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
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 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 ¨ No x
At April 30, 2004, there were 1,000 shares of the registrant’s common stock outstanding, all of which were owned by Household International, Inc.
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 |
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| Item 1. |
Financial Statements |
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| 3 | ||||
| 4 | ||||
| Condensed Consolidated Statements of Changes in Shareholder’s Equity |
5 | |||
| 6 | ||||
| Notes to Interim Condensed Consolidated Financial Statements |
7 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| 15 | ||||
| 16 | ||||
| 17 | ||||
| 18 | ||||
| 19 | ||||
| 21 | ||||
| 21 | ||||
| 25 | ||||
| 28 | ||||
| 32 | ||||
| Item 4. |
35 | |||
| Part II. |
Other Information |
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| Item 1. |
36 | |||
| Item 6. |
38 | |||
| 38 | ||||
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HOUSEHOLD FINANCE CORPORATION 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 |
$ | 2,285.1 | $ | 67.7 | $ | 2,266.9 | |||
| Interest expense |
510.7 | 14.1 | 784.6 | ||||||
| Net interest margin |
1,774.4 | 53.6 | 1,482.3 | ||||||
| Provision for credit losses on owned receivables |
849.0 | 31.5 | 920.7 | ||||||
| Net interest margin after provision for credit losses |
925.4 | 22.1 | 561.6 | ||||||
| Securitization revenue |
338.8 | 8.2 | 413.2 | ||||||
| Insurance revenue |
127.1 | 4.0 | 118.8 | ||||||
| Investment income |
36.4 | 1.2 | 75.8 | ||||||
| Fee income |
247.8 | 8.1 | 262.1 | ||||||
| Other income |
314.7 | 4.6 | 240.1 | ||||||
| Total other revenues |
1,064.8 | 26.1 | 1,110.0 | ||||||
| Salaries and fringe benefits |
375.7 | 12.7 | 378.1 | ||||||
| Sales incentives |
70.3 | 1.3 | 34.8 | ||||||
| Occupancy and equipment expenses |
60.4 | 2.7 | 77.9 | ||||||
| Other marketing expenses |
124.8 | 4.4 | 127.5 | ||||||
| Other servicing and administrative expenses |
172.5 | 7.4 | 268.6 | ||||||
| Support services from affiliates |
164.3 | — | — | ||||||
| Amortization of acquired intangibles |
106.2 | 1.8 | 12.3 | ||||||
| Policyholders’ benefits |
78.0 | 2.3 | 71.1 | ||||||
| Total costs and expenses |
1,152.2 | 32.6 | 970.3 | ||||||
| Income before income taxes |
838.0 | 15.6 | 701.3 | ||||||
| Income taxes |
285.8 | 5.5 | 240.6 | ||||||
| Net income |
$ | 552.2 | $ | 10.1 | $ | 460.7 | |||
See notes to interim condensed consolidated financial statements.
3
HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2004 |
December 31, 2003 | |||||
| (In millions, except share data) | (Unaudited) | |||||
| (Successor) | (Successor) | |||||
| Assets |
||||||
| Cash |
$ | 140.1 | $ | 395.0 | ||
| Investment securities |
6,166.9 | 10,545.0 | ||||
| Receivables, net |
82,056.0 | 81,239.1 | ||||
| Acquired intangibles, net |
2,521.1 | 2,627.3 | ||||
| Goodwill |
2,315.0 | 2,107.7 | ||||
| Properties and equipment, net |
372.5 | 391.6 | ||||
| Real estate owned |
652.5 | 626.6 | ||||
| Derivative financial assets |
3,098.1 | 2,939.7 | ||||
| Due from affiliates |
698.9 | — | ||||
| Other assets |
2,215.4 | 2,087.9 | ||||
| Total assets |
$ | 100,236.5 | $ | 102,959.9 | ||
| Liabilities and Shareholder’s Equity |
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| Debt: |
||||||
| Due to affiliates |
— | $ | 2,101.7 | |||
| Commercial paper, bank and other borrowings |
$ | 8,127.8 | 7,983.8 | |||
| Senior and senior subordinated debt (with original maturities over one year) |
72,921.3 | 74,597.6 | ||||
| Total debt |
81,049.1 | 84,683.1 | ||||
| Insurance policy and claim reserves |
1,122.9 | 1,127.0 | ||||
| Derivative related liabilities |
480.4 | 549.7 | ||||
| Other liabilities |
3,320.6 | 2,872.6 | ||||
| Total liabilities |
85,973.0 | 89,232.4 | ||||
| Common shareholder’s equity: |
||||||
| Common stock ($1.00 par value, 1,000 shares authorized, issued and outstanding) and additional paid-in capital |
12,016.1 | 12,016.1 | ||||
| Retained earnings |
2,001.6 | 1,449.4 | ||||
| Accumulated other comprehensive income |
245.8 | 262.0 | ||||
| Total common shareholder’s equity |
14,263.5 | 13,727.5 | ||||
| Total liabilities and shareholder’s equity |
$ | 100,236.5 | $ | 102,959.9 | ||
See notes to interim condensed consolidated financial statements.
