SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission File No. 1-7797
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PHH Corporation
(Exact name of Registrant as specified in its charter)
Maryland 52-0551284
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
6 Sylvan Way
Parsippany, New Jersey 07054
(Address of principal executive (Zip Code)
office)
(973) 428-9700
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if applicable)
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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 and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [T] No [ ]
The Company meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is, therefore, filing this Form with the reduced disclosure
format.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHH Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- ------------- -------------- -------------
As restated As restated
(Note 2) (Note 2)
<S> <C> <C> <C> <C>
Revenues
Fleet management services $ 51.0 $ 47.0 $ 160.0 $ 163.5
Relocation services, (net of interest of
$6.7, $8.7, $21.2 and $24.4, respectively) 130.8 112.0 340.7 307.7
Mortgage services (net of amortization of
mortgage servicing rights and
interest of $71.9, $35.4, $173.2
and $95.7, respectively) 79.9 51.6 251.8 127.7
------------- ------------- ------------- -------------
Service fees - net 261.7 210.6 752.5 598.9
Fleet leasing (net of depreciation and interest
costs of $324.9, $307.9, $954.6 and
$892.2, respectively) 18.5 12.8 57.5 42.9
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Net revenues 280.2 223.4 810.0 641.8
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Expenses
Operating 117.7 110.5 357.7 309.0
General and administrative 41.0 34.6 118.9 123.8
Depreciation and amortization 10.0 5.9 26.0 19.4
Merger-related costs and other
unusual charges - - 7.8 223.1
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Total expenses 168.7 151.0 510.4 675.3
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Income (loss) before income taxes 111.5 72.4 299.6 (33.5)
Provision for income taxes 39.7 30.0 106.0 30.8
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Net income (loss) $ 71.8 $ 42.4 $ 193.6 $ (64.3)
============= ============= ============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PHH Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
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<S> <C> <C>
Assets
Cash and cash equivalents $ 4.4 $ 2.1
Restricted cash 13.2 23.7
Accounts and notes receivable, net 524.0 567.6
Other assets 450.4 423.4
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Total assets exclusive of assets under programs 992.0 1,016.8
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Assets under management and mortgage programs
Net investment in leases and leased vehicles 3,738.0 3,659.1
Relocation receivables 631.0775.3
Mortgage loans held for sale 2,360.8 1,636.3
Mortgage servicing rights 573.4 373.0
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7,303.2 6,443.7
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Total assets $ 8,295.2 $ 7,460.5
============= =============
Liabilities and shareholder's equity
Accounts payable and accrued liabilities $ 822.2 $ 692.4
Deferred revenue 66.1 53.3
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Total liabilities exclusive of liabilities under programs 888.3 745.7
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Liabilities under management and mortgage programs
Debt 6,195.8 5,602.6
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Deferred income taxes 257.9 295.7
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Total liabilities 7,342.0 6,644.0
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Commitments and contingencies (Note 7)
Shareholder's equity
Preferred stock - authorized 3,000,000 shares -- --
Common stock, no par value - authorized 75,000,000 shares;
issued and outstanding 100 shares 289.2 289.2
Retained earnings 678.3 544.7
Accumulated other comprehensive loss (14.3) (17.4)
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Total shareholder's equity 953.2 816.5
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Total liabilities and shareholder's equity $ 8,295.2 $ 7,460.5
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PHH Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
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As Restated
(Note 2)
<S> <C> <C>
Operating Activities
Net income (loss) $ 193.6 $ (64.3)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Merger-related costs and other unusual charges 7.8 223.1
Payments of merger-related costs and other
unusual charge liabilities (38.7) (110.8)
Depreciation and amortization 26.0 19.4
Other 201.8 (66.0)
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390.5 1.4
Management and mortgage programs:
Depreciation and amortization 944.9 812.3
Mortgage loans held for sale (724.4) 86.1
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Net cash provided by operating activities 611.0 899.8
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Investing Activities
Additions to property and equipment - net (112.5) (15.4)
Other 28.4 8.2
Management and mortgage programs:
Investment in leases and leased vehicles (1,876.4) (1,629.4)
Payments received on investment in leases and leased vehicles 765.5 615.2
Proceeds from sales and transfers of leases and leased vehicles
to third parties 136.8 63.5
Equity advances on homes under management (5,186.5) (4,185.5)
Repayment of advances on homes under management 5,333.8 4,341.3
Additions to mortgage servicing rights (338.7) (147.6)
Proceeds from sales of mortgage servicing rights 75.2 49.0
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Net cash used in investing activities (1,174.4) (900.7)
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Financing Activities
Proceeds received from parent company capital contribution 46.0 90.0
Payment of dividends (60.0) (6.6)
Other -- 22.0
Management and mortgage programs:
Proceeds from debt issuance or borrowings 2,455.1 2,129.2
Principal payments on borrowings (2,215.7) (1,575.9)
Net change in short-term borrowings 347.0 (693.9)
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Net cash provided by (used in) financing activities 572.4 (35.2)
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Effect of exchange rates on cash and cash equivalents (6.7) 34.0
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Increase (decrease) in cash and cash equivalents 2.3 (2.1)
Cash and cash equivalents at beginning of period 2.1 13.8
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Cash and cash equivalents at end of period $ 4.4 $ 11.7
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PHH Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
PHH Corporation, together with its wholly-owned subsidiaries (the
"Company"), is a leading provider of corporate relocation, fleet
management and mortgage services. In April 1997, the Company merged with
a wholly owned subsidiary of HFS Incorporated ("HFS") (the "HFS Merger")
and on December 17, 1997, HFS merged (the "Cendant Merger") with and
into CUC International Inc. ("CUC") to form Cendant Corporation
("Cendant" or the "Parent Company"). Effective upon the Cendant Merger,
the Company became a wholly-owned subsidiary of Cendant. However,
pursuant to certain covenant requirements in the indentures under which
the Company issues debt, the Company continues to operate and maintain
its status as a separate public reporting entity, which is the basis
under which the accompanying financial statements and footnotes are
presented.
