INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
PHH Corporation:
We have audited the consolidated financial statements of PHH Corporation and
subsidiaries as of April 30, 1996 and 1995, 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, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PHH
Corporation and subsidiaries as of April 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended April 30, 1996, in conformity with generally accepted accounting
principles.
As discussed in the notes to the consolidated financial statements, the
Company adopted the provisions of statement of Financial Accounting Standards
No. 122, "Accounting for Mortgage Servicing Rights," in 1996.
KPMG Peat Marwick LLP
Baltimore, Maryland May 17, 1996, except for the note on capital stock as to
which the date is June 24, 1996
PHH Corporation and Subsidiaries
Consolidated Statements of Income
(In thousands except per share data)
Years ended April 30, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Revenues:
Vehicle management services $ 1,371,150 $ 1,257,696 $ 1,162,483
Real estate services 812,851 686,836 816,261
Mortgage banking services 195,599 126,094 155,935
- ---------------------------------------------------------------------------------------------------------------------------
2,379,600 2,070,626 2,134,679
Expenses:
Depreciation on vehicles under operating leases 944,187 872,495 808,894
Costs, including interest, of carrying and reselling homes 681,589 576,385 717,793
Direct costs of mortgage banking services 68,985 40,924 57,091
Interest 223,847 173,094 138,617
Selling, general and administrative 321,844 286,410 302,488
- ---------------------------------------------------------------------------------------------------------------------------
2,240,452 1,949,308 2,024,883
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 139,148 121,318 109,796
Income taxes 57,528 49,656 45,238
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 81,620 $ 71,662 $ 64,558
- ---------------------------------------------------------------------------------------------------------------------------
Net income per share* $ 2.33 $ 2.08 $ 1.82
- ---------------------------------------------------------------------------------------------------------------------------
* Reflects two-for-one common stock split declared June 24, 1996, described in
the capital stock note.
See Notes to Consolidated Financial Statements.
PHH Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands)
As of April 30, 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Assets:
Cash $ 9,288 $ 3,412
Accounts receivable, less allowance for doubtful
accounts of $5,478 in 1996 and $6,689 in 1995 468,938 484,230
Carrying costs on homes under management 46,560 45,260
Mortgage loans held for sale 874,794 712,247
Mortgage servicing rights and fees 230,209 98,003
Property and equipment, net 93,089 102,399
Goodwill, net 49,081 51,164
Other assets 117,999 77,929
- ---------------------------------------------------------------------------------------------------------------------------
1,889,958 1,574,644
- ---------------------------------------------------------------------------------------------------------------------------
Assets Under Management Programs:
Net investment in leases and leased vehicles 3,216,224 3,017,231
Equity advances on homes 566,808 447,658
- ---------------------------------------------------------------------------------------------------------------------------
3,783,032 3,464,889
- ---------------------------------------------------------------------------------------------------------------------------
$ 5,672,990 $ 5,039,533
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accounts payable and accrued expenses $ 434,109 $ 424,438
Advances from clients and deferred revenue 96,439 101,229
Other debt 903,442 735,886
Deferred income taxes 191,700 158,400
- ---------------------------------------------------------------------------------------------------------------------------
1,625,690 1,419,953
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities Under Management Programs 3,438,804 3,079,629
- ---------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock, authorized 3,000,000 shares -- --
Common stock, no par value, authorized
50,000,000 shares; issued and outstanding
34,661,524* shares in 1996 and 16,890,212
shares in 1995 96,081 79,210
Cumulative foreign currency translation adjustment (23,483) (16,913)
Retained earnings 535,898 477,654
- ---------------------------------------------------------------------------------------------------------------------------
608,496 539,951
- ---------------------------------------------------------------------------------------------------------------------------
$ 5,672,990 $ 5,039,533
- ---------------------------------------------------------------------------------------------------------------------------
* Reflects two-for-one common stock split declared June 24, 1996, described in
the capital stock note.
See Notes to Consolidated Financial Statements.
