SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
A. Full Title of the Plan:
PHH CORPORATION EMPLOYEE
INVESTMENT PLAN
B. Name of Issuer of the Securities Held Pursuant to the Plan and the
Address of Its Principal Executive Office:
PHH CORPORATION
11333 McCormick Road
Hunt Valley, Maryland 21031
<PAGE>
PHH CORPORATION EMPLOYEE
INVESTMENT PLAN
INDEX
Page No.
Independent Auditors' Report 1
Statements of Net Assets Available for Plan Benefits -
December 31, 1996 and 1995 2
Statements of Changes in Net Assets Available for Plan Benefits -
Years Ended December 31, 1996 and 1995 3
Notes to Financial Statements 4
Schedules - Item 27a - Schedule of Assets Held for Investment
Purposes 9
Item 27d - Schedule of Reportable Transactions 10
Signatures 11
Consent of Independent Auditors 12
********************************
The other schedules required by Item 27 of Department of Labor Form 5500, Annual
Return/Report of Employee Benefit Plan, are inapplicable and are therefore
omitted.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Employee Benefits Committee
PHH Corporation:
We have audited the accompanying statements of net assets available for plan
benefits of the PHH Corporation Employee Investment Plan as of December 31, 1996
and 1995 and the related statements of changes in net assets available for plan
benefits for the years then ended. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements 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 financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits as of December
31, 1996 and 1995 and the changes in net assets available for plan benefits for
the years then ended, in conformity with generally accepted accounting
principles.
Our 1996 audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and reportable transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1974. The supplemental schedules have
been subjected to the auditing procedures applied in the audit of the 1996 basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the 1996 basic financial statements taken as a whole.
KPMG Peat Marwick LLP
Baltimore, Maryland
April 29, 1997
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<PAGE>
PHH CORPORATION EMPLOYEE
INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE
FOR PLAN BENEFITS
December 31,
---------------------------
1996 1995
------------ ------------
Investments, at fair value:
PHH Corporation Common Stock ......... $ 73,604,551 $ 41,363,751
Fidelity U.S. Equity Index ........... 15,566,475 10,758,347
Fidelity Magellan Fund ............... 20,966,923 20,356,814
Fidelity Retirement Money Market ..... 11,546,298 11,729,769
Fidelity Asset Manager ............... 2,511,787 2,018,667
Fidelity Europe Fund ................. 3,466,056 1,830,309
Fidelity U.S. Bond Index ............. 862,406 597,756
Participant loans receivable .................. 3,464,922 3,120,224
------------ ------------
Net assets available for plan benefits (Note 5) $131,989,418 $ 91,775,637
============ ============
See Accompanying Notes to Financial Statements
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<PAGE>
PHH CORPORATION EMPLOYEE
INVESTMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE
FOR PLAN BENEFITS
Years Ended
December 31,
-------------------------------
(Note 3)
1996 1995
------------- --------------
Dividend income ............................. $ 5,959,631 $ 3,371,838
Interest income ............................. 260,144 230,660
------------- -------------
Total dividend and interest income .......... 6,219,775 3,602,498
------------- -------------
Contributions:
Employee ................................ 7,431,194 6,625,508
Employer ................................ 4,910,626 4,073,174
------------- -------------
Total contributions ......................... 12,341,820 10,698,682
------------- -------------
Withdrawals and distributions to participants
(Note 5) (13,793,059) (7,166,883)
Plan expenses incurred ...................... (88,121) (46,244)
Net appreciation in fair value of investments 35,533,366 17,418,881
------------- -------------
Increase in net assets available for benefits 40,213,781 24,506,934
Net assets available for benefits:
Beginning of year ....................... 91,775,637 67,268,703
------------- -------------
End of year ............................ $ 131,989,418 $ 91,775,637
============= =============
See Accompanying Notes to Financial Statements
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<PAGE>
PHH CORPORATION EMPLOYEE
INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
The accompanying financial statements of the PHH Corporation Employee Investment
Plan ("Plan") have been prepared on the accrual basis of accounting and present
the net assets available for plan benefits and the changes in net assets
available for plan benefits.
Purchases and sales of securities are recorded on a trade-date basis.
Investments are carried at fair value as determined by quoted market prices.