The consolidated balance sheet of the Company as of September 30, 1998,
the consolidated statements of operations for the three and nine months
ended September 30, 1998 and 1997 and the consolidated statements of
cash flows for the nine months ended September 30, 1998 and 1997 are
unaudited. The financial statements for the three and nine months ended
September 30, 1997 and notes hereto have been restated for certain
adjustments as described in Note 2. The accompanying consolidated
financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and
with the instructions of Form 10-Q and Rule 10-01 of Regulation S-X
promulgated under the Securities Exchange Act of 1934. The December 31,
1997 consolidated balance sheet was derived from the Company's audited
financial statements included in the Company's Annual Report on Form
10-K/A for the year ended December 31, 1997 (filed with the Securities
and Exchange Commission (the "SEC") on October 26, 1998) and should be
read in conjunction with such consolidated financial statements and
notes thereto.
In the opinion of management, all adjustments consisting of normal
recurring accruals (except as discussed in Note 2), considered necessary
for a fair presentation have been included. Operating results for the
three and nine months ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1998.
Certain reclassifications have been made to the consolidated financial
statements for the three and nine months ended September 30, 1997 and
the nine months ended September 30, 1998 to conform to the presentation
used in the quarter ended September 30, 1998.
2. Parent Company and Company Restatement
In April 1998, the Parent Company announced that it discovered
accounting irregularities in certain business units of CUC. As a result,
the Parent Company, together with its counsel and assisted by auditors,
immediately began an intensive investigation. In addition, the Audit
Committee of the Parent Company's Board of Directors initiated an
investigation into such matters. On August 13, 1998, the Parent Company
announced that its independent investigation was completed and, on
August 27, 1998, the Parent Company announced that its Audit Committee
had submitted their report to the Board of Directors on the Audit
Committee investigation into the accounting irregularities and its
conclusions regarding responsibility for those actions. As a result of
the findings from the investigations and a concurrent internal financial
review process by the Parent Company, the Parent Company restated its
financial statements for the years ended December 31, 1997, 1996 and
1995 and for the quarterly periods ended March 31, and June 30, 1998
respectively.
In connection with the Parent Company investigation and coincident with
the audit and restatement process, certain adjustments were made in 1997
for accounting errors (that were not a result of irregularities) which
related to the Company on a stand alone basis. Adjustments to correct
such accounting errors primarily related to: (i) conforming certain of
the accounting policies of the Company's and HFS's relocation businesses
upon merger; and (ii) adjusting the accrual and classification of
Unusual Charges. As a result, the Company restated its financial
statements for the year ended December 31, 1997 and the quarterly
periods ended March 31, 1998 and 1997, June 30, 1998 and 1997 and
September 30, 1997. The restated financial statements for the year ended
December 31, 1997 were audited and filed on Form 10-K/A. The Company
also filed Form 10-Q/As for the quarterly periods ended March 31, 1998
and June 30, 1998 with the SEC on October 26, 1998 to restate and amend
the previously filed 10-Q's for such quarterly periods. The financial
statements for the quarterly period ended September 30, 1997 have been
restated herein in this Form 10-Q. The collective adjustments to correct
these errors for the three and nine months ended September 30, 1997
resulted in a decrease in net income of $2.4 million and an increase in
net loss of $7.8 million, respectively.
<PAGE>
Provided below is a reconciliation of the financial results from amounts
previously reported to the restated amounts. Certain reclassifications have been
made to the previously reported three and nine months ended September 30, 1997
financial statements to conform to the 1998 presentation. In addition,
previously reported financial statements have been restated to account for the
merger of HFS's relocation business with and into the Company's relocation
business in a manner similar to a pooling of interests (as if the merged
businesses operated as one entity since inception).
Statement of Operations
(In millions)
<TABLE>
<CAPTION>
Three Months Ended September 30, 1997
----------------------------------------------------
As Adjustments
previously for accounting As
reported errors restated
--------------- -------------- -------------
<S> <C> <C> <C>
Net revenues $ 223.4 $ - $ 223.4
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Expenses
Operating 109.9 0.6 110.5
General and administrative 32.2 2.4 34.6
Depreciation and amortization 5.8 0.1 5.9
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Total expenses 147.9 3.1 151.0
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Income before income taxes 75.5 (3.1) 72.4
Provision for income taxes 30.7 (0.7) 30.0
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Net income (loss) $ 44.8 $ (2.4) $ 42.4
=============== ============== =============
Nine Months Ended September 30, 1997
----------------------------------------------------
As Adjustments
previously for accounting As
reported errors restated
--------------- -------------- -------------
Net revenues $ 634.8 $ 7.0 $ 641.8
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Expenses
Operating 292.9 16.1 309.0
General and administrative 119.5 4.3 123.8
Depreciation and amortization 19.1 0.3 19.4
Merger-related costs and other
unusual charges 215.8 7.3 223.1
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Total expenses 647.3 28.0 675.3
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Loss before income taxes (12.5) (21.0) (33.5)
Provision (benefit) for income taxes 44.0 (13.2) 30.8
--------------- -------------- -------------
Net loss $ (56.5) $ (7.8) $ (64.3)
================ ============== ==============
</TABLE>
3. Merger-Related Costs and Other Unusual Charges
The Company incurred aggregate merger-related costs and other unusual
charges ("Unusual Charges") in 1997 of $251.0 million primarily associated
with and coincident to the Cendant Merger and the HFS Merger. The
remaining liabilities at December 31, 1997 and the reduction of such
liabilities for the nine months ended September 30, 1998 are summarized by
category of expenditure and by merger as follows:
<TABLE>
<CAPTION>
Liabilities at Liabilities at
December 31, Cash September 30,
(In millions) 1997 Payments Adjustments 1998
-------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Professional fees $ 0.7 $ 4.3 $ 3.6 $ -
Personnel related 53.0 22.5 (14.7) 15.8
Business terminations 1.5 0.6 (0.9) -
Facility related and other 15.5 11.3 19.8 24.0
------------- ------------- ------------- -------------
Total $ 70.7 $ 38.7 $ 7.8 $ 39.8
============= ============= ============= =============
Liabilities at Liabilities at
December 31, Cash September 30,
(In millions) 1997 Payments Adjustments 1998
-------------- ------------- ------------ -------------
Cendant Merger $ 12.2 $ 14.5 $ 3.8 $ 1.5
HFS Merger 58.5 24.2 4.0 38.3
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Total $ 70.7 $ 38.7 $ 7.8 $ 39.8
============= ============= ============= =============
</TABLE>
During the nine months ended September 30, 1998, $7.8 million of
adjustments were made to Unusual Charges which included $24.1 million of
costs related to lease terminations net of $16.3 million of net credits
primarily associated with a change in estimated severance costs.
