Household 10-K DEC 03 Part 2

HSBC Holdings PLC 01 March 2004 81 HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES RECONCILIATIONS TO GAAP FINANCIAL MEASURES CREDIT QUALITY STATISTICS - 1999 Two-Months-and-Over Year-to-Date Charge-offs, Contractual Delinquency Net of Recoveries --------------------------------------------------- ------------------------------------------- Two-Months-and- Two-Months-and- Over Contractual Receivables Over Net Average Net Contractual Delinquency Outstanding Delinquency Charge-offs Receivables Charge-offs ---------------- -------------- --------------- ------------ ------------- ------------ (All dollar amounts are stated in millions) Owned: First mortgage $ 20.3 $ 130.1 15.60 % $ 3.5 $ 149.3 2.34 % (1) Real estate 764.7 24,661.9 3.10 111.2 21,679.1 .51 secured Auto finance 24.9 1,233.5 2.02 38.3 1,119.8 3.42 MasterCard/Visa 226.8 6,314.4 3.59 498.4 6,270.8 7.95 Private label 616.2 10,119.7 6.09 531.4 9,486.2 5.60 Personal 800.8 9,151.6 8.75 548.3 8,434.9 6.50 non-credit card ------- -------- ----- ------- -------- ---- Total consumer 2,453.7 51,611.2 4.75 1,731.1 47,140.1 3.67 Commercial - 678.2 - 6.3 660.3 .95 ------- -------- ----- ------- -------- ---- Total $ 2,453.7 $ 52,289.4 4.69 % $ 1,737.4 $ 47,800.4 3.63 % ------- -------- ----- ------- -------- ---- Serviced with Limited Recourse: Real estate $ 114.8 $ 2,273.6 5.05 % $ 30.3 $ 2,895.4 1.05 % secured Auto finance 49.0 1,806.3 2.71 79.3 1,250.6 6.34 MasterCard/Visa 212.8 9,478.7 2.25 520.9 9,024.9 5.77 Private label 56.9 1,150.0 4.95 47.9 769.7 6.22 Personal 422.8 4,730.3 8.94 299.6 4,573.7 6.55 non-credit card ------- -------- ----- ------- -------- ---- Total $ 856.3 $ 19,438.9 4.41 % $ 978.0 $ 18,514.3 5.28 % ------- -------- ----- ------- -------- ---- Managed: First mortgage $ 20.3 $ 130.1 15.60 % $ 3.5 $ 149.3 2.34 % (1) Real estate 879.5 26,935.5 3.27 141.5 24,574.5 .58 secured Auto finance 73.9 3,039.8 2.43 117.6 2,370.4 4.96 MasterCard/Visa 439.6 15,793.1 2.78 1,019.3 15,295.7 6.66 Private label 673.1 11,269.7 5.97 579.3 10,255.9 5.65 Personal 1,223.6 13,881.9 8.81 847.9 13,008.6 6.52 non-credit card ------- -------- ----- ------- -------- ---- Total consumer 3,310.0 71,050.1 4.66 2,709.1 65,654.4 4.13 Commercial - 678.2 - 6.3 660.3 .95 ------- -------- ----- ------- -------- ---- Total $ 3,310.0 $ 71,728.3 4.61 % $ 2,715.4 $ 66,314.7 4.09 % ------- -------- ----- ------- -------- ---- -------------- (1) Includes our liquidating legacy first and reverse mortgage portfolios. 82 Serviced with Owned Limited Recourse Managed -------------------- -------------------- --------------------- (All dollar amounts are stated in millions) Nonaccrual Receivables Domestic: Real estate secured $ 532.5 $ 94.4 $ 626.9 Auto finance 24.9 49.0 73.9 Private label 58.1 - 58.1 Personal non-credit card 537.8 291.0 828.8 Foreign 236.7 41.6 278.3 -------- ------- -------- Total consumer 1,390.0 476.0 1,866.0 Commercial and other 46.6 - 46.6 -------- ------- -------- Total $ 1,436.6 $ 476.0 $ 1,912.6 -------- ------- -------- Accruing Consumer Receivables 90 or More Days Delinquent Domestic: MasterCard/Visa $ 140.2 $ 146.2 $ 286.4 Private label 386.7 43.3 430.0 Foreign 23.5 - 23.5 -------- ------- -------- Total $ 550.4 $ 189.5 $ 739.9 -------- ------- -------- Real Estate Charge-offs and REO Expense as a Percent of Average Real Estate Secured Receivables Real estate charge-offs and REO expense $ 160.9 $ 30.3 $ 191.2 Average real estate secured receivables 21,679.1 2,895.4 24,574.5 -------- ------- -------- Real estate charge-offs and REO expense as a .74 % 1.05 % .78 % percent of average real estate secured receivables -------- ------- -------- 83 HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES RECONCILIATIONS TO GAAP FINANCIAL MEASURES ANALYSIS