<PAGE> 1
FORM 10-Q
UNITED STATES
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, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-8198
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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: (847) 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, 1998, there were 107,331,246 shares of registrant's
common stock outstanding.
<PAGE>
<PAGE> 2
HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES
Table of Contents
PART I. Financial Information Page
----
Item 1. Financial Statements
Condensed Consolidated Statements of Income
(Unaudited) - Three Months
Ended March 31, 1998 and 1997 2
Condensed Consolidated Balance Sheets -
March 31, 1998 (Unaudited) and December 31, 1997 3
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Three Months Ended
March 31, 1998 and 1997 4
Financial Highlights 5
Notes to Interim Condensed Consolidated Financial
Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 21
Signature 22
<PAGE>
<PAGE> 3
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Household International, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- -------------------------------------------------------
All amounts, except per share data, are stated in millions.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Three months ended March 31 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Finance income $771.3 $751.6
Other interest income 12.3 8.3
Interest expense 388.6 365.1
------ ------
Net interest margin 395.0 394.8
Provision for credit losses on owned receivables 261.5 293.4
------ ------
Net interest margin after provision for credit losses 133.5 101.4
------ ------
Securitization income 377.8 330.7
Insurance revenues 74.5 65.4
Investment income 29.6 33.2
Fee income 99.5 77.4
Other income 14.8 69.1
------ ------
Total other revenues 596.2 575.8
------ ------
Salaries and fringe benefits 165.2 147.6
Occupancy and equipment expense 54.5 53.9
Other marketing expenses 81.1 81.9
Other servicing and administrative expenses 85.8 109.4
Amortization of acquired intangibles and goodwill 42.4 36.8
Policyholders' benefits 47.7 47.0
------ ------
Total costs and expenses 476.7 476.6
------ ------
Income before income taxes 253.0 200.6
Income taxes 82.7 69.1
------ ------
Net income $170.3 $131.5
====== ======
Earnings per common share:
Net income $170.3 $131.5
Preferred dividends (2.9) (3.2)
------ ------
Earnings available to common shareholders $167.4 $128.3
====== ======
Average common shares 107.2 97.2
------ ------
Average common and common equivalent shares 108.7 98.6
------ ------
Basic earnings per common share $ 1.56 $ 1.32
------ ------
Diluted earnings per common share $ 1.54 $ 1.30
------ ------
Dividends declared per common share .45 .39
====== ======
</TABLE>
See notes to interim condensed consolidated financial statements.
<PAGE>
<PAGE> 4
Household International, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
- -------------------------------------
In millions, except share data.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
March 31, December 31,
1998 1997
- -------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
- ------
<S> <C> <C>
Cash $ 195.1 $ 280.4
Investment securities 2,625.5 2,285.6
Receivables, net 25,672.1 23,862.7
Acquired intangibles and goodwill, net 1,894.7 1,754.7
Properties and equipment, net 279.6 309.4
Real estate owned 139.6 127.3
Other assets 2,090.3 1,682.5
--------- ---------
Total assets $32,896.9 $30,302.6
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Debt:
Deposits $ 1,881.6 $ 1,788.9
Commercial paper, bank and other borrowings 6,769.0 6,081.0
Senior and senior subordinated debt (with
original maturities over one year) 16,297.1 14,849.0
--------- ---------
Total debt 24,947.7 22,718.9
Insurance policy and claim reserves 1,140.5 1,257.2
Other liabilities 1,646.4 1,485.3
--------- ---------
Total liabilities 27,734.6 25,461.4
--------- ---------
Company obligated mandatorily redeemable
preferred securities of subsidiary trusts* 375.0 175.0
--------- ---------
Preferred stock 150.0 150.0
--------- ---------
Common shareholders' equity:
Common stock, $1.00 par value, 250,000,000
shares authorized, 124,331,175 shares
issued at March 31, 1998 and
December 31, 1997 124.3 124.3
Additional paid-in capital 1,532.2 1,531.8
Retained earnings 3,701.3 3,582.1
Foreign currency translation adjustments (129.1) (128.3)
Unrealized gain on investments, net 7.6 3.6
Less common stock in treasury, 17,013,238 and
17,173,143 shares at March 31, 1998 and
December 31, 1997, respectively, at cost (599.0) (597.3)
--------- ---------
Total common shareholders' equity 4,637.3 4,516.2
--------- ---------
Total liabilities and shareholders' equity $32,896.9 $30,302.6
========= =========
</TABLE>
* As described in note 8 to the financial statements, the sole
assets of the three trusts are Junior Subordinated Deferrable
Interest Notes issued by Household International, Inc. in March
1998, June 1996 and June 1995, bearing interest at 7.25, 8.70
and 8.25 percent, respectively, with principal balances of
$206.2, $103.1 and $77.3 million, respectively, and due December
31, 2037, June 30, 2036 and June 30, 2025, respectively.
See notes to interim condensed consolidated financial statements.
<PAGE>
<PAGE> 5
Household International, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -----------------------------------------------------------
In millions.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Three months ended March 31 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATIONS
Net income $ 170.3 $ 131.5
Adjustments to reconcile net income to cash
provided by operations:
Provision for credit losses on owned receivables 261.5 293.4
Insurance policy and claim reserves (116.5) 21.6
Depreciation and amortization 65.9 62.4
Net realized (gains) losses from sales of assets - (55.0)
Other, net (181.6) 61.8
--------- ---------
Cash provided by operations 199.6 515.7
--------- ---------
INVESTMENTS IN OPERATIONS
Investment securities:
Purchased (327.9) (407.8)
Matured 67.1 94.3
Sold 167.6 210.6
Short-term investment securities, net change (231.1) (19.6)
Receivables:
Originations, net (6,709.3) (5,765.5)
Purchases and related premiums (2,106.2) (234.2)
Sold 6,555.1 7,305.1
Properties and equipment purchased (11.6) (15.5)
Properties and equipment sold 20.4 4.9
--------- ---------
Cash increase (decrease) from investments in operations (2,575.9) 1,172.3
--------- ---------
FINANCING AND CAPITAL TRANSACTIONS
Short-term debt and demand deposits, net change 646.6 (938.6)
Time certificates, net change 91.8 (111.5)
Senior and senior subordinated debt issued 2,445.8 772.3
Senior and senior subordinated debt retired (1,025.4) (1,328.4)
Policyholders' benefits paid (27.4) (38.4)
Cash received from policyholders 26.6 69.9
Shareholders' dividends (51.1) (41.1)
Redemption of preferred stock - (55.0)
Purchase of treasury stock (9.8) -
Issuance of common stock 1.9 9.2
Issuance of company obligated mandatorily redeemable
preferred securities of subsidiary trusts 200.0 -
--------- ---------
Cash increase (decrease) from financing and
capital transactions 2,299.0 (1,661.6)
--------- ---------
Effect of exchange rate changes on cash (8.0) 28.5
--------- ---------
Increase (decrease) in cash (85.3) 54.9
Cash at January 1 280.4 239.2
--------- ---------
Cash at March 31 $ 195.1 $ 294.1
========= =========
Supplemental cash flow information:
Interest paid $ 359.5 $ 335.8
--------- ---------
Income taxes paid 6.1 10.6
--------- ---------
</TABLE>
See notes to interim condensed consolidated financial statements.
