<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------
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)
(847) 564-5000
--------------------------------------------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
At April 30, 2000, there were 473,172,169 shares of registrant's
common stock outstanding.
<PAGE>
<PAGE> 2
HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES
Table of Contents
PART I. Financial Information Page
----
Item 1. Financial Statements
Condensed Consolidated Statements of Income
(Unaudited) - Three Months Ended March 31,
2000 and 1999 3
Condensed Consolidated Balance Sheets -
March 31, 2000 (Unaudited) and December 31, 1999 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Three Months Ended March 31, 2000
and 1999 5
Financial Highlights 6
Notes to Interim Condensed Consolidated Financial
Statements (Unaudited) 7
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 23
Signature 24
<PAGE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Household International, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- -------------------------------------------------------
<TABLE>
<CAPTION>
(In millions, except per share data)
- ------------------------------------------------------------------------------
Three months ended March 31 2000 1999
- ------------------------------------------------------------------------------
<S> <C> <C>
Finance income $1,916.0 $1,498.6
Other interest income 8.9 9.9
Interest expense 821.7 648.9
-------- --------
Net interest margin 1,103.2 859.6
Provision for credit losses on owned receivables 522.1 417.8
-------- --------
Net interest margin after provision for credit losses 581.1 441.8
-------- --------
Securitization income 346.4 324.9
Insurance revenues 135.0 142.2
Investment income 40.8 41.2
Fee income 179.3 129.7
Other income 133.3 109.2
-------- --------
Total other revenues 834.8 747.2
-------- --------
Salaries and fringe benefits 344.9 284.1
Occupancy and equipment expense 75.5 66.8
Other marketing expenses 133.1 88.5
Other servicing and administrative expenses 186.8 162.6
Amortization of acquired intangibles and goodwill 43.2 36.3
Policyholders' benefits 66.9 68.6
-------- --------
Total costs and expenses 850.4 706.9
-------- --------
Income before income taxes 565.5 482.1
Income taxes 192.6 161.3
-------- --------
Net income $ 372.9 $ 320.8
======== ========
Earnings per common share:
Net income $ 372.9 $ 320.8
Preferred dividends (2.3) (2.3)
-------- --------
Earnings available to common
shareholders $ 370.6 $ 318.5
======== ========
Average common shares 470.5 484.7
Average common and common equivalent shares 474.0 490.1
-------- --------
Basic earnings per common share $ .79 $ .66
Diluted earnings per common share .78 .65
-------- --------
Dividends declared per common share .17 .17
-------- --------
</TABLE>
See notes to interim condensed consolidated financial statements.
<PAGE>
<PAGE> 4
Household International, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
- -------------------------------------
<TABLE>
<CAPTION>
(In millions, except share data)
- -------------------------------------------------------------------------------
March 31, December 31,
2000 1999
- -------------------------------------------------------------------------------
ASSETS (UNAUDITED)
- ------
<S> <C> <C>
Cash $ 290.4 $ 270.6
Investment securities 3,203.3 3,128.1
Receivables, net 56,096.0 52,158.4
Acquired intangibles and goodwill, net 1,821.5 1,590.4
Properties and equipment, net 490.4 476.4
Real estate owned 301.0 271.5
Other assets 2,788.8 2,854.0
--------- ---------
Total assets $64,991.4 $60,749.4
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Debt:
Deposits $ 6,514.5 $ 4,980.0
Commercial paper, bank and other borrowings 10,299.7 10,777.8
Senior and senior subordinated debt (with
original maturities over one year) 37,226.3 34,887.3
--------- ---------
Total debt 54,040.5 50,645.1
Insurance policy and claim reserves 1,298.1 1,308.9
Other liabilities 2,124.1 1,805.1
--------- ---------
Total liabilities 57,462.7 53,759.1
--------- ---------
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, 550,526,953 and
550,431,057 shares issued at March 31, 2000
and December 31, 1999, respectively 550.5 550.4
Additional paid-in capital 1,871.9 1,780.8
Retained earnings 6,628.9 6,338.7
Accumulated other comprehensive income (207.3) (256.9)
Less common stock in treasury, 77,667,656 and
82,519,612 shares at March 31, 2000 and
December 31, 1999, respectively, at cost (1,854.7) (1,962.1)
--------- ---------
Total common shareholders' equity 6,989.3 6,450.9
--------- ---------
Total liabilities and shareholders' equity $64,991.4 $60,749.4
========= =========
* 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)
- -----------------------------------------------------------
<TABLE>
<CAPTION>
(In millions)
- ----------------------------------------------------------------------------------
Three months ended March 31 2000 1999
- ----------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATIONS
Net income $ 372.9 $ 320.8
Adjustments to reconcile net income to cash
provided by operations:
Provision for credit losses on owned receivables 522.1 417.8
Insurance policy and claim reserves 2.4 37.8
Depreciation and amortization 77.8 76.0
Other, net 440.9 176.7
--------- ---------
Cash provided by operations 1,416.1 1,029.1
--------- ---------
INVESTMENTS IN OPERATIONS
Investment securities:
Purchased (293.8) (467.0)
Matured 127.2 125.0
Sold 8.4 360.6
Short-term investment securities, net change 86.4 134.7
Receivables:
Originations, net (7,223.6) (6,837.7)
Purchases and related premiums (3,453.6) (1,010.2)
Sold 6,533.7 5,707.0
Acquisition of business operations (87.1) -
Properties and equipment purchased (34.6) (58.5)
Properties and equipment sold 4.0 2.8
--------- ---------
Cash decrease from investments in operations (4,333.0) (2,043.3)
--------- ---------
FINANCING AND CAPITAL TRANSACTIONS
Short-term debt and demand deposits, net change (496.4) 627.5
Time certificates, net change 1,079.3 125.9
Senior and senior subordinated debt issued 3,485.1 2,047.4
Senior and senior subordinated debt retired (1,104.3) (1,643.9)
Policyholders' benefits paid (31.9) (34.9)
Cash received from policyholders 12.5 32.7
Shareholders' dividends (82.7) (84.3)
Purchase of treasury stock (24.3) (232.9)
Issuance of common stock 10.8 1.9
--------- ---------
Cash increase from financing and
capital transactions 2,848.1 839.4
--------- ---------
Effect of exchange rate changes on cash 88.6 6.3
--------- ---------
Increase (decrease) in cash 19.8 (168.5)
Cash at January 1 270.6 457.4
--------- ---------
Cash at March 31 $ 290.4 $ 288.9
========= =========
Supplemental cash flow information:
Interest paid $ 834.3 $ 587.2
--------- ---------
Income taxes paid 49.9 54.6
--------- ---------
Supplemental non-cash investing and financing activities:
Common stock issued for acquisition $ 209.4 -
--------- ---------
</TABLE>
See notes to interim condensed consolidated financial statements.
