<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
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: (847) 564-5000
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
At October 31, 1996, there were 1,000 shares of registrant's common stock
outstanding.
The registrant meets the conditions set forth in General Instruction H(1) (a)
and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
<PAGE>
<PAGE> 2
HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES
Table of Contents
PART I. Financial Information Page
Item 1. Financial Statements
Condensed Consolidated Statements of Income
(Unaudited) - Three and Nine Months
Ended September 30, 1996 and 1995. . . . . . . . 2
Condensed Consolidated Balance Sheets -
September 30, 1996 (Unaudited) and
December 31, 1995. . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Nine Months Ended
September 30, 1996 and 1995. . . . . . . . . . . 4
Financial Highlights . . . . . . . . . . . . . . 5
Notes to Interim Condensed Consolidated Financial
Statements (Unaudited) . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . 9
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . 15
Signature . . . . . . . . . . . . . . . . . . . 16
<PAGE>
<PAGE> 3
Part 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Household Finance Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- -------------------------------------------------------
In millions.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance income . . . . . . . . . . . . . . . . . . . . . . $509.4 $457.9 $1,371.9 $1,280.1
Interest income from noninsurance investment securities. . 5.6 9.2 30.3 28.7
Interest expense . . . . . . . . . . . . . . . . . . . . . 239.8 214.7 658.2 610.7
----------------------------------------
Net interest margin. . . . . . . . . . . . . . . . . . . . 275.2 252.4 744.0 698.1
Provision for credit losses on owned receivables . . . . . 114.7 135.3 373.0 386.5
----------------------------------------
Net interest margin after provision for credit losses. . . 160.5 117.1 371.0 311.6
----------------------------------------
Securitization income. . . . . . . . . . . . . . . . . . . 178.4 100.9 529.0 298.6
Insurance premiums and contract revenues . . . . . . . . . 42.0 69.5 124.1 210.9
Investment income. . . . . . . . . . . . . . . . . . . . . 32.6 143.0 122.3 414.0
Fee income . . . . . . . . . . . . . . . . . . . . . . . . 50.0 32.9 125.9 84.3
Other income . . . . . . . . . . . . . . . . . . . . . . . 27.8 12.8 63.1 39.9
----------------------------------------
Total other revenues . . . . . . . . . . . . . . . . . . . 330.8 359.1 964.4 1,047.7
----------------------------------------
Salaries and fringe benefits . . . . . . . . . . . . . . . 95.7 89.2 270.1 202.3
Other operating expenses . . . . . . . . . . . . . . . . . 182.1 142.3 519.2 471.0
Policyholders' benefits. . . . . . . . . . . . . . . . . . 50.3 128.0 165.0 399.0
----------------------------------------
Total costs and expenses . . . . . . . . . . . . . . . . . 328.1 359.5 954.3 1,072.3
----------------------------------------
Income before income taxes . . . . . . . . . . . . . . . . 163.2 116.7 381.1 287.0
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 57.8 41.6 122.5 96.3
----------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $105.4 $ 75.1 $ 258.6 $ 190.7
========================================
</TABLE>
See notes to interim condensed consolidated financial statements.<PAGE>
<PAGE> 4
Household Finance Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
- -------------------------------------
In millions.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
September 30, December 31,
1996 1995
- ------------------------------------------------------------------------------
ASSETS (Unaudited)
- ------
<S> <C> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . . $ 294.1 $ 154.7
Investment securities. . . . . . . . . . . . . . . 1,645.7 3,233.0
Receivables, net . . . . . . . . . . . . . . . . . 15,978.9 12,665.0
Advances to parent company and affiliates. . . . . 96.1 119.6
Acquired intangibles . . . . . . . . . . . . . . . 951.4 418.7
Properties and equipment . . . . . . . . . . . . . 264.1 286.2
Real estate owned. . . . . . . . . . . . . . . . . 107.4 105.6
Other assets . . . . . . . . . . . . . . . . . . . 920.3 810.6
-------------------------
Total assets . . . . . . . . . . . . . . . . . . . $20,258.0 $17,793.4
=========================
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
Debt:
Commercial paper, bank and other borrowings. . . $ 4,923.6 $ 4,154.2
Senior and senior subordinated debt (with original
maturities over one year). . . . . . . . . . . 10,850.4 8,257.5
-------------------------
Total debt . . . . . . . . . . . . . . . . . . . . 15,774.0 12,411.7
Insurance policy and claim reserves. . . . . . . . 1,014.2 2,212.9
Other liabilities. . . . . . . . . . . . . . . . . 904.7 931.7
-------------------------
Total liabilities. . . . . . . . . . . . . . . . . 17,692.9 15,556.3
-------------------------
Preferred stock. . . . . . . . . . . . . . . . . . 100.0 100.0
-------------------------
Common shareholder's equity:
Common stock and paid-in capital . . . . . . . . 892.9 692.6
Retained earnings. . . . . . . . . . . . . . . . 1,613.0 1,359.8
