<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 June 30, 1999
-------------
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 July 31, 1999, there were 478,628,323 shares of registrant's common stock
outstanding.
<PAGE> 2
HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES
Table of Contents
PART I. Financial Information Page
----
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
(Unaudited) - Three Months and Six Months
Ended June 30, 1999 and 1998............................ 2
Condensed Consolidated Balance Sheets -
June 30, 1999 (Unaudited) and December 31, 1998......... 3
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Six Months Ended
June 30, 1999 and 1998.................................. 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 4. Submission of Matters to a Vote of Security Holders..... 25
Item 6. Exhibits and Reports on Form 8-K........................ 26
Signature ........................................................ 27
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Household International, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- -----------------------------------------------------------
<TABLE>
<CAPTION>
All amounts, except per share data, are stated in millions.
- --------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance income $ 1,583.0 $ 1,372.6 $ 3,081.6 $ 2,686.2
Other interest income 7.4 11.1 17.3 26.4
Interest expense 661.2 616.8 1,310.1 1,229.0
---------- ---------- ---------- ----------
Net interest margin 929.2 766.9 1,788.8 1,483.6
Provision for credit losses on owned
receivables 407.3 391.6 825.1 780.9
---------- ---------- ---------- ----------
Net interest margin after provision for
credit losses 521.9 375.3 963.7 702.7
---------- ---------- ---------- ----------
Securitization income 312.5 394.2 637.4 813.5
Insurance revenues 132.6 117.8 274.8 237.3
Investment income 41.8 38.5 83.0 78.4
Fee income 135.8 145.0 265.5 292.3
Other income 38.4 40.1 147.6 127.8
Gain on the sale of Beneficial Canada - - - 189.4
---------- ---------- ---------- ----------
Total other revenues 661.1 735.6 1,408.3 1,738.7
---------- ---------- ---------- ----------
Salaries and fringe benefits 298.6 287.1 582.7 579.4
Occupancy and equipment expense 66.6 86.1 133.4 171.7
Other marketing expenses 84.0 99.0 172.5 202.0
Other servicing and administrative expenses 142.3 161.3 304.9 338.6
Amortization of acquired intangibles
and goodwill 36.0 44.8 72.3 87.2
Policyholders' benefits 69.4 55.3 138.0 118.9
Merger and integration related costs - 1,000.0 - 1,000.0
---------- ---------- ---------- ----------
Total costs and expenses 696.9 1,733.6 1,403.8 2,497.8
---------- ---------- ---------- ----------
Income (loss) before income taxes 486.1 (622.7) 968.2 (56.4)
Income taxes (benefit) 159.2 (121.1) 320.5 87.4
---------- ---------- ---------- ----------
Net income (loss)* $ 326.9 $ (501.6) $ 647.7 $ (143.8)
========== ========== ========== ==========
Earnings (loss) per common share:
Net income (loss) $ 326.9 $ (501.6) $ 647.7 $ (143.8)
Preferred dividends (2.3) (4.1) (4.6) (8.3)
---------- ---------- ---------- ----------
Earnings (loss) available to
common shareholders $ 324.6 $ (505.7) $ 643.1 $ (152.1)
========== ========== ========== ==========
Average common shares 479.1 489.4 481.8 487.5
Average common and common equivalent
shares 484.3 - 487.2 -
---------- ---------- ---------- ----------
Basic earnings (loss) per common share $ .67 $ (1.03) $ 1.33 $ (.31)
Diluted earnings (loss) per common share* .67 (1.03) 1.32 (.31)
---------- ---------- ---------- ----------
Dividends declared per common share .17 .15 .34 .30
---------- ---------- ---------- ----------
</TABLE>
* Operating net income and diluted operating earnings per common share, which
excludes merger and integration related costs incurred in the second
quarter of 1998 and the gain on the sale of Beneficial Canada recorded in
the first quarter of 1998, were $249.4 million and $.49, respectively, for
the three months ended June 30, 1998 and $488.7 million and $.96,
respectively, for the six months ended June 30, 1998.
See notes to interim condensed consolidated financial statements.
2
<PAGE> 4
Household International, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
- -------------------------------------
<TABLE>
<CAPTION>
In millions, except share data.
- --------------------------------------------------------------------------------------------------------------------
June 30, December 31,
1999 1998
- --------------------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
- ------
<S> <C> <C>
Cash $ 221.7 $ 457.4
Investment securities 3,067.8 3,202.1
Receivables, net 47,081.7 43,948.1
Acquired intangibles and goodwill, net 1,611.5 1,700.8
Properties and equipment, net 492.0 472.1
Real estate owned 249.5 253.9
Other assets 3,025.4 2,858.3
------------- -------------
Total assets $ 55,749.6 $ 52,892.7
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Debt:
Deposits $ 2,260.7 $ 2,105.0
Commercial paper, bank and other borrowings 10,091.7 9,917.9
Senior and senior subordinated debt (with
original maturities over one year) 33,170.4 30,438.6
------------- -------------
Total debt 45,522.8 42,461.5
Insurance policy and claim reserves 1,341.8 1,371.7
Other liabilities 2,116.3 2,298.7
------------- -------------
Total liabilities 48,980.9 46,131.9
------------- -------------
Company obligated mandatorily redeemable
preferred securities of subsidiary trusts* 375.0 375.0
------------- -------------
Preferred stock 164.4 164.4
------------- -------------
Common shareholders' equity:
Common stock, $1.00 par value, 750,000,000
shares authorized, 550,290,833 and
544,124,170 shares issued at June 30, 1999
and December 31, 1998, respectively 550.3 544.1
Additional paid-in capital 1,762.9 1,652.5
Retained earnings 5,664.0 5,184.4
Accumulated other comprehensive income, net of tax (245.8) (145.1)
Less common stock in treasury, 71,702,678 and
60,986,431 shares at June 30, 1999 and
December 31, 1998, respectively, at cost (1,502.1) (1,014.5)
------------- -------------
Total common shareholders' equity 6,229.3 6,221.4
------------- -------------
Total liabilities and shareholders' equity $ 55,749.6 $ 52,892.7
============= =============
</TABLE>
* As described in note 7 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.
3
<PAGE> 5
Household International, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -----------------------------------------------------------
<TABLE>
<CAPTION>
In millions.
- ---------------------------------------------------------------------------------------------------------------------
Six months ended June 30 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATIONS
Net income (loss) $ 647.7 $ (143.8)
Adjustments to reconcile net income (loss) to cash
provided by operations:
Provision for credit losses on owned receivables 825.1 780.9
Non-cash merger and integration related costs - 291.0
Insurance policy and claim reserves 23.8 (66.9)
Depreciation and amortization 150.2 155.8
Net realized gains from sales of assets - (189.8)
Other, net (3.9) 113.1
------------ -----------
Cash provided by operations 1,642.9 940.3
------------ -----------
INVESTMENTS IN OPERATIONS
Investment securities:
Purchased (785.1) (802.8)
Matured 286.1 300.6
Sold 465.9 453.0
Short-term investment securities, net change 95.4 (455.7)
Receivables:
Originations, net (14,322.9) (13,640.4)
Purchases and related premiums (1,296.6) (2,248.0)
Sold 11,097.8 13,221.1
Properties and equipment purchased (76.9) (49.6)
Properties and equipment sold 15.6 21.3
------------ -----------
Cash decrease from investments in operations (4,520.7) (3,200.5)
------------ -----------
FINANCING AND CAPITAL TRANSACTIONS
Short-term debt and demand deposits, net change 220.4 233.3
Time certificates, net change 250.5 (125.1)
Senior and senior subordinated debt issued 6,516.8 5,620.1
Senior and senior subordinated debt retired (3,726.0) (2,742.5)
Prepayment of debt - (890.6)
Policyholders' benefits paid (67.2) (53.3)
Cash received from policyholders 41.7 31.8
Shareholders' dividends (167.9) (105.0)
Shareholders' dividends - pooled affiliate - (61.8)
Purchase of treasury stock (434.5) (9.8)
Treasury stock activity - pooled affiliate - (11.0)
Issuance of common stock 15.7 10.3
Issuance of company obligated mandatorily redeemable
preferred securities of subsidiary trusts - 200.0
------------ -----------
Cash increase from financing and
capital transactions 2,649.5 2,096.4
------------ -----------
Effect of exchange rate changes on cash (7.4) (5.8)
------------ -----------
Decrease in cash (235.7) (169.6)
Cash at January 1 457.4 534.3
------------ -----------
Cash at June 30 $ 221.7 $ 364.7
============ ===========
Supplemental cash flow information:
Interest paid $ 1,329.0 $ 1,115.9
------------ -----------
Income taxes paid 162.6 213.0
------------ -----------
</TABLE>
See notes to interim condensed consolidated financial statements.
