10-Q 1 a2087319z10-q.txt FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 REGISTRATION FILE NO. 333-40708-02 ------------ D. L. PETERSON TRUST (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 11-3499573 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 307 INTERNATIONAL CIRCLE HUNT VALLEY, MARYLAND 21030 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) (410) 771-1900 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes /X/ No / / D. L. PETERSON TRUST INDEX

1 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS D. L. PETERSON TRUST CONDENSED STATEMENTS OF OPERATIONS AND TRUST EQUITY (IN THOUSANDS)

See Notes to Condensed Financial Statements. 2 D. L. PETERSON TRUST CONDENSED BALANCE SHEETS (IN THOUSANDS)

See Notes to Condensed Financial Statements. 3 D. L. PETERSON TRUST NOTES TO CONDENSED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION D. L. Peterson Trust ("DLPT") was originally established by PHH Vehicle Management Services, LLC ("PHH" or "Vehicle Management Services"), previously a wholly-owned subsidiary of Avis Group Holdings, Inc. ("Avis") as a Maryland common law trust and was reconstituted on June 30, 1999 as a Delaware statutory business trust. DLPT is organized under Chapter 38 of the Delaware Business Trust Act and its trustees are PHH and Wilmington Trust Company. DLPT was established to hold title to vehicles and to be the lessor in vehicle leases that are subject to various securitizations. DLPT reduces the costs and administrative burden associated with securitizations by eliminating the time and expense of retitling vehicles upon transfer assignments of ownership of the vehicles and security. On March 1, 2001, Avis was acquired by PHH Corporation. As a result PHH is now a wholly-owned subsidiary of PHH Corporation, which itself is a wholly-owned subsidiary of Cendant Corporation ("Cendant"). All assets and liabilities were recorded by the DLPT at fair value as of March 1, 2001. No significant adjustments were made by DLPT. DLPT issued a certificate (the "Lease SUBI Certificate") representing a special unit of beneficial interest in certain leases (the "Lease SUBI") and two certificates representing a special unit of beneficial interest in certain fleet service receivables (the "Fleet Receivable SUBI") to Raven Funding LLC ("Raven"). The Lease SUBI represents a beneficial ownership in the leases, vehicles and paid-in-advance vehicles owned by DLPT. One of the certificates representing an interest in the Fleet Receivable SUBI represents the right to receive up to $80 million a month of the collections received in respect of the fleet service receivables (the "Fleet Receivable SUBI Certificate") and the other certificate representing an interest in the Fleet Receivable SUBI represents the amount of collections received each month in respect of the fleet service receivables in excess of $80 million (the "Excess Fleet Receivable SUBI Certificate"). DLPT also issued to Raven a certificate (the "UTI Certificate") representing beneficial ownership in all assets of DLPT not allocated to the Lease SUBI or the Fleet Receivable SUBI (the "UTI"). Raven transferred the Lease SUBI Certificate and the Fleet Receivable SUBI Certificate to Chesapeake Funding LLC, formerly known as Greyhound Funding LLC ("Chesapeake"). Raven retained the Excess Fleet Receivable SUBI Certificate and the UTI Certificate. As of June 30, 2002, no assets were assigned to the UTI Certificate. Raven is a special purpose limited liability company established under the laws of the State of Delaware. The sole member of Raven is PHH. The business activities of Raven are limited primarily to acting as the successor settler and initial beneficiary of DLPT. Chesapeake is a special purpose limited liability company organized under the laws of the State of Delaware. The sole common member of Chesapeake is Raven. Chesapeake was formed for the purpose of issuing indebtedness, issuing preferred membership interests, acquiring the Lease SUBI Certificate, and acquiring the Fleet Receivable SUBI Certificate. PHH acts as servicer of the assets held by DLPT including the assets allocated to the Lease SUBI and the Fleet Receivable SUBI. In its role as servicer, PHH will maintain all property and equipment and employees required to perform said servicing activities. In management's opinion, the accompanying unaudited Financial Statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. In addition, management is required to make estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates. The Financial Statements should be read in conjunction with DLPT's Annual Report on Form 10-K dated March 29, 2002. ***** 4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSIONS SHOULD BE READ IN CONJUNCTION WITH OUR CONDENSED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES THERETO INCLUDED ELSEWHERE HEREIN. UNLESS OTHERWISE NOTED, ALL DOLLAR AMOUNTS ARE IN THOUSANDS. We are a limited purpose Delaware business trust. Our activities are limited to acquiring vehicles and fleet service receivables, originating leases and issuing certificates representing beneficial interests in our assets. PHH acts as the servicer of our vehicles, leases and receivables. Leasing revenue decreased $2.3 million and $21.0 million for the three and six months ended June 30, 2002. Such decreases were due to lower interest rates billed on leases partially offset by higher depreciation billed on leases. Depreciation expense increased $14.1 million and $23.8 million for the three and six months ended June 30, 2002 as a result of higher original cost of leases billed and an increase in number of leases billed. Interest on special unit of beneficial interest in leases - related party decreased $16.5 million and $44.8 million for the three and six months ended June 30, 2002 due to lower interest rates billed on leases. The principal source of our revenue is payments received on the leases originated by us. Set forth below is certain historical data with respect to delinquency experience, loss and recovery experience, residual value loss experience, conversions of floating rate leases to fixed rate leases, and fleet management billing experience, in each case for leases and fleet management receivables that are of the same type as allocated to the Lease SUBI (which is a special unit of beneficial interest in certain leases and vehicles) and the Fleet Receivable SUBI (which is a special unit of beneficial interest in certain fleet service receivables). DELINQUENCY EXPERIENCE The following table sets forth delinquency data with respect to aggregate billings of lease payments for all of Vehicle Management Services' leases and fleet management receivables for the six months ended June 30, 2002 and 2001. These leases and fleet management receivables are of the same type as the leases allocated to the Lease SUBI and the fleet management receivables allocated to the Fleet Receivable SUBI and do not include any other types of leases or fleet management receivables.

