<PAGE> 1
FORM 10-Q
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, 1995
------------------
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 1-75
------
HOUSEHOLD FINANCE CORPORATION
- ------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-1239445
- ------------------------ ------------------------------------
(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: (708) 564-5000
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
At October 31, 1995, there were 1,000 shares of registrant's common stock
outstanding.<PAGE>
<PAGE> 2
Part 1. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS
Household Finance Corporation and Subsidiaries
STATEMENTS OF INCOME
- --------------------
<TABLE>
<CAPTION>
In millions.
- ------------------------------------------------------------------------------------------------------
Nine Months Ended Three Months Ended
September 30, September 30,
1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance income. . . . . . . . . . . . . . . . . . . . . . $1,280.1 $1,096.4 $457.9 $381.5
Interest income from noninsurance investment securities . 28.7 28.3 9.2 10.3
Interest expense. . . . . . . . . . . . . . . . . . . . . 610.7 435.2 214.7 163.3
--------------------------------------------
Net interest margin . . . . . . . . . . . . . . . . . . . 698.1 689.5 252.4 228.5
Provision for credit losses on owned receivables. . . . . 386.5 344.0 135.3 126.0
--------------------------------------------
Net interest margin after provision for credit losses . . 311.6 345.5 117.1 102.5
--------------------------------------------
Securitization income . . . . . . . . . . . . . . . . . . 298.6 215.9 100.9 74.3
Insurance premiums and contract revenues. . . . . . . . . 210.9 157.7 69.5 21.9
Investment income . . . . . . . . . . . . . . . . . . . . 414.0 381.6 143.0 127.1
Fee income. . . . . . . . . . . . . . . . . . . . . . . . 84.3 58.4 32.9 22.1
Other income. . . . . . . . . . . . . . . . . . . . . . . 92.2 92.1 65.1 37.6
--------------------------------------------
Total other revenues. . . . . . . . . . . . . . . . . . . 1,100.0 905.7 411.4 283.0
--------------------------------------------
Salaries and fringe benefits. . . . . . . . . . . . . . . 223.1 179.2 110.0 60.0
Other operating expenses. . . . . . . . . . . . . . . . . 502.5 473.3 173.8 145.7
Policyholders' benefits . . . . . . . . . . . . . . . . . 399.0 328.9 128.0 80.7
--------------------------------------------
Total costs and expenses. . . . . . . . . . . . . . . . . 1,124.6 981.4 411.8 286.4
--------------------------------------------
Income before income taxes. . . . . . . . . . . . . . . . 287.0 269.8 116.7 99.1
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 96.3 88.2 41.6 32.6
--------------------------------------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 190.7 $ 181.6 $ 75.1 $ 66.5
============================================
See notes to condensed financial statements.
/TABLE
<PAGE>
<PAGE> 3
Household Finance Corporation and Subsidiaries
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
In millions.
- ----------------------------------------------------------------------------------------------------
September 30, December 31,
1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ------
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 408.8 $ 97.3
Investment securities (fair value of $7,766.2 and $7,205.7) 7,650.5 7,249.6
Receivables, net. . . . . . . . . . . . . . . . . . . . . . 12,874.3 10,476.3
Assets pending sale . . . . . . . . . . . . . . . . . . . . - 398.3
Advances to parent company and affiliates . . . . . . . . . 78.3 482.3
Deferred insurance policy acquisition costs . . . . . . . . 468.1 621.4
Acquired intangibles. . . . . . . . . . . . . . . . . . . . 313.4 357.2
Properties and equipment. . . . . . . . . . . . . . . . . . 320.3 211.5
Real estate owned . . . . . . . . . . . . . . . . . . . . . 108.7 124.6
Other assets. . . . . . . . . . . . . . . . . . . . . . . . 752.6 992.9
--------------------------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . $22,975.0 $21,011.4
================================
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
Debt:
Commercial paper, bank and other borrowings . . . . . . . $ 4,144.2 $ 3,800.6
Senior and senior subordinated debt (with original
maturities over one year) . . . . . . . . . . . . . . . 8,397.4 7,728.3
--------------------------------
Total debt. . . . . . . . . . . . . . . . . . . . . . . . . 12,541.6 11,528.9
Insurance policy and claim reserves . . . . . . . . . . . . 6,959.7 6,643.4
Other liabilities . . . . . . . . . . . . . . . . . . . . . 1,333.0 880.0
--------------------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 20,834.3 19,052.3
--------------------------------
Preferred stock . . . . . . . . . . . . . . . . . . . . . . 100.0 100.0
--------------------------------
Common shareholder's equity:
Common stock and paid-in capital. . . . . . . . . . . . . 691.2 691.2
Retained earnings . . . . . . . . . . . . . . . . . . . . 1,350.5 1,260.2
Foreign currency translation adjustments. . . . . . . . . (8.4) (8.9)
Unrealized gain (loss) on investments, net. . . . . . . . 7.4 (83.4)
--------------------------------
Total common shareholder's equity . . . . . . . . . . . . . 2,040.7 1,859.1
--------------------------------
Total liabilities and shareholder's equity. . . . . . . . . $22,975.0 $21,011.4
================================
See notes to condensed financial statements.
/TABLE
<PAGE>
<PAGE> 4
Household Finance Corporation and Subsidiaries
STATEMENTS OF CASH FLOWS
- ------------------------
<TABLE>
<CAPTION>
In millions.