OF CREDIT LOSS RESERVES ACTIVITY - 2003 Serviced with Owned Limited Recourse Managed ---------------- ----------------------- ---------------- (All dollar amounts are stated in millions) Total Credit Loss Reserves at January 1 $ 3,332.6 $ 1,759.5 $ 5,092.1 -------- -------- -------- Provision for Credit Losses 3,966.9 2,274.9 6,241.8 -------- -------- -------- Charge-offs Domestic: Real estate secured (496.0 ) (4.6 ) (500.6 ) Auto finance (148.0 ) (418.7 ) (566.7 ) MasterCard/Visa (935.8 ) (526.3 ) (1,462.1 ) Private label (684.1 ) (233.5 ) (917.6 ) Personal non-credit card (1,354.7 ) (507.0 ) (1,861.7 ) Foreign (256.9 ) (73.1 ) (330.0 ) -------- -------- -------- Total consumer (3,875.5 ) (1,763.2 ) (5,638.7 ) Commercial and other (2.8 ) - (2.8 ) -------- -------- -------- Total receivables charged off (3,878.3 ) (1,763.2 ) (5,641.5 ) -------- -------- -------- Recoveries Domestic: Real estate secured 9.9 - 9.9 Auto finance 4.6 7.6 12.2 MasterCard/Visa 87.4 39.8 127.2 Private label 72.2 19.5 91.7 Personal non-credit card 81.8 23.8 105.6 Foreign 34.2 5.8 40.0 -------- -------- -------- Total consumer 290.1 96.5 386.6 Commercial and other .7 - .7 -------- -------- -------- Total recoveries on receivables 290.8 96.5 387.3 Other, net 81.1 5.8 86.9 -------- -------- -------- Credit Loss Reserves Domestic: Real estate secured 669.9 1.4 671.3 Auto finance 171.9 673.7 845.6 MasterCard/Visa 805.8 308.1 1,113.9 Private label 519.1 367.1 886.2 Personal non-credit card 1,347.5 896.1 2,243.6 Foreign 247.4 127.1 374.5 -------- -------- -------- Total consumer 3,761.6 2,373.5 6,135.1 Commercial and other 31.5 - 31.5 -------- -------- -------- Total Credit Loss Reserves at December 31 $ 3,793.1 $ 2,373.5 $ 6,166.6 -------- -------- -------- Serviced with Owned Limited Recourse Managed ------------------------ ------------------------- -------------------------- - (All dollar amounts are stated in millions) Reserves as a percentage of net charge-offs: Net charge-offs $ 3,587.5 105.7 % $ 1,666.7 142.4% $ 5,254.2 117.4% Reserves as a percentage of receivables: Receivables: Consumer $ 92,011.9 4.09 % $ 26,200.4 9.06% $ 118,212.3 5.19% Commercial 366.3 6.80 - - 366.3 6.80 -------- ----- -------- ------ --------- ------ Total $ 92,378.2 4.11 % $ 26,200.4 9.06% $ 118,578.6 5.20% -------- ----- -------- ------ --------- ------ Reserves as a percentage of nonperforming loans: Nonperforming loans: Consumer $ 4,044.4 93.2 % $ 1,176.2 201.8% $ 5,220.6 117.6% Commercial 5.3 469.8 - - 5.3 469.8 -------- ----- -------- ------ --------- ------ Total $ 4,049.7 93.7 % $ 1,176.2 201.8% $ 5,225.9 118.0% -------- ----- -------- ------ --------- ------ 84 HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES RECONCILIATIONS TO GAAP FINANCIAL MEASURES ANALYSIS OF CREDIT LOSS RESERVES ACTIVITY - 2002 Serviced with Owned Limited Recourse Managed ---------------- ----------------------- ---------------- (All dollar amounts are stated in millions) Total Credit Loss Reserves at January 1 $ 2,663.1 $ 1,148.3 $ 3,811.4 -------- -------- -------- Provision for Credit Losses 3,732.0 1,923.0 5,655.0 -------- -------- -------- Charge-offs Domestic: Real estate secured (429.7 ) (7.2 ) (436.9 ) Auto finance (158.4 ) (319.3 ) (477.7 ) MasterCard/Visa (736.2 ) (538.1 ) (1,274.3 ) Private label (649.9 ) (114.1 ) (764.0 ) Personal non-credit card (1,193.2 ) (406.9 ) (1,600.1 ) Foreign (223.1 ) (56.9 ) (280.0 ) -------- -------- -------- Total consumer (3,390.5 ) (1,442.5 ) (4,833.0 ) Commercial and other (2.1 ) - (2.1 ) -------- -------- -------- Total receivables charged off (3,392.6 ) (1,442.5 ) (4,835.1 ) -------- -------- -------- Recoveries Domestic: Real estate secured 6.9 - 6.9 Auto finance 6.8 10.3 17.1 MasterCard/Visa 59.1 37.4 96.5 Private label 48.3 7.6 55.9 Personal