Item 1. Business.
General
Household International, Inc. ("Household"), through its subsidiaries primarily provides middle-market consumers with several types of loan products in the United States, the United Kingdom and Canada. Household and its subsidiaries (including the operations of Beneficial Corporation ("Beneficial") which we acquired in 1998) may also be referred to in this Form 10-K as "we," "us" or "our." We offer home equity loans, auto finance loans, MasterCard* and Visa* credit cards, private label credit cards, tax refund anticipation loans and other types of unsecured loans. We also offer credit and specialty insurance in the United States, the United Kingdom and Canada. At December 31, 1999, we had approximately 23,600 employees and served over 45 million customers with $71.7 billion in managed receivables and $52.3 billion in owned receivables. Information that is reported on a managed basis relates to receivables that have been sold and which we service with limited recourse ("securitize"), together with receivables that appear on our balance sheet. Information that is reported on an owned basis relates to the assets and liabilities we have on our balance sheet. Owned assets may vary from period to period depending on the timing and size of securitizations.
Household was created as a holding company in 1981 as a result of a shareholder approved restructuring of Household Finance Corporation ("HFC"), which was established in 1878. In the last five years, we have been restructuring our operations to focus on the financial services business, specifically on those areas of the consumer finance business that we believe offer us the best opportunity to achieve the highest returns on our capital. From late 1994 through 1996 we exited from several businesses that were providing insufficient returns on our investment, such as our first mortgage origination and servicing business in the United States and Canada, our individual life and annuity business and our consumer branch banking business, including the sale of our consumer deposits. In June 1997 we purchased Transamerica Financial Services Holding Company ("TFS"), the branch-based consumer finance subsidiary of Transamerica Corporation for $1.1 billion and repaid $2.8 billion of TFS debt. In connection with this acquisition, we completed a $1.0 billion public offering of Household common stock. In October 1997, we purchased all of the outstanding capital stock of ACC Consumer Finance Corporation ("ACC"), an automobile finance company for 4.2 million shares of Household common stock and cash. In December 1997, we decided to exit from the business of originating and acquiring student loans. In 1998, we merged with Beneficial, a consumer finance holding company, and took steps to reposition our United States MasterCard and Visa business to de-emphasize undifferentiated credit card programs.
1999 Developments and Results. The following results and developments occurred during 1999: . In August 1999 we purchased for approximately $60 million all of the outstanding capital stock of Decision One Holding Company LLC, a privately-held originator of non-prime first and second mortgage loans that packages such loans for sale to investors. . In November 1999 we entered into an Agreement and Plan of Merger with Renaissance Holdings, Inc., a privately-held issuer of secured and unsecured credit cards to non-prime customers, to acquire all of their outstanding capital stock for approximately 5 million shares of Household common stock and cash. This transaction closed in February 2000. . Our managed assets increased to $80.2 billion at year-end 1999 from $72.6 billion at year-end 1998 and $71.3 billion at year-end 1997. Our owned assets increased to $60.7 billion at year-end 1999 from $52.9 billion at year-end 1998 and $46.8 billion at year-end 1997. . Since adopting our $2 billion share repurchase program in March, we repurchased 16.8 million shares of Household common stock for $712.9 million. We also repurchased 5.0 million shares of such stock prior to the initiation of our share repurchase program to fund various employee benefit programs. - --------
* MasterCard is a registered trademark of MasterCard International, Incorporated and VISA is a registered trademark of VISA USA, Inc.
. Our net income was $1,486.4 million in 1999, compared to $524.1 million in 1998 and $940.3 million in 1997. Excluding merger and integration related costs of $751.0 million after-tax and the $118.5 million after- tax gain on sale of Beneficial's Canadian operations, operating net income in 1998 was $1,156.6 million. . Diluted earnings per share was $3.07 in 1999, compared to $1.03 in 1998 and $1.93 in 1997. Excluding merger and integration related costs of $751.0 million after-tax and the $118.5 million after-tax gain on sale of Beneficial's Canadian operations, diluted operating earnings per share was $2.30 in 1998.
The state of California accounts for 17 percent of our managed consumer portfolio in the United States. California is the only state with more than ten percent of this portfolio.
Our summary financial information is set forth in our Annual Report to Shareholders (the "1999 Annual Report"), portions of which are incorporated herein by reference. See pages 26 through 85 of our 1999 Annual Report. Our products, operating markets and marketing methods are described under OPERATIONS in this Form 10-K.
