-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GrtYeCCYpnG8Vnz0SDdGO7hBlHi071jLVJZwXJCNXNJaKIKXVA9YdoM7hrlY+QDu pBMS9zVwZdee4RLnhC2Myw== 0000354964-00-000010.txt : 20000511 0000354964-00-000010.hdr.sgml : 20000511 ACCESSION NUMBER: 0000354964-00-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOUSEHOLD INTERNATIONAL INC CENTRAL INDEX KEY: 0000354964 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 363121988 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08198 FILM NUMBER: 624001 BUSINESS ADDRESS: STREET 1: 2700 SANDERS RD CITY: PROSPECT HEIGHTS STATE: IL ZIP: 60070 BUSINESS PHONE: 8475645000 MAIL ADDRESS: STREET 1: 2700 SANDERS ROAD CITY: PROSPECT HEIGHTS STATE: IL ZIP: 60070 10-Q 1 HI FORM 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------- -------------- Commission file number 1-8198 ------ HOUSEHOLD INTERNATIONAL, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 36-3121988 - ------------------------ ----------------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) 2700 Sanders Road, Prospect Heights, Illinois 60070 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) (847) 564-5000 -------------------------------------------------- Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At April 30, 2000, there were 473,172,169 shares of registrant's common stock outstanding. 2 HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES Table of Contents PART I. Financial Information Page ---- Item 1. Financial Statements Condensed Consolidated Statements of Income (Unaudited) - Three Months Ended March 31, 2000 and 1999 3 Condensed Consolidated Balance Sheets - March 31, 2000 (Unaudited) and December 31, 1999 4 Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 2000 and 1999 5 Financial Highlights 6 Notes to Interim Condensed Consolidated Financial Statements (Unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II. Other Information Item 6. Exhibits and Reports on Form 8-K 23 Signature 24 3 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Household International, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - -------------------------------------------------------
(In millions, except per share data) - ------------------------------------------------------------------------------ Three months ended March 31 2000 1999 - ------------------------------------------------------------------------------ Finance income $1,916.0 $1,498.6 Other interest income 8.9 9.9 Interest expense 821.7 648.9 -------- -------- Net interest margin 1,103.2 859.6 Provision for credit losses on owned receivables 522.1 417.8 -------- -------- Net interest margin after provision for credit losses 581.1 441.8 -------- -------- Securitization income 346.4 324.9 Insurance revenues 135.0 142.2 Investment income 40.8 41.2 Fee income 179.3 129.7 Other income 133.3 109.2 -------- -------- Total other revenues 834.8 747.2 -------- -------- Salaries and fringe benefits 344.9 284.1 Occupancy and equipment expense 75.5 66.8 Other marketing expenses 133.1 88.5 Other servicing and administrative expenses 186.8 162.6 Amortization of acquired intangibles and goodwill 43.2 36.3 Policyholders' benefits 66.9 68.6 -------- -------- Total costs and expenses 850.4 706.9 -------- -------- Income before income taxes 565.5 482.1 Income taxes 192.6 161.3 -------- -------- Net income $ 372.9 $ 320.8 ======== ======== Earnings per common share: Net income $ 372.9 $ 320.8 Preferred dividends (2.3) (2.3) -------- -------- Earnings available to common shareholders $ 370.6 $ 318.5 ======== ======== Average common shares 470.5 484.7 Average common and common equivalent shares 474.0 490.1 -------- -------- Basic earnings per common share $ .79 $ .66 Diluted earnings per common share .78 .65 -------- -------- Dividends declared per common share .17 .17 -------- --------
See notes to interim condensed consolidated financial statements. 4 Household International, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS - -------------------------------------
(In millions, except share data) - ------------------------------------------------------------------------------- March 31, December 31, 2000 1999 - ------------------------------------------------------------------------------- ASSETS (UNAUDITED) - ------ Cash $ 290.4 $ 270.6 Investment securities 3,203.3 3,128.1 Receivables, net 56,096.0 52,158.4 Acquired intangibles and goodwill, net 1,821.5 1,590.4 Properties and equipment, net 490.4 476.4 Real estate owned 301.0 271.5 Other assets 2,788.8 2,854.0 --------- --------- Total assets $64,991.4 $60,749.4 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Debt: Deposits $ 6,514.5 $ 4,980.0 Commercial paper, bank and other borrowings 10,299.7 10,777.8 Senior and senior subordinated debt (with original maturities over one year) 37,226.3 34,887.3 --------- --------- Total debt 54,040.5 50,645.1 Insurance policy and claim reserves 1,298.1 1,308.9 Other liabilities 2,124.1 1,805.1 --------- --------- Total liabilities 57,462.7 53,759.1 --------- --------- Company obligated mandatorily redeemable preferred securities of subsidiary trusts* 375.0 375.0 --------- --------- Preferred stock 164.4 164.4 --------- --------- Common shareholders' equity: Common stock, $1.00 par value, 750,000,000 shares authorized, 550,526,953 and 550,431,057 shares issued at March 31, 2000 and December 31, 1999, respectively 550.5 550.4 Additional paid-in capital 1,871.9 1,780.8 Retained earnings 6,628.9 6,338.7 Accumulated other comprehensive income (207.3) (256.9) Less common stock in treasury, 77,667,656 and 82,519,612 shares at March 31, 2000 and December 31, 1999, respectively, at cost (1,854.7) (1,962.1) --------- --------- Total common shareholders' equity 6,989.3 6,450.9 --------- --------- Total liabilities and shareholders' equity $64,991.4 $60,749.4 ========= ========= * As described in note 8 to the financial statements, the sole assets of the three trusts are Junior Subordinated Deferrable Interest Notes issued by Household International, Inc. in March 1998, June 1996 and June 1995, bearing interest at 7.25, 8.70 and 8.25 percent, respectively, with principal balances of $206.2, $103.1 and $77.3 million, respectively, and due December 31, 2037, June 30, 2036 and June 30, 2025, respectively.
