-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QShbKq9P9w5niHD4IoOIXnO6+TdoFFcMx5kApZ4O4wobGgbaS1+Ok5U4erQMua84 hGYR3eDukTn5BaNWUbf4Pg== 0000354964-98-000030.txt : 19980817 0000354964-98-000030.hdr.sgml : 19980817 ACCESSION NUMBER: 0000354964-98-000030 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: CSX 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: SEC FILE NUMBER: 001-08198 FILM NUMBER: 98690768 BUSINESS ADDRESS: STREET 1: 2700 SANDERS RD CITY: PROSPECT HEIGHTS STATE: IL ZIP: 60070 BUSINESS PHONE: 8475645000 MAIL ADDRESS: STREET 1: 2700 SANDERS ROAD CITY: PROSPECT HEIGHTS STATE: IL ZIP: 60070 10-Q 1 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 ------------- 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: (847) 564-5000 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At July 31, 1998, there were 492,408,398 shares of registrant's common stock outstanding. 2 HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES Table of Contents PART I. Financial Information Page ---- Item 1. Financial Statements Condensed Consolidated Statements of Operations (Unaudited) - Three Months and Six Months Ended June 30, 1998 and 1997 2 Condensed Consolidated Balance Sheets - June 30, 1998 (Unaudited) and December 31, 1997 3 Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended June 30, 1998 and 1997 4 Financial Highlights 5 Notes to Interim Condensed Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 PART II. Other Information Item 1. Legal Proceedings 26 Item 4. Submission of Matters to a Vote of Security Holders 26 Item 6. Exhibits and Reports on Form 8-K 28 Signature 29 3 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Household International, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - ----------------------------------------------------------- All amounts, except per share data, are stated in millions.
- ------------------------------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------- Finance income $1,372.6 $1,239.2 $2,686.2 $2,512.6 Other interest income 11.1 18.8 26.4 30.0 Interest expense 616.8 574.3 1,229.0 1,154.1 -------- -------- -------- -------- Net interest margin 766.9 683.7 1,483.6 1,388.5 Provision for credit losses on owned receivables 391.6 351.0 780.9 729.5 -------- -------- -------- -------- Net interest margin after provision for credit losses 375.3 332.7 702.7 659.0 -------- -------- -------- -------- Securitization income 394.2 422.2 813.5 788.4 Insurance revenues 117.8 111.3 237.3 222.6 Investment income 38.5 39.9 78.4 85.1 Fee income 145.0 119.7 292.3 238.6 Other income 40.1 61.6 127.8 227.6 Gain on sale of Beneficial Canada - - 189.4 - -------- -------- -------- -------- Total other revenues 735.6 754.7 1,738.7 1,562.3 -------- -------- -------- -------- Salaries and fringe benefits 264.4 264.6 540.6 517.3 Occupancy and equipment expense 82.5 79.2 167.6 163.9 Other marketing expenses 99.0 98.8 202.0 213.6 Other servicing and administrative expenses 187.6 179.0 381.5 391.1 Amortization of acquired intangibles and goodwill 44.8 37.1 87.2 73.9 Policyholders' benefits 55.3 65.1 118.9 134.9 Merger and integration related costs 1,000.0 - 1,000.0 - -------- -------- -------- -------- Total costs and expenses 1,733.6 723.8 2,497.8 1,494.7 -------- -------- -------- -------- Income (loss) before income taxes (622.7) 363.6 (56.4) 726.6 Income taxes (benefit) (121.1) 125.0 87.4 255.8 -------- -------- -------- -------- Net income (loss) $ (501.6) $ 238.6 $ (143.8) $ 470.8 ======== ======== ======== ======== Earnings (loss) per common share: Net income (loss) $ (501.6) $ 238.6 $ (143.8) $ 470.8 Preferred dividends (4.1) (4.2) (8.3) (8.7) -------- -------- -------- -------- Earnings (loss) available to common shareholders $ (505.7) $ 234.4 $ (152.1) $ 462.1 ======== ======== ======== ======== Average common shares 489.4 457.4 487.5 457.2 Average common and common equivalent shares - 465.9 - 465.7 -------- -------- -------- -------- Basic earnings (loss) per common share $ (1.03) $ .51 $ (.31) $ 1.01 Diluted earnings (loss) per common share (1.03) .50 (.31) .99 -------- -------- -------- -------- Dividends declared per common share .15 .15 .30 .26 -------- -------- -------- --------
See notes to interim condensed consolidated financial statements. 4 Household International, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS - ------------------------------------- In millions, except share data.
- ----------------------------------------------------------------------------------------- June 30, December 31, 1998 1997 - ----------------------------------------------------------------------------------------- (Unaudited) ASSETS - ------ Cash $ 364.7 $ 534.3 Investment securities 3,436.6 2,898.6 Receivables, net 40,227.8 38,337.6 Acquired intangibles and goodwill, net 1,908.9 1,798.4 Properties and equipment, net 445.1 538.7 Real estate owned 224.2 212.8 Other assets 2,895.0 2,496.6 --------- --------- Total assets $49,502.3 $46,817.0 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Debt: Deposits $ 1,780.1 $ 2,344.2 Commercial paper, bank and other borrowings 11,356.7 10,666.1 Senior and senior subordinated debt (with original maturities over one year) 25,740.3 23,736.2 --------- --------- Total debt 38,877.1 36,746.5 Insurance policy and claim reserves 1,324.5 1,382.6 Other liabilities 2,608.4 2,074.4 --------- --------- Total liabilities 42,810.0 40,203.5 --------- --------- Company obligated mandatorily redeemable preferred securities of subsidiary trusts* 375.0 175.0 --------- --------- Preferred stock 264.5 264.5 --------- --------- Common shareholders' equity: Common stock, $1.00 par value, 750,000,000 shares authorized (increased as of May 13, 1998); 541,420,354 and 536,870,946 shares issued at June 30, 1998 and December 31, 1997, respectively 541.4 536.9 Additional paid-in capital 1,572.5 1,423.5 Retained earnings 4,666.4 4,978.6 Foreign currency translation adjustments (160.0) (176.5) Unrealized gain on investments, net 27.3 8.8 Less common stock in treasury, 50,668,222 and 51,519,429 shares at June 30, 1998 and December 31, 1997, respectively, at cost (594.8) (597.3) --------- --------- Total common shareholders' equity 6,052.8 6,174.0 --------- --------- Total liabilities and shareholders' equity $49,502.3 $46,817.0 ========= =========
* As described in note 9 to the financial statements, the sole assets of the three trusts are Junior Subordinated Deferrable Interest Notes issued by Household International, Inc. in March 1998, June 1996 and June 1995, bearing interest at 7.25, 8.70 and 8.25 percent, respectively, with principal balances of $206.2, $103.1 and $77.3 million, respectively, and due December 31, 2037, June 30, 2036 and June 30, 2025, respectively. See notes to interim condensed consolidated financial statements. 5 Household International, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - ----------------------------------------------------------- In millions.
- ----------------------------------------------------------------------------------------- Six months ended June 30 1998 1997 - ----------------------------------------------------------------------------------------- CASH PROVIDED BY OPERATIONS Net income (loss) $ (143.8) $ 470.8 Adjustments to reconcile net income to cash provided by operations: Provision for credit losses on owned receivables 780.9 729.5 Merger and integration related costs 1,000.0 - Insurance policy and claim reserves (66.9) 13.8 Depreciation and amortization 155.8 147.2 Net realized (gains) losses from sales of assets (189.8) (64.6) Other, net (598.9) 8.4 --------- ---------- Cash provided by operations 937.3 1,305.1 --------- ---------- INVESTMENTS IN OPERATIONS Investment securities: Purchased (802.8) (753.1) Matured 300.6 219.7 Sold 453.0 497.0 Short-term investment securities, net change (455.7) 9.8 Receivables: Originations, net (13,640.4) (13,702.9) Purchases and related premiums (2,248.0) (435.1) Sold 13,221.1 15,907.0 Purchase capital stock of Transamerica Financial Services Holding Company - (1,065.0) Properties and equipment purchased (49.6) (32.8) Properties and equipment sold 21.3 6.1 ---------- ---------- Cash increase (decrease) from investments in operations (3,200.5) 650.7 ---------- ---------- FINANCING AND CAPITAL TRANSACTIONS Short-term debt and demand deposits, net change 233.3 (564.9) Time certificates, net change (125.1) (267.4) Senior and senior subordinated debt issued 5,620.1 5,026.6 Senior and senior subordinated debt retired (2,742.5) (4,020.5) Prepayment of debt (890.6) - Repayment of Transamerica Financial Services Holding Company debt - (2,795.0) Policyholders' benefits paid (53.3) (74.5) Cash received from policyholders 31.8 102.9 Shareholders' dividends (105.0) (88.2) Shareholders' dividends - pooled affiliate (61.8) (55.5) Redemption of preferred stock - (55.0) Purchase of treasury stock (9.8) - Treasury stock activity - pooled affiliate (11.0) (63.3) Issuance of common stock 13.3 1,006.6 Issuance of company obligated mandatorily redeemable preferred securities of subsidiary trusts 200.0 - ---------- ---------- Cash increase (decrease) from financing and capital transactions 2,099.4 (1,848.2) ---------- ---------- Effect of exchange rate changes on cash (5.8) 9.1 ---------- ---------- Increase (decrease) in cash (169.6) 116.7 Cash at January 1 534.3 518.8 ---------- ---------- Cash at June 30 $ 364.7 $ 635.5 ========== ========== Supplemental cash flow information: Interest paid $ 1,115.9 $ 1,138.7 ---------- ---------- Income taxes paid 213.0 229.3 ---------- ----------
See notes to interim condensed consolidated financial statements. 6 Household International, Inc. and Subsidiaries FINANCIAL HIGHLIGHTS - --------------------
All dollar amounts are stated in millions. - -------------------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 - -------------------------------------------------------------------------------------------------------- Net income excluding merger costs and Beneficial Canada gain Household $ 201.9 $ 150.3 $ 372.2 $ 281.8 Beneficial 47.5 88.3 116.5 189.0 -------- -------- -------- -------- Total net income excluding merger costs and Beneficial Canada gain 249.4 238.6 488.7 470.8 Merger and integration related costs (751.0) - (751.0) - Beneficial Canada gain - - 118.5 - -------- -------- -------- -------- Net income (loss) (501.6) 238.6 (143.8) 470.8 ======== ======== ======== ======== Diluted earnings (loss) per common share (1.03) .50 (.31) .99 ======== ======== ======== ======== Diluted earnings per common share excluding merger costs and Beneficial Canada gain .49 .50 .96 .99 ======== ======== ======== ======== Pro forma pre-merger diluted earnings per common share excluding merger costs and Beneficial Canada gain Household .61 .49 1.12 .92 ======== ======== ======== ======== Beneficial .81 1.61 2.02 3.41 ======== ======== ======== ======== Net interest margin and other revenues 1,447.2 1,373.3 3,103.4 2,815.9 -------- -------- -------- -------- Return on average common shareholders' equity 14.7% 19.6% 14.7% 19.7% -------- -------- -------- -------- Return on average owned assets 2.00 2.14 1.99 2.10 -------- -------- -------- -------- Managed basis efficiency ratio, normalized 39.1 41.3 39.8 42.0 -------- -------- -------- --------
All dollar amounts are stated in millions. - -------------------------------------------------------------------------------------------------------- June 30, December 31, 1998 1997 - -------------------------------------------------------------------------------------------------------- Total assets: Owned $49,502.3 $46,817.0 Managed 72,083.8 71,295.5 --------- --------- Receivables: Owned $40,699.4 $38,682.0 Serviced with limited recourse 22,581.5 24,478.5 --------- --------- Managed $63,280.9 $63,160.5 ========= ========= Total shareholders' equity as a percent 13.52% 14.13% --------- --------- Total shareholders' equity as a percent of managed assets 9.28 9.28 --------- --------- Calculated based on average common and common equivalent shares outstanding for the respective companies for the periods presented prior to the merger. Policyholders' benefits have been netted against other revenues. Annualized. Excludes merger and integration related costs and the Beneficial Canada gain. Ratio of normalized operating expenses to managed net interest margin and other revenues less policyholders' benefits. Excludes merger and integration related costs and the Beneficial Canada gain. Total shareholders' equity at June 30, 1998 and December 31, 1997 includes common shareholders' equity, preferred stock and company obligated mandatorily redeemable preferred securities of subsidiary trusts.
See notes to interim condensed consolidated financial statements. 7 Household International, Inc. and Subsidiaries NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION - -------------------------- The accompanying unaudited condensed consolidated financial statements of Household International, Inc. ("Household") and its subsidiaries have been prepared in accordance with generally accepted accounting principles for interim financial information. Additionally, these financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain prior period amounts have been reclassified to conform with the current period's presentation. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 1998 should not be considered indicative of the results for any future quarters or the year ending December 31, 1998. Household and its subsidiaries may also be referred to in this Form 10-Q as "we," "us" or "our." These financial statements should be read in conjunction with the supplemental consolidated financial statements for the year ended December 31, 1997 contained in Household's Current Report on Form 8-K dated June 30, 1998. On March 10, 1998, the Board of Directors approved a three-for-one split of our common stock effected in the form of a dividend, issued on June 1, 1998, to shareholders of record as of May 14, 1998. The split was subject to shareholder approval to increase authorized shares which was received on May 13, 1998. Accordingly, all common share and per common share data in these interim condensed consolidated financial statements includes the effect of our stock split. 2. HOUSEHOLD MERGER WITH BENEFICIAL CORPORATION - ------------------------------------------------- On June 30, 1998, Household completed its merger with Beneficial Corporation ("Beneficial"), a consumer finance holding company headquartered in Wilmington, Delaware. Beneficial's total assets were $16.1 billion and common shareholders' equity was $2.0 billion on the date of the merger, excluding the impact of the merger and integration related costs. Each outstanding share of Beneficial common stock was converted into 3.0666 shares of Household's common stock, resulting in the issuance of approximately 168.4 million common shares to the former Beneficial shareholders. Each share of Beneficial $5.50 Convertible Preferred Stock was converted into the number of shares of Household common stock the holder would have been entitled to receive in the merger had the holder converted his or her shares of Beneficial $5.50 Convertible Preferred Stock into shares of Beneficial common stock immediately prior to the merger. Additionally, each other share of preferred stock of Beneficial outstanding immediately prior to the merger has been converted into one share of a newly created series of preferred stock of Household with terms substantially similar to those of existing Beneficial preferred stock. The merger was accounted for as a pooling of interests and therefore, these interim condensed consolidated financial statements include the results of operations, financial position, and changes in cash flows of Beneficial for all periods presented. 8 The separate results of operations for Household and Beneficial were as follows:
- ------------------------------------------------------------------------------------------------ Three Months Ended Six Months Ended June 30, June 30, In millions. 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------ Net interest margin and other revenues Household $ 984.2 $ 875.2 $1,915.7 $1,790.8 Beneficial 463.0 498.1 1,187.7 1,025.1 -------- ------- -------- -------- Total $1,447.2 $1,373.3 $3,103.4 $2,815.9 ======== ======== ======== ======== Net income (loss) Household $ 201.9 $ 150.3 $ 372.2 $ 281.8 Beneficial 47.5 88.3 116.5 189.0 Merger and integration related costs (751.0) - (751.0) - Beneficial Canada gain - - 118.5 - -------- -------- -------- -------- Total $ (501.6) $ 238.6 $ (143.8) $ 470.8 ======== ======== ======== ======== Policyholders' benefits have been netted against other revenues.
In connection with the merger, we incurred pre-tax merger and integration related costs of approximately $1 billion ($751 million after-tax) in the quarter. These costs included approximately $305 million in lease exit costs, $50 million in fixed asset write-offs related to closed facilities, $255 million in severance and change in control payments, $230 million in asset writedowns to reflect modified business plans, $75 million in investment banking fees, $25 million in legal and other expenses, and $60 million in prepayment premiums related to debt. The following table summarizes the activity in the merger and restructuring reserve for the three months ended June 30, 1998:
- -------------------------------------------------------------- Three Months Ended In millions. June 30, 1998 - -------------------------------------------------------------- Balance at beginning of period - Establishment of reserve $1,000.0 Cash payments (113.7) Non-cash items (249.5) -------- Balance on June 30, 1998 $ 636.8 ========
3. BUSINESS DIVESTITURES - -------------------------- On April 28, 1998, the sale of Beneficial's German operations was completed. An after-tax loss of $27.8 million was recorded in the fourth quarter of 1997. This loss was recorded after consideration of a $31.0 million tax benefit, primarily generated by the expected utilization of capital losses to cover the expected loss associated with disposing of the German operations. No additional losses were realized in 1998 as a result of the sale. On March 2, 1998, the sale of Beneficial's Canadian operations was completed. An after-tax gain of $118.5 million was recorded upon consummation of the transaction. 9 4. INVESTMENT SECURITIES - -------------------------- Investment securities consisted of the following:
- --------------------------------------------------------------------------------------------- In millions. June 30, 1998 December 31, 1997 - --------------------------------------------------------------------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value -------- -------- -------- -------- AVAILABLE-FOR-SALE INVESTMENTS Marketable equity securities $ 69.0 $ 72.5 $ 129.0 $ 132.5 Corporate debt securities 1,613.5 1,648.8 1,581.8 1,600.5 U.S. government and federal agency debt securities 623.6 626.4 390.3 380.5 Other 1,050.1 1,051.0 745.8 746.5 -------- -------- -------- -------- Subtotal 3,356.2 3,398.7 2,846.9 2,860.0 Accrued investment income 37.9 37.9 38.6 38.6 -------- -------- -------- -------- Total investment securities $3,394.1 $3,436.6 $2,885.5 $2,898.6 ======== ======== ======== ========
5. RECEIVABLES - ---------------- Receivables consisted of the following:
- -------------------------------------------------------------------------------------------- June 30, December 31, In millions. 1998 1997 - -------------------------------------------------------------------------------------------- First mortgage $ 328.0 $ 396.6 Home equity 16,317.1 13,786.2 Auto finance 537.2 487.5 MasterCard/Visa 7,051.3 6,874.7 Private label 8,252.2 9,356.9 Other unsecured 7,437.5 6,823.1 Commercial 776.1 957.0 --------- --------- Total owned receivables 40,699.4 38,682.0 Accrued finance charges 548.1 536.7 Credit loss reserve for owned receivables (1,757.2) (1,642.1) Unearned credit insurance premiums and claims reserves (477.3) (452.3) Amounts due and deferred from receivables sales 2,077.7 2,094.2 Reserve for receivables serviced with limited recourse (862.9) (880.9) --------- --------- Total owned receivables, net 40,227.8 38,337.6 Receivables serviced with limited recourse 22,581.5 24,478.5 --------- --------- Total managed receivables, net $62,809.3 $62,816.1 ========= =========
10 The outstanding balance of receivables serviced with limited recourse consisted of the following:
- -------------------------------------------------------------------- June 30, December 31, In millions. 1998 1997 - -------------------------------------------------------------------- Home equity $ 4,403.7 $ 6,038.6 Auto finance 700.7 395.9 MasterCard/Visa 12,195.2 12,337.0 Private label 927.9 1,025.0 Other unsecured 4,354.0 4,682.0 --------- --------- Total $22,581.5 $24,478.5 ========= =========
The combination of receivables owned and receivables serviced with limited recourse, which we consider our managed portfolio, is shown below:
- -------------------------------------------------------------------- June 30, December 31, In millions. 1998 1997 - -------------------------------------------------------------------- First mortgage $ 328.0 $ 396.6 Home equity 20,720.8 19,824.8 Auto finance 1,237.9 883.4 MasterCard/Visa 19,246.5 19,211.7 Private label 9,180.1 10,381.9 Other unsecured 11,791.5 11,505.1 Commercial 776.1 957.0 --------- --------- Total $63,280.9 $63,160.5 ========= =========
The amounts due and deferred from receivables sales were $2,077.7 million at June 30, 1998 and $2,094.2 million at December 31, 1997. The amounts due and deferred included unamortized securitization assets and funds set up under the recourse requirements for certain sales totaling $2,104.5 million at June 30, 1998 and $2,082.3 million at December 31, 1997. It also included net customer payments owed by us to the securitization trustee of $52.3 million at June 30, 1998 and $11.7 million at December 31, 1997. In addition, we have subordinated interests in certain transactions, which were recorded as receivables, of $1,250.1 million at June 30, 1998 and $1,098.1 million at December 31, 1997. We have agreements with a "AAA"-rated third party who will insure us for up to $21.2 million in losses relating to certain securitization transactions. We maintain credit loss reserves under the recourse requirements for receivables serviced with limited recourse which are based on estimated probable losses under those requirements. The reserves totaled $862.9 million at June 30, 1998 and $880.9 million at December 31, 1997 and represents our best estimate of probable losses on receivables serviced with limited recourse. 11 6. CREDIT LOSS RESERVES - ------------------------- An analysis of credit loss reserves for the three and six months ended June 30 was as follows:
- --------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended June 30, June 30, In millions. 1998 1997 1998 1997 - --------------------------------------------------------------------------------------------- Credit loss reserves for owned receivables at beginning of period $1,725.6 $1,438.4 $1,642.1 $1,398.4 Provision for credit losses 391.6 351.0 780.9 729.5 Chargeoffs (417.7) (356.0) (820.2) (717.3) Recoveries 40.7 54.4 83.3 95.0 Portfolio acquisitions, net 17.0 68.6 71.1 50.8 -------- -------- -------- -------- TOTAL CREDIT LOSS RESERVES FOR OWNED RECEIVABLES AT JUNE 30 1,757.2 1,556.4 1,757.2 1,556.4 -------- -------- -------- -------- Credit loss reserves for receivables serviced with limited recourse at beginning of period 847.4 767.6 880.9 710.6 Provision for credit losses 295.4 229.6 556.9 478.7 Chargeoffs (312.1) (273.4) (626.5) (478.0) Recoveries 23.2 12.9 42.0 22.8 Other, net 9.0 .6 9.6 3.2 -------- -------- -------- -------- TOTAL CREDIT LOSS RESERVES FOR RECEIVABLES SERVICED WITH LIMITED RECOURSE AT JUNE 30 862.9 737.3 862.9 737.3 -------- -------- -------- -------- TOTAL CREDIT LOSS RESERVES FOR MANAGED RECEIVABLES AT JUNE 30 $2,620.1 $2,293.7 $2,620.1 $2,293.7 ======== ======== ======== ========
7. INCOME TAXES - ----------------- The effective tax rate for the first six months of 1998 was 35.7 percent excluding merger and integration related costs. The inclusion of this item resulted in a $249 million net tax benefit for the first six months of 1998. The effective tax rate was 35.2 percent in the year-ago period. The effective tax rate differs from the statutory federal income tax rate in these years primarily because of the effects of (a) state and local income taxes, (b) in 1997, capital losses from the sale of German operations, (c) leveraged lease tax benefits, (d) amortization and write-offs of intangible assets, (e) reduction of noncurrent tax requirements and (f) in 1998, nondeductible merger costs. 12 8. EARNINGS (LOSS) PER COMMON SHARE - ------------------------------------- Computations of earnings (loss) per common share for the three and six months ended June 30 were as follows:
- --------------------------------------------------------------------------------------------- Three Months Ended June 30, In millions, except per share data. 1998 1997 - --------------------------------------------------------------------------------------------- Diluted Basic Diluted Basic ------- ------- ------ ------ Earnings (loss): Net income (loss) $(501.6) $(501.6) $238.6 $238.6 Preferred dividends (4.1) (4.1) (4.2) (4.2) ------- ------- ------ ------ Earnings (loss) available to common shareholders $(505.7) $(505.7) $234.4 $234.4 ======= ======= ====== ====== Average shares: Common 489.4 489.4 457.4 457.4 Common equivalents - - 8.5 - ------- ------- ------ ------ Total 489.4 489.4 465.9 457.4 ======= ======= ====== ====== Earnings (loss) per common share $ (1.03) $ (1.03) $ .50 $ .51 ======= ======= ====== ======
- --------------------------------------------------------------------------------------------- Six Months Ended June 30, In millions, except per share data. 1998 1997 - --------------------------------------------------------------------------------------------- Diluted Basic Diluted Basic ------- ------- ------ ------- Earnings (loss): Net income (loss) $(143.8) $(143.8) $470.8 $470.8 Preferred dividends (8.3) (8.3) (8.7) (8.7) ------- ------- ------ ------ Earnings (loss) available to common shareholders $(152.1) $(152.1) $462.1 $462.1 ======= ======= ====== ====== Average shares: Common 487.5 487.5 457.2 457.2 Common equivalents - - 8.5 - ------- ------- ------ ------ Total 487.5 487.5 465.7 457.2 ======= ======= ====== ====== Earnings (loss) per common share $ (.31) $ (.31) .99 1.01 ======= ======= ====== ====== Common equivalent shares are not presented for purposes of earnings per share calculations during these periods because it results in antidilution.
