<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, 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 October 29, 1999, there were 470,140,020 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, 1999 and 1998 2
Condensed Consolidated Balance Sheets -
September 30, 1999 (Unaudited) and December 31, 1998 3
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Nine Months Ended
September 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 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)
- -------------------------------------------------------
(In millions, except per share data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance income $1,694.7 $1,425.8 $4,776.3 $4,112.0
Other interest income 8.0 15.2 25.3 41.6
Interest expense 703.7 628.1 2,013.8 1,857.1
-------- -------- -------- --------
Net interest margin 999.0 812.9 2,787.8 2,296.5
Provision for credit losses on owned
receivables 438.1 358.4 1,263.2 1,139.3
-------- -------- -------- --------
Net interest margin after provision for
credit losses 560.9 454.5 1,524.6 1,157.2
-------- -------- -------- --------
Securitization income 357.9 370.1 995.3 1,183.6
Insurance revenues 130.6 129.2 405.4 366.5
Investment income 45.0 42.5 128.0 120.9
Fee income 155.7 151.8 421.2 444.1
Other income 32.4 55.8 180.0 183.6
Gain on the sale of Beneficial Canada - - - 189.4
-------- -------- -------- --------
Total other revenues 721.6 749.4 2,129.9 2,488.1
-------- -------- -------- --------
Salaries and fringe benefits 304.7 280.1 887.4 859.5
Occupancy and equipment expense 66.6 74.5 200.0 246.2
Other marketing expenses 91.5 101.7 264.0 303.7
Other servicing and administrative
expenses 128.5 160.8 433.4 499.4
Amortization of acquired intangibles
and goodwill 35.5 45.1 107.8 132.3
Policyholders' benefits 61.0 57.1 199.0 176.0
Merger and integration related costs - - - 1,000.0
-------- -------- -------- --------
Total costs and expenses 687.8 719.3 2,091.6 3,217.1
-------- -------- -------- --------
Income before income taxes 594.7 484.6 1,562.9 428.2
Income taxes 194.8 166.6 515.3 254.0
-------- -------- -------- --------
Net income $ 399.9 $ 318.0 $1,047.6 $ 174.2*
======== ======== ======== ========
Earnings per common share:
Net income $ 399.9 $ 318.0 $1,047.6 $ 174.2
Preferred dividends (2.3) (4.1) (6.9) (12.4)
-------- -------- -------- --------
Earnings available to common
shareholders $ 397.6 $ 313.9 $1,040.7 $ 161.8
======== ======== ======== ========
Average common shares 475.6 490.3 479.7 488.6
Average common and common equivalent
shares 480.2 498.3 484.8 498.9
-------- -------- -------- --------
Basic earnings per common share $ .84 $ .64 $ 2.17 $ .33
Diluted earnings per common share .83 .63 2.15 .32*
-------- -------- -------- --------
Dividends declared per common share .17 .15 .51 .45
-------- -------- -------- --------
* For the nine months ended September 30, 1998, operating net income and
diluted operating earnings per common share, which exclude merger and
integration related costs and the gain on the sale of Beneficial Canada
were $806.7 million and $1.59, respectively.
</TABLE>
See notes to interim condensed consolidated financial statements.
<PAGE>
<PAGE> 4
Household International, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
- -------------------------------------
(In millions, except share data)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
September 30, December 31,
1999 1998
- ----------------------------------------------------------------------------
ASSETS (UNAUDITED)
- -------
<S> <C> <C>
Cash $ 252.0 $ 457.4
Investment securities 3,076.3 3,202.1
Receivables, net 49,085.6 43,948.1
Acquired intangibles and goodwill, net 1,627.3 1,700.8
Properties and equipment, net 493.0 472.1
Real estate owned 234.4 253.9
Other assets 2,816.9 2,858.3
--------- ---------
Total assets $57,585.5 $52,892.7
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Debt:
Deposits $ 3,656.7 $ 2,105.0
Commercial paper, bank and other borrowings 8,583.5 9,917.9
Senior and senior subordinated debt (with
original maturities over one year) 34,994.5 30,438.6
--------- ---------
Total debt 47,234.7 42,461.5
Insurance policy and claim reserves 1,346.6 1,371.7
Other liabilities 2,224.8 2,298.7
--------- ---------
Total liabilities 50,806.1 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, 550,356,068 and
544,124,170 shares issued at September 30,
1999 and December 31, 1998, respectively 550.3 544.1
Additional paid-in capital 1,778.4 1,652.5
Retained earnings 5,978.4 5,184.4
Accumulated other comprehensive income,
net of tax (227.0) (145.1)
Less common stock in treasury, 79,654,916 and
60,986,431 shares at September 30, 1999 and
December 31, 1998, respectively, at cost (1,840.1) (1,014.5)
--------- ---------
Total common shareholders' equity 6,240.0 6,221.4
--------- ---------
Total liabilities and shareholders' equity $57,585.5 $52,892.7
========= =========
* As described in note 8 to the financial statements, the
sole assets of the three trusts are Junior Subordinated
Deferrable Interest Notes issued by Household
International, Inc. in March 1998, June 1996 and June
1995, bearing interest at 7.25, 8.70 and 8.25 percent,
respectively, with principal balances of $206.2, $103.1
and $77.3 million, respectively, and due December 31,
2037, June 30, 2036 and June 30, 2025, respectively.
</TABLE>
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 1999 1998
- ----------------------------------------------------------------------------------
CASH PROVIDED BY OPERATIONS
<S> <C> <C>
Net income $ 1,047.6 $ 174.2
Adjustments to reconcile net income to cash
provided by operations:
Provision for credit losses on owned receivables 1,263.2 1,139.3
Non-cash merger and integration related costs - 291.0
Insurance policy and claim reserves 60.7 (64.3)
Depreciation and amortization 222.3 242.8
Net realized gains from sales of assets - (182.4)
Other, net 258.6 669.4
---------- ----------
Cash provided by operations 2,852.4 2,270.0
---------- ----------
INVESTMENTS IN OPERATIONS
Investment securities:
Purchased (979.2) (1,209.1)
Matured 412.4 390.5
Sold 536.5 725.0
Short-term investment securities, net change 96.1 (758.6)
Receivables:
Originations, net (22,918.4) (21,226.8)
Purchases and related premiums (1,505.0) (2,849.0)
Sold 17,768.4 19,486.8
Acquisition of business operations (43.4) -
Properties and equipment purchased (106.2) (72.4)
Properties and equipment sold 17.7 36.6
---------- ----------
Cash decrease from investments in operations (6,721.1) (5,477.0)
---------- ----------
FINANCING AND CAPITAL TRANSACTIONS
Short-term debt and demand deposits, net change (1,360.7) (315.0)
Time certificates, net change 1,602.2 (80.7)
Senior and senior subordinated debt issued 9,950.5 8,568.5
Senior and senior subordinated debt retired (5,472.8) (3,392.5)
Prepayment of debt - (1,140.8)
Policyholders' benefits paid (97.6) (84.9)
Cash received from policyholders 51.7 94.8
Shareholders' dividends (250.3) (182.8)
Shareholders' dividends - pooled affiliate - (61.8)
Purchase of treasury stock (790.4) (403.0)
Treasury stock activity - pooled affiliate - (11.0)
Issuance of common stock 36.7 15.3
Issuance of company obligated mandatorily redeemable
preferred securities of subsidiary trusts - 200.0
---------- ----------
Cash increase from financing and
capital transactions 3,669.3 3,206.1
---------- ----------
Effect of exchange rate changes on cash (6.0) (.6)
---------- ----------
Decrease in cash (205.4) (1.5)
Cash at January 1 457.4 534.3
---------- ----------
Cash at September 30 $ 252.0 $ 532.8
========== ==========
Supplemental cash flow information:
Interest paid $ 1,971.9 $ 1,736.1
---------- ----------
Income taxes paid 199.1 284.1
---------- ----------
Supplemental non-cash investing and financing activities:
Common stock issued for acquisition $ 15.0 -
---------- ----------
</TABLE>
See notes to interim condensed consolidated financial statements.
