<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 June 30, 1995
-------------
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 July 31, 1995, there were 97,877,093 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.
- -------------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance income . . . . . . . . . . . . . . . . . . . . . . . $1,395.2 $1,268.0 $713.5 $651.9
Interest income from noninsurance investment securities. . . 85.1 60.9 48.8 29.2
Interest expense . . . . . . . . . . . . . . . . . . . . . . 777.5 551.6 400.1 294.2
----------------------------------------------
Net interest margin. . . . . . . . . . . . . . . . . . . . . 702.8 777.3 362.2 386.9
Provision for credit losses on owned receivables . . . . . . 381.5 328.9 217.2 154.8
----------------------------------------------
Net interest margin after provision for credit losses. . . . 321.3 448.4 145.0 232.1
----------------------------------------------
Securitization income. . . . . . . . . . . . . . . . . . . . 432.3 302.6 219.5 139.7
Insurance premiums and contract revenues . . . . . . . . . . 174.4 160.0 86.7 79.4
Investment income. . . . . . . . . . . . . . . . . . . . . . 277.8 259.4 138.0 120.9
Fee income . . . . . . . . . . . . . . . . . . . . . . . . . 90.8 128.8 44.0 66.0
Other income . . . . . . . . . . . . . . . . . . . . . . . . 131.4 81.1 90.5 45.1
----------------------------------------------
Total other revenues . . . . . . . . . . . . . . . . . . . . 1,106.7 931.9 578.7 451.1
----------------------------------------------
Salaries and fringe benefits . . . . . . . . . . . . . . . . 286.8 331.7 141.0 167.4
Other operating expenses . . . . . . . . . . . . . . . . . . 538.8 545.0 264.1 261.9
Policyholders' benefits. . . . . . . . . . . . . . . . . . . 282.9 259.2 142.7 129.1
----------------------------------------------
Total costs and expenses . . . . . . . . . . . . . . . . . . 1,108.5 1,135.9 547.8 558.4
----------------------------------------------
Income before income taxes . . . . . . . . . . . . . . . . . 319.5 244.4 175.9 124.8
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 117.2 82.3 69.6 40.3
----------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 202.3 $ 162.1 $106.3 $ 84.5
==============================================
Earnings per common share:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 202.3 $ 162.1 $106.3 $ 84.5
Preferred dividends. . . . . . . . . . . . . . . . . . . . (13.8) (13.8) (6.9) (6.9)
----------------------------------------------
Earnings available to common shareholders. . . . . . . . . $ 188.5 $ 148.3 $ 99.4 $ 77.6
==============================================
Average common and common equivalent shares. . . . . . . . 98.9 97.1 99.2 97.1
==============================================
Fully diluted earnings per common share. . . . . . . . . . $ 1.91 $ 1.53 $ 1.00 $ .80
==============================================
Primary earnings per common share. . . . . . . . . . . . . $ 1.91 $ 1.55 $ 1.00 $ .81
==============================================
Dividends declared per common share. . . . . . . . . . . . . $ .63 $ .60 $ .315 $ .30
==============================================
</TABLE>
See notes to condensed financial statements.<PAGE>
<PAGE> 3
Household International, Inc. and Subsidiaries
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
In millions.
- -------------------------------------------------------------------------------------------------------------
June 30, December 31,
1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ------
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 436.6 $ 541.2
Investment securities (fair value of $8,686.0 and $8,961.2). . . 8,561.4 9,004.5
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . 22,505.3 20,778.3
Assets pending sale. . . . . . . . . . . . . . . . . . . . . . . - 398.3
Deferred insurance policy acquisition costs. . . . . . . . . . . 483.7 621.4
Acquired intangibles . . . . . . . . . . . . . . . . . . . . . . 532.5 649.9
Properties and equipment . . . . . . . . . . . . . . . . . . . . 461.1 512.0
Real estate owned. . . . . . . . . . . . . . . . . . . . . . . . 157.1 182.8
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,431.2 1,650.0
------------------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $34,568.9 $34,338.4
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Debt:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,966.0 $ 8,439.0
Commercial paper, bank and other borrowings. . . . . . . . . . 6,001.4 4,372.1
Senior and senior subordinated debt (with original
maturities over one year). . . . . . . . . . . . . . . . . . 10,803.1 10,274.1
------------------------------------
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,770.5 23,085.2
Insurance policy and claim reserves. . . . . . . . . . . . . . . 6,898.0 6,715.8
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . 2,039.6 2,014.4
------------------------------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . 31,708.1 31,815.4
------------------------------------
Company obligated mandatorily redeemable preferred securities
in trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 75.0 -
------------------------------------
Convertible preferred stock subject to mandatory redemption. . . - 2.6
------------------------------------
Preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . 320.0 320.0
------------------------------------
Common shareholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . 115.7 115.0
Additional paid-in capital . . . . . . . . . . . . . . . . . . 385.0 362.1
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 2,524.4 2,397.4
Foreign currency translation adjustments . . . . . . . . . . . (122.0) (123.6)
Unrealized loss on investments, net. . . . . . . . . . . . . . (.5) (103.6)
Common stock in treasury . . . . . . . . . . . . . . . . . . . (436.8) (446.9)
------------------------------------
Total common shareholders' equity. . . . . . . . . . . . . . . . 2,465.8 2,200.4
------------------------------------
Total liabilities and shareholders' equity . . . . . . . . . . . $34,568.9 $34,338.4
====================================
See notes to condensed financial statements.
/TABLE
<PAGE>
<PAGE> 4
Household International, Inc. and Subsidiaries
STATEMENTS OF CASH FLOWS
- ------------------------
<TABLE>
<CAPTION>
In millions.
- -------------------------------------------------------------------------------------------------------------
Six months ended June 30 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATIONS
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 202.3 $ 162.1
Adjustments to reconcile net income to net cash provided by operations:
Provision for credit losses on owned receivables . . . . . . . . . . 381.5 328.9
Insurance policy and claim reserves. . . . . . . . . . . . . . . . . 197.4 138.8
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . 137.9 120.5
Net realized gains from sales of assets/businesses . . . . . . . . . (78.5) (7.8)
Deferred insurance policy acquisition costs. . . . . . . . . . . . . (42.9) (46.0)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.9 101.3
-----------------------------------
Cash provided by operations. . . . . . . . . . . . . . . . . . . . . . 827.6 797.8
-----------------------------------
INVESTMENTS IN OPERATIONS
Investment securities:
Purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,775.9) (2,388.5)
Matured. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 957.7 501.5
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,100.6 1,611.4
Short-term investment securities, net change . . . . . . . . . . . . . 482.9 79.9
Receivables, excluding bankcard:
Originated or purchased. . . . . . . . . . . . . . . . . . . . . . . (6,309.9) (5,383.3)
Collected. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,374.0 3,727.4
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,515.5 1,064.1
Bankcard receivables:
Originated or collected, net . . . . . . . . . . . . . . . . . . . . (9,686.3) (6,743.4)
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,474.9 6,496.9
Disposition of banking organizations:
Assets sold, net . . . . . . . . . . . . . . . . . . . . . . . . . . 104.0 -
Deposits and other liabilities sold. . . . . . . . . . . . . . . . . (2,670.9) -
(Acquisition) disposition of businesses, net . . . . . . . . . . . . . 204.9 (138.1)
Properties and equipment purchased . . . . . . . . . . . . . . . . . . (38.4) (61.1)
Properties and equipment sold. . . . . . . . . . . . . . . . . . . . . 4.7 2.3
-----------------------------------
Cash decrease from investments in operations . . . . . . . . . . . . . (3,262.2) (1,230.9)
-----------------------------------
FINANCING AND CAPITAL TRANSACTIONS
Short-term debt, net change. . . . . . . . . . . . . . . . . . . . . . 1,201.2 (316.5)
Time certificates accepted . . . . . . . . . . . . . . . . . . . . . . 2,043.2 1,708.4
Time certificates paid . . . . . . . . . . . . . . . . . . . . . . . . (1,390.6) (1,590.0)
Senior and senior subordinated debt issued . . . . . . . . . . . . . . 1,898.5 2,011.7
Senior and senior subordinated debt retired. . . . . . . . . . . . . . (1,450.9) (1,514.7)
Policyholders' benefits paid . . . . . . . . . . . . . . . . . . . . . (489.7) (249.1)
Cash received from policyholders . . . . . . . . . . . . . . . . . . . 481.6 472.7
Shareholders' dividends. . . . . . . . . . . . . . . . . . . . . . . . (75.3) (71.7)
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . 15.6 3.8
Issuance of company obligated mandatorily redeemable
preferred securities in trust. . . . . . . . . . . . . . . . . . . . 75.0 -
-----------------------------------
Cash increase from financing and capital transactions. . . . . . . . . 2,308.6 454.6
-----------------------------------
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . 21.4 13.4
-----------------------------------
Increase (decrease) in cash. . . . . . . . . . . . . . . . . . . . . . (104.6) 34.9
Cash at January 1. . . . . . . . . . . . . . . . . . . . . . . . . . . 541.2 317.4
-----------------------------------
Cash at June 30. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 436.6 $ 352.3
===================================
Supplemental cash flow information:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 695.8 $ 568.8
===================================
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 131.3 $ 120.4
===================================
See notes to condensed financial statements.