PHH Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Years ended April 30, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 81,620 $ 71,662 $ 64,558
Adjustments to reconcile income to cash
provided by operating activities:
Depreciation on vehicles under operating leases 944,187 872,495 808,894
Other depreciation and amortization 30,020 32,095 29,000
Amortization and write-down of
servicing rights and fees 37,640 20,089 29,132
Additions to originated mortgage servicing rights (91,134) -- --
Additions to excess mortgage servicing fees (66,432) (27,869) (39,042)
Deferred income taxes 33,585 41,530 25,694
Gain on sale of subsidiary (11,688) -- --
Changes in:
Accounts receivable (31,211) (5,913) (72,536)
Carrying costs on homes under management (1,507) (9,011) 15,544
Mortgage loans held for sale (162,547) (6,359) (227,230)
Accounts payable and accrued expenses 32,951 (93,033) (28,835)
Advances from clients and deferred revenue (4,208) 21,790 (27,146)
All other operating activity (18,592) 12,983 (5,368)
- ---------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 772,684 930,459 572,665
- ---------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Investment in leases and leased vehicles (1,909,805) (1,785,923) (1,578,721)
Repayment of investment in leases and leased vehicles 582,487 579,835 549,262
Proceeds from sales and transfers of leases and
leased vehicles to third parties 163,172 109,859 105,087
Value of homes acquired (4,649,297) (6,603,355) (4,101,894)
Value of homes sold 4,530,106 6,631,414 4,301,529
Purchases of mortgage servicing rights (13,316) (13,826) (14,223)
Additions to property and equipment, net of dispositions (17,650) (16,429) (32,719)
Acquisitions accounted for as a purchase -- -- (2,594)
Proceeds from sale of subsidiary 33,618 -- --
All other investing activities (34,583) (21,114) 1,348
- ---------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (1,315,268) (1,119,539) (772,925)
- ---------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Net change in borrowings with terms of less than 90 days (150,349) 114,462 172,255
Proceeds from issuance of other borrowings 1,914,461 1,195,147 1,040,092
Principal payment on other borrowings (1,223,110) (1,074,230) (1,011,673)
Stock option plan transactions 16,871 4,090 9,554
Repurchases of common shares -- (17,019) (8,721)
Payment of dividends (23,376) (21,809) (20,850)
- ---------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 534,497 200,641 180,657
- ---------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 13,963 (8,174) 19,106
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 5,876 3,387 (497)
Cash at beginning of period 3,412 25 522
- ---------------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 9,288 $ 3,412 $ 25
- ---------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
PHH Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
Cumulative
Foreign
Currency
(Dollars in thousands except per share data) Common Stock Translation Retained
Years Ended April 30, 1996, 1995 and 1994 Shares Amount Adjustment Earnings
- ---------------------------------------------------------------------------------------------------------------------------
Balance April 30, 1993 17,197,785 $ 91,306 $ (17,916) $ 384,093
Net income 64,558
Cash dividends declared ($.60 per share)* (20,850)
Foreign currency translation adjustment (3,711)
Stock option plan transactions,
net of related income tax benefits 305,062 9,554
Repurchases of common shares (257,174) (8,721)
- ---------------------------------------------------------------------------------------------------------------------------
Balance April 30, 1994 17,245,673 92,139 (21,627) 427,801
Net income 71,662
Cash dividends declared ($.64 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
Net income 81,620
Cash dividends declared ($.68 per share)* (23,376)
Foreign currency translation adjustment (6,570)
Stock option plan transactions,
net of related income tax benefits 440,550 16,871
Two-for-one common stock split* 17,330,762
- ---------------------------------------------------------------------------------------------------------------------------
Balance April 30, 1996 34,661,524 $ 96,081 $ (23,483) $ 535,898
- ---------------------------------------------------------------------------------------------------------------------------
* Reflects two-for-one common stock split declared June 24, 1996, described in
the capital stock note.
See Notes to Consolidated Financial Statements.
PHH Corporation and Subsidiaries
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.
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.
Vehicle Management Services
Vehicle management services primarily consist of the management, purchase,
leasing, and resale of vehicles for corporate clients and government agencies.
These services also include fuel, maintenance, safety and accident 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 primarily 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. The Company normally retires the mortgage
concurrently with the purchase of the equity; but, in certain circumstances,
the Company accepts administrative responsibility for making payments on the
mortgages. These mortgages are retired at settlement 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 on the resale of a home. Under the terms of
contracts with clients, the Company is generally protected against losses from
changes in real estate 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, financial institutions, 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. Beginning in 1996, the carrying value of the loans
excludes the cost assigned to originated servicing rights. (See note for
mortgage servicing rights and fees). Such gains and losses are also increased
or decreased by the amount of deferred mortgage servicing fees recorded.
The Company acquires mortgage servicing rights and excess servicing fees by
originating or purchasing mortgage loans and selling those loans with
servicing retained, or it may purchase mortgage servicing rights separately.
The carrying value of mortgage servicing rights and excess servicing fees is
amortized over the estimated life of the related loan portfolio.
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.
