-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, cClKZ/kWtG1KfkfHdlhMeNeocljvMDBaip6UGTsO8triAmzPPQ3zlpTY/gmvZKcN o6z9UPZ29rWBEa14LPxf5Q== 0000354964-95-000012.txt : 19950517 0000354964-95-000012.hdr.sgml : 19950516 ACCESSION NUMBER: 0000354964-95-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950512 SROS: CSE SROS: NYSE 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: 1934 Act SEC FILE NUMBER: 001-08198 FILM NUMBER: 95537914 BUSINESS ADDRESS: STREET 1: 2700 SANDERS RD CITY: PROSPECT HEIGHTS STATE: IL ZIP: 60070 BUSINESS PHONE: 7085645000 MAIL ADDRESS: STREET 1: 2700 SANDERS ROAD CITY: PROSPECT HEIGHTS STATE: IL ZIP: 60070 10-Q 1 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- --------------- Commission file number 1-8198 ------ 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) Registrant's telephone number, including area code: (708) 564-5000 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At April 30, 1995, there were 97,252,723 shares of registrant's common stock outstanding. 2 Part 1. FINANCIAL INFORMATION 1. FINANCIAL STATEMENTS Household International, Inc. and Subsidiaries STATEMENTS OF INCOME - -------------------- All dollar amounts except per share data are stated in millions.
- ------------------------------------------------------------------------------------------------------------- Three months ended March 31 1995 1994 - ------------------------------------------------------------------------------------------------------------- Finance income . . . . . . . . . . . . . . . . . . . . . . . $681.7 $616.1 Interest income from noninsurance investment securities. . . 36.3 31.7 Interest expense . . . . . . . . . . . . . . . . . . . . . . 377.4 257.4 ------------------------------- Net interest margin. . . . . . . . . . . . . . . . . . . . . 340.6 390.4 Provision for credit losses on owned receivables . . . . . . 164.3 174.1 ------------------------------- Net interest margin after provision for credit losses. . . . 176.3 216.3 ------------------------------- Securitization and servicing fee income. . . . . . . . . . . 228.3 171.0 Insurance premiums and contract revenues . . . . . . . . . . 87.7 80.6 Investment income. . . . . . . . . . . . . . . . . . . . . . 139.8 138.5 Fee income . . . . . . . . . . . . . . . . . . . . . . . . . 46.8 62.8 Other income . . . . . . . . . . . . . . . . . . . . . . . . 25.4 27.9 ------------------------------- Total other revenues . . . . . . . . . . . . . . . . . . . . 528.0 480.8 ------------------------------- Salaries and fringe benefits . . . . . . . . . . . . . . . . 145.8 164.3 Other operating expenses . . . . . . . . . . . . . . . . . . 274.7 283.1 Policyholders' benefits. . . . . . . . . . . . . . . . . . . 140.2 130.1 ------------------------------- Total costs and expenses . . . . . . . . . . . . . . . . . . 560.7 577.5 ------------------------------- Income before income taxes . . . . . . . . . . . . . . . . . 143.6 119.6 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 47.6 42.0 ------------------------------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 96.0 $ 77.6 =============================== Earnings per common share: Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 96.0 $ 77.6 Preferred dividends. . . . . . . . . . . . . . . . . . . . (6.9) (6.9) ------------------------------- Earnings available to common shareholders. . . . . . . . . $ 89.1 $ 70.7 =============================== Average common and common equivalent shares. . . . . . . . 98.3 97.0 =============================== Fully diluted earnings per common share. . . . . . . . . . $ .91 $ .73 =============================== Primary earnings per common share. . . . . . . . . . . . . $ .91 $ .74 =============================== Dividends declared per common share. . . . . . . . . . . . . $ .315 $ .30 ===============================
See notes to condensed financial statements. 3 Household International, Inc. and Subsidiaries BALANCE SHEETS - -------------- In millions.
- --------------------------------------------------------------------------------------------------- March 31, December 31, 1995 1994 - --------------------------------------------------------------------------------------------------- ASSETS - ------ Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 498.2 $ 541.2 Investment securities (fair value of $9,729.8 and $8,961.2). . . 9,687.6 9,004.5 Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . 20,933.1 20,778.3 Assets pending sale. . . . . . . . . . . . . . . . . . . . . . . - 398.3 Deferred insurance policy acquisition costs. . . . . . . . . . . 554.0 621.4 Acquired intangibles . . . . . . . . . . . . . . . . . . . . . . 624.3 649.9 Properties and equipment . . . . . . . . . . . . . . . . . . . . 506.7 512.0 Assets acquired through foreclosure. . . . . . . . . . . . . . . 239.7 234.5 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,521.3 1,598.3 -------------------------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $34,564.9 $34,338.4 ========================== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Debt: Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,252.2 $ 8,439.0 Commercial paper, bank and other borrowings. . . . . . . . . . 4,981.7 4,372.1 Senior and senior subordinated debt (with original maturities over one year). . . . . . . . . . . . . . . . . . 9,914.5 10,274.1 -------------------------- Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,148.4 23,085.2 Insurance policy and claim reserves. . . . . . . . . . . . . . . 6,833.4 6,715.8 Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . 1,937.3 2,014.4 -------------------------- Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . 31,919.1 31,815.4 -------------------------- Convertible preferred stock subject to mandatory redemption. . . 2.6 2.6 -------------------------- Preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . 320.0 320.0 -------------------------- Common shareholders' equity: Common stock . . . . . . . . . . . . . . . . . . . . . . . . . 115.2 115.0 Additional paid-in capital . . . . . . . . . . . . . . . . . . 370.2 362.1 Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 2,455.9 2,397.4 Foreign currency translation adjustments . . . . . . . . . . . (122.3) (123.6) Unrealized loss on investments, net. . . . . . . . . . . . . . (55.5) (103.6) Common stock in treasury . . . . . . . . . . . . . . . . . . . (440.3) (446.9) -------------------------- Total common shareholders' equity. . . . . . . . . . . . . . . . 2,323.2 2,200.4 -------------------------- Total liabilities and shareholders' equity . . . . . . . . . . . $34,564.9 $34,338.4 ==========================
See notes to condensed financial statements. 4 Household International, Inc. and Subsidiaries STATEMENTS OF CASH FLOWS - ------------------------ In millions.
- -------------------------------------------------------------------------------------------------- Three months ended March 31 1995 1994 - -------------------------------------------------------------------------------------------------- CASH PROVIDED BY OPERATIONS Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96.0 $ 77.6 Adjustments to reconcile net income to net cash provided by operations: Provision for credit losses on owned receivables . . . . . . . . . . 164.3 174.1 Insurance policy and claim reserves. . . . . . . . . . . . . . . . . 111.3 89.7 Depreciation and amortization. . . . . . . . . . . . . . . . . . . . 70.3 66.1 Net realized gains from sales of assets. . . . . . . . . . . . . . . (4.1) (8.9) Deferred insurance policy acquisition costs. . . . . . . . . . . . . (20.6) (19.8) Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5.1) 150.4 ---------------------------- Cash provided by operations. . . . . . . . . . . . . . . . . . . . . . 412.1 529.2 ---------------------------- INVESTMENTS IN OPERATIONS Investment securities: Purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (618.0) (1,320.3) Matured. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269.4 286.4 Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469.6 1,035.8 Short-term investment securities, net change . . . . . . . . . . . . . (652.8) (312.7) Receivables, excluding bankcard: Originated or purchased. . . . . . . . . . . . . . . . . . . . . . . (2,840.0) (2,517.3) Collected. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,743.3 1,862.9 Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 685.2 138.7 Bankcard receivables: Originated or collected, net . . . . . . . . . . . . . . . . . . . . (4,226.8) (2,946.6) Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,747.9 3,274.4 Disposition of banking organizations: Assets sold, net . . . . . . . . . . . . . . . . . . . . . . . . . . .2 - Deposits and other liabilities sold. . . . . . . . . . . . . . . . . (13.7) - Properties and equipment purchased . . . . . . . . . . . . . . . . . . (23.8) (29.0) Properties and equipment sold. . . . . . . . . . . . . . . . . . . . . 3.5 1.7 ---------------------------- Cash decrease from investments in operations . . . . . . . . . . . . . (456.0) (526.0) ---------------------------- FINANCING AND CAPITAL TRANSACTIONS Short-term debt, net change. . . . . . . . . . . . . . . . . . . . . . 259.7 (376.2) Time certificates accepted . . . . . . . . . . . . . . . . . . . . . . 762.2 760.4 Time certificates paid . . . . . . . . . . . . . . . . . . . . . . . . (631.5) (931.9) Senior and senior subordinated debt issued . . . . . . . . . . . . . . 731.6 1,182.7 Senior and senior subordinated debt retired. . . . . . . . . . . . . . (1,109.7) (723.6) Policyholders' benefits paid . . . . . . . . . . . . . . . . . . . . . (212.7) (119.4) Cash received from policyholders . . . . . . . . . . . . . . . . . . . 220.7 189.9 Shareholders' dividends. . . . . . . . . . . . . . . . . . . . . . . . (37.5) (35.8) Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . 10.9 3.7 ---------------------------- Cash decrease from financing and capital transactions. . . . . . . . . (6.3) (50.2) ---------------------------- Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . 7.2 (.6) ---------------------------- Decrease in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . (43.0) (47.6) Cash at January 1. . . . . . . . . . . . . . . . . . . . . . . . . . . 541.2 317.4 ---------------------------- Cash at March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 498.2 $ 269.8 ============================ Supplemental cash flow information: Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 304.1 $ 242.3 ============================ Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.5 $ 25.4 ============================
See notes to condensed financial statements. 5 Household International, Inc. and Subsidiaries BUSINESS SEGMENT DATA - --------------------- The company reassessed the significance of its Liquidating Commercial Lines ("LCL") and Corporate segments as of December 31, 1994. In recognition of the significant 1994 decline in the level of LCL assets, a reduced risk posture for these assets and the relative financial insignificance of the Corporate segment to the company's operations, the LCL and Corporate segments have been combined with the Finance and Banking segment. To better analyze financial condition and results of operations and related trends, prior year earnings and selected balance sheet data have been reclassified to reflect this combination. In millions.