- -----------------------------------------------------------------------------------------------------
Nine months ended September 30 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATIONS
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 190.7 $ 181.6
Adjustments to reconcile net income to net cash provided by operations:
Provision for credit losses on owned receivables. . . . . . . . 386.5 344.0
Insurance policy and claim reserves . . . . . . . . . . . . . . 383.7 201.2
Depreciation and amortization . . . . . . . . . . . . . . . . . 139.0 110.3
Net realized (gains) losses from sales of assets. . . . . . . . 18.2 (12.3)
Deferred insurance policy acquisition costs . . . . . . . . . . (57.9) (70.7)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 548.2 (18.5)
--------------------------------
Cash provided by operations . . . . . . . . . . . . . . . . . . . 1,608.4 735.6
--------------------------------
INVESTMENTS IN OPERATIONS
Investment securities:
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,060.6) (2,241.2)
Matured . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324.9 423.5
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,286.6 1,370.8
Short-term investment securities, net change. . . . . . . . . . . 370.2 70.1
Receivables, excluding bankcard:
Originated or purchased . . . . . . . . . . . . . . . . . . . . (6,142.4) (5,250.2)
Collected . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,759.2 3,037.0
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,498.2 966.8
Bankcard receivables:
Originated or collected, net. . . . . . . . . . . . . . . . . . (3,921.6) (1,862.1)
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . (10.2) (12.8)
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,478.4 1,376.8
Acquisition of businesses, net. . . . . . . . . . . . . . . . . . (10.4) (138.1)
Properties and equipment purchased. . . . . . . . . . . . . . . . (29.9) (22.8)
Properties and equipment sold . . . . . . . . . . . . . . . . . . 4.5 .6
Advances to parent company and affiliates . . . . . . . . . . . . 404.0 (174.9)
-------------------------------
Cash decrease from investments in operations. . . . . . . . . . . (2,049.1) (2,456.5)
-------------------------------
FINANCING AND CAPITAL TRANSACTIONS
Short-term debt, net change . . . . . . . . . . . . . . . . . . . 343.6 158.1
Senior and senior subordinated debt issued. . . . . . . . . . . . 2,193.8 2,850.6
Senior and senior subordinated debt retired . . . . . . . . . . . (1,622.4) (1,709.3)
Policyholders' benefits paid. . . . . . . . . . . . . . . . . . . (713.1) (396.4)
Cash received from policyholders. . . . . . . . . . . . . . . . . 650.7 710.5
Dividends on preferred stock. . . . . . . . . . . . . . . . . . . (5.4) (5.3)
Dividends paid to parent company. . . . . . . . . . . . . . . . . (95.0) -
Capital contribution from parent company. . . . . . . . . . . . . - 140.0
--------------------------------
Cash increase from financing and capital transactions . . . . . . 752.2 1,748.2
--------------------------------
Increase in cash. . . . . . . . . . . . . . . . . . . . . . . . . 311.5 27.3
Cash at January 1 . . . . . . . . . . . . . . . . . . . . . . . . 97.3 27.8
--------------------------------
Cash at September 30 . . . . . . . . . . . . . . . . . . . . . . $ 408.8 $ 55.1
================================
Supplemental cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . $ 520.8 $ 459.3
================================
Income taxes paid (received). . . . . . . . . . . . . . . . . . . $ (17.8) $ 170.1
================================
See notes to condensed financial statements.
/TABLE
<PAGE>
<PAGE> 5
Household Finance Corporation and Subsidiaries
BUSINESS SEGMENT DATA
- ---------------------
The company reassessed the significance of its Liquidating Commercial Lines
("LCL") segment as of December 31, 1994. In recognition of the significant
1994 decline in the level of LCL assets and a reduced risk posture for
these assets, the LCL segment has been combined with the Finance and Banking
segment. To better analyze financial condition and results of operations
and related trends, prior year earnings and selected balance sheet data have
been reclassified to reflect this combination.
In October 1995 the company sold most of the product lines of the Individual
Life Insurance segment. See discussion on page 10 for information on these
sold product lines. Due to the insignificance of the remaining product
lines in this segment, the company will discontinue separately reporting
results for the Individual Life Insurance segment beginning in the fourth
quarter of 1995.
<TABLE>
<CAPTION>
In millions.
- -----------------------------------------------------------------------------------------------------
Nine Months Ended Three Months Ended
September 30, September 30,
1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
- --------
Finance and Banking . . . . . . . . . . . . . . . . . . . . $1,861.0 $1,595.6 $673.0 $561.7
Individual Life Insurance . . . . . . . . . . . . . . . . . 520.2 434.8 177.9 113.1
----------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,381.2 $2,030.4 $850.9 $674.8
========================================
NET INCOME
- ----------
Finance and Banking . . . . . . . . . . . . . . . . . . . . $ 148.5 $ 141.9 $ 57.2 $ 49.1
Individual Life Insurance . . . . . . . . . . . . . . . . . 42.2 39.7 17.9 17.4
----------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 190.7 $ 181.6 $ 75.1 $ 66.5
========================================
Return on average owned assets* . . . . . . . . . . . . . . 1.14% 1.17% 1.29% 1.24%
----------------------------------------
Return on average common shareholder's equity*. . . . . . . 12.4% 13.4% 14.2% 14.3%
----------------------------------------
*Annualized
</TABLE>
<TABLE>
<CAPTION>
In millions.
- -----------------------------------------------------------------------------------------------------
September 30, December 31,
Assets 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance and Banking . . . . . . . . . . . . . . . . . . . . $15,048.3 $13,570.0
Individual Life Insurance . . . . . . . . . . . . . . . . . 7,926.7 7,441.4
-------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,975.0 $21,011.4
===============================
See notes to condensed financial statements.
/TABLE
<PAGE>
<PAGE> 6
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Accounting policies used in preparation of the quarterly condensed
financial statements are consistent with accounting policies described
in the notes to financial statements contained in Household Finance
Corporation's (the "company") Annual Report on Form 10-K for its fiscal
year ended December 31, 1994. The information furnished herein reflects
all adjustments which are, in the opinion of management, necessary for
a fair statement of results for the interim periods. All such
adjustments are of a normal recurring nature. Certain prior period
amounts have been reclassified to conform with the current period's
presentation.
