<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 1-8198
------
HOUSEHOLD INTERNATIONAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3121988
- - ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
2700 Sanders Road, Prospect Heights, Illinois 60070
- - ------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 564-5000
--------------
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 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 [ ]
At April 30, 1994, there were 94,606,597 shares of registrant's common
stock outstanding.<PAGE>
<PAGE> 2
Part 1. FINANCIAL INFORMATION
1.FINANCIAL STATEMENTS
Household International, Inc. and Subsidiaries
STATEMENTS OF INCOME
- - --------------------
<TABLE>
<CAPTION>
All dollar amounts except per share data are stated in millions.
- - -----------------------------------------------------------------------------------------------
Three months ended March 31 1994 1993
- - -----------------------------------------------------------------------------------------------
<S> <C> <C>
Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $616.1 $636.1
Interest income from noninsurance investment securities. . . . . . . . . . . . 31.7 31.9
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257.4 312.5
---------------
Net interest margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390.4 355.5
Provision for credit losses on owned receivables . . . . . . . . . . . . . . . 174.1 173.8
---------------
Net interest margin after provision for credit losses. . . . . . . . . . . . . 216.3 181.7
---------------
Securitization and servicing fee income. . . . . . . . . . . . . . . . . . . . 171.0 97.1
Insurance premiums and contract revenues . . . . . . . . . . . . . . . . . . . 80.6 71.1
Investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138.5 138.3
Fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.8 68.8
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.9 32.6
---------------
Total other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480.8 407.9
---------------
Net interest margin after provision for credit losses
and other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 697.1 589.6
---------------
Salaries and fringe benefits . . . . . . . . . . . . . . . . . . . . . . . . . 164.3 149.6
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 283.1 216.5
Policyholders' benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 130.1 132.6
---------------
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 577.5 498.7
---------------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 119.6 90.9
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.0 30.3
---------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 77.6 $ 60.6
===============
Earnings per common share:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 77.6 $ 60.6
Preferred dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6.9) (7.1)
---------------
Earnings available to common shareholders. . . . . . . . . . . . . . . . . . . $ 70.7 $ 53.5
===============
Average common and common equivalent shares (1). . . . . . . . . . . . . . . . 97.0 89.0
===============
Fully diluted earnings per common share (1). . . . . . . . . . . . . . . . . . $ .73 $ .60
===============
Primary earnings per common share (1). . . . . . . . . . . . . . . . . . . . . $ .74 $ .62
===============
Dividends declared per common share (1). . . . . . . . . . . . . . . . . . . . $ .30 $ .29
===============
(1) 1993 amount has been restated to reflect a two-for-one stock split in the form of a 100 percent stock dividend,
effective October 15, 1993.
See notes to condensed financial statements.
/TABLE
<PAGE>
<PAGE> 3
Household International, Inc. and Subsidiaries
BALANCE SHEETS
- - --------------
<TABLE>
<CAPTION>
In millions.
- - ----------------------------------------------------------------------------------------------------
March 31, December 31,
1994 1993
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- - ------
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 269.8 $ 317.4
Investment securities (fair value of
$9,140.5 and $9,045.5) . . . . . . . . . . . . . . . . . . . . 9,014.3 8,795.1
Finance and banking receivables. . . . . . . . . . . . . . . . . 19,285.6 19,563.0
Liquidating commercial assets. . . . . . . . . . . . . . . . . . 1,461.0 1,555.7
Deferred insurance policy acquisition costs. . . . . . . . . . . 459.8 381.6
Acquired intangibles . . . . . . . . . . . . . . . . . . . . . . 462.3 473.4
Properties and equipment . . . . . . . . . . . . . . . . . . . . 447.3 434.3
Assets acquired through foreclosure. . . . . . . . . . . . . . . 247.0 251.8
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,266.5 1,189.2
--------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $32,913.6 $32,961.5
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Debt:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,274.8 $ 7,516.1
Commercial paper, bank and other borrowings. . . . . . . . . . 5,284.2 5,642.1
Senior and senior subordinated debt (with original
maturities over one year). . . . . . . . . . . . . . . . . . 9,540.8 9,113.8
--------------------------
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,099.8 22,272.0
Insurance policy and claim reserves. . . . . . . . . . . . . . . 6,225.9 6,064.2
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . 2,182.5 2,207.7
--------------------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . 30,508.2 30,543.9
--------------------------
Convertible preferred stock subject to mandatory redemption. . . 19.2 19.3
--------------------------
Preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . 320.0 320.0
--------------------------
Common shareholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . 113.3 113.3
Additional paid-in capital . . . . . . . . . . . . . . . . . . 338.9 337.3
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 2,218.1 2,176.3
Foreign currency translation adjustments . . . . . . . . . . . (139.7) (132.7)
Common stock in treasury . . . . . . . . . . . . . . . . . . . (453.6) (456.4)
Unrealized gain (loss) on investments, net . . . . . . . . . . (10.8) 40.5
--------------------------
Total common shareholders' equity. . . . . . . . . . . . . . . . 2,066.2 2,078.3
--------------------------
Total liabilities and shareholders' equity . . . . . . . . . . . $32,913.6 $32,961.5
==========================
See notes to condensed financial statements.
/TABLE
<PAGE>
<PAGE> 4
Household International, Inc. and Subsidiaries
STATEMENTS OF CASH FLOWS
- - ------------------------
<TABLE>
<CAPTION>
In millions.
- - ---------------------------------------------------------------------------------------------------
Three months ended March 31 1994 1993
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATIONS
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 77.6 $ 60.6
Adjustments to reconcile net income to net cash provided by operations:
Provision for credit losses on owned receivables . . . . . . . . . . . 174.1 173.8
Insurance policy and claim reserves. . . . . . . . . . . . . . . . . . 89.7 46.5
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 66.1 57.3
Net realized (gains) losses from sales of assets . . . . . . . . . . . (37.1) (2.6)
Deferred insurance policy acquisition costs. . . . . . . . . . . . . . (19.8) (18.7)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178.6 (36.4)
-----------------------
Cash provided by operations. . . . . . . . . . . . . . . . . . . . . . . 529.2 280.5
-----------------------
INVESTMENTS IN OPERATIONS
Investment securities:
Purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,320.3) (850.7)
Matured. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286.4 240.7
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,035.8 363.1
Short-term investment securities, net change . . . . . . . . . . . . . . (312.7) (84.8)
Receivables, excluding bankcard:
Originated or purchased. . . . . . . . . . . . . . . . . . . . . . . . (2,517.3) (2,545.8)
Collected. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,862.9 1,720.8
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138.7 454.8
Bankcard receivables:
Originated or collected, net . . . . . . . . . . . . . . . . . . . . . (2,946.6) (1,108.5)
Purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (514.0) -
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,788.4 502.2
Properties and equipment purchased . . . . . . . . . . . . . . . . . . . (29.0) (24.4)
Properties and equipment sold. . . . . . . . . . . . . . . . . . . . . . 1.7 .8
-----------------------
Cash decrease from investments in operations . . . . . . . . . . . . . . (526.0) (1,331.8)
-----------------------
FINANCING AND CAPITAL TRANSACTIONS
Short-term debt, net change. . . . . . . . . . . . . . . . . . . . . . . (376.2) 319.4
Time certificates accepted . . . . . . . . . . . . . . . . . . . . . . . 760.4 558.3
Time certificates paid . . . . . . . . . . . . . . . . . . . . . . . . . (931.9) (729.6)
Senior and senior subordinated debt issued . . . . . . . . . . . . . . . 1,182.7 1,051.9
Senior and senior subordinated debt retired. . . . . . . . . . . . . . . (723.6) (471.2)
Policyholders' benefits paid . . . . . . . . . . . . . . . . . . . . . . (119.4) (97.2)
Cash received from policyholders . . . . . . . . . . . . . . . . . . . . 189.9 210.6
Shareholders' dividends. . . . . . . . . . . . . . . . . . . . . . . . . (35.8) (34.8)
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . 3.7 281.1
-----------------------
Cash increase (decrease) from financing and capital transactions . . . . (50.2) 1,088.5
-----------------------
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . . (0.6) (9.7)
-----------------------
Increase (decrease) in cash. . . . . . . . . . . . . . . . . . . . . . . (47.6) 27.5
Cash at January 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . 317.4 255.8
-----------------------
Cash at March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 269.8 $ 283.3
=======================
Supplemental cash flow information:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 242.3 $ 298.9
=======================
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25.4 $ 8.0
=======================
See notes to condensed financial statements.
/TABLE
<PAGE>
<PAGE> 5
Household International, Inc. and Subsidiaries
BUSINESS SEGMENT DATA
- - ---------------------
<TABLE>
<CAPTION>
In millions.
- - ---------------------------------------------------------------------------------------------------------------
Three months ended March 31 1994 1993
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
- - --------
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 922.6 $ 884.5
Individual Life Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171.5 165.0
------------------
Core Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,094.1 1,049.5
Liquidating Commercial Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.5 26.4
------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,128.6 $1,075.9
==================
NET INCOME
- - ----------
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 73.3 $ 58.7
Individual Life Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.7 11.7
Corporate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4.4) (5.6)
------------------
Core Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80.6 64.8
Liquidating Commercial Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.0) (4.2)
------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 77.6 $ 60.6
==================
Return on average common shareholders' equity - Total (1). . . . . . . . . . . . . . . . . . 13.4% 12.9%
==================
Return on average common shareholders' equity - Core Business (1). . . . . . . . . . . . . . 18.5% 18.3%
==================
Return on average owned assets - Total (1) . . . . . . . . . . . . . . . . . . . . . . . . . .94% .76%
==================
Return on average owned assets - Core Business (1) . . . . . . . . . . . . . . . . . . . . . 1.03% .86%
==================
(1) Annualized
</TABLE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------
March 31, December 31,
Assets 1994 1993
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . . . . $24,251.4 $24,362.5
Individual Life Insurance. . . . . . . . . . . . . . . . . . . . . . . 7,118.3 6,959.0
Corporate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82.9 84.3
----------------------------------
Core Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,452.6 31,405.8
Liquidating Commercial Lines . . . . . . . . . . . . . . . . . . . . . 1,461.0 1,555.7
-----------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $32,913.6 $32,961.5
===================================
- - ---------------------------------------------------------------------------------------------------------------
March 31, December 31,
Receivables owned 1994 1993
- - ---------------------------------------------------------------------------------------------------------------
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . . . . $19,062.2 $19,340.5
Liquidating Commercial Lines . . . . . . . . . . . . . . . . . . . . . 1,105.9 1,189.9
----------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,168.1 $20,530.4
==================================
- - ---------------------------------------------------------------------------------------------------------------
March 31, December 31,
Receivables managed 1994 1993
- - ---------------------------------------------------------------------------------------------------------------
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . . . . $28,858.2 $29,168.3
Liquidating Commercial Lines . . . . . . . . . . . . . . . . . . . . . 1,105.9 1,189.9
----------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,964.1 $30,358.2
==================================
See notes to condensed financial statements.
/TABLE
<PAGE>
<PAGE> 6
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Accounting policies used in preparation of the quarterly condensed
financial statements are consistent with accounting policies
described in the notes to financial statements contained in
Household International, Inc.'s (the "company") Annual Report on
Form 10-K for its fiscal year ended December 31, 1993. The
information furnished herein reflects all adjustments which are, in
the opinion of management, necessary for a fair statement of results
for the interim periods. All such adjustments are of a normal
recurring nature. Certain prior period amounts have been
reclassified to conform with the current period's presentation.