4
<PAGE> 6
Household International, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
All dollar amounts are stated in millions. 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating net income (1) $ 326.9 $ 249.4 $ 647.7 $ 488.7
Merger and integration related costs - (751.0) - (751.0)
Beneficial Canada gain - - - 118.5
---------- ---------- ---------- ---------
Net income (loss) 326.9 (501.6) 647.7 (143.8)
========== ========== ========== =========
Diluted earnings (loss) per common share .67 (1.03) 1.32 (.31)
========== ========== ========== =========
Diluted operating earnings per common
share (1) .67 .49 1.32 .96
========== ========== ========== =========
Net interest margin 929.2 766.9 1,788.8 1,483.6
---------- ---------- ---------- ---------
Other revenues (2) 591.7 680.3 1,270.3 1,619.8
---------- ---------- ---------- ---------
Return on average common shareholders'
equity (3) 20.9% 14.7% 20.6% 14.9%
---------- ---------- ---------- ---------
Return on average common shareholders' equity 20.9 (30.7) 20.6 (4.6)
---------- ---------- ---------- ---------
Return on average owned assets (3) 2.37 2.00 2.38 1.98
---------- ---------- ---------- ---------
Return on average owned assets 2.37 (4.03) 2.38 (.58)
---------- ---------- ---------- ---------
Managed basis efficiency ratio,
normalized (4) 36.0 39.1 35.8 39.8
---------- ---------- ---------- ---------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
June 30, December 31,
All dollar amounts are stated in millions. 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total assets:
Owned $55,749.6 $52,892.7
Managed 73,644.2 72,594.5
--------- ---------
Receivables:
Owned $47,455.0 $44,205.9
Serviced with limited recourse 17,894.6 19,701.8
--------- ---------
Managed $65,349.6 $63,907.7
========= =========
Total shareholders' equity as a percent of owned assets (5) 12.14% 12.78%
--------- ---------
Total shareholders' equity as a percent of managed
assets (5) 9.19 9.31
--------- ---------
</TABLE>
(1) Excludes merger and integration related costs and the gain on the sale of
Beneficial Canada.
(2) Policyholders' benefits have been netted against other revenues.
(3) Annualized. Excludes merger and integration related costs and the gain on
the sale of Beneficial Canada.
(4) Ratio of operating expenses to managed net interest margin and other
revenues less policyholders' benefits, normalized.
(5) Total shareholders' equity at June 30, 1999 and December 31, 1998 includes
common shareholders' equity, preferred stock and company obligated
mandatorily redeemable preferred securities of subsidiary trusts.
See notes to interim condensed consolidated financial statements.
5
<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. 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 six months ended June 30,
1999 should not be considered indicative of the results for any future quarters
or the year ending December 31, 1999. Household and its subsidiaries may also be
referred to in this Form 10-Q as "we," "us" or "our." For further information,
refer to the consolidated financial statements and footnotes included in our
Annual Report on Form 10-K for the year ended December 31, 1998.
2. INVESTMENT SECURITIES
- --------------------------
Investment securities consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
In millions. June 30, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE INVESTMENTS
Marketable equity securities $ 26.9 $ 29.3 $ 68.2 $ 70.8
Corporate debt securities 1,826.9 1,762.3 1,705.1 1,731.3
U.S. government and federal
agency debt securities 464.1 457.7 368.4 373.6
Other 780.2 780.2 990.1 990.1
-------- -------- -------- --------
Subtotal 3,098.1 3,029.5 3,131.8 3,165.8
Accrued investment income 38.3 38.3 36.3 36.3
-------- -------- -------- --------
Total investment securities $3,136.4 $3,067.8 $3,168.1 $3,202.1
======== ======== ======== ========
</TABLE>
6
<PAGE> 8
3. RECEIVABLES
- ----------------
Receivables consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First mortgage $ 146.3 $ 156.3
Home equity 21,387.9 18,692.7
Auto finance 1,103.0 805.0
MasterCard/Visa 6,100.1 7,180.2
Private label 9,387.5 9,566.0
Other unsecured 8,694.7 7,108.6
Commercial 635.5 697.1
------------- -------------
Total owned receivables 47,455.0 44,205.9
Accrued finance charges 742.6 642.5
Credit loss reserve for owned receivables (1,737.6) (1,734.2)
Unearned credit insurance premiums and
claims reserves (514.1) (505.1)
Amounts due and deferred from
receivables sales 1,922.2 2,152.9
Reserve for receivables serviced with
limited recourse (786.4) (813.9)
------------- -------------
Total owned receivables, net 47,081.7 43,948.1
Receivables serviced with limited recourse 17,894.6 19,701.8
------------- -------------
Total managed receivables, net $ 64,976.3 $ 63,649.9
============= =============
</TABLE>
The outstanding balance of receivables serviced with limited recourse consisted
of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Home equity $ 2,854.0 $ 3,637.4
Auto finance 1,248.4 960.3
MasterCard/Visa 8,732.1 9,430.6
Private label 700.8 811.5
Other unsecured 4,359.3 4,862.0
------------- -------------
Total $ 17,894.6 $ 19,701.8
============= =============
</TABLE>
The combination of receivables owned and receivables serviced with limited
recourse, which we consider our managed portfolio, is shown below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First mortgage $ 146.3 $ 156.3
Home equity 24,241.9 22,330.1
Auto finance 2,351.4 1,765.3
MasterCard/Visa 14,832.2 16,610.8
Private label 10,088.3 10,377.5
Other unsecured 13,054.0 11,970.6
Commercial 635.5 697.1
------------- -------------
Total $ 65,349.6 $ 63,907.7
============= =============
</TABLE>
7
<PAGE> 9
The amounts due and deferred from receivables sales were $1,922.2 million at
June 30, 1999 and $2,152.9 million at December 31, 1998. The amounts due and
deferred included unamortized securitization assets and funds set up under the
recourse requirements for certain sales totaling $1,936.9 million at June 30,
1999 and $2,031.3 million at December 31, 1998. It also included net customer
payments (owed by us) not received from the securitization trustee of $(46.1)
million at June 30, 1999 and $79.6 million at December 31, 1998. 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 $786.4 million at June 30, 1999 and $813.9
million at December 31, 1998 and represents our best estimate of probable losses
on receivables serviced with limited recourse.
