $ 5,039,533 $ 4,766,783 $ 4,613,028 $ 4,365,031 $ 4,198,689
Assets under management programs $ 3,464,889 $ 3,241,508 $ 3,391,755 $ 3,113,120 $ 3,126,986
Liabilities under management programs $ 3,079,629 $ 2,841,905 $ 2,900,934 $ 2,771,250 $ 2,804,688
Other debt $ 735,886 $ 719,822 $ 511,128 $ 405,017 $ 184,497
Stockholders' equity $ 539,951 $ 498,313 $ 457,483 $ 423,287 $ 392,866
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
RESULTS OF OPERATIONS
All comparisons within the following discussion are to the previous year,
unless otherwise stated.
Consolidated net income increased 11% to $71.7 million in fiscal 1995 while
net income per share increased 14% to $4.15. Increased income in the vehicle
management services and real estate services business segments was partially
offset by a decrease in the mortgage banking services business segment. In
fiscal 1994, net income increased 14% to $64.6 million and net income per share
increased 12% to $3.64, reflecting increases in the mortgage banking services
and vehicle management services business segments partially offset by a decrease
in the real estate services business segment.
Consolidated revenues decreased 3% to $2,071 million in fiscal 1995 and
increased 6% to $2,135 million in fiscal 1994.
The provision for income taxes reflects effective tax rates of 41% in both
fiscal 1995 and 1994 and 40% in fiscal 1993. The fiscal 1995 and 1994 rates
reflect the increase in the US federal corporate income tax rate to 35% from
34%.
The Company incurs and pays certain costs on behalf of its clients which
include payments to third parties as a component of its service delivery. These
direct costs are billed to clients and recognized as both revenue and expense.
Additionally, certain other direct costs represent depreciation on vehicles
under operating leases and amortization of mortgage servicing fees. Management
analyzes its business results in terms of net revenue and total operating
expenses. Net revenue, as defined by the Company, includes revenue earned
reduced by the direct costs described above and also reduced by related interest
required to fund assets. Operating expenses are all other costs incurred in
delivering services to clients.
Net revenues were $518.3 million in fiscal 1995, a decrease of 4% from the
prior year, while operating income increased 10% to $121.3 million. Vehicle
management services and real estate services increased in both net revenue and
operating income offset by a decline in mortgage banking services. In fiscal
1994 net revenue increased 9% to $542.1 million due to increases in each
business segment, while operating income increased 17% to $109.8 million due to
increases in both vehicle management services and mortgage banking services
offset slightly by a decline in real estate services. The following discussion
is an analysis by business segment for net revenue and operating income.
Vehicle Management Services
Vehicle management services are offered to corporations and government
agencies to assist them in effectively managing their vehicle fleet costs,
reducing in-house administrative costs and enhancing driver productivity. Asset-
based services generally require an investment by the Company and include new
vehicle purchasing, open- and closed-end leasing, and used vehicle marketing.
Fee-based services include maintenance management programs, expense reporting,
fuel management programs, accident and safety programs and other driver services
for managing clients' vehicle fleets.
<TABLE>
<CAPTION> 1995 1994 1993
<S> <C> <C> <C>
Operating Income (in thousands)
Net Revenues:
Asset-based $ 137,520 $ 140,395 $ 130,806
Fee-based 102,628 94,411 97,281
Total net revenues 240,148 234,806 228,087
Operating expenses 184,480 188,576 185,815
Operating income $ 55,668 $ 46,230 $ 42,272
</TABLE>
Fiscal 1995 Results
Net revenues for vehicle management services represent revenues earned and
billed to clients reduced by depreciation on vehicles under operating leases and
related interest. Total net revenues for this segment increased 2% to $240.1
million. Net revenues derived from asset-based products decreased 2% to $137.5
million due to a slight decrease in the number of leased vehicles under
management and a reduction in revenue due to the benefit in the prior year of
certain vehicle manufacturer incentive programs. The decrease in net revenues
was somewhat offset by an increase in management fees per vehicle resulting from
a higher average cost of vehicles managed; the effect of interest received from
a US federal income tax refund attributable to this segment; as well as the
results of a favorable US and UK resale market for disposition of vehicles under
closed-end operating leases. Net revenue derived from fee-based services
increased 9% to $102.6 million in fiscal 1995. The increase was due to growth in
fuel management programs reflecting increased market penetration in the US and
UK and increased fuel prices in the UK; growth in accident management programs,
primarily in the UK; and growth in other driver services in North America and
the UK.
Vehicle management services operating income increased 20% to $55.7 million
in fiscal 1995. This was due to the increase in net revenue described above as
well as an overall reduction in operating expenses. Cost reductions were
achieved primarily in the area of information technology, slightly offset by
one-time costs associated with office space consolidation, other costs incurred
to integrate our US and Canadian operations and higher operating expenses in
support of volume growth in fee-based services.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Key Operating Factors 1995 1994 1993
Number of vehicles
purchased 113,800 108,000 115,800
Percent change 5% (7%) (2%)
Number of fuel and
service card transactions
(in thousands) 50,600 47,300 45,600
Percent change 7% 4% 3%
Gallons of fuel processed
(in thousands) 1,129,000 1,073,000 1,039,000
Percent change 5% 3% (3%)
Number of vehicles under
management 463,200 450,400 454,300
Percent change 3% (1%) (3%)
</TABLE>
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 negatively 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. Conversely, operating results are positively affected
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as clients increasingly choose to outsource their vehicle management service
operations. Results can also be enhanced as the Company expands into new
markets, increases its product diversity, broadens its client base and continues
its productivity and quality improvement efforts.
Fiscal 1994 Results
Total vehicle management services net revenues increased 3% to $234.8
million. Net revenues derived from asset-based products increased 7% to $140.4
million. This resulted from higher revenues received from manufacturers for
vehicle purchases and the benefit of certain vehicle manufacturer incentive
programs; increased management fees received due to an increase in the average
cost of vehicles managed; as well as the results of a favorable US and UK resale
market for disposition of vehicles under closed-end operating leases. There was
a slightly offsetting decrease due to a reduced number of vehicles purchased.
Net revenue derived from fee-based services decreased 3% to $94.4 million in
fiscal 1994. The decrease resulted from a reduction in fuel management programs
slightly offset by growth in maintenance management programs in the US and other
driver services.
Vehicle management services operating income increased 9% to $46.2 million
in fiscal 1994. The increase primarily was due to increases in net revenue
described above slightly offset by an increase in operating expenses. Operating
expenses increased primarily due to costs related to information technology.
Real Estate Services
Real estate services primarily consist of the purchase, management and
resale of homes for transferred employees of corporate clients, government
agencies and members of affinity group clients. Asset-based services are defined
as relocation services involving the purchase and resale of a home. Fee-based
services include assistance in selecting homes in destination locations,
marketing homes, moving household goods, property disposition services to
financial institutions and other consulting services.
<TABLE>
<CAPTION> 1995 1994 1993
<S> <C> <C> <C>
Operating Income (in thousands)
Net revenues:
Asset-based $ 109,360 $ 116,190 $ 126,845
Fee-based 79,574 68,986 54,006
Total net revenues 188,934 185,176 180,851
Operating expenses 153,715 163,676 154,236
Operating income $ 35,219 $ 21,500 $ 26,615
</TABLE>
Fiscal 1995 Results
Real estate services net revenues are those earned and billed to clients
reduced by direct costs paid on behalf of clients and related interest. Total
real estate services net revenues increased 2% to $188.9 million. Asset-based
net revenues decreased 6% to $109.4 million. The decrease was primarily due to a
reduction in margins reflecting a shift in product mix to more diversified,
lower-priced products in response to client demand and to meet clients' changing
relocation benefits offered to their transferring employees; a reduction in the
number of transferee homes sold; and a lower level of funding provided to
clients for equity advances. Asset-based net revenues were affected positively
by an increase in the average value of transferee homes sold in the US. Fee-
based net revenues increased 15% to $79.6 million primarily due to increased
levels of residential properties managed for financial institutions, household
goods moves and home finding services for relocating employees and affinity
group members.
Real estate services operating income increased 64% to $35.2 million. The
increase was due to improvements in net revenues described above and, to a
larger extent, a 6% reduction in operating expenses resulting from productivity
improvements; a reduction in cost structure corresponding to the changing
product mix for relocation services on a global basis; and a decrease in costs
associated with the integration of an acquisition in Canada in the prior year.
<TABLE>
<CAPTION> 1995 1994 1993
<S> <C> <C> <C>
Key Operating Factors
Asset-based services:
Home purchase
authorizations 31,000 31,800 31,800
Percent change (3%) - 5%
Transferee homes sold 25,300 28,900 28,400
Percent change (12)% 2% 1%
Average value of US
homes sold $ 171,000 $ 165,000 $ 156,000
Percent change 4% 6% -
Fee-based services
transactions:
Home finding 24,020 23,180 15,620
Home marketing 18,330 14,970 8,050
Household goods
moves 14,700 13,720 8,730
Property dispositions 7,250 4,180 3,610
Total 64,300 56,050 36,010
Percent change 15% 56% 38%
Total homes under
management:
Acquisitions 34,710 32,520 32,590
Dispositions 32,560 33,080 32,020
Ending 11,380 9,230 9,790
Percent change 23% (6%) 6%
</TABLE>
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 real estate services. At the same time, operating results
should be affected positively as clients increasingly choose to outsource their
real estate 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.
Fiscal 1994 Results
Real estate services net revenues increased 2% to $185.2 million. Asset-
based net revenues decreased 8% to $116.2 million primarily due to a reduction
in margins reflecting a shift to more diversified, lower-priced products in
response to client demand as well as a lower level of funding provided to
clients for equity advances. Asset-based net revenues were affected positively
by an increase in the average value of transferee homes sold in the US. Fee-
based net revenues increased 28% to $69.0 million primarily due to volume
increases in home finding services for relocating employees and affinity groups,
increases in home marketing and household goods moves for relocating employees,
as well as the positive effect of the Company's acquisition of a relocation
services operation in Canada.
9
<PAGE>
In fiscal 1994, operating income decreased 19% to $21.5 million. The
decrease was due to the overall increase in net revenues described above offset
by an increase in operating expenses. The increase in operating expenses
resulted from the Company's efforts to broaden its worldwide consulting
business; enhance its information technology capabilities; consolidate office
space in North America; and integrate its North American operations resulting
from its acquisition in Canada.
Mortgage Banking Services
Mortgage banking services primarily consist of the origination, sale and
servicing of residential first mortgage loans. The Company markets a variety of
first mortgage products to consumers through relationships with corporations,
affinity groups, government agencies, credit unions, real estate brokerage firms
and other mortgage banks.
<TABLE>
<CAPTION> 1995 1994 1993
<S> <C> <C> <C>
Operating Income (in thousands)
Net revenues:
Servicing $50,296 $ 21,056 $ 11,929
Production (3,136) 101,021 75,134
Sale of servicing rights 42,090 - -
Total net revenues 89,250 122,077 87,063
Operating expenses 58,819 80,011 61,712
Operating income $ 30,431 $ 42,066 $ 25,351
</TABLE>
Fiscal 1995 Results
Mortgage banking services net revenues, measured as revenues earned reduced
by direct costs for amortization and payments to third-party service providers
on behalf of clients, decreased 27% to $89.3 million in fiscal 1995 primarily
due to the decline in production net revenue. The sharp increase in mortgage
rates greatly reduced refinance and new purchase loan activity creating intense
competition within the industry for remaining market share. Such competition,
accompanied by a consumer shift to adjustable rate mortgage products, served to
reduce margins. As the margins declined on production volume, the Company
responded to the market's increased demand for servicing rights and sold $3.6
billion of its servicing portfolio at a gain of $42.1 million. Servicing fee
revenue increased as a result of an increase in the average servicing portfolio
as well as the significantly reduced effect of portfolio prepayments and payoffs
which, in fiscal 1994, required unscheduled amortization of $11.3 million of
excess mortgage servicing fees.
Mortgage banking services operating income decreased 28% to $30.4 million.
The decrease was due to the decline in net revenues as described above
significantly offset by a reduction in operating expenses as the Company
responded to the change in loan production volume.