The remaining personnel related liabilities relate to future severance
and benefit payments and the facility related liabilities are for future
lease termination payments.
4. Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" effective January 1, 1998. This
statement establishes standards for the reporting and display of an
alternative income measurement and its components in the financial
statements.
Components of comprehensive income (loss) are summarized as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(In millions) 1998 1997
------------- -------------
<S> <C> <C>
Net income (loss) $ 193.6 $ (64.3)
Other comprehensive income (loss):
Currency translation adjustment 3.1 (2.1)
------------ --------------
Comprehensive income (loss) $ 196.7 $ (66.4)
============ ==============
</TABLE>
<PAGE>
5. Mortgage Facility
The Company's mortgage services subsidiary ("Mortgage Services") entered
into a three year agreement effective May, 1998 (the "Effective Date")
under which an unaffiliated Buyer (the "Buyer") has committed to
purchase, at Mortgage Services' option, mortgage loans originated by
Mortgage Services on a daily basis, up to the Buyer's asset limit of
$1.5 billion.
Under the terms of this sale agreement, Mortgage Services retains the
servicing rights on the mortgage loans sold to the Buyer and provides
the Buyer with options to sell or securitize the mortgage loans into the
secondary market. At September 30, 1998, Mortgage Services was servicing
approximately $1.2 billion of mortgage loans owned by the Buyer.
6. New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities" effective for all
quarterly and annual periods beginning after June 15, 1999. SFAS No. 133
requires the recognition of all derivatives in the consolidated balance
sheet as either assets or liabilities measured at fair value. The
Company will adopt SFAS No. 133 effective January 1, 2000. The Company
has not yet determined the impact SFAS No. 133 will have on its
financial position or results of operations when such statement is
adopted.
7. Parent Company Investigation and Litigation
Parent Company Investigation and Litigation. On April 15, 1998, Cendant
announced that it discovered accounting irregularities in the former CUC
business units. Since the Parent Company's announcement and prior to the
date hereof, seventy-one purported class action lawsuits and one
individual lawsuit have been filed against the Parent Company and
certain current and former officers and directors of the Parent Company
and HFS, asserting various claims under the federal securities laws (the
"Federal Securities Actions"). Some of the actions also name as
defendants Merrill Lynch & Co. and, in one case, Chase Securities, Inc.,
underwriters for the Parent Company's PRIDES securities offering; and
two others also name Ernst & Young LLP, the Parent Company's former
independent accountants. Sixty-four of the Federal Securities Actions
were filed in the United States District Court for the District of New
Jersey, six were filed in the United States District Court for the
District of Connecticut (including the individual action), one was filed
in the United States District Court for the Eastern District of
Pennsylvania and one was filed in New Jersey Superior Court. The Federal
Securities Actions filed in the District of Connecticut and Eastern
District of Pennsylvania have been transferred to the District of New
Jersey. On June 10, 1998, the Parent Company moved to dismiss or stay
the Federal Securities Actions filed in New Jersey Superior Court on the
ground that, among other things, it is duplicative of the actions filed
in federal courts. The court granted that motion on August 7, 1998,
without prejudice to the plaintiff's right to re-file the case in the
District of New Jersey.
Certain of these Federal Securities Actions purport to be brought on
behalf of purchasers of the Parent Company's common stock and/or options
on common stock during various periods, most frequently beginning May
28, 1997 and ending April 15, 1998 (although the alleged class periods
begin as early as March 21, 1995 and end as late as July 15, 1998).
Others claim to be brought on behalf of persons who exchanged common
stock of HFS for the Parent Company's common stock in connection with
the Merger. Some plaintiffs purport to represent both of these types of
investors. In addition, eight actions pending in the District of New
Jersey purport to be brought, either in their entirety or in part, on
behalf of purchasers of the Parent Company's PRIDES securities. The
complaints in the Federal Securities Actions allege, among other things,
that as a result of accounting irregularities, the Parent Company's
previously issued financial statements were materially false and
misleading and that the defendants knew or should have known that these
financial statements caused the prices of the Parent Company's
securities to be inflated artificially. The Federal Securities Actions
variously allege violations of Section 10(b) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5 promulgated
thereunder, Section 14(a) of the Exchange Act and Rule 14a-9 promulgated
thereunder, Section 20(a) of the Exchange Act, and Sections 11, 12 and
15 of the Securities Act of 1933, as amended (the "Securities Act").