Foreign currency translation adjustments . . . . (9.1) (9.0)
Unrealized gain (loss) on investments, net . . . (31.7) 93.7
-------------------------
Total common shareholder's equity. . . . . . . . . 2,465.1 2,137.1
-------------------------
Common and preferred shareholder's equity. . . . . 2,565.1 2,237.1
-------------------------
Total liabilities and shareholder's equity . . . . $20,258.0 $17,793.4
=========================
</TABLE>
See notes to interim condensed consolidated financial statements.<PAGE>
<PAGE> 5
Household Finance Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -----------------------------------------------------------
In millions.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Nine months ended September 30 1996 1995
- -------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATIONS
<S> <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 258.6 $ 190.7
Adjustments to reconcile net income to net cash provided by operations:
Provision for credit losses on owned receivables. . . . . . . . . . . 373.0 386.5
Insurance policy and claim reserves . . . . . . . . . . . . . . . . . 63.9 383.7
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 143.8 139.0
Net realized (gains) losses from sales of assets. . . . . . . . . . . (10.7) 18.2
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.4 490.3
-----------------------
Cash provided by operations . . . . . . . . . . . . . . . . . . . . . . 844.0 1,608.4
-----------------------
INVESTMENTS IN OPERATIONS
Investment securities:
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,362.8) (3,060.6)
Matured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237.6 324.9
Sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,632.3 2,286.6
Short-term investment securities, net change. . . . . . . . . . . . . . 77.3 370.2
Receivables, excluding Visa*/MasterCard*:
Originated or purchased . . . . . . . . . . . . . . . . . . . . . . . (6,987.4) (6,142.4)
Collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,672.4 2,759.2
Sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,545.1 2,498.2
Visa/MasterCard receivables:
Originated or collected, net. . . . . . . . . . . . . . . . . . . . . (4,688.9) (3,921.6)
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,490.4) (10.2)
Sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,177.4 2,478.4
(Acquisition) disposition of portfolios, net. . . . . . . . . . . . . . (620.1) (10.4)
Properties and equipment purchased. . . . . . . . . . . . . . . . . . . (42.5) (29.9)
Properties and equipment sold . . . . . . . . . . . . . . . . . . . . . 4.5 4.5
Advances to parent company and affiliates . . . . . . . . . . . . . . . 23.5 404.0
-----------------------
Cash decrease from investments in operations. . . . . . . . . . . . . . (3,822.0) (2,049.1)
-----------------------
FINANCING AND CAPITAL TRANSACTIONS
Short-term debt, net change . . . . . . . . . . . . . . . . . . . . . . 769.4 343.6
Senior and senior subordinated debt issued. . . . . . . . . . . . . . . 4,798.9 2,193.8
Senior and senior subordinated debt retired . . . . . . . . . . . . . . (2,200.6) (1,622.4)
Policyholders' benefits paid. . . . . . . . . . . . . . . . . . . . . . (482.5) (713.1)
Cash received from policyholders. . . . . . . . . . . . . . . . . . . . 37.6 650.7
Dividends on preferred stock. . . . . . . . . . . . . . . . . . . . . . (5.4) (5.4)
Dividends paid to parent company. . . . . . . . . . . . . . . . . . . . - (95.0)
Capital contributions from parent company . . . . . . . . . . . . . . . 200.0 -
-----------------------
Cash increase from financing and capital transactions . . . . . . . . . 3,117.4 752.2
-----------------------
Increase in cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . 139.4 311.5
Cash at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 154.7 97.3
-----------------------
Cash at September 30. . . . . . . . . . . . . . . . . . . . . . . . . . $ 294.1 $ 408.8
=======================
Supplemental cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 659.9 $ 520.8
-----------------------
Income taxes paid (received). . . . . . . . . . . . . . . . . . . . . . 211.1 (17.8)
-----------------------
</TABLE>
See notes to interim condensed consolidated financial statements.
*VISA and MasterCard are registered trademarks of VISA USA, Inc. and
MasterCard International, Incorporated respectively.<PAGE>
<PAGE> 6
Household Finance Corporation and Subsidiaries
FINANCIAL HIGHLIGHTS
- --------------------
All dollar amounts are stated in millions.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income . . . . . . . . . . . . . . $105.4 $ 75.1 $ 258.6 $ 190.7
-----------------------------------------
Revenues . . . . . . . . . . . . . . . 845.8 826.2 2,366.6 2,356.5
-----------------------------------------
Return on average common shareholder's
equity <F1> <F2> . . . . . . . . . . 18.1% 14.2% 15.4% 12.4%
-----------------------------------------
Return on average owned assets <F1>. . 2.07 1.29 1.81 1.14
-----------------------------------------
<FN>
<F1> Annualized
<F2> Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" had no significant impact on the
return on average common shareholder's equity for the periods presented.
