<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-75
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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
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(Address of principal executive offices) (Zip Code)
(847) 564-5000
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Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
At April 30, 2000, there were 1,000 shares of registrant's common
stock outstanding.
The registrant meets the conditions set forth in General
instructions H(1)(a) and (b) of Form 10-Q and is therefore filing
this Form 10-Q with the reduced disclosure format.
<PAGE>
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HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES
Table of Contents
PART I. Financial Information Page
----
Item 1. Financial Statements
Condensed Consolidated Statements of Income
(Unaudited) - Three Months Ended March 31,
2000 and 1999 3
Condensed Consolidated Balance Sheets -
March 31, 2000 (Unaudited) and December 31, 1999 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Three Months Ended March 31,
2000 and 1999 5
Financial Highlights 6
Notes to Interim Condensed Consolidated Financial
Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
<PAGE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Household Finance Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- -------------------------------------------------------
(In millions, except per share data)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Three months ended March 31 2000 1999
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Finance income $1,421.2 $1,180.2
Other interest income 11.8 16.6
Interest expense 596.2 506.7
-------- --------
Net interest margin 836.8 690.1
Provision for credit losses on owned receivables 420.6 331.7
-------- --------
Net interest margin after provision for credit losses 416.2 358.4
-------- --------
Securitization income 200.8 192.2
Insurance revenues 91.7 92.0
Investment income 36.5 37.5
Fee income 94.0 99.6
Other income 58.7 70.7
-------- --------
Total other revenues 481.7 492.0
-------- --------
Salaries and fringe benefits 266.4 221.5
Occupancy and equipment expense 60.0 53.4
Other marketing expenses 52.9 42.1
Other servicing and administrative expenses 72.5 94.9
Amortization of acquired intangibles and goodwill 40.8 36.1
Policyholders' benefits 56.6 58.8
-------- --------
Total costs and expenses 549.2 506.8
-------- --------
Income before income taxes 348.7 343.6
Income taxes 118.2 121.8
-------- --------
Net income $ 230.5 $ 221.8
======== ========
</TABLE>
See notes to interim condensed consolidated financial statements.
<PAGE>
<PAGE> 4
Household Finance Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
- -------------------------------------
(In millions, except share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
March 31, December 31,
2000 1999
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (UNAUDITED)
- ------
Cash $ 201.4 $ 1,487.2
Investment securities 2,873.7 2,257.2
Receivables, net 40,853.8 38,187.6
Advances to parent company and affiliates 184.6 691.8
Acquired intangibles and goodwill, net 1,532.6 1,572.9
Properties and equipment, net 358.3 360.3
Real estate owned 295.6 266.6
Other assets 1,691.4 1,991.6
--------- ---------
Total assets $47,991.4 $46,815.2
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
Debt:
Commercial paper, bank and other borrowings $ 7,520.0 $ 8,780.2
Senior and senior subordinated debt (with
original maturities over one year) 32,754.8 30,383.6
--------- ---------
Total debt 40,274.8 39,163.8
Insurance policy and claim reserves 1,075.1 1,077.2
Other liabilities 700.5 643.0
--------- ---------
Total liabilities 42,050.4 40,884.0
--------- ---------
Common shareholder's equity:
Common stock, $1.00 par value, 1,000 shares
authorized, issued and outstanding
at March 31, 2000 and December 31,
1999, respectively, and additional paid-in
capital 2,956.3 2,955.5
Retained earnings 3,008.8 3,053.3
Accumulated other comprehensive income (24.1) (77.6)
--------- ---------
Total common shareholder's equity 5,941.0 5,931.2
--------- ---------
Total liabilities and shareholder's equity $47,991.4 $46,815.2
========= =========
</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>
- ---------------------------------------------------------------------------------------
Three months ended March 31 2000 1999
- ---------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATIONS
Net income $ 230.5 $ 221.8
Adjustments to reconcile net income to cash
provided by operations:
Provision for credit losses on owned receivables 420.6 331.7
Insurance policy and claim reserves 10.7 69.8
Depreciation and amortization 69.1 71.2
Other, net 358.2 88.3
--------- --------
Cash provided by operations 1,089.1 782.8
--------- --------
INVESTMENTS IN OPERATIONS
Investment securities:
Purchased (232.6) (440.6)
Matured 91.9 95.1
Sold 8.4 360.4
Short-term investment securities, net change (466.2) (734.5)
Receivables:
Originations, net (1,437.4) (2,448.0)
Purchases and related premiums (3,673.5) (1,163.1)
Sold 2,048.8 1,717.9
Properties and equipment purchased (28.6) (39.0)
Properties and equipment sold 2.5 2.4
Advances to parent company and affiliates, net 507.2 258.1
--------- ---------
Cash decrease from investments in operations (3,179.5) (2,391.3)
--------- ---------
FINANCING AND CAPITAL TRANSACTIONS
Short-term debt and demand deposits, net change (1,266.2) 1,163.7
Senior and senior subordinated debt issued 3,438.3 1,986.8
Senior and senior subordinated debt retired (1,064.0) (1,379.3)
Policyholders' benefits paid (28.5) (32.0)
Cash received from policyholders - 22.0
Dividends paid to parent company (275.0) (270.0)
--------- ---------
Cash increase from financing and capital transactions 804.6 1,491.2
--------- ---------
Decrease in cash (1,285.8) (117.3)
Cash at January 1 1,487.2 428.4
--------- ---------
Cash at March 31 $ 201.4 $ 311.1
========= =========
Supplemental cash flow information:
Interest paid $ 626.3 $ 460.8
--------- ---------
Income taxes paid (refunded) (7.0) 73.5
--------- ---------
</TABLE>
See notes to interim condensed consolidated financial statements.