/TABLE
<PAGE>
<PAGE> 5
Household International, Inc. and Subsidiaries
BUSINESS SEGMENT DATA
- ---------------------
The company reassessed the significance of its Liquidating Commercial Lines
("LCL") and Corporate segments as of December 31, 1994. In recognition of the
significant 1994 decline in the level of LCL assets, a reduced risk posture for
these assets and the relative financial insignificance of the Corporate segment
to the company's operations, the LCL and Corporate segments have been combined
with the Finance and Banking segment. To better analyze financial condition and
results of operations and related trends, prior year earnings and selected
balance sheet data have been reclassified to reflect this combination.
<TABLE>
<CAPTION>
In millions.
- -------------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
- --------
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . $2,244.7 $1,939.1 $1,170.5 $ 982.0
Individual Life Insurance. . . . . . . . . . . . . . . . . . . . 342.3 321.7 170.5 150.2
-------------------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,587.0 $2,260.8 $1,341.0 $1,132.2
===========================================
NET INCOME
- ----------
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . $ 178.0 $ 139.8 $ 93.2 $ 73.9
Individual Life Insurance. . . . . . . . . . . . . . . . . . . . 24.3 22.3 13.1 10.6
-------------------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 202.3 $ 162.1 $ 106.3 $ 84.5
===========================================
Return on average owned assets (1) . . . . . . . . . . . . . . . 1.15% .98% 1.20% 1.01%
-------------------------------------------
Return on average common shareholders' equity (1). . . . . . . . 16.0% 14.2% 16.5% 15.0%
-------------------------------------------
Efficiency ratio, normalized (2) . . . . . . . . . . . . . . . . 56.4% 60.5% 54.5% 60.6%
-------------------------------------------
(1) Annualized
(2) The company defines efficiency ratio as salaries and fringe benefits and other operating expenses as
a percent of net interest margin and total other revenues less policyholders' benefits. The normalized
efficiency ratio excludes certain non-recurring items. Including these non-recurring items, the
efficiency ratio was 50.8 and 54.1 percent for the second quarter and first six months of 1995 compared
to 60.6 and 60.5 percent in the respective periods of 1994.
</TABLE>
<TABLE>
<CAPTION>
In millions.
- -------------------------------------------------------------------------------------------------------------
June 30, December 31,
Assets 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . $26,758.5 $26,897.0
Individual Life Insurance. . . . . . . . . . . . . . . . . . . . 7,810.4 7,441.4
---------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,568.9 $34,338.4
=================================
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,
1994. 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
---------------------
<TABLE>
<CAPTION>
Investment securities consisted of the following:
---------------------------------------------------------------------------------------------------------
In millions. June 30, 1995 December 31, 1994
---------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRADING INVESTMENTS
Government securities and other. . . . . . . . . . . . . . . $ 2.3 $ 2.3 $ 17.3 $ 17.3
-------------------------------------------
AVAILABLE-FOR-SALE INVESTMENTS
Marketable equity securities . . . . . . . . . . . . . . . . 75.7 75.7 60.3 60.3
Corporate debt securities. . . . . . . . . . . . . . . . . . 2,744.6 2,744.6 2,595.9 2,595.9
Government and agency debt securities. . . . . . . . . . . . 308.1 308.1 479.1 479.1
Mortgage-backed securities . . . . . . . . . . . . . . . . . 1,332.8 1,332.8 1,755.6 1,755.6
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 150.8 150.8 109.5 109.5
-------------------------------------------
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . 4,612.0 4,612.0 5,000.4 5,000.4
-------------------------------------------
HELD-TO-MATURITY INVESTMENTS
Corporate debt securities. . . . . . . . . . . . . . . . . . 1,797.7 1,909.8 1,906.1 1,897.2
Government debt securities . . . . . . . . . . . . . . . . . 32.1 30.9 34.4 30.9
Mortgage-backed securities . . . . . . . . . . . . . . . . . 1,190.3 1,203.7 1,136.5 1,116.8
Mortgage loans on real estate. . . . . . . . . . . . . . . . 142.7 145.7 161.9 158.5
Policy loans . . . . . . . . . . . . . . . . . . . . . . . . 79.1 79.1 72.7 72.7
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 586.1 583.4 549.9 542.1
-------------------------------------------
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . 3,828.0 3,952.6 3,861.5 3,818.2
-------------------------------------------
Accrued investment income. . . . . . . . . . . . . . . . . . 119.1 119.1 125.3 125.3
-------------------------------------------
Total investment securities. . . . . . . . . . . . . . . . . $8,561.4 $8,686.0 $9,004.5 $8,961.2
===========================================
/TABLE
<PAGE>
<PAGE> 7
3. RECEIVABLES
-----------
<TABLE>
<CAPTION>
Receivables consisted of the following:
----------------------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1995 1994
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
First mortgage . . . . . . . . . . . . . . . . . . . . . . . $ 3,202.5 $ 3,364.2
Home equity. . . . . . . . . . . . . . . . . . . . . . . . . 3,795.1 2,865.6
Other secured. . . . . . . . . . . . . . . . . . . . . . . . 594.2 676.9
Bankcard . . . . . . . . . . . . . . . . . . . . . . . . . . 4,913.9 4,788.9
Merchant participation . . . . . . . . . . . . . . . . . . . 3,130.8 2,564.9
Other unsecured. . . . . . . . . . . . . . . . . . . . . . . 5,754.7 5,137.2
Equipment financing and other commercial . . . . . . . . . . 1,023.8 1,157.9
-----------------------------------
Total receivables owned . . . . . . . . . . . . . . . . . . 22,415.0 20,555.6
Accrued finance charges. . . . . . . . . . . . . . . . . . . 337.5 305.0
Credit loss reserve for owned receivables. . . . . . . . . . (661.1) (546.0)
Unearned credit insurance premiums and claims reserves . . . (132.0) (122.2)
Amounts due and deferred from receivables sales. . . . . . . 842.0 922.4
Reserve for receivables serviced with limited recourse . . . (296.1) (336.5)
-----------------------------------
Total receivables owned, net . . . . . . . . . . . . . . . . 22,505.3 20,778.3
Receivables serviced with limited recourse . . . . . . . . . 12,550.5 12,495.1
-----------------------------------
Total managed receivables, net . . . . . . . . . . . . . . . $35,055.8 $33,273.4
===================================
The outstanding balance of receivables serviced with limited recourse
consisted of the following:
----------------------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1995 1994
----------------------------------------------------------------------------------------------------------
Home equity. . . . . . . . . . . . . . . . . . . . . . . . . $ 4,944.5 $ 5,074.6
Bankcard . . . . . . . . . . . . . . . . . . . . . . . . . . 6,585.9 6,311.3
Merchant participation . . . . . . . . . . . . . . . . . . . 775.8 868.2
Other unsecured. . . . . . . . . . . . . . . . . . . . . . . 244.3 241.0
-----------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,550.5 $12,495.1
===================================
The combination of receivables owned and receivables serviced with limited
recourse, which the company considers its managed portfolio, is shown below:
----------------------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1995 1994
----------------------------------------------------------------------------------------------------------
First mortgage . . . . . . . . . . . . . . . . . . . . . . . $ 3,202.5 $ 3,364.2
Home equity. . . . . . . . . . . . . . . . . . . . . . . . . 8,739.6 7,940.2
Other secured. . . . . . . . . . . . . . . . . . . . . . . . 594.2 676.9
Bankcard . . . . . . . . . . . . . . . . . . . . . . . . . . 11,499.8 11,100.2
Merchant participation . . . . . . . . . . . . . . . . . . . 3,906.6 3,433.1
Other unsecured. . . . . . . . . . . . . . . . . . . . . . . 5,999.0 5,378.2
Equipment financing and other commercial . . . . . . . . . . 1,023.8 1,157.9
-----------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,965.5 $33,050.7
===================================
</TABLE>
<PAGE>
<PAGE> 8
The amounts due and deferred from receivables sales of $842.0 million at
June 30, 1995 included unamortized excess servicing assets and funds
established pursuant to the recourse provisions and holdback reserves for
certain sales totaling $789.2 million. The amounts 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 $277.3 million plus unpaid interest and has
subordinated interests in certain transactions, which are recorded as
receivables, for $125.8 million at June 30, 1995. The company has an
agreement with a "AAA"-rated third party who will indemnify the company
for up to $21.2 million in losses relating to certain securitization
transactions. 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 $296.1 million at June 30, 1995 and represent the
company's best estimate of probable losses on receivables serviced with
limited recourse.
