PHH Corp. must restate earnings

July 22, 2006|By ANDREA K. WALKER | ANDREA K. WALKER,SUN REPORTER

PHH Corp., a mortgage and fleet management company with a large operation in Sparks, said yesterday that it must restate almost five years of earnings after an audit found glaring errors in its financial statements.

The company, which has its headquarters in Mount Laurel, N.J., previously acknowledged that it has "material weaknesses" in its books. It failed to file an annual report required by the Securities and Exchange Commission for 2005.

It also has missed quarterly filings through June this year. PHH has gotten waivers from its lenders and other parties.

PHH was spun off as an independent company from Cendant Corp. in February 2005. Some analysts believe that PHH wasn't given the time to create an accounting system.

Others question whether the company should split its mortgage operation from the fleet company. PHH has a 1,000-employee car-fleet management division in Sparks.

PHH officials didn't return several phone calls late yesterday evening. PHH Chairman A.B. "Buzzy" Krongard, the former No. 3 official at the CIA and one-time head of the Alex. Brown Inc. investment firm, didn't return a call to his home.

"Through the extraordinary efforts of our employees and advisers, we have made substantial progress and continue to diligently work to resolve the matters causing delay in filing our financial statements," Terrence W. Edwards, PHH's chief executive, said in a news release filed on the Business Wire.

The financial review, done at the request of PHH's audit committee, found problems related to premiums for mortgage reinsurance being counted as cash flow from mortgage servicing, the statement said.

"We ceased capitalizing new mortgage re-insurance premiums in the second quarter of 2003, and the balance of previously capitalized mortgage re-insurance premiums was fully amortized as of the end of the first quarter of 2005," the company said in its SEC filing.

"We intend to change this accounting treatment, which we expect will impact only the timing of revenue recognition."

Nancy Kyle, PHH vice president of investor relations, told Bloomberg News that the restatements will move sales from 2002 to later years.

PHH said in the filing that it expects the change to "result in a reduction in pre-tax income of approximately $108 million in years prior to 2001 and $27 million in 2001, and an offsetting increase in pretax income of approximately $44 million in 2002, $70 million in 2003, $19 million in 2004 and $2 million in 2005."

"If we have to do a restatement, then other accounting adjustments which by themselves would have been immaterial, have to be included," Kyle told Bloomberg.

PHH said it didn't have a time frame for completing the restatements.

The company provided unaudited and preliminary operating results yesterday for the three- and six-month periods that ended June 30, but said some of the numbers could change in the future because of the continuing analysis of past financial figures.

PHH shares closed down 36 cents, or 1.37 percent at $25.90, yesterday.

andrea.walker@baltsun.com

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