2. INVESTMENT SECURITIES
---------------------
Investment securities consisted of the following:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
In millions. March 31, 1994 December 31, 1993
-----------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRADING INVESTMENTS
Government securities and other . . . . . . . . . . . . . . $ 161.1 $ 161.1 $ 108.8 $ 108.8
---------------------------------------------
AVAILABLE-FOR-SALE INVESTMENTS
Marketable equity securities:
Common stocks . . . . . . . . . . . . . . . . . . . . . . 33.3 33.3 18.5 18.5
Preferred stocks. . . . . . . . . . . . . . . . . . . . . 59.0 59.0 66.3 66.3
Corporate securities. . . . . . . . . . . . . . . . . . . . 1,901.9 1,901.9 2,047.1 2,047.1
Government securities . . . . . . . . . . . . . . . . . . . 446.9 446.9 536.3 536.3
Mortgage-backed securities. . . . . . . . . . . . . . . . . 2,064.6 2,064.6 1,983.9 1,983.9
Commercial paper. . . . . . . . . . . . . . . . . . . . . . 297.0 297.0 52.6 52.6
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 256.1 256.1 295.2 295.2
---------------------------------------------
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . 5,058.8 5,058.8 4,999.9 4,999.9
---------------------------------------------
HELD-TO-MATURITY INVESTMENTS
Corporate securities. . . . . . . . . . . . . . . . . . . . 1,810.5 1,911.8 1,852.3 2,049.4
Government securities . . . . . . . . . . . . . . . . . . . 45.0 45.8 34.5 36.7
Mortgage-backed securities. . . . . . . . . . . . . . . . . 1,041.9 1,061.8 882.1 928.1
Mortgage loans on real estate . . . . . . . . . . . . . . . 212.4 215.5 222.4 226.0
Policy loans. . . . . . . . . . . . . . . . . . . . . . . . 82.6 82.6 81.6 81.6
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 487.1 488.2 494.6 496.1
---------------------------------------------
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . 3,679.5 3,805.7 3,567.5 3,817.9
---------------------------------------------
Accrued investment income . . . . . . . . . . . . . . . . . 114.9 114.9 118.9 118.9
---------------------------------------------
Total investment securities . . . . . . . . . . . . . . . . $9,014.3 $9,140.5 $8,795.1 $9,045.5
=============================================
/TABLE
<PAGE>
<PAGE> 7
3. FINANCE AND BANKING RECEIVABLES
-------------------------------
Finance and banking receivables consisted of the following:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
March 31, December 31,
In millions. 1994 1993
-------------------------------------------------------------------------------------------------
<S> <C> <C>
First mortgage. . . . . . . . . . . . . . . . . . . . . . . $ 3,134.1 $ 3,534.1
Home equity . . . . . . . . . . . . . . . . . . . . . . . . 3,233.4 2,850.9
Other secured . . . . . . . . . . . . . . . . . . . . . . . 843.2 875.4
Bankcard. . . . . . . . . . . . . . . . . . . . . . . . . . 3,997.5 4,356.9
Merchant participation. . . . . . . . . . . . . . . . . . . 2,707.2 2,636.5
Other unsecured . . . . . . . . . . . . . . . . . . . . . . 4,382.4 4,320.8
Equipment financing and other . . . . . . . . . . . . . . . 764.4 765.9
--------------------------------
Receivables owned . . . . . . . . . . . . . . . . . . . . . 19,062.2 19,340.5
Accrued finance charges . . . . . . . . . . . . . . . . . . 264.7 251.8
Credit loss reserve for owned receivables . . . . . . . . . (423.2) (424.0)
Unearned credit insurance premiums and claims reserves. . . (116.6) (117.5)
Amounts due and deferred from receivables sales . . . . . . 726.9 735.0
Reserve for receivables serviced with limited recourse. . . (228.4) (222.8)
--------------------------------
Total receivables owned, net. . . . . . . . . . . . . . . . 19,285.6 19,563.0
Receivables serviced with limited recourse. . . . . . . . . 9,796.0 9,827.8
Receivables serviced with no recourse . . . . . . . . . . . 16,596.7 15,229.4
--------------------------------
Total receivables owned or serviced, net. . . . . . . . . . $45,678.3 $44,620.2
================================
The outstanding balance of receivables serviced with limited recourse consisted of the following:
-------------------------------------------------------------------------------------------------
March 31, December 31,
In millions. 1994 1993
-------------------------------------------------------------------------------------------------
Home equity . . . . . . . . . . . . . . . . . . . . . . . . $ 4,574.4 $ 5,029.5
Bankcard. . . . . . . . . . . . . . . . . . . . . . . . . . 4,971.6 4,485.7
Merchant participation. . . . . . . . . . . . . . . . . . . 250.0 312.6
--------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,796.0 $ 9,827.8
================================
The combination of receivables owned and receivables serviced with limited recourse, which the company
considers its managed portfolio, is shown below:
-------------------------------------------------------------------------------------------------
March 31, December 31,
In millions. 1994 1993
-------------------------------------------------------------------------------------------------
First mortgage. . . . . . . . . . . . . . . . . . . . . . . $ 3,134.1 $ 3,534.1
Home equity . . . . . . . . . . . . . . . . . . . . . . . . 7,807.8 7,880.4
Other secured . . . . . . . . . . . . . . . . . . . . . . . 843.2 875.4
Bankcard. . . . . . . . . . . . . . . . . . . . . . . . . . 8,969.1 8,842.6
Merchant participation. . . . . . . . . . . . . . . . . . . 2,957.2 2,949.1
Other unsecured . . . . . . . . . . . . . . . . . . . . . . 4,382.4 4,320.8
Equipment financing and other . . . . . . . . . . . . . . . 764.4 765.9
--------------------------------
Receivables managed . . . . . . . . . . . . . . . . . . . . $28,858.2 $29,168.3
================================
The outstanding balance of receivables serviced with no recourse consisted of the following:
-------------------------------------------------------------------------------------------------
March 31, December 31,
In millions. 1994 1993
-------------------------------------------------------------------------------------------------
First mortgage. . . . . . . . . . . . . . . . . . . . . . . $15,421.3 $13,917.5
Other unsecured . . . . . . . . . . . . . . . . . . . . . . 1,175.4 1,311.9
--------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,596.7 $15,229.4
================================
/TABLE
<PAGE>
<PAGE> 8
The amount due and deferred from receivables sales of $726.9 million
at March 31, 1994 included unamortized excess servicing assets and
funds established pursuant to the recourse provisions and holdback
reserves for certain sales totaling $588.5 million. The amount due
and deferred also included customer payments not yet remitted by the
securitization trustee to the company. In addition, the company has
made guarantees relating to certain securitizations of $281.3
million plus unpaid interest and has subordinated interests in
certain transactions, which are recorded as receivables, for $136.6
million at March 31, 1994. The company maintains credit loss
reserves pursuant to the recourse provisions for receivables
serviced with limited recourse which are based on estimated probable
losses under such provisions. These reserves totaled $228.4 million
at March 31, 1994 and represent the company's best estimate of
probable losses on receivables serviced with limited recourse.
See Note 5, "Credit Loss Reserves" for an analysis of credit loss
reserves for receivables. See "Management's Discussion and
Analysis" on pages 17 through 20 for additional information related
to the credit quality of Finance and Banking receivables.
4. LIQUIDATING COMMERCIAL ASSETS
-----------------------------
Liquidating commercial assets consisted of the following:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
March 31, December 31,
In millions. 1994 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Receivables
Commercial real estate. . . . . . . . . . . . . . . . . . $ 270.9 $ 297.1
Highly leveraged acquisition finance and other. . . . . . 835.0 892.8
-----------------------------
Receivables owned . . . . . . . . . . . . . . . . . . . . . 1,105.9 1,189.9
Accrued finance charges . . . . . . . . . . . . . . . . . . 12.9 9.2
Reserve for credit losses . . . . . . . . . . . . . . . . . (170.8) (172.9)
-----------------------------
Total receivables owned, net. . . . . . . . . . . . . . . . 948.0 1,026.2
Real estate owned . . . . . . . . . . . . . . . . . . . . . 249.7 256.6
Other assets. . . . . . . . . . . . . . . . . . . . . . . . 263.3 272.9
-----------------------------
Total liquidating commercial assets . . . . . . . . . . . . $1,461.0 $1,555.7
=============================
</TABLE>
See Note 5, "Credit Loss Reserves" for an analysis of credit loss
reserves for receivables. See "Management's Discussion and
Analysis" on pages 23 and 24 for additional information related to
the credit quality of Liquidating Commercial Assets.
<PAGE>
<PAGE> 9
5. CREDIT LOSS RESERVES
--------------------
<TABLE>
<CAPTION>
An analysis of credit loss reserves for the three months ended March 31 is as follows:
------------------------------------------------------------------------------------------------
In millions. 1994 1993
------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit loss reserves for owned receivables at January 1 . . . . . . . . $ 621.9 $ 564.1
-----------------------
Provision for credit losses - owned receivables:
Finance and Banking . . . . . . . . . . . . . . . . . . . . . . . . . 150.1 159.5
Liquidating Commercial Lines. . . . . . . . . . . . . . . . . . . . . 24.0 14.3
-----------------------
Total provision for credit losses - owned receivables . . . . . . . . . 174.1 173.8
-----------------------
Owned receivables charged off:
Finance and Banking . . . . . . . . . . . . . . . . . . . . . . . . . (177.7) (165.3)
Liquidating Commercial Lines. . . . . . . . . . . . . . . . . . . . . (26.6) (30.3)
-----------------------
Total owned receivables charged off . . . . . . . . . . . . . . . . . . (204.3) (195.6)
-----------------------
Recoveries on owned receivables:
Finance and Banking . . . . . . . . . . . . . . . . . . . . . . . . . 27.2 22.7
Liquidating Commercial Lines. . . . . . . . . . . . . . . . . . . . . .5 .2
-----------------------
Total recoveries on owned receivables . . . . . . . . . . . . . . . . . 27.7 22.9
-----------------------
Credit loss reserves on receivables purchased, net. . . . . . . . . . . .4 3.4
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.8) (3.0)
-----------------------
TOTAL CREDIT LOSS RESERVES FOR OWNED RECEIVABLES AT MARCH 31. . . . . . 619.0 565.6
-----------------------
Credit loss reserves for receivables serviced with
limited recourse at January 1 . . . . . . . . . . . . . . . . . . . . 222.8 160.7
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . 61.9 49.5
Chargeoffs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (57.7) (50.8)
Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 1.3
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.3) 3.3
-----------------------
TOTAL CREDIT LOSS RESERVES FOR RECEIVABLES SERVICED WITH
LIMITED RECOURSE AT MARCH 31. . . . . . . . . . . . . . . . . . . . . 228.4 164.0
-----------------------
TOTAL CREDIT LOSS RESERVES AT MARCH 31. . . . . . . . . . . . . . . . . $ 847.4 $ 729.6
=======================
Total credit loss reserves for owned receivables at March 31:
Finance and Banking . . . . . . . . . . . . . . . . . . . . . . . . . $ 423.2 $ 363.2
Liquidating Commercial Lines. . . . . . . . . . . . . . . . . . . . . 170.8 187.4
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.0 15.0
-----------------------
TOTAL CREDIT LOSS RESERVES FOR OWNED RECEIVABLES AT MARCH 31. . . . . . $ 619.0 $ 565.6
=======================
Total credit loss reserves for managed receivables at March 31:
Finance and Banking . . . . . . . . . . . . . . . . . . . . . . . . . $ 651.6 $ 527.2
Liquidating Commercial Lines. . . . . . . . . . . . . . . . . . . . . 170.8 187.4
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.0 15.0
-----------------------
TOTAL CREDIT LOSS RESERVES FOR MANAGED RECEIVABLES AT MARCH 31. . . . . $ 847.4 $ 729.6
=======================
/TABLE
<PAGE>
<PAGE> 10
6. INCOME TAXES
------------
Effective tax rates for the three months ended March 31, 1994 and
1993 of 35.1 and 33.3 percent, respectively, differ from the
statutory federal income tax rate for the respective periods
primarily because of the effects of (a) foreign loss carryforwards,
(b) amortization of intangible assets, (c) state and local income
taxes, (d) dividends received deduction applicable to term preferred
stocks, (e) nondeductible dividends on preferred stock of
subsidiaries, (f) noncurrent tax requirements and (g) leveraged
lease tax benefits.
In the third quarter of 1993, new Federal tax legislation was
enacted which resulted in the statutory income tax rate being
increased from 34 percent to 35 percent retroactive to January 1,
1993. The effect of the new tax legislation is not reflected in the
effective tax rate at March 31, 1993 as the increase in income tax
expense was recorded as a year-to-date adjustment at September 30,
1993.
7. EARNINGS PER COMMON SHARE
-------------------------
<TABLE>
<CAPTION>
Computations of earnings per common share for the three months ended March 31 were as follows:
----------------------------------------------------------------------------------------------------------
1994 1993
------------------ ------------------
Fully Fully
In millions, except per share data. Primary Diluted Primary Diluted
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $77.6 $77.6 $60.6 $60.6
Preferred dividends . . . . . . . . . . . . . . . . . . . (7.5) (6.9) (8.2) (7.1)
------------------------------------------
Net income available to common shareholders . . . . . . . . $70.1 $70.7 $52.4 $53.5
==========================================
Average shares (1):
Common. . . . . . . . . . . . . . . . . . . . . . . . . . 94.6 94.6 84.6 84.6
Common equivalents. . . . . . . . . . . . . . . . . . . . .6 2.4 .6 4.4
------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 95.2 97.0 85.2 89.0
==========================================
Earnings per common share (1) . . . . . . . . . . . . . . . $ .74 $ .73 $ .62 $ .60
==========================================
(1) 1993 amounts have been restated to reflect the two-for-one stock split in the form of a 100 percent stock
dividend, effective October 15, 1993.
</TABLE>
Common share equivalents assume exercise of stock options, if
dilutive. Fully diluted earnings per share computations also assume
conversion of dilutive convertible preferred stock into common
equivalents. Preferred stock is considered dilutive if its dividend
rate per common share assuming conversion is less than primary
earnings per common share.
<PAGE>
<PAGE> 11
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Consolidated Results of Operations
----------------------------------
Net income for the first quarter of 1994 was $77.6 million, up 28
percent from $60.6 million in 1993. The improvement in consolidated
net income primarily was due to increased earnings in the Finance
and Banking segment. In addition, net income also benefited from
reduced losses in the Liquidating Commercial Lines segment ("LCL")
and lower corporate expenses. Earnings in the Individual Life
Insurance segment were even with the prior year. Fully diluted
earnings per share were $.73 per share in the quarter, up 22 percent
from $.60 per share in 1993.
During the first quarter of 1994, the company's operations,
financial position and profitability were affected by the following:
- The domestic consumer finance and credit card businesses increased
earnings over the year-ago period. Domestic consumer finance
earnings increased primarily due to wider interest spreads on
variable rate products, growth in the managed portfolio and
increased servicing fee income. In the third quarter of 1993, the
company began servicing without recourse an unsecured consumer
loan portfolio totaling approximately $1.2 billion at quarter end.
The domestic bankcard business has grown substantially as a result
of the company's association with the General Motors credit card
("GM Card") program which was initiated in the third quarter of
1992. GM Card receivable growth generated higher net interest
margins and substantial fee income, offset somewhat by higher
operating expenses related to servicing and increased provision
for credit losses. Mortgage banking earnings were down
significantly from the prior year period primarily due to a
substantially lower owned portfolio, narrower spreads and
write-downs of capitalized servicing rights.