non-credit card 91.5 30.2 121.7 Foreign 49.1 10.0 59.1 -------- -------- -------- Total consumer 261.7 95.5 357.2 Commercial and other 1.8 - 1.8 -------- -------- -------- Total recoveries on receivables 263.5 95.5 359.0 Other, net 66.6 35.2 101.8 -------- -------- -------- Credit Loss Reserves Domestic: Real estate secured 550.9 10.4 561.3 Auto finance 126.4 632.1 758.5 MasterCard/Visa 648.9 308.1 957.0 Private label 526.4 265.0 791.4 Personal non-credit card 1,274.8 422.6 1,697.4 Foreign 172.3 121.3 293.6 -------- -------- -------- Total consumer 3,299.7 1,759.5 5,059.2 Commercial and other 32.9 - 32.9 -------- -------- -------- Total Credit Loss Reserves at December 31 $ 3,332.6 $ 1,759.5 $ 5,092.1 -------- -------- -------- Serviced with Owned Limited Recourse Managed ------------------------ ------------------------ -------------------------- (All dollar amounts are stated in millions) Reserves as a percentage of net charge-offs: Net charge-offs $ 3,129.1 106.5 % $ 1,347.0 130.6 % $ 4,476.1 113.8 % Reserves as a percentage of receivables: Receivables: Consumer $ 82,143.6 4.02 % $ 24,933.5 7.06 % $ 107,077.1 4.73 % Commercial 418.7 6.64 - - 418.7 6.64 -------- ----- -------- ----- --------- ----- Total $ 82,562.3 4.04 % $ 24,933.5 7.06 % $ 107,495.8 4.74 % -------- ----- -------- ----- --------- ----- Reserves as a percentage of nonperforming loans: Nonperforming loans: Consumer $ 3,515.8 94.0 % $ 994.1 177.0 % $ 4,509.9 112.3 % Commercial 12.1 229.7 - - 12.1 229.7 -------- ----- -------- ----- --------- ----- Total $ 3,527.9 94.5 % $ 994.1 177.0 % $ 4,522.0 112.6 % -------- ----- -------- ----- --------- ----- 85 HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES RECONCILIATIONS TO GAAP FINANCIAL MEASURES ANALYSIS OF CREDIT LOSS RESERVES ACTIVITY - 2001 Serviced with Owned Limited Recourse Managed ---------------- ----------------------- ---------------- (All dollar amounts are stated in millions) Total Credit Loss Reserves at January 1 $ 2,111.9 $ 1,082.3 $ 3,194.2 -------- -------- -------- Provision for Credit Losses 2,912.9 1,105.5 4,018.4 -------- -------- -------- Charge-offs Domestic: Real estate secured (194.0 ) (8.4 ) (202.4 ) Auto finance (94.3 ) (192.4 ) (286.7 ) MasterCard/Visa (645.4 ) (502.5 ) (1,147.9 ) Private label (590.9 ) (49.3 ) (640.2 ) Personal non-credit card (893.2 ) (303.0 ) (1,196.2 ) Foreign (237.0 ) (45.2 ) (282.2 ) -------- -------- -------- Total consumer (2,654.8 ) (1,100.8 ) (3,755.6 ) Commercial and other (12.2 ) - (12.2 ) -------- -------- -------- Total receivables charged off (2,667.0 ) (1,100.8 ) (3,767.8 ) -------- -------- -------- Recoveries Domestic: Real estate secured 4.4 - 4.4 Auto finance 1.5 2.5 4.0 MasterCard/Visa 52.0 29.1 81.1 Private label 60.6 1.7 62.3 Personal non-credit card 75.6 25.3 100.9 Foreign 62.5 9.4 71.9 -------- -------- -------- Total consumer 256.6 68.0 324.6 Commercial and other .4 - .4 -------- -------- -------- Total recoveries on receivables 257.0 68.0 325.0 Other, net 48.3 (6.7 ) 41.6 -------- -------- -------- Credit Loss Reserves Domestic: Real estate secured 284.4 19.4 303.8 Auto finance 77.3 371.5 448.8 MasterCard/Visa 593.4 382.2 975.6 Private label 499.4 103.6 603.0 Personal non-credit card 1,031.9 185.5 1,217.4 Foreign 137.1 86.1 223.2 -------- -------- -------- Total consumer 2,623.5 1,148.3 3,771.8 Commercial and other 39.6 - 39.6 -------- -------- -------- Total Credit Loss Reserves at December 31 $ 2,663.1 $ 1,148.3 $ 3,811.4 -------- -------- -------- Serviced with Owned Limited Recourse Managed ------------------------ ------------------------ -------------------------- (All dollar amounts are stated in millions) Reserves as a percentage of net charge-offs: Net charge-offs $ 2,410.0 110.5 % $ 1,032.8 111.2 % $ 3,442.8 110.7 % Reserves as a