13 9. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS - -------------------------------------------------------------------- In March 1998 Household Capital Trust IV ("HCT IV"), a wholly-owned subsidiary of Household, issued 8 million 7.25 percent Trust Preferred Securities ("preferred securities") at $25 per preferred security. The sole asset of HCT IV is $206.2 million of 7.25 percent Junior Subordinated Deferrable Interest Notes issued by Household. The junior subordinated notes held by HCT IV mature on December 31, 2037 and are redeemable by Household in whole or in part beginning on March 19, 2003, at which time the HCT IV preferred securities are callable at par ($25 per preferred security) plus accrued and unpaid dividends. Net proceeds from the issuance of preferred securities were used for general corporate purposes. In June 1996 Household Capital Trust II ("HCT II"), a wholly-owned subsidiary of Household, issued 4 million 8.70 percent preferred securities at $25 per preferred security. The sole asset of HCT II is $103.1 million of 8.70 percent Junior Subordinated Deferrable Interest Notes issued by Household. The junior subordinated notes held by HCT II mature on June 30, 2036 and are redeemable by Household in whole or in part beginning on June 30, 2001, at which time the HCT II preferred securities are callable at par ($25 per preferred security) plus accrued and unpaid dividends. In 1995 Household Capital Trust I ("HCT I"), a wholly-owned subsidiary of Household, issued 3 million 8.25 percent preferred securities at $25 per preferred security. The sole asset of HCT I is $77.3 million of 8.25 percent Junior Subordinated Deferrable Interest Notes issued by Household. The junior subordinated notes held by HCT I mature on June 30, 2025 and are redeemable by Household in whole or in part beginning June 30, 2000, at which time the HCT I preferred securities are callable at par ($25 per preferred security) plus accrued and unpaid dividends. HCT I may elect to extend the maturity of its preferred securities to June 30, 2044. The obligations of Household with respect to the junior subordinated notes, when considered together with certain undertakings of Household with respect to HCT I, HCT II and HCT IV, constitute full and unconditional guarantees by Household of HCT I's, HCT II's and HCT IV's obligations under the respective preferred securities. The preferred securities are classified in our balance sheets as company obligated mandatorily redeemable preferred securities of subsidiary trusts (representing the minority interest in the trusts) at their face and redemption amount of $375 million at June 30, 1998 and $175 million at December 31, 1997. The preferred securities have a liquidation value of $25 per preferred security. Dividends on the preferred securities are cumulative, payable quarterly in arrears, and are deferrable at Household's option for up to five years from date of issuance. Household cannot pay dividends on its preferred and common stocks during such deferments. 10. COMPREHENSIVE INCOME (LOSS) - -------------------------------- In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS No. 130"), effective for fiscal years beginning after December 15, 1997. This statement establishes standards for the reporting and presentation of comprehensive income. Comprehensive income, in addition to traditional net income, includes the mark-to-market adjustments on available-for- sale securities, cumulative translation adjustments and other items which represent a change in equity from "nonowner" sources. FAS No. 130 does not change existing requirements for certain items to be reported as a separate component of shareholders' equity. In accordance with the interim reporting guidelines of FAS No. 130, comprehensive income (loss) was $(490.5) million for the quarter ended June 30, 1998, $260.6 million for the quarter ended June 30, 1997, $(108.8) million for the six months ended June 30, 1998 and $459.3 million for the six months ended June 30, 1997. Excluding the impact of the merger and integration related costs as well as the gain on sale of Beneficial Canada, comprehensive income was $260.5 million for the quarter ended June 30, 1998 and $523.7 million for the six months ended June 30, 1998. 14 11. COMMITMENTS AND CONTINGENT LIABILITIES - ------------------------------------------- In 1992, the Internal Revenue Service ("IRS") completed its examination of Beneficial's federal income tax returns for 1984 through 1987. The IRS proposed $142.0 million in adjustments that relate principally to activities of a former subsidiary, American Centennial Insurance Company, prior to its sale in 1987. In order to limit the further accrual of interest on the proposed adjustments, Beneficial paid $105.5 million of tax and interest during the third quarter of 1992. The issues were not resolved during the administrative appeals process, and the IRS issued a statutory Notice of Deficiency asserting the unresolved adjustments and increased the disallowance to $195.0 million in the third quarter of 1996. Beneficial has initiated litigation in the United States Tax Court to oppose the disallowance. While the conclusion of this matter in its entirety cannot be predicted with certainty, management does not anticipate the ultimate resolution to differ materially from amounts accrued. 12. ACCOUNTING PRONOUNCEMENTS - ------------------------------ In March 1998, Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use ("SOP 98-1"), was issued. This statement, effective for financial statements issued for fiscal years beginning after December 15, 1998, provides guidance on accounting for the costs of computer software developed or obtained for internal use. We do not expect the adoption of SOP 98-1 to have a material impact on our consolidated financial statements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("FAS No. 133"). FAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. FAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. FAS No. 133 is effective for fiscal years beginning after June 15, 1999, and can be implemented as of the beginning of any fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and thereafter). FAS No. 133 cannot be applied retroactively. We expect to adopt FAS No. 133 on January 1, 2000 and have not yet quantified the impacts of adopting this statement on our financial statements. 15 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Form 10-Q contains certain estimates and projections regarding Household and our merger with Beneficial Corporation ("Beneficial"), that may be forward-looking in nature, as defined by the Private Securities Litigation Reform Act of 1995. A variety of factors may cause actual results to differ materially from the results discussed in these forward-looking statements. Factors that might cause such a difference are discussed herein and in Household International's and Beneficial Corporation's Annual Reports on Forms 10-K, for the year ended December 31, 1997, all filed with the Securities and Exchange Commission. On June 30, 1998, we merged with Beneficial, a consumer finance holding company headquartered in Wilmington, Delaware. Each outstanding share of Beneficial common stock was converted into 3.0666 shares of Household's common stock, resulting in the issuance of approximately 168.4 million shares of common stock. Each share of Beneficial $5.50 Convertible Preferred Stock (the "Beneficial Convertible Stock") was converted into the number of shares of Household common stock the holder would have been entitled to receive in the merger had the Beneficial Convertible Stock been converted into shares of Beneficial common stock immediately prior to the merger. Additionally, each other share of Beneficial preferred stock outstanding was converted into one share of a newly-created series of Household preferred stock with terms substantially similar to those of existing Beneficial preferred stock. The merger was accounted for as a pooling of interests and, therefore, the information included in this report presents the combined results of Household and Beneficial as if the two companies had operated as a combined entity for all periods presented. In connection with the merger, we incurred pre-tax merger and integration related costs of approximately $1 billion ($751 million after-tax) in the second quarter. These costs included approximately $305 million in lease exit costs, $50 million in fixed asset write-offs related to closed facilities, $255 million in severance and change in control payments, $230 million in asset writedowns to reflect modified business plans, $75 million in investment banking fees, $25 million in legal and other expenses, and $60 million in prepayment premiums related to debt. The merger and integration related costs included approximately $291 million in non-cash charges. Cash payments of approximately $709 million will be funded through our existing operations and by issuing additional commercial paper and other borrowings. In addition, we received tax benefits of approximately $249 million. Substantially all of the cash payments are expected to be made by the end of 1998. OPERATIONS SUMMARY - ------------------ Our operating income (net income excluding merger and integration related costs and the gain on sale of Beneficial's Canadian operations) for the second quarter of 1998 was $249.4 million, up from $238.6 million in 1997. Operating income for the first six months of 1998 was $488.7 million, up from $470.8 million a year ago. Diluted operating earnings per share was $.49 in the second quarter and $.96 for the first six months of 1998, compared to $.50 and $.99 per share in the same periods in 1997. The difference between the increases in operating income and the decreases in diluted operating earnings per share was due to the issuance of over 27 million common shares in June 1997. Including merger and integration related costs and, for the first six months of 1998, the gain on sale of Beneficial's Canadian operations, we recognized a net loss of $(501.6) million for the second quarter and $(143.8) million for the first six months of 1998. Additionally, diluted loss per share was $(1.03) for the second quarter and $(.31) for the first six months of 1998. 16 On a stand-alone basis and excluding merger costs, Household's net income for the second quarter of 1998 was $201.9 million, up from $150.3 million in 1997, while Beneficial's net income for the second quarter was $47.5 million, compared to $88.3 million last year. On a stand-alone basis, Household's diluted earnings per share for the quarter was $.61, up 24 percent from $.49 last year, while Beneficial's diluted earnings per share was $.81, down from $1.61 last year. Beneficial's second quarter 1997 diluted earnings per share included about $.59 of non-transactional gains, mostly securitization gains on home equity loans. There were no Beneficial securitizations during the second quarter of 1998. Excluding the prior year's nonrecurring items, Beneficial's stand-alone diluted earnings per share for the quarter was down about 21 percent. The decline was due to increased credit losses, partially offset by an improved net interest margin. Beneficial's results for the quarter were consistent with our expectations. Excluding merger and integration related costs and the gain on sale of Beneficial's Canadian operations, our annualized return on average common shareholders' equity was 14.7 percent for both the second quarter and first six months of 1998. This compares to an annualized return on average common shareholders' equity of 21.1 percent for the second quarter of 1997 and 21.4 percent for the first six months of 1997. The decrease in 1998 was a result of the June 1997 common stock offering which decreased our leverage, resulting in more of our assets being funded by equity as compared to the prior year. - - On March 10, 1998, the Board of Directors approved a three-for- one split of Household's common stock effected in the form of a dividend, issued on June 1, 1998, to shareholders of record as of May 14, 1998. The split was subject to shareholder approval to increase authorized shares which was received on May 13, 1998. Accordingly, all common share and per common share data in this report includes the effect of Household's stock split. - - On April 28, the sale of Beneficial's German operations was completed. An after-tax loss of $27.8 million was recorded in the fourth quarter of 1997. This loss was recorded after consideration of a $31.0 million tax benefit, primarily generated by the expected utilization of capital losses to cover the expected loss associated with disposing of the German operations. No additional losses were realized in 1998 as a result of the sale. - - On March 2, 1998, the sale of Beneficial's Canadian operations was completed. An after-tax gain of $118.5 million was recorded upon consummation of the transaction. - - The following summarizes our operating results for our key businesses for the second quarter and first six months of 1998 compared to the corresponding prior year periods: Results for our domestic consumer finance business improved from the prior year periods reflecting higher net interest margin and fee income due mainly to higher levels of average managed receivables. These improvements were partially offset by higher credit losses resulting primarily from increased personal bankruptcy filings. Our MasterCard* and Visa* credit card business reported lower net interest margin and, for the first six months, higher credit losses, partially offset by higher fee income. This business includes our co-branding and affinity relationship strategies, in particular our alliance with General Motors Corporation ("GM") to issue the GM Card, a co-branded credit card, and the AFL-CIO's Union Privilege affinity relationship. * MasterCard is a registered trademark of MasterCard International, Incorporated and Visa is a registered trademark of VISA USA, Inc. 17 Our private label credit card business reported higher credit losses, partially offset by higher net interest margin and fee income, and improved efficiency. Higher credit losses reflected higher personal bankruptcies as well as the maturing of promotional balances in the first quarter of 1998. Beneficial's tax refund anticipation loan ("RAL") business profits declined from the prior year periods, reflecting certain limited measures taken by the Internal Revenue Service to delay payment on the returns of selected taxpayers claiming an earned income tax credit. Net income increased in our United Kingdom ("U.K.") operation primarily due to improved efficiency, as well as higher interchange income and insurance premiums, due to receivables growth. The Goldfish Card, issued in alliance with the Centrica Group, contributed significantly to the growth in credit card receivables during the quarter. - - Our normalized managed basis efficiency ratio improved to 39.1 percent for the second quarter of 1998 and 39.8 percent for the first six months of 1998 compared to 41.3 percent in the second quarter of 1997 and 42.0 percent for the first six months of 1997. The efficiency ratio is the ratio of operating expenses to the sum of our managed net interest margin and other revenues less policyholders' benefits. We normalize, or adjust for, items that are not indicative of ongoing operations. The improvement in the managed ratio in the second quarter of 1998 resulted from a 9 percent growth in normalized managed net revenues over the prior year, compared to a 3 percent increase in normalized operating expenses over the comparable period. The improvement in the managed ratio for the first six months of 1998 resulted from growth in normalized managed net revenues over the prior year, compared to essentially no change in normalized operating expenses over the comparable period. On a stand-alone basis, Household's normalized managed efficiency ratio was 34.2 percent, down from 36.0 percent last quarter and 36.5 percent a year ago. Beneficial's normalized managed efficiency ratio for the quarter was 52.7 percent, essentially unchanged from the first quarter, and up from 52.2 percent last year. BALANCE SHEET REVIEW - -------------------- - - Managed consumer receivables (receivables on our balance sheet plus receivables serviced with limited recourse) grew 3 percent over the prior year. Core products increased 7 percent from a year ago to $62.2 billion. Core products exclude first mortgages and commercial receivables, Beneficial's German and Canadian receivables which were sold in the first half of 1997 and Household's student loan receivables which were sold in the fourth quarter of 1997. Growth in auto finance receivables reflect the acquisition of ACC Consumer Finance Corporation ("ACC") in October 1997. New loan originations in our retail branch network were up, however, the higher level of refinancings continued to impact home equity loan growth. MasterCard and Visa receivables were up from a year ago due to solid growth in our U.K. bankcard business and the purchase of a $925 million portfolio in the first quarter of 1998. This growth was offset by the non-strategic portfolio sales which occurred in the second half of 1997. Other unsecured receivables were up compared to the prior year reflecting the purchase of an $850 million portfolio in the first quarter. In addition, other unsecured growth was affected by our slowed origination of new unsecured business in recent quarters because of the uncertain credit environment. On a stand-alone basis, Household's core portfolio grew 7 percent and Beneficial's core portfolio increased 6 percent year- over-year. 18 - - Compared to the first quarter, core products were relatively flat. New loan originations in the HFC retail branch network were up over 20 percent in the quarter. However, the higher level of refinancings continued to impact home equity loan growth. Our other unsecured portfolio declined slightly in the quarter as run-off outpaced new volume. As discussed above, the decline in other unsecured is attributable to our slowing growth somewhat due to credit quality concerns. MasterCard/Visa receivables were flat with the first quarter. Starting in the first quarter, we actively repriced our MasterCard/Visa portfolios and cut credit lines to minimize future loss experience. These actions, however, led to greater attrition than anticipated. Private label receivables were down in the quarter from attrition at two major merchants due to less promotional activity by Beneficial. - - Consumer receivables on our balance sheet were $39.9 billion at June 30, 1998, up from $39.2 billion at March 31, 1998 and $38.0 billion at June 30, 1997. Changes in these owned receivables from period to period may vary depending on the timing and significance of securitization transactions. - - Our managed credit loss reserves were $2,620.1 million at June 30, 1998, up from $2,573.0 million at March 31, 1998 and $2,293.7 million at June 30, 1997. Credit loss reserves as a percent of managed receivables were 4.14 percent, up from 4.06 percent at March 31, 1998 and 3.73 percent at June 30, 1997. Reserves as a percent of nonperforming managed receivables were 116.9 percent, compared to 116.1 percent at March 31, 1998 and 119.6 percent at June 30, 1997. Consumer two-months-and-over contractual delinquency ("delinquency") as a percent of managed consumer receivables was 4.65 percent at June 30, 1998 and March 31, 1998 and 4.18 percent at June 30, 1997. The annualized total consumer managed chargeoff ratio in the second quarter of 1998 was 4.26 percent, compared to 4.17 percent in the prior quarter and 3.86 percent in the year-ago quarter. - - The ratio of total shareholders' equity (including company obligated mandatorily redeemable preferred securities of subsidiary trusts) to total owned assets was 13.52 percent, compared to 14.13 percent at December 31, 1997. The ratio of total shareholders' equity to managed assets was 9.28 percent, unchanged from December 31, 1997. The ratios in 1998 were impacted by the merger and integration related costs incurred in the quarter. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Our subsidiaries use cash to originate loans, purchase loans or investment securities or acquire businesses. Their main sources of cash are the collection and securitization of receivable balances; maturities or sales of investment securities; proceeds from the issuance of debt and deposits; and cash provided by operations. The following describes major changes in our funding base from December 31, 1997 to June 30, 1998: - - In March 1998, a subsidiary trust issued $200 million of company obligated mandatorily redeemable preferred securities. - - Deposits decreased 22 percent to $1.8 billion from $2.3 billion due to the sale of Beneficial's German operations, as previously discussed. - - Commercial paper, bank and other borrowings increased 7 percent to $11.4 billion from $10.7 billion. Senior and senior subordinated debt (with original maturities over one year) increased 8 percent to $25.7 billion from $23.7 billion. The increase in debt levels from year end is primarily attributable to the increase in owned receivables. 19 - - In connection with the Beneficial merger, we have repurchased or have commitments to repurchase approximately $1.1 billion of senior and senior subordinated debt and bank and other borrowings. We funded the debt repurchase with senior debt and other borrowings. Cash payments of approximately $709 million for merger and integration related costs will be funded through our existing operations, senior debt and other borrowings. - - In June 1998, we issued 168.4 million shares of common stock in connection with the Beneficial merger, as previously discussed. - - Our securitized portfolio of home equity, auto finance, MasterCard and Visa, private label and other unsecured receivables totaled $22.6 billion at June 30, 1998, compared to $24.5 billion at December 31, 1997. During the three months ended June 30, 1998, we securitized, excluding replenishments of certificate holder interests, $1.7 billion of auto finance and MasterCard/Visa receivables. During the six months ended June 30, 1998, we securitized, excluding replenishments of certificate holder interests, $2.0 billion of auto finance, MasterCard/Visa and other unsecured receivables. The composition of these securitizations by type is as follows (in billions):
- ----------------------------------------------------------- Three months ended Six months ended June 30, June 30, 1998 1998 - ----------------------------------------------------------- Auto finance $ .4 $ .4 Visa/MasterCard 1.3 1.3 Other unsecured - .3 ------- ------- Total $ 1.7 $ 2.0 ======= =======
The market for securities backed by receivables is a reliable, efficient and cost-effective source of funds, which we plan to continue to utilize in the future. PRO FORMA MANAGED STATEMENTS OF INCOME - -------------------------------------- Securitizations of consumer receivables have been, and will continue to be, an important source of funding. We continue to service securitized receivables after they have been sold and retain a limited recourse liability for future credit losses. We include revenues and credit-related expenses related to the off- balance sheet portfolio in one line item in our owned statements of income. Specifically, we report net interest margin, fee and other income, and provision for credit losses for securitized receivables as a net amount in securitization income. We monitor our operations on a managed basis as well as on the owned basis shown in our statements of income. The managed basis assumes that the securitized receivables have not been sold and are still on our balance sheet. The income and expense items discussed above are reclassified from securitization income into the appropriate caption. Pro forma managed statements of income, which reflect these reclassifications, are presented below. For purposes of this analysis, the managed results do not reflect the differences between our accounting policies for owned receivables and the off-balance sheet portfolio. Therefore, net income on a pro forma managed basis equals net income on an owned basis. 20 Pro Forma Managed Statements of Income
- -------------------------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended All dollar amounts are June 30, June 30, stated in millions. 1998 * 1997 * 1998 * 1997 * - -------------------------------------------------------------------------------------------------------------- Finance and other interest income $ 2,200.7 13.77% $ 2,043.1 13.65% $ 4,435.0 13.78% $ 4,063.9 13.61% Interest expense 961.9 6.02 905.9 6.06 1,941.8 6.03 1,788.9 5.99 --------- ----- --------- ----- --------- ----- --------- ----- Net interest margin 1,238.8 7.75 1,137.2 7.67 2,493.2 7.75 2,275.0 7.66 Provision for credit losses 687.0 580.6 1,337.8 1,208.2 --------- --------- --------- --------- Net interest margin after provision for credit losses 551.8 556.6 1,155.4 1,066.8 --------- --------- --------- --------- Insurance revenues 117.8 111.3 237.3 222.6 Investment income 38.5 39.9 78.4 85.1 Fee income 362.7 318.0 653.1 619.2 Other income 40.1 61.6 127.8 227.6 Gain on sale of Beneficial Canada - - 189.4 - --------- --------- --------- --------- Total other revenues 559.1 530.8 1,286.0 1,154.5 --------- --------- --------- --------- Salaries and fringe benefits 264.4 264.6 540.6 517.3 Occupancy and equipment expense 82.5 79.2 167.6 163.9 Other marketing expenses 99.0 98.8 202.0 213.6 Other servicing and administrative expenses 187.6 179.0 381.5 391.1 Amortization of acquired intangibles and goodwill 44.8 37.1 87.2 73.9 Policyholders' benefits 55.3 65.1 118.9 134.9 --------- --------- --------- --------- Total costs and expenses before merger charge 733.6 723.8 1,497.8 1,494.7 Merger and integration related costs 1,000.0 - 1,000.0 - --------- --------- --------- --------- Total costs and expenses including merger charge 1,733.6 723.8 2,497.8 1,494.7 --------- --------- --------- --------- Income (loss) before taxes (622.7) 363.6 (56.4) 726.6 Income taxes (benefit) (121.1) 125.0 87.4 255.8 --------- --------- --------- --------- Net income (loss) $ (501.6) $ 238.6 $ (143.8) $ 470.8 ========= ========= ========= ========= Average managed receivables $63,097.1 $58,743.4 $63,375.6 $58,821.0 Average noninsurance investments 519.0 1,149.3 676.3 885.3 Other interest-earning assets 305.8 - 293.5 - --------- --------- --------- --------- Average managed interest- earning assets $63,921.9 $59,892.7 $64,345.4 $59,706.3 ========= ========= ========= ========= * As a percent, annualized, of appropriate earning assets. Managed net interest margin as a percent of average managed interest- earning assets for the second quarter and first six months of 1997 excludes temporary investments relating to acquisitions. Including the impact of these temporary investments, managed net interest margin was 7.59 percent for the second quarter and 7.62 percent for the first six months ended June 30, 1997.