- Collectively, the foreign businesses were profitable compared to a
loss in the prior year first quarter. The United Kingdom operation
earned $4.7 million in the first quarter of 1994, compared to a loss
of $3.2 million in 1993 due largely to portfolio growth and lower
credit costs. The United Kingdom operation launched the GM Card
in that country in January 1994. At March 31, 1994 receivables
totaled approximately $100 million and the number of accounts
totaled 230 thousand. The Canadian operation reported a loss
comparable to the prior year quarter and well below the loss in the
immediately preceding quarter. The Australian operation remained
profitable.
- Consumer two-months-and-over contractual delinquency
("delinquency") as a percent of managed consumer receivables was
3.61 percent, essentially flat compared to 3.58 percent at
December 31, 1993. Total delinquent receivables fell $4.4 million
since year end, but this improvement was not reflected in the
delinquency percentage statistics due to the slight decrease in
the managed consumer receivable portfolio. Delinquency levels
remained below 1989 levels which was prior to the beginning of the
recent economic downturn. The total consumer managed chargeoff
ratio was unchanged since year end. Improvements in the foreign
operations and other domestic products were offset by the
anticipated rise in GM Card chargeoffs.
- Credit loss reserves as a percent of Finance and Banking managed
receivables increased to 2.26 percent compared to 2.22 percent at
December 31, 1993 and 1.95 percent at March 31, 1993. This ratio
is expected to stabilize in 1994 despite anticipated future
improvements in credit quality. Reserves for LCL receivables were
essentially unchanged during the quarter despite an $84 million
reduction in receivables, including $26 million in net chargeoffs.
Credit loss reserves at March 31, 1994 as a percent of both LCL
receivables and nonperforming loans increased over December 31,
1993 and March 31, 1993 levels.
- Managed Finance and Banking receivables (owned receivables plus
those serviced with limited recourse) of the company's consumer
businesses were essentially flat during the first quarter. The
company typically experiences low levels of growth in the first
<PAGE>
<PAGE> 12
quarter primarily due to seasonal runoff in certain products, most
notably bankcard and private-label credit cards. In addition,
first mortgage receivables were down $400 million in the first
quarter of 1994 due to continued high prepayment activity and the
company's desire to maintain its pricing discipline on products it
chooses to keep in portfolio. The foreign consumer portfolio grew
3 percent during the quarter primarily due to the introduction of
the GM Card in the United Kingdom.
Managed Finance and Banking receivables were up 7 percent over the
prior year quarter. Excluding the first mortgage portfolio,
managed domestic receivables were up 16 percent over the prior
year quarter. Furthermore, new volume for all products was up
59 percent compared to the first quarter of 1993 due to strong
demand, especially for credit cards and unsecured loans. Excluding
credit card new volume and first mortgages originated for
subsequent sale to the secondary market, new originations were up
25 percent over the prior year. New growth was mostly offset by
expected seasonal repayments in the credit card portfolios and
higher than anticipated prepayment activity in the first mortgage
and home equity portfolios.
Year-over-year growth in managed basis fee income outpaced growth
in the managed Finance and Banking receivables portfolio primarily
due to the shift in product mix towards credit card receivables,
specifically the GM Card. Increased interchange fee income
primarily was due to higher sales volumes for the company's
domestic bankcard business, which were up approximately 60 percent
over the prior year period.
The ratio of common and preferred shareholders' equity (including
convertible preferred stock) to total assets was 7.31 percent,
compared to 7.33 percent at December 31, 1993. Excluding the
impact of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities," the ratio would have been 7.34 percent, up from 7.21
percent at December 31, 1993.
Consolidated Credit Loss Reserves
---------------------------------
The company's credit portfolios and credit management policies have
historically been divided into two distinct components - consumer
and commercial. For consumer products, credit policies require
effective portfolio management focusing on product type and specific
portfolio risk factors. The consumer credit portfolio is
diversified by product and geographic location. The commercial
credit portfolio is monitored by individual transaction as well as
being evaluated by overall risk factors. See Note 3, "Finance and
Banking Receivables" and Note 4, "Liquidating Commercial Assets" in
the accompanying financial statements for receivables by product
type.<PAGE>
<PAGE> 13
Total managed credit loss reserves, which include reserves for
recourse obligations for receivables sold, were as follows (in
millions):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
March 31, December 31, March 31,
1994 1993 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance and Banking:
Owned . . . . . . . . . . . . . . . . . . . . $423.2 $424.0 $363.2
Serviced with limited recourse. . . . . . . . 228.4 222.8 164.0
-------------------------------------------
Managed . . . . . . . . . . . . . . . . . . . 651.6 646.8 527.2
Liquidating Commercial Lines. . . . . . . . . . 170.8 172.9 187.4
Corporate . . . . . . . . . . . . . . . . . . . 25.0 25.0 15.0
-------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . $847.4 $844.7 $729.6
===========================================
</TABLE>
Total owned and managed credit loss reserves as a percent of
receivables were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
March 31, December 31, March 31,
1994 1993 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Owned:
Finance and Banking . . . . . . . . . . . . . . 2.22% 2.19% 1.89%
Liquidating Commercial Lines. . . . . . . . . . 15.45 14.53 12.48
------------------------------------------
Total owned (1) . . . . . . . . . . . . . . . . . 3.07% 3.03% 2.73%
==========================================
Managed:
Finance and Banking . . . . . . . . . . . . . . 2.26% 2.22% 1.95%
Liquidating Commercial Lines. . . . . . . . . . 15.45 14.53 12.48
------------------------------------------
Total managed (1) . . . . . . . . . . . . . . . . 2.83% 2.78% 2.56%
==========================================
(1) Includes credit loss reserve of the Corporate Segment.
</TABLE>
The level of reserves for consumer credit losses is based on
delinquency and chargeoff experience by product and uncertainty
associated with portfolio growth for which there is not clear
experience. The level of reserves for commercial credit
losses is based on a quarterly review process for all commercial
credits and management's evaluation of probable future losses in the
portfolio as a whole given its geographic and industry
diversification and historical loss experience. The general credit
loss reserve at the corporate level is maintained to strengthen
overall credit loss reserves and is based upon management's
evaluation of the receivable portfolio as a whole, including the
geographic concentrations of receivables and unpredictability of
ultimate potential exposure in individually large receivables in the
Finance and Banking and Liquidating Commercial Lines segments. This
reserve will be charged against segment operations in the future as
it is used to absorb credit losses in those operations. Management
also evaluates the potential impact of existing and anticipated
national and regional economic conditions on the managed receivable
portfolio when establishing consumer, commercial and corporate
credit loss reserves. While management allocates significantly all
reserves among the company's various products and segments, all
reserves are considered to be available to cover total loan losses.
See Note 5, "Credit Loss Reserves" in the accompanying financial
statements for analyses of reserves.
<PAGE>
<PAGE> 14
FINANCE AND BANKING
-------------------
Statements of Income
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
All dollar amounts are stated in millions.
Three months ended March 31 1994 1993
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 593.4 $ 604.4
Interest income from noninsurance investment securities . . . . . . . . . . . . . . 31.7 31.8
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240.6 285.1
----------------------
Net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384.5 351.1
----------------------
Securitization and servicing fee income . . . . . . . . . . . . . . . . . . . . . . 171.0 97.1
Insurance premiums and contract revenues. . . . . . . . . . . . . . . . . . . . . . 41.8 39.6
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 4.8
Fee income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.4 68.6
Other income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.6 38.1
----------------------
Other revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297.5 248.2
----------------------
Net interest margin and other revenues. . . . . . . . . . . . . . . . . . . . . . . 682.0 599.3
----------------------
Provision for credit losses on owned receivables. . . . . . . . . . . . . . . . . . 150.1 159.5
----------------------
Costs and expenses:
Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400.0 331.3
Policyholders' benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.2 20.5
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.4 29.3
----------------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 73.3 $ 58.7
======================
Average receivables:
Owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,958.1 $18,883.0
Serviced with limited recourse. . . . . . . . . . . . . . . . . . . . . . . . . . 9,694.0 7,664.3
----------------------
Average receivables managed . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,652.1 26,547.3
Serviced with no recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,130.6 11,561.7
----------------------
Average receivables owned or serviced . . . . . . . . . . . . . . . . . . . . . . . $44,782.7 $38,109.0
======================
Return on average owned assets - annualized . . . . . . . . . . . . . . . . . . . . 1.20% .98%
======================
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
March 31, December 31,
1994 1993
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
End-of-period receivables:
Owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,062.2 $19,340.5
Serviced with limited recourse. . . . . . . . . . . . . . . . . 9,796.0 9,827.8
-----------------------------------
Receivables managed . . . . . . . . . . . . . . . . . . . . . . . 28,858.2 29,168.3
Serviced with no recourse . . . . . . . . . . . . . . . . . . . . 16,596.7 15,229.4
-----------------------------------
Receivables owned or serviced . . . . . . . . . . . . . . . . . . $45,454.9 $44,397.7
===================================
End-of-period deposits. . . . . . . . . . . . . . . . . . . . . . $ 7,274.8 $ 7,516.1
===================================
/TABLE
<PAGE>
<PAGE> 15
Overview
--------
Domestic Finance and Banking earnings for the first quarter of 1994
increased to $71.0 million, up from $63.2 million in the year-ago
period primarily due to improved operating results in the bankcard
and consumer finance businesses, partially offset by lower year-
over-year results in the mortgage banking operations as discussed
earlier. The company anticipates year-over-year earnings
improvements for the domestic consumer finance and credit card
operations for the remainder of 1994 absent unforeseen circumstances.
These earnings are expected to be offset somewhat by lower earnings
in the consumer and mortgage banking businesses than those achieved
in the prior year.
The operating results of the foreign businesses in the first quarter
were sharply improved compared to the prior year period.
Receivables
-----------
As mentioned previously, the level of the company's managed domestic
consumer portfolio, excluding first mortgages, was essentially flat
in the first quarter, while the foreign consumer portfolios
increased. See the Overview section of "Management's Discussion and
Analysis" on page 11 for further discussion.
Receivables owned totaled $19.1 billion at March 31, 1994, down
slightly from both December 31, 1993 and March 31, 1993. The level
of owned receivables from quarter to quarter may vary depending on
the timing and significance of securitization transactions in a
particular period. In the first quarter of 1994, the company
completed a securitization and sales of approximately $1 billion of
GM Card receivables and purchased an interest representing $500
million of GM Card receivables which had been securitized and sold
in 1993.
Since 1989, securitizations and sales of consumer receivables have
been an important source of liquidity for the company. The company
continues to service the securitized receivables after such
receivables are sold and retains a limited recourse obligation.
Securitizations impact the classification of revenues and expenses
in the income statement. Amounts related to receivables serviced,
including net interest margin, fee income, such as interchange fees,
and provision for credit losses on receivables serviced with limited
recourse are reported as a net amount in securitization and
servicing fee income in the company's statements of income.
The company monitors its Finance and Banking segment on a managed
basis as well as on the historical owned basis reflected in its
statements of income. The managed basis assumes that the
receivables securitized and sold are instead still held in the
portfolio. Pro forma statements of income on a managed basis for
the Finance and Banking segment for the three months ended March 31,
1994 and 1993 are presented on the following page. For purposes of
this analysis, the results do not reflect the differences between
the company's accounting policies for owned receivables and
receivables serviced with limited recourse. Accordingly, net income
on the pro forma managed basis equals net income on an historical
owned basis.<PAGE>
<PAGE> 16
PRO FORMA MANAGED FINANCE AND BANKING STATEMENTS OF INCOME
----------------------------------------------------------
<TABLE>
<CAPTION>
As a Percent, As a Percent,
Annualized, of Average Annualized, of Average
All dollar amounts are stated in millions. Managed Interest- Managed Interest-
Three months ended March 31 1994 Earning Assets 1993 Earning Assets
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance income . . . . . . . . . . . . . . $876.9 11.3% $849.7 11.9%
Interest income from
noninsurance investment
securities . . . . . . . . . . . . . . . 31.7 .4 31.8 .4
Interest expense . . . . . . . . . . . . . 346.0 4.4 380.2 5.3
-----------------------------------------------------------------------
Net interest margin . . . . . . . . . . . 562.6 7.3 501.3 7.0
-----------------------------------------------------------------------
Servicing fee income . . . . . . . . . . . 8.1 .1 (1.8) -
Insurance premiums and
contract revenues. . . . . . . . . . . . 41.8 .5 39.6 .6
Investment income. . . . . . . . . . . . . 5.7 .1 4.8 .1
Fee income . . . . . . . . . . . . . . . . 109.1 1.4 66.8 .9
Other income . . . . . . . . . . . . . . . 16.6 .2 38.1 .5
-----------------------------------------------------------------------
Other revenues . . . . . . . . . . . . . . 181.3 2.3 147.5 2.1
-----------------------------------------------------------------------
Net interest margin and
other revenues . . . . . . . . . . . . . 743.9 9.6 648.8 9.1
-----------------------------------------------------------------------
Provision for credit losses. . . . . . . . 212.0 2.7 209.0 2.9
Costs and expenses:
Operating expenses . . . . . . . . . . . 400.0 5.2 331.3 4.7
Policyholders' benefits. . . . . . . . . 20.2 .3 20.5 .3
Income taxes . . . . . . . . . . . . . . 38.4 .5 29.3 .4
-----------------------------------------------------------------------
Net Income . . . . . . . . . . . . . . . . $ 73.3 .9% $ 58.7 .8%
=======================================================================
Average receivables
managed. . . . . . . . . . . . . . . . . $28,652.1 $26,547.3
Average noninsurance
investments. . . . . . . . . . . . . . . 2,304.3 2,054.3
-----------------------------------------------------------------------
Average managed interest-
earning assets . . . . . . . . . . . . . $30,956.4 $28,601.6
=======================================================================
</TABLE>
The discussion below on revenues, where applicable, includes
comparisons to amounts reported on the company's historical
statements of income ("Owned Basis") as well as on the above pro
forma statements of income ("Managed Basis").
