<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 September 30, 1998
------------------
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: (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 October 31, 1998, there were 482,796,738 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 and Nine Months
Ended September 30, 1998 and 1997 2
Condensed Consolidated Balance Sheets -
September 30, 1998 (Unaudited) and December 31, 1997 3
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Nine Months Ended
September 30, 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 13
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 26
Signature 27
<PAGE>
<PAGE> 3
PART I. 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 Nine months ended
September 30, September 30,
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance income $1,425.8 $1,313.7 $4,112.0 $3,826.3
Other interest income 15.2 9.5 41.6 39.5
Interest expense 628.1 605.4 1,857.1 1,759.5
-------- -------- -------- --------
Net interest margin 812.9 717.8 2,296.5 2,106.3
Provision for credit losses on owned
receivables 358.4 376.5 1,139.3 1,106.0
-------- -------- -------- --------
Net interest margin after provision for
credit losses 454.5 341.3 1,157.2 1,000.3
-------- -------- -------- --------
Securitization income 370.1 448.9 1,183.6 1,237.3
Insurance revenues 129.2 109.9 366.5 332.5
Investment income 42.5 43.9 120.9 129.0
Fee income 151.8 156.2 444.1 394.8
Other income 55.8 68.5 183.6 296.1
Gain on sale of Beneficial Canada - - 189.4 -
-------- -------- -------- --------
Total other revenues 749.4 827.4 2,488.1 2,389.7
-------- -------- -------- --------
Salaries and fringe benefits 280.1 277.6 859.5 794.9
Occupancy and equipment expense 73.0 81.5 240.6 245.4
Other marketing expenses 101.7 112.1 303.7 325.7
Other servicing and administrative expenses 162.3 187.2 505.0 578.3
Amortization of acquired intangibles
and goodwill 45.1 42.4 132.3 116.3
Policyholders' benefits 57.1 61.9 176.0 196.8
Merger and integration related costs - - 1,000.0 -
-------- -------- -------- --------
Total costs and expenses 719.3 762.7 3,217.1 2,257.4
-------- -------- -------- --------
Income before income taxes 484.6 406.0 428.2 1,132.6
Income taxes 166.6 141.3 254.0 397.1
-------- -------- -------- --------
Net income $ 318.0 $ 264.7 $ 174.2 $ 735.5
======== ======== ======== ========
Earnings per common share:
Net income $ 318.0 $ 264.7 $ 174.2 $ 735.5
Preferred dividends (4.1) (4.2) (12.4) (12.9)
-------- -------- -------- --------
Earnings available to common shareholders $ 313.9 $ 260.5 $ 161.8 $ 722.6
======== ======== ======== ========
Average common shares 490.3 482.6 488.6 465.7
Average common and common equivalent
shares 498.3 492.3 498.9 474.6
-------- -------- -------- --------
Basic earnings per common share $ .64 $ .54 $ .33 $ 1.55
Diluted earnings per common share .63 .53 .32 1.52
-------- -------- -------- --------
Dividends declared per common share .15 .14 .45 .40
-------- -------- -------- --------
</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>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
September 30, December 31,
1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Unaudited)
- ------
Cash $ 532.8 $ 534.3
Investment securities 3,727.7 2,898.6
Receivables, net 41,972.4 38,337.6
Acquired intangibles and goodwill, net 1,854.5 1,798.4
Properties and equipment, net 457.7 538.7
Real estate owned 232.2 212.8
Other assets 2,674.9 2,496.6
--------- ---------
Total assets $51,452.2 $46,817.0
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Debt:
Deposits $ 1,909.1 $ 2,344.2
Commercial paper, bank and other borrowings 10,754.1 10,666.1
Senior and senior subordinated debt (with
original maturities over one year) 27,786.8 23,736.2
--------- ---------
Total debt 40,450.0 36,746.5
Insurance policy and claim reserves 1,296.0 1,382.6
Other liabilities 3,121.2 2,074.4
--------- ---------
Total liabilities 44,867.2 40,203.5
--------- ---------
Company obligated mandatorily redeemable
preferred securities of subsidiary trusts* 375.0 175.0
--------- ---------
Preferred stock 264.5 264.5
--------- ---------
Common shareholders' equity:
Common stock, $1.00 par value, 750,000,000
shares authorized (increased as of
May 13, 1998); 543,433,723 and 536,870,946
shares issued at September 30, 1998
and December 31, 1997, respectively 543.4 536.9
Additional paid-in capital 1,623.1 1,423.5
Retained earnings 4,918.3 4,978.6
Foreign currency translation adjustments (161.1) (176.5)
Unrealized gain on investments, net 28.1 8.8
Less common stock in treasury, 60,909,927 and
51,519,429 shares at September 30, 1998 and
December 31, 1997, respectively, at cost (1,006.3) (597.3)
--------- ---------
Total common shareholders' equity 5,945.5 6,174.0
--------- ---------
Total liabilities and shareholders' equity $51,452.2 $46,817.0
========= =========
</TABLE>
* As described in note 9 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>
- -------------------------------------------------------------------------------------
Nine months ended September 30 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATIONS
Net income $ 174.2 $ 735.5
Adjustments to reconcile net income to cash
provided by operations:
Provision for credit losses on owned receivables 1,139.3 1,106.0
Merger and integration related costs 1,000.0 -
Insurance policy and claim reserves (64.3) 41.1
Depreciation and amortization 242.8 224.6
Net realized (gains) losses from sales of assets (182.4) (84.6)
Other, net (39.6) 61.2
---------- ----------
Cash provided by operations 2,270.0 2,083.8
---------- ----------
INVESTMENTS IN OPERATIONS
Investment securities:
Purchased (1,209.1) (1,414.4)
Matured 390.5 311.4
Sold 725.0 1,107.4
Short-term investment securities, net change (758.6) 1.1
Receivables:
Originations, net (21,226.8) (20,813.4)
Purchases and related premiums (2,849.0) (632.9)
Sold 19,486.8 23,469.2
Purchase capital stock of Transamerica Financial
Services Holding Company - (1,065.0)
Properties and equipment purchased (72.4) (47.4)
Properties and equipment sold 36.6 7.3
---------- ----------
Cash increase (decrease) from investments in operations (5,477.0) 923.3
---------- ----------
FINANCING AND CAPITAL TRANSACTIONS
Short-term debt and demand deposits, net change (315.0) (1,026.4)
Time certificates, net change (80.7) (258.8)
Senior and senior subordinated debt issued 8,568.5 6,474.9
Senior and senior subordinated debt retired (3,392.5) (5,964.7)
Prepayment of debt (1,140.8) -
Repayment of Transamerica Financial Services Holding
Company debt - (2,795.0)
Policyholders' benefits paid (84.9) (95.2)
Cash received from policyholders 94.8 93.3
Shareholders' dividends (182.8) (137.2)
Shareholders' dividends - pooled affiliate (61.8) (86.1)
Redemption of preferred stock - (55.0)
Purchase of treasury stock (403.0) -
Treasury stock activity - pooled affiliate (11.0) (79.6)
Issuance of common stock 15.3 1,016.5
Issuance of company obligated mandatorily redeemable
preferred securities of subsidiary trusts 200.0 -
---------- ----------
Cash increase (decrease) from financing and
capital transactions 3,206.1 (2,913.3)
---------- ----------
Effect of exchange rate changes on cash (.6) 20.5
---------- ----------
Increase (decrease) in cash (1.5) 114.3
Cash at January 1 534.3 518.8
---------- ----------
Cash at September 30 $ 532.8 $ 633.1
========== ==========
Supplemental cash flow information:
Interest paid $ 1,736.1 $ 1,645.3
---------- ----------
Income taxes paid 284.1 303.3
---------- ----------
</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>
- ------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income excluding merger costs
and Beneficial Canada gain $ 806.7 $ 735.5
Merger and integration related costs (751.0) -
Beneficial Canada gain 118.5 -
--------- ---------
Net income $ 174.2 $ 735.5
========= =========
Diluted earnings per common share $ .32 $ 1.52
========= =========
Diluted earnings per common share excluding
merger costs and Beneficial Canada gain $ 1.59 $ 1.52
========= =========
</TABLE>
All dollar amounts are stated in millions.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest margin and other revenues <F1> $1,505.2 $1,483.3 $ 4,608.6 $ 4,299.2
-------- -------- --------- ---------
Return on average common shareholders' equity <F2> 20.5% 17.7% 16.7% 18.9%
-------- -------- --------- ---------
Return on average owned assets <F2> 2.53 2.24 2.17 2.14
-------- -------- --------- ---------
Managed basis efficiency ratio, normalized <F3> 36.9 39.8 38.8 41.2
-------- -------- --------- ---------
</TABLE>
All dollar amounts are stated in millions.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
September 30, December 31,
1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Total assets:
Owned $51,452.2 $46,817.0
Managed 73,258.3 71,295.5
--------- ---------
Receivables:
Owned $42,280.8 $38,682.0
Serviced with limited recourse 21,806.1 24,478.5
--------- ---------
Managed $64,086.9 $63,160.5
========= =========
Total shareholders' equity as a percent of owned assets <F4> 12.80% 14.13%
--------- ---------
Total shareholders' equity as a percent of managed assets <F4> 8.99 9.28
--------- ---------
<FN>
<F1> Policyholders' benefits have been netted against other revenues.
