PHH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands except per share data)
Three Months Ended Six Months Ended
October 31, October 31,
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Vehicle management services $ 345,166 $ 334,291 $ 684,402 $ 668,053
Real estate services 193,626 207,064 410,655 411,516
Mortgage banking services 65,346 48,415 134,738 92,058
-------- -------- ---------- ----------
604,138 589,770 1,229,795 1,171,627
------- ------- --------- ---------
Expenses:
Depreciation on vehicles under
operating leases 243,734 230,908 482,219 462,396
Costs, including interest, of
carrying and reselling homes 154,140 171,489 334,512 347,032
Direct costs of mortgage banking
services 27,457 15,851 57,269 28,131
Interest 55,966 55,932 113,197 109,384
Selling, general and administrative 82,878 82,373 165,522 159,804
-------- -------- ---------- ----------
564,175 556,553 1,152,719 1,106,747
------- ------- --------- ---------
Income before income taxes 39,963 33,217 77,076 64,880
Income taxes 15,997 13,653 31,338 27,015
-------- --------- ----------- ---------
Net income $ 23,966 $ 19,564 $ 45,738 $ 37,865
======== ========= =========== =========
Net income per share $ .68 $ .57 $ 1.29 $ 1.09
========== =========== ============ ==========
See accompanying notes.
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PHH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
October 31, 1996 April 30, 1996
(in thousands) (Unaudited)
ASSETS:
Cash $ 11,450 $ 9,288
Accounts receivable, less allowance for
doubtful accounts of $6,232 at October 31,
1996 and $5,478 at April 30, 1996 442,951 468,938
Carrying costs on homes under management 58,916 46,560
Mortgage loans held for sale 872,404 874,794
Mortgage servicing rights and fees 280,344 230,209
Property and equipment, net 92,846 93,089
Goodwill, net 47,656 49,081
Other assets 125,384 117,999
---------- ----------
1,931,951 1,889,958
--------- ---------
ASSETS UNDER MANAGEMENT PROGRAMS:
Net investment in leases and leased vehicles 3,285,721 3,216,224
Equity advances on homes 666,905 566,808
---------- ----------
3,952,626 3,783,032
--------- ---------
$ 5,884,577 $ 5,672,990
========= =========
LIABILITIES:
Accounts payable and accrued expenses $ 418,143 $ 434,109
Advances from clients and deferred revenue 114,021 96,439
Other debt 814,560 903,442
Deferred income taxes 221,700 191,700
---------- ----------
1,568,424 1,625,690
--------- ---------
LIABILITIES UNDER MANAGEMENT PROGRAMS 3,662,245 3,438,804
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, authorized 3,000,000 shares -- --
Common stock, no par value, authorized
75,000,000 shares; issued and outstanding
34,885,942 shares at October 31, 1996
and 34,661,524 shares at April 30, 1996 99,820 96,081
Cumulative foreign currency translation
adjustment (14,312) (23,483)
Retained earnings 568,400 535,898
--------- ---------
653,908 608,496
--------- ---------
$ 5,884,577 $ 5,672,990
========= =========
See accompanying notes.
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PHH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended October 31,
(In thousands) 1996 1995
---- ----
Operating Activities:
Net income $ 45,738 $ 37,865
Adjustments to reconcile income to cash provided by operating activities:
Depreciation on vehicles under operating leases 482,219 462,396
Other depreciation and amortization 16,359 15,933
Amortization of capitalized servicing rights and fees 27,620 15,016
Additions to originated mortgage servicing rights (29,841) (40,613)
Additions to excess mortgage servicing fees (48,768) (30,263)
Deferred income taxes 29,167 20,095
Gain on sale of assets (2,944) -
Changes in:
Accounts receivable 33,960 2,112
Carrying costs on homes under management (11,717) (5,888)
Mortgage loans held for sale 2,390 (69,622)
Accounts payable and accrued expenses (22,797) (13,907)
Advances from clients and deferred revenue 16,367 10,205
All other operating activity 13,238 (17,505)
------------- -------------
Cash provided by operating activities 550,991 385,824
------------- -------------
Investing Activities:
Investment in leases and leased vehicles (805,638) (761,320)
Repayment of investment in leases and leased vehicles 290,395 271,379
Value of homes acquired (1,776,201) (2,695,199)
Value of homes sold 1,682,051 2,427,642
Purchases of mortgage servicing rights - (7,718)
Additions to property and equipment, net of dispositions (12,615) (8,913)
Proceeds from sale of assets 4,400 -
All other investing activities (7,887) (28,128)
------------- -------------
Cash used in investing activities (625,495) (802,257)
------------- -------------
Financing Activities:
Net change in borrowings with terms of less than 90 days (156,217) 431,999
Proceeds from issuance of other borrowings 1,024,486 748,915
Principal payment on other borrowings (751,365) (765,534)
Stock option plan transactions 3,739 9,250
Payment of dividends (13,236) (11,628)
------------- -------------
Cash provided by financing activities 107,407 413,002
------------- -------------
Effect of exchange rate changes on cash (27,041) 1,339
------------- -------------
Increase (decrease) in cash 5,862 (2,092)
Cash at beginning of period 9,288 3,412
-------------- -------------
Cash at end of period $ 15,150 $ 1,320
-------------- =============
Supplemental disclosures of cash flow information:
Cash payments for interest $ 135,501 $ 135,516
============== =============
Cash payments for income taxes $ 672 $ 4,667
============== =============
See accompanying notes.
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PHH CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements included in this Form 10-Q reflect all
adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of the results of operations for the periods presented. The
results of operations for the periods presented are not necessarily indicative
of the results to be expected for the full year.
For further information, refer to the consolidated financial statements and
footnotes included in the Company's annual report included as part of Form
10-K for the year ended April 30, 1996.
Capital Stock and Net Income Per Share
On June 24, 1996, the Board of Directors authorized a two-for-one common stock
split which was distributed on July 31, 1996, to stockholders of record on
July 5, 1996. All per share amounts herein and data as to outstanding common
stock at have been adjusted for the common stock split.
Net income per share is computed on the basis of the weighted average number
of shares of common stock outstanding during each period and common stock
equivalents arising from the assumed exercise of outstanding stock options
under the treasury stock method. See Exhibit 11 to this Form 10-Q which
details the computation of net income per share.
Reclassifications
Certain reclassifications have been made to the prior years' condensed
consolidated financial statements for comparative purposes.
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.
SUBSEQUENT EVENT
On November 10, 1996, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with HFS Incorporated ("HFS"), and Mercury Acq.
Corp., a wholly-owned subsidiary of HFS. Pursuant to the Merger Agreement,
shares of the Company's common stock will be converted into a right to receive
shares of HFS's common stock as determined in the Merger Agreement. The Merger
is conditioned, among other things, upon the approval of the Company's and
HFS's shareholders and upon certain regulatory approvals. The merger will be
accounted for as a pooling of interests, and is expected to close in the first
quarter of calendar year 1997.
In connection with the Merger Agreement, on November 13, 1996, the Company and
First Chicago Trust company of New York, as Rights Agent, entered into an
amendment to the Rights Agreement, dated as of March 15, 1996, by and between
the Company and the Rights Agent (the "Rights Agreement"), having the effect
of exempting the events and transactions contemplated by the Merger Agreement
from the Rights Agreement.
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