<TABLE>
<CAPTION> 1995 1994 1993
<S> <C> <C> <C>
Key Operating Factors
Mortgage loan closings
(in millions) $ 3,432 $ 8,074 $ 5,618
Percent change (57%) 44% 48%
Servicing portfolio
(in millions)
Closings $ 3,432 $ 8,074 $ 5,618
Purchases 1,104 1,453 460
Payoffs (1,553) (3,929) (2,548)
Sales (3,611) - -
Ending balance $ 16,017 $ 16,645 $ 11,047
Percent change (4%) 51% 47%
Delinquency rate 1.3% 1.2% 1.1%
</TABLE>
The Company's profitability from mortgage banking services will be affected
by such external factors as the level of interest rates, the strength of the
economy, and the related condition of residential real estate markets. The
Company's broad-based marketing strategies including further penetration of
existing affinity groups and credit unions, signing new clients, and maintaining
its system of delivering mortgages in a cost-efficient manner, should positively
affect operating results in the future.
Fiscal 1994 Results
In fiscal 1994, net revenues increased 40% to $122.1 million. The increase
was due to increased production net revenue caused by a reduction in mortgage
rates and an increase in loan closing volume reflecting the increased demand for
mortgage loans, especially to individuals interested in refinancing their
existing residential property at lower mortgage rates and the increase in market
penetration of new and existing clients. Servicing fee revenue increased as a
result of growth in the average servicing portfolio partially offset by the
unscheduled amortization of $11.3 million of excess mortgage servicing fees in
fiscal 1994 and $11.9 million in fiscal 1993.
Mortgage banking services operating income increased 66% to $42.1 million in
fiscal 1994. The increase in fiscal 1994 reflects increases in net revenues as
discussed above partially offset by higher costs incurred to process increased
loan closings and to manage the larger servicing portfolio.
NEW ACCOUNTING PRONOUNCEMENTS
In May 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 122, "Accounting for
Mortgage Servicing Rights." Application of this statement will require, among
other provisions, that the Company recognize originated mortgage servicing
rights, as well as purchased mortgage servicing rights, as assets. Presently,
the cost of originated mortgage servicing rights is included with the cost of
the related loans and expensed when the loan is sold, but the cost of purchased
mortgage servicing rights is recorded as an asset. The Company intends to adopt
SFAS No. 122 in the first quarter of fiscal 1996. The effect of this statement
has been initially estimated to increase fiscal 1996 net income by approximately
$20 million.
In March 1995, the FASB issued SFAS No. 121, effective in 1997, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Application of this statement will require the Company to review long-lived
assets and certain intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. This statement is not expected to significantly affect the
consolidated financial statements of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company manages its funding sources to ensure adequate liquidity.
The sources of liquidity fall into three general areas: ongoing liquidation
of assets under management, global capital markets, and committed credit
agreements with various high-quality domestic and international banks. In the
ordinary course of business, the liquidation of assets under management
programs, as well as cash flows generated from operating activities, provide the
cash flow necessary for the repayment of existing liabilities. (See Operating
Activities and Investing Activities in the Company's Consolidated Statements of
Cash Flows.)
10
<PAGE>
Using historical information, the Company projects the time period that a
client's vehicle will be in service or the length of time that a home will be
held in inventory before being sold on behalf of a client. Once the relevant
asset characteristics are projected, the Company generally matches the projected
dollar amount, interest rate and maturity characteristics of the assets within
the overall funding program. This is accomplished through stated debt terms or
effectively modifying such terms through other instruments, primarily interest
rate swap agreements and revolving credit agreements. (See Note to Liabilities
Under Management Programs in Notes to Consolidated Financial Statements.) Within
mortgage banking services, the Company funds the mortgage loans on a short-term
basis until sale to unrelated investors, which generally occurs within sixty
days. Interest rate risk on mortgages originated for sale is managed through the
use of forward delivery contracts, financial futures and options.
The Company has maintained broad access to global capital markets by
maintaining the quality of its assets under management. This is achieved by
establishing credit standards to minimize credit risk and the potential for
losses. Depending upon asset growth and financial market conditions, the Company
utilizes the United States, Euro, Canadian and Sterling commercial paper
markets, as well as other cost-effective, short-term instruments. In addition,
the Company utilizes the public and private debt markets to issue unsecured
senior corporate debt. Augmenting these sources, the Company has reduced
outstanding debt by the sale or transfer of managed assets to third parties
while retaining fee-related servicing responsibility. The Company's aggregate
commercial paper outstanding totaled $2.3 and $2.1 billion at April 30, 1995,
and April 30, 1994, respectively. At April 30, 1995, $1.4 billion in medium-term
notes and $153 million in other debt securities were outstanding compared to
$1.2 billion and $185 million, respectively, in fiscal 1994. (See Financing
Activities in the Company's Consolidated Statements of Cash Flows.) From a risk
management standpoint, borrowings not in the local currency of the business unit
are converted to the local currency through the use of foreign currency forward
contracts. The Company has maintained a leverage ratio between 7 to 1 and 8 to 1
over each of the last three years.
To provide additional financial flexibility, the Company's current policy is
to ensure that minimum committed bank facilities aggregate 80% of the average
amount of outstanding commercial paper. Committed revolving credit agreements
totaling $2.1 billion and uncommitted lines of credit aggregating $346 million
are currently in place with 31 domestic and international banks. Management
closely evaluates not only the credit quality of the banks but the maturity of
the various agreements to ensure ongoing availability. Of the Company's $2.1
billion in committed facilities at April 30, 1995, the full amount was undrawn
and available. Management believes that its current policy provides adequate
protection should financial stress occur in the commercial paper or medium-term
note markets.
These established means of effectively matching floating and fixed interest
rate and maturity characteristics of funding to related assets, the variety of
short- and long-term domestic and international funding sources, and the
committed banking facilities enable the Company to service its debt and offer a
broad spectrum of service products to its clients.
11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT AND CONSENT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
PHH Corporation:
We have audited the consolidated financial statements of PHH Corporation
and subsidiaries as listed in the accompanying index on page 28. In connection
with our audits of the consolidated financial statements, we have also audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PHH
Corporation and subsidiaries at April 30, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended April 30, 1995, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
Baltimore, Maryland
May 22, 1995
To the Stockholders and Board of Directors
PHH Corporation:
We consent to incorporation by reference in the Registration Statements on
Form S-3 (No. 2-90026, No. 33-48125, No. 33-52669 and No. 33-59376) and Form
S-8 (No. 33-38309 and No. 33-53282) of PHH Corporation of our report dated May
22, 1995, relating to the consolidated balance sheets of PHH Corporation and
subsidiaries as of April 30, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the three-year period ended April 30, 1995, and all related schedules, which
report appears in the April 30, 1995 annual report on Form 10-K of PHH
Corporation.
KPMG Peat Marwick LLP
Baltimore, Maryland
July 25, 1995
12
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
(In thousands except per share data)
Years ended April 30, 1995 1994 1993
<S> <C> <C> <C>
Revenues:
Vehicle management services $ 1,257,696 $1,162,483 $1,069,484
Real estate services 686,836 816,261 829,336
Mortgage banking services 126,094 155,935 122,111
2,070,626 2,134,679 2,020,931
Expenses:
Depreciation on vehicles under operating leases 872,495 808,894 707,542
Costs, including interest, of carrying and
reselling homes 576,385 717,793 734,640
Direct costs of mortgage banking services 40,924 57,091 47,288
Interest 173,094 138,617 150,894
Selling, general and administrative 286,410 302,488 286,329
1,949,308 2,024,883 1,926,693
Income before income taxes 121,318 109,796 94,238
Income taxes 49,656 45,238 37,821
Net income $ 71,662 $64,558 $56,417
Net income per share $ 4.15 $3.64 $3.25
</TABLE>
See Notes to Consolidated Financial Statements.
13
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(In thousands)
As of April 30, 1995 1994
<S> <C> <C>
Assets
Cash $ 3,412 $ 25
Accounts receivable, less allowance for doubtful
accounts of $6,689 in 1995 and $6,525 in 1994 484,230 470,756
Carrying costs on homes under management 45,260 36,085
Mortgage loans held for sale 712,247 705,888
Property and equipment, net 102,399 108,158
Unamortized goodwill 51,164 54,797
Other assets 175,932 149,566
1,574,644 1,525,275
Assets Under Management Programs
Net investment in leases and leased vehicles 3,017,231 2,766,983
Equity advances on homes 447,658 474,525
3,464,889 3,241,508
$ 5,039,533 $ 4,766,783
Liabilities
Accounts payable and accrued expenses $ 458,438 $ 511,286
Advances from clients and deferred revenue 101,229 79,200
Other debt 735,886 719,822
Deferred income taxes 124,400 116,257
1,419,953 1,426,565
Liabilities Under Management Programs 3,079,629 2,841,905
Stockholders' Equity
Preferred stock, authorized 3,000,000 shares - -
Common stock, no par value, authorized
50,000,000 shares; issued and outstanding
16,890,212 shares in 1995 and 17,245,673
shares in 1994 79,210 92,139
Cumulative foreign currency translation adjustment (16,913) (21,627)
Retained earnings 477,654 427,801
539,951 498,313
$ 5,039,533 $ 4,766,783
</TABLE>
See Notes to Consolidated Financial Statements.
14
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(In thousands)
Years ended April 30, 1995 1994 1993
<S> <C> <C> <C>
Operating Activities:
Net income $ 71,662 $ 64,558 $ 56,417
Adjustments to reconcile income to cash
provided by operating activities:
Depreciation on vehicles under operating
leases 872,495 808,894 707,542
Other depreciation and amortization 32,095 29,000 28,753
Amortization and write-down of capitalized
servicing rights 20,089 29,132 25,237
Additions to deferred mortgage servicing fees (27,869) (39,042) (30,821)
Deferred income taxes 7,530 25,694 (14,075)
Changes in:
Accounts receivable (5,913) (72,536) 29,452
Carrying costs on homes under management (9,011) 15,544 10,510
Mortgage loans held for sale (6,359) (227,230) (28,505)
Accounts payable and accrued expenses (59,033) (28,835) 12,387
Advances from clients and deferred revenue 21,790 (27,146) (5,737)
All other operating activity (6,551) (4,622) (8,531)
Cash provided by operating activities 910,925 573,411 782,629
Investing Activities:
Investment in leases and leased vehicles (1,785,923) (1,578,721) (1,699,971)
Repayment of investment in leases and leased
vehicles 579,835 549,262 553,822
Proceeds from sales and transfers of leases and
leased vehicles to third parties 109,859 105,087 90,697
Value of homes acquired (6,603,355) (4,101,894) (4,062,695)
Value of homes sold 6,631,414 4,301,529 4,068,422
Purchases of mortgage servicing rights (13,826) (14,223) (6,087)
Additions to property and equipment, net of
dispositions (16,429) (32,719) (20,825)
Acquisitions accounted for as a purchase - (2,594) -
All other investing activities (1,580) 602 3,006
Cash used in investing activities (1,100,005) (773,671) (1,073,631)
Financing Activities:
Net change in borrowings with terms of less than
90 days 114,462 172,255 81,453
Proceeds from issuance of other borrowings 1,195,147 1,040,092 1,123,795
Principal payment on other borrowings (1,074,230) (1,011,673) (947,905)
Stock option plan transactions 4,090 9,554 11,711
Repurchases of common shares (17,019) (8,721) (1,878)
Payment of dividends (21,809) (20,850) (20,436)
Cash provided by financing activities 200,641 180,657 246,740
Effect of exchange rate changes on cash (8,174) 19,106 43,601
Increase (decrease) in cash 3,387 (497) (661)
Cash at beginning of period 25 522 1,183
Cash at end of period $ 3,412 $ 25 $ 522
</TABLE>
See Notes to Consolidated Financial Statements.