<F2> Annualized. Excludes merger and integration related costs and the
Beneficial Canada gain.
<F3> Ratio of normalized operating expenses to managed net interest margin
and other revenues less policyholders' benefits.
<F4> Total shareholders' equity at September 30, 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. Accordingly, 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. Operating results for the three and nine months ended September
30, 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." These financial statements should be read in conjunction with the
consolidated financial statements for the year ended December 31, 1997
contained in Household's Current Report on Form 8-K dated September 1,
1998.
On March 10, 1998, the Board of Directors approved a three-for-one split of
our common stock effected in the form of a dividend, issued on June 1,
1998, to shareholders of record as of May 14, 1998. The split was subject
to shareholder approval to increase authorized shares which was received on
May 13, 1998. Accordingly, all common share and per common share data in
these interim condensed consolidated financial statements includes the
effect of our stock split.
2. HOUSEHOLD MERGER WITH BENEFICIAL CORPORATION
- -------------------------------------------------
On June 30, 1998, Household completed its merger with Beneficial
Corporation ("Beneficial"), a consumer finance holding company
headquartered in Wilmington, Delaware. Beneficial's total assets were $16.1
billion and common shareholders' equity was $2.0 billion on the date of the
merger, excluding the impact of the merger and integration related costs.
Each outstanding share of Beneficial common stock was converted into 3.0666
shares of Household's common stock, resulting in the issuance of
approximately 168.4 million common shares to the former Beneficial
shareholders. Each share of Beneficial $5.50 Convertible Preferred Stock
was converted into the number of shares of Household common stock the
holder would have been entitled to receive in the merger had the holder
converted his or her shares of Beneficial $5.50 Convertible Preferred Stock
into shares of Beneficial common stock immediately prior to the merger.
Additionally, each other share of preferred stock of Beneficial outstanding
immediately prior to the merger has been converted into one share of a
newly created series of preferred stock of Household with terms
substantially similar to those of existing Beneficial preferred stock. The
merger was accounted for as a pooling of interests and therefore, these
interim condensed consolidated financial statements include the results of
operations, financial position, and changes in cash flows of Beneficial for
all periods presented. Net interest margin and other revenues for
Beneficial for the three and nine months ended September 30, 1997 was
$505.8 million and $1,530.9 million, respectively. Net income for
Beneficial for the three and nine months ended September 30, 1997 was $77.5
million and $266.5 million, respectively.
<PAGE>
<PAGE> 8
In connection with the merger, we incurred pre-tax merger and integration
related costs of approximately $1 billion ($751 million after-tax) in the
second quarter. These costs included approximately $285 million in lease
exit costs, $40 million in fixed asset write-offs related to closed
facilities, $275 million in severance and change in control payments, $240
million in asset writedowns to reflect modified business plans, $75 million
in investment banking fees, $25 million in legal and other expenses, and
$60 million in prepayment premiums related to debt.
The following table summarizes the activity in the merger and restructuring
reserve:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Nine Months Ended
In millions. September 30, 1998
- ---------------------------------------------------------------
<S> <C>
Balance at January 1, 1998 -
Establishment of reserve $1,000.0
Cash payments (255.0)
Non-cash items (291.0)
--------
Balance at September 30, 1998 $ 454.0
========
</TABLE>
3. BUSINESS DIVESTITURES
- --------------------------
On April 28, 1998, the sale of Beneficial's German operations was
completed. An after-tax loss of $27.8 million was recorded in the fourth
quarter of 1997. This loss was recorded after consideration of a $31.0
million tax benefit, primarily generated by the expected utilization of
capital losses to cover the expected loss associated with disposing of the
German operations. No additional losses were realized in 1998 as a result
of the sale.
On March 2, 1998, the sale of Beneficial's Canadian operations was
completed. An after-tax gain of $118.5 million was recorded upon
consummation of the transaction.
4. INVESTMENT SECURITIES
- --------------------------
Investment securities consisted of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
In millions. September 30, 1998 December 31, 1997
- ----------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE INVESTMENTS
Marketable equity securities $ 68.7 $ 71.0 $ 129.0 $ 132.5
Corporate debt securities 1,752.2 1,784.2 1,581.8 1,600.5
U.S. government and federal
agency debt securities 274.1 281.8 390.3 380.5
Other 1,551.1 1,550.9 745.8 746.5
-------- -------- -------- --------
Subtotal 3,646.1 3,687.9 2,846.9 2,860.0
Accrued investment income 39.8 39.8 38.6 38.6
-------- -------- -------- --------
Total investment securities $3,685.9 $3,727.7 $2,885.5 $2,898.6
======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE> 9
5. RECEIVABLES
- ----------------
Receivables consisted of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
September 30, December 31,
In millions. 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
First mortgage $ 196.0 $ 396.6
Home equity 17,697.6 13,786.2
Auto finance 601.0 487.5
MasterCard/Visa 6,620.7 6,874.7
Private label 8,972.1 9,356.9
Other unsecured 7,431.4 6,823.1
Commercial 762.0 957.0
--------- ---------
Total owned receivables 42,280.8 38,682.0
Accrued finance charges 572.9 536.7
Credit loss reserve for owned receivables (1,786.2) (1,642.1)
Unearned credit insurance premiums and
claims reserves (462.3) (452.3)
Amounts due and deferred from
receivables sales 2,243.9 2,094.2
Reserve for receivables serviced with
limited recourse (876.7) (880.9)
--------- ---------
Total owned receivables, net 41,972.4 38,337.6
Receivables serviced with limited recourse 21,806.1 24,478.5
--------- ---------
Total managed receivables, net $63,778.5 $62,816.1
========= =========
</TABLE>
The outstanding balance of receivables serviced with limited recourse
consisted of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
September 30, December 31,
In millions. 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Home equity $ 4,114.6 $ 6,038.6
Auto finance 900.3 395.9
MasterCard/Visa 11,474.1 12,337.0
Private label 869.6 1,025.0
Other unsecured 4,447.5 4,682.0
--------- ---------
Total $21,806.1 $24,478.5
========= =========
</TABLE>
The combination of receivables owned and receivables serviced with limited
recourse, which we consider our managed portfolio, is shown below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
September 30, December 31,
In millions. 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
First mortgage $ 196.0 $ 396.6
Home equity 21,812.2 19,824.8
Auto finance 1,501.3 883.4
MasterCard/Visa 18,094.8 19,211.7
Private label 9,841.7 10,381.9
Other unsecured 11,878.9 11,505.1
Commercial 762.0 957.0
--------- ---------
Total $64,086.9 $63,160.5
========= =========
/TABLE
<PAGE>
<PAGE> 10
The amounts due and deferred from receivables sales were $2,243.9 million
at September 30, 1998 and $2,094.2 million at December 31, 1997. The
amounts due and deferred included unamortized securitization assets and
other assets established under the recourse provisions for certain sales
totaling $2,104.1 million at September 30, 1998 and $2,082.3 million at
December 31, 1997. It also included net customer payments not yet received
from (paid to) the securitization trustee of $104.4 million at
September 30, 1998 and $(11.7) million at December 31, 1997. In addition,
we have subordinated interests in certain transactions, which were recorded
as receivables, of $1,234.5 million at September 30, 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 $876.7 million at September 30, 1998 and $880.9 million at
December 31, 1997 and represents our best estimate of probable losses on
receivables serviced with limited recourse.
