ITEM 1. BUSINESS GENERAL The Company provides a broad range of integrated management services, expense management programs and mortgage banking services to more than 2,000 clients, including many of the world's largest corporations, as well as governmental agencies and affinity groups. Its primary business service segments consist of vehicle management, relocation and real estate and mortgage banking. Information as to revenues, operating income and identifiable assets by business segment is included in the Business Segments note in the Notes to Consolidated Financial Statements. As of June 30, 1994, the Company and its subsidiaries had approximately 5,000 employees. VEHICLE MANAGEMENT SERVICES Vehicle management services consist primarily of the management, purchase, leasing and resale of vehicles for corporate clients and governmental agencies, including fuel and expense management programs and other fee-based services for clients' vehicle fleets. FLEET MANAGEMENT SERVICES The Company provides fully integrated vehicle management and leasing programs through PHH Vehicle Management Services. These programs were developed to meet the specific needs of companies using large and small numbers of cars and trucks and consist of managerial, leasing and advisory services, aimed at reducing and controlling the cost of operating corporate fleets. The Company's advisory services for automobile fleet management programs include recommendations on the makes and models of cars and accessories best suited to the client's use, the determination of persons eligible for company cars, the method of reimbursing field representatives for actual car expenses, the care and maintenance of cars and the personal use of company cars. Managerial services for automobile fleet programs include purchasing automobiles, arranging for their delivery through new car dealers located throughout the United States, Canada, the United Kingdom and the Republic of Ireland, complying with various local registration, title, tax and insurance requirements, pursuing warranty claims with automobile manufacturers and selling used cars at replacement time. The Company offers similar programs and services for vans and light and heavy-duty truck fleets. Advisory services offered include the determination of the vehicle specifications, makes, models and equipment best suited to perform the functions required by the client. Managerial services include purchasing new vans, light and heavy-duty trucks, trailers, truck bodies and equipment from manufacturers and franchised dealers, the performance of title, registration, tax and insurance functions, arranging for them to be titled, licensed and delivered to locations designated by clients, verifying invoices and selling used vehicles at replacement time. The Company offers various leasing plans for its vehicle leasing programs. Under these plans, the Company provides for the financing primarily through the issuance of commercial paper and medium-term notes and through unsecured borrowings under revolving credit agreements and bank lines of credit. See the Liabilities Under Management Programs note in Notes to Consolidated Financial Statements. The Company leases vehicles for minimum lease terms of twelve months or more under either direct financing or operating 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. Under the direct financing lease agreements, resale of the vehicles upon termination of the lease is generally for the account of the lessee. The Company has two distinct types of operating leases. Under one type, the open-end operating lease, resale of the vehicles upon termination of the lease is 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 residual value guarantees. Under the other type of operating lease, the closed-end operating lease, resale of the vehicle on termination of the lease is for the account of the Company.
The Company's fleet management services may be the same whether the client owns or leases the vehicles. In either case, the client generally operates the vehicles on a net basis, paying all the actual costs incidental to their operation, including gasoline, oil, repairs, tires, depreciation, vehicle licenses, insurance and taxes. The fee charged by the Company for its services is based upon either a percentage of the original cost of the vehicle or a stated management fee and, in the case of a leasing client, includes the interest cost incurred in financing the vehicle. FUEL AND EXPENSE MANAGEMENT PROGRAMS The Company offers fuel and expense management programs to corporations and governmental agencies for the control of automotive business travel expenses in each of the United States, Canada, United Kingdom, Republic of Ireland and Germany. Through a service card and billing service, a client's traveling representatives are able to purchase various products and services such as gasoline, tires, batteries, glass and maintenance services at numerous outlets. The Company also provides a series of safety-related programs, statistical control reports detailing expenses related to the general operation of vehicles, and a program which monitors and controls the type and cost of vehicle maintenance for individual automobiles. The Company also provides a fuel and expense management program and a centralized billing service for companies operating truck fleets in each of the United States, Canada, United Kingdom, Republic of Ireland and Germany. Drivers of the clients' trucks are furnished with courtesy cards together with a directory listing the names of strategically located truck stops and service stations which participate in this program. Service fees are earned for the billing, collection and record keeping services and for assuming the credit risk. These fees are paid by the truck stop or service stations and/or the fleet operator and are based upon the total dollar amount of fuel purchased or the number of transactions processed. COMPETITIVE CONDITIONS The principal methods of competition within vehicle management services are service quality and price. In the United States and Canada, an estimated 30% of the market for vehicle management services is served by third-party providers. There are 5 major providers of such services in North America, as well as an estimated several hundred local and regional competitors. The Company shares the market leadership with one other provider. In the United Kingdom, the portion of the fuel card services and vehicle management services markets served by third-party providers is an estimated 37% and 35%, respectively. The Company is the market leader among the 4 major nation-wide providers of fuel card services, and a market leader among the 7 major nation-wide providers of vehicle management services. Numerous local and regional competitors serve each such market element. The following sets forth certain statistics concerning automobiles, vans, light and heavy-duty trucks for which the Company provides managerial, leasing and/or advisory services in the United States, Canada, the United Kingdom, the Republic of Ireland and Germany at the end of the fiscal years shown:
(1) The cost of the Canadian and United Kingdom vehicles is stated in United States dollars, translated at the average exchange rate in effect for the year ended April 30, 1994 in order to eliminate the effect of exchange rate fluctuations. (2) Includes the Republic of Ireland.