- ------------------------------------------------------------------------------------------------------------- Three months ended March 31 1995 1994 - ------------------------------------------------------------------------------------------------------------- REVENUES - -------- Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . $ 1,074.2 $ 957.1 Individual Life Insurance. . . . . . . . . . . . . . . . . . . . 171.8 171.5 --------------------------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,246.0 $ 1,128.6 ================================= NET INCOME - ---------- Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . $ 84.8 $ 65.9 Individual Life Insurance. . . . . . . . . . . . . . . . . . . . 11.2 11.7 --------------------------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96.0 $ 77.6 ================================= Return on average owned assets (1) . . . . . . . . . . . . . . . 1.11% .94% --------------------------------- Return on average common shareholders' equity (1). . . . . . . . 15.6% 13.4% --------------------------------- Efficiency ratio (2) . . . . . . . . . . . . . . . . . . . . . . 57.7% 60.4% --------------------------------- (1) Annualized (2) Salaries and fringe benefits and other operating expenses as a percent of net interest margin and total other revenues less policyholders' benefits. The normalized efficiency ratio, which excludes non- recurring items, was 58.3 percent for the first quarter of 1995 compared to 59.6 percent for the first quarter of 1994. - ------------------------------------------------------------------------------------------------------------- March 31, Dec. 31, Assets 1995 1994 - ------------------------------------------------------------------------------------------------------------- Finance and Banking. . . . . . . . . . . . . . . . . . . . . . . $26,824.4 $26,897.0 Individual Life Insurance. . . . . . . . . . . . . . . . . . . . 7,740.5 7,441.4 --------------------------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,564.9 $34,338.4 =================================
See notes to condensed financial statements. 6 NOTES TO CONDENSED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ Accounting policies used in preparation of the quarterly condensed financial statements are consistent with accounting policies described in the notes to financial statements contained in Household International, Inc.'s (the "company") Annual Report on Form 10-K for its fiscal year ended December 31, 1994. The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair statement of results for the interim periods. All such adjustments are of a normal recurring nature. Certain prior period amounts have been reclassified to conform with the current period's presentation. 2. INVESTMENT SECURITIES ---------------------
Investment securities consisted of the following: ----------------------------------------------------------------------------------------------------------- In millions. March 31, 1995 December 31, 1994 ----------------------------------------------------------------------------------------------------------- Carrying Fair Carrying Fair Value Value Value Value ----------------------------------------------------------------------------------------------------------- TRADING INVESTMENTS Government securities and other. . . . . . . . . . . . . . . $ .3 $ .3 $ 17.3 $ 17.3 --------------------------------------------- AVAILABLE-FOR-SALE INVESTMENTS Marketable equity securities . . . . . . . . . . . . . . . . 73.7 73.7 60.3 60.3 Corporate debt securities. . . . . . . . . . . . . . . . . . 2,722.3 2,722.3 2,595.9 2,595.9 Government and agency debt securities. . . . . . . . . . . . 992.8 992.8 479.1 479.1 Mortgage-backed securities . . . . . . . . . . . . . . . . . 1,492.0 1,492.0 1,755.6 1,755.6 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 412.8 412.8 109.5 109.5 --------------------------------------------- Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . 5,693.6 5,693.6 5,000.4 5,000.4 --------------------------------------------- HELD-TO-MATURITY INVESTMENTS Corporate debt securities. . . . . . . . . . . . . . . . . . 1,879.5 1,922.7 1,906.1 1,897.2 Government debt securities . . . . . . . . . . . . . . . . . 33.0 31.1 34.4 30.9 Mortgage-backed securities . . . . . . . . . . . . . . . . . 1,144.0 1,149.4 1,136.5 1,116.8 Mortgage loans on real estate. . . . . . . . . . . . . . . . 146.9 150.0 161.9 158.5 Policy loans . . . . . . . . . . . . . . . . . . . . . . . . 75.2 75.2 72.7 72.7 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 592.0 584.4 549.9 542.1 --------------------------------------------- Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . 3,870.6 3,912.8 3,861.5 3,818.2 --------------------------------------------- Accrued investment income. . . . . . . . . . . . . . . . . . 123.1 123.1 125.3 125.3 --------------------------------------------- Total investment securities. . . . . . . . . . . . . . . . . $9,687.6 $9,729.8 $9,004.5 $8,961.2 ============================================= /TABLE 7 3. RECEIVABLES -----------
Receivables consisted of the following: ------------------------------------------------------------------------------------------------- March 31, December 31, In millions. 1995 1994 ------------------------------------------------------------------------------------------------- First mortgage . . . . . . . . . . . . . . . . . . . . . . . $ 3,333.1 $ 3,364.2 Home equity. . . . . . . . . . . . . . . . . . . . . . . . . 3,429.0 2,865.6 Other secured. . . . . . . . . . . . . . . . . . . . . . . . 604.0 676.9 Bankcard . . . . . . . . . . . . . . . . . . . . . . . . . . 4,235.8 4,788.9 Merchant participation . . . . . . . . . . . . . . . . . . . 2,646.2 2,564.9 Other unsecured. . . . . . . . . . . . . . . . . . . . . . . 5,464.9 5,137.2 Equipment financing and other commercial . . . . . . . . . . 1,139.3 1,157.9 -------------------------------- Total receivables owned . . . . . . . . . . . . . . . . . . 20,852.3 20,555.6 Accrued finance charges. . . . . . . . . . . . . . . . . . . 330.3 305.0 Credit loss reserve for owned receivables. . . . . . . . . . (580.7) (546.0) Unearned credit insurance premiums and claims reserves . . . (128.9) (122.2) Amounts due and deferred from receivables sales. . . . . . . 781.2 922.4 Reserve for receivables serviced with limited recourse . . . (321.1) (336.5) -------------------------------- Total receivables owned, net . . . . . . . . . . . . . . . . 20,933.1 20,778.3 Receivables serviced with limited recourse . . . . . . . . . 12,641.3 12,495.1 Receivables serviced with no recourse. . . . . . . . . . . . 16,059.4 17,752.2 -------------------------------- Total receivables owned or serviced, net . . . . . . . . . . $49,633.8 $51,025.6 ================================ The outstanding balance of receivables serviced with limited recourse consisted of the following: ------------------------------------------------------------------------------------------------- March 31, December 31, In millions. 1995 1994 ------------------------------------------------------------------------------------------------- Home equity. . . . . . . . . . . . . . . . . . . . . . . . . $ 4,867.9 $ 5,074.6 Bankcard . . . . . . . . . . . . . . . . . . . . . . . . . . 6,705.0 6,311.3 Merchant participation . . . . . . . . . . . . . . . . . . . 820.4 868.2 Other unsecured. . . . . . . . . . . . . . . . . . . . . . . 248.0 241.0 -------------------------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,641.3 $12,495.1 ================================ The combination of receivables owned and receivables serviced with limited recourse, which the company considers its managed portfolio, is shown below: ------------------------------------------------------------------------------------------------- March 31, December 31, In millions. 1995 1994 ------------------------------------------------------------------------------------------------- First mortgage . . . . . . . . . . . . . . . . . . . . . . . $ 3,333.1 $ 3,364.2 Home equity. . . . . . . . . . . . . . . . . . . . . . . . . 8,296.9 7,940.2 Other secured. . . . . . . . . . . . . . . . . . . . . . . . 604.0 676.9 Bankcard . . . . . . . . . . . . . . . . . . . . . . . . . . 10,940.8 11,100.2 Merchant participation . . . . . . . . . . . . . . . . . . . 3,466.6 3,433.1 Other unsecured. . . . . . . . . . . . . . . . . . . . . . . 5,712.9 5,378.2 Equipment financing and other commercial . . . . . . . . . . 1,139.3 1,157.9 -------------------------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $33,493.6 $33,050.7 ================================ The outstanding balance of receivables serviced with no recourse consisted of the following: ------------------------------------------------------------------------------------------------- March 31, December 31, In millions. 1995 1994 ------------------------------------------------------------------------------------------------- First mortgage . . . . . . . . . . . . . . . . . . . . . . . $15,270.3 $16,716.7 Home equity. . . . . . . . . . . . . . . . . . . . . . . . . 228.3 343.0 Other unsecured. . . . . . . . . . . . . . . . . . . . . . . 560.8 692.5 -------------------------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,059.4 $17,752.2 ================================ /TABLE 8 The amounts due and deferred from receivables sales of $781.2 million at March 31, 1995 included unamortized excess servicing assets and funds established pursuant to the recourse provisions and holdback reserves for certain sales totaling $770.9 million. The amounts due and deferred also included customer payments not yet remitted by the securitization trustee to the company. In addition, the company has made guarantees relating to certain securitizations of $281.3 million plus unpaid interest and has subordinated interests in certain transactions, which are recorded as receivables, for $123.9 million at March 31, 1995. The company maintains credit loss reserves pursuant to the recourse provisions for receivables serviced with limited recourse which are based on estimated probable losses under such provisions. These reserves totaled $321.1 million at March 31, 1995 and represent the company's best estimate of probable losses on receivables serviced with limited recourse. See Note 4, "Credit Loss Reserves" for an analysis of credit loss reserves for receivables. See "Management's Discussion and Analysis" on pages 17 through 19 for additional information related to the credit quality of receivables. 4. CREDIT LOSS RESERVES -------------------- An analysis of credit loss reserves for the three months ended March 31 was as follows:
------------------------------------------------------------------------------------------------ In millions. 1995 1994 ------------------------------------------------------------------------------------------------ Credit loss reserves for owned receivables at January 1. . . . . . . . $ 546.0 $ 621.9 Provision for credit losses - owned receivables. . . . . . . . . . . . 164.3 174.1 Owned receivables charged off . . . . . . . . . . . . . . . . . . . . (173.6) (204.3) Recoveries on owned receivables . . . . . . . . . . . . . . . . . . . 33.0 27.7 Credit loss reserves on receivables purchased, net . . . . . . . . . . 2.6 .4 Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4 (.8) ----------------------- TOTAL CREDIT LOSS RESERVES FOR OWNED RECEIVABLES AT MARCH 31 580.7 619.0 ----------------------- Credit loss reserves for receivables serviced with limited recourse at January 1. . . . . . . . . . . . . . . . . . . . 336.5 222.8 Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . 62.9 61.9 Chargeoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (86.1) (57.7) Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 1.7 Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.0 (.3) ----------------------- TOTAL CREDIT LOSS RESERVES FOR RECEIVABLES SERVICED WITH LIMITED RECOURSE AT MARCH 31 . . . . . . . . . . . . . . . . . . . . 321.1 228.4 ----------------------- TOTAL CREDIT LOSS RESERVES FOR MANAGED RECEIVABLES AT MARCH 31 . . . . $ 901.8 $ 847.4 ======================= /TABLE 9 5. INCOME TAXES ------------ Effective tax rates for the three months ended March 31, 1995 and 1994 of 33.1 and 35.1 percent, respectively, differ from the statutory federal income tax rate for the respective periods primarily because of the effects of (a) foreign loss carry forwards, (b) amortization of intangible assets, (c) state and local income taxes, (d) reduction of noncurrent tax requirements and (e) leveraged lease tax benefits. 6. EARNINGS PER COMMON SHARE ------------------------- Computations of earnings per common share for the three months ended March 31 were as follows:
---------------------------------------------------------------------------------------------------------- 1995 1994 ------------------ ----------------- Fully Fully In millions, except per share data. Primary Diluted Primary Diluted ---------------------------------------------------------------------------------------------------------- Earnings: Net income . . . . . . . . . . . . . . . . . . . . . . . . $96.0 $96.0 $77.6 $77.6 Preferred dividends. . . . . . . . . . . . . . . . . . . . (7.0) (6.9) (7.5) (6.9) ----------------------------------------- Net income available to common shareholders. . . . . . . . . $89.0 $89.1 $70.1 $70.7 ========================================= Average shares: Common . . . . . . . . . . . . . . . . . . . . . . . . . . 96.8 96.8 94.6 94.6 Common equivalents . . . . . . . . . . . . . . . . . . . . 1.0 1.5 .6 2.4 ----------------------------------------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . 97.8 98.3 95.2 97.0 ========================================= Earnings per common share. . . . . . . . . . . . . . . . . . $ .91 $ .91 $ .74 $ .73 =========================================