<PAGE>
<PAGE> 6
Household Finance Corporation and Subsidiaries
FINANCIAL HIGHLIGHTS
- --------------------
(Dollar amounts are in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Three months ended March 31 2000 1999
- -----------------------------------------------------------------------------------------
<S> <C>
Net income $ 230.5 $ 221.8
Net interest margin and other revenues <F1> 1,261.9 1,123.3
Return on average common shareholder's equity, annualized 15.2% 15.2%
Return on average owned assets, annualized 1.94 2.01
Return on average managed assets, annualized 1.54 1.57
- -----------------------------------------------------------------------------------------
March 31, December 31,
(Dollar amounts are in millions) 2000 1999
- -----------------------------------------------------------------------------------------
Total assets:
Owned $47,991.4 $46,815.2
Managed 60,757.3 59,527.0
--------- ---------
Receivables:
Owned $40,817.8 $38,250.1
Serviced with limited recourse 12,765.9 12,711.8
--------- ---------
Managed $53,583.7 $50,961.9
========= =========
Debt to total shareholder's equity 6.8:1 6.6:1
--------- ---------
<FN>
<F1> Policyholders' benefits have been netted against other revenues.
</FN>
</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 ("HFC") and its
subsidiaries have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Results for
the three months ended March 31, 2000 should not be considered
indicative of the results for any future quarters or the year
ending December 31, 2000. HFC and its subsidiaries may also be
referred to in this Form 10-Q as "we," "us" or "our." These
financial statements should be read in conjunction with the
consolidated financial statements and footnotes included in our
Annual Report on Form 10-K for the year ended December 31, 1999.
2. INVESTMENT SECURITIES
- --------------------------
Investment securities consisted of the following available-for-sale
investments:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(In millions) March 31, 2000 December 31, 1999
- --------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Marketable equity securities $ 25.6 $ 27.7 $ 23.8 $ 24.6
Corporate debt securities 1,834.6 1,741.6 1,777.7 1,679.6
U.S. government and federal
agency debt securities 234.1 226.0 194.3 182.3
Other 844.7 844.7 338.5 338.2
-------- -------- -------- --------
Subtotal 2,939.0 2,840.0 2,334.3 2,224.7
Accrued investment income 33.7 33.7 32.5 32.5
-------- -------- -------- --------
Total investment securities $2,972.7 $2,873.7 $2,366.8 $2,257.2
======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE> 8
3. RECEIVABLES
- ----------------
Receivables consisted of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
March 31, December 31,
(In millions) 2000 1999
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Real estate secured $24,389.1 $21,229.7
Auto finance 1,404.9 1,225.5
MasterCard/Visa 2,834.8 2,956.8
Private label 4,902.9 5,347.5
Other unsecured 6,663.7 6,815.3
Commercial and other 622.4 675.3
--------- ---------
Total owned receivables 40,817.8 38,250.1
Accrued finance charges 754.5 698.0
Credit loss reserve for owned receivables (1,532.5) (1,470.7)
Unearned credit insurance premiums and
claims reserves (463.7) (479.4)
Amounts due and deferred from
receivables sales 2,052.4 1,927.0
Reserve for receivables serviced with
limited recourse (774.7) (737.4)
--------- ---------
Total owned receivables, net 40,853.8 38,187.6
Receivables serviced with limited recourse 12,765.9 12,711.8
--------- ---------
Total managed receivables, net $53,619.7 $50,899.4
========= =========
Receivables serviced with limited recourse consisted of the following:
- ---------------------------------------------------------------------------------------
March 31, December 31,
(In millions) 2000 1999
- ---------------------------------------------------------------------------------------
Real estate secured $ 2,028.5 $ 2,273.6
Auto finance 1,963.5 1,806.3
MasterCard/Visa 3,556.3 3,610.4
Private label 1,150.0 1,150.0
Other unsecured 4,067.6 3,871.5
--------- ---------
Total receivables serviced with limited recourse $12,765.9 $12,711.8
========= =========
The combination of owned receivables and receivables serviced with limited
recourse, which we consider our managed portfolio, consisted of the following:
- ---------------------------------------------------------------------------------------