<PAGE>
<PAGE> 6
Household International, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
(Dollar amounts are in millions)
- ------------------------------------------------------------------------------------
Three months ended March 31 2000 1999
- ------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 372.9 $ 320.8
Diluted earnings per common share .78 .65
Net interest margin and other revenues <F1> 1,871.1 1,538.2
Return on average common shareholders' equity, annualized 22.0% 20.3%
Return on average owned assets, annualized 2.37 2.38
Return on average managed assets, annualized 1.82 1.75
Managed basis efficiency ratio, normalized <F2> 36.2 35.6
- ------------------------------------------------------------------------------------
March 31, December 31,
(Dollar amounts are in millions) 2000 1999
- ------------------------------------------------------------------------------------
Total assets:
Owned $64,991.4 $60,749.4
Managed 84,248.7 80,188.3
--------- ---------
Receivables:
Owned $56,190.0 $52,289.4
Serviced with limited recourse 19,257.3 19,438.9
--------- ---------
Managed $75,447.3 $71,728.3
========= =========
Total shareholders' equity as a percent of owned
assets <F3> 11.58% 11.51%
--------- ---------
Total shareholders' equity as a percent of managed
assets <F3> 8.94 8.72
--------- ---------
Tangible equity to tangible managed assets <F4> 6.94 6.96
--------- ---------
<FN>
<F1> Policyholders' benefits have been netted against other revenues.
<F2> Ratio of operating expenses to managed net interest margin and
other revenues less policyholders' benefits, normalized.
<F3> Total shareholders' equity includes common shareholders'
equity, preferred stock and company obligated mandatorily
redeemable preferred securities of subsidiary trusts.
<F4> Tangible equity consists of total shareholders' equity,
excluding unrealized gains and losses on investments, less acquired
intangibles and goodwill. Tangible managed assets represent total
managed assets less acquired intangibles and goodwill.
</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
and 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. Results for
the three months ended March 31, 2000 should not be considered
indicative of the results for any future quarters or the year
ending December 31, 2000. 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, 1999.
2. ACQUISITIONS
- -----------------
On February 7, 2000, we purchased all of the outstanding capital
stock of Renaissance Holdings, Inc. ("Renaissance"), a privately
held issuer of secured and unsecured credit cards to non-prime
customers, for approximately 5.0 million of our common shares and
cash. The acquisition provided us with an established platform for
growing the non-prime credit card business and will expand our
product offerings to customers and prospects in our other
businesses. The acquisition was accounted for as a purchase, and
accordingly, Renaissance's operations have been included in our
results of operations from February 7, 2000.
3. INVESTMENT SECURITIES
- --------------------------
Investment securities consisted of the following available-for-sale
investments:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
(In millions) March 31, 2000 December 31, 1999
- ----------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Marketable equity securities $ 34.5 $ 36.4 $ 32.7 $ 33.4
Corporate debt securities 1,847.1 1,754.1 1,790.4 1,692.3
U.S. government and federal
agency debt securities 348.0 339.9 248.6 236.7
Other 1,033.0 1,033.0 1,128.0 1,127.5
-------- -------- -------- --------
Subtotal 3,262.6 3,163.4 3,199.7 3,089.9
Accrued investment income 39.9 39.9 38.2 38.2
-------- -------- -------- --------
Total investment securities $3,302.5 $3,203.3 $3,237.9 $3,128.1
======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE> 8
4. RECEIVABLES
- ----------------
Receivables consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
March 31, December 31,
(In millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Real estate secured $28,816.0 $24,661.9
Auto finance 1,439.7 1,233.5
MasterCard/Visa 6,505.4 6,314.4
Private label 9,857.6 10,119.7
Other unsecured 8,825.7 9,151.6
Commercial and other 745.6 808.3
--------- ---------
Total owned receivables 56,190.0 52,289.4
Accrued finance charges 957.5 879.3
Credit loss reserve for owned receivables (1,909.7) (1,757.0)
Unearned credit insurance premiums and
claims reserves (558.1) (569.3)
Amounts due and deferred from
receivables sales 2,367.7 2,225.6
Reserve for receivables serviced with
limited recourse (951.4) (909.6)
--------- ---------
Total owned receivables, net 56,096.0 52,158.4
Receivables serviced with limited recourse 19,257.3 19,438.9
--------- ---------
Total managed receivables, net $75,353.3 $71,597.3
========= =========
Receivables serviced with limited recourse consisted of the following:
- --------------------------------------------------------------------------------
March 31, December 31,
(In millions) 2000 1999
- --------------------------------------------------------------------------------
Real estate secured $ 2,028.5 $ 2,273.6
Auto finance 1,963.5 1,806.3
MasterCard/Visa 9,006.9 9,478.7
Private label 1,150.0 1,150.0
Other unsecured 5,108.4 4,730.3
--------- ---------
Total receivables serviced with limited recourse $19,257.3 $19,438.9
========= =========
The combination of owned receivables and receivables serviced with limited
recourse, which we consider our managed portfolio, consisted of the following:
- --------------------------------------------------------------------------------
March 31, December 31,
(In millions) 2000 1999
- --------------------------------------------------------------------------------
Real estate secured $30,844.5 $26,935.5
Auto finance 3,403.2 3,039.8
MasterCard/Visa 15,512.3 15,793.1
Private label 11,007.6 11,269.7
Other unsecured 13,934.1 13,881.9
Commercial and other 745.6 808.3
--------- ---------
Total managed receivables $75,447.3 $71,728.3
========= =========
</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 $2,337.2 million at March
31, 2000 and $2,230.5 million at December 31, 1999. It also
included net customer payments which we owed to the securitization
trustee of $6.9 million at March 31, 2000 and $68.9 million at
December 31, 1999. The reserve for receivables serviced with
limited recourse represents our best estimate of probable losses on
these receivables.