15
<PAGE>
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Cumulative
Foreign
Currency
(Dollars in thousands except per share data) Common Stock Translation Retained
Years Ended April 30, 1995, 1994 and 1993 Shares Amount Adjustment Earnings
<S> <C> <C> <C> <C>
Balance April 30, 1992 16,881,057 $ 81,473 $ (6,298) $ 348,112
Net income 56,417
Cash dividends declared ($1.20 per share) (20,436)
Foreign currency translation adjustment (11,618)
Stock option plan transactions,
net of related income tax benefits 372,203 11,711
Repurchases of common shares (55,475) (1,878)
Balance April 30, 1993 17,197,785 91,306 (17,916) 384,093
Net income 64,558
Cash dividends declared ($1.20 per share) (20,850)
Foreign currency translation adjustment (3,711)
Stock option plan transactions,
net of related income tax benefits 305,062 9,554
Repurchases of common shares (257,174) (8,721)
Balance April 30, 1994 17,245,673 92,139 (21,627) 427,801
Net income 71,662
Cash dividends declared ($1.28 per share) (21,809)
Foreign currency translation adjustment 4,714
Stock option plan transactions,
net of related income tax benefits 129,660 4,090
Repurchases of common shares (485,121) (17,019)
Balance April 30, 1995 16,890,212 $ 79,210 $ (16,913) $ 477,654
</TABLE>
See Notes to Consolidated Financial Statements.
16
<PAGE>
Notes to Consolidated Financial Statements
(In thousands except per share data)
ACCOUNTING POLICIES
The accounting policies of PHH Corporation conform to generally accepted
accounting principles. The consolidated financial statements include the
accounts of PHH Corporation and its wholly owned domestic and foreign
subsidiaries (the Company). Policies outlined below include all policies
considered significant. All significant intercompany balances and transactions
have been eliminated.
Vehicle Management Services
Vehicle management services primarily consist of the management, purchase,
leasing, and resale of vehicles for corporate clients and government agencies,
including fuel, maintenance, accident and safety management programs and other
fee-based services for clients' vehicle fleets. Revenues from these services
other than leasing are taken into income over the periods in which the services
are provided and the related expenses are incurred.
The Company leases vehicles to corporate fleet users under operating and
direct financing lease arrangements. The initial lease term typically covers a
period of twelve months or more and thereafter may be extended at the option of
the lessee. The Company records the cost of leased vehicles as an "investment in
leases and leased vehicles." Amounts charged to lessees for interest on the
unrecovered investment are credited to income on a level yield method which
approximates the contractual terms.
Real Estate Services
Real estate services primarily consist of the purchase, management and
resale of homes for transferred employees of corporations and government
agencies. The Company pays transferring employees their equity based on an
appraised value of their homes, determined by independent appraisers, after
deducting any outstanding mortgages. In certain circumstances the mortgages may
be retired concurrently with the purchase of the equity; otherwise, the Company
normally accepts administrative responsibility for making payments on any
mortgages. These mortgages are either retired at settlement or assumed by the
purchaser when the homes are resold, which generally is within six months.
The client normally pays an advance billing for a portion of the costs to be
incurred during the period the home is held for resale. These advances are
included in "advances from clients." These costs are paid by the Company and are
identified as "carrying costs on homes under management" until resale. After
resale, a settlement of actual costs and the advance billing is made with the
client.
Revenues and the related "costs, including interest, of carrying and
reselling homes" are recognized at closing for the resale of the home. Under the
terms of contracts with clients, the Company is generally protected against
losses from changes in market conditions.
The Company also offers fee-based programs such as home marketing
assistance, household goods moves, destination services, property dispositions
for financial institutions and government agencies and strategic management
consulting. Revenues from these fee-based services are taken into income over
the periods in which the services are provided and the related expenses are
incurred.
Mortgage Banking Services
Mortgage banking services primarily include the origination, sale and
servicing of residential first mortgage loans. The Company markets a variety of
first mortgage products to consumers through relationships with corporations,
affinity groups, credit unions, real estate brokerage firms and other mortgage
banks. Loan origination fees, commitment fees paid in connection with the sale
of loans, and direct loan origination costs associated with loans held for
resale, are deferred until the loan is sold. Fees received for servicing loans
owned by investors are based on the difference between the weighted average
yield received on the mortgages and the amount paid to the investor, or on a
stipulated percentage of the outstanding monthly principal balance on such
loans. Servicing fees are credited to income when received. Costs associated
with loan servicing are charged to expense as incurred.
Sales of mortgage loans are generally recorded on the date a loan is
delivered to an investor. Sales of mortgage securities are recorded on the
settlement date. Gains or losses on sales of mortgage loans are recognized based
upon the difference between the selling price and the carrying value of the
related mortgage loans sold. Such gains and losses are increased or decreased by
the amount of deferred mortgage servicing fees recorded.
Gains or losses on the sale of mortgage servicing rights are recognized when
title and all risks and rewards have irrevocably passed to the buyer and there
are no significant unresolved contingencies.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation of property and equipment is provided by charges to
income over the estimated useful lives of such assets. Buildings are depreciated
on the straight-line method (25 to 45 years); building improvements, on the
straight-line method (10 to 20 years); equipment and leasehold improvements, on
either the double-declining balance or straight-line method (3 to 10 years); and
externally developed software is capitalized and amortized on the straight-line
method (5 years). Expenditures for improvements that increase value or that
extend the life of the assets are capitalized; maintenance and repairs are
charged to operations. Gains or losses from retirements and disposals of
property and equipment are included in selling, general and administrative
expense.
Unamortized Goodwill
Unamortized goodwill represents the excess of cost over the net tangible and
intangible assets of businesses acquired. It is being amortized by the straight-
line method over various periods up to 40 years and is included in selling,
general and administrative expense.
Assets Under Management Programs
Assets under management programs are held subject to leases or other client
contracts. The effective interest rates and maturity characteristics of the
leases and other contracts are generally matched with the characteristics of the
overall funding program.
Translation of Foreign Currencies
Assets and liabilities of the foreign subsidiaries are translated at the
exchange rates as of the balance sheet dates; equity accounts are translated at
historical exchange rates. Revenues, expenses and cash flows are translated at
the average exchange rates for the periods presented. Translation gains and
losses are included in stockholders' equity including, for years prior to 1991,
17
<PAGE>
transaction gains and losses resulting from forward exchange contracts on
foreign equity amounts net of income tax effects. Gains and losses resulting
from the change in exchange rates realized upon settlement of foreign currency
transactions are substantially offset by gains and losses realized upon
settlement of forward exchange contracts. Therefore, the resulting net income
effect of transaction gains and losses in fiscal years 1993 through 1995 was not
significant.
Interest
Interest expense consists of interest on debt incurred to fund working
capital requirements and to finance vehicle leasing activities, real estate
services and mortgage banking operations. Interest used to finance equity
advances on homes is included in "costs, including interest, of carrying and
reselling homes" and was $21,102 in 1995, $23,491 in 1994, and $43,041 in 1993.
Total interest paid, including amounts within "costs, including interest, of
carrying and reselling homes," was $211,206 in 1995, $165,406 in 1994, and
$170,628 in 1993.
Income Taxes
The provision for income taxes includes deferred income taxes resulting from
items reported in different periods for income tax and financial statement
purposes. The Company computes deferred income taxes using the liability method.
No provision has been made for US income taxes on cumulative undistributed
earnings of foreign subsidiaries since it is the present intention of management
to reinvest the undistributed earnings indefinitely in foreign operations.
Undistributed earnings of the foreign subsidiaries at April 30, 1995, were
$93,567. The determination of unrecognized deferred US tax liability for
unremitted earnings is not practicable. However, it is estimated that foreign
withholding taxes of $5,882 may be payable if such earnings were remitted.
Net Income Per Share
Net income per share is based on the weighted average number of shares of
common stock outstanding during the year and common stock equivalents arising
from the assumed exercise of outstanding stock options under the treasury stock
method. The number of shares used in the calculations were 17,252,843 for 1995,
17,741,034 for 1994, and 17,356,824 for 1993.
Derivative Financial Instruments
As a matter of policy, the Company does not engage in derivatives trading or
market-making activities. Rather, derivative financial instruments such as
interest rate swaps are used by the Company principally in the management of its
interest rate exposures and foreign currency exposures on intercompany
borrowings. Additionally, the Company enters into forward delivery contracts,
financial futures programs and options to reduce the risks of adverse price
fluctuation with respect to both mortgage loans held for sale and anticipated
mortgage loan closings arising from commitments issued.
Amounts to be paid or received under interest rate swap agreements are
accrued as interest rates change and are recognized over the life of the swap
agreements as an adjustment to interest expense. The fair value of the swap
agreements is not recognized in the consolidated financial statements since they
are accounted for as hedges. Market value gains and losses on the Company's
foreign currency transaction hedges are recognized in income and substantially
offset the foreign exchange gains and losses on the underlying transactions.
Market value gains and losses on positions used as hedges in the mortgage
banking services operation are deferred and considered in the valuation of lower
of cost or market value of mortgage loans held for sale.
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements for comparative purposes.
NEW ACCOUNTING PRONOUNCEMENTS
In May 1995, the Financial Accounting Standards Board (FASB) issued SFAS No.
122, "Accounting for Mortgage Servicing Rights", effective for fiscal years
beginning after December 15, 1995. Application of this statement will require
that the Company recognize originated mortgage servicing rights, as well as
purchased mortgage servicing rights, as assets. Presently, the cost of
originated mortgage servicing rights is included with the cost of the related
loans and recognized when the loan is sold, but the cost of purchased mortgage
servicing rights is recorded as an asset. SFAS No. 122 also requires capitalized
mortgage servicing rights, stratified based on the risk characteristics of the
underlying loans, to be assessed for impairment based on the fair value of those
rights. Impairment is to be recognized through a valuation allowance for each
impaired stratum. The Company intends to adopt this statement in the first
quarter of 1996. The effect of this statement has been initially estimated to
increase net income in 1996 by approximately $20 million.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", effective in
1997. Application of this statement will require the Company to review long-
lived assets and certain intangibles for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. This statement is not expected to significantly affect the
consolidated financial statements of the Company.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale represent mortgage loans originated by the
Company and held pending sale to permanent investors. Such mortgage loans are
recorded at the lower of cost or market value as determined by outstanding
commitments from investors or current investor yield requirements calculated on
the aggregate loan basis.
The Company issues mortgage-backed certificates insured or guaranteed by the
Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage
Corporation (FHLMC), Government National Mortgage Association (GNMA) and other
private insurance agencies. The insurance provided by FNMA and FHLMC and other
private insurance agencies are on a non-recourse basis to the Company. However,
the guarantee provided by GNMA is only to the extent recoverable from insurance
programs of the Federal Housing Administration and the Veterans Administration.
The outstanding principal balance of mortgages backing GNMA certificates issued
by the Company aggregated approximately $1,699,233 and $1,139,199 at April 30,
1995 and 1994, respectively. Additionally, the Company sells mortgage loans as
part of various mortgage-backed security programs sponsored by FNMA, FHLMC and
GNMA. Certain of these sales are subject to recourse or indemnification
provisions in the event of default by the borrower. As of April 30, 1995,
mortgage loans sold with recourse amounted to $43,383. The Company believes
adequate reserves are maintained to cover all potential losses.
PROPERTY AND EQUIPMENT
Property and equipment at April 30 consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
Land $ 9,584 $ 10,748
Buildings and leasehold improvements 58,305 55,421
Equipment 111,909 108,848
Accumulated depreciation
and amortization (87,342) (78,371)
92,456 96,646
Capitalized software costs, net 9,943 11,512
$ 102,399 $ 108,158
</TABLE>
18
<PAGE>
OTHER ASSETS
Other assets at April 30 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Unamortized mortgage servicing fees $ 98,003 $ 88,337
Mortgage-related notes receivable 27,659 6,545
Residential properties held for resale 14,596 13,488
Other 35,674 41,196
$ 175,932 $ 149,566
</TABLE>
The unamortized mortgage servicing fees represent the value of purchased
servicing rights and excess servicing fees which are deferred. Such servicing
rights and fees are charged to income over the estimated effective life of the
related mortgages, estimated to average seven years. Mortgage loans serviced
were $16,017,416 and $16,644,730 at April 30, 1995 and 1994, respectively.