The Company reviews the recoverability of excess servicing fees by discounting
anticipated future excess servicing cash flows at original discount rates
utilizing externally published prepayment rates. If the discounted value is
less than the recorded balance due to higher than expected prepayments, the
difference is recognized as a write-down in the consolidated statement of
income.
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 using the straight-line method (25 to 50 years); building
improvements, using the straight-line method (10 to 20 years); equipment and
leasehold improvements, using either the double-declining balance or
straight-line method (3 to 10 years); and externally developed software is
capitalized and amortized using the straight-line method (5 years).
Expenditures for improvements that increase
PHH Corporation and Subsidiaries
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.
Goodwill, Net
Goodwill, net represents the excess of cost over the net tangible and
intangible assets of businesses acquired net of accumulated amortization. It
is being amortized by the straight-line method over various periods up to 40
years and such amortization 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, 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
1994 through 1996 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 on borrowings used to finance equity
advances on homes is included in "costs, including interest, of carrying and
reselling homes" and was $29,119 in 1996, $21,102 in 1995, and $23,491 in
1994. Total interest paid, including amounts within "costs, including
interest, of carrying and reselling homes," was $273,198 in 1996, $211,206 in
1995, and $165,406 in 1994.
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. Deferred tax assets and liabilities represent the expected future
tax consequences of the differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. The
effects of changes in tax rates on deferred tax assets and liabilities are
recognized in the period that includes the enactment date. 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, 1996, were approximately
$105,000. The determination of unrecognized deferred US tax liability for
unremitted earnings is not practicable. However, it is estimated that foreign
withholding taxes of approximately $5,500 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, adjusted to
reflect the two-for-one common stock split, (see note for capital stock), were
35,074,920 for 1996, 34,505,686 for 1995, and 35,482,068 for 1994.
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 operations are deferred and considered in the
valuation of the 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 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.
The Company uses the intrinsic value method to account for stock-based
employee compensation plans. Under this method, compensation cost is
recognized for awards of shares of common stock to employees under
compensatory plans only if the quoted market price of the stock at the grant
date (or other measurement date, if later) is greater than the amount the
employee must pay to acquire the stock. In October 1995, the FASB issued SFAS
No. 123, "Accounting for Stock-Based Compensation." This statement permits
companies to adopt a new fair value-based method to account for stock-based
employee compensation plans or to continue using the intrinsic value method.
If the intrinsic value method is used, information concerning the pro forma
effects on net income and net income per share of adopting the fair
value-based method is required to be
PHH Corporation and Subsidiaries
presented in the notes to the financial statements. The Company intends to
continue using the intrinsic value method and will provide disclosures about
its stock-based employee compensation plans in its 1997 financial statements,
as required by Statement No. 123.
Divestiture
In February 1996 the Company sold its North American truck fuel and management
operations resulting in a net gain of $11,688, which is reflected in vehicle
management services revenues.
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 $2,483,000 and
$1,699,000 at April 30, 1996 and 1995, 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, 1996, mortgage loans sold with recourse amounted to
$113,000. The Company believes adequate reserves are maintained to cover all
potential losses.
Mortgage Servicing Rights and Fees
Mortgage servicing rights and fees at April 30 consisted of the following:
1996 1995
- --------------------------------------------------------------------------------
Excess servicing fees $122,045 $ 78,848
Purchased mortgage servicing rights 25,977 19,155
Originated mortgage servicing rights 83,500 --
Valuation allowance (1,313) --
- --------------------------------------------------------------------------------
$230,209 $ 98,003
- --------------------------------------------------------------------------------
Excess servicing fees represent the present value of the differential between
the actual servicing fees and normal servicing fees which are capitalized at
the time loans are sold with servicing rights retained. Purchased servicing
rights represent the cost of acquiring the rights to service mortgage loans
for others.
In May 1995, the FASB issued Statement of Financial Accounting Standards No. 122
"Accounting for Mortgage Servicing Rights" (SFAS No. 122). This Statement
requires that mortgage servicing rights be recognized when a mortgage loan is
sold and servicing rights are retained. The Company adopted SFAS No. 122
effective May 1, 1995, and, accordingly, capitalized originated servicing
rights, net of amortization and valuation allowances, of $82,187 in 1996.
SFAS No. 122 requires that a portion of the cost of originating a mortgage
loan be allocated to the mortgage servicing rights based on the servicing
rights' fair value relative to the loan as a whole. To determine the fair
value of mortgage servicing rights, the Company uses market prices for
comparable mortgage servicing, when available, or alternatively uses a
valuation model that calculates the present value of future net servicing
income using assumptions that market participants would use in estimating
future net servicing income.