RELOCATION AND REAL ESTATE SERVICES EMPLOYEE RELOCATION The Company provides employee relocation services principally to large international corporations, governmental agencies and affinity groups in the United States, Canada, the United Kingdom and the Republic of Ireland through PHH Homequity Corporation and other relocation subsidiaries. Principal services consist of counseling transferred employees of clients and the purchase, management and resale of their homes. The Company's relocation services offer clients the opportunity to reduce employee relocation costs and facilitate employee relocation. The relocation subsidiary pays a transferring employee his/her equity in a home based upon a value determined by independent appraisals. In certain circumstances the employee's mortgage may be retired concurrently with the purchase of the equity; otherwise the relocation subsidiary normally accepts the administrative responsibility for making payments on any mortgages. Following payment to the employee, the corporate client normally pays the relocation subsidiary an advance billing to cover costs to be incurred during the period the home is held for resale, including debt service on any existing mortgage. These costs are paid by the relocation subsidiary and, after ultimate resale, a settlement is made with the corporate client reconciling the advance billing and the expense payments. Under the terms of the client contracts, the relocation subsidiaries are generally protected against losses from changes in market conditions. Funds to finance the purchase of homes are provided primarily through the issuance of commercial paper and medium-term notes and occasionally through unsecured borrowings under revolving credit agreements and bank lines of credit, or may be provided by the client. Interest costs are billed directly to the Company's clients. See the Liabilities Under Management Programs note in Notes to Consolidated Financial Statements. The Company's relocation subsidiaries also offer programs which provide home marketing, moving services, rental management, spousal career counseling and consulting services for transferred employees to help in selecting their new communities and homes. The destination services operations focus on developing and delivering home-finding and settling-in services for individual customers through local centers. Through its PHH Fantus Corporation subsidiary, the Company provides strategic facilities planning services, site selection and location consulting for corporate clients and governmental agencies. Additionally, the Company provides consulting services in the areas of general business strategy, marketing and management for transnational clients. REAL ESTATE SERVICES The Company provides real estate services through PHH Homequity Corporation and other relocation subsidiaries. These services primarily include the management and resale of homes for financial institutions and governmental agencies in the United Kingdom, the United States and Canada. COMPETITIVE CONDITIONS The principal methods of competition within relocation and real estate services are service quality and price. In the United States, Canada and the United Kingdom, an estimated 25% of the market for relocation and real estate services is served by third-party providers. In each of the United States, Canada and the United Kingdom, there are 4 major national providers of such services. There are an estimated several dozen local and regional competitors in each such country. The Company is the market leader in the United States and Canada, and third in the United Kingdom.
The following sets forth certain statistics concerning relocation and real estate services in the United States, Canada and the United Kingdom for the fiscal years shown:
(1) Revenues for the U.S. relocation services are significantly determined based on the value of homes sold, while revenues for the United Kingdom and Canadian segments are primarily based on fees which are not related to the value of homes sold; therefore, this table only includes the average value of U.S. homes sold. N/A Information not available. MORTGAGE BANKING SERVICES The Company provides residential mortgage banking services through PHH US Mortgage Corporation. These services consist of the origination, sale and servicing of residential first mortgage loans. A variety of first mortgage products as well as casualty insurance-related products are marketed to consumers through relationships with corporations, affinity groups, real estate brokerage firms and other mortgage banks. PHH US Mortgage is a centralized mortgage lender conducting business in all 50 states. It utilizes its computer system and an extensive telemarketing operation to allow the consumer to complete the entire mortgage transaction over the telephone. Through its own network of appraisers, title companies and closing attorneys, the Company can effectively administer its products and services anywhere in the nation. The mortgage unit customarily sells all mortgages it originates to investors (which include a variety of institutional investors) either as individual loans, as mortgage-backed securities or as participation certificates issued or guaranteed by the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC), or the Government National Mortgage Association (GNMA) while generally retaining mortgage servicing rights. The guarantees provided by FNMA and FHLMC are on a non-recourse basis to the Company. Guarantees provided by GNMA are non-recourse to the extent recoverable from certain government insurance programs. Mortgage servicing consists of collecting loan payments, remitting principal and interest payments to investors, holding escrow funds for payment of mortgage-related expenses such as taxes and insurance, and otherwise administering the Company's mortgage loan servicing portfolio. COMPETITIVE CONDITIONS The principal methods of competition in mortgage banking services are service quality and price. There are an estimated 22,000 national, regional or local providers of mortgage banking services across the United States. The Company ranked twenty-third among loan originators for calendar year 1993 and twenty-fourth for the three months ended March 31,1994. The following sets forth certain statistics concerning mortgage banking services for the fiscal years shown:
SIGNIFICANT CUSTOMERS No customer purchased services totaling 10% or more of consolidated revenues in 1994, 1993, or 1992. ITEM 2.

ITEM 2. PROPERTIES The corporate offices of the Company are located at 11333 McCormick Road, Hunt Valley, Maryland in an eight-story building which is owned by the Company and contains approximately 163,000 square feet of office space. The offices of PHH Vehicle Management Services North American operations are located throughout the US and Canada as follows: (Bullet) A six-story, 200,000 square foot office building in Hunt Valley, Maryland leased until September 2003 (Bullet) Office space totaling 17,500 square feet in five cities leased as full service branch offices for fleet management activities for various terms to April 2003 (Bullet) A dealership in Williamsburg, Virginia, having 101,000 square feet, leased until March 1998 (Bullet) A dealership in Edenton, North Carolina, having 337,100 square feet, leased until December 1998 (Bullet) Offices in Fort Worth, Texas, having 75,500 square feet, leased until March 2002 (Bullet) Administrative offices in Mississauga, Canada, having 59,400 square feet, leased until February 1998 (Bullet) Regional offices located in Montreal, Calgary, Vancouver, Mississauga & Quebec, Canada, having a total of 43,100 square feet, leased for various terms to December 2002 The offices of PHH Relocation and Real Estate Services North American operations are located throughout the US and Canada as follows: (Bullet) Offices located in Wilton, Connecticut, having 40,000 square feet, leased until January 1996 (Bullet) Offices in Danbury, Connecticut, having 92,500 square feet, leased until January 2000 (Bullet) Field office space leased in fourteen cities as follows: 56,500 square feet in Irving, Texas until November 1998; 54,000 square feet in Oak Brook, Illinois until April 2003; 52,800 square feet in Concord, California until October 1998; and 55,500 square feet in eleven other cities for various terms to June 2002 (Bullet) Offices located in Florham Park, New Jersey, where 14,200 square feet are leased until May 1996 (Bullet) Offices in Chicago, Illinois, having 8,800 square feet, leased until September 2004 (Bullet) Office space totaling 35,300 square feet in Toronto, Montreal, Vancouver, Ottawa and Nova Scotia, leased for various terms to May 2004 The offices of Mortgage Banking Services are located as follows: (Bullet) A 127,000 square foot building in Mount Laurel, New Jersey which is owned by the Company (Bullet) In Englewood, Colorado in a building having 27,900 square feet leased until June 1997 (Bullet) In two other locations totaling 16,300 square feet for various terms to June 1995. The offices of Vehicle Management Services and Relocation and Real Estate Management Services operations located in the United Kingdom and Europe are as follows: (Bullet) A 129,000 square foot building which is owned by the Company located in Swindon, United Kingdom (Bullet) Field offices having 47,800 square feet located in Swindon and Manchester, United Kingdom, Munich, Germany and Dublin, Ireland are leased for various terms to February 2016. The Company considers that its properties are generally in good condition and well maintained and are generally suitable and adequate to carry on the Company's business.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS The Company is party to various litigation arising in the ordinary course of business and is plaintiff in several collection matters which are not considered material either individually or in the aggregate. ITEM 4.

ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended April 30, 1994. PART II ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Company's common stock is publicly traded on the New York Stock Exchange under the symbol "PHH". The common stock is entitled to dividends when and as declared by the Board of Directors. The payment of future dividends will depend upon earnings, the financial condition of the Company and other relevant factors. At June 30, 1994 there were 1,975 holders of common stock. The dividends and high and low prices for each quarter during the Company's 1994 and 1993 fiscal years were as follows:
ITEM 6.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
RESULTS OF OPERATIONS
All comparisons within the following discussion are to the previous year, unless otherwise stated.
Consolidated results: Net income increased 14% to $64.6 million in fiscal 1994. Net income per share increased 12% to $3.64. The increase in net income was due to increases in the mortgage banking services and vehicle management services business segments, partially offset by a decrease in the relocation and real estate services business segment. In fiscal 1993, net income increased 13% to $56.4 million and net income per share increased 11% to $3.25, reflecting increases in all three of the Company's business segments, though primarily in mortgage banking services.
Consolidated revenues increased 6% to $2.1 billion in fiscal 1994 and 5% to $2.0 billion in fiscal 1993.
The provision for income taxes reflects effective tax rates of 41.2%, 40.1% and 39.9% in fiscal 1994, 1993 and 1992, respectively. The fiscal 1994 rate reflects the increase in the US federal corporate income tax rate from 34% to 35%. The additional tax accrued to adjust the Company's deferred tax assets and liabilities for the effect of the increased income tax rate was offset by an adjustment of tax accruals based upon the completion of certain tax examinations.
Vehicle Management Services Vehicle management services primarily consist of the management, purchase, leasing and resale of vehicles for corporate clients and governmental agencies, including fuel and expense management programs and other fee-based services for clients' vehicle fleets.
Leasing revenues increased 8% to $968 million in fiscal 1994 and 8% to $895 million in fiscal 1993. The increases were primarily due to a reduced amount, in comparison to prior years, of leases and leased vehicles sold or transferred to third parties for which management and servicing responsibility is retained. Had these assets not been sold or transferred, the related rental payments would have been included in revenues and the related depreciation on vehicles under operating leases and interest would have been included in expenses. On a pro forma basis, the result would have been a decrease in leasing revenues of 6% for fiscal 1994 and 3% for fiscal 1993. The decreases in pro forma leasing revenues were primarily due to a lower rental interest component charged on certain leases and leased vehicles due to reduced interest rates and a decrease in the number of leased vehicles under management.
Other revenues increased 11% to $194 million in fiscal 1994 and 6% to $175 million in fiscal 1993. The increases were primarily due to growth in domestic fee-based services such as vehicle maintenance management programs and a favorable resale market for disposition of vehicles under closed-end leases.
Vehicle management services operating income increased 9% to $46.2 million in fiscal 1994. The increase was primarily due to increases from the continuing positive effects of a favorable resale market for disposition of vehicles under closed-end leases, higher management fees resulting from increases in the average cost of vehicles managed, growth in domestic fee-based vehicle services as reflected in the number of fuel and service card transactions and gallons processed (see key operating factors) as well as the favorable effect of productivity efforts. Partially offsetting the increase were decreased revenues resulting from a slight decrease in the number of vehicles under management as well as increased selling, general and administrative costs including costs related to certain information technology improvements.
In fiscal 1993, operating income increased 4% to $42.3 million. The increase was primarily due to growth in fee-based vehicle management services as well as improvements in fuel and expense management programs in the UK. These improvements were partially offset by a decrease in domestic fuel and expense management programs, a decrease in the number of vehicles under management, continued investment toward expansion into Continental Europe, and a reduction due to the effect of foreign currency translation.
The Company's profitability from vehicle management services is affected by the number of vehicles managed and related services provided for clients. Profitability can also be affected as corporate clients exercise a higher degree of caution by decreasing the size of their vehicle fleets or by extending the service period of existing fleet vehicles. Operating results should be positively affected as clients choose to outsource their vehicle management services and as the Company expands into new markets, further enhances its product diversity, broadens its client base and continues its productivity and quality improvement efforts.
Relocation and Real Estate Services Relocation and real estate services primarily consist of the purchase, management and resale of homes for transferred employees of corporate clients, governmental agencies and affinity groups. Other programs include fee-based services which provide assistance to the transferring employee and real estate services to financial institutions as well as other consulting services.