Net interest margin
-------------------
Net interest margin on an Owned Basis was $384.5 million for the
first quarter of 1994, up from $351.1 million from the 1993 first
quarter due to higher levels of interest-earning assets, an increase
in higher yielding bankcard receivables and a reduction in lower
yielding first mortgages. Net interest margin on an Owned Basis as
a percent of average owned interest-earning assets was 7.2 percent
annualized as compared with 7.0 percent in the prior quarter and 6.7
percent in the first quarter of 1993.
Net interest margin on a Managed Basis increased to $562.6 million
from $501.3 million in the first quarter of 1993 and, as a percent
of average managed interest-earning assets, increased to 7.3 percent
compared with 7.2 percent in the fourth quarter of 1993 and 7.0
percent in the same year-ago period. Net interest margins on a
Managed Basis are greater than on an Owned Basis because bankcard
receivables, which have wider spreads, are a larger proportion of
the portfolio serviced with limited recourse than of the owned
portfolio.
<PAGE>
<PAGE> 17
Other revenues
--------------
Securitization and servicing fee income on an Owned Basis consists
of two components: income associated with the securitization and
sale of receivables and servicing fee income related to the
servicing of first mortgage loans with no recourse and unsecured
receivables. Securitization income on an Owned Basis, which
includes net interest income, interchange and other fee income, and
provision for credit losses related to receivables serviced with
limited recourse, increased compared to the same year-ago period due
to a higher level of securitized receivables outstanding. The
components of securitization income are reclassified to the
applicable line in the statements of income on a Managed Basis.
Servicing fee income increased over the first quarter of 1993,
consistent with the serviced receivable portfolio growth. Average
receivables serviced with no recourse increased to $16.1 billion at
March 31, 1994, up from $11.6 billion in the same period in 1993.
The portfolio of loans serviced with no recourse continued to grow
primarily due to originations and sales of first mortgages to
investors with servicing rights retained. Additionally, in the
third quarter of 1993, the company began servicing an unsecured
consumer loan portfolio totaling $1.2 billion at March 31, 1994.
Servicing fee income was reduced by a $9 million pretax write-down
of first mortgage capitalized servicing values in 1994 compared to a
$7 million write-down in 1993. The company continually monitors
overall market conditions and the effect on prepayments of first
mortgage loans and on the carrying value of capitalized servicing
rights. The carrying value is adjusted when appropriate.
Insurance premiums and contract revenues increased from the first
quarter of 1993 due to higher sales of domestic specialty and credit
insurance.
Fee income on an Owned Basis includes revenues from fee-based
products such as bankcards, consumer banking deposits and private-
label credit cards, as well as commission income from the company's
brokerage business. Fee income was $62.4 million, down compared to
$68.6 million in the first quarter of the prior year primarily due
to lower interchange fees as a result of the securitizations of GM
Card receivables beginning in the second quarter of 1993. Fee
income on securitized receivables is transferred to securitization
income upon sale. The decrease was partially offset by higher
commission and other fee income. Fee income on a Managed Basis,
which in addition to the items discussed above includes interchange
and other fees related to receivables serviced with limited
recourse, increased from $66.8 million in 1993 to $109.1 million in
1994 primarily due to GM Card receivable growth.
Provision for credit losses
---------------------------
The provision for credit losses for receivables on an Owned Basis
totaled $150.1 million, down 6 percent from $159.5 million in the
prior year period. The level of provision for credit losses on an
Owned Basis may vary from quarter to quarter, depending on the
significance of securitizations and sales of receivables in a
particular period, as provision related to the securitized
receivables is transferred to securitization and servicing fee
income.
The provision for credit losses for receivables on a Managed Basis
totaled $212.0 million, up slightly from $209.0 million in the first
quarter of 1993. As a percent of managed interest-earning assets,
the provision decreased to 2.7 percent from 2.9 percent in the first
quarter of 1993, reflecting the underlying improvement in the credit
quality of the managed portfolio, which experienced lower
delinquency and chargeoffs in the first quarter of 1994 than in the
first quarter of 1993. Total Finance and Banking managed reserves
as a percent of managed receivables increased to 2.26 percent at
March 31, 1994 compared to 2.22 percent at December 31, 1993 and
1.95 percent at March 31, 1993. See the following credit quality
section for further discussion of factors affecting the provision
for credit losses.<PAGE>
<PAGE> 18
Expenses
--------
Operating expenses, which the company defines as salaries and fringe
benefits plus other operating expenses, were $400.0 million, up from
$331.3 million in the first quarter of 1993 primarily due to
increased costs associated with servicing the larger owned or
serviced receivables portfolio and with marketing initiatives
undertaken in 1994. Operating expenses as a percent of average
receivables owned or serviced, annualized, increased to 3.57 percent
compared to 3.48 percent in the first quarter of 1993.
Policyholders' benefits were $20.2 million, flat compared to the
first quarter of 1993. The effective tax rate for the Finance and
Banking segment was 34.4 percent, compared to 33.3 percent in the
first quarter of 1993.
Credit Quality
--------------
Overall credit quality statistics of the Finance and Banking
portfolio in the first quarter of 1994 were essentially unchanged
compared to year-end.
Delinquency
-----------
Delinquency levels are monitored for both receivables owned and
receivables managed. The company looks at delinquency levels which
include receivables serviced with limited recourse because this
portfolio is subjected to underwriting standards comparable to the
owned portfolio, is managed by operating personnel without regard to
portfolio ownership and results in a similar credit loss exposure
for the company.
<TABLE>
<CAPTION>
Two-Months-and-Over Contractual Delinquency (as a percent of managed consumer receivables):
-------------------------------------------------------------------------------------------------
3/31/94 12/31/93 9/30/93 6/30/93 3/31/93
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic:
First mortgage. . . . . . . . . . . . 2.31% 1.42% 1.21% 1.15% 1.27%
Home equity . . . . . . . . . . . . . 3.10 3.16 3.38 3.20 3.46
Other secured . . . . . . . . . . . . 1.62 1.38 1.83 3.20 2.80
Bankcard. . . . . . . . . . . . . . . 2.41 2.41 2.57 2.47 2.58
Merchant participation. . . . . . . . 5.02 5.01 5.43 5.73 6.36
Other unsecured . . . . . . . . . . . 6.48 6.63 7.23 7.46 7.53
----------------------------------------------------
Total domestic. . . . . . . . . . . . . 3.37 3.28 3.50 3.46 3.68
----------------------------------------------------
Foreign:
Canada. . . . . . . . . . . . . . . . 4.14 4.65 5.11 5.61 6.00
United Kingdom. . . . . . . . . . . . 5.99 6.74 7.34 8.37 9.31
Australia . . . . . . . . . . . . . . 7.98 8.93 9.59 10.95 12.06
----------------------------------------------------
Total foreign . . . . . . . . . . . . . 5.25 5.82 6.32 7.06 7.68
----------------------------------------------------
Total . . . . . . . . . . . . . . . . . 3.61% 3.58% 3.85% 3.93% 4.24%
====================================================
</TABLE>
Delinquency as a percent of managed consumer receivables increased
slightly from the year-end level, as the decrease in the managed
consumer receivable portfolio outpaced a $4.4 million decline in the
amount of delinquent receivables. Total delinquent consumer
receivables decreased from the year-end 1993 level despite an
increase of $13.6 million related to first mortgage receivables in
Southern California on which the company temporarily extended
payment terms due to the January 1994 earthquake. The company
believes that its ultimate exposure on the impacted first mortgage
receivables is small. First mortgage, total domestic and total
delinquency excluding the effect of these receivables would have
been 1.72, 3.32 and 3.56 percent, respectively, in the first quarter
of 1994. The continued aging of the GM Card portfolio also
contributed to increased domestic delinquency. Despite this
increase, the GM Card continued to have lower delinquency than
expected. Increases in the first mortgage and GM Card portfolios
were partially offset by improvements in other domestic and foreign
portfolios, as described below.<PAGE>
<PAGE> 19
The company believes delinquency will continue to improve. Further
improvement, however, will depend on the extent and timing of
improvement in economic conditions in the various countries and
regional areas where the company operates, the composition of the
managed receivables base, and the maturation of the GM Card
portfolio.
Domestic Delinquency
--------------------
First mortgage delinquency increased from December 1993 due to
increased delinquency in Southern California caused by weak regional
economic conditions and the effect of a temporary extension of
payment terms granted to affected customers due to the recent
earthquake. The company believes that this action will reduce the
ultimate exposure on these receivables.
Home equity delinquency declined slightly compared to the previous
quarter and was well below the year-ago level. This improvement was
attributable to the higher quality of recently underwritten
receivables, despite continued weak economic conditions in the
western region.
The delinquency level for other secured receivables increased during
the quarter, but did not impact total delinquency due to the small
size of the portfolio.
Bankcard delinquency was flat compared to the year-end level.
Improvement in the non-GM Card portfolio was offset by an increasing
level of delinquent GM Card receivables resulting from the aging of
the GM Card portfolio. The GM Card program has had a favorable
impact on the bankcard delinquency percentages since its inception.
However, as the GM Card receivables continue to age, the company
expects GM Card delinquency to increase. This increase is expected
to be more than offset by further improvement in the non-GM Card
portfolio.
Merchant participation delinquency was essentially flat compared to
December 31, 1993 and was well below the March 1993 level. The
improvement from the prior year was due to tighter underwriting
standards and a greater focus on association with low delinquency
merchants.
Other unsecured receivables delinquency declined from December 1993.
The decrease is attributable to an improvement in the quality of
receivables recently originated coupled with improvements in the
economy and reduced personal bankruptcies. Since chargeoff rates on
unsecured loans are much higher than secured loans, this improvement
is significant in evaluating potential future credit losses.
Foreign Delinquency
-------------------
Delinquency levels in the three foreign countries in which the
company operates showed improvement over year-end 1993 levels.
Declining delinquency in the United Kingdom, which has a portfolio
of primarily unsecured products, and Canada was due to an
improvement in the overall quality of recently underwritten
receivables. The United Kingdom ratio also benefited from the
issuance of the GM Card there beginning in early 1994, as new
accounts were added to the receivables base but had not yet
contributed to delinquency. Excluding the impact of the GM Card
portfolio, the United Kingdom delinquency ratio would have been 6.51
percent. Delinquency levels in Australia have also continued to
improve; however, due to the relatively small size of the loan
portfolio, the decrease had a relatively small impact on total
delinquency for both the foreign operations and the company.<PAGE>
<PAGE> 20
Nonperforming Assets
--------------------
Nonperforming assets consisted of the following:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
In millions. 3/31/94 12/31/93 9/30/93 6/30/93 3/31/93
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual managed receivables. . . . . $517.6 $528.7 $ 565.4 $ 582.4 $ 635.0
Accruing managed receivables 90 or more
days delinquent . . . . . . . . . . . 215.6 207.3 198.5 205.5 187.7
------------------------------------------------------
Total nonperforming managed receivables 733.2 736.0 763.9 787.9 822.7
------------------------------------------------------
Real estate owned . . . . . . . . . . . 165.7 168.9 193.1 199.2 200.0
Other assets acquired through
foreclosure . . . . . . . . . . . . . 81.3 82.9 84.4 85.9 78.2
------------------------------------------------------
Total nonperforming assets. . . . . . . $980.2 $987.8 $1,041.4 $1,073.0 $1,100.9
======================================================
Credit loss reserves for managed
receivables as a percent of
nonperforming managed receivables . . 88.8% 87.9% 76.6% 71.1% 64.1%
------------------------------------------------------
</TABLE>
Nonaccrual managed Finance and Banking receivables declined compared
to year-end levels primarily due to continued improvement in the
domestic consumer banking and Canadian operations.
Net Chargeoffs of Consumer Receivables
--------------------------------------
<TABLE>
<CAPTION>
Net Chargeoffs of Consumer Receivables (as a percent, annualized, of average consumer receivables managed):
-------------------------------------------------------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
1994 1993 1993 1993 1993
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic:
First mortgage. . . . . . . . . . . . .46% .21% .59% .40% .20%
Home equity . . . . . . . . . . . . . 1.20 1.17 .87 .98 .98
Other secured . . . . . . . . . . . . .05 .64 3.11 3.51 (.07)
Bankcard. . . . . . . . . . . . . . . 4.22 3.99 3.78 3.43 4.20
Merchant participation. . . . . . . . 3.91 4.26 4.44 4.02 4.57
Other unsecured . . . . . . . . . . . 5.26 5.41 5.99 6.62 6.42
----------------------------------------------------
Total domestic. . . . . . . . . . . . . 2.97 2.82 2.78 2.66 2.75
----------------------------------------------------
Foreign:
Canada. . . . . . . . . . . . . . . . 2.89 3.86 2.83 2.83 3.18
United Kingdom. . . . . . . . . . . . 2.96 4.07 4.62 5.55 6.72
Australia . . . . . . . . . . . . . . 2.74 3.77 2.61 3.38 5.21
----------------------------------------------------
Total foreign . . . . . . . . . . . . . 2.90 3.92 3.38 3.73 4.46
----------------------------------------------------
Total . . . . . . . . . . . . . . . . . 2.96% 2.96% 2.86% 2.81% 2.99%
====================================================
</TABLE>
Net chargeoffs as a percent of average managed receivables for the
1994 first quarter were flat compared to the fourth quarter of 1993.