percentage of receivables: Receivables: Consumer $ 79,430.4 3.31 % $ 20,948.0 5.48 % $ 100,378.4 3.77 % Commercial 444.3 7.12 - - 444.3 7.12 -------- ----- -------- ----- --------- ----- Total $ 79,874.7 3.33 % $ 20,948.0 5.48 % $ 100,822.7 3.78 % -------- ----- -------- ----- --------- ----- Reserves as a percentage of nonperforming loans: Nonperforming loans: Consumer $ 2,862.3 91.9 % $ 754.7 152.2 % $ 3,617.0 104.5 % Commercial 11.4 278.7 - - 11.4 278.7 -------- ----- -------- ----- --------- ----- Total $ 2,873.7 92.7 % $ 754.7 152.2 % $ 3,628.4 105.0 % -------- ----- -------- ----- --------- ----- 86 HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES RECONCILIATIONS TO GAAP FINANCIAL MEASURES ANALYSIS OF CREDIT LOSS RESERVES ACTIVITY - 2000 Serviced with Owned Limited Recourse Managed ---------------- ----------------------- ---------------- (All dollar amounts are stated in millions) Total Credit Loss Reserves at January 1 $ 1,757.0 $ 909.6 $ 2,666.6 -------- -------- -------- Provision for Credit Losses 2,116.9 1,135.5 3,252.4 -------- -------- -------- Charge-offs Domestic: Real estate secured (123.2 ) (16.7 ) (139.9 ) Auto finance (61.3 ) (127.1 ) (188.4 ) MasterCard/Visa (432.1 ) (448.6 ) (880.7 ) Private label (536.9 ) (68.7 ) (605.6 ) Personal non-credit card (723.5 ) (307.1 ) (1,030.6 ) Foreign (232.7 ) (43.1 ) (275.8 ) -------- -------- -------- Total consumer (2,109.7 ) (1,011.3 ) (3,121.0 ) Commercial and other (17.1 ) - (17.1 ) -------- -------- -------- Total receivables charged off $ (2,126.8 ) $ (1,011.3 ) $ (3,138.1 ) -------- -------- -------- Recoveries Domestic: Real estate secured 4.7 - 4.7 Auto finance 1.5 2.5 4.0 MasterCard/Visa 24.9 24.8 49.7 Private label 54.0 3.0 57.0 Personal non-credit card 62.4 16.8 79.2 Foreign 57.5 11.5 69.0 -------- -------- -------- Total consumer 205.0 58.6 263.6 Commercial and other .4 - .4 -------- -------- -------- Total recoveries on receivables 205.4 58.6 264.0 Other, net 159.4 (10.1 ) 149.3 -------- -------- -------- Credit Loss Reserves Domestic: Real estate secured 172.9 23.0 195.9 Auto finance 51.0 272.8 323.8 MasterCard/Visa 540.8 308.2 849.0 Private label 425.2 174.2 599.4 Personal non-credit card 734.2 223.3 957.5 Foreign 141.6 80.8 222.4 -------- -------- -------- Total consumer 2,065.7 1,082.3 3,148.0 Commercial and other 46.2 - 46.2 -------- -------- -------- Total Credit Loss Reserves at December 31 $ 2,111.9 $ 1,082.3 $ 3,194.2 -------- -------- -------- Serviced with Owned Limited Recourse Managed ------------------------ ------------------------ ------------------------ (All dollar amounts are stated in millions) Reserves as a percentage of net charge-offs: Net charge-offs $ 1,921.4 109.9 % $ 952.7 113.6 % $ 2,874.1 111.1 % Reserves as a percentage of receivables: Receivables: Consumer $ 66,848.1 3.10 % $ 20,249.5 5.34 % $ 87,097.6 3.62 % Commercial 509.8 7.43 - - 509.8 7.43 -------- ----- -------- ----- -------- ----- Total $ 67,357.9 3.14 % $ 20,249.5 5.34 % $ 87,607.4 3.65 % -------- ----- -------- ----- -------- ----- Reserves as a percentage of nonperforming loans: Nonperforming loans: Consumer $ 2,274.0 91.2 % $ 666.0 162.5 % $ 2,940.0 107.4 % Commercial 44.4 85.4 - - 44.4 85.4 -------- ----- -------- ----- -------- ----- Total $ 2,318.4 91.1 % $ 666.0 162.5 % $ 2,984.4 107.0 % -------- ----- -------- ----- -------- ----- 87 HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES RECONCILIATIONS TO GAAP FINANCIAL MEASURES ANALYSIS OF CREDIT LOSS RESERVES ACTIVITY - 1999 Serviced with Owned Limited Recourse Managed ---------------- ----------------------- ---------------- (All dollar amounts are stated in millions) Total Credit Loss Reserves at January 1 $ 1,734.2 $ 813.9 $ 2,548.1 -------- -------- -------- Provision for Credit Losses 1,716.4 