---------- (1) The period of delinquency is based on the number of days payments are contractually past due. (2) An average of the ratios, expressed as a percentage, for each monthly billing period within the applicable period of the aggregate billings for all leases and all fleet management receivables which were delinquent for the applicable number of days as of the last day of that monthly billing period to the sum of the aggregate billings for all leases and all fleet management receivables which were unpaid as of the last day of the preceding monthly billing period and the aggregate amount billed for all leases and fleet management receivables during that monthly period. Total delinquencies for the six months ended June 30, 2002 remained below 5% of total billings, which is consistent with the performance of the portfolio over the last several years. Delinquencies of 60 days or more increased to 2.91% of total billings compared to 2.72% due, in part, to the continuing effects of Chapter 11 bankruptcy filings of several customers and a lower level of billings. Non-bankruptcy delinquent receivables of 60 days or more declined from the comparable period in 2001. Delinquencies of 30-59 days decreased to 1.33% from 1.61%. 5 LOSS AND RECOVERY EXPERIENCE The following table sets forth loss and recovery data with respect to Vehicle Management Services' leases and fleet management receivables for the six months ended June 30, 2002 and 2001. These leases and fleet management receivables are of the same type as the leases allocated to the Lease SUBI and the fleet management receivables allocated to the Fleet Receivable SUBI and do not include any other types of leases or fleet management receivables.

---------- (1) Based on the sum of all principal amounts outstanding under the leases, including, in the case of closed-end leases, the stated residual values of the related leased vehicles. (2) Gross losses includes losses on fleet management receivables. (3) Recoveries are net of legal fees. Net losses as a percentage of ending dollar amount of leases decreased from .01% to .00% for the six months ended June 30, 2002. Net losses as a percentage of total billings increased from .01% to .02% for the six months ended June 30, 2002. Gross losses in respect of bankrupt obligors generally are not recognized by Vehicle Management Services until it receives payment upon the confirmation of the plan of reorganization of the bankrupt obligor and receives any terminal rental adjustment payments that may be applied to satisfy outstanding obligations in respect of fleet management receivables. Losses are charged against previously established reserves. Reserve adequacy for the purposes of Vehicle Management Services' financial statements is determined at the time of a client's bankruptcy filing and any necessary charge is recorded to the statement of income at that time. 6 RESIDUAL VALUE LOSS EXPERIENCE The following table sets forth residual value performance data for Vehicle Management Services' closed-end leases for the six months ended June 30, 2002 and 2001. These closed-end leases are of the same type as the closed-end leases allocated to the Lease SUBI and do not include any other types of closed-end leases.

---------- (1) The ratio of the number of vehicles sold during the period to the number of vehicles scheduled to terminate, on their date of origination, during the period, expressed as a percentage. (2) Includes fees received and expenses incurred to dispose of vehicles and certain amounts received after the sale and disposition of the vehicles. (3) Per vehicle dollar amounts are not in thousands. (4) The ratio of total gains/losses on vehicles sold during the period to the stated residual values of those vehicles, expressed as a percentage. Total residual value losses decreased $2.9 million to $190 thousand and the total number of returned vehicles decreased 26.7%. The decrease in units sold is the result of an increase in clients retaining vehicles beyond their original lease term. The average loss per vehicle returned and sold decreased 91.6% to $97 per unit. The decrease in residual value losses during 2002 is the result of establishing lower residual values at lease inception which was initiated in the beginning of 2000. CONVERSIONS OF FLOATING RATE LEASES TO FIXED RATE LEASES The following table sets forth data with respect to conversions of Vehicle Management Services' floating rate leases to fixed rate leases during the six months ended June 30, 2002 and 2001.