Relocation and real estate services revenues decreased 2% to $816 million in fiscal 1994. Revenue decreases were primarily due to a reduction in the number of transferee homes sold in the US and UK and a reduction in interest rates and other direct costs of carrying and reselling homes, which are charged to the Company's clients. These decreases were partially offset by revenue increases due to an increase in the number of homes sold in Canada resulting from an acquisition in fiscal 1994; an increase in domestic fee-based relocation services such as home marketing programs, group move planning and household goods moving; and an increase in the average value of transferee homes sold in the US.
In fiscal 1993, revenues decreased 2% to $829 million. The decrease was primarily due to a reduction in interest rates and other direct costs of carrying and reselling homes, which are passed through to the Company's clients, partially offset by an increase in the number of transferee homes sold in the US and favorable results in the US from other fee-based relocation services.
Costs of carrying and reselling homes and interest decreased 3% to $718 million in fiscal 1994 and 3% to $739 million in fiscal 1993. The decreases were primarily due to a decrease in interest expense caused by a reduction in interest rates as noted above, as well as a reduction in other direct costs of carrying and reselling homes due to a reduction in the number of days homes were held for resale. In fiscal 1994, increased costs were incurred due to an increase in the number of homes sold resulting from the Company's acquisition in Canada and to enhance the Company's global information technology.
Relocation and real estate services operating income decreased 19% to $21.5 million in fiscal 1994. The decrease was primarily due to costs incurred by the Company to broaden its worldwide consulting business, enhance its global information technology and consolidate office space in North America, as well as integration costs from its acquisition in Canada. The decrease was partially offset by improvement in the results of other fee-based relocation and real estate services and an increase in the value of transferee homes sold in the US.
In fiscal 1993, operating income increased 1% to $26.6 million. The increase was primarily due to increases in the number of transferee homes sold in the US as well as improvement in other fee-based services in the US. Partially offsetting the increase were decreases in the number of homes sold and a reduction of real estate services provided in the UK and Canada, as well as the minor effect of a change in the application of revenue recognition accounting policies in the UK to more closely align policies for similar product lines on a worldwide basis.
The Company is generally not at risk on its carrying value of homes should there be a downturn in the housing market. Management anticipates that, as businesses continue to reassess their relocation plans as part of cost control measures, the results of the relocation services segment may be impacted. However, operating results should be positively affected as the Company expands into new markets, enhances its product diversity, broadens its client base and continues its productivity and quality improvement efforts.
Mortgage Banking Services
Mortgage banking services primarily consist of the origination, sale and servicing of residential first mortgage loans. A variety of first mortgage products are marketed to consumers through relationships with corporations, affinity groups, real estate brokerage firms and other mortgage banks.
Mortgage banking services revenues increased 28% to $156 million in fiscal 1994. The increase was primarily due to a large percentage increase in loan closing volume as well as a 51% increase in the servicing portfolio. The value of loan closings increased 44% due to growth in volume from established customer relationships, increased market penetration, as well as volume generated from residential mortgage refinancings. Similarly, in fiscal 1993, revenues increased 37% to $122 million.
Direct costs and interest increased 23% to $86 million in fiscal 1994 and 25% to $70 million in fiscal 1993. The increases were primarily due to increased costs to support increased loan closings and a larger servicing portfolio partially offset by reduced interest rates. Additionally, direct costs include unscheduled amortization of excess mortgage servicing fees of $11.3 million and $11.9 million in fiscal 1994 and 1993, respectively.
Key Operating Factors 1994 1993 1992
Mortgage loan closings (in millions) $ 8,074 $ 5,618 $ 3,797 Percent change 44% 48% 63% Ending mortgage servicing portfolio (in millions) $ 16,645 $ 11,047 $ 7,517 Percent change 51% 47% 50% Delinquency rate 1.2% 1.1% 1.8%
Mortgage banking services operating income increased 66% to $42.1 million in fiscal 1994 and 58% to $25.4 million in fiscal 1993. The increase reflects increases in revenues as discussed above, partially offset by higher costs incurred due to increased loan closings as well as higher costs of managing the larger servicing portfolio.
The Company's profitability from mortgage banking services will be affected by such external factors as the level of interest rates, the strength of the various segments of the economy, and the condition of residential real estate markets. The Company is experiencing a slowdown in refinancing activity due to a rise in interest rates. Management believes the Company's broad-based marketing strategies and continuous quality improvement efforts, as well as its focus on building and maintaining a high quality servicing portfolio, should continue to positively affect operating results.
NEW ACCOUNTING PRONOUNCEMENTS
In fiscal 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". Additionally, in November 1992, the Financial Accounting Standards Board (FASB) issued SFAS No. 112, effective in fiscal 1995, "Employers' Accounting for Postemployment Benefits". Application of this statement will require the Company to change from the cash basis to the accrual basis of recording the costs of benefits provided to former or inactive employees after employment but before retirement. The effect of this statement has been estimated and will not significantly affect the consolidated financial statements of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company manages its funding sources to ensure adequate liquidity for servicing of existing liabilities and by obtaining longer-term funds required to meet the Company's strategic growth objectives. The mix of funding sources depends on market conditions at the time, the characteristics of the assets of the Company, and the management of diverse international funding sources for the greatest long-term financial flexibility.
The sources of liquidity fall into three general areas: ongoing liquidation of assets under management, international money and capital markets, and committed credit agreements with various high-quality domestic and international banks. In the ordinary course of business, the liquidation of assets under management programs, as well as cash flows generated from operating activities, provide the cash flow necessary for the repayment of existing liabilities. (See Operating Activities and Investing Activities in the Company's Consolidated Statements of Cash Flows.)
Based upon historical information, the Company projects the time period that a client's vehicle will be in service or the length of time that a home will be held in inventory before being sold on behalf of a client. Within mortgage banking services, the asset characteristics reflect the length of time from commitment to the sale of mortgages to unrelated investors. Once the asset characteristics are projected, the Company generally matches the projected dollar amount, interest rate and maturity characteristics of the assets within the overall funding program. This is accomplished through stated debt terms or effectively modifying such terms through other instruments, primarily interest rate swap agreements and revolving credit agreements. Interest rate risk on mortgages originated for sale is managed through the use of forward delivery contracts, financial futures and options.