</FN>
</TABLE>
In millions.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
September 30, December 31,
1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Assets . . . . . . . . . . . . . . . . . $20,258.0 $17,793.4
-------------------------
Receivables
Owned. . . . . . . . . . . . . . . . . 15,645.8 12,435.5
Serviced with limited recourse . . . . 11,088.1 9,212.1
-------------------------
Managed receivables . . . . . . . . . $26,733.9 $21,647.6
=========================
Debt to equity ratio . . . . . . . . . . 6.1:1 5.5:1
=========================
</TABLE>
See notes to interim condensed consolidated financial statements.
<PAGE>
<PAGE> 7
Household Finance Corporation and Subsidiaries
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial statements
of Household Finance Corporation and its subsidiaries (the "company")
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.
Certain prior period amounts have been reclassified to conform with
the current period's presentation. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the three and nine months ended September 30, 1996 are
not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. For further information, refer to
the consolidated financial statements and footnotes thereto included
in the company's annual report on Form 10-K for the year ended
December 31, 1995.
2. INVESTMENT SECURITIES
---------------------
Investment securities consisted of the following:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
In millions. September 30, 1996 December 31, 1995
-------------------------------------------------------------------------------
Amortized Carrying Amortized Carrying
Cost Value Cost Value
-------------------------------------------------------------------------------
AVAILABLE-FOR-SALE INVESTMENTS
<S> <C> <C> <C> <C>
Marketable equity securities . . . $ 228.5 $ 226.6 $ 318.3 $ 323.8
Corporate debt securities. . . . . 930.3 896.7 1,406.9 1,533.6
Government debt securities . . . . 118.2 112.4 97.5 99.2
Mortgage-backed securities . . . . 154.5 143.5 189.5 195.8
Policy loans . . . . . . . . . . . - - 821.4 821.4
Other. . . . . . . . . . . . . . . 243.2 243.2 221.6 222.9
------------------------------------------
Subtotal . . . . . . . . . . . . . 1,674.7 1,622.4 3,055.2 3,196.7
------------------------------------------
Accrued investment income. . . . . 23.3 23.3 36.3 36.3
------------------------------------------
Total investment securities. . . . $1,698.0 $1,645.7 $3,091.5 $3,233.0
==========================================
</TABLE>
For available-for-sale investments, carrying value equals fair value, in
accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
<PAGE>
<PAGE> 8
3. RECEIVABLES
-----------
Receivables consisted of the following:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
September 30, December 31,
In millions. 1996 1995
-----------------------------------------------------------------------------------------
<S> <C> <C>
Home equity. . . . . . . . . . . . . . . . . . . . . . . . $ 2,752.6 $ 2,072.1
Visa/MasterCard. . . . . . . . . . . . . . . . . . . . . . 6,421.2 3,596.7
Merchant participation . . . . . . . . . . . . . . . . . . 3,445.4 2,753.7
Other unsecured. . . . . . . . . . . . . . . . . . . . . . 2,031.5 2,786.3
Commercial . . . . . . . . . . . . . . . . . . . . . . . . 995.1 1,226.7
--------------------------
Total owned receivables . . . . . . . . . . . . . . . . . 15,645.8 12,435.5
Accrued finance charges. . . . . . . . . . . . . . . . . . 212.0 241.0
Credit loss reserve for owned receivables. . . . . . . . . (634.6) (531.8)
Unearned credit insurance premiums and claims reserves . . (80.7) (78.4)
Amounts due and deferred from receivables sales. . . . . . 1,369.3 932.9
Reserve for receivables serviced with limited recourse . . (532.9) (334.2)
--------------------------
Total owned receivables, net . . . . . . . . . . . . . . . 15,978.9 12,665.0
Receivables serviced with limited recourse . . . . . . . . 11,088.1 9,212.1
--------------------------
Total managed receivables, net . . . . . . . . . . . . . . $27,067.0 $21,877.1
==========================
</TABLE>
The outstanding balance of receivables serviced with limited recourse
consisted of the following:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
September 30, December 31,
In millions. 1996 1995
-----------------------------------------------------------------------------------------
<S> <C> <C>
Home equity. . . . . . . . . . . . . . . . . . . . . . . . $ 3,961.6 $4,661.9
Visa/MasterCard. . . . . . . . . . . . . . . . . . . . . . 3,743.5 2,685.8
Merchant participation . . . . . . . . . . . . . . . . . . 604.4 750.0
Other unsecured. . . . . . . . . . . . . . . . . . . . . . 2,778.6 1,114.4
--------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . $11,088.1 $9,212.1
==========================
</TABLE>
The combination of receivables owned and receivables serviced with limited
recourse, which the company considers its managed portfolio, is shown below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
September 30, December 31,
In millions. 1996 1995
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Home equity. . . . . . . . . . . . . . . . . . $ 6,714.2 25.1% $ 6,734.0 31.1%
Visa/MasterCard. . . . . . . . . . . . . . . . 10,164.7 38.0 6,282.5 29.0
Merchant participation . . . . . . . . . . . . 4,049.8 15.2 3,503.7 16.2
Other unsecured. . . . . . . . . . . . . . . . 4,810.1 18.0 3,900.7 18.0
Commercial . . . . . . . . . . . . . . . . . . 995.1 3.7 1,226.7 5.7
----------------------------------------
Total. . . . . . . . . . . . . . . . . . . . . $26,733.9 100.0% $21,647.6 100.0%
========================================
</TABLE>
The amounts due and deferred from receivables sales of $1,369.3 million at
September 30, 1996 included unamortized excess servicing assets and funds
established pursuant to the recourse provisions and holdback reserves for
certain sales totaling $1,346.6 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 $90.2 million plus unpaid interest
and has subordinated interests in certain transactions, which are recorded
as receivables, for $117.3 million at September 30, 1996. 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
<PAGE>
<PAGE> 9
recourse provisions for receivables serviced with limited recourse which
are based on estimated probable losses under such provisions. These
reserves totaled $532.9 million at September 30, 1996 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 13 and
14 for additional information related to the credit quality of receivables.