5. CREDIT LOSS RESERVES
- -------------------------
Changes to credit loss reserves during the three months ended March 31
were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(In millions) 2000 1999
- -------------------------------------------------------------------------------
<S> <C> <C>
Owned receivables:
Credit loss reserves at beginning of period $1,757.0 $1,734.2
Provision for credit losses 522.1 417.8
Chargeoffs (525.7) (480.7)
Recoveries 43.5 48.6
Portfolio acquisitions, net 112.8 9.8
-------- --------
Credit loss reserves for owned receivables at March 31 1,909.7 1,729.7
-------- --------
Receivables serviced with limited recourse:
Credit loss reserves at beginning of period 909.6 813.9
Provision for credit losses 294.1 253.7
Chargeoffs (264.7) (275.8)
Recoveries 14.9 14.4
Other, net (2.5) 8.6
-------- --------
Credit loss reserves for receivables serviced with
limited recourse at March 31 951.4 814.8
-------- --------
Total credit loss reserves for managed receivables
at March 31 $2,861.1 $2,544.5
======== ========
</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 global, national and regional economic conditions when
establishing credit loss reserves.
6. INCOME TAXES
- -----------------
Our effective tax rate was 34.1 percent for the three months ended
March 31, 2000 and 33.5 percent for the first three months of 1999.
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.
<PAGE>
<PAGE> 10
7. EARNINGS PER COMMON SHARE
- ------------------------------
Earnings per common share for the three months ended March 31 were
calculated as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
(In millions, except per share data) 2000 1999
- ---------------------------------------------------------------------------------
Diluted Basic Diluted Basic
------- ------ ------- ------
<S> <C> <C> <C> <C>
Earnings:
Net income $372.9 $372.9 $320.8 $320.8
Preferred dividends (2.3) (2.3) (2.3) (2.3)
------ ------ ------ ------
Earnings available to common shareholders $370.6 $370.6 $318.5 $318.5
====== ====== ====== ======
Average shares outstanding:
Common 470.5 470.5 484.7 484.7
Common equivalents 3.5 - 5.4 -
------ ------ ------ ------
Average shares outstanding
assuming dilution 474.0 470.5 490.1 484.7
====== ====== ====== ======
Earnings per common share $ .78 $ .79 $ .65 $ .66
====== ====== ====== ======
</TABLE>
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.
<PAGE>
<PAGE> 11
The obligations of Household with respect to the junior
subordinated notes, when considered together with certain
undertakings of Household with respect to HCT I, HCT II and HCT IV,
constitute full and unconditional guarantees by Household of HCT
I's, HCT II's and HCT IV's obligations under the respective
preferred securities. The preferred securities are classified in
our balance sheets as company obligated mandatorily redeemable
preferred securities of subsidiary trusts (representing the
minority interest in the trusts) at their face and redemption
amount of $375 million at March 31, 2000 and December 31, 1999. 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. Household cannot pay dividends on its
preferred and common stocks during such deferments.
9. FORWARD PURCHASE AGREEMENT
- -------------------------------
During the quarter, we entered into agreements to purchase, on a
forward basis, approximately 4.3 million shares of our common stock
at a weighted-average forward price of $33.60 per share. The
agreements may be settled either physically by purchasing the shares
or on a net basis in shares of our common stock, at our option. The
agreements have terms of up to one year but may be settled earlier
at our option. As of March 31, 2000, no settlements have occurred
under these agreements.
10. COMPREHENSIVE INCOME
- -------------------------
Comprehensive income was $422.5 million for the quarter ended March
31, 2000 and $284.0 million for the quarter ended March 31, 1999.
The components of accumulated other comprehensive income are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
March 31, December 31,
(In millions) 2000 1999
- -----------------------------------------------------------------------
<S> <C> <C>
Foreign currency translation adjustments $(193.7) $(185.6)
Unrealized gain (loss) on investments, net (13.6) (71.3)
------- -------
Accumulated other comprehensive income $(207.3) $(256.9)
======= =======
</TABLE>
11. SEGMENT REPORTING
- ----------------------
We have three reportable segments: Consumer, which includes our
domestic branch-based and correspondent 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,
1999.