<PAGE>
<PAGE> 6
Household International, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollar amounts are in millions) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating net income <F1> $399.9 $318.0 $1,047.6 $ 806.7
Merger and integration related costs, net
of taxes - - - (751.0)
Beneficial Canada gain, net of taxes - - - 118.5
------ ------ -------- --------
Net income $399.9 $318.0 $1,047.6 $ 174.2
====== ====== ======== ========
Diluted earnings per common share $ .83 $ .63 $ 2.15 $ .32
====== ====== ======== ========
Diluted operating earnings per common share <F1> $ .83 $ .63 2.15 $ 1.59
====== ====== ======== ========
Net interest margin $999.0 $812.9 $2,787.8 $2,296.5
------ ------ -------- --------
Other revenues <F2> 660.6 692.3 1,930.9 2,312.1
------ ------ -------- --------
Return on average common shareholders' equity,
annualized <F1> 25.3% 20.5% 22.2% 16.7%
------ ------ -------- --------
Return on average common shareholders' equity,
annualized 25.3 20.5 22.2 3.4
------ ------ -------- --------
Return on average owned assets, annualized <F1> 2.80 2.53 2.52 2.17
------ ------ -------- --------
Return on average owned assets, annualized 2.80 2.53 2.52 .47
------ ------ -------- --------
Return on average managed assets,
annualized <F1> 2.14 1.76 1.89 1.49
------ ------ -------- --------
Return on average managed assets, annualized 2.14 1.76 1.89 .32
------ ------ -------- --------
Managed basis efficiency ratio, normalized <F3> 31.9 36.9 34.4 38.8
------ ------ -------- --------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
September 30, December 31,
(Dollar amounts are in millions) 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Total assets:
Owned $57,585.5 $52,892.7
Managed 76,050.1 72,594.5
--------- ---------
Receivables:
Owned $49,342.5 $44,205.9
Serviced with limited recourse 18,464.6 19,701.8
--------- ---------
Managed $67,807.1 $63,907.7
========= =========
Total shareholders' equity as a percent of owned assets <F4> 11.77% 12.78%
--------- ---------
Total shareholders' equity as a percent of managed assets <F4> 8.91 9.31
--------- ---------
<FN>
<F1> Excludes merger and integration related costs and the gain on the sale
of Beneficial Canada.
<F2> Policyholders' benefits have been netted against other revenues.
<F3> Ratio of operating expenses to managed net interest margin and other
revenues less policyholders' benefits, normalized.
<F4> Total shareholders' equity at September 30, 1999 and December 31, 1998
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. 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, 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." These financial statements
should be read in conjunction with 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 available-
for-sale investments:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In millions) September 30, 1999 December 31, 1998
- --------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Marketable equity securities $ 26.3 $ 27.1 $ 68.2 $ 70.8
Corporate debt securities 1,857.7 1,777.4 1,705.1 1,731.3
U.S. government and federal
agency debt securities 349.0 341.6 368.4 373.6
Other 889.5 889.5 990.1 990.1
-------- -------- -------- --------
Subtotal 3,122.5 3,035.6 3,131.8 3,165.8
Accrued investment income 40.7 40.7 36.3 36.3
-------- -------- -------- --------
Total investment securities $3,163.2 $3,076.3 $3,168.1 $3,202.1
======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE> 8
3. RECEIVABLES
- ----------------
Receivables consisted of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
September 30, December 31,
(In millions) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
First mortgage $ 138.3 $ 156.3
Home equity 22,766.2 18,692.7
Auto finance 1,065.3 805.0
MasterCard/Visa 5,996.3 7,180.2
Private label 9,806.2 9,566.0
Other unsecured 8,882.1 7,108.6
Commercial 688.1 697.1
--------- ---------
Total owned receivables 49,342.5 44,205.9
Accrued finance charges 786.5 642.5
Credit loss reserve for owned receivables (1,750.3) (1,734.2)
Unearned credit insurance premiums and
claims reserves (541.2) (505.1)
Amounts due and deferred from
receivables sales 2,103.6 2,152.9
Reserve for receivables serviced with
limited recourse (855.5) (813.9)
--------- ---------
Total owned receivables, net 49,085.6 43,948.1
Receivables serviced with limited recourse 18,464.6 19,701.8
--------- ---------
Total managed receivables, net $67,550.2 $63,649.9
========= =========
Receivables serviced with limited recourse consisted of the following:
- ------------------------------------------------------------------------------
September 30, December 31,
(In millions) 1999 1998
- ------------------------------------------------------------------------------
Home equity $ 2,495.2 $ 3,637.4
Auto finance 1,635.5 960.3
MasterCard/Visa 8,965.2 9,430.6
Private label 650.0 811.5
Other unsecured 4,718.7 4,862.0
--------- ---------
Total receivables serviced with limited recourse $18,464.6 $19,701.8
========= =========
The combination of owned receivables and receivables serviced with limited
recourse, which we consider our managed portfolio, consisted of the following:
- ------------------------------------------------------------------------------
September 30, December 31,
(In millions) 1999 1998
- ------------------------------------------------------------------------------
First mortgage $ 138.3 $ 156.3
Home equity 25,261.4 22,330.1
Auto finance 2,700.8 1,765.3
MasterCard/Visa 14,961.5 16,610.8
Private label 10,456.2 10,377.5
Other unsecured 13,600.8 11,970.6
Commercial 688.1 697.1
--------- ---------
Total managed receivables $67,807.1 $63,907.7
========= =========
</TABLE>
<PAGE>
<PAGE> 9
The amounts due and deferred from receivables included
unamortized securitization assets and funds set up under
the recourse requirements for certain sales totaling
$2,097.3 million at September 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 $(63.4) million at September 30, 1999 and $79.6
million at December 31, 1998. The reserve for receivables
serviced with limited recourse represents our best estimate
of probable losses on these receivables.