Certain actions also allege violations of common law. The individual
action also alleges violations of Section 18(a) of the Exchange Act and
the Florida securities law. The class action complaints seek damages in
unspecified amounts. The individual action seeks damages in the amount
of approximately $9 million plus interest and expenses.
On May 29, 1998, United States Magistrate Judge Joel A. Pisano entered
an Order consolidating the fifty Federal Securities Actions that had at
that time been filed in the United States District Court for the
District of New Jersey, under the caption In re: Cendant Corporation
Litigation, Master File No. 98-1664 (WHW). Pursuant to the Order, all
related actions subsequently filed in the District of New Jersey are to
be consolidated under that caption. United States District Court Judge
William H. Walls has selected lead plaintiffs and lead counsel to
represent all potential class members in the consolidated action and
ordered that a consolidated amended action be filed by December 14,
1998. On November 11, 1998, the lead plaintiff representing purchasers
of the Parent Company's PRIDES securities filed an amended and
consolidated complaint. Simultaneously, the lead plaintiff filed motions
seeking: (1) certification of a class of persons who purchased the
Parent Company's PRIDES securities between February 24, and April 15,
1998 pursuant to a registration statement and prospectus prepared in
connection with the public offering of the Parent Company's PRIDES
securities; (2) summary judgment against the Parent Company on the
claims brought pursuant to Section 11 of the Securities Act; and (3) a
preliminary injunction requiring the Parent Company to place $300
million in a trust account for the benefit of the proposed class of
PRIDES purchases. The Parent Company intends to vigorously oppose the
motions; however, the Company can make no assurances as to the timing,
outcome or resolution thereof.
In addition, on April 27, 1998, a purported shareholder derivative
action, Deutch v Silverman, et al., No. 98-1998 (WHW), was filed in the
District of New Jersey against certain of the Parent Company's current
and former directors and officers; The Bear Stearns Companies, Inc.;
Bear Stearns & Co. Inc.; and, as a nominal party, the Parent Company.
The complaint in the Deutch action alleges that certain individual
officers and directors of the Parent Company breached their fiduciary
duties by selling shares of the Parent Company's stock while in
possession of non-public material information concerning the accounting
irregularities. The complaint also alleges various other breaches of
fiduciary duty, mismanagement, negligence and corporate waste and seeks
damages on behalf of the Parent Company.
Another action, entitled Corwin v Silverman, et al., No. 16347-NC, was
filed on April 29, 1998 in the Court of Chancery for the State of
Delaware. The Corwin action is purportedly brought both derivatively, on
behalf of the Parent Company, and as a class action, on behalf of all
shareholders of HFS who exchanged their HFS shares for the Parent
Company's shares in connection with the Merger. The Corwin action names
as defendants HFS and twenty-eight individuals who are and were
directors of Cendant and HFS. The complaint in the Corwin action alleges
that defendants breached their fiduciary duties of loyalty, good faith,
care and candor in connection with the Merger, in that they failed to
properly investigate the operations and financial statements of the
Parent Company before approving the Merger at an allegedly inadequate
price. The amended complaint also alleges that the Parent Company's
directors breached their fiduciary duties by entering into an employment
agreement with Cendant's former Chairman, Walter Forbes, in connection
with the Merger that purportedly amounted to corporate waste. The Corwin
action seeks, among other things, recision of the Merger and
compensation for all losses and damages allegedly suffered in connection
therewith. On October 7, 1998, the Parent Company filed a motion to
dismiss the Corwin action or, in the alternative, for a stay of the
Corwin action pending determination of the Federal Securities Actions.
The staff of SEC and the United States Attorney for the District of New
Jersey are conducting investigations relating to the matters referenced
above. The SEC staff has advised the Parent Company that its inquiry
should not be construed as an indication by the SEC or its staff that
any violations of law have occurred.
In connection with the Cendant Merger, certain officers and directors of
HFS exchanged their shares of HFS common stock and options exercisable
for HFS common stock for shares of the Parent Company's common stock and
options exercisable for the Parent Company's common stock, respectively.
As a result of the aforementioned accounting irregularities, such
officers and directors have advised the Parent Company that they believe
they have claims against the Parent Company in connection with such
exchange. In addition, certain current and former officers and directors
of the Parent Company would consider themselves to be members of any
class ultimately certified in the Federal Securities Actions now pending
in which the Parent Company is named as a defendant by virtue of their
have been HFS stockholders at the time of the Cendant Merger.
The Parent Company does not believe it is feasible to predict or
determine the final outcome of these proceedings or investigations or to
estimate the amounts or potential range of loss with respect to the
resolution of these proceedings or investigations. In addition, the
timing of the final resolution of the proceedings or investigations is
uncertain. The possible outcome or resolutions of the proceedings could
include a judgment against the Parent Company. Management believes that
an adverse outcome with respect to such Parent Company
proceedings could have a material adverse impact on the financial
condition and cash flows of the Company.
On October 14, 1998, an action entitled P Schoenfeld Asset Management
LLC v. Cendant Corp., et al., No. 98-4734 (WHW) (the "ABI Action"), was
filed in the United States District Court for the District of New Jersey
against the Parent Company and four of its former officers and
directors. The plaintiff in the ABI Action claims to be bringing the
action on behalf of a class of all persons who purchased securities of
American Bankers between March 23, 1998 and October 13, 1998. The
complaint in the ABI Action alleges that the plaintiff and the putative
class members purchased American Bankers securities in reliance on false
and misleading public announcements and filings with the SEC made by the
Parent Company in connection with its proposed acquisition of American
Bankers. The complaint alleges that those public announcements and
filings contained materially misstated financial statements, because of
accounting irregularities discussed above, and that the Parent Company
falsely announced its intention to consummate the acquisition of
American Bankers. It is asserted that these misstatements were made in
violation of Sections 10(b) and 20(a) of the Exchange Act and caused the
plaintiff and other putative class members to purchase American Bankers
securities at inflated prices.