Common share equivalents assume exercise of stock options, if dilutive. Fully diluted earnings per share computations also assume conversion of dilutive convertible preferred stock into common equivalents. Preferred stock is considered dilutive if its dividend rate per common share assuming conversion is less than primary earnings per common share. 10 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONSOLIDATED OVERVIEW Operations Summary ------------------ Net income for the first quarter was $96.0 million, up 24 percent from $77.6 million in 1994. Fully diluted earnings per share were $.91 per share in the quarter, up 25 percent from $.73 per share in 1994. All Finance and Banking businesses achieved improved operating results in the first quarter of 1995 compared to the prior year quarter: - The domestic consumer finance business increased earnings primarily due to managed receivable portfolio growth, lower credit costs and improved operating efficiency. The credit card businesses reported higher earnings primarily due to a larger managed receivables portfolio, increased efficiency and lower credit costs. The domestic bankcard business continued to benefit from the company's association with the General Motors credit card ("GM Card") program. Net income increased in the United Kingdom operation due to improved efficiency, a larger managed receivable base and higher fee income generated from the GM Card from Vauxhall. The consumer banking business reported higher earnings primarily due to improved efficiency and lower write-downs of servicing rights. In the fourth quarter of 1994 the company exited the traditional first mortgage origination business. The commercial business reported breakeven operating results in the first quarter compared to a loss last year primarily due to lower credit costs. - The company's efficiency ratio (which is defined as the ratio of salaries and fringe benefits and other operating expenses to net interest margin and other revenues less policyholders' benefits) improved to 57.7 percent from 60.4 percent a year ago primarily as a result of initiatives begun in the fourth quarter of 1994 to improve efficiency. The normalized efficiency ratio, which excludes non-recurring items, was 58.3 percent for the first quarter of 1995 compared to 59.6 percent for the first quarter of 1994. Balance Sheet Review -------------------- - In the fourth quarter of 1994, the company formed a joint venture and entered into an agreement to sell $398 million of performing commercial receivables to this entity, contingent upon the joint venture obtaining third-party, non-recourse financing. The joint venture received the financing in March 1995 and completed the purchase of the receivables. These receivables were classified as Assets Pending Sale on the Balance Sheet at December 31, 1994. - Managed consumer receivables (owned receivables plus those serviced with limited recourse) were up 15 percent over the prior year period. Excluding first mortgage and other secured receivables (which the company has de-emphasized or discontinued), the portfolio grew 18 percent. Home equity receivable volumes in the company's domestic consumer finance business were up 20 percent compared to the prior year period due to strong demand in the wholesale and retail networks. Demand for credit cards and unsecured loans also remained strong as volume on these products increased 22 percent during the first three months compared to the same year-ago period. 11 Managed consumer receivables grew 6 percent on an annualized basis during the first quarter. Excluding the first mortgage and other secured product lines and seasonal run-off in the bankcard portfolio, managed consumer receivables increased 17 percent. The company's domestic consumer finance business grew its home equity portfolio 20 percent, annualized, primarily due to strong wholesale volume. Other unsecured receivables in this business were up 27 percent (annualized) in the quarter. - Consumer two-months-and-over contractual delinquency ("delinquency") as a percent of managed consumer receivables was 3.15 percent, essentially flat with 3.11 percent at December 31, 1994 and down from 3.61 percent at March 31, 1994. Consumer credit loss reserves as a percent of managed consumer delinquency were 74.3 percent, flat compared to December 31, 1994 and up 19 percent from a year ago. The annualized total consumer managed chargeoff ratio in the first quarter of 1995 was 2.68 percent, essentially unchanged compared to 2.65 percent in the prior quarter and down from 2.96 percent in the year-ago quarter. - In the first quarter, the company entered into agreements to sell its banking operations, including approximately $3.8 billion of related deposits, in California, Virginia, Maryland, Ohio and Indiana. These sales are expected to close by the middle of 1995. These sales will allow the company to focus its banking activities on the metropolitan Chicago market. In April 1995 the company entered into an agreement to sell its remaining domestic first mortgage servicing portfolio to a third party. The sale is not expected to have a material impact on the company's operating results. - The ratio of common and preferred shareholders' equity (including convertible preferred stock) to total assets was 7.65 percent compared to 7.35 percent at December 31, 1994. The ratios were affected by Statement of Financial Accounting Standards No. 115 ("FAS No. 115") which requires that unrealized gains or losses in certain debt and equity securities be recorded as an adjustment to shareholders' equity. While FAS No. 115 provides for the adjustment of certain debt and equity securities to fair value, it does not allow for a corresponding adjustment for a change in related liabilities. Therefore, the unrealized loss does not reflect the change in the economic value of shareholders' equity due to higher interest rates. The company believes that the change in fair value of liabilities should offset a significant amount of the reduction in the fair value of its investment portfolio. Excluding the effect of the FAS No. 115 component of shareholders' equity, the ratio of common and preferred shareholders' equity to total assets was 7.82 percent at March 31, 1995, up from 7.65 percent at December 31, 1994. 12 FINANCE AND BANKING ------------------- Statements of Income
---------------------------------------------------------------------------------------------------------- All dollar amounts are stated in millions. Three months ended March 31 1995 1994 ---------------------------------------------------------------------------------------------------------- Finance income . . . . . . . . . . . . . . . . . . . . . $ 681.7 $ 616.1 Interest income from noninsurance investment securities. 36.3 31.7 Interest expense . . . . . . . . . . . . . . . . . . . . 377.4 256.3 ----------------------------------- Net interest margin. . . . . . . . . . . . . . . . . . . 340.6 391.5 Provision for credit losses on owned receivables . . . . 164.3 174.1 ----------------------------------- Net interest margin after provision for credit losses. . 176.3 217.4 ----------------------------------- Securitization and servicing fee income. . . . . . . . . 228.3 171.0 Insurance premiums and contract revenues . . . . . . . . 48.7 41.8 Investment income. . . . . . . . . . . . . . . . . . . . 7.0 5.8 Fee income . . . . . . . . . . . . . . . . . . . . . . . 46.8 62.8 Other income . . . . . . . . . . . . . . . . . . . . . . 25.4 27.9 ----------------------------------- Total other revenues . . . . . . . . . . . . . . . . . . 356.2 309.3 ----------------------------------- Costs and expenses: Salaries and fringe benefits . . . . . . . . . . . . . 140.4 157.6 Other operating expenses . . . . . . . . . . . . . . . 244.3 247.6 Policyholders' benefits. . . . . . . . . . . . . . . . 21.7 20.2 Income taxes . . . . . . . . . . . . . . . . . . . . . 41.3 35.4 ----------------------------------- Net income . . . . . . . . . . . . . . . . . . . . . . . $ 84.8 $ 65.9 =================================== Average receivables: Owned. . . . . . . . . . . . . . . . . . . . . . . . . $21,188.0* $20,115.4 Serviced with limited recourse . . . . . . . . . . . . 12,450.1 9,694.0 ----------------------------------- Average managed receivables. . . . . . . . . . . . . . . 33,638.1* 29,809.4 Serviced with no recourse. . . . . . . . . . . . . . . . 17,182.0 16,130.6 ----------------------------------- Average receivables owned or serviced. . . . . . . . . . $50,820.1* $45,940.0 =================================== Return on average owned assets - annualized. . . . . . . 1.25% 1.02% =================================== * Includes average balance of Assets Pending Sale, which consisted of commercial receivables sold to a joint venture in March 1995. ---------------------------------------------------------------------------------------------------------- March 31, December 31, In millions. 1995 1994 ---------------------------------------------------------------------------------------------------------- End-of-period receivables: Owned. . . . . . . . . . . . . . . . . . . . . . . . . $20,852.3 $20,555.6 Serviced with limited recourse . . . . . . . . . . . . 12,641.3 12,495.1 ----------------------------------- Managed receivables. . . . . . . . . . . . . . . . . . . 33,493.6 33,050.7 Serviced with no recourse. . . . . . . . . . . . . . . . 16,059.4 17,752.2 ----------------------------------- Receivables owned or serviced. . . . . . . . . . . . . . $49,553.0 $50,802.9 =================================== End-of-period deposits . . . . . . . . . . . . . . . . . $ 8,252.2 $ 8,439.0 =================================== /TABLE 13 Overview -------- Domestic Finance and Banking earnings for the first quarter increased to $78.1 million from $63.6 million in the year-ago period as operating results in all businesses improved. See Operations Summary on page 10 for further discussion of the operating results of the company's domestic Finance and Banking businesses. Operating results of both foreign businesses improved in the first quarter of 1995 compared to the prior year. As discussed on page 10, net income for the United Kingdom operation increased primarily due to portfolio growth. The Canadian operation reported slightly improved results primarily due to better efficiency. Receivables ----------- Managed consumer receivables were flat compared to December 31, 1994 but were up 15 percent compared to the March 31, 1994 level. See Balance Sheet Review on pages 10 and 11 for further discussion. Receivables owned totaled $20.9 billion at March 31, 1995, up from both December 31, 1994 and March 31, 1994. The level of owned receivables may vary from quarter to quarter depending on the timing and significance of securitization transactions in a particular period. In the first quarter of 1995, the company completed securitizations and sales of approximately $600 million of bankcard receivables. Pro Forma Managed Income Data ----------------------------- Since 1989 securitizations and sales of consumer receivables have been, and will continue to be, an important source of liquidity for the company. The company continues to service the securitized receivables after such receivables are sold and retains a limited recourse obligation. Securitizations impact the classification of revenues and expenses in the income statement. Amounts related to receivables serviced, including net interest margin, fee income and provision for credit losses on receivables serviced with limited recourse are reported as a net amount in securitization and servicing fee income in the company's statements of income. The company monitors its Finance and Banking segment on a managed basis as well as on the historical owned basis reflected in its statements of income. The managed basis assumes that the receivables securitized and sold are instead still held in the portfolio. Pro forma statements of income on a managed basis for the Finance and Banking segment for the quarter ended March 31, 1995 and 1994 are presented on the following page. For purposes of this analysis, the results do not reflect the differences between the company's accounting policies for owned receivables and receivables serviced with limited recourse. Accordingly, net income on the pro forma managed basis equals net income on a historical owned basis. 14 PRO FORMA MANAGED FINANCE AND BANKING STATEMENTS OF INCOME
--------------------------------------------------------------------------------------------------------- All dollar amounts are stated in millions. Three months ended March 31 1995 * 1994 * --------------------------------------------------------------------------------------------------------- Finance income . . . . . . . . . . . . . . . . $ 1,117.7 12.34% $ 899.6 11.24% Interest income from noninsurance investment securities. . . . . . . . . . . . 36.3 .40 31.7 .40 Interest expense . . . . . . . . . . . . . . . 582.4 6.43 361.7 4.52 -------------------------------------------------------- Net interest margin. . . . . . . . . . . . . . 571.6 6.31 569.6 7.12 Provision for credit losses. . . . . . . . . . 227.2 2.51 236.0 2.95 -------------------------------------------------------- Net interest margin after provision for credit losses. . . . . . . . . 344.4 3.80 333.6 4.17 -------------------------------------------------------- Servicing fee income . . . . . . . . . . . . . 15.5 .17 8.1 .10 Insurance premiums and contract revenues. . . . . . . . . . . . . . 48.7 .54 41.8 .52 Investment income. . . . . . . . . . . . . . . 7.0 .08 5.8 .07 Fee income . . . . . . . . . . . . . . . . . . 91.5 1.01 109.5 1.37 Other income . . . . . . . . . . . . . . . . . 25.4 .28 27.9 .35 -------------------------------------------------------- Total other revenues . . . . . . . . . . . . . 188.1 2.08 193.1 2.41 -------------------------------------------------------- Costs and expenses: Salaries and fringe benefits . . . . . . . . 140.4 1.55 157.6 1.97 Other operating expenses . . . . . . . . . . 244.3 2.70 247.6 3.10 Policyholders' benefits. . . . . . . . . . . 21.7 .24 20.2 .25 Income taxes . . . . . . . . . . . . . . . . 41.3 .45 35.4 .44 -------------------------------------------------------- Net income . . . . . . . . . . . . . . . . . . $ 84.8 .94% $ 65.9 .82% ======================================================== Average managed receivables. . . . . . . . . . $33,638.1 $29,809.4 Average noninsurance investments . . . . . . . . . . . . . . . . . 2,581.5 2,210.2 -------------------------------------------------------- Average managed interest- earning assets . . . . . . . . . . . . . . . $36,219.6 $32,019.6 ========================================================
