<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, 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 April 30, 1995, there were 97,252,723 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
- --------------------
All dollar amounts except per share data are stated in millions.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Three months ended March 31 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance income . . . . . . . . . . . . . . . . . . . . . . . $681.7 $616.1
Interest income from noninsurance investment securities. . . 36.3 31.7
Interest expense . . . . . . . . . . . . . . . . . . . . . . 377.4 257.4
-------------------------------
Net interest margin. . . . . . . . . . . . . . . . . . . . . 340.6 390.4
Provision for credit losses on owned receivables . . . . . . 164.3 174.1
-------------------------------
Net interest margin after provision for credit losses. . . . 176.3 216.3
-------------------------------
Securitization and servicing fee income. . . . . . . . . . . 228.3 171.0
Insurance premiums and contract revenues . . . . . . . . . . 87.7 80.6
Investment income. . . . . . . . . . . . . . . . . . . . . . 139.8 138.5
Fee income . . . . . . . . . . . . . . . . . . . . . . . . . 46.8 62.8
Other income . . . . . . . . . . . . . . . . . . . . . . . . 25.4 27.9
-------------------------------
Total other revenues . . . . . . . . . . . . . . . . . . . . 528.0 480.8
-------------------------------
Salaries and fringe benefits . . . . . . . . . . . . . . . . 145.8 164.3
Other operating expenses . . . . . . . . . . . . . . . . . . 274.7 283.1
Policyholders' benefits. . . . . . . . . . . . . . . . . . . 140.2 130.1
-------------------------------
Total costs and expenses . . . . . . . . . . . . . . . . . . 560.7 577.5
-------------------------------
Income before income taxes . . . . . . . . . . . . . . . . . 143.6 119.6
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 47.6 42.0
-------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 96.0 $ 77.6
===============================
Earnings per common share:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 96.0 $ 77.6
Preferred dividends. . . . . . . . . . . . . . . . . . . . (6.9) (6.9)
-------------------------------
Earnings available to common shareholders. . . . . . . . . $ 89.1 $ 70.7
===============================
Average common and common equivalent shares. . . . . . . . 98.3 97.0
===============================
Fully diluted earnings per common share. . . . . . . . . . $ .91 $ .73
===============================
Primary earnings per common share. . . . . . . . . . . . . $ .91 $ .74
===============================
Dividends declared per common share. . . . . . . . . . . . . $ .315 $ .30
===============================
</TABLE>
See notes to condensed financial statements.<PAGE>
<PAGE> 3
Household International, Inc. and Subsidiaries
BALANCE SHEETS
- --------------
In millions.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
March 31, December 31,
1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ------
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 498.2 $ 541.2
Investment securities (fair value of $9,729.8 and $8,961.2). . . 9,687.6 9,004.5
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . 20,933.1 20,778.3
Assets pending sale. . . . . . . . . . . . . . . . . . . . . . . - 398.3
Deferred insurance policy acquisition costs. . . . . . . . . . . 554.0 621.4
Acquired intangibles . . . . . . . . . . . . . . . . . . . . . . 624.3 649.9
Properties and equipment . . . . . . . . . . . . . . . . . . . . 506.7 512.0
Assets acquired through foreclosure. . . . . . . . . . . . . . . 239.7 234.5
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,521.3 1,598.3
--------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $34,564.9 $34,338.4
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Debt:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,252.2 $ 8,439.0
Commercial paper, bank and other borrowings. . . . . . . . . . 4,981.7 4,372.1
Senior and senior subordinated debt (with original
maturities over one year). . . . . . . . . . . . . . . . . . 9,914.5 10,274.1
--------------------------
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,148.4 23,085.2
Insurance policy and claim reserves. . . . . . . . . . . . . . . 6,833.4 6,715.8
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . 1,937.3 2,014.4
--------------------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . 31,919.1 31,815.4
--------------------------
Convertible preferred stock subject to mandatory redemption. . . 2.6 2.6
--------------------------
Preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . 320.0 320.0
--------------------------
Common shareholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . 115.2 115.0
Additional paid-in capital . . . . . . . . . . . . . . . . . . 370.2 362.1
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 2,455.9 2,397.4
Foreign currency translation adjustments . . . . . . . . . . . (122.3) (123.6)
Unrealized loss on investments, net. . . . . . . . . . . . . . (55.5) (103.6)
Common stock in treasury . . . . . . . . . . . . . . . . . . . (440.3) (446.9)
--------------------------
Total common shareholders' equity. . . . . . . . . . . . . . . . 2,323.2 2,200.4
--------------------------
Total liabilities and shareholders' equity . . . . . . . . . . . $34,564.9 $34,338.4
==========================
</TABLE>
See notes to condensed financial statements.<PAGE>
<PAGE> 4
Household International, Inc. and Subsidiaries
STATEMENTS OF CASH FLOWS
- ------------------------
In millions.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Three months ended March 31 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATIONS
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96.0 $ 77.6
Adjustments to reconcile net income to net cash provided by operations:
Provision for credit losses on owned receivables . . . . . . . . . . 164.3 174.1
Insurance policy and claim reserves. . . . . . . . . . . . . . . . . 111.3 89.7
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . 70.3 66.1
Net realized gains from sales of assets. . . . . . . . . . . . . . . (4.1) (8.9)
Deferred insurance policy acquisition costs. . . . . . . . . . . . . (20.6) (19.8)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5.1) 150.4
----------------------------
Cash provided by operations. . . . . . . . . . . . . . . . . . . . . . 412.1 529.2
----------------------------
INVESTMENTS IN OPERATIONS
Investment securities:
Purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (618.0) (1,320.3)
Matured. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269.4 286.4
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469.6 1,035.8
Short-term investment securities, net change . . . . . . . . . . . . . (652.8) (312.7)
Receivables, excluding bankcard:
Originated or purchased. . . . . . . . . . . . . . . . . . . . . . . (2,840.0) (2,517.3)
Collected. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,743.3 1,862.9
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 685.2 138.7
Bankcard receivables:
Originated or collected, net . . . . . . . . . . . . . . . . . . . . (4,226.8) (2,946.6)
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,747.9 3,274.4
Disposition of banking organizations:
Assets sold, net . . . . . . . . . . . . . . . . . . . . . . . . . . .2 -
Deposits and other liabilities sold. . . . . . . . . . . . . . . . . (13.7) -
Properties and equipment purchased . . . . . . . . . . . . . . . . . . (23.8) (29.0)
Properties and equipment sold. . . . . . . . . . . . . . . . . . . . . 3.5 1.7
----------------------------
Cash decrease from investments in operations . . . . . . . . . . . . . (456.0) (526.0)
----------------------------
FINANCING AND CAPITAL TRANSACTIONS
Short-term debt, net change. . . . . . . . . . . . . . . . . . . . . . 259.7 (376.2)
Time certificates accepted . . . . . . . . . . . . . . . . . . . . . . 762.2 760.4
Time certificates paid . . . . . . . . . . . . . . . . . . . . . . . . (631.5) (931.9)
Senior and senior subordinated debt issued . . . . . . . . . . . . . . 731.6 1,182.7
Senior and senior subordinated debt retired. . . . . . . . . . . . . . (1,109.7) (723.6)
Policyholders' benefits paid . . . . . . . . . . . . . . . . . . . . . (212.7) (119.4)
Cash received from policyholders . . . . . . . . . . . . . . . . . . . 220.7 189.9
Shareholders' dividends. . . . . . . . . . . . . . . . . . . . . . . . (37.5) (35.8)
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . 10.9 3.7
----------------------------
Cash decrease from financing and capital transactions. . . . . . . . . (6.3) (50.2)
----------------------------
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . 7.2 (.6)
----------------------------
Decrease in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . (43.0) (47.6)
Cash at January 1. . . . . . . . . . . . . . . . . . . . . . . . . . . 541.2 317.4
----------------------------
Cash at March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 498.2 $ 269.8
============================
Supplemental cash flow information:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 304.1 $ 242.3
============================
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.5 $ 25.4
============================
</TABLE>
See notes to condensed financial statements.<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.