Net chargeoffs on a dollar basis in the first quarter were $206.5
million, compared to $204.4 million in the fourth quarter of 1993.
Improvements in other domestic products and in the foreign
operations were offset by increased chargeoffs in the GM Card
portfolio. Previous quarter chargeoff ratios benefited from growth
in GM Card receivables which, due to their recent origination, had
minimal chargeoffs. As the GM Card portfolio continues to age, the
level of chargeoffs has risen resulting in an increase in both the
chargeoff ratio and in total dollars charged off. However, GM
chargeoff levels continue to be better than management's
expectations.<PAGE>
<PAGE> 21
Overall foreign net chargeoffs in the first quarter of 1994 were
lower than the fourth quarter of 1993. This decrease was caused by
continued improvement in the United Kingdom and Canadian operations.
Chargeoffs in Australia improved during the first quarter of 1994
and were below the first quarter 1993 levels. However, due to the
size of the loan portfolio, Australia's chargeoffs did not
significantly impact the overall chargeoff level of the company.
Chargeoffs are a lagging indicator of credit quality and generally
reflect prior delinquency trends. However, growth associated with
the GM Card portfolio has resulted in a shift in product mix toward
bankcard receivables, which have higher chargeoff rates than secured
receivables. Although GM Card chargeoffs remained better than
management's expectations, they increased during the quarter,
offsetting improvements in other categories. The company expects
that chargeoffs associated with the GM Card will continue to
increase as the portfolio matures. These increases are expected to
be somewhat offset by further improvement in other domestic products
and the foreign operations. However, future improvement in
chargeoff trends may be impacted by factors such as the continued
shift in product mix toward bankcard receivables, economic
conditions, and the impact of personal bankruptcies. Consequently,
the extent and timing of an overall improved chargeoff trend remains
uncertain.
Net chargeoffs for first mortgage receivables increased in the first
quarter of 1994 primarily due to the combination of the maturation
of the portfolio and weak economic conditions in Southern
California. Net chargeoffs for home equity loans were up slightly
compared to the fourth quarter of 1993 and remained higher than the
first quarter of 1993. Home equity loan chargeoffs continue to be
impacted by weak economic conditions in the western region. Net
chargeoffs of other secured receivables did not significantly impact
total chargeoffs as these receivables represented approximately 3
percent of total managed receivables at March 31, 1994.
Bankcard net chargeoffs increased over the fourth quarter of 1993
and were flat compared to the first quarter of 1993. The increase
was related to the anticipated aging of the GM Card portfolio which
offset improvement in the non-GM Card portfolio. Merchant
participation chargeoffs declined compared to both the prior quarter
and prior year period due to the favorable performance of recently
underwritten receivables. The chargeoff ratio for other unsecured
receivables was below both the fourth quarter and first quarter of
1993.
INDIVIDUAL LIFE INSURANCE
-------------------------
Individual Life Insurance net income was $11.7 million, flat
compared to the first quarter of 1993. Higher levels of contract
revenues from individual life and annuity contracts were more than
offset by increased operating expenses primarily due to higher
commission expense and higher amortization of deferred insurance
policy acquisition costs.<PAGE>
<PAGE> 22
<TABLE>
<CAPTION>
Statements of Income
--------------------------------------------------------------------------------------
All dollar amounts are stated in millions.
Three months ended March 31 1994 1993
--------------------------------------------------------------------------------------
<S> <C> <C>
Investment income . . . . . . . . . . . . . . . . . . . . . . . . $132.7 $133.5
Contract revenues . . . . . . . . . . . . . . . . . . . . . . . . 38.8 31.5
------------------
Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . . 171.5 165.0
Costs and expenses:
Policyholders' benefits . . . . . . . . . . . . . . . . . . . . 109.9 112.1
Operating expenses. . . . . . . . . . . . . . . . . . . . . . . 43.3 35.0
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 6.6 6.2
------------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11.7 $ 11.7
==================
Return on average assets - annualized . . . . . . . . . . . . . . .68% .77%
==================
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
March 31, December 31,
1994 1993
--------------------------------------------------------------------------------------
<S> <C> <C>
Investment securities . . . . . . . . . . . . . $ 6,436.6 $ 6,358.0
Life insurance in-force . . . . . . . . . . . . 33,305.7 32,371.6
=================================
</TABLE>
Investment securities for the Individual Life Insurance segment
totaled $6.4 billion, flat with the December 31, 1993 level. The
Individual Life Insurance portfolio represented approximately 71
percent of the company's total investment portfolio at March 31,
1994. Higher-risk securities, which include non-investment grade
bonds, common and preferred stocks, commercial mortgage loans and
real estate, represented 7.1 percent of the insurance investment
portfolio at March 31, 1994, flat with 7.0 percent at December 31,
1993.
At March 31, 1994 the market value for the insurance held-to-
maturity investment portfolio was 104 percent of the carrying value
compared to 108 percent at December 31, 1993. The decrease in
market value over book value during the first three months of 1994
was mainly the result of the rising interest rate environment.
Investment income in the first quarter of 1994 was $132.7 million,
consistent with the year-ago period as higher levels of
investment securities were offset by lower yields. Contract
revenues for the period also increased due to higher levels of
insurance in-force.
Policyholders' benefits in the first quarter of 1994 were $109.9
million, down 2 percent over the same period in 1993 due to lower
interest credited to policyholders caused by lower yields on
investment securities.
Operating expenses in the first quarter of 1994 were $43.3 million,
up 24 percent from the same period in 1993 due to higher commission
expense and higher levels of deferred insurance policy acquisition
cost amortization which resulted from increased gross profits from
universal life and annuity contracts.
The effective tax rate was 36.1 percent for the first quarter of
1994 compared to 34.6 percent in the first quarter of 1993.<PAGE>
<PAGE> 23
LIQUIDATING COMMERCIAL LINES
----------------------------
The net loss for the Liquidating Commercial Lines segment was $3.0
million compared to a net loss of $4.2 million in the first quarter
of 1993.
<TABLE>
<CAPTION>
Statements of Operations
-------------------------------------------------------------------------------------
In millions.
Three months ended March 31 1994 1993
-------------------------------------------------------------------------------------
<S> <C> <C>
Net interest margin . . . . . . . . . . . . . . . . . . . . . . $ 10.7 $ 12.0
Other revenues. . . . . . . . . . . . . . . . . . . . . . . . . 11.8 (.1)
---------------------
Net interest margin and other revenues. . . . . . . . . . . . . 22.5 11.9
Provision for credit losses . . . . . . . . . . . . . . . . . . 24.0 14.3
Operating expenses. . . . . . . . . . . . . . . . . . . . . . . 2.5 3.9
Income tax benefit. . . . . . . . . . . . . . . . . . . . . . . (1.0) (2.1)
---------------------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3.0) $ (4.2)
=====================
Average receivables owned . . . . . . . . . . . . . . . . . . . $1,157.3 $1,547.6
=====================
</TABLE>
Net interest margin was essentially flat compared to the prior year
as the effect of lower asset levels was offset by wider spreads.
Increased other revenues primarily related to the company's 25
percent equity investment in a liquidating commercial joint venture
made in June 1993 and fees received upon prepayment of several
loans. Provision for credit losses was $24.0 million, up from
$14.3 million in the first quarter of 1993. See page 12 in
Management's Discussion and Analysis on Consolidated Credit Loss
Reserves for factors impacting overall loss reserve levels.
Operating expenses were $2.5 million, down from $3.9 million in
the year-ago period principally due to lower write-downs and net
expenses for real estate owned.
<TABLE>
<CAPTION>
Commercial Nonperforming Loans and Real Estate Owned:
-------------------------------------------------------------------------------------------------
In millions. 3/31/94 12/31/93 9/30/93 6/30/93 3/31/93
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate nonaccrual. . . . . . . . . $ 49.3 $ 54.8 $ 79.6 $ 90.6 $ 80.1
Other nonaccrual. . . . . . . . . . . . 151.1 173.9 164.1 246.9 264.2
------------------------------------------------------
Total nonaccrual. . . . . . . . . . . . 200.4 228.7 243.7 337.5 344.3
Renegotiated. . . . . . . . . . . . . . 29.2 28.7 17.3 34.9 85.3
------------------------------------------------------
Total nonperforming loans . . . . . . . 229.6 257.4 261.0 372.4 429.6
Real estate owned . . . . . . . . . . . 249.7 256.6 262.2 258.1 248.4
------------------------------------------------------
Total . . . . . . . . . . . . . . . . . $479.3 $514.0 $523.2 $630.5 $678.0
======================================================
Credit loss reserves as a percent of
nonperforming loans . . . . . . . . . 74.4% 67.2% 71.2% 50.7% 43.6%
------------------------------------------------------
</TABLE>
Nonperforming commercial assets were $479.3 million, down compared
to the December 1993 level. Nonaccrual loans decreased $28 million
primarily due to chargeoffs taken in the quarter. Real estate owned
decreased slightly compared to December 1993.
The company expects the longer term downward trend in nonperforming
assets to continue, although it may stabilize in the near future
before decreasing. In addition, comparisons between periods may be
impacted by individual transactions which mask the overall trend.
The company continues to estimate its ultimate loss exposure on
nonperforming assets based on performance and specific reviews of
individual loans and its outlook for economic conditions. Because
the portfolio consists of a number of loans with relatively large
balances, changes in individual borrower circumstances which
currently are unforeseen have the potential to change the estimate
of ultimate loss exposure in the future.<PAGE>
<PAGE> 24
Management believes that commercial real estate markets began to
stabilize in the second half of 1993. The level of future write-
downs will continue to depend heavily on changes in overall market
conditions as well as circumstances surrounding individual
properties. To preserve value in liquidating the real estate owned
portfolio over time, the company has segregated its portfolio into
two categories. Properties in weak markets or with poor cash flow
will be divested in an expeditious, orderly fashion. These
properties, which have been written down an average of 53 percent,
represented 18 percent of the commercial real estate owned portfolio
at March 31, 1994. The average carrying value of a property in this
portfolio at March 31, 1994 was approximately $2 million.
Properties with positive and/or improved cash flows and in markets
which, the company believes, have potential for improvement are
being held for sale at prices which reflect this value and may,
therefore, take longer to divest. Revenues on all commercial real
estate properties, net of write-downs and carrying costs, were $.6
million in the first quarter of 1994 compared to net write-downs and
carrying costs of $1.7 million in the same period in 1993.
Corporate
---------
Corporate expenses, net of tax benefits, for the first quarter of
1994 were $4.4 million, below the $5.6 million in the comparable
prior year period due to lower interest expense. <PAGE>
<PAGE> 25
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.4 Forms of Stock Option, Restricted Stock Rights and
Performance Share Awards under the Household Inter-
national Long-Term Executive Incentive Compensation Plan.
10.7 Executive Employment Agreement between the Company and
D. C. Clark.
12 Statement of Computation of Ratio of Earnings to Fixed
Charges and to Combined Fixed Charges and Preferred
Stock Dividends.
21 List of Household International subsidiaries.
(b) Reports on Form 8-K
During the first quarter of 1994, the Registrant filed a
Current Report on Form 8-K dated February 1, 1994 reporting
pursuant to Item 5, "Other Events" the financial results of
Household International for the year ended December 31, 1993.<PAGE>
<PAGE> 26
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOUSEHOLD INTERNATIONAL, INC.
---------------------------------------
(Registrant)
Date: May 13, 1994 By: /s/ David A. Schoenholz
------------ ----------------------------------
David A. Schoenholz,
Senior Vice President-
Chief Financial Officer
and on behalf of
Household International, Inc.
<PAGE>
<PAGE> 27
Exhibit Index
-------------
10.4 Forms of Stock Option, Restricted Stock Rights and
Performance Share Awards under the Household International
Long-Term Executive Incentive Compensation Plan.
10.7 Executive Employment Agreement between the Company and
D. C. Clark.
12 Statement of Computation of Ratio of Earnings to Fixed
Charges and to Combined Fixed Charges and Preferred Stock
Dividends.
21 List of Household International subsidiaries.
C:\WP51\BACK\10Q331.AS1 (5/11/94)
<PAGE> 1
Exhibit 10.4
HOUSEHOLD INTERNATIONAL
NOTICE OF STOCK OPTIONS AND GRANT AGREEMENT
February 1, 1994
(Employee Name)
(Employee Social Security Number)
(Employee Home Address)
On February 1, 1994, the Compensation Committee of Household's
Board of Directors granted you stock options under the Household
International Long-Term Executive Incentive Compensation Plan as
follows:
Date of Grant 02/01/94
Option Price Per Share $33.3750
# of Shares Granted (# of shares)
Enclosed for your signature are two(2) copies of the Stock Option
Agreement which state the terms and conditions under which these
options were granted. Please retain one copy for your files and
return one signed copy of the Agreement by April 15, 1994, using
the attached pre-addressed envelope, to:
Household International
ATTENTION: Office of the Secretary
2700 Sanders Road, 3 North
Prospect Heights, IL 60070
Sincerely,
John W. Blenke
Secretary and Assistant General Counsel
__________________________________ ___________________
Employee's Signature Date
<PAGE>
<PAGE> 2
HOUSEHOLD INTERNATIONAL, INC.