See Note 4, "Credit Loss Reserves" for an analysis of credit loss reserves
for receivables. See "Management's Discussion and Analysis" on pages 18
and 19 for additional information related to the credit quality of
receivables.
4. CREDIT LOSS RESERVES
--------------------
<TABLE>
<CAPTION>
An analysis of credit loss reserves for the six months ended June 30 was as
follows:
------------------------------------------------------------------------------------------------
In millions. 1995 1994
------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit loss reserves for owned receivables at January 1. . . . . . . . $ 546.0 $ 621.9
Provision for credit losses - owned receivables. . . . . . . . . . . . 381.5 328.9
Owned receivables charged off . . . . . . . . . . . . . . . . . . . . (345.2) (391.9)
Recoveries on owned receivables . . . . . . . . . . . . . . . . . . . 64.0 55.7
Credit loss reserves on receivables purchased, net . . . . . . . . . . 4.7 .4
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 (1.8)
----------------------
TOTAL CREDIT LOSS RESERVES FOR OWNED RECEIVABLES AT JUNE 30 661.1 613.2
----------------------
Credit loss reserves for receivables serviced with
limited recourse at January 1. . . . . . . . . . . . . . . . . . . . 336.5 222.8
Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . 128.1 134.1
Chargeoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (179.9) (119.1)
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4 3.7
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0 (1.1)
-----------------------
TOTAL CREDIT LOSS RESERVES FOR RECEIVABLES SERVICED WITH
LIMITED RECOURSE AT JUNE 30 . . . . . . . . . . . . . . . . . . . . 296.1 240.4
-----------------------
TOTAL CREDIT LOSS RESERVES FOR MANAGED RECEIVABLES AT JUNE 30 . . . . $ 957.2 $ 853.6
=======================
</TABLE>
5. INCOME TAXES
------------
Effective tax rates for the six months ended June 30, 1995 and 1994 of 36.7
and 33.7 percent, respectively, differ from the statutory federal income
tax rate for the respective periods primarily because of the effects of
(a) foreign loss carry forwards, (b) amortization and write-offs of
intangible assets, (c) state and local income taxes, (d) reduction of
noncurrent tax requirements and (e) leveraged lease tax benefits.
<PAGE>
<PAGE> 9
6. EARNINGS PER COMMON SHARE
-------------------------
<TABLE>
<CAPTION>
Computations of earnings per common share for the six months ended June 30
were as follows:
----------------------------------------------------------------------------------------------------------
1995 1994
----------------- -----------------
Fully Fully
In millions, except per share data. Primary Diluted Primary Diluted
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $202.3 $202.3 $162.1 $162.1
Preferred dividends. . . . . . . . . . . . . . . . . . . . (13.9) (13.8) (14.5) (13.8)
-------------------------------------------
Net income available to common shareholders. . . . . . . . . $188.4 $188.5 $147.6 $148.3
===========================================
Average shares:
Common . . . . . . . . . . . . . . . . . . . . . . . . . . 97.1 97.1 94.7 94.7
Common equivalents . . . . . . . . . . . . . . . . . . . . 1.6 1.8 .6 2.4
-------------------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . 98.7 98.9 95.3 97.1
===========================================
Earnings per common share. . . . . . . . . . . . . . . . . . $ 1.91 $ 1.91 $ 1.55 $ 1.53
===========================================
</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.
7. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES IN TRUST
----------------------------------------------------------------------
In June 1995 Household Capital Trust I ("the trust"), a subsidiary of the
company, issued 3 million 8.25 percent Trust Originated Preferred Securities
("preferred securities") at $25 per preferred security. The sole asset of
the trust is Junior Subordinated Deferrable Interest Notes ("junior
subordinated notes") issued by the company. The junior subordinated notes
bear interest at 8.25 percent on principal of $77.2 million, which is
equivalent to the amount of the trust's common and preferred equity. The
junior subordinated notes mature on June 30, 2025 and are redeemable by the
company in whole or in part beginning on June 30, 2000, at which time the
preferred securities are callable. On June 30, 2025 (or June 30, 2044, if
the trust elects, at its option, to extend the maturity date for the
preferred issuance), the trust will liquidate, at which time its preferred
securities must be redeemed for $25 per preferred security plus accrued
dividends. The preferred securities are classified in the company's balance
sheet as company obligated mandatorily redeemable preferred securities in
trust (representing the minority interest in the trust) at their face and
redemption amount of $75 million. Dividends on the preferred securities are
cumulative, payable quarterly in arrears, and are deferable at the company's
option for up to five years. The company cannot pay dividends on its
preferred and common stocks during such deferments. Net proceeds from the
issuance were used for general corporate purposes, including reduction of
short-term debt.
<PAGE>
<PAGE> 10
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CONSOLIDATED OVERVIEW
Operations Summary
------------------
Net income for the second quarter and first six months of 1995 was $106.3
and $202.3 million, up 26 and 25 percent from the respective 1994 periods.
Fully diluted earnings per share were $1.00 per share in the second quarter
and $1.91 per share for the first six months of 1995, up from $.80 and
$1.53 per share in the same periods in 1994.
- The following is a summary of the operating results of the company's
Finance and Banking businesses for the second quarter and first six
months of 1995 compared to the corresponding prior year periods:
The domestic consumer finance business reported higher net
interest margin, resulting from managed receivable portfolio
growth, and lower credit costs and operating expenses in the
second quarter and first six months of 1995. These improved
core operating results were offset by a write-down related to
the servicing of an unsecured loan portfolio.