The following discussion on revenues, where applicable, and provision for credit losses includes comparisons to amounts reported on our historical owned statements of income ("Owned Basis"), as well as on the above pro forma managed statements of income ("Managed Basis"). 21 Net interest margin - ------------------- Net interest margin on an Owned Basis was $766.9 million for the second quarter of 1998, up from $683.7 million for the prior year quarter. Net interest margin on an Owned Basis for the first six months of 1998 was $1,483.6 million, up from $1,388.5 million in the prior year period. Owned margin improved due to an increase in average owned home equity loans as a result of the acquisition of Transamerica Financial Services Holding Company ("TFS") in 1997, but was offset by a decrease in average owned private label and other unsecured receivables. Net interest margin on a Managed Basis was $1,238.8 million for the second quarter of 1998, up 9 percent compared to the year-ago period. Managed Basis net interest margin for the first six months of 1998 was $2,493.2 million, up 10 percent compared to the prior year period. The increases were primarily due to managed receivable growth. Net interest margin as a percent of average managed interest-earning assets, annualized, was 7.75 percent, flat with the previous quarter, and up from 7.59 percent in the year-ago quarter. The net interest margin percentage on a Managed Basis in the second quarter of 1997 was adversely affected by temporary investments that were used to pre-fund the acquisition of TFS. Excluding the impact of these temporary investments, net interest margin as a percent of average managed interest-earning assets, annualized, was 7.67 percent in the second quarter of 1997. The improvement in net interest margin over the year-ago quarter was primarily due to the continuing change in product mix, improved pricing and lower leverage. On a stand-alone basis, Household's managed net interest margin expanded to 7.45 percent from 7.41 percent last quarter. The improvement was primarily due to improved pricing and lower leverage. Provision for credit losses - --------------------------- The provision for credit losses for receivables on an Owned Basis for the second quarter of 1998 totaled $391.6 million, up 12 percent from $351.0 million in the prior year quarter. The provision for the first six months of 1998 was $780.9 million, up 7 percent from $729.5 million in the year-ago period. The provision as a percent of average owned receivables, annualized, was 3.80 percent in the second quarter of 1998 compared to 3.77 percent in the second quarter of 1997. Owned provision in excess of owned chargeoffs was $15 million for the three months ended June 30, 1998, compared to $49 million for the three months ended June 30, 1997. Owned provision in excess of owned chargeoffs for the six months ended June 30, 1998 was $44 million, compared to $107 million for the six months ended June 30, 1997. The provision for credit losses on an Owned Basis may vary from quarter to quarter, depending on the amount of securitizations in a particular period. The provision for credit losses for receivables on a Managed Basis totaled $687.0 million in the second quarter of 1998, up 18 percent from $580.6 million in the prior year quarter. The provision for credit losses on a Managed Basis for the first six months of 1998 was $1,337.8 million, up 11 percent from $1,208.2 million in the year-ago period. As a percent of average managed receivables, annualized, the provision was 4.36 percent, compared to 3.95 percent in the second quarter of 1997. The Managed Basis provision includes the over-the-life reserve requirement on the off-balance sheet portfolio. This provision is impacted by the type and amount of receivables securitized in a given period and substantially offsets the income recorded on the securitization transactions. Managed provision in excess of managed chargeoffs for the three months ended June 30, 1998 was $21 million, compared to $19 million for the three months ended June 30, 1997. Managed provision in excess of managed chargeoffs was $16 million for the six months ended June 30, 1998, compared to $131 million for the six months ended June 30, 1997. In the second quarter of 1998, we securitized approximately $1.7 billion of auto finance and MasterCard/Visa receivables, compared to approximately $1.9 billion of home equity and MasterCard/Visa receivables a year ago. For the first six months of 1998, we securitized approximately $2.0 billion of auto finance, MasterCard/Visa and other unsecured receivables, compared to approximately $3.9 billion of home equity, MasterCard/Visa and other unsecured receivables in the year ago period. See the credit quality section for further discussion of factors affecting the provision for credit losses. 22 Other revenues - -------------- Securitization income on an Owned Basis was $394.2 million for the second quarter of 1998, compared to $422.2 million for the same period in 1997. Securitization income on an Owned Basis for the first six months of 1998 was $813.5 million, up from $788.4 million in the year-ago period. Securitization income consists of income associated with the securitization and sale of receivables with limited recourse, including net interest income, fee and other income and provision for credit losses related to those receivables. The decrease in securitization income compared to the second quarter of 1997 was primarily due to Beneficial's securitization gains on home equity loans in the prior year quarter. Securitization income for the first six months of 1998 increased compared to a year ago due to an increase in average securitized receivables. The components of securitization income are reclassified to the appropriate caption in the statements of income on a Managed Basis. Fee income on an Owned Basis includes revenues from fee-based products such as credit cards. Fee income was $145.0 million in the second quarter of 1998, up from $119.7 million in the comparable period of the prior year. Fee income for the first six months of 1998 was $292.3 million, up from $238.6 million for the same period in 1997. The increase in fee income reflected higher credit card fees as compared to the prior year periods. Fee income on a Managed Basis, which in addition to the items discussed above, includes fees and other income related to the off- balance sheet portfolio. Managed Basis fee income was $362.7 million in the second quarter of 1998, up from $318.0 million in the 1997 quarter. Managed Basis fee income was $653.1 million for the first six months of 1998, up from $619.2 million in the year- ago period. The increases were primarily due to higher credit card and interchange fees, offset by lower securitization revenue. Other income was $40.1 million in the second quarter of 1998, down from $61.6 million in the second quarter of 1997. Other income for the first six months of 1998 was $127.8 million, compared to $227.6 million in the year-ago period. The decrease in other income in 1998 is due to lower RAL income. Additionally, the 1997 year-to- date amount included approximately $50 million of non-recurring gains on the sales of certain non-strategic assets and a gain from the sale of a Beneficial life insurance portfolio in June 1997. Total other revenue for the first six months of 1998 included a pretax gain of $189.4 million from the sale of Beneficial's Canadian operations, as previously discussed. Expenses - -------- Operating expenses for the second quarter of 1998, excluding the one-time merger and integration related costs of approximately $1.0 billion, were $678.3 million, compared to $658.7 million in the comparable prior year quarter. Operating expenses for the first six months of 1998, excluding the one-time merger related costs, were $1,378.9 million, compared to $1,359.8 million in the year-ago period. Salaries and fringe benefits for the second quarter were $264.4 million compared to $264.6 million in the second quarter of 1997. Salaries and fringe benefits for the first six months of 1998 were $540.6 million compared to $517.3 million for the first half of 1997. The expense was flat in the second quarter as the increase in the average number of employees in our domestic consumer finance and auto finance businesses in connection with Household's acquisitions of TFS in June 1997 and ACC in October 1997 were offset by the sale of Beneficial's Canadian operations in March 1998 and German operations in April 1998. The higher expense for the first six months was primarily due to the increase in the average number of employees in connection with the acquisitions of TFS and ACC. 23 Other marketing expenses for the second quarter were $99.0 million, relatively unchanged from $98.8 million in 1997. Other marketing expense for the first six months of 1998 totaled $202.0 million, compared to $213.6 million in the year-ago period. Other marketing expense was down from the prior year due to increased spending on private label programs in 1997 for several Beneficial private label merchants. Other servicing and administrative expenses were $187.6 million in the second quarter of 1998, up from $179.0 million in the prior year. Other servicing and administrative expenses for the first six months of 1998 were $381.5 million, down from $391.1 million for the same period in 1997. The increase from the prior year quarter was due to higher expenses for systems development costs. The decrease in expense for the first six months of 1998 was primarily due to reductions in fraud losses and lower real estate owned costs. Amortization of acquired intangibles and goodwill was $44.8 million in the second quarter of 1998, up from $37.1 million in the prior year quarter. Amortization expense for the first six months of 1998 was $87.2 million, up from $73.9 million in the prior year period. The increase reflects our acquisitions of TFS and ACC in 1997. CREDIT LOSS RESERVES - -------------------- Our consumer credit management policies focus on product type and specific portfolio risk factors. The consumer credit portfolio is diversified by product and geographic location. See Note 5, "Receivables" in the accompanying financial statements for receivables by product type. Total managed credit loss reserves, which include reserves established on the off-balance sheet portfolio when receivables are securitized, were as follows (in millions):
- ---------------------------------------------------------------------------------------- June 30, March 31, December 31, June 30, 1998 1998 1997 1997 - ---------------------------------------------------------------------------------------- Owned $1,757.2 $1,725.6 $1,642.1 $1,556.4 Serviced with limited recourse 862.9 847.4 880.9 737.3 -------- -------- -------- -------- Total $2,620.1 $2,573.0 $2,523.0 $2,293.7 ======== ======== ======== ========
Managed credit loss reserves as a percent of nonperforming managed receivables were 116.9 percent, compared to 116.1 percent at March 31, 1998 and 119.6 percent at June 30, 1997. Total owned and managed credit loss reserves as a percent of receivables were as follows:
- ---------------------------------------------------------------------------------------- June 30, March 31, December 31, June 30, 1998 1998 1997 1997 - ---------------------------------------------------------------------------------------- Owned 4.32% 4.31% 4.25% 3.99% Managed 4.14 4.06 3.99 3.73 ---- ---- ---- ----
The level of reserves for consumer credit losses is based on delinquency and chargeoff experience by product and judgmental factors. We also evaluate the potential impact of existing and anticipated national and regional economic conditions on the managed receivable portfolio when establishing credit loss reserves. See Note 6, "Credit Loss Reserves" in the accompanying financial statements for analyses of reserves. 24 CREDIT QUALITY - -------------- Delinquency and chargeoff statistics reflect the impact of the portfolio acquisitions during the quarter. Delinquency levels in the consumer portfolio were flat compared to the prior quarter, but increased from the year-ago quarter. Chargeoffs were up compared to the prior and year-ago quarters. We track delinquency and chargeoff levels on a managed basis. We include the off-balance sheet portfolio since we apply the same credit and portfolio management procedures as on our owned portfolio. This results in a similar credit loss exposure for us. Delinquency - ----------- Two-Months-and-Over Contractual Delinquency (as a percent of managed consumer receivables):
- ------------------------------------------------------------------------------------------ 6/30/98 3/31/98 12/31/97 9/30/97 6/30/97 - ------------------------------------------------------------------------------------------ First mortgage 11.07% 9.33% 10.35% 9.27% 10.27% Home equity 3.55 3.68 3.69 3.16 2.97 Auto finance 1.67 1.84 2.09 - - MasterCard/Visa 3.30 3.10 3.10 3.20 3.13 Private label 6.10 6.04 5.81 5.72 5.15 Other unsecured 7.82 7.72 7.81 7.14 6.70 ----- ---- ----- ---- ----- Total 4.65% 4.65% 4.64% 4.47% 4.18% ===== ==== ===== ==== ===== Prior to the fourth quarter of 1997, delinquency statistics for auto finance receivables were not significant. For prior periods, delinquency data for these receivables were included in other unsecured receivables.
Delinquency as a percent of managed consumer receivables for the combined company was flat from the prior quarter but increased from the prior year quarter. On a stand-alone basis, Household's delinquency ratio fell 8 basis points, to 4.71 percent, while Beneficial's delinquency ratio increased 24 basis points to 4.50 percent. Dollars of delinquency at Household declined nearly $30 million and reflected a trend of stabilizing delinquency over the last four months. The improvement was mainly in our home equity and private label businesses and continues to be most evident in early- stage delinquency. We attribute some of the Beneficial increase to transition in the quarter. The increase in the managed delinquency ratio for the combined company from a year ago was due to seasoning of the home equity, MasterCard/Visa and other unsecured portfolios and the maturing of certain special promotional balances in our private label portfolio. The seasoning or maturing of a product is the effect of a growing portfolio reaching expected levels of chargeoffs as loans age. Dollars of delinquency in the first mortgage portfolio were down as this portfolio continued to liquidate. 25 Net Chargeoffs of Consumer Receivables - -------------------------------------- Net Chargeoffs of Consumer Receivables (as a percent, annualized, of average managed consumer receivables):
- --------------------------------------------------------------------- Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter 1998 1998 1997 1997 1997 - --------------------------------------------------------------------- First mortgage .21% .81% 1.29% 1.21% .87% Home equity .52 .61 .62 .53 .67 Auto finance 5.18 5.94 5.31 - - MasterCard/Visa 5.49 5.78 5.56 6.22 5.66 Private label 6.05 5.73 5.19 4.79 4.37 Other unsecured 7.26 6.22 5.85 5.66 5.23 ---- ---- ---- ---- ---- Total 4.26% 4.17% 3.94% 3.98% 3.86% ==== ==== ==== ==== ==== Prior to the fourth quarter of 1997, chargeoff statistics for auto finance receivables were not significant and were included in other unsecured receivables. Following the merger, Household adopted Beneficial's presentation of chargeoffs related to private label receivables. As a result, at the time a receivable is charged off, the principal balance is written off against the allowance for credit losses, and accrued finance charges and other fees are reversed against the respective items on the statement of operations. Chargeoffs, net interest margin, provision for credit losses and fee income have been restated for all periods.
The second quarter chargeoff ratio for the combined company was 4.26 percent compared to 4.17 percent in the first quarter. On a stand-alone basis, Household's chargeoff ratio declined 3 basis points from the first quarter to 4.68 percent, with all products except other unsecured contributing to the improvement. For Beneficial, chargeoffs increased 31 basis points in the quarter to 3.09 percent, led by increases in both unsecured consumer loans and private label credit cards. We are currently taking steps to address the chargeoff increases in the Beneficial portfolio. The increase in the chargeoff ratio for the combined company compared to a year ago was primarily due to increased bankruptcy filings in and continued seasoning of the private label and other unsecured portfolios. 26 Nonperforming Assets - -------------------- Nonperforming assets consisted of the following:
- ------------------------------------------------------------------------------------------- In millions. 6/30/98 3/31/98 12/31/97 9/30/97 6/30/97 - ------------------------------------------------------------------------------------------- Nonaccrual owned receivables $ 948.5 $ 901.2 $ 939.0 $ 816.5 $ 807.3 Accruing owned consumer receivables 90 or more days delinquent 548.7 494.7 499.6 509.9 470.9 Renegotiated commercial loans 12.3 12.3 12.4 12.9 12.9 -------- -------- -------- -------- -------- Total nonperforming owned receivables 1,509.5 1,408.2 1,451.0 1,339.3 1,291.1 Real estate owned 224.2 214.7 212.8 222.5 217.1 -------- -------- -------- -------- -------- Total nonperforming owned assets $1,733.7 $1,622.9 $1,663.8 $1,561.8 $1,508.2 ======== ======== ======== ======== ======== Owned credit loss reserves as a percent of nonperforming owned receivables 116.4% 122.5% 113.2% 118.6% 120.5% -------- -------- -------- -------- -------- Nonaccrual managed receivables $1,409.6 $1,390.3 $1,364.9 $1,220.0 $1,177.4 Accruing managed consumer receivables 90 or more days delinquent 818.6 812.7 807.8 757.6 728.2 Renegotiated commercial loans 12.3 12.3 12.4 12.9 12.9 -------- -------- -------- -------- -------- Total nonperforming managed receivables 2,240.5 2,215.3 2,185.1 1,990.5 1,918.5 Real estate owned 224.2 214.7 212.8 222.5 217.1 -------- -------- -------- -------- -------- Total nonperforming assets $2,464.7 $2,430.0 $2,397.9 $2,213.0 $2,135.6 ======== ======== ======== ======== ======== Managed credit loss reserves as a percent of nonperforming managed receivables 116.9% 116.1% 115.5% 117.3% 119.6% -------- -------- -------- -------- --------
27 PART II. OTHER INFORMATION Item 1. Legal Proceedings In 1992, the Internal Revenue Service ("IRS") completed its examination of Beneficial's federal income tax returns for 1984 through 1987. The IRS proposed $142.0 million in adjustments that relate principally to activities of a former subsidiary, American Centennial Insurance Company, prior to its sale in 1987. In order to limit the further accrual of interest on the proposed adjustments, Beneficial paid $105.5 million of tax and interest during the third quarter of 1992. The issues were not resolved during the administrative appeals process, and the IRS issued a statutory Notice of Deficiency asserting the unresolved adjustments and increased the disallowance to $195.0 million in the third quarter of 1996. Beneficial has initiated litigation in the United States Tax Court to oppose the disallowance. While the conclusion of this matter in its entirety cannot be predicted with certainty, management does not anticipate the ultimate resolution to differ materially from amounts accrued. Item 4. Submission of Matters to a Vote of Security-Holders The Annual Meeting of Stockholders of Household International was held on Wednesday, May 13, 1998, for the purpose of (1) electing directors; (2) approving an increase in the authorized shares of Household Common Stock from 250 to 750 million shares; (3) approving the 1998 Key Executive Bonus Plan; and (4) ratifying the appointment of Arthur Andersen LLP as the public accountants for Household. The voting results, which have been adjusted for Household's 3-for-1 stock split effected in the form of a stock dividend and paid on June 1, 1998, were as follows: Each of the following persons received the number of votes set out after his or her name and were elected directors to hold office for the ensuing year and until their successors shall be elected and shall qualify: FOR WITHHELD ------------- ------------- - - W.F. Aldinger 281,109,258 691,278 R.J. Darnall 281,006,346 794,190 G.G. Dillon 281,090,106 710,430 J.A. Edwardson 281,125,815 674,721 M.J. Evans 281,047,260 753,276 J.D. Fishburn 281,130,255 670,281 C.F. Freidheim, Jr. 281,137,146 663,390 L.E. Levy 281,130,810 669,726 G.A. Lorch 281,137,263 663,273 J.D. Nichols 281,128,158 672,378 J.B. Pitblado 281,126,553 673,983 S.J. Stewart 281,141,889 658,647 L.W. Sullivan, M.D. 281,044,239 756,294 28 Proposal to increase the authorized shares of Household Common Stock from 250 million to 750 million: FOR AGAINST ABSTAIN BROKER NON-VOTE ------------ ----------- --------- ---------------- 248,512,479 32,648,850 637,935 1,269 Approval of the 1998 Key Executive Bonus Plan: FOR AGAINST ABSTAIN BROKER NON-VOTE ------------ ----------- --------- ---------------- 264,723,384 15,333,201 1,743,948 0 Ratification of the appointment of Arthur Andersen LLP as Household's public accountants for the year 1998: FOR AGAINST ABSTAIN BROKER NON-VOTE ------------ ----------- --------- ---------------- 281,000,673 309,558 490,302 0 A Special Meeting of Stockholders of Household International was held on Tuesday, June 30, 1998, for the purpose of (1) approving the issuance of shares of Common Stock, par value $1.00 per share, of Household International, Inc. pursuant to the Agreement and Plan of Merger, dated as of April 7, 1998, among Household, Household Acquisition Corporation II and Beneficial Corporation; and (2) approving the adjournment of the Household Special Meeting, if necessary, to allow for the soliciting of additional proxies in the event that there were not sufficient votes at the time of the Special Meeting to approve the foregoing proposal or for any such other reason deemed appropriate. The voting results, which have been adjusted for Household's 3-for-1 stock split effected in the form of a stock dividend and paid on June 1, 1998, were as follows: Proposal to approve the issuance of shares of Common Stock, par value $1.00 per share, of Household International, Inc. pursuant to the Agreement and Plan of Merger, dated as of April 7, 1998, among Household, Household Acquisition Corporation II and Beneficial Corporation: FOR AGAINST ABSTAIN BROKER NON-VOTE ------------ ----------- --------- ---------------- 244,364,589 521,937 227,853 0 Proposal to approve to the adjournment of the Household Special Meeting, if necessary, to allow for the soliciting of additional proxies in the event that there were not sufficient votes at the time of the Special Meeting to approve the foregoing proposal or for any such other reason deemed appropriate: FOR AGAINST ABSTAIN BROKER NON-VOTE ------------ ----------- ---------- ---------------- 188,252,376 49,583,931 7,278,069 3 29 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3.1 Restated Certificate of Incorporation of Household International, Inc. 3.2 Bylaws of Household International, Inc. as amended June 4, 1998. 10.1 Household International, Inc. 1998 Key Executive Bonus Plan. 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. 27.1 Restated Financial Data Schedule. 99.1 Debt and Preferred Stock Securities Ratings. (b) Reports on Form 8-K During the second quarter of 1998, the Registrant filed Current Reports on Form 8-K dated April 7 and 20, 1998 pertaining to its merger agreement with Beneficial Corporation, and a Current Report on Form 8-K dated June 30, 1998 with respect to supplemental consolidated financial statements restating Household's historical consolidated financial statements as of and for the three years ended December 31, 1997 and as of and for the three months ended March 31, 1998 and 1997. 30 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: August 14, 1998 By: /s/ David A. Schoenholz --------------- ----------------------------- David A. Schoenholz Executive Vice President - Chief Financial Officer and on behalf of Household International, Inc. 31 Exhibit Index ------------- 3.1 Restated Certificate of Incorporation of Household International, Inc. 3.2 Bylaws of Household International, Inc. as amended June 4, 1998. 10.1 Household International, Inc. 1998 Key Executive Bonus Plan. 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. 27.1 Restated Financial Data Schedule. 99.1 Debt and Preferred Stock Securities Ratings. EX-3.1 2 EXHIBIT 3(i) HOUSEHOLD INTERNATIONAL, INC. RESTATED CERTIFICATE OF INCORPORATION INDEX DATE DESCRIPTION -------- ----------- 9/4/81 Restated Certificate of Incorporation 7/25/84 Certificate of Change of Address of Registered Office and of Registered Agent 5/13/87 Certificate of Amendment (Article VII) 10/14/92 Certificate of Designation, Preferences and Rights of 8-1/4% Cumulative Preferred Stock, Series 1992-A 5/12/93 Certificate of Amendment (Article IV) 9/1/93 Certificate of Designation, Preferences and Rights of 7.35% Cumulative Preferred Stock, Series 1993-A 7/9/96 Certificate of Designations of Series A Junior Participating Preferred Stock 5/14/97 Certificate of Amendment (Article IV) 5/13/98 Certificate of Amendment (Article IV) 6/30/98 Certificate of Designation, Preferences and Rights of 5% Cumulative Preferred Stock 6/30/98 Certificate of Designation, Preferences and Rights of $4.50 Cumulative Preferred Stock 6/30/98 Certificate of Designation, Preferences and Rights of $4.30 Cumulative Preferred Stock RESTATED CERTIFICATE OF INCORPORATION OF HOUSEHOLD INTERNATIONAL, INC. This Restated Certificate of Incorporation was duly adopted by the Board of Directors of Household International, Inc. in accordance with the provisions of Section 245 of the General Corporation Law of the State of Delaware. This Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Corporation's certificate of incorporation as heretofore amended or supplemented, and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation. The original Certificate of Incorporation was filed with the Secretary of State of Delaware on February 20, 1981. ARTICLE I The name of the corporation is Household International, Inc. ARTICLE II The address of the Corporation's registered office in the State of Delaware is 100 West Tenth Street, Wilmington, Delaware 19899. The name of its registered agent at such address is The Corporation Trust Company, in the county of New Castle. ARTICLE III The Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV The total number of shares that may be issued by the Corporation is 75,655,004 of which 8,155,004 shares shall be Preferred Stock without par value and 67,500,000 shares shall be Common Stock of the par value of $1 per share. The 8,155,004 shares of Preferred Stock may be issued from time to time in one or more series, which may have such designations, powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated in the resolution or resolutions (authorizing resolutions) providing for the issue of such shares adopted by the Board of Directors. Without otherwise limiting the generality of the foregoing provision, the Board of Directors is expressly authorized to provide, with respect to each such series, that: (a) the shares of such series shall be subject to redemption (including redemption through a sinking fund or analogous fund) at such time or times and at such price or prices as shall be stated in the authorizing resolutions; (b) the holders of the shares of such series shall be entitled to receive dividends at such rates, on such conditions and at such times, payable in preference, or in such relation, to the dividends payable on any other class or classes or of any other series of stock of the Corporation, and cumulative or non- cumulative, all as shall be stated in the authorizing resolutions; (c) the holders of the shares of such series shall be entitled to such rights upon the dissolution, or upon any distribution of the assets, of the Corporation as shall be stated in the authorizing resolutions; (d) the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes of stock, or of any series thereof, of the Corporation at such price or prices or at such rate or rates and with such adjustments, all as shall be stated in the authorizing resolutions; (e) the shares of such series shall have such voting powers, full or limited, or no voting powers, as shall be stated in the authorizing resolutions. The following is a statement of the powers, preferences, and rights, and the qualifications, limitations or restrictions thereof, in respect of the Preferred Stock, except such thereof as the Board of Directors is herein authorized to provide for, and in respect of the Common Stock: (1) Except as otherwise provided in authorizing resolutions creating series of Preferred Stock, each share of Preferred Stock shall rank on a parity with each other share of Preferred Stock, regardless of series, in preference to the Common Stock, with respect to the payment of dividends at the respectively designated rates. No dividend shall be declared or paid on the shares of any particular series of Preferred Stock unless at the same time a dividend in like proportion to the respectively designated dividend rates shall be declared or paid on the shares of each other series of Preferred Stock then issued and outstanding ranking prior to or on a parity with such particular series with respect to the payment of dividends. Except as otherwise provided in the authorizing resolutions creating additional series of Preferred Stock, each share of Preferred Stock shall rank on a parity with each other share of Preferred Stock, regardless of series, in preference to the Common Stock, with respect to the distribution of assets according to the amounts to which the shares of the respective series are thereupon entitled. (2) The holders of shares of the Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any funds legally available for that purpose, dividends in cash at such respective rates, payable on such dates in each year and in respect of such dividend periods, all as stated in the authorizing resolutions, before any dividends shall be declared or paid or set apart for payment upon the Common Stock. Dividends on the shares of each series of the Preferred Stock shall be cumulative or non-cumulative and, if cumulative, shall be cumulative from such date, all as stated in the authorizing resolutions. At any time after all dividends shall have been paid, as above provided, on the Preferred Stock of all series then outstanding and after, or concurrently with, the declaration and setting aside of a sum for the payment of full dividends on the Preferred Stock of each series then outstanding for the then current dividend period established for such series, then, but not prior thereto, such dividends (payable either in cash, stock, or otherwise) as may be determined by the Board of Directors may be declared and paid on the Common Stock out of any remaining assets legally available for the declaration of dividends and the Preferred Stock shall not be entitled to participate in any such dividends whether payable in cash, stock, or otherwise. No Preferred Stock or Common Stock may be purchased by the Corporation if any Preferred Stock dividends are in arrears, and no Preferred Stock may be redeemed in such case unless all issued and outstanding shares of Preferred Stock are redeemed. (3) The whole or any part of the Preferred Stock, of any one or more series, redeemable pursuant to provisions stated in the respective authorizing resolutions, at the time outstanding, may, at the option of the Board of Directors, be redeemed, in accordance with such authorizing resolutions, at any time or from time to time, by the payment or by making provision for payment of such price or prices per share in the case of every such redemption as shall be stated in such authorizing resolutions, and, in every case, a sum equal to accrued and unpaid dividends, if any, with respect to each such share to be so redeemed, at the rate of the dividends fixed therefor, to the date fixed for redemption. In case of redemption of a part only of any series of the Preferred Stock at the time outstanding, such redemption shall be made by lot or pro rata in such manner as may be prescribed by resolution of the Board of Directors. The Board of Directors shall have full power and authority, subject to the limitations and provisions herein contained and stated in the respective authorizing resolutions, to prescribe the manner in which and the terms and conditions upon which Preferred Stock shall be redeemed from time to time. Notice of the Corporation's intention to redeem Preferred Stock, specifying the date of redemption, shall be published in newspapers of general circulation in New York, New York, and Chicago, Illinois, and