* As a percent, annualized, of average managed interest-earning assets. The discussion below on revenues, where applicable, and provision for credit losses includes comparisons to amounts reported on the company's historical statements of income ("Owned Basis") as well as on the above pro forma statements of income ("Managed Basis"). Net interest margin ------------------- Net interest margin on an Owned Basis was $340.6 million for the first quarter of 1995, down from $391.5 million in the first quarter of 1994. Net interest margin on a Managed Basis was $571.6 million for the first quarter of 1995, flat compared to the same year-ago period. Higher finance income generated by the higher level of interest-earning assets and the shift in product mix towards higher-yielding receivables was offset by higher funding costs. Net interest margin as a percent of average managed interest-earning assets, annualized, was 6.31 percent compared to 6.42 percent in the previous quarter and 7.12 percent in the year-ago quarter. This decline primarily was attributable to higher short-term rates and lags in repricing variable rate products, partially offset by the shift in product mix toward higher-yielding unsecured receivables. Other revenues -------------- Securitization and servicing fee income on an Owned Basis consists of two components: income associated with the securitization and sale of receivables and servicing fee income related to the servicing of receivables with no recourse. Securitization income on an Owned Basis, which includes net interest income, fee income and provision for credit losses related to receivables serviced with limited recourse, increased compared to the same year-ago periods due to higher levels of securitized receivables outstanding and an increase in fee income from securitized credit card receivables. The components of securitization 15 income are reclassified to the applicable lines in the statements of income on a Managed Basis. Servicing fee income on a Managed Basis was higher than the first quarter of 1994, which was impacted by the write-downs of servicing rights. Average receivables serviced with no recourse increased to $17.2 billion for the first quarter of 1995, compared to $16.1 billion in the same period in 1994. Insurance premiums and contract revenues increased from the first quarter of 1994 due to higher sales volumes of specialty and credit insurance in the domestic and United Kingdom operations related to growth in the company's receivable base. Fee income on an Owned Basis includes revenues from fee-based products such as bankcards, consumer banking deposits, private-label credit cards and, in 1994, commission income from the company's brokerage business. Fee income was $46.8 million in the first quarter of 1995, down from $62.8 million in the comparable period of the prior year primarily due to lower commission income as a result of the sale of the company's brokerage business in the third quarter of 1994. Fee income on a Managed Basis, which in addition to the items discussed above includes other fees related to receivables serviced with limited recourse, decreased from $109.5 million in the first quarter of 1994 to $91.5 million in the same period in 1995 primarily due to lower commission income. Provision for credit losses --------------------------- The provision for credit losses for receivables on an Owned Basis for the first quarter of 1995 totaled $164.3 million, down 6 percent from $174.1 million in the comparable prior year period. The level of provision for credit losses on an Owned Basis may vary from quarter to quarter, depending on the amount of securitizations and sales of receivables in a particular period. The provision for credit losses for receivables on a Managed Basis totaled $227.2 million in the first quarter of 1995, down 4 percent from $236.0 million in the comparable period of 1994. As a percent of average managed interest-earning assets, annualized, the provision decreased to 2.51 percent from 2.95 percent in the first quarter of 1994, reflecting the underlying improvement in the credit quality of the managed portfolio, which experienced lower delinquency in the first quarter of 1995 than in the first quarter of 1994. See the credit quality section for further discussion of factors affecting the provision for credit losses. Expenses -------- Salaries and fringe benefits were $140.4 million compared to $157.6 million in the first quarter of 1994. The improvement was primarily due to a reduction in the number of employees in connection with decisions made in the fourth quarter of 1994 to improve the operating efficiency of certain businesses. Other operating expenses were $244.3 million in the first quarter of 1995, flat with the same period of 1994. The effective tax rate for the Finance and Banking segment was 32.8 percent, compared to 34.9 percent in the first quarter of 1994. 16 Credit Loss Reserves -------------------- The company's credit portfolios and credit management policies have historically been divided into two distinct components - consumer and commercial. For consumer products, credit policies focus on product type and specific portfolio risk factors. The consumer credit portfolio is diversified by product and geographic location. The commercial credit portfolio is monitored on an individual transaction basis and is also evaluated based on overall risk factors. See Note 3, "Receivables" in the accompanying financial statements for receivables by product type. Total managed credit loss reserves, which include reserves for recourse obligations for receivables sold, were as follows (in millions):
---------------------------------------------------------------------------------------------- March 31, December 31, March 31, 1995 1994 1994 ---------------------------------------------------------------------------------------------- Owned* . . . . . . . . . . . . . . . . . $580.7 $546.0 $619.0 Serviced with limited recourse . . . . . 321.1 336.5 228.4 ----------------------------------------------- Total. . . . . . . . . . . . . . . . . . $901.8 $882.5 $847.4 ===============================================
*March 31, 1994 amount includes the unallocated corporate credit loss reserve. Managed credit loss reserves were up 2 percent from December 31, 1994 and up 6 percent from March 31, 1994. Managed credit loss reserves as a percent of nonperforming managed receivables were 102.2 percent, essentially unchanged compared to 103.6 percent at December 31, 1994 and up from 88.0 percent at March 31, 1994. Consumer credit loss reserves as a percent of managed consumer delinquency were 74.3 percent at March 31, 1995 compared to 74.5 percent at December 31, 1994 and 62.7 percent at March 31, 1994. Consumer credit loss reserves as a percent of annualized consumer net chargeoffs were 88.3 percent for the first quarter, essentially unchanged compared to 88.9 percent for the fourth quarter of 1994 but up from 76.8 percent for the first quarter of 1994. Total owned and managed credit loss reserves as a percent of receivables were as follows:
--------------------------------------------------------------------------------------------- March 31, December 31, March 31, 1995 1994 1994 --------------------------------------------------------------------------------------------- Owned* . . . . . . . . . . . . . . . . . 2.78% 2.66% 3.07% Managed* . . . . . . . . . . . . . . . . 2.69 2.67 2.83 ---------------------------------------------- *March 31, 1994 amounts include the unallocated corporate credit loss reserve.
The level of reserves for consumer credit losses is based on delinquency and chargeoff experience by product, and judgmental factors. The level of reserves for commercial credit losses is based on a quarterly review process for all commercial credits and management's evaluation of probable future losses in the portfolio as a whole given its geographic and industry diversification and historical loss experience. Management also evaluates the potential impact of existing and anticipated national and regional economic conditions on the managed receivable portfolio when establishing consumer and commercial credit loss reserves. While management allocates substantially all reserves among the company's various products, all reserves are considered to be available to cover total loan losses. See Note 4, "Credit Loss Reserves" in the accompanying financial statements for analyses of reserves. 17 Credit Quality -------------- Delinquency and chargeoff levels in the Finance and Banking portfolio were essentially unchanged from the prior quarter and were below the year-ago quarter. Delinquency ----------- Delinquency levels are monitored on a managed basis which includes both receivables owned and receivables serviced with limited recourse. The latter portfolio is included since it is subjected to underwriting standards comparable to the owned portfolio, is managed by operating personnel without regard to portfolio ownership and results in a similar credit loss exposure for the company.
Two-Months-and-Over Contractual Delinquency (as a percent of managed consumer receivables): ------------------------------------------------------------------------------------------------- 3/31/95 12/31/94 9/30/94 6/30/94 3/31/94 ------------------------------------------------------------------------------------------------- First mortgage . . . . . . . . . . . . . 1.79% 1.81% 1.57% 1.52% 1.95% Home equity. . . . . . . . . . . . . . . 2.75 2.83 2.88 3.04 3.44 Other secured. . . . . . . . . . . . . . 5.90 3.31 3.39 4.18 3.38 Bankcard . . . . . . . . . . . . . . . . 2.33 2.25 2.35 2.29 2.38 Merchant participation . . . . . . . . . 4.42 4.53 4.70 4.35 4.76 Other unsecured. . . . . . . . . . . . . 5.07 5.19 5.75 6.39 6.86 ----------------------------------------------------- Total. . . . . . . . . . . . . . . . . . 3.15% 3.11% 3.24% 3.32% 3.61% =====================================================
Delinquency as a percent of managed consumer receivables increased slightly from the prior quarter but declined compared to the prior year level. The bankcard delinquency ratio increased in the first quarter primarily as a result of the seasonal decline in the receivable portfolio. GM Card receivables, which included both the domestic and United Kingdom programs, experienced increased delinquencies as the portfolio continued to age, which were partially offset by continued improvement in the non-GM Card portfolio. The delinquency level for other secured receivables also increased during the quarter; however, due to the relatively small size of the portfolio, the increase had a minor impact on total delinquency. The year-over-year decline in the delinquency ratio was driven by continued improvement in the home equity and other unsecured portfolios in part resulting from a recently implemented scoring system which provides the company with additional growth opportunities while controlling the associated incremental risk. Future changes in delinquency will depend on economic conditions in the various countries and regional areas where the company operates, the composition of the managed receivables base, and the maturation of the GM Card portfolio. 18 Net Chargeoffs of Consumer Receivables --------------------------------------
Net Chargeoffs of Consumer Receivables (as a percent, annualized, of average managed consumer receivables): ------------------------------------------------------------------------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter 1995 1994 1994 1994 1994 ------------------------------------------------------------------------------------------------- First mortgage . . . . . . . . . . . . . .29% .26% .43% .47% .48% Home equity. . . . . . . . . . . . . . . .90 1.00 1.15 1.59 1.51 Other secured. . . . . . . . . . . . . . .95 .95 1.33 .88 .66 Bankcard . . . . . . . . . . . . . . . . 4.04 3.96 3.73 3.81 4.20 Merchant participation . . . . . . . . . 4.29 3.84 3.52 3.39 3.50 Other unsecured. . . . . . . . . . . . . 3.25 3.61 4.23 4.79 4.98 ----------------------------------------------------- Total. . . . . . . . . . . . . . . . . . 2.68% 2.65% 2.69% 2.87% 2.96% =====================================================
Net chargeoffs as a percent of average managed consumer receivables for the first quarter of 1995 were essentially unchanged compared to the fourth quarter of 1994 and were lower than the year-ago quarter. The other unsecured and home equity portfolios continued to show improvement in the first quarter due to the favorable performance of recently underwritten receivables. Bankcard chargeoffs increased compared to the prior quarter, as an increase in the GM Card portfolio chargeoff ratio partially offset improvements in the non-GM Card portfolio. However, while GM Card chargeoffs increased compared to the prior quarter, they still had a favorable impact on the chargeoff ratio. Increased merchant participation chargeoffs in the quarter primarily related to merchant programs the company has decided to exit. Chargeoffs are a lagging indicator of credit quality and generally reflect prior delinquency trends. However, growth associated with credit card and other unsecured receivables has resulted in a shift in product mix toward unsecured receivables, which have higher chargeoff rates than secured receivables. The company expects that chargeoff ratios associated with the GM Card may increase further before stabilizing and anticipates further improvement in other products. However, future changes in chargeoff trends may be impacted by factors such as the continued shift in product mix toward unsecured receivables, economic conditions, and the impact of personal bankruptcies. Consequently, the extent and timing of improvements in the chargeoff trend remains uncertain. 19 Nonperforming Assets -------------------- Nonperforming assets consisted of the following:
------------------------------------------------------------------------------------------------- In millions. 3/31/95 12/31/94 9/30/94 6/30/94 3/31/94 ------------------------------------------------------------------------------------------------- Nonaccrual managed receivables . . . . . $ 558.4 $ 581.5 $ 612.0 $ 645.8 $ 718.0 Accruing managed consumer receivables 90 or more days delinquent . . . . . . 238.5 228.2 225.3 218.5 215.6 Renegotiated commercial loans. . . . . . 85.9 41.8 44.9 28.5 29.2 -------------------------------------------------------- Total nonperforming managed receivables. . . . . . . . . . . . . . 882.8 851.5 882.2 892.8 962.8 Real estate owned. . . . . . . . . . . . 187.8 182.8 395.1 405.6 415.4 Other assets acquired through foreclosure. . . . . . . . . . . . . . 51.9 51.7 58.1 79.8 81.3 -------------------------------------------------------- Total nonperforming assets . . . . . . . $1,122.5 $1,086.0 $1,335.4 $1,378.2 $1,459.5 ======================================================== Managed credit loss reserves as a percent of nonperforming managed receivables. . . . . . . . . . 102.2% 103.6% 99.2% 95.6% 88.0% --------------------------------------------------------
Effective January 1, 1995 the company adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("FAS No. 114"), as amended by Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure." FAS No. 114 requires that a loan be recognized as impaired when it is probable that all contractual amounts due will not be repaid. FAS No. 114 specifically excludes groups of individually small dollar, homogenous loans where collectibility is evaluated collectively, such as the company's consumer receivable portfolio. At March 31, 1995 impaired commercial loans included in the above table were not significant and their ultimate disposition is not expected to have a material impact on the company's results of operations. The adoption of FAS No. 114 had no impact on the company's results of operations for the three months ended March 31, 1995. Credit loss reserves for impaired loans are included in reserves for managed receivables described on page 16. 20 INDIVIDUAL LIFE INSURANCE ------------------------- Individual Life Insurance net income was $11.2 million, compared to $11.7 million in the prior year period.