<PAGE>
<PAGE> 6
Household International, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
- --------------------
All dollar amounts are stated in millions.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Three months ended March 31 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 170.3 $ 131.5
--------- ---------
Net interest margin and other revenues <F1> 943.5 923.6
--------- ---------
Return on average common shareholders'
equity <F2> 14.7% 17.1%
--------- ---------
Return on average owned assets <F2> 2.14 1.77
--------- ---------
Managed basis efficiency ratio, normalized <F3> 35.6 38.3
--------- ---------
All dollar amounts are stated in millions.
- -------------------------------------------------------------------------------------------------
March 31, December 31,
1998 1997
- -------------------------------------------------------------------------------------------------
Total assets:
Owned $32,896.9 $30,302.6
Managed 53,593.3 51,868.4
--------- ---------
Receivables:
Owned $25,644.3 $23,811.0
Serviced with limited recourse 20,696.4 21,565.8
--------- ---------
Managed $46,340.7 $45,376.8
========= =========
Total shareholders' equity as a percent of
owned assets <F4> 15.69% 15.98%
--------- ---------
Total shareholders' equity as a percent of
managed assets <F4> 9.63 9.33
--------- ---------
<FN>
<F1> Policyholders' benefits have been netted against other revenues.
<F2> Annualized.
<F3> Ratio of normalized operating expenses to managed net interest
margin and other revenues less policyholders' benefits.
<F4> Total shareholders' equity at March 31, 1998 and December 31,
1997 includes common shareholders' equity, preferred stock and
company obligated mandatorily redeemable preferred securities
of subsidiary trusts.
</FN>
</TABLE>
See notes to interim condensed consolidated financial statements.
<PAGE>
<PAGE> 7
Household International, Inc. and Subsidiaries
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
- --------------------------
The accompanying unaudited condensed consolidated financial
statements of Household International, Inc. ("Household") and its
subsidiaries have been prepared in accordance with generally
accepted accounting principles for interim financial information.
Additionally, these financial statements have been prepared in
accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. They do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. Certain prior period amounts have
been reclassified to conform with the current period's
presentation. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. All share information is
presented before giving effect to the previously announced
Household three-for-one stock split which is to be effected in the
form of a stock dividend and is expected to be paid on or about
June 1, 1998. The stock split is pending stockholder approval to
increase the number of authorized shares of Household common stock.
Operating results for the three months ended March 31, 1998 should
not be considered indicative of the results for any future quarters
or the year ending December 31, 1998. Household and its
subsidiaries may also be referred to in this Form 10-Q as "we,"
"us" or "our." For further information, refer to the consolidated
financial statements and footnotes included in our annual report on
Form 10-K for the year ended December 31, 1997.
2. PENDING MERGER
- -------------------
On April 7, 1998, we announced that we entered into a definitive
agreement to combine Household with Beneficial Corporation
("Beneficial"), a consumer finance holding company headquartered in
Wilmington, Delaware. The merger, which is expected to close in the
third quarter of 1998, is subject to the approval of both
companies' shareholders, as well as certain regulatory authorities.
Under the terms of the agreement, we will issue 1.0222 shares of
our common stock for each outstanding share of Beneficial common
stock. The merger will be accounted for as a pooling of interests.
On March 31, 1998, Beneficial's total assets were $16.6 billion and
shareholders' equity was $2.0 billion.
In connection with the merger, we expect to incur pre-tax merger
and integration related costs of approximately $1 billion. These
costs include lease exit costs and related fixed assets impairment,
severance and change in control payments, asset write downs to
reflect modified business plans, legal and investment banking fees,
and prepayment premiums related to debt.
<PAGE>
<PAGE> 8
3. INVESTMENT SECURITIES
- --------------------------
Investment securities consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
In millions. March 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE INVESTMENTS
Marketable equity securities $ 127.8 $ 129.9 $ 128.4 $ 131.9
Corporate debt securities 1,193.9 1,204.6 1,238.3 1,251.6
U.S. government and federal
agency debt securities 209.4 208.4 232.1 220.4
Other 1,053.4 1,053.4 653.1 653.1
-------- -------- -------- --------
Subtotal 2,584.5 2,596.3 2,251.9 2,257.0
Accrued investment income 29.2 29.2 28.6 28.6
-------- -------- -------- --------
Total investment securities $2,613.7 $2,625.5 $2,280.5 $2,285.6
======== ======== ======== ========
</TABLE>
4. RECEIVABLES
- ---------------
Receivables consisted of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
March 31, December 31,
In millions. 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
First mortgage $ 357.6 $ 396.6
Home equity 8,627.8 7,933.2
Auto finance 654.4 487.5
MasterCard/Visa 6,503.9 5,927.3
Private label 4,653.1 4,682.9
Other unsecured 4,163.7 3,609.3
Commercial 683.8 774.2
--------- ---------
Total owned receivables 25,644.3 23,811.0
Accrued finance charges 388.5 377.5
Credit loss reserve for owned receivables (1,171.3) (1,082.2)
Unearned credit insurance premiums and
claims reserves (233.2) (228.4)
Amounts due and deferred from
receivables sales 1,873.0 1,847.1
Reserve for receivables serviced with
limited recourse (829.2) (862.3)
--------- ---------
Total owned receivables, net 25,672.1 23,862.7
Receivables serviced with limited recourse 20,696.4 21,565.8
--------- ---------
Total managed receivables, net $46,368.5 $45,428.5
========= =========
</TABLE>
<PAGE>
<PAGE> 9
The outstanding balance of receivables serviced with limited
recourse consisted of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
March 31, December 31,
In millions. 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C>
Home equity $ 2,825.4 $ 3,125.9
Auto finance 348.0 395.9
MasterCard/Visa 11,819.6 12,337.0
Private label 986.2 1,025.0
Other unsecured 4,717.2 4,682.0
--------- ---------
Total $20,696.4 $21,565.8
========= =========
</TABLE>
The combination of receivables owned and receivables serviced with limited
recourse, which we consider our managed portfolio, is shown below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
March 31, December 31,
In millions. 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C>
First mortgage $ 357.6 $ 396.6
Home equity 11,453.2 11,059.1
Auto finance 1,002.4 883.4
MasterCard/Visa 18,323.5 18,264.3
Private label 5,639.3 5,707.9
Other unsecured 8,880.9 8,291.3
Commercial 683.8 774.2
--------- ---------
Total $46,340.7 $45,376.8
========= =========
</TABLE>
The amounts due and deferred from receivables sales were $1,873.0
million at March 31, 1998 and $1,847.1 million at December 31,
1997. The amounts due and deferred included unamortized
securitization assets and funds set up under the recourse
requirements for certain sales totaling $1,761.3 million at March
31, 1998 and $1,716.2 million at December 31, 1997. It also
included customer payments not yet sent to us by the securitization
trustee of $92.3 million at March 31, 1998 and $107.2 million at
December 31, 1997. In addition, we have subordinated interests in
certain transactions, which were recorded as receivables, of
$1,107.8 million at March 31, 1998 and $1,098.1 million at December
31, 1997. We have agreements with a "AAA"-rated third party who
will insure us for up to $21.2 million in losses relating to
certain securitization transactions. We maintain credit loss
reserves under the recourse requirements for receivables serviced
with limited recourse which are based on estimated probable losses
under those requirements. The reserves totaled $829.2 million at
March 31, 1998 and $862.3 million at December 31, 1997 and
represents our best estimate of probable losses on receivables
serviced with limited recourse.