In accordance with requirements of the Tax Reform Act of 1986, the Plan is
subjected to a non-discrimination test based on the calculation of the Average
Deferred Percentages (ADP test) for highly compensated versus non-highly
compensated employee groups. The results of this test, as of December 31, 1996,
indicate that the difference in the employee group average deferred percentage
is within permissible limits.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and judgments that
affect the reported amounts of assets and liabilities and disclosures of
contingencies at the date of the financial statements and revenues and expenses
recognized during the reporting period. Actual results could differ from those
estimates.
(2) DESCRIPTION OF THE PLAN
The Plan is a defined contribution plan. It is subject to the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA).
Each employee of PHH Corporation (the "Company") may participate in the Plan
after six months of service if he is scheduled to work at least 1,000 hours in a
12 consecutive month period commencing on his date of employment, or in any Plan
year commencing after his date of employment. There is no age requirement for
eligibility to participate in the Plan. Each participant may contribute to the
Plan each year between 1% and 10% of eligible earnings subject to certain limits
contained in the Internal Revenue Code of 1986, as amended. The Company's
matching contribution is dollar-for-dollar up to 3% of the participant's
eligible deferred earnings and up to an additional 3% of eligible deferred
earnings based upon the profitability of the Company from continuing operations
for the relevant fiscal year. The profitability-based rate of the matchable
portion is determined by a schedule established by the Board of Directors for
each fiscal year. During Plan years 1996 and 1995, additional Company matching
contributions totalling approximately $1,761,700 and $1,078,500 were paid to
participants based upon Company profitability.
Each participant could direct the custodian to invest in any increments in any
of the following investment programs: (a) the common stock of PHH Corporation
comprising the PHH Corporation Common Stock Fund; (b) an Equity-Income Fund
(Fidelity US Equity Index Portfolio) consisting of income-producing equity
securities; (c) a Growth Fund (Fidelity Magellan Fund) consisting of equity
securities of corporations which are growth companies; (d) a Money Market Fund
(Fidelity Retirement Money Market Portfolio) consisting of various short-term
money market instruments; (e) an Asset Allocation Fund (Fidelity Asset Manager)
consisting of domestic and foreign equity securities, bonds and short-term
instruments; (f) an International Growth Fund (Fidelity Europe Fund) consisting
of securities of Western European issues; or (g) a Bond-Income Fund (Fidelity U.
S. Bond Index Portfolio) consisting of securities contained in the Aggregate
Bond Index.
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<PAGE>
PHH CORPORATION EMPLOYEE
INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) DESCRIPTION OF THE PLAN (Continued)
All Company contributions matching the first 3% of the participant's eligible
deferred earnings are invested in the PHH Corporation Common Stock Fund with no
transfers permitted until age 50. All Company contributions matching up to an
additional 3% based upon Company profitability are initially invested in the
Money Market Fund with no transfer restrictions.
Participants have a full and immediate vested interest in amounts contributed by
them and earnings thereon. Participants have a vested interest in the Company's
matching contribution previously made and to be made in the future, determined
by the participants' years of vested service. Generally, after three years of
such service, participants have a 100% vested interest in all Company
contributions made and to be made in the future. Forfeitures of unvested Company
matching contributions are used, as permitted under Plan provisions, to pay Plan
expenses.
Accounts which may be maintained for each participant in the Plan are (a) "Prior
Plan Employee Account" meaning the account relating to his contributions made at
any time prior to May 1, 1985; (b) "Prior Plan Company Match Account" meaning
the account relating to Employer matching contributions attributable to his
contributions made at any time prior to May 1, 1985; (c) "Current Plan Employee
Account" meaning the account relating to his contributions made at any time on
and after May 1, 1985, under Section 401(k) of the Code; (d) "Current Plan
Company Basic Match Account" meaning the account relating to Employer matching
contributions attributable to the first 3% of his contributions made at any time
on and after May 1, 1985, under Section 401(k) of the Code; (e) "Current Plan
Company Profit Match Account" meaning the account relating to Employer matching
contributions attributable to 4% - 6% of his contributions made at any time on
and after May 1, 1985, under Section 401(k) of the Code based on attainment of
certain earnings per share targets set annually by the Company; and (f)
"Rollover Account" meaning the account relating to a Participant's qualifying
contributions under the rollover provisions of the Plan. Each of these accounts
shall have allocated to it the portion of the participant contributions and
related Employer matching contributions in accordance with the Plan together
with appreciation, depreciation, and earnings then attributable to the
participant contributions and related Employer matching contributions as well as
distributions to participants in accordance with the Plan. Participants may
obtain a loan of up to 50% of their vested account balance not to exceed
$50,000. The interest rate charged on loans outstanding is the prime rate as
published in the Wall Street Journal plus 1% fixed for the entire term of the
loan. Loan terms may range up to five years unless the purpose of the loan is to
buy or build a primary residence in which case the loan term may be extended to
ten years. Repayment of the loan principal and interest occurs through equal
payroll deductions. Participants incur no taxable income as a result of taking a
loan unless the loan is not repaid.
