PHH 8K filing
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date
of Report (Date of earliest event reported): February 23,
2006
PHH
CORPORATION
(Exact
name of registrant as specified in its charter)
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MARYLAND
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1-7797
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52-0551284
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(State
or other jurisdiction
of
incorporation)
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(Commission
File Number)
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(IRS
Employer
Identification
No.)
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3000
Leadenhall Road
Mt.
Laurel, New Jersey 08054
(Address
of principal executive offices, including zip code)
(856)
917-1744
(Registrant’s
telephone number, including area code)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
[
] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[
] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[
] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[
] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item
2.06. Material Impairments.
On
March
1, 2006, PHH Corporation (“PHH”,
“Company”,
“we”
or
“our”)
issued
a press release indicating that we do not expect to meet the March 16, 2006
deadline to file our Annual Report on Form 10-K for the year ended December
31,
2005 (“Form
10-K”)
because we have not yet finalized our financial statements for the fourth
quarter and fiscal year 2005 and our independent auditors, Deloitte & Touche
LLP, have not yet completed their audit of our 2005 financial statements. We
are
working diligently to complete the Form 10-K but are unable at this time to
provide an expected date for the filing of the Form 10-K.
As
previously reported in our filings with the Securities and Exchange Commission
(“SEC”),
on
February 1, 2005, we began operating as an independent, publicly-traded company
pursuant to a spin-off (“Spin-Off”)
from
Cendant Corporation (“Cendant”).
Prior
to our Spin-Off from Cendant, we underwent an internal reorganization which
required significant accounting adjustments and certain allocations were made
that are now the subject of additional review by us and our independent auditors
as part of the on-going audit of our 2005 financial statements. As part of
this
review, on February 28, 2006, we determined that we expect that a material
charge for impairment associated with the assets described below may be required
under generally accepted accounting principles.
The
Spin-Off required the allocation and valuation of tax attributes to our post
Spin-Off businesses which had previously been reported for tax filing purposes
as part of the Cendant consolidated income tax returns (including certain
alternative minimum tax attributes), which are accounted for as deferred tax
assets for financial reporting purposes. We are performing an extensive analysis
regarding the carrying value of the deferred tax assets. This analysis requires
an in-depth examination of the tax accounting methodologies previously utilized.
Our current evaluation is focused on the amount of deferred tax assets that
were
available to PHH at the Spin-Off. Additionally, we are evaluating the
probability of ongoing realizability of these tax assets by PHH. We expect
that
the foregoing analysis may result in taking an impairment against our deferred
tax assets and a charge to our net income during 2005 of as much as $50
million.
We
are in
the process of reviewing documentation and reevaluating the analysis regarding
amounts equal to $21 million relating to certain intangibles for trademarks
and
customer lists in connection with the goodwill reallocation taken at the time
of
the Spin-Off and the resulting impairment previously recorded. We expect that
this analysis may result in a reclassification to goodwill and an impairment
of
such goodwill, which could potentially be reflected as a charge to our net
income during 2005 of as much as $21 million.
As
described more fully in Item 8.01 below, matters identified at this stage are
necessarily preliminary and subject to change. As we continue the process of
evaluating the above accounting issues and completing the audit of our 2005
financial statements and Form 10-K, we may also identify other material
accounting issues which, individually or in the aggregate, may result in
impairments to assets and/or adjustments to or restatements of our financial
statements.
Item
5.02. Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers.
On
March
1, 2006, we announced that our Board of Directors had appointed Mr. Clair M.
Raubenstine as our Executive Vice President and Chief Financial Officer. This
appointment was effective on February 23, 2006. Mr. Raubenstine will serve
as
the Company’s principal financial and accounting officer. The Board determined
that the Company would be best served by having a Chief Financial Officer with
extensive public company accounting experience. Mr. Raubenstine assumed the
role
of Chief Financial Officer from Mr. Neil J. Cashen, formerly our Executive
Vice
President and Chief Financial Officer. Mr. Cashen will continue serving the
Company as Senior Vice President, Strategic Planning and Investor
Relations.
From
October 1998 through June 2002, Mr. Raubenstine served as a national
independence consulting partner with PricewaterhouseCoopers, LLP (“PwC”).