<PAGE>
<PAGE> 10
5. CREDIT LOSS RESERVES
- -------------------------
An analysis of credit loss reserves for the three months ended March 31 was
as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
In millions. 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Credit loss reserves for owned receivables
at January 1 $1,082.2 $ 900.2
Provision for credit losses 261.5 293.4
Chargeoffs (279.1) (263.2)
Recoveries 29.0 27.4
Portfolio acquisitions, net 77.7 (13.9)
-------- --------
TOTAL CREDIT LOSS RESERVES FOR OWNED RECEIVABLES
AT MARCH 31 1,171.3 943.9
-------- --------
Credit loss reserves for receivables serviced with
limited recourse at January 1 862.3 696.0
Provision for credit losses 261.5 249.1
Chargeoffs (314.0) (204.3)
Recoveries 18.8 9.9
Other, net .6 2.6
-------- --------
TOTAL CREDIT LOSS RESERVES FOR RECEIVABLES SERVICED
WITH LIMITED RECOURSE AT MARCH 31 829.2 753.3
-------- --------
TOTAL CREDIT LOSS RESERVES FOR MANAGED RECEIVABLES
AT MARCH 31 $2,000.5 $1,697.2
======== ========
</TABLE>
6. INCOME TAXES
- -----------------
The effective tax rate was 32.7 percent for the three months ended
March 31, 1998 and 34.4 percent in the year-ago period. The
effective tax rate differs from the statutory federal income tax
rate in these years primarily because of the effects of (a)
amortization and write-offs of intangible assets, (b) state and
local income taxes, (c) reduction of noncurrent tax requirements
and (d) leveraged lease tax benefits.
<PAGE>
<PAGE> 11
7. EARNINGS PER COMMON SHARE
- ------------------------------
Computations of earnings per common share for the three months
ended March 31 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1998 1997
---------------------- ----------------------
In millions, except per share data. Diluted Basic Diluted Basic
- ------------------------------------ ------- ----- ------- ------
<S> <C> <C> <C> <C>
Earnings:
Net income $170.3 $170.3 $131.5 $131.5
Preferred dividends (2.9) (2.9) (3.2) (3.2)
------ ------ ------ ------
Earnings available to common
shareholders $167.4 $167.4 $128.3 $128.3
====== ====== ====== ======
Average shares:
Common 107.2 107.2 97.2 97.2
Common equivalents 1.5 - 1.4 -
------ ------ ------ ------
Total 108.7 107.2 98.6 97.2
====== ====== ====== ======
Earnings per common share $ 1.54 $ 1.56 $ 1.30 $ 1.32
====== ====== ====== ======
</TABLE>
On March 10, 1998, our Board of Directors declared a three-for-one
common stock split, to be effected in the form of a stock dividend,
subject to shareholders approving an increase in common shares at
the Annual Meeting of Shareholders on May 13, 1998. If approved,
shareholders of record as of May 14, 1998 will be issued new shares
on or about June 1, 1998. All share information is presented before
giving effect to the previously announced stock split.
8. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
OF SUBSIDIARY TRUSTS
- ------------------------------------------------------------------
In March 1998 Household Capital Trust IV ("HCT IV"), a wholly-owned
subsidiary of Household, issued 8 million 7.25 percent Trust
Preferred Securities ("preferred securities") at $25 per preferred
security. The sole asset of HCT IV is $206.2 million of 7.25
percent Junior Subordinated Deferrable Interest Notes issued by
Household. The junior subordinated notes held by HCT IV mature on
December 31, 2037 and are redeemable by Household in whole or in
part beginning on March 19, 2003, at which time the HCT IV
preferred securities are callable at par of $25 per preferred
security plus accrued and unpaid dividends. Net proceeds from the
issuance of preferred securities were used for general corporate
purposes.
In June 1996 Household Capital Trust II ("HCT II"), a wholly-owned
subsidiary of Household, issued 4 million 8.70 percent preferred
securities at $25 per preferred security. The sole asset of HCT II
is $103.1 million of 8.70 percent Junior Subordinated Deferrable
Interest Notes issued by Household. The junior subordinated notes
held by HCT II mature on June 30, 2036 and are redeemable by
Household in whole or in part beginning on June 30, 2001, at which
time the HCT II preferred securities are callable at par value of
$25 per preferred security plus accrued and unpaid dividends.
<PAGE>
<PAGE> 12
In 1995 Household Capital Trust I ("HCT I"), a wholly-owned
subsidiary of Household, issued 3 million 8.25 percent preferred
securities at $25 per preferred security. The sole asset of HCT I
is $77.3 million of 8.25 percent Junior Subordinated Deferrable
Interest Notes issued by Household. The junior subordinated notes
held by HCT I mature on June 30, 2025 and are redeemable by
Household in whole or in part beginning June 30, 2000, at which
time the HCT I preferred securities are callable at par value of
$25 per preferred security plus accrued and unpaid dividends. HCT I
may elect to extend the maturity of its preferred securities to
June 30, 2044.
The obligations of Household with respect to the junior
subordinated notes, when considered together with certain
undertakings of Household with respect to HCT I, HCT II and HCT IV,
constitute full and unconditional guarantees by Household of HCT
I's, HCT II's and HCT IV's obligations under the respective
preferred securities. The preferred securities are classified in
our balance sheets as company obligated mandatorily redeemable
preferred securities of subsidiary trusts (representing the
minority interest in the trusts) at their face and redemption
amount of $375 million at March 31, 1998 and $175 million at
December 31, 1997. The preferred securities have a liquidation
value of $25 per preferred security. Dividends on the preferred
securities are cumulative, payable quarterly in arrears, and are
deferrable at Household's option for up to five years from date of
issuance. Household cannot pay dividends on its preferred and
common stocks during such deferments.