The credit card business increased earnings primarily due to
increased net interest margin and fee income, partially offset by
higher credit costs resulting from a larger managed receivable
portfolio. The domestic bankcard business continued to benefit
from the company's association with the General Motors credit
card ("GM Card") program.
Net income increased in the United Kingdom operation primarily
due to improved efficiency and managed receivable growth,
particularly in unsecured products, including the GM Card from
Vauxhall.
The commercial business reported positive operating results
in the second quarter and first six months compared to losses
last year primarily due to gains on the disposition of assets as
it liquidates its remaining portfolio.
- During the second quarter, the company sold its consumer banking
operations in California, Virginia and Maryland, including
approximately $2.7 billion of deposits. The company recorded
after-tax gains of approximately $29 million on these sales after
reducing related acquired intangibles by $67 million. The sales of
the company's banking operations in Ohio and Indiana were consummated
in July and early August of 1995, respectively. Gains from the
sales of these bank branches, which will be recorded in the third
quarter, were somewhat less than those recorded in the second quarter
of 1995.
- The company's normalized efficiency ratio (which is defined as
the ratio of salaries and fringe benefits and other operating expenses
to net interest margin and other revenues less policyholders'
benefits, excluding certain non-recurring items) improved to 54.5
percent for the quarter and 56.4 percent for the first six months of
1995. The efficiency ratio was 60.6 and 60.5 percent in the
corresponding prior year periods. The improvement over the prior
year was due to higher revenues as well as lower expenses resulting
from initiatives begun in the fourth quarter of 1994 to improve
efficiency.
- During the second quarter the company completed its exit from the
traditional first mortgage business through the sale of its remaining
domestic first mortgage servicing portfolio. The company recorded
a small gain from this sale.
<PAGE>
<PAGE> 11
Balance Sheet Review
--------------------
- The company experienced good growth in its core products compared
to the previous quarter and year-ago periods. The following table
summarizes the percentage increase in managed consumer receivables
from March 31, 1995 (annualized) and June 30, 1994:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Quarter-Over-Quarter Year-Over-Year
Product Growth (Annualized) Growth
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Home equity (1) . . . . . . . . . . . . . . . . . . 21% 12%
Credit cards. . . . . . . . . . . . . . . . . . . . 28 21
Other unsecured . . . . . . . . . . . . . . . . . . 20 32
-------------------------------------------
Managed consumer receivables (2). . . . . . . . . . 24% 20%
===========================================
(1) Primarily attributable to growth in the company's wholesale network.
(2) Excludes first mortgage and other secured receivables which the company
has discontinued or de-emphasized.
</TABLE>
- The company continued to increase its managed credit loss reserves
due to economic uncertainty and continued growth in unsecured
products. Credit loss reserves as a percent of managed receivables
were 2.74 percent, compared to 2.69 percent at March 31, 1995 and
2.76 percent at June 30, 1994. Reserves as a percent of nonperforming
managed receivables increased to 103.3 percent from 102.2 percent at
March 31, 1995 and 95.6 percent at June 30, 1994. Consumer
two-months-and-over contractual delinquency ("delinquency") as a
percent of managed consumer receivables was 3.26 percent, up from
3.15 percent at March 31, 1995 and down from 3.32 percent at June 30,
1994. The annualized total consumer managed chargeoff ratio in the
second quarter of 1995 was 2.77 percent, compared to 2.68 percent in
the prior quarter and 2.87 percent in the year-ago quarter.
- In June 1995, a subsidiary of the company issued $75 million of
company obligated mandatorily redeemable preferred securities in
trust ("trust originated securities") (representing the minority
interest in the subsidiary). In July 1995, the company redeemed all
outstanding shares of its flexible rate auction preferred stock,
Series B and its 9.5 percent cumulative preferred stock, Series
1989-A.
- The ratio of common and preferred shareholders' equity (including
trust originated securities) to total assets was 8.28 percent compared
to 7.35 percent at December 31, 1994. The December 31, 1994 ratio was
negatively affected by Statement of Financial Accounting Standards
No. 115 ("FAS No. 115") which requires that unrealized gains or losses
in certain debt and equity securities be recorded as an adjustment
to shareholders' equity. While FAS No. 115 provides for the
adjustment of certain debt and equity securities to fair value, it
does not allow for a corresponding adjustment for a change in related
liabilities. Therefore, unrealized gains and losses do not reflect
the change in the economic value of shareholders' equity due to
changes in interest rates. The company believes that the change in
fair value of liabilities should offset a significant amount of the
change in the fair value of its investment portfolio. Excluding the
effect of the FAS No. 115 component of shareholders' equity, the
ratio of common and preferred shareholders' equity to total assets
was 7.65 percent at December 31, 1994. The June 30, 1995 ratio of
common and preferred shareholders' equity to total assets was not
impacted by FAS No. 115.
- In July 1995 Standard & Poor's Ratings Group ("S&P") revised its
outlook on the company and its subsidiary, Household Finance
Corporation, from stable to positive based on strong reserve coverage
and recent expense control initiatives. However, during the same
month, S&P reduced the claims-paying rating of the company's
wholly-owned insurance subsidiary, Alexander Hamilton Life Insurance
Company of America, ("Alexander Hamilton") from "AA" (excellent) to
"AA-" (excellent), citing the performance of the individual life
line of business that had not met S&P's expectations.<PAGE>
<PAGE> 12
- In August 1995 the company signed a definitive agreement to sell the
individual life and annuity product lines of Alexander Hamilton to
Jefferson-Pilot Corporation. At June 30, Alexander Hamilton had
assets related to its individual life and annuity businesses of
approximately $6 billion. In 1994 these businesses contributed
net income of $42 million. The transaction will result in no
significant gain or loss. The transaction, which is subject to
regulatory approvals, is expected to close by year end.<PAGE>
<PAGE> 13
FINANCE AND BANKING
- -------------------
<TABLE>
<CAPTION>
Statements of Income
- -------------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
All dollar amounts are stated in millions. 1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance income . . . . . . . . . . . . . . . . . . . . . . . $ 1,395.2 $ 1,268.0 $ 713.5 $ 651.9
Interest income from noninsurance investment securities. . . 85.1 60.9 48.8 29.2
Interest expense . . . . . . . . . . . . . . . . . . . . . . 777.5 549.4 400.1 293.1
-----------------------------------------------
Net interest margin. . . . . . . . . . . . . . . . . . . . . 702.8 779.5 362.2 388.0
Provision for credit losses on owned receivables . . . . . . 381.5 328.9 217.2 154.8
-----------------------------------------------
Net interest margin after provision for credit losses. . . . 321.3 450.6 145.0 233.2
-----------------------------------------------
Securitization income. . . . . . . . . . . . . . . . . . . . 432.3 302.6 219.5 139.7
Insurance premiums and contract revenues . . . . . . . . . . 100.9 85.9 52.2 44.1
Investment income. . . . . . . . . . . . . . . . . . . . . . 9.0 11.8 2.0 6.0
Fee income . . . . . . . . . . . . . . . . . . . . . . . . . 90.8 128.8 44.0 66.0
Other income . . . . . . . . . . . . . . . . . . . . . . . . 131.4 81.1 90.5 45.1
-----------------------------------------------
Total other revenues . . . . . . . . . . . . . . . . . . . . 764.4 610.2 408.2 300.9
-----------------------------------------------
Costs and expenses:
Salaries and fringe benefits . . . . . . . . . . . . . . . 275.4 318.3 135.0 160.7
Other operating expenses . . . . . . . . . . . . . . . . . 485.7 493.4 241.4 245.8
Policyholders' benefits. . . . . . . . . . . . . . . . . . 42.4 39.4 20.7 19.2
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 104.2 69.9 62.9 34.5
-----------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 178.0 $ 139.8 $ 93.2 $ 73.9
===============================================
Average receivables:
Owned . . . . . . . . . . . . . . . . . . . . . . . . . . $21,345.0* $20,450.7 $21,487.4 $20,786.1
Serviced with limited recourse . . . . . . . . . . . . . . 12,450.6 9,673.2 12,451.0 9,652.4
-----------------------------------------------
Average managed receivables. . . . . . . . . . . . . . . . . $33,795.6* $30,123.9 $33,938.4 $30,438.5
===============================================
Return on average owned assets - annualized. . . . . . . . . 1.30% 1.07% 1.34% 1.12%
===============================================
* Includes average balance of Assets Pending Sale, which consisted of commercial receivables sold to a joint
venture in March 1995.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
End-of-period receivables:
Owned . . . . . . . . . . . . . . . . . . $22,415.0 $20,555.6
Serviced with limited recourse . . . . . . . . . . . . . . 12,550.5 12,495.1
-----------------------------------
Managed receivables. . . . . . . . . . . . . . . . . . . . . $34,965.5 $33,050.7
===================================
End-of-period deposits . . . . . . . . . . . . . . . . . . . $ 5,966.0 $ 8,439.0
===================================
</TABLE>
<PAGE>
<PAGE> 14
Overview
--------
Domestic Finance and Banking earnings for the second quarter and first six
months of 1995 increased to $84.9 and $164.7 million from $71.0 and $134.6
million in the year-ago periods. See Operations Summary on page 10 for
further discussion of the operating results of the company's domestic
Finance and Banking businesses.