<PAGE>
<PAGE> 12
Information about our reportable segments for the three months
ended March 31, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Owned Basis Three Months Ended
(In millions) March 31, 2000
- ---------------------------------------------------------------------------
Credit Inter-
Consumer Card national
--------- --------- --------
<S> <C> <C> <C>
Net interest margin and other
revenues <F1> $ 1,160.0 $ 398.7 $ 237.2
Intersegment revenues 37.9 8.1 1.2
Net income 241.1 29.4 64.3
Total assets 46,178.7 6,623.2 7,472.1
Total assets - managed 55,515.0 15,423.0 8,719.9
--------- --------- --------
- ---------------------------------------------------------------------------
Owned Basis Three Months Ended
(In millions) March 31, 1999
- ---------------------------------------------------------------------------
Credit Inter-
Consumer Card national
--------- --------- --------
Net interest margin and other
revenues <F1> $ 938.0 $ 292.5 $ 193.6
Intersegment revenues 31.4 2.7 .8
Net income 208.0 12.1 46.2
Total assets 36,075.1 6,155.3 7,135.6
Total assets - managed 45,100.4 14,898.3 8,288.4
--------- --------- --------
<FN>
<F1> Net interest margin and other revenues, including intersegment
revenues, net of policyholders' benefits.
</FN>
</TABLE>
A reconciliation of the total reportable segments' net income to consolidated
net income for the three months ended March 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(In millions) 2000 1999
- ----------------------------------------------------------------------------
<S> <C> <C>
Reportable segment net income $334.8 $266.3
Other operations not individually reportable 68.2 82.6
Adjustments/eliminations (30.1) (28.1)
------ ------
Total consolidated net income $372.9 $320.8
====== ======
</TABLE>
12. 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.
FASB Statement No. 137 deferred our required adoption of FAS No. 133
to January 1, 2001. We have not yet quantified the impact of FAS
No. 133 on our financial statements.
<PAGE>
<PAGE> 13
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, 1999 (the "1999 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 1999
Form 10-K.
OPERATIONS SUMMARY
- ------------------
Our net income for the first quarter of 2000 increased 16.2 percent
to $372.9 million, compared to $320.8 million a year ago. Diluted
earnings per share increased 20.0 percent to $.78 in the first
quarter compared to $.65 in the same period in 1999. Our improved
results were due to strong revenue growth driven by significant
receivables growth, partially offset by higher operating expenses
resulting from the portfolio growth as well as increased marketing
and e-commerce spending.
Our annualized return on average common shareholders' equity
("ROE") was 22.0 percent for the quarter compared to 20.3 percent
for the prior year quarter. Our annualized return on average owned
assets ("ROA") was 2.37 percent for the quarter compared to 2.38
percent for the prior year quarter. Our annualized return on
average managed assets ("ROMA") was 1.82 percent for the quarter
compared to 1.75 percent for the prior year quarter.
- - Operating results for our reportable operating segments for the
first quarter of 2000 compared to the corresponding prior year
period are summarized below:
Our Consumer segment reported higher net income over the prior
year quarter. Managed receivables grew to $53.8 billion at March
31, 2000, from $49.9 billion at December 31, 1999 and $43.3
billion at March 31, 1999. Our higher managed receivables were
driven by solid growth in real estate secured, other unsecured
and auto finance receivables. During the quarter, we also
acquired a $2.2 billion real estate loan portfolio. ROA was 2.19
percent for the quarter compared to 2.34 percent for the prior
year quarter. ROMA was 1.82 percent for the quarter compared to
1.87 percent for the prior year quarter. Operating results
reflect higher net interest margin partially offset by higher
sales incentive compensation and higher credit loss provision
reflecting the increased levels of receivables.
<PAGE>
<PAGE> 14
Our credit card segment also reported improved results for the
quarter. Managed receivables were $13.8 billion at March 31,
2000, $13.9 billion at December 31, 1999, and $13.4 billion at
March 31, 1999. Compared to year end, we experienced seasonal
runoff as well as continued attrition in our legacy undifferentiated
Household Bank branded portfolio on which we have limited our
marketing efforts. Seasonal runoff, however, was much lower than
what we experienced a year ago. During the quarter, we acquired
Renaissance, which essentially offset the previously mentioned
attrition. Compared with the prior year quarter, strong receivables
growth in the Union Privilege ("UP") portfolio and the impact of the
Renaissance acquisition was partially offset by the attrition
discussed above. ROA improved to 1.79 percent for the quarter
compared to .72 percent for the prior year quarter. ROMA was .75
percent for the quarter compared to .30 percent for the prior year
quarter. The improvement in operating results primarily was due to
increased net interest margin from better pricing and higher fee
income which was partially offset by higher marketing expenses.
In March, the new GM Card was launched. The new product includes
expanded Internet capabilities, new features for cardholders, and
a renewed emphasis on the GM dealer channel as an important source
of new account growth.
Results for our International segment improved for the first
quarter of 2000. Managed receivables were $7.6 billion at both
March 31, 2000 and December 31, 1999 and $7.2 billion at March
31, 1999. First quarter growth in our real estate secured and
private label portfolios was offset by seasonal run-off in
MasterCard* and Visa* receivables. Year-over-year receivables
growth primarily is attributable to higher MasterCard and Visa
receivables, led by continued strong growth in the Goldfish
Card, which we issue as part of our alliance with the Centrica
Group, and marblesTM, our Internet-based credit card that was
launched in the U.K. in October 1999. ROA was 3.40 percent for
the quarter compared to 2.21 percent for the prior year quarter.