Operations
Our operations are divided into three reportable segments: Consumer, which includes our branch-based and correspondent consumer finance, private label credit card and auto finance businesses in the United States; Credit Card, which includes our MasterCard and Visa business in the United States; and International, which comprises our foreign operations which include the United Kingdom and Canada. Information about operating segments that are not individually reportable includes our insurance, tax refund anticipation loans and commercial operations, as well as our corporate and treasury activities which are included in the "All Other" caption within our segment disclosure.
Consumer
Our consumer finance business has been ranked by Inside B & C Lending as the second largest subprime home equity lender in the United States based upon their estimates and 1999 receivables volume as reported to them by such lenders. Collectively, this business has 1,378 branches located in 46 states and 3 million open customer accounts. It is marketed under both the HFC and Beneficial brand names, each of which caters to a slightly different type of customer in the middle-market population. Both brands offer secured and unsecured products. These products are marketed through our retail branch network, correspondents, direct mail, telemarketing and Internet applications.
According to The Nilson Report, we are the second largest provider of third party private label credit cards in the United States at December 31, 1999 based upon managed receivables outstanding. The private label business of our consumer segment has over 100 merchant relationships with approximately $9.2 billion in managed receivables and 8 million active customer accounts. Approximately 31 percent of our private label receivables are in the electronics industry while approximately 33 percent are in the furniture industry. Approximately 13 percent of our private label receivables are in the home products industry and approximately 11 percent are in the recreational vehicle industry. These products are generated through merchant promotions, application displays, direct mail, telemarketing and Internet applications.
Based on volume, we are one of the largest non-captive non-prime automobile lenders in the United States. Our managed auto finance receivables increased $1.3 billion to $3 billion during 1999. This business benefited from continued industry consolidation and an expanded sales force which increased our dealer relationships by over 50 percent to over 8,400 dealer relationships nationwide. Over one-third of the growth in this segment in 1999 came from our new Millennium product which targets slightly higher credit quality customers at competitive rates. Our auto finance business generates loan volume primarily through dealer relationships from which installment contracts are purchased. Loans are also generated from alliance partner referrals, direct mail and Internet applications.
Credit Cards
Our Mastercard and Visa operations in the United States reported higher earnings in 1999 primarily due to the repositioning of this segment which began in 1998. As part of such repositioning, we actively repriced portions of our Mastercard and Visa portfolios, expanded certain marketing programs, and reduced credit lines. We also repositioned the undifferentiated Mastercard and Visa portfolios in the United States to target customers and prospects of our other businesses. Managed receivables declined in 1999 reflecting attrition resulting from such repositioning. This attrition was partially offset by growth in the second half of 1999 in both the number of accounts and receivables associated with our affinity and co-branding relationships, including our alliance with General Motors Corporation ("GM") to issue the GM Card, a co-branded credit card, and our alliance with Union Privilege to issue the Union Privilege affinity card ("Union Privilege"). Our MasterCard and Visa business is generated primarily through direct mail, telemarketing, Internet applications, application displays and promotional activity associated with our affinity and co-branding relationships. Our largest account base for MasterCard and VISA credit cards is in California. Approximately 52 percent of managed receivables for this segment were originated under the GM Card program while approximately 29 percent were originated under the Union Privilege program. We also cross sell our credit cards to our existing home equity, private label and tax refund anticipation loan customers.
International
Our United Kingdom operations offer secured and unsecured lines of credit, secured and unsecured closed-end loans, insurance products and credit cards (including the GM Card from Vauxhall, the Goldfish Card issued under an alliance with the Centrica Group--the United Kingdom's major natural gas supplier and marbles(TM), an Internet enabled credit card developed in connection with Freeserve, the United Kingdom's largest Internet service provider). Such operations are conducted in England, Scotland, Wales, Ireland and Northern Ireland. Loans are marketed through a branch network consisting of 176 branches, merchants and direct mail. Our Canadian consumer finance business offers consumer loans, mortgages, revolving credit and retail finance and accepts deposits. Their products include home equity and unsecured lines of credit, secured and unsecured closed-end loans and private label credit cards. These products are marketed through 85 branch offices in 10 provinces, direct mail and telemarketing. Information concerning foreign owned receivables, revenues, income before income taxes, identifiable assets and long-lived assets as of or for the years ended December 31, 1999, 1998 and 1997 are incorporated by reference to pages 64 and 82 of our 1999 Annual Report.