1,065.4 2,781.8 -------- -------- -------- Charge-offs Domestic: Real estate secured (103.8 ) (30.3 ) (134.1 ) Auto finance (39.4 ) (81.0 ) (120.4 ) MasterCard/Visa (477.8 ) (543.0 ) (1,020.8 ) Private label (547.7 ) (50.6 ) (598.3 ) Personal non-credit card (534.6 ) (287.0 ) (821.6 ) Foreign (233.9 ) (47.5 ) (281.4 ) -------- -------- -------- Total consumer (1,937.2 ) (1,039.4 ) (2,976.6 ) Commercial and other (10.1 ) - (10.1 ) -------- -------- -------- Total receivables charged off (1,947.3 ) (1,039.4 ) (2,986.7 ) -------- -------- -------- Recoveries Domestic: Real estate secured 7.5 - 7.5 Auto finance 1.2 1.6 2.8 MasterCard/Visa 34.7 33.7 68.4 Private label 74.3 2.7 77.0 Personal non-credit card 45.3 15.9 61.2 Foreign 46.6 7.5 54.1 -------- -------- -------- Total consumer 209.6 61.4 271.0 Commercial and other .3 - .3 -------- -------- -------- Total recoveries on receivables 209.9 61.4 271.3 Other, net 43.8 8.3 52.1 -------- -------- -------- Credit Loss Reserves Domestic: Real estate secured 149.2 23.6 172.8 Auto finance 39.1 203.3 242.4 MasterCard/Visa 304.4 308.2 612.6 Private label 487.2 116.5 603.7 Personal non-credit card 568.9 192.7 761.6 Foreign 143.1 65.3 208.4 -------- -------- -------- Total consumer 1,691.9 909.6 2,601.5 Commercial and other 65.1 - 65.1 -------- -------- -------- Total Credit Loss Reserves at December 31 $ 1,757.0 $ 909.6 $ 2,666.6 -------- -------- -------- Serviced with Owned Limited Recourse Managed ------------------------ ------------------------ ------------------------ (All dollar amounts are stated in millions) Reserves as a percentage of net charge-offs: Net charge-offs $ 1,737.4 101.1 % $ 978.0 93.0 % $ 2,715.4 98.2 % Reserves as a percentage of receivables: Receivables: Consumer $ 51,611.2 3.30 % $ 19,438.9 4.68 % $ 71,050.1 3.68 % Commercial 678.2 7.70 - - 678.2 7.70 -------- ----- -------- ----- -------- ----- Total $ 52,289.4 3.36 % $ 19,438.9 4.68 % $ 71,728.3 3.72 % -------- ----- -------- ----- -------- ----- Reserves as a percentage of nonperforming loans: Nonperforming loans: Consumer $ 1,954.6 87.2 % $ 665.5 136.7 % $ 2,620.1 98.8 % Commercial 44.7 116.8 - - 44.7 116.8 -------- ----- -------- ----- -------- ----- Total $ 1,999.3 87.9 % $ 665.5 136.7 % $ 2,664.8 100.1 % -------- ----- -------- ----- -------- ----- 88 HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES RECONCILIATIONS TO GAAP FINANCIAL MEASURES NET INTEREST MARGIN - 2003 COMPARED TO 2002 Finance and Interest Income/Interest Increase/(Decrease) Due to: Average Outstanding(1) Average Rate Expense ------------------------ ----------------------------- ------------------- Volume Rate 2003 2002 2003 2002 2003 2002 Variance Variance(2) Variance(2) ------------- ------------- -------- -------- -------- ------- ----------- ----------- ------------ (All dollar amounts are stated in millions) Owned: Receivables: Real estate $ 49,851.9 $ 47,257.7 9.7 % 10.7 % $ 4,851.9 $ 5,051.2 $ (199.3 ) $ 267.9 $ (467.2 ) secured Auto finance 2,919.7 2,529.4 13.5 14.7 393.5 372.6 20.9 54.3 (33.4 ) MasterCard/ 9,516.9 7,569.1 14.8 14.8 1,406.4 1,119.3 287.1 287.8 (.7 ) Visa Private label 11,942.2 10,774.7 11.6 12.2 1,380.6 1,314.3 66.3 137.4 (71.1 ) Personal 14,009.3 13,968.0 16.6 18.1 2,321.9 2,526.4 (204.5 ) 7.4 (211.9 ) non-credit card Commercial and 430.5 483.1 2.2 2.1 9.6 10.2 (.6 ) (1.2 ) .6 other Purchase 396.8 - - - (200.4 ) - (200.4 ) (200.4 ) - accounting adjustments --------- --------- ---- ---- -------- -------- -------- ------- -------- Total 89,067.3 82,582.0 11.4 12.6 10,163.5 10,394.0 (230.5 ) 781.4 (1,011.9 ) receivables Noninsurance 5,279.8 5,302.0 1.9 2.5 98.9 131.6 (32.7 ) (.5 ) (32.2 ) investments --------- --------- ---- ---- -------- -------- -------- ------- -------- Total $ 94,347.1 $ 87,884.0 10.9 % 12.0 % $ 