2. INVESTMENT SECURITIES
---------------------
<TABLE>
<CAPTION>
Investment securities consisted of the following:
---------------------------------------------------------------------------------------------------
In millions. September 30, 1995 December 31, 1994
---------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRADING INVESTMENTS
Government securities and other . . . . . . . . . . . . - - $ 2.9 $ 2.9
------------------------------------------
AVAILABLE-FOR-SALE INVESTMENTS
Marketable equity securities . . . . . . . . . . . . . $ 177.3 $ 177.3 53.9 53.9
Corporate debt securities . . . . . . . . . . . . . . . 2,741.3 2,741.3 2,545.9 2,545.9
Government debt securities. . . . . . . . . . . . . . . 348.1 348.1 211.3 211.3
Mortgage-backed securities. . . . . . . . . . . . . . . 785.4 785.4 817.9 817.9
Other . . . . . . . . . . . . . . . . . . . . . . . . . 45.1 45.1 62.5 62.5
------------------------------------------
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . 4,097.2 4,097.2 3,691.5 3,691.5
------------------------------------------
HELD-TO-MATURITY INVESTMENTS
Corporate debt securities . . . . . . . . . . . . . . . 1,726.3 1,841.0 1,827.4 1,818.3
Government debt securities. . . . . . . . . . . . . . . 21.4 21.5 23.1 20.6
Mortgage-backed securities. . . . . . . . . . . . . . . 1,151.1 1,151.4 1,063.1 1,041.9
Mortgage loans on real estate . . . . . . . . . . . . . 137.9 137.9 161.9 158.5
Policy loans. . . . . . . . . . . . . . . . . . . . . . 82.2 82.2 72.7 72.7
Other . . . . . . . . . . . . . . . . . . . . . . . . . 313.0 313.6 298.1 290.4
------------------------------------------
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . 3,431.9 3,547.6 3,446.3 3,402.4
------------------------------------------
Accrued investment income . . . . . . . . . . . . . . . 121.4 121.4 108.9 108.9
------------------------------------------
Total investment securities . . . . . . . . . . . . . . $7,650.5 $7,766.2 $7,249.6 $7,205.7
==========================================
</TABLE>
In October 1995 the company sold most of the product lines, and related
assets, of the Individual Life Insurance segment. Assets sold consisted
principally of investment securities. See discussion on page 18 for
the amount of investment securities sold in connection with this
transaction.<PAGE>
<PAGE> 7
3. RECEIVABLES
-----------
<TABLE>
<CAPTION>
Receivables consisted of the following:
-------------------------------------------------------------------------------------------------
September 30, December 31,
In millions. 1995 1994
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Home equity . . . . . . . . . . . . . . . . . . . . . . $ 2,327.2 $ 1,570.4
Other secured . . . . . . . . . . . . . . . . . . . . . 148.3 141.9
Bankcard. . . . . . . . . . . . . . . . . . . . . . . . 4,018.9 2,663.0
Merchant participation. . . . . . . . . . . . . . . . . 2,600.0 1,843.4
Other unsecured . . . . . . . . . . . . . . . . . . . . 2,521.2 2,865.9
Equipment financing and other commercial. . . . . . . . 916.9 1,066.6
------------------------------------
Total receivables owned . . . . . . . . . . . . . . . . 12,532.5 10,151.2
Accrued finance charges . . . . . . . . . . . . . . . . 201.5 176.5
Credit loss reserve for owned receivables . . . . . . . (490.2) (413.7)
Unearned credit insurance premiums and claims reserves. (50.9) (45.9)
Amounts due and deferred from receivables sales . . . . 905.5 789.9
Reserve for receivables serviced with limited recourse. (224.1) (181.7)
-------------------------------------
Total receivables owned, net. . . . . . . . . . . . . . 12,874.3 10,476.3
Receivables serviced with limited recourse. . . . . . . 7,528.7 7,808.8
-------------------------------------
Total managed receivables, net. . . . . . . . . . . . . $20,403.0 $18,285.1
=====================================
The outstanding balance of receivables serviced with limited recourse
consisted of the following:
-------------------------------------------------------------------------------------------------
September 30, December 31,
In millions. 1995 1994
-------------------------------------------------------------------------------------------------
Home equity . . . . . . . . . . . . . . . . . . . . . . $ 4,517.4 $ 5,074.6
Bankcard. . . . . . . . . . . . . . . . . . . . . . . . 1,248.9 1,866.0
Merchant participation. . . . . . . . . . . . . . . . . 750.0 868.2
Other unsecured . . . . . . . . . . . . . . . . . . . . 1,012.4 -
-------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,528.7 $ 7,808.8
=====================================
The combination of receivables owned and receivables serviced with limited
recourse, which the company considers its managed portfolio, is shown below:
-------------------------------------------------------------------------------------------------
September 30, December 31,
In millions. 1995 1994
-------------------------------------------------------------------------------------------------
Home equity . . . . . . . . . . . . . . . . . . . . . . $ 6,844.6 $ 6,645.0
Other secured . . . . . . . . . . . . . . . . . . . . . 148.3 141.9
Bankcard. . . . . . . . . . . . . . . . . . . . . . . . 5,267.8 4,529.0
Merchant participation. . . . . . . . . . . . . . . . . 3,350.0 2,711.6
Other unsecured . . . . . . . . . . . . . . . . . . . . 3,533.6 2,865.9
Equipment financing and other commercial. . . . . . . . 916.9 1,066.6
-------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $20,061.2 $17,960.0
=====================================
/TABLE
<PAGE>
<PAGE> 8
The amounts due and deferred from receivables sales of $905.5 million at
September 30, 1995 included unamortized excess servicing assets and funds
established pursuant to the recourse provisions and holdback reserves for
certain sales totaling $782.0 million. The amounts due and deferred also
included customer payments not yet remitted by the securitization trustee
to the company. In addition, the company has made guarantees relating to
certain securitizations of $270.6 million plus unpaid interest and has
subordinated interests in certain transactions, which are recorded as
receivables, for $61.6 million at September 30, 1995. The company has an
agreement with a "AAA"-rated third party who will indemnify the company for
up to $21.2 million in losses relating to certain securitization
transactions. The company maintains credit loss reserves pursuant to the
recourse provisions for receivables serviced with limited recourse which
are based on estimated probable losses under such provisions. These
reserves totaled $224.1 million at September 30, 1995 and represent the
company's best estimate of probable losses on receivables serviced with
limited recourse.
See Note 4, "Credit Loss Reserves" for an analysis of credit loss reserves
for receivables. See "Management's Discussion and Analysis" on pages 15
through 17 for additional information related to the credit quality of
receivables.
