HOUSEHOLD FINANCE CORP - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND

EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 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 1-75

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 ¨ No x

At October 31, 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

Form 10-Q

TABLE OF CONTENTS


Part I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements
	Statement of Income	3
	Balance Sheet	4
	Statement of Changes in Shareholder’s Equity	5
	Statement of Cash Flows	6
	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Forward-Looking Statements	15
	Executive Overview	15
	Basis of Reporting	18
	Receivable Review	19
	Results of Operations	20
	Segment Results – Managed Basis	25
	Credit Quality	28
	Liquidity and Capital Resources	32
	Risk Management	36
	Reconciliations to GAAP Financial Measures	38

Item 4.	Controls and Procedures	42

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 6.	Exhibits and Reports on Form 8-K	44

Signature		45

Part I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Household Finance Corporation

CONSOLIDATED STATEMENT OF INCOME


	Three months ended September 30,				Nine months ended September 30, 2004		March 29 through September 30, 2003		January 1 through March 28, 2003
	2004		2003		Nine months ended September 30, 2004		March 29 through September 30, 2003		January 1 through March 28, 2003
	(Successor)		(Successor)		(Successor)		(Successor)		(Predecessor)
	(in millions)
Finance and other interest income	$	2,519	$	2,352	$	7,176	$	4,714	$	2,266
Interest expense		600		455		1,621		927		784

*Net interest income*		1,919		1,897		5,555		3,787		1,482
Provision for credit losses		1,034		923		2,808		1,934		921

Net interest income after provision for credit losses		885		974		2,747		1,853		561

Other revenues:
Securitization revenue		265		379		880		662		414
Insurance revenue		110		128		359		257		119
Investment income		30		34		92		67		76
Fee income		280		246		743		462		262
Other income		126		66		620		224		240

*Total other revenues*		811		853		2,694		1,672		1,111

Costs and expenses:
Salaries and employee benefits		372		410		1,100		827		378
Sales incentives		86		72		243		152		35
Occupancy and equipment expenses		58		75		176		159		78
Other marketing expenses		160		131		411		266		127
Other servicing and administrative expenses		170		228		506		456		269
Support services from HSBC affiliates		172		-		518		-		-
Amortization of intangibles		72		74		248		148		12
Policyholders’ benefits		50		73		187		153		71

*Total costs and expenses*		1,140		1,063		3,389		2,161		970

Income before income tax expense		556		764		2,052		1,364		702
Income tax expense		178		263		682		468		241

*Net income*	$	378	$	501	$	1,370	$	896	$	461

The accompanying notes are an integral part of the consolidated financial statements.

Household Finance Corporation

CONSOLIDATED BALANCE SHEET


	September 30, 2004		December 31, 2003
	(Successor)		(Successor)
	(in millions, except share data)
*Assets*
Cash	$	265	$	395
Securities		6,342		10,545
Receivables, net		93,614		81,239
Intangible assets, net		2,479		2,627
Goodwill		2,327		2,108
Properties and equipment, net		347		392
Real estate owned		598		627
Derivative financial assets		2,974		2,940
Other assets		1,913		2,087

*Total assets*	$	110,859	$	102,960

*Liabilities*
Debt:
Commercial paper, bank and other borrowings	$	14,433	$	7,984
Due to affiliates, net		2,003		2,102
Senior and senior subordinated debt (with original maturities over one year)		74,818		74,597

Total debt		91,254		84,683

Insurance policy and claim reserves		1,137		1,127
Derivative related liabilities		336		550
Other liabilities		2,991		2,872

*Total liabilities*		95,718		89,232

*Shareholder’s equity*
Common shareholder’s equity:
Common stock ($1.00 par value, 1,000 shares authorized, issued and outstanding) and additional paid-in capital		12,016		12,016
Retained earnings		2,820		1,450
Accumulated other comprehensive income		305		262

*Total common shareholder’s equity*		15,141		13,728

*Total liabilities and shareholder’s equity*	$	110,859	$	102,960

The accompanying notes are an integral part of the consolidated financial statements.

Household Finance Corporation

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER’S EQUITY


	Nine months ended September 30, 2004			March 29 through September 30, 2003		January 1 through March 28, 2003
	(in millions)
*Common shareholder’s equity*
Common stock and additional paid-in capital
Balance at beginning of period	$	12,016		$	12,016	$	3,791
Effect of push-down accounting of HSBC’s purchase price on net assets		-			-		8,225

Balance at end of period (successor)	$	12,016		$	12,016	$	12,016

Retained earnings
Balance at beginning of period	$	1,450		$	-	$	6,642
Net income		1,370			896		461
Effect of push-down accounting of HSBC’s purchase price on net assets		-			-		(7,103	)

Balance at end of period (successor)	$	2,820		$	896	$	-

Accumulated other comprehensive income
Balance at beginning of period	$	262		$	-	$	(392	)
Net change in unrealized gains (losses) on:
Derivatives classified as cash flow hedges		89			31		111
Securities available for sale and interest-only strip receivables		(45	)		113		(31	)
Foreign currency translation adjustment		(1	)		7		3

Other comprehensive income, net of tax		43			151		83
Effect of push-down accounting of HSBC’s purchase price on net assets		-			-		309

Balance at end of period (successor)	$	305		$	151	$	-

*Total common shareholder’s equity*	$	15,141		$	13,063	$	12,016

*Comprehensive income*
Net income	$	1,370		$	896	$	461
Other comprehensive income		43			151		83

*Comprehensive income*	$	1,413		$	1,047	$	544

The accompanying notes are an integral part of the consolidated financial statements.

Household International, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS

Nine months
ended
September 30,
2004

March 29
through
September 30,
2003

January 1
through
March 28,
2003

(Successor)

(Predecessor)

(in millions)

Cash flows from operating activities

Net income

1,370

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