Operating results of both foreign businesses improved in both the second
quarter and first six months of 1995 compared to the prior year periods.
As discussed on page 10, net income for the United Kingdom operation
increased primarily due to portfolio growth and improved efficiency. The
Canadian operation also reported improved results primarily due to lower
credit costs and operating expenses.
Receivables
-----------
Managed consumer receivables grew 20 percent on an annualized basis
compared to March 31, 1995 and were up 16 percent compared to the June 30,
1994 level. See Balance Sheet Review on page 12 for further discussion.
Receivables owned totaled $22.4 billion at June 30, 1995, up from both
March 31, 1995 and June 30, 1994. The level of owned receivables may
vary from quarter to quarter depending on the timing and significance of
securitization transactions in a particular period. For the second
quarter of 1995, the company completed securitizations and sales of
approximately $780 million of bankcard and home equity receivables.
Pro Forma Managed Income Data
-----------------------------
Securitizations and sales of consumer receivables have been, and will
continue to be, 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 and provision for credit losses on receivables
serviced with limited recourse are reported as a net amount in
securitization 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
second quarter and six months ended June 30, 1995 and 1994 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 a historical owned basis.<PAGE>
<PAGE> 15
<TABLE>
<CAPTION>
PRO FORMA MANAGED FINANCE AND BANKING STATEMENTS OF INCOME
Six Months Ended Three Months Ended
All dollar amounts are June 30, June 30,
stated in millions. 1995 1994 1995 1994
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Finance income . . . . . . . $ 2,257.9 12.28%* $ 1,833.8 11.34%* $ 1,140.2 12.22%* $ 934.2 11.44%*
Interest income from
noninsurance investment
securities . . . . . . . . 85.1 .46 60.9 .37 48.8 .53 29.2 .36
Interest expense . . . . . . 1,190.4 6.47 773.3 4.78 608.0 6.52 411.6 5.04
---------------------------------------------------------------------------
Net interest margin. . . . . 1,152.6 6.27 1,121.4 6.93 581.0 6.23 551.8 6.76
Provision for credit losses. 509.6 2.77 463.0 2.86 282.4 3.03 227.0 2.78
---------------------------------------------------------------------------
Net interest margin after
provision for credit losses 643.0 3.50 658.4 4.07 298.6 3.20 324.8 3.98
Insurance premiums and
contract revenues. . . . . 100.9 .55 85.9 .53 52.2 .56 44.1 .54
Investment income. . . . . . 9.0 .05 11.8 .07 2.0 .02 6.0 .07
Fee income . . . . . . . . . 201.4 1.10 223.6 1.38 109.9 1.18 114.1 1.40
Other income . . . . . . . . 131.4 .71 81.1 .51 90.5 .97 45.1 .55
---------------------------------------------------------------------------
Total other revenues . . . . 442.7 2.41 402.4 2.49 254.6 2.73 209.3 2.56
---------------------------------------------------------------------------
Costs and expenses:
Salaries and fringe benefits 275.4 1.50 318.3 1.97 135.0 1.45 160.7 1.97
Other operating expenses . 485.7 2.64 493.4 3.05 241.4 2.59 245.8 3.01
Policyholders'
benefits . . . . . . . . 42.4 .23 39.4 .24 20.7 .22 19.2 .23
Income taxes . . . . . . . 104.2 .57 69.9 .43 62.9 .67 34.5 .42
---------------------------------------------------------------------------
Net income . . . . . . . . . $ 178.0 .97% $ 139.8 .87% $ 93.2 1.00% $ 73.9 .91%
===========================================================================
Average managed
receivables. . . . . . . . $33,795.6 $30,123.9 $33,938.4 $30,438.5
Average noninsurance
investments. . . . . . . . 2,980.3 2,219.5 3,379.2 2,235.0
---------------------------------------------------------------------------
Average managed interest-
earning assets . . . . . . $36,775.9 $32,343.4 $37,317.6 $32,673.5
===========================================================================
* As a percent, annualized, of average managed interest-earning assets.
</TABLE>
The discussion below on revenues, where applicable, and provision for credit
losses 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 $362.2 and $702.8 million for the
second quarter and first six months of 1995, down from $388.0 and $779.5
million in the prior year periods due to a higher level of securitized
receivables outstanding. Net interest margin on a Managed Basis was $581.0
and $1,152.6 million for the second quarter and first six months of 1995, up
compared to the same year-ago periods. Net interest margin as a percent of
average managed interest-earning assets, annualized, was 6.23 percent
compared to 6.31 percent in the previous quarter and 6.76 percent in the
year-ago quarter. The net interest margin percentage in the second
quarter of 1995 was adversely affected by a portfolio of temporary
investments that was used to build liquidity in anticipation of the sales
of consumer banking operations in the second quarter of 1995. This
temporary portfolio distorted the trend in the net interest margin
percentage. Excluding the impact of these temporary investments, net
interest margin as a percent of average managed interest-earning assets,
annualized, was 6.44 percent in the second quarter of 1995. The increase
over the prior quarter was due to the increasing percentage of higher-
yielding receivables in the portfolio and higher basis spreads. The
decrease compared to the prior year period was primarily attributable to
compression of fixed rate receivable spreads.
<PAGE>
<PAGE> 16
Other revenues
--------------
Securitization income on an Owned Basis consists of income associated
with the securitizations and sales of receivables with limited recourse,
including net interest income, fee income and provision for credit losses
related to those receivables. The increase in securitization income on
an Owned Basis compared to the same year-ago periods was primarily due to
higher levels of securitized receivables outstanding. In addition, growth
in interchange and other credit card fee income outpaced the growth in the
securitized bankcard portfolio due to an increase in the number of credit
cards issued and greater transaction volume. The components of
securitization income are reclassified to the applicable lines in the
statements of income on a Managed Basis.
Insurance premiums and contract revenues increased from the second quarter
and first six months of 1994 due to higher sales volumes of specialty and
credit insurance in the domestic and United Kingdom operations related to
growth in the company's receivable base.
Fee income on an Owned Basis includes revenues from fee-based products
such as bankcards, consumer banking deposits, private-label credit cards
and, in 1994, commission income from the company's brokerage business.
