SEC Info - HSBC Finance Corp - ‘10-Q’ for 6/30/97

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HSBC Finance Corp – ‘10-Q’ for 6/30/97

As of: Wednesday, 8/13/97 · For: 6/30/97 · Accession #: 354964-97-19 · File #: 1-08198

  As Of                Filer                Filing    For·On·As Docs:Size

 8/13/97  HSBC Finance Corp                 10-Q        6/30/97    5:77K

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      24    138K 
 2: EX-12       Statement re: Computation of Ratios                    1      7K 
 3: EX-21       Subsidiaries of the Registrant                         5     20K 
 4: EX-27       Financial Data Schedule (Pre-XBRL)                     2±     7K 
 5: EX-99.1     Miscellaneous Exhibit                                  1      7K

10-Q — Quarterly Report
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Credit Loss Reserves Delinquency Exhibits and Reports on Form 8-K Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Submission of Matters to a Vote of Security-Holders
1	1st Page - Filing Submission
3	Item 1. Financial Statements
13	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
19	Credit Loss Reserves
20	Delinquency
22	Item 4. Submission of Matters to a Vote of Security-Holders
"	Item 6. Exhibits and Reports on Form 8-K

10-Q 1st Page of 24 TOC ↑Top Previous Next ↓Bottom Just 1st
 

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, 1997                                    
-------------     

OR                      

[ ]  TRANSACTION 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. EmployerIdentification 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, 1997, there were 106,807,865 shares of                              
registrant's common stock outstanding.                                          

10-Q 2nd Page of 24 TOC 1st Previous Next ↓Bottom Just 2nd

HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES                      

Table of Contents                     

PART I.   Financial Information                            Page                 
                                          ----
Item 1. Financial Statements                                                

Condensed Consolidated Statements of Income                 
(Unaudited) - Three Months and Six Months                   
Ended June 30, 1997 and 1996                        2       

Condensed Consolidated Balance Sheets -                     
June 30, 1997 (Unaudited) and December 31, 1996     3       

Condensed Consolidated Statements of Cash Flows             
(Unaudited) - Six Months Ended                              
June 30, 1997 and 1996                              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      12       

PART II.  Other Information                                                     

Item 4. Submission of Matters to a Vote of                                  
Security-Holders                                   21       

Item 6. Exhibits and Reports on Form 8-K                   21               

Signature                                                  22               

10-Q 3rd Page of 24 TOC 1st Previous Next ↓Bottom Just 3rd

PART 1.   FINANCIAL INFORMATION                                                 

Item 1.   FINANCIAL STATEMENTS                                                  

Household International, Inc. and Subsidiaries                                  

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)                         
-------------------------------------------------------                         

All amounts, except per share data, are stated in millions.                     

                                                                [Download Table]

--------------------------------------------------------------------------------- 
                                        Three months ended       Six months ended 
                                                  June 30,               June 30, 
                                          1997        1996        1997       1996 
--------------------------------------------------------------------------------- 
                                                                                  
Finance income                          $729.9      $701.3    $1,481.5   $1,380.8 
Interest income from noninsurance                                                 
 investment securities                    15.7        39.0        24.0       59.3 
Interest expense                         361.8       383.7       726.9      737.1 
                                        ------      ------    --------   -------- 
Net interest margin                      383.8       356.6       778.6      703.0 
Provision for credit losses on owned                                              
 receivables                             251.6       176.5       545.0      367.8 
                                        ------      ------    --------   -------- 
Net interest margin after provision for                                           
 credit losses                           132.2       180.1       233.6      335.2 
                                        ------      ------    --------   -------- 
Securitization income                    344.3       280.5       675.0      559.9 
Insurance revenues                        68.5        58.4       133.9      122.3 
Investment income                         28.9        36.3        62.1       93.2 
Fee income                                77.4        53.3       154.8      103.2 
Other income                              28.6       138.6        97.7      163.9 
                                        ------      ------    --------   -------- 
Total other revenues                     547.7       567.1     1,123.5    1,042.5 
                                        ------      ------    --------   -------- 
Salaries and fringe benefits             156.2       135.0       303.8      271.7 
Occupancy and equipment expense           50.1        62.9       104.0      115.3 
Other marketing expenses                 110.5       141.8       229.2      242.2 
Other servicing and administrative                                                
 expenses                                 84.6       156.4       194.0      262.2 
Policyholders' benefits                   48.3        53.2        95.3      126.4 
                                        ------      ------    --------   -------- 
Total costs and expenses                 449.7       549.3       926.3    1,017.8 
                                        ------      ------    --------   -------- 
Income before income taxes               230.2       197.9       430.8      359.9 
Income taxes                              79.9        73.3       149.0      124.8 
                                        ------      ------    --------   -------- 
Net income                              $150.3      $124.6    $  281.8    $ 235.1 
                                        ======      ======    ========    ======= 

Earnings per common share:                                                        
 Net income                             $150.3      $124.6    $  281.8    $ 235.1 
 Preferred dividends                      (2.9)       (4.2)       (6.1)      (8.3)
                                        ------      ------    --------    ------- 
Net income available to common                                                    
 shareholders                           $147.4      $120.4    $  275.7    $ 226.8 
                                        ======      ======    ========    ======= 
Average common and common equivalent                                              
 shares                                   99.6        98.4        99.2       98.5 
                                        ------      ------    --------    ------- 
 Net income per common share            $ 1.48      $ 1.22    $   2.78    $  2.30 
                                        ------      ------    --------    ------- 
Dividends declared per common share        .39         .34         .78        .68 
                                        ------      ------    --------    ------- 

See notes to interim condensed consolidated financial statements.               

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Household International, Inc. and Subsidiaries                                  

CONDENSED CONSOLIDATED BALANCE SHEETS                                           
-------------------------------------                                           

In millions, except share data.                                                 

                                                                [Download Table]

---------------------------------------------------------------------------
                                                  June 30,     December 31,
                                                      1997             1996
---------------------------------------------------------------------------
ASSETS                                          (Unaudited)                
------                                                                     
                                                                           
Cash                                             $   358.1        $   239.2
Investment securities                              2,311.1          2,282.0
Receivables, net                                  25,049.0         24,244.8
Acquired intangibles and goodwill, net             1,640.8            969.4
Properties and equipment, net                        334.8            353.1
Real estate owned                                    149.4            136.6
Other assets                                       1,357.9          1,369.4
                                                 ---------        ---------
Total assets                                     $31,201.1        $29,594.5
                                                 =========        =========

LIABILITIES AND SHAREHOLDERS' EQUITY                                       
------------------------------------                                       
Debt:                                                                      
  Deposits                                       $ 1,971.0       $ 2,365.1 
  Commercial paper, bank and other borrowings      6,011.2         6,428.1 
  Senior and senior subordinated debt (with                                
     original maturities over one year)           15,854.2        14,802.0 
                                                 ---------       --------- 
Total debt                                        23,836.4        23,595.2 
Insurance policy and claim reserves                1,255.2         1,205.3 
Other liabilities                                  1,640.9         1,472.8 
                                                 ---------       --------- 
Total liabilities                                 26,732.5        26,273.3 
                                                 ---------       --------- 
Company obligated mandatorily redeemable                                   
  preferred securities of subsidiary trusts*         175.0           175.0 
                                                 ---------       --------- 
Preferred stock                                      150.0           205.0 
                                                 ---------       --------- 
Common shareholders' equity:                                               
  Common stock, $1.00 par value, 250,000,000                               
     shares authorized, 124,331,175 and                                    
     115,231,175 shares issued at June 30, 1997                            
     and December 31, 1996, respectively             124.3           115.2 
  Additional paid-in capital                       1,387.8           397.3 
  Retained earnings                                3,273.0         3,076.8 
  Foreign currency translation adjustments          (126.2)         (126.7)
  Unrealized loss on investments, net                (22.7)          (12.9)
  Less common stock in treasury, 17,603,989 and                            
     18,165,921 shares at June 30, 1997 and                                
     December 31, 1996, respectively, at cost       (492.6)         (508.5)
                                                 ---------       --------- 
Total common shareholders' equity                  4,143.6         2,941.2 
                                                 ---------       --------- 
Total liabilities and shareholders' equity       $31,201.1       $29,594.5 
                                                 =========       ========= 

* As described in note 8 to the financial statements, the                       
sole asset of the two trusts are Junior Subordinated                        
Deferrable Interest Notes issued by Household                               
International, Inc. in June 1996 and June 1995, bearing                     
interest at 8.70 and 8.25 percent, respectively, with                       
principal balances of $103.1 and $77.3 million,                             
respectively, and due June 30, 2036 and June 30, 2025,                      
respectively.                                                               

See notes to interim condensed consolidated financial statements.               