Mortgage-related notes receivable are loans secured by real estate. Residential
properties held for resale are located primarily in the US and are carried at
the lower of cost or net realizable value.
ASSETS UNDER MANAGEMENT PROGRAMS
Net Investment in Leases and Leased Vehicles
The net investment in leases and leased vehicles at April 30 consisted of
the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Vehicles under open-end
operating leases $ 2,357,425 $ 2,156,768
Vehicles under closed-end
operating leases 288,582 254,614
Direct financing leases 370,234 354,485
Accrued interest on leases 990 1,116
$ 3,017,231 $ 2,766,983
</TABLE>
The Company leases vehicles for initial periods of twelve months or more
under either operating or direct financing lease agreements. The Company's
experience indicates that the full term of the leases may vary considerably due
to extensions beyond the minimum lease term. Lessee repayments of investments in
leases and leased vehicles for 1995 and 1994 were $1,452,330 and $1,358,156,
respectively; and the ratio of such repayments to the average net investment in
leases and leased vehicles was 50% in 1995 and 49% in 1994.
The Company has two types of operating leases. Under one type, open-end
operating leases, resale of the vehicles upon termination of the lease is
generally for the account of the lessee except for a minimum residual value
which the Company has guaranteed. The Company's experience has been that
vehicles under this type of lease agreement have consistently been sold for
amounts exceeding the residual value guarantees. Maintenance and repairs of
vehicles under these agreements are the responsibility of the lessee. The
original cost of vehicles under this type of operating lease at April 30, 1995
and 1994, was $3,898,000 and $3,538,000, respectively.
Under the other type of operating lease, closed-end operating leases, resale
of the vehicles on termination of the lease is for the account of the Company.
The lessee generally pays for or provides maintenance, vehicle licenses and
servicing. The original cost of vehicles under these agreements at April 30,
1995 and 1994, was $391,000 and $367,000, respectively. The Company believes
adequate reserves are maintained in the event of loss on vehicle disposition.
Under the direct financing lease agreements, resale of the vehicles upon
termination of the lease is generally for the account of the lessee.
Maintenance and repairs of these vehicles are the responsibility of
the lessee.
Leasing revenues are included in revenues from vehicle management services.
Following is a summary of leasing revenues for years ended April 30:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Operating leases $ 1,017,521 $ 939,297 $ 855,510
Direct financing leases,
primarily interest 40,937 28,852 39,066
$ 1,058,458 $ 968,149 $ 894,576
</TABLE>
The Company has transferred existing managed vehicles and related leases to
unrelated investors and has retained servicing responsibility. Credit risk for
such agreements is retained by the Company to a maximum extent in one of two
forms: excess assets transferred, which were $8,389 and $12,836 at April 30,
1995 and 1994, respectively; or guarantees to a maximum extent of $907 and
$2,749 at April 30, 1995 and 1994, respectively. All such credit risk has been
included in the Company's consideration of related reserves. The outstanding
balances under such agreements aggregated $166,379 and $189,480 at April 30,
1995 and 1994, respectively.
Other managed vehicles with balances aggregating $175,111 and $206,740 at
April 30, 1995 and 1994, respectively, are included in special purpose entities
whose ownership is deemed unrelated to the Company and whose credit and residual
value risk characteristics are ultimately not the Company's responsibility.
Equity Advances on Homes
Equity advances on homes represent advances paid to transferring employees
of clients for their equity based on appraised values of their homes.
OTHER DEBT
Other debt at April 30 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Commercial paper $ 635,886 $ 619,822
Medium-term note 100,000 100,000
$ 735,886 $ 719,822
</TABLE>
Commercial paper programs are more fully described in the Note for
Liabilities Under Management Programs. The medium-term note represents an
unsecured obligation having a fixed interest rate of 6.5% with interest payable
semi-annually and a term of seven years payable in full in fiscal 2000.
INCOME TAXES
Provisions (credits) for income taxes for the years ended April 30, were
comprised as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current income taxes:
Federal $ 25,983 $ 7,550 $ 34,300
State and local 8,910 9,938 9,643
Foreign 6,620 2,739 9,612
41,513 20,227 53,555
Deferred income taxes:
Federal 10,663 24,452 (8,000)
State and local (950) (1,033) (2,873)
Foreign (1,570) 1,592 (4,861)
8,143 25,011 (15,734)
$ 49,656 $ 45,238 $ 37,821
</TABLE>
19
<PAGE>
Deferred income taxes are recorded based upon differences between the
financial statements and the tax bases of assets and liabilities and available
tax credit carryforwards. There was no valuation allowance relating to deferred
tax assets. Deferred tax assets (liabilities) as of April 30 were comprised as
follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Depreciation $ (162,500) $ (167,472)
Accrued liabilities and deferred income 40,700 38,798
Unamortized mortgage servicing fees (2,600) (3,073)
Alternative minimum tax credit
carryforwards - 15,490
$ (124,400) $ (116,257)
</TABLE>
The portions of the 1995 income tax liability and provision classified as
current and deferred are subject to final determination based on the actual 1995
income tax returns. The liability and provision amounts for 1994 have been
reclassified to reflect the final determination made in filing the 1994 income
tax returns.
The Company paid income taxes of $26,049 in 1995, $35,739 in 1994, and
$50,092 in 1993.
A summary of the reasons for differences between the statutory federal
income tax rate and the Company's effective income tax rate follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Federal income tax
statutory rate 35.0% 35.0% 34.0%
State income taxes,
net of federal benefit 4.5 5.3 4.7
Amortization of goodwill 1.0 0.7 0.8
Rate increase
on deferred taxes - 3.0 -
Adjustments of tax
accruals - (3.0) -
Foreign tax in excess of
(less than) domestic rate (0.1) - 0.4
Other 0.5 0.2 0.2
Effective tax rate 40.9% 41.2% 40.1%
</TABLE>
The Company's US federal income tax returns have been examined by the
Internal Revenue Service through April 30, 1991.
LIABILITIES UNDER MANAGEMENT PROGRAMS
Borrowings to fund assets under management programs are classified as
"liabilities under management programs" and, at April 30, consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Commercial paper $ 1,665,193 $ 1,513,897
Medium-term notes 1,261,000 1,143,235
Limited recourse debt 8,357 9,819
Secured notes payable on
vehicles under lease 39,446 34,621
Other unsecured debt 105,633 140,333
$ 3,079,629 $ 2,841,905
</TABLE>
Commercial paper, all of which matures within ninety days, is supported by
committed revolving credit agreements described below and short-term lines of
credit. The weighted average interest rates on the Company's outstanding
commercial paper were 6.3% and 4.0% at April 30, 1995 and 1994, respectively.
Medium-term notes represent unsecured loans which mature as follows:
$1,161,000 in 1996, and $100,000 in 1997. The weighted average interest rates on
medium-term notes were 5.7% and 4.1% at April 30, 1995 and 1994, respectively.
Limited recourse debt and secured notes payable on vehicles under lease
primarily consist of secured loans arranged for certain clients for their
convenience. The lenders hold a security interest in the lease payments and the
clients' leased vehicles. The debt and notes payable mature concurrently with
the related lease payments. The aggregate lease payments due from the lessees
exceed the loan repayment requirements. The weighted average interest rates on
secured debt were 6.4% and 4.2% at April 30, 1995 and 1994, respectively.
The Company has unsecured committed credit agreements with various banks
totaling $2,111,000. These agreements have both fixed and evergreen maturities
ranging from May 1, 1995, to April 30, 1998. The evergreen revolving credit
agreements require a notice of termination of one to three years. Interest rates
under all revolvers are either at fixed rates or vary with the prime rate or the
London Interbank Offered Rate. Under these agreements, the Company is obligated
to pay annual commitment fees which were $2,904 and $3,975 in 1995 and 1994,
respectively. The Company has other unused lines of credit of $262,000 and
$223,000 at April 30, 1995 and 1994, respectively, with various banks.
Other unsecured debt, all of which matures in 1996, includes other
borrowings under short-term lines of credit and other bank facilities. The
weighted average interest rates on unsecured debt were 6.2% and 5.2% at April
30, 1995 and 1994, respectively.
Although the period of service for a vehicle is at the lessee's option, and
the period a home is held for resale varies, management estimates, by using
historical information, the rate at which vehicles will be disposed and the rate
at which homes will be resold. These projections of estimated liquidations of
assets under management programs and the related estimated repayment of
liabilities under management programs as of April 30, 1995, as set forth in the
table below, indicate that the actual repayments of liabilities under management
programs will be different than required by contractual maturities.
<TABLE>
<CAPTION>
Assets Under Liabilities Under
Management Programs Management Programs
<C> <S> <C>
1996 $ 1,792,933 $ 1,634,675
1997 995,228 843,587
1998 451,360 393,443
1999 144,826 133,202
2000 48,224 47,637
2000-2004 32,318 27,085
$ 3,464,889 $ 3,079,629
</TABLE>
20
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS
The Company employs interest rate swap agreements to match effectively the
fixed or floating rate nature of liabilities to the assets funded. A key
assumption in the following information is that rates remain constant at April
30, 1995 levels. To the extent that rates change, both the maturity and
variable interest rate information will change. However, the net rate the
Company pays remains matched with the assets funded.
The following table summarizes the maturity and weighted average rates of
the Company's interest rate swaps employed at April 30, 1995. These
characteristics are effectively offset within the portfolio of assets funded by
the Company.
<TABLE>
<CAPTION>
Maturities
Total 1996 1997 1998 1999 2000 2001
<S> <C> <C> <C> <C> <C> <C> <C>
United States
Commercial paper:
Pay fixed/receive floating:
Notional value $ 436,650 $ 173,492 $ 137,895 $ 75,384 $ 31,334 $ 13,945 $ 4,600
Weighted average receive rate 6.09% 6.09% 6.09% 6.09% 6.09% 6.09%
Weighted average pay rate 6.35% 6.71% 6.96% 7.36% 7.70% 7.55%
Medium-term notes:
Pay floating/receive fixed:
Notional value 250,000 150,000 100,000
Weighted average receive rate 6.66% 8.00%
Weighted average pay rate 6.04% 6.05%
Medium-term notes:
Pay floating/receive floating:
Notional value 646,000 646,000
Weighted average receive rate 6.12%
Weighted average pay rate 6.05%
Canada
Commercial paper:
Pay fixed/receive floating:
Notional value 81,567 44,914 24,485 10,251 1,917
Weighted average receive rate 8.03% 8.03% 8.03% 8.03%
Weighted average pay rate 7.10% 7.45% 7.86% 7.95%
Pay floating/receive floating:
Notional value 65,925 38,183 18,711 8,682 349
Weighted average receive rate 6.58% 6.58% 6.58% 6.58%
Weighted average pay rate 8.00% 8.00% 8.00% 8.00%
United Kingdom
Commercial paper:
Pay fixed/receive floating:
Notional value 260,822 82,051 83,985 62,546 29,016 3,224
Weighted average receive rate 7.00% 7.00% 7.00% 7.00% 7.00%
Weighted average pay rate 7.57% 7.85% 7.93% 8.56% 8.70%
Total $1,740,964 $ 1,134,640 $ 365,076 $ 156,863 $ 62,616 $ 17,169 $ 4,600
</TABLE>
21
<PAGE>
For the year ended April 30, 1995, the Company's hedging activities
increased interest expense $1,496 and had no effect on its weighted average
borrowing rate. For the same periods in 1994 and 1993, hedging activities
increased interest expense by $12,632 and $16,382, and increased the weighted
average borrowing rate 0.3% and 0.5%, respectively.
The Company enters into foreign exchange contracts as hedges against
currency fluctuation on certain intercompany loans. Such contracts effectively
offset the currency risk applicable to approximately $80,600 and $85,852 of
obligations at April 30, 1995 and 1994, respectively.
The Company is exposed to credit-related losses in the event of non-
performance by counterparties to certain derivative financial instruments. The
Company manages such risk by periodically evaluating the financial condition of
counterparties and spreading its positions among multiple counterparties. The
Company presently does not expect non-performance by any of the counterparties.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments:
(bullet)Cash, accounts receivable, certain other assets and commercial paper
borrowings. Due to the short-term nature of these financial instruments, the
carrying value equals or approximates fair value.