Fee income was $44.0 and $90.8 million in the second quarter and first six
months of 1995, down from $66.0 and $128.8 million in the comparable
periods of the prior year primarily due to lower commission income as a
result of the sale of the company's brokerage business in the third quarter
of 1994. Fee income on a Managed Basis, which in addition to the items
discussed above includes fees related to receivables serviced with limited
recourse, decreased from $114.1 and $223.6 million in the second quarter
and first six months of 1994 to $109.9 and $201.4 million in the same
periods in 1995. While interchange and other credit card fees on a
Managed Basis increased over the prior year periods, commission income was
down as previously discussed.
In the second quarter of 1995, the company exited the domestic first
mortgage servicing business through the sale of its entire domestic first
mortgage servicing portfolio. Servicing income associated with the
company's other portfolios serviced with no recourse is not expected to be
significant in the future. As a result, the company has combined income
related to the servicing of receivables with no recourse with other income
and has reclassified prior period results to reflect this change.
Other income increased compared to the second quarter and first six
months of 1994 primarily due to the gains on the sales of three consumer
banking operations discussed previously. Also benefiting other income were
gains from the disposition of commercial assets and from the sale of the
company's domestic first mortgage servicing portfolio. Partially offsetting
this increase was lower servicing income attributable to lower balances of
first mortgage loans serviced with no recourse compared to prior periods
and a write-down related to the servicing of a portfolio of unsecured loans
serviced with no recourse.
Provision for credit losses
---------------------------
The provision for credit losses for receivables on an Owned Basis for the
second quarter and first six months of 1995 totaled $217.2 and $381.5
million, up 40 and 16 percent from $154.8 and $328.9 million in the
comparable prior year periods. The level of provision for credit losses
on an Owned Basis may vary from quarter to quarter, depending on the amount
of securitizations and sales of receivables in a particular period.
The provision for credit losses for receivables on a Managed Basis totaled
$282.4 and $509.6 million in the second quarter and first six months of
1995, up 24 percent from $227.0 million and 10 percent from $463.0 million
in the comparable periods of 1994. As a percent of average managed
interest-earning assets, annualized, the provision increased to 3.03 percent
from 2.78 percent in the second quarter of 1994. The company increased
credit loss reserves due to continued growth in unsecured products and
economic uncertainty about the second half of 1995, as evidenced by key
statistics such as unemployment and consumer spending and the Federal
Reserve's recent actions regarding interest rates. See the credit quality
section for further discussion of factors affecting the provision for
credit losses.<PAGE>
<PAGE> 17
Expenses
--------
Salaries and fringe benefits were $135.0 and $275.4 million compared to
$160.7 and $318.3 million in the second quarter and first six months of
1994. The improvement was primarily due to a reduction in the number of
employees in connection with decisions made to improve the operating
efficiency of certain businesses and to exit others. These initiatives
began in the fourth quarter of 1994 and continued into 1995. Other
operating expenses were $241.4 and $485.7 million in the second quarter
and first six months of 1995, essentially flat compared to the same periods
of 1994.
The effective tax rate for the Finance and Banking segment was 40.3 and 36.9
percent, compared to 31.8 and 33.3 percent in the second quarter and first
six months of 1994. The second quarter 1995 effective tax rate reflected
the disposition of a portion of the consumer banking operations along with
related intangible assets.
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 focus 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 on an individual transaction basis and is also
evaluated based on overall risk factors. See Note 3, "Receivables" in the
accompanying financial statements for receivables by product type.
Total managed credit loss reserves, which include reserves for recourse
obligations for receivables sold, were as follows (in millions):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
June 30, March 31, December 31, June 30,
1995 1995 1994 1994
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned . . . . . . . . . . . . . . . . . . $661.1 $580.7 $546.0 $613.2
Serviced with limited recourse. . . . . . 296.1 321.1 336.5 240.4
-----------------------------------------------------
Total . . . . . . . . . . . . . . . . . . $957.2 $901.8 $882.5 $853.6
=====================================================
</TABLE>
Managed credit loss reserves were up 6 percent from March 31, 1995 and up 12
percent from June 30, 1994. Managed credit loss reserves as a percent of
nonperforming managed receivables were 103.3 percent, essentially unchanged
compared to 102.2 percent at March 31, 1995 and up from 95.6 percent at June
30, 1994.
<TABLE>
<CAPTION>
Total owned and managed credit loss reserves as a percent of receivables were
as follows:
------------------------------------------------------------------------------------------------
June 30, March 31, December 31, June 30,
1995 1995 1994 1994
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned . . . . . . . . . . . . . . . . . 2.95% 2.78% 2.66% 2.97%
Managed . . . . . . . . . . . . . . . . 2.74 2.69 2.67 2.76
-----------------------------------------------------
</TABLE>
The level of reserves for consumer credit losses is based on delinquency and
chargeoff experience by product and judgmental factors. 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. Management also evaluates
the potential impact of existing and anticipated national and regional
economic conditions on the managed receivable portfolio when establishing
consumer and commercial credit loss reserves. While management allocates
all reserves among the company's various products, all reserves are
considered to be available to cover total loan losses. See Note 4, "Credit
Loss Reserves" in the accompanying financial statements for analyses of
reserves.
<PAGE>
<PAGE> 18
Credit Quality
--------------
Delinquency and chargeoff levels in the Finance and Banking portfolio were
up compared to the prior quarter but were below the year-ago quarter.
Delinquency
-----------
Delinquency levels are monitored on a managed basis which includes both
receivables owned and receivables serviced with limited recourse. The
latter portfolio is included since it 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):
-------------------------------------------------------------------------------------------------
6/30/95 3/31/95 12/31/94 9/30/94 6/30/94
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First mortgage . . . . . . . . . . . . . 1.74% 1.79% 1.81% 1.57% 1.52%
Home equity. . . . . . . . . . . . . . . 2.78 2.75 2.83 2.88 3.04
Other secured. . . . . . . . . . . . . . 10.30 5.90 3.31 3.39 4.18
Bankcard . . . . . . . . . . . . . . . . 2.31 2.33 2.25 2.35 2.29
Merchant participation . . . . . . . . . 4.00 4.42 4.53 4.70 4.35
Other unsecured. . . . . . . . . . . . . 5.41 5.07 5.19 5.75 6.39
-------------------------------------------------------
Total. . . . . . . . . . . . . . . . . . 3.26% 3.15% 3.11% 3.24% 3.32%
=======================================================
</TABLE>
Delinquency as a percent of managed consumer receivables increased from
the prior quarter but declined compared to the prior year level. The
delinquency level for other secured receivables increased during the
quarter primarily due to one borrower with several loans who declared
bankruptcy in the second quarter. Delinquency in other unsecured
receivables increased as expected during the second quarter primarily due
to the maturation of the portfolio, which experienced significant growth
over the past eighteen months. The merchant participation delinquency
ratio benefited from significant portfolio growth in the second quarter.
Net Chargeoffs of Consumer Receivables
--------------------------------------
<TABLE>
<CAPTION>
Net Chargeoffs of Consumer Receivables (as a percent, annualized, of average managed consumer receivables):
-------------------------------------------------------------------------------------------------
Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter
1995 1995 1994 1994 1994
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First mortgage . . . . . . . . . . . . . .36% .29% .26% .43% .47%
Home equity. . . . . . . . . . . . . . . 1.04 .90 1.00 1.15 1.59
Other secured. . . . . . . . . . . . . . .32 .95 .95 1.33 .88
Bankcard . . . . . . . . . . . . . . . . 4.05 4.04 3.96 3.73 3.81
Merchant participation . . . . . . . . . 4.71 4.29 3.84 3.52 3.39
Other unsecured. . . . . . . . . . . . . 3.21 3.25 3.61 4.23 4.79
-----------------------------------------------------
Total. . . . . . . . . . . . . . . . . . 2.77% 2.68% 2.65% 2.69% 2.87%
=====================================================
</TABLE>
Net chargeoffs as a percent of average managed consumer receivables for the
second quarter of 1995 increased compared to the first quarter of 1995 and
were lower than the year-ago quarter. Increased merchant participation
chargeoffs primarily related to merchant programs the company has decided
to exit. Home equity receivable chargeoffs increased as expected but were
below the prior year. Bankcard chargeoffs were essentially unchanged
compared to the prior quarter and were higher than the year-ago quarter.