In millions.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Three months ended March 31 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
- --------
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . $ 1,074.2 $ 957.1
Individual Life Insurance. . . . . . . . . . . . . . . . . . . . 171.8 171.5
---------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,246.0 $ 1,128.6
=================================
NET INCOME
- ----------
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . $ 84.8 $ 65.9
Individual Life Insurance. . . . . . . . . . . . . . . . . . . . 11.2 11.7
---------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96.0 $ 77.6
=================================
Return on average owned assets (1) . . . . . . . . . . . . . . . 1.11% .94%
---------------------------------
Return on average common shareholders' equity (1). . . . . . . . 15.6% 13.4%
---------------------------------
Efficiency ratio (2) . . . . . . . . . . . . . . . . . . . . . . 57.7% 60.4%
---------------------------------
(1) Annualized
(2) 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, which excludes non-
recurring items, was 58.3 percent for the first quarter of 1995 compared to 59.6 percent for the first
quarter of 1994.
- -------------------------------------------------------------------------------------------------------------
March 31, Dec. 31,
Assets 1995 1994
- -------------------------------------------------------------------------------------------------------------
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . $26,824.4 $26,897.0
Individual Life Insurance. . . . . . . . . . . . . . . . . . . . 7,740.5 7,441.4
---------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,564.9 $34,338.4
=================================
</TABLE>
See notes to condensed financial statements.<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. March 31, 1995 December 31, 1994
-----------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRADING INVESTMENTS
Government securities and other. . . . . . . . . . . . . . . $ .3 $ .3 $ 17.3 $ 17.3
---------------------------------------------
AVAILABLE-FOR-SALE INVESTMENTS
Marketable equity securities . . . . . . . . . . . . . . . . 73.7 73.7 60.3 60.3
Corporate debt securities. . . . . . . . . . . . . . . . . . 2,722.3 2,722.3 2,595.9 2,595.9
Government and agency debt securities. . . . . . . . . . . . 992.8 992.8 479.1 479.1
Mortgage-backed securities . . . . . . . . . . . . . . . . . 1,492.0 1,492.0 1,755.6 1,755.6
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 412.8 412.8 109.5 109.5
---------------------------------------------
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . 5,693.6 5,693.6 5,000.4 5,000.4
---------------------------------------------
HELD-TO-MATURITY INVESTMENTS
Corporate debt securities. . . . . . . . . . . . . . . . . . 1,879.5 1,922.7 1,906.1 1,897.2
Government debt securities . . . . . . . . . . . . . . . . . 33.0 31.1 34.4 30.9
Mortgage-backed securities . . . . . . . . . . . . . . . . . 1,144.0 1,149.4 1,136.5 1,116.8
Mortgage loans on real estate. . . . . . . . . . . . . . . . 146.9 150.0 161.9 158.5
Policy loans . . . . . . . . . . . . . . . . . . . . . . . . 75.2 75.2 72.7 72.7
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 592.0 584.4 549.9 542.1
---------------------------------------------
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . 3,870.6 3,912.8 3,861.5 3,818.2
---------------------------------------------
Accrued investment income. . . . . . . . . . . . . . . . . . 123.1 123.1 125.3 125.3
---------------------------------------------
Total investment securities. . . . . . . . . . . . . . . . . $9,687.6 $9,729.8 $9,004.5 $8,961.2
=============================================
/TABLE
<PAGE>
<PAGE> 7
3. RECEIVABLES
-----------
<TABLE>
<CAPTION>
Receivables consisted of the following:
-------------------------------------------------------------------------------------------------
March 31, December 31,
In millions. 1995 1994
-------------------------------------------------------------------------------------------------
<S> <C> <C>
First mortgage . . . . . . . . . . . . . . . . . . . . . . . $ 3,333.1 $ 3,364.2
Home equity. . . . . . . . . . . . . . . . . . . . . . . . . 3,429.0 2,865.6
Other secured. . . . . . . . . . . . . . . . . . . . . . . . 604.0 676.9
Bankcard . . . . . . . . . . . . . . . . . . . . . . . . . . 4,235.8 4,788.9
Merchant participation . . . . . . . . . . . . . . . . . . . 2,646.2 2,564.9
Other unsecured. . . . . . . . . . . . . . . . . . . . . . . 5,464.9 5,137.2
Equipment financing and other commercial . . . . . . . . . . 1,139.3 1,157.9
--------------------------------
Total receivables owned . . . . . . . . . . . . . . . . . . 20,852.3 20,555.6
Accrued finance charges. . . . . . . . . . . . . . . . . . . 330.3 305.0
Credit loss reserve for owned receivables. . . . . . . . . . (580.7) (546.0)
Unearned credit insurance premiums and claims reserves . . . (128.9) (122.2)
Amounts due and deferred from receivables sales. . . . . . . 781.2 922.4
Reserve for receivables serviced with limited recourse . . . (321.1) (336.5)
--------------------------------
Total receivables owned, net . . . . . . . . . . . . . . . . 20,933.1 20,778.3
Receivables serviced with limited recourse . . . . . . . . . 12,641.3 12,495.1
Receivables serviced with no recourse. . . . . . . . . . . . 16,059.4 17,752.2
--------------------------------
Total receivables owned or serviced, net . . . . . . . . . . $49,633.8 $51,025.6
================================
The outstanding balance of receivables serviced with limited recourse consisted of the following:
-------------------------------------------------------------------------------------------------
March 31, December 31,
In millions. 1995 1994
-------------------------------------------------------------------------------------------------
Home equity. . . . . . . . . . . . . . . . . . . . . . . . . $ 4,867.9 $ 5,074.6
Bankcard . . . . . . . . . . . . . . . . . . . . . . . . . . 6,705.0 6,311.3
Merchant participation . . . . . . . . . . . . . . . . . . . 820.4 868.2
Other unsecured. . . . . . . . . . . . . . . . . . . . . . . 248.0 241.0
--------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,641.3 $12,495.1
================================
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. 1995 1994
-------------------------------------------------------------------------------------------------
First mortgage . . . . . . . . . . . . . . . . . . . . . . . $ 3,333.1 $ 3,364.2
Home equity. . . . . . . . . . . . . . . . . . . . . . . . . 8,296.9 7,940.2
Other secured. . . . . . . . . . . . . . . . . . . . . . . . 604.0 676.9
Bankcard . . . . . . . . . . . . . . . . . . . . . . . . . . 10,940.8 11,100.2
Merchant participation . . . . . . . . . . . . . . . . . . . 3,466.6 3,433.1
Other unsecured. . . . . . . . . . . . . . . . . . . . . . . 5,712.9 5,378.2
Equipment financing and other commercial . . . . . . . . . . 1,139.3 1,157.9
--------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $33,493.6 $33,050.7
================================
The outstanding balance of receivables serviced with no recourse consisted of the following:
-------------------------------------------------------------------------------------------------
March 31, December 31,
In millions. 1995 1994
-------------------------------------------------------------------------------------------------
First mortgage . . . . . . . . . . . . . . . . . . . . . . . $15,270.3 $16,716.7
Home equity. . . . . . . . . . . . . . . . . . . . . . . . . 228.3 343.0
Other unsecured. . . . . . . . . . . . . . . . . . . . . . . 560.8 692.5
--------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,059.4 $17,752.2
================================
/TABLE
<PAGE>
<PAGE> 8
The amounts due and deferred from receivables sales of $781.2 million
at March 31, 1995 included unamortized excess servicing assets and
funds established pursuant to the recourse provisions and holdback
reserves for certain sales totaling $770.9 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 $281.3 million
plus unpaid interest and has subordinated interests in certain
transactions, which are recorded as receivables, for $123.9 million at
March 31, 1995. 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 $321.1 million at March 31, 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 17 through 19 for additional information related to the credit
quality of receivables.
