Introductory Story

Household International is one of the nation’s leading providers of consumer loans and credit cards to middle-income consumers. Some of our principal businesses are Household Finance Corporation, MasterCard/Visa, Private-Label Credit Cards, United Kingdom, Canada, and Household Auto Finance Corporation. Household has double their size in June due to the merger with Beneficial Corporation.

June 30, 1998 Managed Receivables Totals

Household Finance Corporation $29.2 Billion

MasterCard/Visa $17.7 Billion

Private-Label Credit Cards $ 7.3 Billion

United Kingdom $ 5.9 Billion

Canada $ 1.2 Billion

Household Auto Finance Corporation $ 1.2 Billion


Household was rated the fourth "Most Admired" diversified financial services company in Fortune magazine’s 15th annual survey of corporate reputations. Household Philanthropy states that they are committed to improving the quality of life in the communities where they do business, and they encourage their employees to do the same. Since 1974, Household has sponsored the United for Hope campaign as well as support the Junior Achievement, the largest nonprofit youth economic education organization in the country.

Short Description of the Company

Frank J. Mackey made his first personal cash loan in a small room in a Minneapolis jewelry store. What began as a small loan operation has today grown into a premier consumer financial services organization, which is widely respected for its business principles and commitment to excellence.

One of Household’s primary businesses is Household Finance Corporation, the nation’s oldest consumer finance company, serving middle America sine 1878. Household is also one of the largest issuers of private-label and general-purpose credit cards. Its principal cards include the GM Card and the AFL-CIO’s Union Privilege Card. Household achieved strong growth early on to become a major player in the consumer finance industry. During its middle years, Household continued to grow its core business and branched out into merchandising transportation and manufacturing. In recent years, the company returned its focus to its core strength in consumer financial services. In 1997, Household’s common stock hit a milestone of $100 per share and ends the year with a record market capitalization of $13.6 billion.

After telling analysts in late January that Beneficial Corporation would remain independent, chairman and chief executive office Finn M.W. Caspersen abruptly changed course three weeks late and announced that the third-largest US consumer finance company was for sale. This was good news for Household International (1) they acquired the company for $8.7 billion and (2) the merger further strengthening Household position in the consumer financial services industry.

William F. Aldinger, chairman and chief executive of Household is confident that the merger between Household and Beneficial will create a combined enterprise that will be a leader in virtually every one of it businesses. It will provide a solid platform for sustained profitable growth as they improve efficiency and deliver a broader array of lending and insurance products through a significantly expanded branch network.

Short History of the Company

In the late 1800s Frank J. Mackey opens his first branch office in St. Paul, Minnesota. To think it all began in 1878 where he made his first personal cash loans from a small room in a Minneapolis jewelry store. He initiates what was then an innovation in lending by providing unsecured personal loans to people of average means.

In 1894, he moves his headquarters from Minneapolis to Chicago, Illinois, to centralize the 14 Midwest offices. Household understood even back then they wanted to supply their customer with quality services so they introduce the industry’s first monthly payment plan for customers to repay their outstanding loans as well as become the first in the consumer finance industry to offer stock to the public and be listed on the New York Stock Exchange. They did not stop there they establishes a consumer education program to help it customer better understand personal finance and family budgeting.

In the 1970s, Household did a lot of expanding. They started with revolving credit with the creation of Household Retail Services. Later they expanded into the United Kingdom, forming HFC Bank to offer loans and selected retail-banking service to consumers.

By 1981, Household International is incorporated as a holding company to better manage its diverse and international operations. They also acquired Valley National Bank in Salinas, California and enters the bank card market as Household Credit Services.

In the late 1980s, Household returns to its roots and core strength in financial services by selling it merchandising, transportation and manufacturing businesses. They also sold their individual life insurance business.

In 1994, William f. Aldinger is named president, chief executive office by 1996 is named chairman of the board, and with that, Household exits the consumer branch banking business.

Most recently, Household announced their merger with Beneficial Corporation making them a strong second to GE capital retailer Financial Service, with its receivable base would grow by 75% $8.2 billion, with 11 million accounts.