Effective January 1, 1996, other unsecured receivables in the consumer
finance operation are charged off if an account is nine months
contractually delinquent and minimum payments have not been received
in six months. In any event, these receivables are charged off when
the accounts are 18 months contractually delinquent. Previously, such
accounts were charged off when they were nine months contractually
delinquent. Delinquency statistics will continue to be reported on a
contractual basis for these receivables. Procedures for secured and
credit card receivables were unaffected. The implementation of this
new procedure did not have a material impact on the company's financial
statements for the first nine months of 1996.
4. CREDIT LOSS RESERVES
--------------------
An analysis of credit loss reserves for the nine months ended
September 30 was as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
In millions. 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C>
Credit loss reserves for owned receivables at January 1 . . . . . . $ 531.8 $ 413.7
Provision for credit losses - owned receivables . . . . . . . . . . 373.0 386.5
Owned receivables charged off . . . . . . . . . . . . . . . . . . . (381.0) (392.0)
Recoveries on owned receivables . . . . . . . . . . . . . . . . . . 57.7 62.6
Credit loss reserves on receivables purchased, net. . . . . . . . . 67.2 9.6
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14.1) 9.8
-------------------
TOTAL CREDIT LOSS RESERVES FOR OWNED RECEIVABLES AT SEPTEMBER 30. . 634.6 490.2
Credit loss reserves for receivables serviced with
limited recourse at January 1. . . . . . . . . . . . . . . . . . . 334.2 181.7
Provision for credit losses . . . . . . . . . . . . . . . . . . . . 432.1 163.9
Chargeoffs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (241.7) (130.5)
Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2 6.2
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.9) 2.8
-------------------
TOTAL CREDIT LOSS RESERVES FOR RECEIVABLES SERVICED WITH
LIMITED RECOURSE AT SEPTEMBER 30 . . . . . . . . . . . . . . . . . 532.9 224.1
-------------------
TOTAL CREDIT LOSS RESERVES FOR MANAGED RECEIVABLES AT SEPTEMBER 30. . $1,167.5 $ 714.3
===================
</TABLE>
5. INCOME TAXES
------------
Effective tax rates of 35.4 and 35.6 percent for the third quarter of
1996 and 1995, respectively, and 32.1 and 33.6 percent for the nine
months ended September 30, 1996 and 1995, respectively, differ from the
statutory federal income tax rates 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, and (e) United
States loss carry forwards in 1996.
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 $96.1 million at
September 30, 1996 compared to $119.6 million at December 31, 1995. There
were no advances from parent company and affiliates at September 30, 1996
and December 31, 1995. Net interest income on affiliated balances was
$5.6 and $15.9 million for the nine months ended September 30, 1996 and
1995, respectively.<PAGE>
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OPERATIONS SUMMARY
------------------
Net income for the third quarter and first nine months of 1996 was $105.4
and $258.6 million, an increase of 40 and 36 percent, respectively, compared
to $75.1 and $190.7 million in the comparable 1995 periods. Earnings growth
in the company's core businesses exceeded these rates of increase, as 1995
net income included earnings from the individual life and annuity product
lines that were sold in late 1995. The company's annualized return on
average common shareholder's equity for the third quarter and first nine
months of 1996 was 18.1 and 15.4 percent, respectively, compared to 14.2
and 12.4 percent in the year-ago periods. The annualized return on average
owned assets improved to 2.07 and 1.81 percent in the third quarter and
first nine months of 1996, respectively, up from 1.29 and 1.14 percent a
year ago.