4. CREDIT LOSS RESERVES
--------------------
<TABLE>
<CAPTION>
An analysis of credit loss reserves for the nine months ended September 30
was as follows:
----------------------------------------------------------------------------------------------
In millions. 1995 1994
----------------------------------------------------------------------------------------------
<S> <C> <C>
Credit loss reserves for owned receivables at January 1 . . . . . $ 413.7 $ 452.7
Provision for credit losses - owned receivables . . . . . . . . . 386.5 344.0
Owned receivables charged off . . . . . . . . . . . . . . . . . . (392.0) (390.8)
Recoveries on owned receivables . . . . . . . . . . . . . . . . . 62.6 59.5
Credit loss reserves on receivables purchased, net. . . . . . . . 9.6 -
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.8 (1.7)
-----------------------
TOTAL CREDIT LOSS RESERVES FOR OWNED RECEIVABLES AT SEPTEMBER 30 490.2 463.7
-----------------------
Credit loss reserves for receivables serviced with
limited recourse at January 1 . . . . . . . . . . . . . . . . . 181.7 134.5
Provision for credit losses . . . . . . . . . . . . . . . . . . . 163.9 92.3
Chargeoffs. . . . . . . . . . . . . . . . . . . . . . . . . . . . (130.5) (109.3)
Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 3.5
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8 2.3
-----------------------
TOTAL CREDIT LOSS RESERVES FOR RECEIVABLES SERVICED WITH
LIMITED RECOURSE AT SEPTEMBER 30. . . . . . . . . . . . . . . . 224.1 123.3
-----------------------
TOTAL CREDIT LOSS RESERVES FOR MANAGED RECEIVABLES AT SEPTEMBER 30 $ 714.3 $ 587.0
=======================
</TABLE>
5. INCOME TAXES
------------
Effective tax rates for the nine months ended September 30, 1995 and
1994 of 33.6 and 32.7 percent, respectively, differ from the statutory
federal income tax rate for the respective periods primarily because
of the effects of (a) leveraged lease tax benefits, (b) dividends
received deduction applicable to term preferred stock, (c) amortization
of intangible assets, (d) state and local income taxes, (e) increase in
1995 and reduction in 1994 of noncurrent tax requirements and (f) foreign
loss carry forwards in 1994.
6. TRANSACTIONS WITH PARENT COMPANY AND AFFILIATES
-----------------------------------------------
HFC periodically advances funds to Household International and affiliates
or receives amounts in excess of the parent company's current requirements.
Advances to parent company and affiliates were $78.3 million at
September 30, 1995 compared to $482.3 million at December 31, 1994.
Advances from parent company and affiliates, which are included in other
liabilities, were $2.6 million at September 30, 1995 and $203.0 million at
December 31, 1994. Net interest income on these affiliated balances was
$15.9 and $18.6 million for the nine months ended September 30, 1995 and
1994, respectively.
<PAGE>
<PAGE> 9
In July 1995 the company acquired approximately $165 million of other
unsecured receivables from its parent at net book value.
In July 1995 the company acquired from its parent an affiliated company
that provides servicing primarily for Household International's domestic
credit card portfolio. The company acquired this servicing subsidiary,
including approximately $125 million of property and equipment, at net
book value. This entity did not have a material impact on the company's
net income for the third quarter of 1995. Revenues related to servicing
receivable portfolios for affiliates totaled approximately $52 million
for the third quarter of 1995. This servicing revenue is recorded in
other income on the consolidated statements of income.
<PAGE>
<PAGE> 10
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CONSOLIDATED OVERVIEW
Operations Summary
------------------
Net income for the third quarter and first nine months of 1995 was $75.1
and $190.7 million, compared to $66.5 and $181.6 million in the
respective 1994 periods.
- The following is a summary of the operating results of the company's
Finance and Banking businesses for the third quarter and first nine
months of 1995 compared to the corresponding prior year periods:
The consumer finance business reported higher earnings in the
third quarter and first nine months of 1995 primarily due to
portfolio growth and improved efficiency.
The credit card business had lower earnings compared to the
prior year periods primarily due to lower earnings in the
private-label credit card business as a result of higher credit
costs associated with discontinued merchant programs. Earnings
in the bankcard business increased compared to the first nine
months of 1994, but were essentially flat compared to the
year-ago quarter, as higher net interest margin and fee income
from portfolio growth were partially offset by higher credit
costs resulting from portfolio seasoning. In the second quarter
of 1994, the company began issuing the General Motors credit
card ("GM Card"), which previously had been issued by an
affiliate of the company.
Operating results in the commercial business were essentially
unchanged compared to the year-ago quarter but were higher
than the first nine months of 1994. In the quarter, lower
credit costs and operating expenses were partially offset by
lower net interest margin due to lower asset levels compared to
a year ago. Earnings in the first nine months of 1995 also
benefited from gains on the disposition of assets in the
second quarter of 1995.
- In October 1995 the company sold the individual life and annuity
product lines of its wholly-owned life insurance subsidiary,
Alexander Hamilton Life Insurance Company of America ("Alexander
Hamilton"). At September 30, Alexander Hamilton had assets,
principally investment securities, related to its individual life
and annuity product lines totaling approximately $6.5 billion. For
the first nine months of 1995, these product lines contributed
revenues of $400 million and net income of $34 million. The
annualized return on average common shareholder's equity ("ROE")
of the sold product lines was 8.2 percent, and the annualized
return on average owned assets ("ROA") was .73 percent for the nine
months ended September 30, 1995. The company expects that the
sale will not have a material impact on operating results when
recorded in the fourth quarter of 1995.
Balance Sheet Review
--------------------
- Owned assets totaled $23.0 billion at September 30, 1995, up 10
percent from $21.0 billion at December 31, 1994. The increase was
primarily due to growth in owned home equity and credit card
receivables.
- Managed consumer receivables (owned receivables plus those serviced
with limited recourse) increased 12 percent on an annualized basis
in the third quarter of 1995 and grew 17 percent over the prior year.
On an annualized basis, credit cards were up 21 percent and other
unsecured receivables increased 36 percent during the third quarter.
Compared to a year ago, credit card receivables grew 29 percent and
other unsecured receivables increased 32 percent. Home equity
receivables were essentially unchanged compared to the June 30,
1995 and September 30, 1994 levels.
- Credit loss reserves as a percent of managed receivables were 3.56
percent, compared to 3.24 percent at June 30, 1995 and 3.26 percent at
September 30, 1994. Reserves as a percent of nonperforming managed
receivables increased to 114.0 percent from 106.7 percent at June 30,
1995 and 97.1 percent at September 30, 1994. Consumer two-months-
<PAGE>
<PAGE> 11
and-over contractual delinquency ("delinquency") as a percent of
managed consumer receivables was 3.75 percent, up from 3.60 percent
at June 30, 1995 and down from 3.85 percent at September 30, 1994.
The annualized total consumer managed chargeoff ratio in the third
quarter of 1995 was 3.30 percent, compared to 3.08 percent in the
prior quarter and 3.02 percent in the year-ago quarter.