---------- (1) Based on the sum of all principal amounts outstanding under the leases, including, in the case of closed-end leases, the stated residual values of the related leased vehicles. Total conversions of floating rate leases to fixed rate leases were approximately $4.9 million during the six months ended June 30, 2002 compared with $11.2 million in the period ended June 30, 2001. 7 FLEET MANAGEMENT RECEIVABLE BILLING EXPERIENCE The following table sets forth data for Vehicle Management Services' aggregate billings of fleet management receivables for the six months ended June 30, 2002 and 2001. These fleet management receivables are of the same type as the fleet management receivables allocated to the Fleet Receivable SUBI and do not include any other types of fleet management receivables.

Aggregate fleet management receivable billings decreased to approximately $436.6 million during the six months ended June 30, 2002 compared to approximately $577.9 million during the six months ended June 30, 2001. The primary factor for the decrease was a decrease in billings relating to vehicles purchased directly for customers. 8 CHARACTERISTICS OF LEASES ALLOCATED TO LEASE SUBI The following table contains certain statistical information relating to the leases allocated to the Lease SUBI as of June 20, 2002 (the last monthly reporting period cutoff date during the second quarter of 2002). All of the leases and vehicles owned by DLPT as of June 20, 2002 were allocated to the Lease SUBI. The following information does not include vehicles ordered at the request of lessees party to a master lease agreement allocated to the Lease SUBI, which have an aggregate cost of $139,389,227 as of that date, because they are not yet subject to a lease. For the purposes of preparing the following tables, we assumed the original term of each lease to be the period over which the related vehicle is scheduled to be depreciated. COMPOSITION OF LEASES Aggregate Unit Balance of Leases $ 3,252,792,400.57 Number of Leases 213,850 Average Unit Balance $ 15,210.63 Range of Unit Balances $ 0.01 to $711,582.30 Aggregate Unit Balance of Open-End Leases $ 3,135,420,329.64 Aggregate Unit Balance of Floating Rate Leases $ 2,434,273,559.77 Aggregate Lease Balance of CP Rate Index Floating Rate leases $ 2,385,186,903.37 Weighted Average Spread Over CP Rate 0.343% Range of Spreads Over CP Rate 0.00% to 3.00% Aggregate Unit Balance of Floating Rate Leases Indexed to Floating Rates Other Than CP Rate $ 49,086,656.40 Aggregate Unit Balance of Fixed Rate Leases $ 818,548,840.80 Weighted Average Fixed Rate 5.796% Range of Fixed Rates 0.000% to 19.15% Weighted Average Original Lease Term 62.40 Range of Original Lease Terms 6 to 132 months Weighted Average Remaining Term 43.90 Range of Remaining Terms 0 to 120 months Aggregate Unit Balance of Closed-End Leases $ 117,372,070.93 Average Unit Balance of Closed-End Leases $ 14,122.50 Range of Unit Balance of Closed-End Leases $ 0.10 to $216,768.73 Average Stated Residual Value of Closed-End Leases $ 9,074.62

Note: Dollar amounts are in whole amounts. As of June 20, 2002, the aggregate lease balance of the leases allocated to the Lease SUBI with the lessee having the largest aggregate lease balances was $107,167,822. The aggregate lease balance of the leases allocated to the Lease SUBI with the lessees having the five largest aggregate lease balances was $468,076,437 and the aggregate lease balance of the leases allocated to the Lease SUBI with the lessees having the ten largest aggregate lease balances was $794,043,755. 9 FORWARD-LOOKING STATEMENTS Forward-looking statements in our public filings or other public 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. These forward-looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. Statements preceded by, followed by or that otherwise include the words "believes", "expects", "anticipates", "intends", "project", "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 understand that the following important factors and assumptions could affect our future results and could cause actual results to differ materially from those expressed in such forward-looking statements: - changes in general economic and business conditions and the impact thereof on the vehicle leasing business or the lessees of our vehicles; - the effects of changes in interest rates; and - changes in laws and regulations, including changes in accounting standards. Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements, and the failure of such other assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described above in connection with any forward-looking statements that may be made by us. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required by law. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Not applicable PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS See Exhibit Index (b) REPORTS ON FORM 8-K None 10 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. D. L. Peterson Trust By: Raven Funding LLC, solely as settlor of the D. L. Peterson Trust By: /s/ Neil J. Cashen -------------------------- Neil J. Cashen Chief Financial Officer Date: August 14, 2002 11 EXHIBIT INDEX

PETERSON D L TRUST 10-Q