(bullet)Mortgage loans held for sale. Fair value is estimated using the
quoted market prices for securities backed by similar types of loans and
current dealer commitments to purchase loans. These loans are priced to be
sold with servicing rights retained. Gains (losses) on mortgage-related
positions, used to reduce the risks of adverse price fluctuations, for both
mortgage loans held for sale and anticipated mortgage loan closings arising
from commitments issued, are included in the carrying amount of mortgage
loans held for sale.
(bullet)Deferred mortgage servicing fees. Fair value is estimated by
discounting future excess cash flows of fees associated with the underlying
securities backing this asset using discount rates that approximate market
rates and externally published prepayment rates, adjusted, if appropriate,
for individual portfolio characteristics.
(bullet)Borrowings. Fair value of borrowings, other than commercial paper,
is estimated based on quoted market prices or market comparables.
(bullet)Interest rate swaps, foreign exchange contracts, forward delivery
commitments, futures contracts and options. The fair value of interest rate
swaps, foreign exchange contracts, forward delivery commitments, futures
contracts and options is estimated, using dealer quotes, as the amount that the
Company would receive or pay to execute a new agreement with terms identical to
those remaining on the current agreement, considering interest rates at the
reporting date.
The following table sets forth information about financial instruments,
except for those noted above for which the carrying value approximates fair
value, at April 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
Estimated Estimated
Notional Carrying Fair Notional Carrying Fair
Amount Amount Value Amount Amount Value
<S> <C> <C> <C> <C> <C> <C>
Assets:
Mortgage loans held for sale* $ - $ 712,247 $ 712,247 $ - $ 705,888 $ 705,888
Deferred mortgage servicing fees - 78,848 86,982 - 74,200 74,200
Liabilities
Borrowings Medium-term notes - 1,361,000 1,361,198 - 1,243,235 1,241,730
Off balance sheet:
Interest rate swaps 1,740,964 1,912,499
In a gain position - 8,350 - 5,929
In a loss position - (4,693) - (6,064)
Foreign exchange forwards 80,600 - (54) 85,852 - (260)
Mortgage related positions:*
Forward delivery commitments 877,000 12,448 (14,958) 997,000 (15,768) 33,258
Futures contracts 212,500 503 (1,434) 190,000 (1,777) 2,175
Option contracts to sell 143,500 729 (411) 141,000 (2,129) 2,977
Option contracts to buy 110,000 483 5 65,000 847 (40)
</TABLE>
* Gains (losses) on mortgage-related positions are already included in the
determination of market value of mortgage loans held for sale.
22
<PAGE>
STOCK OPTION, INVESTMENT AND INCENTIVE PLANS
The Company's employee stock option plans allow for options to be granted to
key employees for the purchase of common stock at prices not less than fair
market value on the date of grant. Either incentive stock options or non-
statutory stock options may be granted under the plans. The Company's Directors'
stock option plan allows for options to be granted to outside Directors of the
Company for the purchase of common stock at prices not less than fair market
value on the date of grant. Options become exercisable after one year from date
of grant on a vesting schedule provided by the plans, and expire ten years after
the date of the grant. Option transactions during 1995, 1994, and 1993 were as
follows:
<TABLE>
<CAPTION>
Number of Option Price
Shares per Share
<S> <C> <C>
Outstanding April 30, 1992 1,952,838 $18.13 to $37.75
Granted 440,500 $33.63 to $39.63
Exercised (372,203) $19.88 to $37.75
Canceled (49,565) $23.38 to $37.75
Outstanding April 30, 1993 1,971,570 $18.13 to $39.63
Granted 199,450 $39.00 to $42.00
Exercised (305,062) $18.13 to $37.75
Canceled (97,785) $27.00 to $39.63
Outstanding April 30, 1994 1,768,173 $19.88 to $42.00
Granted 234,700 $35.50 to $37.00
Exercised (129,660) $19.88 to $37.75
Canceled (200,245) $24.50 to $41.13
Outstanding April 30, 1995 1,672,968 $19.88 to $42.00
Exercisable April 30, 1995 1,454,468 $19.88 to $42.00
</TABLE>
In addition to outstanding options, at April 30, 1995, there were 1,036,196
shares of common stock reserved, including 856,872 shares for issuance under
future employee stock option plan awards, 118,324 shares for future issuance
under the employee investment plan and 61,000 shares for future issuance under
the Director's stock option plan.
Under provisions of the Company's employee investment plan, a qualified
retirement plan, eligible employees may generally have up to 10% of their base
salaries withheld and placed with an independent custodian and elect to invest
in common stock of the Company, an index equity fund, a growth equity fund, an
international equity fund, a fixed income fund, an asset allocation fund and/or
a money market fund. The Company's contributions vest proportionately in
accordance with an employee's years of vesting service, with an employee being
100% vested after three years of vesting service. The Company matches, in common
stock of the Company, employee contributions to 3% of their base salaries, with
an additional 3% match available at the end of the year based on the Company's
operating results. In the three years presented the Company made additional
matches of 50% of employee contributions greater than 3% up to 6%. The
additional match, initially invested in a money market fund, can be redirected
by the employee into any of the investment elections noted above. The Company's
expenses for contributions were $4,483, $4,020, and $3,662 for the years ended
April 30, 1995 and the two preceding years, respectively.
The Company has incentive compensation plans for certain key employees. The
plans provide for the payment of cash bonuses or, in some instances, stock
incentives, based upon the achievement of predetermined performance objectives.
The related expense included in selling, general and administrative expenses for
1995, 1994 and 1993 was $5,581, $6,086 and $5,659, respectively.
STOCK RIGHTS
On March 17, 1986, the Company declared a dividend of one preferred share
purchase right for each share of common stock outstanding on April 11, 1986. The
Company adopted an amendment to its rights agreement January 16, 1989. Each
right entitles the holder to purchase 1/100th of a share of series A Junior
Participating Preferred Stock at an exercise price of $120. The rights become
exercisable in the event any party acquires or announces an offer to acquire 20%
or more of the Company's common stock. The rights expire April 10, 1996, and are
redeemable at $.05 per right prior to the time any party owns 20% or more of the
Company's outstanding common stock. In the event the Company enters into a
consolidation or merger after the time rights are exercisable, the rights
provide that the holder will receive, upon exercise of the right, shares of
common stock of the surviving company having a market value of twice the
exercise price of the right. Until the earlier of the time the rights become
exercisable, are redeemed or expire, the Company will issue one right with each
new share of common stock issued. The Company has designated 200,000 shares of
the authorized preferred shares as series A Junior Participating Preferred Stock
for issuance upon exercise of the rights.
PENSION AND OTHER EMPLOYEE BENEFIT PLANS
Pension and Supplemental Retirement Plans
The Company has a non-contributory defined benefit pension plan covering
substantially all US employees of the Company and its subsidiaries. The
Company's subsidiary located in the UK has a contributory defined benefit
pension plan, with participation at the employee's option. Under both the US and
UK plans, benefits are based on an employee's years of credited service and a
percentage of final average compensation. The Company's policy for both plans is
to contribute amounts sufficient to meet the minimum requirements plus other
amounts as the Company deems appropriate from time to time. The Company also
sponsors two unfunded supplemental retirement plans to provide certain key
executives with benefits in excess of limits under the federal tax law and to
include annual incentive payments in benefit calculations.
Net costs included the following components for the years ended April 30:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost-benefits
earned $ 4,597 $ 4,604 $ 3,804
Interest cost on projected
benefit obligation 6,742 6,181 5,383
Actual return on assets (3,144) (2,049) (3,959)
Net amortization and
deferral (1,698) (2,050) 68
Net cost $ 6,497 $ 6,686 $ 5,296
</TABLE>
23
<PAGE>
A summary of the plans' status and the Company's recorded liability
recognized in the Consolidated Balance Sheets at April 30 follows:
<TABLE>
<CAPTION>
Funded Plans
1995 1994
<S> <C> <C>
Accumulated benefit obligation:
Vested $ 49,799 $ 40,681
Unvested 6,428 7,072
$ 56,227 $ 47,753
Projected benefit obligation $ 75,537 $ 71,571
Funded assets, at fair value (60,558) (53,177)
Unrecognized net loss from past
experience different from that assumed
and effects of changes in assumptions (8,906) (11,528)
Unrecognized prior service cost (94) 129
Unrecognized net (obligation) asset (93) (29)
Recorded liability $ 5,886 $ 6,966
<CAPTION>
Unfunded Plans
1995 1994
<S> <C> <C>
Accumulated benefit obligation:
Vested $ 8,591 $ 8,202
Unvested 965 1,445
$ 9,556 $ 9,647
Projected benefit obligation $ 13,433 $ 13,466
Unrecognized net loss from past
experience different from that assumed
and effects of changes in assumptions (849) (1,584)
Unrecognized prior service cost (2,598) (2,941)
Unrecognized net (obligation) asset (1,624) (1,856)
Minimum liability adjustment 1,194 2,562
Recorded liability $ 9,556 $ 9,647
</TABLE>
Assumptions
Certain assumptions were used in determining the cost and related
obligations under the US pension and unfunded supplemental retirement plans as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
PERCENT
Pension cost:
Discount rate 8.25 8.25 8.75
Rate of increase in
compensation 5.00 5.00 5.00
Long-term rate of
return on assets 9.50 10.00 10.00
Pension obligation:
Discount rate 8.50 8.25 8.25
Rate of increase in
compensation 5.00 5.00 5.00
</TABLE>
Postretirement Benefits Other Than Pensions
The Company provides healthcare and life insurance benefits for certain
retired employees up to the age of 65. Such postretirement benefits costs,
determined in accordance with SFAS No.106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," for 1995 and 1994, were $1,474 and
$1,551, respectively. Prior to adoption of SFAS No. 106, the Company recognized
the costs of these benefits by expensing the benefits as paid. The aggregate
costs of such benefits did not exceed $500 in 1993.
<TABLE>
<CAPTION> 1995 1994
<S> <C> <C>
Status at April 30
Accumulated postretirement
benefit obligation:
Active employees fully eligible
for benefits $ 5,574 $ 5,361
Current retirees 1,785 1,599
7,359 6,960
Unrecognized transition obligation (5,289) (5,583)
Unrecognized net gain 248 -
Recorded liability $ 2,318 $ 1,377
</TABLE>
LEASE COMMITMENTS
Total rental expenses relating to office facilities and equipment were
$24,195, $27,264, and $25,368 for 1995, 1994 and 1993, respectively. Minimum
rental commitments under non-cancelable leases with remaining terms in excess of
one year are as follows:
<TABLE>
<S> <C> <C> <C>
1996 $ 14,695 2000 $ 7,004
1997 $ 13,436 2000-2005 $ 17,127
1998 $ 11,621 2006 and thereafter $ 2,170
1999 $ 9,105
</TABLE>
These leases provide for additional rentals based on the lessors' increased
property taxes, maintenance and operating expenses.
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.
The Company is contingently liable under the terms of an agreement involving
its discontinued aviation services segment for payment of Industrial Revenue
Bonds issued by local governmental authorities operating at three airports. The
Company believes its allowance for disposition loss is sufficient to cover all
potential liability.