See notes to interim condensed consolidated financial statements. 5 Household International, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - -----------------------------------------------------------
(In millions) - ---------------------------------------------------------------------------------- Three months ended March 31 2000 1999 - ---------------------------------------------------------------------------------- CASH PROVIDED BY OPERATIONS Net income $ 372.9 $ 320.8 Adjustments to reconcile net income to cash provided by operations: Provision for credit losses on owned receivables 522.1 417.8 Insurance policy and claim reserves 2.4 37.8 Depreciation and amortization 77.8 76.0 Other, net 440.9 176.7 --------- --------- Cash provided by operations 1,416.1 1,029.1 --------- --------- INVESTMENTS IN OPERATIONS Investment securities: Purchased (293.8) (467.0) Matured 127.2 125.0 Sold 8.4 360.6 Short-term investment securities, net change 86.4 134.7 Receivables: Originations, net (7,223.6) (6,837.7) Purchases and related premiums (3,453.6) (1,010.2) Sold 6,533.7 5,707.0 Acquisition of business operations (87.1) - Properties and equipment purchased (34.6) (58.5) Properties and equipment sold 4.0 2.8 --------- --------- Cash decrease from investments in operations (4,333.0) (2,043.3) --------- --------- FINANCING AND CAPITAL TRANSACTIONS Short-term debt and demand deposits, net change (496.4) 627.5 Time certificates, net change 1,079.3 125.9 Senior and senior subordinated debt issued 3,485.1 2,047.4 Senior and senior subordinated debt retired (1,104.3) (1,643.9) Policyholders' benefits paid (31.9) (34.9) Cash received from policyholders 12.5 32.7 Shareholders' dividends (82.7) (84.3) Purchase of treasury stock (24.3) (232.9) Issuance of common stock 10.8 1.9 --------- --------- Cash increase from financing and capital transactions 2,848.1 839.4 --------- --------- Effect of exchange rate changes on cash 88.6 6.3 --------- --------- Increase (decrease) in cash 19.8 (168.5) Cash at January 1 270.6 457.4 --------- --------- Cash at March 31 $ 290.4 $ 288.9 ========= ========= Supplemental cash flow information: Interest paid $ 834.3 $ 587.2 --------- --------- Income taxes paid 49.9 54.6 --------- --------- Supplemental non-cash investing and financing activities: Common stock issued for acquisition $ 209.4 - --------- ---------
See notes to interim condensed consolidated financial statements. 6 Household International, Inc. and Subsidiaries FINANCIAL HIGHLIGHTS - --------------------
(Dollar amounts are in millions) - ------------------------------------------------------------------------------------ Three months ended March 31 2000 1999 - ------------------------------------------------------------------------------------ Net income $ 372.9 $ 320.8 Diluted earnings per common share .78 .65 Net interest margin and other revenues 1,871.1 1,538.2 Return on average common shareholders' equity, annualized 22.0% 20.3% Return on average owned assets, annualized 2.37 2.38 Return on average managed assets, annualized 1.82 1.75 Managed basis efficiency ratio, normalized 36.2 35.6 - ------------------------------------------------------------------------------------ March 31, December 31, (Dollar amounts are in millions) 2000 1999 - ------------------------------------------------------------------------------------ Total assets: Owned $64,991.4 $60,749.4 Managed 84,248.7 80,188.3 --------- --------- Receivables: Owned $56,190.0 $52,289.4 Serviced with limited recourse 19,257.3 19,438.9 --------- --------- Managed $75,447.3 $71,728.3 ========= ========= Total shareholders' equity as a percent of owned assets 11.58% 11.51% --------- --------- Total shareholders' equity as a percent of managed assets 8.94 8.72 --------- --------- Tangible equity to tangible managed assets 6.94 6.96 --------- --------- Policyholders' benefits have been netted against other revenues. Ratio of operating expenses to managed net interest margin and other revenues less policyholders' benefits, normalized. Total shareholders' equity includes common shareholders' equity, preferred stock and company obligated mandatorily redeemable preferred securities of subsidiary trusts. Tangible equity consists of total shareholders' equity, excluding unrealized gains and losses on investments, less acquired intangibles and goodwill. Tangible managed assets represent total managed assets less acquired intangibles and goodwill.
See notes to interim condensed consolidated financial statements. 7 Household International, Inc. and Subsidiaries NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION - -------------------------- The accompanying unaudited condensed consolidated financial statements of Household International, Inc. ("Household") and its subsidiaries have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results for the three months ended March 31, 2000 should not be considered indicative of the results for any future quarters or the year ending December 31, 2000. Household and its subsidiaries may also be referred to in this Form 10-Q as "we," "us" or "our." These financial statements should be read in conjunction with the consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 1999. 2. ACQUISITIONS - ----------------- On February 7, 2000, we purchased all of the outstanding capital stock of Renaissance Holdings, Inc. ("Renaissance"), a privately held issuer of secured and unsecured credit cards to non-prime customers, for approximately 5.0 million of our common shares and cash. The acquisition provided us with an established platform for growing the non-prime credit card business and will expand our product offerings to customers and prospects in our other businesses. The acquisition was accounted for as a purchase, and accordingly, Renaissance's operations have been included in our results of operations from February 7, 2000. 3. INVESTMENT SECURITIES - -------------------------- Investment securities consisted of the following available-for-sale investments:
- ---------------------------------------------------------------------------------- (In millions) March 31, 2000 December 31, 1999 - ---------------------------------------------------------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value -------- -------- -------- -------- Marketable equity securities $ 34.5 $ 36.4 $ 32.7 $ 33.4 Corporate debt securities 1,847.1 1,754.1 1,790.4 1,692.3 U.S. government and federal agency debt securities 348.0 339.9 248.6 236.7 Other 1,033.0 1,033.0 1,128.0 1,127.5 -------- -------- -------- -------- Subtotal 3,262.6 3,163.4 3,199.7 3,089.9 Accrued investment income 39.9 39.9 38.2 38.2 -------- -------- -------- -------- Total investment securities $3,302.5 $3,203.3 $3,237.9 $3,128.1 ======== ======== ======== ========
8 4. RECEIVABLES - ---------------- Receivables consisted of the following:
- -------------------------------------------------------------------------------- March 31, December 31, (In millions) 2000 1999 - -------------------------------------------------------------------------------- Real estate secured $28,816.0 $24,661.9 Auto finance 1,439.7 1,233.5 MasterCard/Visa 6,505.4 6,314.4 Private label 9,857.6 10,119.7 Other unsecured 8,825.7 9,151.6 Commercial and other 745.6 808.3 --------- --------- Total owned receivables 56,190.0 52,289.4 Accrued finance charges 957.5 879.3 Credit loss reserve for owned receivables (1,909.7) (1,757.0) Unearned credit insurance premiums and claims reserves (558.1) (569.3) Amounts due and deferred from receivables sales 2,367.7 2,225.6 Reserve for receivables serviced with limited recourse (951.4) (909.6) --------- --------- Total owned receivables, net 56,096.0 52,158.4 Receivables serviced with limited recourse 19,257.3 19,438.9 --------- --------- Total managed receivables, net $75,353.3 $71,597.3 ========= ========= Receivables serviced with limited recourse consisted of the following: - -------------------------------------------------------------------------------- March 31, December 31, (In millions) 2000 1999 - -------------------------------------------------------------------------------- Real estate secured $ 2,028.5 $ 2,273.6 Auto finance 1,963.5 1,806.3 MasterCard/Visa 9,006.9 9,478.7 Private label 1,150.0 1,150.0 Other unsecured 5,108.4 4,730.3 --------- --------- Total receivables serviced with limited recourse $19,257.3 $19,438.9 ========= ========= The combination of owned receivables and receivables serviced with limited recourse, which we consider our managed portfolio, consisted of the following: - -------------------------------------------------------------------------------- March 31, December 31, (In millions) 2000 1999 - -------------------------------------------------------------------------------- Real estate secured $30,844.5 $26,935.5 Auto finance 3,403.2 3,039.8 MasterCard/Visa 15,512.3 15,793.1 Private label 11,007.6 11,269.7 Other unsecured 13,934.1 13,881.9 Commercial and other 745.6 808.3 --------- --------- Total managed receivables $75,447.3 $71,728.3 ========= =========
9 The amounts due and deferred from receivables included unamortized securitization assets and funds set up under the recourse requirements for certain sales totaling $2,337.2 million at March 31, 2000 and $2,230.5 million at December 31, 1999. It also included net customer payments which we owed to the securitization trustee of $6.9 million at March 31, 2000 and $68.9 million at December 31, 1999. The reserve for receivables serviced with limited recourse represents our best estimate of probable losses on these receivables. 5. CREDIT LOSS RESERVES - ------------------------- Changes to credit loss reserves during the three months ended March 31 were as follows:
- ------------------------------------------------------------------------------- (In millions) 2000 1999 - ------------------------------------------------------------------------------- Owned receivables: Credit loss reserves at beginning of period $1,757.0 $1,734.2 Provision for credit losses 522.1 417.8 Chargeoffs (525.7) (480.7) Recoveries 43.5 48.6 Portfolio acquisitions, net 112.8 9.8 -------- -------- Credit loss reserves for owned receivables at March 31 1,909.7 1,729.7 -------- -------- Receivables serviced with limited recourse: Credit loss reserves at beginning of period 909.6 813.9 Provision for credit losses 294.1 253.7 Chargeoffs (264.7) (275.8) Recoveries 14.9 14.4 Other, net (2.5) 8.6 -------- -------- Credit loss reserves for receivables serviced with limited recourse at March 31 951.4 814.8 -------- -------- Total credit loss reserves for managed receivables at March 31 $2,861.1 $2,544.5 ======== ========
The level of reserves for consumer credit losses are based on delinquency and chargeoff experience by product and judgmental factors. We also evaluate the potential impact of existing and anticipated global, national and regional economic conditions when establishing credit loss reserves. 6. INCOME TAXES - ----------------- Our effective tax rate was 34.1 percent for the three months ended March 31, 2000 and 33.5 percent for the first three months of 1999. The effective tax rate differs from the statutory federal income tax rate in these years primarily because of the effects of (a) state and local income taxes and (b) leveraged lease tax benefits. 10 7. EARNINGS PER COMMON SHARE - ------------------------------ Earnings per common share for the three months ended March 31 were calculated as follows:
- --------------------------------------------------------------------------------- (In millions, except per share data) 2000 1999 - --------------------------------------------------------------------------------- Diluted Basic Diluted Basic ------- ------ ------- ------ Earnings: Net income $372.9 $372.9 $320.8 $320.8 Preferred dividends (2.3) (2.3) (2.3) (2.3) ------ ------ ------ ------ Earnings available to common shareholders $370.6 $370.6 $318.5 $318.5 ====== ====== ====== ====== Average shares outstanding: Common 470.5 470.5 484.7 484.7 Common equivalents 3.5 - 5.4 - ------ ------ ------ ------ Average shares outstanding assuming dilution 474.0 470.5 490.1 484.7 ====== ====== ====== ====== Earnings per common share $ .78 $ .79 $ .65 $ .66 ====== ====== ====== ======
8.COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS - ------------------------------------------------------------------ In March 1998 Household Capital Trust IV ("HCT IV"), a wholly-owned subsidiary of Household, issued 8 million 7.25 percent Trust Preferred Securities ("preferred securities") at $25 per preferred security. The sole asset of HCT IV is $206.2 million of 7.25 percent Junior Subordinated Deferrable Interest Notes issued by Household. The junior subordinated notes held by HCT IV mature on December 31, 2037 and are redeemable by Household in whole or in part beginning on March 19, 2003, at which time the HCT IV preferred securities are callable at par ($25 per preferred security) plus accrued and unpaid dividends. Net proceeds from the issuance of preferred securities were used for general corporate purposes. In June 1996 Household Capital Trust II ("HCT II"), a wholly-owned subsidiary of Household, issued 4 million 8.70 percent preferred securities at $25 per preferred security. The sole asset of HCT II is $103.1 million of 8.70 percent Junior Subordinated Deferrable Interest Notes issued by Household. The junior subordinated notes held by HCT II mature on June 30, 2036 and are redeemable by Household in whole or in part beginning on June 30, 2001, at which time the HCT II preferred securities are callable at par ($25 per preferred security) plus accrued and unpaid dividends. In June 1995 Household Capital Trust I ("HCT I"), a wholly-owned subsidiary of Household, issued 3 million 8.25 percent preferred securities at $25 per preferred security. The sole asset of HCT I is $77.3 million of 8.25 percent Junior Subordinated Deferrable Interest Notes issued by Household. The junior subordinated notes held by HCT I mature on June 30, 2025 and are redeemable by Household in whole or in part beginning June 30, 2000, at which time the HCT I preferred securities are callable at par ($25 per preferred security) plus accrued and unpaid dividends. HCT I may elect to extend the maturity of the preferred securities to June 30, 2044. 11 The obligations of Household with respect to the junior subordinated notes, when considered together with certain undertakings of Household with respect to HCT I, HCT II and HCT IV, constitute full and unconditional guarantees by Household of HCT I's, HCT II's and HCT IV's obligations under the respective preferred securities. The preferred securities are classified in our balance sheets as company obligated mandatorily redeemable preferred securities of subsidiary trusts (representing the minority interest in the trusts) at their face and redemption amount of $375 million at March 31, 2000 and December 31, 1999. The preferred securities have a liquidation value of $25 per preferred security. Dividends on the preferred securities are cumulative, payable quarterly in arrears, and are deferrable at Household's option for up to five years. Household cannot pay dividends on its preferred and common stocks during such deferments. 9. FORWARD PURCHASE AGREEMENT - ------------------------------- During the quarter, we entered into agreements to purchase, on a forward basis, approximately 4.3 million shares of our common stock at a weighted-average forward price of $33.60 per share. The agreements may be settled either physically by purchasing the shares or on a net basis in shares of our common stock, at our option. The agreements have terms of up to one year but may be settled earlier at our option. As of March 31, 2000, no settlements have occurred under these agreements. 10. COMPREHENSIVE INCOME - ------------------------- Comprehensive income was $422.5 million for the quarter ended March 31, 2000 and $284.0 million for the quarter ended March 31, 1999. The components of accumulated other comprehensive income are as follows:
- ----------------------------------------------------------------------- March 31, December 31, (In millions) 2000 1999 - ----------------------------------------------------------------------- Foreign currency translation adjustments $(193.7) $(185.6) Unrealized gain (loss) on investments, net (13.6) (71.3) ------- ------- Accumulated other comprehensive income $(207.3) $(256.9) ======= =======
11. SEGMENT REPORTING - ---------------------- We have three reportable segments: Consumer, which includes our domestic branch-based and correspondent consumer finance, private label credit card and auto finance businesses; Credit Card, which includes our domestic MasterCard and Visa business; and International, which includes our United Kingdom and Canadian operations. There has been no change in the basis of our segmentation or in the measurement of segment profit as compared with our Annual Report on Form 10-K for the year ended December 31, 1999. 12 Information about our reportable segments for the three months ended March 31, 2000 and 1999 were as follows:
- --------------------------------------------------------------------------- Owned Basis Three Months Ended (In millions) March 31, 2000 - --------------------------------------------------------------------------- Credit Inter- Consumer Card national --------- --------- -------- Net interest margin and other revenues $ 1,160.0 $ 398.7 $ 237.2 Intersegment revenues 37.9 8.1 1.2 Net income 241.1 29.4 64.3 Total assets 46,178.7 6,623.2 7,472.1 Total assets - managed 55,515.0 15,423.0 8,719.9 --------- --------- -------- - --------------------------------------------------------------------------- Owned Basis Three Months Ended (In millions) March 31, 1999 - --------------------------------------------------------------------------- Credit Inter- Consumer Card national --------- --------- -------- Net interest margin and other revenues $ 938.0 $ 292.5 $ 193.6 Intersegment revenues 31.4 2.7 .8 Net income 208.0 12.1 46.2 Total assets 36,075.1 6,155.3 7,135.6 Total assets - managed 45,100.4 14,898.3 8,288.4 --------- --------- -------- Net interest margin and other revenues, including intersegment revenues, net of policyholders' benefits.
A reconciliation of the total reportable segments' net income to consolidated net income for the three months ended March 31, 2000 and 1999 are as follows:
- ---------------------------------------------------------------------------- (In millions) 2000 1999 - ---------------------------------------------------------------------------- Reportable segment net income $334.8 $266.3 Other operations not individually reportable 68.2 82.6 Adjustments/eliminations (30.1) (28.1) ------ ------ Total consolidated net income $372.9 $320.8 ====== ======
12. ACCOUNTING PRONOUNCEMENTS - ------------------------------ In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS No. 133"). FAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. FAS No. 133 requires that changes in a derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset the related results on the hedged item in the income statement. FASB Statement No. 137 deferred our required adoption of FAS No. 133 to January 1, 2001. We have not yet quantified the impact of FAS No. 133 on our financial statements. 13 Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in conjunction with the consolidated financial statements, notes and tables included elsewhere in this report and in the Household International, Inc. Annual Report on Form 10-K for the year ended December 31, 1999 (the "1999 Form 10-K") filed with the Securities and Exchange Commission. Management's discussion and analysis may contain certain estimates and projections that may be forward-looking in nature, as defined by the Private Securities Litigation Reform Act of 1995. A variety of factors may cause actual results to differ materially from the results discussed in these forward-looking statements. Factors that might cause such a difference are discussed herein and in the 1999 Form 10-K. OPERATIONS SUMMARY - ------------------ Our net income for the first quarter of 2000 increased 16.2 percent to $372.9 million, compared to $320.8 million a year ago. Diluted earnings per share increased 20.0 percent to $.78 in the first quarter compared to $.65 in the same period in 1999. Our improved results were due to strong revenue growth driven by significant receivables growth, partially offset by higher operating expenses resulting from the portfolio growth as well as increased marketing and e-commerce spending. Our annualized return on average common shareholders' equity ("ROE") was 22.0 percent for the quarter compared to 20.3 percent for the prior year quarter. Our annualized return on average owned assets ("ROA") was 2.37 percent for the quarter compared to 2.38 percent for the prior year quarter. Our annualized return on average managed assets ("ROMA") was 1.82 percent for the quarter compared to 1.75 percent for the prior year quarter. - - Operating results for our reportable operating segments for the first quarter of 2000 compared to the corresponding prior year period are summarized below: Our Consumer segment reported higher net income over the prior year quarter. Managed receivables grew to $53.8 billion at March 31, 2000, from $49.9 billion at December 31, 1999 and $43.3 billion at March 31, 1999. Our higher managed receivables were driven by solid growth in real estate secured, other unsecured and auto finance receivables. During the quarter, we also acquired a $2.2 billion real estate loan portfolio. ROA was 2.19 percent for the quarter compared to 2.34 percent for the prior year quarter. ROMA was 1.82 percent for the quarter compared to 1.87 percent for the prior year quarter. Operating results reflect higher net interest margin partially offset by higher sales incentive compensation and higher credit loss provision reflecting the increased levels of receivables. 