HOUSEHOLD INTERNATIONAL LONG-TERM
EXECUTIVE INCENTIVE COMPENSATION PLAN
----------
NON-TAX QUALIFIED STOCK OPTION AGREEMENT
FOR SENIOR MANAGEMENT TEAM
THIS AGREEMENT, between HOUSEHOLD INTERNATIONAL, INC., a
Delaware corporation (the "Company"), and the employee referenced
on the cover sheet to this Agreement (the "Employee"), is made
pursuant to the Household International Long-Term Executive
Incentive Compensation Plan (the "Incentive Plan"). The terms of
such agreement are as follows:
1. The Company hereby grants to the Employee an option,
for a period of 10 years and one day from the date hereof, to
purchase, on the terms and conditions set forth herein and
subject to the provisions set forth in the Incentive Plan, shares
of the common stock of the Company as set forth in the cover
sheet to this Agreement.
2. No shares may be purchased under this option for one
year from the date hereof. At the close of said one-year period
this option may, unless sooner terminated under the provisions
hereof, be exercised in numbers of shares not to exceed 25
percent of the aggregate number of shares under option on and
after each of the first, second, third and fourth anniversaries
of the date hereof, provided that 100% of the shares in this
option may be exercised (a) on the last day of employment in the
case of an Employee who is retirement-eligible under the terms of
a pension plan of the Company or a subsidiary, or (b) if so
determined by the Committee during the Employee's employment. If
the Employee does not purchase the full number of shares which he
or she is entitled to purchase hereunder in any of said years,
then the Employee may purchase such shares at any subsequent time
during the term thereof. The option shall be exercised by giving
to the Company ten days written notice of exercise specifying the
number of shares to be purchased, which must be a minimum of
twenty-five (25) shares, such notice to be accompanied by payment
of the purchase price by cash or check to the order of the
Company. Payment for the option may also be made with shares of
common stock of the Company valued at the then fair market value
of such shares or by a combination of cash and shares of common
stock pursuant to such rules as have been established by the
Compensation Committee or Board of Directors and which are in
effect at the time the option is exercised. The Compensation
Committee or Board of Directors may rescind at any time the right
to use common stock of the Company in payment for shares
purchased through the option.
3. The option may not be transferred except by will or the
laws of descent and distribution. The option may be exercised
during the lifetime of the Employee only by the Employee and only
while he or she is an employee of the Company (or a subsidiary
thereof) and shall have been continuously so employed from the
date hereof, except that: (i) in the event of termination of
employment of the Employee and the Employee is retirement-
eligible under the terms of a pension plan of the Company or a
subsidiary, the option may be exercised at any time before the
expiration date of the option; (ii) in the event of termination
of employment due to permanent and total disability of the
Employee and the Employee is not retirement-eligible under the
terms of a pension plan of the Company or a subsidiary, the
option may be exercised within twelve months following the date
of such termination of employment; (iii) in the event of death
during employment, the option may be exercised by the executor,
administrator, or other personal representative of the Employee
within five years succeeding death if such Employee was
retirement-eligible under the terms of a pension plan of the
Company or a subsidiary, or twelve months if such Employee was
not retirement-eligible under the terms of a pension plan of the
Company or a subsidiary; (iv) in the event of termination of
employment other than as set forth in subsections (i), (ii) or
(iii) above, the option may be exercised within three months
following the date of termination, except for termination for
cause; (v) in the event of death of the Employee following<PAGE>
<PAGE> 3
termination of employment, the option may be exercised by the
executor, administrator, or other personal representative of the
Employee, notwithstanding the time periods specified in (i),
(ii), (iii) or (iv) above, within a) twelve months following
death or b) the remainder of the period in which the Employee was
entitled to exercise the option, whichever period is longer. If
the Compensation Committee determines that the termination is for
cause, the option will not under any circumstances be exercisable
following termination of employment. Notwithstanding anything
herein to the contrary, the option may not be exercised pursuant
to this Section after the expiration of the term of such option
and may be exercised only to the extent that the holder was
entitled to exercise such option on the date of termination of
employment. The option will expire in all events and for all
purposes 10 years and one day from the date hereof.
4. The Company shall not be required to issue or deliver
any certificate or certificates for shares of stock purchased
upon the exercise of the option herein granted prior to the
listing of such shares on all stock exchanges on which the
Company's stock shall then be listed. Upon any exercise of said
option, the Company shall take the steps required for listing.
5. Neither the Employee nor his personal representative
shall have any of the rights or privileges of a stockholder with
respect to any shares subject to this option unless and until
certificates evidencing such shares shall have been delivered.
6. Notice to the Company shall be addressed to the Company
in care of its Secretary at 2700 Sanders Road, Prospect Heights,
Illinois 60070 and notice to the Employee shall be addressed to
him or her at the address as set forth on the cover sheet of this
Agreement, or at such other address as either party may hereafter
designate in writing to the other.
7. Anything herein to the contrary notwithstanding, this
option agreement shall be subject to amendment by the Company
from time to time to the extent permitted by the Incentive Plan
and is subject to the provisions of the Incentive Plan.
<PAGE>
<PAGE> 4
HOUSEHOLD INTERNATIONAL
NOTICE OF RESTRICTED STOCK RIGHTS AGREEMENT
February 1, 1994
(Employee Name)
(Employee Social Security Number)
(Employee Home Address)
On February 1, 1994, the Compensation Committee of Household's
Board of Directors granted you restricted stock rights under the
Household International Long-Term Executive Incentive
Compensation Plan as follows:
Date of Grant 02/01/94
Price Per Share $33.3750
# of Shares Granted (# of shares)
Enclosed for your signature are two(2) copies of the Restricted
Stock Rights Agreement which state the terms and conditions under
which these rights were granted. Please retain one copy for your
files and return one signed copy of the Agreement by April 15,
1994, using the attached pre-addressed envelope, to:
Household International
ATTENTION: Office of the Secretary
2700 Sanders Road, 3 North
Prospect Heights, IL 60070
Sincerely,
John W. Blenke
Secretary
__________________________________ ___________________
Employee's Signature Date
<PAGE>
<PAGE> 5
HOUSEHOLD INTERNATIONAL, INC.
HOUSEHOLD INTERNATIONAL LONG-TERM
EXECUTIVE INCENTIVE COMPENSATION PLAN
----------
RESTRICTED STOCK RIGHTS AGREEMENT
THIS AGREEMENT, between HOUSEHOLD INTERNATIONAL, INC., a
Delaware corporation (the "Company"), and the employee referenced
on the cover sheet to this Agreement (the "Employee"), is made
pursuant to the Household International Long-Term Executive
Incentive Compensation Plan (the "Incentive Plan"). The terms of
such agreement are as follows:
1. The Company hereby grants to the Employee Restricted
Stock Rights (the "RSRs"), for a period of five (5) years from
the date hereof (the "Restricted Period"), to receive on the
terms and conditions set forth herein and subject to the
provisions set forth in the Incentive Plan, shares of the Common
Stock of the Company as set forth in the cover sheet to this
Agreement.
2. No shares may be issued under RSRs for one year from
the date hereof. The shares subject to such RSRs shall be
forfeited and all rights of a holder of such RSRs and shares
shall terminate without any payment of consideration by the
Company if the Employee fails to remain continuously as an
Employee of the Company or any subsidiary for the Restricted
Period, except (i) in the case of an Employee who is retirement-
eligible under the terms of a pension plan of the Company or a
subsidiary, the Employee will receive either (1) the number of
shares subject to the RSR multiplied by a fraction (x) the
numerator of which shall be the number of full months between the
date of grant of such RSR and the date of such termination of
employment, and (y) the denominator of which shall be the number
of full months in the Restricted Period; provided however, that
any fractional share shall not be awarded; and provided further,
the Compensation Committee, in its sole discretion, may determine
that full vesting is appropriate under the circumstances or (2)
100% of the shares subject to RSRs on his or her last day of
employment if retirement occurs on or after age 65, and (ii) in
the event that the employment of a holder of RSRs terminates by
reason of death or permanent and total disability, such holder
shall be entitled to receive the number of shares subject to the
RSR multiplied by a fraction (x) the numerator of which shall be
the number of full months between the date of grant of such RSR
and the date of such termination of employment, and (y) the
denominator of which shall be the number of full months in the
Restricted Period; provided however, that any fractional share
shall not be awarded. An Employee shall not be deemed to have
terminated his or her period of continuous employment with the
Company if he or she leaves the employ of the Company or any
subsidiary for immediate reemployment with the Company or any
subsidiary. A holder of RSRs whose employment terminates for
reasons other than those listed in this paragraph 2 (other than a
change-in-control of the Company) will forfeit his or her rights
under any outstanding RSRs. This automatic forfeiture may be
waived in whole or in part by the Committee in its sole
discretion.
3. The RSRs may not be transferred except by will or the
laws of descent and distribution.
4. When an Employee shall be entitled to receive shares
pursuant to RSRs, the Company shall issue the appropriate number
of shares registered in the name of the Employee or his or her
estate or administrator, as deemed appropriate by the Company.
5. The holder of RSRs shall not be entitled to any of the
rights of a holder of the Common Stock with respect to the shares
subject to such RSRs prior to the issuance of such shares
pursuant to the Plan. However, during the Restricted Period, for
each share subject to an RSR, the Company will pay the Employee
as additional income, less applicable taxes, an amount in cash
equal to the cash dividend declared on a share of Common Stock of
the Company during the Restricted Period on or about the date the
Company pays such dividend to its stockholders of record.
<PAGE>
<PAGE> 6
6. Any and all taxes required to be withheld by the
Company as a result of the issuance of any shares pursuant to the
RSRs shall be the sole responsibility of the Employee.
7. Notice to the Company shall be addressed to the Company
in care of its Secretary at 2700 Sanders Road, Prospect Heights,
Illinois 60070 and notice to the Employee shall be addressed to
him or her at the address as set forth on the cover sheet of this
Agreement, or at such other address as either party may hereafter
designate in writing to the other.
8. Anything herein to the contrary notwithstanding, this
RSR agreement shall be subject to amendment by the Company from
time to time to the extent permitted by the Incentive Plan and is
subject to the provisions of the Incentive Plan.
<PAGE>
<PAGE> 7
HOUSEHOLD INTERNATIONAL
NOTICE OF RESTRICTED STOCK RIGHTS AGREEMENT
February 1, 1994
(Employee Name)
(Employee Social Security Number)
(Employee Home Address)
On February 1, 1994, the Compensation Committee of Household's
Board of Directors granted you restricted stock rights under the
Household International Long-Term Executive Incentive
Compensation Plan as follows:
Date of Grant 02/01/94
Price Per Share $33.3750
# of Shares Granted (# of shares)
Enclosed for your signature are two(2) copies of the Restricted
Stock Rights Agreement which state the terms and conditions under
which these rights were granted. Please retain one copy for your
files and return one signed copy of the Agreement by April 15,
1994, using the attached pre-addressed envelope, to:
Household International
ATTENTION: Office of the Secretary
2700 Sanders Road, 3 North
Prospect Heights, IL 60070
Sincerely,
John W. Blenke
Secretary
__________________________________ ___________________
Employee's Signature Date
<PAGE>
<PAGE> 8
HOUSEHOLD INTERNATIONAL, INC.
HOUSEHOLD INTERNATIONAL LONG-TERM
EXECUTIVE INCENTIVE COMPENSATION PLAN
----------
RESTRICTED STOCK RIGHTS AGREEMENT
THIS AGREEMENT, between HOUSEHOLD INTERNATIONAL, INC., a
Delaware corporation (the "Company"), and the employee referenced
on the cover sheet to this Agreement (the "Employee"), is made
pursuant to the Household International Long-Term Executive
Incentive Compensation Plan (the "Incentive Plan"). The terms of
such agreement are as follows:
1. The Company hereby grants to the Employee Restricted
Stock Rights (the "RSRs"), for a period of five (5) years from
the date hereof (the "Restricted Period") and provided the price
of the Company's Common Stock has increased at anytime during the
Restricted Period at least 20% from the fair market value of said
stock on the date of this Agreement (which is $33.375 per share)*
(the "Performance Condition"), to receive on the terms and
conditions set forth herein and subject to the provisions set
forth in the Incentive Plan, shares of the Common Stock of the
Company as set forth in the cover sheet to this Agreement.
2. No shares may be issued under RSRs for one year from
the date hereof or if the Performance Condition is not satisfied.
The shares subject to such RSRs shall be forfeited and all rights
of a holder of such RSRs and shares shall terminate without any
payment of consideration by the Company if the Employee fails to
remain continuously as an Employee of the Company or any
subsidiary for the Restricted Period, except (i) in the case of
an Employee who is retirement-eligible under the terms of a
pension plan of the Company or a subsidiary, the Employee will
receive either (1) the number of shares subject to the RSR
multiplied by a fraction (x) the numerator of which shall be the
number of full months between the date of grant of such RSR and
the date of such termination of employment, and (y) the
denominator of which shall be the number of full months in the
Restricted Period; provided however, that any fractional share
shall not be awarded; and provided further, the Compensation
Committee, in its sole discretion, may determine that full
vesting is appropriate under the circumstances or (2) 100% of the
shares subject to RSRs on his or her last day of employment if
retirement occurs on or after age 65, and (ii) in the event that
the employment of a holder of RSRs terminates by reason of death
or permanent and total disability, such holder shall be entitled
to receive the number of shares subject to the RSR multiplied by
_______________________________________________________________
* such price to be adjusted accordingly as a result of any
stock splits, stock dividends, reclassifications or corporate
changes which materially affect the value of the Company's
Common Stock.<PAGE>
<PAGE> 9
a fraction (x) the numerator of which shall be the number of full
months between the date of grant of such RSR and the date of such
termination of employment, and (y) the denominator of which shall
be the number of full months in the Restricted Period; provided
however, that any fractional share shall not be awarded. An
Employee shall not be deemed to have terminated his or her period
of continuous employment with the Company if he or she leaves the
employ of the Company or any subsidiary for immediate
reemployment with the Company or any subsidiary. A holder of
RSRs whose employment terminates for reasons other than those
listed in this paragraph 2 (other than a change-in-control of the
Company) will forfeit his or her rights under any outstanding
RSRs. This automatic forfeiture may be waived in whole or in
part by the Committee in its sole discretion.