- The company's debt to equity ratio was 5.9 to 1 at both
September 30, 1995 and December 31, 1994. The December 31, 1994
ratio was affected by Statement of Financial Accounting Standards
No. 115 ("FAS No. 115") which requires that unrealized gains or
losses in certain debt and equity securities be recorded as an
adjustment to shareholder's equity. While FAS No. 115 provides
for the adjustment of certain debt and equity securities to fair
value, it does not allow for a corresponding adjustment for a
change in related liabilities. Therefore, unrealized gains and
losses do not reflect the change in the economic value of
shareholder's equity due to changes in interest rates. The company
believes that the change in fair value of liabilities should offset
a significant amount of the change in the fair value of its
investment portfolio. Excluding the effect of the FAS No. 115
component of shareholder's equity, the company's debt to equity
ratio was 5.6 to 1 at December 31, 1994. The September 30,
1995 debt to equity ratio was not impacted by FAS No. 115.
- In July 1995 Standard & Poor's Ratings Group ("S&P") revised
its outlook on the company from stable to positive based on strong
reserve coverage and recent expense control initiatives.
<PAGE>
<PAGE> 12
FINANCE AND BANKING
-------------------
<TABLE>
<CAPTION>
Statements of Income
---------------------------------------------------------------------------------------------------
Nine Months Ended Three Months Ended
September 30, September 30,
All dollar amounts are stated in millions. 1995 1994 1995 1994
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance income. . . . . . . . . . . . . . . . . . . . $ 1,280.1 $ 1,096.4 $ 457.9 $ 381.5
Interest income from noninsurance investment securities 28.7 28.3 9.2 10.3
Interest expense. . . . . . . . . . . . . . . . . . . 610.7 431.9 214.7 162.2
---------------------------------------------
Net interest margin . . . . . . . . . . . . . . . . . 698.1 692.8 252.4 229.6
Provision for credit losses on owned receivables. . . 386.5 344.0 135.3 126.0
---------------------------------------------
Net interest margin after provision for credit losses 311.6 348.8 117.1 103.6
---------------------------------------------
Securitization income . . . . . . . . . . . . . . . . 298.6 215.9 100.9 74.3
Insurance premiums and contract revenues. . . . . . . 103.1 95.0 35.2 33.3
Investment income . . . . . . . . . . . . . . . . . . 1.6 9.5 (.6) 2.6
Fee income. . . . . . . . . . . . . . . . . . . . . . 84.3 58.4 32.9 22.1
Other income. . . . . . . . . . . . . . . . . . . . . 92.2 92.1 65.1 37.6
---------------------------------------------
Total other revenues. . . . . . . . . . . . . . . . . 579.8 470.9 233.5 169.9
---------------------------------------------
Costs and expenses:
Salaries and fringe benefits. . . . . . . . . . . . 206.5 160.2 104.8 54.5
Other operating expenses. . . . . . . . . . . . . . 418.2 408.0 142.6 131.9
Policyholders' benefits . . . . . . . . . . . . . . 44.6 43.6 14.1 15.2
Income taxes. . . . . . . . . . . . . . . . . . . . 73.6 66.0 31.9 22.8
---------------------------------------------
Net income. . . . . . . . . . . . . . . . . . . . . . $ 148.5 $ 141.9 $ 57.2 $ 49.1
=============================================
Average receivables:
Owned . . . . . . . . . . . . . . . . . . . . . . . $11,806.9* $10,657.8 $12,901.6 $10,959.3
Serviced with limited recourse. . . . . . . . . . . 7,262.4 6,657.9 6,933.7 6,656.6
---------------------------------------------
Average managed receivables . . . . . . . . . . . . . $19,069.3* $17,315.7 $19,835.3 $17,615.9
=============================================
Return on average owned assets - annualized . . . . . 1.36% 1.39% 1.48% 1.38%
---------------------------------------------
Return on average common shareholder's equity -
annualized . . . . . . . . . . . . . . . . . . . . 15.6% 16.2% 17.4% 16.3%
---------------------------------------------
</TABLE>
* Includes average balance of Assets Pending Sale, which consisted of
commercial receivables sold to a joint venture in March 1995.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
September 30, December 31,
In millions. 1995 1994
--------------------------------------------------------------------------------------------------
<S> <C> <C>
End-of-period receivables:
Owned . . . . . . . . . . . . . . . . . . . . . . . $12,532.5 $10,151.2
Serviced with limited recourse. . . . . . . . . . . 7,528.7 7,808.8
---------------------------------
Managed receivables . . . . . . . . . . . . . . . . . $20,061.2 $17,960.0
=================================
/TABLE
<PAGE>
<PAGE> 13
Overview
--------
Finance and Banking earnings for the third quarter and first nine
months were $57.2 and $148.5 million, compared to $49.1 and $141.9
million in the year-ago periods. See Operations Summary on page 10 for
further discussion of the operating results of the company's Finance
and Banking businesses.
Receivables
-----------
Managed consumer receivables grew 12 percent on an annualized basis
compared to June 30, 1995 and were up 17 percent compared to the
September 30, 1994 level. See Balance Sheet Review on page 10 for
further discussion.
Receivables owned totaled $12.5 billion at September 30, 1995, up
from both June 30, 1995 and September 30, 1994. The level of owned
receivables may vary from quarter to quarter depending on the timing
and significance of securitization transactions in a particular period.
For the third quarter of 1995, the company completed the securitization
and sale of approximately $1 billion of other unsecured receivables.
Net interest margin
-------------------
Net interest margin was $252.4 and $698.1 million for the third quarter
and first nine months of 1995, up from $229.6 and $692.8 million in the
prior year periods. Net interest margin as a percent of average owned
interest-earning assets, annualized, was 7.56 percent, flat compared
to 7.57 percent in the prior quarter and down from 7.89 percent in the
third quarter of 1994. The decrease compared to the prior year period
was primarily attributable to higher funding costs and compression of
fixed rate receivable spreads partially offset by a shift in product
mix toward higher-yielding unsecured receivables.
Due to the securitization of assets over the past several years, the
comparability of net interest margin between years may be affected by the
level and type of assets securitized. As receivables are securitized and
sold rather than held in portfolio, net interest income is shifted to
securitization income. Net interest margin on a managed basis, assuming
receivables securitized and sold were instead held in the portfolio, was
$366.7 and $1,064.8 million for the third quarter and first nine months of
1995, compared to $340.7 and $1,032.1 million in the same year-ago periods.
Net interest margin on a managed basis as a percent of average managed
interest-earning assets, annualized, was 7.23 percent compared to 7.26
percent in the previous quarter and 7.47 percent in the year-ago quarter.