24
<PAGE>
BUSINESS SEGMENTS
The Company operations are classified into three business segments: vehicle
management services, real estate services and mortgage banking services. Vehicle
management services and real estate services are provided in North America and
Europe. Mortgage banking services are provided in the US. Selected information
by business segment and geographic area follows:
Business Segments
<TABLE>
<CAPTION>
(In thousands)
Years Ended April 30, 1995 1994 1993
<S> <C> <C> <C>
Revenues:
Vehicle management services $ 1,257,696 $ 1,162,483 $ 1,069,484
Real estate services 686,836 816,261 829,336
Mortgage banking services 126,094 155,935 122,111
Consolidated $ 2,070,626 $ 2,134,679 $ 2,020,931
Income before income taxes:
Vehicle management services $ 55,668 $ 46,230 $ 42,272
Real estate services 35,219 21,500 26,615
Mortgage banking services 30,431 42,066 25,351
Consolidated $ 121,318 $ 109,796 $ 94,238
Identifiable assets:
Vehicle management services $ 3,413,080 $ 3,120,154 $ 3,053,652
Real estate services 723,698 807,119 970,810
Mortgage banking services 902,755 839,510 588,566
Consolidated $ 5,039,533 $ 4,766,783 $ 4,613,028
Capital expenditures:
Vehicle management services $ 8,536 $ 10,250 $ 11,205
Real estate services 9,103 8,839 4,343
Mortgage banking services 1,668 17,023 8,085
Consolidated $ 19,307 $ 36,112 $ 23,633
Depreciation and amortization:
Vehicle management services $ 891,361 $ 825,609 $ 722,913
Real estate services 10,054 8,921 8,349
Mortgage banking services 23,264 32,496 30,270
Consolidated $ 924,679 $ 867,026 $ 761,532
</TABLE>
Geographic Areas
<TABLE>
<CAPTION>
(In thousands)
Years Ended April 30, 1995 1994 1993
<S> <C> <C> <C>
North America $ 1,894,050 $ 1,954,106 $ 1,802,201
Europe 176,576 180,573 218,730
Consolidated $ 2,070,626 $ 2,134,679 $ 2,020,931
Income before income taxes:
North America $ 113,942 $ 106,895 $ 89,664
Europe 7,376 2,901 4,574
Consolidated $ 121,318 $ 109,796 $ 94,238
Identifiable assets:
North America $ 4,492,213 $ 4,211,169 $ 4,042,912
Europe 547,320 555,614 570,116
Consolidated $ 5,039,533 $ 4,766,783 $ 4,613,028
</TABLE>
25
<PAGE>
Quarterly Financial Data (Unaudited)
<TABLE>
(In thousands except per share data) Year ended April 30, 1995
Quarter First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
Revenues $ 520,308 $ 510,137 $ 494,141 $ 546,040 $ 2,070,626
Income before income taxes $ 28,035 $ 29,874 $ 28,254 $ 35,155 $ 121,318
Net income $ 16,515 $ 17,612 $ 16,762 $ 20,773 $ 71,662
Net income per share $ .95 $ 1.01 $ .98 $ 1.21 $ 4.15
Cash dividends per share $ .32 $ .32 $ .32 $ .32 $ 1.28
Price range of stock:
High $ 38 3/4 $ 38 $ 38 1/8 $ 40 1/2 $ 40 1/2
Low $ 35 $ 34 7/8 $ 33 5/8 $ 35 1/4 $ 33 5/8
</TABLE>
<TABLE>
Year ended April 30, 1994
Quarter First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
Revenues $ 538,570 $ 545,374 $ 516,809 $ 533,926 $ 2,134,679
Income before income taxes $ 24,944 $ 27,929 $ 26,328 $ 30,595 $ 109,796
Net income $ 14,789 $ 16,203 $ 15,411 $ 18,155 $ 64,558
Net income per share $ .84 $ .90 $ .87 $ 1.03 $ 3.64
Cash dividends per share $ .30 $ .30 $ .30 $ .30 $ 1.20
Price range of stock:
High $ 42 1/2 $ 46 3/4 $ 46 3/4 $ 43 1/4 $ 46 3/4
Low $ 39 1/2 $ 41 3/8 $ 40 5/8 $ 33 1/4 $ 33 1/4
</TABLE>
26
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Directors is contained on pages 2 through
6 of the Registrant's Proxy Statement for its 1995 Annual Meeting of
Stockholders, which information is hereby incorporated by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
An Executive Officer
Office Held Name -- Age Since Fiscal Year
<S> <C> <C>
Chairman of the Board, President
and Chief Executive Officer Robert D. Kunisch -- 54 1982
Senior Vice President William F. Adler -- 51 1986
Senior Vice President and Secretary Eugene A. Arbaugh -- 57 1987
Senior Vice President Stephen A. Fragapane -- 45 1988
Senior Vice President and
Chief Financial Officer Roy A. Meierhenry -- 56 1987
Senior Vice President H. Robert Nagel -- 51 1992
Vice President, Treasurer and
Investor Relations Terence W. Edwards -- 40 1995
Vice President Terry E. Kridler -- 48 1986
Vice President Edwin F. Miller -- 52 1990
Vice President Donna C. Startzel -- 47 1988
Vice President Samuel H. Wright -- 49 1983
Controller Nan A. Grant -- 43 1991
</TABLE>
Officers are elected by the Board of Directors to serve at the pleasure of
the Board. There is no family relationship between any of such persons. Each of
the persons named above has been employed by the Company or one of its
subsidiaries for more than the past five years.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is contained on pages 9
through 18 of the Registrant's Proxy Statement for its 1995 Annual Meeting of
Stockholders, which information is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial
owners and management is contained on pages 7 and 8 of the Registrant's Proxy
Statement for its 1995 Annual Meeting of Stockholders, which information is
hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
(a) 1. Index to Financial Statements
Report and Consent of Independent Auditors 12
Consolidated Financial Statements of PHH Corporation
and Subsidiaries and related notes:
Consolidated Statements of Income for the years ended April 30, 1995, 1994, and
1993 13
Consolidated Balance Sheets at April 30, 1995 and 1994 14
Consolidated Statements of Cash Flows for the years ended April 30, 1995, 1994 and
1993 15
Consolidated Statements of Stockholders' Equity for the years ended April 30, 1995,
1994 and 1993 16
Notes to Consolidated Financial Statements 17
2. Index to Financial Statement Schedules
Consolidated Schedules of PHH Corporation and Subsidiaries for the years ended April 30,
1995, 1994 and 1993:
Schedule II -- Valuation and Qualifying Accounts 31
All schedules not listed have been omitted because of the absence of the conditions under which they are
required or the required information is included elsewhere in the financial statements or notes thereto.
3. Exhibits
The exhibits identified by an asterisk (*) are on file with the Commission and such exhibits are
incorporated by reference from the respective previous filings. The exhibits identified by a double
asterisk (**) are being filed with this report.
</TABLE>
<TABLE>
<S> <C>
Exhibit No.
3-1 Charter of PHH Corporation, as amended(*).
3-2 By-Laws of PHH Corporation, as amended October 1990(*).
4-1 Indenture between the Company and Bank of Boston, Trustee, dated as of March 1, 1984, filed as Exhibit
4(a) to Registration No. 2-90026 (*).
4-2 Master Credit Agreements of various dates among the Company and various commercial banks filed as
Exhibit 4-4 to Form 10-K for fiscal year ended April 30, 1990(*).
4-3 Credit Agreements of various dates among the Company and various commercial banks filed as Exhibit 4-5
to Form 10-K for fiscal year ended April 30, 1990(*).
4-4 Indenture between the Company and Bank of New York, Trustee, dated as of May 1, 1992, filed as Exhibit
4(a)(iii) to Registration Statement 33-48125(*).
4-5 Indenture between the Company and First National Bank of Chicago, Trustee, dated as of March 1, 1993,
filed as Exhibit 4(a)(i) to Registration Statement 33-59376 (*).
4-6 Policy on confidential proxy voting and Independent Tabulation and Inspection of Elections adopted by
resolution of the Board of Directors on June 17, 1991, filed as Exhibit 4-8 to Form 10-K for fiscal
year ended April 30, 1991 (*).
10-1 Amended and Restated Stock Compensation Plan of 1990 filed as Exhibit 4(a) to Registration No.
33-53282 (*)
10-2 Outside Directors Stock Option Plan filed as Exhibit 4(b) to Registration No. 33-38309 (*).
10-3 Amended and Restated Directors Deferred Compensation Plan for Corporate Directors filed as Exhibit
10-3 to Form 10-K for fiscal year ended April 30, 1993 (*).
10-4 Directors Deferred Stock Retirement Plan filed as Exhibit 10-4 to Form 10-K for fiscal year ended
April 30, 1994 (*).
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
10-5 Executive Deferred Compensation Plan and Form of Executive Deferred Compensation Plan Trust Agreement
filed as Exhibit 10-5 to Form 10-K for fiscal year ended April 30, 1994 (*).
10-6 Amendment No. 1 to Executive Deferred Compensation Plan (**).
10-7 Long-Term Incentive Plan (FY 95-96-97) filed as Exhibit 10-7 to Form 10-K for fiscal year ended April
30, 1994 (*).
10-8 Corporate Incentive Plan (FY 96) and CEO & President Incentive Plan (FY96) (**).
10-9 Amended and Restated Supplemental Executive Retirement Plan, filed as Exhibit 10-10 to Form 10-K for
fiscal year ended April 30, 1989, as amended on June 18, 1990, filed as Exhibit 10-12 to Form 10-K for
fiscal year ended April 30, 1990, and amended on November 11, 1991, filed as Exhibit 10-8 to Form 10-K
for fiscal year ended April 30, 1993 (*).
10-10 Third Amendment to Supplemental Executive Retirement Plan filed as Exhibit 10-10 for fiscal year ended
April 30, 1994 (*).
10-11 Fourth Amendment to Supplemental Executive Retirement Plan (**).
10-12 Form of Amended and Restated Supplemental Executive Retirement Agreement filed as Exhibit 10-11 to
Form 10-K for fiscal year ended April 30, 1994 (*).
10-13 Amended and Restated Excess Benefit Plan filed as Exhibit 10-12 to Form 10-K for fiscal year ended
April 30, 1994 (*).
10-14 Form of Amended and Restated Deferred Compensation Trust Agreement for Supplemental Executive
Retirement Plan and Excess Benefit Plan filed as Exhibit 10-13 to Form 10-K for fiscal year ended
April 30, 1994 (*).
10-15 Amended and Restated Senior Executive Severance Plan filed as Exhibit 10-14 to Form 10-K for fiscal
year ended April 30, 1990 (*).
10-16 Form of Distribution Agreement between the Company and The First Boston Corporation; Goldman, Sachs &
Co., Merrill Lynch & Co.; Merrill Lynch, Pierce, Fenner & Smith, Incorporated; and J.P. Morgan
Securities, Inc., dated March 26, 1993, filed as Exhibit 1 to Registration Statement 33-59376 (*).
10-17 Form of Distribution Agreement between the Company and Goldman, Sachs & Co.; Merrill Lynch & Co.;
Merrill Lynch, Pierce, Fenner & Smith, Incorporated; and J.P. Morgan Securities, Inc., dated July 5,
1994, filed as Exhibit 1 to Registration Statement 33-52669 (*).
10-18 Form of Rights Agreement between the Company and Maryland National Bank dated as of March 17, 1986,
filed as an exhibit to the Form 8-K for the month of March 1986 and amended January 16, 1989, filed as
an exhibit to Form 8-K for the month of January 1989 and amended April 6, 1992, filed as Exhibit 10-15
to Form 10-K for the fiscal year ended April 30, 1992 (*).
11 Schedule containing information used in the computation of net income per share(**).
12 Schedule containing information used in the computation of the ratio of earnings to fixed charges(**).
21 Subsidiaries of the registrant(**).
24 Power of Attorney(**).
27 Financial Data Schedule (filed electronically only).
The registrant hereby agrees to furnish to the Commission upon request a copy of all constituent instruments defining
the rights of holders of long-term debt of the registrant and all its subsidiaries for which consolidated or
unconsolidated financial statements are required to be filed under which instruments the total amount of securities
authorized does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis.