14 Our credit card segment also reported improved results for the quarter. Managed receivables were $13.8 billion at March 31, 2000, $13.9 billion at December 31, 1999, and $13.4 billion at March 31, 1999. Compared to year end, we experienced seasonal runoff as well as continued attrition in our legacy undifferentiated Household Bank branded portfolio on which we have limited our marketing efforts. Seasonal runoff, however, was much lower than what we experienced a year ago. During the quarter, we acquired Renaissance, which essentially offset the previously mentioned attrition. Compared with the prior year quarter, strong receivables growth in the Union Privilege ("UP") portfolio and the impact of the Renaissance acquisition was partially offset by the attrition discussed above. ROA improved to 1.79 percent for the quarter compared to .72 percent for the prior year quarter. ROMA was .75 percent for the quarter compared to .30 percent for the prior year quarter. The improvement in operating results primarily was due to increased net interest margin from better pricing and higher fee income which was partially offset by higher marketing expenses. In March, the new GM Card was launched. The new product includes expanded Internet capabilities, new features for cardholders, and a renewed emphasis on the GM dealer channel as an important source of new account growth. Results for our International segment improved for the first quarter of 2000. Managed receivables were $7.6 billion at both March 31, 2000 and December 31, 1999 and $7.2 billion at March 31, 1999. First quarter growth in our real estate secured and private label portfolios was offset by seasonal run-off in MasterCard* and Visa* receivables. Year-over-year receivables growth primarily is attributable to higher MasterCard and Visa receivables, led by continued strong growth in the Goldfish Card, which we issue as part of our alliance with the Centrica Group, and marblesTM, our Internet-based credit card that was launched in the U.K. in October 1999. ROA was 3.40 percent for the quarter compared to 2.21 percent for the prior year quarter. ROMA increased to 2.97 percent for the quarter compared to 2.58 percent for the prior year quarter. The improvement in operating results primarily was due to increased revenues and higher receivables. - - Pretax income from our tax refund anticipation loan ("RAL") business increased from the prior year quarter contributing $.12 per share to first quarter earnings compared to $.10 in 1999. Increases in both the number of loans and the average balance of such loans was partially offset by reduced pricing. - - Our normalized managed basis efficiency ratio increased to 36.2 percent for the current quarter compared to 35.6 percent for the prior year quarter. The efficiency ratio is the ratio of operating expenses to the sum of our managed net interest margin and other revenues less policyholders' benefits. We normalize, or adjust for, items that are not indicative of ongoing operations. The higher managed ratio reflects additional marketing and e-commerce spending and costs related to the addition of the Renaissance platform. * MasterCard is a registered trademark of MasterCard International, Incorporated and Visa is a registered trademark of VISA USA, Inc. 15 BALANCE SHEET REVIEW - -------------------- - - Strong receivables growth was a key driver of our improved results. Total managed receivables increased 17.3 percent from a year ago. Excluding the real estate secured and Renaissance portfolios that we acquired this quarter, receivables were up 13 percent with real estate secured loans up 20 percent. All core products contributed to the year-over-year growth. The strongest contributor was our U.S. consumer finance business, which includes our real estate secured and unsecured products, which reported growth of over 25 percent. The consumer finance growth is the result of favorable competitor and market conditions, improved customer retention, and increased productivity from our branch sales force who continue to benefit from our centralized lead management and point-of-sale system. Auto finance receivables increased $1.4 billion over last year to $3.4 billion. This business continued to benefit from favorable market conditions and an expanded collection and sales force. MasterCard and Visa receivables were up 2.5 percent from last year and were flat after excluding the purchased Renaissance portfolio. Both our UP portfolio and our Goldfish card portfolio in the U.K. reported double-digit year-over-year growth. This growth was offset, as expected, by continued attrition in our undifferentiated Household Bank portfolio and reflects our strategy to de-emphasize this low margin business. Our sub-prime card program continues to perform well. Including the receivables and accounts we purchased as part of the Renaissance acquisition, we now have over 2 million accounts and $660 million in receivables. - - Compared to December 31, 1999, managed receivables increased 5.2 percent. Internally generated growth from our consumer finance business was approximately 4 percent sequentially. Auto finance growth was also strong in the quarter. This growth was offset by normal, seasonal runoff in our MasterCard and Visa and private label credit card portfolios. Attrition in the credit card portfolios was less than expected and over 40 percent less than the level a year ago. - - Owned receivables were $56.2 billion at March 31, 2000, up from $52.3 billion at December 31, 1999 and $45.4 billion at March 31, 1999. Owned receivables may vary from period to period depending on the timing and size of securitization transactions. - - Owned consumer two-months-and-over contractual delinquency as a percent of owned consumer receivables was 4.58 percent at March 31, 2000, compared with 4.81 percent at December 31, 1999 and 5.04 percent at March 31, 1999. The annualized consumer owned chargeoff ratio was 3.53 percent in the first quarter of 2000, compared with 3.62 percent in the prior quarter and 3.92 percent in the year-ago quarter. - - Managed consumer two-months-and-over contractual delinquency as a percent of managed consumer receivables was 4.43 percent at March 31, 2000, compared with 4.66 percent at December 31, 1999 and 4.81 percent at March 31, 1999. The annualized total consumer managed chargeoff ratio was 4.00 percent in the first quarter of 2000, compared with 3.96 percent in the prior quarter and 4.37 percent in the year-ago quarter. - - The ratio of total shareholders' equity (including company obligated mandatorily redeemable preferred securities of subsidiary trusts) to total owned assets was 11.58 percent at March 31, 2000 and 11.51 percent at December 31, 1999. The ratio of total shareholders' equity to managed assets was 8.94 percent at March 31, 2000 and 8.72 percent at December 31, 1999. - - The ratio of tangible equity to tangible managed assets was 6.94 percent, compared with 6.96 percent at December 31, 1999. We expect this ratio to increase over the next several quarters to 7.25 percent to 7.50 percent. In April 2000, we filed a registration statement with the Securities and Exchange Commission to issue up to $300 million of trust preferred stock or capital securities. The proceeds will be used to reduce debt which was incurred in the normal and ordinary course of our business and for other general corporate purposes. 16 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Our subsidiaries use cash to originate loans, purchase loans or investment securities and acquire businesses. Their main sources of cash are the collection of receivable balances; maturities or sales of investment securities; proceeds from the issuance of debt, deposits and securitization of consumer receivables; and cash provided by operations. Our liquidity and interest rate risk strategy continues to be conservative and we are largely unaffected by changes in rates. Assuming we were to take no action to mitigate the impact, a gradual 100 basis point rise in rates over a twelve month period is projected to reduce our earnings per share by 8 cents. During the first quarter, we repurchased 700 thousand shares of our common stock as part of our 1999 share repurchase program. The shares were repurchased on the open market for a total of $24.3 million. Since announcing the program in March 1999, we have repurchased 17.5 million shares for a total of $737.2 million. During the quarter, we entered into agreements to purchase, on a forward basis, approximately 4.3 million shares of our common stock at a weighted average forward price of $33.60 per share. The agreements may be settled either physically by purchasing the shares or on a net basis in shares of our common stock, at our option. The agreements have terms of up to one year but may be settled earlier at our option. As of March 31, 2000, no settlements have occurred under these agreements. Deposits increased to $6.5 billion from $5.0 billion at December 31, 1999. Commercial paper, bank and other borrowings decreased to $10.3 billion from $10.8 billion at year-end. Senior and senior subordinated debt (with original maturities over one year) increased to $37.2 billion from $34.9 billion at year-end and included a $1.5 billion seven-year global note issuance. The increase in debt levels from year end is consistent with the increase in owned receivables. Our securitized portfolio of real estate secured, auto finance, MasterCard and Visa, private label and other unsecured receivables totaled $19.3 billion at March 31, 2000, compared with $19.4 billion at December 31, 1999. We securitized (excluding replenishments of certificate holder interests) the following receivables:
- --------------------------------------------------------------------- (In billions) Three months ended March 31,2000 March 31, 1999 - --------------------------------------------------------------------- Auto finance $ .5 $ .3 MasterCard/Visa .2 .2 Other unsecured .8 .3 ---- ---- Total $1.5 $ .8 ==== ====
We believe the market for securities backed by receivables is a reliable, efficient and cost-effective source of funds. Although our securitized portfolio currently represents a smaller portion of our total funding mix, we plan to continue utilizing securitizations as a source of funding in the future. At March 31, 2000, securitizations represented 26 percent of the funding associated with our managed portfolio compared to just under 30 percent a year ago. 17 PRO FORMA MANAGED STATEMENTS OF INCOME - -------------------------------------- Securitizations of consumer receivables have been, and will continue to be, a source of liquidity for us. We continue to service securitized receivables after they have been sold and retain a limited recourse liability for future credit losses. We include revenues and credit-related expenses related to the off- balance sheet portfolio in one line item in our owned statements of income. Specifically, we report net interest margin, provision for credit losses, fee income and securitization related income as a net amount in securitization income. We monitor our operations on a managed basis as well as on the owned basis shown in our statements of income. The managed basis assumes that the securitized receivables have not been sold and are still on our balance sheet. The income and expense items discussed above are reclassified from securitization income into the appropriate caption. Pro forma managed statements of income, which reflect these reclassifications, are presented below. The pro forma managed basis statement of income is not intended to reflect the differences between accounting policies for owned receivables and the off-balance sheet portfolio, but merely to report net interest margin, fees and provision for loan losses as if the securitized loans were held in portfolio. Therefore, net income on a pro forma managed basis equals net income on an owned basis. Pro Forma Managed Statements of Income
- ----------------------------------------------------------------------------------- (Dollar amounts are in millions) Three months ended March 31, 2000 * 1999 * - ----------------------------------------------------------------------------------- Finance and other interest income $ 2,645.7 14.41% $ 2,209.3 13.58% Interest expense 1,120.2 6.10 914.2 5.62 --------- ----- --------- ----- Net interest margin 1,525.5 8.31 1,295.1 7.96 Provision for credit losses 816.2 671.5 --------- --------- Net interest margin after provision for credit losses 709.3 623.6 --------- --------- Insurance revenues 135.0 142.2 Investment income 40.8 41.2 Fee income 332.8 268.4 Securitization related income 64.7 4.4 Other income 133.3 109.2 --------- --------- Total other revenues 706.6 565.4 --------- --------- Salaries and fringe benefits 344.9 284.1 Occupancy and equipment expense 75.5 66.8 Other marketing expenses 133.1 88.5 Other servicing and administrative expenses 186.8 162.6 Amortization of acquired intangibles and goodwill 43.2 36.3 Policyholders' benefits 66.9 68.6 --------- --------- Total costs and expenses 850.4 706.9 --------- --------- Income before taxes 565.5 482.1 Income taxes 192.6 161.3 --------- --------- Net income $ 372.9 $ 320.8 ========= ========= Average managed receivables $72,347.8 $64,098.7 Average noninsurance investments 657.9 557.6 Other interest-earning assets 426.0 405.5 --------- --------- Average managed interest-earning assets $73,431.7 $65,061.8 ========= ========= * As a percent, annualized, of appropriate earning assets.
18 The following discussion on revenues, where applicable, and provision for credit losses includes comparisons to amounts reported on our historical owned statements of income ("Owned Basis"), as well as on the above pro forma managed statements of income ("Managed Basis"). Net interest margin - -------------------- Net interest margin on an Owned Basis was $1,103.2 million for the first quarter of 2000, up 28.3 percent compared to the prior year quarter. Net interest margin on a Managed Basis was $1,525.5 million for the first quarter of 2000, up 17.8 percent compared to the year-ago quarter. The increases were primarily due to better pricing and receivable growth, which were partially offset by higher funding costs. Net interest margin as a percent of average managed interest- earning assets, annualized, expanded to 8.31 percent, up from 8.29 percent in the previous quarter and 7.96 percent in the year-ago quarter. The sequential quarterly results reflect improved pricing which was substantially offset by higher funding costs. The year- over-year improvement resulted from better pricing in our consumer finance and MasterCard and Visa portfolios somewhat offset by higher funding costs. Provision for credit losses - --------------------------- The provision for credit losses for receivables on an Owned Basis for the first quarter of 2000 totaled $522.1 million, compared to $417.8 million in the prior year quarter. The provision as a percent of average owned receivables, annualized, was 3.91 percent in the first quarter of 2000 compared to 3.74 percent in the first quarter of 1999. The provision for credit losses on an Owned Basis may vary from quarter to quarter, depending on the amount of securitizations in a particular period. The provision for credit losses for receivables on a Managed Basis totaled $816.2 million in the first quarter of 2000, compared to $671.5 million in the prior year quarter. As a percent of average managed receivables, annualized, the provision was 4.51 percent, compared to 4.19 percent in the first quarter of 1999. The Managed Basis provision includes the over-the-life reserve requirement on the off-balance sheet portfolio. This provision is impacted by the type and amount of receivables securitized in a given period and substantially offsets the income recorded on the securitization transactions. See the liquidity and capital resources section for the type and amount of receivables securitized and the credit quality section for further discussion of factors affecting the provision for credit losses. Other revenues - -------------- Total other revenues on an Owned Basis increased 11.7 percent over the first quarter of 1999 to $834.8 million. On a Managed Basis, total other revenues increased 25.0 percent to $706.6 million for the quarter. Significant fluctuations were as follows: - - Securitization income on an Owned Basis, which consists of income associated with the securitization and sale of receivables with limited recourse, increased 6.6 percent to $346.4 million for the quarter. The increase was primarily due to increased fee income on securitized receivables. When reporting on a Managed Basis, the components of securitization income (net interest income, provision for credit losses, fee income, and securitization related income related to those receivables) are reclassified to the appropriate caption in the statements of income. - - Insurance revenues decreased 5.1 percent to $135.0 million for the quarter. The decrease is primarily attributable to lower revenues in the United Kingdom. 