The increase in the GM Card portfolio chargeoff ratio compared to the prior
year offset improvements in the non-GM Card portfolio. The chargeoff ratio
for the other unsecured portfolio was essentially unchanged compared to the
prior quarter and was below the year-ago quarter, consistent with the trend
in delinquency over the past year.
<PAGE>
<PAGE> 19
Chargeoffs are a lagging indicator of credit quality and generally reflect
prior delinquency trends. However, growth associated with credit card and
other unsecured receivables has resulted in a shift in product mix toward
unsecured receivables, which have higher chargeoff rates than secured
receivables. Future changes in the overall chargeoff trend may result from
the shift in product mix to unsecured receivables, changes in economic
conditions and other factors.
Nonperforming Assets
--------------------
<TABLE>
<CAPTION>
Nonperforming assets consisted of the following:
-------------------------------------------------------------------------------------------------
In millions. 6/30/95 3/31/95 12/31/94 9/30/94 6/30/94
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual managed receivables . . . . . $ 629.3 $ 558.4 $ 581.5 $ 612.0 $ 645.8
Accruing managed consumer receivables
90 or more days delinquent . . . . . . 255.9 238.5 228.2 225.3 218.5
Renegotiated commercial loans. . . . . . 41.8 85.9 41.8 44.9 28.5
--------------------------------------------------------
Total nonperforming managed
receivables. . . . . . . . . . . . . . 927.0 882.8 851.5 882.2 892.8
Real estate owned. . . . . . . . . . . . 157.1 187.8 182.8 395.1 405.6
--------------------------------------------------------
Total nonperforming assets . . . . . . . $1,084.1 $1,070.6 $1,034.3 $1,277.3 $1,298.4
========================================================
Managed credit loss reserves
as a percent of nonperforming
managed receivables. . . . . . . . . . 103.3% 102.2% 103.6% 99.2% 95.6%
--------------------------------------------------------
</TABLE>
Effective January 1, 1995 the company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan" ("FAS No. 114"), as amended by Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure." FAS No. 114 requires that a loan
be recognized as impaired when it is probable that all contractual amounts
due will not be repaid. FAS No. 114 specifically excludes groups of
individually small dollar, homogenous loans where collectibility is
evaluated collectively, such as the company's consumer receivable
portfolio. At June 30, 1995 impaired commercial loans included in the
above table were not significant and their ultimate disposition is not
expected to have a material impact on the company's results of operations.
The adoption of FAS No. 114 had no impact on the company's results of
operations for the six months ended June 30, 1995. Credit loss reserves
for impaired loans are included in reserves for managed receivables
described on page 17.
<PAGE>
<PAGE> 20
INDIVIDUAL LIFE INSURANCE
- -------------------------
Individual Life Insurance net income was $13.1 and $24.3 million, compared to
$10.6 and $22.3 million in the prior year periods.
<TABLE>
<CAPTION>
Statements of Income
- -------------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
All dollar amounts are stated in millions. 1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income. . . . . . . . . . . . . . . . . . . . . . . . $268.8 $247.6 $136.0 $114.9
Insurance premiums and contract revenues . . . . . . . . . . . . 73.5 74.1 34.5 35.3
-------------------------------------------
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . 342.3 321.7 170.5 150.2
Costs and expenses
Policyholders' benefits. . . . . . . . . . . . . . . . . . . . 240.5 219.8 122.0 109.9
Operating expenses . . . . . . . . . . . . . . . . . . . . . . 64.5 67.2 28.7 23.9
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 13.0 12.4 6.7 5.8
-------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24.3 $ 22.3 $ 13.1 $ 10.6
===========================================
Return on average assets - annualized. . . . . . . . . . . . . . .64% .65% .68% .60%
===========================================
- -------------------------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1995 1994
- -------------------------------------------------------------------------------------------------------------
Investment securities. . . . . . . . . . . . . . . . . . . . . . $ 7,016.0 $ 6,669.9
Life insurance in-force. . . . . . . . . . . . . . . . . . . . . 37,963.1 36,560.4
===========================================
</TABLE>
Investment securities for the Individual Life Insurance segment totaled $7.0
billion, up from $6.8 billion at March 31, 1995 and $6.7 billion at
December 31, 1994. The Individual Life Insurance portfolio represented
approximately 82 percent of the company's total investment portfolio at
June 30, 1995. Higher-risk securities, which include non-investment grade
bonds, common and preferred stocks, commercial mortgage loans and real estate,
represented 6.9 percent of the insurance investment portfolio at June 30,
1995, compared to 7.2 percent at March 31, 1995 and 6.9 percent at
December 31, 1994.
At June 30, 1995 the market value for the insurance held-to-maturity investment
portfolio was 104 percent of the carrying value compared to 102 percent at
March 31, 1995 and 99 percent at December 31, 1994. The increase in market
value over book value during the first six months of 1995 was mainly the
result of lower long-term interest rates. The company continuously monitors
the fair value of its available-for-sale investment portfolio in light of
market interest rate conditions and may sell securities in an attempt to
maximize its capital position.
Investment income includes both interest income on investment securities and
realized gains and losses on the sale of available-for-sale investments.
Investment income in the second quarter and first six months of 1995 was $136.0
and $268.8 million, up compared with the year-ago periods due to higher
interest income resulting from higher yields and a larger investment
portfolio. Higher interest income was partially offset by losses on sales of
available-for-sale investments compared to gains in the second quarter and
first six months of 1994.
Policyholders' benefits in the second quarter and first six months of 1995 were
$122.0 and $240.5 million, up from $109.9 and $219.8 million in the same
periods in 1994 primarily due to higher interest credited to policyholders
caused by higher interest rates and life insurance in-force.
Operating expenses in the second quarter were up compared to the prior year
primarily due to higher levels of deferred insurance policy acquisition cost
("DAC") amortization associated with higher investment income. Operating
expenses in the first six months of 1995 were down compared to the year-ago
period primarily due to lower salaries and fringe benefits and commission
expense.
<PAGE>
<PAGE> 21
The effective tax rate was 33.8 and 34.9 percent for the second quarter
and first six months of 1995, compared to 35.4 and 35.7 percent in the
respective periods of 1994.<PAGE>
<PAGE> 22
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
The Annual Meeting of Stockholders of Household International
was held on Wednesday, May 10, 1995, for the purpose of
(1) electing directors; (2) approving the Household International
Employee Stock Purchase Plan; and (3) ratifying the appointment
of Arthur Andersen LLP as the independent auditors for Household.
The voting results were as follows:
Each of the following persons received the number of votes set
out after his or her name and were elected directors to hold
office for the ensuing year and until their successors shall be
elected and shall qualify:
FOR WITHHELD
---------- --------
W.F. Aldinger 87,318,530 395,353
D.C. Clark 87,358,140 355,743
R.J. Darnall 87,374,140 339,743
G.G. Dillon 87,362,658 351,225
J.A. Edwardson 87,369,916 343,967
M.J. Evans 87,363,936 349,947
C.F. Freidheim, Jr. 87,372,810 341,073
L.E. Levy 87,374,396 339,487
G.A. Lorch 87,367,302 346,581
J.D. Nichols 87,375,547 338,336
J.B. Pitblado 87,375,758 338,124
S.J. Stewart 87,373,107 340,776
L.W. Sullivan, M.D. 87,368,084 345,799
R.C. Tower 87,359,058 354,825
Proposal to approve the Household International Employee
Stock Purchase Plan:
FOR AGAINST ABSTAIN BROKER NON-VOTE
---------- --------- ------- ---------------
80,289,838 7,011,283 412,761 0
Ratification of the appointment of Arthur Andersen LLP as the
Corporation's auditors for the year 1995:
FOR AGAINST ABSTAIN BROKER NON-VOTE
---------- --------- ------- ---------------
87,248,589 227,618 237,676 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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.