Other pending litigation. The Company and its subsidiaries are involved
in pending litigation in the usual course of business. In the opinion of
management, such litigation will not have a material adverse effect on
the Company's consolidated financial position, results of operations or
cash flows.
<PAGE>
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS AND
LIQUIDITY AND CAPITAL RESOURCES
General Overview
PHH Corporation, together with its wholly-owned subsidiaries (the "Company"), is
a leading provider of corporate relocation, fleet management and mortgage
services. In April 1997, the Company merged (the "HFS Merger") with a wholly
owned subsidiary of HFS Incorporated ("HFS") and in December 1997, HFS merged
(the "Cendant Merger") with and into CUC International Inc. ("CUC") to form
Cendant Corporation ("Cendant" or the "Parent Company"). Effective with the
Cendant Merger, the Company became a wholly-owned subsidiary of Cendant.
However, pursuant to certain covenant requirements under the indentures in which
the Company issues debt, the Company continues to operate and maintain its
status as a separate public reporting entity.
As part of the Company's ongoing evaluation of its business units, the Company
may from time to time to explore its ability to make divestitures and enter into
related transactions as they arise. No assurance can be given that any
divestiture or other transaction will be consummated or, if consummated, the
magnitude, timing, likelihood or financial or business effect on the Company of
such transactions. Among the factors the Company will consider in determining
whether or not to consummate any transaction is the strategic and financial
impact of such transaction on the Company and Cendant.
Results of Operations
This discussion should be read in conjunction with the information contained in
the Consolidated Financial Statements and accompanying Notes thereto of the
Company appearing elsewhere in this Form 10-Q.
Three Months Ended September 30, 1998 vs Three Months Ended September 30, 1997
Pre-tax income increased $39.1 million (54%) primarily as a result of
significant increases in mortgage origination revenue, relocation revenue and
fleet management revenue while total expenses increased a minimal 12% generating
a 7.4 percentage point margin improvement. Net revenue of the Company increased
$56.8 million (25%) in 1998 principally comprised of increases in mortgage
origination revenue of $42.5 million (121%), relocation revenue of $18.8 million
(17%) and asset based (principally leasing) and service based revenue of $7.5
million (25%) and $5.7 million (17%), respectively. These increases were
partially offset by a $14.4 million (88%) decrease in mortgage servicing
revenue. A $3.4 billion (96%) increase in mortgage originations generated the
mortgage origination revenue increase. Increases of $5.1 million in referral
fees, $5.5 million in government home sale fees and $8.2 million of other
relocation fees drove the relocation revenue increase. Vehicle leasing revenue
increased due to a 16% price improvement while card servicing fees grew due to a
12% increase in the number of cards. The decrease in mortgage servicing revenue
was caused by accelerated amortization and a reduced valuation of the mortgage
servicing rights asset to reflect the impact of heavy refinancing activity.
Total expenses increased $17.7 million (12%) consisting primarily of a $14.6
million (151%) increase in information technology expense required to support
growth and the consolidation of duplicate systems of acquired companies.
Nine Months Ended September 30, 1998 vs Nine Months Ended September 30, 1997
The Company recorded merger-related costs and other unusual charges ("Unusual
Charges") of $7.8 million and $223.1 million in 1998 and 1997, respectively, in
connection with the HFS Merger and the Cendant Merger. Exclusive of such Unusual
Charges, pre-tax income increased $117.8 million (62%) primarily as a result of
significant increases in mortgage origination revenue, relocation revenue and
fleet management revenue while total expenses increased a moderate 11%
generating a 8.4 percentage point margin improvement. Revenue increased $168.2
million (26%) principally comprised of a $126.0 million (147%) increase in
mortgage origination revenue, a $32.9 million (11%) increase in relocation
revenue and increases of $17.1 million (17%) and $12.6 million (13%) in asset
based (principally leasing) and service based revenue respectively, exclusive of
a net $12.8 million reduction in preferred alliance revenue. A $10.3 billion
(132%) increase in mortgage originations fueled the mortgage origination revenue
growth. The relocation related revenue increase was comprised of government home
sales and referral fee increases of $27.6 million and $11.7 million,
respectively, while other relocation revenue reflected a $6.4 million net
decrease. A 10% price improvement and a 12% increase in number of cards drove
the respective vehicle leasing and card servicing revenue increases. Total
expenses, exclusive of Unusual Charges, increased $50.4 million (11%) consisting
primarily of a $24.9 million (68%) increase in information technology expenses
required to support growth and the consolidation of duplicate systems of
acquired companies, $11.9 million (24%) of incremental mortgage production
costs, $14.0 million (30%) of additional government home sales expense and $6.6
million additional depreciation and amortization due to expansion. These
increases were partially offset by an $8.9 million (37%) decrease in corporate
overhead.
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.
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 the 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. Within mortgage services,
the Company funds the mortgage loans on a short-term basis until the mortgage
loans are sold to unrelated investors. Interest rate risk on mortgages
originated for sale is managed through the use of forward delivery contracts,
financial futures and options. Financial derivatives are also used as a hedge to
minimize earnings volatility as it relates to mortgage servicing assets.
The Company supports purchases of leased vehicles, home equity advances, and
mortgage originations primarily by issuing commercial paper and medium term
notes. Such borrowings are included in liabilities under management and mortgage
programs since such debt corresponds directly with high quality assets. In
addition, the Company has successfully completed and continues to pursue
opportunities to reduce its borrowing requirements by securitizing increasing
amounts of its high quality assets. In May 1998, the Company commenced a program
to sell originated mortgage loans to an unaffiliated buyer up to the buyer's
asset limit of $1.5 billion. The buyer may sell or securitize such mortgage
loans into the secondary market, however, servicing rights are retained by the
Company. The Company has entered into negotiations and, in the near future,
expects to increase the amount of mortgage loans it may sell to this buyer to
$2.25 billion. Pursuant to certain covenant requirements under the indentures in
which the Company issues debt, the Company continues to operate and maintain its
status as a separate public reporting entity. Financial covenants are designed
to ensure the self-sufficient liquidity status of the Company. Financial
covenants include restrictions on Parent Company loans, debt to equity ratio
limitations and other separate Company financial restrictions.