Expenses of administering the Plan incurred external to the Company (i.e.
the cost of printing literature and forms, the disbursement of benefits, the
compensation of administrators, consultants, counsel, etc.), at the direction
of the Company, may be paid from the Trust Property. Internal Company support
costs (i.e. the cost of staff time, etc.) are paid by the Company.
Although it has not expressed any intent to do so, the Company reserves the
right at any time to alter, amend, suspend, discontinue or terminate the Plan;
provided, however, that no such alteration, amendment, suspension,
discontinuance or termination shall have the effect of permitting any of the
Trust Property to be used for or diverted to purposes other than those of the
Plan. If the Plan is discontinued or terminated, all Trust Property under the
Plan will become immediately vested in the participants and none will inure to
the Company.
-5-
<PAGE>
PHH CORPORATION EMPLOYEE INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS (Continued)
(3) ALLOCATION OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS TO
INVESTMENT PROGRAMS
The following is the allocation of changes in net assets available for
plan benefits to investment programs for the years ended December 31, 1996 and
1995:
<TABLE>
<CAPTION>
Year Ended December 31, 1996
---------------------------------------------------------------------------------------------------------------
PHH Corp Fidelity U.S.
Common U.S. Equity Magellan Money Asset Europe Bond Participant
Stock Fund Index Fund Market Manager Fund Index Loans Total
----------- ----------- ------------ ---------- ---------- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend Income $ 1,244,520 $ 366,519 $ 3,273,070 $ 605,295 $ 192,544 $ 226,787 $ 50,896 $ -- $ 5,959,631
Interest Income -- -- -- -- -- -- -- 260,144 260,144
Total dividend and ----------- ------------ ----------- ----------- ---------- ---------- -------- ---------- ------------
interst income 1,244,520 366,519 3,273,070 605,295 192.544 226,787 50,896 260,144 6,219,775
----------- ------------ ----------- ----------- ---------- ---------- -------- ---------- ------------
Contributions:
Employee 1,411,844 1,334,555 2,640,505 884,811 470,219 481,461 207,799 -- 7,431,194
Employer 3,148,904 -- -- 1,761,722 -- -- -- -- 4,910,626
----------- ----------- ----------- ----------- ---------- ---------- -------- ---------- ------------
Total contributions 4,560,748 1,334,555 2,640,505 2,646,533 470,219 481,461 207,799 -- 12,341,820
----------- ----------- ----------- ----------- ---------- ---------- -------- ---------- ------------
Interfund transfers (916,538) 2,133,625 (2,115,618) (427,152) 31,516 832,943 98,971 362,253 --
Withdrawals and
distributions
to particpants (6,492,273) (1,335,050) (2,160,557) (2,927,415) (274,057) (254,614) (71,394) (277,699) (13,793,059)
Plan expenses
incurred (454) (2,794) (1,890) (80,732) (1,129) (696) (426) -- (88,121)
Net appreciation
(depreciation) in
fair value of
investments 33,844,797 2,311,273 (1,025,401) -- 74,027 349,866 (21,196) -- 35,533,366
----------- ----------- ----------- ---------- ---------- --------- -------- --------- ------------
Increase (decrease)
in net
assets available
for benefits 32,240,800 4,808,128 610,109 (183,471) 493,120 1,635,747 264,650 344,698 40,213,781
Net assets available
for benefits:
Beginning of year 41,363,751 10,758,347 20,356,814 11,729,769 2,018,667 1,830,309 597,756 3,120,244 91,775,637
----------- ----------- ----------- ----------- ---------- ---------- -------- ---------- ------------
End of Year $73,604,551 $15,566,475 $20,966,923 $11,546,298 $2,511,787 $3,466,056 $862,406 $3,464,922 $131,989,418
=========== =========== =========== =========== ========== ========== ======== ========== ============
</TABLE>
-6-
<PAGE>
PHH CORPORATION EMPLOYEE INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS (Continued)
(3) ALLOCATION OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS TO
INVESTMENT PROGRAMS (Continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1995
PHH Corp U.S Fidelity U.S.