4. CREDIT LOSS RESERVES
- -------------------------
An analysis of credit loss reserves for the three and six months ended June 30
was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
In millions. 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Credit loss reserves for owned
receivables at beginning
of period $ 1,729.7 $ 1,725.6 $ 1,734.2 $ 1,642.1
Provision for credit losses 407.3 391.6 825.1 780.9
Chargeoffs (461.7) (417.7) (942.4) (820.2)
Recoveries 53.7 40.7 102.3 83.3
Portfolio acquisitions, net 8.6 17.0 18.4 71.1
------------ ------------ ------------ ------------
TOTAL CREDIT LOSS RESERVES FOR
OWNED RECEIVABLES AT JUNE 30 1,737.6 1,757.2 1,737.6 1,757.2
------------ ------------ ------------ ------------
Credit loss reserves for
receivables serviced with
limited recourse at beginning
of period 814.8 847.4 813.9 880.9
Provision for credit losses 223.8 295.4 477.5 556.9
Chargeoffs (265.6) (312.1) (541.4) (626.5)
Recoveries 14.4 23.2 28.8 42.0
Other, net (1.0) 9.0 7.6 9.6
------------ ------------ ------------ ------------
TOTAL CREDIT LOSS RESERVES FOR
RECEIVABLES SERVICED WITH
LIMITED RECOURSE AT JUNE 30 786.4 862.9 786.4 862.9
------------ ------------ ------------ ------------
TOTAL CREDIT LOSS RESERVES FOR
MANAGED RECEIVABLES AT JUNE 30 $ 2,524.0 $ 2,620.1 $ 2,524.0 $ 2,620.1
============ ============ ============ ============
</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. Reserve levels also reflect the impact of a growing percentage of
secured loans.
5. MERGER AND INTEGRATION RESERVE
- -----------------------------------
As of June 30, 1999, we have completed the execution of our merger and
integration plan relating to the Beneficial acquisition. The costs incurred to
execute the plan were consistent with our original estimate of $1.0 billion
recorded in the second quarter of 1998.
8
<PAGE> 10
6. INCOME TAXES
- -----------------
The effective tax rate was 33.1 percent for the six months ended June 30, 1999
and 35.7 percent for the first six months of 1998 excluding merger and
integration related costs. The inclusion of this item resulted in a $249 million
net tax benefit for the first six months of 1998. 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 and (b) leveraged lease tax
benefits.
7. EARNINGS (LOSS) PER COMMON SHARE
- -------------------------------------
Computations of earnings (loss) per common share for the three and six months
ended June 30 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended
June 30,
In millions, except per share data. 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Diluted Basic Diluted Basic
------- ----- ------- -----
<S> <C> <C> <C> <C>
Earnings (loss):
Net income (loss) $ 326.9 $ 326.9 $ (501.6) $ (501.6)
Preferred dividends (2.3) (2.3) (4.1) (4.1)
-------- -------- -------- ---------
Earnings (loss) available to common
shareholders $ 324.6 $ 324.6 $ (505.7) $ (505.7)
======== ======== ======== =========
Average shares:
Common 479.1 479.1 489.4 489.4
Common equivalents (1) 5.2 - - -
-------- -------- -------- ---------
Total 484.3 479.1 489.4 489.4
======== ======== ======== =========
Earnings (loss) per common share $ .67 $ .67 $ (1.03) $ (1.03)
======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Six Months Ended
June 30,
In millions, except per share data. 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Diluted Basic Diluted Basic
------- ----- ------- -----
<S> <C> <C> <C> <C>
Earnings (loss):
Net income (loss) $ 647.7 $ 647.7 $ (143.8) $ (143.8)
Preferred dividends (4.6) (4.6) (8.3) (8.3)
-------- -------- -------- ---------
Earnings (loss) available to common
shareholders $ 643.1 $ 643.1 $ (152.1) $ (152.1)
======== ======== ======== =========
Average shares:
Common 481.8 481.8 487.5 487.5
Common equivalents (1) 5.4 - - -
-------- -------- -------- ---------
Total 487.2 481.8 487.5 487.5
======== ======== ======== =========
Earnings (loss) per common share $ 1.32 $ 1.33 $ (.31) $ (.31)
======== ======== ======== =========
</TABLE>
(1) Common equivalent shares are not presented for purposes of earnings per
share calculations during the periods they result in antidilution.
9
<PAGE> 11
8. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUSTS
- -------------------------------------------------------------------------------
In March 1998 Household Capital Trust IV ("HCT IV"), a wholly-owned subsidiary
of Household, issued 8 million 7.25 percent Trust Preferred Securities
("preferred securities") at $25 per preferred security. The sole asset of HCT IV
is $206.2 million of 7.25 percent Junior Subordinated Deferrable Interest Notes
issued by Household. The junior subordinated notes held by HCT IV mature on
December 31, 2037 and are redeemable by Household in whole or in part beginning
on March 19, 2003, at which time the HCT IV preferred securities are callable at
par ($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 June 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 the
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 June 30, 1999 and December 31, 1998. The
preferred securities have a liquidation value of $25 per preferred security.
Dividends on the preferred securities are cumulative, payable quarterly in
arrears, and are deferrable at Household's option for up to five years from date
of issuance. Household cannot pay dividends on its preferred and common stocks
during such deferments.
9. COMPREHENSIVE INCOME (LOSS)
- --------------------------------
In accordance with the interim reporting guidelines of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," comprehensive
income (loss) was $263.0 million for the quarter ended June 30, 1999, $(490.5)
million for the quarter ended June 30, 1998, $547.0 million for the six months
ended June 30, 1999 and $(108.8) million for the six months ended June 30, 1998.
Excluding the impact of the merger and integration related costs as well as the
gain on the sale of Beneficial Canada, comprehensive income was $260.5 million
for the quarter ended June 30, 1998 and $523.7 million for the six months ended
June 30, 1998.
The components of accumulated other comprehensive income, net of tax, are as
follows:
- ------------------------------------------------------------------------------
June 30, December 31,
In millions 1999 1998
- -----------------------------------------------------------------------------
Foreign currency translation adjustments $(201.2) $(167.5)
Unrealized gain (loss) on investments, net (44.6) 22.4
------- -------
Accumulated other comprehensive income, net of tax $(245.8) $(145.1)
======= =======
10
<PAGE> 12
10. SEGMENT REPORTING
- -----------------------
We have three reportable segments: Consumer, which includes our branch-based
consumer finance, private label and auto finance businesses; Credit Card, which
includes our domestic MasterCard and Visa business; and International, which
includes our United Kingdom and Canadian operations. There has been no change in
the basis of our segmentation or in the measurement of segment profit as
compared with our Annual Report on Form 10-K for the year ended December 31,
1998.
Information about our reportable segments for the second quarter and first six
months of 1999 compared to the corresponding prior year periods was as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
Owned Basis June 30, June 30,
In millions. 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Total Total
Domestic Domestic
Total Credit Inter- Total Credit Inter-
Consumer Card national Consumer Card national
-------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net interest margin and
other revenues (1) $ 975.4 $ 315.5 $ 198.4 $ 825.7 $ 371.3 $ 198.9
Intersegment revenues 28.6 2.4 .8 22.4 2.6 1.1
Segment net income 228.0 29.0 51.9 173.4 48.8 27.5
Total segment assets 38,064.6 6,142.5 7,122.1 29,714.9 7,679.7 6,969.8
Total segment assets -
managed 46,375.8 14,639.3 8,240.6 39,351.6 19,616.2 8,031.8
----------- ---------- ---------- ----------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
Owned Basis June 30, June 30,
In millions. 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Total Total
Domestic Domestic
Total Credit Inter- Total Credit Inter-
Consumer Card national Consumer Card national
-------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net interest margin and
other revenues (1) $ 1,913.4 $ 608.0 $ 392.0 $ 1,652.7 $ 700.0 $ 397.8
Intersegment revenues 60.0 5.1 1.6 44.7 5.3 2.0
Segment net income 436.0 41.1 98.1 348.4 79.3 64.4
Total segment assets 38,064.6 6,142.5 7,122.1 29,714.9 7,679.7 6,969.8
Total segment assets -
managed 46,375.8 14,639.3 8,240.6 39,351.6 19,616.2 8,031.8
----------- ---------- ---------- ----------- ---------- ----------
</TABLE>
(1) Net interest margin and other revenues, including intersegment revenues,
net of policyholders' benefits.