In October 1998, Moody's and Standard and Poor's reduced the Company's long-term
and short-term debt ratings to A3/P2 and A-/A2 from A2/P1 and A+/A1,
respectively. The Company's long-term and short-term debt ratings remain A+/F1
and A+/D1 with Fitch IBCA and Duff and Phelps Credit Rating Co., respectively.
While the recent downgrading caused the Company to incur an increase in cost of
funds, management believes its sources of liquidity continue to be adequate. (A
security rating is not a recommendation to buy, sell or hold securities and is
subject to revision or withdrawal at any time).
The Company expects to continue to maximize its 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, European and Canadian commercial paper markets, as
well as other cost-effective short-term instruments. In addition, the Company
will continue to utilize the public and private debt markets as sources of
financing. Augmenting these sources, the Company will continue to manage
outstanding debt with the potential sale or transfer of managed assets to third
parties while retaining fee-related servicing responsibility. At September 30,
1998, the Company has outstanding debt of $6.2 billion comprised of $3.0 billion
in commercial paper, $3.0 billion in medium term notes and other borrowings of
$0.2 billion.
Consistent with general market trends for issuers of commercial paper with
comparable credit ratings, maturities of recent PHH commercial paper issuances
have become shorter than PHH's historical experience. In the event that the
public debt market is unable to meet PHH's funding needs, the Company believes
that it has appropriate alternative financing sources to provide adequate
liquidity, including PHH's $2.7 billion of revolving credit facilities.
PHH filed a shelf registration statement with the SEC, which became effective
March 2, 1998, for the aggregate issuance of up to $3 billion of medium-term
note debt securities. These securities may be offered from time to time,
together or separately, based on terms to be determined at the time of sale. The
proceeds will be used to finance assets the Company manages for its clients and
for general corporate purposes. As of September 30, 1998, the Company had
approximately $1.5 billion of medium-term notes outstanding under such shelf
registration statement.
To provide additional financial flexibility, PHH's policy has been to ensure
that the minimum committed bank facilities aggregate at least 80 percent of the
average amount of outstanding commercial paper. It is the Company's intention to
increase the minimum percentage of committed bank facilities to outstanding
commercial paper to 100 percent by December 31, 1998. The Company maintains a
$2.5 billion syndicated unsecured credit facility which is backed by domestic
and foreign banks and is comprised of $1.25 billion lines of credit maturing in
March 1999 and $1.25 billion maturing in the year 2000. In addition, the Company
has a $200 million revolving credit facility, which matures on June 24, 1999 and
other uncommitted lines of credit with various financial institutions which were
unused at September 30, 1998. Management closely evaluates the credit quality of
the banks and also the terms of the various agreements to ensure ongoing
availability. The full amount of PHH's committed facilities at September 30,
1998 was undrawn and available. Management believes that its current policy
provides adequate protection should volatility in the financial markets limit
PHH's access to commercial paper or medium-term notes funding.
On July 10, 1998, the Company entered into a Supplemental Indenture No. 1 (the
"Supplemental Indenture") with The First National Bank of Chicago, as trustee,
under the Senior Indenture dated as of June 5, 1997, which formalizes the
Company's policy of limiting the payment of dividends and the outstanding
principal balance of loans to the Parent Company to 40% of consolidated net
income (as defined in the Supplemental Indenture) for each fiscal year. The
Supplemental Indenture prohibits the Company from paying dividends or making
loans to the Parent Company if, upon giving effect to such dividend and/or loan,
the Company's debt to equity ratio exceeds 8 to 1 at the time of the dividend or
loan, as the case may be.
Cash Flow
Cash flows provided by operating activities decreased $288.8 million from $899.8
million for the nine months ended September 30, 1997 to $611.0 million for the
same period in 1998. The decrease in operating cash flows primarily reflects
unprecedented growth in mortgage loan origination volume. Rapid growth
contributed to a 138% increase in Mortgage Services operating income. As a
result, mortgage loans held for sale on the balance sheet increased $724.5
million, which largely contributed to the operating cash decrease when compared
to the same period in 1997.
The $273.7 million increase in net cash used in investing activities included
$97.1 million of incremental capital expenditures associated with a planned
facility and other expenditures required to meet increased mortgage loan
origination demand and planned system development expenditures to consolidate
former PHH and Coldwell Banker relocation businesses. The $607.6 million
increase in financing activities primarily reflects temporary funding
requirements associated with increased mortgage loans held for sale on the
balance sheet at September 30, 1998.
Parent Company Litigation
On April 15, 1998, Cendant announced that it discovered accounting
irregularities in certain former CUC business units. Cendant, together with its
legal counsel and assisted by external auditors, conducted an investigation of
these accounting irregularities. In addition, the Audit Committee of Cendant's
Board of Directors initiated an investigation into such matters. As a result of
the findings of these investigations and a concurrent internal financial review
process by Cendant which revealed both accounting errors and irregularities,
Cendant restated its previously reported financial statements for the years
ended December 31, 1997, 1996 and 1995 and the quarterly periods ended March 31,
and June 30, 1998, respectively.
Numerous purported class action lawsuits, two purported derivative lawsuits and
an individual lawsuit have been filed against the Parent Company and, among
others, its predecessor HFS, and certain current and former officers and
directors of the Parent Company and HFS asserting various claims under the
federal securities laws and certain state statutory and common laws. In
addition, the staff of the SEC and the United States Attorney for the District
of New Jersey are conducting investigations relating to the accounting issues.