ROMA increased to 2.97 percent for the quarter compared to 2.58
percent for the prior year quarter. The improvement in operating
results primarily was due to increased revenues and higher
receivables.
- - Pretax income from our tax refund anticipation loan ("RAL")
business increased from the prior year quarter contributing $.12
per share to first quarter earnings compared to $.10 in 1999.
Increases in both the number of loans and the average balance of
such loans was partially offset by reduced pricing.
- - Our normalized managed basis efficiency ratio increased to 36.2
percent for the current quarter compared to 35.6 percent for the
prior year quarter. 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 higher managed ratio reflects additional
marketing and e-commerce spending and costs related to the addition
of the Renaissance platform.
* MasterCard is a registered trademark of MasterCard
International, Incorporated and Visa is a registered trademark
of VISA USA, Inc.
<PAGE>
<PAGE> 15
BALANCE SHEET REVIEW
- --------------------
- - Strong receivables growth was a key driver of our improved
results. Total managed receivables increased 17.3 percent from a
year ago. Excluding the real estate secured and Renaissance
portfolios that we acquired this quarter, receivables were
up 13 percent with real estate secured loans up 20 percent.
All core products contributed to the year-over-year growth. The
strongest contributor was our U.S. consumer finance business,
which includes our real estate secured and unsecured products,
which reported growth of over 25 percent. The consumer finance
growth is the result of favorable competitor and market
conditions, improved customer retention, and increased
productivity from our branch sales force who continue to benefit
from our centralized lead management and point-of-sale system.
Auto finance receivables increased $1.4 billion over last year
to $3.4 billion. This business continued to benefit from
favorable market conditions and an expanded collection and sales
force.
MasterCard and Visa receivables were up 2.5 percent from last
year and were flat after excluding the purchased Renaissance
portfolio. Both our UP portfolio and our Goldfish card portfolio
in the U.K. reported double-digit year-over-year growth. This
growth was offset, as expected, by continued attrition in our
undifferentiated Household Bank portfolio and reflects our
strategy to de-emphasize this low margin business. Our sub-prime
card program continues to perform well. Including the
receivables and accounts we purchased as part of the Renaissance
acquisition, we now have over 2 million accounts and $660
million in receivables.
- - Compared to December 31, 1999, managed receivables increased 5.2
percent. Internally generated growth from our consumer finance
business was approximately 4 percent sequentially. Auto finance
growth was also strong in the quarter. This growth was offset by
normal, seasonal runoff in our MasterCard and Visa and private
label credit card portfolios. Attrition in the credit card
portfolios was less than expected and over 40 percent less than
the level a year ago.
- - Owned receivables were $56.2 billion at March 31, 2000, up from
$52.3 billion at December 31, 1999 and $45.4 billion at March 31,
1999. 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 4.58 percent at March
31, 2000, compared with 4.81 percent at December 31, 1999 and
5.04 percent at March 31, 1999. The annualized consumer owned
chargeoff ratio was 3.53 percent in the first quarter of 2000,
compared with 3.62 percent in the prior quarter and 3.92 percent
in the year-ago quarter.
- - Managed consumer two-months-and-over contractual delinquency
as a percent of managed consumer receivables was 4.43 percent
at March 31, 2000, compared with 4.66 percent at December 31,
1999 and 4.81 percent at March 31, 1999. The annualized total
consumer managed chargeoff ratio was 4.00 percent in the first
quarter of 2000, compared with 3.96 percent in the prior quarter
and 4.37 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 11.58 percent at
March 31, 2000 and 11.51 percent at December 31, 1999. The ratio
of total shareholders' equity to managed assets was 8.94 percent
at March 31, 2000 and 8.72 percent at December 31, 1999.
- - The ratio of tangible equity to tangible managed assets was 6.94
percent, compared with 6.96 percent at December 31, 1999. We
expect this ratio to increase over the next several quarters to
7.25 percent to 7.50 percent. In April 2000, we filed a registration
statement with the Securities and Exchange Commission to issue up to
$300 million of trust preferred stock or capital securities. The
proceeds will be used to reduce debt which was incurred in the
normal and ordinary course of our business and for other general
corporate purposes.
<PAGE>
<PAGE> 16
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 liquidity and interest rate risk strategy
continues to be conservative and we are largely unaffected by
changes in rates. Assuming we were to take no action to mitigate the
impact, a gradual 100 basis point rise in rates over a twelve month
period is projected to reduce our earnings per share by 8 cents.
During the first quarter, we repurchased 700 thousand shares of our
common stock as part of our 1999 share repurchase program. The
shares were repurchased on the open market for a total of $24.3
million. Since announcing the program in March 1999, we have
repurchased 17.5 million shares for a total of $737.2 million.
During the quarter, we entered into agreements to purchase, on a
forward basis, approximately 4.3 million shares of our common stock
at a weighted average forward price of $33.60 per share. The agreements
may be settled either physically by purchasing the shares or on a net
basis in shares of our common stock, at our option. The agreements have
terms of up to one year but may be settled earlier at our option. As of
March 31, 2000, no settlements have occurred under these agreements.
Deposits increased to $6.5 billion from $5.0 billion at December
31, 1999. Commercial paper, bank and other borrowings decreased to
$10.3 billion from $10.8 billion at year-end. Senior and senior
subordinated debt (with original maturities over one year)
increased to $37.2 billion from $34.9 billion at year-end and
included a $1.5 billion seven-year global note issuance. The
increase in debt levels from year end is consistent with the
increase in owned receivables.