4. CREDIT LOSS RESERVES
--------------------
An analysis of credit loss reserves for the three months ended
March 31 was as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
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. . . . . . . . . . . . 164.3 174.1
Owned receivables charged off . . . . . . . . . . . . . . . . . . . . (173.6) (204.3)
Recoveries on owned receivables . . . . . . . . . . . . . . . . . . . 33.0 27.7
Credit loss reserves on receivables purchased, net . . . . . . . . . . 2.6 .4
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4 (.8)
-----------------------
TOTAL CREDIT LOSS RESERVES FOR OWNED RECEIVABLES AT MARCH 31 580.7 619.0
-----------------------
Credit loss reserves for receivables serviced with
limited recourse at January 1. . . . . . . . . . . . . . . . . . . . 336.5 222.8
Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . 62.9 61.9
Chargeoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (86.1) (57.7)
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 1.7
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.0 (.3)
-----------------------
TOTAL CREDIT LOSS RESERVES FOR RECEIVABLES SERVICED WITH
LIMITED RECOURSE AT MARCH 31 . . . . . . . . . . . . . . . . . . . . 321.1 228.4
-----------------------
TOTAL CREDIT LOSS RESERVES FOR MANAGED RECEIVABLES AT MARCH 31 . . . . $ 901.8 $ 847.4
=======================
/TABLE
<PAGE>
<PAGE> 9
5. INCOME TAXES
------------
Effective tax rates for the three months ended March 31, 1995 and 1994 of
33.1 and 35.1 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 of
intangible assets, (c) state and local income taxes, (d) reduction of
noncurrent tax requirements and (e) leveraged lease tax benefits.
6. EARNINGS PER COMMON SHARE
-------------------------
Computations of earnings per common share for the three months ended
March 31 were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
1995 1994
------------------ -----------------
Fully Fully
In millions, except per share data. Primary Diluted Primary Diluted
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $96.0 $96.0 $77.6 $77.6
Preferred dividends. . . . . . . . . . . . . . . . . . . . (7.0) (6.9) (7.5) (6.9)
-----------------------------------------
Net income available to common shareholders. . . . . . . . . $89.0 $89.1 $70.1 $70.7
=========================================
Average shares:
Common . . . . . . . . . . . . . . . . . . . . . . . . . . 96.8 96.8 94.6 94.6
Common equivalents . . . . . . . . . . . . . . . . . . . . 1.0 1.5 .6 2.4
-----------------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . 97.8 98.3 95.2 97.0
=========================================
Earnings per common share. . . . . . . . . . . . . . . . . . $ .91 $ .91 $ .74 $ .73
=========================================
</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> 10
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CONSOLIDATED OVERVIEW
Operations Summary
------------------
Net income for the first quarter was $96.0 million, up 24 percent from
$77.6 million in 1994. Fully diluted earnings per share were $.91 per
share in the quarter, up 25 percent from $.73 per share in 1994.
All Finance and Banking businesses achieved improved operating results
in the first quarter of 1995 compared to the prior year quarter:
- The domestic consumer finance business increased earnings
primarily due to managed receivable portfolio growth, lower credit
costs and improved operating efficiency.
The credit card businesses reported higher earnings primarily due
to a larger managed receivables portfolio, increased efficiency and
lower credit costs. 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 due to improved
efficiency, a larger managed receivable base and higher fee income
generated from the GM Card from Vauxhall.
The consumer banking business reported higher earnings primarily
due to improved efficiency and lower write-downs of servicing
rights. In the fourth quarter of 1994 the company exited the
traditional first mortgage origination business.
The commercial business reported breakeven operating results in the
first quarter compared to a loss last year primarily due to lower
credit costs.
- The company's 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)
improved to 57.7 percent from 60.4 percent a year ago primarily as
a result of initiatives begun in the fourth quarter of 1994 to
improve efficiency. The normalized efficiency ratio, which
excludes non-recurring items, was 58.3 percent for the first
quarter of 1995 compared to 59.6 percent for the first quarter
of 1994.
Balance Sheet Review
--------------------
- In the fourth quarter of 1994, the company formed a joint venture
and entered into an agreement to sell $398 million of performing
commercial receivables to this entity, contingent upon the joint
venture obtaining third-party, non-recourse financing. The joint
venture received the financing in March 1995 and completed the
purchase of the receivables. These receivables were classified
as Assets Pending Sale on the Balance Sheet at December 31, 1994.
- Managed consumer receivables (owned receivables plus those serviced
with limited recourse) were up 15 percent over the prior year period.
Excluding first mortgage and other secured receivables (which the
company has de-emphasized or discontinued), the portfolio grew 18
percent. Home equity receivable volumes in the company's domestic
consumer finance business were up 20 percent compared to the prior
year period due to strong demand in the wholesale and retail
networks. Demand for credit cards and unsecured loans also remained
strong as volume on these products increased 22 percent during the
first three months compared to the same year-ago period.
<PAGE>
<PAGE> 11
Managed consumer receivables grew 6 percent on an annualized basis
during the first quarter. Excluding the first mortgage and other
secured product lines and seasonal run-off in the bankcard
portfolio, managed consumer receivables increased 17 percent. The
company's domestic consumer finance business grew its home equity
portfolio 20 percent, annualized, primarily due to strong wholesale
volume. Other unsecured receivables in this business were up 27
percent (annualized) in the quarter.
- Consumer two-months-and-over contractual delinquency ("delinquency")
as a percent of managed consumer receivables was 3.15 percent,
essentially flat with 3.11 percent at December 31, 1994 and down
from 3.61 percent at March 31, 1994. Consumer credit loss reserves
as a percent of managed consumer delinquency were 74.3 percent,
flat compared to December 31, 1994 and up 19 percent from a year
ago. The annualized total consumer managed chargeoff ratio in the
first quarter of 1995 was 2.68 percent, essentially unchanged
compared to 2.65 percent in the prior quarter and down from 2.96
percent in the year-ago quarter.
- In the first quarter, the company entered into agreements to sell
its banking operations, including approximately $3.8 billion of
related deposits, in California, Virginia, Maryland, Ohio and
Indiana. These sales are expected to close by the middle of 1995.
These sales will allow the company to focus its banking activities
on the metropolitan Chicago market.
In April 1995 the company entered into an agreement to sell its
remaining domestic first mortgage servicing portfolio to a third
party. The sale is not expected to have a material impact on the
company's operating results.
- The ratio of common and preferred shareholders' equity (including
convertible preferred stock) to total assets was 7.65 percent
compared to 7.35 percent at December 31, 1994. The ratios were
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, the unrealized loss does not
reflect the change in the economic value of shareholders' equity
due to higher interest rates. The company believes that the change
in fair value of liabilities should offset a significant amount of
the reduction 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 7.82 percent at March 31, 1995, up from 7.65
percent at December 31, 1994.
<PAGE>
<PAGE> 12
FINANCE AND BANKING
-------------------
Statements of Income
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
All dollar amounts are stated in millions.
Three months ended March 31 1995 1994
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance income . . . . . . . . . . . . . . . . . . . . . $ 681.7 $ 616.1
Interest income from noninsurance investment securities. 36.3 31.7
Interest expense . . . . . . . . . . . . . . . . . . . . 377.4 256.3
-----------------------------------
Net interest margin. . . . . . . . . . . . . . . . . . . 340.6 391.5
Provision for credit losses on owned receivables . . . . 164.3 174.1
-----------------------------------
Net interest margin after provision for credit losses. . 176.3 217.4
-----------------------------------
Securitization and servicing fee income. . . . . . . . . 228.3 171.0
Insurance premiums and contract revenues . . . . . . . . 48.7 41.8
Investment income. . . . . . . . . . . . . . . . . . . . 7.0 5.8
Fee income . . . . . . . . . . . . . . . . . . . . . . . 46.8 62.8
Other income . . . . . . . . . . . . . . . . . . . . . . 25.4 27.9
-----------------------------------
Total other revenues . . . . . . . . . . . . . . . . . . 356.2 309.3
-----------------------------------
Costs and expenses:
Salaries and fringe benefits . . . . . . . . . . . . . 140.4 157.6
Other operating expenses . . . . . . . . . . . . . . . 244.3 247.6
Policyholders' benefits. . . . . . . . . . . . . . . . 21.7 20.2
Income taxes . . . . . . . . . . . . . . . . . . . . . 41.3 35.4
-----------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 84.8 $ 65.9
===================================
Average receivables:
Owned. . . . . . . . . . . . . . . . . . . . . . . . . $21,188.0* $20,115.4
Serviced with limited recourse . . . . . . . . . . . . 12,450.1 9,694.0
-----------------------------------
Average managed receivables. . . . . . . . . . . . . . . 33,638.1* 29,809.4
Serviced with no recourse. . . . . . . . . . . . . . . . 17,182.0 16,130.6
-----------------------------------
Average receivables owned or serviced. . . . . . . . . . $50,820.1* $45,940.0
===================================
Return on average owned assets - annualized. . . . . . . 1.25% 1.02%
===================================
* Includes average balance of Assets Pending Sale, which consisted of commercial receivables sold to a
joint venture in March 1995.