9. COMPREHENSIVE INCOME
- ------------------------
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("FAS No. 130"), effective for fiscal years
beginning after December 15, 1997. This statement establishes
standards for the reporting and presentation of comprehensive
income. Comprehensive income, in addition to traditional net
income, includes the mark-to-market adjustments on available-for-
sale securities, cumulative translation adjustments and other items
which represent a change in equity from "nonowner" sources. FAS No.
130 does not change existing requirements for certain items to be
reported as a separate component of shareholders' equity. In
accordance with the interim reporting guidelines of FAS No. 130,
comprehensive income was $173.5 million for the quarter ended March
31, 1998 and $105.6 million for the quarter ended March 31, 1997.
<PAGE>
<PAGE> 13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Form 10-Q contains certain estimates and projections regarding
Household and our proposed merger with Beneficial Corporation, that
may be forward-looking in nature, as defined by the Private
Securities Litigation Reform Act of 1995. A variety of factors may
cause actual results to differ materially from the results
discussed in these forward-looking statements. Factors that might
cause such a difference are discussed herein and in Household
International's and Beneficial Corporation's Annual Reports on
Forms 10-K, for the year ended December 31, 1997, filed with the
Securities and Exchange Commission.
OPERATIONS SUMMARY
- ------------------
Our net income for the first quarter of 1998 was $170.3 million, up
30 percent from $131.5 million in 1997. Diluted earnings per share
was $1.54 for the first quarter of 1998, up 18 percent from $1.30
per share in 1997. Basic earnings per share, which excludes the
impact of common stock equivalents, was $1.56 for the first quarter
of 1998 compared to $1.32 in 1997. The difference between the
percentage increases in net income and earnings per share for the
first quarter was because we issued over nine million common shares
in June 1997. Our annualized return on average common shareholders'
equity for the first quarter of 1998 was 14.7 percent, compared to
17.1 percent in the year-ago period. This decrease in 1998 reflects
the increase in average equity from the June common stock offering.
Our annualized return on average owned assets improved to 2.14
percent in the 1998 first quarter from 1.77 percent a year ago.
- - The following summarizes our operating results for our key
businesses for the first quarter of 1998 compared to the prior
year period:
Results for our domestic consumer finance business improved from
the prior year period reflecting higher net interest margin and
fee income due mainly to higher levels of average managed
receivables. These improvements were partially offset by higher
credit losses resulting primarily from increased personal
bankruptcy filings.
Our MasterCard* and Visa* credit card business reported lower
net interest margin partially offset by higher fee income and
improved operating efficiency. This business includes our co-
branding and affinity relationship strategies, in particular our
alliance with General Motors Corporation ("GM") to issue the GM
Card, a co-branded credit card, and the AFL-CIO's Union
Privilege affinity relationship.
Our private label credit card business reported higher credit
losses, partially offset by higher net interest margin and fee
income, and improved efficiency. Higher credit losses reflected
higher personal bankruptcies as well as the maturing of
promotional balances in the first quarter of 1998.
Net income increased in our United Kingdom ("U.K.") operation
primarily due to improved efficiency, as well as higher
interchange income and insurance premiums, due to receivables
growth. The Goldfish Card, issued in alliance with the Centrica
Group, contributed significantly to the growth in credit card
receivables during the quarter.
* MasterCard is a registered trademark of MasterCard
International, Incorporated and Visa is a registered trademark
of VISA USA, Inc.
<PAGE>
<PAGE> 14
- - Our normalized managed basis efficiency ratio improved to 35.6
percent for the first quarter of 1998 compared to 38.3 percent a
year ago. The efficiency ratio is the ratio of operating
expenses to the sum of our managed net interest margin and other
revenues less policyholders' benefits. We normalize, or adjust
for, items that are not indicative of ongoing operations. They
include gains on the sales of loan portfolios and non-recurring
restructuring expenses. The improvement in the managed ratio in
1998 resulted from growth in normalized managed net revenues
over the prior year, compared to essentially no change in
normalized operating expenses over the comparable period.
- - We continued to increase our credit loss reserves during the
first three months of 1998 due to the maturing of our unsecured
loan portfolios and continued high levels of personal bankruptcies.
- - On March 10, 1998, our Board of Directors declared a three-for-
one common stock split, to be effected in the form of a stock
dividend, subject to shareholders approving an increase in
common shares at the Annual Meeting of Shareholders on May 13,
1998. If approved, shareholders of record as of May 14, 1998
will be issued new shares on or about June 1, 1998. All share
information is presented before giving effect to the previously
announced stock split.
- - On April 7, 1998, we announced that we entered into a definitive
agreement to combine Household with Beneficial Corporation
("Beneficial"), a consumer finance holding company headquartered
in Wilmington, Delaware. The merger, which is expected to close
in the third quarter of 1998, is subject to the approval of both
companies' shareholders, as well as certain regulatory
authorities. Under the terms of the agreement, we will issue
1.0222 shares of our common stock for each outstanding share of
Beneficial common stock. The merger will be accounted for as a
pooling of interests. On March 31, 1998, Beneficial's total
assets were $16.6 billion and shareholders' equity was $2.0
billion.
In connection with the merger, we expect to incur pre-tax merger
and integration related costs of approximately $1 billion. These
costs include lease exit costs and related fixed assets
impairment, severance and change in control payments, asset
write downs to reflect modified business plans, legal and
investment banking fees, and prepayment premiums related to
debt.
BALANCE SHEET REVIEW
- --------------------
- - Managed consumer receivables (receivables on our balance sheet
plus receivables serviced with limited recourse) grew 12 percent
over the prior year. Core products, which exclude first mortgages
and commercial receivables, increased 13 percent from a year ago.
Growth in home equity loans and auto finance receivables reflect
the acquisitions of Transamerica Financial Services Holding Company
("TFS") in June 1997 and ACC Consumer Finance Corporation ("ACC")
in October 1997. Additionally, new loan originations in our retail
branch network were up 30 percent from the prior year. However,
the higher level of refinancings continued to impact home equity
loan growth. MasterCard and Visa receivables were up from a year
ago due to solid growth in our U.K. bankcard business and the
purchase of a $925 million portfolio late in the quarter. This
growth was offset by the non-strategic portfolio sales which
occurred in the second half of 1997. Other unsecured receivables
were up slightly compared to the prior year reflecting the purchase
of an $850 million portfolio in the quarter. In addition, other
unsecured growth was affected by the sale of our student loan
portfolio in the fourth quarter of 1997 totaling about $900 million
and our slowed origination of new unsecured business in recent
quarters because of the uncertain credit environment.
<PAGE>
<PAGE> 15
- - Compared to the fourth quarter of 1997, core receivables were up
primarily due to the acquisitions discussed above. This growth was
partially offset, however, due to the normal, seasonal runoff
experienced in the MasterCard and Visa portfolio and the slowing of
new originations of other unsecured receivables as discussed above.