11
<PAGE> 13
A reconciliation of the total reportable segments' net income to consolidated
net income for the second quarter and first six months of 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
In millions. 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reportable segment net income $308.9 $ 249.7 $575.2 $ 492.1
Other operations not individually reportable* 45.7 (722.6) 128.3 (580.6)
Adjustments/eliminations (27.7) (28.7) (55.8) (55.3)
------ ------- ------ -------
Total consolidated net income (loss) $326.9 $(501.6) $647.7 $(143.8)
====== ======= ====== =======
</TABLE>
* Includes merger and integration related costs of $751.0 million after-tax
incurred in the second quarter of 1998 related to the Beneficial merger and
the gain on the sale of Beneficial Canada of $118.5 million after-tax
recorded in the first quarter of 1998.
11. ACCOUNTING PRONOUNCEMENTS
- ------------------------------
In June 1998, the Financial Accounting Standards Board ("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 a derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset the related results on the hedged item in the income statement,
and requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting.
In June 1999, the FASB deferred the effective date for FAS No. 133 to fiscal
years beginning after June 15, 2000. A company may also implement FAS No. 133 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. FAS No. 133 must be applied to (a) derivative instruments and (b)
certain derivative instruments embedded in hybrid contracts that were issued,
acquired, or substantively modified after December 31, 1998. We expect to adopt
FAS No. 133 on January 1, 2001 and have not yet quantified its impact on our
financial statements.
12
<PAGE> 14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion should be read in conjunction with the consolidated financial
statements, notes and tables included elsewhere in this report and in the
Household International, Inc. Annual Report on Form 10-K for the year ended
December 31, 1998 (the "1998 Form 10-K") filed with the Securities and Exchange
Commission. Management's discussion and analysis may contain certain estimates
and projections that may be forward-looking in nature, as defined by the Private
Securities Litigation Reform Act of 1995. A variety of factors may cause actual
results to differ materially from the results discussed in these forward-looking
statements. Factors that might cause such a difference are discussed herein and
in the 1998 Form 10-K.
OPERATIONS SUMMARY
- ------------------
Our net income for the second quarter of 1999 was $326.9 million, compared to
operating net income of $249.4 million a year ago. Net income for the first six
months of 1999 was $647.7 million, compared to operating net income of $488.7
million in the year ago period. Diluted earnings per share was $.67 in the
second quarter and $1.32 for the first six months of 1999, compared to diluted
operating earnings per share of $.49 and $.96 in the same periods in 1998. These
improved results were due to strong growth in our consumer finance business and
significant declines in operating expenses. In addition, the first quarter
included higher income from our tax refund anticipation loan ("RAL") business.
Including merger and integration related costs and, for the first six months of
1998, the gain on the sale of Beneficial Canada, we recognized a net loss of
$(501.6) million for the second quarter and $(143.8) million for the first six
months of 1998. Additionally, diluted loss per share was $(1.03) for the second
quarter and $(.31) for the first six months of 1998.
Our annualized return on average common shareholders' equity was 20.9 percent
for the second quarter of 1999 and 20.6 percent for the first six months of
1999. Excluding merger and integration related costs and the gain on the sale of
Beneficial Canada, our annualized return on average common shareholders' equity
was 14.7 percent for the second quarter of 1998 and 14.9 percent for the first
six months of 1998. Our annualized return on average owned assets was 2.37
percent in the second quarter of 1999 and 2.38 percent for the first six months
of 1999. Excluding merger and integration related costs and the gain on the sale
of Beneficial Canada, our annualized return on average owned assets was 2.00
percent in the second quarter of 1998 and 1.98 percent for the first six months
of 1998. Our annualized return on average managed assets was 1.78 percent in the
second quarter of 1999 and 1.77 percent for the first six months of 1999.
Excluding merger and integration related costs and the gain on the sale of
Beneficial Canada, our annualized return on average managed assets was 1.39
percent in the second quarter of 1998 and 1.36 percent for the first six months
of 1998.
13
<PAGE> 15
- - The following summarizes our operating results for our reportable operating
segments for the second quarter and first six months of 1999 compared to
the corresponding prior year periods:
Our Consumer segment reported improved results from the prior year periods.
Return on average owned assets was 2.45 and 2.40 percent in the second
quarter and first six months of 1999 compared to 2.38 and 2.46 percent in
the year-ago periods. The decrease in the year-to-date ratio is due to a
higher proportion of on-balance sheet assets as compared to the same period
in 1998. Return on average managed assets increased to 1.99 and 1.93
percent in the second quarter and first six months of 1999 compared to 1.78
and 1.80 percent in the year-ago periods. The improvement in operating
results reflects higher net interest margin partially offset by higher
sales incentive compensation, higher REO expenses and higher credit loss
provision reflecting the increased levels of managed receivables. Managed
receivables grew to $44.8 billion at June 30, 1999, from $43.3 billion at
March 31, 1999 and $37.7 billion at June 30, 1998. The increase was driven
by solid growth in home equity, other unsecured and auto finance
receivables. The home equity and unsecured loan growth reflects the efforts
of a branch sales force that is trained, motivated and compensated to sell
loans as well as the impact of system enhancement and new loan product
rollouts to the Beneficial branches.
Our domestic credit card segment includes our co-branding and affinity
relationships, in particular our alliance with General Motors Corporation
("GM") to issue the GM Card, a co-branded credit card, and the AFL-CIO's
Union Privilege ("UP") affinity relationship. This segment reported lower
earnings compared to the prior year periods. Return on average owned assets
was 1.86 and 1.27 percent in the second quarter and first six months of
1999 compared to 2.30 and 2.00 percent in the year-ago periods. Return on
average managed assets was .79 and .54 percent in the second quarter and
first six months of 1999 compared to 1.00 and .82 percent in the year-ago
periods. The decrease in operating results was primarily due to lower
average receivables, increased loss provision and lower securitization and
fee income. Compared to the first quarter, operating results have improved
in our domestic credit card segment. Managed receivables were $13.1 billion
at June 30, 1999, compared with $13.4 billion at March 31, 1999 and $17.7
billion at June 30, 1998. The decline from the prior quarter reflects the
sale of $150 million of receivables in our Household Bank portfolio and
continued attrition as a result of repricing initiatives in that portfolio.
This attrition was somewhat offset by combined UP and GM growth in the
quarter of 3 percent annualized. The decline from the prior year quarter
reflects attrition associated with the restructuring of our domestic
MasterCard* and Visa* portfolio in the second half of 1998, which included
the sale of $1.9 billion of non-core receivables and the impact of
repricing initiatives which began late last year.
* MasterCard is a registered trademark of MasterCard International,
Incorporated and Visa is a registered trademark of VISA USA, Inc.