March 31, December 31,
(In millions) 2000 1999
- ---------------------------------------------------------------------------------------
Real estate secured $26,417.6 $23,503.3
Auto finance 3,368.4 3,031.8
MasterCard/Visa 6,391.1 6,567.2
Private label 6,052.9 6,497.5
Other unsecured 10,731.3 10,686.8
Commercial and other 622.4 675.3
--------- ---------
Total managed receivables $53,583.7 $50,961.9
========= =========
</TABLE>
<PAGE>
<PAGE> 9
The amounts due and deferred from receivables included unamortized
securitization assets and funds set up under the recourse
requirements for certain sales totaling $2,060.0 million at March
31, 2000 and $1,992.0 million at December 31, 1999. It also
included net customer payments which are owed to the securitization
trustee of $21.1 million at March 31, 2000 and $78.6 million at
December 31, 1999. The reserve for receivables serviced with
limited recourse represents our best estimate of probable losses on
these receivables.
4. CREDIT LOSS RESERVES
- -------------------------
Changes to credit loss reserves during the three months ended March 31
were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
(In millions) 2000 1999
- -------------------------------------------------------------------------------------
<S> <C> <C>
Owned receivables:
Credit loss reserves at beginning of period $1,470.7 $1,448.9
Provision for credit losses 420.6 331.7
Chargeoffs (438.6) (389.8)
Recoveries 31.6 35.5
Portfolio acquisitions, net 48.2 22.5
-------- --------
Credit loss reserves for owned receivables at March 31 1,532.5 1,448.8
-------- --------
Receivables serviced with limited recourse:
Credit loss reserves at beginning of period 737.4 656.4
Provision for credit losses 199.5 145.9
Chargeoffs (168.0) (160.3)
Recoveries 5.7 6.9
Other, net .1 9.9
-------- --------
Credit loss reserves for receivables serviced with
limited recourse at March 31 774.7 658.8
-------- --------
Total credit loss reserves for managed receivables
at March 31 $2,307.2 $2,107.6
======== ========
</TABLE>
The level of reserves for consumer credit losses are based on
delinquency and chargeoff experience by product and judgmental
factors. We also evaluate the potential impact of existing and
anticipated national and regional economic conditions on the
managed receivable portfolio when establishing credit loss
reserves. Reserve levels also reflect the impact of a growing
percentage of secured loans.
5. INCOME TAXES
- ---------------
Our effective tax rate was 33.9 percent for the three months ended
March 31, 2000 and 35.4 percent for the first three months of 1999.
The effective tax rate differs from the statutory federal income
tax rate in these years primarily because of the effects of (a)
state and local income taxes and (b) leveraged lease tax benefits.
6. TRANSACTIONS WITH PARENT COMPANY AND AFFILIATES
- --------------------------------------------------
We periodically advance funds to Household International and
affiliates or receive amounts in excess of our parent company's
current requirements. Advances to parent company and affiliates
were $184.6 million at March 31, 2000 compared to $691.8 million at
December 31, 1999. There were no advances from parent company and
affiliates at March 31, 2000 and December 31, 1999. Net interest
income on affiliated balances was $16.9 million for the first
quarter of 2000 and $11.9 million for the prior year quarter.
<PAGE>
<PAGE> 10
7. COMPREHENSIVE INCOME
- -------------------------
Comprehensive income was $284.0 million for the quarter ended March
31, 2000 and $198.8 million for the prior year quarter.
The components of accumulated other comprehensive income are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
March 31, December 31,
(In millions) 2000 1999
- ------------------------------------------------------------------------
<S> <C> <C>
Foreign currency translation adjustments $ (4.6) $ (7.1)
Unrealized gain (loss) on investment, net (19.5) (70.5)
------ ------
Accumulated other comprehensive income (loss) $(24.1) $(77.6)
====== ======
</TABLE>
8. SEGMENT REPORTING
- --------------------
We have one reportable segment, Consumer, which includes our branch-
based and correspondent consumer finance, private label credit
card, auto finance and domestic MasterCard and Visa businesses.
There has been no change in the measurement of segment profit or
the basis of segmentation as compared with our Form 10-K.