All Other
Where applicable laws permit, we offer credit life, credit accident, health and disability, term and specialty insurance products to our customers. Such products currently are offered throughout the United States and Canada. Insurance is directly written by or reinsured with one or more of our subsidiaries. Our tax refund anticipation loan ("RAL") business is a cooperative program with H&R Block Tax Services, Inc. ("H&R Block") and certain of its franchises, along with other independent tax preparers, to provide loans to customers who are entitled to tax refunds and who electronically file their income tax returns with the Internal Revenue Service. Our remaining commercial operations have continued to decline in size.
Funding
As a financial services organization, we must have access to funds at competitive rates, terms and conditions to be successful. We fund our operations in the global capital markets, primarily through the use of securitizations, commercial paper, Federal funds borrowing, certificates of deposit, bank lines, thrift notes, medium-term notes and long-term debt. We also use derivative financial instruments to hedge our currency and interest rate exposure. A description of our use of derivative financial instruments, including interest rate swaps, foreign exchange contracts, and other quantitative and qualitative information about our market risk is set forth on pages 39-41, 43 and 68 through 72 of our 1999 Annual Report. We also maintain an investment portfolio which at year-end 1999 was approximately $3.1 billion. Approximately $2.5 billion of such investment securities were held by our insurance subsidiaries. At year-end 1999, Household's long-term debt, together with that of
HFC, Beneficial and Household Bank, f.s.b. (the "Bank") and the preferred stock of Household, have been assigned investment grade ratings by four nationally recognized statistical rating organizations. These organizations have also rated the commercial paper of HFC in their highest rating category. Three of these organizations have rated Household's commercial paper in their highest rating category. For a detailed listing of the ratings that have been assigned to Household and our significant subsidiaries, see Exhibit 99(b) to this Form 10-K.
Securitizations of consumer receivables are an important source of our liquidity. During 1999 we securitized approximately $5.2 billion of receivables compared to $3.6 billion in 1998 and $8.3 billion in 1997. Additional information on our sources and availability of funding are incorporated by reference to pages 39 through 42 of our 1999 Annual Report.
Regulation and Competition
Regulation. Our consumer finance businesses operate in a highly regulated environment. Those businesses are subject to laws relating to discrimination in extending credit, use of credit reports, privacy matters, disclosure of credit terms and correction of billing errors. Our consumer branch lending offices are also subject to certain regulations and legislation that limit their operations in certain jurisdictions. For example, limitations may be placed on the amount of interest or fees that a loan may bear, the amount that may be borrowed, the types of actions that may be taken to collect or foreclose upon delinquent loans or the information about a customer that may be shared. Our consumer branch lending offices are generally licensed in those jurisdictions in which they operate. Such licenses have limited terms but are renewable, and are revocable for cause. Our private label operations are conducted through state-licensed companies and our credit card banks.
The Bank is chartered by the Office of Thrift Supervision ("OTS") and is a member of the Federal Home Loan Bank System. It is subject to examination and supervision by the OTS and the Federal Deposit Insurance Corporation ("FDIC"). It is also subject to federal regulations concerning its general investment authority as well as its ability to acquire financial institutions, enter into transactions with affiliates and pay dividends. Such regulations also govern the permissible activities and investments of its subsidiaries. It is also subject to regulatory requirements setting forth minimum capital and liquidity levels. Because of our ownership of the Bank, Household is a savings and loan holding company subject to reporting and other regulations of the OTS. Household and HFC have agreed with the OTS to maintain the regulatory capital of the Bank at certain specified levels. Our national credit card banks are chartered by the Office of the Comptroller of the Currency and are members of the Federal Reserve System. National banks are generally subject to the same type of regulatory supervision and restrictions as the Bank, but our national banks only engage in credit card operations. The deposit accounts of the Bank and our credit card banks are insured up to $100,000 by the FDIC.
The Bank and our credit card banks are also subject to the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"). Among other things, FDICIA creates a five-tiered system of capital measurement for regulatory purposes, places limits on the ability of depository institutions to acquire brokered deposits, and gives broad powers to federal banking regulators, in particular the FDIC, to require undercapitalized institutions to adopt and implement a capital restoration plan and to restrict or prohibit a number of activities, including the payment of cash dividends, which may impair or threaten the capital adequacy of the insured depository institution. Federal banking regulators may apply corrective measures to an insured depository institution, even if it is adequately capitalized, if such institution is determined to be operating in an unsafe or unsound condition or engaging in an unsafe or unsound activity. In addition, federal banking regulatory agencies have adopted safety and soundness standards governing operational and managerial activities of insured depository institutions and their holding companies regarding internal controls, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation. Under FIRREA, the FDIC may assess an affiliated insured depository institution for the estimated losses incurred by the FDIC upon the default of any affiliated insured institution.