10,262.4 $ 10,525.6 $ (263.2 )$ 743.5 $ (1,006.7 ) interest-earning assets (excluding insurance investments) --------- --------- ---- ---- -------- -------- -------- ------- -------- Total debt $ 89,215.6 $ 83,547.5 2.9 % 4.6 % $ 2,621.2 $ 3,871.3 $ (1,250.1 )$ 246.7 $ (1,496.8 ) --------- --------- ---- ---- -------- -------- -------- ------- -------- Net Interest 8.1 % 7.6 % $ 7,641.2 $ 6,654.3 $ 986.9 $ 496.8 $ 490.1 Margin(3) ---- ---- -------- -------- -------- ------- -------- Interest Spread 8.0 % 7.4 % (4) ---- ---- Serviced with Limited Recourse: Receivables: Real estate $ 271.9 $ 572.1 8.3 % 10.9 % $ 22.7 $ 62.6 $ (39.9 ) $ (30.3 ) $ (9.6 ) secured Auto finance 4,998.7 4,412.6 15.7 17.8 786.3 783.3 3.0 98.5 (95.5 ) MasterCard/ 9,755.0 9,677.1 11.1 12.2 1,078.3 1,184.9 (106.6 ) (24.5 ) (82.1 ) Visa Private label 4,073.4 2,840.4 11.4 12.3 464.2 348.7 115.5 143.2 (27.7 ) Personal 5,031.6 4,869.1 21.2 20.1 1,068.1 978.3 89.8 30.1 59.7 non-credit card --------- --------- ---- ---- -------- -------- -------- ------- -------- Total 24,130.6 22,371.3 14.2 15.0 3,419.6 3,357.8 61.8 217.0 (155.2 ) receivables --------- --------- ---- ---- -------- -------- -------- ------- -------- Total $ 24,130.6$ 22,371.3 14.2 % 15.0 % $ 3,419.6 $ 3,357.8 $ 61.8 $ 281.2 $ (219.4 ) interest-earning assets (excluding insurance investments) --------- --------- ---- ---- -------- -------- -------- ------- -------- Total debt $ 24,130.6$ 22,371.3 2.3 % 3.0 % $ 566.0 $ 674.9 $ (108.9 ) $ 57.7 $ (166.6 ) --------- --------- ---- ---- -------- -------- -------- ------- -------- Net Interest 11.8 % 12.0 % $ 2,853.6 $ 2,682.9 $ 170.7 $ 223.5 $ (52.8 ) Margin(3) ---- ---- -------- -------- -------- ------- -------- Interest Spread 11.9 % 12.0 % (4) ---- ---- Managed: Receivables: Real estate $ 50,123.8 $ 47,829.8 9.7 % 10.7 % $ 4,874.6 $ 5,113.8 $ (239.2 ) $ 237.6 $ (476.8 ) secured Auto finance 7,918.4 6,942.0 14.9 16.7 1,179.8 1,155.9 23.9 152.8 (128.9 ) MasterCard/ 19,271.9 17,246.2 12.9 13.4 2,484.7 2,304.2 180.5 263.3 (82.8 ) Visa Private label 16,015.6 13,615.1 11.5 12.2 1,844.8 1,663.0 181.8 280.6 (98.8 ) Personal 19,040.9 18,837.1 17.8 18.6 3,390.0 3,504.7 (114.7 ) 37.6 (152.3 ) non-credit card Commercial and 430.5 483.1 2.2 2.1 9.6 10.2 (.6 ) (1.2 ) .6 other Purchase 396.8 - - - (200.4 ) - (200.4 ) (200.4 ) - accounting adjustments --------- --------- ---- ---- -------- -------- -------- ------- -------- Total 113,197.9 104,953.3 12.0 13.1 13,583.1 13,751.8 (168.7 ) 1,036.4 (1,205.1 ) receivables Noninsurance 5,279.8 5,302.0 1.9 2.5 98.9 131.6 (32.7 ) (.5 ) (32.2 ) investments --------- --------- ---- ---- -------- -------- -------- ------- -------- Total $ 118,477.7 $110,255.3 11.5 % 12.6 % $ 13,682.0 $ 13,883.4 $ (201.4 ) $ 1,024.7 $ (1,226.1 ) interest-earning assets (excluding insurance investments) --------- --------- ---- ---- -------- -------- -------- ------- -------- Total debt $ 113,346.2 $105,918.8 2.8 % 4.3 % $ 3,187.2 $ 4,546.2 $ (1,359.0 ) $ 304.4 $ (1,663.4 ) --------- --------- ---- ---- -------- -------- -------- ------- -------- Net Interest 8.9 % 8.5 % $ 10,494.8 $ 9,337.2 $ 1,157.6 $ 720.3 $ 437.3 Margin(3) ---- ---- -------- -------- -------- ------- -------- Interest Spread 8.7 % 8.3 % (4) ---- ---- (1) Nonaccrual loans are included in average outstanding balances. (2) Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total interest variance. For total receivables, total interest-earning assets and total debt, the rate and volume variances are calculated based on the relative weighting of the individual components comprising these totals. These totals do not represent an arithmetic sum of the individual components. (3) Represents net interest margin as a percent of average interest-earning assets. (4) Represents the difference between the yield earned on interest-earning assets and cost of the debt used to fund the assets. 