Net interest margin on an owned basis was greater than on a managed basis
because home equity receivables, which have lower spreads than unsecured
products, were a larger proportion of the portfolio serviced with limited
recourse than of the owned portfolio.
Provision for credit losses
---------------------------
The provision for credit losses for receivables totaled $135.3 and $386.5
million for the third quarter and first nine months of 1995, up 7 and 12
percent from $126.0 and $344.0 million, respectively, in the comparable
prior year periods. The level of provision for credit losses may vary
from quarter to quarter, depending on the amount of securitizations and
sales of receivables in a particular period. The company increased
credit loss reserves due to continued growth and seasoning of unsecured
products and economic uncertainty. See the credit quality section for
further discussion of factors affecting the provision for credit losses.
Other revenues
--------------
Securitization income consists of income associated with the
securitizations and sales of receivables with limited recourse, including
net interest income, fee income and provision for credit losses related
to those receivables. The increase in securitization income compared
to the same year-ago periods was primarily due to higher levels of
securitized receivables outstanding and a shift in the mix of the
serviced portfolio toward higher-yielding, fee-based credit card
receivables. In addition, growth in interchange and other credit card
fee income outpaced the growth in the securitized bankcard portfolio
due to an increase in the number of credit cards issued and greater
transaction volume.
Fee income includes revenues from fee-based products such as bankcards
and private-label credit cards. Fee income was $32.9 and $84.3 million
<PAGE>
<PAGE> 14
in the third quarter and first nine months of 1995, up from $22.1 and
$58.4 million in the comparable periods of the prior year primarily due
to interchange and other fees related to growth in owned credit card
receivables.
Other income primarily consists of servicing fee income and gains
and losses on asset sales. Other income increased compared to the
year-ago quarter and was flat compared to the first nine months of 1994.
Other income in the third quarter benefited from servicing fee income
generated by a servicing entity acquired by the company in July 1995.
This entity services loan portfolios, primarily credit card receivables,
for affiliates. Partially offsetting the servicing fee income from
the newly-acquired entity was lower servicing income attributable to
lower balances of an unsecured loan portfolio serviced with no recourse
for a third party. Servicing fee income for the first nine months of
1995 was also impacted by a write-down that occurred in the second
quarter related to the servicing of this portfolio.
Expenses
--------
Salaries and fringe benefits were $104.8 and $206.5 million compared
to $54.5 and $160.2 million in the third quarter and first nine months
of 1994. The year-over-year increase was due to the affiliated
servicing entity acquired in July 1995, as discussed previously on
page 9. Other operating expenses were $142.6 and $418.2 million in
the third quarter and first nine months of 1995, up from $131.9 and
$408.0 million in the third quarter and the first nine months of 1994.
The increase was primarily due to expenses incurred by the
newly-acquired servicing entity. Increased expenses related to this
entity were offset by the previously-mentioned increase in servicing
fee income. Excluding these additional expenses, operating expenses
would have increased 4 percent over the year-ago quarter and would
have been essentially flat compared to the first nine months of 1994.
The effective tax rate for the Finance and Banking segment was 35.8
and 33.1 percent, compared to 31.7 percent in the third quarter and
first nine months of 1994.
Credit Loss Reserves
--------------------
The company's credit portfolios and credit management policies have
historically been divided into two distinct components - consumer and
commercial. For consumer products, credit policies focus on product
type and specific portfolio risk factors. The consumer credit portfolio
is diversified by product and geographic location. The commercial credit
portfolio is monitored on an individual transaction basis and is also
evaluated based on overall risk factors. See Note 3, "Receivables" in the
accompanying financial statements for receivables by product type.
<TABLE>
<CAPTION>
Total managed credit loss reserves, which include reserves for recourse
obligations for receivables sold, were as follows (in millions):
--------------------------------------------------------------------------------------------------
September 30, June 30, December 31, September 30,
1995 1995 1994 1994
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned . . . . . . . . . . . . . . . . . . $490.2 $484.2 $413.7 $463.7
Serviced with limited recourse. . . . . . 224.1 148.9 181.7 123.3
---------------------------------------------
Total . . . . . . . . . . . . . . . . . . $714.3 $633.1 $595.4 587.0
=============================================
</TABLE>
Managed credit loss reserves were up 13 percent from June 30, 1995 and
up 22 percent from September 30, 1994. Managed credit loss reserves as
a percent of nonperforming managed receivables were 114.0 percent, up
compared to 106.7 percent at June 30, 1995 and 97.1 percent at
September 30, 1994.
<PAGE>
<PAGE> 15
<TABLE>
<CAPTION>
Total owned and managed credit loss reserves as a percent of
receivables were as follows:
-------------------------------------------------------------------------------------------------
September 30, June 30, December 31, September 30,
1995 1995 1994 1994
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned . . . . . . . . . . . . . . . . . . 3.91% 3.96% 4.08% 4.03%
Managed . . . . . . . . . . . . . . . . . 3.56 3.24 3.32 3.26
-------------------------------------------
</TABLE>
The level of reserves for consumer credit losses is based on delinquency
and chargeoff experience by product and judgmental factors. The level of
reserves for commercial credit losses is based on a regular review process
for all commercial credits and management's evaluation of probable future
losses in the portfolio as a whole given its geographic and industry
diversification and historical loss experience. Management also evaluates
the potential impact of existing and anticipated national and regional
economic conditions on the managed receivable portfolio when establishing
consumer and commercial credit loss reserves. While management allocates
all reserves among the company's various products, all reserves are
considered to be available to cover total loan losses. See Note 4,
"Credit Loss Reserves" in the accompanying financial statements for
analyses of reserves.
Credit Quality
--------------
Delinquency increased during the quarter but was below the year-ago
levels. Chargeoffs were up compared to both prior quarter and the
year-ago quarter.
In the third quarter of 1995, the company changed its procedure regarding
chargeoffs of bankrupt Visa*/MasterCard* accounts. Prior to the third
quarter, when the company received notification that a Visa/MasterCard
customer had filed bankruptcy, the company established a reserve equal to
the full balance of the customer's receivable. If not paid, the
receivable balance would be charged off in accordance with the company's
normal chargeoff policy. Beginning in the third quarter of 1995, the
company implemented a new procedure, to more closely conform with credit
card industry practice, to charge off accounts within 30 days of
notification of bankruptcy filing. Accordingly, the company accelerated
the chargeoff of bankrupt Visa/MasterCard accounts that had been past due.