----------------------------------------------------------------------------------------------------------
March 31, December 31,
In millions. 1995 1994
----------------------------------------------------------------------------------------------------------
End-of-period receivables:
Owned. . . . . . . . . . . . . . . . . . . . . . . . . $20,852.3 $20,555.6
Serviced with limited recourse . . . . . . . . . . . . 12,641.3 12,495.1
-----------------------------------
Managed receivables. . . . . . . . . . . . . . . . . . . 33,493.6 33,050.7
Serviced with no recourse. . . . . . . . . . . . . . . . 16,059.4 17,752.2
-----------------------------------
Receivables owned or serviced. . . . . . . . . . . . . . $49,553.0 $50,802.9
===================================
End-of-period deposits . . . . . . . . . . . . . . . . . $ 8,252.2 $ 8,439.0
===================================
/TABLE
<PAGE>
<PAGE> 13
Overview
--------
Domestic Finance and Banking earnings for the first quarter increased
to $78.1 million from $63.6 million in the year-ago period as operating
results in all businesses improved. 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 the first
quarter of 1995 compared to the prior year. As discussed on page 10,
net income for the United Kingdom operation increased primarily due to
portfolio growth. The Canadian operation reported slightly improved
results primarily due to better efficiency.
Receivables
-----------
Managed consumer receivables were flat compared to December 31, 1994
but were up 15 percent compared to the March 31, 1994 level. See
Balance Sheet Review on pages 10 and 11 for further discussion.
Receivables owned totaled $20.9 billion at March 31, 1995, up from both
December 31, 1994 and March 31, 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.
In the first quarter of 1995, the company completed securitizations and
sales of approximately $600 million of bankcard receivables.
Pro Forma Managed Income Data
-----------------------------
Since 1989 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 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 quarter ended March 31, 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> 14
PRO FORMA MANAGED FINANCE AND BANKING STATEMENTS OF INCOME
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
All dollar amounts are
stated in millions.
Three months ended March 31 1995 * 1994 *
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance income . . . . . . . . . . . . . . . . $ 1,117.7 12.34% $ 899.6 11.24%
Interest income from noninsurance
investment securities. . . . . . . . . . . . 36.3 .40 31.7 .40
Interest expense . . . . . . . . . . . . . . . 582.4 6.43 361.7 4.52
--------------------------------------------------------
Net interest margin. . . . . . . . . . . . . . 571.6 6.31 569.6 7.12
Provision for credit losses. . . . . . . . . . 227.2 2.51 236.0 2.95
--------------------------------------------------------
Net interest margin after
provision for credit losses. . . . . . . . . 344.4 3.80 333.6 4.17
--------------------------------------------------------
Servicing fee income . . . . . . . . . . . . . 15.5 .17 8.1 .10
Insurance premiums and
contract revenues. . . . . . . . . . . . . . 48.7 .54 41.8 .52
Investment income. . . . . . . . . . . . . . . 7.0 .08 5.8 .07
Fee income . . . . . . . . . . . . . . . . . . 91.5 1.01 109.5 1.37
Other income . . . . . . . . . . . . . . . . . 25.4 .28 27.9 .35
--------------------------------------------------------
Total other revenues . . . . . . . . . . . . . 188.1 2.08 193.1 2.41
--------------------------------------------------------
Costs and expenses:
Salaries and fringe benefits . . . . . . . . 140.4 1.55 157.6 1.97
Other operating expenses . . . . . . . . . . 244.3 2.70 247.6 3.10
Policyholders' benefits. . . . . . . . . . . 21.7 .24 20.2 .25
Income taxes . . . . . . . . . . . . . . . . 41.3 .45 35.4 .44
--------------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . $ 84.8 .94% $ 65.9 .82%
========================================================
Average managed receivables. . . . . . . . . . $33,638.1 $29,809.4
Average noninsurance
investments . . . . . . . . . . . . . . . . . 2,581.5 2,210.2
--------------------------------------------------------
Average managed interest-
earning assets . . . . . . . . . . . . . . . $36,219.6 $32,019.6
========================================================
</TABLE>
* As a percent, annualized, of average managed interest-earning assets.
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 $340.6 million for the first
quarter of 1995, down from $391.5 million in the first quarter of 1994.
Net interest margin on a Managed Basis was $571.6 million for the first
quarter of 1995, flat compared to the same year-ago period. Higher
finance income generated by the higher level of interest-earning assets
and the shift in product mix towards higher-yielding receivables was
offset by higher funding costs. Net interest margin as a percent of
average managed interest-earning assets, annualized, was 6.31 percent
compared to 6.42 percent in the previous quarter and 7.12 percent in
the year-ago quarter. This decline primarily was attributable to
higher short-term rates and lags in repricing variable rate products,
partially offset by the shift in product mix toward higher-yielding
unsecured receivables.
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
receivables with no recourse. Securitization income on an Owned Basis,
which includes net interest income, fee income and provision for credit
losses related to receivables serviced with limited recourse, increased
compared to the same year-ago periods due to higher levels of
securitized receivables outstanding and an increase in fee income from
securitized credit card receivables. The components of securitization<PAGE>
<PAGE> 15
income are reclassified to the applicable lines in the statements of
income on a Managed Basis.
Servicing fee income on a Managed Basis was higher than the first
quarter of 1994, which was impacted by the write-downs of servicing
rights. Average receivables serviced with no recourse increased to
$17.2 billion for the first quarter of 1995, compared to $16.1 billion
in the same period in 1994.
Insurance premiums and contract revenues increased from the first
quarter 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 $46.8 million in the first quarter of 1995,
down from $62.8 million in the comparable period 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 other fees related to receivables serviced with limited
recourse, decreased from $109.5 million in the first quarter of 1994
to $91.5 million in the same period in 1995 primarily due to lower
commission income.
Provision for credit losses
---------------------------
The provision for credit losses for receivables on an Owned Basis for
the first quarter of 1995 totaled $164.3 million, down 6 percent from
$174.1 million in the comparable prior year period. 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 $227.2 million in the first quarter of 1995, down 4 percent
from $236.0 million in the comparable period of 1994. As a percent of
average managed interest-earning assets, annualized, the provision
decreased to 2.51 percent from 2.95 percent in the first quarter of
1994, reflecting the underlying improvement in the credit quality of
the managed portfolio, which experienced lower delinquency in the first
quarter of 1995 than in the first quarter of 1994. See the credit
quality section for further discussion of factors affecting the
provision for credit losses.
Expenses
--------
Salaries and fringe benefits were $140.4 million compared to $157.6
million in the first quarter of 1994. The improvement was primarily
due to a reduction in the number of employees in connection with
decisions made in the fourth quarter of 1994 to improve the operating
efficiency of certain businesses. Other operating expenses were
$244.3 million in the first quarter of 1995, flat with the same
period of 1994.
The effective tax rate for the Finance and Banking segment was 32.8
percent, compared to 34.9 percent in the first quarter of 1994.
<PAGE>
<PAGE> 16
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>
----------------------------------------------------------------------------------------------
March 31, December 31, March 31,
1995 1994 1994
----------------------------------------------------------------------------------------------
<S> <C> <C>
Owned* . . . . . . . . . . . . . . . . . $580.7 $546.0 $619.0
Serviced with limited recourse . . . . . 321.1 336.5 228.4
-----------------------------------------------
Total. . . . . . . . . . . . . . . . . . $901.8 $882.5 $847.4
===============================================
</TABLE>
*March 31, 1994 amount includes the unallocated corporate credit
loss reserve.
