M&A

PHH Filing Delays Could Derail Merger

The company reportedly paid its CFO $250,000 to oversee the filing of an annual report.
Stephen TaubMay 29, 2007

Last year, PCC Corp. shelled out $44 million to complete its 2005 annual report. In fact, it paid $250,000 to CFO Clair M. Raubenstine, who had joined the company in February 2006, for overseeing the filing, according to the Philadelphia Inquirer. Despite all those outlays, however, the provider of mortgage and fleet-management services is still having trouble filing its financials.

PHH Corp. said it identified a number of material weaknesses in its internal controls over financial reporting and warned that it doesn’t expect that its controls will be effective for its 2007 10-Qs and 10-K. As a result, the company has delayed the filing of its quarterly report for the first quarter ended March 31.

PHH’s latest warning could also derail its $1.8 billion acquisition by a unit of General Electric Co., which the companies agreed to in March. Under the deal, GE would keep fleet business and sell the mortgage operations to Blackstone Group L.P., the prominent private-equity firm. In its 10-K filing on Tuesday, PHH warned that Blackstone may be unable to raise the financing needed to complete its purchase of PHH’s mortgage sale until PHH’s current financial information is available.

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In discussing its material weaknesses, the company said they had not been fully fixed as of the filing of its 2006 annual report. Moreover, it noted, management found that certain material weaknesses identified for the year ended December 31, 2005 had not been fully remediated as of December 31, 2006.

More specifically, PHH said it did not maintain effective controls over the calculation, recording, and reconciliation of federal and state income taxes. In addition, the company said that it did not design and maintain effective controls over accounting for human resources and payroll processes.

As a result of the delays in filing its quarterly reports, the company has obtained waivers on the delivery of financial statements under its financing agreements and other contractual and regulatory requirements. Even so, it warned, it may require other waivers in the future, particularly if it is unable to meet the deadlines for the delivery of its quarterly financial statements.