19 - - Fee income on an Owned Basis, which includes revenues from fee- based products such as credit cards, increased 38.2 percent to $179.3 million for the quarter. The increase is primarily due to higher credit card fees from the Renaissance portfolio. - - Fee income on a Managed Basis increased 24.0 percent to $332.8 million for the quarter. The increase was primarily due to higher credit card fees as discussed above. - - Securitization related income on a Managed Basis, which includes the gross gains and amortization on our securitized portfolio, increased $60.3 million to $64.7 million for the quarter. The year-over-year increase was offset by a corresponding increase in related credit loss provision. Securitization related income will vary from quarter to quarter depending upon the amount and mix of securitizations in a particular period. - - Other income increased 22.1 percent to $133.3 million. The increase is primarily due to higher RAL income as previously discussed. Expenses - -------- Total costs and expenses increased 20.3 percent to $850.4 million over the first quarter of 1999 reflecting increased marketing and e-commerce spending as well as our Renaissance acquisition. Significant fluctuations were as follows: - - Salaries and fringe benefits increased 21.4 percent to $344.9 million for the quarter. The increase was primarily due to higher sales and non-sales related compensation directly related to growth in the consumer finance business and to the Renaissance acquisition. - - Occupancy and equipment expense increased 13.0 percent to $75.5 million for the quarter, primarily reflecting support facility growth associated with our Tampa, Florida collections center. - - Other marketing expenses increased 50.4 percent to $133.1 million for the quarter due to increased credit card marketing initiatives. - - Other servicing and administrative expenses increased 14.9 percent to $186.8 million for the quarter primarily due to e- commerce initiatives and increased costs resulting from the Renaissance acquisition. - - Amortization of acquired intangibles and goodwill increased 19.0 percent to $43.2 million for the quarter. The increase reflects higher goodwill amortization associated with the Renaissance acquisition. CREDIT LOSS RESERVES - -------------------- Our consumer credit management policies focus on product type and specific portfolio risk factors. When evaluating credit risk, we believe that it is important to also consider risk adjusted revenue because our biggest protection against credit loss is the ability to price for it. Risk adjusted revenue on a managed basis increased to 7.82 percent in the first quarter from 7.15 percent in the prior year quarter. Our consumer credit portfolio is diversified by product and geographic location. See Note 4, "Receivables" in the accompanying financial statements for receivables by product type and Note 5, "Credit Loss Reserves," for our credit loss reserve methodology and an analysis of changes in the credit loss reserves for the quarter. 20 Total managed credit loss reserves, which include reserves established on the off-balance sheet portfolio when receivables are securitized, were as follows:
- ----------------------------------------------------------------------------- March 31, December 31, March 31, (In millions) 2000 1999 1999 - ----------------------------------------------------------------------------- Owned $1,909.7 $1,757.0 $1,729.7 Serviced with limited recourse 951.4 909.6 814.8 -------- -------- -------- Total managed credit loss reserves $2,861.1 $2,666.6 $2,544.5 ======== ======== ========
Managed credit loss reserves as a percent of nonperforming managed receivables were 105.9 percent at March 31, 2000, compared to 100.1 percent at December 31, 1999 and 104.7 percent at March 31, 1999. Total owned and managed credit loss reserves as a percent of receivables were as follows:
- ------------------------------------------------------------------------------ March 31, December 31, March 31, 2000 1999 1999 - ------------------------------------------------------------------------------ Owned 3.40% 3.36% 3.81% Managed 3.79 3.72 3.96 ---- ---- ----
The ratios at March 31, 2000 were impacted by our first quarter acquisitions. The decreases in the ratios compared to March 1999 reflect the impact of a growing percentage of secured loans. Real estate secured receivables, which have a significantly lower chargeoff rate than unsecured receivables, represent 41 percent of our total managed receivables at March 31, 2000, compared to 37 percent a year ago. MasterCard and Visa products were 21 percent at quarter end, down from 24 percent a year ago. This change in portfolio mix is important as the loss severity for home equity loans is significantly less than for unsecured products, such as credit cards. CREDIT QUALITY - -------------- We track delinquency and chargeoff levels on a managed basis and we apply the same credit and portfolio management procedures as on our owned portfolio. Delinquency - ----------- Two-Months-and-Over Contractual Delinquency (as a percent of consumer receivables):
- ----------------------------------------------------------------------------------------- 3/31/00 12/31/99 9/30/99 6/30/99 3/31/99 - ----------------------------------------------------------------------------------------- Managed: Real estate secured 2.99% 3.27% 3.46% 3.29% 3.54% Auto finance 1.52 2.43 2.26 1.87 1.74 MasterCard/Visa 3.06 2.78 3.10 3.11 3.61 Private label 5.94 5.97 6.66 6.62 6.37 Other unsecured 8.56 8.81 8.57 8.17 7.84 ---- ---- ---- ---- ---- Total 4.43% 4.66% 4.89% 4.72% 4.81% ==== ==== ==== ==== ==== Owned 4.58% 4.81% 5.24% 4.96% 5.04% ==== ==== ==== ==== ====
21 Managed delinquency as a percentage of managed consumer receivables improved substantially from both the prior quarter and the prior year quarter. Dollars of delinquency were flat compared with the prior quarter and better than expected. Real estate secured delinquency continued to benefit from the growing percentage of loans in our portfolio on which we hold a first lien position. The improving trend in MasterCard and Visa delinquency was negatively impacted in the quarter by the acquisition of the non-prime Renaissance portfolio. The increase in other unsecured delinquency over the prior year quarter is attributable to continued seasoning in our Beneficial unsecured products. The trends impacting owned consumer delinquency as a percent of owned receivables are generally consistent with those described above for our managed portfolio. Owned delinquency by product is comparable to managed except for MasterCard/Visa and other unsecured whose owned delinquency is greater due to the retention of receivables on balance sheet that do not meet the eligibility criteria for securitization. Net Chargeoffs of Consumer Receivables - -------------------------------------- Net Chargeoffs of Consumer Receivables (as a percent, annualized, of average consumer receivables):