14
<PAGE> 16
Our International segment reported improved results from the prior year
periods. Return on average owned assets was 2.95 and 2.79 percent in the
second quarter and first six months of 1999 compared to 1.61 and 1.81
percent in the year-ago periods. Return on average managed assets increased
to 2.54 and 2.39 percent in the second quarter and first six months of 1999
compared to 1.39 and 1.57 percent in the year-ago periods. The improvement
in operating results was primarily the result of improved efficiency, as
well as higher revenues due to receivables growth in the U.K. Managed
receivables in the U.K. were $6.1 billion at June 30, 1999 as compared with
$6.2 billion at March 31, 1999 and $5.9 billion at June 30, 1998. Excluding
the impact of exchange rates, managed receivables were up slightly in the
quarter. Growth in the MasterCard and Visa and unsecured receivables was
offset by run-off in retail finance and home equity loans. The Goldfish
card, issued in alliance with the Centrica Group, contributed significantly
to the higher credit card receivables from the prior year. We recently
announced an agreement with Freeserve, the U.K.'s largest internet service
provider, to develop and launch an internet-based credit card, which is
expected to strengthen our position as the second largest U.S. credit card
issuer in the U.K. and add to our growth in that market.
- - Revenue from our RAL business was up substantially from the prior year. The
RAL business contributed $92.9 million pretax (11 cents per share) to our
first six months results, which was $50.5 million pretax (6 cents per
share) better than 1998. The number of electronic filings of tax returns
increased 20 percent over last year and refund processing with the Internal
Revenue Service went smoothly in 1999.
- - Our normalized managed basis efficiency ratio improved to 36.0 percent for
the second quarter of 1999 and 35.8 percent for the first six months of
1999 compared to 39.1 percent in the second quarter of 1998 and 39.8
percent for the first six months of 1998. 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 second quarter and first six months of 1999 resulted
from growth in normalized managed net revenues over the prior year periods,
compared to a decrease in normalized operating expenses over the comparable
periods.
- - On June 30, 1998, we merged with Beneficial Corporation ("Beneficial"), a
consumer finance holding company headquartered in Wilmington, Delaware. 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 of 1998.
- - During the first quarter of 1998, we completed the sale of Beneficial's
Canadian operations and recorded an after-tax gain of approximately $118.5
million. In April 1998, the sale of Beneficial's German operations was also
completed. Beneficial announced its intent to sell the German operations in
1997 and recorded an after-tax loss of approximately $27.8 million after
consideration of a $31.0 million tax benefit. No additional losses were
realized in 1998 as a result of the sale.
15
<PAGE> 17
BALANCE SHEET REVIEW
- --------------------
- - Receivables growth has been a key contributor to our improved results. Core
products increased 4 percent from the year ago level to $64.6 billion. Core
products exclude first mortgages and commercial receivables. This growth
rate reflects attrition associated with the restructuring of our domestic
MasterCard and Visa portfolio in 1998, which included the sale of $1.9
billion of non-core receivables and the impact of repricing initiatives
which began late last year and continued late in the first quarter.
Core products, other than MasterCard and Visa, grew about 16 percent from a
year ago, with solid growth in all products. The strongest growth came in
our consumer finance, which includes our home equity and unsecured
products, and auto finance businesses. We are very pleased with receivable
growth in our U.S. consumer finance business. Our focused sales force, and
our integrated systems and loan products led to higher growth. In addition,
the decline in the number of monoline lenders has also had a positive
impact on pricing, originations and retention which has helped our branch
growth and correspondent business. Auto finance receivables almost doubled
from a year ago reflecting solid loan growth that was accomplished without
dropping prices and while maintaining consistent credit quality. We have
also introduced more effective risk-based pricing, to allow us to target a
wide spectrum of credit quality. This business continued to benefit from
less competition and an expanded sales force. Private label receivables
were up 10 percent from the prior year reflecting the addition of several
new merchants.
- - Core products grew $1.0 billion in the second quarter, or 7 percent,
annualized, again with the strongest growth in home equity, unsecured and
auto finance receivables. Excluding the MasterCard and Visa portfolio, core
products grew 11 percent annualized in the quarter. In our U.S. consumer
finance business, receivables grew at an annualized rate of 14 percent in
the quarter. Our home equity portfolio grew 9 percent, annualized, from the
prior quarter due to strong branch and correspondent originations. Second
quarter growth of 18 percent, annualized, in other unsecured receivables
was driven by strong responses to direct mail and branch-originated
programs. Auto finance receivables grew from the prior quarter due to
continued weakened competition in the industry and an expanded sales force.
Our domestic MasterCard and Visa portfolio declined $350 million in the
quarter, including the sale of about $150 million from our Household Bank
portfolio. We also experienced further attrition in the Household Bank
portfolio as a result of repricing initiatives which began late last year.
Our GM and UP portfolios increased slightly in the quarter both in dollars
and accounts. Our private label portfolio was flat in the quarter. We
expect growth in this business in the second half of the year consistent
with seasonal factors.
- - Consumer receivables on our balance sheet were $46.8 billion at June 30,
1999, up from $44.8 billion at March 31, 1999 and $39.9 billion at June 30,
1998. The level of our owned receivables may vary from period to period
depending on the timing and size of securitization transactions.
- - Owned consumer two-months-and-over contractual delinquency as a percent of
owned consumer receivables was 4.96 percent, compared with 5.04 percent at
March 31, 1999 and 4.89 at June 30, 1998. The annualized total consumer
owned chargeoff ratio in the second quarter of 1999 was 3.54 percent,
compared with 3.92 percent in the prior quarter and 3.69 percent in the
year-ago quarter. Managed consumer two-months-and-over contractual
delinquency ("delinquency") as a percent of managed consumer receivables
was 4.72 percent, compared with 4.81 percent at March 31, 1999 and 4.65
percent at June 30, 1998. The annualized total consumer managed chargeoff
ratio in the second quarter of 1999 was 4.10 percent, compared with 4.37
percent in the prior quarter and 4.26 percent in the year-ago quarter.
16
<PAGE> 18
- - The ratio of total shareholders' equity (including company obligated
mandatorily redeemable preferred securities of subsidiary trusts) to total
owned assets was 12.14 percent, compared with 12.78 percent at December 31,
1998. The ratio of total shareholders' equity to managed assets was 9.19
percent at June 30, 1999 and 9.31 percent at December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Our subsidiaries use cash to originate loans, purchase loans or investment
securities and 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.
On March 9, 1999, the Board of Directors authorized the repurchase of up to $2
billion of Household's outstanding common shares. Purchases will occur in the
open market, from time to time over a two-year period from the date of the
announcement, depending upon market conditions. In the first six months of 1999,
we repurchased 10.0 million shares of our common stock, 4.3 million of which was
repurchased in the second quarter. We repurchased 5.0 million shares to fund
employee benefit plans and another 5.0 million shares following the March 9
announcement of our share repurchase program. Treasury stock activity during the
first six months of 1999 also included approximately 1.6 million shares withheld
to cover taxes associated with the exercise of stock options by former
Beneficial employees.
The following describes major changes in our funding base from December 31, 1998
to June 30, 1999:
- - Deposits increased 7 percent to $2.3 billion from $2.1 billion. Commercial
paper, bank and other borrowings increased 2 percent to $10.1 billion from
$9.9 billion. Senior and senior subordinated debt (with original maturities
over one year) increased 9 percent to $33.2 billion from $30.4 billion. The
increase in debt levels from year end is consistent with the increase in
owned receivables. During the first six months of 1999 we issued
approximately $3.1 billion of five year-and-over debt to lengthen
maturities on our funding in order to reduce reliance on commercial paper
and securitizations as well as to preserve liquidity.