To maintain the integrity of its assets under management, the Company maintains rigorous client credit standards to minimize credit risk and the potential for losses.
Domestic and international financial markets provide a variety of sources of funding. The Company has consciously managed these sources to ensure broad access to major money and capital markets. Depending upon asset growth and financial market conditions, the Company utilizes the United States, Euro, Canadian and Sterling commercial paper markets, as well as other cost effective short-term instruments. In addition, the Company utilizes the public and private debt markets to issue unsecured senior corporate debt. Augmenting these sources, the Company has reduced outstanding debt by the sale or
transfer of managed assets to third parties while retaining fee-related servicing responsibility. The Company's aggregate commercial paper outstanding totaled $2.1 and $1.9 billion at April 30, 1994 and April 30, 1993, respectively. At April 30, 1994, $1.2 billion in medium-term notes and $185 million in other debt securities were outstanding compared to $1.1 billion and $390 million, respectively, in fiscal 1993. (See Financing Activities in the Company's Consolidated Statements of Cash Flows.) From a risk management standpoint, borrowings not in the local currency of the business unit are converted to the local currency through the use of foreign currency forward contracts.
To provide additional financial flexibility, the Company's current policy is to ensure that minimum committed bank facilities aggregate 80% of the average amount of outstanding commercial paper. Committed revolving credit agreements totaling $2.4 billion and uncommitted lines of credit aggregating $330 million are currently in place with 31 domestic and international banks. Management closely evaluates not only the credit quality of the banks but the maturity of the various agreements to ensure ongoing availability. Of the Company's $2.4 billion in committed facilities at April 30, 1994, the full amount was undrawn and available. Management believes that its current policy provides adequate protection should financial stress occur in the commercial paper or medium-term note markets.
These established means of effectively matching floating and fixed interest rate and maturity characteristics of funding to related assets, the variety of short- and long-term domestic and international funding sources, and the committed banking facilities enable the Company to service its debt and offer a broad spectrum of service products to its clients.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT AND CONSENT OF INDEPENDENT AUDITORS The Stockholders and Board of Directors PHH Corporation: We have audited the consolidated financial statements of PHH Corporation and subsidiaries as listed in the accompanying index on page 27. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedules 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 at April 30, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended April 30, 1994, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK Baltimore, Maryland May 23, 1994 To the Stockholders and Board of Directors PHH Corporation: We consent to incorporation by reference in the Registration Statements on Form S-3 (No. 33-48125, No. 33-52669 and No. 33-59376) and Form S-8 (No. 33-38309 and No. 33-53282) of PHH Corporation of our report dated May 23, 1994, relating to the consolidated balance sheets of PHH Corporation and subsidiaries as of April 30, 1994 and 1993, 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, 1994, and all related schedules, which report appears in the April 30, 1994 annual report on Form 10-K of PHH Corporation. KPMG PEAT MARWICK Baltimore, Maryland July 29, 1994
Consolidated Statements of Income
See Notes to Consolidated Financial Statements.
Consolidated Balance Sheets
See Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
See Notes to Consolidated Financial Statements.
Consolidated Statements of Stockholders' Equity
OTHER ASSETS Other assets at April 30 consisted of the following:
The unamortized mortgage servicing fees represent the value of purchased servicing rights and excess servicing fees which are deferred. Such servicing rights and fees are charged to income over the estimated effective life of the related mortgages, estimated to average 6 years. The fair value of excess servicing fees, estimated using discounted cash flows, approximates the carrying amount which was $74,200 and $58,500 at April 30, 1994 and 1993, respectively. Mortgage loans serviced were $16,644,730 and $11,047,284 at April 30, 1994 and 1993, respectively. Intangible assets recognized from acquisitions of relocation services companies are being amortized by the straight-line method over periods ranging from 5 to 10 years. Residential properties held for resale are located primarily in the US and are carried at the lower of cost or resale value. Mortgage-related notes receivable are loans secured by real estate.
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:
The Company leases vehicles for initial periods of twelve months or more under either direct financing or operating 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 1994 and 1993 were $1,358,156 and $1,173,994, respectively; and the ratios of such repayments to the average net investment in leases and leased vehicles were 49% in 1994 and 46% in 1993.
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, 1994 and 1993, was $3,538,000 and $3,184,000, 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, 1994 and 1993, was $367,000 and $484,000, 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:
Other managed vehicles are subject to leases serviced by the Company for others, and neither the vehicles nor the leases are included as assets of the Company. The Company receives a financial spread under such agreements which covers or exceeds its cost of servicing. The agreements are made in various ways, some of which entail some risks of accounting loss to the Company, and all of which has been included in its consideration of related reserves.
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 $12,836 and $42,120 at April 30, 1994 and 1993, respectively; or guarantees to a maximum extent of $2,749 and $3,475 at April 30, 1994 and 1993, respectively. All such credit risk has been included in the Company's consideration of related reserves. The outstanding balances under such agreements aggregated $189,480 and $392,642 at April 30, 1994 and 1993, respectively.
Other managed vehicles with balances aggregating $206,740 and $181,296 at April 30, 1994 and 1993, 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 an appraised value of their homes.
The Company manages the resale of homes for unrelated investors under its real estate management program in the UK. The Company receives a financial spread under this agreement which covers or exceeds its cost of servicing. The outstanding balance under such agreements aggregated $1,848 and $10,237 at April 30, 1994 and 1993, respectively. The Company retains credit risk to the extent of excess assets sold totaling $1,419 and $3,041 in 1994 and 1993, respectively, which has been included in the Company's consideration of related reserves.
Other Assets Under Management Programs
Other assets under management programs represent mortgage-related loans receivable originated by the Company on behalf of corporate clients and secured by real estate. Based on contracts with corporate clients, the Company is generally protected against loss after taking into account all related costs.