The chargeoff ratios presented below have been normalized to exclude the
effect of these nonrecurring bankrupt chargeoffs.
*Visa and MasterCard are registered trademarks of VISA USA, Inc. and
MasterCard International, Incorporated, respectively.
Delinquency
-----------
Delinquency levels are monitored on a managed basis which includes both
receivables owned and receivables serviced with limited recourse. The
latter portfolio is included since it is subjected to underwriting
standards comparable to the owned portfolio, is managed by operating
personnel without regard to portfolio ownership and results in a similar
credit loss exposure for the company.
<TABLE>
<CAPTION>
Two-Months-and-Over Contractual Delinquency (as a percent of managed
consumer receivables):
------------------------------------------------------------------------------------------
9/30/95 6/30/95 3/31/95 12/31/94 9/30/94
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Home equity . . . . . . . . . . . . . 3.27% 2.87% 2.81% 2.80% 2.83%
Other secured . . . . . . . . . . . . 2.57 4.21 1.09 1.23 4.00
Bankcard. . . . . . . . . . . . . . . 2.64 2.64 2.71 2.88 3.18
Merchant participation. . . . . . . . 4.34 4.07 4.67 4.87 5.02
Other unsecured . . . . . . . . . . . 5.84 6.19 5.34 5.40 6.27
-------------------------------------------------
Total . . . . . . . . . . . . . . . . 3.75% 3.60% 3.50% 3.58% 3.85%
=================================================
</TABLE>
Delinquency as a percent of managed consumer receivables increased from
the prior quarter but declined compared to the prior year level. The home
<PAGE>
<PAGE> 16
equity delinquency ratio increased, as expected, primarily due to the
seasoning of portfolios acquired through the wholesale network. The
delinquency level for other secured receivables did not impact total
delinquency due to the small size of the portfolio. The bankcard
delinquency ratio, excluding the impact of the accelerated bankrupt
chargeoffs discussed previously, was 2.88 percent. The increase in
the quarter was primarily due to the aging of the GM Card portfolio.
The merchant participation delinquency ratio increased primarily due
to merchant programs the company has decided to exit. Excluding the
impact of the previously-mentioned accelerated chargeoffs, total
delinquency was 3.82 percent.
Net Chargeoffs of Consumer Receivables
--------------------------------------
<TABLE>
<CAPTION>
Net Chargeoffs of Consumer Receivables (as a percent, annualized, of
average managed consumer receivables):
---------------------------------------------------------------------------------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
1995 1995 1995 1994 1994
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Home equity . . . . . . . . . . . . . 1.15% 1.04% .82% .93% 1.02%
Other secured . . . . . . . . . . . . .74 .01 - 1.42 1.86
Bankcard* . . . . . . . . . . . . . . 4.65 4.34 4.73 4.89 4.78
Merchant participation. . . . . . . . 5.05 5.30 4.85 4.26 3.87
Other unsecured . . . . . . . . . . . 4.06 3.76 3.54 4.11 4.76
-------------------------------------------------
Total*. . . . . . . . . . . . . . . . 3.30% 3.08% 2.97% 3.00% 3.02%
=================================================
</TABLE>
*Normalized to exclude accelerated chargeoffs of bankrupt accounts.
Including these accelerated chargeoffs, bankcard and total chargeoffs
were 5.54 and 3.54 percent, respectively, in the third quarter of 1995.
Home equity receivable chargeoffs increased as expected. Excluding the
previously-mentioned accelerated chargeoffs, bankcard chargeoffs
increased compared to the prior quarter but were lower than the year-ago
quarter. The increase was primarily due to the maturation of the GM
Card portfolio. Bankcard chargeoffs were also impacted by an increase
in bankruptcy filings. Merchant participation chargeoffs were below the
previous quarter but were higher than a year ago primarily due to
merchant programs the company has decided to exit. The chargeoff ratio
for the other unsecured portfolio increased compared to the prior quarter
and was below the year-ago quarter.
Chargeoffs are a lagging indicator of credit quality and generally reflect
prior delinquency trends. However, growth associated with credit card and
other unsecured receivables has resulted in a shift in product mix toward
unsecured receivables, which have higher chargeoff rates than secured
receivables. Future changes in the overall chargeoff trend may result
from the shift in product mix to unsecured receivables, changes in
economic conditions and other factors.
<PAGE>
<PAGE> 17
Nonperforming Assets
--------------------
<TABLE>
<CAPTION>
Nonperforming assets consisted of the following:
--------------------------------------------------------------------------------------------
In millions. 9/30/95 6/30/95 3/31/95 12/31/94 9/30/94
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual managed receivables. . . . $470.4 $404.6 $355.6 $395.5 $424.5
Accruing managed consumer receivables
90 or more days delinquent. . . . . 134.3 147.1 131.7 138.2 135.3
Renegotiated commercial loans . . . . 22.0 41.8 85.9 41.8 44.9
--------------------------------------------------
Total nonperforming managed receivables 626.7 593.5 573.2 575.5 604.7
Real estate owned . . . . . . . . . . 108.7 103.9 129.3 124.6 318.3
--------------------------------------------------
Total nonperforming assets. . . . . . $735.4 $697.4 $702.5 $700.1 $923.0
==================================================
Managed credit loss reserves as a percent
of nonperforming managed receivables 114.0% 106.7% 105.7% 103.5% 97.1%
--------------------------------------------------
</TABLE>
Effective January 1, 1995 the company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan" ("FAS No. 114"), as amended by Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure." FAS No. 114 requires that a loan be
recognized as impaired when it is probable that all contractual amounts
due will not be repaid. FAS No. 114 specifically excludes groups of
individually small dollar, homogenous loans where collectibility is
evaluated collectively, such as the company's consumer receivable
portfolio. At September 30, 1995 impaired commercial loans included
in the above table were not significant and their ultimate disposition
is not expected to have a material impact on the company's results of
operations. The adoption of FAS No. 114 had no impact on the company's
results of operations for the nine months ended September 30, 1995.
Credit loss reserves for impaired loans are included in reserves for
managed receivables described on pages 14 and 15.
<PAGE>
<PAGE> 18
INDIVIDUAL LIFE INSURANCE
-------------------------
Individual Life Insurance net income was $17.9 and $42.2 million, compared
to $17.4 and $39.7 million in the prior year periods. As previously
discussed, the company sold the individual life and annuity product lines
of this segment in October 1995. Revenues and net income of the product
lines being sold totaled $400 and $34 million, respectively, for the
first nine months of 1995. For the same period, these sold product lines
had an annualized ROE of 8.2 percent. The sale will be recorded in the
fourth quarter.