The following is a summary of the operating results of the company's
businesses for the third quarter and first nine months of 1996 compared to
the corresponding prior year periods:
- The consumer finance business increased earnings in the third quarter
and first nine months of 1996 as operations continued to benefit from
solid receivable growth. This growth led to higher net interest
margin, partially offset by higher credit losses, and to improved
efficiency.
- Net income for the credit card business for the third quarter and
first nine months increased over the prior year periods in both the
Visa*/MasterCard* and private-label credit card businesses. The
Visa/MasterCard business reported higher net interest margin and fee
income, driven by portfolio growth, which were partially offset by
higher credit costs primarily resulting from increased personal
bankruptcy filings. This business continued to benefit from the
company's association with the General Motors credit card ("GM Card")
program. Additionally, the Union Privilege Visa/MasterCard portfolio
acquired in June 1996 began to contribute to earnings in the third
quarter of 1996. The private-label credit card business reported
higher earnings in the third quarter and first nine months compared
to the year-ago periods due primarily to portfolio growth.
- The commercial business reported higher earnings in the third quarter
and first nine months compared to last year. Earnings in the third
quarter benefited from increased gains on the disposition of assets
and, in the first nine months, also benefited from lower credit costs.
BALANCE SHEET REVIEW
--------------------
- Owned consumer receivables were $14.6 billion at September 30, 1996,
up from $14.1 billion at June 30, 1996 and $11.5 billion at September
30, 1995. The increase from the prior year was due to the acquisition
of the AFL-CIO's $3.4 billion Union Privilege Visa/MasterCard portfolio
in June 1996. In the third quarter of 1996, the company securitized and
sold, excluding replenishment of certificate holder interests,
approximately $1.0 billion of other unsecured receivables.
- Managed consumer receivables (owned and serviced with limited recourse)
increased 12 percent, annualized, in the third quarter. On an
annualized basis, credit card receivables were up 8 percent and other
unsecured receivables increased 31 percent in the quarter. The home
equity portfolio was up slightly compared to the prior quarter.
- Managed consumer receivables increased 36 percent and credit cards
were up 65 percent over the prior year. Other unsecured receivables
increased 36 percent, and home equity receivables were down 2 percent
from the year-ago levels.
*VISA and MasterCard are registered trademarks of VISA USA, Inc. and
MasterCard International, Incorporated respectively.<PAGE>
<PAGE> 11
- The company increased its managed credit loss reserves from $714.3
million at September 30, 1995 to $1,167.5 million at September 30,
1996. Credit loss reserves as a percent of managed receivables
increased to 4.37 percent, compared to 4.26 percent at June 30, 1996
and 3.56 percent at September 30, 1995 due to uncertainty about the
trend in personal bankruptcies and the shift in its product mix to
unsecured receivables. Reserves as a percent of nonperforming
managed receivables were 140.7 percent, compared to 151.0 percent
at June 30, 1996 and 114.0 percent at September 30, 1995. Consumer
two-months-and-over contractual delinquency ("delinquency") as a
percent of managed consumer receivables was 4.02 percent, up from
3.60 percent at June 30, 1996 and 3.76 percent at September 30, 1995.
The annualized total consumer managed chargeoff ratio in the third
quarter of 1996 was 3.45 percent, compared to 3.29 percent in the
prior quarter and 3.32 percent in the year-ago quarter.
- The company's debt to equity ratio was 6.1 to 1 at September 30, 1996
compared to 5.5 to 1 at December 31, 1995. The increase in the ratio
was due to the acquisition of the $3.4 billion AFL-CIO Visa/MasterCard
portfolio.
- In October 1996 the company entered into an agreement with Barnett
Banks, Inc. ("Barnett") to service without recourse Barnett's existing
$1.0 billion credit card portfolio in Barnett's core market of Florida
and Georgia. As these receivables will be serviced without recourse,
they will not be included in the company's total managed assets.
Additionally, the company will purchase approximately $780 million of
credit card receivables, the majority of which are held by customers
outside of Barnett's core market. The transaction is expected to close
in the fourth quarter of 1996.
FUNDING AND LIQUIDITY
- ---------------------
The major use of cash by the company is the origination or purchase of
receivables or investment securities. The main sources of cash for the
company are the collection and sales of receivable balances; maturities
or sales of investment securities; proceeds from the issuance of debt;
and cash provided by operations.
The following describes major changes in the company's funding base from
December 31, 1995 to September 30, 1996:
- Total debt increased from $12.4 billion to $15.8 billion to fund
the company's purchase of the $3.4 billion AFL-CIO Visa/MasterCard
portfolio in the second quarter.