6. CREDIT LOSS RESERVES
- -------------------------
An analysis of credit loss reserves for the three and nine months ended
September 30 was as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
In millions. 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Credit loss reserves for owned
receivables at beginning
of period $1,757.2 $1,556.4 $ 1,642.1 $ 1,398.4
Provision for credit losses 358.4 376.5 1,139.3 1,106.0
Chargeoffs (432.7) (382.3) (1,252.9) (1,099.6)
Recoveries 44.3 44.6 127.6 139.6
Portfolio acquisitions, net 59.0 (7.3) 130.1 43.5
-------- -------- --------- ---------
TOTAL CREDIT LOSS RESERVES FOR
OWNED RECEIVABLES AT
SEPTEMBER 30 1,786.2 1,587.9 1,786.2 1,587.9
-------- -------- --------- ---------
Credit loss reserves for
receivables serviced with
limited recourse at beginning
of period 862.9 737.3 880.9 710.6
Provision for credit losses 303.1 298.2 860.0 776.9
Chargeoffs (311.9) (288.0) (938.4) (766.0)
Recoveries 19.6 20.3 61.6 43.1
Other, net 3.0 (.9) 12.6 2.3
-------- -------- --------- ---------
TOTAL CREDIT LOSS RESERVES FOR
RECEIVABLES SERVICED WITH
LIMITED RECOURSE AT
SEPTEMBER 30 876.7 766.9 876.7 766.9
-------- -------- --------- ---------
TOTAL CREDIT LOSS RESERVES FOR
MANAGED RECEIVABLES AT
SEPTEMBER 30 $2,662.9 $ 2,354.8 $ 2,662.9 $ 2,354.8
======== ========= ========= =========
/TABLE
<PAGE>
<PAGE> 11
7. INCOME TAXES
- -----------------
The effective tax rate for the first nine months of 1998 was 35.2 percent
excluding merger and integration related costs. The inclusion of this item
resulted in a $249 million net tax benefit for the first nine months of
1998. The effective tax rate was 35.1 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) state and local income
taxes, (b) in 1997, capital losses from the sale of German operations and
(c) leveraged lease tax benefits.
8. EARNINGS PER COMMON SHARE
- ------------------------------
Computations of earnings per common share for the three and nine months
ended September 30 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Three Months Ended
September 30,
In millions, except per share data. 1998 1997
- -------------------------------------------------------------------------------------
Diluted Basic Diluted Basic
------- ----- ------- -----
<S> <C> <C> <C> <C>
Earnings:
Net income $318.0 $318.0 $264.7 $264.7
Preferred dividends (4.1) (4.1) (4.2) (4.2)
------ ------ ------ ------
Earnings available to common shareholders $313.9 $313.9 $260.5 $260.5
====== ====== ====== ======
Average shares:
Common 490.3 490.3 482.6 482.6
Common equivalents 8.0 - 9.7 -
------ ------ ------ ------
Total 498.3 490.3 492.3 482.6
====== ====== ====== ======
Earnings per common share $ .63 $ .64 $ .53 $ .54
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Nine Months Ended
September 30,
In millions, except per share data. 1998 1997
- -------------------------------------------------------------------------------------
Diluted Basic Diluted Basic
------- ----- ------- -----
<S> <C> <C> <C> <C>
Earnings:
Net income $174.2 $174.2 $735.5 $735.5
Preferred dividends (12.4) (12.4) (12.9) (12.9)
------ ------ ------ ------
Earnings available to common
shareholders $161.8 $161.8 $722.6 $722.6
====== ====== ====== ======
Average shares:
Common 488.6 488.6 465.7 465.7
Common equivalents 10.3 - 8.9 -
------ ------ ------ ------
Total 498.9 488.6 474.6 465.7
====== ====== ====== ======
Earnings per common share $ .32 $ .33 $ 1.52 $ 1.55
====== ====== ====== ======
</TABLE>
<PAGE>
<PAGE> 12
9.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 ($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
($25 per preferred security) plus accrued and unpaid dividends.
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 ($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 September 30, 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.
10. 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
$317.7 million for the quarter ended September 30, 1998, $285.5 million for
the quarter ended September 30, 1997, $208.9 million for the nine months
ended September 30, 1998 and $755.4 million for the nine months ended
September 30, 1997. Excluding the impact of the merger and integration
related costs as well as the gain on sale of Beneficial Canada,
comprehensive income was $841.4 million for the nine months ended September
30, 1998.
<PAGE>
<PAGE> 13
11. COMMITMENTS AND CONTINGENT LIABILITIES
- -------------------------------------------
In 1992, the Internal Revenue Service ("IRS") completed its examination of
Beneficial's federal income tax returns for 1984 through 1987. The IRS
proposed $142.0 million in adjustments that relate principally to
activities of a former subsidiary, American Centennial Insurance Company,
prior to its sale in 1987.
In order to limit the further accrual of interest on the proposed
adjustments, Beneficial paid $105.5 million of tax and interest during the
third quarter of 1992.
The issues were not resolved during the administrative appeals process, and
the IRS issued a statutory Notice of Deficiency asserting the unresolved
adjustments and increased the disallowance to $195.0 million in the third
quarter of 1996.
Beneficial has initiated litigation in the United States Tax Court to
oppose the disallowance. While the conclusion of this matter in its
entirety cannot be predicted with certainty, management does not anticipate
the ultimate resolution to differ materially from amounts accrued.
12. ACCOUNTING PRONOUNCEMENTS
- ------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("FAS No. 131"). This
statement establishes standards for reporting information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports issued to
shareholders. FAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas and major
customers. We expect to adopt FAS No. 131 in the fourth quarter of 1998.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("FAS No. 132"). This statement revises employers'
disclosures about pension and other postretirement benefit plans. It does
not change the measurement or recognition of those plans. We expect to
adopt FAS No. 132 in the fourth quarter of 1998.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities ("FAS
No. 133"). FAS No. 133 establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet
as either an asset or liability measured at its fair value. FAS No. 133
requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
FAS No. 133 is effective for fiscal years beginning after June 15, 1999,
and can be implemented as of the beginning of any fiscal quarter after
issuance (that is, fiscal quarters beginning June 16, 1998 and thereafter).
FAS No. 133 cannot be applied retroactively. We expect to adopt FAS No. 133
on January 1, 2000 and have not yet quantified the impacts of adopting this
statement on our financial statements.
<PAGE>
<PAGE> 14
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 merger with Beneficial Corporation ("Beneficial"), 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 under the caption "Forward Looking Statements".
On June 30, 1998, we merged with Beneficial, a consumer finance holding
company headquartered in Wilmington, Delaware. Each outstanding share of
Beneficial common stock was converted into 3.0666 shares of Household's
common stock, resulting in the issuance of approximately 168.4 million
shares of common stock. Each share of Beneficial $5.50 Convertible
Preferred Stock (the "Beneficial Convertible Stock") was converted into the
number of shares of Household common stock the holder would have been
entitled to receive in the merger had the Beneficial Convertible Stock been
converted into shares of Beneficial common stock immediately prior to the
merger. Additionally, each other share of Beneficial preferred stock
outstanding was converted into one share of a newly-created series of
Household preferred stock with terms substantially similar to those of
existing Beneficial preferred stock. The merger was accounted for as a
pooling of interests and, therefore, the information included in this
report presents the combined results of Household and Beneficial as if the
two companies had operated as a combined entity for all periods presented.
In connection with the merger, we incurred pre-tax merger and integration
related costs of approximately $1 billion ($751 million after-tax) in the
second quarter. These costs included approximately $285 million in lease
exit costs, $40 million in fixed asset write-offs related to closed
facilities, $275 million in severance and change in control payments, $240
million in asset writedowns to reflect modified business plans, $75 million
in investment banking fees, $25 million in legal and other expenses, and
$60 million in prepayment premiums related to debt.
The merger and integration related costs included approximately $291
million in non-cash charges. Cash payments of approximately $709 million
have been and will continue to be funded through our existing operations
and by issuing additional commercial paper and other borrowings. In
addition, we received tax benefits of approximately $249 million.
Substantially all of the cash payments are expected to be made by the end
of 1998.
The integration of Beneficial is progressing well. Cost reductions from the
integration are proceeding as planned.
OPERATIONS SUMMARY
- ------------------
Our net income for the third quarter of 1998 was $318.0 million, up from
$264.7 million in 1997. Operating income (net income excluding merger and
integration related costs and the gain on sale of Beneficial's Canadian
operations) for the first nine months of 1998 was $806.7 million, up from
$735.5 million a year ago. Diluted operating earnings per share was $.63 in
the third quarter and $1.59 for the first nine months of 1998, compared to
$.53 and $1.52 per share in the same periods in 1997. Including merger and
integration related costs and the gain on sale of Beneficial's Canadian
operations, we recognized net income of $174.2 million for the first nine
months of 1998. Additionally, diluted earnings per share was $.32 for the
first nine months of 1998.
<PAGE>
<PAGE> 15
Our annualized return on average common shareholders' equity was 20.5
percent for the third quarter of 1998 and, excluding merger and integration
related costs and the gain on sale of Beneficial's Canadian operations,
16.7 percent for the first nine months of 1998. This compares to an
annualized return on average common shareholders' equity of 17.7 percent
for the third quarter of 1997 and 18.9 percent for the first nine months of
1997.
- - On March 10, 1998, the Board of Directors approved a three-for-one
split of Household's common stock effected in the form of a dividend,
issued on June 1, 1998, to shareholders of record as of May 14, 1998. The
split was subject to shareholder approval to increase authorized shares
which was received on May 13, 1998. Accordingly, all common share and per
common share data in this report includes the effect of Household's stock
split.
