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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 1-8198

 

 

HOUSEHOLD INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   86-1052062
(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 50 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.

 

Table of Contents

HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES

 

Table of Contents

 

PART I.    Financial Information    Page

    Item 1.

    Financial Statements     
     Condensed Consolidated Statements of Income (Unaudited)    2
     Condensed Consolidated Balance Sheets    3
     Condensed Consolidated Statements of Cash Flows (Unaudited)    4
     Notes to Interim Condensed Consolidated Financial Statements (Unaudited)    5

    Item 2.

    Management’s Discussion and Analysis of Financial Condition and Results of Operations    14

    Item 4.

    Controls and Procedures    33

PART II.

    Other Information     

    Item 6.

    Exhibits and Reports on Form 8-K    34

Signature

   34

 

1

Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

 

HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

     Three months
ended
June 30, 2003
    Three months
ended
June 30, 2002
    March 29
through
June 30, 2003
    January 1
through
March 28, 2003
   

Six months
ended

June 30, 2002

     (Successor)    (Predecessor)    (Successor)    (Predecessor)    (Predecessor)
(In millions)    (Note 2)    (Note 2)    (Note 2)    (Note 2)    (Note 2)

Finance and other interest income

    $ 2,504.1    $ 2,609.9    $ 2,578.6    $ 2,470.5    $ 5,145.6

Interest expense

      558.8      980.9      573.4      897.4      1,919.7
    
  
  
  
  

Net interest margin

      1,945.3      1,629.0      2,005.2      1,573.1      3,225.9

Provision for credit losses on owned receivables

      1,039.3      850.9      1,072.8      976.1      1,773.9
    
  
  
  
  

Net interest margin after
provision for credit losses

      906.0      778.1      932.4      597.0      1,452.0
    
  
  
  
  

Securitization revenue

      282.6      523.4      291.1      432.6      1,041.7

Insurance revenue

      183.3      177.5      189.0      171.6      347.6

Investment income

      33.2      44.0      34.5      80.0      90.2

Fee income

      259.7      190.3      268.5      288.3      406.8

Other income

      131.5      95.3      136.6      238.7      283.3
    
  
  
  
  

Total other revenues

      890.3      1,030.5      919.7      1,211.2      2,169.6
    
  
  
  
  

Salaries and fringe benefits

      488.6      453.0      505.9      491.3      898.3

Sales incentives

      83.2      67.6      84.6      37.7      121.7

Occupancy and equipment expense

      100.0      93.3      103.5      97.7      185.5

Other marketing expenses

      135.2      133.5      139.9      138.8      273.9

Other servicing and administrative expenses

      263.7      204.1      272.9      313.7      435.8

Amortization of acquired intangibles

      78.3      12.6      80.3      12.3      32.4

HSBC acquisition related costs
incurred by Household

      —        —        —        198.2      —  

Policyholders’ benefits

      98.4      87.4      101.4      91.0      171.4
    
  
  
  
  

Total costs and expenses

      1,247.4      1,051.5      1,288.5      1,380.7      2,119.0
    
  
  
  
  

Income before income taxes

      548.9      757.1      563.6      427.5      1,502.6

Income taxes

      184.9      249.7      189.9      181.8      504.2
    
  
  
  
  

Net income

    $ 364.0    $ 507.4    $ 373.7    $ 245.7    $ 998.4
    
  
  
  
  

 

See notes to interim condensed consolidated financial statements.