He
also
served as SEC consulting partner, Pennsylvania cluster accounting and auditing
consultant, and prior thereto, as the director of Accounting, Auditing and
SEC
for the Atlantic Region of PwC. While
with
PwC, Mr. Raubenstine served as an assurance and business advisory services
partner and served as client service partner to various public and private
companies. Mr. Raubenstine’s career at PwC spanned 39 years until his retirement
in June 2002. From July 2002 through February 2006, Mr.
Raubenstine has provided accounting and financial advisory services to various
charitable and educational organizations.
Mr.
Raubenstine is
a
licensed Certified Public Accountant in Pennsylvania, New York and New Jersey,
is a Certified Management Accountant and is Certified in Financial Management.
Mr. Raubenstine (age 64) is a cum
laude
graduate
of Rider University. Mr.
Raubenstine currently serves as a member of the Board of Directors and Audit
Committee and Compensation Committee of Stonebridge Financial Corp., a private
bank holding company.
Item
5.04. Temporary Suspension of Trading Under Registrant’s Employee Benefit
Plans.
In
light
of the fact that we will delay the filing of our Form 10-K, the fiduciaries
of
the PHH Corporation Employee Savings Plan and the PHH Home Loans, LLC Employee
Savings Plan (collectively, "401(k)
Plans")
determined to temporarily suspend future purchases of our common stock pursuant
to the 401(k) Plans. The suspension will begin at 6:00 PM (Eastern Standard
Time) on March 1, 2006 and it is anticipated that the suspension will end when
we file our Form 10-K ("Blackout
period").
As a
result, pursuant to Regulation BTR, on March 1, 2006, we sent notices to our
directors and executive officers notifying them that, until the end of the
Blackout period, they are prohibited from purchasing, selling, or otherwise
acquiring or transferring, directly or indirectly, any shares of our common
stock or any other equity security of the Company to the extent that stock
or
equity security was acquired in connection with employment as an executive
officer or services as a director.
This
notice regarding the Blackout period was provided to our executive officers
and
directors to ensure compliance with Section 306(a) of the Sarbanes-Oxley Act
of
2002 and Rule 104 of Regulation BTR. We have attached the notice sent to the
directors and executive officers regarding the Blackout period as Exhibit 99.2
to this Form 8-K and that notice is incorporated by reference
herein.
We
received notice of the Blackout period on March 1, 2006, due to action by the
fiduciaries of the 401(k) Plans on that date. Advance notice of the Blackout
period to our directors and executive officers was not possible due to events
that were unforeseeable and circumstances that were beyond the reasonable
control of the Company.
We
are
working diligently to complete the Form 10-K but are unable at this time to
provide an expected date for the filing of the Form 10-K. We
will
notify our executive officers and directors once the ending date of the Blackout
period has been determined.
Inquiries
regarding the Blackout period should be directed to Mr. William F. Brown,
General Counsel, at 856-917-0903 or 3000 Leadenhall Road, Mt. Laurel, New
Jersey, 08054.
Item
7.01. Regulation FD Disclosure.
On
March
1, 2006, we issued a press release indicating, among other things, that we
do
not expect to meet the March 16, 2006 deadline to file our Form 10-K. The
Company hereby furnishes a copy of such press release, as Exhibit 99.1 to this
Form 8-K.
The
information in this Item and Exhibit 99.1 to this Form 8-K shall not be deemed
“filed” with the SEC for any purpose including Section 18 of the Securities
Exchange Act of 1934, as amended, or otherwise subject to the liabilities of
that section, nor shall such information be incorporated by reference into
any
registration statement filed by PHH under the Securities Act of 1933, as
amended, regardless of any general incorporation language in such
filing.
Item
8.01 Other Events.
Delay
in Filing of Form 10-K
On
March
1, 2006, we announced that we do not expect to meet the March 16, 2006 deadline
to file our Form 10-K because we have not yet finalized our financial statements
for the fourth quarter and fiscal year 2005 and our independent auditors,
Deloitte & Touche LLP, have not yet completed their audit of our 2005
financial statements. We are working diligently to complete the Form 10-K but
are unable at this time to provide an expected date for the filing of the Form
10-K. As a result, we plan to delay our fourth quarter and year end earnings
press release and the accompanying earnings conference call previously scheduled
for March 10, 2006 until after we file our Form 10-K. We intend to hold a
conference call at 9:00 a.m. on Thursday, March 2, 2006 to discuss the matters
disclosed in this Form 8-K.