27 Financial Data Schedule.
(b) Reports on Form 8-K
During the second quarter of 1995, the Registrant did not file any
Current Reports on Form 8-K. <PAGE>
<PAGE> 23
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: August 11, 1995 By: /s/ David A. Schoenholz
--------------- ----------------------------
David A. Schoenholz,
Senior Vice President -
Chief Financial Officer
and on behalf of
Household International, Inc.
<PAGE>
<PAGE> 24
Exhibit Index
-------------
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.
27 Financial Data Schedule.
<PAGE> 1
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.
Six months ended June 30 1995 1994
- -----------------------------------------------------------------------------
Net income $ 202.3 $162.1
- -----------------------------------------------------------------------------
Income taxes 117.2 82.3
- -----------------------------------------------------------------------------
Fixed charges:
Interest expense (1) 780.7 555.1
Interest portion of rentals (2) 16.9 17.5
- -----------------------------------------------------------------------------
Total fixed charges 797.6 572.6
- -----------------------------------------------------------------------------
Total earnings as defined $1,117.1 $817.0
=============================================================================
Ratio of earnings to fixed charges 1.40 1.43
=============================================================================
Preferred stock dividends (3) $ 22.0 $ 21.9
=============================================================================
Ratio of earnings to combined fixed charges
and preferred stock dividends 1.36 1.37
=============================================================================
(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 36.7 and 33.7 percent for June 30, 1995 and
1994, respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SUMMARY FINANCIAL INFORMATION OF THE COMPANY AND ITS
SUBSIDIARIES IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION
AND FINANCIAL STATEMENTS PREVIOUSLY FILED WITH THE SECURITIES &
EXCHANGE COMMISSION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1995
<CASH> 436,600
<SECURITIES> 8,561,400
<RECEIVABLES> 22,415,000
<ALLOWANCES> 957,200
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 976,900
<DEPRECIATION> 515,800
<TOTAL-ASSETS> 34,568,900
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 10,803,100
<COMMON> 115,700
0
320,000
<OTHER-SE> 2,425,100
<TOTAL-LIABILITY-AND-EQUITY> 34,568,900
<SALES> 0
<TOTAL-REVENUES> 2,587,000
<CGS> 0
<TOTAL-COSTS> 1,108,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 381,500
<INTEREST-EXPENSE> 777,500
<INCOME-PRETAX> 319,500
<INCOME-TAX> 117,200
<INCOME-CONTINUING> 202,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 202,300
<EPS-PRIMARY> 1.91
<EPS-DILUTED> 1.91
<FN>
<F1>FINANCIAL STATEMENTS OF THE COMPANY WERE PREPARED IN ACCORDANCE WITH
FINANCIAL INSTITUTION INDUSTRY STANDARDS. ACCORDINGLY, THE COMPANY'S
BALANCE SHEETS WERE NON-CLASSIFIED.
</FN>
</TABLE>
Exhibit 21
SUBSIDIARIES OF HOUSEHOLD INTERNATIONAL, INC.
- ---------------------------------------------
As of June 30, 1995, 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 Home Title Services, Inc. II Maryland 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 Commercial Canada Inc. Canada 100%
Household Capital Trust I Delaware 100%
Household Credit Services, Inc. Delaware 100%
Household Finance Corporation Delaware 100%
HFC Funding Corporation Delaware 100%
HFC Revolving Corporation Delaware 100%
HFS Funding Corporation Delaware 100%
Household Bank (Nevada), 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 Capital Markets, Inc. Delaware 100%
Household Card Services, Inc. Nevada 100%
Household Bank (Illinois), N.A. U.S. 100%
Household Credit Services of Mexico, Inc. Delaware 100%
Household Finance Receivables Corporation IIDelaware 100%
Household Financial Services, Inc. Delaware 100%
Household Group, Inc. Delaware 100%
Alexander Hamilton Life Insurance Company Michigan 100%
of America<PAGE>
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
Alexander Hamilton Capital Management, Michigan 100%
Inc.
Alexander Hamilton Insurance Agency, Inc. Michigan 100%
Alexander Hamilton Life Insurance Co. Arizona 100%
of Arizona
First Alexander Hamilton Life New York 100%
Insurance Co.
Hamilton National Life Insurance Company Michigan 100%
Alexander Hamilton Insurance Company Michigan 100%
of America
Cal-Pacific Services, Inc. California 100%
Household Business Services, 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%
Color Prelude Inc. Delaware 100%
First Source Financial, Inc. Delaware 100%
HCFS Business Equipment Corporation Delaware 100%
HCFS Corp Finance Venture, Inc. Delaware 100%
HFC Commercial Realty, Inc. Delaware 100%
Cast Iron Building Corporation Delaware 100%
Center Realty, Inc. Delaware 100%
Com Realty, Inc. Delaware 100%
Lighthouse Property Corporation Delaware 100%
MRP General, Inc. Delaware 100%
G.C. Center, Inc. Delaware 100%
Household OPEB I, Inc. Illinois 100%
Land of Lincoln Builders, Inc. Illinois 100%
PPSG Corporation Delaware 100%
Steward's Glenn Corporation Delaware 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%
<PAGE>
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
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%
Household Capital Investment Corporation Delaware 100%
B&K Corporation Michigan 94%
Household Commercial of California, Inc. California 100%
Household Real Estate Equities, Inc. Delaware 100%
SPG General, Inc. Delaware 100%
OLC, Inc. Rhode Island 100%
OPI, Inc. Virginia 100%
The Generra Company Delaware 100%
Household Finance Consumer Discount CompanyPennsylvania 100%
Overseas Leasing Two FSC, Ltd. Bermuda 99%
Household Finance Corporation II Delaware 100%
Household Finance Corporation of Alabama Alabama 100%
Household Finance Corporation of CaliforniaDelaware 100%
Household Finance Corporation of Nevada Delaware 100%
Household Finance Realty Corporation of Delaware 100%
New York
Household Finance Industrial Loan Company Iowa 100%
of Iowa
Household Finance Realty Corporation of Delaware 100%
Nevada
Household Finance Corporation III Delaware 100%
Amstelveen FSC, Ltd. Bermuda 99%
HFC Agency of Connecticut, Inc. Connecticut 100%
HFC Agency of Michigan, Inc. Michigan 100%
Night Watch FSC, Ltd. Bermuda 99%
Household Realty Corporation Delaware 100%
Overseas Leasing One FSC, Ltd. Bermuda 100%
Overseas Leasing Four FSC, Ltd. Bermuda 99%
Overseas Leasing Five FSC, Ltd. Bermuda 99%
<PAGE>
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
Household Retail Services, Inc. Delaware 100%
HRSI Funding, Inc. Nevada 100%
Household Financial Center Inc. Tennessee 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%
Sixty-First HFC Leasing Corporation Delaware 100%
Household Bank (California), N.A. U.S. 100%
Household Financial Group, Ltd. Delaware 100%
Household Global Funding, Inc. Delaware 78%
Household International (U.K.) Limited England 100%
D.L.R.S. Limited Cheshire 100%
HFC Bank plc England 100%
Hamilton Life Assurance Co. Limited England 100%
Hamilton Insurance Company Limited England 100%
Hamilton Financial Planning Services England 100%
Limited
HFC Pension Plan Limited England 100%
Household Funding Limited England 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%
Household Finance Corporation 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 Reinsurance Ltd. Bermuda 100%
U:\WP\EMP819\EDGAR\IEX21.WP1