The SEC staff advised the Parent Company that its inquiry should not be
construed as an indication by the SEC or its staff that any violations of law
have occurred. See Note 7 to the Consolidated Financial Statements.
The Parent Company does not believe that it is feasible to predict or determine
the final outcome of these proceedings or investigations or to estimate the
amounts or potential range of loss with respect to these proceedings or
investigations. In addition, the timing of the final resolution of the
proceedings is uncertain. The possible outcome or resolution of the proceedings
could include a judgment against the Parent Company or a settlement and could
require substantial payments by the Parent Company. Management believes that
an adverse outcome with respect to such Parent Company proceedings or
investigations could have a material impact on the financial condition, results
of operations and cash flows of the Parent Company which could also have a
material impact on the financial condition or cash flows of the Company.
Impact of New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 131 "Disclosures About Segments
of an Enterprise and Related Information" effective for annual periods beginning
after December 15, 1997 and interim periods subsequent to the initial year of
application. SFAS No. 131 establishes standards for the way that public business
enterprises report information about their operating segments in their annual
and interim financial statements. It also requires public enterprises to
disclose company-wide information regarding products and services and the
geographic areas in which they operate. The Company will adopt SFAS No. 131
effective for the 1998 calendar year end.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pension and Other Postretirement Benefits" effective for periods beginning after
December 15, 1997. The Company will adopt SFAS No. 132 effective for the 1998
calendar year end.
The aforementioned recently issued accounting pronouncements establish standards
for disclosures only and therefore will have no impact on the Company's
financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" effective for all quarterly and annual
periods beginning after June 15, 1999. SFAS No. 133 requires the recognition of
all derivatives in the consolidated balance sheet as either assets or
liabilities measured at fair value. The Company will adopt SFAS No. 133
effective January 1, 2000. The Company has not yet determined the impact SFAS
No. 133 will have on its financial statements.
Year 2000 Compliance
The Year 2000 presents the risks that information systems will be unable to
recognize the process date-sensitive information properly from and after January
1, 2000.
To minimize or eliminate the effect of the year 2000 risk on the Company's
business systems and applications, the Company is continually identifying,
evaluating, implementing and testing changes to its computer systems,
applications and software necessary to achieve Year 2000 compliance. The Company
has selected a team of managers to identify, evaluate and implement a plan to
bring all of the Company's critical business systems and applications into Year
2000 compliance prior to December 31, 1999. The Year 2000 initiative consists of
four phases: (i) identification of all critical business systems subject to Year
2000 risk (the "Identification Phase"); (ii) assessment of such business systems
and applications to determine the method of correcting any Year 2000 problems
(the "Assessment Phase"); (iii) implementing the corrective measures (the
"Implementation Phase"); and (iv) testing and maintaining system compliance (the
"Testing Phase"). The Company has substantially completed the Identification and
Assessment Phases and has identified and assessed five areas of risk: (i)
internally developed business applications; (ii) third party vendor software,
such as business applications, operating systems and special function software;
(iii) computer hardware components; (iv) electronic data transfer systems
between the Company and its customers; and (v) embedded systems, such as phone
switches check writers and alarm systems. Although no assurance can be made, the
Company believes that it has identified substantially all of its systems,
applications and related software that are subject to Year 2000 compliance risks
and has either implemented or initiated the implementation of a plan to correct
such systems that are not Year 2000 compliant. The Company has targeted December
31, 1998 for completion of the Implementation Phase. Although the Company has
begun the Testing Phase, it does not anticipate completion of the Testing Phase
until sometime prior to December 1999.
The Company relies on third party service providers for services such as
telecommunications, internet service, utilities, components for its embedded and
other systems and other key services. Interruption of those services due to Year
2000 issues could affect the Company's operations. The Company initiated an
evaluation of the status of such third party service providers' efforts to
determine alternative and contingency requirements. While approaches to reducing
risks of interruption of business operations vary by business unit, options
include identification of alternative service providers available to provide
such services if a service provider fails to become Year 2000 compliance within
an acceptable timeframe prior to December 31, 1999.
The total cost of the Company's Year 2000 compliance plan is anticipated to be
$23 million. Approximately $12 million of these costs had been incurred through
September 30, 1998, and the Company expects to incur the balance of such costs
to complete the compliance plan. The Company has been expensing and capitalizing
the costs to complete the compliance plan in accordance with appropriate
accounting policies. Variations from anticipated expenditures and the effect on
the Company's future results of operations are not anticipated to be material in
any given year. However, if year 2000 modifications and conversions are not
made, or are not completed in time, the Year 2000 problem could have a material
impact on the operations and financial condition of the Company.
THE ESTIMATES AND CONCLUSIONS HEREIN ARE FORWARD-LOOKING STATEMENTS AND ARE
BASED ON MANAGEMENT'S BEST ESTIMATES OF FUTURE EVENTS. RISKS OF COMPLETING THE
PLAN INCLUDE THE AVAILABILITY OF RESOURCES, THE ABILITY TO DISCOVER AND CORRECT
THE POTENTIAL YEAR 2000 SENSITIVE PROBLEMS WHICH COULD HAVE A SERIOUS IMPACT ON
CERTAIN OPERATIONS AND THE ABILITY OF THE COMPANY'S SERVICE PROVIDERS TO BRING
THEIR SYSTEMS INTO YEAR 2000 COMPLIANCE.