SFAS No. 122 also requires the impairment of originated and purchased
servicing rights to be measured based on the difference between the carrying
amount and current fair value of the servicing rights. In determining
impairment, the Company aggregates all mortgage servicing rights, excluding
those capitalized prior to the adoption of SFAS No. 122, and stratifies them
based on the predominant risk characteristic of interest rate band. For each
risk stratification, a valuation allowance is maintained for any excess of
amortized book value over the current fair value by a charge or credit to
income.
Property and Equipment
Property and equipment at April 30 consisted of the following:
1996 1995
- --------------------------------------------------------------------------------
Land $ 9,082 $ 9,584
Buildings and leasehold improvements 55,215 58,305
Equipment 102,353 111,909
Accumulated depreciation
and amortization (81,607) (87,342)
- --------------------------------------------------------------------------------
85,043 92,456
Capitalized software costs, net 8,046 9,943
- --------------------------------------------------------------------------------
$ 93,089 $102,399
- --------------------------------------------------------------------------------
Other Assets
Other assets at April 30 consisted of the following:
1996 1995
- --------------------------------------------------------------------------------
Mortgage-related notes receivable $ 62,242 $ 27,659
Residential properties held for resale 11,048 14,596
Other 44,709 35,674
- --------------------------------------------------------------------------------
$117,999 $ 77,929
- --------------------------------------------------------------------------------
Mortgage-related notes receivable are loans secured by residential 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:
1996 1995
- --------------------------------------------------------------------------------
Vehicles under open-end
operating leases $2,519,731 $2,357,425
Vehicles under closed-end
operating leases 347,645 288,582
Direct financing leases 348,043 370,234
Accrued interest on leases 805 990
- --------------------------------------------------------------------------------
$3,216,224 $3,017,231
- --------------------------------------------------------------------------------
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 1996 and 1995 were $1,527,000
and $1,452,000, respectively; and the ratio of such repayments to the average
net investment in leases and leased vehicles was 49% in 1996 and 50% in 1995.
PHH Corporation and Subsidiaries
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, 1996
and 1995, was $4,387,000 and $3,898,000, 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,
1996 and 1995, was $483,000 and $391,000, 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:
1996 1995 1994
- --------------------------------------------------------------------------------
Operating leases $1,111,812 $1,017,521 $939,297
Direct financing leases,
primarily interest 42,460 40,937 28,852
- --------------------------------------------------------------------------------
$1,154,272 $1,058,458 $968,149
- --------------------------------------------------------------------------------
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 $10,088 and $8,389 at April 30,
1996 and 1995, respectively; or guarantees to a maximum extent of $21 and $907
at April 30, 1996 and 1995, respectively. All such credit risk has been
included in the Company's consideration of related reserves. The outstanding
balances under such agreements aggregated $237,104 and $166,379 at April 30,
1996 and 1995, respectively.
Other managed vehicles with balances aggregating $155,723 and $175,111 at
April 30, 1996 and 1995, 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:
1996 1995
- --------------------------------------------------------------------------------
Commercial paper $803,442 $635,886
Medium-term note 100,000 100,000
- --------------------------------------------------------------------------------
$903,442 $735,886
- --------------------------------------------------------------------------------
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:
1996 1995 1994
- --------------------------------------------------------------------------------
Current income taxes:
Federal $ 12,305 $ (2,958) $ 7,550
State and local 3,783 3,464 9,938
Foreign 8,140 6,979 2,739
- --------------------------------------------------------------------------------
24,228 7,485 20,227
- --------------------------------------------------------------------------------
Deferred income taxes:
Federal 27,700 39,600 24,452
State and local 5,400 4,500 (1,033)
Foreign 200 (1,929) 1,592
- --------------------------------------------------------------------------------
33,300 42,171 25,011
- --------------------------------------------------------------------------------
$ 57,528 $ 49,656 $ 45,238
- --------------------------------------------------------------------------------
Deferred income taxes are recorded based upon differences between the
financial statement and the tax bases of assets and liabilities and available
tax credit carryforwards. There was no valuation allowance relating to
deferred tax assets. Net deferred tax liabilities as of April 30 were
comprised as follows:
1996 1995
- --------------------------------------------------------------------------------
Depreciation $(208,100) $(197,800)
Accrued liabilities and deferred income 47,500 41,900
Unamortized mortgage servicing rights (31,100) (2,500)
- --------------------------------------------------------------------------------
$(191,700) $(158,400)
- --------------------------------------------------------------------------------
The portions of the 1996 income tax liability and provision classified as
current and deferred are subject to final determination based on the actual
1996 income tax returns. The liability and provision amounts for 1995 have
been reclassified to reflect the final determination made in filing the 1995
income tax returns.
