MOODY'S AFFIRMS THE RATINGS OF HOUSEHOLD INTERNATIONAL, INC. AND ITS RATED SUBSIDIARIES, INCLUDING HOUSEHOLD FINANCE CORPORATION.
New York, August 14, 2002 -- Moody's today affirmed the ratings of Household International, Inc. ("Household", senior long-term debt at A3) and its rated subsidiaries, including Household Finance Corporation ("HFC", senior long-term debt at A2.). Moody's also affirmed the Prime-1 short-term rating of HFC, Household's principal commercial paper issuer. The outlook for Household remains stable. The affirmation is in response to Household's announcement that as a result of a review of its accounting policies by its new auditors (KPMG LLP), Household would restate its earnings and financial statements for the periods spanning 1994 through Q2-2002 for a cumulative accounting adjustment totaling $386 million after tax. Household also reaffirmed its earnings outlook for 2002 and announced that CEO William Aldinger and President David Schoenholz have certified the company's financial statements per the recent directive issued by the Securities and Exchange Commission.
According to the company, the financial restatements are limited to the accounting for co-branded, affinity and credit card marketing agreements that were approved by Household's prior auditor and represent a "good faith difference of opinion." No other material accounting issues have arisen with KPMG. In Moody's opinion, the accounting changes and cumulative restatements do not represent a systemic breakdown in Household's accounting policies or controls, or corporate governance. On a go-forward basis, the direct financial impact on Household will likely be small. Moody's noted that the charge would initially reduce Household's tangible capitalization. However, the rating agency expects that Household will take the necessary actions to improve its capitalization over the next several quarters.
Moody's noted that the indirect cost of Household's earnings restatement is the potential negative impact on investor confidence and funding access given the elevated levels of volatility that continue to persist in the unsecured debt markets. As a component of regular due diligence, Moody's will continue to track Household's funding access going forward, with a particular focus towards any material impact on core operating performance. The rating agency noted that Household has improved its liquidity posture materially since the beginning of the year by reducing outstanding commercial paper, terming out debt, increasing term securitizations and monetizing real estate assets via term securitizations and whole loan sales. Household has also added an incremental $6 billion of conduit capacity since the end of 2001. Moody's also said that Household continues to generate strong core earnings with sound asset quality performance consistent with expectations and the current stage of the economic cycle.
Household International is a holding company for several consumer financial services companies, including Household Finance Corporation, long a leader in branch-based consumer finance. The company ended June with managed assets of almost $120 billion, common equity of $8.66 billion and year-to-date net income of $998 million.
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