Information about our reportable segment for the three months ended
March 31, 2000 and 1999 was as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Owned Basis Three Months Ended
(In millions) March 31,
2000 1999
- -------------------------------------------------------------------------------
<S> <C> <C>
Net interest margin and other
revenues <F1> $ 1,232.4 $ 1,062.5
Intersegment revenues 46.0 34.1
Net income 186.3 177.5
Total assets 42,797.7 38,034.3
Total assets - managed 55,690.3 50,667.6
--------- ---------
<FN>
<F1> Net interest margin and other revenues, including intersegment
revenues, net of policyholders' benefits.
</FN>
</TABLE>
A reconciliation of the total reportable segment's net income to
consolidated net income for the three months ended March 31, 2000
and 1999 are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
(In millions) 2000 1999
- -----------------------------------------------------------------------------
<S> <C> <C>
Reportable segment net income $186.3 $177.5
Other operations not individually reportable 74.6 73.0
Adjustments/eliminations (30.4) (28.7)
------ ------
Total consolidated net income $230.5 $221.8
====== ======
</TABLE>
<PAGE>
<PAGE> 11
9. ACCOUNTING PRONOUNCEMENTS
- ----------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS No. 133"). FAS
No. 133 establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either
an asset or liability measured at its fair value. FAS No. 133 requires
that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses
to offset the related results on the hedged item in the income statement.
FASB Statement No. 137 deferred our required adoption of FAS No. 133
to January 1, 2001. We have not yet quantified the impact of
FAS No. 133 on our financial statements.
<PAGE>
<PAGE> 12
Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the consolidated
financial statements, notes and tables included elsewhere in this
report and in the Household Finance Corporation Annual Report on
Form 10-K for the year ended December 31, 1999 (the "1999 Form 10-
K") filed with the Securities and Exchange Commission. Management's
discussion and analysis may contain certain estimates and
projections that may be forward-looking in nature, as defined by
the Private Securities Litigation Reform Act of 1995. A variety of
factors may cause actual results to differ materially from the
results discussed in these forward-looking statements. Factors that
might cause such a difference are discussed herein and in the 1999
Form 10-K.
OPERATIONS SUMMARY
- ------------------
Our net income for the first quarter of 2000 increased 4 percent to
$230.5 million, compared to $221.8 million a year ago. Our net
income increased due to strong revenue growth from improved pricing
in our consumer finance and MasterCard* and Visa* businesses and
strong receivables growth. These increased revenues were partially
offset by higher operating expenses resulting from the portfolio
growth, increased marketing and e-commerce spending, and lower
revenues from our private label business due to changes in the
portfolio.
Our annualized return on average common shareholder's equity
("ROE") was 15.2 percent for both the current and prior year
quarters. Our annualized return on average owned assets ("ROA") was
1.94 percent for the quarter compared to 2.01 percent for the prior
year quarter. Our annualized return on average managed assets
("ROMA") was 1.54 percent for the quarter compared to 1.57 percent
for the prior year quarter.
Our Consumer segment reported higher net income over the prior year
quarter. Managed receivables grew to $53.4 billion at March 31,
2000, from $50.7 billion at December 31, 1999 and $48.0 billion at
March 31, 1999. Our higher managed receivables compared to year end
were driven by solid growth in real estate secured and auto finance
receivables partially offset by normal seasonal run-off in our
MasterCard and Visa and private label credit card portfolios.
During the quarter, we also acquired a $2.2 billion real estate
loan portfolio. Compared with the prior year quarter, solid growth
in our real estate secured, other unsecured and auto finance
receivables were offset by continued attrition in our legacy
undifferentiated Household Bank branded credit card portfolio on
which we have limited our marketing efforts and lower private label
receivables. Beginning in late 1998, an affiliate began originating
substantially all receivables generated from new merchant
relationships. ROA was 1.80 percent for the quarter compared to
1.87 percent for the prior year quarter. ROMA was 1.38 percent for
the quarter compared to 1.41 percent for the prior year quarter.
Operating results reflect higher net interest margin partially
offset by higher sales incentive compensation and higher credit
loss provision reflecting the increased levels of receivables.
Revenue from our tax refund anticipation loan ("RAL") business was
up from the prior year. Increases in both the number of loans and
the average balance of such loans was partially offset by reduced
pricing.
* MasterCard is a registered trademark of MasterCard
International, Incorporated and Visa is a registered trademark
of VISA USA, Inc.