- - Our securitized portfolio of home equity, auto finance, MasterCard and
Visa, private label and other unsecured receivables totaled $17.9 billion
at June 30, 1999, compared with $19.7 billion at December 31, 1998. In the
second quarter of 1999, we securitized, excluding replenishments of
certificateholder interests, $.7 billion of auto finance and MasterCard and
Visa receivables. During the six months ended June 30, 1999, we
securitized, excluding replenishments of certificateholder interests, $1.5
billion of auto finance, MasterCard and Visa and other unsecured
receivables.
The composition of these securitizations by type is as follows (in billions):
- ------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
1999 1999
- ------------------------------------------------------------------------------
Auto finance $ .3 $ .6
MasterCard/Visa .4 .6
Other unsecured - .3
---- ----
Total $ .7 $1.5
==== ====
17
<PAGE> 19
The market for securities backed by receivables is a reliable, efficient and
cost-effective source of funds. Although they currently represent a smaller
portion of our total funding mix, we plan to continue utilizing securitizations
as a source of funding in the future. At June 30, 1999, securitizations
represented 27 percent of the funding associated with our managed portfolio
compared to 36 percent a year ago.
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.
18
<PAGE> 20
Pro Forma Managed Statements of Income
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
All dollar amounts are June 30, June 30,
stated in millions. 1999 * 1998 * 1999 * 1998 *
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Finance and other interest
income $ 2,273.1 13.84% $ 2,200.7 13.77% $ 4,482.4 13.71% $ 4,435.0 13.79%
Interest expense 908.9 5.53 961.9 6.02 1,823.1 5.57 1,941.8 6.04
---------- ----- ---------- ----- ---------- ----- ---------- -----
Net interest margin 1,364.2 8.31 1,238.8 7.75 2,659.3 8.14 2,493.2 7.75
Provision for credit losses 631.1 687.0 1,302.6 1,337.8
---------- ---------- ---------- ----------
Net interest margin after
provision for credit losses 733.1 551.8 1,356.7 1,155.4
---------- ---------- ---------- ----------
Insurance revenues 132.6 117.8 274.8 237.3
Investment income 41.8 38.5 83.0 78.4
Fee income 237.1 362.7 509.9 653.1
Other income 38.4 40.1 147.6 127.8
Gain on the sale of
Beneficial Canada - - - 189.4
---------- ---------- ---------- ----------
Total other revenues 449.9 559.1 1,015.3 1,286.0
---------- ---------- ---------- ----------
Salaries and fringe
benefits 298.6 287.1 582.7 579.4
Occupancy and equipment
expense 66.6 86.1 133.4 171.7
Other marketing expenses 84.0 99.0 172.5 202.0
Other servicing and
administrative expenses 142.3 161.3 304.9 338.6
Amortization of acquired
intangibles and goodwill 36.0 44.8 72.3 87.2
Policyholders' benefits 69.4 55.3 138.0 118.9
Merger and integration
related costs - 1,000.0 - 1,000.0
---------- ---------- ---------- ----------
Total costs and expenses 696.9 1,733.6 1,403.8 2,497.8
---------- ---------- ---------- ----------
Income (loss) before taxes 486.1 (622.7) 968.2 (56.4)
Income taxes (benefit) 159.2 (121.1) 320.5 87.4
---------- ---------- ---------- ----------
Net income (loss)** $ 326.9 $ (501.6) $ 647.7 $ (143.8)
========== ========== ========== ==========
Average managed receivables $ 64,880.9 $ 63,097.1 $ 64,489.8 $ 63,375.6
Average noninsurance
investments 376.5 519.0 467.0 676.3
Other interest-earning
assets 420.6 305.8 413.1 293.5
---------- ---------- ---------- ----------
Average managed interest-
earning assets $ 65,678.0 $ 63,921.9 $ 65,369.9 $ 64,345.4
========== ========== ========== ==========
</TABLE>
* As a percent, annualized, of appropriate earning assets.
** Operating net income, which excludes merger and integration related costs
incurred in the second quarter of 1998 and the gain on the sale of
Beneficial Canada recorded in the first quarter of 1998 was $249.4 million
in the second quarter of 1998 and $488.7 million for the six months ended
June 30, 1998.
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 $929.2 million for the second quarter
of 1999, up from $766.9 million for the prior year quarter. Net interest margin
on an Owned Basis for the first six months of 1999 was $1,788.8 million, up from
$1,483.6 million in the prior year period. Owned margin improved due to
receivable growth.
19
<PAGE> 21
Net interest margin on a Managed Basis was $1,364.2 million for the second
quarter of 1999, up 10 percent compared to the year-ago quarter. Managed Basis
net interest margin for the first six months of 1999 was $2,659.3 million, up 7
percent compared to the year-ago period. The increases were primarily due to
managed receivable growth. Net interest margin as a percent of average managed
interest-earning assets, annualized, expanded to 8.31 percent, up from 7.96
percent in the previous quarter, and 7.75 percent in the year-ago quarter. The
improvement reflected lower funding costs and better pricing. The most
significant improvements in pricing were in our consumer finance and domestic
MasterCard/Visa businesses.
Provision for credit losses
- ---------------------------
The provision for credit losses for receivables on an Owned Basis for the second
quarter of 1999 totaled $407.3 million, compared to $391.6 million in the prior
year quarter. The provision for the first six months of 1999 was $825.1 million,
compared to $780.9 million in the year-ago period. The provision as a percent of
average owned receivables, annualized, was 3.49 percent in the second quarter of
1999 compared to 3.80 percent in the second quarter of 1998. 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
$631.1 million in the second quarter of 1999, compared to $687.0 million in the
prior year quarter. The provision for credit losses on a Managed Basis for the
first six months of 1999 was $1,302.6 million, compared to $1,337.8 million in
the year-ago period. As a percent of average managed receivables, annualized,
the provision was 3.89 percent, compared to 4.36 percent in the second quarter
of 1998. 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 second quarter of 1999, we securitized approximately $.7 billion of auto
finance and MasterCard/Visa receivables, compared to approximately $1.7 billion
of auto finance and MasterCard/Visa receivables a year ago. For the first six
months of 1999, we securitized approximately $1.5 billion of auto finance,
MasterCard/Visa and other unsecured receivables, compared to approximately $2.0
billion of auto finance, 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 $312.5 and $637.4 million for the
second quarter and the first six months of 1999, compared to $394.2 and $813.5
million for the same periods in 1998. 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 decreases in securitization
income compared to the second quarter and first six months of 1998 was primarily
due to the decrease in average securitized receivables. The components of
securitization income are reclassified to the appropriate caption in the
statements of income on a Managed Basis.
Insurance revenues were $132.6 and $274.8 million in the second quarter and
first six months of 1999 compared to $117.8 and $237.3 million in the year-ago
periods. This increase is reflective of the benefits from improved loan
origination and retention in our consumer finance branch system.
20
<PAGE> 22
Fee income on an Owned Basis includes revenues from fee-based products such as
credit cards. Fee income was $135.8 and $265.5 million in the second quarter and
first six months of 1999, down from $145.0 and $292.3 million in the year-ago
periods. The decrease in fee income reflected higher account program fees paid
to our credit card affinity partners partially offset by higher credit card and
interchange fees.
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 $237.1 and $509.9 million in the second quarter and
first six months of 1999, down from $362.7 and $653.1 million in the year-ago
periods. The decreases were primarily due to lower securitization revenue.
Managed interchange and credit card fee income was flat for the first six months
compared to the year ago period, despite our MasterCard/Visa book being 23
percent lower than last year.