Statements of Income -------------------------------------------------------------------------------------- All dollar amounts are stated in millions. Three months ended March 31 1995 1994 -------------------------------------------------------------------------------------- Investment income. . . . . . . . . . . . . $ 132.8 $ 132.7 Insurance premiums and contract revenues. . . . . . . . . . . . 39.0 38.8 ---------------------------------- Total revenues . . . . . . . . . . . . . . 171.8 171.5 Costs and expenses: Policyholders' benefits. . . . . . . . . 118.5 109.9 Operating expenses . . . . . . . . . . . 35.8 43.3 Income taxes . . . . . . . . . . . . . . 6.3 6.6 ---------------------------------- Net income . . . . . . . . . . . . . . . . $ 11.2 $ 11.7 ================================== Return on average assets - annualized. . . .59% .68% ================================== -------------------------------------------------------------------------------------- March 31, December 31, In millions. 1995 1994 -------------------------------------------------------------------------------------- Investment securities. . . . . . . . . . . . . $ 6,790.3 $ 6,669.9 Life insurance in-force. . . . . . . . . . . . 39,619.1 36,560.4 ==================================
Investment securities for the Individual Life Insurance segment totaled $6.8 billion, up from the December 31, 1994 level. The Individual Life Insurance portfolio represented approximately 70 percent of the company's total investment portfolio at March 31, 1995. Higher-risk securities, which include non-investment grade bonds, common and preferred stocks, commercial mortgage loans and real estate, represented 7.2 percent of the insurance investment portfolio at March 31, 1995, compared to 6.9 percent at December 31, 1994. At March 31, 1995 the market value for the insurance held-to-maturity investment portfolio was 102 percent of the carrying value compared to 99 percent at December 31, 1994. The increase in market value over book value during the first three months of 1995 was mainly the result of slightly lower long-term interest rates. The company continuously monitors the fair value of its available-for-sale investment portfolio in light of market interest rate conditions and may sell securities in an attempt to maximize its capital position. Investment income includes both interest income on investment securities and realized gains and losses on the sale of available-for- sale investments. Investment income in the first quarter of 1995 was $132.8 million, flat compared with the year-ago period despite losses on sales of available-for-sale investments compared to gains in the first quarter of 1994, before interest rates began to rise. These losses were partially offset by higher interest income resulting from higher yields and a larger investment portfolio. Insurance premiums and contract revenues for the first quarter were flat with the prior year period. Policyholders' benefits in the first quarter of 1995 were $118.5 million, up from $109.9 million in the same period in 1994 due to higher interest credited to policyholders caused by higher interest rates and life insurance in-force. Operating expenses in the first quarter were down compared to the year- ago period due to lower amortization of deferred insurance policy acquisition costs ("DAC") primarily resulting from lower gains from investment sales. The effective tax rate was 36.0 percent for the first quarter of 1995, compared to 36.1 percent a year ago. 21 Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3(ii) Bylaws of Household International, as amended January 10, 1995. 10.8 Executive Employment Agreement between the Company and W. F. Aldinger. 10.9 Executive Employment Agreement between the Company and D. C. Clark. 12 Statement of Computation of Ratio of Earnings to Fixed Charges and to Combined Fixed Charges and Preferred Stock Dividends. 21 List of Household International subsidiaries. 27 Financial Data Schedule. (b) Reports on Form 8-K During the first quarter of 1995, the Registrant filed a Current Report on Form 8-K dated February 7, 1995, reporting pursuant to Item 5, "Other Events" the financial results of Household International, Inc. for the quarter and year ended December 31, 1994. 22 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 12, 1995 By: /s/ David A. Schoenholz ------------ ----------------------- David A. Schoenholz, Senior Vice President - Chief Financial Officer and on behalf of Household International, Inc. 23 Exhibit Index ------------- 3(ii) Bylaws of Household International, as amended January 10, 1995. 10.8 Executive Employment Agreement between the Company and W. F. Aldinger. 10.9 Executive Employment Agreement between the Company and D. C. Clark. 12 Statement of Computation of Ratio of Earnings to Fixed Charges and to Combined Fixed Charges and Preferred Stock Dividends. 21 List of Household International subsidiaries. 27 Financial Data Schedule. EX-3.III 2 1 HOUSEHOLD INTERNATIONAL, INC. Bylaws ______________ (As in effect January 10, 1995) 2 _________________________________________________________________ BYLAWS OF HOUSEHOLD INTERNATIONAL, INC. _________________________________________________________________ ARTICLE I. DEFINITIONS, PLACES OF MEETINGS. SECTION l. Definitions. When used herein, "Board" shall mean the Board of Directors of this Corporation, and "Chairman" shall mean Chairman of the Board of Directors. SECTION 2. Places of Meetings of Stockholders and Directors. Unless the Board shall fix another place for the holding of the meeting, meetings of stockholders and of the Board shall be held at the Corporation's International Headquarters, Prospect Heights, Cook County, Illinois, or at such other place in Cook County specified by the person or persons calling the meeting. ARTICLE II. STOCKHOLDERS MEETINGS. SECTION l. Annual Meeting of Stockholders. The annual meeting of stockholders shall be held on such date and at such time as is fixed by the Board. Any previously scheduled annual meeting of stockholders may be postponed by resolution of the Board of Directors upon public announcement given prior to the date previously scheduled for such annual meeting of stockholders. SECTION 2. Special Meetings. CALL. Special meetings of the stockholders may be called at any time by the Chairman of the Board, the President, or a majority of the Board of Directors. Any previously scheduled special meeting of stockholders may be postponed by resolution of the Board of Directors upon public announcement given prior to the date previously scheduled for such special meeting of stockholders. REQUISITES OF CALL. A call for a special meeting of stockholders shall be in writing, filed with the Secretary, and shall specify the time and place of holding such meeting and the purpose or purposes for which it is called. SECTION 3. Notice of Meetings. Written notice of a meeting of stockholders setting forth the place, date, and hour of the meeting and the purpose or purposes for which the meeting is called shall be mailed not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at the meeting. SECTION 4. Quorum and Adjournments. At any meeting of stockholders, the holders of a majority of all the outstanding shares entitled to vote, present in person or by proxy, shall constitute a quorum for the transaction of business, and a majority of such quorum shall prevail except as otherwise required by law, the Certificate of Incorporation, or the bylaws. If the stockholders necessary for a quorum shall fail to be present at the time and place fixed for any meeting, the holders of a majority of the shares entitled to vote who are present in person or by proxy may adjourn the meeting from time to time, until a quorum is present, provided, however, that any stockholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the Chairman of the meeting. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. SECTION 5. Inspectors of Election. The Corporation shall, in advance of any meeting of stockholders, appoint one or more 3 inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. The inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. SECTION 6. List of Stockholders. The Secretary shall prepare, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder present. SECTION 7. Polls. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery of the State of Delaware upon application by a stockholder shall determine otherwise. SECTION 8. Nomination and Stockholder Business. (A) Annual Meetings of Stockholders. (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made (a) by or at the direction of the Board of Directors pursuant to the Corporation's proxy statement or notice of meeting or at the annual meeting of stockholders, or (b) other than as permitted by Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), by any stockholder of the Corporation at the annual meeting of stockholders, provided such stockholder is entitled to vote at the meeting, has complied with the notice and the other procedures set forth in this Section 8, and was a stockholder of record at the time of giving of notice provided for in this Section 8. (2) For proposed nominees or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (b) of paragraph (A)(1) of this Section 8, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first 4 made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate at the annual meeting for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person's written consent to serving as a director if elected). Any individual proposed to be nominated to the Board of Directors by a stockholder pursuant to this procedure shall only become a nominee for election to the Board of Directors if the stockholder who has provided the notice, or his proxy, presents such individual as a nominee at the annual meeting; (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as it appears on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this Section 8 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for Director or specifying the size of the increased Board of Directors made by the Corporation at least 70 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 8 shall also be considered timely, but only with respect to proposed nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. (B) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's proxy statement or notice of meeting. Nominations of persons for election to the Board of Directors at a special meeting of stockholders at which directors are to be elected may be made (a) by or at the direction of the Board of Directors pursuant to the Corporation's proxy statement or notice of meeting or at the meeting, or (b) at the meeting by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this paragraph (B) of Section 8, who shall be entitled to vote at the meeting and who complies with the procedures set forth in clause (a) of paragraph (A)(2) of of this Section 8. Stockholder's notice required by this paragraph (B) of this Section 8 shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. (C) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 8 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 8. The Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 8 and, if any proposed nomination or business is not in compliance with this Section 8, to declare that such defective nomination or proposal shall be disregarded. 5 (2) For purposes of this Article II, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding anything set forth herein to the contrary, any stockholder may submit a notice delivered to the Secretary at the principal executive offices of the Corporation containing names of individuals for the Board of Directors to consider as potential nominees to the Board of Directors at the next meeting of stockholders called for the purpose of electing directors. In connection with such notice, the stockholder shall provide the information required in clause (a) of paragraph (A)(2) of this Section 8, including, the written consent of each individual to be named in the Corporation's proxy statement or notice of meeting if the Board of Directors, in its sole discretion, determines to nominate such individual. Any such notice provided by a stockholder must be timely received by the Corporation to enable the Board of Directors to review the qualifications of any person to be considered for a nomination. For purposes hereof, the notice shall be deemed timely if it is delivered to the Secretary of the Corporation within the time periods required for notices of stockholder proposals as set forth in Rule 14a-8 of the Exchange Act. (4) Nothing in this Section 8 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement or notice of meeting pursuant to Rule 14a-8 of the Exchange Act. (5) Notwithstanding the foregoing provisions of this Section 8, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 8. ARTICLE III. BOARD OF DIRECTORS. SECTION l. General Powers. The business and affairs of this Corporation shall be managed under the direction of the Board. NUMBER. The number of directors shall be fixed from time to time by resolution of the Board. TENURE. The directors shall be elected at the annual meeting of stockholders. Each director shall hold office until his successor is elected and qualified or until his earlier resignation or removal. VACANCIES. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office though less than a quorum. SECTION 2. Annual Meetings of the Board. The annual meeting of the Board shall be held following the annual meeting of stockholders and shall be a meeting of the directors elected at such meeting of stockholders. No notice shall be required. SECTION 3. Regular Meetings of the Board. Regular meetings of the Board shall be held at such times and places as the Board may fix. No notice shall be required. SECTION 4. Special Meetings of the Board. Special meetings of the Board shall be held whenever called by the Chairman, the President, or any four or more directors. At least twenty-four hours' written or oral notice of each special meeting shall be given to each director. If mailed, notice must be deposited in the United States mail at least seventy-two hours before the meeting. 6 SECTION 5. Quorum. A majority of the members of the Board if the total number is odd or one-half thereof if the total number is even shall constitute a quorum for the transaction of business, but if at any meeting of the Board there is less than a quorum the majority of those present may adjourn the meeting from time to time until a quorum is present. At any such adjourned meeting, a quorum being present, any business may be transacted which might have been transacted at the original meeting. Except as otherwise provided by law, the Certificate of Incorporation, or the bylaws, all actions of the Board shall be decided by vote of a majority of those present. SECTION 6. Committees. The Board may, by resolution passed by a majority of the entire Board, designate one or more committees of directors which to the extent provided in the resolution shall have and may exercise powers and authority of the Board in the management of the business and affairs of the Corporation. SECTION 7. Action Without a Meeting. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if all the members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. ARTICLE IV. OFFICERS. SECTION l. Officers. The General Officers of the Corporation shall be a Chairman of the Board, a Chief Executive Officer, a President, such number of Executive Vice Presidents, Group Executives or Senior Vice Presidents as may be determined by the Board, a Secretary and a Treasurer. The Chairman and President shall be directors. The Board may from time to time designate, employ, or appoint such other officers and assistant officers, agents, employees, counsel, and attorneys at law or in fact as it shall deem desirable for such periods and on such terms as it may deem advisable, and such persons shall have such titles, only such power and authority, and perform such duties as the Board may determine. SECTION 2. Duties of Chairman of the Board. The Chairman shall sign and issue, jointly with the President, all reports to the stockholders and shall preside at all meetings of stockholders and of the Board. He shall, in general, perform all duties incident to the office of Chairman, and such other duties as may be prescribed by the Board and perform the duties of the President in his absence or inability to act. SECTION 3. Duties of Chief Executive Officer. At each annual meeting of the Board, or other meeting at which General Officers are or may be elected, the Board shall designate the Chairman or the President as the Chief Executive Officer of the Corporation. The Chief Executive Officer shall have general authority over all matters relating to the business and affairs of the Corporation subject to the control and direction of the Board. SECTION 4. Duties of President. The President shall, in general, perform all duties incident to the office of President and shall perform such other duties as may be prescribed by the Board. In the absence or inability of the Chairman to act, the President shall perform the duties of the Chairman pertaining to management of the Corporation, and the Chairman of the Executive Committee of the Board shall perform those duties of the Chairman pertaining to Board functions. SECTION 5. Duties of Executive Vice President, Group Executives and Senior Vice Presidents. Each Executive Vice President, Group Executive and Senior Vice President shall have such powers and perform such duties as may be prescribed by the Chief Executive Officer of the Corporation or the Board. The 7 order of seniority, if any, among the Executive Vice Presidents, Group Executives and Senior Vice Presidents shall be as designated from time to time by the Chief Executive Officer of the Corporation. In the absence or inability of the Chairman and the President to act, the senior of the Executive Vice Presidents, Group Executives and Senior Vice Presidents, if one has been so designated, shall perform the duties of the President. In the absence of any such designation, the director who is the acting Chairman of the Executive Committee of the Board of Directors shall assume the duties of the President for such time period as required. SECTION 6. Duties of Secretary. The Secretary shall record the proceedings of meetings of the stockholders and directors, give notices of meetings, and shall, in general, perform all duties incident to the office of Secretary and such other duties as may be prescribed by the Board. SECTION 7. Duties of Treasurer. The Treasurer shall have custody of all funds, securities, evidences of indebtedness, and other similar property of the Corporation, and shall, in general, perform all duties incident to the office of Treasurer and such other duties as may be prescribed by the Board." ARTICLE V. MISCELLANEOUS PROVISIONS. SECTION l. Waiver of Notice. Whenever notice is required to be given, a written waiver thereof signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 2. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action; except that the establishment of a record date for determination of stockholders entitled to express consent to corporate action in writing without a meeting shall be established pursuant to Article VII of the bylaws. ARTICLE VI. EMERGENCY BYLAWS. SECTION l. When Operative. Notwithstanding any different provision in the preceding Articles of the bylaws or in the Certificate of Incorporation, the emergency bylaws provided in this Article VI shall be operative during any emergency resulting from an attack on the United States or on a locality in which the Corporation conducts its business or customarily holds meetings of its Board or its stockholders, or during any nuclear or atomic disaster, or during the existence of any catastrophe, or other similar emergency condition, as a result of which a quorum of the Board or a standing committee thereof cannot readily be convened for action. SECTION 2. Board Meetings. During any such emergency, a meeting of the Board may be called by any director or, if necessary, by any officer who is not a director. The meeting shall be held at such time and place, within or without Cook County, Illinois, specified by the person calling the meeting and in the notice of the meeting which shall be given to such of the directors as it may be feasible to reach at the time and by such 8 means as may be feasible at the time, including publication or radio. Such advance notice shall be given as, in the judgment of the person calling the meeting, circumstances permit. Two directors shall constitute a quorum for the transaction of business. To the extent required to constitute a quorum at the meeting, the officers present shall be deemed, in order of rank and within the same rank in order of seniority, directors for the meeting. SECTION 3. Amendments to Emergency Bylaws. These emergency bylaws may be amended, either before or during any emergency, to make any further or different provision that may be practical and necessary for the circumstances of the emergency. ARTICLE VII. CONSENTS TO CORPORATE ACTION. SECTION 1. Action by Written Consent. Unless otherwise provided in the Certificate of Incorporation, any action which is required to be or may be taken at any annual or special meeting of stockholders of the Corporation, subject to the provisions of Sections (2) and (3) of this Article VII, may be taken without a meeting, without prior notice and without a vote if a consent in writing, setting forth the action so taken, shall have been signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote thereon were present and voted; provided, however, that prompt notice of the taking of the corporate action without a meeting and by less than unanimous written consent shall be given to those stockholders who have not consented in writing. SECTION 2. Determination of Record Date for Action by Written Consent. The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting shall be fixed by the Board of Directors of the Corporation. Any stockholder seeking to have the stockholders authorize or take corporate action by written consent without a meeting shall, by written notice to the Secretary, request the Board of Directors to fix a record date. Upon receipt of such a request, the Secretary shall, as promptly as practicable, call a special meeting of the Board of Directors to be held as promptly as practicable. At such meeting, the Board of Directors shall fix a record date as provided in Section 213(b) (or its successor provision) of the Delaware General Corporation Law; that record date, however, shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board nor more than 15 days from the date of the receipt of the stockholder's request. Notice of the record date shall be published in accordance with the rules and policies of any stock exchange on which securities of the Corporation are then listed. Should the Board fail to fix a record date as provided for in this Section 2, then the record date shall be the day on which the first written consent is duly delivered pursuant to Section 213(b) (or its successor provision) of the Delaware General Corporation Law, or, if prior action is required by the Board with respect to such matter, the record date shall be at the close of business on the day on which the Board adopts the resolution taking such action. SECTION 3. Procedures for Written Consent. In the event of the delivery to the Corporation of a written consent or consents purporting to represent the requisite voting power to authorize or take corporate action and/or related revocations, the Secretary of the Corporation shall provide for the safekeeping of such consents and revocations and shall promptly engage nationally recognized independent inspectors of elections for the purpose of promptly performing a ministerial review of the validity of the consents and revocations. No action by written consent without a meeting shall be effective until such inspectors have completed their review, determined that the requisite number of valid and unrevoked consents has been obtained to authorize or take the action specified in the consents, and certified such determination for entry in the records of the Corporation kept for the purpose of recording the proceedings of meetings of stockholders. EX-10.8 3 1 February 13, 1995 Mr. William F. Aldinger 2700 Sanders Road Prospect Heights, IL 60070 Dear Bill: SUBJECT: Employment Agreement We wish you to remain in the employ of Household International, Inc. ("Household" or the "Corporation") and to provide you with fair and equitable treatment along with a competitive compensation package. Also, we wish to assure your continued attention to your duties without any possible distraction arising out of uncertain personal circumstances in a change in control environment. We recognize that in the event of a Change in Control of Household (as such term is defined herein) it is likely that your duties and responsibilities would be substantially altered. 1. At present you are employed by Household as President and Chief Executive Officer. In that capacity you are entitled to the following: a. A minimum annual salary of $700,000; b. An annual bonus having a targeted value equal to 85% of your annualized salary as of the end of the period in which the bonus is earned. The amount of bonus for any year that you actually receive, if any, will depend on the achievement of the corporate and your individual goals established for that year and the terms of the Household International Corporate Executive Bonus Plan, and any successor or substitute plan or plans (the "Bonus Plan"). Your bonus will be prorated based on the number of elapsed months in the performance period in the case of death, permanent and total disability, or retirement under the Household Retirement Income Plan or any successor tax qualified defined benefit plan; c. An annual grant of stock options under the Household International Long-Term Executive Incentive Compensation Plan, and any successor or substitute plan or plans (the "Long-Term Plan"), having a targeted value of 40% of your then annual salary at the time of the grant. Stock options will be valued at their economic value at the date of grant; and d. Other compensation, benefits and perquisites as described in, and in accordance with, Household's compensation, benefit and perquisite plans (the "Plans"). 2. Subject to the following three sentences and to termination as provided herein, the term of this Agreement shall be for 18 whole calendar months, shall commence on the date hereof, and shall be "evergreen"; that is shall continue monthly as an 18 month term, unless the Corporation gives to you not less than 17 whole calendar months notice that the term as monthly continued shall not be so continued; provided further, that in no event shall the term be continued beyond your sixty-fifth birthday. It is our mutual intent that this Agreement be revised at least every two (2) years to reflect more accurate lump sum cash payment percentages in paragraphs 4 and 5 due to changes in projected pension benefits and compensation. As a result of these changes, the percentages could increase or decrease. In no event, however, will the percentages be reduced below 300%. 2 3. During your employment with Household you will devote your reasonably full time and energies to the faithful and diligent performance of the duties inherent in, and implied by, your executive position. 4. In consideration of your employment with Household, it is mutually agreed that: a. In the event your employment with Household is terminated during the term of this Agreement by Household for any reason other than: i. willful and deliberate misconduct which is detrimental in a significant way to the interests of the Corporation; ii. death; iii. inability, for reasons of disability, reasonably to perform your duties for 6 consecutive calendar months; or, b. In the event that during the term of this Agreement you resign your position with Household because within 6 whole calendar months of your resignation one or more of the following events occurred to you: i. your annual salary was reduced; ii. your annual target bonus or the targeted value of stock options calculated as provided in paragraph 1c was reduced and compensation equivalent in aggregate value was not substituted; iii. your benefits under the Household Retirement Income Plan or any successor tax qualified defined benefit plan were reduced for reasons other than to maintain its tax qualified status and such reductions were not supplemented in the Household Supplemental Retirement Income Plan ("HSRIP"); or your benefits under HSRIP were reduced; iv. your other benefits or perquisites were reduced and such reductions were not uniformally applied with respect to all similarly situated employees; v. you were reassigned to a geographical area outside of the Chicago, Illinois metropolitan area; vi. any successor to the Corporation by acquisition of stock or substantially all of the assets, by merger or otherwise, failed to expressly adopt or otherwise repudiated this Employment Agreement; or vii. you received written notice that your employment contract was not renewed; Household shall be required, and hereby agrees, to make promptly a lump sum cash payment to you in an amount equal to 300% of your then annual salary (prior to any of the aforesaid reductions) (representing approximately the present value of what you would have received had your employment, compensation and participation in benefit plans, other than stock options, continued for the term of this employment contract); provided, however, if the term of this Agreement is less than 18 months because you are within 18 months of becoming age 65, the amount shall be multiplied by a fraction the numerator of which is the number of months left in the term, and the denominator of which is 18. This payment shall be in addition to all other compensation and benefits accrued to the date of termination of employment. Also, the Compensation Committee of Household's Board of Directors has determined 3 that you will be entitled to receive a portion of your bonus for the performance period in which your employment terminates. Such portion will be determined on the basis of the portion of the performance period elapsed as of your date of termination over the total performance period, and it will be assumed that individual and corporate target levels have been met. 5. It is further mutually agreed that: a. should your employment be terminated pursuant to the provisions of paragraph 4a; or b. should you resign your position for any reason at any time within sixty (60) whole calendar months following a Change in Control of Household, Household or its successor shall pay to you the amounts (including the lump sum payment) described in paragraph 4 regardless of whether you are otherwise entitled to them under paragraph 4. In addition, Household or its successor shall promptly make a lump sum cash payment to you in an amount equal to 300% of your then annual salary (prior to any reduction). For purposes of this Agreement, a Change in Control of Household shall be deemed to occur when and if: i. any "person" (as the term is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934) other than a trustee or other fiduciary of securities held under an employee benefit plan of Household becomes the beneficial owner, directly or indirectly, of securities of Household representing 20% or more of the combined voting power of Household's then outstanding securities; or ii. persons who were directors of Household as of the effective date hereof, or successor directors nominated by those directors or by such successor directors cease to constitute a majority of the Board of Directors of Household or its successor by merger, consolidation or sale of assets. 