shall be mailed not less than forty-five nor more than ninety days before the redemption date to the holders of record of such stock to be redeemed at their respective addresses as the same shall appear on the books of the Corporation, and, if less than all the shares owned by any such stockholder are then to be redeemed, the notice shall specify the number of shares thereof which are to be redeemed. If notice shall be given as aforesaid and the funds necessary to redeem such stock shall have been set aside by the Corporation (other than by the trust deposit hereinafter provided for) separate and apart from its other funds for the benefit of the holders of the shares called for redemption, such stock shall be redeemed upon such date of redemption and shall cease to be outstanding; the right to receive dividends thereon shall cease to accrue from and after such date of redemption and all rights of holders of the Preferred Stock so called for redemption shall forthwith on such redemption date cease and terminate except only the right of the holders thereof, upon presentation and surrender of their respective certificates representing said shares, to receive the redemption price therefor but without interest, and the right of conversion, if any. Anything herein contained to the contrary notwithstanding, if notice shall be given as aforesaid and before the redemption date an amount sufficient to redeem the shares so called for redemption shall be deposited in trust to be applied to such redemption with a bank or with bankers authorized to conduct banking business or with a trust company, in the Borough of Manhattan, City of New York, or in the City of Chicago, having a combined capital and surplus of at least $5,000,000, then, from and after the date of such deposit, such shares shall be deemed to be redeemed and to cease to be outstanding, and all rights of the holders of the shares called for redemption, as stockholders of the Corporation, shall cease except (i) the right, upon presentation and surrender of their respective certificates representing said shares, to receive from such bank or bankers or trust company on or after such redemption date the moneys so deposited in trust, but without interest, and (ii) the right of conversion, if any. The Corporation shall be entitled to any interest payable on the funds so deposited. Any redemption funds unclaimed at the end of six years shall be repaid to the Corporation, after which holders of the redeemed shares shall look only to the Corporation for payment of the redemption price, but without interest thereon. (4) In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, the holders of the Preferred Stock shall be entitled to be paid or to have set apart for payment such sum or sums per share as shall be stated in the respective authorizing resolutions, together in each case with a sum equal to accrued and unpaid dividends, if any, at the rate of the dividends fixed therefor, to the date fixed for payment of such price or prices, before any distribution or payment shall be made to the holders of the Common Stock. No consolidation or merger of the Corporation with another corporation or corporations and no sale by the Corporation of its assets as an entirety or substantially as an entirety shall be deemed to be a liquidation, dissolution, or winding up of the Corporation within the meaning of this subdivision (4). (5) The Corporation shall not, without the consent (expressed either in writing or by affirmative vote at a meeting called for that purpose) of the holders of two-thirds of the then outstanding Preferred Stock of all series, other than series in respect of which the authorizing resolutions expressly provide that such consent shall not be required: (i) consolidate or merge with another corporation or corporations or sell its assets as an entirety or substantially as an entirety, provided, however, that the purchase for cash, stock, or otherwise by the Corporation of all or any part of the assets, stock or other securities of another corporation or corporations shall not be deemed to be a consolidation or merger; (ii) issue Preferred Stock of any series if there shall be cumulative dividends in arrears on outstanding Preferred Stock, irrespective of series; (iii) increase the authorized amount of the Preferred Stock, or create or issue any class of stock ranking prior to or on a parity with the Preferred Stock, or any series thereof, as to the payment of dividends or the distribution of assets; (iv) adopt any amendment to the Certificate of Incorporation of the Corporation which adversely alters any preference, power, or special right of the Preferred Stock, or of the holders thereof; provided, however, that if any such amendment would adversely alter any preference, power, or special right of one or more but not all of the series of the Preferred Stock or of the holders thereof, then the consent (expressed as above provided) only of the holders of two-thirds of the then outstanding shares of all series so affected, voting as a class, other than series in respect of which the authorizing resolutions expressly provide that such consent shall not be required, shall be required for the adoption of such amendment. (6) In the event that any four quarterly cumulative dividends, whether consecutive or not, upon the Preferred Stock, or any series thereof, shall be in arrears, the holders of Preferred Stock of all series, other than series in respect of which the right is expressly withheld by the authorizing resolutions, shall have the right, at the next meeting of stockholders called for the election of directors, to elect one- third of the members of the Board of Directors out of the number fixed by the by-laws, and the holders of such Preferred Stock shall continue to have such right until all unpaid dividends upon the Preferred Stock shall have been paid in full. In the event that any eight quarterly cumulative dividends, whether consecutive or not, upon the Preferred Stock, or any series thereof, shall be in arrears, the holders of Preferred Stock of all series, other than series in respect of which the right is expressly withheld by the authorizing resolutions, shall have the right, at the next meeting of stockholders called for the election of directors, to elect a majority of the members of the Board of Directors out of the numbers fixed by the by-laws, and the holders of such Preferred Stock shall continue to have such right until all unpaid dividends upon the Preferred Stock shall have been paid in full. (7) The holders of the Common Stock shall be entitled to vote at all meetings of the stockholders and, subject to the rights of holders of Preferred Stock to elect directors in accordance with the provisions of the foregoing subdivision (6), shall be entitled to one vote for each share of Common Stock held. ARTICLE V There is hereby created a series of Preferred Stock of the Corporation, such series to be within the class of Preferred Stock authorized by Article IV hereof; to be designated $6.25 Cumulative Convertible Voting Preferred Stock (the "$6.25 Preferred Stock"); to consist of 3,454,635 shares; to have the powers, preferences and rights and the qualifications, limitations and restrictions set forth in, and to be subject to all of the terms and provisions of, Article IV hereof (except to the extent that the same may be inconsistent with this Article V); and to have the following additional powers, preferences, rights, qualifications, limitations, restrictions, terms and provisions: (a) $6.25 per share is fixed as the amount per annum at which the holders of $6.25 Preferred Stock shall be entitled to receive dividends when and as declared by the Board of Directors, such dividends to be paid only from retained earnings of the Corporation; and such dividends shall be cumulative and shall accrue, whether or not earned or declared, from the Issue Date (as hereinafter defined), and shall be payable quarterly on the fifteenth day of January, April, July and October in each year to holders of record on the respective business days next preceding the first days of those months (and the quarterly dividend periods shall commence on the first days of those months); provided, however, that as to any shares of $6.25 Preferred Stock issued less than 60 days prior to a dividend payment date, the dividend that would otherwise be payable on such dividend payment date will be payable on the next succeeding dividend payment date; and provided, further, that no dividend shall be declared or paid if (i) the Corporation is insolvent or would be rendered insolvent by payment of such dividend or (ii) the payment of such dividend would impair the Corporation's capital (i.e., the fair market value of the remaining assets of the Corporation would be less than the sum of its liabilities and the liquidation value of any classes and series of its Preferred Stock ranking prior to or on a parity with the $6.25 Preferred Stock). The "Issue Date" shall mean the day on which occurs the merger of Wallace-Murray Corporation, a Delaware corporation, into Household Acquisition Corporation Second, a Delaware corporation, or other subsidiary of the Corporation. An "Anniversary Date" shall mean any anniversary date of the Issue Date. (b) The shares of $6.25 Preferred Stock shall be subject to redemption at the option of the Corporation at any time, and from time to time, in whole or in part, at the redemption price of $50 per share plus the amount of accrued and unpaid dividends, if any, thereon to the date fixed for redemption; provided, however, that no such optional redemption shall be made unless (i) the date fixed for redemption is on or after the fifth Anniversary Date, and (ii) at all times during the twelve-month period terminating on the date on which notice of such redemption is first given, the annualized rate of dividends in respect of the outstanding shares of Common Stock of the Corporation shall have equalled or exceeded the quotient obtained by dividing $6.25 by the conversion rate specified in paragraph (d) hereof (as said conversion rate may have been adjusted pursuant to the provisions of said paragraph). As used herein, the term "annualized rate of dividends" shall mean, as of any particular time, the aggregate per share amount of regular cash dividends (excluding special and extraordinary dividends) paid on shares of the Common Stock of the Corporation generally, in respect of the most recently completed twelve-month period. (c) The amount to which shares of $6.25 Preferred Stock shall be entitled upon liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, shall be $50 per share, plus the amount of accrued and unpaid dividends, if any, thereon to the date fixed for payment, and no more. (d) The shares of $6.25 Preferred Stock shall be convertible at any time after issue at the option of the record holder thereof, in the manner hereinafter provided, into fully paid and nonassessable shares of Common Stock of the Corporation at the rate of 1.923 shares (adjusted to 2.327 shares as of close of business on April 7, 1989 and 4.654 shares as of close of business on October 15, 1993) of Common Stock for each share of $6.25 Preferred Stock; provided, however, that as to any shares of $6.25 Preferred Stock which shall have been called for redemption, the right of conversion shall terminate at the close of business on the fifth full business day prior to the date fixed for redemption. No payment or adjustment shall be made for dividends accrued on any shares of $6.25 Preferred Stock that shall be converted or for dividends on any shares of Common Stock that shall be issuable upon such conversion, but all dividends accrued and unpaid on such shares of $6.25 Preferred Stock up to the dividend payment date immediately preceding the date of conversion shall be payable to the converting shareholder, and no dividend shall be paid upon the shares of Common Stock until the same shall be paid or sufficient funds set apart for the payment thereof. The conversion rate provided for above shall be subject to the following adjustments: (i) In case the Corporation shall declare and pay to the holders of the shares of Common Stock a dividend in shares of Common Stock, the conversion rate in effect immediately prior to the time fixed for the determination of shareholders entitled to such dividend shall be proportionately increased (adjusted to the nearest, or if there shall be no nearest then to the next lower, one- thousandth of a share of Common Stock), such adjustment to become effective immediately after the time fixed for such determination. (ii) In case the Corporation shall subdivide the outstanding shares of Common Stock into a greater number of shares of Common Stock or combine the outstanding shares of Common Stock into a smaller number of shares of Common Stock, the conversion rate in effective immediately prior to such subdivision or combination, as the case may be, shall be proportionately increased or decreased (adjusted to the nearest, or if there shall be no nearest then to the next lower, one-thousandth of a share of Common Stock), as the case may require, such increase or decrease, as the case may be, to become effective when such subdivision or combination becomes effective. (iii) In case of any reclassification or change of outstanding shares of Common Stock of the class issuable upon conversion of the shares of $6.25 Preferred Stock, or in case of any consolidation or merger of the Corporation with or into another corporation, or in case of any sale or conveyance to another corporation of all or substantially all of the property of the Corporation, the holder of each share of $6.25 Preferred Stock then outstanding shall have the right thereafter, so long as his conversion right hereunder shall exist, to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock of the Corporation into which such shares of $6.25 Preferred Stock might have been converted immediately prior to such reclassification, change, consolidation, merger, sale or conveyance, and shall have no other conversion rights under these provisions; provided, however, that effective provision shall be made, in the Articles or Certificate of Incorporation of the resulting, surviving, or successor corporation or otherwise, so that the provisions set forth herein for the protection of the conversion rights of the shares of $6.25 Preferred Stock shall thereafter be applicable, as nearly as reasonably may be, to any such other shares of stock and other securities and property deliverable upon conversion of the shares of $6.25 Preferred Stock remaining outstanding or other convertible preferred shares received by the holders in place thereof; and provided, further, that any such resulting, surviving, or successor corporation shall expressly assume the obligation to deliver, upon the exercise of the conversion privilege, such shares, securities, or property as the holders of the shares of $6.25 Preferred Stock remaining outstanding, or other convertible preferred shares received by the holders in place thereof, shall be entitled to receive pursuant to the provisions hereof, and to make provision for the protection of the conversion right as above provided. In case securities or property other than shares of Common Stock shall be issuable or deliverable upon conversion as aforesaid, then all references in this paragraph shall be deemed to apply, so far as appropriate and as nearly as may be, to such other securities or property. The subdivision or combination of shares of Common Stock at any time outstanding into a greater or lesser number of shares of Common Stock (whether with or without par value) shall not be deemed to be a reclassification of the Common Stock of the Corporation for the purposes of this subparagraph (iii). (iv) Unless the holders of shares of the $6.25 Preferred Stock shall be issued subscription rights or warrants on a reasonably equivalent basis, in case the Corporation shall issue to the holders of shares of any class of its capital stock subscription rights or warrants entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the Average Market Price (as hereinafter defined) at the time fixed for determination of shareholders entitled to such subscription rights or warrants, the conversion rate in effect immediately prior to the time of said determination shall be increased (adjusted to the nearest, or if there shall be no nearest then to the next lower, one-thousandth of a share of Common Stock) by multiplying said rate by a fraction of which the numerator shall be the sum of the number of shares of Common Stock outstanding at the time of such determination and the number of additional shares of Common Stock so offered for subscription or purchase, and of which the denominator shall be the sum of the number of shares of Common Stock outstanding at the time of such determination and the number of shares of Common Stock which the aggregate subscription price of the total number of shares so offered would purchase at the Average Market Price, such adjustment to become effective immediately after the time fixed for such determination; provided, however, that if such subscription rights or warrants shall have a term not exceeding 45 days and if any such subscription rights or warrants expire unexercised, then the conversion rate will be readjusted, effective immediately after the expiration of such term, to the conversion rate which would have obtained if such unexercised subscription rights or warrants had not been issued. For the purposes of any computation under this subparagraph (iv) or subparagraph (v), the "Average Market Price" per share of Common Stock for any time shall be the average of the daily closing prices for the 30 consecutive business days commencing 45 business days before the time in question. The closing price for each day shall be the last sales price regular way or, in case no such sale takes place on such day, the average of the closing bid and asked prices regular way, in either case as recorded on the New York Stock Exchange (or, if the Common Stock is not regularly traded on the New York Stock Exchange, on the principal market or system on which trades in the Common Stock are recorded). (v) Unless the holders of shares of the $6.25 Preferred Stock shall be distributed evidences of indebtedness or other assets on a reasonably equivalent basis, in case the Corporation shall distribute to the holders of the shares of Common Stock evidences of indebtedness of the Corporation or other assets of the Corporation (other than cash dividends to the extent paid from retained earnings, dividends in shares of Common Stock or subscription rights or warrants entitling them to subscribe for or purchase shares of Common Stock, but including securities convertible into capital stock of the Corporation), the conversion rate in effect immediately prior to the time fixed for determination of shareholders entitled to such distribution shall be increased (adjusted to the nearest, or if there shall be no nearest then to the next lower, one-thousandth of a share of Common Stock) by multiplying said rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the time of such determination, and of which the denominator shall be the difference between the number of shares of Common Stock outstanding at the time of such determination and a number of shares of Common Stock having an aggregate Average Market Price at the time of such determination equal to the fair value (as determined by the Board of Directors of the Corporation in good faith) of the evidences of indebtedness or other assets so distributed, such adjustment to become effective immediately after the time fixed for such determination. Except as provided in the foregoing subparagraphs (i) through (v), there shall be no adjustments to the conversion rate set forth above. In order to convert shares of $6.25 Preferred Stock into shares of Common Stock, the holder thereof shall surrender the certificate or certificates for shares of $6.25 Preferred Stock, duly endorsed to the Corporation or in blank, at the office of any Transfer Agent for the shares of $6.25 Preferred Stock (or such other place as may be designated by the Corporation), and shall give written notice to the Corporation at said office that he elects to convert the same and shall state in writing therein the name or names in which he wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, deliver at said office to such holder of shares of $6.25 Preferred Stock or to his nominee or nominees, a certificate or certificates for the number of full shares of Common Stock to which he shall be entitled as aforesaid and shall make appropriate payment in cash for any fractional shares. Shares of $6.25 Preferred Stock shall be deemed to have been converted as of the date of the surrender of such shares for conversion as provided above, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. No fractions of shares of Common Stock shall be issued upon conversion, but in lieu thereof the Corporation shall adjust such fractional interest by payment to the holders of an amount in cash equal (computed to the nearest cent) to the same fraction of the closing price (as defined in subparagraph (iv) above) on the business day immediately preceding such conversion. A number of authorized shares of Common Stock sufficient to provide for the conversion of the shares of $6.25 Preferred Stock outstanding upon the bases hereinbefore provided shall at all times be reserved for such conversion. (e) There shall be a sinking fund (the "Sinking Fund") for the benefit of the shares of $6.25 Preferred Stock. For the purposes of the Sinking Fund, out of any net assets of the Corporation legally available therefor (but only from retained earnings and subject to the provisions of the last sentence of paragraph (2) of Article IV of the Certificate of Incorporation), before any dividends, in cash or property, shall be paid or declared, or any distribution ordered or made on the Common Stock of the Corporation, and before any shares of Common Stock of the Corporation shall be purchased, redeemed, or otherwise acquired for value by the Corporation or any subsidiary, the Corporation shall have paid or set aside in cash annually on the day prior to each Anniversary Date commencing with the tenth Anniversary Date, so long as there shall be outstanding any shares of $6.25 Preferred Stock, an amount sufficient to redeem, on the day prior to each such Anniversary Date prior to the thirtieth, 4% of the number of shares of $6.25 Preferred Stock issued on the Issue Date (or such lesser number as remains outstanding) and, on the day prior to the thirtieth Anniversary Date, all such shares of $6.25 Preferred Stock as remain outstanding, at a price of $50 per share plus the amount of accrued and unpaid dividends, if any, thereon to the date so fixed for redemption; provided, however, that there shall be allowed to the Corporation as a credit thereagainst any shares of $6.25 Preferred Stock which the Corporation may have acquired (as a result of the conversion of such shares or otherwise, which it may have redeemed pursuant to paragraph (b) hereof, or which it may have redeemed pursuant to this paragraph (e) (otherwise than through the operation of the Sinking Fund), which have not theretofore been used for the purpose of any such credit or any credit against a redemption of $6.25 Preferred Stock at the Corporation's election as hereinafter in this paragraph (e) provided for and which shares shall have been set aside by the Corporation for the purpose of the Sinking Fund; and provided, further, that no monies shall be paid or set aside for the Sinking Fund if at the day prior to any such Anniversary Date the Corporation is in arrears in respect of a sinking fund obligation under any other series of Preferred Stock ranking prior to or on a parity with the $6.25 Preferred Stock except to the extent that, in the case of any series ranking on a parity with the $6.25 Preferred Stock, provision is made for the payment or setting aside of monies for the Sinking Fund and for the sinking funds of such other series in proportion to the respective aggregate amounts then required to be paid or set aside therefor; and provided, further, that no monies shall be paid or set aside for the Sinking Fund if (i) the Corporation is insolvent or would be rendered insolvent by the payment or setting aside of such monies or (ii) the payment or setting aside of such monies would impair the Corporation's capital (i.e., the fair market value of the remaining assets of the Corporation would be less than the sum of its liabilities and the liquidation value of classes and series of its Preferred Stock ranking prior to or on a parity with the $6.25 Preferred Stock). The Sinking Fund shall be cumulative so that if on the day prior to any such Anniversary Date, the net assets of the Corporation legally available therefor or the retained earnings of the Corporation shall be insufficient to permit any such amount be paid or set aside in full, or if for any other reason such amount shall not have been paid or set aside in full, the amount of the deficiency shall be paid or set aside, but without interest, before any dividend, in cash or property, shall be paid or declared, or any other distribution ordered or made, on the Common Stock of the Corporation, and before any shares of Common Stock of the Corporation shall be purchased, redeemed or otherwise acquired for value by the Corporation or by any subsidiary of the Corporation. The Corporation may elect to redeem, on any Sinking Fund redemption date, up to an additional 4% of the number of shares of $6.25 Preferred Stock issued on the Issue Date, at a price of $50 per share plus the amount of accrued and unpaid dividends, if any, thereon to the date fixed for redemption; provided, however, that there shall be allowed to the Corporation as a credit thereagainst any shares of $6.25 Preferred Stock which the Corporation may have acquired or redeemed otherwise than pursuant to paragraph (b) above and this paragraph (e) which have not theretofore been used for the purpose of any such credit or for the purpose of any credit against a redemption of $6.25 Preferred Stock pursuant to the Sinking Fund. Such optional right shall not be cumulative and, if unexercised in a particular year, may not be carried forward to subsequent years. (f) The holders of $6.25 Preferred Stock shall be entitled to vote at all meetings of the stockholders, and at each such meeting shall be entitled to one vote for each share held. (g) To the extent that the Board of Directors is authorized to fix the designations, powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, in respect of additional series of Preferred Stock, none of the preferences or rights of any such additional series as fixed by the Board of Directors shall be prior or superior in any respect to those of the $6.25 Preferred Stock. Without limiting the rights conferred by paragraph (5) of Article IV of the Certificate of Incorporation of the Corporation, the Corporation shall not, without the consent of the holders of two-thirds of the then outstanding shares of $6.25 Preferred Stock, adopt any amendment to the Certificate of Incorporation of the Corporation or take other action, whether by the Board of Directors or stockholders, which adversely alters the preferences, powers and special rights conferred by the provisions of paragraphs (b), d(iv), d(v) or (e) hereof. ARTICLE VI In furtherance, and not in limitation, of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized: (1) To make, alter, amend and rescind the by-laws of the Corporation. (2) To determine from time to time, whether and to what extent, and at what times and places, and under what conditions and regulations the accounts and books of the Corporation (other than the stock ledger) or any of them shall be open to inspection of the stockholders; and no stockholder shall have any right to inspect any account, book or document of the Corporation, except as conferred by statute, unless authorized by a resolution of the stockholders then entitled to vote thereon or the Board of Directors. IN WITNESS WHEREOF, said Household International, Inc. has caused its corporate seal to be hereunto affixed and this certificate to be signed by D. C. Clark, its President, and attested by J. D. Pinkerton, its Secretary, this 4th day of September, 1981. Household International, Inc. By: /s/ D. C. Clark --------------- President [SEAL] Attest: By: /s/ J. D. Pinkerton ------------------- Secretary A:\WP51\IC9481.WP CERTIFICATE OF CHANGE OF ADDRESS OF REGISTERED OFFICE AND OF REGISTERED AGENT PURSUANT TO SECTION 134 OF TITLE 8 OF THE DELAWARE CODE To: DEPARTMENT OF STATE Division of Corporations Townsend Building Federal Street Dover, Delaware 19903 Pursuant to the provisions of Section 134 of Title 8 of the Delaware Code, the undersigned Agent for service of process, in order to change the address of the registered office of the corporations for which it is registered agent, hereby certifies that: 1. The name of the agent is: The Corporate Trust Company 2. The address of the old registered office was: 100 West Tenth Street Wilmington, Delaware 19801 3. The address to which the registered office is to be changed is: Corporation Trust Center 1209 Orange Street Wilmington, Delaware 19801 The new address will be effective on July 30, 1984. 4. The names of the corporation represented by said agent are set forth on the list annexed to this certificate and made a part hereof by reference. IN WITNESS WHEREOF, said agent has caused this certificate to be signed on its behalf by its Vice-President and Assistant Secretary this 25th day of July, 1984. THE CORPORATION TRUST COMPANY (Name of Registered Agent) By: Virginia Colwell ---------------- (Vice-President) Attest: Mick Nurman - --------------------- (Assistant Secretary) PAGE 796 STATE OF DELAWARE - DIVISION OF CORPORATIONS CHANGE OF ADDRESS FILING FOR CORPORATION TRUST AS OF JULY 27, 1984 DOMESTIC 0908612 HOUSEHOLD INTERNATIONAL, INC. 02/21/1981 D DE A:\WP51\IC72584.WP HOUSEHOLD INTERNATIONAL, INC. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION Household International, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify: FIRST: That the Restated Certificate of Incorporation, as heretofore amended, of said Corporation has been further amended by inserting the following as Article VII: ARTICLE VII (1) Elimination of Certain Liability of Directors. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or successor provision, or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or amendment to this Section shall not adversely affect any right or protection of a director of the Corporation for any act or occurrence taking place prior to such repeal or amendment. (2) Indemnification and Insurance. (a) Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director, officer, or employee of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability, and loss (including attorneys' fees, judgments, fines, ERISA excise taxes, or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that except as provided in paragraph (b) hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition upon delivery to the Corporation of an undertaking to repay all amounts so advanced if it shall ultimately be determined that such person is not entitled to be indemnified under this Section or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to agents of the Corporation with the same scope and effect as the foregoing indemnification of directors, officers, and employees. (b) If a claim under paragraph (a) of this Section is not paid in full by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law and paragraph (a) of this Section for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. (c) The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of this Certificate of Incorporation, bylaw, agreement, contract, vote of stockholders or disinterested directors, or otherwise. (d) The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Section, the Delaware General Corporation Law, or otherwise. SECOND: That the aforesaid amendment of the Restated Certificate of Incorporation of said Corporation, set forth in Paragraph FIRST hereinabove, has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by D. C. Clark, its Chairman of the Board and Chief Executive Officer, and J. D. Pinkerton, its Senior Vice President - Administration and Secretary, this 13th day of May, 1987. HOUSEHOLD INTERNATIONAL, INC. [SEAL] By: /s/ D. C. Clark ------------------------- Chairman of the Board and Chief Executive Officer Attest: /s/ J. D. Pinkerton - ---------------------------- Senior Vice President - Administration and Secretary A:\WP51\IC51387.WP CERTIFICATE OF HOUSEHOLD INTERNATIONAL, INC. UNDER SECTION 151(g) OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE Household International, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), does hereby certify that: 1) the Corporation's 9-1/2% Cumulative Preferred Stock, Series 1991-A (the "Preferred Stock") has been redeemed in its entirety and that no shares of the Preferred Stock are outstanding as of the date hereof. 