Financial Analysis/Portfolio Analysis

Currently, Household manages over $50 billion in assets. A continuous dividend payer since 1929, Household has increased cash dividends to its shareholders for 45 consecutive years. In 1997, Household marked it sixth consecutive year of earnings per share growth exceeding 20 percent. Household achieved a record high by earnings per share growing 23 percent to $2.17 and net income growing 27 percent to $686.6 million. Household’s efficiency ration improved to 36 percent, four points better than its goal, making it one of the most efficient companies in the financial services industry.

The company strengthened its balance sheet by issuing 9 million shares of common stock and adding nearly $350 million to credit loss reserves during 1997. Recently Household was name as one of 15 companies that had the most attractive stocks among the market’s top 1,000 as of October 30th.

*Most large companies, like on the first table, do not look too attractive judged by the relationship of their P/E to their projected rate of earnings growth. The second table is a list of companies that do look attractive by this important measure (As if October 30, 1998).

Long-Term P/E to

Rank Company Price P/E Growth Rate Growth Rate

1 General Electric $ 87.50 27.7 13.4% 1.8

2 Microsoft 105.88 41.9 23.8 1.7

3 Exxon 71.63 23.8 7.4 2.4

4 Coca-Cola 67.56 42.5 15.4 2.6

5 Merck 135.06 27.5 13.8 1.7

6 Wal-Mart 69.06 32.8 14.6 2.1

7 Pfizer 107.31 44.0 18.9 2.2

8 Intel 89.19 23.4 20.8 1.1

9 IBM 148.50 20.0 13.1 1.4

10 Philip Morris 51.13 14.7 14.3 0.8

11 Procter & Gamble 88.69 29.8 13.0 2.0

12 Bristol-Myers 110.69 27.5 13.3 1.8

13 Johnson & Johnson 81.50 27.3 13.2 1.8

14 Lucent Technologies 80.19 37.1 22.1 1.6

15 AT&T 62.50 16.5 10.1 1.3

Long-Term P/E to

Rank Company Price P/E Growth Rate Growth Rate

1 R & B Falcon $13.63 8.4 32.2% 0.2

2 Republic Industries 16.19 12.3 28.4 0.4

3 Tommy Hilfiger 46.44 10.9 23.3 0.4

4 BF Goodrich 36.00 10.3 15.6 0.5

5 Diamond Offshore 30.69 12.4 21.9 0.5

6 Network Associates 42.50 20.4 34.4 0.5

7 Santa Fe International 18.44 8.9 16.0 0.5

8 Keane 32.25 18.1 32.4 0.5

9 AES 40.94 19.5 29.3 0.6

10 Global Marine 12.38 10.9 17.0 0.6

11 Gulfstream Aerospace 44.25 12.1 20.3 0.6

12 Household Internat’l 36.56 12.2 16.9 0.6

13 Lear 32.38 9.2 14.1 0.6

14 Travelers Casualty 30.69 9.0 13.1 0.6

15 Washington Mutual 37.44 11.0 15.0 0.6

If long-term earnings forecasts hold up for these companies, their stocks should perform nicely.

Household has a growing appetite for credit. The consumer-finance and credit-card giant purchased Transamerica’s $3.3 billion-asset, 420-branch consumer-finance operation for $1.1 billion in cash. This strategic move will put Household in some 970 offices around the country, and boost its assets to $50 billion. It will also add $3 billion in home-equity and mortgage loans to Household’s existing portfolio.

The consumer finance industry is ripe for consolidation, after several years of fast growth resulted in rapidly rising loan losses, which weakened some smaller players. Household has been preparing for consolidation by shedding non-core assets to focus on consumer loan offices, Visa and MasterCard lending. They expanded through acquisitions of credit card portfolios, including one that serves AFL-CIO members; and building up a large, centralized debt-collection business.

In Household latest news they reported that they declares regular dividends, announces redemption of its 7.35% cumulative preferred stock, series 1993-A, and showed second quarter income of $249.4 million and earnings per share of $.49, before the merger with Beneficial Corporation.