- - On April 28, the sale of Beneficial's German operations was completed.
An after-tax loss of $27.8 million was recorded in the fourth quarter of
1997. This loss was recorded after consideration of a $31.0 million tax
benefit, primarily generated by the expected utilization of capital losses
to cover the expected loss associated with disposing of the German
operations. No additional losses were realized in 1998 as a result of the
sale.
- - On March 2, 1998, the sale of Beneficial's Canadian operations was
completed. An after-tax gain of $118.5 million was recorded upon
consummation of the transaction.
- - The following summarizes our operating results for our key businesses
for the third quarter and first nine months of 1998 compared to the
corresponding prior year periods:
Results for our domestic consumer finance business improved from the
prior year periods 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 as compared to the
prior year.
Our MasterCard* and Visa* credit card business reported lower earnings
from the prior year periods as lower net interest margin, higher credit
losses and increased marketing spending were partially offset by higher
fee income. During the third quarter, we sold a $500 million portfolio
related to the previously discontinued Ameritech cobranding program.
Our MasterCard and Visa business has suffered from industry trends of
slowing growth and profits. The sale of the former Ameritech portfolio
was a first step taken by new credit card management, hired in June, to
improve the performance of this business. In November 1998, we entered
into an agreement to sell $1.3 billion of our undifferentiated Household
Bank branded portfolio. Further profitability initiatives are being
evaluated. These initiatives include repositioning the non-affinity
portfolios and improving returns in all portfolios, including the GM
co-branded credit card and the AFL-CIO's Union Privilege affinity credit
card.
Our private label credit card business reported improved earnings from
the prior year periods reflecting higher fee income, improved efficiency
and, for the first nine months, higher net interest margin, partially
offset by higher credit losses. Higher credit losses reflected higher
personal bankruptcies as compared to the prior year, as well as the
maturing of promotional balances in the first quarter of 1998.
* MasterCard is a registered trademark of MasterCard International,
Incorporated and Visa is a registered trademark of VISA USA, Inc.
<PAGE>
<PAGE> 16
Beneficial's tax refund anticipation loan ("RAL") business profits
declined in the first nine months, reflecting certain limited measures
taken by the Internal Revenue Service to delay payment on the returns of
selected taxpayers claiming an earned income tax credit.
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.
- - Our normalized managed basis efficiency ratio improved to 36.9 percent
for the third quarter of 1998 and 38.8 percent for the first nine months
of 1998 compared to 39.8 percent in the third quarter of 1997 and 41.2
percent for the first nine months of 1997. 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. The
improvement in the managed ratio in the third quarter of 1998 resulted
from growth in normalized managed net revenues over the prior year,
compared to a 6 percent decrease in normalized operating expenses over
the comparable period. The improvement in the managed ratio for the
first nine months of 1998 resulted from a 5 percent growth in normalized
managed net revenues over the prior year, compared to a slight decrease
in normalized operating expenses over the comparable period.
BALANCE SHEET REVIEW
- --------------------
- - Managed consumer receivables (receivables on our balance sheet plus
receivables serviced with limited recourse) grew 5 percent over the prior
year. Core products increased 9 percent from a year ago to $63.1 billion.
Core products exclude first mortgages and commercial receivables,
Beneficial's German and Canadian receivables which were sold in the first
half of 1997 and Household's student loan receivables which were sold in
the fourth quarter of 1997. Growth in auto finance receivables reflect the
acquisition of ACC Consumer Finance Corporation ("ACC") in October 1997.
Home equity receivables were up 14 percent from a year ago. The combination
of prepayment penalties and focus on customer service and retention have
contributed to the increase over the prior year. The level of refinancings
also began to stabilize, although at a higher level than we prefer. Private
label receivables were up 3 percent from a year ago due to the signing of a
major furniture retailer which added over $500 million in receivables. This
growth was offset by attrition at two major merchants in the second quarter
of 1998 due to less promotional activity by Beneficial. Other unsecured
receivables were up compared to the prior year reflecting the purchase of
an $850 million portfolio in the first quarter. 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 in the first
quarter of 1998. This growth was offset by the third quarter sale of the
$500 million Ameritech portfolio, as previously discussed.
- - Compared to the second quarter, core products were up 2 percent. Home
equity receivables were up 5 percent from the second quarter. Although
impacted by the integration process, production volumes at the Beneficial
branches remained strong during the quarter. Additionally, the level of
refinancings began to stabilize. Auto finance receivables increased $263
million in the quarter. Private label receivables grew 7 percent in the
quarter due to the addition of over $500 million in receivables as
discussed above. Also, during the quarter, our private label business
signed a contract with a regional consumer electronics merchant and
extended the terms of relationship with two of Beneficial's largest
merchants. MasterCard/Visa receivables declined in the quarter. The decline
is attributable to attrition in our U.S. bankcard business coupled with the
sale of the $500 million portfolio discussed above, partially offset by
growth in our U.K. bankcard business of 8 percent.
<PAGE>
<PAGE> 17
- - Consumer receivables on our balance sheet were $41.5 billion at September
30, 1998, up from $39.9 billion at June 30, 1998 and $37.3 billion at
September 30, 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 $2,662.9 million at September 30,
1998, up from $2,620.1 million at June 30, 1998 and $2,354.8 million at
September 30, 1997. Credit loss reserves as a percent of managed
receivables were 4.16 percent, up from 4.14 percent at June 30, 1998 and
3.85 percent at September 30, 1997. Reserves as a percent of nonperforming
managed receivables were 114.7 percent, compared to 116.9 percent at June
30, 1998 and 118.3 percent at September 30, 1997. Consumer two-months-and-
over contractual delinquency ("delinquency") as a percent of managed
consumer receivables was 4.96 percent, up from 4.65 percent at June 30,
1998 and 4.47 percent at September 30, 1997. The annualized total consumer
managed chargeoff ratio in the third quarter of 1998 was 4.33 percent,
compared to 4.26 percent in the prior quarter and 3.98 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 12.80 percent, compared to 14.13 percent at December 31,
1997. The ratio of total shareholders' equity to managed assets was 8.99
percent, compared to 9.28 percent at December 31, 1997. The ratios in 1998
were impacted by the merger and integration related costs incurred in the
second quarter.
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 of receivable balances; maturities or sales of investment
securities; proceeds from the issuance of debt, deposits and securitization
of consumer receivables; and cash provided by operations.
Although concerns have been raised in our industry about the inability of
certain companies to obtain financing, we have experienced no problems in
issuing commercial paper, long-term debt at a variety of maturities, or
asset-backed securities.
The following describes major changes in our funding base from December 31,
1997 to September 30, 1998:
- - In March 1998, a subsidiary trust issued $200 million of company
obligated mandatorily redeemable preferred securities.
- - Deposits decreased 17 percent to $1.9 billion from $2.3 billion
primarily due to the sale of Beneficial's German operations, as previously
discussed.
- - Commercial paper, bank and other borrowings increased to $10.8 billion
from $10.7 billion. Senior and senior subordinated debt (with original
maturities over one year) increased 17 percent to $27.8 billion from $23.7
billion. The increase in debt levels from year end is primarily
attributable to the increase in owned receivables.
- - In connection with the Beneficial merger, we have repurchased
approximately $1.1 billion of senior and senior subordinated debt and bank
and other borrowings. We funded the debt repurchase with senior debt and
other borrowings.<PAGE>
<PAGE> 18
Cash payments of approximately $709 million for merger and integration
related costs have been and will continue to be funded through our
existing operations, senior debt and other borrowings.
- - In June 1998, we issued 168.4 million shares of common stock in
connection with the Beneficial merger, as previously discussed.
- - In August and September 1998, we repurchased 10 million shares of our
common stock on the open market to fund various employee benefit programs.
This repurchase was within all pooling of interests accounting
requirements.
- - In October 1998, we redeemed, at par, all outstanding shares of our
7.35% Preferred Stock, Series 1993-A, for $25 per depositary share plus
accrued and unpaid dividends.
- - Our securitized portfolio of home equity, auto finance, MasterCard and
Visa, private label and other unsecured receivables totaled $21.8 billion
at September 30, 1998, compared to $24.5 billion at December 31, 1997.
During the three months ended September 30, 1998, we securitized, excluding
replenishments of certificate holder interests, $.7 billion of auto finance
and other unsecured receivables. During the nine months ended September 30,
1998, we securitized, excluding replenishments of certificate holder
interests, $2.7 billion of auto finance, MasterCard/Visa and other
unsecured receivables.