2) the following resolution has been duly adopted by the Corporation's Board of Directors: "RESOLVED, that the officers of the Corporation are duly authorized to file a certificate with the Secretary of State of Delaware eliminating from the Corporation's Certificate of Incorporation all matters set forth in each Certificate of Designation, Preferences and Rights for the Preferred Stock and as permitted by the Certificate of Designation, Preferences and Rights for the Preferred Stock, such shares of Preferred Stock redeemed shall resume the status of authorized and unissued shares of the Corporation's preferred stock." Upon the effective date of the filing of this Certificate, it shall eliminate from the Corporation's Certificate of Incorporation all matters set forth in the Certificate of Designation, Preferences and Rights with respect to the Corporation's 9-1/2% Cumulative Preferred Stock, Series 1991-A, and all of such shares of 9-1/2% Cumulative Preferred Stock, Series 1991-A, shall resume the status of authorized and unissued shares of the Corporation's class of Preferred Stock. IN WITNESS WHEREOF, said Household International, Inc., has caused its corporate seal to be hereunto affixed and this Certificate to be signed by Paul R. Shay, its Secretary, and attested by Susan E. Casey, its Assistant Secretary, this 14th day of March, 1997. HOUSEHOLD INTERNATIONAL, INC. By: /s/ P. R. Shay ------------------------ Secretary Attest: By: /s/ S. E. Casey ------------------- Assistant Secretary HOUSEHOLD INTERNATIONAL, INC. CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS Pursuant to Section 151 of the General Corporation Law of the State of Delaware 8-1/4% Cumulative Preferred Stock, Series 1992-A (Without Par Value) HOUSEHOLD INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), HEREBY CERTIFIES that the following resolutions were duly adopted by the Board of Directors of the Corporation and by the Preferred Stock Committee of the Board of Directors, pursuant to authority conferred upon the Board of Directors by the provisions of the Restated Certificate of Incorporation, as amended, of the Corporation, and pursuant to authority conferred upon the Preferred Stock Committee by the resolutions of the Board of Directors set forth herein and in accordance with Section 141(c) of the General Corporation Law of the State of Delaware. 1. The Board of Directors has adopted the following resolutions designating a Preferred Stock Committee of the Board of Directors and authorizing the Preferred Stock Committee to act on behalf of the Board of Directors (within certain limitations) in connection with the designation, issuance and sale of shares in one or more series of Preferred Stock of the Corporation: "RESOLVED, that a Preferred Stock Committee of the Board of Directors is hereby designated which shall have and may exercise, to the fullest extent permitted by law, the full power and authority of the Board of Directors with respect to the issuance and sale of one or more new series of the Corporation's Preferred Stock without par value (each such series herein referred to as the "New Preferred Stock"), including, without limitation, establishing the purchase price therefor, and fixing the designations and any of the preferences, powers, rights (other than voting powers or voting rights which shall be fixed by the Board of Directors) and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, of such shares of each series of New Preferred Stock, and fixing the number of shares of each series of New Preferred Stock. "FURTHER RESOLVED, that the Preferred Stock Committee is authorized to take such additional actions and adopt such additional resolutions as it deems necessary or appropriate for the purpose of authorizing and implementing the issuance, offer, and sale for cash of New Preferred Stock, including, without limiting the generality of the foregoing, the authorization and execution of agreements (including underwriting agreements) relating to the offer and sale of New Preferred Stock, authorization and approval of listing applications (including amendments or supplements thereto) for the listing of such New Preferred Stock on a stock exchange, approval of forms of stock certificates and authorization of issuance of New Preferred Stock in uncertificated form, any actions which may be necessary to qualify the offering and sale of New Preferred Stock under Blue Sky Laws of the various states, any necessary filings with the Secretary of State of Delaware and other jurisdictions, and the appointment of a transfer agent. "FURTHER RESOLVED, that notwithstanding the foregoing resolutions, the Preferred Stock Committee may not authorize the sale of New Preferred Stock for more than $150 million cash consideration in the aggregate, and the power and authority of the Preferred Stock Committee set forth in the preceding resolutions shall expire on December 31, 1994, unless extended by further action of the Board of Directors of the Corporation. "FURTHER RESOLVED, that the members of the Preferred Stock Committee shall be D. C. Clark, E. P. Hoffman, and G. P. Osler. In the absence of Mr. Osler, A. E. Rasmussen is designated as an alternate member of the Preferred Stock Committee to serve in his place." 2. The Board of Directors has adopted the following resolution pertaining to the voting rights for series of Preferred Stock authorized for issuance by the Preferred Stock Committee of the Board of Directors: "RESOLVED, that holders of each series of the Corporation's New Preferred Stock which is authorized by the Preferred Stock Committee of the Board of Directors shall have no voting rights, and their consent shall not be required for taking any corporate action, except as otherwise set forth herein, or as otherwise required by law, and except as otherwise provided by the Board of Directors with respect to any particular series of New Preferred Stock. The consent of the holders of the New Preferred Stock with respect to the matters set forth in sub-sections (i) and (iii) of paragraph (5) of Article IV of the Corporation's Restated Certificate of Incorporation ("Paragraph (5)") shall not be required, except with respect to the creation or issuance of any class of stock ranking prior to or on a parity with the New Preferred Stock, or any series thereof, as to the payment of dividends or the distribution of assets; but the other provisions of Paragraph (5) shall be applicable to the New Preferred Stock. The holders of the New Preferred Stock shall have no right to elect directors pursuant to paragraph (6) of Article IV of the Corporation's Restated Certificate of Incorporation ("Paragraph (6)"), such right hereby being expressly withheld. In the event that any six quarterly cumulative dividends, whether consecutive or not, upon the New Preferred Stock shall be in arrears, the holders of the New Preferred Stock shall have the right, voting separately as a class with holders of shares of any one or more other series of Preferred Stock of the Corporation ranking on a parity with the New Preferred Stock either as to payment of dividends or the distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and upon which like voting rights have been conferred and are then exercisable, at the next meeting of stockholders called for the election of directors, to elect two members of the Board of Directors. The right of such holders of such shares of the New Preferred Stock, voting separately as a class, to elect (together with the holders of shares of any one or more other series of Preferred Stock of the Corporation ranking on such a parity) members of the Board of Directors of the Corporation as aforesaid shall continue until such time as all dividends accumulated on such shares of the New Preferred Stock shall have been paid in full, at which time such right shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent failure to pay dividends of the character above mentioned. Upon any termination of the right of the holders of the New Preferred Stock as a class to elect directors as herein provided, the term of office of all directors so elected shall terminate immediately. If the office of any director elected by such holders voting as a class becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the remaining director elected by such holders voting as a class may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred. Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this resolution shall have expired, the number of directors shall thereupon be such number as may be provided for in the Corporation's Bylaws irrespective of any increase made pursuant to the provisions of this resolution. Until all unpaid dividends on the New Preferred Stock shall have been paid in full, and in order to permit the holders of the Corporation's $6.25 Cumulative Convertible Voting Preferred Stock, and any other series of Preferred Stock issued by the Corporation having the voting rights set forth in Paragraph (6) to exercise fully the right to elect directors as granted by and provided in Paragraph (6), the number of directors constituting the whole Board of Directors of the Corporation shall not be less than seven. If, upon any such arrearage in dividends, the number of directors constituting the whole Board of Directors shall be less than seven, the size of the Board of Directors shall, immediately prior to the next meeting of stockholders called for the election of directors, automatically be increased by such number as shall be necessary to cause the number of directors constituting the whole Board of Directors to be no less than seven. To the extent that the Board of Directors is authorized to fix the designations, powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof in respect of additional series of Preferred Stock, none of the preferences or rights of any such additional series as fixed by the Board of Directors shall rank prior to the New Preferred Stock as to payment of dividends or the distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, without the consent of the holders of two-thirds of the outstanding shares of such series of New Preferred Stock voting as a class. The foregoing voting provisions shall not apply to any series of New Preferred Stock if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of such series of New Preferred Stock shall have been redeemed or sufficient funds shall have been deposited in trust to effect such redemption. On any item in which the holders of New Preferred Stock are entitled to vote, such holders shall be entitled to one vote for each share held." 3. The Preferred Stock Committee of the Board of Directors has adopted the following resolution pursuant to authority conferred upon the Preferred Stock Committee of the Board of Directors by the resolution of the Board of Directors set forth in paragraph 1 above of this Certificate of Designation, Preferences and Rights: "RESOLVED, that the issue of a series of Preferred Stock without par value of the Corporation is hereby authorized and the designation, preferences and privileges, relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof, in addition to those set forth in the Restated Certificate of Incorporation, as amended, of the Corporation, are hereby fixed as follows: 8-1/4% Cumulative Preferred Stock, Series 1992-A (1) Number of Shares and Designation. 50,000 shares of Preferred Stock without par value of the Corporation are hereby constituted as a series of Preferred Stock without par value and designated as 8-1/4% Cumulative Preferred Stock, Series 1992-A (hereinafter called the "8-1/4% Preferred Stock"). (2) Dividends. The holders of shares of the 8-1/4% Preferred Stock shall be entitled to receive cash dividends, when and as declared by the Board of Directors of the Corporation, out of assets legally available for such purpose, at the rate determined as provided below. Such dividends shall be cumulative from the date of original issue of such shares and shall be payable quarterly in arrears, when and as declared by the Board of Directors of the Corporation, on the fifteenth day of January, April, July and October in each year to holders of record on the respective business days next preceding the first days of those months (and the quarterly dividend periods shall commence on the first days of those months). Dividends on the 8-1/4% Preferred Stock for quarterly dividend periods will be payable at the rate of 8-1/4% per annum from the date of original issue applied to the amount of $1,000 per share of 8-1/4% Preferred Stock. The amount of dividends payable on each share of 8-1/4% Preferred Stock for each full quarterly dividend period shall be computed by dividing the dividend rate by four and applying the dividend rate to the amount of $1,000 per share. The amount of dividends payable for any dividend period shorter or longer than a full quarterly dividend period shall be computed on the basis of 30-day months, a 360-day year and the actual number of days elapsed in the period. (3) Liquidation Preference. The amount to which shares of 8-1/4% Preferred Stock shall be entitled upon liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, shall be $1,000 per share, plus an amount equal to all accrued and unpaid dividends, if any, thereon to the date fixed for payment, and no more. (4) Redemption. The shares of 8-1/4% Preferred Stock shall be subject to redemption in whole or in part at the option of the Corporation on or after October 15, 2002, at $1,000 per share, plus an amount equal to all accrued and unpaid dividends, if any, thereon to the date fixed for redemption, and no more. (5) Shares to be Retired. All shares of 8-1/4% Preferred Stock purchased or redeemed by the Corporation shall be retired and cancelled and shall be restored to the status of authorized but unissued shares of the class of Preferred Stock without par value, without designation as to series, and may thereafter be issued, but not as shares of 8-1/4% Preferred Stock. (6) Conversion or Exchange. The holders of shares of 8-1/4% Preferred Stock shall not have any rights herein to convert such shares into or exchange such shares for shares of any other series of any class or classes of capital stock (or any other security) of the Corporation. (7) Ranking. The 8-1/4% Preferred Stock shall rank on a parity with the Corporation's $6.25 Cumulative Convertible Voting Preferred Stock, 9-1/2% Cumulative Preferred Stock, Series 1989-A, Flexible Rate Auction Preferred Stock, Series A, Flexible Rate Auction Preferred Stock, Series B, 11-1/4% Enhanced Rate Cumulative Preferred Stock and 9-1/2% Cumulative Preferred Stock, Series 1991-A as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and shall rank prior to the Corporation's Common Stock and Series A Junior Participating Preferred Stock as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and prior to any other series of stock authorized to be issued by the Corporation which ranks junior to the $6.25 Cumulative Convertible Voting Preferred Stock, 9-1/2% Cumulative Preferred Stock, Series 1989-A, Flexible Rate Auction Preferred Stock, Series A, Flexible Rate Auction Preferred Stock, Series B, 11-1/4% Enhanced Rate Cumulative Preferred Stock and 9-1/2% Cumulative Preferred Stock, Series 1991-A as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary." IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation, Preferences and Rights to be signed by J. Richard Hull, Senior Vice President-Secretary of the Corporation, and attested by John W. Blenke, Assistant Secretary, this 14th day of October, 1992. HOUSEHOLD INTERNATIONAL, INC. By: /s/ J. Richard Hull ---------------------- Senior Vice President- Secretary Attest: /s/ John W. Blenke - ------------------- Assistant Secretary A:\WP51\IC101492.WP HOUSEHOLD INTERNATIONAL, INC. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION Household International, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify: FIRST: That the Restated Certificate of Incorporation, as heretofore amended, of said Corporation has been further amended by deleting, in its entirety, the first paragraph of Article IV thereof and inserting the following as the new first paragraph of Article IV: The total number of shares that may be issued by the Corporation is 158,155,004 of which 8,155,004 shares shall be Preferred Stock without par value and 150,000,000 shares shall be Common Stock of the par value of $1 per share. SECOND: That the aforesaid amendment of the Restated Certificate of Incorporation of said Corporation, set forth in Paragraph FIRST hereinabove, has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by D. C. Clark, its Chairman of the Board and Chief Executive Officer and J. W. Blenke, Assistant General Counsel and Assistant Secretary, this 12th day of May, 1993. HOUSEHOLD INTERNATIONAL, INC. [SEAL] By: /s/ D. C. Clark ------------------------- Chairman of the Board and Chief Executive Officer Attest: /s/ J. W. Blenke - ----------------------------- Assistant General Counsel and Assistant Secretary A:\WP51\IC51293.WP HOUSEHOLD INTERNATIONAL, INC. CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS Pursuant to Section 151 of the General Corporation Law of the State of Delaware 7.35% Cumulative Preferred Stock, Series 1993-A (Without Par Value) HOUSEHOLD INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), HEREBY CERTIFIES that the following resolutions were duly adopted by the Board of Directors of the Corporation and by the Offering Committee of the Board of Directors, pursuant to authority conferred upon the Board of Directors by the provisions of the Restated Certificate of Incorporation, as amended, of the Corporation, and pursuant to authority conferred upon the Offering Committee by the resolutions of the Board of Directors set forth herein and in accordance with Section 141(c) of the General Corporation Law of the State of Delaware. 1. The Board of Directors on May 12, 1993 has adopted the following resolutions designating an Offering Committee of the Board of Directors and authorizing the Offering Committee to act on behalf of the Board of Directors (within certain limitations) in connection with the designation, issuance and sale of shares in one or more series of Preferred Stock, without par value, of the Corporation: "FURTHER RESOLVED, that an Offering Committee of the Board of Directors is hereby designated which shall have and may exercise, to the fullest extent permitted by law, the full power and authority of the Board of Directors with respect to the issuance and sale of (i) the Common Stock, (ii) the Debt Securities or (iii) one or more new series of the Corporation's Preferred Stock, including, without limitation, establishing the purchase price therefore, and fixing the designations and any of the preferences, powers, rights (other than voting powers or voting rights which shall be fixed by the Board of Directors) and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, of such shares of each series of Preferred Stock; and "FURTHER RESOLVED, that notwithstanding the foregoing resolutions, the power and authority of the Offering Committee set forth in the preceding resolution shall expire on June 30, 1995, unless extended by further action of the Board of Directors of the Corporation; and "FURTHER RESOLVED, that the members of the Offering Committee shall be D. C. Clark, A. E. Rasmussen and G. P. Osler. In the absence of any of the named directors, any current director of the Corporation is designated as an alternate member of the Offering Committee to serve in such named director's place; and "FURTHER RESOLVED, that the Offering Committee is authorized to take such additional actions and adopt such additional resolutions as it deems necessary or appropriate for the purpose of authorizing and implementing the issuance, offer, and sale for cash of Preferred Stock, including, without limiting the generality of the foregoing, the authorization and execution of agreements (including underwriting agreements) relating to the offer and sale of Preferred Stock, approval of forms of stock certificates and authorization of issuance of Preferred Stock in uncertificated form, any actions which may be necessary to qualify the offering and sale of Preferred Stock under Blue Sky Laws of the various states, any necessary filings with the Secretary of State of Delaware and other jurisdictions, and the appointment of a transfer agent; and "FURTHER RESOLVED, that the Offering Committee is hereby empowered, in connection with the issuance and sale of any new series of the Corporation's Preferred Stock, to authorize the issuance and sale of depositary shares and depositary receipts for such depositary shares with respect to any such series of Preferred Stock, and to authorize the appointment of a depositary, registrar, and transfer agent for such depositary shares and depositary receipts, the execution of a depositary agreement, and any additional agreements or actions in connection therewith as the Offering Committee deems necessary or appropriate." 2. The Board of Directors, on May 12, 1993, has adopted the following resolution pertaining to the voting rights for series of Preferred Stock, without par value, authorized for issuance by the Offering Committee of the Board of Directors: "FURTHER RESOLVED, that holders of each series of the Corporation's Preferred Stock which is authorized by the Offering Committee of the Board of Directors shall have no voting rights, and their consent shall not be required for taking any corporate action, except as otherwise set forth herein or as otherwise required by law, and except as otherwise provided by the Board of Directors with respect to any particular series of Preferred Stock: The consent of the holders of the Preferred Stock with respect to the matters set forth in sub-sections (i) and (iii) of paragraph (5) of Article IV of the Corporation's Restated Certificate of Incorporation ("Paragraph (5)") shall not be required, except with respect to the creation or issuance of any class of stock ranking prior to or on a parity with the Preferred Stock, or any series thereof, as to the payment of dividends or the distribution of assets; but the other provisions of Paragraph (5) shall be applicable to the Preferred Stock. The holders of the Preferred Stock shall have no right to elect directors pursuant to paragraph (6) of Article IV of the Corporation's Restated Certificate of Incorporation ("Paragraph (6)"), such right hereby being expressly withheld. In the event that any six quarterly cumulative dividends, whether consecutive or not, upon the Preferred Stock shall be in arrears, the holders of the Preferred Stock shall have the right, voting separately as a class with holders of shares of any one or more other series of preferred stock of the Corporation ranking on a parity with the Preferred Stock either as to payment of dividends or the distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and upon which like voting rights have been conferred and are then exercisable, at the next meeting of stockholders called for the election of directors, to elect two members of the Board of Directors. The right of such holders of such shares of the Preferred Stock, voting separately as a class, to elect (together with the holders of shares of any one or more other series of preferred stock of the Corporation ranking on such a parity) members of the Board of Directors of the Corporation as aforesaid shall continue until such time as all dividends accumulated on such shares of the Preferred Stock shall have been paid in full, at which time such right shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent failure to pay dividends of the character above mentioned. Upon any termination of the right of the holders of the Preferred Stock as a class to elect directors as herein provided, the term of office of all directors so elected shall terminate immediately. If the office of any director elected by such holders voting as a class becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the remaining director elected by such holders voting as a class may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred. Whenever the term of office of the directors elected by such holders voting as a class shall end and the special voting powers vested in such holders as provided in this resolution shall have expired, the number of directors shall thereupon be such number as may be provided for in the Corporation's Bylaws irrespective of any increase made pursuant to the provisions of this resolution. Until all unpaid dividends on the Preferred Stock shall have been paid in full, and in order to permit the holders of the Corporation's $6.25 Cumulative Convertible Voting Preferred Stock, and any other series of preferred stock issued by the Corporation having the voting rights set forth in Paragraph (6) to exercise fully the right to elect directors as granted by and provided in Paragraph (6), the number of directors constituting the whole Board of Directors of the Corporation shall not be less than seven. If, upon any such arrearage in dividends the number of directors constituting the whole Board of Directors shall be less than seven, the size of the Board of Directors shall, immediately prior to the next meeting of stockholders called for the election of directors, automatically be increased by such number as shall be necessary to cause the number of directors constituting the whole Board of Directors to be no less than seven. To the extent that the Board of Directors is authorized to fix the designations, powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof in respect of additional series of preferred stock, none of the preferences or rights of any such additional series as fixed by the Board of Directors shall rank prior to the Preferred Stock as to payment of dividends or the distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, without the consent of the holders of two-thirds of the outstanding shares of such series of Preferred Stock voting as a class. The foregoing voting provisions shall not apply to any series of Preferred Stock, if at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of such series of Preferred Stock shall have been redeemed or sufficient funds shall have been deposited in trust to effect such redemption. On any item in which the holders of Preferred Stock are entitled to vote, such holders shall be entitled to one vote for each share held." 3. The Offering Committee of the Board of Directors has on August 30, 1993 adopted the following resolution pursuant to authority conferred upon the Offering Committee of the Board of Directors by the resolutions of the Board of Directors set forth in paragraph 1 above of this Certificate of Designation, Preferences and Rights: "RESOLVED, that the issue of a series of Preferred Stock without par value of the Corporation is hereby authorized and the designation, preferences and privileges, relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof, in addition to those set forth in the Restated Certificate of Incorporation, as amended, of the Corporation, are hereby fixed as follows: 7.35% Cumulative Preferred Stock, Series 1993-A (1) Number of Shares and Designation. 100,000 shares of Preferred Stock without par value of the Corporation are hereby constituted as a series of Preferred Stock without par value and designated as 7.35% Cumulative Preferred Stock, Series 1993-A (hereinafter called the "7.35% Preferred Stock"). (2) Dividends. The holders of shares of the 7.35% Preferred Stock shall be entitled to receive cash dividends, when and as declared by the Board of Directors of the Corporation, out of assets legally available for such purpose, at the rate determined as provided below. Such dividends shall be cumulative from the date of original issue of such shares and shall be payable quarterly in arrears, when and as declared by the Board of Directors of the Corporation, on the fifteenth day of January, April, July and October in each year to holders of record on the respective business days next preceding the first days of those months (and the quarterly dividend periods shall commence on the first days of those months). Dividends on the 7.35% Preferred Stock for quarterly dividend periods will be payable at the rate of 7.35% per annum from the date of original issue applied to the amount of $1,000 per share of 7.35% Preferred Stock. The amount of dividends payable on each share of 7.35% Preferred Stock for each full quarterly dividend period shall be computed by dividing the dividend rate by four and applying the dividend rate to the amount of $1,000 per share. The amount of dividends payable for any dividend period shorter or longer than a full quarterly dividend period shall be computed on the basis of 30-day months, a 360-day year and the actual number of days elapsed in the period. (3) Liquidation Preference. The amount to which shares of 7.35% Preferred Stock shall be entitled upon liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, shall be $1,000 per share, plus an amount equal to all accrued and unpaid dividends, if any, thereon to the date fixed for payment, and no more. (4) Redemption. The shares of 7.35% Preferred Stock shall be subject to redemption in whole or in part at the option of the Corporation on or after October 15, 1998 at $1,000 per share, plus an amount equal to all accrued and unpaid dividends, if any, thereon to the date fixed for redemption, and no more. (5) Shares to be Retired. All shares of 7.35% Preferred Stock purchased or redeemed by the Corporation shall be retired and cancelled and shall be restored to the status of authorized but unissued shares of the class of Preferred Stock without par value, without designation as to series, and may thereafter be issued, but not as shares of 7.35% Preferred Stock. (6) Conversion or Exchange. The holders of shares of 7.35% Preferred Stock shall not have any rights herein to convert such shares into or exchange such shares for shares of any other series of any class or classes of capital stock (or any other security) of the Corporation. (7) Ranking. The 7.35% Preferred Stock shall rank on a parity with the Corporation's $6.25 Cumulative Convertible Voting Preferred Stock, 9-1/2% Cumulative Preferred Stock, Series 1989-A, Flexible Rate Auction Preferred Stock, Series B, 11-1/4% Enhanced Rate Cumulative Preferred Stock, 9-1/2% Cumulative Preferred Stock, Series 1991-A and 8-1/4% Cumulative Preferred Stock, Series 1992-A as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and shall rank prior to the Corporation's Common Stock and Series A Junior Participating Preferred Stock as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and prior to any other series of stock authorized to be issued by the Corporation which ranks junior to the $6.25 Cumulative Convertible Voting Preferred Stock, 9-1/2% Cumulative Preferred Stock, Series 1989-A, Flexible Rate Auction Preferred Stock, Series B, 11-1/4% Enhanced Rate Cumulative Preferred Stock, 9-1/2% Cumulative Preferred Stock, Series 1991-A and 8-1/4% Cumulative Preferred Stock, Series 1992-A as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary." IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation, Preferences and Rights to be signed by J. Richard Hull, Senior Vice President-Secretary and General Counsel of the Corporation, and attested by John W. Blenke, Assistant General Counsel and Assistant Secretary, this 1st day of September, 1993. HOUSEHOLD INTERNATIONAL, INC. By: /s/ J. Richard Hull ---------------------- Senior Vice President- Secretary and General Counsel Attest: /s/ John W. Blenke - ----------------------------- Assistant General Counsel and Assistant Secretary CERTIFICATE OF DESIGNATIONS of SERIES A JUNIOR PARTICIPATING PREFERRED STOCK of HOUSEHOLD INTERNATIONAL, INC. (Pursuant to Section 151 of the Delaware General Corporation Law) Household International, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law at a meeting duly called and held on July 9, 1996: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Restated Certificate of Incorporation, the Board hereby creates a series of Preferred Stock, without par value (the "Preferred Stock"), of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof as follows: FURTHER RESOLVED, that pursuant to the authority granted to and vested in the Board in accordance with the provisions of the Restated Certificate of Incorporation, the consent of the holders of Series A Preferred Stock with respect to the matters set forth in sub-sections (i) and (iii) of para- graph (5) of Article IV of the Corporation's Restated Certificate of Incorporation ("Paragraph (5)") shall not be required; but the other provisions of Paragraph (5) shall be applicable to the Series A Preferred Stock. The holders of the Series A Preferred Stock shall have no right to elect directors per paragraph (6) of Article IV of the Corporation's Restated Certificate of Incorporation, such right hereby being expressly withheld: Series A Junior Participating Preferred Stock: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 150,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, par value $1.00 per share (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the fifteenth day January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issu- ance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment here- inafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. (D) The consent of the holders of Series A Preferred Stock with respect to the matters set forth in sub-sections (i) and (iii) of paragraph (5) of Article IV of the Corporation's Restated Certificate of Incorporation ("Paragraph 5") shall not be required, ; but the other provisions of Paragraph (5) shall be applicable to the Series A Preferred Stock. The holders of the Series A Preferred Stock shall have no right to elect directors pursuant to paragraph (6) of Article IV of the Corporation's Restated Certificate of Incorporation, such right hereby being expressly withheld. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dis- solution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Certificate of Incorporation, or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock or as otherwise required by law. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corpo- ration, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $1,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the de- nominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by mul- tiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable. Section 9. Rank. The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporation's Preferred Stock. Section 10. Amendment. The Certificate of Incor- poration of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation by its Chief Executive Officer or Chief Financial Officer and attested by its Secretary this 9th day of July, 1996. /s/ William F. Aldinger -------------------------- Chief Executive Officer or Chief Financial Officer Attest: /s/ Paul R. Shay - ---------------- Secretary U:\LAW\EDGAR\IC7996.WP HOUSEHOLD INTERNATIONAL, INC. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION Household International, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify: FIRST: That the Restated Certificate of Incorporation, as heretofore amended, of said Corporation has been further amended by deleting, in its entirety, the first paragraph of Article IV thereof and inserting the following as the new first paragraph of Article IV: The total number of shares that may be issued by the Corporation is 258,155,004 of which 8,155,004 shares shall be Preferred Stock without par value and 250,000,000 shares shall be Common Stock of the par value of $1 per share. SECOND: That the aforesaid amendment of the Restated Certificate of Incorporation of said Corporation, set forth in Paragraph FIRST hereinabove, has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by W. F. Aldinger, its Chairman and Chief Executive Officer and P. R. Shay, Assistant General Counsel and Secretary, this 14th day of May, 1997. HOUSEHOLD INTERNATIONAL, INC. [SEAL] By: /s/ W. F. Aldinger ------------------------- Chairman and Chief Executive Officer Attest: /s/ P. R. Shay - ----------------------------- Assistant General Counsel and Secretary U:\WP\EMP819\EDGAR\IC51497.WP HOUSEHOLD INTERNATIONAL, INC. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION Household International, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify: FIRST: That the Restated Certificate of Incorporation, as heretofore amended, of said Corporation has been further amended by deleting, in its entirety, the first paragraph of Article IV thereof and inserting the following as the new first paragraph of Article IV: The total number of shares that may be issued by the Corporation is 758,155,004 of which 8,155,004 shares shall be Preferred Stock without par value and 750,000,000 shares shall be Common Stock of the par value of $1 per share. SECOND: That the number of shares constituting the Series A Junior Participating Preferred Stock is increased to 750,000. THIRD: That the aforesaid amendments of the Restated Certificate of Incorporation of said Corporation set forth above have been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by W. F. Aldinger, its Chairman and Chief Executive Officer and P. R. Shay, Assistant General Counsel and Corporate Secretary, this 13th day of May, 1998. HOUSEHOLD INTERNATIONAL, INC. [SEAL] By: /s/ W. F. Aldinger ----------------------- Chairman and Chief Executive Officer Attest: /s/ P. R. Shay - ----------------------------- Assistant General Counsel and Corporate Secretary U:\LAW\EDGAR\IC51398.WP HOUSEHOLD INTERNATIONAL, INC. CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS Pursuant to Section 151 of the General Corporation Law of the State of Delaware 5% Cumulative Preferred Stock (Without Par Value) HOUSEHOLD INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), HEREBY CERTIFIES that the following resolution was duly adopted by the Board of Directors of the Corporation pursuant to authority conferred upon the Board of Directors by the provisions of the Restated Certificate of Incorporation, as amended, of the Corporation, and in accordance with Section 141(c) of the General Corporation Law of the State of Delaware. 1. The Board of Directors has on May 13, 1998 adopted the following resolution: "RESOLVED, that the issue of a series of Preferred Stock of the Corporation is hereby authorized and the designation, preferences and privileges, relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof, in addition to those set forth in the Restated Certificate of Incorporation, as amended, of the Corporation, are hereby fixed as follows: 5% Cumulative Preferred Stock (1) Number of Shares and Designation. 407,718 shares of Preferred Stock, without par value of the Corporation are hereby constituted as a series of Preferred Stock, without par value and designated as 5% Cumulative Preferred Stock (hereinafter called the "5% Preferred Stock"). (2) Dividends. The holders of shares of the 5% Preferred Stock shall be entitled to receive cash dividends, when and as declared by the Board of Directors of the Corporation, out of assets legally available for such purpose, at the rate determined as provided below. Such dividends shall be cumulative from the date of original issue of such shares and shall be payable semi-annually in arrears, when and as declared by the Board of Directors of the Corporation, on the last day of June and December in each year to holders of record, in each case, on the last business day of the calendar month next preceding the dividend payment date (and the semi-annual dividend periods shall commence on the first day following each dividend payment date and end on the next succeeding dividend payment date). Dividends on the 5% Preferred Stock for semi-annual dividend periods will be payable at the rate of 5% per annum from the date of original issue. The amount of dividends payable on each share of 5% Preferred Stock for each full semi-annual dividend period shall be computed by dividing the dividend rate by two and applying the dividend rate to each outstanding share. (3) Liquidation Preference. The amount to which shares of 5% Preferred Stock shall be entitled upon liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, shall be $50.00 per share, plus an amount equal to all accrued and unpaid dividends, if any, thereon to the date fixed for payment, whether or not enarned or declared, and no more. Such amount to be set apart from holders or paid to holders out of the assets of the Corporation before any distribution is made to or set apart for holders of the Corporation's Common Stock. (4) Redemption. (a) The shares of the 5% Preferred Stock shall be subject to redemption in whole or in part at the option of the Corporation, by vote of the Board of Directors, at $50.00 per share, plus an amount equal to all accrued and unpaid dividends, if any, thereon to the date fixed for redemption, whether or not earned or declared, and no more. If less than all of the outstanding shares of 5% Preferred Stock are to be redeemed, the shares to be redeemed shall be determined by lot in such usual manner and subject to such regulations as the Board of Directors in its sole discretion shall prescribe. (b) At least 30 days prior to the date fixed for the redemption of shares of the 5% Preferred Stock, a written notice shall be mailed to each holder of record of shares of 5% Preferred Stock to be redeemed in a postage prepaid envelope addressed to such holder at his post office address as shown on the records of the Corporation, notifying such holder of the election of the Corporation to redeem such shares stating the date fixed for redemption thereof (the "redemption date"), and calling upon such holder to surrender to the Corporation on the redemption date at the place designated in such notice his certificate or certificates representing the number of shares specified in such notice of redemption. (c) On or after the redemption date each holder of shares of 5% Preferred Stock to be redeemed shall present and surrender his certificate or certificates for such shares to the Corporation at the place designated in such notice and thereupon the redemption price of such shares shall be paid to or on the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. (d) In case less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (e) From and after the redemption date (unless default shall be made by the Corporation in payment of the redemption price) all dividends on the shares of 5% Preferred Stock designated for redemption in such notice shall cease to accrue, and all rights of the holders thereof as stockholders of the Corporation, except the right to receive the redemption price thereof upon the surrender of certificates representing the same, shall cease and determine and such shares shall not thereafter be transferred (except with the consent of the Corporation) on the books of the Corporation, and such shares shall not be deemed to be outstanding for any purpose whatsoever. (f) At its election, prior to the redemption date, the Corporation may deposit the redemption price of the shares of 5% Preferred Stock called for redemption in trust for the holders thereof with a bank or trust company (having a capital and surplus of not less than $1,000,000) in the City of Chicago, Illinois or in the Borough of Manhattan, City and State of New York or in any other city in which the Corporation at the time shall maintain a transfer agency with respect to such stock, in which case such redemption notice shall state the date of such deposit, shall specify the office of such bank or trust company as the place of payment of the redemption price, and shall call upon such holders to surrender the certificates representing such shares at such place on or after the date fixed in such redemption notice (which shall not be later than the redemption date) against payment of the redemption price. From and after the making of such deposit, the shares of 5% Preferred Stock so designated for redemption shall not be deemed to be outstanding for any purpose whatsoever, and the rights of the holders of such shares shall be limited to the right to receive the redemption price of such shares without interest, upon surrender of the certificates representing the same to the Corporation at said office of such bank or trust company. (g) Any moneys so deposited which shall remain unclaimed by the holders of such 5% Preferred Stock at the end of six years after the redemption date shall be returned by such bank or trust company to the Corporation after which the holders of the 5% Preferred Stock shall have no further interest in such moneys. (5) Shares to be Retired. All shares of 5% Preferred Stock purchased or redeemed by the Corporation shall be retired and cancelled and shall be restored to the status of authorized but unissued shares of the class of Preferred Stock without par value, without designation as to series, and may thereafter be issued, but not as shares of 5% Preferred Stock. (6) Conversion or Exchange. The holders of shares of 5% Preferred Stock shall not have any rights herein to convert such shares into or exchange such shares for shares of any other series of any class or classes of capital stock (or any other security) of the Corporation. (7) Voting Rights. (a) Each holder of 5% Preferred Stock shall be entitled to one vote for each share held on each matter submitted to a vote of stockholders of the Corporation and, except as otherwise herein or by law provided, the 5% Preferred Stock, the Common Stock of the Corporation, and any other capital stock of the Corporation at the time entitled thereto, shall vote together as one class, except that while the holders of 5% Preferred Stock, voting as a class, are entitled to elect two directors as hereinafter provided, they shall not be entitled to participate with the Common Stock (or any other capital stock as stated above) in the election of any other directors. (b) In case at any time three or more full semi- annual dividends (whether consecutive or not) on the 5% Preferred Stock shall be in arrears, then during the period (the "Class Voting Period") commencing with such time and ending with the time when all arrears in dividends on the 5% Preferred Stock shall have been paid and the full dividend on the 5% Preferred Stock for the then current semi-annual dividend period shall have been declared and paid or set aside for payment, at any meeting of the stockholders of the Corporation held for the election of directors during the Class Voting Period, the holders of 5% Preferred Stock represented in person or by proxy at said meeting shall be entitled, as a class, to the exclusion of the holders of all other classes of stock of the Corporation, to elect two directors of the Corporation, each share of 5% Preferred Stock entitling the holder thereof to one vote. (c) Any director who shall have been elected by holders of 5% Preferred Stock or by any director so elected as herein contemplated, may be removed at any time during a Class Voting Period, either for or without cause, by, and only by, the affirmative votes of the holders of record of a majority of the outstanding shares of 5% Preferred Stock given at a special meeting of such stockholders called for the purpose, and any vacancy thereby created may be filled during such Class Voting Period by the holders of 5% Preferred Stock present in person or represented by proxy at such meeting. Any director to be elected by the Board of Directors of the Corporation to replace a director elected by holders of 5% Preferred Stock or elected by a director as provided for in this sentence shall be elected by the remaining director previously elected by the holders of 5% Preferred Stock. At the end of the Class Voting Period the holders of 5% Preferred Stock shall be automatically divested of all voting power vested in them under this resolution but subject always to the subsequent vesting hereunder of voting power in the holders of 5% Preferred Stock in the event of any similar default or defaults thereafter. (8) Ranking. The 5% Preferred Stock shall rank on a parity with the Corporation's 8-1/4% Cumulative Preferred Stock, Series 1992-A, 7.35% Cumulative Preferred Stock, Series 1993-A, $4.50 Cumulative Preferred Stock and $4.30 Cumulative Preferred Stock as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and shall rank prior to the Corporation's Common Stock and Series A Junior Participating Preferred Stock as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and prior to any other series of stock authorized to be issued by the Corporation which ranks junior to the Corporation's 8-1/4% Cumulative Preferred Stock, Series 1992-A, 7.35% Cumulative Preferred Stock, Series 1993-A, $4.50 Cumulative Preferred Stock and $4.30 Cumulative Preferred Stock as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary. (9) Amendments. While any 5% Preferred Stock is outstanding, the Corporation shall not alter or change the preferences, special rights or powers of the 5% Preferred Stock so as to adversely affect the 5% Preferred Stock without the affirmative consent (given in writing or at a meeting duly called for the purpose) of the holders of at least two-thirds (2/3rds) of the aggregate number of shares of 5% Preferred Stock then outstanding. "FURTHER RESOLVED, that the Chairman, President, or any Vice President, together with the Secretary or an Assistant Secretary, of the Corporation are hereby authorized and directed to execute, acknowledge, file with the Delaware Secretary of State, and record in New Castle County, Delaware, a Certificate of Designation, Preferences and Rights of the 5% Preferred Stock when such officers of the Corporation shall in their sole discretion consider such action to be necessary or advisable; and "FURTHER RESOLVED, that the form of certificates for the 5% Preferred Stock which form of certificate has been presented to this meeting, and a copy of which the Secretary or an Assistant Secretary is instructed to mark for identification and file with the corporate records, is hereby approved, the facsimile signatures of the officers of the Corporation contained on the certificates are adopted as the valid and binding signatures of the officers so signing, and the proper corporate officers are authorized on behalf of and under the corporate seal of the Corporation to execute and deliver the said certificates in substantially the form presented with such changes therein as may be approved by the officers executing the same, execution thereof to be conclusive evidence of such approval; and "FURTHER RESOLVED, that application be made to the New York Stock Exchange, Inc. (the "Exchange") for listing of the 5% Preferred Stock upon official notice of issuance of the 5% Preferred Stock and that Messrs. J. W. Blenke, P. R. Shay and P. D. Schwartz or any counsel designated by any of the foregoing individuals, be and each hereby are authorized and designated by the Corporation to appear before the Exchange in furtherance of the listing of said 5% Preferred Stock, including authority to file or make any such changes in the said applications or any agreements relevant thereto and to execute any and all documents on behalf of the Corporation as may be necessary or desirable to conform with the requirements for listing; and "FURTHER RESOLVED, that the officers of the Corporation, or any counsel designated thereby, are hereby severally authorized to execute on behalf of the Corporation and file with appropriate authorities such applications, statements, certificates, consents, and other documents as may be necessary for the registration or qualification of the 5% Preferred Stock under the securities laws of the states of the United States in which such securities are required to be registered or qualified, and any actions having previously been taken are hereby authorized, approved and ratified; and "FURTHER RESOLVED, that Harris Trust and Savings Bank ("Harris Bank") is hereby appointed as transfer agent and registrar for the 5% Preferred Stock upon such terms as the officers of the Corporation consider necessary or advisable; and "FURTHER RESOLVED, that for the purpose of the original issue of the shares of 5% Preferred Stock, Harris Bank, as the Corporation's transfer agent and registrar, is authorized and directed to issue and is authorized to register and deliver certificates representing an aggregate of up to 407,718 shares of 5% Preferred Stock of the Corporation all in accordance with instructions from the officers of the Corporation; and "FURTHER RESOLVED, that the 5% Preferred Stock shall be without par value; and "FURTHER RESOLVED, that the officers of the Corporation are hereby authorized and directed on behalf of the Corporation to take and cause to be taken all action necessary or desirable to carry out the terms, implications and intent of these resolutions, and to consummate the transactions contemplated therein." IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation, Preferences and Rights to be signed by David A. Schoenholz, Executive Vice President and Chief Financial Officer of the Corporation, and attested by Patrick D. Schwartz, Associate General Counsel and Assistant Secretary, this 30th day of June, 1998. HOUSEHOLD INTERNATIONAL, INC. By: /s/ David A. Schoenholz ------------------------- David A. Schoenholz Executive Vice President- Chief Financial Officer Attest: /s/ Patrick D. Schwartz - ----------------------------- Patrick D. Schwartz Associate General Counsel and Assistant Secretary HOUSEHOLD INTERNATIONAL, INC. CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS Pursuant to Section 151 of the General Corporation Law of the State of Delaware $4.50 Cumulative Preferred Stock (Without Par Value) HOUSEHOLD INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), HEREBY CERTIFIES that the following resolution was duly adopted by the Board of Directors of the Corporation pursuant to authority conferred upon the Board of Directors by the provisions of the Restated Certificate of Incorporation, as amended, of the Corporation, and in accordance with Section 141(c) of the General Corporation Law of the State of Delaware. 1. The Board of Directors has on May 13, 1998 adopted the following resolution: "RESOLVED, that the issue of a series of Preferred Stock of the Corporation is hereby authorized and the designation, preferences and privileges, relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof, in addition to those set forth in the Restated Certificate of Incorporation, as amended, of the Corporation, are hereby fixed as follows: $4.50 Cumulative Preferred Stock (1) Number of Shares and Designation. 103,976 shares of Preferred Stock, without par value of the Corporation are hereby constituted as a series of Preferred Stock, without par value and designated as $4.50 Cumulative Preferred Stock (hereinafter called the "$4.50 Preferred Stock"). (2) Dividends. The holders of shares of the $4.50 Preferred Stock shall be entitled to receive cash dividends, when and as declared by the Board of Directors of the Corporation, out of assets legally available for such purpose, at the rate determined as provided below. Such dividends shall be cumulative from the date of original issue of such shares and shall be payable semi-annually in arrears, when and as declared by the Board of Directors of the Corporation, on the last day of June and December in each year to holders of record, in each case, on the last business day of the calendar month next preceding the dividend payment date (and the semi-annual dividend periods shall commence on the first day following each dividend payment date and end on the next succeeding dividend payment date). Dividends on the $4.50 Preferred Stock for semi-annual dividend periods will be payable at the rate of $4.50 per annum from the date of original issue. The amount of dividends payable on each share of $4.50 Preferred Stock for each full semi-annual dividend period shall be computed by dividing the dividend rate by two and applying the dividend rate to each outstanding share. (3) Liquidation Preference. The amount to which shares of $4.50 Preferred Stock shall be entitled upon liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, shall be $100.00 per share, plus an amount equal to all accrued and unpaid dividends, if any, thereon to the date fixed for payment, whether or not earned or declared, and no more. Such amount to be set apart from holders or paid to holders out of the assets of the Corporation before any distribution is made to or set apart for holders of the Corporation's Common Stock. (4) Redemption. (a) The shares of the $4.50 Preferred Stock shall be subject to redemption in whole or in part at the option of the Corporation, by vote of the Board of Directors, at $103.00 per share, plus an amount equal to all accrued and unpaid dividends, if any, thereon to the date fixed for redemption, whether or not earned or declared, and no more. If less than all of the outstanding shares of $4.50 Preferred Stock are to be redeemed, the shares to be redeemed shall be determined by lot in such usual manner and subject to such regulations as the Board of Directors in its sole discretion shall prescribe. (b) At least 30 days prior to the date fixed for the redemption of shares of the $4.50 Preferred Stock, a written notice shall be mailed to each holder of record of shares of $4.50 Preferred Stock to be redeemed in a postage prepaid envelope addressed to such holder at his post office address as shown on the records of the Corporation, notifying such holder of the election of the Corporation to redeem such shares stating the date fixed for redemption thereof (the "redemption date"), and calling upon such holder to surrender to the Corporation on the redemption date at the place designated in such notice his certificate or certificates representing the number of shares specified in such notice of redemption. (c) On or after the redemption date each holder of shares of $4.50 Preferred Stock to be redeemed shall present and surrender his certificate or certificates for such shares to the Corporation at the place designated in such notice and thereupon the redemption price of such shares shall be paid to or on the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. (d) In case less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (e) From and after the redemption date (unless default shall be made by the Corporation in payment of the redemption price) all dividends on the shares of $4.50 Preferred Stock designated for redemption in such notice shall cease to accrue, and all rights of the holders thereof as stockholders of the Corporation, except the right to receive the redemption price thereof upon the surrender of certificates representing the same, shall cease and determine and such shares shall not thereafter be transferred (except with the consent of the Corporation) on the books of the Corporation, and such shares shall not be deemed to be outstanding for any purpose whatsoever. (f) At its election, prior to the redemption date, the Corporation may deposit the redemption price of the shares of $4.50 Preferred Stock called for redemption in trust for the holders thereof with a bank or trust company (having a capital and surplus of not less than $1,000,000) in the City of Chicago, Illinois or in the Borough of Manhattan, City and State of New York or in any other city in which the Corporation at the time shall maintain a transfer agency with respect to such stock, in which case such redemption notice shall state the date of such deposit, shall specify the office of such bank or trust company as the place of payment of the redemption price, and shall call upon such holders to surrender the certificates representing such shares at such place on or after the date fixed in such redemption notice (which shall not be later than the redemption date) against payment of the redemption price. From and after the making of such deposit, the shares of $4.50 Preferred Stock so designated for redemption shall not be deemed to be outstanding for any purpose whatsoever, and the rights of the holders of such shares shall be limited to the right to receive the redemption price of such shares without interest, upon surrender of the certificates representing the same to the Corporation at said office of such bank or trust company. (g) Any moneys so deposited which shall remain unclaimed by the holders of such $4.50 Preferred Stock at the end of six years after the redemption date shall be returned by such bank or trust company to the Corporation after which the holders of the $4.50 Preferred Stock shall have no further interest in such moneys. (5) Shares to be Retired. All shares of $4.50 Preferred Stock purchased or redeemed by the Corporation shall be retired and cancelled and shall be restored to the status of authorized but unissued shares of the class of Preferred Stock without par value, without designation as to series, and may thereafter be issued, but not as shares of $4.50 Preferred Stock. (6) Conversion or Exchange. The holders of shares of $4.50 Preferred Stock shall not have any rights herein to convert such shares into or exchange such shares for shares of any other series of any class or classes of capital stock (or any other security) of the Corporation. (7) Voting Rights. (a) Each holder of $4.50 Preferred Stock shall be entitled to one vote for each share held on each matter submitted to a vote of stockholders of the Corporation and, except as otherwise herein or by law provided, the $4.50 Preferred Stock, the Common Stock of the Corporation, and any other capital stock of the Corporation at the time entitled thereto, shall vote together as one class, except that while the holders of $4.50 Preferred Stock, voting as a class, are entitled to elect two directors as hereinafter provided, they shall not be entitled to participate with the Common Stock (or any other capital stock as stated above) in the election of any other directors. (b) In case at any time three or more full semi- annual dividends (whether consecutive or not) on the $4.50 Preferred Stock shall be in arrears, then during the period (the "Class Voting Period") commencing with such time and ending with the time when all arrears in dividends on the $4.50 Preferred Stock shall have been paid and the full dividend on the $4.50 Preferred Stock for the then current semi-annual dividend period shall have been declared and paid or set aside for payment, at any meeting of the stockholders of the Corporation held for the election of directors during the Class Voting Period, the holders of $4.50 Preferred Stock represented in person or by proxy at said meeting shall be entitled, as a class, to the exclusion of the holders of all other classes of stock of the Corporation, to elect two directors of the Corporation, each share of $4.50 Preferred Stock entitling the holder thereof to one vote. (c) Any director who shall have been elected by holders of $4.50 Preferred Stock or by any director so elected as herein contemplated, may be removed at any time during a Class Voting Period, either for or without cause, by, and only by, the affirmative votes of the holders of record of a majority of the outstanding shares of $4.50 Preferred Stock given at a special meeting of such stockholders called for the purpose, and any vacancy thereby created may be filled during such Class Voting Period by the holders of $4.50 Preferred Stock present in person or represented by proxy at such meeting. Any director to be elected by the Board of Directors of the Corporation to replace a director elected by holders of $4.50 Preferred Stock or elected by a director as provided for in this sentence shall be elected by the remaining director previously elected by the holders of $4.50 Preferred Stock. At the end of the Class Voting Period the holders of $4.50 Preferred Stock shall be automatically divested of all voting power vested in them under this resolution but subject always to the subsequent vesting hereunder of voting power in the holders of $4.50 Preferred Stock in the event of any similar default or defaults thereafter. (8) Ranking. The $4.50 Preferred Stock shall rank on a parity with the Corporation's 8-1/4% Cumulative Preferred Stock, Series 1992-A, 7.35% Cumulative Preferred Stock, Series 1993-A, 5% Cumulative Preferred Stock and $4.30 Cumulative Preferred Stock as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and shall rank prior to the Corporation's Common Stock and Series A Junior Participating Preferred Stock as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and prior to any other series of stock authorized to be issued by the Corporation which ranks junior to the Corporation's 8-1/4% Cumulative Preferred Stock, Series 1992-A, 7.35% Cumulative Preferred Stock, Series 1993-A, 5% Cumulative Preferred Stock and $4.30 Cumulative Preferred Stock as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary. (9) Amendments. While any $4.50 Preferred Stock is outstanding, the Corporation shall not alter or change the preferences, special rights or powers of the $4.50 Preferred Stock so as to adversely affect the $4.50 Preferred Stock without the affirmative consent (given in writing or at a meeting duly called for the purpose) of the holders of at least two-thirds (2/3rds) of the aggregate number of shares of $4.50 Preferred Stock then outstanding. "FURTHER RESOLVED, that the Chairman, President, or any Vice President, together with the Secretary or an Assistant Secretary, of the Corporation are hereby authorized and directed to execute, acknowledge, file with the Delaware Secretary of State, and record in New Castle County, Delaware, a Certificate of Designation, Preferences and Rights of the $4.50 Preferred Stock when such officers of the Corporation shall in their sole discretion consider such action to be necessary or advisable; and "FURTHER RESOLVED, that the form of certificates for the $4.50 Preferred Stock which form of certificate has been presented to this meeting, and a copy of which the Secretary or an Assistant Secretary is instructed to mark for identification and file with the corporate records, is hereby approved, the facsimile signatures of the officers of the Corporation contained on the certificates are adopted as the valid and binding signatures of the officers so signing, and the proper corporate officers are authorized on behalf of and under the corporate seal of the Corporation to execute and deliver the said certificates in substantially the form presented with such changes therein as may be approved by the officers executing the same, execution thereof to be conclusive evidence of such approval; and "FURTHER RESOLVED, that application be made to the New York Stock Exchange, Inc. (the "Exchange") for listing of the $4.50 Preferred Stock upon official notice of issuance of the $4.50 Preferred Stock and that Messrs. J. W. Blenke, P. R. Shay and P. D. Schwartz or any counsel designated by any of the foregoing individuals, be and each hereby are authorized and designated by the Corporation to appear before the Exchange in furtherance of the listing of said $4.50 Preferred Stock, including authority to file or make any such changes in the said applications or any agreements relevant thereto and to execute any and all documents on behalf of the Corporation as may be necessary or desirable to conform with the requirements for listing; and "FURTHER RESOLVED, that the officers of the Corporation, or any counsel designated thereby, are hereby severally authorized to execute on behalf of the Corporation and file with appropriate authorities such applications, statements, certificates, consents, and other documents as may be necessary for the registration or qualification of the $4.50 Preferred Stock under the securities laws of the states of the United States in which such securities are required to be registered or qualified, and any actions having previously been taken are hereby authorized, approved and ratified; and "FURTHER RESOLVED, that Harris Trust and Savings Bank ("Harris Bank") is hereby appointed as transfer agent and registrar for the $4.50 Preferred Stock upon such terms as the officers of the Corporation consider necessary or advisable; and "FURTHER RESOLVED, that for the purpose of the original issue of the shares of $4.50 Preferred Stock, Harris Bank, as the Corporation's transfer agent and registrar, is authorized and directed to issue and is authorized to register and deliver certificates representing an aggregate of up to 103,976 shares of $4.50 Preferred Stock of the Corporation all in accordance with instructions from the officers of the Corporation; and "FURTHER RESOLVED, that the $4.50 Preferred Stock shall be without par value; and "FURTHER RESOLVED, that the officers of the Corporation are hereby authorized and directed on behalf of the Corporation to take and cause to be taken all action necessary or desirable to carry out the terms, implications and intent of these resolutions, and to consummate the transactions contemplated therein." IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation, Preferences and Rights to be signed by David A. Schoenholz, Executive Vice President and Chief Financial Officer of the Corporation, and attested by Patrick D. Schwartz, Associate General Counsel and Assistant Secretary, this 30th day of June, 1998. HOUSEHOLD INTERNATIONAL, INC. By: /s/ David A. Schoenholz ------------------------- David A. Schoenholz Executive Vice President- Chief Financial Officer Attest: /s/ Patrick D. Schwartz - ----------------------------- Patrick D. Schwartz Associate General Counsel and Assistant Secretary HOUSEHOLD INTERNATIONAL, INC. CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS Pursuant to Section 151 of the General Corporation Law of the State of Delaware $4.30 Cumulative Preferred Stock (Without Par Value) HOUSEHOLD INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), HEREBY CERTIFIES that the following resolution was duly adopted by the Board of Directors of the Corporation pursuant to authority conferred upon the Board of Directors by the provisions of the Restated Certificate of Incorporation, as amended, of the Corporation, and in accordance with Section 141(c) of the General Corporation Law of the State of Delaware. 