10-Q 5th Page of 24 TOC 1st Previous Next ↓Bottom Just 5th

Household International, Inc. and Subsidiaries                                  

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)                     
----------------------------------------------------------                      

In millions.                                                                    

                                                                [Download Table]

-------------------------------------------------------------------------- 
Six months ended June 30                                1997          1996 
-------------------------------------------------------------------------- 
                                                                           
CASH PROVIDED BY OPERATIONS                                                
Net income                                        $    281.8    $    235.1 
Adjustments to reconcile net income to cash                                
  provided by operations:                                                  
  Provision for credit losses on owned                                     
   receivables                                         545.0         367.8 
  Insurance policy and claim reserves                   46.5          50.7 
  Depreciation and amortization                        123.1         119.7 
  Net realized gains from sales of assets              (64.6)       (119.2)
  Other, net                                            (9.2)        518.9 
                                                  ----------    ---------- 
Cash provided by operations                            922.6       1,173.0 
                                                  ----------    ---------- 
INVESTMENTS IN OPERATIONS                                                  
Investment securities:                                                     
  Purchased                                           (526.0)     (1,513.6)
  Matured                                              178.4         486.7 
  Sold                                                 341.7       1,994.2 
Short-term investment securities, net change             9.8        (336.1)
Receivables:                                                               
  Originations, net                                (12,786.5)    (12,789.7)
  Purchased                                           (435.1)     (3,675.7)
  Sold                                              15,099.2      13,802.1 
Purchase capital stock of Transamerica Financial                           
  Services Holding Company                          (1,065.0)          -   
Disposition of consumer banking operations:                                
  Assets sold, net                                       -           472.3 
  Deposits and other liabilities sold                    -        (2,807.8)
Acquisition of portfolios, net                           -          (620.1)
Properties and equipment purchased                     (32.8)        (35.7)
Properties and equipment sold                            6.1           7.1 
                                                  ----------    ---------- 
Cash increase (decrease) from investments in                               
 operations                                            789.8      (5,016.3)
                                                  ----------    ---------- 
FINANCING AND CAPITAL TRANSACTIONS                                         
Short-term debt and demand deposits, net change       (504.9)        (58.3)
Time certificates, net change                         (267.4)        544.9 
Senior and senior subordinated debt issued           3,799.7       4,875.1 
Senior and senior subordinated debt retired         (2,729.4)     (1,577.1)
Repayment of Transamerica Financial Services                               
 Holding Company debt                               (2,795.0)          -   
Policyholders' benefits paid                           (74.5)        (59.1)
Cash received from policyholders                       102.9         188.4 
Shareholders' dividends                                (85.6)        (74.4)
Purchase of treasury stock                               -           (35.8)
Redemption of preferred stock                          (55.0)          -   
Issuance of common stock                             1,006.6           8.0 
Issuance of company obligated mandatorily                                  
  redeemable preferred securities of                                       
  subsidiary trusts                                      -           100.0 
                                                  ----------    ---------- 
Cash increase (decrease) from financing and                                
  capital transactions                              (1,602.6)      3,911.7 
                                                  ----------    ---------- 
Effect of exchange rate changes on cash                  9.1          (2.1)
                                                  ----------    ---------- 
Increase in cash                                       118.9          66.3 
Cash at January 1                                      239.2         270.4 
                                                  ----------    ---------- 
Cash at June 30                                   $    358.1    $    336.7 
                                                  ==========    ========== 
Supplemental cash flow information:                                        
Interest paid                                     $    717.7    $    697.9 
                                                  ----------    ---------- 
Income taxes paid                                      133.5          73.5 
                                                  ----------    ---------- 

See notes to interim condensed consolidated financial statements.               

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Household International, Inc. and Subsidiaries                                  

FINANCIAL HIGHLIGHTS                                                            
--------------------                                                            

All dollar amounts are stated in millions.                                      

                                                                [Download Table]

--------------------------------------------------------------------------------- 
                                       Three Months Ended        Six Months Ended 
                                                 June 30,                June 30, 
                                         1997        1996         1997       1996 
--------------------------------------------------------------------------------- 
                                                                                  
Net income                           $  150.3    $  124.6     $  281.8   $  235.1 
                                     --------    --------     --------   -------- 
Revenues                              1,293.3     1,307.4      2,629.0    2,482.6 
                                     --------    --------     --------   -------- 
Return on average common                                                          
 shareholders' equity <F1>               18.7%       17.9%        18.0%      16.8%
                                     --------    --------     --------   -------- 
Return on average owned assets <F1>      2.09        1.71         1.93       1.62 
                                     --------    --------     --------   -------- 
Managed basis efficiency                                                          
 ratio, normalized <F2>                  36.3        43.4         37.3       42.4 
                                     --------    --------     --------   -------- 

All dollar amounts are stated in millions.                                      

                                                                [Download Table]

--------------------------------------------------------------------------- 
                                                  June 30,     December 31, 
                                                      1997             1996 
--------------------------------------------------------------------------- 
                                                                            
Total assets:                                                               
  Owned                                          $31,201.1        $29,594.5 
  Managed                                         51,013.7         48,120.9 
                                                 ---------        --------- 
Receivables:                                                                
  Owned                                          $24,797.5        $24,067.0 
  Serviced with limited recourse                  19,812.6         18,526.4 
                                                 ---------        --------- 
  Managed                                        $44,610.1        $42,593.4 
                                                 =========        ========= 
Total shareholders' equity as a percent                                     
  of owned assets <F3>                               14.32%           11.22%
                                                 ---------        --------- 
Total shareholders' equity as a percent                                     
  of managed assets <F3>                              8.76             6.90 
                                                 ---------        --------- 
<FN>                                                                        
<F1>  Annualized.                                                           

<F2>  Ratio of normalized operating expenses to managed net interest margin 
      and other revenues less policyholders' benefits.                      

<F3>  Total shareholders' equity at June 30, 1997 and December 31, 1996     
      includes common shareholders' equity, preferred stock and company     
      obligated mandatorily redeemable preferred securities of subsidiary   
      trusts.                                                               
</FN>                                                                       

See notes to interim condensed consolidated financial statements.               

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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. and its                             
subsidiaries (the "company") have been prepared in                              
accordance with generally accepted accounting principles                        
for interim financial information and with the instructions                     
to Form 10-Q and Article 10 of Regulation S-X. Accordingly,                     
they do not include all of the information and footnotes                        
required by generally accepted accounting principles for                        
complete financial statements. Certain prior period amounts                     
have been reclassified to conform with the current period's                     
presentation. In the opinion of management, all adjustments                     
(consisting of normal recurring accruals) considered                            
necessary for a fair presentation have been included.                           
Operating results for the three and six months ended June                       
30, 1997 are not necessarily indicative of the results that                     
may be expected for the year ending December 31, 1997. For                      
further information, refer to the consolidated financial                        
statements and footnotes thereto included in the company's                      
annual report on Form 10-K for the year ended December 31,                      
1996.                                                                           

2.   ACQUISITION AND STOCK OFFERING                                             
-----------------------------------                                             
On June 23, 1997, Household International and a wholly-                         
owned subsidiary of Household Finance Corporation (a wholly-                    
owned subsidiary of Household International) acquired                           
the capital stock of Transamerica Financial Services                            
Holding Company ("TFS"), the branch-based consumer finance                      
subsidiary of Transamerica Corporation ("TA"). The company                      
paid $1.1 billion for the stock of TFS and repaid                               
approximately $2.8 billion of TFS debt owed to affiliates                       
of TA. The acquisition added approximately $3.2 billion of                      
receivables, of which approximately $3.1 billion are home                       
equity loans secured primarily by home mortgages.  The                          
acquisition of TFS was accounted for as a purchase, and                         
accordingly, TFS' operations have been included in the                          
company's results of operations from June 24, 1997. The                         
acquisition of TFS was not material to the company's                            
consolidated financial statements.                                              