4. CREDIT LOSS RESERVES
- -------------------------
Changes to credit loss reserves during the three and nine
months ended September 30 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned receivables:
Credit loss reserves
at beginning of period $ 1,737.6 $ 1,757.2 $ 1,734.2 $ 1,642.1
Provision for credit losses 438.1 358.4 1,263.2 1,139.3
Chargeoffs (491.8) (432.7) (1,434.3) (1,252.9)
Recoveries 50.5 44.3 152.9 127.6
Portfolio acquisitions, net 15.9 59.0 34.3 130.1
--------- --------- --------- ---------
Credit loss reserves for owned
receivables at September 30 1,750.3 1,786.2 1,750.3 1,786.2
--------- --------- --------- ---------
Receivables serviced with limited
recourse:
Credit loss reserves
at beginning of period 786.4 862.9 813.9 880.9
Provision for credit losses 302.9 303.1 780.5 860.0
Chargeoffs (252.3) (311.9) (793.6) (938.4)
Recoveries 16.0 19.6 44.8 61.6
Other, net 2.5 3.0 9.9 12.6
--------- --------- --------- ---------
Credit loss reserves for
receivables serviced with limited
recourse at September 30 855.5 876.7 855.5 876.7
--------- --------- --------- ---------
Total credit loss reserves for
managed receivables at September 30 $ 2,605.8 $ 2,662.9 $ 2,605.8 $ 2,662.9
========= ========= ========= =========
</TABLE>
The level of reserves for consumer credit losses are 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
- -----------------------------------
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.
<PAGE>
<PAGE> 10
6. INCOME TAXES
- -----------------
Our effective tax rate was 33.0 percent for the nine months
ended September 30, 1999 and 35.2 percent for the first
nine 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 nine 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 PER COMMON SHARE
- ------------------------------
Earnings per common share for the three and nine months
ended September 30 were calculated as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Three Months Ended September 30,
(In millions, except per share data) 1999 1998
- ------------------------------------------------------------------------------------------
Diluted Basic Diluted Basic
------- ----- ------- -----
<S> <C> <C> <C> <C>
Earnings:
Net income $ 399.9 $ 399.9 $ 318.0 $ 318.0
Preferred dividends (2.3) (2.3) (4.1) (4.1)
-------- -------- ------- -------
Earnings available to common shareholders $ 397.6 $ 397.6 $ 313.9 $ 313.9
======== ======== ======= =======
Average shares outstanding:
Common 475.6 475.6 490.3 490.3
Common equivalents 4.6 - 8.0 -
-------- -------- ------- -------
Average shares outstanding
assuming dilution 480.2 475.6 498.3 490.3
======== ======== ======= =======
Earnings per common share $ .83 $ .84 $ .63 $ .64
======== ======== ======= =======
- ------------------------------------------------------------------------------------------
Nine Months Ended September 30,
(In millions, except per share data) 1999 1998
- ------------------------------------------------------------------------------------------
Diluted Basic Diluted Basic
------- ----- ------- -----
Earnings:
Net income $1,047.6 $1,047.6 $ 174.2 $ 174.2
Preferred dividends (6.9) (6.9) (12.4) (12.4)
-------- -------- ------- -------
Earnings available to common shareholders $1,040.7 $1,040.7 $ 161.8 $ 161.8
======== ======== ======= =======
Average shares outstanding:
Common 479.7 479.7 488.6 488.6
Common equivalents 5.1 - 10.3 -
-------- -------- ------- -------
Average shares outstanding
assuming dilution 484.8 479.7 498.9 488.6
======== ======== ======= =======
Earnings per common share $ 2.15 $ 2.17 $ .32 $ .33
======== ======== ======= =======
</TABLE>
<PAGE>
<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 September 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
- -------------------------
Comprehensive income was $418.7 million for the quarter
ended September 30, 1999, $317.7 million for the quarter
ended September 30, 1998, $965.7 million for the nine
months ended September 30, 1999 and $208.9 million for the
nine months ended September 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 $841.4 million for the nine months ended September 30,
1998.
<PAGE>
<PAGE> 12
The components of accumulated other comprehensive income,
net of tax, are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
September 30, December 31,
(In millions) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Foreign currency translation adjustments $(170.6) $(167.5)
Unrealized gain (loss) on investment, net (56.4) 22.4
------- -------
Accumulated other comprehensive income, net of tax $(227.0) $(145.1)
======= =======
</TABLE>
10. SEGMENT REPORTING
- ----------------------
We have three reportable segments: Consumer, which
includes our domestic branch-based consumer finance,
private label credit card 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 three and
nine months ended September 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
Owned Basis September 30, September 30,
(In millions) 1999 1998
- ---------------------------------------------------------------------------------------------------------
Credit Inter- Credit Inter-
Consumer Card national Consumer Card national
--------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net interest margin and
other revenues <F1> $ 1,075.2 $ 374.8 $ 197.5 $ 898.8 $ 368.7 $ 162.1
Intersegment revenues 31.8 7.6 1.0 26.4 2.5 1.0
Net income 268.4 48.2 66.7 225.4 32.7 44.7
Total assets 40,009.7 5,982.2 7,475.1 31,898.1 6,966.1 7,199.1
Total assets - managed 48,633.4 14,706.9 8,620.0 41,481.9 18,176.7 8,257.2
--------- --------- -------- --------- -------- --------
- ---------------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
Owned Basis September 30, September 30,
(In millions) 1999 1998
- ---------------------------------------------------------------------------------------------------------
Credit Inter- Credit Inter-
Consumer Card national Consumer Card national
--------- --------- -------- --------- --------- --------
Net interest margin and
other revenues <F1> $ 2,988.6 $ 982.8 $ 589.5 $ 2,551.5 $ 1,068.7 $ 559.9
Intersegment revenues 91.8 12.7 2.6 71.1 7.8 3.0
Net income 704.4 89.3 164.8 573.8 112.0 109.1
Total assets 40,009.7 5,982.2 7,475.1 31,898.1 6,966.1 7,199.1
Total assets - managed 48,633.4 14,706.9 8,620.0 41,481.9 18,176.7 8,257.2
--------- --------- -------- --------- --------- --------
<FN>
<F1> Net interest margin and other revenues, including
intersegment revenues, net of policyholders' benefits.