 

2

Table of Contents

HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In millions, except share data)    June 30,
2003
   December 31,
2002
  
     (Unaudited)      
     (Successor)   (Predecessor)  

ASSETS

      (Note 2)     (Note 2)  

Cash

    $ 307.9   $ 797.7  

Investment securities

      6,624.2     7,584.0  

Receivables, net

      87,248.9     82,050.5  

Acquired intangibles, net

      3,000.3     386.4  

Goodwill

      6,542.1     1,122.1  

Properties and equipment, net

      487.9     535.1  

Real estate owned

      486.3     427.1  

Derivative financial assets

      3,601.3     1,863.5  

Other assets

      3,280.5     3,094.2  
    
 

Total assets

    $ 111,579.4   $ 97,860.6  
    
 

LIABILITIES AND SHAREHOLDER’S(S’) EQUITY

               

Debt:

               

Deposits

    $ 60.7   $ 821.2  

Commercial paper, bank and other borrowings

      8,857.0     6,128.3  

Due to affiliates

      3,296.5     —    

Senior and senior subordinated debt (with original maturities over one year)

      75,111.9     74,776.2  

Company obligated mandatorily redeemable preferred securities of
subsidiary trusts*

      1,021.5     975.0  
    
 

Total debt

      88,347.6     82,700.7  

Insurance policy and claim reserves

      1,336.2     1,047.6  

Derivative related liabilities

      2,981.6     1,183.9  

Other liabilities

      2,694.8     2,512.3  
    
 

Total liabilities

      95,360.2     87,444.5  
    
 

Preferred stock

      1,100.0     1,193.2  

Common shareholder’s(s’) equity:

               

Common stock, $0.01 and $1.00 par value, 100 and 750,000,000 shares authorized, 50 and 551,811,025 shares issued at June 30, 2003 and
December 31, 2002, respectively

      —       551.8  

Additional paid-in capital

      14,646.0     1,911.3  

Retained earnings

      355.1     9,885.6  

Accumulated other comprehensive income (loss)

     118.1     (694.9 )

Less common stock in treasury, 0 and 77,197,686 shares at June 30, 2003 and December 31, 2002, respectively, at cost

      —       (2,430.9 )
    
 

Total common shareholder’s(s’) equity

      15,119.2     9,222.9  
    
 

Total liabilities and shareholder’s(s’) equity

    $ 111,579.4   $ 97,860.6  
    
 
*   The sole assets of the trusts are Junior Subordinated Deferrable Interest Notes issued by Household International, Inc. in November 2001, January 2001, June 2000, March 1998 and June 1995, bearing interest at 7.50, 8.25, 10.00, 7.25 and 8.25 percent, respectively, and due November 2031, January 2031, June 2030, December 2037 and June 2025, respectively.

 

See notes to interim condensed consolidated financial statements.

 

3

Table of Contents

HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

(In millions)   

March 29
through

June 30, 2003

    

January 1
through

March 28, 2003

    

Six months
through

June 30, 2002

  
     (Successor)     (Predecessor)     (Predecessor)  
     (Note 2)     (Note 2)     (Note 2)  

CASH PROVIDED BY OPERATIONS

                         

Net income

    $ 373.7     $ 245.7     $ 998.4  

Adjustments to reconcile net income to cash provided by operations:

                         

Provision for credit losses on owned receivables

      1,072.8       976.1       1,773.9  

Insurance policy and claim reserves

      (94.3 )     47.2       86.8  

Depreciation and amortization

      121.5       53.5       116.5  

Interest-only strip receivables, net change

      197.8       36.4       (58.8 )

Other, net

      723.7       106.0       759.1  
    
 
 

Cash provided by operations

      2,395.2       1,464.9       3,675.9  
    
 
 

INVESTMENTS IN OPERATIONS

                         

Investment securities:

                         

Purchased

      (1,268.7 )     (1,046.7 )     (2,817.3 )

Matured

      660.5       584.2       621.8  

Sold

      234.6       768.4       232.0  

Short-term investment securities, net change

      1,555.5       (375.0 )     (2,585.3 )

Receivables:

                         

Originations, net

      (12,887.2 )     (8,261.6 )     (22,226.3 )

Purchases and related premiums

      (1,831.5 )     (129.0 )     (406.5 )

Initial and fill-up securitizations

      9,156.5       7,300.1       17,249.6  

Whole loan sales

      —         —         882.3  

Properties and equipment purchased

      (28.3 )     (21.6 )     (84.4 )

Properties and equipment sold

      2.2