</TABLE>
(b) Reports on Form 8-K -- There were no filings on Form 8-K during the
fourth quarter of fiscal 1995.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By ROBERT D. KUNISCH
Robert D. Kunisch
Chairman of the Board,
Chief Executive Officer
and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Principal Executive Officer:
ROBERT D. KUNISCH
Robert D. Kunisch
Chairman of the Board,
Chief Executive Officer
and President
Principal Financial Officer:
ROY A. MEIERHENRY
Roy A. Meierhenry
Senior Vice President and
Chief Financial Officer
Principal Accounting Officer:
NAN A. GRANT
Nan A. Grant
Controller
Majority of the Board of Directors:
Robert D. Kunisch, James S. Beard,
Andrew F. Brimmer, George L. Bunting, Jr.,
Alan P. Hoblitzell, Jr., Paul X. Kelley,
L. Patton Kline, Francis P. Lucier, Kent C. Nelson,
Donald J. Shepard, Alexander B. Trowbridge
ROBERT D. KUNISCH
Robert D. Kunisch
As Attorney-in-fact
30
<PAGE>
PHH CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED APRIL 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
CHARGED
BALANCE AT (CREDITED) BALANCE
BEGINNING OF TO OPERATING AT END
DESCRIPTION YEAR EXPENSES OTHERS (a) DEDUCTIONS(b) OF YEAR
<S> <C> <C> <C> <C> <C>
VALUATION ACCOUNTS DEDUCTED IN THE
BALANCE SHEET FROM ASSETS TO
WHICH THEY APPLY
Accounts receivable $ 6,525,000 $ 2,708,000 $ -- $ 2,544,000 $ 6,689,000
Net investment in leases and
leased vehicles 5,862,000 2,648,000 -- 24,000 8,486,000
Carrying costs on homes under
management 1,650,000 -- -- -- 1,650,000
Mortgages held for sale and
mortgage-related notes
receivable (c) 6,352,000 11,122,000 -- 5,591,000 11,883,000
Real estate management programs 1,732,000 (758,000) -- -- 974,000
YEAR ENDED APRIL 30, 1995 $ 22,121,000 $ 15,720,000 $ -- $ 8,159,000 $ 29,682,000
Accounts receivable $ 8,453,000 $ 3,299,000 $ 22,000 $ 5,249,000 $ 6,525,000
Net investment in leases and
leased vehicles 8,282,000 (1,669,000) -- 751,000 5,862,000
Carrying costs on homes under
management 1,301,000 349,000 -- -- 1,650,000
Mortgages held for sale and
mortgage-related notes
receivable (c) 7,530,000 8,000 -- 1,186,000 6,352,000
Real estate management programs 2,001,000 (269,000) -- -- 1,732,000
YEAR ENDED APRIL 30, 1994 $ 27,567,000 $ 1,718,000 $ 22,000 $ 7,186,000 $ 22,121,000
Accounts receivable $ 7,343,000 $ 6,156,000 $ -- $ 5,046,000 $ 8,453,000
Net investment in leases and
leased vehicles 6,754,000 4,781,000 -- 3,253,000 8,282,000
Carrying costs on homes under
management 381,000 50,000 870,000 -- 1,301,000
Mortgages held for sale and
mortgage-related notes
receivable (c) 8,152,000 3,338,000 -- 3,960,000 7,530,000
Real estate management programs 2,107,000 -- -- 106,000 2,001,000
YEAR ENDED APRIL 30, 1993 $ 24,737,000 $ 14,325,000 $ 870,000 $ 12,365,000 $ 27,567,000
</TABLE>
NOTES:(a) Amounts relate to acquisitions, divestitures and reclassifications of
prior year amounts.
(b) Deductions from reserves represent accounts charged off, less
recoveries, and foreign translation gains and losses.
(c) Amounts have been restated for comparative purposes.
31
<PAGE>
EXHIBIT 10-6
AMENDMENT NO. 1 TO
PHH CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN
THIS AMENDMENT No. 1 is dated as of April 10, 1995, to the PHH Corporation
Executive Deferred Compensation Plan approved by the Board of Directors on
February 28, 1994 (the "Plan").
1. PREAMBLE
The Compensation Committee of the Board of Directors of PHH Corporation
(the "Corporation") desires that definition of Compensation in the Plan be
amended to include any lump sum payout of bonus vacation weeks pursuant to the
Corporation's vacation policy.
Accordingly, the Plan is hereby amended as follows:
1. DEFINITIONS.
The definition of "Compensation" set forth in Section 2(d) of the Plan is
amended and restated as follows:
(d) "Compensation" means, for any Plan Year, the aggregate of a
Participant's salary earned and payable in that Year, awards payable under
any of the Corporation's incentive plans in that Year, and any payment in
lieu of the accrual of bonus vacation weeks in that Year in accordance with
the Corporation's vacation policy, but only to the extent such salary,
awards and payments in lieu of vacation bonus weeks are payable in cash.
2. MISCELLANEOUS.
2.1 Except as otherwise expressly provided herein, the terms of the Plan
shall remain in full force and effect.
2.2 Capitalized terms not otherwise defined herein shall have the same
meanings as set forth in the Plan.
This Amendment No. 1 to the Executive Deferred Compensation Plan is hereby
executed as of the date first above written pursuant to the approval of
Company's Board of Directors on April 10, 1995.
PHH CORPORATION
By: SAMUEL H. WRIGHT
Samuel H. Wright
<PAGE>
EXHIBIT 10-8
PHH CORPORATION
CORPORATE INCENTIVE PLAN
FY 1996
The purpose of this plan is to encourage the achievement of the annual
business objectives of PHH Corporation and its shareholders, by providing
incentive opportunities to designated key executives.
DEFINITIONS
A) The "Company" shall mean PHH Corporation, or its successor in interest.
B) The "term" shall mean the term of this plan which shall be the fiscal year
beginning May 1, 1995 through April 30, 1996.
C) "Return on beginning equity (ROBE)" shall mean the Company's annual net
income after taxes, after giving effect for any incentive to be paid, computed
in accordance with generally accepted accounting principles, divided by the
beginning shareholders' equity for the fiscal year. The performance measure for
the plan shall be the ROBE result for the fiscal year in the plan.
Determination of the performance measure results shall be made by the Committee
following the close of fiscal 1996.
D) The "Committee" shall mean the Compensation Committee of the Board of
Directors.
E) "Chairman & CEO" shall mean the Chairman & Chief Executive Officer of PHH
Corporation.
F) "Salary" shall mean the annual base salary paid during the term.
G) "Target Incentive" shall be fixed at that level of ROBE result determined by
the Committee as constituting 100% of incentive payout and shall be expressed
as a percent of salary.
PARTICIPATION
Participation in the plan is limited to key executives of the Company
specifically designated by the Chairman & CEO and approved by the Committee.
EMPLOYMENT STATUS AND GRADE CHANGES
Any Company key executive designated as of May 1, 1995 as a plan
participant and actively employed on or before February 1, 1996 is eligible to
participate in this program. Participants who are hired or transferred during
the plan year are eligible to be considered for a prorated award. Individuals
transferred during the period will be eligible for a prorated award
proportionate to the full months worked in the previous and transferred Company.
Individuals hired between February 1, 1996 and April 30, 1996 shall not be
eligible to participate in the Corporate Incentive Plan for FY 1996.
Participants who have been promoted or demoted after May 1, 1995, but before
February 1, 1996, will be considered for prorated payouts based on the
schedules in effect for each position. Plan participants who become disabled
(as determined by the Committee) and are out of work in excess of 30 days
during the plan year, are eligible to be considered for a prorated award.
COMPANY PERFORMANCE MEASUREMENT
Exhibit A sets forth the Company ROBE results which must be obtained in
order for the corresponding percentage of the Target Incentive to be payable to
participants. In determining whether ROBE targets have been met, the Committee
may take into account one time charges or other factors, if any, as it deems
relevant. Incentive payouts under this plan are contingent upon achievement of
the Company's stated leverage target in effect at the close of FY 1996. The
aggregate incentive amounts which may be paid out under the plan are designated
by the Chairman & CEO and approved by the Committee.
<PAGE>
PAYMENT OF INDIVIDUAL INCENTIVE AMOUNTS
The determination of the total available incentive amount, if any, which
might be paid to any plan participant, shall be determined by the Chairman &
CEO and approved by the Committee in its sole discretion following the close of
FY 1996 and shall be based upon the achievement of the related ROBE result as
shown on Exhibit A and the achievement of individual performance objectives as
identified at the beginning of the plan year. At the determination of the
Committee, payment may be made in cash and/or in shares of Common Stock of the
Company awarded pursuant to the Stock Compensation Plan. Payment of the portion
of the incentive target recognizing individual performance is contingent upon
achievement of the threshold corporate net income (net of incentive plan
funding).
No participant has any vested interest in the plan and must be actively
employed as of April 30, 1996 to be eligible for incentive award distribution.
A participant may elect to defer receipt of all or a portion of any cash
incentive payment as provided in the form of Deferral Elections approved from
time to time by the Committee. Payments in the form of PHH stock may not be
deferred. Such deferral election must be made by the participant in accordance
with applicable deferred compensation plans and in a manner consistent with
applicable federal, state and local tax laws.
ADMINISTRATION
The plan adopted by the Committee shall be administered by the Chairman &
CEO. The Chair & CEO is authorized to promulgate rules relating to
administration of the plan and to make determinations with respect thereto,
including any discretionary cash payments in excess of available incentive
amounts calculated hereunder.
If a "change of control" (as defined in the Company's Stock Compensation
Plan) occurs after the term, all incentive payments which the participant had
elected to defer under the terms of any unfunded deferred compensation plan
established by the company shall be either contributed in full by the Company
under any such deferred compensation plan or, if no such trust has been
established, paid in full by the Company as soon as practicable following the
"change of control".
REVISION OR CANCELLATION OF THE PLAN
This Corporate Incentive Plan shall not create any rights of future
participation therein of any employee. The Committee shall have the full
authority, in its sole discretion, to unilaterally modify, terminate or cancel
the plan at any time, in whole or in part, or with respect to any designated
participant, at any time, without liability to any participant.
NON-TRANSFERABILITY
A participant may not pledge, assign, sell, encumber, or transfer or
otherwise dispose of any rights or interests under the plan and any attempted
disposition shall be null and void.
<PAGE>
PHH CORPORATION
CEO & PRESIDENT INCENTIVE PLAN
FY 1996
The purpose of this plan is to encourage the achievement of the annual
business objectives of PHH Corporation and its shareholders, by providing
incentive opportunities to the CEO & President of PHH Corporation.
DEFINITIONS
A) The "Company" shall mean PHH Corporation, or its successor in interest.
B) The "term" shall mean the term of this plan which shall be the fiscal year
beginning May 1, 1995 through April 30, 1996.
C) "Return on beginning equity (ROBE)" shall mean the Company's annual net
income after taxes, after giving effect for any incentive to be paid, computed
in accordance with generally accepted accounting principles, divided by the
beginning shareholders' equity for the fiscal year. The performance measure for
the plan shall be the ROBE result for the fiscal year in the plan.
Determination of the performance measure results shall be made by the Committee
following the close of fiscal 1996.
D) The "Committee" shall mean the Compensation Committee of the Board of
Directors.
E) "CEO & President" shall mean the Chief Executive Officer and President of
PHH Corporation.
F) "Salary" shall mean the annual base salary paid during the term.
G) "Target Incentive" shall be fixed at that level of ROBE result determined by
the Committee as constituting 100% of incentive payout and shall be expressed
as a percent of salary.
PARTICIPATION
Participation in the plan is limited to the CEO & President.
EMPLOYMENT STATUS AND GRADE CHANGES
Any participant designated as of May 1, 1995 as a plan participant and
actively employed on or before February 1, 1996 is eligible to participate in
this program. A participant who is hired or transferred during the plan year is
eligible to be considered for a prorated award. An individual transferred
during the period will be eligible for a prorated award proportionate to the
full months worked in the previous and transferred Company. An individual hired
between February 1, 1996 and April 30, 1996 shall not be eligible to
participate in this plan for FY 1996. A participant who has been promoted or
demoted after May 1, 1995, but before February 1, 1996, will be considered for
a prorated payout based on the schedules in effect for each position. A plan
participant who becomes disabled (as determined by the Committee) and is out of
work in excess of 30 days during the plan year, is eligible to be considered
for a prorated award as determined by the Committee.
COMPANY PERFORMANCE MEASUREMENT
Exhibit A sets forth the Company ROBE results which must be obtained in
order for the corresponding percentage of the Target Incentive to be payable to
a participant. In determining whether ROBE targets have been met, the Committee
may take into account one time charges or other factors, if any, as it deems
relevant. Incentive payouts under this plan are contingent upon achievement of
the Company's stated leverage target in effect at the close of FY 1996. The
aggregate incentive amounts which may be paid out under the plan are designated
and approved by the Committee.