The composition of these securitizations by type is as follows
(in billions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
1998 1998
- --------------------------------------------------------------
<S> <C> <C>
Auto finance $ .3 $ .7
Visa/MasterCard - 1.3
Other unsecured .4 .7
------- -------
Total $ .7 $ 2.7
======= =======
</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,
a source of liquidity and capital management for us. 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> 19
Pro Forma Managed Statements of Income
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
All dollar amounts are September 30, September 30,
stated in millions. 1998 * 1997 * 1998 * 1997 *
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Finance and other interest
income $ 2,254.9 13.91% $ 2,160.7 13.92% $ 6,689.9 13.83% $ 6,224.6 13.72%
Interest expense 971.4 5.99 943.9 6.08 2,913.2 6.02 2,732.8 6.02
--------- ----- --------- ----- --------- ----- --------- -----
Net interest margin 1,283.5 7.92 1,216.8 7.84 3,776.7 7.81 3,491.8 7.72
Provision for credit losses 661.5 674.7 1,999.3 1,882.9
--------- --------- --------- ---------
Net interest margin after
provision for credit losses 622.0 542.1 1,777.4 1,608.9
--------- --------- --------- ---------
Insurance revenues 129.2 109.9 366.5 332.5
Investment income 42.5 43.9 120.9 129.0
Fee income 354.4 404.3 1,007.5 1,023.5
Other income 55.8 68.5 183.6 296.1
Gain on sale of Beneficial
Canada - - 189.4 -
--------- --------- --------- ---------
Total other revenues 581.9 626.6 1,867.9 1,781.1
--------- --------- --------- ---------
Salaries and fringe
benefits 280.1 277.6 859.5 794.9
Occupancy and equipment
expense 73.0 81.5 240.6 245.4
Other marketing expenses 101.7 112.1 303.7 325.7
Other servicing and
administrative expenses 162.3 187.2 505.0 578.3
Amortization of acquired
intangibles and goodwill 45.1 42.4 132.3 116.3
Policyholders' benefits 57.1 61.9 176.0 196.8
--------- --------- --------- ---------
Total costs and expenses
before merger charge 719.3 762.7 2,217.1 2,257.4
Merger and integration
related costs - - 1,000.0 -
--------- --------- --------- ---------
Total costs and expenses
including merger charge 719.3 762.7 3,217.1 2,257.4
--------- --------- --------- ---------
Income before taxes 484.6 406.0 428.2 1,132.6
Income taxes 166.6 141.3 254.0 397.1
--------- --------- --------- ---------
Net income $ 318.0 $ 264.7 $ 174.2 $ 735.5
========= ========= ========= =========
Average managed receivables $63,653.4 $61,665.2 $63,471.1 $59,769.1
Average noninsurance
investments 867.5 428.3 739.7 732.9
Other interest-earning
assets 309.7 - 298.9 -
--------- --------- --------- ---------
Average managed interest-
earning assets $64,830.6 $62,093.5 $64,509.7 $60,502.0
========= ========= ========= =========
* As a percent, annualized, of appropriate earning assets.
</TABLE>
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 $812.9 million for the third
quarter of 1998, up from $717.8 million for the prior year quarter. Net
interest margin on an Owned Basis for the first nine months of 1998 was
$2,296.5 million, up from $2,106.3 million in the prior year period. Owned
margin improved due to an increase in average owned home equity loans as a
result of the acquisition of Transamerica Financial Services Holding
Company ("TFS") in 1997, but was offset by a decrease in average owned
private label and other unsecured receivables.<PAGE>
<PAGE> 20
Net interest margin on a Managed Basis was $1,283.5 million for the third
quarter of 1998, up 5 percent compared to the year-ago period. Managed
Basis net interest margin for the first nine months of 1998 was $3,776.7
million, up 8 percent compared to the prior year period. The increases were
primarily due to managed receivable growth. Net interest margin as a
percent of average managed interest-earning assets, annualized, was 7.92
percent, compared to 7.75 percent in the prior quarter and 7.84 percent in
the year-ago quarter. The improvement in net interest margin over the prior
and year-ago quarters resulted from higher yields on unsecured products and
lower funding costs, partially offset by lower margin from a higher mix of
secured loans in the portfolio.
Provision for credit losses
- ---------------------------
The provision for credit losses for receivables on an Owned Basis for the
third quarter of 1998 totaled $358.4 million, compared to $376.5 million in
the prior year quarter. The provision for the first nine months of 1998 was
$1,139.3 million, up from $1,106.0 million in the year-ago period. The
provision as a percent of average owned receivables, annualized, was 3.43
percent in the third quarter of 1998 compared to 3.94 percent in the third
quarter of 1997. 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
$661.5 million in the third quarter of 1998, compared to $674.7 million in
the prior year quarter. The provision for credit losses on a Managed Basis
for the first nine months of 1998 was $1,999.3 million, up 6 percent from
$1,882.9 million in the year-ago period. As a percent of average managed
receivables, annualized, the provision was 4.16 percent, compared to 4.38
percent in the third 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. In the third quarter of 1998, we
securitized approximately $.7 billion of auto finance and other unsecured
receivables, compared to approximately $1.8 billion of home equity,
MasterCard/Visa and other unsecured receivables a year ago. For the first
nine months of 1998, we securitized approximately $2.7 billion of auto
finance, MasterCard/Visa and other unsecured receivables, compared to
approximately $5.7 billion of home equity, MasterCard/Visa and other
unsecured receivables in the year ago period. 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 $370.1 million for the third
quarter of 1998, compared to $448.9 million for the same period in 1997.
Securitization income on an Owned Basis for the first nine months of 1998
was $1,183.6 million, compared to $1,237.3 million in the year-ago period.
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 decrease in securitization income in 1998 was
primarily due to Beneficial's securitization gains on home equity loans in
the second and third quarters of 1997. The components of securitization
income are reclassified to the appropriate caption in the statements of
income on a Managed Basis.
<PAGE>
<PAGE> 21
Fee income on an Owned Basis includes revenues from fee-based products such
as credit cards. Fee income was $151.8 million in the third quarter of
1998, compared to $156.2 million in the comparable period of the prior
year. Fee income for the first nine months of 1998 was $444.1 million, up
from $394.8 million for the same period in 1997. The decrease in fee income
in the third quarter was due to higher revenue sharing payments to GM as
compared to the year-ago quarter. The increase in fee income for the first
nine months reflected higher credit card fees as compared to the prior year
period.
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 $354.4 million in the third quarter
of 1998, compared to $404.3 million in the 1997 quarter. Managed Basis fee
income was $1,007.5 million for the first nine months of 1998, compared to
$1,023.5 million in the year-ago period. The decreases were primarily due
to lower securitization revenue offset by higher credit card and
interchange fees.
Other income was $55.8 million in the third quarter of 1998, down from
$68.5 million in the third quarter of 1997. Other income for the first nine
months of 1998 was $183.6 million, compared to $296.1 million in the year-
ago period. The decrease in other income in 1998 is due to lower RAL
income. Also contributing to the decrease in the third quarter were
nonrecurring gains recognized in 1997 on the sales of MasterCard/Visa
receivables from our non co-branded portfolio. Additionally, the 1997
year-to-date amount included approximately $50 million of nonrecurring
gains on the sales of certain non-strategic assets and a gain from the
sale of a Beneficial life insurance portfolio in June 1997.
Total other revenue for the first nine months of 1998 included a pretax
gain of $189.4 million from the sale of Beneficial's Canadian operations,
as previously discussed.
Expenses
- --------
Operating expenses for the third quarter of 1998 were $662.2 million,
compared to $700.8 million in the comparable prior year quarter. Operating
expenses for the first nine months of 1998, excluding the one-time merger
related costs of approximately $1.0 billion, were $2,041.1 million,
compared to $2,060.6 million in the year-ago period.
Salaries and fringe benefits for the third quarter were $280.1 million
compared to $277.6 million in the third quarter of 1997. Salaries and
fringe benefits for the first nine months of 1998 were $859.5 million
compared to $794.9 million for the same period in 1997. The expense was
relatively flat in the third quarter compared with the prior year quarter
as the increase in the average number of employees in our domestic consumer
finance and auto finance businesses in connection with Household's
acquisitions of TFS in June 1997 and ACC in October 1997 were offset by the
sale of Beneficial's Canadian operations in March 1998 and German
operations in April 1998. The higher expense for the first nine months was
primarily due to the increase in the average number of employees in
connection with the acquisitions of TFS and ACC.
Other marketing expenses for the third quarter were $101.7 million,
compared to $112.1 million in 1997. Other marketing expense for the first
nine months of 1998 totaled $303.7 million, compared to $325.7 million in
the year-ago period. Other marketing expense was down from the prior year
periods due to increased spending in 1997 on marketing programs in the
United Kingdom and on private label programs for several Beneficial private
label merchants. The decreases in expense in 1998 were partially offset by
higher marketing spending on programs in our MasterCard/Visa business.