6. You are not required to mitigate the amount of any payments to be made by Household pursuant to this Agreement by seeking other employment, or otherwise, nor shall the amount of any payments provided for in this Agreement be reduced by any compensation earned by you as the result of self-employment or your employment by another employer after the date of termination of your employment with Household. 7. Except as provided below, it is the intent and desire of Household that the salary, bonuses and other benefits provided for herein shall be paid to you without any diminution by reason of the assessment of any "golden parachute" excise tax pursuant to the Internal Revenue Code of 1986, as from time to time amended, (hereinafter the "Code"), or state law. Accordingly, in the event that any excise tax is assessed against you pursuant to the provisions of sections 280G and 4999 of the Code (or successor provisions) or comparable provisions of state law, whether with respect to any payments made to you pursuant to the provisions of this Agreement or payments otherwise arising out of your employment relationship, Household or any successor, upon notification of such assessment, shall promptly pay to you such amount as is necessary to provide you with the same after-tax benefit that you would have received had there been no "golden parachute" excise tax. For this purpose, Household or its successor shall assume that you are taxed at the highest individual federal and state income tax rates (without regard to Section 1(g) of the Code or successor provisions thereto). However, if any part or all of the amounts to be paid to you constitute "parachute payments" within the meaning of section 280G(b)(2)(A) of the Code, and a reduction of the 4 amount by 10% or less would totally avoid the imposition of any excise tax, such amounts shall be reduced so that the aggregate present value of the amounts constituting such parachute payments will be equal to 299% of your "annualized includible compensation for the base period," as such term is defined in section 280G(d)(1) of the Code. For the purpose of this subparagraph, present value shall be determined in accordance with section 280G(d)(4) of the Code. 8. If a dispute arises regarding the termination of your employment or the interpretation or enforcement of this Agreement and you obtain a final judgment in your favor from a court of competent jurisdiction from which no appeal may be taken, whether because the time to do so has expired or otherwise, or your claim is settled by Household or its successor prior to the rendering of such a judgment, all reasonable legal and other professional fees and expenses incurred by you in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided for in this Agreement or in otherwise pursuing your claim will be promptly paid by Household or its successor with interest thereon at the highest statutory rate of your state of domicile for interest on judgments against private parties from the date of payment thereof by you to the date of reimbursement to you by Household or its successor. 9. You agree that you will not, without prior written consent of the Board of Directors of Household, during the term of or after the termination of your employment under this Agreement, directly or indirectly, disclose to any individual, corporation, or other entity (other than Household, or any subsidiary or affiliate thereof, or its officers, directors, or employees entitled to such information, or any other person or entity to whom such information is regularly disclosed in the normal course of Household's business), or use for your own benefit or for the benefit of such individual, corporation or other entity, any information whether or not reduced to written or other tangible form, which: a. is not generally known to the public or in the industry; b. has been treated by Household as confidential or proprietary; and c. is of competitive advantage to Household and in the confidentiality of which Household has a legally protectible interest, (such information being referred to herein as "Confidential Information"). Confidential Information which becomes generally known to the public or in the industry, or in the confidentiality of which Household ceases to have a legally protectible interest, shall cease to be subject to the restrictions of this paragraph. 10. This Agreement supersedes and replaces the Employment Agreement dated September 13, 1994 between you and Household, all in furtherance of the objectives previously authorized and deemed by the Board of Directors of Household to serve the best interests of the Corporation. 11. Any successor to the Corporation, by acquisition of stock or substantially all of the assets, by merger or otherwise, shall be required to adopt and abide by the terms of this Agreement. This Agreement, and any rights to receive payments hereunder, may not be transferred, assigned or alienated by you. 12. All benefits under this Agreement shall be general obligations of the Corporation which shall not require the segregation of any funds or property. Notwithstanding the foregoing, in the discretion of the Corporation, the Corporation may establish a grantor trust or other vehicle to assist it in meeting its obligations hereunder, but any 5 such trust or other vehicle shall not create a funded account or security interest for you. 13. This Agreement may only be amended or terminated by written agreement, signed by both of the parties. Our signatures below indicate our mutual agreement and acceptance of the foregoing terms and provisions, all as of the date first above set forth. Sincerely, HOUSEHOLD INTERNATIONAL, INC. By: /s/ Donald C. Clark ------------------- Donald C. Clark Chairman of the Board /s/ William F. Aldinger ----------------------- William F. Aldinger U:\WP\EMP819\EDGARP\IEX108.AS1 EX-10.9 4 1 February 13, 1995 Mr. Donald C. Clark 2700 Sanders Road Prospect Heights, IL 60070 Dear Don: SUBJECT: Employment Agreement We wish you to remain in the employ of Household International, Inc. ("Household" or the "Corporation") and to provide you with fair and equitable treatment along with a competitive compensation package. Also, we wish to assure your continued attention to your duties without any possible distraction arising out of uncertain personal circumstances in a change in control environment. We recognize that in the event of a Change in Control of Household (as such term is defined herein) it is likely that your duties and responsibilities would be substantially altered. 1. At present you are employed by Household as Chairman of the Board. In that capacity you are entitled to the following: a. A minimum annual salary of $675,000; b. An annual bonus having a targeted value equal to 85% of your annualized salary as of the end of the period in which the bonus is earned. The amount of bonus for any year that you actually receive, if any, will depend on the achievement of the corporate and your individual goals established for that year and the terms of the Household International Corporate Executive Bonus Plan, and any successor or substitute plan or plans (the "Bonus Plan"). Your bonus will be prorated based on the number of elapsed months in the performance period in the case of death, permanent and total disability, or retirement under the Household Retirement Income Plan or any successor tax qualified defined benefit plan; c. An annual grant of stock options under the Household International Long-Term Executive Incentive Compensation Plan, and any successor or substitute plan or plans (the "Long-Term Plan"), having a targeted value of 40% of your then annual salary at the time of the grant. The performance unit awards granted in prior years will continue to be earned over a three year cycle, which will be prorated on the number of elapsed months in the performance period in the case of death, permanent and total disability or retirement under the Household Retirement Income Plan or any successor tax qualified defined benefit plan. Stock options will be valued at their economic value at the date of grant; and d. Other compensation, benefits and perquisites as described in, and in accordance with, Household's compensation, benefit and perquisite plans (the "Plans"). 2. Subject to the following three sentences and to termination as provided herein, the term of this Agreement shall be for 18 whole calendar months, shall commence on the date hereof, and shall be "evergreen"; that is shall continue monthly as an 18 month term, unless the Corporation gives to you not less than 17 whole calendar 2 months notice that the term as monthly continued shall not be so continued; provided further, that in no event shall the term be continued beyond your sixty-fifth birthday. It is the intent to revise this Agreement at least every two (2) years to reflect more accurate lump sum cash payment percentages in paragraphs 4 and 5 due to changes in projected pension benefits and compensation. As a result of these changes, the percentages could increase or decrease. In no event, however, will the percentage in paragraph 4 be reduced below 320% nor will the percentage in paragraph 5 be reduced below 360%. 3. During your employment with Household you will devote your reasonably full time and energies to the faithful and diligent performance of the duties inherent in, and implied by, your executive position. 4. In consideration of your employment with Household, it is mutually agreed that: a. In the event your employment with Household is terminated during the term of this Agreement by Household for any reason other than: i. willful and deliberate misconduct which is detrimental in a significant way to the interests of the Corporation; ii. death; iii. inability, for reasons of disability, reasonably to perform your duties for 6 consecutive calendar months; or, b. In the event that during the term of this Agreement you resign your position with Household because within 6 whole calendar months of your resignation one or more of the following events occurred to you: i. your annual salary was reduced; ii. your annual target bonus or the targeted value of stock options calculated as provided in paragraph 1c was reduced and compensation equivalent in aggregate value was not substituted; iii. your benefits under the Household Retirement Income Plan or any successor tax qualified defined benefit plan were reduced for reasons other than to maintain its tax qualified status and such reductions were not supplemented in the Household Supplemental Retirement Income Plan ("HSRIP"); or your benefits under HSRIP were reduced; iv. your other benefits or perquisites were reduced and such reductions were not uniformally applied with respect to all similarly situated employees; v. you were reassigned to a geographical area outside of the Chicago, Illinois metropolitan area; vi. any successor to the Corporation by acquisition of stock or substantially all of the assets, by merger or otherwise, failed to expressly adopt or otherwise repudiated this Employment Agreement; or vii. you received written notice that your employment contract was not renewed; Household shall be required, and hereby agrees, to make promptly a lump sum cash payment to you in an amount equal to 338% of your then annual salary (prior to any of the aforesaid reductions) (representing approximately the 3 present value of what you would have received had your employment, compensation and participation in benefit plans, other than stock options, continued for the term of this employment contract); provided, however, if the term of this Agreement is less than 18 months because you are within 18 months of becoming age 65, the amount shall be multiplied by a fraction the numerator of which is the number of months left in the term, and the denominator of which is 18. This payment shall be in addition to all other compensation and benefits accrued to the date of termination of employment. Also, the Compensation Committee of Household's Board of Directors has determined that you will be entitled to receive a portion of your bonus and performance unit awards for the performance periods in which your employment terminates. Such portion will be determined on the basis of the portion of the performance period elapsed as of your date of termination over the total performance period, and it will be assumed that individual and corporate target levels have been met. 5. It is further mutually agreed that: a. should your employment be terminated pursuant to the provisions of paragraph 4a; or b. should you resign your position for any reason at any time within sixty (60) whole calendar months following a Change in Control of Household, Household or its successor shall pay to you the amounts (including the lump sum payment) described in paragraph 4 regardless of whether you are otherwise entitled to them under paragraph 4. In addition, Household or its successor shall promptly make a lump sum cash payment to you in an amount equal to 360% of your then annual salary (prior to any reduction); provided, however, if the term of this Agreement is less than 18 months because you are within 18 months of becoming age 65, the amount shall be multiplied by a fraction the numerator of which is the number of months left in the term, and the denominator of which is 18. For purposes of this Agreement, a Change in Control of Household shall be deemed to occur when and if: i. any "person" (as the term is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934) other than a trustee or other fiduciary of securities held under an employee benefit plan of Household becomes the beneficial owner, directly or indirectly, of securities of Household representing 20% or more of the combined voting power of Household's then outstanding securities; or ii. persons who were directors of Household as of the effective date hereof, or successor directors nominated by those directors or by such successor directors cease to constitute a majority of the Board of Directors of Household or its successor by merger, consolidation or sale of assets. 