<TABLE>
<CAPTION>
Statements of Income
--------------------------------------------------------------------------------------------------
Nine Months Ended Three Months Ended
September 30, September 30,
All dollar amounts are stated in millions. 1995 1994 1995 1994
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income. . . . . . . . . . . . . . . . . . $412.4 $372.1 $143.6 $124.5
Insurance premiums and contract revenues . . . . . . 107.8 62.7 34.3 (11.4)
------------------------------------------
Total revenues . . . . . . . . . . . . . . . . . . . 520.2 434.8 177.9 113.1
Costs and expenses:
Policyholders' benefits. . . . . . . . . . . . . . 354.4 285.3 113.9 65.5
Operating expenses . . . . . . . . . . . . . . . . 100.9 87.6 36.4 20.4
Income taxes . . . . . . . . . . . . . . . . . . . 22.7 22.2 9.7 9.8
------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . $ 42.2 $ 39.7 $ 17.9 $ 17.4
==========================================
Return on average assets - annualized. . . . . . . . .72% .75% .91% .97%
------------------------------------------
Return on average common shareholder's equity - annualized 7.2% 8.4% 9.0% 10.7%
------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
September 30, December 31,
In millions. 1995 1994
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment securities. . . . . . . . . . . . . . . . $ 7,135.5 $ 6,669.9
---------------------------------
Life insurance in-force. . . . . . . . . . . . . . . 38,499.3 36,560.4
---------------------------------
</TABLE>
Investment securities for the Individual Life Insurance segment totaled
$7.1 billion, up from $7.0 billion at June 30, 1995 and $6.7 billion at
December 31, 1994. The Individual Life Insurance portfolio represented
approximately 93 percent of the company's total investment portfolio at
September 30, 1995. Investment securities sold in connection with the
above-mentioned sale of product lines totaled approximately $5.8 billion.
Investment income includes both interest income on investment securities
and realized gains and losses on the sale of available-for-sale
investments. Investment income in the third quarter and first nine
months of 1995 was $143.6 and $412.4 million, up compared with the
year-ago periods primarily due to higher interest income resulting from
higher yields and a larger investment portfolio.
In the third quarter of 1994, the company sold its whole life line of
business and, as a result, reduced both contract revenues and
policyholders' benefits by $47.8 million. This represented the amount of
claim reserves on the policies that were sold to the new insurer.
Excluding the impact of this transaction, insurance premiums and contract
revenues for the third quarter and first nine months of 1995 were
slightly below the respective prior year periods. Also, excluding the
impact of this sale, policyholders' benefits in the first nine months of
1995 were higher than the prior year primarily due to higher interest
credited to policyholders caused by higher interest rates and life
insurance in-force. Policyholders' benefits in the third quarter of
1995 were essentially unchanged compared to the year-ago quarter,
excluding the impact of the sale.
Operating expenses in the third quarter and first nine months of 1995
were up compared to the respective prior year periods primarily due
<PAGE>
<PAGE> 19
to higher levels of deferred insurance policy acquisition cost
amortization associated with higher investment income.
The effective tax rate was 35.1 and 35.0 percent for the third quarter
and first nine months of 1995, compared to 36.0 and 35.9 percent in the
respective periods of 1994.<PAGE>
<PAGE> 20
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.
(b) Reports on Form 8-K
During the third quarter of 1995, the Registrant filed a Current
Report on Form 8-K dated August 9, 1995, pertaining to the sale of
Alexander Hamilton Life Insurance Company of America to
Jefferson-Pilot Corporation.
<PAGE>
<PAGE> 21
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 FINANCE CORPORATION
-----------------------------
(Registrant)
Date: November 13, 1995 By: /s/ David A. Schoenholz
----------------- ----------------------------
David A. Schoenholz,
Vice President, Chief Accounting Officer
and Chief Financial Officer, Director
and on behalf of
Household Finance Corporation
<PAGE>
<PAGE> 22
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.
EXHIBIT 12
----------
HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
- ----------------------------------------------------------------------
All dollar amounts are stated in millions.
Nine months ended September 30 1995 1994
- ----------------------------------------------------------------------
Net income $190.7 $181.6
- ----------------------------------------------------------------------
Income taxes 96.3 88.2
- ----------------------------------------------------------------------
Fixed charges:
Interest expense (1) 643.2 458.6
Interest portion of rentals (2) 9.4 6.3
- ----------------------------------------------------------------------
Total fixed charges 652.6 464.9
- ----------------------------------------------------------------------
Total earnings as defined $939.6 $734.7
======================================================================
Ratio of earnings to fixed charges 1.44 1.58
- ----------------------------------------------------------------------
Preferred stock dividends (3) $ 8.1 $ 7.9
- ----------------------------------------------------------------------
Ratio of earnings to combined fixed charges
and preferred stock dividends 1.42 1.55
- ----------------------------------------------------------------------
(1) For financial statement purposes, interest expense includes income
earned on temporary investment of excess funds, generally resulting
from over-subscriptions of commercial paper.
(2) Represents one-third of rentals, which approximates the portion
representing interest.
(3) Preferred stock dividends are grossed up to their pretax equivalent
based upon an effective tax rate of 33.6 and 32.7 percent for
September 30, 1995 and 1994, respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SUMMARY FINANCIAL INFORMATION OF THE COMPANY AND ITS
SUBSIDIARIES IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION
AND FINANCIAL STATEMENTS PREVIOUSLY FILED WITH THE SECURITIES &
EXCHANGE COMMISSION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 408,800
<SECURITIES> 7,650,500
<RECEIVABLES> 12,532,500
<ALLOWANCES> 714,300
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 685,500
<DEPRECIATION> 365,200
<TOTAL-ASSETS> 22,975,000
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,397,400
<COMMON> 1
0
100,000
<OTHER-SE> 2,040,699
<TOTAL-LIABILITY-AND-EQUITY> 22,975,000
<SALES> 0
<TOTAL-REVENUES> 2,381,200
<CGS> 0
<TOTAL-COSTS> 1,097,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 386,500
<INTEREST-EXPENSE> 610,700
<INCOME-PRETAX> 287,000
<INCOME-TAX> 96,300
<INCOME-CONTINUING> 190,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 190,700
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<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>