<PAGE>
<PAGE> 13
BALANCE SHEET REVIEW
- --------------------
- - Managed receivables growth was solid, increasing 11 percent
from a year ago. Excluding the $2.2 billion real estate secured
loan portfolio that we acquired this quarter, receivables were up 6
percent. Growth was slowed by attrition in our credit card
portfolios. The strongest contributor to the growth was our U.S.
consumer finance business, which includes our real estate secured
and unsecured products. The consumer finance growth is the result
of favorable competitor and market conditions, improved customer
retention rates, and increased productivity from our branch sales
force who continue to benefit from our centralized lead management
and point-of-sale system. Auto finance receivables increased $1.3
billion over last year to $3.4 billion. This business continued to
benefit from favorable market conditions and an expanded collection
and sales force. MasterCard and Visa receivables were down 4
percent from last year. Growth in our UP portfolio was offset, as
expected, by continued attrition in our legacy undifferentiated
Household Bank portfolio and reflects our strategy to de-emphasize
this low margin business. Changes in the way we originate private
label accounts resulted in decreased private label receivables.
Beginning in late 1998, an affiliate began originating
substantially all private label receivables generated from new
merchant relationships. Although we subsequently purchase a portion
of these receivables from the affiliate, this change has resulted
in an overall decrease in our private label portfolio.
- - Compared to December 31, 1999, managed receivables increased 5
percent. Internally generated growth from our consumer finance
business was approximately 2 percent. Auto finance growth was also
strong in the quarter. This growth was offset by normal, seasonal
runoff in our MasterCard and Visa and private label credit card
portfolios.
- - Owned receivables were $40.8 billion at March 31, 2000, up
from $38.3 billion at December 31, 1999 and $35.6 billion at March
31, 1999. Owned receivables may vary from period to period
depending on the timing and size of securitization transactions.
- - Owned consumer two-months-and-over contractual delinquency as
a percent of owned consumer receivables was 5.24 percent at March
31, 2000, compared with 5.58 percent at December 31, 1999 and 5.34
percent at March 31, 1999. The annualized consumer owned chargeoff
ratio was 4.09 percent in the first quarter of 2000, compared with
4.17 percent in the prior quarter and 4.07 percent in the year-ago
quarter.
- - Managed consumer two-months-and-over contractual delinquency
as a percent of managed consumer receivables was 5.09 percent at
March 31, 2000, compared with 5.45 percent at December 31, 1999 and
5.22 percent at March 31, 1999. The annualized total consumer
managed chargeoff ratio was 4.37 percent in the first quarter of
2000, compared with 4.25 percent in the prior quarter and 4.30
percent in the year-ago quarter.
- - Our debt to total shareholder's equity ratio was 6.8 to 1
compared with 6.6 to 1 at December 31, 1999.
<PAGE>
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Our major use of cash is the origination or purchase of receivables
or purchases of investment securities. Our main sources of cash are
the collection of receivable balances; maturities or sales of
investment securities; proceeds from the issuance of debt, deposits
and securitization of consumer receivables; and cash provided by
operations. Our liquidity and interest rate risk strategy continues
to be conservative.
Commercial paper, bank and other borrowings decreased to $7.5
billion from $8.8 billion at year-end. Senior and senior
subordinated debt (with original maturities over one year)
increased to $32.8 billion from $30.4 billion at year-end and
included a $1.5 billion seven-year global note issuance. The
increase in debt levels from year end is consistent with the
increase in owned receivables.
Our securitized portfolio of real estate secured, auto finance,
MasterCard and Visa, private label and other unsecured receivables
totaled $12.8 billion at March 31, 2000, compared with $12.7
billion at December 31, 1999.
We securitized (excluding replenishments of certificate holder
interests) the following receivables:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
(In billions)
Three months ended March 31,2000 March 31, 1999
- ------------------------------------------------------------------------
<S> <C> <C>
Auto finance $ .5 $ .3
MasterCard/Visa .2 .2
Other unsecured .6 .3
---- ----
Total $1.3 $ .8
==== ====
</TABLE>
We believe the market for securities backed by receivables is a
reliable, efficient and cost-effective source of funds. Although
our securitized portfolio currently represents a smaller portion of
our total funding mix, we plan to continue utilizing
securitizations as a source of funding in the future. At March 31,
2000, securitizations represented 24 percent of the funding
associated with our managed portfolio compared to just under 26
percent a year ago.
INCOME STATEMENT REVIEW
- -----------------------
Net interest margin
- -------------------
Net interest margin was $836.8 million for the first quarter of
2000, up 21 percent compared to the prior year quarter. The
increase was primarily due to better pricing and receivables
growth, which were partially offset by higher funding costs. Net
interest margin as a percent of average owned interest-earning
assets, annualized, expanded to 8.33 percent, up from 8.20 percent
in the previous quarter and 7.36 percent in the year-ago quarter.
The improvements reflect improved pricing in our consumer finance
and MasterCard and Visa portfolios which was partially offset by
higher funding costs.