OTHER DEBT
Other debt at April 30 consisted of the following:
1994 1993 Commercial paper $ 619,822 $ 411,128 Medium-term note 100,000 100,000 $ 719,822 $ 511,128
As more fully described in the Note for Liabilities Under Management Programs, commercial paper is primarily supported by committed one-year and three-year revolving credit agreements. The weighted average interest rate on commercial paper, all of which matures within ninety days, was 4.0% and 3.3% at April 30, 1994 and 1993, respectively. 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 7 years payable in full in fiscal 2000. At April 30, 1994 and 1993, respectively, the fair value of the medium-term note, estimated from quotes from brokers, was $95,930 and $101,180, respectively.
INCOME TAXES
Provisions (credits) for income taxes for the years ended April 30, were comprised as follows:
1994 1993 1992 Current income taxes: Federal $ 24,316 $ 34,300 $ 24,298 State and local 11,905 9,643 6,233 Foreign 6,663 9,612 11,387 42,884 53,555 41,918
Deferred income taxes: Federal 7,686 (8,000) (1,280) State and local (3,000) (2,873) (653) Foreign (2,332) (4,861) (6,847) 2,354 (15,734) (8,780) $ 45,238 $ 37,821 $ 33,138
Deferred income taxes are recorded based upon differences between the financial statements and the tax bases of assets and liabilities and available tax credit carryforwards. There was no valuation allowance relating to deferred tax assets.
Deferred tax assets (liabilities) as of April 30 were comprised as follows:
1994 1993 Alternative minimum tax credit carryforwards $ 8,310 $ 43,268 Depreciation (137,602) (167,217) Unamortized mortgage servicing fees (3,033) (6,013) Accrued liabilities and deferred income 38,725 38,716 $ (93,600) $ (91,246)
The portions of the 1994 income tax liability and provision classified as current and deferred are subject to final determination based on the actual 1994 income tax returns. The liability and provision amounts for 1993 have been reclassified to reflect the final determination made in filing the 1993 income tax returns.
The Company paid income taxes of $35,739 in 1994, $50,092 in 1993, and $42,011 in 1992.
The US federal statutory tax rate for the Company was 35% in 1994, and 34% in 1993 and 1992. The effective tax rates on income were 41.2% in 1994, 40.1% in 1993 and 39.9% in 1992. A summary of the reasons for differences between the statutory rate and the Company's effective rate follows:
1994 1993 1992 Federal income tax statutory rate 35.0% 34.0% 34.0% Increase (decrease) resulting from: State income taxes, net of federal tax effect 5.3 4.7 4.4 Amortization of goodwill 0.7 0.8 0.8 Rate increase - deferred taxes 3.0 - - Adjustment of tax accruals due to completed tax examinations (3.0) - - Foreign tax rates higher than US federal income tax statutory rate - 0.4 0.8 Other 0.2 0.2 (0.1) Effective tax rate 41.2% 40.1% 39.9%
The Company's US federal income tax returns have been examined by the Internal Revenue Service through April 30, 1991.
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: 1994 1993 Commercial paper $1,513,897 $1,479,671 Medium-term notes 1,143,235 1,031,085 Eurobond - 76,000 Limited recourse debt 9,819 54,693 Secured notes payable on vehicles under lease 34,621 35,893 Other unsecured debt 140,333 223,592 $2,841,905 $2,900,934
Commercial paper, all of which matures within ninety days, is supported by committed revolving credit agreements described below and short-term lines of credit. The weighted average interest rates on commercial paper were 4.0% and 3.3% at April 30, 1994 and 1993, respectively.
Medium-term notes represent unsecured loans which mature as follows: $1,043,235 in 1995 and $100,000 in 1997. The weighted average interest rates on medium-term notes were 4.1% and 4.0% at April 30, 1994 and 1993, respectively. At April 30, 1994 and 1993, respectively the fair value of medium-term notes, estimated by obtaining quotes from brokers, was $1,145,800 and $1,041,047.
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 4.2% and 3.7% at April 30, 1994 and 1993, respectively.
The Company has unsecured committed credit agreements with various banks totaling $2,400,000. These agreements have both fixed and evergreen maturities ranging from June 15, 1994 to April 28, 1997. 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 prime or the London Interbank Offered Rate. Under these agreements, the Company is obligated to pay annual commitment fees which were $3,975 and $3,954 in 1994 and 1993, respectively. The Company has other unused lines of credit with various banks of $223,000 and $121,000 at April 30, 1994 and 1993, respectively.
Other unsecured debt, all of which matures in 1995, includes other borrowings under short-term lines of credit and other bank facilities. The weighted average interest rates on unsecured debt were 5.2% and 5.3% at April 30, 1994 and 1993, respectively.
The Company employs interest rate swap agreements to match effectively the fixed or floating rate nature of liabilities to the assets funded. The notional amount of outstanding swap agreements is not indicative of the degree of risk of accounting loss. At April 30, 1994 and 1993, the notional amount of swap agreements with commercial and investment banks which effectively converts outstanding short-term, floating rate debt to medium-term, fixed rate debt was $708,368 and $938,624, respectively. The notional amount of swap agreements with commercial and investment banks which effectively converts outstanding medium- term fixed rate debt to short-term floating rate debt was $100,000 and $385,000, at April 30, 1994 and 1993, respectively. The notional amount of swap agreements with commercial and investment banks which effectively converts floating rate debt to floating rate debt based on a different index was $1,040,000 and $713,000 at April 30, 1994 and 1993, respectively. Additionally, the Company has entered into interest rate swap agreements with unrelated investors to whom it has transferred certain managed leases and leased vehicles to effectively convert fixed rate leases into floating rate leases. The notional amount of such swaps is $64,131 and $108,238 at April 30, 1994 and 1993, respectively, against which the Company has in place interest rate swap agreements with commercial and investment banks as discussed above. The fair value of interest rate swaps (used for hedging purposes) is the estimated amount the Company would receive or pay to terminate the swap agreements at April 30,1994 and 1993, respectively, taking into account current interest rates and the current creditworthiness of the swap counterparties. The estimated fair values of the Company's interest rate swaps at April 30, 1994 and 1993, respectively, in a gain position aggregated $5,929 and $15,693, respectively, and in a loss position aggregated $6,064 and $29,854, respectively. The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreements. However, the Company does not anticipate nonperformance by the counterparties. The Company manages such risk by periodically evaluating the financial condition of counterparties and spreading its positions among multiple counterparties.