On February 10, 1999, the four federal bank regulatory agencies revised their joint "retail credit classification policy" which establishes guidelines for classification of credit based on delinquency status and
mandates specified timeframes for recognizing losses in consumer loan portfolios. This policy applies to any consumer loan held in our credit card banks or the Bank and is effective in stages that began April 1, 1999. Substantially all of the policy changes impacting our credit card banks or the Bank will become effective October 1, 2000. We expect to adopt such changes to be effective on October 1, 2000. The application of the new rules will not have an impact on our financial statements.
Our credit insurance business is subject to regulatory supervision under the laws of the states in which it operates. Regulations vary from state to state but generally cover licensing of insurance companies, premium and loss rates, dividend restrictions, types of insurance that may be sold, permissible investments, policy reserve requirements, and insurance marketing practices.
Competition. The consumer financial services industry in which we operate is highly fragmented and intensely competitive. We generally compete with banks, thrifts and other financial institutions in the United States, Canada and the United Kingdom. One of the industry challenges and opportunities we face is the recent consolidation in the financial services industry. We can use our centralized underwriting, collection and processing functions to adapt our credit standards and collection efforts to market conditions. This capability was leveraged to the Beneficial branch network as the Beneficial branches were integrated with HFC's in 1998. Our use of highly automated systems and processing facilities to support our underwriting, loan administration and collection functions across all of our consumer businesses assists us in this regard. A centralized collection system for past due accounts is augmented by early collection efforts in the consumer finance branch network for products other than credit cards. Maximizing our technology and otherwise streamlining our operations and reducing our costs has allowed us to improve our efficiency through specialization and economies of scale and allows us to operate more efficiently than some of our competitors. We also compete with other finance companies, banks, savings and loan companies, credit unions and retailers, by offering a variety of consumer products, maintaining a strong service orientation and developing innovative marketing programs.
Cautionary Statement on Forward-Looking Statements
Certain matters discussed throughout this Form 10-K or in the information incorporated herein by reference may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and as such may involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on our current views and assumptions, and involve risks and uncertainties that could cause our results to be materially different than those anticipated. The following important factors could affect our actual results and could cause such results to vary materially from those expressed herein or in any other document filed with the Securities and Exchange Commission: . changes in laws and regulations, including changes in accounting standards; . changes in overall economic conditions, including the interest rate environment in which we operate, the capital markets in which we fund our operations, recession, employment and currency fluctuations; . consumer perception of the availability of credit, including price competition in the market segments we target and the ramifications or ease of filing for personal bankruptcy; . the effectiveness of models or programs to predict loan delinquency or loss and initiatives to improve collections in all business areas; . continued consumer acceptance of our distribution systems and demand for our loan products; . changes associated with, as well as the difficulty in integrating systems, operational functions and cultures of any organization acquired by Household; . the continued repositioning of our MasterCard/Visa business to further penetrate selected consumer segments; and . the ability to attract and retain qualified branch personnel to expand the sales operations of our consumer finance business.
Item 2.
Item 2. Properties.
Our operations are located throughout the United States, in 10 provinces in Canada and in the United Kingdom with principal facilities located in Anaheim, California; New Castle, Delaware; Jacksonville, Florida; Tampa, Florida; Chesapeake, Virginia; Virginia Beach, Virginia; Elmhurst, Illinois; Hanover, Maryland; Bridgewater, New Jersey; Las Vegas, Nevada; Charlotte, North Carolina; Portland, Oregon; Pomona, California; Prospect Heights, Illinois; Salinas, California; San Diego, California; Wood Dale, Illinois; London, Kentucky; North York, Ontario, Canada; Birmingham, United Kingdom and Windsor, Berkshire, United Kingdom.
Substantially all branch offices, divisional offices, corporate offices, regional processing and regional servicing center space is operated under lease with the exception of the headquarters building for our United Kingdom operations, our processing facility in Tampa, Florida, a credit card processing facility in Las Vegas, Nevada and a facility in London, Kentucky. We believe that such properties are in good condition and meet our current and reasonably anticipated needs.