In June 1997, the company completed a public underwritten                       
offering of 9.1 million shares of its common stock for                          
approximately $1.0 billion. Net proceeds from the offering                      
were used to repay certain short-term borrowings in                             
connection with the acquisition of TFS.                                         

3.   INVESTMENT SECURITIES                                                      
--------------------------                                                      
Investment securities consisted of the following:                               

                                                                [Download Table]

------------------------------------------------------------------------------------
In millions.                              June 30, 1997            December 31, 1996
------------------------------------------------------------------------------------
                                   Amortized       Fair        Amortized        Fair
                                        Cost      Value             Cost       Value
------------------------------------------------------------------------------------
                                                                                    
AVAILABLE-FOR-SALE INVESTMENTS                                                      
Marketable equity securities        $  126.0   $  126.8         $  212.7    $  213.1
Corporate debt securities            1,208.0    1,190.3          1,081.4     1,070.5
U.S. government and federal                                                         
  agency debt securities               283.6      267.1            287.0       277.7
Other                                  695.9      695.8            690.5       690.5
                                    --------   --------         --------    --------
Subtotal                             2,313.5    2,280.0          2,271.6     2,251.8
Accrued investment income               31.1       31.1             30.2        30.2
                                    --------   --------         --------    --------
Total investment securities         $2,344.6   $2,311.1         $2,301.8    $2,282.0
                                    ========   ========         ========    ========

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4.   RECEIVABLES                                                                
---------------                                                                 
Receivables consisted of the following:                                         

                                                                [Download Table]

------------------------------------------------------------------- 
                                          June 30,     December 31, 
In millions.                                  1997             1996 
------------------------------------------------------------------- 
                                                                    
First mortgage                           $   510.4        $   725.6 
Home equity                                7,440.3          3,647.9 
Visa/MasterCard                            5,721.3          8,587.7 
Private label                              5,316.2          5,070.0 
Other unsecured                            4,952.3          5,098.0 
Commercial                                   857.0            937.8 
                                         ---------        --------- 
Total owned receivables                   24,797.5         24,067.0 

Accrued finance charges                      400.4            397.6 
Credit loss reserve for                                             
  owned receivables                       (1,051.0)          (900.2)
Unearned credit insurance premiums                                  
  and claims reserves                       (226.9)          (184.6)
Amounts due and deferred from                                       
  receivables sales                        1,848.9          1,561.0 
Reserve for receivables serviced with                               
  limited recourse                          (719.9)          (696.0)
                                         ---------        --------- 
Total owned receivables, net              25,049.0         24,244.8 
Receivables serviced with limited                                   
  recourse                                19,812.6         18,526.4 
                                         ---------        --------- 
Total managed receivables, net           $44,861.6        $42,771.2 
                                         =========        ========= 

The outstanding balance of receivables serviced with                            
limited recourse consisted of the following:                                    

                                                                [Download Table]

-------------------------------------------------------------------
                                          June 30,     December 31,
In millions.                                  1997             1996
-------------------------------------------------------------------
                                                                   
Home equity                              $ 3,726.8        $ 4,337.5
Visa/MasterCard                           11,731.1         10,149.7
Private label                                375.0            517.0
Other unsecured                            3,979.7          3,522.2
                                         ---------        ---------
Total                                    $19,812.6        $18,526.4
                                         =========        =========

The combination of receivables owned and receivables serviced with limited      
recourse, which the company considers its managed portfolio, is shown below:    

                                                                [Download Table]

-------------------------------------------------------------------
                                          June 30,     December 31,
In millions.                                  1997             1996
-------------------------------------------------------------------
                                                                   
First mortgage                           $   510.4        $   725.6
Home equity                               11,167.1          7,985.4
Visa/MasterCard                           17,452.4         18,737.4
Private label                              5,691.2          5,587.0
Other unsecured                            8,932.0          8,620.2
Commercial                                   857.0            937.8
                                         ---------        ---------
Total                                    $44,610.1        $42,593.4
                                         =========        =========

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At June 30, 1997 and December 31, 1996, the amounts due and                     
deferred from receivables sales of $1,848.9 and $1,561.0                        
million, respectively, included the unamortized                                 
securitization assets and funds established pursuant to the                     
recourse provisions for certain sales totaling $1,216.4 and                     
$1,033.1 million, respectively. The amounts due and                             
deferred also included customer payments not yet remitted                       
by the securitization trustee to the company of $623.6 and                      
$512.6 million at June 30, 1997 and December 31, 1996,                          
respectively. In addition, the company has subordinated                         
interests in certain transactions, which were recorded as                       
receivables, of $738.4 and $485.0 million at June 30, 1997                      
and December 31, 1996, respectively. The company has                            
agreements with a "AAA"-rated third party who will                              
indemnify the company for up to $21.2 million in losses                         
relating to certain securitization transactions. The                            
company maintains credit loss reserves pursuant to the                          
recourse provisions for receivables serviced with limited                       
recourse which are based on estimated probable losses under                     
such provisions. These reserves totaled $719.9 and $696.0                       
million at June 30, 1997 and December 31, 1996,                                 
respectively, and represent the company's best estimate of                      
possible losses on receivables serviced with limited                            
recourse.                                                                       

5.   CREDIT LOSS RESERVES                                                       
-------------------------                                                       
An analysis of credit loss reserves for the three and six months ended          
June 30 was as follows:                                                         

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------- 
                                        Three Months Ended             Six Months Ended 
                                                  June 30,                     June 30, 
In millions.                           1997           1996            1997         1996 
--------------------------------------------------------------------------------------- 
                                                                                        
Credit loss reserves for owned                                                          
 receivables at beginning                                                               
 of period                         $  943.9       $  758.1        $  900.2     $  720.4 
Provision for credit losses           251.6          176.5           545.0        367.8 
Chargeoffs                           (253.4)        (164.8)         (516.6)      (354.1)
Recoveries                             39.4           28.6            66.8         61.0 
Portfolio acquisitions, net            69.5           59.9            55.6         63.2 
                                   --------       --------        --------     -------- 
TOTAL CREDIT LOSS RESERVES FOR                                                          
 OWNED RECEIVABLES AT JUNE 30       1,051.0          858.3         1,051.0        858.3 
                                   --------       --------        --------     -------- 

Credit loss reserves for                                                                
 receivables serviced with                                                              
 limited recourse at beginning                                                          
 of period                            753.3          532.7           696.0        457.0 
Provision for credit losses           226.1          209.1           475.2        418.2 
Chargeoffs                           (273.0)        (156.1)         (477.3)      (293.6)
Recoveries                             12.9            6.6            22.8         12.4 
Other, net                               .6             .5             3.2         (1.2)
                                   --------       --------        --------     -------- 
TOTAL CREDIT LOSS RESERVES FOR                                                          
 RECEIVABLES SERVICED WITH                                                              
 LIMITED RECOURSE AT JUNE 30          719.9          592.8           719.9        592.8 
                                   --------       --------        --------     -------- 
TOTAL CREDIT LOSS RESERVES FOR                                                          
 MANAGED RECEIVABLES AT JUNE 30    $1,770.9       $1,451.1        $1,770.9     $1,451.1 
                                   ========       ========        ========     ======== 

6.   INCOME TAXES                                                               
-----------------                                                               
Effective tax rates for the six months ended June 30, 1997                      
and 1996 of 34.6 and 34.7 percent, respectively, differ                         
from the statutory federal income tax rate for the                              
respective periods primarily because of the effects of (a)                      
domestic and foreign loss carryforwards, (b) amortization                       
and write-offs of intangible assets, (c) state and local                        
income taxes, (d) reduction of noncurrent tax requirements                      
and (e) leveraged lease tax benefits.                                           

10-Q 10th Page of 24 TOC 1st Previous Next ↓Bottom Just 10th

7.   NET INCOME PER COMMON SHARE                                                
--------------------------------                                                
Computations of net income per common share for the three and six months        
ended June 30 were as follows:                                                  

                                                                [Download Table]

----------------------------------------------------------------------------------- 
                                                                 Three Months Ended 
                                                                           June 30, 
                                                        1997                   1996 
----------------------------------------------------------------------------------- 
                                                       Fully                  Fully 
In millions, except per share data.     Primary      Diluted     Primary    Diluted 
-----------------------------------     -------      -------     -------    ------- 
                                                                                    