The Company received net income tax refunds of $1,330 in 1996 and paid income
taxes of $26,049 in 1995 and $35,739 in 1994.
A summary of the differences between the statutory federal income tax rate and
the Company's effective income tax rate follows:
1996 1995 1994
- --------------------------------------------------------------------------------
Federal income tax
statutory rate 35.0% 35.0% 35.0%
State income taxes,
net of federal benefit 4.3 4.5 5.3
Amortization of goodwill .6 1.0 0.7
Rate increase
on deferred taxes -- -- 3.0
Adjustments of tax
accruals -- -- (3.0)
Foreign tax in excess of
(less than) domestic rate 1.1 (0.1) --
Other .3 0.5 0.2
- --------------------------------------------------------------------------------
Effective tax rate 41.3% 40.9% 41.2%
- --------------------------------------------------------------------------------
The Company's US federal income tax returns have been examined by the Internal
Revenue Service through April 30, 1993.
PHH Corporation and Subsidiaries
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:
1996 1995
- --------------------------------------------------------------------------------
Commercial paper $ 1,404,094 $1,665,193
Medium-term notes 1,981,200 1,261,000
Limited recourse debt 8,595 8,357
Secured notes payable on
vehicles under lease 11,570 39,446
Other unsecured debt 33,345 105,633
- --------------------------------------------------------------------------------
$ 3,438,804 $3,079,629
- --------------------------------------------------------------------------------
Commercial paper, all of which matures within 90 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 5.5% and 6.3% at April 30, 1996 and 1995, respectively.
Medium-term notes represent unsecured loans which mature in 1997. The weighted
average interest rates on medium-term notes were 5.5% and 6.4% at April 30,
1996 and 1995, 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 5.2% and 6.4% at April 30, 1996 and 1995,
respectively.
The Company has unsecured committed credit agreements with various banks
totaling $2,377,000. These agreements have both fixed and evergreen maturities
ranging from June 13, 1996, to April 30, 1999. 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 $2,471 and $2,904 in
1996 and 1995, respectively. The Company has other unused lines of credit of
$341,000 and $262,000 at April 30, 1996 and 1995, respectively, with various
banks.
Other unsecured debt, all of which matures in 1997, includes other borrowings
under short-term lines of credit and other bank facilities. The weighted
average interest rates on unsecured debt was 6.2% at both April 30, 1996 and
1995.
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, 1996, 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.
Assets Under Liabilities Under
Management Programs Management Programs
- --------------------------------------------------------------------------------
1997 $ 1,999,332 $ 1,754,684
1998 1,062,884 990,171
1999 480,217 455,905
2000 154,399 153,038
2001 51,583 51,497
2002-2006 34,617 33,509
- --------------------------------------------------------------------------------
$ 3,783,032 $ 3,438,804
- --------------------------------------------------------------------------------
Stock Option Plans
The Company's employee stock option plan allows 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 1996,
1995, and 1994 were as follows:
Number of Option Price
Shares per Share
- --------------------------------------------------------------------------------
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
Granted 190,750 $39.88 to $53.12
Exercised (443,083) $27.00 to $40.62
Canceled (112,650) $27.00 to $39.88
Two-for-one common
stock split 1,307,985
- --------------------------------------------------------------------------------
Outstanding April 30, 1996* 2,615,970 $9.94 to $26.56
- --------------------------------------------------------------------------------
Exercisable April 30, 1996* 2,256,070 $9.94 to $21.00
- --------------------------------------------------------------------------------
* Reflects two-for-one common stock split declared on June 24, 1996, described
in the capital stock note.
In addition to outstanding options, at April 30, 1996, there were 2,543,402
shares of common stock reserved (adjusted for the two-for-one common stock
split), including 1,571,544 shares for issuance under future employee stock
option plan awards, 863,858 shares for future issuance under the employee
investment plan and 108,000 shares for future issuance under the Director's
stock option plan.
Capital Stock
On June 24, 1996, the Board of Directors authorized a two-for-one common stock
split, distributable July 31, 1996, to stockholders of record on July 5, 1996.
All per share amounts herein and data as to outstanding and exercisable common
stock options at April 30, 1996, have been adjusted for the common stock
split.