</FN>
</TABLE>
<PAGE>
<PAGE> 13
A reconciliation of the total reportable segments' net
income to consolidated net income for the three and nine
months ended September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reportable segment net income $383.3 $302.8 $ 958.5 $ 794.9
Other operations not individually reportable 43.4 44.8 171.7 (535.8)*
Adjustments/eliminations (26.8) (29.6) (82.6) (84.9)
------ ------ -------- -------
Total consolidated net income $399.9 $318.0 $1,047.6 $ 174.2
====== ====== ======== =======
* Includes merger and integration related costs of $751.0
million after-tax and the gain on the sale of Beneficial
Canada of $118.5 million after-tax.
</TABLE>
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.
<PAGE>
<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 third quarter of 1999 increased 25.8
percent to $399.9 million, compared to $318.0 million a
year ago. Net income for the first nine months of 1999 was
$1,047.6 million, compared to operating net income of
$806.7 million in the year ago period. Diluted earnings per
share increased 31.7 percent to $.83 in the third quarter
and 35.2 percent to $2.15 per diluted share year-to-date,
compared to diluted operating earnings per share of $.63
and $1.59 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.
The year-to-date results were also positively affected
by higher income from our tax refund anticipation loan ("RAL")
business. Including merger and integration related costs and
the gain on the sale of Beneficial Canada, our net income for
the first nine months of 1998 was $174.2 million and our
diluted earnings per share was $.32.
Our annualized return on average common shareholders'
equity was 25.3 percent for the third quarter of 1999 and
22.2 percent year-to-date compared to 20.5 percent for the
third quarter of 1998 and 16.7 percent for the first nine
months of 1998. Our annualized return on average owned
assets was 2.80 percent in the third quarter of 1999 and
2.52 percent year-to-date compared to 2.53 percent in the
third quarter of 1998 and 2.17 percent for the first nine
months of 1998. Our annualized return on average managed
assets was 2.14 percent in the third quarter of 1999 and
1.89 percent year-to-date compared to 1.76 percent in the
third quarter of 1998 and 1.49 percent for the first nine
months of 1998. (Ratios for the nine months ended September
30, 1998 exclude merger and integration related costs and
the gain on the sale of Beneficial Canada.)
<PAGE>
<PAGE> 15
- - The following summarizes our operating results for our
reportable operating segments for the third quarter and
first nine months of 1999 compared to the corresponding
prior year periods:
Our Consumer segment reported higher net income both in
the quarter and year-to-date. Return on average owned
assets was 2.74 percent in the quarter and 2.52 percent
year-to-date compared to prior year returns of 2.93
percent for the quarter and 2.63 percent year-to-date.
The decreases in this ratio are due to a higher
proportion of on-balance sheet assets as compared to the
same period in 1998. Return on average managed assets was
2.27 percent in the quarter and 2.05 percent year-to-date
compared to prior year returns of 2.25 percent for the
quarter and 1.95 percent year-to-date. The improvement in
operating results reflects higher net interest margin
partially offset by higher sales incentive compensation
and higher credit loss provision reflecting the increased
levels of managed receivables. Managed receivables grew
to $46.9 billion at September 30, 1999, from $44.8
billion at June 30, 1999 and $39.7 billion at September
30, 1998. The increase was driven by excellent home
equity and other unsecured loan growth in our consumer
finance branches, as well as some increase in our
correspondent home equity network.
Our domestic credit card segment includes our co-branding
and affinity relationships. Our most significant co-
branded credit card is the GM Card, which is issued
through our alliance with General Motors Corporation
("GM"). Our most significant affinity relationship is the
AFL-CIO's Union Privilege ("UP"). The restructuring of
our Household Bank branded portfolio, which we initiated
in late 1998, is beginning to show positive results in
this segment. This segment reported lower earnings year-
to-date compared with the prior year period, but higher
earnings in the third quarter compared with the prior
year quarter. Return on average owned assets was 3.09
percent for the quarter and 1.86 percent year-to-date
compared to prior year returns of 1.74 percent for the
quarter and 1.91 percent year-to-date. Return on average
managed assets was 1.31 percent for the quarter and .79
percent year-to-date compared to prior year returns of
.69 percent for the quarter and .78 percent year-to-date.
The improvement in operating results for the quarter was
primarily due to lower operating expenses and, although
average receivables were much lower, net interest margin
was higher as a result of better pricing. The interest margin
improvement was driven by a full quarter's benefit of the
repricing of the UP portfolio which occurred in May and
June. The decrease in operating results year-to-date was
primarily due to lower receivables, increased loss
provision and lower securitization and fee income,
partially offset by lower operating expenses. Managed
receivables were $13.1 billion at both September 30 and
June 30, 1999 and $16.4 billion at September 30, 1998.
Strong growth in the UP portfolio for the quarter (11.7
percent annualized) was offset by continued attrition in
the Household Bank branded portfolio. GM receivables were
flat in the quarter. 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.
<PAGE>
<PAGE> 16
Our International segment reported improved results from the prior
year periods. Return on average owned assets was 3.53 percent for
the quarter and 3.05 percent year-to-date compared to prior year
returns of 2.61 percent for the quarter and 2.07 percent year-to-date.
Return on average managed assets increased to 3.06 percent for the
quarter and 2.62 percent year-to-date compared to prior year returns
of 2.26 percent for the quarter and 1.80 percent year-to-date. The
improvement in operating results was primarily the result of higher
revenues and, on a year-to-date basis, improved efficiency. Managed
U.K. receivables, which account for the substantial majority of the
International segment's receivables, were $6.3 billion at both
September 30, 1999 and 1998 and $6.1 billion at June 30, 1999.
Growth in MasterCard and Visa receivables in the quarter, which
was led by the strong performance of the Goldfish Card, was partially
offset by run-off in home equity loans. In October, we launched
marblesTM, our internet-based credit card which was developed through
our alliance with Freeserve, the U.K.'s largest internet service provider.
- - Year-to-date revenue from our RAL business was up substantially from
the prior year. The RAL business contributed $96.6 million pretax to
our year-to-date results. 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
31.9 percent for the current quarter and 34.4 percent
year-to-date compared to 36.9 percent for the prior year
quarter and 38.8 percent year-to-date. 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
improvements in the managed ratios resulted from the cost
savings and operating efficiencies achieved from the
consolidation of Beneficial's operations and continued
cost control in our businesses.
- - In August 1999, we purchased all of the outstanding
capital stock of Decision One Mortgage Company LLC
("Decision One") for about .4 million shares of our
common stock and cash. Decision One originates loans
through a 30 state broker network and packages them for
sale to a number of investors. As of the acquisition
date, Decision One had approximately $58 million in
assets. The acquisition of Decision One was accounted for
as a purchase and therefore we have included the results
of operations of Decision One in our statement of income
from the closing date of the transaction.
- - 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 a gain
of $189.4 million ($118.5 million after-tax). In April
1998, the sale of Beneficial's German operations was also
completed. In 1997, Beneficial announced its intent to
sell the German operations and recorded a loss of $58.8
million ($27.8 million after-tax).