Prior
to
our Spin-Off from Cendant, we underwent an internal reorganization which
required significant accounting adjustments and certain allocations were made
that are now the subject of additional review by us and our independent auditors
as part of the on-going audit of our 2005 financial statements. The finalization
of our 2005 financial statements and the audit thereof have also required that
we obtain documentation from Cendant, which continues to be cooperative with
us.
Among
the
matters being reviewed and that have delayed the completion of the audit of
our
2005 financial statements are the documentation and analysis of the following
accounting matters: (i) the allocation and valuation of certain Spin-Off
deferred tax assets approximating $50 million; (ii) the reevaluation of $21
million of certain intangibles related to trademarks and customer lists in
connection with the goodwill reallocation at the time of the Spin-Off and the
resulting impairment previously recorded; (iii) the $239 million goodwill
impairment taken as a result of the Spin-Off in the first quarter of 2005;
(iv)
the appropriateness of consolidating PHH Home Loans LLC, the mortgage joint
venture between Cendant and PHH Mortgage which commenced operations in October
2005 (“Mortgage
Venture”),
in
our consolidated financial statements; (v) the proper tax classification and
resulting tax implications of derivatives, hedges and swaps used in our
business; (vi) the appropriateness of state tax effective rates included in
our
income tax provision; and (vii) the appropriateness of not recording federal
income tax reserves associated with the amended and restated tax sharing
agreement dated as of December 21, 2005 with Cendant post Spin-Off.
The
Spin-Off required the allocation and valuation of tax attributes to our post
Spin-Off businesses which had previously been reported for tax filing purposes
as part of the Cendant consolidated income tax returns (including certain
alternative minimum tax attributes), which are accounted for as deferred tax
assets for financial reporting purposes. We are performing an extensive analysis
regarding the carrying value of the deferred tax assets. This analysis requires
an in-depth examination of the tax accounting methodologies previously utilized.
Our current evaluation is focused on the amount of deferred tax assets that
were
available to PHH at the Spin-Off. Additionally, we are evaluating the
probability of ongoing realizability of these tax assets by PHH. We expect
that
the foregoing analysis may result in taking an impairment against our deferred
tax assets and a charge to our net income during 2005 of as much as $50
million.
We
are in
the process of reviewing documentation and reevaluating the analysis of $21
million of certain intangibles related to trademarks and customer lists in
connection with the goodwill reallocation at the time of the Spin-Off and the
resulting impairment previously recorded. We expect that this analysis may
result in a reclassification to goodwill and an impairment of such goodwill,
which could potentially be reflected as a charge to our net income during 2005
of as much as $21 million.
A
goodwill impairment charge in the amount of $239 million was taken in the first
quarter of 2005 as a result of our analysis of goodwill following the Spin-Off.
This goodwill and other intangible amounts related to our Fleet Management
Services segment resulted principally from our acquisition in March 2001 of
the
82.2% of Avis Group Holdings, Inc. that Cendant did not already own. Through
this acquisition, we acquired a portion of the fleet management business we
had
previously sold to Avis in June 1999.
We
are
currently obtaining additional documentation from Cendant and evaluating the
allocation of goodwill and establishment of intangibles and the subsequent
reallocation of goodwill completed prior to the Spin-Off.
We
are
also evaluating a consolidation issue involving the Mortgage Venture under
the
Financial Accounting Standards Board Interpretation No. 46R, “Consolidation
of Variable Interest Entities.”
We
are
in the process of analyzing the appropriateness of consolidating the financial
statements of the Mortgage Venture, which commenced operations in October 2005,
in our consolidated financial statements. If we determine that the Mortgage
Venture should not be consolidated in
our
consolidated financial statements, the Mortgage Venture will be presented on
the
equity method of accounting in our consolidated financial
statements.
Matters
identified at this stage are necessarily preliminary and subject to change.