<PAGE>
<PAGE> 22
Other servicing and administrative expenses were $162.3 million in the
third quarter of 1998, down from $187.2 million in the prior year. Other
servicing and administrative expenses for the first nine months of 1998
were $505.0 million, down from $578.3 million for the same period in 1997.
The decreases from the prior year periods were primarily due to reductions
in fraud losses coupled with higher expenses in 1997 related to
Beneficial's Canadian and German operations sold in early 1998.
Amortization of acquired intangibles and goodwill was $45.1 million in the
third quarter of 1998, up from $42.4 million in the prior year quarter.
Amortization expense for the first nine months of 1998 was $132.3 million,
up from $116.3 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 5, "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>
- --------------------------------------------------------------------------------
September 30, June 30, December 31, September 30,
1998 1998 1997 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned $1,786.2 $1,757.2 $1,642.1 $1,587.9
Serviced with limited
recourse 876.7 862.9 880.9 766.9
-------- -------- -------- --------
Total $2,662.9 $2,620.1 $2,523.0 $2,354.8
======== ======== ======== ========
</TABLE>
Managed credit loss reserves as a percent of nonperforming managed
receivables were 114.7 percent, compared to 116.9 percent at June 30, 1998
and 118.3 percent at September 30, 1997.
Total owned and managed credit loss reserves as a percent of receivables
were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
September 30, June 30, December 31, September 30,
1998 1998 1997 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned 4.22% 4.32% 4.25% 4.15%
Managed 4.16 4.14 3.99 3.85
---- ---- ---- ----
</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 6, "Credit Loss Reserves" in
the accompanying financial statements for analyses of reserves.
CREDIT QUALITY
- --------------
Delinquency and chargeoff levels in the consumer portfolio were higher
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.
<PAGE>
<PAGE> 23
Delinquency
- -----------
Two-Months-and-Over Contractual Delinquency (as a percent of managed
consumer receivables):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
9/30/98 6/30/98 3/31/98 12/31/97 9/30/97
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First mortgage 11.80% 11.07% 9.33% 10.35% 9.27%
Home equity 3.73 3.55 3.68 3.69 3.16
Auto finance <F1> 2.05 1.67 1.84 2.09 -
MasterCard/Visa 3.73 3.30 3.10 3.10 3.20
Private label 6.55 6.10 6.04 5.81 5.72
Other unsecured 8.03 7.82 7.72 7.81 7.14
----- ----- ---- ----- ----
Total 4.96% 4.65% 4.65% 4.64% 4.47%
===== ===== ==== ===== ====
<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 increased from the
prior quarter and the prior year. The increase from the prior quarter is
primarily due to the integration of the Beneficial merger and was not
unexpected.
The increase in the managed delinquency ratio for the combined company from
a year ago, in addition to the factor discussed above, was due to
seasoning of the home equity, MasterCard/Visa 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>
- ----------------------------------------------------------------------------------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
1998 1998 1998 1997 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First mortgage (.32)% .21% .81% 1.29% 1.21%
Home equity .72 .52 .61 .62 .53
Auto finance <F1> 4.89 5.18 5.94 5.31 -
MasterCard/Visa 5.96 5.49 5.78 5.56 6.22
Private label 5.33 6.05 5.73 5.19 4.79
Other unsecured 7.50 7.26 6.22 5.85 5.66
---- ---- ---- ---- -----
Total 4.33% 4.26% 4.17% 3.94% 3.98%
==== ==== ==== ==== =====
<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> 24
The third quarter chargeoff ratio was 4.33 percent compared to 4.26 percent
in the second quarter. The integration of Beneficial and Household
resulted in the alignment of chargeoff policies for the private label
and consumer finance businesses. The policy changes accounted for
virtually all of the increase in the home equity chargeoff ratio as well
as the decline in the private label ratio. Higher chargeoff levels
in the MasterCard/Visa and other unsecured product lines resulted
from seasoning of acquired portfolios and higher bankruptcies.
The increase in the chargeoff ratio compared to a year ago was primarily
due to increased bankruptcy filings in and continued seasoning of the
other unsecured portfolio.
Nonperforming Assets
- --------------------
Nonperforming assets consisted of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
In millions. 9/30/98 6/30/98 3/31/98 12/31/97 9/30/97
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual owned receivables $1,080.9 $ 948.5 $ 901.2 $ 939.0 $ 816.5
Accruing owned consumer
receivables 90 or more days
delinquent 570.2 548.7 494.7 499.6 509.9
Renegotiated commercial loans 12.3 12.3 12.3 12.4 12.9
-------- -------- -------- -------- --------
Total nonperforming owned
receivables 1,663.4 1,509.5 1,408.2 1,451.0 1,339.3
Real estate owned 232.2 224.2 214.7 212.8 222.5
-------- -------- -------- -------- --------
Total nonperforming owned
assets $1,895.6 $1,733.7 $1,622.9 $1,663.8 $1,561.8
======== ======== ======== ======== ========
Owned credit loss reserves as
a percent of nonperforming
owned receivables 107.4% 116.4% 122.5% 113.2% 118.6%
-------- -------- -------- -------- --------
Nonaccrual managed receivables $1,476.4 $1,409.6 $1,390.3 $1,364.9 $1,220.0
Accruing managed consumer
receivables 90 or more days
delinquent 832.0 818.6 812.7 807.8 757.6
Renegotiated commercial
loans 12.3 12.3 12.3 12.4 12.9
-------- -------- -------- -------- --------
Total nonperforming managed
receivables 2,320.7 2,240.5 2,215.3 2,185.1 1,990.5
Real estate owned 232.2 224.2 214.7 212.8 222.5
-------- -------- -------- -------- --------
Total nonperforming managed
assets $2,552.9 $2,464.7 $2,430.0 $2,397.9 $2,213.0
======== ======== ======== ======== ========
Managed credit loss reserves as
a percent of nonperforming
managed receivables 114.7% 116.9% 116.1% 115.5% 118.3%
-------- -------- -------- -------- --------
/TABLE
<PAGE>
<PAGE> 25
YEAR 2000
- ---------
The conversion of certain computer systems to permit continued use in the
Year 2000 ("Y2K") and beyond began in 1996. The Year 2000 issue exists
because many computer systems and applications currently use two-digit date
fields to designate a year. As the century date change occurs, date-
sensitive systems may recognize the year 2000 as 1900, or not at all. The
inability to recognize or properly treat the Y2K may cause systems to
process critical financial and operational information incorrectly. We have
identified our Y2K issues and are scheduled to substantially complete
remediation and testing of our significant systems by the end of 1998.
To address this issue, we have a dedicated Year 2000 Project team,
responsible for all business entities. The project team is led by a
full time Director of Y2K Compliance. Our plan for addressing the
Year 2000 issue is divided into three major phases: Business Systems
Inventory and Assessment, Remediation and Replacement, and Testing and
Implementation.
Business Systems Inventory and Assessment
- -----------------------------------------
The internal inventory portion of this phase, which commenced in 1997, was
designed to identify internal business systems which could be susceptible
to processing errors as a result of the Y2K issue. The Year 2000 Project
team, working with business unit project leaders, has identified
approximately 1900 components, consisting of hardware, software, business
application systems, service providers, business partners, and various
systems containing embedded processors. Approximately 500 internally
developed business systems ("IT systems") have been identified, as well as
325 unique pieces of hardware and 430 packaged vendor applications. All of
these systems must, at a minimum, be tested for Y2K compliance. In
addition, we have identified and assessed our 'non-IT' systems. The
remediation and replacement of these systems, which include security
systems, heating, ventilation and air conditioning systems, elevators, and
water treatment systems, are included in the plans discussed below. Also as
part of this phase, significant service providers, vendors, suppliers,
customers, and government entities believed to be critical to business
operations after January 1, 2000, have been identified and steps undertaken
to ascertain their stage of Y2K readiness through questionnaires,
interviews, contract amendments and other available means.
Remediation and Replacement
- ---------------------------
We have developed and are in the process of implementing our remediation
and replacement plan for all affected IT and non-IT systems. This phase,
which commenced in 1998, is approximately 60% complete as of September 30.
Our plan established priorities for remediation or replacement. We are
utilizing internal and external resources to execute the plan and expect
to substantially complete all remediation and replacement of significant
systems by December 31, 1998, and all remaining systems by second quarter
1999. We are on schedule to meet these objectives.
<PAGE>
<PAGE> 26
Testing and Implementation
- --------------------------
This phase of the project is on-going as systems are remediated and
replaced. Our efforts in this phase include testing by technical
resources, users and determination by appropriate Y2K project management
that the systems are Y2K compliant. We expect to substantially complete
testing of significant systems by December 31, 1998, and all
systems by second quarter 1999.
Because our Y2K compliance is dependent on key third parties also being Y2K
compliant on a timely basis, we cannot assure that the systems of our key
third parties (RAL program being dependent on the Internal Revenue
Service), upon which we rely, will be converted in a timely manner, or that
their failure to convert would not have an adverse effect on our systems.