BALANCE SHEET REVIEW
- --------------------
- - Receivables growth has been a key contributor to our
improved results. Managed core products, which exclude
first mortgages and commercial receivables, increased 6.1
percent from the year ago level to $67.0 billion. This
growth rate was slowed by attrition associated with the
restructuring of our domestic MasterCard and Visa
portfolio in late 1998, which included the sale of $1.9
billion of non-core receivables and the impact of
repricing initiatives.
<PAGE>
<PAGE> 17
Excluding MasterCard and Visa, core products grew $7.0
billion, or 15.5 percent, from a year ago, with solid
growth in all product lines. The strongest growth came in
our consumer finance, which includes our home equity and
unsecured products, and auto finance businesses. The
combination of our focused sales force, integrated
systems and loan products drove this 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 consumer finance business.
Auto finance receivables increased from the prior year
quarter as this business continued to benefit from less
competition and an expanded sales force. Private label
receivables were up 6 percent from a year ago reflecting
the addition of several new merchants and growth in
existing merchant relationships.
- - Compared to the second quarter of 1999, core products
grew $2.4 billion, or 14.9 percent annualized, in the
third quarter, again with the strongest growth in home
equity, unsecured and auto finance receivables. Strong
momentum in our branches resulted in record branch
receivable growth in the third quarter. Our HFC/Beneficial
consumer finance business grew 17.2 percent, annualized,
in the third quarter, with over 70 percent of that growth
in real estate secured loan products. Auto finance
receivables grew from the prior quarter due to continued
weakened competition in the industry and an expanded
sales force. Approximately 40 percent of auto finance
originations in the quarter were attributable to our new
Millennium product. We believe this product enables us to
target higher quality customers at competitive rates and
to balance our non-prime and subprime segments which
should have a positive impact on our loss characteristics
over time. Our MasterCard/Visa portfolio was up slightly
in the quarter due to growth in the UP and United Kingdom
product lines. Private label receivables increased almost
$400 million in the quarter, reflecting growth in new and
existing merchant relationships.
- - Owned consumer receivables were $48.7 billion at
September 30, 1999, up from $46.8 billion at June 30,
1999 and $41.5 billion at September 30, 1998. 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 5.24 percent at September 30, 1999, compared with
4.96 percent at June 30, 1999 and 5.23 percent at
September 30, 1998. The annualized total consumer owned
chargeoff ratio was 3.63 percent in the third quarter of
1999, compared with 3.54 percent in the prior quarter and
3.79 percent in the year-ago quarter.
- - Managed consumer two-months-and-over contractual
delinquency as a percent of managed consumer receivables
was 4.89 percent at September 30, 1999, compared with
4.72 percent at June 30, 1999 and 4.96 percent at
September 30, 1998. The annualized total consumer managed
chargeoff ratio was 4.09 percent in the third quarter of
1999, compared with 4.10 percent in the prior quarter and
4.33 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 11.77 percent, compared with 12.78 percent at
December 31, 1998. The ratio of total shareholders'
equity to managed assets was 8.91 percent at September
30, 1999 and 9.31 percent at December 31, 1998.
- - The ratio of tangible equity to tangible managed assets was
7.00 percent, compared with 7.11 percent at December 31, 1998.
<PAGE>
<PAGE> 18
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. Our funding strategy continues to be very
conservative and we are largely unaffected by changes in
rates. Looking specifically at the third quarter, interest
rate increases by the Fed had only a 4 basis point negative
impact on our consolidated portfolio net interest margin.
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. During
the third quarter, 8.8 million shares were repurchased at
an average share price of $40.55. Since inception of the
program, we have repurchased 13.8 million shares for a
total of $587 million. Coupled with the repurchases of an
additional 5 million shares to fund employee benefit plans
prior to March 9, 1999, we have repurchased 18.8 million
shares year-to-date. Treasury stock activity during the
first nine 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 September 30, 1999:
- - Deposits increased 76.2 percent to $3.7 billion from $2.1
billion as this source of funding was more cost effective
than other funding sources at this time. Commercial
paper, bank and other borrowings decreased 13.1 percent
to $8.6 billion from $9.9 billion. Senior and senior
subordinated debt (with original maturities over one
year) increased 15.1 percent to $35.0 billion from $30.4
billion. The increase in debt levels from year end is
consistent with the increase in owned receivables. During
the first nine months of 1999 we issued approximately
$5.5 billion of five year-and-over debt which lengthened
maturities on our funding, reduced our reliance on commercial
paper and securitizations, and preserved our liquidity.
- - Our securitized portfolio of home equity, auto finance,
MasterCard and Visa, private label and other unsecured
receivables totaled $18.5 billion at September 30, 1999,
compared with $19.7 billion at December 31, 1998.
The composition of receivables securitized (excluding
replenishments of certificate holder interests) during the
quarter and year-to-date is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
(In billions) 1999 1998 1999 1998
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
Auto finance $ .5 $ .3 $1.1 $ .7
MasterCard/Visa .5 - 1.1 1.3
Other unsecured .7 .4 1.0 .7
---- ---- ---- ----
Total $1.7 $ .7 $3.2 $2.7
==== ==== ==== ====
</TABLE>
We believe the market for securities backed by receivables
is a reliable, efficient and cost-effective source of funds.
Although our securitized portfolio currently represents a smaller
portion of our total funding mix, we plan to continue utilizing
securitizations as a source of funding in the future. At September 30,
1999, securitizations represented 27 percent of the funding associated
with our managed portfolio compared to 34 percent a year ago.
<PAGE>
<PAGE> 19
PRO FORMA MANAGED STATEMENTS OF INCOME
- --------------------------------------
Securitizations of consumer receivables have been, and will
continue to be, a source of liquidity 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, provision for credit losses,
fee income and securitization related income 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. The pro forma managed
basis statement of income is not intended to reflect the
differences between accounting policies for owned receivables
and the off-balance sheet portfolio, but merely to report net
interest margin, fees and provision for losses as if the
securitized loans were held in portfolio. Therefore,
net income on a pro forma managed basis equals net income
on an owned basis.