Common Equity Magellan Money Asset Europe Bond Participant
Stock Fund Index Fund Market Manager Fund Index Loans Total
---------- ----------- ----------- ----------- ---------- ---------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend Income $1,156,369 $ 257,386 $ 1,166,427 $ 633,463 $ 57,562 $ 69,876 $ 30,755 $ -- $ 3,371,838
Interest Income -- -- -- -- -- -- -- 230,660 230,660
---------- ----------- ----------- ----------- ---------- ---------- --------- ----------- ------------
Total dividend and
interest income 1,156,369 257,386 1,166,427 633,463 57,562 69,876 30,755 230,660 3,602,498
----------- ----------- ----------- ----------- ---------- ---------- --------- ----------- ------------
Contributions:
Employee 1,098,498 1,068,179 2,407,574 1,163,034 420,571 322,933 144,719 -- 6,625,508
Employer 2,994,783 -- -- 1,078,391 -- -- -- -- 4,073,174
----------- ----------- ----------- ----------- --------- ---------- --------- ----------- -----------
Total contributions 4,093,281 1,068,179 2,407,574 2,241,425 420,571 322,933 144,719 -- 10,698,682
----------- ----------- ----------- ----------- --------- ---------- -------- ----------- -----------
Interfund transfers (1,480,686) 502,064 220,167 330,155 (49,329) 104,111 191,911 181,607 --
Withdrawals and
distributions to
participants (2,771,027) (611,326) (1,432,109) (1,517,273) (458,265) (95,232) (94,627) (187,024) (7,166,883)
Plan expenses
incurred (739) (2,574) (1,870) (39,718) (846) (238) (259) -- (46,244)
Net appreciation in
fair value of
investments 10,415,670 2,483,059 4,060,503 -- 252,546 167,682 39,421 -- 17,418,881
----------- ---------- ---------- ---------- -------- --------- -------- --------- -----------
Increase in net
assets available
for benefits 11,412,868 3,696,788 6,420,692 1,648,052 222,239 569,132 311,920 225,243 24,506,934
Net assets
available for
benefits:
Beginning of year 29,950,883 7,061,559 13,936,122 10,081,717 1,796,428 1,261,177 285,836 2,894,981 67,268,703
----------- ----------- ----------- ----------- ---------- ---------- --------- ---------- -----------
End of Year $41,363,751 $10,758,347 $20,356,814 $11,729,769 $2,018,667 $1,830,309 $ 597,756 $3,120,224 $91,775,637
=========== =========== =========== =========== ========== ========== ========= ========== ===========
</TABLE>
-7-
<PAGE>
PHH CORPORATION EMPLOYEE
INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) FEDERAL INCOME TAX EXEMPTION
The Internal Revenue Service issued its latest determination letter on January
23, 1995 which stated that the Plan and its underlying trust qualify under the
applicable provisions of the Internal Revenue Code and therefore are exempt from
federal income taxes. The Plan and its underlying trust have been amended since
the date covered by the letter. In the opinion of the Plan Administrator, the
Plan and its underlying trust have operated within the terms of the Plan and
remain qualified under the applicable provisions of the Internal Revenue Code.
(5) FORM 5500 RECONCILIATION
Amounts due to participants of $196,953 in 1995 are reflected as liabilities
and benefit payment expenses in the Plan's Form 5500 but are presented as a
component of net assets available for plan benefits in the financial statements.
(6) SUBSEQUENT EVENT
On November 10, 1996, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with HFS Incorporated ("HFS"), and Mercury Acq. Corp.,
a wholly-owned subsidiary of HFS. The merger closing date was April 30, 1997
and, effective with that date, PHH Corporate became a wholly-owned subsidiary of
HFS. Pursuant to the Merger Agreement, shares of the Company's common stock were
converted into shares of HFS's common stock as determined in the Merger
Agreement. The merger was accounted for as a pooling of interests.
Effective April 30, 1997, all future company match contributions to the Plan
will be made in cash in the Fidelity Retirement Money market Fund ("Money Market
Fund"). Employees will be able to move any or all of the match out of the Money
Market Fund at any time.