In a worse case scenario, one or more of our key third parties would not be
Year 2000 compliant by the end of 1998 which could potentially, among other
things, delay the collection/processing of customer loan payments, impact
the timeliness of loan approvals, or cause the loss of key credit history
information which we use to market our products and services. We are
currently developing contingency plans, which we expect to have completed
by the end of 1998, to address the potential noncompliance of each of our
third-party vendors, as well as for the potential failure of internal
significant systems. Such contingency plans will be implemented immediately,
if necessary. For each system or service provided by a key third party,
there are alternative suppliers of such systems in the marketplace. The
economical and operational costs of converting to such alternative vendors
or service providers have not been specifically quantified but would not
be expected to have a material impact on our operations of financial
results.
The costs for Year 2000 compliance have not been, and are not expected to
be, material to our operations. We currently estimate that the aggregate
cost of our Y2K effort will be approximately $20 million after tax, of
which $11 million has been incurred as of September 30, 1998.
Forward Looking Statements
- ---------------------------
Forward looking statements included herein are based on our current views
and assumptions, and involve risks and uncertainties that could cause our
results to be materially different than those anticipated. The following
important factors could affect our actual results and could cause such
results to vary materially from those expressed herein or in any other
document filed with the Securities and Exchange Commission:
- - changes in laws and regulations, including changes in accounting
standards;
- - changes in overall economic conditions, including the interest rate
environment in which we operate, the capital markets in which we fund
our operations, recession and currency fluctuations;
- - the ability of the company and its key service providers, vendors or
suppliers to replace, modify or upgrade its business systems to
adequately address Year 2000 issues;
- - consumer perception of the availability of credit, including price
competition in the market segments targeted by the company and the
ramifications of filing for personal bankruptcy;
- - the effectiveness of models or programs to predict loan delinquency or
loss and initiatives to improve collections in all business areas;
- - consumer acceptance and demand for our loan products;
- - inability to continue to integrate systems, operational functions and
cultures of Beneficial with those of Household; and
- - the repositioning of our MasterCard/Visa business to successfully market
to selected consumer segments.
<PAGE>
<PAGE> 27
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.
27.1 Restated Financial Data Schedule.
99.1 Debt and Preferred Stock Securities Ratings.
(b) Reports on Form 8-K
During the third quarter of 1998, the Registrant filed Current
Reports on Form 8-K dated August 14, 1998 with respect to combined
unaudited financial results of Household for the month ended July
31, 1998, and a Current Report on Form 8-K dated September 1, 1998
with respect to consolidated financial statements restating
Household's historical consolidated financial statements as of and
for the three years ended December 31, 1997.
<PAGE>
<PAGE> 28
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: November 13, 1998 By: /s/ David A. Schoenholz
----------------- -----------------------------
David A. Schoenholz
Executive Vice President -
Chief Financial Officer
and on behalf of
Household International, Inc.
<PAGE>
<PAGE> 29
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.
27.1 Restated 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.
Mine months ended September 30 1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
Net income $ 174.2 $ 735.5
Income taxes 254.0 397.1
-------- --------
Income before income taxes 428.2 1,132.6
-------- --------
Fixed charges:
Interest expense <F1> 1,868.8 1,764.9
Interest portion of rentals <F2> 43.5 40.0
-------- --------
Total fixed charges 1,912.3 1,804.9
-------- --------
Total earnings as defined $2,340.5 $2,937.5
======== ========
Ratio of earnings to fixed charges <F4> 1.22 1.63
======== ========
Preferred stock dividends <F3> $ 19.1 $ 19.9
======== ========
Ratio of earnings to combined fixed charges
and preferred stock dividends <F4> 1.21 1.61
======== ========
Ratio of earnings to combined fixed charges
and preferred stock dividends, excluding
merger and integration related costs 1.73 -
======== ========
<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, excluding
merger and integration related costs, of 35.2 percent
for the nine months ended September 30, 1998 and 35.1 percent
for the same period in 1997.
<F4> The 1998 ratios have been negatively impacted by the one-time
merger and integration related costs associated with our merger
with Beneficial Corporation. As a result, ratios excluding
these costs have also been presented for comparative purposes.
</FN>
</TABLE>
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF HOUSEHOLD INTERNATIONAL, INC.
- ---------------------------------------------
As of September 30, 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%
Beneficial Retail Services Inc. Delaware 100%
Beneficial Service Corporation Delaware 100%
Beneficial Service Corporation of Delaware Delaware 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%
Beneficial Corporation Delaware 100%
Bencharge Credit Service Holding Company Delaware 100%
Beneficial Credit Services of
Connecticut Inc. Delaware 100%
Beneficial Credit Servivces of
Mississippi Inc. Delaware 100%
Beneficial Credit Services of
South Carolina Inc. Delaware 100%
Beneficial Credit Services Inc. Delaware 100%
Beneficial Arizona Inc. Delaware 100%
Beneficial California Inc. Delaware 100%
Beneficial Colorado Inc. Delaware 100%
Beneficial Commercial Holding Corporation Delaware 100%
Beneficial Commercial Corporation Delaware 100%
Beneficial Leasing Group, Inc. Delaware 100%
Neil Corporation Delaware 100%
Silliman Corporation Delaware 100%
<PAGE>
<PAGE> 2
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
Beneficial Connecticut Inc. Delaware 100%
Beneficial Consumer Discount Company Pennsylvania 100%
Beneficial Delaware Inc. Delaware 100%
Beneficial Discount Co. of Virginia Delaware 100%
Beneficial Finance Co. of West Virginia Delaware 100%
Beneficial Finance Limited England 100%
Beneficial Finance Services, Inc. Kansas 100%
Beneficial Florida Inc. Delaware 100%
Beneficial Mortgage Co. of Florida Delaware 100%
Beneficial Georgia Inc. Delaware 100%
Beneficial Hawaii Inc. Delaware 100%
Beneficial Homeowners Inc. Delaware 100%
Beneficial Idaho Inc. Delaware 100%
Beneficial Illinois Inc. Delaware 100%
Beneficial Income Tax Service
Holding Co., Inc. Delaware 100%
Household Tax Masters Inc. Delaware 100%
Beneficial Indiana Inc. Delaware 100%
Beneficial Insurance Group Holding Company Delaware 100%
Beneficial Investment Co. Delaware 100%
Beneficial New York Inc. New York 100%
Beneficial Homeowner Service Corporation Delaware 100%
Beneficial Iowa Inc. Iowa 100%
Beneficial Kansas Inc. Kansas 100%
Beneficial Kentucky Inc. Delaware 100%
Beneficial Land Company, Inc. New Jersey 100%
Beneficial Loan & Thrift Co. Minnesota 100%
Beneficial Louisana Inc. Delaware 100%
Beneficial Maine Inc. Delaware 100%
Beneficial Management Corporation Delaware 100%
Beneficial Management Institute, Inc. New York 100%
Beneficial Management Corporation
of America Delaware 100%
Beneficial Franchise Company Inc. Delaware 100%
Beneficial Mark Holding Inc. Delaware 100%
Beneficial Trademark Co. Delaware 100%
Beneficial Management Headquarters, Inc. New Jersey 100%
Beneficial Facilities Corporation New Jersey 100%
Beneficial Maryland Inc. Delaware 100%
Beneficial Massachusetts Inc. Delaware 100%
<PAGE>
<PAGE> 3
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
Beneficial Michigan Inc. Delaware 100%
Beneficial Minnesota Inc. Delaware 100%
Beneficial Mississippi Inc. Delaware 100%
Beneficial Missouri, Inc. Delaware 100%
Beneficial Montana Inc. Delaware 100%
Beneficial Mortgage Holding Company Delaware 100%
Beneficial Service Corporation
of New Jersey Delaware 100%
Beneficial Nebraska Inc. Nebraska 100%
Beneficial Nevada Inc. Delaware 100%