Earnings:                                                                           
  Net income                             $150.3       $150.3      $124.6     $124.6 
  Preferred dividends                      (2.9)        (2.9)       (4.2)      (4.2)
                                         ------       ------      ------     ------ 
Net income available to common                                                      
  shareholders                           $147.4       $147.4      $120.4     $120.4 
                                         ======       ======      ======     ====== 
Average shares:                                                                     
  Common                                   98.0         98.0        97.1       97.1 
  Common equivalents                        1.4          1.6         1.2        1.3 
                                         ------       ------      ------     ------ 
Total                                      99.4         99.6        98.3       98.4 
                                         ======       ======      ======     ====== 
Net income per common share              $ 1.48       $ 1.48      $ 1.22     $ 1.22 
                                         ======       ======      ======     ====== 

                                                                [Download Table]

----------------------------------------------------------------------------------- 
                                                                   Six Months Ended 
                                                                           June 30, 
                                                        1997                   1996 
----------------------------------------------------------------------------------- 
                                                       Fully                  Fully 
In millions, except per share data.     Primary      Diluted     Primary    Diluted 
-----------------------------------     -------      -------     -------    ------- 
                                                                                    
Earnings:                                                                           
  Net income                             $281.8       $281.8      $235.1     $235.1 
  Preferred dividends                      (6.1)        (6.1)       (8.3)      (8.3)
                                         ------       ------      ------     ------ 
Net income available to common                                                      
  shareholders                           $275.7       $275.7      $226.8     $226.8 
                                         ======       ======      ======     ====== 
Average shares:                                                                     
  Common                                   97.6         97.6        97.2       97.2 
  Common equivalents                        1.4          1.6         1.2        1.3 
                                         ------       ------      ------     ------ 
Total                                      99.0         99.2        98.4       98.5 
                                         ======       ======      ======     ====== 
Net income per common share              $ 2.78       $ 2.78      $ 2.30     $ 2.30 
                                         ======       ======      ======     ====== 

8.   COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF           
SUBSIDIARY TRUSTS                                                     
---------------------------------------------------------------------           
In June 1996 Household Capital Trust II ("HCT II"), a                           
wholly-owned subsidiary of the company, issued 4 million                        
8.70 percent Trust Preferred Securities ("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 the                            
company. The junior subordinated notes held by HCT II                           
mature on June 30, 2036 and are redeemable by the company                       
in whole or in part beginning on June 30, 2001, at which                        
time the HCT II preferred securities are callable at par                        
value of $25 per preferred security plus accrued and unpaid                     
dividends. Net proceeds from the issuance of preferred                          
securities were used for general corporate purposes.                            

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In 1995 Household Capital Trust I ("HCT I"), a wholly-owned                     
subsidiary of the company, 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 the                            
company. The junior subordinated notes held by HCT I mature                     
on June 30, 2025 and are redeemable by the company in whole                     
or in part beginning June 30, 2000, at which time the HCT I                     
preferred securities are callable at par value of $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 the company with respect to the junior                       
subordinated notes, when considered together with certain                       
undertakings of the company with respect to HCT I and HCT                       
II, constitute full and unconditional guarantees by the                         
company of HCT I's and HCT II's obligations under the                           
respective preferred securities. The preferred securities                       
are classified in the company's 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 $175                         
million at June 30, 1997 and December 31, 1996. 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 the company's option for up to five years                         
from date of issuance. The company cannot pay dividends on                      
its preferred and common stocks during such deferments.                         

9.   INTEREST RATE CONTRACTS                                                    
----------------------------                                                    
At June 30, 1997 and December 31, 1996, all of the                              
company's interest rate contracts qualified as hedges or                        
synthetic alterations.                                                          

The nature and composition of the company's assets and                          
liabilities and off-balance sheet items expose the company                      
to interest rate risk. The company enters into a variety of                     
interest rate contracts for managing its interest rate                          
exposure. Interest rate swaps are the principal vehicle                         
used to manage interest rate risk; however, interest rate                       
futures, options, caps and floors, and forward contracts                        
also are utilized. The company also has entered into                            
currency swaps to convert both principal and interest                           
payments on debt issued from one currency to the                                
appropriate functional currency.                                                

Interest rate swaps are designated, and effective, as                           
synthetic alterations of specific assets or liabilities (or                     
specific groups of assets or liabilities) and off-balance                       
sheet items. The interest rate differential to be paid or                       
received on these contracts is accrued and included in net                      
interest margin in the statements of income. Interest rate                      
futures, forwards, options, and caps and floors used in                         
hedging the company's exposure to interest rate                                 
fluctuations are designated, and effective, as hedges of                        
balance sheet items.                                                            

Correlation between all interest rate contracts and the                         
underlying asset, liability or off-balance sheet item is                        
direct because the company uses interest rate contracts                         
which mirror the underlying item being hedged/synthetically                     
altered. If correlation between the hedged/synthetically                        
altered item and related interest rate contract would cease                     
to exist, the interest rate contract would be recorded at                       
fair value and the associated unrealized gain or loss would                     
be included in net interest margin, with any future                             
realized and unrealized gains or losses recorded in other                       
income.                                                                         

Interest rate contracts are recorded at amortized cost. If                      
interest rate contracts are terminated early, the realized                      
gains and losses are deferred and amortized over the life                       
of the hedged/synthetically altered item as adjustments to                      
net interest margin. These deferred gains and losses are                        
recorded on the accompanying balance sheets as adjustments                      
to the carrying value of the hedged items. In circumstances                     
where the underlying assets or liabilities are sold, any                        
remaining carrying value adjustments or cumulative change                       
in value on any open positions are recognized immediately                       
as a component of the gain or loss upon disposition. Any                        
remaining interest rate contracts previously designated to                      
the sold hedged/synthetically altered item are recorded at                      
fair value with realized and unrealized gains and losses                        
included in other income.                                                       

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10.  RECENT ACCOUNTING DEVELOPMENTS                                             
-----------------------------------                                             
Effective January 1, 1997, the company adopted Statement of                     
Financial Accounting Standards No. 125, "Accounting for                         
Transfers and Servicing of Financial Assets and                                 
Extinguishments of Liabilities" ("FAS No. 125"). FAS No.                        
125 provides accounting and reporting standards for                             
transfers and servicing of financial assets and                                 
extinguishment of liabilities based on an approach that                         
focuses on control of the assets and extinguishment of the                      
liabilities. The statement is effective for securitization                      
transactions occurring subsequent to December 31, 1996. The                     
adoption of FAS No. 125 did not have a material impact on                       
the company's consolidated financial statements.                                

In February 1997, the Financial Accounting Standards Board                      
issued Statement of Financial Accounting Standards No. 128,                     
"Earnings Per Share" ("FAS No. 128"), which establishes                         
standards for computing and presenting earnings per share                       
("EPS"). FAS No. 128 replaces the presentation of primary                       
EPS with a presentation of basic EPS. Basic EPS excludes                        
dilution and is computed by dividing income available to                        
common shareholders by the weighted-average number of                           
common shares outstanding for the period. FAS No. 128 also                      
requires presentation of diluted EPS which is computed                          
similarly to fully diluted EPS currently presented. The                         
statement is effective for financial statements issued for                      
periods ending after December 15, 1997, including interim                       
periods. On adoption, it will require the restatement of                        
all prior period EPS data. The company will adopt FAS No.                       
128 in the fourth quarter of 1997. At such time, all prior                      
period EPS data will be restated. The company believes the                      
adoption of FAS No. 128 will not have a material impact on                      
its EPS or EPS trends and comparisons.                                          

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Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                      
CONDITION AND RESULTS OF OPERATIONS                           

OPERATIONS SUMMARY                                                              
------------------                                                              
Net income for the second quarter and first six months of                       
1997 was $150.3 and $281.8 million, up 21 and 20 percent                        
from $124.6 and $235.1 million in the respective 1996                           
periods. Earnings per share was $1.48 in the second quarter                     
and $2.78 for the first six months of 1997, up from $1.22                       
and $2.30 per share in the same periods in 1996. The                            
company's annualized return on average common shareholders'                     
equity for the second quarter and first six months of 1997                      
was 18.7 and 18.0 percent, respectively, up from 17.9 and                       
16.8 percent in the respective year-ago periods, even as                        
the company continued to strengthen its capital ratio. The                      
annualized return on average owned assets improved to 2.09                      
and 1.93 percent in the second quarter and first six months                     
of 1997, respectively, up from 1.71 and 1.62 percent in the                     
same year-ago periods.                                                          