New loan originations in our retail branch network were up 7
percent in the quarter. However, the higher level of refinancings
continued to impact home equity loan growth.
- - Consumer receivables on our balance sheet were $25.0 billion
at March 31, 1998, up from $23.0 billion at December 31, 1997 and
$21.5 billion at March 31, 1997. Changes in these owned receivables
from period to period may vary depending on the timing and
significance of securitization transactions.
- - Our managed credit loss reserves were $2,000.5 million at
March 31, 1998, up from $1,944.5 million at December 31, 1997 and
$1,697.2 million at March 31, 1997. Credit loss reserves as a
percent of managed receivables were 4.32 percent, up from 4.29
percent at December 31, 1997 and 4.08 percent at March 31, 1997.
Reserves as a percent of nonperforming managed receivables were
116.1 percent, compared to 117.3 percent at December 31, 1997 and
118.6 percent at March 31, 1997. Consumer two-months-and-over
contractual delinquency ("delinquency") as a percent of managed
consumer receivables was 4.79 percent, compared to 4.82 percent at
December 31, 1997 and 4.45 percent at March 31, 1997. The
annualized total consumer managed chargeoff ratio in the first
quarter of 1998 was 4.82 percent, compared to 4.50 percent in the
prior quarter and 4.15 percent in the year-ago quarter.
- - The ratio of total shareholders' equity (including company
obligated mandatorily redeemable preferred securities of subsidiary
trusts) to total owned assets was 15.69 percent, compared to 15.98
percent at December 31, 1997. The ratio of total shareholders'
equity to managed assets was 9.63 percent, up from 9.33 percent at
December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Our subsidiaries use cash to originate loans, purchase loans or
investment securities or acquire businesses. Their main sources of
cash are the collection and securitization of receivable balances;
maturities or sales of investment securities; proceeds from the
issuance of debt and deposits; and cash provided by operations.
The following describes major changes in our funding base from
December 31, 1997 to March 31, 1998:
- - In March 1998, a subsidiary issued $200 million of company
obligated mandatorily redeemable preferred securities of subsidiary
trust (representing the minority interest in the subsidiary).
- - Commercial paper, bank and other borrowings increased 11
percent from $6.1 billion to $6.8 billion. Senior and senior
subordinated debt (with original maturities over one year)
increased 10 percent from $14.8 billion to $16.3 billion. The
increase in debt levels from year end is primarily attributable to
the increase in owned receivables.
- - Our securitized portfolio of home equity, auto finance,
MasterCard and Visa, private label and other unsecured receivables
totaled $20.7 billion at March 31, 1998, compared to $21.6 billion
at December 31, 1997. In the first quarter of 1998, we securitized,
excluding replenishments of certificate holder interests, $.3
billion of other unsecured receivables, compared to $2.0 billion of
MasterCard and Visa and other unsecured receivables a year ago.
<PAGE>
<PAGE> 16
The composition of these securitizations by type is as follows
(in billions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------
March 31, March 31,
Three months ended 1998 1997
- --------------------------------------------------------------
<S> <C> <C>
MasterCard/Visa $ - $ 1.2
Other unsecured .3 .8
---- -----
Total $ .3 $ 2.0
==== =====
</TABLE>
The market for securities backed by receivables is a reliable,
efficient and cost-effective source of funds, which we plan to
continue to utilize in the future.
PRO FORMA MANAGED STATEMENTS OF INCOME
- --------------------------------------
Securitizations of consumer receivables have been, and will
continue to be, an important source of funding. We continue to
service securitized receivables after they have been sold and
retain a limited recourse liability for future credit losses. We
include revenues and credit-related expenses related to the off-
balance sheet portfolio in one line item in our owned statements of
income. Specifically, we report net interest margin, fee and other
income, and provision for credit losses for securitized receivables
as a net amount in securitization income.
We monitor our operations on a managed basis as well as on the
owned basis shown in our statements of income. The managed basis
assumes that the securitized receivables have not been sold and are
still on our balance sheet. The income and expense items discussed
above are reclassified from securitization income into the
appropriate caption. Pro forma managed statements of income, which
reflect these reclassifications, are presented below. For purposes
of this analysis, the managed results do not reflect the
differences between our accounting policies for owned receivables
and the off-balance sheet portfolio. Therefore, net income on a pro
forma managed basis equals net income on an owned basis.
<PAGE>
<PAGE> 17
Pro Forma Managed Statements of Income
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
All dollar amounts are stated in
millions.
Three months ended March 31 1998 * 1997 *
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance income $ 1,584.1 13.79% $ 1,414.7 13.52%
Other interest income 12.3 6.19 8.3 5.76
Interest expense 717.1 6.10 638.1 5.97
--------- ----- --------- -----
Net interest margin 879.3 7.48 784.9 7.35
Provision for credit losses 523.0 542.5
--------- ---------
Net interest margin after
provision for credit losses 356.3 242.4
--------- ---------
Insurance revenues 74.5 65.4
Investment income 29.6 33.2
Fee income 254.5 267.1
Other income 14.8 69.1
--------- ---------
Total other revenues 373.4 434.8
--------- ---------
Salaries and fringe benefits 165.2 147.6
Occupancy and equipment expense 54.5 53.9
Other marketing expenses 81.1 81.9
Other servicing and administrative
expenses 85.8 109.4
Amortization of acquired
intangibles and goodwill 42.4 36.8
Policyholders' benefits 47.7 47.0
--------- ---------
Total costs and expenses 476.7 476.6
--------- ---------
Income before taxes 253.0 200.6
Income taxes 82.7 69.1
--------- ---------
Net income $ 170.3 $ 131.5
========= =========
Average managed receivables $45,946.2 $42,154.5
Average noninsurance investments 794.8 576.8
Other interest earning assets 270.3 -
--------- ---------
Average managed interest-earning
assets $47,011.3 $42,731.3
========= =========
</TABLE>
* As a percent, annualized, of appropriate earning assets.
The following discussion on revenues, where applicable, and
provision for credit losses includes comparisons to amounts
reported on our historical owned statements of income ("Owned
Basis"), as well as on the above pro forma managed statements of
income ("Managed Basis").
Net interest margin
- -------------------
Net interest margin on an Owned Basis was $395.0 million for the
first quarter of 1998, compared to $394.8 million in the prior
year. Owned margin improved due to an increase in average owned
home equity loans as a result of the acquisition of TFS in 1997,
but was offset by a decrease in average owned credit card and other
unsecured receivables. Net interest margin on a Managed Basis was
$879.3 million for the first quarter of 1998, up 12 percent
compared to the year-ago period. The increase was primarily due to
an increase in average managed home equity loans resulting from the
acquisition of TFS. Net interest margin as a percent of average
managed interest-earning assets, annualized, was 7.48 percent
compared to 7.35 percent in the year-ago quarter. The improvement
was primarily due to the continuing change in product mix, improved
pricing and lower leverage.