On April 10, 1996, the Company declared a dividend of one preferred share
purchase right for each share of common stock outstanding on April 10, 1996.
This dividend is a continuation of the dividend which expired on April 10,
1996. Each right entitles the
PHH Corporation and Subsidiaries
holder to purchase 1/100th of a share of series A Junior Participating
Preferred Stock at an exercise price of $88 (adjusted for the two-for-one
common stock split), subject to future adjustment. 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, 2006,
and are redeemable at $.025 (adjusted for the two-for-one common stock split)
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 400,000 (adjusted for the
two-for-one common stock split) 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:
1996 1995 1994
- --------------------------------------------------------------------------------
Service cost $ 5,038 $ 4,597 $ 4,604
Interest cost 7,607 6,742 6,181
Actual return on assets (10,977) (3,144) (2,049)
Net amortization and deferral 5,515 (1,698) (2,050)
- --------------------------------------------------------------------------------
Net cost $ 7,183 $ 6,497 $ 6,686
- --------------------------------------------------------------------------------
A summary of the plans' status and the Company's recorded liability recognized
in the Consolidated Balance Sheets at April 30 follows:
Funded Plans
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Accumulated benefit obligation:
Vested $ 61,766 $ 49,799
Unvested 6,447 6,428
- --------------------------------------------------------------------------------
$ 68,213 $ 56,227
- --------------------------------------------------------------------------------
Projected benefit obligation $ 88,892 $ 75,537
Funded assets, at fair value (78,851) (60,558)
Unrecognized net loss from past
experience different from that assumed
and effects of changes in assumptions (6,409) (8,906)
Unrecognized prior service cost (62) (94)
Unrecognized net obligation (137) (93)
- --------------------------------------------------------------------------------
Recorded liability $ 3,433 $ 5,886
- --------------------------------------------------------------------------------
Unfunded Plans
1996 1995
- --------------------------------------------------------------------------------
Accumulated benefit obligation:
Vested $ 12,196 $ 8,591
Unvested 786 965
- --------------------------------------------------------------------------------
$ 12,982 $ 9,556
- --------------------------------------------------------------------------------
Projected benefit obligation $ 16,167 $ 13,433
Unrecognized net loss from past
experience different from that assumed
and effects of changes in assumptions (1,885) (849)
Unrecognized prior service cost (3,049) (2,598)
Unrecognized net obligation (1,392) (1,624)
Minimum liability adjustment 3,141 1,194
- --------------------------------------------------------------------------------
Recorded liability $ 12,982 $ 9,556
- --------------------------------------------------------------------------------
Significant percentage assumptions used in determining the cost and
obligations under the US pension and unfunded supplemental retirement plans
are as follows:
1996 1995 1994
- --------------------------------------------------------------------------------
Discount rate 8.00% 8.50% 8.25%
Rate of increase in
compensation 5.00 5.00 5.00
Long-term rate of
return on assets 9.50 9.50 10.00
- --------------------------------------------------------------------------------
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 for
1996, 1995 and 1994 were $1,523, $1,474 and $1,551, respectively. A summary of
the plan's status and the Company's recorded liability recognized in the
consolidated balance sheets at April 30 follows:
1996 1995
- --------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Active employees $ 5,732 $ 5,574
Current retirees 1,743 1,785
- --------------------------------------------------------------------------------
7,475 7,359
Unrecognized transition obligation (4,995) (5,289)
Unrecognized net gain 1,081 248
- --------------------------------------------------------------------------------
Recorded liability $ 3,561 $ 2,318
- --------------------------------------------------------------------------------
Investment 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. The Company's additional matches of
employee contributions greater than 3% up to 6%, were 75% in 1996 and 50% in
1995 and 1994. 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 $4,810, $4,483, and
$4,020 for the years ended April 30, 1996, 1995 and 1994, respectively.
PHH Corporation and Subsidiaries
Lease Commitments
Total rental expenses relating to office facilities and equipment were
$23,519, $24,195, and $27,264 for 1996, 1995 and 1994, respectively. Minimum
rental commitments under non-cancelable leases with remaining terms in excess
of one year are as follows:
- --------------------------------------------------------------------------------
1997 $ 14,980 2001 $ 6,406
1998 $ 13,619 2001-2006 $ 13,071
1999 $ 10,395 2007 and thereafter $ 4,158
2000 $ 7,294
- --------------------------------------------------------------------------------
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 two airports. The
Company believes its allowance for disposition loss is sufficient to cover all
potential liability.