- On June 23, 1997, Household International and a wholly-                       
owned subsidiary of Household Finance Corporation acquired                  
the capital stock of Transamerica Financial Services                        
Holding Company ("TFS"), the branch-based consumer finance                  
subsidiary of Transamerica Corporation ("TA"). The company                  
paid $1.1 billion for the stock of TFS and repaid                           
approximately $2.8 billion of TFS debt owed to affiliates                   
of TA. The acquisition added approximately $3.2 billion of                  
receivables, of which approximately $3.1 billion are home                   
equity loans secured primarily by home mortgages.  The                      
acquisition of TFS strengthens the company's core                           
consumer finance operations by expanding its branch network                 
in many new and existing markets, adding new customer                       
accounts, and increases the secured loan portion of the                     
company's receivables portfolio.                                            

In connection with the acquisition, in June 1997, the                       
company completed a public underwritten offering of 9.1                     
million shares of its common stock for approximately $1.0                   
billion. Net proceeds from the offering were used to                        
repay certain short-term borrowings in connection with                      
the acquisition.                                                            

After goodwill amortization and the additional shares                       
issued in connection with the financing of the                              
acquisition, the company expects that the acquisition                       
will be slightly accretive to earnings per share in 1997                    
and accretive in 1998.                                                      

- The following is a summary of the operating results of                        
the company's key businesses for the second quarter and                     
first six months of 1997 compared to the corresponding                      
prior year periods:                                                         

Net interest margin in the domestic consumer finance                        
business continued to expand in the second quarter and                      
first six months of 1997 due to improved pricing and a                      
relative shift in the portfolio to unsecured loans, but                     
was partially offset by higher credit losses primarily                      
due to increased bankruptcies.                                              

The Visa/MasterCard* business experienced higher net                        
interest margin and fee income, and improved efficiency,                    
which more than offset higher credit losses resulting                       
primarily from increased personal bankruptcy filings.                       
The company has continued its program to improve the                        
profitability of its credit card portfolios by refining                     
pricing strategies, increasing fees and systematically                      
eliminating unprofitable accounts. Results for this                         
business continued to benefit from the company's co-branding                
strategy, in particular the association with the General                    
Motors credit card ("GM Card") program and the Union                        
Privilege Visa/MasterCard portfolio acquired in June                        
1996.                                                                       

The private-label credit card business reported higher                      
credit losses from increased personal bankruptcy filings                    
in the second quarter and first six months of 1997, which                   
were partially offset by higher net interest margin.                        

* VISA and MasterCard are registered trademarks of VISA                         
USA, Inc. and MasterCard International, Incorporated,                       
respectively.                                                               

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The United Kingdom operation experienced improved                           
efficiency, as well as higher net interest margin,                          
interchange income and insurance premiums, due to                           
receivables growth. During the quarter, United Kingdom                      
credit card accounts grew 12 percent and credit card                        
receivables grew to over $700 million.                                      

- The company's normalized managed basis efficiency ratio                       
improved to 36.3 and 37.3 percent for the second quarter                    
and first six months of 1997, respectively, compared to                     
43.4 and 42.4 percent in 1996. The improvement in the                       
managed ratio in 1997 resulted from a 15 and 16 percent                     
growth in normalized managed net revenues over the second                   
quarter and first six months of 1996, respectively,                         
compared to a 4 percent decrease and a 2 percent                            
increase, respectively, in normalized operating expenses.                   

- The company continues to maintain a strong credit loss                        
reserve position due to uncertainty over consumer payment                   
patterns and seasoning of unsecured loan products. The                      
company increased its credit loss reserves during the first                 
six months of 1997 by providing reserves in excess of                       
net chargeoffs for owned receivables of $95 million.                        

BALANCE SHEET REVIEW                                                            
--------------------                                                            
- Managed consumer receivables (owned and serviced with                         
limited recourse) were $43.8 billion at June 30, 1997, up                   
from $40.7 billion at March 31, 1997 and $39.3 billion at                   
June 30, 1996 reflecting the impact of the TFS acquisition.                 
Core products, which exclude first mortgages and commercial                 
receivables, increased 15 percent from a year ago.                          
Excluding the $3.2 billion in home equity and other                         
unsecured consumer loans in the TFS acquisition, core                       
consumer receivables grew 7 percent from a year ago.                        
Private label and other unsecured product lines each grew                   
approximately 20 percent over prior year levels. Home                       
equity loan production in the retail branch network was up                  
9 percent year over year and the wholesale portfolio was                    
down 24 percent, as this portfolio continues to run off                     
following the decision to de-emphasize this product.                        
Visa/MasterCard receivables were flat with the level of a                   
year ago.  With the integration of the Union Privilege                      
portfolio completed, the company initiated mailings for                     
this portfolio in late April and early July.                                

- Compared to the first quarter, core receivables were                          
flat, excluding the acquisition of TFS. The retail branch                   
network had solid growth in the quarter while the                           
Visa/MasterCard portfolio was down slightly due to the                      
company's account profitability programs and deferred                       
mailings, as well as somewhat higher than normal account                    
paydowns.                                                                   

- Owned consumer receivables were $23.9 billion at June                         
30, 1997, compared to $21.5 billion at March 31, 1997 and                   
$22.5 billion at June 30, 1996. The increase from the prior                 
periods was primarily due to the acquisition of TFS.                        
Changes in owned receivables from period to period may vary                 
depending on the timing and significance of securitization                  
transactions.                                                               

- The company's managed credit loss reserves were                               
$1,770.9 million at June 30, 1997, up from $1,697.2 million                 
at March 31, 1997 and $1,451.1 million at June 30, 1996.                    
Credit loss reserves as a percent of managed receivables                    
were 3.97 percent, compared to 4.08 percent at March 31,                    
1997 and 3.59 percent at June 30, 1996. Reserves as a                       
percent of nonperforming managed receivables were 118.5                     
percent, compared to 118.6 percent at March 31, 1997 and                    
133.4 percent at June 30, 1996. Consumer two-months-and-                    
over contractual delinquency ("delinquency") as a percent                   
of managed consumer receivables was 4.32 percent, compared                  
to 4.45 percent at March 31, 1997 and 3.49 percent at June                  
30, 1996. The annualized total consumer managed chargeoff                   
ratio in the second quarter of 1997 was 4.58 percent,                       
compared to 4.15 percent in the prior quarter and 3.33                      
percent in the year-ago quarter.                                            

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- The ratio of total shareholders' equity (including trust                      
originated securities) to total owned assets was 14.32                      
percent, compared to 11.22 percent at December 31, 1996.                    
The ratio of total shareholders' equity to managed assets                   
was 8.76 percent, compared to 6.90 percent at December 31,                  
1996. The increase in the ratios from the year-end 1996                     
levels was primarily due to the issuance of 9.1 million                     
shares of common stock in June 1997.                                        

LIQUIDITY AND CAPITAL RESOURCES                                                 
-------------------------------                                                 
The major use of cash by the company's subsidiaries is the                      
origination or purchase of receivables or investment                            
securities. The main sources of cash are the collection and                     
sales 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 the company's                          
funding base from December 31, 1996 to June 30, 1997:                           

- On January 23, 1997, the company redeemed, at par, all                        
outstanding shares of its 9.50% Preferred Stock, Series                     
1991-A, for $10 per depositary share plus accrued and                       
unpaid dividends.                                                           

- The funding requirements of the company increased by $1.4                     
billion due to the acquisition of TFS, partially offset                     
by lower receivable levels in the company's existing businesses.            

- In June 1997, to enhance liquidity, the company entered                       
into a $1.0 billion back-up line for its commercial paper                   
program and established a $1.0 billion asset-backed conduit.                
Products that may be sold into this conduit include credit                  
card receivables and unsecured consumer loans.                              