Other income was $38.4 and $147.6 million in the second quarter and first six
months of 1999, compared to $40.1 and $127.8 million in the prior year periods.
The increase in other income for the first six months of 1999 was primarily due
to higher RAL income.
Total other revenues for the first six 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 second quarter and first six months of 1999 were
$627.5 and $1,265.8 million, down from $678.3 and $1,378.9 million, in the
comparable prior year periods, excluding merger and integration related costs of
$1.0 billion. The decreases reflect cost saves from the Beneficial integration,
as well as continued cost control efforts.
Salaries and fringe benefits for the second quarter and first six months of 1999
were $298.6 and $582.7 million compared to $287.1 and $579.4 million in the
second quarter and first six months of 1998. Efficiencies from the Beneficial
merger were offset by higher sales-related compensation directly related to
growth in the consumer finance business.
Occupancy and equipment expense for the second quarter and first six months of
1999 was $66.6 and $133.4 million, as compared to $86.1 and $171.7 million in
the comparable prior year periods. The decreases were primarily due to the
elimination of duplicative branch offices and operating centers as a result of
the Beneficial merger and sublease of the Beneficial office complex in Peapack,
New Jersey.
Other marketing expenses for the second quarter and first six months of 1999
were $84.0 and $172.5 million, as compared to $99.0 and $202.0 million in the
comparable prior year periods. Other marketing expense was down from the prior
year periods due to lower marketing spending on programs in our MasterCard and
Visa and consumer finance businesses.
Other servicing and administrative expenses for the second quarter and first six
months were $142.3 and $304.9 million down from $161.3 and $338.6 million in the
comparable prior year periods. The decreases were primarily due to cost saves in
systems as a result of the consolidation of Beneficial's operations, partially
offset by higher real estate owned expenses.
Amortization of acquired intangibles and goodwill was $36.0 and $72.3 million
compared to $44.8 and $87.2 million in the second quarter and first six months
of 1998. The decreases reflect the writeoff of intangible assets in conjunction
with portfolio sales in 1998 due to the repositioning of our Household Bank
branded credit card portfolio.
21
<PAGE> 23
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 3, "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>
- --------------------------------------------------------------------------------------------------------------------
June 30, March 31, December 31, June 30,
1999 1999 1998 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned $1,737.6 $1,729.7 $1,734.2 $1,757.2
Serviced with limited recourse 786.4 814.8 813.9 862.9
-------- -------- -------- --------
Total $2,524.0 $2,544.5 $2,548.1 $2,620.1
======== ======== ======== ========
</TABLE>
Managed credit loss reserves as a percent of nonperforming managed receivables
were 104.0 percent, compared to 104.7 percent at March 31, 1999 and 116.9
percent at June 30, 1998.
Total owned and managed credit loss reserves as a percent of receivables were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
June 30, March 31, December 31, June 30,
1999 1999 1998 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned 3.66% 3.81% 3.92% 4.32%
Managed 3.86 3.96 3.99 4.14
----- ----- ----- -----
</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. Reserve levels also reflect the impact of a growing percentage of
secured loans. Home equity receivables represent 37 percent of our total managed
receivables, as compared to 33 percent a year ago. MasterCard/Visa products were
23 percent at quarter end, down from 30 percent a year ago. This change in
portfolio mix is important, as the loss severity for home equity loans is
significantly less than for credit cards. See Note 4, "Credit Loss Reserves" in
the accompanying financial statements for analyses of reserves.
CREDIT QUALITY
- --------------
Delinquency and chargeoff levels in the consumer portfolio were down compared to
the prior quarter. Although delinquency levels increased from the prior year
quarter, chargeoff levels were down. 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.
22
<PAGE> 24
Delinquency
- -----------
Two-Months-and-Over Contractual Managed Delinquency (as a percent of managed
consumer receivables):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
6/30/99 3/31/99 12/31/98 9/30/98 6/30/98
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First mortgage 12.72% 10.91% 14.90% 11.80% 11.07%
Home equity 3.29 3.54 3.67 3.73 3.55
Auto finance 1.87 1.74 2.29 2.05 1.67
MasterCard/Visa 3.11 3.61 3.75 3.73 3.30
Private label 6.62 6.37 6.20 6.55 6.10
Other unsecured 8.17 7.84 7.94 8.03 7.82
----- ----- ----- ----- -----
Total 4.72% 4.81% 4.90% 4.96% 4.65%
===== ===== ===== ===== =====
</TABLE>
Managed delinquency as a percent of managed consumer receivables was down from
the prior quarter, our third consecutive quarter of delinquency improvement. The
decline from the prior quarter was led by improvement in our domestic
MasterCard/Visa business, where delinquency has dropped over $90 million since
March.
Compared to the prior year quarter, managed delinquency as a percent of managed
consumer receivables increased slightly. The increase was primarily due to the
seasoning of our other unsecured portfolio.
The owned consumer delinquency ratio was 4.96 percent at June 30, 1999, compared
to 5.04 percent at March 31, 1999 and 4.89 percent at June 30, 1998. The trends
impacting these results are consistent with those described above for our
managed portfolio.
Net Chargeoffs of Consumer Receivables
- --------------------------------------
Managed Net Chargeoffs of Consumer Receivables (as a percent, annualized, of
average managed consumer receivables):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter
1999 1999 1998 1998 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First mortgage 4.49% .48% 1.04% (.32)% .21%
Home equity .64 .55 .68 .72 .52
Auto finance 4.41 5.45 5.63 4.89 5.18
MasterCard/Visa 7.30 7.59 6.61 5.96 5.49
Private label 5.57 5.53 5.47 5.33 6.05
Other unsecured 5.61 6.36 6.94 7.50 7.26
----- ----- ----- ----- -----
Total 4.10% 4.37% 4.39% 4.33% 4.26%
===== ===== ===== ===== =====
</TABLE>
Managed net chargeoffs as a percent of average managed consumer receivables for
the second quarter of 1999 decreased from both the prior quarter and the prior
year quarter. Dollars of chargeoffs dropped over $30 million in the quarter,
again led by improvement in our MasterCard and Visa portfolio. Bankruptcy
chargeoffs in our MasterCard and Visa business were down compared to the first
quarter level.
The lower managed chargeoff ratio compared to a year ago was primarily due to
lower chargeoffs in our other unsecured portfolio, partially offset by a higher
chargeoff contribution from our domestic MasterCard/Visa portfolio due to lower
average receivables.
The owned consumer net chargeoff ratio was 3.54 percent in the second quarter of
1999, compared to 3.92 percent in the prior quarter and 3.69 in the year ago
quarter. Factors influencing this decline were consistent with those described
above for our managed portfolio.