6. You are not required to mitigate the amount of any payments to be made by Household pursuant to this Agreement by seeking other employment, or otherwise, nor shall the amount of any payments provided for in this Agreement be reduced by any compensation earned by you as the result of self-employment or your employment by another employer after the date of termination of your employment with Household. 7. Except as provided below, it is the intent and desire of Household that the salary, bonuses and other benefits provided for herein shall be paid to you without any diminution by reason of the assessment of any "golden parachute" excise tax pursuant to the Internal Revenue Code of 1986, as from time to time amended, (hereinafter the "Code"), or state law. Accordingly, in the event that any excise tax is assessed against you pursuant to the provisions of sections 280G and 4999 of the Code (or 4 successor provisions) or comparable provisions of state law, whether with respect to any payments made to you pursuant to the provisions of this Agreement or payments otherwise arising out of your employment relationship, Household or any successor, upon notification of such assessment, shall promptly pay to you such amount as is necessary to provide you with the same after-tax benefit that you would have received had there been no "golden parachute" excise tax. For this purpose, Household or its successor shall assume that you are taxed at the highest individual federal and state income tax rates (without regard to Section 1(g) of the Code or successor provisions thereto). However, if any part or all of the amounts to be paid to you constitute "parachute payments" within the meaning of section 280G(b)(2)(A) of the Code, and a reduction of the amount by 10% or less would totally avoid the imposition of any excise tax, such amounts shall be reduced so that the aggregate present value of the amounts constituting such parachute payments will be equal to 299% of your "annualized includible compensation for the base period," as such term is defined in section 280G(d)(1) of the Code. For the purpose of this subparagraph, present value shall be determined in accordance with section 280G(d)(4) of the Code. 8. If a dispute arises regarding the termination of your employment or the interpretation or enforcement of this Agreement and you obtain a final judgment in your favor from a court of competent jurisdiction from which no appeal may be taken, whether because the time to do so has expired or otherwise, or your claim is settled by Household or its successor prior to the rendering of such a judgment, all reasonable legal and other professional fees and expenses incurred by you in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided for in this Agreement or in otherwise pursuing your claim will be promptly paid by Household or its successor with interest thereon at the highest statutory rate of your state of domicile for interest on judgments against private parties from the date of payment thereof by you to the date of reimbursement to you by Household or its successor. 9. You agree that you will not, without prior written consent of the Board of Directors of Household, during the term of or after the termination of your employment under this Agreement, directly or indirectly, disclose to any individual, corporation, or other entity (other than Household, or any subsidiary or affiliate thereof, or its officers, directors, or employees entitled to such information, or any other person or entity to whom such information is regularly disclosed in the normal course of Household's business), or use for your own benefit or for the benefit of such individual, corporation or other entity, any information whether or not reduced to written or other tangible form, which: a. is not generally known to the public or in the industry; b. has been treated by Household as confidential or proprietary; and c. is of competitive advantage to Household and in the confidentiality of which Household has a legally protectible interest, (such information being referred to herein as "Confidential Information"). Confidential Information which becomes generally known to the public or in the industry, or in the confidentiality of which Household ceases to have a legally protectible interest, shall cease to be subject to the restrictions of this paragraph. 10. This Agreement supersedes and replaces the Employment Agreement dated January 3, 1994, the Employment Agreement 5 dated May 12, 1993, the Employment Agreement dated December 1, 1989, the Supplemental Employment Agreement dated September 9, 1987, and the Senior Executive Employment Agreement dated August 15, 1984, between you and Household, all in furtherance of the objectives previously authorized and deemed by the Board of Directors of Household to serve the best interests of the Corporation. 11. Any successor to the Corporation, by acquisition of stock or substantially all of the assets, by merger or otherwise, shall be required to adopt and abide by the terms of this Agreement. This Agreement, and any rights to receive payments hereunder, may not be transferred, assigned or alienated by you. 12. All benefits under this Agreement shall be general obligations of the Corporation which shall not require the segregation of any funds or property. Notwithstanding the foregoing, in the discretion of the Corporation, the Corporation may establish a grantor trust or other vehicle to assist it in meeting its obligations hereunder, but any such trust or other vehicle shall not create a funded account or security interest for you. 13. This Agreement may only be amended or terminated by written agreement, signed by both of the parties. Our signatures below indicate our mutual agreement and acceptance of the foregoing terms and provisions, all as of the date first above set forth. Sincerely, HOUSEHOLD INTERNATIONAL, INC. By: /s/ Raymond C. Tower -------------------- Raymond C. Tower Chairman of the Compensation Committee of the Board of Directors /s/ Donald C. Clark ------------------- Donald C. Clark U:\WP\EMP819\EDGAR\IEX109.AS1 EX-12 5 EXHIBIT 12 ---------- HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS - ----------------------------------------------------------------- All dollar amounts are stated in millions. Three months ended March 31 1995 1994 - ----------------------------------------------------------------- Net income $ 96.0 $ 77.6 - ----------------------------------------------------------------- Income taxes 47.6 42.0 - ----------------------------------------------------------------- Fixed charges: Interest expense (1) 379.1 259.1 Interest portion of rentals (2) 8.8 8.7 - ----------------------------------------------------------------- Total fixed charges 387.9 267.8 - ----------------------------------------------------------------- Total earnings as defined $531.5 $387.4 ================================================================= Ratio of earnings to fixed charges 1.37 1.45 ================================================================= Preferred stock dividends (3) $ 10.5 $ 11.6 ================================================================= Ratio of earnings to combined fixed charges and preferred stock dividends 1.33 1.39 ================================================================= (1) For financial statement purposes, interest expense includes income earned on temporary investment of excess funds, generally resulting from over-subscriptions of commercial paper. (2) Represents one-third of rentals, which approximates the portion representing interest. (3) Preferred stock dividends are grossed up to their pretax equivalent based upon an effective tax rate of 33.1 and 35.1 percent for March 31, 1995 and 1994, respectively. EX-21 6 Exhibit 21 SUBSIDIARIES OF HOUSEHOLD INTERNATIONAL, INC. - --------------------------------------------- As of March 31, 1995, the following subsidiaries were directly or indirectly owned by the Registrant. Certain subsidiaries which in the aggregate do not constitute significant subsidiaries may be omitted. % Voting Stock Organized Owned Under By Names of Subsidiaries Laws of: Parent - --------------------- --------- ------ Hamilton Investments, Inc. Delaware 100% Alpha Source Asset Management, Inc. Delaware 100% Craig-Hallum Corporation Delaware 100% Craig-Hallum, Inc. Minnesota 100% ProValue Investments, Inc. Delaware 100% Household Bank, f.s.b U.S. 100% Household Affinity Funding Corporation Delaware 100% Household Bank (SB), N.A. U.S. 100% Household Home Title Services, Inc. California 100% Household Home Title Services, Inc. II Maryland 100% Household Investment Services, Inc. California 100% Household Insurance Services, Inc. Illinois 100% Housekey Financial Corporation California 100% Associations Service Corporation Indiana 100% Household Mortgage Services, Inc. Delaware 100% Security Investment Corporation Maryland 100% Household Commercial Canada Inc. Canada 100% Household Credit Services, Inc. Delaware 100% Household Finance Corporation Delaware 100% HFC Funding Corporation Delaware 100% HFC Revolving Corporation Delaware 100% HFS Funding Corporation Delaware 100% Household Bank (Nevada), N.A. U.S. 100% Household Receivables Funding Corporation Nevada 100% Household Receivables Funding Delaware 100% Corporation II Household Receivables Funding, Inc. Delaware 100% Household Capital Markets, Inc. Delaware 100% Household Card Services, Inc. Nevada 100% Household Bank (Illinois), N.A. U.S. 100% Household Credit Services of Mexico, Inc. Delaware 100% Household Finance Receivables Corporation IIDelaware 100% Household Financial Services, Inc. Delaware 100% Household Group, Inc. Delaware 100% Alexander Hamilton Life Insurance Company Michigan 100% of America % Voting Stock Organized Owned Under By Names of Subsidiaries Laws of: Parent - --------------------- --------- ------ Alexander Hamilton Capital Management, Michigan 100% Inc. Alexander Hamilton Insurance Agency, Inc. Michigan 100% Alexander Hamilton Life Insurance Co. Arizona 100% of Arizona First Alexander Hamilton Life New York 100% Insurance Co. Hamilton National Life Insurance Company Michigan 100% Alexander Hamilton Insurance Company Michigan 100% of America Cal-Pacific Services, Inc. California 100% Household Business Services, Inc. Delaware 100% Household Commercial Financial Delaware 100% Services, Inc. Business Realty Inc. Delaware 100% Business Lakeview, Inc. Delaware 100% Capital Graphics, Inc. Delaware 100% Color Prelude Inc. Delaware 100% First Source Financial, Inc. Delaware 100% HCFS Business Equipment Corporation Delaware 100% HCFS Corp Finance Venture, Inc. Delaware 100% HFC Commercial Realty, Inc. Delaware 100% Cast Iron Building Corporation Delaware 100% Center Realty, Inc. Delaware 100% Com Realty, Inc. Delaware 100% Lighthouse Property Corporation Delaware 100% MRP General, Inc. Delaware 100% G.C. Center, Inc. Delaware 100% Household OPEB I, Inc. Illinois 100% Land of Lincoln Builders, Inc. Illinois 100% PPSG Corporation Delaware 100% Steward's Glenn Corporation Delaware 100% HFC Leasing, Inc. Delaware 100% First HFC Leasing Corporation Delaware 100% Second HFC Leasing Corporation Delaware 100% Valley Properties Corporation Tennessee 100% Fifth HFC Leasing Corporation Delaware 100% Sixth HFC Leasing Corporation Delaware 100% Seventh HFC Leasing Corporation Delaware 100% Eighth HFC Leasing Corporation Delaware 100% Tenth HFC Leasing Corporation Delaware 100% Eleventh HFC Leasing Corporation Delaware 100% % Voting Stock Organized Owned Under By Names of Subsidiaries Laws of: Parent - --------------------- --------- ------ Thirteenth HFC Leasing Corporation Delaware 100% Fourteenth HFC Leasing Corporation Delaware 100% Seventeenth HFC Leasing Corporation Delaware 100% Nineteenth HFC Leasing Corporation Delaware 100% Twenty-second HFC Leasing Corporation Delaware 100% Twenty-sixth HFC Leasing Corporation Delaware 100% Beaver Valley, Inc. Delaware 100% Hull 752 Corporation Delaware 100% Hull 753 Corporation Delaware 100% Third HFC Leasing Corporation Delaware 100% Macray Corporation California 100% Fourth HFC Leasing Corporation Delaware 100% Pargen Corporation California 100% Fifteenth HFC Leasing Corporation Delaware 100% Hull Fifty Corporation Delaware 100% Household Capital Investment Corporation Delaware 100% B&K Corporation Michigan 94% Household Commercial of California, Inc. California 100% Household Real Estate Equities, Inc. Delaware 100% SPG General, Inc. Delaware 100% OLC, Inc. Rhode Island 100% OPI, Inc. Virginia 100% The Generra Company Delaware 100% Household Finance Consumer Discount CompanyPennsylvania 100% Overseas Leasing Two FSC, Ltd. Bermuda 99% Household Finance Corporation II Delaware 100% Household Finance Corporation of Alabama Alabama 100% Household Finance Corporation of CaliforniaDelaware 100% Household Finance Corporation of Nevada Delaware 100% Household Finance Realty Corporation of Delaware 100% New York Household Finance Industrial Loan Company Iowa 100% of Iowa Household Finance Realty Corporation of Delaware 100% Nevada Household Finance Corporation III Delaware 100% Amstelveen FSC, Ltd. Bermuda 99% HFC Agency of Michigan, Inc. Michigan 100% Night Watch FSC, Ltd. Bermuda 99% Household Realty Corporation Delaware 100% Overseas Leasing One FSC, Ltd. Bermuda 100% Overseas Leasing Four FSC, Ltd. Bermuda 99% Overseas Leasing Five FSC, Ltd. Bermuda 99% Household Retail Services, Inc. Delaware 100% HRSI Funding, Inc. Nevada 100% % Voting Stock Organized Owned Under By Names of Subsidiaries Laws of: Parent - --------------------- --------- ------ Household Financial Center Inc. Tennessee 100% Household Industrial Finance Company Minnesota 100% Household Industrial Loan Co. of Kentucky Kentucky 100% Household Insurance Agency, Inc. Nevada 100% Household Recovery Services Corporation Delaware 100% Household Relocation Management, Inc. Illinois 100% Mortgage One Corporation Delaware 100% Mortgage Two Corporation Delaware 100% Sixty-First HFC Leasing Corporation Delaware 100% Household Bank (California), N.A. U.S. 100% Household Financial Group, Ltd. Delaware 100% Household Global Funding, Inc. Delaware 78% Household International (U.K.) Limited England 100% D.L.R.S. Limited Cheshire 100% HFC Bank plc England 100% Hamilton Life Assurance Co. Limited England 100% Hamilton Insurance Company Limited England 100% Hamilton Financial Planning Services England 100% Limited HFC Pension Plan Limited England 100% Household Funding Limited England 100% Household Investments Limited England/Wales 100% Household Leasing Limited England 100% Household Management Corporation Limited England/Wales 100% Household Overseas Limited England 100% Household International Netherlands, B.V. Netherlands 100% Household Financial Corporation Limited Ontario 100% Household Finance Corporation of Canada Canada 100% Household Realty Corporation Limited Ontario 100% Household Trust Company Canada 100% Merchant Retail Services Limited Ontario 100% Household Mexico, Inc. Delaware 100% Household Reinsurance Ltd. Bermuda 100% U:\WP\EMP819\EDGAR\IEX21.WP1 EX-27 7
5 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. 1,000 3-MOS DEC-31-1995 MAR-31-1995 498,200 9,687,600 20,852,300 901,800 0 0 1,008,400 501,700 34,564,900 0 9,914,500 115,200 2,600 320,000 2,208,000 34,564,900 0 1,246,000 0 560,700 0 164,300 377,400 143,600 47,600 96,000 0 0 0 96,000 .91 .91 FINANCIAL STATEMENTS OF THE COMPANY WERE PREPARED IN ACCORDANCE WITH FINANCIAL INSTITUTION INDUSTRY STANDARDS. ACCORDINGLY, THE COMPANY'S BALANCE SHEETS WERE NON-CLASSIFIED.
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