<PAGE>
<PAGE> 15
Net interest margin is also affected by the level and type of
assets securitized. As receivables are securitized rather than held
in our portfolio, net interest income is reclassified to
securitization income. Net interest margin on a managed basis,
assuming receivables securitized were held in our portfolio, was
$1,143.8 million for the first quarter of 2000 compared to $988.2
million in the prior year quarter. Net interest margin as a percent
of average managed interest-earning assets, annualized, was 8.71
percent, compared to 8.77 percent in the previous quarter and 7.98
percent in the prior year. The decrease over the prior quarter is
primarily due to higher funding costs and increased leverage. The
improvement over the prior year quarter was due to stronger
pricing, particularly in our MasterCard and Visa and other
unsecured portfolios, which was partially offset by higher funding
costs.
Provision for credit losses
- ---------------------------
The provision for credit losses for receivables for the first
quarter of 2000 totaled $420.6 million, compared to $331.7 million
in the prior year quarter. The provision for credit losses may vary
from quarter to quarter, depending on the amount of securitizations
in a particular period.
Other revenues
- --------------
Total other revenues decreased 2 percent over the first quarter of
1999 to $481.7 million. Significant fluctuations were as follows:
- - Securitization income, which consists of income associated with
the securitization and sale of receivables with limited
recourse, increased 4 percent to $200.8 million for the quarter.
The increase was primarily due to increased fee income on
securitized receivables.
- - Insurance revenues were comparable to 1999 at $91.7.
- - Fee income, which includes revenues from fee-based products such
as credit cards, decreased 6 percent to $94.0 million for the
quarter. The decrease is primarily due to decreases in credit
card fees resulting from lower average MasterCard and Visa and
private label receivables.
- - Other income decreased 17 percent to $58.7 million. The
decrease is primarily due to lower commercial income during the
current quarter which was partially offset by higher RAL income
as previously discussed.
Expenses
- --------
Total costs and expenses increased 8 percent to $549.2 million over
the first quarter of 1999 reflecting growth in our consumer finance
business as well as increased marketing and e-commerce spending.
Significant fluctuations were as follows:
- - Salaries and fringe benefits increased 20 percent to $266.4
million for the quarter. The increase was primarily due to
higher sales and non-sales related compensation directly related
to growth in the consumer finance business.
- - Occupancy and equipment expense increased 12 percent to $60.0
million for the quarter, primarily reflecting support facility
growth associated with our Tampa, Florida collections center.
- - Other marketing expenses increased 26 percent to $52.9 million
for the quarter due to increased credit card marketing initiatives.
- - Other servicing and administrative expenses decreased 24 percent
to $72.5 million for the quarter primarily due to increased fees
earned for servicing receivables of affiliates, partially offset
by increased e-commerce spending.
<PAGE>
<PAGE> 16
- - Amortization of acquired intangibles and goodwill increased 13
percent to $40.8 million for the quarter reflecting higher
amortization of purchased credit card relationships.
CREDIT LOSS RESERVES
- --------------------
Our consumer credit management policies focus on product type and
specific portfolio risk factors. Our consumer credit portfolio is
diversified by product and geographic location. See Note 3,
"Receivables" in the accompanying financial statements for
receivables by product type and Note 4, "Credit Loss Reserves," for
our credit loss reserve methodology and an analysis of changes in
the credit loss reserves for the quarter.
Total managed credit loss reserves, which include reserves established
on the off-balance sheet portfolio when receivables are securitized,
were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
March 31, December 31, March 31,
(In millions) 2000 1999 1999
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Owned $1,532.5 $1,470.7 $1,448.8
Serviced with limited recourse 774.7 737.4 658.8
-------- -------- --------
Total managed credit loss reserves $2,307.2 $2,208.1 $2,107.6
======== ======== ========
</TABLE>
Managed credit loss reserves as a percent of nonperforming managed
receivables were 103.3 percent at March 31, 2000, compared to 99.1
percent at December 31, 1999 and 106.3 percent at March 31, 1999.
Total owned and managed credit loss reserves as a percent
of receivables were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
March 31, December 31, March 31,
2000 1999 1999
- ---------------------------------------------------------
<S> <C> <C> <C>
Owned 3.75% 3.84% 4.07%
Managed 4.31 4.33 4.37
---- ---- ----
</TABLE>
The ratios at March 31, 2000 were impacted by our first quarter
real estate secured portfolio acquisition. The decreases in the
ratios compared to March 1999 reflect the impact of a growing
percentage of secured loans. Real estate secured receivables, which
have a significantly lower chargeoff rate than unsecured
receivables, represent 50 percent of our core managed receivables
at March 31, 2000, compared to 47 percent a year ago. MasterCard
and Visa and private label products were 23 percent at quarter end,
down from 29 percent a year ago. This change in portfolio mix is
important as the loss severity for real estate secured loans is
significantly less than for unsecured products, such as credit
cards.