Managed credit loss reserves were up 2 percent from December 31, 1994
and up 6 percent from March 31, 1994. Managed credit loss reserves as
a percent of nonperforming managed receivables were 102.2 percent,
essentially unchanged compared to 103.6 percent at December 31, 1994
and up from 88.0 percent at March 31, 1994. Consumer credit loss
reserves as a percent of managed consumer delinquency were 74.3 percent
at March 31, 1995 compared to 74.5 percent at December 31, 1994 and
62.7 percent at March 31, 1994. Consumer credit loss reserves as a
percent of annualized consumer net chargeoffs were 88.3 percent for the
first quarter, essentially unchanged compared to 88.9 percent for the
fourth quarter of 1994 but up from 76.8 percent for the first quarter
of 1994.
Total owned and managed credit loss reserves as a percent of
receivables were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
March 31, December 31, March 31,
1995 1994 1994
---------------------------------------------------------------------------------------------
<S> <C> <C>
Owned* . . . . . . . . . . . . . . . . . 2.78% 2.66% 3.07%
Managed* . . . . . . . . . . . . . . . . 2.69 2.67 2.83
----------------------------------------------
*March 31, 1994 amounts include the unallocated corporate credit loss reserve.
</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 substantially 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> 17
Credit Quality
--------------
Delinquency and chargeoff levels in the Finance and Banking portfolio
were essentially unchanged from the prior quarter and 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):
-------------------------------------------------------------------------------------------------
3/31/95 12/31/94 9/30/94 6/30/94 3/31/94
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First mortgage . . . . . . . . . . . . . 1.79% 1.81% 1.57% 1.52% 1.95%
Home equity. . . . . . . . . . . . . . . 2.75 2.83 2.88 3.04 3.44
Other secured. . . . . . . . . . . . . . 5.90 3.31 3.39 4.18 3.38
Bankcard . . . . . . . . . . . . . . . . 2.33 2.25 2.35 2.29 2.38
Merchant participation . . . . . . . . . 4.42 4.53 4.70 4.35 4.76
Other unsecured. . . . . . . . . . . . . 5.07 5.19 5.75 6.39 6.86
-----------------------------------------------------
Total. . . . . . . . . . . . . . . . . . 3.15% 3.11% 3.24% 3.32% 3.61%
=====================================================
</TABLE>
Delinquency as a percent of managed consumer receivables increased
slightly from the prior quarter but declined compared to the prior year
level. The bankcard delinquency ratio increased in the first quarter
primarily as a result of the seasonal decline in the receivable
portfolio. GM Card receivables, which included both the domestic and
United Kingdom programs, experienced increased delinquencies as the
portfolio continued to age, which were partially offset by continued
improvement in the non-GM Card portfolio. The delinquency level for
other secured receivables also increased during the quarter; however,
due to the relatively small size of the portfolio, the increase had a
minor impact on total delinquency. The year-over-year decline in the
delinquency ratio was driven by continued improvement in the home
equity and other unsecured portfolios in part resulting from a recently
implemented scoring system which provides the company with additional
growth opportunities while controlling the associated incremental risk.
Future changes in delinquency will depend on 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.<PAGE>
<PAGE> 18
Net Chargeoffs of Consumer Receivables
--------------------------------------
<TABLE>
<CAPTION>
Net Chargeoffs of Consumer Receivables (as a percent, annualized, of average managed consumer receivables):
-------------------------------------------------------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
1995 1994 1994 1994 1994
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First mortgage . . . . . . . . . . . . . .29% .26% .43% .47% .48%
Home equity. . . . . . . . . . . . . . . .90 1.00 1.15 1.59 1.51
Other secured. . . . . . . . . . . . . . .95 .95 1.33 .88 .66
Bankcard . . . . . . . . . . . . . . . . 4.04 3.96 3.73 3.81 4.20
Merchant participation . . . . . . . . . 4.29 3.84 3.52 3.39 3.50
Other unsecured. . . . . . . . . . . . . 3.25 3.61 4.23 4.79 4.98
-----------------------------------------------------
Total. . . . . . . . . . . . . . . . . . 2.68% 2.65% 2.69% 2.87% 2.96%
=====================================================
</TABLE>
Net chargeoffs as a percent of average managed consumer receivables for
the first quarter of 1995 were essentially unchanged compared to the
fourth quarter of 1994 and were lower than the year-ago quarter. The
other unsecured and home equity portfolios continued to show
improvement in the first quarter due to the favorable performance of
recently underwritten receivables. Bankcard chargeoffs increased
compared to the prior quarter, as an increase in the GM Card portfolio
chargeoff ratio partially offset improvements in the non-GM Card
portfolio. However, while GM Card chargeoffs increased compared to the
prior quarter, they still had a favorable impact on the chargeoff
ratio. Increased merchant participation chargeoffs in the quarter
primarily related to merchant programs the company has decided to exit.
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. The company expects that chargeoff
ratios associated with the GM Card may increase further before
stabilizing and anticipates further improvement in other products.
However, future changes in chargeoff trends may be impacted by factors
such as the continued shift in product mix toward unsecured
receivables, economic conditions, and the impact of personal
bankruptcies. Consequently, the extent and timing of improvements in
the chargeoff trend remains uncertain.
<PAGE>
<PAGE> 19
Nonperforming Assets
--------------------
Nonperforming assets consisted of the following:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
In millions. 3/31/95 12/31/94 9/30/94 6/30/94 3/31/94
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual managed receivables . . . . . $ 558.4 $ 581.5 $ 612.0 $ 645.8 $ 718.0
Accruing managed consumer receivables
90 or more days delinquent . . . . . . 238.5 228.2 225.3 218.5 215.6
Renegotiated commercial loans. . . . . . 85.9 41.8 44.9 28.5 29.2
--------------------------------------------------------
Total nonperforming managed
receivables. . . . . . . . . . . . . . 882.8 851.5 882.2 892.8 962.8
Real estate owned. . . . . . . . . . . . 187.8 182.8 395.1 405.6 415.4
Other assets acquired through
foreclosure. . . . . . . . . . . . . . 51.9 51.7 58.1 79.8 81.3
--------------------------------------------------------
Total nonperforming assets . . . . . . . $1,122.5 $1,086.0 $1,335.4 $1,378.2 $1,459.5
========================================================
Managed credit loss reserves
as a percent of nonperforming
managed receivables. . . . . . . . . . 102.2% 103.6% 99.2% 95.6% 88.0%
--------------------------------------------------------
</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 March 31, 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 three months
ended March 31, 1995. Credit loss reserves for impaired loans are
included in reserves for managed receivables described on page 16.
<PAGE>
<PAGE> 20
INDIVIDUAL LIFE INSURANCE
-------------------------
Individual Life Insurance net income was $11.2 million, compared to
$11.7 million in the prior year period.
<TABLE>
<CAPTION>
Statements of Income
--------------------------------------------------------------------------------------
All dollar amounts are stated in millions.
Three months ended March 31 1995 1994
--------------------------------------------------------------------------------------
<S> <C> <C>
Investment income. . . . . . . . . . . . . $ 132.8 $ 132.7
Insurance premiums and
contract revenues. . . . . . . . . . . . 39.0 38.8
----------------------------------
Total revenues . . . . . . . . . . . . . . 171.8 171.5
Costs and expenses:
Policyholders' benefits. . . . . . . . . 118.5 109.9
Operating expenses . . . . . . . . . . . 35.8 43.3
Income taxes . . . . . . . . . . . . . . 6.3 6.6
----------------------------------
Net income . . . . . . . . . . . . . . . . $ 11.2 $ 11.7
==================================
Return on average assets - annualized. . . .59% .68%
==================================
--------------------------------------------------------------------------------------
March 31, December 31,
In millions. 1995 1994
--------------------------------------------------------------------------------------
Investment securities. . . . . . . . . . . . . $ 6,790.3 $ 6,669.9
Life insurance in-force. . . . . . . . . . . . 39,619.1 36,560.4
==================================
</TABLE>
Investment securities for the Individual Life Insurance segment totaled
$6.8 billion, up from the December 31, 1994 level. The Individual Life
Insurance portfolio represented approximately 70 percent of the
company's total investment portfolio at March 31, 1995. Higher-risk
securities, which include non-investment grade bonds, common and
preferred stocks, commercial mortgage loans and real estate,
represented 7.2 percent of the insurance investment portfolio at March
31, 1995, compared to 6.9 percent at December 31, 1994.