The Company has entered into foreign exchange contracts as hedges against currency fluctuation on certain intercompany loans. Such contracts effectively offset the currency risk applicable to approximately $85,852 and $231,944 of obligations at April 30, 1994 and 1993, respectively. Market value gains and losses are recognized, and the resulting gains and losses offset foreign exchange gains or losses on such loans. At April 30, 1994 and 1993, respectively, the fair value of the Company's foreign exchange contracts, estimated by obtaining quotes from financial institutions, is a loss position aggregating $260 and $8,587, respectively.
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, 1994, 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 1995 $ 1,705,609 $ 1,613,423 1996 916,369 743,275 1997 414,997 323,567 1998 132,702 107,523 1999 43,976 34,501 2000-2004 29,361 19,616 $ 3,243,014 $ 2,841,905
STOCK OPTION, INVESTMENT AND INCENTIVE PLANS
The Company's employee stock option plans allow 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 plan and expire either eight or ten years after the date of the grant. Option transactions during 1994, 1993, and 1992 were as follows:
Number of Option Price Shares per Share Outstanding April 30, 1991 1,826,925 $18.13 to $39.00 Granted 362,460 $26.25 to $35.88 Exercised (77,148) $18.13 to $34.25 Canceled (159,399) $23.38 to $39.00 Outstanding April 30, 1992 1,952,838 $18.13 to $37.75 Granted 440,500 $33.63 to $39.63 Exercised (372,203) $19.88 to $37.75 Canceled (49,565) $23.38 to $37.75 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 Exercisable April 30, 1994 1,575,723 $19.88 to $41.88
At April 30, 1994, there were 1,218,241 shares of common stock reserved, including 889,827 shares for issuance under the employee stock option plans, 265,914 shares for issuance under the employee investment plan and 62,500 shares for issuance under the Directors' stock option 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. For 1991 and prior years, the Company matched, in common stock of the Company, employees' contributions to 6% of their base salaries. Beginning in 1992 and thereafter, the Company matches, in common stock of the Company, employee contributions to 3%, with an additional 3% match available at the end of the year based on the Company's operating results. In 1994 and 1993, the Company made an additional match of 50% of employee contributions greater than 3% up to 6%. The additional match, initially invested in a money market fund, can be redirected by the employee into any of the investment elections noted above. No additional match was made in 1992. The Company's expenses for contributions included in selling, general and administrative expenses were $4,020, $3,662, and $2,450 for the years ended April 30, 1994 and the two preceding years, respectively.
The Company has incentive compensation plans for certain key employees. The plans provide for the payment of cash bonuses or, in some instances, stock incentives, based upon the achievement of predetermined performance objectives. The related expense included in selling, general and administrative expenses for 1994, 1993 and 1992 was $6,086, $5,659 and $1,861, respectively.
STOCK RIGHTS
On March 17, 1986, the Company declared a dividend of one preferred share purchase right for each share of common stock outstanding on April 11, 1986. The Company adopted an amendment to its rights agreement January 16, 1989. Each right entitles the holder to purchase 1/100th of a share of series A Junior Participating Preferred Stock at an exercise price of $120. 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, 1996, and are redeemable at $.05 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 200,000 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 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.
Pension cost for both plans for 1994, 1993, and 1992 included the following components:
1994 1993 1992 Service cost--benefits earned $ 4,514 $ 3,760 $ 3,477 Interest cost on projected benefit obligation 5,259 4,559 4,126 Actual return on assets (2,049) (3,959) (4,250) Net amortization and deferral (2,620) (377) 207 Net pension cost $ 5,104 $ 3,983 $ 3,560
The following table provides a reconciliation of the actuarial present value of projected benefit obligation for the plans in 1994 and 1993 and the Company's recorded pension liability recognized in the Consolidated Balance Sheets at April 30, 1994 and 1993:
1994 1993 Accumulated benefit obligation: Vested $ 40,681 $ 36,035 Unvested 7,072 6,073 $ 47,753 $ 42,108
Projected benefit obligation $ 71,571 $ 63,199 Funded assets, at fair value (53,177) (48,212) Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions (11,528) (7,082) Unrecognized prior service cost 129 (882) Unrecognized net (obligation) asset (29) 19 Recorded liability $ 6,966 $ 7,042
Plan assets are primarily invested in marketable securities.
Supplemental Retirement Plans
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.
The cost of these plans in 1994, 1993 and 1992 included the following components:
1994 1993 1992 Service cost--benefits earned $ 90 $ 44 $ 7 Interest cost on projected benefit obligation 922 824 781 Net amortization and deferral 570 445 409 $ 1,582 $ 1,313 $ 1,197
The following table provides a reconciliation of the actuarial present value of projected benefit obligation for the plans and the Company's recorded liability as reported in the Consolidated Balance Sheets at April 30, 1994 and 1993:
1994 1993 Accumulated benefit obligation Vested $ 8,202 $ 7,407 Unvested 1,445 1,077 $ 9,647 $ 8,484
Projected benefit obligation $ 13,466 $ 10,656 Unrecognized net obligation (1,856) (2,088) Unrecognized prior service cost (2,941) (1,034) Minimum liability adjustment 2,562 2,464 Unrecognized net loss (1,584) (1,514) Recorded liability $ 9,647 $ 8,484
In accordance with SFAS No. 87, $2,562 and $2,464 of additional minimum liability is included in the recorded liability in 1994 and 1993, respectively, to provide a total liability that is at least equal to the unfunded accumulated benefit obligation. The Company recorded an intangible asset of the same amount which is included in the Consolidated Balance Sheets.