- The company had securitized home equity, Visa/MasterCard, merchant
participation and other unsecured receivables outstanding of $11.1
and $9.2 billion at September 30, 1996 and December 31, 1995. During
the three months and nine months ended September 30, 1996 the company
securitized approximately $1.0 and $4.4 billion of receivables,
respectively. The composition of these securitizations by type is as
follows (in millions):
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1996
---------------------------------------------------------------------
<S> <C> <C>
Home Equity. . . . . . . . . . $ - $ 840
Visa/MasterCard. . . . . . . . - 1,736
Other unsecured. . . . . . . . 1,000 1,840
---------------------------
Total. . . . . . . . . . . . . $1,000 $4,416
===========================
</TABLE>
The market for securities backed by receivables is a reliable, efficient
and cost-effective source of funds, which the company plans to continue
to utilize in the future.
The current ratings of the company's debt and preferred stock securities
by the nationally recognized statistical rating organizations which
provide such ratings, including any recent action taken by such
organizations, are set forth in an exhibit to this report which has been
filed with the Securities and Exchange Commission.<PAGE>
<PAGE> 12
INCOME STATEMENT REVIEW
-----------------------
Net interest margin
-------------------
Net interest margin was $275.2 and $744.0 million for the third quarter
and first nine months of 1996, up 9 percent compared to the third quarter
of 1995 and up 7 percent from the first nine months of 1995. Net interest
margin as a percent of average owned interest-earning assets, annualized,
was 6.91 percent, compared to 6.30 percent in the prior quarter and 7.56
percent in the third quarter of 1995. The net interest margin percentage
in the second quarter of 1996 was adversely impacted by temporary
investments used to fund the acquisition of the AFL-CIO Visa/MasterCard
portfolio. Excluding the impact of these temporary investments, net
interest margin as a percent of average owned interest-earning assets
was 6.91 percent in the second quarter of 1996. The decrease in the net
interest margin percentage from the prior year was due to the increase in
the amount of unsecured receivables that were securitized in 1996 compared
to 1995. These receivables carry wider spreads compared to the company's
other products. Net interest margin on securitized receivables is
transferred to securitization income upon sale.
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
$502.0 and $1,371.5 million for the third quarter and first nine months of
1996, up 37 and 29 percent, respectively, compared to $366.7 and $1,064.8
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 7.48 percent compared to 7.21 percent in the previous quarter and 7.23
percent in the year-ago quarter. The net interest margin percentage on a
managed basis for the second quarter was also adversely impacted by the
previously-mentioned portfolio of temporary investments. Excluding the
impact of these temporary investments, the net interest margin percentage
on a managed basis was 7.62 percent. The net interest margin percentage
on a managed basis was greater than on an owned basis because of the
increased proportion of other unsecured and Visa/MasterCard receivables
in the securitized portfolio.
Provision for credit losses
---------------------------
The provision for credit losses for receivables on an owned basis for the
third quarter and first nine months of 1996 totaled $114.7 and $373.0
million, down compared to $135.3 and $386.5 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. 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
margin, fee and other income and provision for credit losses related to
those receivables. Securitization income increased 77 percent over the
third quarter and first nine months of 1995. The increase was partially
due to the increase in average securitized receivables, which grew 57 and
37 percent in the third quarter and first nine months of 1996, respectively.
The remainder of the increase was primarily due to wider spreads on
unsecured products, which comprised over half of the average securitized
portfolio in 1996, compared to approximately one-third a year ago.
Insurance premiums and contract revenues decreased from the third quarter
and first nine months of 1995 due to the sale of the individual life and
annuity lines of business in the fourth quarter of 1995. Insurance premiums
and contract revenues of the specialty and credit business improved from the
third quarter and first nine months of 1995 due to growth in the company's
receivable base.
Investment income in the third quarter and first nine months of 1996 was
below the year-ago periods due to the sale of the individual life and annuity
lines of business in the fourth quarter of 1995.
<PAGE>
<PAGE> 13
Fee income includes revenues from fee-based products such as Visa/MasterCard
and private-label credit cards. Fee income was $50.0 and $125.9 million in
the third quarter and first nine months of 1996, up from $32.9 and $84.3
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 in the third quarter and first nine months of 1996 benefited
from increased gains on the disposition of assets as compared to 1995.
Expenses
--------
Salaries and fringe benefits and other operating expenses for the third
quarter and first nine months of 1996 were $277.8 and $789.3 million,
respectively, compared to $231.5 and $673.3 million in the comparable 1995
periods. The increase over the prior year periods was primarily due to
higher marketing expenses related to the Visa/MasterCard receivable
portfolio. Also contributing to the increase in expenses for the first
nine months of 1996 were non-recurring charges totaling approximately $19
million related to the rationalization of certain office space, the
settlement of litigation and other similar matters.
Policyholders' benefits were lower than the prior year periods due to the
sale of the individual life and annuity lines of business in the fourth
quarter of 1995. Policyholders' benefits of the retained specialty and
credit business were essentially flat compared to the year-ago periods.
Credit Loss Reserves
--------------------
The company's receivable 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 portfolio is diversified
by product and geographic location. The commercial 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.