As
we continue the process of evaluating the above accounting issues and completing
the audit of our 2005 financial statements and Form 10-K, we may also identify
other material accounting issues which, individually or in the aggregate, may
result in impairments to assets and/or adjustments to or restatements of our
financial statements.
We
have
notified the New York Stock Exchange (“NYSE”)
that
we do not expect to meet the March 16, 2006 deadline to file our Form 10-K.
We
further notified the NYSE that we anticipate filing a Form 12b-25 Notification
of Late Filing with the SEC and that we are unable at this time to provide
an
expected date for the filing of the Form 10-K. Under applicable SEC rules,
if we
file the Form 10-K by March 31, 2006, the Form 10-K would be deemed timely
filed. If we are able to meet this extended deadline, we believe we would be
able to satisfy the requirements of Section 203.01 of the NYSE
Listed Company
Manual, to distribute our annual report containing financial statements of
the
Company to our stockholders within 120 days of our 2005 fiscal year
end.
Liquidity
Revolving
Credit Facilities and Other Financing Arrangements
We
believe we have adequate liquidity to fund our operating cash needs.
Our
revolving credit facilities and various other financing agreements require,
among other things, that the Company file, and/or deliver to the various lenders
and trustees (within various specified periods of time) a copy of, the Company’s
financial statements or the financial statements of our Mortgage Services
segment. We have discussed the matters disclosed in this Form 8-K with the
principal lenders and trustees under our revolving credit facilities and various
other financing agreements and will seek to obtain any necessary covenant
waivers from such parties as a result of these matters. There can be no
assurance that any required waivers will be received on a timely basis and
failure to obtain waivers could be material and adverse to our business,
liquidity and financial condition. Under our revolving credit facilities and
certain other financing agreements, the lenders or trustees have the right
to
notify us if they believe we have breached a covenant under the operative
documents and may declare an event of default. We currently have no reason
to
expect that any such notices will be given. However, if one or more notices
of
default were to be given, we believe we would have various periods in which
to
cure such events of default. If we did not cure the events of default or obtain
necessary waivers within the required time periods, the maturity of some of
our
debt could be accelerated and our ability to incur additional indebtedness
could
be restricted.
Credit
Ratings
Our
senior debt credit ratings from Moody’s Investors Service, Standard & Poor’s
and Fitch Ratings are Baa3, BBB and A-, respectively. Our short-term debt credit
ratings from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings
are P-3, A-2 and F-2, respectively. Any inability to timely file our Form 10-K
or any of the underlying reasons causing the delay in the filing of our Form
10-K, could also cause us to be placed on “credit watch” and/or cause our credit
ratings to be lowered. These events could cause our access to the public
corporate debt markets to be severely limited. In the event of a ratings
downgrade below investment grade, we may be required to rely upon alternative
sources of financing, such as bank lines and private debt placements (secured
and unsecured). A drop in our credit ratings could also increase our cost of
borrowing under our revolving credit facilities and various other financing
arrangements. Furthermore, we may be unable to retain all of our existing bank
credit commitments beyond the then existing maturity dates. As a consequence,
our cost of financing could rise significantly.
Asset-Backed
Debt Markets
As
part
of our diversified funding strategy, we also rely on the asset-backed debt
markets where we fund the majority of our operating activities. In particular,
the majority of our mortgages held for sale and vehicles and related assets
are
funded in these markets. Because this debt is secured by the underlying assets,
factors impacting our access to this market are more dependent upon, among
other
things, the performance and quality of the underlying assets and the levels
of
over-collateralization supporting the assets rather than our unsecured debt
ratings. As a result, our asset-backed debt generally has higher credit ratings
and provides broader and lower cost access to the funding markets. We do not
anticipate that our inability to timely file our Form 10-K or any of the
underlying reasons causing the delay in the filing of our Form 10-K, will have
a
material adverse impact on our access to these markets.