Our securitized portfolio of real estate secured, auto finance,
MasterCard and Visa, private label and other unsecured receivables
totaled $19.3 billion at March 31, 2000, compared with $19.4
billion at December 31, 1999.
We securitized (excluding replenishments of certificate holder
interests) the following receivables:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
(In billions)
Three months ended March 31,2000 March 31, 1999
- ---------------------------------------------------------------------
<S> <C> <C>
Auto finance $ .5 $ .3
MasterCard/Visa .2 .2
Other unsecured .8 .3
---- ----
Total $1.5 $ .8
==== ====
</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 March 31,
2000, securitizations represented 26 percent of the funding
associated with our managed portfolio compared to just under 30
percent a year ago.
<PAGE>
<PAGE> 17
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 loan 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.
Pro Forma Managed Statements of Income
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
(Dollar amounts are in millions)
Three months ended March 31, 2000 * 1999 *
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance and other interest income $ 2,645.7 14.41% $ 2,209.3 13.58%
Interest expense 1,120.2 6.10 914.2 5.62
--------- ----- --------- -----
Net interest margin 1,525.5 8.31 1,295.1 7.96
Provision for credit losses 816.2 671.5
--------- ---------
Net interest margin after provision for
credit losses 709.3 623.6
--------- ---------
Insurance revenues 135.0 142.2
Investment income 40.8 41.2
Fee income 332.8 268.4
Securitization related income 64.7 4.4
Other income 133.3 109.2
--------- ---------
Total other revenues 706.6 565.4
--------- ---------
Salaries and fringe benefits 344.9 284.1
Occupancy and equipment expense 75.5 66.8
Other marketing expenses 133.1 88.5
Other servicing and administrative expenses 186.8 162.6
Amortization of acquired intangibles
and goodwill 43.2 36.3
Policyholders' benefits 66.9 68.6
--------- ---------
Total costs and expenses 850.4 706.9
--------- ---------
Income before taxes 565.5 482.1
Income taxes 192.6 161.3
--------- ---------
Net income $ 372.9 $ 320.8
========= =========
Average managed receivables $72,347.8 $64,098.7
Average noninsurance investments 657.9 557.6
Other interest-earning assets 426.0 405.5
--------- ---------
Average managed interest-earning assets $73,431.7 $65,061.8
========= =========
* As a percent, annualized, of appropriate earning assets.
</TABLE>
<PAGE>
<PAGE> 18
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 $1,103.2 million for the
first quarter of 2000, up 28.3 percent compared to the prior year
quarter. Net interest margin on a Managed Basis was $1,525.5
million for the first quarter of 2000, up 17.8 percent compared to
the year-ago quarter. The increases were primarily due to better
pricing and receivable growth, which were partially offset by
higher funding costs.
Net interest margin as a percent of average managed interest-
earning assets, annualized, expanded to 8.31 percent, up from 8.29
percent in the previous quarter and 7.96 percent in the year-ago
quarter. The sequential quarterly results reflect improved pricing
which was substantially offset by higher funding costs. The year-
over-year improvement resulted from better pricing in our consumer
finance and MasterCard and Visa portfolios somewhat offset by
higher funding costs.
Provision for credit losses
- ---------------------------
The provision for credit losses for receivables on an Owned Basis
for the first quarter of 2000 totaled $522.1 million, compared to
$417.8 million in the prior year quarter. The provision as a
percent of average owned receivables, annualized, was 3.91 percent
in the first quarter of 2000 compared to 3.74 percent in the first
quarter of 1999. 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 $816.2 million in the first quarter of 2000, compared to
$671.5 million in the prior year quarter. As a percent of average
managed receivables, annualized, the provision was 4.51 percent,
compared to 4.19 percent in the first quarter of 1999. 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.
Other revenues
- --------------
Total other revenues on an Owned Basis increased 11.7 percent over
the first quarter of 1999 to $834.8 million. On a Managed Basis,
total other revenues increased 25.0 percent to $706.6 million for
the quarter. 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, increased 6.6 percent to
$346.4 million for the quarter. The increase was primarily due
to increased fee income on 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 decreased 5.1 percent to $135.0 million for
the quarter. The decrease is primarily attributable to lower
revenues in the United Kingdom.
<PAGE>
<PAGE> 19
- - Fee income on an Owned Basis, which includes revenues from fee-
based products such as credit cards, increased 38.2 percent to
$179.3 million for the quarter. The increase is primarily due to
higher credit card fees from the Renaissance portfolio.
- - Fee income on a Managed Basis increased 24.0 percent to $332.8
million for the quarter. The increase was primarily due to
higher credit card fees as discussed above.
- - Securitization related income on a Managed Basis, which includes
the gross gains and amortization on our securitized portfolio,
increased $60.3 million to $64.7 million for the quarter. The
year-over-year increase was offset by a corresponding increase
in related credit loss provision. Securitization related income
will vary from quarter to quarter depending upon the amount and
mix of securitizations in a particular period.
- - Other income increased 22.1 percent to $133.3 million. The
increase is primarily due to higher RAL income as previously
discussed.
Expenses
- --------
Total costs and expenses increased 20.3 percent to $850.4 million
over the first quarter of 1999 reflecting increased marketing and
e-commerce spending as well as our Renaissance acquisition.
Significant fluctuations were as follows:
- - Salaries and fringe benefits increased 21.4 percent to $344.9
million for the quarter. The increase was primarily due to
higher sales and non-sales related compensation directly related
to growth in the consumer finance business and to the
Renaissance acquisition.
