UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 2003
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-75
HOUSEHOLD FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 36-1239445 | |
| (State of Incorporation) | (I.R.S. Employer Identification No.) | |
| 2700 Sanders Road, Prospect Heights, Illinois | 60070 | |
| (Address of principal executive offices) | (Zip Code) | |
(847) 564-5000
(Registrant’s telephone number, including area code)
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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
At July 31, 2003, there were 100 shares of the registrant’s common stock outstanding.
The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.
HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES
| PART I. | Financial Information | Page | ||
| Item 1. |
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| 2 | ||||
| 3 | ||||
| 4 | ||||
| Notes to Interim Condensed Consolidated Financial Statements (Unaudited) |
5 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | ||
| Item 4. |
29 | |||
| PART II. |
Other Information |
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| Item 6. |
30 | |||
| 30 | ||||
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| Three ended June 30, |
Three ended June 30, |
March 29 through June 30, |
January 1 through March 28, |
Six months ended June 30, | |||||||||||
| (Successor) | (Predecessor) | (Successor) | (Predecessor) | (Predecessor) | |||||||||||
| (In millions) | (Note 2) | (Note 2) | (Note 2) | (Note 2) | (Note 2) | ||||||||||
| Finance and other interest income |
$ | 2,296.2 | $ | 2,272.6 | $ | 2,363.9 | $ | 2,266.9 | $ | 4,455.6 | |||||
| Interest expense |
457.5 | 767.4 | 471.6 | 784.6 | 1,493.4 | ||||||||||
| Net interest margin |
1,838.7 | 1,505.2 | 1,892.3 | 1,482.3 | 2,962.2 | ||||||||||
| Provision for credit losses on owned receivables |
979.5 | 773.1 | 1,011.0 | 920.7 | 1,607.2 | ||||||||||
| Net interest margin after provision for credit losses |
859.2 | 732.1 | 881.3 | 561.6 | 1,355.0 | ||||||||||
| Securitization revenue |
273.1 | 465.3 | 281.3 | 413.2 | 955.8 | ||||||||||
| Insurance revenue |
124.5 | 135.7 | 128.5 | 118.8 | 265.8 | ||||||||||
| Investment income |
31.5 | 41.6 | 32.7 | 75.8 | 83.4 | ||||||||||
| Fee income |
239.1 | 177.4 | 247.2 | 270.6 | 363.5 | ||||||||||
| Other income |
122.6 | 58.3 | 127.2 | 231.6 | 216.7 | ||||||||||
| Total other revenues |
790.8 | 878.3 | 816.9 | 1,110.0 | 1,885.2 | ||||||||||
| Salaries and fringe benefits |
404.4 | 379.2 | 417.1 | 378.1 | 748.4 | ||||||||||
| Sales incentives |
78.5 | 64.1 | 79.8 | 34.8 | 115.8 | ||||||||||
| Occupancy and equipment expense |
80.3 | 74.7 | 83.0 | 77.9 | 148.8 | ||||||||||
| Other marketing expenses |
130.2 | 123.9 | 134.6 | 127.5 | 251.9 | ||||||||||
| Other servicing and administrative expenses |
220.6 | 155.5 | 228.0 | 268.6 | 356.1 | ||||||||||
| Amortization of acquired intangibles |
72.2 | 12.6 | 73.9 | 12.3 | 32.4 | ||||||||||
| Policyholders’ benefits |
78.5 | 72.8 | 80.9 | 71.1 | 146.6 | ||||||||||
| Total costs and expenses |
1,064.7 | 882.8 | 1,097.3 | 970.3 | 1,800.0 | ||||||||||
| Income before income taxes |
585.3 | 727.6 | 600.9 | 701.3 | 1,440.2 | ||||||||||
| Income taxes |
200.6 | 251.7 | 206.1 | 240.6 | 492.5 | ||||||||||
| Net income |
$ | 384.7 | $ | 475.9 | $ | 394.8 | $ | 460.7 | $ | 947.7 | |||||
See notes to interim condensed consolidated financial statements.