Item 3.
Item 3. Legal Proceedings.
We have developed and implemented compliance functions to monitor our operations to ensure that we comply with all applicable laws. However, we are parties to various legal proceedings, including product liability related claims, resulting from ordinary business activities relating to our current and/or former operations. Certain of these actions are or purport to be class actions seeking damages in very large amounts. Due to the uncertainties in litigation and other factors, we cannot assure you that we will ultimately prevail in each instance. We believe that we have meritorious defenses to these actions and any adverse decision should not materially affect our consolidated financial condition.
During the past several years, the press has widely reported certain industry related concerns which may impact us. Some of these involve the amount of litigation instituted against finance and insurance companies operating in the states of Alabama and Mississippi and the large punitive awards obtained from juries in those states. Like other companies in this industry, some of our subsidiaries are involved in a number of lawsuits pending against them in Alabama and Mississippi, many of which relate to the financing of satellite television broadcast receivers. We discontinued financing such receivers in 1995. The Alabama and Mississippi cases generally allege inadequate disclosure or misrepresentation of financing terms. In many suits, other parties are also named as defendants. Unspecified compensatory and punitive damages are sought. Several of these suits purport to be class actions. The judicial climate in Alabama and Mississippi is such that the outcome of all of these cases is unpredictable. Although our subsidiaries believe they have substantive legal defenses to these claims and are prepared to defend each case vigorously, a number of such cases have been settled or otherwise resolved for amounts that in the aggregate are not material to our operations. Appropriate insurance carriers have been notified of each claim, and a number of reservations of rights letters have been received. Certain of these claims have been partially covered by insurance.
Prior to our merger with Beneficial, Beneficial was involved in litigation with the Internal Revenue Service ("IRS") over matters relating to a former insurance subsidiary that occurred in the mid- to late 1980's. In 1999, a settlement with the IRS was reached and filed with the U.S. Tax Court. This settlement did not result in any loss to us in excess of the amounts accrued for this matter by Beneficial.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II.
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
As of March 16, 2000 there were 19,878 record shareholders of Household's common stock.
Additional information required by this Item is incorporated by reference to pages 51 and 85 of our 1999 Annual Report.
Item 6.
Item 6. Selected Financial Data.
Information required by this Item is incorporated by reference to pages 26 and 27 of our 1999 Annual Report.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Information required by this Item is incorporated by reference to pages 28 through 50 of our 1999 Annual Report.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Information required by this Item is incorporated by reference to pages 39 through 41 and 43 of our 1999 Annual Report.
Item 8.
Item 8. Financial Statements and Supplementary Data.
Our Financial Statements meet the requirements of Regulation S-X. Such Financial Statements and supplementary financial information specified by Item 302 of Regulation S-K, are incorporated by reference to pages 51 through 83 of our 1999 Annual Report.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
PART III.
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
Executive Officers of the Registrant.
The following information on our executive officers is included pursuant to Item 401(b) of Regulation S-K.
William F. Aldinger, age 52, joined Household in September 1994 as President and Chief Executive Officer. In May 1996 he was appointed our Chairman and Chief Executive Officer. Mr. Aldinger served as Vice Chairman of Wells Fargo Bank and a Director of several Wells Fargo subsidiaries from 1986 until joining us. Mr. Aldinger is also a director of Household Finance Corporation (one of our subsidiaries), Illinois Tool Works Inc. and MasterCard International, Incorporated.
Lawrence N. Bangs, age 63, was appointed Vice Chairman effective January 2000, having previously served as Group Executive--Private Label, United Kingdom, Canada, Insurance, Auto Finance and U.S. Consumer Banking since 1995. Since joining Household Finance Corporation in 1959, Mr. Bangs has served in various capacities in our U.S. consumer finance and United Kingdom operations, most recently as Managing Director and Chief Executive Officer of our United Kingdom operations.
Rocco J. Fabiano, age 43, was appointed Group Executive--Auto Finance, Income Tax Refund Anticipation Lending and Private Label in January 2000, having joined us in 1997 as a result of our acquisition of ACC Consumer Finance Corporation where he served as Chairman and Chief Executive Officer since 1993.