<PAGE>
<PAGE> 20
<TABLE>
<CAPTION>
Pro Forma Managed Statements of Income
- ----------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
(Dollar amounts are in September 30, September 30,
millions) 1999 * 1998 * 1999 * 1998 *
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Finance and other interest
income $ 2,368.2 14.04% $ 2,254.9 13.91% $ 6,850.6 13.82% $ 6,689.9 13.83%
Interest expense 958.3 5.68 971.4 5.99 2,781.4 5.61 2,913.2 6.02
--------- ----- --------- ------ --------- ----- --------- -----
Net interest margin 1,409.9 8.36 1,283.5 7.92 4,069.2 8.21 3,776.7 7.81
Provision for credit losses 741.1 661.5 2,043.7 1,999.3
--------- --------- --------- ---------
Net interest margin after
provision for credit losses 668.8 622.0 2,025.5 1,777.4
--------- --------- --------- ---------
Insurance revenues 130.6 129.2 405.4 366.5
Investment income 45.0 42.5 128.0 120.9
Fee income 309.8 297.1 861.1 875.9
Securitization related
income 95.9 57.3 54.5 131.6
Other income 32.4 55.8 180.0 183.6
Gain on the sale of
Beneficial Canada - - - 189.4
--------- --------- --------- ---------
Total other revenues 613.7 581.9 1,629.0 1,867.9
--------- --------- --------- ---------
Salaries and fringe
benefits 304.7 280.1 887.4 859.5
Occupancy and equipment
expense 66.6 74.5 200.0 246.2
Other marketing expenses 91.5 101.7 264.0 303.7
Other servicing and
administrative expenses 128.5 160.8 433.4 499.4
Amortization of acquired
intangibles and goodwill 35.5 45.1 107.8 132.3
Policyholders' benefits 61.0 57.1 199.0 176.0
Merger and integration
related costs - - - 1,000.0
--------- --------- --------- ---------
Total costs and expenses 687.8 719.3 2,091.6 3,217.1
--------- --------- --------- ---------
Income before taxes 594.7 484.6 1,562.9 428.2
Income taxes 194.8 166.6 515.3 254.0
--------- --------- --------- ---------
Net income $ 399.9 $ 318.0 $ 1,047.6 $ 174.2 **
========= ========= ========= =========
Average managed receivables $66,423.6 $63,653.4 $65,134.4 $63,471.1
Average noninsurance
investments 607.6 867.5 513.9 739.7
Other interest-earning
assets 418.0 309.7 414.7 298.9
--------- --------- --------- ---------
Average managed interest-
earning assets $67,449.2 $64,830.6 $66,063.0 $64,509.7
========= ========= ========= =========
* As a percent, annualized, of appropriate earning assets.
**For the nine months ended September 30, 1998, operating net income, which
excludes merger and integration related costs and the gain on the sale of
Beneficial Canada was $806.7 million.
</TABLE>
<PAGE>
<PAGE> 21
<TABLE>
<CAPTION>
Reconciliation of Securitization Related Income
- --------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross gains $172.0 $106.8 $ 310.7 $ 332.9
Amortization (76.1) (49.5) (256.2) (201.3)
------ ------ ------- -------
Securitization related income 95.9 57.3 54.5 131.6
Over the life provision on new transactions 135.7 90.0 239.7 251.0
------ ------ ------- -------
Net effect of securitization activity $(39.8) $(32.7) $(185.2) $(119.4)
====== ====== ======= =======
</TABLE>
<PAGE>
<PAGE> 22
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 $999.0 million
for the third quarter of 1999, up 22.9 percent compared to
the prior year quarter. Net interest margin on an Owned
Basis for the first nine months of 1999 was $2,787.8
million, up 21.4 percent compared to the prior year. Owned
margin improved due to better pricing and receivable
growth.
Net interest margin on a Managed Basis was $1,409.9 million
for the third quarter of 1999, up 9.8 percent compared to
the year-ago quarter. Managed Basis net interest margin for
the first nine months of 1999 was $4,069.2 million, up 7.7
percent compared to the prior year. The increases were
primarily due to receivable growth.
Net interest margin as a percent of average managed
interest-earning assets, annualized, expanded to 8.36
percent, up from 8.31 percent in the previous quarter, and
7.92 percent in the year-ago quarter. The sequential
quarterly expansion reflected stronger pricing in our
MasterCard/Visa and other unsecured product lines,
partially offset by higher funding costs. During the
quarter, our margin benefited from a 39 basis point
expansion in our bankcard business. There, we enjoyed a
full quarter's benefit of the repricing of the UP
portfolio, which occurred in May and June. The year-over-
year improvement resulted from lower funding costs and
better pricing.
Provision for credit losses
- ---------------------------
The provision for credit losses for receivables on an Owned
Basis for the third quarter of 1999 totaled $438.1 million,
compared to $358.4 million in the prior year quarter. The
provision for the first nine months of 1999 was $1,263.2
million, compared to $1,139.3 million in the year-ago
period. The provision as a percent of average owned
receivables, annualized, was 3.59 percent in the third
quarter of 1999 compared to 3.43 percent in the third
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 $741.1 million in the third quarter
of 1999, compared to $661.5 million in the prior year
quarter. The provision for credit losses on a Managed Basis
for the first nine months of 1999 was $2,043.7 million,
compared to $1,999.3 million in the year-ago period. As a
percent of average managed receivables, annualized, the
provision was 4.46 percent, compared to 4.16 percent in the
third 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. See the liquidity and capital
resources section for the type and amount of receivables
securitized and the credit quality section for further
discussion of factors affecting the provision for credit
losses.
<PAGE>
<PAGE> 23
Other revenues
- --------------
Total other revenues on an Owned Basis decreased 3.7
percent over the third quarter of 1998 to $721.6 million.
Excluding the pretax gain of $189.4 million from the sale
of Beneficial's Canadian operations during 1998, year-to-
date other revenues decreased 7.3 percent to $2,129.9
million. On a Managed Basis, total other revenues
(excluding the 1998 Beneficial gain) increased 5.5 percent
to $613.7 million for the quarter but decreased 2.9 percent
to $1,629.0 million year-to-date. Significant fluctuations
were as follows:
- - Securitization income on an Owned Basis, which consists
of income associated with the securitization and sale of
receivables with limited recourse, decreased 3.3 percent
to $357.9 million for the quarter and 15.9 percent to $995.3
million year-to-date. The decreases were primarily due to
the decrease in average securitized receivables. When
reporting on a Managed basis, the components of
securitization income (net interest income, provision for
credit losses, fee income, and securitization related
income related to those receivables) are reclassified to
the appropriate caption in the statements of income.
- - Insurance revenues increased $1.4 million for the quarter
and $38.9 million, or 10.6 percent, year-to-date. These
increases are reflective of the benefits from improved
loan origination and retention in our consumer finance
branch system.
- - Fee income on an Owned Basis, which includes revenues
from fee-based products such as credit cards, increased
2.6 percent to $155.7 million for the quarter, but
decreased 5.2 percent to $421.2 million year-to-date. The
increase for the quarter is primarily due to credit card
fees which were substantially offset by higher account
program fees paid to our credit card affinity partners.
The decrease for the first nine months reflected higher
account program fees partially offset by higher credit
card and interchange fees.