- In June 1997, the company completed a public                                  
underwritten offering of 9.1 million shares of common stock                 
at $110.50 per share. Net proceeds from the offering of                     
approximately $1.0 billion were used to repay certain short-                
term borrowings in connection with the acquisition of the                   
capital stock of TFS.                                                       

- The company had securitized home equity,                                      
Visa/MasterCard, private label and other unsecured                          
receivables outstanding of $19.8 and $18.5 billion at June                  
30, 1997 and December 31, 1996, respectively. During the                    
three months and six months ended June 30, 1997, the                        
company securitized, excluding replenishments of                            
certificate holder interests, $1.1 and $3.1 billion,                        
respectively, of Visa/MasterCard and other unsecured                        
receivables.                                                                

The composition of these securitizations by type is as                          
follows (in billions):                                                          

                                                                [Download Table]

-----------------------------------------------------------
                    Three months ended     Six months ended
                              June 30,             June 30,
                                  1997                 1997
-----------------------------------------------------------
                                                           
Visa/MasterCard                $   1.1              $   2.3
Other unsecured                    -                     .8
                               -------              -------
Total                          $   1.1              $   3.1
                               =======              =======

The market for securities backed by receivables is a                            
reliable, efficient and cost-effective source of funds,                         
which the company plans to continue to utilize in the                           
future.                                                                         

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PRO FORMA MANAGED STATEMENTS OF INCOME                                          
--------------------------------------                                          
Securitizations of consumer receivables have been, and will                     
continue to be, an important source of liquidity for the                        
company. The company continues to service the securitized                       
receivables after such receivables have been sold and                           
retains a limited recourse obligation. Securitizations                          
impact the classification of revenues and expenses in the                       
statements of income. Amounts related to receivables                            
serviced, including net interest margin, fee and other                          
income, and provision for credit losses on receivables                          
serviced with limited recourse are reported as a net amount                     
in securitization income in the company's statements of                         
income.                                                                         

Management monitors the company's operations on a managed                       
basis as well as on the historical owned basis reflected in                     
its statements of income. The managed basis assumes that                        
the receivables securitized are held in the portfolio. Pro                      
forma statements of income on a managed basis for the                           
second quarter and six months ended June 30, 1997 and 1996                      
are presented below. For purposes of this analysis, the                         
results do not reflect the differences between the                              
company's accounting policies for owned receivables and                         
receivables serviced with limited recourse. Accordingly,                        
net income on a pro forma managed basis equals net income                       
on an owned basis.                                                              

Pro Forma Managed Statements of Income                                          

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------------------------------    
                                            Three Months Ended                               Six Months Ended           
All dollar amounts are                                June 30,                                       June 30,           
stated in millions.                1997      *            1996      *            1997      *             1996    *      
--------------------------------------------------------------------------------------------------------------------    
                                                                                                                        
Finance income                $ 1,428.9    13.67%    $ 1,258.5    13.19%    $ 2,843.6    13.59%     $ 2,469.5  13.20%   
Interest income from                                                                                                    
  noninsurance investment                                                                                               
  securities                       15.7     5.76          39.0     5.43          24.0     5.76           59.3   5.67    
Interest expense                  659.7     6.14         616.2     6.00       1,297.8     6.06        1,191.9   6.03    
                              ---------    -----     ---------    -----     ---------    -----      ---------  -----    
Net interest margin               784.9     7.41<F1>     681.3     7.04<F1>   1,569.8     7.38<F1>    1,336.9   6.98<F1>
Provision for credit losses       477.7                  385.6                1,020.2                   786.0           
                              ---------              ---------              ---------               ---------           
Net interest margin after                                                                                               
  provision for credit losses     307.2                  295.7                  549.6                   550.9           
                              ---------              ---------              ---------               ---------           
Insurance revenues                 68.5                   58.4                  133.9                   122.3           
Investment income                  28.9                   36.3                   62.1                    93.2           
Fee income                        246.7                  218.2                  513.8                   447.4           
Other income                       28.6                  138.6                   97.7                   163.9           
                              ---------              ---------              ---------               ---------           
Total other revenues              372.7                  451.5                  807.5                   826.8           
                              ---------              ---------              ---------               ---------           
Salaries and fringe                                                                                                     
  benefits                        156.2                  135.0                  303.8                   271.7           
Occupancy and equipment                                                                                                 
  expense                          50.1                   62.9                  104.0                   115.3           
Other marketing expenses          110.5                  141.8                  229.2                   242.2           
Other servicing and                                                                                                     
  administrative expenses          84.6                  156.4                  194.0                   262.2           
Policyholders' benefits            48.3                   53.2                   95.3                   126.4           
                              ---------              ---------              ---------               ---------           
Total costs and expenses          449.7                  549.3                  926.3                 1,017.8           
                              ---------              ---------              ---------               ---------           
Income before taxes               230.2                  197.9                  430.8                   359.9           
Income taxes                       79.9                   73.3                  149.0                   124.8           
                              ---------              ---------              ---------               ---------           
Net income                    $   150.3              $   124.6              $   281.8               $   235.1           
                              =========              =========              =========               =========           
Average managed                                                                                                         
  receivables                 $41,862.3              $38,177.1              $42,008.4               $37,420.9           
Average noninsurance                                                                                                    
  investments                   1,090.4                2,874.3                  833.6                 2,090.8           
                              ---------              ---------              ---------               ---------           
Average managed interest-                                                                                               
  earning assets              $42,952.7              $41,051.4              $42,842.0               $39,511.7           
                              =========              =========              =========               =========           

* As a percent, annualized, of appropriate earning assets.                                                              
<FN>                                                                                                                    
<F1>  Managed net interest margin as a percent of average managed interest-                                             
earning assets for the second quarter and six months of 1997 and 1996 excludes                                          
temporary investments that were used for pre-funding acquisitions in both                                               
quarters and, in 1996, for the sale of the company's remaining consumer banking                                         
operations. Including the impact of these temporary investments, managed net                                            
interest margin was 7.31 and 6.64 percent for the second quarter of 1997 and                                            
1996, respectively, and 7.33 and 6.77 percent for the six months ended June 30,                                         
1997 and 1996, respectively.                                                                                            
</FN>                                                                                                                   

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Unless noted, the following discussion on revenues and                          
provision for credit losses includes comparisons to amounts                     
reported on the company's historical statements of income                       
("Owned Basis") as well as on the above pro forma                               
statements of income ("Managed Basis").                                         

Net interest margin                                                             
-------------------                                                             
Net interest margin on an Owned Basis was $383.8 and $778.6                     
million for the second quarter and first six months of                          
1997, up from $356.6 and $703.0 million in the prior year                       
periods. The increase was primarily due to growth in                            
average owned Visa/MasterCard and private label                                 
receivables.                                                                    

Net interest margin on a Managed Basis was $784.9 and                           
$1,569.8 million for the second quarter and first six                           
months of 1997, up 15 and 17 percent, respectively,                             
compared to $681.3 and $1,336.9 million in the same year-                       
ago periods, primarily due to managed receivable growth and                     
higher spreads. The net interest margin percentages on a                        
Managed Basis in the second quarter of 1997 and 1996 were                       
adversely affected by temporary investments that were used                      
to pre-fund acquisitions in both years, as well as the                          
disposition of retail banking deposits in 1996. Excluding                       
the impact of these temporary investments, net interest                         
margin as a percent of average managed interest-earning                         
assets, annualized, was 7.41 and 7.04 percent in the second                     
quarter of 1997 and 1996, respectively. Including the                           
impact of these temporary investments, net interest margin                      
as a percent of average managed interest-earning assets,                        
annualized, was 7.31 percent compared to 6.64 percent in                        
the year-ago quarter.  The improvement over the year-ago                        
quarter was primarily due to the continuing change in                           
product mix to higher-yielding unsecured products and                           
improved pricing.                                                               