As
disclosed in our Current Report on Form 8-K filed on February 9, 2006,
Chesapeake Funding LLC (“Chesapeake”),
a
wholly-owned subsidiary of PHH, provided notice of its intention to redeem
all
of its floating rate callable asset-backed notes (“Term
Notes”)
with
an
aggregate outstanding principal balance of approximately $1.2 billion as of
February 9, 2006. In addition, Chesapeake announced its intention to redeem
its
senior preferred membership interests, which totaled $398 million as of February
9, 2006 and are held by Terrapin Funding LLC (“Terrapin”),
a
related third party. The proceeds from the redemption of these PMIs will be
used
by Terrapin to redeem all of its floating rate asset-backed investor notes
(“Investor
Notes”)
with
an aggregate outstanding principal balance of approximately $368 million as
of
February 9, 2006.
Chesapeake
has obtained commitment letters (“Commitments”)
from
multi-seller conduits (“Facility”),
which
are in excess of the anticipated redemption amounts described above. Any
inability to file our Form 10-K on a timely basis, or any of the underlying
reasons causing the delay in the filing of our Form 10-K, could also cause
one
or more of our lenders to withdraw their Commitments which could
prevent Chesapeake from completing the scheduled redemption of the Term Notes
and the PMIs and, in turn, prevent Terrapin from completing the scheduled
redemption of the Investor Notes. Any such failure to complete the scheduled
redemptions of the Term Notes, PMIs and Investor Notes could result in an
amortization event under the Chesapeake financing facilities and prevent
incremental funding of new vehicle purchases through Chesapeake. In such an
event, we would have to place greater reliance upon our unsecured funding
sources. We have had discussions with the group of lenders regarding their
Commitments and, at this time, believe the Facility will close as scheduled.
However, there
can
be no assurance that the Facility will be closed or that the redemption
transactions described above will occur as scheduled, or at all.
Internal
Control Over Financial Reporting
As
we
have continued to work toward concluding the process of assessing our internal
controls over financial reporting as required by Section 404 of the
Sarbanes-Oxley Act, we have identified a number of control deficiencies. We
expect that some of these control deficiencies will be classified as material
weaknesses and that others may be classified as significant deficiencies that
alone or in the aggregate may constitute material weaknesses. A material
weakness is a control deficiency (within the meaning of Public
Company Accounting Oversight Board Auditing
Standard No. 2), or combination of control deficiencies, that results in there
being more than a remote likelihood that a material misstatement of the annual
or interim financial statements will not be prevented or detected on a timely
basis by employees in the normal course of their assigned
functions.
As
a
result of management’s ongoing efforts to complete its assessment of our
internal controls over financial reporting and in anticipation that certain
significant deficiencies will be classified as material weaknesses by management
and in our independent auditor’s internal control attestation report, we believe
that we will need to continue to implement changes in our internal control
over
financial reporting. Further, as management and our independent auditor’s
finalize evaluations, we plan to remediate promptly any material weaknesses
or
other control deficiencies that may be identified.
Item
9.01. Financial Statements and Exhibits.
(c) Exhibits
Exhibit
99.1 Press Release, dated March 1, 2006.
Exhibit
99.2 Important Notice Regarding Blackout Period and Restrictions on Ability
to
Trade Shares of the Company’s Securities, dated March 1, 2006.
This
Current Report on Form 8-K and Exhibits 99.1 and 99.2 hereto contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities and Exchange Act
of
1934, as amended. These statements are subject to known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements.
Statements preceded by, followed by or that otherwise include the words
"believes", "expects", "anticipates", "intends", "projects", "estimates",
"plans", "may increase", "may fluctuate" and similar expressions or future
or
conditional verbs such as "will", "should", "would", "may" and "could" are
generally forward-looking in nature and not historical
facts.
You
should consider the areas of risk described under the heading “Forward Looking
Statements” in our periodic reports under the Securities Exchange Act of 1934,
as amended, and those risk factors included as Exhibit 99 thereto, titled “Risk
Factors Affecting our Business and Future Results,” in connection with any
forward-looking statements that may be made by us and our businesses generally.
Except for our ongoing obligations to disclose material information under the
federal securities laws, we undertake no obligation to release publicly any
updates or revisions to any forward-looking statements, to report events or
to
report the occurrence of unanticipated events unless required by law.
SIGNATURE
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 hereunto
duly authorized.
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PHH
CORPORATION
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By:
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/s/
Clair M. Raubenstine
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Name:
Clair
M. Raubenstine
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Title:
Executive
Vice President and Chief Financial Officer
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Dated:
March 1, 2006
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