- - Fee income on a Managed Basis increased 4.3 percent to
$309.8 million for the quarter, but decreased 1.7 percent
to $861.1 million year-to-date. The increase for the
quarter was primarily due to higher late and interchange
fees. The year-to-date decrease reflected higher account
program fees which more than offset increases in late and
interchange fees. The increase in managed interchange and
credit card fee income is noteworthy as our
MasterCard/Visa book at September 30, 1999 was 17 percent
lower than last year.
- - Securitization related income on a Managed Basis, which
includes the gross gains and amortization on our
securitized portfolio, increased 67.4 percent to $95.9
million for the quarter, but decreased 58.6 percent to
$54.5 million year-to-date. Securitization related income
will vary from quarter to quarter depending upon the
amount and mix of securitizations in a particular period.
<PAGE>
<PAGE> 24
Expenses
- --------
Total costs and expenses (excluding merger and integration
related costs of $1.0 billion during 1998) decreased 4.4
percent to $687.8 million over the third quarter of 1998
and 5.7 percent to $2,091.6 million year-to-date. The
decreases reflect salaries and fringe benefit, occupancy
and equipment, and other cost savings from the Beneficial
integration, as well as continued cost control efforts. We
have fully achieved our previously stated cost savings
target from the integration with Beneficial Corporation.
Significant fluctuations were as follows:
- - Salaries and fringe benefits increased 8.8 percent to $304.7 million
for the quarter and 3.2 percent to $887.4 million year-to-date.
Efficiencies from the Beneficial merger were more than offset by higher
sales and non-sales related compensation directly related to growth in
the consumer finance business.
- - Occupancy and equipment expense decreased 10.6 percent to
$66.6 million for the quarter and 18.8 percent to $200.0
million year-to-date. The decreases were primarily due to
the elimination of duplicate branch offices and
operating centers as a result of the Beneficial merger.
The decrease in the year-to-date period also reflects
cost reductions associated with the sublease of the
Beneficial office complex in Peapack, New Jersey.
- - Other marketing expenses decreased 10.0 percent to $91.5
million for the quarter and 13.1 percent to $264.0
million year-to-date due to lower spending on marketing
programs on our Household Bank branded MasterCard and
Visa portfolio and our consumer finance business.
- - Other servicing and administrative expenses decreased
20.1 percent to $128.5 million for the quarter and 13.2
percent to $433.4 million year-to-date. The decreases
were primarily due to the consolidation of Beneficial's
operations which provided cost savings in systems. These
savings were partially offset during the first nine
months by increases in real estate owned expenses.
- - Amortization of acquired intangibles and goodwill decreased 21.2
percent to $35.5 million for the quarter and 18.5 percent to $107.8
million year-to-date. The decreases reflect the write-off of
intangible assets in conjunction with portfolio sales in 1998. These
sales were a part of the repositioning of our Household Bank
branded credit card portfolio.
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 and
Note 4, "Credit Loss Reserves," for our credit loss reserve
methodology and an analysis of changes in the credit loss
reserves for the quarter and year-to-date.
Total managed credit loss reserves, which include reserves
established on the off-balance sheet portfolio when
receivables are securitized, were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
(In millions) 1999 1999 1999 1998 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Owned $1,750.3 $1,737.6 $1,729.7 $1,734.2 $1,786.2
Serviced with limited recourse 855.5 786.4 814.8 813.9 876.7
-------- -------- -------- -------- --------
Total managed credit loss
reserves $2,605.8 $2,524.0 $2,544.5 $2,548.1 $2,662.9
======== ======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE> 25
Managed credit loss reserves as a percent of nonperforming
managed receivables were 101.5 percent, compared to 104.0
percent at June 30, 1999 and 114.7 percent at September 30,
1998.
Total owned and managed credit loss reserves as a percent
of receivables were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
1999 1999 1999 1998 1998
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Owned 3.55% 3.66% 3.81% 3.92% 4.22%
Managed 3.84 3.86 3.96 3.99 4.16
---- ---- ---- ---- ----
</TABLE>
The decreases in the ratios reflect the impact of a growing
percentage of secured loans. Home equity receivables, which
have a significantly lower charge-off rate than unsecured
receivables, represent 37 percent of our total managed
receivables at September 30, 1999, compared to 34 percent a
year ago. Mastercard/Visa products were 22 percent at
quarter end, down from 28 percent a year ago. This change
in portfolio mix is important as the loss severity for home
equity loans is significantly less than for unsecured
products, such as credit cards.
CREDIT QUALITY
- --------------
We track delinquency and chargeoff levels on a managed
basis and we apply the same credit and portfolio management
procedures as on our owned portfolio.
Delinquency
- -----------
Two-Months-and-Over Contractual Managed Delinquency (as a
percent of managed consumer receivables):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
9/30/99 6/30/99 3/31/99 12/31/98 9/30/98
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First mortgage 12.56% 12.72% 10.91% 14.90% 11.80%
Home equity 3.46 3.29 3.54 3.67 3.73
Auto finance 2.26 1.87 1.74 2.29 2.05
MasterCard/Visa 3.10 3.11 3.61 3.75 3.73
Private label 6.66 6.62 6.37 6.20 6.55
Other unsecured 8.57 8.17 7.84 7.94 8.03
----- ----- ----- ----- -----
Total 4.89% 4.72% 4.81% 4.90% 4.96%
===== ===== ===== ===== =====
</TABLE>
Credit quality remained relatively stable in the quarter
and improved from a year ago. The modest increase in
managed delinquency as a percent of managed consumer
receivables from the prior quarter was due to the seasoning
of our Beneficial home equity and other unsecured products.
The decrease in managed delinquency from the prior year
quarter was primarily due to the improvement in our
domestic MasterCard/Visa business, where delinquency has
dropped over $200 million from the prior year quarter.
Owned consumer delinquency as a percent of owned
receivables was 5.24 percent at September 30, 1999; 4.96
percent at June 30, 1999; 5.04 percent at March 31, 1999;
5.12 percent at December 31, 1998; and 5.23 percent at
September 30, 1998. The trends impacting these results are
consistent with those described above for our managed
portfolio. Owned delinquency by product is comparable to
managed, except for MasterCard/Visa and other unsecured,
whose owned delinquency is greater due to the retention of
receivables on balance sheet that do not meet the
eligibility criteria for securitization.
<PAGE>
<PAGE> 26
Net Chargeoffs of Consumer Receivables
- --------------------------------------
Managed 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
1999 1999 1999 1998 1998
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First mortgage 4.29% 4.49% .48% 1.04% (.32)%
Home equity .58 .64 .55 .68 .72
Auto finance 4.55 4.41 5.45 5.63 4.89
MasterCard/Visa 6.15 7.30 7.59 6.61 5.96
Private label 5.60 5.57 5.53 5.47 5.33
Other unsecured 7.06 5.61 6.36 6.94 7.50
---- ---- ---- ---- ----
Total 4.09% 4.10% 4.37% 4.39% 4.33%
==== ==== ==== ==== ====
</TABLE>
Managed net chargeoffs as a percent of average managed consumer
receivables for the third quarter of 1999 was flat compared to the
prior quarter. In the quarter, we continued to see improvement in
our MasterCard and Visa portfolio. This improvement was partially
offset by seasoning in the other unsecured portfolio, mostly related
to Beneficial receivables that were underwritten prior to the merger.