Provision for credit losses                                                     
---------------------------                                                     
The provision for credit losses for receivables on an Owned                     
Basis for the second quarter and first six months of 1997                       
totaled $251.6 and $545.0 million, up 43 and 48 percent                         
from $176.5 and $367.8 million in the comparable prior year                     
periods. The provision as a percent of average owned                            
receivables, annualized, was 4.42 percent in the second                         
quarter of 1997 compared to 3.16 percent in the second                          
quarter of 1996. In view of uncertainty regarding consumer                      
payment patterns, the continued high levels of personal                         
bankruptcies and seasoning of unsecured loan products, the                      
company continued to increase its credit loss reserves in                       
excess of current period chargeoffs. Provision in excess of                     
chargeoffs related to owned receivables was $38 and $40                         
million for the three months ended June 30, 1997 and 1996,                      
respectively, and $95 and $75 million for the six months                        
ended June 30, 1997 and 1996, respectively. 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 $477.7 and $1,020.2 million in the                        
second quarter and first six months of 1997, up 24 percent                      
from $385.6 million and 30 percent from $786.0 million in                       
the comparable periods of 1996. As a percent of average                         
managed receivables, annualized, the provision increased to                     
4.56 percent from 4.04 percent in the second quarter of                         
1996. As noted above, the company increased credit loss                         
reserves during the quarter due to seasoning of unsecured                       
loan products and uncertainty over consumer payment                             
patterns. In addition, the Managed Basis provision includes                     
the over-the-life reserve requirement on securitized                            
receivables. These provisions are impacted by the type and                      
amount of receivables securitized in a given period and                         
substantially offset the income recorded on the                                 
securitization transactions. In the second quarter of 1997,                     
the company securitized approximately $1.1 billion of                           
Visa/MasterCard receivables, compared to approximately $2.0                     
billion of Visa/MasterCard and home equity receivables a                        
year ago. For the first six months of 1997, the company                         
securitized approximately $3.1 billion of other unsecured                       
and Visa/MasterCard receivables compared to approximately                       
$3.4 billion of home equity, other unsecured and                                
Visa/MasterCard receivables in 1996. See the credit quality                     
section for further discussion of factors affecting the                         
provision for credit losses.                                                    

10-Q 18th Page of 24 TOC 1st Previous Next ↓Bottom Just 18th

Other revenues                                                                  
--------------                                                                  
Securitization income on an Owned Basis was $344.3 and                          
$675.0 million for the second quarter and first six months                      
of 1997, up from $280.5 and $559.9 million in the year-ago                      
periods. 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 23 percent increase in                                   
securitization income on an Owned Basis compared to the                         
second quarter of 1996 was primarily due to the increase                        
in average securitized receivables. Securitization                              
income for the first six months of 1997 increased 21                            
percent compared to a year ago also due to the                                  
increase in average securitized receivables. The                                
components of securitization income are reclassified to the                     
appropriate lines 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 and, in 1996, fees                          
related to consumer banking deposits. Fee income was $77.4                      
and $154.8 million in the second quarter and first six                          
months of 1997, up from $53.3 and $103.2 million in the                         
comparable periods of the prior year, primarily due to                          
higher late fees and interchange income as a result of the                      
increase in the amount of average owned credit card                             
receivables compared to the prior year.                                         

Fee income on a Managed Basis, which in addition to the                         
items discussed above includes fees and other income                            
related to receivables serviced with limited recourse,                          
increased to $246.7 and $513.8 million in the second                            
quarter and first six months of 1997 from $218.2 and $447.4                     
million in the same periods in 1996. The increase was                           
primarily attributable to higher late fees and interchange                      
income from the company's credit card businesses.                               

Other income decreased from $138.6 and $163.9 million in                        
the second quarter and first six months of 1996 to $28.6                        
and $97.7 million in the same periods in 1997 as the 1996                       
amount included a $116.3 million premium received on the                        
sale of the company's banking operations in Illinois in                         
June 1996.  Additionally, other income for the first six                        
months of 1997 includes nonrecurring gains of $50 million                       
related to the sale of certain non-strategic assets during                      
the first quarter.                                                              

Expenses                                                                        
--------                                                                        
Operating expenses for the second quarter and first six                         
months of 1997 were $401.4 and $831.0 million,                                  
respectively, compared to $496.1 and $891.4 million,                            
respectively, in the comparable prior year periods. The                         
prior year amounts include $78 million in nonrecurring                          
charges, as discussed below.                                                    

Salaries and fringe benefits were $156.2 and $303.8 million                     
compared to $135.0 and $271.7 million in the second quarter                     
and first six months of 1996. The higher expense was                            
primarily due to an increase in sales force in the domestic                     
consumer finance business, as well as the addition of                           
collectors in all the company's businesses, as compared to                      
the prior year.                                                                 

Occupancy and equipment expense for the second quarter and                      
first six months of 1997 totaled $50.1 and $104.0 million,                      
as compared to $62.9 and $115.3 million in the prior year                       
periods. In the second quarter of 1996, the company                             
recorded nonrecurring costs of approximately $14 million                        
related to the rationalization of office space.                                 

Other marketing expenses for the second quarter and first                       
six months of 1997 totaled $110.5 and $229.2 million, down                      
from $141.8 and $242.2 million in the comparable prior year                     
periods. The decrease in marketing spending for the                             
domestic credit card programs reflects the deferral of                          
major mailings as the company worked on marketing                               
plans with the individual AFL/CIO unions in the Union                           
Privilege program.                                                              

10-Q 19th Page of 24 TOC 1st Previous Next ↓Bottom Just 19th

Other servicing and administrative expenses for the second                      
quarter and first six months of 1997 totaled $84.6 and                          
$194.0 million, down from $156.4 and $262.2 million in the                      
comparable periods. Although the 1996 amounts include $64                       
million of nonrecurring charges, expenses in 1997 were                          
still down from the prior year after excluding these                            
charges. The decrease was due to lower systems costs in the                     
credit card business and lower real estate owned expenses.                      

CREDIT LOSS RESERVES                                                            
--------------------                                                            
The company's 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 4, "Receivables" in the                           
accompanying financial statements for receivables by                            
product type.                                                                   

Total managed credit loss reserves, which include reserves                      
for recourse obligations for receivables sold, were as                          
follows (in millions):                                                          

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------
                                   June 30,     March 31,    December 31,    June 30,
                                       1997          1997            1996        1996
-------------------------------------------------------------------------------------
                                                                                     
Owned                              $1,051.0      $  943.9        $  900.2    $  858.3
Serviced with limited recourse        719.9         753.3           696.0       592.8
                                   --------      --------        --------    --------
Total                              $1,770.9      $1,697.2        $1,596.2    $1,451.1
                                   ========      ========        ========    ========

Credit loss reserves have increased due to seasoning of                         
unsecured products and increased personal bankruptcies.                         
Managed credit loss reserves as a percent of nonperforming                      
managed receivables were 118.5 percent, compared to 118.6                       
percent at March 31, 1997 and 133.4 percent at June 30,                         
1996.                                                                           

Total owned and managed credit loss reserves as a percent                       
of receivables were as follows:                                                 

                                                                [Download Table]

--------------------------------------------------------------------------- 
                          June 30,    March 31,    December 31,    June 30, 
                              1997         1997            1996        1996 
--------------------------------------------------------------------------- 
                                                                            
Owned                         4.24%        4.21%           3.74%       3.64%
Managed                       3.97         4.08            3.75        3.59 
                              ----         ----            ----        ---- 

The level of reserves for consumer credit losses is based                       
on delinquency and chargeoff experience by product and                          
judgmental factors. Management also evaluates the potential                     
impact of existing and anticipated national and regional                        
economic conditions on the managed receivable portfolio                         
when establishing credit loss reserves. While management                        
allocates reserves among the company's various products,                        
all reserves are considered to be available to cover total                      
loan losses. See Note 5, "Credit Loss Reserves" in the                          
accompanying financial statements for analyses of reserves.                     

CREDIT QUALITY                                                                  
--------------                                                                  
Delinquency levels in the consumer portfolio were lower                         
than the prior quarter but increased compared to a year                         
ago. Chargeoffs increased compared to both the previous and                     
year-ago periods. The acquisition of TFS in June 1997                           
benefited the second quarter delinquency ratio but had no                       
impact on the quarter's chargeoff ratio.                                        

Delinquency and chargeoff levels are monitored on a managed                     
basis since all of the receivables are originated using                         
comparable underwriting standards, are managed by operating                     
personnel without regard to portfolio ownership and result                      
in a similar credit loss exposure.                                              

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Delinquency                                                                     
-----------                                                                     
Two-Months-and-Over Contractual Delinquency (as a percent                       
of managed consumer receivables):                                               

                                                                [Download Table]

-------------------------------------------------------------------- 
                    6/30/97   3/31/97   12/31/96   9/30/96   6/30/96 
-------------------------------------------------------------------- 
                                                                     
First mortgage        10.27%     8.19%      9.49%     3.82%     3.64%
Home equity            3.18      3.85       3.96      3.55      3.35 
Visa/MasterCard        3.10      3.13       2.71      2.54      2.05 
Private label          5.89      5.52       5.50      5.43      5.04 
Other unsecured        6.77      6.68       6.13      5.79      5.95 
                      -----      ----       ----      ----      ---- 
Total                  4.32%     4.45%      4.15%     3.83%     3.49%
                      =====      ====       ====      ====      ==== 