Gary D. Gilmer, age 50, was appointed Group Executive--U.S. Consumer Finance in 1998. Since joining Household Finance Corporation in 1972, Mr. Gilmer has served in various capacities in our consumer banking, private label and life insurance businesses, most recently as Managing Director and Chief Executive Officer of our United Kingdom operations.
Siddharth N. Mehta, age 41, joined Household in June 1998 as Group Executive--U.S. BankCard. Prior to joining Household, Mr. Mehta was Senior Vice President of Boston Consulting Group in Los Angeles and co-leader of Boston Consulting Group Financial Services Practice in the United States.
David A. Schoenholz, age 48, was appointed Group Executive--Chief Financial Officer, effective January 2000, having previously served as Executive Vice President--Chief Financial Officer since 1996, Senior Vice President--Chief Financial Officer since 1994, Vice President--Chief Accounting Officer since 1993, Vice President since 1989 and Controller since 1987. He joined Household in 1985 as Director--Internal Audit.
Colin P. Kelly, age 57, was appointed Senior Vice President--Administration effective January 2000, having previously served as Senior Vice President-- Human Resources since 1996, and Vice President--Human Resources since 1988. Mr. Kelly joined Household Finance Corporation in 1965 and has served in various management positions.
Kenneth H. Robin, age 53, was appointed Corporate Secretary in 1998 and Senior Vice President--General Counsel in 1996, having previously served as Vice President--General Counsel since 1993. He joined Household in 1989 as Assistant General Counsel--Financial Services. Prior to joining Household, Mr. Robin held various positions in the legal departments of Citicorp and Citibank, N.A. from 1977 to 1989.
Edgar D. Ancona, age 47, was appointed Managing Director--Treasurer in 1996, having previously served as Vice President--Treasurer since joining Household in 1994. For the previous 17 years he held a variety of treasury and operational positions with Citicorp.
John W. Blenke, age 44, was appointed Vice President--Corporate Law and Assistant Secretary in 1996, having previously served as Assistant General Counsel and Secretary since 1993, and Assistant General Counsel--Securities and Corporate Law and Assistant Secretary since 1991. Mr. Blenke joined Household in 1989 as Corporate Finance Counsel.
D. Gordon Cliff, age 40, joined Household in 1999 as Managing Director-- Strategy and Development. In February 2000 he took on responsibility for a new business unit called Household Direct. Prior to joining Household, Mr. Cliff was a Financial Services Strategy Partner at Andersen Consulting and a Principal with McKinsey & Company.
Michael A. DeLuca, age 51, was appointed Managing Director--Taxes in 1996, having previously served as Vice President--Taxes from 1988 to 1996. Mr. DeLuca joined Household in 1985 as Director of Tax Planning and Tax Counsel.
Kenneth M. Harvey, age 39, was appointed Managing Director--Chief Information Officer in 1999, having previously served in various systems and technology areas since joining Household in 1989.
Paul A. Makowski, age 48, joined Household in June 1999 as Managing Director--Chief Credit Officer. He previously served as a Principal of Credit Risk Management Associates from 1992 until joining Household.
Steven L. McDonald, age 39, was appointed Managing Director and Corporate Controller in 1999, having previously served as Vice President--Controller since 1996. From 1991 until joining Household in 1996, he was Senior Vice President--Accounting and Finance of First USA, Inc.
Craig A. Streem, age 50, joined Household in 1996 as Vice President-- Investor Relations. Prior to joining Household, he was Corporate Vice President and Director of Investor Relations of PaineWebber Group, Inc., from 1995 to 1996, Vice President of Investor Relations and Corporate Secretary of National Media Corporation from 1992 to 1994, and held various positions in the investor relations, corporate treasury and corporate accounting and reporting areas of American Express Company from 1979 to 1992.
There are no family relationships among our executive officers. The term of office of each executive officer is at the discretion of the Board of Directors.
Additional information required by this Item is incorporated by reference to "Nominees For Director" and "Shares of Household Stock Beneficially Owned by Directors and Executive Officers" in our definitive Proxy Statement for our 2000 Annual Meeting of Stockholders scheduled to be held May 9, 2000 (the "2000 Proxy Statement").
Item 11.
Item 11. Executive Compensation.
Information required by this Item is incorporated by reference to "Executive Compensation", "Report of the Compensation Committee on Executive Compensation", "Performance of Household", "Employment Agreements", "Savings-- Stock Ownership and Pension Plans", "Incentive and Stock Option Plans", and "Director Compensation" in our 2000 Proxy Statement.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information required by this Item is incorporated by reference to "Shares of Household Stock Beneficially Owned by Directors and Executive Officers" and "Security Ownership of Certain Beneficial Owners" in our 2000 Proxy Statement.