At March 31, 1995 the market value for the insurance held-to-maturity
investment portfolio was 102 percent of the carrying value compared to
99 percent at December 31, 1994. The increase in market value over
book value during the first three months of 1995 was mainly the result
of slightly 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 first quarter of 1995 was
$132.8 million, flat compared with the year-ago period despite losses
on sales of available-for-sale investments compared to gains in the
first quarter of 1994, before interest rates began to rise. These
losses were partially offset by higher interest income resulting from
higher yields and a larger investment portfolio.
Insurance premiums and contract revenues for the first quarter were
flat with the prior year period.
Policyholders' benefits in the first quarter of 1995 were $118.5
million, up from $109.9 million in the same period in 1994 due to
higher interest credited to policyholders caused by higher interest
rates and life insurance in-force.
Operating expenses in the first quarter were down compared to the year-
ago period due to lower amortization of deferred insurance policy
acquisition costs ("DAC") primarily resulting from lower gains from
investment sales.
The effective tax rate was 36.0 percent for the first quarter of 1995,
compared to 36.1 percent a year ago.<PAGE>
<PAGE> 21
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(ii) Bylaws of Household International, as amended
January 10, 1995.
10.8 Executive Employment Agreement between the
Company and W. F. Aldinger.
10.9 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.
27 Financial Data Schedule.
(b) Reports on Form 8-K
During the first quarter of 1995, the Registrant filed a Current
Report on Form 8-K dated February 7, 1995, reporting pursuant to
Item 5, "Other Events" the financial results of Household
International, Inc. for the quarter and year ended December 31,
1994.
<PAGE>
<PAGE> 22
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 12, 1995 By: /s/ David A. Schoenholz
------------ -----------------------
David A. Schoenholz,
Senior Vice President -
Chief Financial Officer
and on behalf of
Household International, Inc.
<PAGE>
<PAGE> 23
Exhibit Index
-------------
3(ii) Bylaws of Household International, as amended January 10, 1995.
10.8 Executive Employment Agreement between the Company and
W. F. Aldinger.
10.9 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.
27 Financial Data Schedule.
<PAGE> 1
HOUSEHOLD INTERNATIONAL, INC.
Bylaws
______________
(As in effect January 10, 1995)
<PAGE>
<PAGE> 2
_________________________________________________________________
BYLAWS OF
HOUSEHOLD INTERNATIONAL, INC.
_________________________________________________________________
ARTICLE I.
DEFINITIONS, PLACES OF MEETINGS.
SECTION l. Definitions. When used herein, "Board" shall
mean the Board of Directors of this Corporation, and "Chairman"
shall mean Chairman of the Board of Directors.
SECTION 2. Places of Meetings of Stockholders and
Directors. Unless the Board shall fix another place for the
holding of the meeting, meetings of stockholders and of the Board
shall be held at the Corporation's International Headquarters,
Prospect Heights, Cook County, Illinois, or at such other place
in Cook County specified by the person or persons calling the
meeting.
ARTICLE II.
STOCKHOLDERS MEETINGS.
SECTION l. Annual Meeting of Stockholders. The annual
meeting of stockholders shall be held on such date and at such
time as is fixed by the Board. Any previously scheduled annual
meeting of stockholders may be postponed by resolution of the
Board of Directors upon public announcement given prior to the
date previously scheduled for such annual meeting of
stockholders.
SECTION 2. Special Meetings.
CALL. Special meetings of the stockholders may be
called at any time by the Chairman of the Board, the President,
or a majority of the Board of Directors. Any previously
scheduled special meeting of stockholders may be postponed by
resolution of the Board of Directors upon public announcement
given prior to the date previously scheduled for such special
meeting of stockholders.
REQUISITES OF CALL. A call for a special meeting of
stockholders shall be in writing, filed with the Secretary, and
shall specify the time and place of holding such meeting and the
purpose or purposes for which it is called.
SECTION 3. Notice of Meetings. Written notice of a meeting
of stockholders setting forth the place, date, and hour of the
meeting and the purpose or purposes for which the meeting is
called shall be mailed not less than ten nor more than sixty days
before the date of the meeting to each stockholder entitled to
vote at the meeting.
SECTION 4. Quorum and Adjournments. At any meeting of
stockholders, the holders of a majority of all the outstanding
shares entitled to vote, present in person or by proxy, shall
constitute a quorum for the transaction of business, and a
majority of such quorum shall prevail except as otherwise
required by law, the Certificate of Incorporation, or the bylaws.
If the stockholders necessary for a quorum shall fail to be
present at the time and place fixed for any meeting, the holders
of a majority of the shares entitled to vote who are present in
person or by proxy may adjourn the meeting from time to time,
until a quorum is present, provided, however, that any
stockholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the Chairman of
the meeting. At any adjourned meeting, any business may be
transacted which might have been transacted at the original
meeting.
SECTION 5. Inspectors of Election. The Corporation shall,
in advance of any meeting of stockholders, appoint one or more<PAGE>
<PAGE> 3
inspectors to act at the meeting and make a written report
thereof. The Corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act.
If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint
one or more inspectors to act at the meeting. Each inspector,
before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his ability.
The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the
shares represented at a meeting and the validity of proxies and
ballots, (iii) count all votes and ballots, (iv) determine and
retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (v)
certify their determination of the number of shares represented
at the meeting, and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to
assist the inspectors in the performance of the duties of the
inspectors.
SECTION 6. List of Stockholders. The Secretary shall
prepare, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the
name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall be
produced and kept at the time and place of the meeting during the
whole time thereof and may be inspected by any stockholder
present.
SECTION 7. Polls. The date and time of the opening and the
closing of the polls for each matter upon which the stockholders
will vote at a meeting shall be announced at the meeting. No
ballot, proxies or votes, nor any revocations thereof or changes
thereto, shall be accepted by the inspectors after the closing of
the polls unless the Court of Chancery of the State of Delaware
upon application by a stockholder shall determine otherwise.
SECTION 8. Nomination and Stockholder Business.
(A) Annual Meetings of Stockholders. (1) Nominations of
persons for election to the Board of Directors of the Corporation
and the proposal of business to be considered by the stockholders
may be made (a) by or at the direction of the Board of Directors
pursuant to the Corporation's proxy statement or notice of
meeting or at the annual meeting of stockholders, or (b) other
than as permitted by Rule 14a-8 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), by any stockholder of the
Corporation at the annual meeting of stockholders, provided such
stockholder is entitled to vote at the meeting, has complied with
the notice and the other procedures set forth in this Section 8,
and was a stockholder of record at the time of giving of notice
provided for in this Section 8.
(2) For proposed nominees or other business to be
properly brought before an annual meeting by a stockholder
pursuant to clause (b) of paragraph (A)(1) of this Section 8, the
stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than 60 days nor
more than 90 days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that
the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from such anniversary date,
notice by the stockholder to be timely must be so delivered not
earlier than the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th day
prior to such annual meeting or the 10th day following the day on
which public announcement of the date of such meeting is first<PAGE>
<PAGE> 4
made. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate at the annual
meeting for election or reelection as a director all information
relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under
the Exchange Act (including such person's written consent to
serving as a director if elected). Any individual proposed to be
nominated to the Board of Directors by a stockholder pursuant to
this procedure shall only become a nominee for election to the
Board of Directors if the stockholder who has provided the
notice, or his proxy, presents such individual as a nominee at
the annual meeting; (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting
and any material interest in such business of such stockholder
and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such stockholder, as
it appears on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder
and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Section 8 to the contrary, in the event
that the number of directors to be elected to the Board of
Directors of the Corporation is increased and there is no public
announcement naming all of the nominees for Director or
specifying the size of the increased Board of Directors made by
the Corporation at least 70 days prior to the first anniversary
of the preceding year's annual meeting, a stockholder's notice
required by this Section 8 shall also be considered timely, but
only with respect to proposed nominees for any new positions
created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Corporation
not later than the close of business on the 10th day following
the day on which such public announcement is first made by the
Corporation.