Fair Value of Financial Instruments
and Servicing Rights
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 risk 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) Mortgage servicing rights and fees. Fair value is estimated by
discounting the expected net cash flow of servicing rights and deferred
mortgage servicing fees 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, 1996 and 1995:
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Estimated Estimated
Notional Carrying Fair Notional Carrying Fair
Amount Amount Value Amount Amount Value
Assets:
Mortgage loans held for sale $ -- $ 874,794 $ 874,794 $ -- $ 712,247 $ 712,247
Excess mortgage servicing fees -- 122,045 132,586 -- 78,848 86,982
Originated mortgage servicing rights -- 82,187 88,516 -- -- --
Purchased mortgage servicing rights -- 25,977 34,241 -- 19,155 20,333
Liabilities--Medium-term notes -- 2,081,200 2,080,827 -- 1,361,000 1,361,198
Off balance sheet:
Interest rate swaps 1,858,597 1,740,964
In a gain position -- 3,164 -- 8,350
In a loss position -- (11,192) -- (4,693)
Foreign exchange forwards 125,031 -- (12) 80,600 -- (54)
Mortgage-related positions:*
Forward delivery commitments 1,630,000 (1,156) 11,402 1,089,500 12,951 (3,441)
Option contracts to sell 345,000 1,786 518 143,500 729 (318)
Option contracts to buy 800,000 4,280 148 110,000 483 488
* Gains (losses) on mortgage-related positions are already included in the
determination of market value of mortgage loans held for sale.
PHH Corporation and Subsidiaries
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, 1996 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, 1996. These
characteristics are effectively offset within the portfolio of assets funded
by the Company.
Maturities
Total 1997 1998 1999 2000 2001 2002
- -----------------------------------------------------------------------------------------------------------------------
US
- -----------------------------------------------------------------------------------------------------------------------
Commercial Paper:
Pay fixed/receive floating:
Notional value $ 467,301 $ 189,564 $ 152,628 $ 75,786 $ 31,423 $ 11,250 $ 6,650
Weighted average receive rate 5.43% 5.43% 5.43% 5.43% 5.43% 5.43%
Weighted average pay rate 6.22% 6.26% 6.48% 6.56% 6.34% 6.50%
Medium-Term Notes:
Pay floating/receive fixed:
Notional value 150,000 150,000
Weighted average receive rate 6.98%
Weighted average pay rate 5.39%
Pay floating/receive floating:
Notional value 806,200 806,200
Weighted average receive rate 5.49%
Weighted average pay rate 5.37%
Canada
- -----------------------------------------------------------------------------------------------------------------------
Commercial Paper:
Pay fixed/receive floating:
Notional value 63,504 33,296 20,212 8,085 1,911
Weighted average receive rate 4.85% 4.85% 4.85% 4.85%
Weighted average pay rate 6.97% 6.85% 6.49% 7.29%
Pay floating/receive floating:
Notional value 76,488 39,078 24,439 10,321 2,261 389
Weighted average receive rate 6.92% 7.24% 7.41% 7.40% 7.70%
Weighted average pay rate 5.22% 5.22% 5.22% 5.22% 5.22%
UK
- -----------------------------------------------------------------------------------------------------------------------
Commercial Paper:
Pay fixed/receive floating:
Notional value 295,104 87,521 90,083 67,788 33,141 16,571
Weighted average receive rate 6.07% 6.07% 6.07% 6.07% 6.07%
Weighted average pay rate 7.46% 6.05% 8.11% 6.93% 7.18%
- -----------------------------------------------------------------------------------------------------------------------
Total $1,858,597 $1,305,659 $ 287,362 $ 161,980 $ 68,736 $ 28,210 $ 6,650
- -----------------------------------------------------------------------------------------------------------------------
For the years ended April 30, 1996 and 1995, the Company's hedging activities
increased interest expense $1,510 and $1,496, respectively, and had no effect
on its weighted average borrowing rate. For the same period in 1994, hedging
activities increased interest expense $12,632 and increased the weighted
average borrowing rate 0.3%.
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 $125,031 and $80,600 of
obligations at April 30, 1996 and 1995, 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.