Forward-looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Important assumptions and other important
factors that could cause actual results to differ materially from those in the
forward-looking statements, include, but are not limited to: the effect of
economic and market conditions, the ability to obtain financing, the level and
volatility of interest rates, the resolution and outcome of the pending
litigation and government investigation relating to the accounting
irregularities at the Parent Company, the ability of the Company and its vendors
to complete the necessary actions to achieve a year 2000 conversion for its
computer systems as applications, the effect of any corporate transactions,
including any divestitures, and other risks and uncertainties. Other factors and
assumptions not identified above were also involved in the derivation of these
forward-looking statements, and the failure of such other assumptions to be
realized as well as other factors may also cause actual results to differ
materially from those projected. The Company assumes no obligation to update
these forward-looking statements to reflect actual results, changes in
assumptions or changes in other factors affecting such forward-looking
statements.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In normal operations, the Company must deal with effects of changes in interest
rates and currency exchange rates. The following discussion presents an overview
of how such changes are managed and a view of their potential effects.
The Company uses various financial instruments, particularly interest rate and
currency swaps, but also options, floors and currency forwards, to manage its
respective interest rate and currency risks. The Company is exclusively an end
user of these instruments, which are commonly referred to as derivatives.
Established practices require that financial instruments relate to specific
asset, liability or equity transactions or to currency exposure.
The Securities and Exchange Commission requires that registrants include
information about potential effects of changes in interest rate and currency
exchange in their financial statements. Although the rules offer alternatives
for presenting this information, none of the alternatives is without
limitations. The following discussion is based on so-called "shock tests", which
model the effects of interest rate and currency shifts on the reporting company.
Shock tests, while probably the most meaningful analysis permitted, are
constrained by several factors, including the necessity to conduct the analysis
based on a single point in time and by their inability to include the
extraordinarily complex market reactions that normally would arise from the
market shifts modeled. While the following results of shock tests for interest
rate and currencies may have some limited use as benchmarks, they should not be
viewed as forecasts.
o One means of assessing exposure to interest rate changes is a
duration-based analysis that measures the potential loss in net earnings
resulting from a hypothetical 10% change in interest rates across all
maturities (sometimes referred to as a "parallel shift in the yield
curve"). Under this model, it is estimated that, all else constant, such an
increase, including repricing effects in the securities portfolio, would
not materially effect the 1998 net earnings of the Company based on current
positions.
o One means of assessing exposure to changes in currency exchange rates is to
model effects on reported earnings using a sensitivity analysis. The nine
months ended September 30, 1998 consolidated currency exposures, including
financial instruments designated and effective as hedges, were analyzed to
identify the Company's assets and liabilities denominated in other than
their relevant functional currency. Net unhedged exposures in each currency
were then remeasured assuming a 10% change in currency exchange rates
compared with the U.S. dollar. Under this model, it is estimated that, all
else constant, such a change would not materially effect the 1998 net
earnings of the Company based on current positions.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The Company filed a report on Form 8-K, dated July 14, 1998, reporting in Item 5
the execution of Supplemental Indenture No. 1 to its Senior Indenture, dated as
of June 5, 1997.
The Company filed a report on Form 8-K, dated July 28, 1998, announcing that the
accounting irregularities at the Parent Company's former CUC International Inc.
business unit were greater than previously announced.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHH CORPORATION
By: /s/ David M. Johnson
David M. Johnson
Senior Executive Vice President and
Chief Financial Officer
By: /s/ Scott E. Forbes
Scott E. Forbes
Executive Vice President and
Chief Accounting Officer
Date: November 16, 1998
EXHIBIT 12
PHH Corporation and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(In millions)
Nine Months Ended September 30,
1998 1997
------------- -------------
Income (loss) before income taxes $ 299.6 $ (33.5)
Plus: Fixed charges 264.2 212.5
------------- -------------
Earnings available to cover
fixed charges 563.8 179.0
------------- ------------
Fixed charges (1):
Interest including amortization
of deferred financing costs 258.2 206.7
Interest portion of rental payment 6.0 5.8
------------- ------------
Total fixed charges $ 264.2 $ 212.5
============= ============
Ratio of earnings to fixed charges (2) 2.13x 0.84x
===== =====
(1) Fixed charges consist of interest expense on all indebtedness (including
amortization of deferred financing costs) and the portion of operating
lease rental expense that is representative of the interest factor (deemed
to be one-third of operating lease rentals). The substantial portion of
interest expense incurred on debt is used to finance the Company's fleet
leasing, mortgage service and relocation service activities.
(2) For the nine months ended September 30, 1998, income before income taxes
includes non-recurring merger-related costs and other unusual charges of
$7.8 million. Excluding such charges, the ratio of earnings to fixed
charges is 2.16x. For the nine months ended September 30, 1997, loss before
income taxes includes non-recurring merger-related costs and other unusual
charges associated with the HFS Merger of $223.1 million ($174.3 million
after-tax). Excluding such charges, the ratio of earnings to fixed charges
is 1.89x.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF THE COMPANY AS OF SEPTEMBER 30, 1998 AND THE STATEMENT OF OPERATIONS OF
THE COMPANY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND IS
QUALIFIED IN ITS ENTIRETY TO BE REFERENCED TO SUCH FINANCIAL STATEMENTS. AMOUNTS
ARE IN MILLIONS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 4 0
<SECURITIES> 0 0
<RECEIVABLES> 524 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 992 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 8,295 0
<CURRENT-LIABILITIES> 888 0
<BONDS> 0 0
0 0
0 0
<COMMON> 289 0
<OTHER-SE> 664 0
<TOTAL-LIABILITY-AND-EQUITY> 8,295 0
<SALES> 0 0
<TOTAL-REVENUES> 810 642
<CGS> 0 0
<TOTAL-COSTS> 502 452
<OTHER-EXPENSES> 8 223
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 300 (33)
<INCOME-TAX> 106 31
<INCOME-CONTINUING> 194 (64)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 0 0
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