(B) Special Meetings of Stockholders. Only such business
shall be conducted at a special meeting of stockholders as shall
have been brought before the meeting pursuant to the
Corporation's proxy statement or notice of meeting. Nominations
of persons for election to the Board of Directors at a special
meeting of stockholders at which directors are to be elected may
be made (a) by or at the direction of the Board of Directors
pursuant to the Corporation's proxy statement or notice of
meeting or at the meeting, or (b) at the meeting by any
stockholder of the Corporation who is a stockholder of record at
the time of giving of notice provided for in this paragraph (B)
of Section 8, who shall be entitled to vote at the meeting and
who complies with the procedures set forth in clause (a) of
paragraph (A)(2) of of this Section 8. Stockholder's notice
required by this paragraph (B) of this Section 8 shall be
delivered to the Secretary at the principal executive offices of
the Corporation not earlier than the 90th day prior to such
special meeting and not later than the close of business on the
later of the 60th day prior to such special meeting or the 10th
day following the day on which public announcement is first made
of the date of the special meeting and of the nominees proposed
by the Board of Directors to be elected at such meeting.
(C) General. (1) Only such persons who are nominated in
accordance with the procedures set forth in this Section 8 shall
be eligible to serve as directors and only such business shall be
conducted at a meeting of stockholders as shall have been brought
before the meeting in accordance with the procedures set forth in
this Section 8. The Chairman of the meeting shall have the power
and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made in accordance
with the procedures set forth in this Section 8 and, if any
proposed nomination or business is not in compliance with this
Section 8, to declare that such defective nomination or proposal
shall be disregarded.
<PAGE>
<PAGE> 5
(2) For purposes of this Article II, "public
announcement" shall mean disclosure in a press release reported
by the Dow Jones News Service, Associated Press or comparable
national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant
to Sections 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding anything set forth herein to the
contrary, any stockholder may submit a notice delivered to the
Secretary at the principal executive offices of the Corporation
containing names of individuals for the Board of Directors to
consider as potential nominees to the Board of Directors at the
next meeting of stockholders called for the purpose of electing
directors. In connection with such notice, the stockholder shall
provide the information required in clause (a) of paragraph
(A)(2) of this Section 8, including, the written consent of each
individual to be named in the Corporation's proxy statement or
notice of meeting if the Board of Directors, in its sole
discretion, determines to nominate such individual. Any such
notice provided by a stockholder must be timely received by the
Corporation to enable the Board of Directors to review the
qualifications of any person to be considered for a nomination.
For purposes hereof, the notice shall be deemed timely if it is
delivered to the Secretary of the Corporation within the time
periods required for notices of stockholder proposals as set
forth in Rule 14a-8 of the Exchange Act.
(4) Nothing in this Section 8 shall be deemed to
affect any rights of stockholders to request inclusion of
proposals in the Corporation's proxy statement or notice of
meeting pursuant to Rule 14a-8 of the Exchange Act.
(5) Notwithstanding the foregoing provisions of this
Section 8, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section
8.
ARTICLE III.
BOARD OF DIRECTORS.
SECTION l. General Powers. The business and affairs of
this Corporation shall be managed under the direction of the
Board.
NUMBER. The number of directors shall be fixed from
time to time by resolution of the Board.
TENURE. The directors shall be elected at the annual
meeting of stockholders. Each director shall hold office until
his successor is elected and qualified or until his earlier
resignation or removal.
VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office
though less than a quorum.
SECTION 2. Annual Meetings of the Board. The annual
meeting of the Board shall be held following the annual meeting
of stockholders and shall be a meeting of the directors elected
at such meeting of stockholders. No notice shall be required.
SECTION 3. Regular Meetings of the Board. Regular meetings
of the Board shall be held at such times and places as the Board
may fix. No notice shall be required.
SECTION 4. Special Meetings of the Board. Special meetings
of the Board shall be held whenever called by the Chairman, the
President, or any four or more directors. At least twenty-four
hours' written or oral notice of each special meeting shall be
given to each director. If mailed, notice must be deposited in
the United States mail at least seventy-two hours before the
meeting.
<PAGE>
<PAGE> 6
SECTION 5. Quorum. A majority of the members of the Board
if the total number is odd or one-half thereof if the total
number is even shall constitute a quorum for the transaction of
business, but if at any meeting of the Board there is less than a
quorum the majority of those present may adjourn the meeting from
time to time until a quorum is present. At any such adjourned
meeting, a quorum being present, any business may be transacted
which might have been transacted at the original meeting.
Except as otherwise provided by law, the Certificate of
Incorporation, or the bylaws, all actions of the Board shall be
decided by vote of a majority of those present.
SECTION 6. Committees. The Board may, by resolution passed
by a majority of the entire Board, designate one or more
committees of directors which to the extent provided in the
resolution shall have and may exercise powers and authority of
the Board in the management of the business and affairs of the
Corporation.
SECTION 7. Action Without a Meeting. Any action required
or permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting if all the
members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.
ARTICLE IV.
OFFICERS.
SECTION l. Officers. The General Officers of the
Corporation shall be a Chairman of the Board, a Chief Executive
Officer, a President, such number of Executive Vice Presidents,
Group Executives or Senior Vice Presidents as may be determined
by the Board, a Secretary and a Treasurer. The Chairman and
President shall be directors.
The Board may from time to time designate, employ, or
appoint such other officers and assistant officers, agents,
employees, counsel, and attorneys at law or in fact as it shall
deem desirable for such periods and on such terms as it may deem
advisable, and such persons shall have such titles, only such
power and authority, and perform such duties as the Board may
determine.
SECTION 2. Duties of Chairman of the Board. The Chairman
shall sign and issue, jointly with the President, all reports to
the stockholders and shall preside at all meetings of
stockholders and of the Board. He shall, in general, perform all
duties incident to the office of Chairman, and such other duties
as may be prescribed by the Board and perform the duties of the
President in his absence or inability to act.
SECTION 3. Duties of Chief Executive Officer. At each
annual meeting of the Board, or other meeting at which General
Officers are or may be elected, the Board shall designate the
Chairman or the President as the Chief Executive Officer of the
Corporation. The Chief Executive Officer shall have general
authority over all matters relating to the business and affairs
of the Corporation subject to the control and direction of the
Board.
SECTION 4. Duties of President. The President shall, in
general, perform all duties incident to the office of President
and shall perform such other duties as may be prescribed by the
Board. In the absence or inability of the Chairman to act, the
President shall perform the duties of the Chairman pertaining to
management of the Corporation, and the Chairman of the Executive
Committee of the Board shall perform those duties of the Chairman
pertaining to Board functions.
SECTION 5. Duties of Executive Vice President, Group
Executives and Senior Vice Presidents. Each Executive Vice
President, Group Executive and Senior Vice President shall have
such powers and perform such duties as may be prescribed by the
Chief Executive Officer of the Corporation or the Board. The<PAGE>
<PAGE> 7
order of seniority, if any, among the Executive Vice Presidents,
Group Executives and Senior Vice Presidents shall be as
designated from time to time by the Chief Executive Officer of
the Corporation. In the absence or inability of the Chairman and
the President to act, the senior of the Executive Vice
Presidents, Group Executives and Senior Vice Presidents, if one
has been so designated, shall perform the duties of the
President. In the absence of any such designation, the director
who is the acting Chairman of the Executive Committee of the
Board of Directors shall assume the duties of the President for
such time period as required.
SECTION 6. Duties of Secretary. The Secretary shall record
the proceedings of meetings of the stockholders and directors,
give notices of meetings, and shall, in general, perform all
duties incident to the office of Secretary and such other duties
as may be prescribed by the Board.
SECTION 7. Duties of Treasurer. The Treasurer shall have
custody of all funds, securities, evidences of indebtedness, and
other similar property of the Corporation, and shall, in general,
perform all duties incident to the office of Treasurer and such
other duties as may be prescribed by the Board."
ARTICLE V.
MISCELLANEOUS PROVISIONS.
SECTION l. Waiver of Notice. Whenever notice is required
to be given, a written waiver thereof signed by the person
entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully
called or convened.
SECTION 2. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board may fix, in
advance, a record date, which shall not be more than sixty nor
less than ten days before the date of such meeting, nor more than
sixty days prior to any other action; except that the
establishment of a record date for determination of stockholders
entitled to express consent to corporate action in writing
without a meeting shall be established pursuant to Article VII of
the bylaws.
ARTICLE VI.
EMERGENCY BYLAWS.