3. The RSRs may not be transferred except by will or the
laws of descent and distribution.
4. When an Employee shall be entitled to receive shares
pursuant to RSRs, the Company shall issue the appropriate number
of shares registered in the name of the Employee or his or her
estate or administrator, as deemed appropriate by the Company.
5. The holder of RSRs shall not be entitled to any of the
rights of a holder of the Common Stock with respect to the shares
subject to such RSRs prior to the issuance of such shares
pursuant to the Plan. However, during the Restricted Period, for
each share subject to an RSR, the Company will pay the Employee
an amount in cash equal to the cash dividend declared on a share
of Common Stock of the Company during the Restricted Period on or
about the date the Company pays such dividend to its stockholders
of record, provided, however, that any such dividends will be
held by the Company, without interest, until the Performance
Condition has been satisfied. At that time, all past and future
amounts attributable to dividends paid or payable to holders of
the Common Stock shall be paid to the employee by the Company as
additional income, less applicable taxes.
6. Any and all taxes required to be withheld by the
Company as a result of the issuance of any shares pursuant to the
RSRs shall be the sole responsibility of the Employee.
7. Notice to the Company shall be addressed to the Company
in care of its Secretary at 2700 Sanders Road, Prospect Heights,
Illinois 60070 and notice to the Employee shall be addressed to
him or her at the address as set forth on the cover sheet of this
Agreement, or at such other address as either party may hereafter
designate in writing to the other.
8. Anything herein to the contrary notwithstanding, this
RSR agreement shall be subject to amendment by the Company from
time to time to the extent permitted by the Incentive Plan and is
subject to the provisions of the Incentive Plan.
<PAGE>
<PAGE> 10
HOUSEHOLD INTERNATIONAL
NOTICE OF PERFORMANCE SHARE AWARD AGREEMENT
February 1, 1994
(Employee Name)
(Employee Social Security Number)
(Employee Home Address)
On February 1, 1994, the Compensation Committee of Household's
Board of Directors granted you a performance share award under
the Household International Long-Term Executive Incentive
Compensation Plan as follows:
Date of Award 02/01/94
Price Per Share $33.375
# of Shares (# of shares)
Enclosed for your signature are two(2) copies of the Performance
Share Award Agreement which state the terms and conditions under
which these shares were awarded. Please retain one copy for your
files and return one signed copy of the Agreement using the
attached pre-addressed envelope.
Sincerely,
John W. Blenke
Secretary
__________________________________ ___________________
Employee's Signature Date
<PAGE>
<PAGE> 11
HOUSEHOLD INTERNATIONAL, INC.
HOUSEHOLD INTERNATIONAL LONG-TERM
EXECUTIVE INCENTIVE COMPENSATION PLAN
------------
PERFORMANCE SHARE AWARD AGREEMENT
THIS AGREEMENT, dated February 1, 1994, between HOUSEHOLD
INTERNATIONAL, INC., a Delaware corporation (the "Company"), and
the employee referenced on the cover sheet to this Agreement (the
"Employee"), is made pursuant to the Household International
Long-Term Executive Incentive Compensation Plan (the "Incentive
Plan"). The terms of such agreement are as follows:
1. The Company hereby grants to the Employee Performance
Share Awards (the PSAs"), for a period of five (5) years from the
date hereof (the "Restricted Period"), and provided the
performance condition in the following paragraph is met, to
receive, on the terms and conditions set forth herein and subject
to the provisions set forth in the Incentive Plan, shares of the
Common Stock of the Company as set forth in the cover sheet to
this Agreement.
2. The PSA shares will vest from the date of this
Agreement according to the following schedule: 25% on the third
anniversary if a performance unit award payment is made with
respect to the award granted for the three-year cycle 1994-1996,
25% on the fourth anniversary if a performance unit award payment
is made with respect to the award granted in the three-year cycle
1995-1997, 50% on the fifth anniversary if a performance unit
award payment is made with respect to the award granted for the
three-year cycle 1996-1998. A holder of PSAs who fails to
remain continuously as an Employee of the Company or any
subsidiary until some or all of the PSAs become vested in
accordance with the preceding sentence will forfeit all such
unvested shares and the rights of a holder of such shares without
any payment of consideration by the Company, unless otherwise
provided in his or her Employment Agreement or unless the
Compensation Committee has waived this condition. An Employee
shall not be deemed to have terminated his or her period of
continuous employment with the Company if he or she leaves the
employ of the Company or any subsidiary for immediate
reemployment with the Company or any subsidiary.
3. The PSAs may not be transferred except by will or the
laws of descent and distribution.
4. As PSA shares vest, an Employee shall be entitled to
receive the shares and the Company shall issue the appropriate
number of shares registered in the name of the Employee or his or
her estate or administrator, as deemed appropriate by the
Company.
5. The holder of PSAs shall not be entitled to any of the
rights of a holder of the Common Stock with respect to the shares
subject to such PSAs prior to the issuance of such shares
pursuant to the Plan. However, during the Restricted Period, for
each share subject to an PSA, the Company will pay the Employee
an amount in cash equal to the cash dividend declared on a share
of Common Stock of the Company during the Restricted Period on or
about the date the Company pays such dividend to its stockholders
of record, provided, however, that any such dividends will be
held by the Company without interest, until the Performance
Condition has been satisfied or the Performance Condition has
been waived by the Compensation Committee in its sole discretion.
At that time, all past and future amounts attributable to
dividends paid or payable to holders of the Common Stock shall be
paid to the Employee by the Company as additional income, less
applicable taxes.
6. Any and all taxes required to be withheld by the
Company as a result of the issuance of any shares pursuant to the
PSAs shall be the sole responsibility of the Employee.
7. Notice to the Company shall be addressed to the Company
in care of its Secretary at 2700 Sanders Road, Prospect Heights,
Illinois 60070 and notice to the Employee shall be addressed to<PAGE>
<PAGE> 12
him or her at the address as set forth on the cover sheet of this
Agreement, or at such other address as either party may hereafter
designate in writing to the other.
8. Anything herein to the contrary notwithstanding, this
PSA agreement shall be subject to amendment by the Company from
time to time to the extent permitted by the Incentive Plan and is
subject to the provisions of the Incentive Plan.
U:\WP\EMP819\EDGAR\IEX104.WP
<PAGE> 1
January 3, 1994
Mr. Donald C. Clark
2700 Sanders Road
Prospect Heights, IL 60070
Dear Don:
SUBJECT: Employment Agreement
- - ------------------------------
We wish you to remain in the employ of Household International,
Inc. ("Household" or the "Corporation") and to provide you with
fair and equitable treatment along with a competitive
compensation package. Also, we wish to assure your continued
attention to your duties without any possible distraction
arising out of uncertain personal circumstances in a change in
control environment. We recognize that in the event of a
Change in Control of Household (as such term is defined herein)
it is likely that your duties and responsibilities would be
substantially altered.
1. At present you are employed by Household as Chairman of
the Board and Chief Executive Officer. In that capacity
you are entitled to the following:
a. A minimum annual salary of $1,000,000;
b. An annual bonus having a targeted value equal to
65% of your annualized salary as of the end of the
period in which the bonus is earned. The amount of
bonus for any year that you actually receive, if any,
will depend on the achievement of the corporate and
your individual goals established for that year and
the terms of the Household International Corporate
Executive Bonus Plan, and any successor or substitute
plan or plans (the "Bonus Plan"). Your bonus will be
prorated based on the number of elapsed months in the
performance period in the case of death, permanent and
total disability, or retirement under the Household
Retirement Income Plan or any successor tax qualified
defined benefit plan;
c. An annual grant of any combination of performance unit
awards and restricted stock rights under the Household
International Long-Term Executive Incentive
Compensation Plan, and any successor or substitute
plan or plans (the "Long-Term Plan"), having a
targeted value of 40% of your then annual salary at
the time of the grant. The performance unit awards
are to be earned over a three year cycle, which will
be prorated on the number of elapsed months in the
performance period in the case of death, permanent and
total disability or retirement under the Household
Retirement Income Plan or any successor tax qualified
defined benefit plan. Performance unit awards will be
valued at their targeted value and restricted stock
rights will be valued at the fair market value of
stock at the date of grant; and
d. Other compensation, benefits and perquisites as
described in, and in accordance with, Household's
compensation, benefit and perquisite plans (the
"Plans").
2. Subject to termination as provided herein, the term of
this Agreement shall be for 18 whole calendar months,
shall commence on the date hereof, and shall be
"evergreen"; that is shall continue monthly as an 18 month
term, unless the Corporation gives to you not less than 17
whole calendar months notice that the term as monthly
continued shall not be so continued; provided further,
that in no event shall the term be continued beyond your
sixty-fifth birthday.
<PAGE>
<PAGE> 2
3. During your employment with Household you will devote your
reasonably full time and energies to the faithful and
diligent performance of the duties inherent in, and
implied by, your executive position.
4. In consideration of your employment with Household, it is
mutually agreed that:
a. In the event your employment with Household is
terminated during the term of this Agreement by
Household for any reason other than:
i. willful and deliberate misconduct which is
detrimental in a significant way to the
interests of the Corporation;
ii. death;
iii. inability, for reasons of disability,
reasonably to perform your duties for 6
consecutive calendar months; or,
b. In the event that during the term of this Agreement
you resign your position with Household because within
6 whole calendar months of your resignation one or
more of the following events occurred to you:
i. your annual salary was reduced;
ii. your annual target bonus or the targeted value
of any combination of performance unit awards
and restricted stock rights calculated as
provided in paragraph 1c was reduced and
compensation equivalent in aggregate value was
not substituted;
iii. your benefits under the Household Retirement
Income Plan or any successor tax qualified
defined benefit plan were reduced for reasons
other than to maintain its tax qualified status
and such reductions were not supplemented in
the Household Supplemental Retirement Income
Plan ("HSRIP"); or your benefits under HSRIP
were reduced;
iv. your other benefits or perquisites were reduced
and such reductions were not uniformally
applied with respect to all similarly situated
employees;
v. you were reassigned to a geographical area
outside of the Chicago, Illinois metropolitan
area;
vi. any successor to the Corporation by acquisition
of stock or substantially all of the assets, by
merger or otherwise, failed to expressly adopt
or otherwise repudiated this Employment
Agreement; or
vii. you received written notice that your
employment contract was not renewed;
Household shall be required, and hereby agrees, to make
promptly a lump sum cash payment to you in an amount equal
to 320% of your then annual salary (prior to any of the
aforesaid reductions) (representing approximately the
present value of what you would have received had your
employment, compensation and participation in benefit
plans, other than stock options, continued for the term of
this employment contract); provided, however, if the term
of this Agreement is less than 18 months because you are
within 18 months of becoming age 65, the amount shall be
multiplied by a fraction the numerator of which is the
number of months left in the term, and the denominator of
which is 18. This payment shall be in addition to all
other compensation and benefits accrued to the date of
termination of employment. Also, the Compensation
Committee of Household's Board of Directors has determined<PAGE>
<PAGE> 3
that you will be entitled to receive a portion of your
bonus and performance unit awards for the performance
periods in which your employment terminates. Such portion
will be determined on the basis of the portion of the
performance period elapsed as of your date of termination
over the total performance period, and it will be assumed
that individual and corporate target levels have been met.
5. It is further mutually agreed that:
a. should your employment be terminated pursuant to the
provisions of paragraph 4a; or
b. should you resign your position for any reason
at any time within sixty (60) whole calendar months
following a Change in Control of Household, Household or
its successor shall pay to you the amounts (including the
lump sum payment) described in paragraph 4 regardless of
whether you are otherwise entitled to them under paragraph
4. In addition, Household or its successor shall promptly
make a lump sum cash payment to you in an amount equal to
360% of your then annual salary (prior to any reduction).
For purposes of this Agreement, a Change in Control of
Household shall be deemed to occur when and if:
i. any "person" (as the term is used in Section 13(d) and
Section 14(d)(2) of the Securities Exchange Act of
1934) other than a trustee or other fiduciary of
securities held under an employee benefit plan of
Household becomes the beneficial owner, directly or
indirectly, of securities of Household representing
20% or more of the combined voting power of
Household's then outstanding securities; or
ii. persons who were directors of Household as of the
effective date hereof, or successor directors
nominated by those directors or by such successor
directors cease to constitute a majority of the Board
of Directors of Household or its successor by merger,
consolidation or sale of assets.
6. You are not required to mitigate the amount of any
payments to be made by Household pursuant to this
Agreement by seeking other employment, or otherwise, nor
shall the amount of any payments provided for in this
Agreement be reduced by any compensation earned by you as
the result of self-employment or your employment by
another employer after the date of termination of your
employment with Household.