<PAGE>
<PAGE> 17
CREDIT QUALITY
- --------------
We track delinquency and chargeoff levels on a managed basis and we
apply the same credit and portfolio management procedures as on our
owned portfolio.
Delinquency
- -----------
Two-Months-and-Over Contractual Delinquency (as a percent of
consumer receivables):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
3/31/00 12/31/99 9/30/99 6/30/99 3/31/99
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Managed:
Real estate secured 3.16% 3.34% 3.42% 3.09% 3.36%
Auto finance 1.53 2.44 2.26 1.87 1.74
MasterCard/Visa 3.17 3.46 3.90 3.73 4.69
Private label 9.66 9.30 9.69 8.46 8.00
Other unsecured 9.52 9.83 9.58 9.12 8.62
---- ---- ---- ---- ----
Total 5.09% 5.45% 5.57% 5.14% 5.22%
==== ==== ==== ==== ====
Owned 5.24% 5.58% 5.92% 5.28% 5.34%
==== ==== ==== ==== ====
</TABLE>
Managed delinquency as a percentage of managed consumer receivables
improved from both the prior quarter and the prior year quarter.
Dollars of delinquency were down slightly from the prior quarter
and better than expected. Real estate secured delinquency continued
to benefit from the growing percentage of loans in our portfolio on
which we hold a first lien position. The continued decrease in
MasterCard and Visa delinquency is attributable to run-off
associated with our Household Bank branded portfolio, tightened
credit extension policies and re-engineered collection efforts.
Private label delinquencies have been negatively impacted by
reductions in the portfolio balance as more originations are booked
by our affiliate. Other unsecured delinquency increased over the
prior year quarter due to continued seasoning in our Beneficial
unsecured products.
The trends impacting owned consumer delinquency as a percent of
owned receivables are generally consistent with those described
above for our managed portfolio. Owned delinquency by product is
comparable to managed except for MasterCard and Visa, private label
and other unsecured receivables which is greater than managed
delinquency due to the retention of receivables on balance sheet
that do not meet the eligibility requirements for securitization.
Net Chargeoffs of Consumer Receivables
- --------------------------------------
Net Chargeoffs of Consumer Receivables (as a percent, annualized,
of average consumer receivables):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
2000 1999 1999 1999 1999
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Managed:
Real estate secured .55% .56% .58% .62% .48%
Auto finance 5.27 5.44 4.55 4.41 5.45
MasterCard/Visa 6.24 6.13 7.04 9.24 9.60
Private label 8.93 8.60 7.63 7.24 6.66
Other unsecured 8.80 8.29 8.19 6.27 7.16
---- ---- ---- ---- ----
Total 4.37% 4.25% 4.21% 4.05% 4.30%
==== ==== ==== ==== ====
Owned 4.09% 4.17% 4.00% 3.68% 4.07%
==== ==== ==== ==== ====
</TABLE>
<PAGE>
<PAGE> 18
Managed net chargeoffs as a percent of average managed consumer
receivables increased slightly over both the prior and prior year
quarters. Private label chargeoffs have been negatively impacted
by reductions in the portfolio balance as more originations are
booked by our affiliate. The increase in other unsecured
chargeoffs was driven by our Beneficial portfolio. MasterCard and
Visa chargeoffs were essentially flat compared to the prior
quarter, but decreased from the prior year quarter due to the run-
off associated with our Household Bank branded portfolio.
The decrease in total owned net chargeoffs as a percent of owned
receivables over the prior quarter is primarily due to decreased
chargeoffs in our MasterCard and Visa portfolio. The owned trends
impacting our remaining products are generally consistent with
those described above for our managed portfolio. Owned chargeoffs
for MasterCard and Visa, other unsecured and private label are
higher than managed chargeoffs due to the difference in credit
quality and seasoning of the receivables that remain on our balance
sheet. Chargeoffs on owned auto finance receivables are lower than
managed chargeoffs due to the predominantly unseasoned nature of
the receivables which remain on our balance sheet.