Any investments in the PHH Common Stock Fund prior to the merger closing date
were exchanged for shares of HFS common stock at the merger price. The
restriction on current company match balances will continue in that no transfers
can be made to another fund until age 50.
The profitability match for fiscal 1997 will be based on the performance targets
previously established and will be paid into the Money Market Fund account in
June 1997.
The company match on employee contributions made after May 1, 1997, will change.
The profitability match will be eliminated for fiscal 1998, and the new match
will be as follows:
. The first 3% of employee contributions will be matched 100%.
. The next 3% of employee contributions will be matched 50%.
. The entire company match will be paid into the Money Market Fund
on a bi-weekly basis.
-8-
<PAGE>
PHH CORPORATION EMPLOYEE
INVESTMENT PLAN
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
<TABLE>
<CAPTION>
Par Value or
Number of Current
Name of Issuer and Title of Issue Shares Cost Value
- --------------------------------------- ------------ ------------- -------------
<S> <C> <C> <C>
December 31, 1996
PHH Corporation Common Stock*.......... 1,711,734 $ 32,701,462 $ 73,604,551
Equity-Income Fund - Fidelity
U.S. Equity Index Portfolio ......... 577,606 10,975,063 15,566,475
Growth Fund - Fidelity
Magellan Fund ....................... 259,974 18,914,253 20,966,923
Money Market Fund - Fidelity Retirement
Money Market Portfolio .............. 11,546,298 11,546,298 11,546,298
Asset Allocation Fund - Fidelity
Asset Manager ....................... 152,507 2,373,837 2,511,787
International Growth Fund - Fidelity
Europe Fund ......................... 130,254 3,016,953 3,466,056
Bond-Income Fund - Fidelity
U.S. Bond Index Portfolio ........... 81,667 864,929 862,406
------------ ------------
Total investments ................ 80,392,795 128,524,496
Participant loans receivable
(@interest rates ranging from 9.25% to 9.5%) 3,464,922 3,464,922
------------ ------------
$ 83,857,717 $131,989,418
============ ============
*Party-in-interest
</TABLE>
-9-
<PAGE>
PHH CORPORATION EMPLOYEE
INVESTMENT PLAN
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Purchases Sales
------------------------------------ -----------------------------------------------------------
Current Value Current Value
Total Purchase at transaction Total Selling Cost of at transaction Net
Description of Asset # Price date # Price Asset date Gain
- --------------------------------- ----- ---------- --------------- ------ ---------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PHH Corporation Common Stock*... 167 $8,007,440 $8,007,440 138 $9,611,942 $5,902,536 $9,611,942 $3,709,406
Fidelity U.S. Equity Index ..... 218 4,984,390 4,984,390 144 2,490,423 1,829,421 2,490,423 661,002
Fidelity Magellan Fund ......... 237 8,248,087 8,248,087 187 6,622,146 6,218,767 6,622,146 403,379
Fidelity Retirement Money Market 225 5,775,733 5,775,733 215 5,886,156 5,886,156 5,886,156 --
Fidelity Asset Manager ......... 160 1,205,702 1,205,702 117 786,605 729,318 786,605 57,287
Fidelity Europe Fund ........... 188 1,819,447 1,819,447 104 534,859 466,635 534,859 68,224
Fidelity U.S. Bond Index ....... 141 546,516 546,516 85 260,682 263,173 260,682 (2,491)
</TABLE>
*Party-in-interest
-10-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Employee Benefits Committee has duly caused this annual report to be signed on
its behalf by the undersigned here duly authorized.
PHH CORPORATION EMPLOYEE INVESTMENT PLAN
Date: July 7, l997 By: /s/ Terry E. Kridler
-----------------------------------
Terry E. Kridler
as Trustee
-11-
Consent of Independent Auditors
The Stockholder and
Board of Directors of
PHH Corporation
We consent to the incorporation by reference in the Registration Statement (No.
333-25635) on Form S-8 of HFS Incorporated of our report dated April 29, 1997,
relating to the statements of net assets available for plan benefits of PHH
Corporation Employee Investment Plan as of December 31, 1996 and 1995, and the
related statements of changes in net assets available for plan benefits for the
years then ended and the related schedules for the year ended December 31, 1996,
which report appears elsewhere in this Form 11-K.
/S/ KPMG Peat Marwick, LLP
KPMG PEAT MARWICK LLP
Baltimore, Maryland
July 7, 1997
-12-
