PHH 8K
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): October 30,
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
1.01. Entry into a Material Definitive Agreement.
On
October 30, 2006, PHH Mortgage Corporation (“PHH Mortgage”), a wholly-owned
subsidiary of PHH Corporation (“PHH”, “Company”, “we” or “us”), amended its
committed mortgage repurchase facility (the “Facility”) by executing the Fifth
Amended and Restated Master Repurchase Agreement (the “Repurchase Agreement”)
and the Servicing Agreement (together with the Repurchase Agreement, the
“Amended Agreements”), each dated as of October 30, 2006 and among Sheffield
Receivables Corporation, as conduit principal, Barclays Bank PLC, as
administrative agent, PHH Mortgage, as seller and servicer, and the Company,
as
guarantor. The Facility is used to finance mortgage loans held for sale by
PHH
Mortgage.
The
Amended Agreements increase the capacity of the Facility from $500 million
to
$750 million, expand the eligibility of underlying mortgage loan collateral,
and
modify certain other covenants and terms. In addition, the Facility has been
modified to conform to the revised bankruptcy remoteness rules with regard
to
repurchase facilities adopted by the Internal Revenue Service in October
2005.
The Facility has a one-year term expiring on October 29, 2007 that is renewable
on an annual basis, subject to agreement by the parties. The assets
collateralizing this Facility are not available to pay the Company’s general
obligations. The foregoing description of the Amended Agreements does not
purport to be complete and is qualified in its entirety by reference to the
complete text of the Amended Agreements, copies of which are attached hereto
as
Exhibits 10.1 and 10.2 to this Current Report on Form 8-K (the “Form 8-K”) and
incorporated herein by reference.
Item
2.02. Results of Operations and Financial Condition.
On
October 30, 2006, we announced certain key operating metrics for the three
months and nine months ended September 30, 2006 and liquidity information as
of
September 30, 2006. A copy of the press release is attached to this Form 8-K
as
Exhibit 99.1 and is incorporated herein by reference.
The
information disclosed in this Item 2.02, including Exhibit 99.1 hereto, is
being
furnished and shall not be deemed “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise subject to the
liabilities of Section 18, nor shall it be deemed incorporated by reference
into
any registration statement or other document pursuant to the Securities Act
of
1933, as amended, except to the extent, if any, expressly set forth in such
filing.
Item
2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The
information disclosed under Item 1.01 of this Form 8-K relating to the Amended
Agreements is incorporated herein by reference.
Item
2.06. Material Impairments
The
information regarding (i) the recording of the goodwill impairment as a result
of the Spin-Off of PHH from Cendant Corporation (“Cendant”), now known as Avis
Budget Group Inc., on February 1, 2005, and (ii) the recording of a valuation
allowance against deferred tax assets relating to net operating loss
carryforwards provided below pursuant to Item 8.01, Other Events is incorporated
by reference in response to this Item.
Item
8.01. Other Events.
On
March
1, 2006, March 17, 2006, May 11, 2006, June 12, 2006, July 21, 2006, August
16,
2006, September 26, 2006 and September 28, 2006, we filed Current Reports on
Form 8−K (collectively, the “Form 8-Ks”) with the Securities and Exchange
Commission (“SEC”) indicating that we would not meet the SEC deadline to file
our Annual Report on Form 10-K for the year ended December 31, 2005 (the “2005
Form 10-K”) because we had not yet finalized our financial statements for the
quarter and the year ended December 31, 2005 and the audit of our 2005 financial
statements was and is ongoing. We expect to file the 2005 Form 10-K by
mid-November 2006. We also previously disclosed that the filing of our
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2006, June
30,
2006 and September 30, 2006 (the “2006 Form 10-Qs”) would be delayed beyond
their respective SEC filing deadlines. We are unable at this time to
provide an expected date for the filing of our 2006 Form 10-Qs.
As
previously disclosed in our Current Report on Form 8-K filed on July 21, 2006,
the Audit Committee of our Board of Directors concluded on July 17, 2006 that
our audited financial statements for the years ended December 31, 2001, 2002,
2003 and 2004 and our unaudited quarterly financial statements for the quarters
ended March 31, 2004, June 30, 2004, September 30, 2004, March 31, 2005, June
30, 2005 and September 30, 2005 (collectively, the “Prior Financial Statements”)
and the related reports of our independent registered public accounting firm
should no longer be relied upon because of errors in the Prior Financial
Statements. At that time, we determined that the correction of these errors
was
material and would require the restatement of certain of our Prior Financial
Statements. The restatement adjustments will correct certain historical
accounting policies to conform those policies to accounting principles generally
accepted in the U.S. (“GAAP”) and correct errors made in the application of
GAAP, including but not limited to errors described in the Form 8-Ks and in
this
Form 8-K.
We
have
determined that we will restate our audited financial statements and related
disclosures for the years ended December 31, 2003 and 2004 in our 2005 Form
10-K. Certain restatement adjustments affecting our audited annual financial
statements for periods prior to December 31, 2003, will also be reflected in
the
Selected Consolidated Financial Data appearing in the 2005 Form 10-K. Certain
restatement adjustments also affect our unaudited quarterly financial statements
for the quarters ended March 31, 2004, June 30, 2004, September 30, 2004, March
31, 2005, June 30, 2005 and September 30, 2005 previously filed in our Quarterly
Reports on Form 10-Q. Such restatement adjustments will similarly be reflected
in the Selected Unaudited Quarterly Financial Data appearing in our 2005 Form
10-K and, with respect to the quarters ended March 31, 2005, June 30, 2005
and
September 30, 2005, will be reflected in our 2006 Form 10-Qs, which we plan
to
file subsequent to the filing of the 2005 Form 10-K.