The 1999 Eighth Annual Edition of "America’s Finest Companies" from Bill Staton, chairman of The Staton Institute and Staton Investment Management, ranked Household International 27 out 28 American companies(out of more than 116,000 that trade publicly) to have a combined total of at least 50 years of higher earnings and dividends per share.

The following table ranked five firms with the highest percentage of noncurrent card loans as March 31, 1998; Household International ranks first with 9.38 % of noncurrent loans.

Card Rank

Percent Noncurrent


Household International, Prospect Hts., IL



Morgan Stanley Dean Witter Discover & Co., NY



First Union Corporation, Charlotte, NC



Dillard Department Stores Inc., Little Rock AR



Beneficial Corporation, Wilmington, DE


Industry and Market Analysis

Perhaps the most vexing question facing investors in financial-services stocks is not who will be the next takeover target, but rather who is not a merger candidate. In the wake of the megadeals announced in 4/98, one logical conclusion was that virtually any financial-services company--whether a bank, insurer, broker or asset manager--could be ripe for a merger or takeover. The merger binge began with the stunning new that Citicorp--the nation’s second-biggest bank and the world’s largest issuer of credit cards--would combine with Travelers Group. Household International is the #2 consumer finance company in the US, behind Associates First Capital. Household International has acquired rival consumer lender Beneficial Corporation. Whether the purpose of a merger is to allow the cross selling of each company’s products or to slash costs by consolidating operation, it is clear that the floodgates are wide open.



Samuel Liss has been analyzing financial companies for 16 years, but this is the first time he presides over a category. He began to shed extraneous coverage (insurance, for example) and focus on credit card, commercial and consumer finance companies as well as brokers. Liss is thanked for insisting, while rates were rising last year, that industry fundamentals were sound. Household International was among a group that climbed 40 percent by mid-July according to Liss research.

Stock/Investment Outlook

During this market’s ongoing weakness since July, we have been observing inside behavior in the S&P 500 names and have basically seen an increase in buying. Mainly due to deep pullbacks and insiders feeling confident that their stocks are cheap. it is important to stress that insiders are value players and not market timers. Our feeling at this time is that one must pick his spots in this dangerous minefield of a market and what at times appears cheap can get cheaper. The large cap market has been technically fragmented into leaders, bleeders and stocks on the fence. In this current hyperactive cycle market, the best offense may be a great defense.

Technical stage rating are as following: Stage 1 - The basing area or neutral trading range after the declining phase Stage 2 - Advancing or trending phase Stage 3 - Top or Consolidation Area Stage 4 - Downtrend Criteria for Consensus Insider Signal. Household International is in Stage three with of total number of three insiders, net share of 11,000, dollar value $415,910, with transaction prices at 37.81-43.19.

What is troublesome with the S&P insider stocks is the amount of technical damage most of the stocks have been trough in this blitzkrieg market. What has taken three years in building up, has been broken down in some cases in weeks. Markets can go down on light volume, which often lulls most investors into complacency but when the invincible blue chip armor finally cracked as we have seen, our market has become paralyzed and appears frozen. In order to get inertia to the upside stocks need a reaccumulation period, and demand and confidence are usually the cement in this rebuilding process.

Prudential Securities Inc. and or its affiliates have managed or co-managed a public offering of securities and or have performed investment banking or other services for Household International. The Prudential Equity Research Department rates Household a strong buys.

Technological Story

Household believes that to keep their standing as the number two seed behind GE Capital Retailer Financial Services, is to keep striving to be first to try new computer technologies such as: VisionPLUS,Valex(TM) software, NT Search(TM), Application Scoreware(R), Application Scoreware International, Strategyware(TM) and SBSS-Scoreware(TM). They also believe that Cap Gemini America may have the answer to their Year 2000 computer challenges.

Technological Investment and Analysis

PaySys International is the established leader in credit card management systems with its industry-defining VisionPLUS suite, which combines the banking and retailing capabilities of legendary company products CardPac and Vision21. They recently opened offices in the United Kingdom announced that one of the largest bureau processors and two of the largest card issuers one of which is HFS Bank UK, a unit of Household International--have recently selected VisionPLUS as the system of choice for their credit card issuing, acquiring and processing operations in Europe. Household International is an extensive user of the PaySys VisionPLUS software in the United States.