Total managed credit loss reserves, which include reserves for recourse
obligations for receivables sold, were as follows (in millions):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
September 30, June 30, December 31, September 30,
1996 1996 1995 1995
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned. . . . . . . . . . . . . . . $ 634.6 $ 656.4 $531.8 $490.2
Serviced with limited recourse . . 532.9 454.8 334.2 224.1
-----------------------------------------------------
Total. . . . . . . . . . . . . . . $1,167.5 $1,111.2 $866.0 $714.3
=====================================================
</TABLE>
Managed credit loss reserves were up 5 percent from June 30, 1996 and up 63
percent from September 30, 1995. Managed credit loss reserves as a percent
of nonperforming managed receivables were 140.7 percent, down from 151.0
percent at June 30, 1996, and up from 114.0 percent at September 30, 1995.
<PAGE>
<PAGE> 14
Total owned and managed credit loss reserves as a percent of receivables were
as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
September 30, June 30, December 31, September 30,
1996 1996 1995 1995
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned. . . . . . . . . . . . . . . 4.06% 4.31% 4.28% 3.91%
Managed. . . . . . . . . . . . . . 4.37 4.26 4.00 3.56
-------------------------------------------------
</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 quarterly 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 and chargeoff levels in the consumer portfolio were higher
compared to the prior and year-ago quarters. Delinquency and chargeoff
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.
Delinquency
-----------
Two-Months-and-Over Contractual Delinquency (as a percent of managed consumer
receivables):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
9/30/96 6/30/96 3/31/96 12/31/95 9/30/95
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Home equity. . . . . . . . . 3.59% 3.47% 3.36% 3.42% 3.27%
Visa/MasterCard. . . . . . . 2.64 1.99 2.61 2.37 2.64
Merchant participation*. . . 4.90 4.62 4.93 4.75 4.34
Other unsecured. . . . . . . 6.79 6.59 6.50 6.31 5.84
---------------------------------------------
Total* . . . . . . . . . . . 4.02% 3.60% 4.01% 3.88% 3.76%
=============================================
</TABLE>
* In the second quarter of 1996, the chargeoff policy for different
components of the merchant participation portfolio was standardized.
For comparability of quarterly trends, second and third quarter 1996
amounts exclude the impact of this change. Including the impact of
this change, merchant participation and total delinquency was 5.68 and
4.14 percent, respectively, for the third quarter of 1996 and 5.25 and
3.70 percent, respectively, for the second quarter of 1996.
Delinquency as a percent of managed consumer receivables increased from
the prior quarter and a year ago. The increase in delinquency from
June 30, 1996 was primarily due to the aging of the AFL-CIO Visa/MasterCard
portfolio. This portfolio had an insignificant amount of delinquency when
it was acquired in June 1996 and is maturing as expected. The company's
remaining portfolios experienced delinquency performance in line with
management's expectations and industry trends.
The increase in the delinquency ratio compared to a year ago was primarily
due to seasoning of the portfolios, the company's continued shift in product
mix toward unsecured receivables, and a slower consumer payment pattern,
including higher personal bankruptcies.
<PAGE>
<PAGE> 15
Net Chargeoffs of Consumer Receivables
--------------------------------------
Net Chargeoffs of Consumer Receivables (as a percent, annualized, of
average managed consumer receivables):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
1996 1996 1996 1995 1995
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Home equity. . . . . . . . . .96% .91% .85% .93% 1.15%
Visa/MasterCard. . . . . . . 3.99 4.40 4.67 4.88 4.65
Merchant participation*. . . 3.78 4.08 5.05 5.80 5.05
Other unsecured. . . . . . . 5.57 4.31 4.85 4.15 4.06
--------------------------------------------
Total* . . . . . . . . . . . 3.45% 3.29% 3.50% 3.53% 3.32%
============================================
</TABLE>
* In the second quarter of 1996, the chargeoff policy for different
components of the merchant participation portfolio was standardized.
For comparability of quarterly trends, second and third quarter 1996
amounts exclude the impact of this change. Including the impact of
this change, merchant participation and total net chargeoffs were 2.97
and 3.33 percent, respectively, for the third quarter of 1996 and 1.39
and 2.86 percent, respectively, for the second quarter of 1996.
Net chargeoffs as a percent of average managed consumer receivables for
the third quarter of 1996 increased compared to both the prior and
year-ago periods. Although the company's chargeoff ratio for the third
and second quarters of 1996 benefited from the acquisition of the AFL-CIO
portfolio, the ratio in the third quarter was negatively impacted by
higher levels of personal bankruptcies in the Visa/MasterCard portfolio
and the continued seasoning of other unsecured receivables. The increase
in net chargeoffs is in line with management's expectations and industry
trends.
Excluding the benefit of the AFL-CIO portfolio, approximately 75 percent
of the year-over-year increase in the total chargeoff ratio was due to
increased personal bankruptcy filings in the Visa/Mastercard portfolio.