- ---------------------------------------------------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter 2000 1999 1999 1999 1999 - ---------------------------------------------------------------------------------------------- Managed: Real estate secured .52% .54% .58% .64% .55% Auto finance 5.25 5.43 4.55 4.41 5.45 MasterCard/Visa 5.69 5.57 6.15 7.30 7.59 Private label 5.65 5.88 5.60 5.57 5.53 Other unsecured 7.41 6.98 7.06 5.61 6.36 ---- ---- ---- ---- ---- Total 4.00% 3.96% 4.09% 4.10% 4.37% ==== ==== ==== ==== ==== Owned 3.53% 3.62% 3.63% 3.54% 3.92% ==== ==== ==== ==== ====
Managed net chargeoffs as a percent of average managed consumer receivables for the first quarter of 2000 was essentially flat compared to the prior quarter. Increases in our other unsecured portfolio which were driven by our Beneficial portfolio was substantially offset by decreases in our real estate secured and auto finance portfolios. The improved managed chargeoff ratio compared with the prior year quarter primarily was due to lower chargeoffs in our MasterCard/Visa portfolio. The trends impacting owned net chargeoffs as a percent of owned receivables are generally consistent with those described above for our managed portfolio. Owned chargeoffs for our real estate secured and private label products are comparable to managed chargeoffs. Chargeoffs for MasterCard/Visa and other unsecured on an owned basis are higher due to the difference in credit quality and seasoning of the receivables which remain on our balance sheet. Chargeoffs for auto finance receivables on an owned basis are lower due to the predominantly unseasoned nature of the receivables which remain on balance sheet. 22 Nonperforming Assets - -------------------- Nonperforming assets consisted of the following:
- ------------------------------------------------------------------------------------------- (In millions) 3/31/00 12/31/99 9/30/99 6/30/99 3/31/99 - ------------------------------------------------------------------------------------------- Owned assets: Nonaccrual receivables $1,503.6 $1,444.6 $1,421.8 $1,271.9 $1,192.2 Accruing consumer receivables 90 or more days delinquent 570.5 550.4 573.7 567.0 601.7 Renegotiated commercial loans 12.3 12.3 12.3 12.3 12.3 -------- -------- -------- -------- -------- Total nonperforming receivables 2,086.4 2,007.3 2,007.8 1,851.2 1,806.2 Real estate owned 301.0 271.5 234.4 249.6 244.7 -------- -------- -------- -------- -------- Total nonperforming assets $2,387.4 $2,278.8 $2,242.2 $2,100.8 $2,050.9 ======== ======== ======== ======== ======== Credit loss reserves as a percent of nonperforming receivables 91.5% 87.5% 87.2% 93.9% 95.8% -------- -------- -------- -------- -------- Managed assets: Nonaccrual receivables $1,934.2 $1,912.6 $1,803.5 $1,667.4 $1,597.5 Accruing consumer receivables 90 or more days delinquent 755.0 739.9 751.5 747.3 819.8 Renegotiated commercial loans 12.3 12.3 12.3 12.3 12.3 -------- -------- -------- -------- -------- Total nonperforming receivables 2,701.5 2,664.8 2,567.3 2,427.0 2,429.6 Real estate owned 301.0 271.5 234.4 249.6 244.7 -------- -------- -------- -------- -------- Total nonperforming assets $3,002.5 $2,936.3 $2,801.7 $2,676.6 $2,674.3 ======== ======== ======== ======== ======== Credit loss reserves as a percent of nonperforming receivables 105.9% 100.1% 101.5% 104.0% 104.7% -------- -------- -------- -------- --------
23 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 12 Statement of Computation of Ratio of Earnings to Fixed Charges and to Combined Fixed Charges and Preferred Stock Dividends. 27 Financial Data Schedule. 99.1 Debt and Preferred Stock Securities Ratings. (b) Reports on Form 8-K During the first quarter of 2000, the registrant filed a Current Report on Form 8-K dated January 19, 2000 with respect to the financial results of Household International, Inc., for the quarter and year ended December 31, 1999. 24 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOUSEHOLD INTERNATIONAL, INC. ----------------------------- (Registrant) Date: May 10, 2000 By: /s/ David A. Schoenholz ------------ --------------------------- David A. Schoenholz Group Executive - Chief Financial Officer and on behalf of Household International, Inc. 25 Exhibit Index ------------- 12 Statement of Computation of Ratio of Earnings to Fixed Charges and to Combined Fixed Charges and Preferred Stock Dividends. 27 Financial Data Schedule. 99.1 Debt and Preferred Stock Securities Ratings. EX-12 2 STATEMENT OF COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12 ---------- HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
- ------------------------------------------------------------------ (In millions) Three months ended March 31 2000 1999 - ------------------------------------------------------------------ Net income $ 372.9 $ 320.8 Income taxes 192.6 161.3 -------- -------- Income before income taxes 565.5 482.1 -------- -------- Fixed charges: Interest expense 827.6 651.2 Interest portion of rentals 13.0 10.9 -------- -------- Total fixed charges 840.6 662.1 -------- -------- Total earnings as defined $1,406.1 $1,144.2 ======== ======== Ratio of earnings to fixed charges 1.67 1.73 ======== ======== Preferred stock dividends $ 3.5 $ 3.5 ======== ======== Ratio of earnings to combind fixed charges and preferred stock dividends 1.67 1.72 ======== ======== For financial statement purposes, interest expense includes income earned on temporary investment of excess funds, generally resulting from over-subscriptions of commercial paper. Represents one-third of rentals, which approximates the portion representing interest. Preferred stock dividends are grossed up to their pretax equivalent based upon an effective tax rate of 34.1 percent for the three months ended March 31, 2000.
EX-27 3 FINANCIAL DATA SCHEDULE
5 THE FOLLOWING SUMMARY FINNCIAL INFORMATION OF THE COMANY AND ITS SUBSIDIARIES IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION AND FINANCIAL STATEMENTS PREVIOUSLY FILED WITH THE SECURITIES & EXCHANGE COMMISSION. 1,000 3-MOS DEC-31-2000 MAR-31-2000 290,400 3,203,300 56,190,000 2,861,100 0 0 1,280,500 790,100 65,991,400 0 37,226,300 0 164,400 550,500 6,813,800 64,991,400 0 2,759,700 0 850,400 0 522,100 821,700 565,500 192,600 372,900 0 0 0 372,900 .79 .78 FINANCIAL STATEMENTS OF THE COMPANY WERE PREPARED IN ACCORDANCE WITH FINANCIAL INSTITUTION INDUSTRY STANDARDS. ACCORDINGLY, THE COMPANY'S BALANCE SHEETS WERE NON-CLASSIFIED.
EX-99.1 4 DEBT SECURITIES RATINGS EXHIBIT 99.1 ------------ HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES DEBT AND PREFERRED STOCK SECURITIES RATINGS
- ------------------------------------------------------------------------------------------------------ Standard Moody's Duff & Phelps & Poor's Investors Fitch Credit Thomson Corporation Service IBCA Rating Co. BankWatch - ------------------------------------------------------------------------------------------------------ At March 31, 2000 - ------------------------------------------------------------------------------------------------------ Household International, Inc. Senior debt A A3 A A A Commercial paper A-1 P-2 F-1 Duff 1 TBW-1 Preferred stock BBB+ baa1 A- A- BBB+ ----------- --------- --------- ------------- --------- Household Finance Corporation Senior debt A A2 A+ A+ A+ Senior subordinated debt A- A3 A A A Commercial paper A-1 P-1 F-1 Duff 1+ TBW-1 ----------- --------- --------- ------------- --------- Household Bank, f.s.b. Senior debt A A2 A A NR Subordinated debt A- A3 A- A- A Certificates of deposit (long/short-term) A/A-1 A2/P-1 A/F-1 A/Duff 1 TBW-1 Thrift notes A-1 P-1 F-1 Duff 1 TBW-1 - ------------------------------------------------------------------------------------------------------ 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.
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