Beneficial New Hampshire Inc. Delaware 100%
Beneficial New Jersey Inc. Delaware 100%
Beneficial New Mexico Inc. Delaware 100%
Beneficial North Carolina Inc. Delaware 100%
Beneficial Oklahoma Inc Delaware 100%
Beneficial Oregon Inc. Delaware 100%
Beneficial Real Estate Company, Inc. New Jersey 100%
Beneficial Rhode Island Inc. Delaware 100%
Beneficial South Carolina Inc. Delaware 100%
Beneficial South Dakota Inc. Delaware 100%
Beneficial Systems Development Corporation Delaware 100%
Beneficial Technology Corporation Delaware 100%
Beneficial Telemarketing Services Inc. Delaware 100%
Beneficial Tennessee Inc. Tennessee 100%
Beneficial Texas Inc. Texas 100%
Beneficial Utah Inc. Delaware 100%
Beneficial Virginia Inc. Delaware 100%
Beneficial Washington Inc. Delaware 100%
Beneficial West Virginia, Inc. West Virginia 100%
Beneficial Wisconsin Inc. Delaware 100%
Beneficial Wyoming Inc. Wyoming 100%
Benevest Group Inc. Delaware 100%
Benevest Services, Inc. Washington 100%
BMC Holding Company Delaware 100%
Beneficial Mortgage Corporation Delaware 100%
Beneficial Mortgage Services, Inc. Delaware 100%
Bon Secour Properties Inc. Alabama 100%
Capital Financial Services Inc. Nevada 100%
<PAGE>
<PAGE> 4
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
Corporate Security Engineering
Services, Inc. New Jersey 100%
Garrison Platt Properties Inc. Florida 100%
Harbour Island Inc. Florida 100%
Harbour Island Property Management Inc. Florida 100%
Harbour Island Security Co., Inc. Florida 100%
Harbour Island Venture One, Inc. Florida 100%
Harbour Island Venture Three, Inc. Florida 100%
Harbour Island Venture Four, Inc. Florida 100%
Tampa Island Transit Company, Inc. Florida 100%
Personal Mortgage Holding Company Delaware 100%
Personal Mortgage Corporation Delaware 100%
Southern Trust Company Delaware 100%
Southwest Beneficial Finance, Inc. Illinois 100%
Wasco Properties, Inc. Delaware 100%
Beneficial Real Estate Joint
Venture, Inc. Delaware 100%
Beneficial Insurance Group Holding Company Delaware 100%
BFC Agency, Inc. Delaware 100%
BFC Insurance Agency of America Wyoming 100%
Beneficial Premium Services Limited England 100%
BFK Verwaltungsgesellschaft mbH Germany 100%
Beneficial Bank plc England 99.9%
Beneficial Financial Services Limited England 100%
Beneficial Financing Limited England 100%
Beneficial Leasing Limited England 100%
Beneficial Trust Investments Limited England 100%
Beneficial Trust (Guernsey) Limited England 100%
Beneficial Trust (Jersey) Limited England 100%
Beneficial Trust Nominees Limited England 100%
Endeavour Personal Financial Limited England 100%
Security Trust Limited England 100%
Sterling Credit Limited England 100%
Sterling Credit Management Limited England 100%
The Loan Corporation Limited England 100%
Extracard Corp. Delaware 100%
BFC Insurance Agency of Nevada Nevada 100%
Beneficial Direct, Inc. New Jersey 100%
Beneficial Insurance Group, Inc. Delaware 100%
Service Administrators, Inc. (USA) Colorado 100%
Service General Insurance Company Ohio 100%
Beneficial Ohio Inc. Delaware 100%
<PAGE>
<PAGE> 5
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
Service Management Corporation Ohio 100%
B.I.G. Insurance Agency, Inc. Ohio 100%
The Central National Life Insurance
Company of Omaha Delaware 100%
First Central National Life Insurance
Company of New York New York 100%
Wesco Insurance Company Delaware 100%
Southwest Texas General Agency, Inc. Texas 100%
Beneficial Mortgage Holding Company Delaware 100%
Beneficial Excess Servicing Inc. Delaware 100%
Beneficial Home Mortgage Loan Corp. Delaware 100%
Beneficial Mortgage Co. of Arizona Delaware 100%
Beneficial Mortgage Co. of Colorado Delaware 100%
Beneficial Mortgage Co. of Connecticut Delaware 100%
Beneficial Mortgage Co. of Georgia Delaware 100%
Beneficial Mortgage Co. of Idaho Delaware 100%
Beneficial Mortgage Co. of Indiana Delaware 100%
Beneficial Mortgage Co. of Kansas, Inc. Delaware 100%
Beneficial Mortgage Co. of Louisiana Delaware 100%
Beneficial Mortgage Co. of Maryland Delaware 100%
Beneficial Mortgage Co. of Massachusetts Delaware 100%
Beneficial Mortgage Co. of Mississippi Delaware 100%
Beneficial Mortgage Co. of Missouri, Inc. Delaware 100%
Beneficial Mortgage Co. of Nevada Delaware 100%
Beneficial Mortgage Co. of New Hampshire Delaware 100%
Beneficial Mortgage Co. of North Carolina Delaware 100%
Beneficial Mortgage Co. of Oklahoma Delaware 100%
Beneficial Mortgage Co. of Rhode Island Delaware 100%
Beneficial Mortgage Co. of South Carolina Delaware 100%
Beneficial Mortgage Co. of Texas Delaware 100%
Beneficial Mortgage Co. of Utah Delaware 100%
Beneficial Mortgage Co. of Virginia 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%
<PAGE>
<PAGE> 6
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
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%
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%
<PAGE>
<PAGE> 7
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
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%
CPI Enterprises, Inc. Delaware 100%
HCFS Business Equipment Corporation Delaware 100%
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%
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%
<PAGE>
<PAGE> 8
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
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%
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%
<PAGE>
<PAGE> 9
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
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%
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.WP1 (11/11/98)
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 532,800
<SECURITIES> 3,727,700
<RECEIVABLES> 42,280,800
<ALLOWANCES> (2,662,900)
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,234,300
<DEPRECIATION> (776,600)
<TOTAL-ASSETS> 51,452,200
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 27,786,800
0
264,500
<COMMON> 543,400
<OTHER-SE> 5,777,100
<TOTAL-LIABILITY-AND-EQUITY> 51,452,200
<SALES> 0
<TOTAL-REVENUES> 6,641,700
<CGS> 0
<TOTAL-COSTS> 3,217,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,139,300
<INTEREST-EXPENSE> 1,857,100
<INCOME-PRETAX> 428,200
<INCOME-TAX> 254,000
<INCOME-CONTINUING> 174,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 174,200
<EPS-PRIMARY> .33<F2>
<EPS-DILUTED> .32<F3>
<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."
AMOUNT REFLECTS HOUSEHOLD'S 3-FOR-1 STOCK SPLIT EFFECTED IN THE
FORM OF A STOCK DIVIDEND AND PAID ON JUNE 1, 1998.
<F3>REPRESENTS DILUTED EPS COMPUTED IN ACCORDANCE WITH STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE."
AMOUNT
REFLECTS HOUSEHOLD'S 3-FOR-1 STOCK SPLIT EFFECTED IN THE FORM OF A
STOCK DIVIDEND AND PAID ON JUNE 1, 1998.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997<F1>
<PERIOD-END> SEP-30-1997
<CASH> 633,100
<SECURITIES> 2,854,400
<RECEIVABLES> 38,291,000
<ALLOWANCES> (2,354,800)
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 1,267,800
<DEPRECIATION> (733,600)
<TOTAL-ASSETS> 45,992,900
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 23,880,700
0
264,500
<COMMON> 536,300
<OTHER-SE> 5,644,100
<TOTAL-LIABILITY-AND-EQUITY> 45,992,900
<SALES> 0
<TOTAL-REVENUES> 6,255,500
<CGS> 0
<TOTAL-COSTS> 2,257,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,106,000
<INTEREST-EXPENSE> 1,759,500
<INCOME-PRETAX> 1,132,600
<INCOME-TAX> 397,100
<INCOME-CONTINUING> 735,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 735,500
<EPS-PRIMARY> 1.55<F3>
<EPS-DILUTED> 1.52<F4>
<FN>
<F1>RESTATED
<F2>FINANCIAL STATEMENTS OF THE COMPANY WERE PREPARED IN ACCORDANCE
WITH FINANCIAL INSTITUTION INDUSTRY STANDARDS. ACCORDINGLY, THE
COMPANY'S BALANCE SHEETS WERE NON-CLASSIFIED.
<F3>REPRESENTS BASIC EPS COMPUTED IN ACCORDANCE WITH STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE."
AMOUNT HAS BEEN RESTATED AS A RESULT OF HOUSEHOLD'S MERGER WITH
BENEFICIAL, ACCOUNTED FOR AS A POOLING OF INTERESTS, AND FOR
HOUSEHOLD'S 3-FOR-1 STOCK SPLIT EFFECTED IN THE FORM OF A STOCK
DIVIDEND AND PAID ON JUNE 1, 1998.
<F4>REPRESENTS DILUTED EPS COMPUTED IN ACCORDANCE WITH STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER
SHARE." AMOUNT HAS BEEN RESTATED AS A RESULT OF HOUSEHOLD'S MERGER
WITH BENEFICIAL, ACCOUNTED FOR AS A POOLING OF INTERESTS, AND FOR
HOUSEHOLD'S 3-FOR-1 STOCK SPLIT EFFECTED IN THE FORM OF A STOCK
DIVIDEND AND PAID ON JUNE 1, 1998.
</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 September 30, 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>