Exchange Applications, Inc., which markets software and services for optimizing the value of customer relationships, announced today that its European office has acquired 12 new customer in the past 10 months. One of the 12 new users of Exchange Applications’ award winning Valex(TM) software is HFC Bank. Increased competition is driving demand for implementing database marketing and customer interaction solutions in a number of industries, particularly financial services.

Exchange Applications’ Valex software will help Household make marketing investment decisions based on the economics of customer relationships. They will use Valex, an integrated suite of marketing applications, to identify their most profitable customer segments and then optimize the value of those customer relationships. Household will be able to plan, build and execute highly targeted marketing campaign, measure results and then refine future campaigns based on the analysis.

Originally know for pioneering work in credit scoring (a scientific method of assessing credit risk), Fair, Isaac is the leader in data-driven decision-making solutions for the credit industry and has been instrumental in the growth and greater availability of credit worldwide. One of Fair, Isaac client is Household International, which will be able to access five of Fair, Isaac’s software products: Search(TM), Application Scorewar(R), Application Scoreware International, Strategyware(TM) and SBSS-Scoreware(TM), which are used in credit application and authorization for consumers and small business.

Recommendation for the Future

Cap Gemini America LLC, a market leader in Year 2000 services, will launch a Government Services practice to help public entities address their Year 2000 computer challenges.

Household International will utilize Cap Gemini America, the first America information services company to gain ISO9001 certification of its quality system to help them maintain a high productivity and efficiency level that their consumer have come to expect. Household is hoping that being prepare for the Year 2000 will keep such competitors such as The Associates who is now a solid number three in third-party private-label issuance with about $3.5 billion in receivables, plus another $400 million in corporate card receivables at arms length.

Household credit their success to having quality employees whom takes ownership over whatever job task they are assigned. Household believes that by empowering the employee to take ownership they will provide their consumer with a high quality of service and a low error ratio. In the beginning of 1999, Household issues to their employees the following vision statement:


P - Partnership We will be the premier provider of private label credit programs

that serve all of Household’s partners: our merchants, account

holders, shareholders and employees.

L - Leadership We will train our employees to be leaders, and use our expertise to

lead our industry.

E - Ethics We will hold ourselves to the highest level of ethics and integrity.

D - Delivery We will deliver exceptional quality, value and service, for every

partner, every day.

G - Growth We will grow our sales and profits, with a fair return for our


E - Empowerment We will be empowered to act like owners on behalf of our partners.

It is something most of us do every day without thinking about it, we hand someone a credit cared so they can charge a purchase to our account. A few weeks later, we receive a statement and --after a momentary depression--write out a check for whatever portion of the account balance we can spare.

The business operations behind today’s credit cards are huge. issuing cards, managing accounts, mailing statements, and tracking promotional programs require tremendous volume of data. Labor-intensive customer service and collections functions also must be supported by information systems.

That is where firms Household International come in. Household services many different credit cards from companies such as General Motors, Ameritech, Pacific Bell, and Charles Schwab(March 1995). The combined monthly transaction volume of these cares runs into the hundreds of millions of dollars. This volume requires some serious computing power that can be accessed by thousands of employees.

Household International wanted to fill job positions from within to keep its competitive edge during a growth spurt in the mid-eighties. The consumer finance, banking and insurance firm grew from four core businesses to ten distinct business entities. Household International wanted and needed to move employees up as well as laterally across departments, job functions, and business lines. To achieve that objective, Household developed an electronic job-posting system. first, the company set up a computerized skill bank to contain an inventory of the skills, professional expertise, and preferred work locations of about 1,300 employees.

In the past, Household sought internal job candidates by posting a list of available positions on the home office bulletin board--an approach that required administrative staff to do a lot of paperwork. Today Household enhances their skill bank and added Inside Track, a job-positing software program, to serve more than 12,500 employees across the country.

Household International understands that to be competitive in the future they will need to attract as well as retain desirable employees for continuing success in the financial industry.