23
<PAGE> 25
Nonperforming Assets
- --------------------
Nonperforming assets consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
In millions. 6/30/99 3/31/99 12/31/98 9/30/98 6/30/98
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual owned receivables $1,271.9 $1,192.2 $1,064.1 $1,080.9 $ 948.5
Accruing owned consumer
receivables 90 or more days
delinquent 567.0 601.7 652.4 570.2 548.7
Renegotiated commercial loans 12.3 12.3 12.3 12.3 12.3
-------- -------- -------- -------- --------
Total nonperforming owned
receivables 1,851.2 1,806.2 1,728.8 1,663.4 1,509.5
Real estate owned 249.6 244.7 253.9 232.2 224.2
-------- -------- -------- -------- --------
Total nonperforming owned assets $2,100.8 $2,050.9 $1,982.7 $1,895.6 $1,733.7
======== ======== ======== ======== ========
Owned credit loss reserves as
a percent of nonperforming
owned receivables 93.9% 95.8% 100.3% 107.4% 116.4%
-------- -------- -------- -------- --------
Nonaccrual managed receivables $1,667.4 $1,597.5 $1,439.2 $1,476.4 $1,409.6
Accruing managed consumer
receivables 90 or more days
delinquent 747.3 819.8 874.6 832.0 818.6
Renegotiated commercial
loans 12.3 12.3 12.3 12.3 12.3
-------- -------- -------- -------- --------
Total nonperforming managed
receivables 2,427.0 2,429.6 2,326.1 2,320.7 2,240.5
Real estate owned 249.6 244.7 253.9 232.2 224.2
-------- -------- -------- -------- --------
Total nonperforming assets $2,676.6 $2,674.3 $2,580.0 $2,552.9 $2,464.7
======== ======== ======== ======== ========
Managed credit loss reserves as
a percent of nonperforming
managed receivables 104.0% 104.7% 109.5% 114.7% 116.9%
-------- -------- -------- -------- --------
</TABLE>
Year 2000
- ---------
We have substantially completed the remediation, testing and implementation of
all internally developed and non-internally developed systems for Year 2000
compliance at the end of the second quarter of 1999. Consistent with previous
disclosures, the costs for Year 2000 compliance have not been, and are not
expected to be, material to our operations. Our current estimate of the
aggregate cost of our Year 2000 effort remains at $20 million after-tax, of
which approximately $18.5 million has been incurred as of June 30, 1999.
Year 2000 readiness is dependent on external entities and is not limited to
operating risk. We are working extensively with external entities to ensure that
their systems will be Year 2000 compliant; however, we could be adversely
affected if outside parties, such as customers, vendors, utilities and
government agencies, do not appropriately address Year 2000 readiness issues.
Contingency planning is an integral part of our Year 2000 readiness project. We
have developed contingency plans for each of our businesses, which detail the
processes necessary to maintain critical business functions should a critical
system fail. These contingency plans generally include the repair of existing
systems and, in some cases, the use of alternative procedures or systems which
have been tested and are Year 2000 compliant. We will continue to review and
validate the scope and control of our contingency plans throughout 1999.
24
<PAGE> 26
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
The Annual Meeting of Stockholders of Household International was held on
Wednesday, May 12, 1999, for the purpose of (1) electing directors; and (2)
ratifying the appointment of Arthur Andersen LLP as the public accountants for
Household. The voting results were as follows:
Each of the following persons received the number of votes set out after his or
her name and were elected directors to hold office for the ensuing year and
until their successors shall be elected and shall qualify:
FOR WITHHELD
------------- --------------
W.F. Aldinger 432,584,519 1,346,943
R.J. Darnall 432,652,388 1,279,074
G.G. Dillon 432,627,314 1,304,147
J.A. Edwardson 432,649,315 1,282,146
M.J. Evans 432,495,570 1,435,892
D.J. Farris 432,459,430 1,472,031
J.D. Fishburn 432,636,388 1,295,074
C.F. Freidheim, Jr. 432,631,253 1,300,209
J.H. Gilliam, Jr. 429,985,098 3,946,364
L.E. Levy 432,535,738 1,395,723
G.A. Lorch 432,634,150 1,297,311
J.D. Nichols 432,518,809 1,412,653
J.B. Pitblado 432,521,499 1,409,962
S.J. Stewart 432,653,027 1,278,435
L.W. Sullivan, M.D. 432,346,337 1,585,125
Ratification of the appointment of Arthur Andersen LLP as Household's public
accountants for the year 1999:
FOR AGAINST ABSTAIN BROKER NON-VOTE
----------- ----------- --------- ---------------
432,508,490 375,012 1,047,959 0
25
<PAGE> 27
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.
27 Financial Data Schedule.
99.1 Debt and Preferred Stock Securities Ratings.
(b) Reports on Form 8-K
During the second quarter of 1999, the Registrant filed no Current
Reports on Form 8-K.
26
<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: August 16, 1999 By: /s/ David A. Schoenholz
--------------- -----------------------------
David A. Schoenholz
Executive Vice President
Chief Financial Officer
and on behalf of
Household International, Inc.
27
<PAGE> 29
Exhibit Index
--------------
12 Statement of Computation of Ratio of Earnings to Fixed Charges
and to Combined Fixed Charges and Preferred Stock Dividends.
27 Financial Data Schedule.
99.1 Debt and Preferred Stock Securities Ratings.
<PAGE> 1
EXHIBIT 12
----------
HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
All dollar amounts are stated in millions.
Six months ended June 30 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) $ 647.7 $ (143.8)
Income taxes 320.5 87.4
-------- --------
Income (loss) before income taxes 968.2 (56.4)
-------- --------
Fixed charges:
Interest expense (1) 1,314.1 1,238.6
Interest portion of rentals (2) 22.0 28.6
-------- --------
Total fixed charges 1,336.1 1,267.2
-------- --------
Total earnings as defined $2,304.3 $1,210.8
======== ========
Ratio of earnings to fixed charges (4) 1.72 .96
======== ========
Ratio of earnings to fixed charges, excluding
merger and integration related costs 1.72 1.74
======== ========
Preferred stock dividends (3) $ 6.9 $ 12.9
======== ========
Ratio of earnings to combined fixed charges
and preferred stock dividends (4) 1.72 .95
======== ========
Ratio of earnings to combined fixed charges and
preferred stock dividends, excluding merger
and integration related costs 1.72 1.73
======== ========
</TABLE>
(1) For financial statement purposes, interest expense includes income earned
on temporary investment of excess funds, generally resulting from
over-subscriptions of commercial paper.
(2) Represents one-third of rentals, which approximates the portion
representing interest.
(3) Preferred stock dividends are grossed up to their pretax equivalent based
upon an effective tax rate of 33.1 percent for the six months ended June
30, 1999 and excluding merger and integration related costs, 35.7 percent
for the same period in 1998.
(4) 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SUMMARY FINANCIAL INFORMATION OF THE COMPANY AND ITS SUBSIDIARIES
IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION AND FINANCIAL
STATEMENTS PREVIOUSLY FILED WITH THE SECURITIES & EXCHANGE COMMISSION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 221,700
<SECURITIES> 3,067,800
<RECEIVABLES> 47,455,000
<ALLOWANCES> (2,524,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,315,900
<DEPRECIATION> (823,900)
<TOTAL-ASSETS> 55,749,600
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 33,170,400
0
164,400
<COMMON> 550,300
<OTHER-SE> 6,054,000
<TOTAL-LIABILITY-AND-EQUITY> 55,749,600
<SALES> 0
<TOTAL-REVENUES> 4,507,200
<CGS> 0
<TOTAL-COSTS> 1,403,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 825,100
<INTEREST-EXPENSE> 1,310,100
<INCOME-PRETAX> 968,200
<INCOME-TAX> 320,500
<INCOME-CONTINUING> 647,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 647,700
<EPS-BASIC> 1.33<F2>
<EPS-DILUTED> 1.32<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."
<F3>REPRESENTS DILUTED EPS COMPUTED IN ACCORDANCE WITH STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE."
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99.1
------------
HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES
DEBT AND PREFERRED STOCK SECURITIES RATINGS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Standard Moody's Duff & Phelps
& Poor's Investors Fitch Credit Thomson
Corporation Service IBCA Rating Co. BankWatch
- ---------------------------------------------------------------------------------------------------------------------
At June 30, 1999
- ---------------------------------------------------------------------------------------------------------------------
<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 BBB+ 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>