- - Occupancy and equipment expense increased 13.0 percent to $75.5
million for the quarter, primarily reflecting support facility
growth associated with our Tampa, Florida collections center.
- - Other marketing expenses increased 50.4 percent to $133.1
million for the quarter due to increased credit card marketing
initiatives.
- - Other servicing and administrative expenses increased 14.9
percent to $186.8 million for the quarter primarily due to e-
commerce initiatives and increased costs resulting from the
Renaissance acquisition.
- - Amortization of acquired intangibles and goodwill increased 19.0
percent to $43.2 million for the quarter. The increase reflects
higher goodwill amortization associated with the Renaissance
acquisition.
CREDIT LOSS RESERVES
- --------------------
Our consumer credit management policies focus on product type and
specific portfolio risk factors. When evaluating credit risk, we
believe that it is important to also consider risk adjusted revenue
because our biggest protection against credit loss is the ability
to price for it. Risk adjusted revenue on a managed basis increased
to 7.82 percent in the first quarter from 7.15 percent in the prior
year quarter. Our consumer credit portfolio is diversified by
product and geographic location. See Note 4, "Receivables" in the
accompanying financial statements for receivables by product type
and Note 5, "Credit Loss Reserves," for our credit loss reserve
methodology and an analysis of changes in the credit loss reserves
for the quarter.
<PAGE>
<PAGE> 20
Total managed credit loss reserves, which include reserves
established on the off-balance sheet portfolio when receivables are
securitized, were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
March 31, December 31, March 31,
(In millions) 2000 1999 1999
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Owned $1,909.7 $1,757.0 $1,729.7
Serviced with limited recourse 951.4 909.6 814.8
-------- -------- --------
Total managed credit loss reserves $2,861.1 $2,666.6 $2,544.5
======== ======== ========
</TABLE>
Managed credit loss reserves as a percent of nonperforming managed
receivables were 105.9 percent at March 31, 2000, compared to 100.1
percent at December 31, 1999 and 104.7 percent at March 31, 1999.
Total owned and managed credit loss reserves as a percent of
receivables were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
March 31, December 31, March 31,
2000 1999 1999
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Owned 3.40% 3.36% 3.81%
Managed 3.79 3.72 3.96
---- ---- ----
</TABLE>
The ratios at March 31, 2000 were impacted by our first quarter
acquisitions. The decreases in the ratios compared to March 1999
reflect the impact of a growing percentage of secured loans. Real
estate secured receivables, which have a significantly lower
chargeoff rate than unsecured receivables, represent 41 percent
of our total managed receivables at March 31, 2000, compared to
37 percent a year ago. MasterCard and Visa products were 21 percent
at quarter end, down from 24 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 Delinquency (as a percent of
consumer receivables):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
3/31/00 12/31/99 9/30/99 6/30/99 3/31/99
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Managed:
Real estate secured 2.99% 3.27% 3.46% 3.29% 3.54%
Auto finance 1.52 2.43 2.26 1.87 1.74
MasterCard/Visa 3.06 2.78 3.10 3.11 3.61
Private label 5.94 5.97 6.66 6.62 6.37
Other unsecured 8.56 8.81 8.57 8.17 7.84
---- ---- ---- ---- ----
Total 4.43% 4.66% 4.89% 4.72% 4.81%
==== ==== ==== ==== ====
Owned 4.58% 4.81% 5.24% 4.96% 5.04%
==== ==== ==== ==== ====
</TABLE>
<PAGE>
<PAGE> 21
Managed delinquency as a percentage of managed consumer receivables
improved substantially from both the prior quarter and the prior
year quarter. Dollars of delinquency were flat compared with the
prior quarter and better than expected. Real estate secured
delinquency continued to benefit from the growing percentage of
loans in our portfolio on which we hold a first lien position. The
improving trend in MasterCard and Visa delinquency was negatively
impacted in the quarter by the acquisition of the non-prime
Renaissance portfolio. The increase in other unsecured delinquency
over the prior year quarter is attributable to continued seasoning
in our Beneficial unsecured products.
The trends impacting owned consumer delinquency as a percent of
owned receivables are generally 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.
Net Chargeoffs of Consumer Receivables
- --------------------------------------
Net Chargeoffs of Consumer Receivables (as a percent, annualized,
of average consumer receivables):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
2000 1999 1999 1999 1999
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Managed:
Real estate secured .52% .54% .58% .64% .55%
Auto finance 5.25 5.43 4.55 4.41 5.45
MasterCard/Visa 5.69 5.57 6.15 7.30 7.59
Private label 5.65 5.88 5.60 5.57 5.53
Other unsecured 7.41 6.98 7.06 5.61 6.36
---- ---- ---- ---- ----
Total 4.00% 3.96% 4.09% 4.10% 4.37%
==== ==== ==== ==== ====
Owned 3.53% 3.62% 3.63% 3.54% 3.92%
==== ==== ==== ==== ====
</TABLE>
Managed net chargeoffs as a percent of average managed consumer
receivables for the first quarter of 2000 was essentially flat
compared to the prior quarter. Increases in our other unsecured
portfolio which were driven by our Beneficial portfolio was
substantially offset by decreases in our real estate secured and
auto finance portfolios.
The improved managed chargeoff ratio compared with the prior year
quarter primarily was due to lower chargeoffs in our MasterCard/Visa
portfolio.
The trends impacting owned net chargeoffs as a percent of owned
receivables are generally consistent with those described above for
our managed portfolio. Owned chargeoffs for our real estate secured
and private label products are comparable to managed chargeoffs.