Item 13.
Item 13. Certain Relationships and Related Transactions.
Information required by this Item is incorporated by reference to "Incentive and Stock Option Plans" and "Consulting Agreements with Messrs. Farris and Gilliam" in our 2000 Proxy Statement.
PART IV.
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial Statements.
The consolidated financial statements listed below, together with an opinion of Arthur Andersen LLP dated January 14, 2000 with respect thereto, are incorporated by reference herein pursuant to Item 8. Financial Statements and Supplementary Data of this Form 10-K. An opinion of Arthur Andersen LLP is also included in this Annual Report on Form 10-K.
Household International, Inc. and Subsidiaries:
Consolidated Statements of Income for the Three Years Ended December 31, 1999.
Consolidated Balance Sheets, December 31, 1999 and 1998.
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1999.
Consolidated Statements of Changes in Preferred Stock and Common Shareholders' Equity for the Three Years Ended December 31, 1999.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants.
Selected Quarterly Financial Data (Unaudited).
(b) Reports on Form 8-K.
A Current Report on Form 8-K was filed on December 2, 1999 by Household during the three months ended December 31, 1999.
(c) Exhibits.
We will furnish copies of the exhibits referred to above to our stockholders upon receiving a written request therefor. We charge fifteen cents per page for providing these copies. Requests should be made to Household International, Inc., 2700 Sanders Road, Prospect Heights, Illinois 60070, Attention: Corporate Secretary.
(d) Schedules.
Report of Independent Public Accountants.
I--Condensed Financial Information of Registrant.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Household International, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Household International, Inc.
Dated: March 28, 2000
/s/ W.F. Aldinger By: _________________________________ W.F. Aldinger, Chairman and Chief Executive Officer
Each person whose signature appears below constitutes and appoints J.W. Blenke, L.S. Mattenson and J.S. VanderLinde and each or any of them (with full power to act alone), as his/her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him/her in his/her name, place and stead, in any and all capacities, to sign this Form 10-K and any and all amendments to this Form 10-K and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorneys-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or their substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Household International, Inc. and in the capacities and on the date indicated.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Household International, Inc.:
We have audited in accordance with generally accepted auditing standards, the financial statements included in Household International, Inc.'s 1999 annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 14, 2000. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14(d) is the responsibility of the company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP /s/ Arthur Andersen LLP
Chicago, Illinois January 14, 2000
SCHEDULE I
HOUSEHOLD INTERNATIONAL, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF INCOME (In millions)
See accompanying note to condensed financial statements.
SCHEDULE I (continued)
HOUSEHOLD INTERNATIONAL, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS (In millions)
- -------- * The sole assets of the three trusts are Junior Subordinated Deferrable Interest Notes issued by Household International, Inc. in March 1998, June 1996 and June 1995, bearing interest at 7.25, 8.70 and 8.25 percent, respectively, with principal balances of $206.2, $103.1 and $77.3 million, respectively, and due December 31, 2037, June 30, 2036 and June 30, 2025, respectively.
See accompanying note to condensed financial statements.
SCHEDULE I (continued)
HOUSEHOLD INTERNATIONAL, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS (In millions)
See accompanying note to condensed financial statements.
SCHEDULE I (continued)
HOUSEHOLD INTERNATIONAL, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTE TO CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
The condensed financial statements of Household International, Inc. have been prepared on a parent company unconsolidated basis.
Under an agreement with the Office of Thrift Supervision, Household will maintain the capital of the Bank, at a level consistent with certain minimum capital requirements.
Household received cash dividends from the Bank of $275, $75 and $50 million in 1999, 1998, and 1997, respectively.
Household has guaranteed payment of certain long-term debt obligations of Household Financial Corporation Limited ("HFCL"), a Canadian subsidiary. The amount of guaranteed debt outstanding at HFCL on December 31, 1999 and 1998 was $.4 and $.6 billion, respectively.
Household has also guaranteed payment of certain debt obligations (excluding certain deposits) of Household International (U.K.) Limited ("HIUK"). The amount of guaranteed debt outstanding at HIUK on December 31, 1999 and 1998 was approximately $2.7 and $3.1 billion, respectively.
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