<PAGE>
<PAGE> 18
Provision for credit losses
- ---------------------------
The provision for credit losses for receivables on an Owned Basis
for the first quarter of 1998 totaled $261.5 million, compared to
$293.4 million in the prior year period. The provision as a percent
of average owned receivables, annualized, was 4.17 percent in the
first quarter of 1998 compared to 5.07 percent in the first quarter
of 1997. Owned provision in excess of owned chargeoffs was $11
million for the three months ended March 31, 1998 and $58 million
for the three months ended March 31, 1997. We continued to record a
provision for credit losses in excess of current period chargeoffs
because of continued uncertainty regarding consumer payment
patterns, the continued high levels of personal bankruptcies and
the maturing of our unsecured loan products. The maturing or
seasoning of a product is the effect of a growing portfolio
reaching expected levels of chargeoffs as loans age. The provision
for credit losses on an Owned Basis may vary from quarter to
quarter, depending on the amount of securitizations in a particular
period.
The provision for credit losses for receivables on a Managed Basis
totaled $523.0 million in the first quarter of 1998, compared to
$542.5 million in the prior year period. As a percent of average
managed receivables, annualized, the provision was 4.55 percent,
compared to 5.15 percent in the first quarter of 1997. The Managed
Basis provision includes the over-the-life reserve requirement on
the off-balance sheet portfolio. This provision is impacted by the
type and amount of receivables securitized in a given period and
substantially offsets the income recorded on the securitization
transactions. The provision for our off-balance sheet portfolio in
the quarter was less than chargeoffs because we securitized less
this quarter and did not need to record as much over-the-life
provision. In the first quarter of 1998, we securitized
approximately $.3 billion of other unsecured receivables, compared
to approximately $2.0 billion of MasterCard and Visa and other
unsecured receivables a year ago. See the credit quality section
for further discussion of factors affecting the provision for
credit losses.
Other revenues
- --------------
Securitization income on an Owned Basis was $377.8 million for the
three months ended March 31, 1998 and $330.7 million for the same
period in 1997. Securitization income consists of income associated
with the securitization and sale of receivables with limited
recourse, including net interest income, fee and other income and
provision for credit losses related to those receivables. The 14
percent increase in securitization income compared to the first
quarter of 1997 was primarily due to the increase in average
securitized receivables. The components of securitization income
are reclassified to the appropriate caption in the statements of
income on a Managed Basis.
Fee income on an Owned Basis includes revenues from fee-based
products such as credit cards. Fee income was $99.5 million in the
first quarter of 1998, up from $77.4 million in the comparable
period of the prior year. The increase in fee income in 1998
reflected higher credit card fees as compared to the prior year
quarter.
Fee income on a Managed Basis, which in addition to the items
discussed above, includes fees and other income related to the off-
balance sheet portfolio. Managed Basis fee income was $254.5
million in the first quarter of 1998 compared to $267.1 million in
1997. The decrease was primarily due to lower securitization
activity offset somewhat by higher credit card fees as compared to
the prior year.
Other income was $14.8 million in the first quarter of 1998, down
from $69.1 million in 1997. Other income in 1997 included
approximately $50 million of non-recurring gains on the sales of
certain non-strategic assets during the prior year quarter.
<PAGE>
<PAGE> 19
Expenses
- --------
Operating expenses for the first quarter of 1998 were $429.0
million, essentially unchanged from $429.6 million in the
comparable prior year period reflecting our overall expense control
efforts.
Salaries and fringe benefits were $165.2 million compared to $147.6
million in the first quarter of 1997. The higher expense was
primarily due to an increase in employees in our domestic consumer
finance and auto finance businesses in connection with our
acquisitions of TFS in June 1997 and ACC in October 1997.
Other servicing and administrative expenses were $85.8 million in
the first quarter of 1998, down from $109.4 million in the prior
year. The decrease was primarily due to reductions in fraud losses
and lower real estate owned costs.
Amortization of acquired intangibles and goodwill was $42.4 million
in the first quarter of 1998, up from $36.8 million in the prior
year period. The increase reflects our acquisitions of TFS and ACC
in 1997.
CREDIT LOSS RESERVES
- --------------------
Our consumer credit management policies focus on product type and
specific portfolio risk factors. The consumer credit portfolio is
diversified by product and geographic location. See Note 4,
"Receivables" in the accompanying financial statements for
receivables by product type.
Total managed credit loss reserves, which include reserves
established on the off-balance sheet portfolio when receivables are
securitized, were as follows (in millions):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
March 31, December 31, March 31,
1998 1997 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Owned $1,171.3 $1,082.2 $ 943.9
Serviced with limited recourse 829.2 862.3 753.3
-------- -------- --------
Total $2,000.5 $1,944.5 $1,697.2
======== ======== ========
</TABLE>
We have increased total managed credit loss reserves from the prior
quarters due to seasoning of unsecured loan portfolios and
uncertainty resulting from continued high levels of personal
bankruptcies. Managed credit loss reserves as a percent of
nonperforming managed receivables were 116.1 percent, compared to
117.3 percent at December 31, 1997 and 118.6 percent at March 31,
1997.
Total owned and managed credit loss reserves as a percent of
receivables were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
March 31, December 31, March 31,
1998 1997 1997
- --------------------------------------------------------------
<S> <C> <C> <C>
Owned 4.57% 4.54% 4.21%
Managed 4.32 4.29 4.08
---- ---- ----
</TABLE>
The level of reserves for consumer credit losses is based on
delinquency and chargeoff experience by product and judgmental
factors. We also evaluate the potential impact of existing and
anticipated national and regional economic conditions on the
managed receivable portfolio when establishing credit loss
reserves. See Note 5, "Credit Loss Reserves" in the accompanying
financial statements for analyses of reserves.
<PAGE>
<PAGE> 20
CREDIT QUALITY
- --------------
Delinquency and chargeoff statistics reflect the impact of the
portfolio acquisitions during the quarter. Delinquency levels in
the consumer portfolio were down slightly compared to the prior
quarter, but were higher than the first quarter of 1997. Chargeoffs
were up compared to the prior and year-ago quarters. We track
delinquency and chargeoff levels on a managed basis. We include the
off-balance sheet portfolio since we apply the same credit and
portfolio management procedures as on our owned portfolio. This
results in a similar credit loss exposure for us.
Delinquency
- -----------
Two-Months-and-Over Contractual Delinquency (as a percent of
managed consumer receivables):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
3/31/98 12/31/97 9/30/97 6/30/97 3/31/97
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First mortgage 9.33% 10.35% 9.27% 10.27% 8.19%
Home equity 4.07 4.17 3.41 3.18 3.85
Auto finance <F1> 1.84 2.09 - - -
MasterCard/Visa 3.02 3.05 3.17 3.10 3.13
Private label 6.89 6.75 6.54 5.89 5.52
Other unsecured 8.19 8.30 7.28 6.77 6.68
---- ----- ---- ----- ----
Total 4.79% 4.82% 4.62% 4.32% 4.45%
==== ===== ==== ===== ====
<FN>
<F1> Prior to the fourth quarter of 1997, delinquency statistics for auto
finance receivables were not significant. For prior periods,
delinquency data for these receivables were included in other
unsecured receivables.