2
HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2003 |
December 31, 2002 |
||||||
| (Unaudited) | |||||||
| (Successor) | (Predecessor) | ||||||
| (In millions, except share data) | (Note 2) | (Note 2) | |||||
| ASSETS |
|||||||
| Cash |
$ | 251.5 | $ | 667.9 | |||
| Investment securities |
6,084.2 | 6,707.6 | |||||
| Receivables, net |
78,404.3 | 74,828.4 | |||||
| Acquired intangibles, net |
2,775.3 | 386.4 | |||||
| Goodwill |
2,016.5 | 1,117.7 | |||||
| Properties and equipment, net |
363.5 | 403.1 | |||||
| Real estate owned |
482.2 | 423.9 | |||||
| Derivative financial assets |
3,445.0 | 1,805.0 | |||||
| Other assets |
2,653.9 | 2,032.9 | |||||
| Total assets |
$ | 96,476.4 | $ | 88,372.9 | |||
| LIABILITIES AND SHAREHOLDER’S EQUITY |
|||||||
| Debt: |
|||||||
| Due to affiliates |
$ | 768.2 | $ | 86.9 | |||
| Commercial paper, bank and other borrowings |
6,463.1 | 4,143.3 | |||||
| Senior and senior subordinated debt (with original maturities over one year) |
70,495.4 | 70,275.6 | |||||
| Total debt |
77,726.7 | 74,505.8 | |||||
| Insurance policy and claim reserves |
1,188.5 | 890.9 | |||||
| Derivative related liabilities |
2,916.4 | 1,087.5 | |||||
| Other liabilities |
2,133.3 | 1,847.2 | |||||
| Total liabilities |
83,964.9 | 78,331.4 | |||||
| Common shareholder’s equity: |
|||||||
| Common stock, $1.00 par value, 1,000 shares authorized, issued and outstanding at June 30, 2003 and December 31, 2002, and additional paid-in capital |
|
12,076.1 |
|
3,790.8 |
| ||
| Retained earnings |
394.8 | 6,642.4 | |||||
| Accumulated other comprehensive income (loss) |
40.6 | (391.7 | ) | ||||
| Total common shareholder’s equity |
12,511.5 | 10,041.5 | |||||
| Total liabilities and shareholder’s equity |
$ | 96,476.4 | $ | 88,372.9 | |||
See notes to interim condensed consolidated financial statements.
3
HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| March 29 through June 30, 2003 |
January 1 through March 28, 2003 |
Six months ended June 30, 2002 |
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| (Successor) | (Predecessor) | (Predecessor) | ||||||||||
| (In millions) | (Note 2) | (Note 2) | (Note 2) | |||||||||
| CASH PROVIDED BY OPERATIONS |
||||||||||||
| Net income |
$ | 394.8 | $ | 460.7 | $ | 947.7 | ||||||
| Adjustments to reconcile net income to cash provided by operations: |
||||||||||||
| Provision for credit losses on owned receivables |
1,011.0 | 920.7 | 1,607.2 | |||||||||
| Insurance policy and claim reserves |
(29.6 | ) | 65.3 | 8.7 | ||||||||
| Depreciation and amortization |
108.4 | 46.1 | 97.8 | |||||||||
| Interest-only strip receivables, net change |
184.4 | 32.4 | (38.9 | ) | ||||||||
| Other, net |
863.8 | 46.6 | 681.7 | |||||||||
| Cash provided by operations |
2,532.8 | 1,571.8 | 3,304.2 | |||||||||
| INVESTMENTS IN OPERATIONS |
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| Investment securities: |
||||||||||||
| Purchased |
(1,166.0 | ) | (981.4 | ) | (2,602.5 | ) | ||||||
| Matured |
540.3 | 534.5 | 304.7 | |||||||||
| Sold |
234.6 | 768.4 | 232.0 | |||||||||
| Short-term investment securities, net change |
1,018.2 | (203.2 | ) | (2,268.3 | ) | |||||||
| Receivables: |
||||||||||||
| Originations, net |
(12,380.8 | ) | (7,758.2 | ) | (21,142.6 | ) | ||||||
| Purchases and related premiums |
(1,361.3 | ) | (129.0 | ) | (2,067.9 | ) | ||||||
| Initial and fill-up securitizations |
9,078.1 | 7,234.4 | 16,494.4 | |||||||||
| Whole loan sales |
— | — | 882.3 | |||||||||
| Properties and equipment purchased |
(23.9 | ) | (16.0 | ) | (67.7 | ) | ||||||
| Properties and equipment sold |
— | .1 | — | |||||||||
| Cash decrease from investments in operations |
(4,060.8 | ) | (550.4 | ) | (10,235.6 | ) | ||||||
| FINANCING AND CAPITAL TRANSACTIONS |
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| Short-term debt, net change |
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