Delinquency as a percent of managed consumer receivables                        
declined from the prior quarter but increased compared to a                     
year ago. Excluding the impact of the acquisition of TFS,                       
the home equity delinquency ratio was 3.81 percent, and the                     
total delinquency ratio was 4.53 percent for the second                         
quarter of 1997. The increase in the private label and                          
other unsecured delinquency ratios from the first quarter                       
was primarily due to the seasoning of these portfolios. The                     
first mortgage delinquency ratio increased, despite lower                       
dollars of delinquency from the first quarter, as this                          
portfolio continues to liquidate.                                               

The increase in the delinquency ratio compared to a year                        
ago was primarily due to seasoning of the portfolios, the                       
company's continued shift in portfolio mix away from                            
traditional first mortgages and toward unsecured products,                      
and a slower consumer payment pattern.                                          

Net Chargeoffs of Consumer Receivables                                          
--------------------------------------                                          
Net Chargeoffs of Consumer Receivables (as a percent,                           
annualized, of average managed consumer receivables):                           

                                                                [Download Table]

------------------------------------------------------------------- 
                     Second     First    Fourth     Third    Second 
                    Quarter   Quarter   Quarter   Quarter   Quarter 
                       1997      1997      1996      1996      1996 
------------------------------------------------------------------- 
                                                                    
First mortgage          .87%      .94%      .30%      .50%      .46%
Home equity            1.17      1.38      1.18       .98       .89 
Visa/MasterCard        5.84      4.90      4.66      4.71      4.86 
Private label          4.63      4.85      3.70      3.54      3.82 
Other unsecured        5.41      4.97      4.18      4.35      3.58 
                       ----      ----      ----      ----      ---- 
Total                  4.58%     4.15%     3.59%     3.52%     3.33%
                       ====      ====      ====      ====      ==== 

Net chargeoffs as a percent of average managed consumer                         
receivables for the second quarter of 1997 increased                            
compared to both the prior and year-ago periods.                                
Approximately 75 percent of the 43 basis point increase in                      
the total chargeoff ratio from the first quarter of 1997                        
was due to higher personal bankruptcies in the domestic                         
Visa/MasterCard portfolio. For the Visa/MasterCard product,                     
higher bankruptcy chargeoffs accounted for 85 percent of                        
the increase in the second quarter's ratio. The remaining                       
increase in the total chargeoff ratio was primarily                             
attributable to the continued seasoning of the other                            
unsecured portfolio.                                                            

The increase in the chargeoff ratio compared to a year ago                      
was primarily due to increased bankruptcy filings in the                        
Visa/MasterCard portfolio and continued seasoning of the                        
private label and other unsecured portfolios. The increase                      
in net chargeoffs is consistent with the company's outlook                      
given overall industry conditions.                                              

10-Q 21st Page of 24 TOC 1st Previous Next ↓Bottom Just 21st

Nonperforming Assets                                                            
--------------------                                                            
Nonperforming assets consisted of the following:                                

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------- 
In millions.                       6/30/97   3/31/97   12/31/96    9/30/96     6/30/96 
-------------------------------------------------------------------------------------- 
                                                                                       
Nonaccrual managed                                                                     
  receivables                     $  865.0  $  820.1   $  778.5   $  741.1    $  713.9 
Accruing managed consumer                                                              
  receivables 90 or more days                                                          
  delinquent                         616.3     598.5      549.0      446.1       353.6 
Renegotiated commercial                                                                
  loans                               12.9      12.9       12.9       19.9        19.9 
                                  --------  --------   --------   --------    -------- 
Total nonperforming managed                                                            
  receivables                      1,494.2   1,431.5    1,340.4    1,207.1     1,087.4 
Real estate owned                    149.4     152.6      136.6      137.6       131.9 
                                  --------  --------   --------   --------    -------- 
Total nonperforming assets        $1,643.6  $1,584.1   $1,477.0   $1,344.7    $1,219.3 
                                  ========  ========   ========   ========    ======== 
Managed credit loss reserves as                                                        
  a percent of nonperforming                                                           
  managed receivables                118.5%    118.6%     119.1%     126.6%      133.4%
                                  --------  --------   --------   --------    -------- 

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PART II.  OTHER INFORMATION                                                     

Item 4.   Submission of Matters to a Vote of Security-Holders                   

The Annual Meeting of Stockholders of Household                                 
International was held on Wednesday, May 14, 1997, for the                      
purpose of (1) electing directors; (2) approving an                             
increase in the authorized shares of Household Common Stock                     
from 150 to 250 million shares; and (3) ratifying the                           
appointment of Arthur Andersen LLP as the independent                           
auditors for Household. The voting results 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                83,420,909        6,507,726                       
R. J. Darnall                 83,465,327        6,463,307                       
G. G. Dillon                  83,458,848        6,469,786                       
J. A. Edwardson               83,450,196        6,478,439                       
M. J. Evans                   83,455,473        6,473,162                       
D. Fishburn                   83,465,880        6,462,755                       
C. F. Freidheim, Jr.          83,454,187        6,474,448                       
L. E. Levy                    83,467,344        6,461,290                       
G. A. Lorch                   83,461,906        6,466,729                       
J. D. Nichols                 83,462,715        6,465,919                       
J. B. Pitblado                83,469,005        6,459,630                       
S. J. Stewart                 83,463,215        6,465,420                       
L. W. Sullivan, M.D.          83,452,220        6,476,415                       

Proposal to increase the authorized shares of Household                         
Common Stock from 150 million to 250 million:                                   

FOR        AGAINST        ABSTAIN         BROKER NON-VOTE         
----------      ---------        -------         ---------------                
83,080,594      6,513,489        334,549         2                              

Ratification of the appointment of Arthur Andersen LLP as                       
the Corporation's auditors for the year 1997:                                   

FOR      AGAINST          ABSTAIN         BROKER NON-VOTE         
----------      -------          -------         ---------------                
89,635,796      123,161          169,676         1                              

Item 6.   Exhibits and Reports on Form 8-K                                      

(a)  Exhibits                                                               

12      Statement of Computation of Ratio of                      
Earnings to Fixed Charges and to Combined         
Fixed Charges and Preferred Stock Dividends.      

21      List of Household International subsidiaries.             

27      Financial Data Schedule.                                  

99.1    Debt and Preferred Stock Securities Ratings.              

(b)  Reports on Form 8-K                                                    

During the second quarter of 1997, the                            
Registrant filed a Current Report on Form 8-K dated               
May 23, 1997 announcing the intent to purchase                    
Transamerica's Consumer Finance Business, a                       
Current Report on Form 8-K dated June 20, 1997                    
announcing the offering of 9.1 million shares of                  
common stock at a price of $110.50 per share and a                
Current Report on Form 8-K dated June 23, 1997                    
announcing the completion of the acquisition of                   
Transamerica's Consumer Finance Business.                         

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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 13, 1997        By:  /s/ David A. Schoenholz                      
----------------         ----------------------------                 
David A. Schoenholz 
      Executive Vice President -
   Chief Financial Officer
and on behalf of    
         Household International, Inc.

10-Q Last Page of 24 TOC 1st Previous Next ↓Bottom Just 24th
Exhibit Index                     
--------------                      

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.                                  

99.1    Debt and Preferred Stock Securities Ratings.

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	6/30/36	4	10
	6/30/25	4	11
	6/30/01	10		10-Q, 8-K
	6/30/00	11		10-Q
	12/31/97	7		10-K405
	12/15/97	12
	8/19/97
Filed on:	8/13/97	23
	7/31/97	1
For Period End:	6/30/97	1	17
	6/24/97	7
	6/23/97	7	22	8-K, 8-K/A
	6/20/97	22		424B2, 8-K
	5/23/97	22		8-K, S-3/A
	5/14/97	22		10-Q, DEF 14A, PRE 14A
	3/31/97	14	19	10-Q
	1/23/97	15		8-K
	1/1/97	12
	12/31/96	4	15	10-K405
	6/30/96	2	19	10-Q
				List all Filings

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Filing Submission 0000354964-97-000019 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

HSBC Finance Corp – ‘10-Q’ for 6/30/97

As of: Wednesday, 8/13/97 · For: 6/30/97 · Accession #: 354964-97-19 · File #: 1-08198

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