1. The Board of Directors has on May 13, 1998 adopted the following resolution: "RESOLVED, that the issue of a series of Preferred Stock of the Corporation is hereby authorized and the designation, preferences and privileges, relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof, in addition to those set forth in the Restated Certificate of Incorporation, as amended, of the Corporation, are hereby fixed as follows: $4.30 Cumulative Preferred Stock (1) Number of Shares and Designation. 836,585 shares of Preferred Stock, without par value of the Corporation are hereby constituted as a series of Preferred Stock, without par value and designated as $4.30 Cumulative Preferred Stock (hereinafter called the "$4.30 Preferred Stock"). (2) Dividends. The holders of shares of the $4.30 Preferred Stock shall be entitled to receive cash dividends, when and as declared by the Board of Directors of the Corporation, out of assets legally available for such purpose, at the rate determined as provided below. Such dividends shall be cumulative from the date of original issue of such shares and shall be payable semi-annually in arrears, when and as declared by the Board of Directors of the Corporation, on the last day of March and September in each year to holders of record, in each case, on the last business day of the calendar month next preceding the dividend payment date (and the semi-annual dividend periods shall commence on the first day following each dividend payment date and end on the next succeeding dividend payment date). Dividends on the $4.30 Preferred Stock for semi-annual dividend periods will be payable at the rate of $4.30 per annum from the date of original issue. The amount of dividends payable on each share of $4.30 Preferred Stock for each full semi-annual dividend period shall be computed by dividing the dividend rate by two and applying the dividend rate to each outstanding share. (3) Liquidation Preference. The amount to which shares of $4.30 Preferred Stock shall be entitled upon liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, shall be $100.00 per share, plus an amount equal to all accrued and unpaid dividends, if any, thereon to the date fixed for payment, whether or not earned or declared, and no more. Such amount to be set apart from holders or paid to holders out of the assets of the Corporation before any distribution is made to or set apart for holders of the Corporation's Common Stock. (4) Redemption. (a) The shares of the $4.30 Preferred Stock shall be subject to redemption in whole or in part at the option of the Corporation, by vote of the Board of Directors, at $100.00 per share, plus an amount equal to all accrued and unpaid dividends, if any, thereon to the date fixed for redemption, whether or not earned or declared, and no more. If less than all of the outstanding shares of $4.30 Preferred Stock are to be redeemed, the shares to be redeemed shall be determined by lot in such usual manner and subject to such regulations as the Board of Directors in its sole discretion shall prescribe. (b) At least 30 days prior to the date fixed for the redemption of shares of the $4.30 Preferred Stock, a written notice shall be mailed to each holder of record of shares of $4.30 Preferred Stock to be redeemed in a postage prepaid envelope addressed to such holder at his post office address as shown on the records of the Corporation, notifying such holder of the election of the Corporation to redeem such shares stating the date fixed for redemption thereof (the "redemption date"), and calling upon such holder to surrender to the Corporation on the redemption date at the place designated in such notice his certificate or certificates representing the number of shares specified in such notice of redemption. (c) On or after the redemption date each holder of shares of $4.30 Preferred Stock to be redeemed shall present and surrender his certificate or certificates for such shares to the Corporation at the place designated in such notice and thereupon the redemption price of such shares shall be paid to or on the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. (d) In case less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (e) From and after the redemption date (unless default shall be made by the Corporation in payment of the redemption price) all dividends on the shares of $4.30 Preferred Stock designated for redemption in such notice shall cease to accrue, and all rights of the holders thereof as stockholders of the Corporation, except the right to receive the redemption price thereof upon the surrender of certificates representing the same, shall cease and determine and such shares shall not thereafter be transferred (except with the consent of the Corporation) on the books of the Corporation, and such shares shall not be deemed to be outstanding for any purpose whatsoever. (f) At its election, prior to the redemption date, the Corporation may deposit the redemption price of the shares of $4.30 Preferred Stock called for redemption in trust for the holders thereof with a bank or trust company (having a capital and surplus of not less than $1,000,000) in the City of Chicago, Illinois or in the Borough of Manhattan, City and State of New York or in any other city in which the Corporation at the time shall maintain a transfer agency with respect to such stock, in which case such redemption notice shall state the date of such deposit, shall specify the office of such bank or trust company as the place of payment of the redemption price, and shall call upon such holders to surrender the certificates representing such shares at such place on or after the date fixed in such redemption notice (which shall not be later than the redemption date) against payment of the redemption price. From and after the making of such deposit, the shares of $4.30 Preferred Stock so designated for redemption shall not be deemed to be outstanding for any purpose whatsoever, and the rights of the holders of such shares shall be limited to the right to receive the redemption price of such shares without interest, upon surrender of the certificates representing the same to the Corporation at said office of such bank or trust company. (g) Any moneys so deposited which shall remain unclaimed by the holders of such $4.30 Preferred Stock at the end of six years after the redemption date shall be returned by such bank or trust company to the Corporation after which the holders of the $4.30 Preferred Stock shall have no further interest in such moneys. (5) Shares to be Retired. All shares of $4.30 Preferred Stock purchased or redeemed by the Corporation shall be retired and cancelled and shall be restored to the status of authorized but unissued shares of the class of Preferred Stock without par value, without designation as to series, and may thereafter be issued, but not as shares of $4.30 Preferred Stock. (6) Conversion or Exchange. The holders of shares of $4.30 Preferred Stock shall not have any rights herein to convert such shares into or exchange such shares for shares of any other series of any class or classes of capital stock (or any other security) of the Corporation. (7) Voting Rights. (a) Each holder of $4.30 Preferred Stock shall be entitled to one vote for each share held on each matter submitted to a vote of stockholders of the Corporation and, except as otherwise herein or by law provided, the $4.30 Preferred Stock, the Common Stock of the Corporation, and any other capital stock of the Corporation at the time entitled thereto, shall vote together as one class, except that while the holders of $4.30 Preferred Stock, voting as a class, are entitled to elect two directors as hereinafter provided, they shall not be entitled to participate with the Common Stock (or any other capital stock as stated above) in the election of any other directors. (b) In case at any time three or more full semi- annual dividends (whether consecutive or not) on the $4.30 Preferred Stock shall be in arrears, then during the period (the "Class Voting Period") commencing with such time and ending with the time when all arrears in dividends on the $4.30 Preferred Stock shall have been paid and the full dividend on the $4.30 Preferred Stock for the then current semi-annual dividend period shall have been declared and paid or set aside for payment, at any meeting of the stockholders of the Corporation held for the election of directors during the Class Voting Period, the holders of $4.30 Preferred Stock represented in person or by proxy at said meeting shall be entitled, as a class, to the exclusion of the holders of all other classes of stock of the Corporation, to elect two directors of the Corporation, each share of $4.30 Preferred Stock entitling the holder thereof to one vote. (c) Any director who shall have been elected by holders of $4.30 Preferred Stock or by any director so elected as herein contemplated, may be removed at any time during a Class Voting Period, either for or without cause, by, and only by, the affirmative votes of the holders of record of a majority of the outstanding shares of $4.30 Preferred Stock given at a special meeting of such stockholders called for the purpose, and any vacancy thereby created may be filled during such Class Voting Period by the holders of $4.30 Preferred Stock present in person or represented by proxy at such meeting. Any director to be elected by the Board of Directors of the Corporation to replace a director elected by holders of $4.30 Preferred Stock or elected by a director as provided for in this sentence shall be elected by the remaining director previously elected by the holders of $4.30 Preferred Stock. At the end of the Class Voting Period the holders of $4.30 Preferred Stock shall be automatically divested of all voting power vested in them under this resolution but subject always to the subsequent vesting hereunder of voting power in the holders of $4.30 Preferred Stock in the event of any similar default or defaults thereafter. (8) Ranking. The $4.30 Preferred Stock shall rank on a parity with the Corporation's 8-1/4% Cumulative Preferred Stock, Series 1992-A, 7.35% Cumulative Preferred Stock, Series 1993-A, $4.50 Cumulative Preferred Stock and 5% Cumulative Preferred Stock as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and shall rank prior to the Corporation's Common Stock and Series A Junior Participating Preferred Stock as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary, and prior to any other series of stock authorized to be issued by the Corporation which ranks junior to the Corporation's 8-1/4% Cumulative Preferred Stock, Series 1992-A, 7.35% Cumulative Preferred Stock, Series 1993-A, $4.50 Cumulative Preferred Stock and 5% Cumulative Preferred Stock as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up, whether voluntary or involuntary. (9) Amendments. While any $4.30 Preferred Stock is outstanding, the Corporation shall not alter or change the preferences, special rights or powers of the $4.30 Preferred Stock so as to adversely affect the $4.30 Preferred Stock without the affirmative consent (given in writing or at a meeting duly called for the purpose) of the holders of at least two-thirds (2/3rds) of the aggregate number of shares of $4.30 Preferred Stock then outstanding. "FURTHER RESOLVED, that the Chairman, President, or any Vice President, together with the Secretary or an Assistant Secretary, of the Corporation are hereby authorized and directed to execute, acknowledge, file with the Delaware Secretary of State, and record in New Castle County, Delaware, a Certificate of Designation, Preferences and Rights of the $4.30 Preferred Stock when such officers of the Corporation shall in their sole discretion consider such action to be necessary or advisable; and "FURTHER RESOLVED, that the form of certificates for the $4.30 Preferred Stock which form of certificate has been presented to this meeting, and a copy of which the Secretary or an Assistant Secretary is instructed to mark for identification and file with the corporate records, is hereby approved, the facsimile signatures of the officers of the Corporation contained on the certificates are adopted as the valid and binding signatures of the officers so signing, and the proper corporate officers are authorized on behalf of and under the corporate seal of the Corporation to execute and deliver the said certificates in substantially the form presented with such changes therein as may be approved by the officers executing the same, execution thereof to be conclusive evidence of such approval; and "FURTHER RESOLVED, that application be made to the New York Stock Exchange, Inc. (the "Exchange") for listing of the $4.30 Preferred Stock upon official notice of issuance of the $4.30 Preferred Stock and that Messrs. J. W. Blenke, P. R. Shay and P. D. Schwartz or any counsel designated by any of the foregoing individuals, be and each hereby are authorized and designated by the Corporation to appear before the Exchange in furtherance of the listing of said $4.30 Preferred Stock, including authority to file or make any such changes in the said applications or any agreements relevant thereto and to execute any and all documents on behalf of the Corporation as may be necessary or desirable to conform with the requirements for listing; and "FURTHER RESOLVED, that the officers of the Corporation, or any counsel designated thereby, are hereby severally authorized to execute on behalf of the Corporation and file with appropriate authorities such applications, statements, certificates, consents, and other documents as may be necessary for the registration or qualification of the $4.30 Preferred Stock under the securities laws of the states of the United States in which such securities are required to be registered or qualified, and any actions having previously been taken are hereby authorized, approved and ratified; and "FURTHER RESOLVED, that Harris Trust and Savings Bank ("Harris Bank") is hereby appointed as transfer agent and registrar for the $4.30 Preferred Stock upon such terms as the officers of the Corporation consider necessary or advisable; and "FURTHER RESOLVED, that for the purpose of the original issue of the shares of $4.30 Preferred Stock, Harris Bank, as the Corporation's transfer agent and registrar, is authorized and directed to issue and is authorized to register and deliver certificates representing an aggregate of up to 836,585 shares of $4.30 Preferred Stock of the Corporation all in accordance with instructions from the officers of the Corporation; and "FURTHER RESOLVED, that the $4.30 Preferred Stock shall be without par value; and "FURTHER RESOLVED, that the officers of the Corporation are hereby authorized and directed on behalf of the Corporation to take and cause to be taken all action necessary or desirable to carry out the terms, implications and intent of these resolutions, and to consummate the transactions contemplated therein." IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation, Preferences and Rights to be signed by David A. Schoenholz, Executive Vice President and Chief Financial Officer of the Corporation, and attested by Patrick D. Schwartz, Associate General Counsel and Assistant Secretary, this 30th day of June, 1998. HOUSEHOLD INTERNATIONAL, INC. By: /s/ David A. Schoenholz ------------------------- David A. Schoenholz Executive Vice President- Chief Financial Officer Attest: /s/ Patrick D. Schwartz - ----------------------------- Patrick D. Schwartz Associate General Counsel and Assistant Secretary U:\LAW\EDGAR\IRCOI.WP EX-3.2 3 HOUSEHOLD INTERNATIONAL, INC. Bylaws ______________ (As in effect June 4, 1998) _________________________________________________________________ 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 President, Chief Executive Officer 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 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 120 days nor more than 150 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 150th day prior to such annual meeting and not later than the close of business on the later of the 120th 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 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 150th day prior to such special meeting and not later than the close of business on the later of the 120th 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. (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 President, Chief Executive Officer, 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. 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 duties incident to the office of Chairman as may be prescribed by the Board. 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. In the absence or inability of the Chief Executive Officer to act, the Chairman of the Executive Committee of the Board shall perform the duties of the Chief Executive Officer. 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." 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 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 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. U:\LAW\EDGAR\IBYLAWS.AS1 EX-10.1 4 1 HOUSEHOLD INTERNATIONAL 1998 KEY EXECUTIVE BONUS PLAN 2 HOUSEHOLD INTERNATIONAL ----------------------- 1998 KEY EXECUTIVE BONUS PLAN ----------------------------- I. CONCEPT ------- The Household International 1998 Key Executive Bonus Plan (the "Plan") is a short-term incentive plan that is intended to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and is designed to award "performance based" compensation as determined in accordance with that provision of the Code. Awards will be based solely on the return on equity ("ROE") of Household International, Inc. and its consolidated subsidiaries (the "Company") provided, however, that the Compensation Committee of the Board of Directors shall have the discretion to reduce any participant's award based on (1) other financial performance criteria of the Company or of certain subsidiaries or business units of the Company; and (2) on an evaluation of each participant's individual performance. Performance goals and award opportunities will be determined prior to the beginning of each Plan period (which will generally be a calendar year), or at a later date as allowed by Internal Revenue Service ("IRS") notice or regulation, by the Compensation Committee and will be communicated to each Plan participant. II. PARTICIPATION ------------- Participation in the Plan will be restricted to the key executives of Household International, Inc. whose positions are set forth on Attachment A hereto (which exhibit may be changed at any time by the Compensation Committee). Participants will share a bonus pool calculated as a percentage of the net income of the Company as reported in the audited financial statements of the Company, which net income shall be calculated without regard to the bonuses to be paid hereunder. The Compensation Committee will establish the maximum bonus opportunity available to such participant, stated as a percentage of the entire bonus pool. The sum of the individual percentages of the pool assigned to each participant will not exceed 100 percent. Any changes in the key executives participating in the Plan will be made by the Compensation Committee. III. LEVEL OF AWARDS --------------- The bonus pool will equal 5% of the portion of the Company's net income that exceeds the amount of net income that would have resulted if a 12% ROE had been achieved. Thus, unless actual ROE exceeds 12%, the amount of the bonus pool will be zero. For purposes of this Plan, the Company's net income means the consolidated net income of the Company pursuant to its audited financial statements. ROE shall be calculated by taking the amount of net income determined as above, and dividing it by the average common shareholders' equity for the year, excluding any adjustments related to investment securities under FASB 115. Prior to each Plan period (or at a later date as allowed by IRS notice or regulation), the Compensation Committee of the Board of Directors may establish a dollar cap for the bonus pool. In addition, and within that same timeframe, the Compensation Committee will establish the percentage of the bonus pool that will be allocated to each participant. However, no more than 50% of the bonus pool for any Plan year may be allocated to any one participant, and the sum of the bonus pool percentages which are allocated to all participants shall not exceed 100%. 3 Prior to each Plan period (or at a later date as allowed by IRS notice or regulation), the Chief Executive Officer ("CEO") of the Company will recommend for approval by the Compensation Committee the minimum ROE objective that must be met, in order to pay bonuses under this Plan to any participant at that participant's allocated bonus pool percentage level. This minimum ROE objective will not be less than 12%. If the Compensation Committee approves the aforementioned minimum ROE objective, this objective shall be deemed to be established for the applicable participant for the applicable Plan period and shall be deemed to be part of this Plan for said Plan period. Subject to the Compensation Committee's negative discretion described in the next paragraph, attainment of the minimum ROE objective will entitle the participant to his/her allocated percentage of the bonus pool. The CEO will also recommend for approval by the Compensation Committee certain other financial performance indicators for the Company or one or more subsidiaries or business units and/or individual goals, which may include specific targets for financial performance goals, which the Compensation Committee may, in its sole discretion, take into account solely for purposes of determining whether it should reduce or eliminate the bonus otherwise due to a participant by virtue of the Company having met the participant's minimum ROE objective. The exercise by the Compensation Committee of this negative discretion with respect to one participant may not result in an increase in the amount of bonus payable to another participant. IV. DETERMINATION OF AWARDS ----------------------- A. Approval of Goals/Awards ------------------------ The Compensation Committee of the Board of Directors must approve the minimum ROE objective prior to the beginning of any Plan period for all participants in the Plan (or at a later date as allowed by IRS notice or regulation). This goal will be the sole criteria for measuring performance and determining the bonus for that period. The Compensation Committee will solely determine whether the minimum ROE objective has been satisfied for all participants in the Plan, as well as the total amount of the bonus pool, and prior to payment of any bonus hereunder will certify in writing as to the satisfaction of the minimum ROE objective and the amount of the bonus pool to the Board of Directors of the Company. Notwithstanding anything contained herein to the contrary, the Compensation Committee may, however, at its sole discretion, reduce bonus awards in light of other financial performance indicators, individual performance of the participant, overall business conditions or other circumstances. V. PAYMENT OF AWARDS ----------------- Awards will be paid as soon as practicable at the end of the Plan period, subject to all required tax withholdings. Awards may be paid in cash, shares of the Company's common stock, or some combination thereof at the sole discretion of the Compensation Committee. 4 VI. ADMINISTRATIVE MATTERS ---------------------- A. Position Changes ---------------- Normally awards, provided the goals have been met, will be pro-rated according to the portion of the Plan period that an incumbent is eligible for the bonus. However, the Compensation Committee shall have the right to review each individual case and take such action as it deems appropriate consistent with the intent and purposes of this Plan. B. Effect on Benefits ------------------ Payments made under this Plan shall be included in an employee's income for purposes of determining pension benefits, life insurance, long-term disability, and participation in the Company's TRIP plan. C. Termination of Employment ------------------------- Normally awards, provided the goals therefore have been met, will be pro-rated in the case of death, permanent and total disability, or retirement under one of the Company's pension plans during a Plan period. If a participant terminates employment for any other reason prior to the last working day of a Plan period, he will normally forfeit any right to an award for the Plan period. Notwithstanding the foregoing, however, the Compensation Committee shall have the right to review each individual case and take such action as it deems appropriate consistent with the intent and purposes of this Plan. D. Administration of the Plan -------------------------- The Plan shall be administered solely by the Compensation Committee. Any and all determinations made by the Compensation Committee in connection with this Plan shall be final and binding on the Company and each participant in the Plan. Neither eligible participation in the Plan, nor award payments thereunder shall guarantee an employee any right to continued employment. The Plan does not give any employee a right or claim to an award under the Plan. The Compensation Committee reserves the right to change or discontinue the Plan at any time; provided, however, that any new factors used to establish a goal, other than ROE, or any change in the formula used to calculate the amount of the bonus pool, must be approved by the stockholders of the Company. E. Stockholder Approval -------------------- The Plan shall be submitted to the stockholders of the Company at the 1998 annual meeting of stockholders. If the Plan is not approved by the stockholders by December 31, 1998, then this Plan shall be deemed to be null and void and any awards or grants made pursuant hereto shall automatically terminate. Thereafter, this Plan shall again be submitted to the stockholders for approval every fifth (5th) year or as may be required by the applicable provisions of the Code. H:\OS\BOARD\98KEBP.WP (as approved by stockholders on 5/13/98) 5 Attachment A ------------ 1998 KEY EXECUTIVE BONUS PLAN POSITIONS Chief Executive Officer Chief Operating Officer Group Executive Executive Vice President Senior Vice President 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. Six months ended June 30 1998 1997 - ------------------------------------------------------------------ Net income (loss) $ (143.8) $ 470.8 Income taxes 87.4 255.8 -------- -------- Income (loss) before income taxes (56.4) 726.6 -------- -------- Fixed charges: Interest expense 1,238.6 1,164.4 Interest portion of rentals 28.6 26.3 -------- -------- Total fixed charges 1,267.2 1,190.7 -------- -------- Total earnings as defined $1,210.8 $1,917.3 ======== ======== Ratio of earnings to fixed charges .96 1.61 ======== ======== Ratio of earnings to fixed charges, excluding merger and integration related costs 1.74 - ======== ======== Preferred stock dividends $ 12.9 $ 13.6 ======== ======== Ratio of earnings to combined fixed charges and preferred stock dividends .95 1.59 ======== ======== Ratio of earnings to combined fixed charges and preferred stock dividends, excluding merger and integration related costs 1.73 - ======== ======== For financial statement purposes, interest expense includes income earned on temporary investment of excess funds, generally resulting from over-subscriptions of commercial paper. Represents one-third of rentals, which approximates the portion representing interest. Preferred stock dividends are grossed up to their pretax equivalent based upon an effective tax rate, excluding merger and integration related costs, of 35.7 percent for the six months ended June 30, 1998 and 35.2 percent for the same period in 1997. The 1998 ratios have been negatively impacted by the one-time merger and integration related costs associated with our merger with Beneficial Corporation. As a result, ratios excluding these costs have also been presented for comparative purposes.