7. Except as provided below, it is the intent and desire of
Household that the salary, bonuses and other benefits
provided for herein shall be paid to you without any
diminution by reason of the assessment of any "golden
parachute" excise tax pursuant to the Internal Revenue
Code of 1986, as from time to time amended, (hereinafter
the "Code"), or state law. Accordingly, in the event that
any excise tax is assessed against you pursuant to the
provisions of sections 280G and 4999 of the Code (or
successor provisions) or comparable provisions of state
law, whether with respect to any payments made to you
pursuant to the provisions of this Agreement or payments
otherwise arising out of your employment relationship,
Household or any successor, upon notification of such
assessment, shall promptly pay to you such amount as is
necessary to provide you with the same after-tax benefit
that you would have received had there been no "golden
parachute" excise tax. For this purpose, Household or its
successor shall assume that you are taxed at the highest
individual federal and state income tax rates (without
regard to Section 1(g) of the Code or successor provisions
thereto).
However, if any part or all of the amounts to be paid to
you constitute "parachute payments" within the meaning of
section 280G(b)(2)(A) of the Code, and a reduction of the
amount by 10% or less would totally avoid the imposition<PAGE>
<PAGE> 4
of any excise tax, such amounts shall be reduced so that
the aggregate present value of the amounts constituting
such parachute payments will be equal to 299% of your
"annualized includible compensation for the base period,"
as such term is defined in section 280G(d)(1) of the Code.
For the purpose of this subparagraph, present value shall
be determined in accordance with section 280G(d)(4) of the
Code.
8. If a dispute arises regarding the termination of your
employment or the interpretation or enforcement of this
Agreement and you obtain a final judgment in your favor
from a court of competent jurisdiction from which no
appeal may be taken, whether because the time to do so has
expired or otherwise, or your claim is settled by
Household or its successor prior to the rendering of such
a judgment, all reasonable legal and other professional
fees and expenses incurred by you in contesting or
disputing any such termination or in seeking to obtain or
enforce any right or benefit provided for in this
Agreement or in otherwise pursuing your claim will be
promptly paid by Household or its successor with interest
thereon at the highest statutory rate of your state of
domicile for interest on judgments against private parties
from the date of payment thereof by you to the date of
reimbursement to you by Household or its successor.
9. You agree that you will not, without prior written consent
of the Board of Directors of Household, during the term of
or after the termination of your employment under this
Agreement, directly or indirectly, disclose to any
individual, corporation, or other entity (other than
Household, or any subsidiary or affiliate thereof, or its
officers, directors, or employees entitled to such
information, or any other person or entity to whom such
information is regularly disclosed in the normal course of
Household's business), or use for your own benefit or for
the benefit of such individual, corporation or other
entity, any information whether or not reduced to written
or other tangible form, which:
a. is not generally known to the public or in the
industry;
b. has been treated by Household as confidential or
proprietary; and
c. is of competitive advantage to Household and in the
confidentiality of which Household has a legally
protectible interest,
(such information being referred to herein as
"Confidential Information"). Confidential Information
which becomes generally known to the public or in the
industry, or in the confidentiality of which Household
ceases to have a legally protectible interest, shall cease
to be subject to the restrictions of this paragraph.
10. This Agreement supersedes and replaces the Employment
Agreement dated May 12, 1993, the Employment Agreement
dated December 1, 1989, the Supplemental Employment
Agreement dated September 9, 1987, and the Senior
Executive Employment Agreement dated August 15, 1984,
between you and Household, all in furtherance of the
objectives previously authorized and deemed by the Board
of Directors of Household to serve the best interests of
the Corporation.
11. Any successor to the Corporation, by acquisition of stock
or substantially all of the assets, by merger or
otherwise, shall be required to adopt and abide by the
terms of this Agreement. This Agreement, and any rights
to receive payments hereunder, may not be transferred,
assigned or alienated by you.
12. All benefits under this Agreement shall be general
obligations of the Corporation which shall not require the
segregation of any funds or property. Notwithstanding the
foregoing, in the discretion of the Corporation, the<PAGE>
<PAGE> 5
Corporation may establish a grantor trust or other vehicle
to assist it in meeting its obligations hereunder, but any
such trust or other vehicle shall not create a funded
account or security interest for you.
13. This Agreement may only be amended or terminated by
written agreement, signed by both of the parties.
Our signatures below indicate our mutual agreement and
acceptance of the foregoing terms and provisions, all as of the
date first above set forth.
Sincerely,
HOUSEHOLD INTERNATIONAL, INC.
By: /s/ Raymond C. Tower
-----------------------------------
Raymond C. Tower
Chairman of the Compensation
Committee of the Board of Directors
/s/ Donald C. Clark
-----------------------------------
Donald C. Clark
A:\IEX107.WP
EXHIBIT 12
HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
- - -----------------------------------------------------------------
All dollar amounts are stated in millions.
Three Months Ended March 31 1994 1993
- - -----------------------------------------------------------------
Net income $ 77.6 $ 60.6
- - -----------------------------------------------------------------
Income taxes 42.0 30.3
- - -----------------------------------------------------------------
Fixed charges:
Interest expense (1) 259.1 314.3
Interest portion of rentals (2) 8.7 8.2
- - -----------------------------------------------------------------
Total fixed charges 267.8 322.5
- - -----------------------------------------------------------------
Total earnings as defined $387.4 $413.4
- - -----------------------------------------------------------------
Ratio of earnings to fixed charges 1.45 1.28
=================================================================
Preferred stock dividends (3) $ 11.6 $ 12.4
=================================================================
Ratio of earnings to combined fixed charges
and preferred stock dividends 1.39 1.23
=================================================================
(1) For financial statement purposes, interest expense includes
income earned on temporary investment of excess funds,
generally resulting from over-subscriptions of commercial
paper.
(2) Represents one-third of rentals, which approximates the
portion representing interest.
(3) Preferred stock dividends are grossed up to their pretax
equivalent based upon an effective tax rate of 35.1 and
33.3 percent for March 31, 1994 and 1993, respectively.
C:\WP51\BACK\IEX12.AS1
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF HOUSEHOLD INTERNATIONAL, INC.
- - ---------------------------------------------
As of December 31, 1993 the following subsidiaries were directly
or indirectly owned by the Registrant. Certain subsidiaries
which in the aggregate do not constitute significant subsidiaries
may be omitted.
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- - --------------------- --------- ------
Hamilton Investments, Inc. Delaware 100%
Alpha Source Asset Management, Inc. Delaware 100%
Craig-Hallum Corporation Delaware 100%
Craig-Hallum, Inc. Minnesota 100%
ProValue Investments, Inc. Delaware 100%
Household Bank, f.s.b U.S. 100%
Household Affinity Funding Corporation Delaware 100%
Household Bank (SB), N.A. U.S. 100%
Household Home Title Services, Inc. California 100%
Household Investment Services, Inc. California 100%
Household Insurance Services, Inc. Illinois 100%
Housekey Financial Corporation California 100%
Associations Service Corporation Indiana 100%
Household Mortgage Services, Inc. Delaware 100%
Security Investment Corporation Maryland 100%
Household Credit Services, Inc. Delaware 100%
Household Finance Corporation Delaware 100%
HFC Funding Corporation Delaware 100%
HFS Funding Corporation Delaware 100%
Household Bank (Nevada), N.A. U.S. 100%
Household Card Services, Inc. Nevada 100%
Household Bank (Illinois), N.A. U.S. 100%
Household Finance Receivables Corporation I Delaware 100%
Household Finance Receivables Corporation IIDelaware 100%
Household Financial Services, Inc. Delaware 100%
Household Group, Inc. Delaware 100%
Alexander Hamilton Insurance Company Illinois 100%
of America
Alexander Hamilton Life Insurance Company Michigan 100%
of America
Alexander Hamilton Capital Management, Michigan 100%
Inc.
Alexander Hamilton Insurance Agency, Inc. Michigan 100%<PAGE>
<PAGE> 2
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- - --------------------- --------- ------
Alexander Hamilton Life Insurance Co. Arizona 100%
of America
First Alexander Hamilton Life New York 100%
Insurance Co.
Hamilton National Life Insurance Company Michigan 100%
Cal-Pacific Services, Inc. California 100%
Household Business Services, Inc. Delaware 100%
Household Capital Markets, Inc. Delaware 100%
Household Commercial Financial Delaware 100%
Services, Inc.
Business Realty Inc. Delaware 100%
Business Lakeview, Inc. Delaware 100%
Capital Graphics, Inc. Delaware 100%
HCFS Business Equipment Corporation Delaware 100%
HFC Commercial Realty, Inc. Delaware 100%
Center Realty, Inc. Delaware 100%
Com Realty, Inc. Delaware 100%
G.C. Center, Inc. Delaware 100%
Land of Lincoln Builders, Inc. Illinois 100%
HFC Leasing, Inc. Delaware 100%
First HFC Leasing Corporation Delaware 100%
Second HFC Leasing Corporation Delaware 100%
Valley Properties Corporation Tennessee 100%
Fifth HFC Leasing Corporation Delaware 100%
Sixth HFC Leasing Corporation Delaware 100%
Seventh HFC Leasing Corporation Delaware 100%
Eighth HFC Leasing Corporation Delaware 100%
Tenth HFC Leasing Corporation Delaware 100%
Eleventh HFC Leasing Corporation Delaware 100%
Thirteenth HFC Leasing Corporation Delaware 100%
Fourteenth HFC Leasing Corporation Delaware 100%
Seventeenth HFC Leasing Corporation Delaware 100%
Nineteenth HFC Leasing Corporation Delaware 100%
Twenty-second HFC Leasing Corporation Delaware 100%
Twenty-sixth HFC Leasing Corporation Delaware 100%
Beaver Valley, Inc. Delaware 100%
Hull 752 Corporation Delaware 100%
Hull 753 Corporation Delaware 100%
Third HFC Leasing Corporation Delaware 100%
Macray Corporation California 100%
Fourth HFC Leasing Corporation Delaware 100%
Pargen Corporation California 100%
Fifteenth HFC Leasing Corporation Delaware 100%
Hull Fifty Corporation Delaware 100%<PAGE>
<PAGE> 3
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- - --------------------- --------- ------
Household Capital Investment Corporation Delaware 100%
B&K Corporation Michigan 94%
Household Commercial of California, Inc. California 100%
Amstelveen FSC Ltd. Bermuda 99%
Night Watch FSC Ltd. Bermuda 100%
Overseas Leasing Two FSC, Ltd. Bermuda 99%
Overseas Leasing Four FSC, Ltd. Bermuda 99%
Overseas Leasing Five FSC, Ltd. Bermuda 99%
Omni Products International, Inc. Rhode Island 100%
Omni World Trading Company H.K. Ltd. Hong Kong 99%
OPI, Inc. Virginia 100%
Household Finance Consumer Discount Company Pennsylvania 100%
Household Finance Corporation II Delaware 100%
Household Finance Corporation of Alabama Alabama 100%
Household Finance Corporation of California Delaware 100%
Household Finance Corporation of Nevada Delaware 100%
Household Finance Realty Corporation of Delaware 100%
New York
Household Finance Industrial Loan Company Washington 100%
Household Finance Realty Corporation of Delaware 100%
Nevada
Household Finance Corporation III Delaware 100%
Household Realty Corporation Delaware 100%
Overseas Leasing One FSC, Ltd. Bermuda 100%
Household Retail Services, Inc. Delaware 100%
HRSI Funding, Inc. Nevada 100%
Household Financial Center Inc. Tennessee 100%
Household Group Australia, Inc. Delaware 100%
HFC of Australia, Ltd. Victoria 100%
HFC Financial Services, Ltd. NewSouthWales 100%
BFC Finance Limited Victoria 100%
East Rock Finance Corporation Pty. Ltd. Victoria 100%
Heritage General Insurance Ltd. NewSouthWales 100%
Heritage Life Insurance Ltd. NewSouthWales 100%
HFC Leasing Ltd. NewSouthWales 100%
Household Building Society Tasmania 100%
Inter City Lease Management Pty. Ltd. NewSouthWales 100%
KeyJade Pty. Ltd. NewSouthWales 100%
Household Industrial Finance Company Minnesota 100%
Household Industrial Loan Co. of Kentucky Kentucky 100%
Household Insurance Agency, Inc. Nevada 100%
Household Recovery Services Corporation Delaware 100%
Household Relocation Management, Inc. Illinois 100%
Mortgage One Corporation Delaware 100%
Mortgage Two Corporation Delaware 100%<PAGE>
<PAGE> 4
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- - --------------------- --------- ------
Sixty-First HFC Leasing Corporation Delaware 100%
Household Bank, N.A. U.S. 100%
Household Receivables Funding Corporation Nevada 100%
Household Receivables Funding Delaware 100%
Corporation II
Household Receivables Funding, Inc. Delaware 100%
Household Financial Group, Ltd. Delaware 100%
Household Global Funding, Inc. Delaware 78%
Household International (U.K.) Limited U.K. 100%
D.L.R.S. Limited Cheshire 100%
HFC Bank plc U.K. 100%
Hamilton Life Assurance Co. Limited U.K. 100%
Hamilton Insurance Co. Limited U.K. 100%
Hamilton Financial Planning Services U.K. 100%
Limited
HFC Pension Plan Limited England 100%
Household Funding Limited U.K. 100%
Household Investments Limited England/Wales 100%
Household Leasing Limited England 100%
Household Management Corporation Limited England/Wales 100%
Household Overseas Limited England 100%
Household International Netherlands, B.V. Netherlands 100%
Household Financial Corporation Limited Ontario 100%
Auto League of North America Limited Canada 100%
HFC of Canada Canada 100%
Household Realty Corporation Limited Ontario 100%
Household Trust Company Canada 100%
Merchant Retail Services Limited Ontario 100%
Household Mexico, Inc. Delaware 100%
Household de Mexico S.A. de C.V. Mexico 99%
Household Reinsurance Ltd. Bermuda 100%
Land of Lincoln Real Estate, Ltd. Illinois 100%
A:\WP\EX21