PHH Corporation and Subsidiaries
Business Segments
The Company's 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
(In thousands)
Years Ended April 30, 1996 1995 1994
- --------------------------------------------------------------------------------------------------
Revenues:
Vehicle management services $ 1,371,150 $ 1,257,696 $ 1,162,483
Real estate services 812,851 686,836 816,261
Mortgage banking services 195,599 126,094 155,935
- --------------------------------------------------------------------------------------------------
Consolidated $ 2,379,600 $ 2,070,626 $ 2,134,679
- --------------------------------------------------------------------------------------------------
Income before income taxes:
Vehicle management services $ 64,536 $ 55,668 $ 46,230
Real estate services 31,841 35,219 21,500
Mortgage banking services 42,771 30,431 42,066
- --------------------------------------------------------------------------------------------------
Consolidated $ 139,148 $ 121,318 $ 109,796
- --------------------------------------------------------------------------------------------------
Identifiable assets:
Vehicle management services $ 3,562,737 $ 3,413,080 $ 3,120,154
Real estate services 841,881 723,698 807,119
Mortgage banking services 1,268,372 902,755 839,510
- --------------------------------------------------------------------------------------------------
Consolidated $ 5,672,990 $ 5,039,533 $ 4,766,783
- --------------------------------------------------------------------------------------------------
Capital expenditures:
Vehicle management services $ 10,663 $ 8,536 $ 10,250
Real estate services 9,775 9,103 8,839
Mortgage banking services 3,090 1,668 17,023
- --------------------------------------------------------------------------------------------------
Consolidated $ 23,528 $ 19,307 $ 36,112
- --------------------------------------------------------------------------------------------------
Depreciation and amortization:
Vehicle management services $ 960,584 $ 891,361 $ 825,609
Real estate services 10,290 10,054 8,921
Mortgage banking services 40,973 23,264 32,496
- --------------------------------------------------------------------------------------------------
Consolidated $ 1,011,847 $ 924,679 $ 867,026
- --------------------------------------------------------------------------------------------------
Geographic Areas
(In thousands)
Years Ended April 30, 1996 1995 1994
- --------------------------------------------------------------------------------------------------
Revenues:
North America $ 2,181,805 $ 1,894,050 $ 1,954,106
Europe 197,795 176,576 180,573
- --------------------------------------------------------------------------------------------------
Consolidated $ 2,379,600 $ 2,070,626 $ 2,134,679
- --------------------------------------------------------------------------------------------------
Income before income taxes:
North America $ 123,957 $ 113,942 $ 106,895
Europe 15,191 7,376 2,901
- --------------------------------------------------------------------------------------------------
Consolidated $ 139,148 $ 121,318 $ 109,796
- --------------------------------------------------------------------------------------------------
Identifiable assets:
North America $ 5,086,009 $ 4,492,213 $ 4,211,169
Europe 586,981 547,320 555,614
- --------------------------------------------------------------------------------------------------
Consolidated $ 5,672,990 $ 5,039,533 $ 4,766,783
- --------------------------------------------------------------------------------------------------
PHH Corporation and Subsidiaries
Quarterly Financial Data (Unaudited)
(In thousands except per share data) Year ended April 30, 1996
- ---------------------------------------------------------------------------------------------------------------------------
Quarter First Second Third Fourth Year
Revenues $ 581,857 $ 589,770 $ 586,717 $ 621,256 $ 2,379,600
Income before income taxes $ 31,663 $ 33,217 $ 33,080 $ 41,188 $ 139,148
Net income $ 18,301 $ 19,564 $ 19,482 $ 24,273 $ 81,620
- ---------------------------------------------------------------------------------------------------------------------------
Net income per share* $ .52 $ .57 $ .54 $ .70 $ 2.33
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends per share* $ .17 $ .17 $ .17 $ .17 $ .68
- ---------------------------------------------------------------------------------------------------------------------------
Closing price range of stock:*
High $ 23 3/4 $ 23 3/8 $ 25 3/4 $ 28 3/8 $ 28 3/8
Low $ 19 5/8 $ 21 $ 21 7/8 $ 24 1/2 $ 19 5/8
- ---------------------------------------------------------------------------------------------------------------------------
Year ended April 30, 1995
- ---------------------------------------------------------------------------------------------------------------------------
Quarter First Second Third Fourth Year
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* $ .47 $ .51 $ .49 $ .61 $ 2.08
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends per share* $ .16 $ .16 $ .16 $ .16 $ .64
- ---------------------------------------------------------------------------------------------------------------------------
Closing price range of stock:*
High $ 19 3/8 $ 19 $ 19 $ 20 1/4 $ 20 1/4
Low $ 17 1/2 $ 17 3/8 $ 16 3/4 $ 17 5/8 $ 16 3/4
- ---------------------------------------------------------------------------------------------------------------------------
* Reflects two-for-one common stock split declared June 24, 1996. See capital
stock note in Notes to Consolidated Financial Statements.