EX-21 6 Exhibit 21 SUBSIDIARIES OF HOUSEHOLD INTERNATIONAL, INC. - --------------------------------------------- As of June 30, 1998, 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% Craig-Hallum Corporation Delaware 100% Household Acquisition Corporation II Delaware 100% Household Bank, f.s.b U.S. 100% Beneficial Retail Services Inc. Delaware 100% Beneficial Service Corporation Delaware 100% Beneficial Service Corporation of Delaware Delaware 100% HHTS, Inc. Illinois 100% Household Bank (SB), N.A. U.S. 100% Household Affinity Funding Corporation Delaware 100% Household Service Corporation of Illinois, Inc. Illinois 100% Household Insurance Services, Inc. Illinois 100% Housekey Financial Corporation Illinois 100% Household Mortgage Services, Inc. Delaware 100% Household Capital Corporation Delaware 100% Household Commercial Canada Inc. Canada 100% Household Finance Corporation Delaware 100% Beneficial Corporation Delaware 100% Bencharge Credit Service Holding Company Delaware 100% Beneficial Credit Services of Connecticut Inc. Delaware 100% Beneficial Credit Servivces of Mississippi Inc. Delaware 100% Beneficial Credit Services of South Carolina Inc. Delaware 100% Beneficial Credit Services Inc. Delaware 100% Beneficial Arizona Inc. Delaware 100% Beneficial California Inc. Delaware 100% Beneficial Colorado Inc. Delaware 100% Beneficial Commercial Holding Corporation Delaware 100% Beneficial Commercial Corporation Delaware 100% Beneficial Leasing Group, Inc. Delaware 100% Neil Corporation Delaware 100% Silliman Corporation Delaware 100% Beneficial Connecticut Inc. Delaware 100% Beneficial Consumer Discount Company Pennsylvania 100% Beneficial Delaware Inc. Delaware 100% Beneficial Discount Co. of Virginia Delaware 100% Beneficial Finance Co. of West Virginia Delaware 100% Beneficial Finance Limited England 100% Beneficial Finance Services, Inc. Kansas 100% Beneficial Florida Inc. Delaware 100% Beneficial Mortgage Co. of Florida Delaware 100% Beneficial Georgia Inc. Delaware 100% Beneficial Hawaii Inc. Delaware 100% Beneficial Homeowners Inc. Delaware 100% Beneficial Idaho Inc. Delaware 100% Beneficial Illinois Inc. Delaware 100% Beneficial Income Tax Service Holding Co., Inc. Delaware 100% Beneficial Tax Masters Inc. Delaware 100% Beneficial Indiana Inc. Delaware 100% Beneficial Insurance Group Holding Company Delaware 100% Beneficial Investment Co. Delaware 100% Beneficial New York Inc. New York 100% Beneficial Homeowner Service Corporation Delaware 100% Beneficial Iowa Inc. Iowa 100% Beneficial Kansas Inc. Kansas 100% Beneficial Kentucky Inc. Delaware 100% Beneficial Land Company, Inc. New Jersey 100% Beneficial Loan & Thrift Co. Minnesota 100% Beneficial Louisana Inc. Delaware 100% Beneficial Maine Inc. Delaware 100% Beneficial Management Corporation Delaware 100% Beneficial Management Institute, Inc. New York 100% Beneficial Management Corporation of America Delaware 100% Beneficial Franchise Company Inc. Delaware 100% Beneficial Mark Holding Inc. Delaware 100% Beneficial Trademark Co. Delaware 100% Beneficial Management Headquarters, Inc. New Jersey 100% Beneficial Facilities Corporation New Jersey 100% Beneficial Maryland Inc. Delaware 100% Beneficial Massachusetts Inc. Delaware 100% Beneficial Michigan Inc. Delaware 100% Beneficial Minnesota Inc. Delaware 100% Beneficial Mississippi Inc. Delaware 100% Beneficial Missouri, Inc. Delaware 100% Beneficial Montana Inc. Delaware 100% Beneficial Mortgage Holding Company Delaware 100% Beneficial Service Corporation of New Jersey Delaware 100% Beneficial Nebraska Inc. Nebraska 100% Beneficial Nevada Inc. Delaware 100% Beneficial New Hampshire Inc. Delaware 100% Beneficial New Jersey Inc. Delaware 100% Beneficial New Mexico Inc. Delaware 100% Beneficial North Carolina Inc. Delaware 100% Beneficial Oklahoma Inc Delaware 100% Beneficial Oregon Inc. Delaware 100% Beneficial Real Estate Company, Inc. New Jersey 100% Beneficial Rhode Island Inc. Delaware 100% Beneficial South Carolina Inc. Delaware 100% Beneficial South Dakota Inc. Delaware 100% Beneficial Systems Development Corporation Delaware 100% Beneficial Technology Corporation Delaware 100% Beneficial Telemarketing Services Inc. Delaware 100% Beneficial Tennessee Inc. Tennessee 100% Beneficial Texas Inc. Texas 100% Beneficial Utah Inc. Delaware 100% Beneficial Virginia Inc. Delaware 100% Beneficial Washington Inc. Delaware 100% Beneficial West Virginia, Inc. West Virginia 100% Beneficial Wisconsin Inc. Delaware 100% Beneficial Wyoming Inc. Wyoming 100% Benevest Group Inc. Delaware 100% Benevest Services, Inc. Washington 100% BMC Holding Company Delaware 100% Beneficial Mortgage Corporation Delaware 100% Beneficial Mortgage Services, Inc. Delaware 100% Bon Secour Properties Inc. Alabama 100% Capital Financial Services Inc. Nevada 100% Corporate Security Engineering Services, Inc. New Jersey 100% Garrison Platt Properties Inc. Florida 100% Harbour Island Inc. Florida 100% Harbour Island Property Management Inc. Florida 100% Harbour Island Security Co., Inc. Florida 100% Harbour Island Venture One, Inc. Florida 100% Harbour Island Venture Three, Inc. Florida 100% Harbour Island Venture Four, Inc. Florida 100% Tampa Island Transit Company, Inc. Florida 100% Personal Mortgage Holding Company Delaware 100% Personal Mortgage Corporation Delaware 100% Southern Trust Company Delaware 100% Southwest Beneficial Finance, Inc. Illinois 100% Wasco Properties, Inc. Delaware 100% Beneficial Real Estate Joint Venture, Inc. Delaware 100% Beneficial Insurance Group Holding Company Delaware 100% BFC Agency, Inc. Delaware 100% BFC Insurance Agency of America Wyoming 100% Beneficial Bank plc England 99.9% Beneficial Financial Services Limited England 100% Beneficial Financing Limited England 100% Beneficial Leasing Limited England 100% Beneficial Trust Investments Limited England 100% Beneficial Trust (Guernsey) Limited England 100% Beneficial Trust (Jersey) Limited England 100% Beneficial Trust Nominees Limited England 100% Endeavour Personal Financial Limited England 100% Security Trust Limited England 100% Sterling Credit Limited England 100% Sterling Credit Management Limited England 100% The Loan Corporation Limited England 100% Extracard Corp. Delaware 100% BFC Insurance Agency of Nevada Nevada 100% Beneficial Direct, Inc. New Jersey 100% Beneficial Insurance Group, Inc. Delaware 100% Service Administrators, Inc. (USA) Colorado 100% Service General Insurance Company Ohio 100% Beneficial Ohio Inc. Delaware 100% Service Management Corporation Ohio 100% B.I.G. Insurance Agency, Inc. Ohio 100% The Central National Life Insurance Company of Omaha Delaware 100% First Central National Life Insurance Company of New York New York 100% Wesco Insurance Company Delaware 100% Southwest Texas General Agency, Inc. Texas 100% Beneficial Mortgage Holding Company Delaware 100% Beneficial Excess Servicing Inc. Delaware 100% Beneficial Home Mortgage Loan Corp. Delaware 100% Beneficial Mortgage Co. of Arizona Delaware 100% Beneficial Mortgage Co. of Colorado Delaware 100% Beneficial Mortgage Co. of Connecticut Delaware 100% Beneficial Mortgage Co. of Georgia Delaware 100% Beneficial Mortgage Co. of Idaho Delaware 100% Beneficial Mortgage Co. of Indiana Delaware 100% Beneficial Mortgage Co. of Kansas, Inc. Delaware 100% Beneficial Mortgage Co. of Louisiana Delaware 100% Beneficial Mortgage Co. of Maryland Delaware 100% Beneficial Mortgage Co. of Massachusetts Delaware 100% Beneficial Mortgage Co. of Mississippi Delaware 100% Beneficial Mortgage Co. of Missouri, Inc. Delaware 100% Beneficial Mortgage Co. of Nevada Delaware 100% Beneficial Mortgage Co. of New Hampshire Delaware 100% Beneficial Mortgage Co. of North Carolina Delaware 100% Beneficial Mortgage Co. of Oklahoma Delaware 100% Beneficial Mortgage Co. of Rhode Island Delaware 100% Beneficial Mortgage Co. of South Carolina Delaware 100% Beneficial Mortgage Co. of Texas Delaware 100% Beneficial Mortgage Co. of Utah Delaware 100% Beneficial Mortgage Co. of Virginia Delaware 100% HFC Auto Credit Corp. Delaware 100% HFC Card Funding Corporation Delaware 100% HFC Funding Corporation Delaware 100% HFC Revolving Corporation Delaware 100% HFS Funding Corporation Delaware 100% Household Acquisition Corporation Delaware 100% HFTA Corporation Delaware 100% First Credit Corporation Delaware 100% HFTA Consumer Discount Company Pennsylvania 100% HFTA First Financial Corporation California 100% HFTA Second Corporation Alabama 100% HFTA Third Corporation Delaware 100% HFTA Fourth Corporation Minnesota 100% HFTA Fifth Corporation Nevada 100% HFTA Sixth Corporation Nevada 100% HFTA Seventh Corporation New Jersey 100% HFTA Eighth Corporation Ohio 100% HFTA Ninth Corporation West Virginia 100% HFTA Tenth Corporation Washington 100% Household Finance Corporation of Hawaii Hawaii 100% Household Realty Corporation (1997) Limited B.C. 100% Pacific Finance Loans California 100% Household Automotive Finance Corporation Delaware 100% ACC Funding Corp. Delaware 100% ACC Receivables Corp. Delaware 100% Household Automotive Credit Corporation Delaware 100% OFL-A Receivables Corp. Delaware 100% Household Auto Receivables Corporaton Nevada 100% Household Bank (Nevada), N.A. U.S. 100% Household Card Funding Corporation Delaware 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 Consumer Loan Corporation Nevada 100% Household Corporation Delaware 100% Household Credit Services, Inc. Delaware 100% Household Credit Services of Mexico, Inc. Delaware 100% Household Finance Receivables Corporation II Delaware 100% Household Financial Services, Inc. Delaware 100% Household Group, Inc. Delaware 100% AHLIC Investment Holdings Corporation Delaware 100% Arcadia General Insurance Company Arizona 100% Arcadia Insurance Administrators, Inc. Delaware 100% Arcadia National Life Insurance Company Arizona 100% Cal-Pacific Services, Inc. California 100% HFS Investments, Inc. Nevada 100% Household Insurance Agency, Inc. Michigan 100% Household Insurance Company Michigan 100% Household Life Insurance Co. of Arizona Arizona 100% Household Life Insurance Company Michigan 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% HCFS Business Equipment Corporation Delaware 100% HFC Commercial Realty, Inc. Delaware 100% G.C. Center, Inc. Delaware 100% Com Realty, Inc. Delaware 100% Lighthouse Property Corporation 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% 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% OLC, Inc. Rhode Island 100% OPI, Inc. Virginia 100% Household Finance Consumer Discount Company Pennsylvania 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 California Delaware 100% Household Finance Corporation of Nevada Delaware 100% Household Finance Realty Corporation of Delaware 100% New York Household Finance Corporation of West Virginia West Virginia 100% Household Finance Industrial Loan Company Washington 100% 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 Connecticut, Inc. Connecticut 100% HFC Agency of Michigan, Inc. Michigan 100% HFC Agency of Missouri, Inc. Missouri 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% 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% Pacific Agency Inc. Nevada 100% Sixty-First HFC Leasing Corporation Delaware 100% Household Pooling Corporation Nevada 100% Household Receivables Acquisition Company Delaware 100% Household REIT Corporation Nevada 100% Household Financial Group, Ltd. Delaware 100% Household Global Funding, Inc. Delaware 100% Household International (U.K.) Limited England 100% D.L.R.S. Limited Cheshire 100% HFC Bank plc England 100% Hamilton Financial Planning Services Limited England 100% Hamilton Insurance Company Limited England 100% Hamilton Life Assurance Co. Limited England 100% 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 Reinsurance Ltd. Bermuda 100% U:\LAW\EDGAR\IEX21.WP (8/13/98) EX-27 7 FINANCIAL DATA SCHEDULE
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 6-MOS DEC-31-1998 JUN-30-1998 364,700 3,436,600 40,699,400 (2,620,100) 0 0 1,237,200 (792,100) 49,502,300 0 25,740,300 0 264,500 541,400 5,886,400 49,502,300 0 4,451,300 0 2,497,800 0 780,900 1,229,000 (56,400) 87,400 (143,800) 0 0 0 (143,800) (.31) (.31) FINANCIAL STATEMENTS OF THE COMPANY WERE PREPARED IN ACCORDANCE WITH FINANCIAL INSTITUTION INDUSTRY STANDARDS. ACCORDINGLY, THE COMPANY'S BALANCE SHEETS WERE NON-CLASSIFIED. REPRESENTS BASIC EPS COMPUTED IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE." AMOUNT REFLECTS HOUSEHOLD'S 3-FOR-1 STOCK SPLIT EFFECTED IN THE FORM OF A STOCK DIVIDEND AND PAID ON JUNE 1, 1998. REPRESENTS DILUTED EPS COMPUTED IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE." AMOUNT REFLECTS HOUSEHOLD'S 3-FOR-1 STOCK SPLIT EFFECTED IN THE FORM OF A STOCK DIVIDEND AND PAID ON JUNE 1, 1998.
EX-27.1 8 RESTATED FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1997 JUN-30-1997 635,500 2,896,300 39,026,300 (2,293,700) 0 0 1,245,000 (705,800) 46,852,900 0 24,405,600 0 264,500 536,700 5,435,200 46,852,900 0 4,104,900 0 1,494,700 0 729,500 1,154,100 726,600 255,800 470,800 0 0 0 470,800 1.01 .99 RESTATED FINANCIAL STATEMENTS OF THE COMPANY WERE PREPARED IN ACCORDANCE WITH FINANCIAL INSTITUTION INDUSTRY STANDARDS. ACCORDINGLY, THE COMPANY'S BALANCE SHEETS WERE NON-CLASSIFIED. REPRESENTS BASIC EPS COMPUTED IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE." AMOUNT HAS BEEN RESTATED AS A RESULT OF HOUSEHOLD'S MERGER WITH BENEFICIAL, ACCOUNTED FOR AS A POOLING OF INTERESTS, AND FOR HOUSEHOLD'S 3-FOR-1 STOCK SPLIT EFFECTED IN THE FORM OF A STOCK DIVIDEND AND PAID ON JUNE 1, 1998. REPRESENTS DILUTED EPS COMPUTED IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE." AMOUNT HAS BEEN RESTATED AS A RESULT OF HOUSEHOLD'S MERGER WITH BENEFICIAL, ACCOUNTED FOR AS A POOLING OF INTERESTS, AND FOR HOUSEHOLD'S 3-FOR-1 STOCK SPLIT EFFECTED IN THE FORM OF A STOCK DIVIDEND AND PAID ON JUNE 1, 1998.
EX-99.1 9 EXHIBIT 99.1 ------------ HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES DEBT AND PREFERRED STOCK SECURITIES RATINGS
- ------------------------------------------------------------------------------------------------------ Standard Moody's Fitch Duff & Phelps & Poor's Investors Investors Credit Thomson Corporation Service Services Rating Co. BankWatch - ------------------------------------------------------------------------------------------------------ At June 30, 1998 - ------------------------------------------------------------------------------------------------------ Household International, Inc. Senior debt A A3 A A A Commercial paper A-1 P-2 F-1 Duff 1 TBW-1 Preferred stock A- baa1 A- A- BBB+ ----------- --------- --------- ------------- --------- Household Finance Corporation Senior debt A A2 A+ A+ A+ Senior subordinated debt A- A3 A A A Commercial paper A-1 P-1 F-1 Duff 1+ TBW-1 ----------- --------- --------- ------------- --------- Beneficial Corporation Senior debt A A2 A+ A NR Commercial paper A-1 P-1 F-1 Duff 1 NR ----------- --------- --------- ------------- --------- Household Bank, f.s.b. Senior debt A A2 A A NR Subordinated debt A- A3 A- A- A Certificates of deposit (long/short-term) A/A-1 A2/P-1 A/F-1 A/Duff 1 TBW-1 Thrift notes A-1 P-1 F-1 Duff 1 TBW-1 - ------------------------------------------------------------------------------------------------------
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