The improved managed chargeoff ratio compared with the
prior year quarter was primarily due to lower chargeoffs in
our home equity and other unsecured portfolio.
Owned net chargeoffs as a percent of owned receivables was 3.63
percent at September 30, 1999; 3.54 percent at June 30, 1999;
3.92 percent at March 31, 1999; 3.85 percent at December 31, 1998;
and 3.79 percent at September 30, 1998. The trends impacting these
receivables are generally consistent with those described above for
our managed portfolio. Owned chargeoff by product is comparable
to managed except for MasterCard/Visa, other unsecured and auto
finance. Chargeoffs for MasterCard/Visa and other unsecured on an
overall basis are higher due to the difference in credit quality
and seasoning of the receivables which remain on our balance sheet.
Chargeoffs on owned auto finance receivables are lower due to the
predominantly unseasoned nature of the receivables which remain on
balance sheet.
<PAGE>
<PAGE> 27
Nonperforming Assets
- --------------------
Nonperforming assets consisted of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
(In millions) 9/30/99 6/30/99 3/31/99 12/31/98 9/30/98
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Owned assets:
Nonaccrual receivables $1,421.8 $1,271.9 $1,192.2 $1,064.1 $1,080.9
Accruing consumer receivables
90 or more days delinquent 573.7 567.0 601.7 652.4 570.2
Renegotiated commercial loans 12.3 12.3 12.3 12.3 12.3
-------- -------- -------- -------- --------
Total nonperforming receivables 2,007.8 1,851.2 1,806.2 1,728.8 1,663.4
Real estate owned 234.4 249.6 244.7 253.9 232.2
-------- -------- -------- -------- --------
Total nonperforming assets $2,242.2 $2,100.8 $2,050.9 $1,982.7 $1,895.6
======== ======== ======== ======== ========
Credit loss reserves as a
percent of nonperforming
receivables 87.2% 93.9% 95.8% 100.3% 107.4%
-------- -------- -------- -------- --------
Managed assets:
Nonaccrual receivables $1,803.5 $1,667.4 $1,597.5 $1,439.2 $1,476.4
Accruing consumer receivables
90 or more days delinquent 751.5 747.3 819.8 874.6 832.0
Renegotiated commercial loans 12.3 12.3 12.3 12.3 12.3
-------- -------- -------- -------- --------
Total nonperforming
receivables 2,567.3 2,427.0 2,429.6 2,326.1 2,320.7
Real estate owned 234.4 249.6 244.7 253.9 232.2
-------- -------- -------- -------- --------
Total nonperforming assets $2,801.7 $2,676.6 $2,674.3 $2,580.0 $2,552.9
======== ======== ======== ======== ========
Credit loss reserves as
a percent of nonperforming
receivables 101.5% 104.0% 104.7% 109.5% 114.7%
-------- -------- -------- -------- --------
</TABLE>
Year 2000
- ---------
Household is Year 2000 compliant. We have completed the
conversion, testing and implementation of all internally
developed and non-internally developed systems. We are
completing retirements of no longer used systems and
ensuring that systems remain Year 2000 compliant through
subsequent modifications. 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 $19 million has been incurred as of
September 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.
<PAGE>
<PAGE> 28
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
We filed no Current Reports on Form 8-K during
the third quarter of 1999.
<PAGE>
<PAGE> 29
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 12, 1999 By: /s/ David A. Schoenholz
------------------ -----------------------------
David A. Schoenholz
Executive Vice President -
Chief Financial Officer
and on behalf of
Household International, Inc.
<PAGE>
<PAGE> 30
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.
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>
- ------------------------------------------------------------------
(In millions)
Nine months ended September 30 1999 1998
- ------------------------------------------------------------------
<S> <C> <C>
Net income $1,047.6 $ 174.2
Income taxes 515.3 254.0
-------- --------
Income before income taxes 1,562.9 428.2
-------- --------
Fixed charges:
Interest expense <F1> 2,016.0 1,868.8
Interest portion of rentals <F2> 33.4 43.5
-------- --------
Total fixed charges 2,049.4 1,912.3
-------- --------
Total earnings as defined $3,612.3 $2,340.5
======== ========
Ratio of earnings to fixed charges <F4> 1.76 1.22
======== ========
Ratio of earnings to fixed charges, excluding
merger and integration related costs 1.76 1.75
======== ========
Preferred stock dividends <F3> $ 10.4 $ 19.1
======== ========
Ratio of earnings to combind fixed charges
and preferred stock dividends <F4> 1.75 1.21
======== ========
Ratio of earnings to combined fixed charges
and preferred stock dividends, excluding
merger and integration related costs 1.75 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 of 33.0 percent
for the nine months ended September 30, 1999 and excluding
merger and integration related costs, 35.2 percent for the
same period in 1998.
<F4> The 1998 ratios have been negatively impacted by the one-time
merger and integration related costs associated with our merger
Beneficial Corporation. As a result, ratios excluding these costs
have also been presented for comparative purposes.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHDULE CONTAINS SUMMARY FINNCIAL INFORMATION EXTRACTED FROM
HOUSEHOLD INTERNATIONAL, INC.'S FORM 10-Q FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 252,000
<SECURITIES> 3,076,300
<RECEIVABLES> 49,342,500
<ALLOWANCES> (2,605,800)
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,355,300
<DEPRECIATION> (862,300)
<TOTAL-ASSETS> 57,585,500
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 34,994,500
0
164,400
<COMMON> 550,300
<OTHER-SE> 6,064,700
<TOTAL-LIABILITY-AND-EQUITY> 57,585,500
<SALES> 0
<TOTAL-REVENUES> 6,931,500
<CGS> 0
<TOTAL-COSTS> 2,091,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,263,200
<INTEREST-EXPENSE> 2,013,800
<INCOME-PRETAX> 1,562,900
<INCOME-TAX> 515,300
<INCOME-CONTINUING> 1,047,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,047,600
<EPS-BASIC> 2.17
<EPS-DILUTED> 2.15
<FN>
<F1>FINANCIAL STATEMENTS OF THE COMPANY WERE PREPARED IN ACCORDANCE
WITH FINANCIAL INSTITUTION INDUSTRY STANDARDS. ACCORDINGLY, THE
COMPANY'S BALANCE SHEETS WERE NON-CLASSIFIED.
</FN>
</TABLE>
EXHIBIT 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 September 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>