Chargeoffs for MasterCard/Visa and other unsecured on an owned
basis are higher due to the difference in credit quality and
seasoning of the receivables which remain on our balance sheet.
Chargeoffs for auto finance receivables on an owned basis are lower
due to the predominantly unseasoned nature of the receivables which
remain on balance sheet.
<PAGE>
<PAGE> 22
Nonperforming Assets
- --------------------
Nonperforming assets consisted of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(In millions) 3/31/00 12/31/99 9/30/99 6/30/99 3/31/99
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Owned assets:
Nonaccrual receivables $1,503.6 $1,444.6 $1,421.8 $1,271.9 $1,192.2
Accruing consumer receivables
90 or more days delinquent 570.5 550.4 573.7 567.0 601.7
Renegotiated commercial loans 12.3 12.3 12.3 12.3 12.3
-------- -------- -------- -------- --------
Total nonperforming receivables 2,086.4 2,007.3 2,007.8 1,851.2 1,806.2
Real estate owned 301.0 271.5 234.4 249.6 244.7
-------- -------- -------- -------- --------
Total nonperforming assets $2,387.4 $2,278.8 $2,242.2 $2,100.8 $2,050.9
======== ======== ======== ======== ========
Credit loss reserves as a
percent of nonperforming
receivables 91.5% 87.5% 87.2% 93.9% 95.8%
-------- -------- -------- -------- --------
Managed assets:
Nonaccrual receivables $1,934.2 $1,912.6 $1,803.5 $1,667.4 $1,597.5
Accruing consumer receivables
90 or more days delinquent 755.0 739.9 751.5 747.3 819.8
Renegotiated commercial loans 12.3 12.3 12.3 12.3 12.3
-------- -------- -------- -------- --------
Total nonperforming
receivables 2,701.5 2,664.8 2,567.3 2,427.0 2,429.6
Real estate owned 301.0 271.5 234.4 249.6 244.7
-------- -------- -------- -------- --------
Total nonperforming assets $3,002.5 $2,936.3 $2,801.7 $2,676.6 $2,674.3
======== ======== ======== ======== ========
Credit loss reserves as
a percent of nonperforming
receivables 105.9% 100.1% 101.5% 104.0% 104.7%
-------- -------- -------- -------- --------
</TABLE>
<PAGE>
<PAGE> 23
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 Statement of Computation of Ratio of Earnings
to Fixed Charges and to Combined Fixed Charges and
Preferred Stock Dividends.
27 Financial Data Schedule.
99.1 Debt and Preferred Stock Securities Ratings.
(b) Reports on Form 8-K
During the first quarter of 2000, the registrant filed
a Current Report on Form 8-K dated January 19, 2000 with
respect to the financial results of Household
International, Inc., for the quarter and year ended
December 31, 1999.
<PAGE>
<PAGE> 24
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HOUSEHOLD INTERNATIONAL, INC.
-----------------------------
(Registrant)
Date: May 10, 2000 By: /s/ David A. Schoenholz
------------ ---------------------------
David A. Schoenholz
Group Executive -
Chief Financial Officer
and on behalf of
Household International, Inc.
<PAGE>
<PAGE> 25
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
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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)
Three months ended March 31 2000 1999
- ------------------------------------------------------------------
<S> <C> <C>
Net income $ 372.9 $ 320.8
Income taxes 192.6 161.3
-------- --------
Income before income taxes 565.5 482.1
-------- --------
Fixed charges:
Interest expense <F1> 827.6 651.2
Interest portion of rentals <F2> 13.0 10.9
-------- --------
Total fixed charges 840.6 662.1
-------- --------
Total earnings as defined $1,406.1 $1,144.2
======== ========
Ratio of earnings to fixed charges 1.67 1.73
======== ========
Preferred stock dividends <F3> $ 3.5 $ 3.5
======== ========
Ratio of earnings to combind fixed charges
and preferred stock dividends 1.67 1.72
======== ========
<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 34.1 percent
for the three months ended March 31, 2000.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SUMMARY FINNCIAL INFORMATION OF THE COMANY AND ITS
SUBSIDIARIES IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION
AND FINANCIAL STATEMENTS PREVIOUSLY FILED WITH THE SECURITIES &
EXCHANGE COMMISSION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 290,400
<SECURITIES> 3,203,300
<RECEIVABLES> 56,190,000
<ALLOWANCES> 2,861,100
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,280,500
<DEPRECIATION> 790,100
<TOTAL-ASSETS> 65,991,400
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 37,226,300
0
164,400
<COMMON> 550,500
<OTHER-SE> 6,813,800
<TOTAL-LIABILITY-AND-EQUITY> 64,991,400
<SALES> 0
<TOTAL-REVENUES> 2,759,700
<CGS> 0
<TOTAL-COSTS> 850,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 522,100
<INTEREST-EXPENSE> 821,700
<INCOME-PRETAX> 565,500
<INCOME-TAX> 192,600
<INCOME-CONTINUING> 372,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 372,900
<EPS-BASIC> .79
<EPS-DILUTED> .78
<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 <F1>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Standard Moody's Duff & Phelps
& Poor's Investors Fitch Credit Thomson
Corporation Service IBCA Rating Co. BankWatch
- ------------------------------------------------------------------------------------------------------
At March 31, 2000
- ------------------------------------------------------------------------------------------------------
<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
- ------------------------------------------------------------------------------------------------------
<FN>
<F1> A security rating is not a recommendation to buy, sell or hold
securities. It may be subject to revision or withdrawal at any
time by the assigning rating organization. Each rating should
be evaluated independently of any other rating.
</FN>
</TABLE>