</FN>
</TABLE>
Delinquency as a percent of managed consumer receivables decreased
from the prior quarter but increased from the prior year quarter.
The decrease from the prior quarter was primarily due to a decrease
in dollars of delinquency in the MasterCard and Visa portfolio.
The increase in the managed delinquency ratio from a year ago was
due to seasoning of the home equity and other unsecured portfolios
and the maturing of certain special promotional balances in our
private label portfolio. Dollars of delinquency in the first
mortgage portfolio were down as this portfolio continued to
liquidate.
Net Chargeoffs of Consumer Receivables
- --------------------------------------
Net Chargeoffs of Consumer Receivables (as a percent, annualized,
of average managed consumer receivables):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
1998 1997 1997 1997 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First mortgage .81% 1.29% 1.21% .87% .94%
Home equity .92 .80 .77 1.17 1.38
Auto finance <F1> 5.94 5.31 - - -
MasterCard/Visa 5.96 5.74 6.42 5.84 4.90
Private label 6.42 5.39 4.99 4.63 4.85
Other unsecured 6.46 6.18 5.93 5.41 4.97
---- ---- ---- ---- ----
Total 4.82% 4.50% 4.63% 4.58% 4.15%
==== ==== ==== ==== ====
<FN>
<F1> Prior to the fourth quarter of 1997, chargeoff statistics for
auto finance receivables were not significant and were included
in other unsecured receivables.
</FN>
/TABLE
<PAGE>
<PAGE> 21
Net chargeoffs as a percent of average managed consumer receivables
for the first quarter of 1998 increased compared to both the prior
and year-ago periods. The increase in chargeoffs in the auto finance
portfolio was primarily due to seasonality in the auto industry.
The MasterCard and Visa net chargeoff ratio increased from the prior
quarter due to lower recoveries. Beginning in the first quarter of
1998, a greater number of charged off receivables are being collected
internally rather than sold to an external third party. Because these
accounts are retained by us, recoveries will be recorded when the cash
is actually collected. Gross chargeoff dollars in our MasterCard and
Visa portfolio were essentially flat in the quarter, and chargeoff
dollars due to bankruptcies declined compared to the fourth quarter level.
Chargeoffs in the private label portfolio increased due to higher levels
of personal bankruptcies as well as the maturing of certain special
promotional balances. These balances were mainly associated with
longer-term promotional programs which we have de-emphasized.
The increase in other unsecured was attributable to higher
bankruptcy chargeoffs and continued seasoning of this portfolio.
The increase in the chargeoff ratio compared to a year ago was primarily
due to increased bankruptcy filings in the MasterCard and Visa portfolio
and lower recoveries in this portfolio as discussed above. Also
contributing to the increase in the chargeoff ratio was the continued
seasoning of the private label and other unsecured portfolios.
Nonperforming Assets
- --------------------
Nonperforming assets consisted of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
In millions. 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual managed
receivables $1,032.0 $ 973.5 $ 894.3 $ 865.0 $ 820.1
Accruing managed consumer
receivables 90 or more days
delinquent 678.1 672.0 634.7 616.3 598.5
Renegotiated commercial
loans 12.3 12.4 12.9 12.9 12.9
-------- -------- -------- -------- --------
Total nonperforming managed
receivables 1,722.4 1,657.9 1,541.9 1,494.2 1,431.5
Real estate owned 139.6 127.3 150.5 149.4 152.6
-------- -------- -------- -------- --------
Total nonperforming assets $1,862.0 $1,785.2 $1,692.4 $1,643.6 $1,584.1
======== ======== ======== ======== ========
Managed credit loss reserves as
a percent of nonperforming
managed receivables 116.1% 117.3% 117.3% 118.5% 118.6%
-------- -------- -------- -------- --------
/TABLE
<PAGE>
<PAGE> 22
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 Statement of Computation of Ratio of Earnings to Fixed
Charges and to Combined Fixed Charges and Preferred
Stock Dividends.
21 List of Household International subsidiaries.
27 Financial Data Schedule.
99.1 Debt and Preferred Stock Securities Ratings.
(b) Reports on Form 8-K
During the first quarter of 1998, the Registrant filed a Current
Report on Form 8-K dated January 21, 1998 with respect to the
financial results of Household International, Inc., for the
quarter and year ended December 31, 1997, and a Current Report
on Form 8-K dated March 6, 1998 containing the audited financial
statements with respect to the operations of Household International
and its subsidiaries, as of and for the years ended December 31,
1997, 1996 and 1995, and announced its interest in exploring a
strategic opportunity with Beneficial Corporation.
<PAGE>
<PAGE> 23
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HOUSEHOLD INTERNATIONAL, INC.
-----------------------------
(Registrant)
Date: May 12, 1998 By: /s/ David A. Schoenholz
------------ -----------------------------
David A. Schoenholz
Executive Vice President -
Chief Financial Officer
and on behalf of
Household International, Inc.
<PAGE>
<PAGE> 24
Exhibit Index
-------------
12 Statement of Computation of Ratio of Earnings
to Fixed Charges and to Combined Fixed Charges and
Preferred Stock Dividends.
21 List of Household International subsidiaries.
27 Financial Data Schedule.
99.1 Debt and Preferred Stock Securities Ratings.
EXHIBIT 12
----------
HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
All dollar amounts are stated in millions.
Three months ended March 31 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Net income $170.3 $131.5
Income taxes 82.7 69.1
------ ------
Income before income taxes 253.0 200.6
------ ------
Fixed charges:
Interest expense <F1> 390.6 365.9
Interest portion of rentals <F2> 6.8 7.0
------ ------
Total fixed charges 397.4 372.9
------ ------
Total earnings as defined $650.4 $573.5
====== ======
Ratio of earnings to fixed charges 1.64 1.54
====== ======
Preferred stock dividends <F3> $ 4.3 $ 4.9
====== ======
Ratio of earnings to combined fixed charges
and preferred stock dividends 1.62 1.52
====== ======
<FN>
<F1> For financial statement purposes, interest expense includes
income earned on temporary investment of excess funds,
generally resulting from over-subscriptions of commercial
paper.
<F2> Represents one-third of rentals, which approximates the
portion representing interest.
<F3> Preferred stock dividends are grossed up to their pretax
equivalent based upon an effective tax rate of 32.7 percent
for the three months ended March 31, 1998 and 34.4 percent
for the same period in 1997.
</FN>
</TABLE>
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF HOUSEHOLD INTERNATIONAL, INC.