As
part
of this determination, we have concluded that we will not amend our
previously-filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q
for the periods affected by the restatement adjustments, and accordingly the
financial statements, related financial information and the reports of our
independent registered public accounting firm contained in such reports should
not be relied upon even after we file our 2005 Form 10-K and our 2006 Form
10-Qs. All restatement adjustments impacting our previously-filed Annual Reports
on Form 10-K will be reflected in our 2005 Form 10-K. All restatement
adjustments impacting our previously-filed Quarterly Reports on Form 10-Q for
fiscal quarters in 2005 will be reflected in our 2006 Form 10-Qs. We have
discussed the aforementioned restatement matters with the Audit Committee of
our
Board of Directors and Deloitte & Touche LLP, our independent registered
public accounting firm.
As
previously disclosed in the Form 8-Ks, we are evaluating accounting matters
regarding transactions surrounding the Spin-Off and certain other matters not
related to the Spin-Off. We have concluded our evaluation of the following
accounting matters:
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We
have reevaluated our conclusion regarding the appropriateness of
certain
Spin-Off deferred tax assets relating to net operating loss carryforwards
(“NOLs”) initially allocated to us as of the date of the Spin-Off. On
October 27, 2006, the Audit Committee of our Board of Directors,
after
consultation with and review of the conclusions of management, determined
that $15 million of NOLs was no longer allocable to us and will be
written-off through a reduction in shareholder's equity in the fourth
quarter of 2005. We expect to utilize $9 million of the NOLs previously
allocated to us in our 2005 tax returns but we may need to write
off these
NOLs to shareholder’s equity, subject to the final allocation of NOLs from
Cendant, which is expected to occur in the fourth quarter of 2006.
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We
have determined that we will need to correct the timing of revenue
recognition prior to the adoption of FASB Interpretation No. 46,
“Consolidation of Variable Interest Entities” (“FIN 46”) related to loan
sales from PHH Mortgage Corporation, our wholly-owned subsidiary,
to
Bishops Gate Residential Mortgage Trust (“Bishop’s Gate”), a special
purpose entity consolidated upon the adoption of FIN 46. Prior to
the date
of adoption of FIN 46 on July 1, 2003 and the related consolidation
of
Bishop’s Gate, we recorded loan sales to Bishop’s Gate at the time of the
sale; however, the gain on sale was deferred until the loans were
sold by
Bishop’s Gate to third party investors. The restatement will recognize the
gain on sale at the time of sale to Bishop’s Gate for the periods prior to
Bishop’s Gate’s consolidation in 2003. The impact of the restatement will
be an increase in pre-tax income of $17 million in years prior to
2001, a
decrease in pre-tax income of $1 million in 2001, and increases in
pre-tax
income of $28 million in 2002 and $16 million in 2003. The restatement
also reduces pre-tax income by $60 million in 2003 through the adjustment
for the cumulative effect of adoption of FIN 46. There is no impact
to our
shareholder’s equity for periods after December 31, 2003 as a result of
this restatement.
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We
have completed our evaluation of the need for reserves and valuation
allowances for tax contingencies for 2005 and have established a
provision
of $15 million, which will be reflected as a charge to net income
in the
fourth quarter of 2005.
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We
continue to evaluate the goodwill impairment recorded in the first quarter
of
2005. On October 27, 2006, the Audit Committee of our Board of Directors, after
consultation with and review of the conclusions of management, determined that
the amount of goodwill allocated to us as part of Cendant’s 2001 acquisition of
Avis Group Holdings, Inc. was improper and will need to be reduced. We also
determined that substantially all of the allocated goodwill was impaired prior
to 2005. We are continuing to evaluate what portion of the goodwill impairment
should properly have been recorded in periods prior to 2005.
Because
the preparation of our financial statements continues, certain of the accounting
matters identified at this stage as well as the potential impact of certain
of
these matters on our financial statements have not yet been finalized and are
subject to change. As we continue the process of evaluating the accounting
issues identified in the Form 8-Ks and completing the preparation of our
financial statements, additional material accounting issues may be identified
which, individually or in the aggregate, may result in material impairments
to
assets and/or material adjustments to or restatements of our financial
statements for prior periods or prior fiscal years beyond those we have
disclosed.
Item
9.01. Financial Statements and Exhibits.
(c)
Exhibits
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Fifth
Amended and Restated Master Repurchase Agreement,
dated as of October 30, 2006, among Sheffield Receivables Corporation,
as
conduit principal, Barclays Bank PLC, as administrative agent,
PHH
Mortgage Corporation, as seller, and the PHH Corporation, as
guarantor.*
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*
Confidential
treatment has been requested for certain portions of Exhibit 10.1 pursuant
to
Rule 24b-2 of the Exchange Act, which portions have been omitted and filed
separately with the SEC.
**
The
information disclosed in Exhibit 99.1 hereto is being furnished and shall
not be
deemed “filed” for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, or otherwise subject to the liabilities of Section 18,
nor
shall it be deemed incorporated by reference into any registration statement
or
other document pursuant to the Securities Act of 1933, as amended, except
to the
extent, if any, expressly set forth in such filing.
Forward-Looking
Statements
This
Form
8-K contains 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. You should understand that these statements are
not
guarantees of performance or results and are preliminary in nature. Statements
preceded by, followed by or that otherwise include the words “believes”,
“expects”, “anticipates”, “intends”, “projects”, “estimates”, “plans”, “may
increase”, “may result”, “will result”, “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. For
example, the statement that we expect to file our 2005 Form 10-K on or before
mid-November 2006 and our statement of expectations regarding NOLs are
forward-looking statements.
You
should consider the areas of risk described under the heading “Cautionary Note
Regarding 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:
October 30, 2006
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