4
HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN COMMON SHAREHOLDER’S EQUITY (UNAUDITED)
| Three months March 31, |
March 29 through March 31, 2003 |
January 1 through March 28, 2003 |
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| (In millions) | |||||||||||
| Common stock and additional paid-in capital |
|||||||||||
| Balance at beginning of period |
$ | 12,016.1 | $ | 12,016.1 | $ | 3,790.8 | |||||
| Effect of push-down accounting of HSBC’s purchase price on net assets |
— | — | 8,225.3 | ||||||||
| Balance at end of period (successor) |
$ | 12,016.1 | $ | 12,016.1 | $ | 12,016.1 | |||||
| Retained earnings |
|||||||||||
| Balance at beginning of period |
$ | 1,449.4 | — | $ | 6,642.4 | ||||||
| Net income |
552.2 | $ | 10.1 | 460.7 | |||||||
| Effect of push-down accounting of HSBC’s purchase price on net assets |
— | — | (7,103.1 | ) | |||||||
| Balance at end of period (successor) |
$ | 2,001.6 | $ | 10.1 | $ | — | |||||
| Accumulated other comprehensive income |
|||||||||||
| Balance at beginning of period |
$ | 262.0 | — | $ | (391.7 | ) | |||||
| Other comprehensive income, net of tax: |
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| Net gains (losses) on cash flow hedging instruments |
(58.4 | ) | $ | 41.9 | 110.6 | ||||||
| Net unrealized gains (losses) on investments and interest-only strip receivables |
42.7 | 6.6 | (30.7 | ) | |||||||
| Foreign currency translation adjustments |
(.5 | ) | — | 2.5 | |||||||
| Other comprehensive income (loss), net of tax |
(16.2 | ) | 48.5 | 82.4 | |||||||
| Effect of push-down accounting of HSBC’s purchase price on net assets |
— | — | 309.3 | ||||||||
| Balance at end of period (successor) |
$ | 245.8 | $ | 48.5 | $ | — | |||||
| Total common shareholder’s equity |
$ | 14,263.5 | $ | 12,074.7 | $ | 12,016.1 | |||||
| Comprehensive income |
|||||||||||
| Net income |
$ | 552.2 | $ | 10.1 | $ | 460.7 | |||||
| Other comprehensive income (loss) |
(16.2 | ) | 48.5 | 82.4 | |||||||
| Comprehensive income |
$ | 536.0 | $ | 58.6 | $ | 543.1 | |||||
5
HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Three months ended March 31, 2004 |
March 29 through March 31, 2003 |
January 1 through March 28, 2003 |
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| (In millions) | (Successor) | (Successor) | (Predecessor) | |||||||||
| Cash Provided by Operations |
||||||||||||
| Net income |
$ | 552.2 | $ | 10.1 | $ | 460.7 | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operations: |
||||||||||||
| Provision for credit losses on owned receivables |
849.0 | 31.5 | 920.7 | |||||||||
| Insurance policy and claim reserves |
(36.9 | ) | 2.3 | 65.3 | ||||||||
| Depreciation and amortization |
127.8 | 2.0 | 46.1 | |||||||||
| Interest-only strip receivables, net change |
108.9 | 5.1 | 32.4 | |||||||||
| Other assets |
(113.6 | ) | — | (532.3 | ) | |||||||
| Other liabilities |
203.4 | (11.9 | ) | 178.4 | ||||||||
| Other, net |
68.7 | (82.2 | ) | 400.5 | ||||||||
| Cash provided by (used in) operations |
1,759.5 | (43.1 | ) | 1,571.8 | ||||||||
| Investments in Operations |
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| Investment securities: |
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| Purchased |
(464.7 | ) | — | (981.4 | ) | |||||||
| Matured |
438.9 | — | 534.5 | |||||||||
| Sold |
59.3 | — | ||||||||||