The remaining increase was primarily due to seasoning of the other
unsecured portfolio.
Nonperforming Assets
--------------------
Nonperforming assets consisted of the following:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
In millions. 9/30/96 6/30/96 3/31/96 12/31/95 9/30/95
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual managed receivables . . . . . . . $500.0 $487.1 $511.8 $547.9 $470.4
Accruing managed consumer receivables
90 or more days delinquent*. . . . . . . . 310.0 229.1 159.8 149.7 134.3
Renegotiated commercial loans. . . . . . . . 19.9 19.9 20.4 21.2 22.0
-----------------------------------------------
Total nonperforming managed receivables. . . 829.9 736.1 692.0 718.8 626.7
Real estate owned. . . . . . . . . . . . . . 107.4 103.5 96.2 105.6 108.7
-----------------------------------------------
Total nonperforming assets . . . . . . . . . $937.3 $839.6 $788.2 $824.4 $735.4
===============================================
Managed credit loss reserves as a percent
of nonperforming managed receivables . . . 140.7% 151.0% 136.7% 120.5% 114.0%
-----------------------------------------------
</TABLE>
*In the second quarter of 1996, the chargeoff policy for different
components of the merchant participation portfolio was standardized.
For comparability of quarterly trends, second and third quarter 1996
amounts exclude the impact of this change. Including the impact of
this change, accruing managed consumer receivables 90 or more days
delinquent were $343.0 and $254.0 million at September 30 and June 30,
1996, respectively. Managed credit loss reserves as a percent of
nonperforming managed receivables, including the impact of this change,
were 135.3 and 146.0 percent at September 30 and June 30, 1996,
respectively.
<PAGE>
<PAGE> 16
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
None.
<PAGE>
<PAGE> 17
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, 1996 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> 18
Exhibit Index
-------------
12 Statement of Computation of Ratio of Earnings to Fixed Charges and
to Combined Fixed Charges and Preferred Stock Dividends.
27 Financial Data Schedule.
99.1 Debt and Preferred Stock Securities Ratings.
EXHIBIT 12
----------
HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
All dollar amounts are stated in millions.
Nine months ended September 30 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Net income $ 258.6 $190.7
- ----------------------------------------------------------------------
Income taxes 122.5 96.3
- ----------------------------------------------------------------------
Fixed charges:
Interest expense <F1> 670.5 643.2
Interest portion of rentals <F2> 15.0 9.4
- ----------------------------------------------------------------------
Total fixed charges 685.5 652.6
- ----------------------------------------------------------------------
Total earnings as defined $1,066.6 $939.6
======================================================================
Ratio of earnings to fixed charges 1.56 1.44
- ----------------------------------------------------------------------
Preferred stock dividends <F3> $ 8.0 $ 8.1
- ----------------------------------------------------------------------
Ratio of earnings to combined fixed charges
and preferred stock dividends 1.54 1.42
- ----------------------------------------------------------------------
<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 32.1 and 33.6 percent for the
nine months ended September 30, 1996 and 1995, respectively.
</FN>
</TABLE>
<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-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 294,100
<SECURITIES> 1,645,700
<RECEIVABLES> 15,645,800
<ALLOWANCES> 1,167,500
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 601,200
<DEPRECIATION> 337,100
<TOTAL-ASSETS> 20,258,000
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 10,850,400
<COMMON> 1
0
100,000
<OTHER-SE> 2,465,099
<TOTAL-LIABILITY-AND-EQUITY> 20,258,000
<SALES> 0
<TOTAL-REVENUES> 2,366,600
<CGS> 0
<TOTAL-COSTS> 954,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 373,000
<INTEREST-EXPENSE> 658,200
<INCOME-PRETAX> 381,100
<INCOME-TAX> 122,500
<INCOME-CONTINUING> 258,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258,600
<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>
EXHIBIT 99.1
------------
HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES
DEBT AND PREFERRED STOCK SECURITIES RATINGS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Duff &
Standard Moody's Fitch Phelps
& Poor's Investors Investors Credit Thomson
Corporation Service Services Rating Co. BankWatch
- ------------------------------------------------------------------------------------------
At September 30, 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Household Finance Corporation
Senior A A2 A+ A+ A+
Senior subordinated A- A3 A A A
Commercial paper A-1 P-1 F-1 Duff 1+ TBW-1
Preferred stock A- a3 A- A- A-
- ------------------------------------------------------------------------------------------
Household Bank (Nevada), N.A.
Senior A A2 A+ A+ NR
- ------------------------------------------------------------------------------------------
</TABLE>
In October 1996 Moody's Investors Service ("Moody's") revised its
outlook for the long-term debt obligations of the company and its
subsidiaries from neutral to negative reflecting management's strategic
repositioning toward unsecured receivable origination. Moody's outlook
for the ratings of commercial paper and short-term obligations issued by
the company and its subsidiaries was unaffected.