<PAGE>
PAYMENT OF INDIVIDUAL INCENTIVE AMOUNTS
The determination of the total available incentive amount, if any, which
might be paid to any plan participant, shall be determined by the Committee in
its sole discretion following the close of FY 1996 and shall be based upon the
achievement of the related ROBE result as shown on Exhibit A. At the
determination of the Committee, payment may be made in cash and/or in shares of
Common Stock of the Company awarded pursuant to the Stock Compensation Plan.
No participant has any vested interest in the plan and must be actively
employed as of April 30, 1996 to be eligible for incentive award distribution.
A participant may elect to defer receipt of all or a portion of any cash
incentive payment as provided in the form of Deferral Elections approved from
time to time by the Committee. Payments in the form of PHH stock may not be
deferred. Such deferral election must be made by the participant in accordance
with applicable deferred compensation plans and in a manner consistent with
applicable federal, state and local tax laws.
ADMINISTRATION
The plan adopted by the Committee shall be administered by the Committee.
The Committee is authorized to promulgate rules relating to administration of
the plan and to make determinations with respect thereto, including any
discretionary cash payments in excess of available incentive amounts calculated
hereunder.
If a "change of control" (as defined in the Company's Stock Compensation
Plan) occurs after the term, all incentive payments which the participant had
elected to defer under the terms of any unfunded deferred compensation plan
established by the company shall be either contributed in full by the Company
under any such deferred compensation plan or, if no such trust has been
established, paid in full by the Company as soon as practicable following the
"change of control".
REVISION OR CANCELLATION OF THE PLAN
This Incentive Plan shall not create any rights of participation of any
employee. The Committee shall have the full authority, in its sole discretion,
to unilaterally modify, terminate or cancel the plan at any time, in whole or
in part without liability to any participant.
NON-TRANSFERABILITY
A participant may not pledge, assign, sell, encumber, or transfer or
otherwise dispose of any rights or interests under the plan and any attempted
disposition shall be null and void.
EXHIBIT A FY96 CEO/PRESIDENT, EXECUTIVE & CORPORATE STAFF INCENTIVE TARGETS
(graph depicting incentive payouts as a percentage of targets based on PHH
Corporation ROBE) as follows:
Payout as a % of
Target 50% 75% 100% 150% 200%
PHH Corporation ROBE 13.5% 14.2% 14.8% 15.8% 16.8%
<PAGE>
EXHIBIT 10-11
FOURTH AMENDMENT TO
PHH CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
THIS FOURTH AMENDMENT is dated as of April 10, 1995, to the PHH
Corporation Supplemental Executive Retirement Plan as amended and restated
effective May 1, 1987 and further amended by the Amendment dated as of June 18,
1990, the Second Amendment dated as of November 11, 1991, and the Third
Amendment dated as of February 28, 1994 (the "SERP").
WITNESSETH;
The Compensation Committee of the Board of Directors of PHH Corporation
(the "Company") desires that SERP be amended to clarify that the cash
equivalent of stock options granted in 1992 is to be included as compensation
for fiscal year 1992 for purposes of the definition of "Final Average
Compensation", to provide that an election to change the form of benefit is to
be received twelve months prior to the earlier of either Retirement or the time
distribution of the benefit is to commence, and to provide the same number of
Credited Years of Executive Service for purposes of determining the death
benefit as for the early termination.
Accordingly, the SERP is hereby amended as follows:
1. Definitions.
The definition of "Final Average Compensation" set forth in Section 2.1(i)
of the SERP is hereby deleted in its entirety and the following definition is
inserted in lieu thereof:
2.1(i) "Final Average Compensation" means the sum of the average of each
of the following for the five Credited Years of Executive Service prior to
a Participant's retirement, or such other period as the Company shall
determine: (a) a Participant's base salary and (b) cash incentives paid to
a Participant under any of the executive compensation plans that relate to
the achievement of annual goals, including in each of case (a) and (b)
above, amounts deferred by a Participant under the Company's Executive
Deferred Compensation Plan, Employee Investment Plan or under any other
plan or arrangement maintained by the Company under Section 401(k) or 125
of the Internal Revenue Code of 1986, as amended. For purposes of
determining the amount of a Participant's cash incentives for 1992, such
incentives shall be deemed to include the cash equivalent of stock options
(valued at the date of grant) granted to a Participant during fiscal year
1992 in lieu of merit salary increases or annual cash incentives payable
during such year.
2. Form of Benefit
Section 3.4 (Form of Payment) is hereby deleted in its entirety and the
following is inserted in lieu thereof:
3.4 Distribution to a Participant of his or her Supplemental Retirement
Benefit referred to in Section 3.3 shall be in equal monthly installments
in cash or, if the Participant otherwise elects, in the form of a joint
and survivor annuity or a life annuity with ten years certain, each having
an equivalent actuarial value of such cash payments. An election by a
Participant to receive a form of Supplemental Retirement Benefit other
than in equal monthly installments as provided in this Section 3.4 shall
be effected by an election submitted by the Participant to the Secretary
of the Committee; provided, however, that such an election to the
Secretary of the Committee must be submitted in writing at least twelve
(12) months prior to the earlier of Retirement or the Participant's death.
No change in a payment election will be effective unless it has been made
at least twelve (12) months before distribution of the Supplemental
Retirement Benefit is to commence.
3. Death
Section 5 (Death) is hereby amended to add the following sentence to the
end of that section:
For purposes of this Section 5 (Death), a Participant's Credited Years of
Executive Service shall mean the same number of Credited Years of
Executive Service as provided to that Participant for purposes of Section 6
(Other Termination).
<PAGE>
4. Miscellaneous.
3.1 Except as otherwise expressly provided herein, the terms of the SERP
shall remain in full force and effect.
3.2 Capitalized terms not otherwise defined herein shall have the same
meanings as set forth in the SERP.
This Fourth Amendment to the Supplemental Executive Retirement Plan is
hereby executed as of the date first above written pursuant to the approval of
Company's Board of Directors on April 10, 1995.
PHH CORPORATION
By: ROY A. MEIERHENRY
Roy A. Meierhenry
Sr. Vice President &
Chief Financial Officer
<PAGE>
Exhibit (11)
PHH CORPORATION AND SUBSIDIARIES
INFORMATION USED IN THE COMPUTATION OF PRIMARY AND
FULLY-DILUTED EARNINGS PER SHARE
FOR THE YEARS ENDED APRIL 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net income -- as reported $ 71,662,000 $ 64,558,000 $ 56,417,000
Weighted average number of shares outstanding 17,075,794 17,371,314 17,005,592
Give effect to the exercise of dilutive options determined
under the treasury stock method 135,804 342,200 307,379
Number of shares used in the computation of primary
earnings per share 17,211,598 17,713,514 17,312,971
Reflect the quarter-end market price when greater than the
average market price during the respective quarter 41,245 27,520 43,853
Number of shares used in the computation of fully diluted
earnings per share 17,252,843 17,741,034 17,356,824
AMOUNTS PER SHARE:
Primary $ 4.16 $ 3.64 $ 3.26
Assuming full dilution $ 4.15 $ 3.64 $ 3.25
</TABLE>
<PAGE>
Exhibit (12)
PHH CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended April 30
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
Income from continuing operations
before income taxes $ 121,318 $ 109,796 $ 94,238 $ 83,117 $ 77,759
Add:
Interest expense 194,196 162,108 193,935 237,058 302,853
Interest portion of rentals* 8,065 9,088 8,456 8,665 7,796
Earnings available for fixed charges $ 323,579 $ 280,992 $ 296,629 $ 328,840 $ 388,408
Fixed charges:
Interest expense $ 194,196 $ 162,108 $ 193,935 $ 237,058 $ 302,853
Interest portion of rentals* 8,065 9,088 8,456 8,665 7,796
$ 202,261 $ 171,196 $ 202,391 $ 245,723 $ 310,649
Ratio of earnings to fixed charges 1.60 1.64 1.47 1.34 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.
<PAGE>
Exhibit (21)
SUBSIDIARIES OF REGISTRANT
PHH Corporation owns 100% of PHH Holdings Corporation. All other companies
(except those formed under Ontario or Canadian federal law, which are owned
100% directly by PHH Corporation) are owned 100% either directly or indirectly
by PHH Holdings Corporation (a Maryland corporation).
PHH Vehicle Management Services Corporation (a Maryland corporation)
NTS, Inc. (a Maryland corporation)
PHH Vehicle Management Services Inc. (a Canadian corporation)
PHH Vehicle Management Services PLC (a United Kingdom corporation)
PHH Deutschland, Inc. (a Maryland corporation)
PHH Real Estate Services Corporation (a Delaware corporation)
PHH Homequity Inc. (an Ontario corporation)
PHH Homequity Limited (a United Kingdom corporation)
PHH Network Services S.A. de C.V. (a Mexican corporation)
PHH Fantus Corporation (a Maryland corporation)
PHH Mortgage Services Corporation (a New Jersey corporation)
PHH Europe PLC (a United Kingdom corporation)
The names of 20 consolidated multiple subsidiaries wholly owned directly
or indirectly by the registrant have been omitted. All such subsidiaries
operate in the United States and all are engaged in providing financing for
clients' leased vehicle and truck fleets. Other particular subsidiaries have
been omitted because in the aggregate they would not constitute a significant
subsidiary.
<PAGE>
EXHIBIT (24)
PHH CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, as of this 10th day of April, 1995, that
the undersigned directors and officers of 11333 McCormick Road, Hunt Valley,
Maryland 21031 (the "Corporation"), hereby constitute and appoint Robert D.
Kunisch, Eugene A. Arbaugh, Samuel H. Wright and Gordon W. Priest, Jr., and
each of them, the true and lawful agents and attorneys-in-fact of the
undersigned, with full power of substitution and with full power and authority
in said agents and attorneys-in-fact, and in any one or more of them, to sign
for the undersigned as director and/or officer of the Corporation and
Corporation's annual report on Form 10-K for the fiscal year ended April 30,
1995, filed pursuant to Section 13 under the Securities Exchange Act of 1934
with the Securities and Exchange Commission, Washington, D.C., or any
registration or filing with any state or local jurisdiction within the United
States or any foreign jurisdiction, and any exhibits, amendments, or
supplemental submissions to such SEC or state, local, or foreign registration
of filing (including post-effective amendments), hereby ratifying and
confirming all acts taken by such agents and attorneys-in-fact, or any one or
more of them, as herein authorized.
JAMES S. BEARD Director
James S. Beard
ANDREW F. BRIMMER Director
Andrew F. Brimmer
GEORGE L. BUNTING, JR. Director
George L. Bunting, Jr.
ALAN P. HOBLITZELL, JR. Director
Alan P. Hoblitzell, Jr.
PAUL X. KELLEY Director
Paul X. Kelley
L. PATTON KLINE Director
L. Patton Kline
FRANCIS P. LUCIER Director
Francis P. Lucier
<PAGE>
KENT C. NELSON Director
Kent C. Nelson
DONALD J. SHEPARD Director
Donald J. Shepard
ALEXANDER B. TROWBRIDGE Director
Alexander B. Trowbridge
ROBERT D. KUNISCH Director, Chairman
of the Board, President &
Robert D. Kunisch Chief Executive Officer
ROY A. MEIERHENRY Senior Vice President &
Roy A. Meierhenry Chief Financial Officer
NAN A. GRANT Controller
Nan A. Grant
<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-K FOR THE ANNUAL PERIOD ENDED APRIL 30, 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>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-END> APR-30-1995
<EXCHANGE-RATE> .001
<CASH> 3,412
<SECURITIES> 0
<RECEIVABLES> 490,919
<ALLOWANCES> 6,689
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 102,399
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,039,533
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 79,210
0
0
<OTHER-SE> 460,741
<TOTAL-LIABILITY-AND-EQUITY> 5,039,533
<SALES> 0
<TOTAL-REVENUES> 2,070,626
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,776,214
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 173,094
<INCOME-PRETAX> 121,318
<INCOME-TAX> 49,656
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,662
<EPS-PRIMARY> 4.16
<EPS-DILUTED> 4.15
</TABLE>