SECTION l. When Operative. Notwithstanding any different
provision in the preceding Articles of the bylaws or in the
Certificate of Incorporation, the emergency bylaws provided in
this Article VI shall be operative during any emergency resulting
from an attack on the United States or on a locality in which the
Corporation conducts its business or customarily holds meetings
of its Board or its stockholders, or during any nuclear or atomic
disaster, or during the existence of any catastrophe, or other
similar emergency condition, as a result of which a quorum of the
Board or a standing committee thereof cannot readily be convened
for action.
SECTION 2. Board Meetings. During any such emergency, a
meeting of the Board may be called by any director or, if
necessary, by any officer who is not a director. The meeting
shall be held at such time and place, within or without Cook
County, Illinois, specified by the person calling the meeting and
in the notice of the meeting which shall be given to such of the
directors as it may be feasible to reach at the time and by such<PAGE>
<PAGE> 8
means as may be feasible at the time, including publication or
radio. Such advance notice shall be given as, in the judgment of
the person calling the meeting, circumstances permit. Two
directors shall constitute a quorum for the transaction of
business. To the extent required to constitute a quorum at the
meeting, the officers present shall be deemed, in order of rank
and within the same rank in order of seniority, directors for the
meeting.
SECTION 3. Amendments to Emergency Bylaws. These emergency
bylaws may be amended, either before or during any emergency, to
make any further or different provision that may be practical and
necessary for the circumstances of the emergency.
ARTICLE VII.
CONSENTS TO CORPORATE ACTION.
SECTION 1. Action by Written Consent. Unless otherwise
provided in the Certificate of Incorporation, any action which is
required to be or may be taken at any annual or special meeting
of stockholders of the Corporation, subject to the provisions of
Sections (2) and (3) of this Article VII, may be taken without a
meeting, without prior notice and without a vote if a consent in
writing, setting forth the action so taken, shall have been
signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize
or to take such action at a meeting at which all shares entitled
to vote thereon were present and voted; provided, however, that
prompt notice of the taking of the corporate action without a
meeting and by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
SECTION 2. Determination of Record Date for Action by
Written Consent. The record date for determining stockholders
entitled to express consent to corporate action in writing
without a meeting shall be fixed by the Board of Directors of the
Corporation. Any stockholder seeking to have the stockholders
authorize or take corporate action by written consent without a
meeting shall, by written notice to the Secretary, request the
Board of Directors to fix a record date. Upon receipt of such a
request, the Secretary shall, as promptly as practicable, call a
special meeting of the Board of Directors to be held as promptly
as practicable. At such meeting, the Board of Directors shall
fix a record date as provided in Section 213(b) (or its successor
provision) of the Delaware General Corporation Law; that record
date, however, shall not be more than 10 days after the date upon
which the resolution fixing the record date is adopted by the
Board nor more than 15 days from the date of the receipt of the
stockholder's request. Notice of the record date shall be
published in accordance with the rules and policies of any stock
exchange on which securities of the Corporation are then listed.
Should the Board fail to fix a record date as provided for in
this Section 2, then the record date shall be the day on which
the first written consent is duly delivered pursuant to Section
213(b) (or its successor provision) of the Delaware General
Corporation Law, or, if prior action is required by the Board
with respect to such matter, the record date shall be at the
close of business on the day on which the Board adopts the
resolution taking such action.
SECTION 3. Procedures for Written Consent. In the event of
the delivery to the Corporation of a written consent or consents
purporting to represent the requisite voting power to authorize
or take corporate action and/or related revocations, the
Secretary of the Corporation shall provide for the safekeeping of
such consents and revocations and shall promptly engage
nationally recognized independent inspectors of elections for the
purpose of promptly performing a ministerial review of the
validity of the consents and revocations. No action by written
consent without a meeting shall be effective until such
inspectors have completed their review, determined that the
requisite number of valid and unrevoked consents has been
obtained to authorize or take the action specified in the
consents, and certified such determination for entry in the
records of the Corporation kept for the purpose of recording the
proceedings of meetings of stockholders.
<PAGE> 1
February 13, 1995
Mr. William F. Aldinger
2700 Sanders Road
Prospect Heights, IL 60070
Dear Bill:
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 President and
Chief Executive Officer. In that capacity you are
entitled to the following:
a. A minimum annual salary of $700,000;
b. An annual bonus having a targeted value equal to
85% 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 stock options 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. Stock options will be valued
at their economic value 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 the following three sentences and 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.
It is our mutual intent that this Agreement be revised at
least every two (2) years to reflect more accurate lump
sum cash payment percentages in paragraphs 4 and 5 due to
changes in projected pension benefits and compensation.
As a result of these changes, the percentages could
increase or decrease. In no event, however, will the
percentages be reduced below 300%.<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 stock options 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 300% 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 for the performance period 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
300% 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<PAGE>
<PAGE> 4
amount by 10% or less would totally avoid the imposition
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 September 13, 1994 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
Corporation may establish a grantor trust or other vehicle
to assist it in meeting its obligations hereunder, but any<PAGE>
<PAGE> 5
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/ Donald C. Clark
-------------------
Donald C. Clark
Chairman of the Board
/s/ William F. Aldinger
-----------------------
William F. Aldinger
U:\WP\EMP819\EDGARP\IEX108.AS1
<PAGE> 1
February 13, 1995
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. In that capacity you are entitled to the
following:
a. A minimum annual salary of $675,000;
b. An annual bonus having a targeted value equal to
85% 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 stock options 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
granted in prior years will continue 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.
Stock options will be valued at their economic value
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 the following three sentences and 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<PAGE>
<PAGE> 2
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.
It is the intent to revise this Agreement at least every
two (2) years to reflect more accurate lump sum cash
payment percentages in paragraphs 4 and 5 due to changes
in projected pension benefits and compensation. As a
result of these changes, the percentages could increase or
decrease. In no event, however, will the percentage in
paragraph 4 be reduced below 320% nor will the percentage
in paragraph 5 be reduced below 360%.
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 stock options 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 338% of your then annual salary (prior to any of the
aforesaid reductions) (representing approximately the<PAGE>
<PAGE> 3
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
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);
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.
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<PAGE>
<PAGE> 4
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
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 January 3, 1994, the Employment Agreement<PAGE>
<PAGE> 5
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
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
U:\WP\EMP819\EDGAR\IEX109.AS1
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 1995 1994
- -----------------------------------------------------------------
Net income $ 96.0 $ 77.6
- -----------------------------------------------------------------
Income taxes 47.6 42.0
- -----------------------------------------------------------------
Fixed charges:
Interest expense (1) 379.1 259.1
Interest portion of rentals (2) 8.8 8.7
- -----------------------------------------------------------------
Total fixed charges 387.9 267.8
- -----------------------------------------------------------------
Total earnings as defined $531.5 $387.4
=================================================================
Ratio of earnings to fixed charges 1.37 1.45
=================================================================
Preferred stock dividends (3) $ 10.5 $ 11.6
=================================================================
Ratio of earnings to combined fixed charges
and preferred stock dividends 1.33 1.39
=================================================================
(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 33.1 and 35.1
percent for March 31, 1995 and 1994, respectively.
Exhibit 21
SUBSIDIARIES OF HOUSEHOLD INTERNATIONAL, INC.
- ---------------------------------------------
As of March 31, 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 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 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%
Household Retail Services, Inc. Delaware 100%
HRSI Funding, Inc. Nevada 100%
<PAGE>
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
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
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 498,200
<SECURITIES> 9,687,600
<RECEIVABLES> 20,852,300
<ALLOWANCES> 901,800
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,008,400
<DEPRECIATION> 501,700
<TOTAL-ASSETS> 34,564,900
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 9,914,500
<COMMON> 115,200
2,600
320,000
<OTHER-SE> 2,208,000
<TOTAL-LIABILITY-AND-EQUITY> 34,564,900
<SALES> 0
<TOTAL-REVENUES> 1,246,000
<CGS> 0
<TOTAL-COSTS> 560,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 164,300
<INTEREST-EXPENSE> 377,400
<INCOME-PRETAX> 143,600
<INCOME-TAX> 47,600
<INCOME-CONTINUING> 96,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96,000
<EPS-PRIMARY> .91
<EPS-DILUTED> .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>
