HOUSEHOLD INTERNATIONAL INC - 10-Q Quarterly Report

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 March 31, 2004


¨		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 ¨ No x

At April 30, 2004, there were 50 shares of the registrant’s common stock outstanding, all of which were indirectly owned by HSBC Holdings plc.

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 INTERNATIONAL, INC. AND SUBSIDIARIES

Table of Contents


Part I.	Financial Information	Page
Item 1.	Financial Statements
	Condensed Consolidated Statements of Income	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Changes in Shareholder’s Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Interim Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Financial Highlights	16
	Executive Overview	17
	Basis of Reporting	19
	Operations Summary	24
	Segment Results—Managed Basis	25
	Receivable Review	28
	Liquidity and Capital Resources	28
	Results of Operations	32
	Credit Quality	35
	Reconciliations to GAAP Financial Measures	40
Item 4.	Controls and Procedures	44

Part II.	Other Information
Item 1.	Legal Proceedings	44
Item 6.	Exhibits and Reports on Form 8-K	46
Signature		47

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three months ended March 31, 2004		March 29 through March 31, 2003		January 1 through March 28, 2003
(In millions)	(Successor)		(Successor)		(Predecessor)
Finance and other interest income	$	2,542.8	$	74.5	$	2,470.5
Interest expense		637.3		14.6		897.4

Net interest margin		1,905.5		59.9		1,573.1
Provision for credit losses on owned receivables		927.8		33.5		976.1

Net interest margin after provision for credit losses		977.7		26.4		597.0

Securitization revenue		333.7		8.5		432.6
Insurance revenue		210.9		5.7		171.6
Investment income		40.8		1.3		80.0
Fee income		267.6		8.8		279.8
Other income		301.9		5.1		247.2

Total other revenues		1,154.9		29.4		1,211.2

Salaries and fringe benefits		485.8		17.3		491.3
Sales incentives		78.6		1.4		37.7
Occupancy and equipment expenses		82.7		3.5		97.7
Other marketing expenses		131.7		4.7		138.8
Other servicing and administrative expenses		226.1		9.2		313.7
Support services from affiliates		177.4		—		—
Amortization of acquired intangibles		115.6		2.0		12.3
Policyholders’ benefits		112.8		3.0		91.0
HSBC acquisition related costs incurred by Household		—		—		198.2

Total costs and expenses		1,410.7		41.1		1,380.7

Income before income taxes		721.9		14.7		427.5
Income taxes		240.8		5.0		181.8

Net income	$	481.1	$	9.7	$	245.7

See notes to interim condensed consolidated financial statements.

HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	March 31, 2004		December 31, 2003
(In millions, except share data)	(Unaudited) (Successor)		(Successor)
ASSETS
Cash	$	199.3	$	463.4
Investment securities		6,736.5		11,073.1
Receivables, net		92,033.6		91,027.3
Acquired intangibles, net		2,749.4		2,855.8
Goodwill		6,853.1		6,697.0
Properties and equipment, net		504.9		527.2
Real estate owned		656.4		631.2
Derivative financial assets		3,189.7		3,117.7
Other assets		2,949.8		2,761.2

Total assets	$	115,872.7	$	119,153.9

LIABILITIES AND SHAREHOLDER’S EQUITY
Debt:
Deposits	$	91.4	$	231.5
Commercial paper, bank and other borrowings		9,102.5		9,122.4
Due to affiliates		5,435.9		7,589.3
Senior and senior subordinated debt (with original maturities over one year)		77,563.6		79,464.4

Total debt		92,193.4		96,407.6
Insurance policy and claim reserves		1,264.4		1,258.0
Derivative related liabilities		509.1		599.6
Other liabilities		3,757.2		3,228.4

Total liabilities		97,724.1		101,493.6
Preferred stock issued to HSBC		1,100.0		1,100.0
Common shareholder’s equity:
Common stock, $0.01 par value, 100 shares authorized, 50 shares issued		—		—
Additional paid-in capital		14,640.2		14,644.5
Retained earnings		1,828.5		1,365.3
Accumulated other comprehensive income		579.9		550.5

Total common shareholder’s equity		17,048.6		16,560.3

Total liabilities and shareholder’s equity	$	115,872.7	$	119,153.9

See notes to interim condensed consolidated financial statements.

HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDER’S(S’) EQUITY (UNAUDITED)


	Three months ended March 31, 2004			March 29 through March 31, 2003		January 1 through March 28, 2003
(In millions)
Preferred stock
Balance at beginning of period	$	1,100.0		$	1,100.0	$	1,193.2
Reclassification of preferred stock issuance costs		—			—		21.2
Redemption		—			—		(114.4	)

Balance at end of period (successor)	$	1,100.0		$	1,100.0	$	1,100.0

Common shareholder’s(s’) equity
Common stock
Balance at beginning of period		—			—	$	551.8
Effect of push-down accounting of HSBC’s purchase price on net assets		—			—		(551.8	)

Balance at end of period (successor)		—			—	$	—

Additional paid-in capital
Balance at beginning of period	$	14,644.5		$	14,660.7	$	1,911.3
Return of capital to HSBC		(10.9	)		—		—
Employee benefit plans and other		6.6			—		9.8
Reclassification of preferred stock issuance costs		—			—		(21.2	)
Effect of push-down accounting of HSBC’s purchase price on net assets		—			—		12,760.8

Balance at end of period (successor)	$	14,640.2		$	14,660.7	$	14,660.7

Retained earnings
Balance at beginning of period	$	1,365.3			—	$	9,885.6
Net income		481.1		$	9.7		245.7
Dividends:
Preferred at stated rates		(17.9	)		—		(22.2	)
Common, $.8694 per share		—			—		(411.8	)
Effect of push-down accounting of HSBC’s purchase price on net assets		—			—		(9,697.3	)

Balance at end of period (successor)	$	1,828.5		$	9.7	$	—

Accumulated other comprehensive income
Balance at beginning of period	$	550.5			—	$	(694.9	)
Other comprehensive income, net of tax:
Net gains (losses) on cash flow hedging instruments		(58.6	)	$	41.9		100.6
Net unrealized gains (losses) on investments and interest-only strip receivables		48.9			6.6		(25.0	)
Minimum pension liability		—			4.4		.2
Foreign currency translation adjustments		39.1			—		(24.1	)

Other comprehensive income, net of tax		29.4			52.9		51.7
Effect of push-down accounting of HSBC’s purchase price on net assets		—			—		643.2

Balance at end of period (successor)	$	579.9		$	52.9	$	—

Common stock in treasury
Balance at beginning of period		—			—	$	(2,430.9	)
Exercise of stock options		—			—		12.2
Issuance of common stock for employee benefit plans		—			—		12.1
Purchase of treasury stock		—			—		(164.1	)
Effect of push-down accounting of HSBC’s purchase price on net assets		—			—		2,570.7

Balance at end of period (successor)