Assumptions
Certain assumptions were used in determining the cost and related obligations under the US pension and unfunded supplemental retirement plans as follows:
1994 1993 1992 Percent Pension Cost: Discount rate 8.25 8.75 9.00 Rate of increase in compensation 5.00 5.00 5.50 Long-term rate of return on assets 10.00 10.00 10.00 Pension Obligation: Discount rate 8.25 8.25 8.75 Rate of increase in compensation 5.00 5.00 5.00 Postretirement Benefits Other Than Pensions
Effective May 1, 1993, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires accrual accounting for postretirement benefits other than pensions. The Company provides healthcare and life insurance benefits for certain retired employees up to the age of 65. Prior to adoption of SFAS No. 106, the Company recognized the costs of these benefits by expensing the benefits as paid. The aggregate costs of such benefits did not exceed $500 in 1993 or 1992.
The Company has elected to recognize the cost of its transition obligation (the accumulated postretirement benefit obligation as of May 1, 1993) by amortizing it on a straight-line basis over 20 years. The Company's SFAS No. 106 obligation and cost are based on a discount rate of 8.25%. The assumed rate of increase in healthcare costs (healthcare cost trend rate) was 12% in 1994, decreasing to 10% in 1995 and gradually decreasing to 4.75% by 2004. Increasing the healthcare cost trend rates of future years by one percentage point would increase the accumulated postretirement benefit obligation by $560 and would increase annual aggregate service and interest costs by $161.
Net periodic postretirement benefits costs for 1994 included the following components:
Service cost - benefits earned during period $ 788 Interest cost on accumulated postretirement benefit obligation 469 Amortization of the unrecognized transition obligation 294 Net periodic postretirement benefit cost $ 1,551
Status of Plan Accumulated postretirement benefit obligation: Active employees fully eligible for benefits $ 5,361 Current retirees 1,599 6,960 Unrecognized transition obligation (5,583) Recorded liability $ 1,377
LEASE COMMITMENTS
Total rental expenses relating to office facilities and equipment were $27,264, $25,368, and $25,994 for 1994, 1993 and 1992, respectively. Minimum rental commitments under non-cancelable leases with remaining terms in excess of one year are as follows:
1995 $ 15,037 1998 $ 7,970 1996 $ 13,004 1999 $ 4,703 1997 $ 9,303 2000-2004 $ 13,942 2005 & thereafter $ 1,863
These leases provide for additional rentals based on the lessors' increased property taxes, maintenance and operating expenses.
ACQUISITION
In 1994 the Company purchased all of the outstanding stock of a Canadian relocation company. The acquisition was accounted for as a purchase and is not material to the consolidated financial statements.
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 three airports, as well as guarantor on a note associated with the buyer of one office closed as part of its disposition of its facilities management services segment. The Company believes its allowance for disposition loss is sufficient to cover all potential liability.
BUSINESS SEGMENTS
The Company operations are classified into three business segments: vehicle management services, relocation and real estate services and mortgage banking services. In the selected information by business segment and geographic area which follows, previously reported operating income has been replaced by income before income taxes to reflect the retroactive reclassification of "Other expense, net" to "Selling, general and administrative" expenses. Further, Canadian information has been combined with that of the United States to reflect the Company's North American management structure. Additionally, minor adjustments have been made to the methodology applied in allocating certain income and expense items. None of these changes had a significant effect on the information presented.
Business Segments
QUARTERLY FINANCIAL DATA (UNAUDITED)
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to the Directors is contained on pages 2 through 6 of the Registrant's Proxy Statement for its 1994 Annual Meeting of Stockholders, which information is hereby incorporated by reference. EXECUTIVE OFFICERS OF THE REGISTRANT
Officers are elected by the Board of Directors to serve at the pleasure of the Board. There is no family relationship between any of such persons. Each of the persons named above has been employed by the Company or one of its subsidiaries for more than the past five years except Mr. Mitchell, who was Vice President, Finance for Household International Corporation and Vice President and Treasurer for Household Finance Corporation. ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION Information with respect to executive compensation is contained on pages 9 through 17 of the Registrant's Proxy Statement for its 1994 Annual Meeting of Stockholders, which information is hereby incorporated by reference. ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information with respect to security ownership of certain beneficial owners and management is contained on pages 7, 8 and 9 of the Registrant's Proxy Statement for its 1994 Annual Meeting of Stockholders, which information is hereby incorporated by reference. ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable.
PART IV ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K--There were no filings on Form 8-K during the fourth quarter of fiscal 1994.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PHH CORPORATION By ROBERT D. KUNISCH Robert D. Kunisch Chairman of the Board, Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Principal Executive Officer:
Principal Financial Officer:
Principal Accounting Officer:
Majority of the Board of Directors: Robert D. Kunisch, James S. Beard, Andrew F. Brimmer, George L. Bunting, Jr., Barbara S. Feigin, Paul X. Kelley, Thomas V. King, L. Patton Kline, Francis P. Lucier, Kent C. Nelson, Alexander B. Trowbridge
PHH CORPORATION AND SUBSIDIARIES SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED APRIL 30, 1994, 1993 AND 1992
NOTES:(a) Amounts relate to acquisitions, divestitures and reclassifications of prior year amounts. (b) Deductions from reserves represent accounts charged off, less recoveries, and foreign translation gains and losses.
PHH CORPORATION AND SUBSIDIARIES SCHEDULE IX--SHORT-TERM BORROWINGS FOR THE YEARS ENDED APRIL 30, 1994, 1993, AND 1992 (THOUSANDS OF DOLLARS)
(a) The average amount outstanding during the period is the average of the daily balances. The weighted average interest rate during the period is determined by dividing interest expense related to short-term borrowings by the average of the daily balances. (b) Commercial paper is supported by long-term revolving credit agreements and short-term lines of credit.