Nonperforming Assets
- --------------------
Nonperforming assets consisted of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
(In millions) 3/31/00 12/31/99 9/30/99 6/30/99 3/31/99
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Owned assets:
Nonaccrual receivables $1,250.1 $1,183.7 $1,162.2 $1,014.5 $ 935.9
Accruing consumer receivables
90 or more days delinquent 484.1 508.4 527.9 519.4 553.0
Renegotiated commercial loans 12.3 12.3 12.3 12.3 12.3
-------- -------- -------- -------- --------
Total nonperforming receivables 1,746.5 1,704.4 1,702.4 1,546.2 1,501.2
Real estate owned 295.6 266.6 229.7 238.6 229.9
-------- -------- -------- -------- --------
Total nonperforming assets $2,042.1 $1,971.0 $1,932.1 $1,784.8 $1,731.1
======== ======== ======== ======== ========
Credit loss reserves as a
percent of nonperforming
receivables 87.7% 86.3% 86.4% 94.3% 96.5%
-------- -------- -------- -------- --------
Managed assets:
Nonaccrual receivables $1,638.7 $1,610.1 $1,502.6 $1,372.8 $1,307.1
Accruing consumer receivables
90 or more days delinquent 582.5 605.8 611.7 602.7 663.9
Renegotiated commercial loans 12.3 12.3 12.3 12.3 12.3
-------- -------- -------- -------- --------
Total nonperforming
receivables 2,233.5 2,228.2 2,126.6 1,987.8 1,983.3
Real estate owned 295.6 266.6 229.7 238.6 229.9
-------- -------- -------- -------- --------
Total nonperforming assets $2,529.1 $2,494.8 $2,356.3 $2,226.4 $2,213.2
======== ======== ======== ======== ========
Credit loss reserves as
a percent of nonperforming
receivables 103.3% 99.1% 101.3% 105.1% 106.3%
-------- -------- -------- -------- --------
</TABLE>
<PAGE>
<PAGE> 19
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.
27 Financial Data Schedule.
99.1 Debt and Securities Ratings.
(b) Reports on Form 8-K
During the first quarter of 2000, the registrant filed
a Current Report on Form 8-K dated February 10, 2000 with
respect to selected consolidated financial statements and
selected owned and managed financial information for
Household Finance Corporation as of and for the years ended
December 31, 1999 and 1998.
<PAGE>
<PAGE> 20
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: May 10, 2000 By: /s/ David A. Schoenholz
------------ ---------------------------
David A. Schoenholz
Executive Vice President and
Chief Financial Officer
and on behalf of
Household Finance Corporation
<PAGE>
<PAGE> 21
Exhibit Index
-------------
12 Statement of Computation of Ratio of Earnings
to Fixed Charges.
27 Financial Data Schedule.
99.1 Debt Securities Ratings.
EXHIBIT 12
----------
HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
All dollar amounts are stated in millions.
Three months ended March 31 2000 1999
- ----------------------------------------------------------------------
<S> <C> <C>
Net income $230.5 $221.8
Income taxes 118.2 121.8
------ ------
Income before income taxes 348.7 343.6
------ ------
Fixed charges:
Interest expense <F1> 602.1 509.0
Interest portion of rentals <F2> 10.8 8.9
------ ------
Total fixed charges 612.9 517.9
------ ------
Total earnings as defined $961.6 $861.5
====== ======
Ratio of earnings to fixed charges 1.57 1.66
====== ======
<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.
</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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 201,400
<SECURITIES> 2,873,700
<RECEIVABLES> 40,817,800
<ALLOWANCES> 2,307,200
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,089,300
<DEPRECIATION> 731,000
<TOTAL-ASSETS> 47,991,400
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 32,754,800
0
0
<COMMON> 1
<OTHER-SE> 5,941,000
<TOTAL-LIABILITY-AND-EQUITY> 47,991,400
<SALES> 0
<TOTAL-REVENUES> 1,914,700
<CGS> 0
<TOTAL-COSTS> 549,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 420,600
<INTEREST-EXPENSE> 596,200
<INCOME-PRETAX> 348,700
<INCOME-TAX> 118,200
<INCOME-CONTINUING> 230,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 230,500
<EPS-BASIC> 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 SECURITIES RATINGS <F1>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Standard Moody's Duff & Phelps
& Poor's Investors Fitch Credit Thomson
Corporation Service IBCA Rating Co. BankWatch
- ------------------------------------------------------------------------------------------------------------
At March 31, 2000
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Household Finance Corporation
Senior debt A A2 A+ A+ A+
Senior subordinated debt A- A3 A A A
Commercial paper A-1 P-1 F-1 Duff 1+ TBW-1
------ ------ ------ ------- ------
Household Bank (Nevada), N.A.
Senior debt A A2 A+ A+ A+
- ------------------------------------------------------------------------------------------------------------
<FN>
<F1> A security rating is not a recommendation to buy, sell or hold
securities. It may be subject to revision or withdrawal at any
time by the assigning rating organization. Each rating should be
evaluated independently of any other rating.
</FN>
</TABLE>