- ---------------------------------------------
As of March 31, 1998, 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%
Craig-Hallum Corporation Delaware 100%
Household Bank, f.s.b U.S. 100%
HHTS, Inc. Illinois 100%
Household Bank (SB), N.A. U.S. 100%
Household Affinity Funding Corporation Delaware 100%
Household Service Corporation
of Illinois, Inc. Illinois 100%
Household Insurance Services, Inc. Illinois 100%
Housekey Financial Corporation Illinois 100%
Household Mortgage Services, Inc. Delaware 100%
Household Capital Corporation Delaware 100%
Household Commercial Canada Inc. Canada 100%
Household Finance Corporation Delaware 100%
HFC Auto Credit Corp. Delaware 100%
HFC Card Funding Corporation Delaware 100%
HFC Funding Corporation Delaware 100%
HFC Revolving Corporation Delaware 100%
HFS Funding Corporation Delaware 100%
Household Acquisition Corporation Delaware 100%
HFTA Corporation Delaware 100%
First Credit Corporation Delaware 100%
HFTA Consumer Discount Company Pennsylvania 100%
HFTA First Financial Corporation California 100%
HFTA Second Corporation Alabama 100%
HFTA Third Corporation Delaware 100%
HFTA Fourth Corporation Minnesota 100%
HFTA Fifth Corporation Nevada 100%
HFTA Sixth Corporation Nevada 100%
HFTA Seventh Corporation New Jersey 100%
HFTA Eighth Corporation Ohio 100%
HFTA Ninth Corporation West Virginia 100%
HFTA Tenth Corporation Washington 100%
<PAGE>
<PAGE> 2
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
Household Finance Corporation of Hawaii Hawaii 100%
Household Realty Corporation (1997)
Limited B.C. 100%
Pacific Finance Loans California 100%
Household Automotive Finance Corporation Delaware 100%
ACC Funding Corp. Delaware 100%
ACC Receivables Corp. Delaware 100%
Household Automotive Credit Corporation Delaware 100%
OFL-A Receivables Corp. Delaware 100%
Household Auto Receivables Corporaton Nevada 100%
Household Bank (Nevada), N.A. U.S. 100%
Household Card Funding Corporation Delaware 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 Consumer Loan Corporation Nevada 100%
Household Corporation Delaware 100%
Household Credit Services, Inc. Delaware 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%
AHLIC Investment Holdings Corporation Delaware 100%
Arcadia General Insurance Company Arizona 100%
Arcadia Insurance Administrators, Inc. Delaware 100%
Arcadia National Life Insurance Company Arizona 100%
Cal-Pacific Services, Inc. California 100%
HFS Investments, Inc. Nevada 100%
Household Insurance Agency, Inc. Michigan 100%
Household Insurance Company Michigan 100%
Household Life Insurance Co. of Arizona Arizona 100%
Household Life Insurance Company Michigan 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%
HCFS Business Equipment Corporation Delaware 100%<PAGE>
<PAGE> 3
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
HFC Commercial Realty, Inc. Delaware 100%
G.C. Center, Inc. Delaware 100%
Com Realty, Inc. Delaware 100%
Lighthouse Property Corporation 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%
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%
OLC, Inc. Rhode Island 100%
OPI, Inc. Virginia 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%
<PAGE>
<PAGE> 4
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
Household Finance Corporation of Nevada Delaware 100%
Household Finance Realty Corporation of Delaware 100%
New York
Household Finance Corporation of
West Virginia West Virginia 100%
Household Finance Industrial Loan Company Washington 100%
Household Finance Industrial Loan Company Iowa 100%
of Iowa
Household Finance Realty Corporation of Delaware 100%
Nevada
Household Finance Corporation III Delaware 100%
Amstelveen FSC, Ltd. Bermuda 99%
HFC Agency of Connecticut, Inc. Connecticut 100%
HFC Agency of Michigan, Inc. Michigan 100%
HFC Agency of Missouri, Inc. Missouri 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%
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%
Pacific Agency Inc. Nevada 100%
Sixty-First HFC Leasing Corporation Delaware 100%
Household Pooling Corporation Nevada 100%
Household Receivables Acquisition Company Delaware 100%
Household REIT Corporation Nevada 100%
Household Financial Group, Ltd. Delaware 100%
Household Global Funding, Inc. Delaware 100%
Household International (U.K.) Limited England 100%
D.L.R.S. Limited Cheshire 100%
HFC Bank plc England 100%
Hamilton Financial Planning Services
Limited England 100%
Hamilton Insurance Company Limited England 100%
Hamilton Life Assurance Co. Limited England 100%<PAGE>
<PAGE> 5
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
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 Reinsurance Ltd. Bermuda 100%
U:\LAW\EDGAR\IEX21.WP (4/30/98)
<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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 195,100
<SECURITIES> 2,625,500
<RECEIVABLES> 25,644,300
<ALLOWANCES> (2,000,500)
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 583,800
<DEPRECIATION> (304,200)
<TOTAL-ASSETS> 32,896,900
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 16,297,100
0
150,000
<COMMON> 124,300
<OTHER-SE> 4,888,000
<TOTAL-LIABILITY-AND-EQUITY> 32,896,900
<SALES> 0
<TOTAL-REVENUES> 1,379,800
<CGS> 0
<TOTAL-COSTS> 476,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 261,500
<INTEREST-EXPENSE> 388,600
<INCOME-PRETAX> 253,000
<INCOME-TAX> 82,700
<INCOME-CONTINUING> 170,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 170,300
<EPS-PRIMARY> 1.56<F2>
<EPS-DILUTED> 1.54
<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.
<F2>REPRESENTS BASIC EPS COMPUTED IN ACCORDANCE WITH STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE."
</FN>
</TABLE>
EXHIBIT 99.1
------------
HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES
DEBT AND PREFERRED STOCK SECURITIES RATINGS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Standard Moody's Fitch Duff & Phelps
& Poor's Investors Investors Credit Thomson
Corporation Service Services Rating Co. BankWatch
- ------------------------------------------------------------------------------------------------------
At March 31, 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Household International, Inc.
Senior debt A A3 A A A
Commercial paper A-1 P-2 F-1 Duff 1 TBW-1
Preferred stock A- baa1 A- A- BBB+
----------- --------- --------- ------------- ---------
Household Finance Corporation
Senior debt A A2 A+ A+ A+
Senior subordinated debt A- A3 A A A
Commercial paper A-1 P-1 F-1 Duff 1+ TBW-1
----------- --------- --------- ------------- ---------
Household Bank, f.s.b.
Senior debt A A2 A A NR
Subordinated debt A- A3 A- A- A
Certificates of deposit
(long/short-term) A/A-1 A2/P-1 A/F-1 A/Duff 1 TBW-1
Thrift notes A-1 P-1 F-1 Duff 1 TBW-1
- ------------------------------------------------------------------------------------------------------
</TABLE>