89 HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES RECONCILIATIONS TO GAAP FINANCIAL MEASURES NET INTEREST MARGIN - 2002 COMPARED TO 2001 Finance and Interest Average Average Income/Interest Increase/(Decrease) Due to: Outstanding(1) Rate Expense -------------------- ------------------- ---------------- Volume Rate 2002 2001 2002 2001 2002 2001 Variance Variance(2) Variance(2) ------------- ------------ -------- -------- ------------ ------------ ----------- ---- (All dollar amounts are stated in millions) Owned: Receivables: Real estate $ 47,257.7 $ 38,850.4 10.7 % 11.6 % $ 5,051.2 $ 4,516.1 $ 535.1 $ 920.0 $ (384.9 ) secured Auto finance 2,529.4 2,319.1 14.7 15.3 372.6 354.0 18.6 31.3 (12.7 ) MasterCard/ 7,569.1 8,138.3 14.8 13.8 1,119.3 1,121.3 (2.0 ) (81.2 ) 79.2 Visa Private label 10,774.7 10,516.4 12.2 13.4 1,314.3 1,405.3 (91.0 ) 33.9 (124.9 ) Personal 13,968.0 12,486.0 18.1 20.0 2,526.4 2,496.9 29.5 280.7 (251.2 ) non-credit card Commercial and 483.1 554.9 2.1 2.3 10.2 13.0 (2.8 ) (1.6 ) (1.2 ) other --------- -------- ---- ---- -------- -------- ------- ------- -------- Total 82,582.0 72,865.1 12.6 13.6 10,394.0 9,906.6 487.4 1,258.1 (770.7 ) receivables Noninsurance 5,302.0 894.1 2.5 6.1 131.6 54.7 76.9 126.6 (49.7 ) investments --------- -------- ---- ---- -------- -------- ------- ------- -------- Total $ 87,884.0 $ 73,759.2 12.0 % 13.5 % $ 10,525.6 $ 9,961.3 $ 564.3 $ 1,771.9 $ (1,207.6 ) interest-earning assets (excluding insurance investments) --------- -------- ---- ---- -------- -------- ------- ------- -------- Total debt $ 83,547.5 $ 70,320.1 4.6 % 5.9 % $ 3,871.3 $ 4,173.8 $ (302.5 ) $ 705.6 $ (1,008.1 ) --------- -------- ---- ---- -------- -------- ------- ------- -------- Net Interest 7.6 % 7.8 % $ 6,654.3 $ 5,787.5 $ 866.8 $ 1,054.6 $ (187.8 ) Margin(3) ---- ---- -------- -------- ------- ------- -------- Interest Spread 7.4 % 7.6 % (4) ---- ---- Serviced with Limited Recourse: Receivables: Real estate $ 572.1 $ 1,199.2 10.9 % 11.2 % $ 62.6 $ 134.1 $ (71.5 ) $ (67.4 ) $ (4.1 ) secured Auto finance 4,412.6 3,004.4 17.8 19.2 83.3 575.5 207.8 239.9 (32.1 ) MasterCard/ 9,677.1 9,144.6 12.2 14.1 1,184.9 1,290.0 (105.1 ) 76.1 (181.2 ) Visa Private label 2,840.4 1,744.2 12.3 14.4 348.7 250.5 98.2 139.7 (41.5 ) Personal 4,869.1 4,527.8 20.1 19.5 978.3 882.8 95.5 67.1 28.4 non-credit card --------- -------- ---- ---- -------- -------- ------- ------- -------- Total 22,371.3 19,620.2 15.0 16.0 3,357.8 3,132.9 224.9 455.4 (230.5 ) receivables --------- -------- ---- ---- -------- -------- ------- ------- -------- Total $ 22,371.3 $ 19,620.2 15.0 % 16.0 % $ 3,357.8 $ 3,132.9 $ 224.9 $ 419.4 $ (194.5 ) interest-earning assets (excluding insurance investments) --------- -------- ---- ---- -------- -------- ------- ------- -------- Total debt $ 22,371.3 $ 19,620.2 3.0 % 5.3 % $ 674.9 $ 1,039.1 $ (364.2 )$ 121.7 $ (485.9 ) --------- -------- ---- ---- -------- -------- ------- ------- -------- Net Interest 12.0 % 10.7 % $ 2,682.9 $ 2,093.8 $ 589.1 $ 297.8 $ 291.3 Margin(3) ---- ---- -------- -------- ------- ------- -------- Interest Spread 12.0 % 10.7 % (4) ---- ---- Managed: Receivables: Real estate $ 47,829.8 $ 40,049.6 10.7 % 11.6 % $ 5,113.8 $ 4,650.2 $ 463.6 $ 852.5 $ (388.9 ) secured Auto finance 6,942.0 5,323.5 16.7 17.5 1,155.9 929.5 226.4 271.2 (44.8 ) MasterCard/ 17,246.2 17,282.9 13.4 14.0 2,304.2 2,411.3 (107.1 ) (5.1 ) (102.0 ) Visa Private label 13,615.1 12,260.6 12.2 13.5 1,663.0 1,655.8 7.2 173.6 (166.4 ) Personal 18,837.1 17,013.8 18.6 19.9 3,504.7 3,379.7 125.0 347.8 (222.8 ) non-credit card Commercial and 483.1 554.9 2.1 2.3 10.2 13.0 (2.8 ) (1.6 ) (1.2 ) other --------- -------- ---- ---- -------- -------- ------- ------- -------- Total 104,953.3 92,485.3 13.1 14.1 13,751.8 13,039.5 712.3 1,676.4 (964.1 ) receivables Noninsurance 5,302.0 894.1 2.5 6.1 131.6 54.7 76.9 126.6 (49.7 ) investments --------- -------- ---- ---- -------- -------- ------- ------- -------- Total $ 110,255.3 $ 93,379.4 12.6 % 14.0 % $ 13,883.4 $ 13,094.2 $ 789.2 $ 2,191.3 $ (1,402.1 ) interest-earning assets (excluding insurance investments) --------- -------- ---- ---- -------- -------- ------- ------- -------- Total debt $ 105,918.8 $ 89,940.3 4.3 % 5.8 % $ 4,546.2 $ 5,212.9 $ (666.7 ) $ 827.3 $ (1,494.0 ) --------- -------- ---- ---- -------- -------- ------- ------- -------- Net Interest 8.5 % 8.4 % $ 9,337.2 $ 7,881.3 $ 1,455.9 $ 1,364.1 $ 91.8 Margin(3) ---- ---- -------- -------- ------- ------- -------- Interest Spread 8.3 % 8.2 % (4) ---- ---- -------------- (1) Nonaccrual loans are included in average outstanding balances. (2) Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total interest variance. For total receivables, total interest-earning assets and total debt, the rate and volume variances are calculated based on the relative weighting of the individual components comprising these totals. These totals do not represent an arithmetic sum of the individual components. (3) Represents net interest margin as a percent of average interest-earning assets. (4) Represents the difference between the yield earned on interest-earning assets and cost of the debt used to fund the assets. 90 HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES RECONCILIATIONS TO GAAP FINANCIAL MEASURES SELECTED FINANCIAL DATA AND STATISTICS 2003 2002 2001 2000 1999 ------------- ------------- ------------- ------------ ------------ (All dollar amounts are stated in millions) Return on Average Common Shareholder's (s') Equity: Net income $ 1,665.2 $ 1,557.8 $ 1,847.6 $ 1,630.6 $ 1,428.3 Dividends on preferred stock (76.4 ) (62.8 ) (15.5 ) (9.2 ) (9.2 ) --------- --------- --------- -------- -------- Net income available to common $ 1,588.8 $ 1,495.0 $ 1,832.1 $ 1,621.4 $ 1,419.1 shareholders HSBC acquisition related costs and 167.3 - - - - other merger related items incurred by Household Settlement charge and related expenses - 333.2 - - - Loss on the disposition of Thrift - 240.0 - - - assets and deposits --------- --------- --------- -------- -------- Operating net income available to $ 1,756.1 $ 2,068.2 $ 1,832.1 $ 1,621.4 $ 1,419.1 common shareholders --------- --------- --------- -------- -------- Average common shareholder's(s') $ 13,961.9 $ 8,640.5 $ 7,589.1 $ 6,987.1 $ 6,099.2 equity --------- --------- --------- -------- -------- Return on average common shareholder's 11.4 % 17.3 % 24.1 % 23.2 % 23.3 % (s') equity Return on average common shareholder's 12.6 23.9 24.1 23.2 23.3 (s') equity, operating basis --------- --------- --------- -------- -------- Return on Average Assets: Net income $ 1,665.2 $ 1,557.8 $ 1,847.6 $ 1,630.6 $ 1,428.3 Operating net income 1,832.5 2,131.0 1,847.6 1,630.6 1,428.3 --------- --------- --------- -------- -------- Average assets: Owned basis $ 110,139.1 $ 96,303.6 $ 81,781.8 $ 69,366.5 $ 56,043.4 Serviced with limited recourse 24,130.6 22,371.3 19,620.2 18,634.4 18,514.3 --------- --------- --------- -------- -------- Managed basis $ 134,269.7 $ 118,674.9 $ 101,402.0 $ 88,000.9 $ 74,557.7 --------- --------- --------- -------- -------- Return on average owned assets 1.51 % 1.62 % 2.26 % 2.35 % 2.55 % Return on average owned assets, 1.66 2.21 2.26 2.35 % 2.55 operating basis Return on average managed assets 1.24 1.31 1.82 1.85 1.92 Return on average managed assets, 1.36 1.80 1.82 1.85 1.92 operating basis --------- --------- --------- -------- -------- Efficiency Ratio: Total costs and expenses less $ 4,813.8 $ 4,446.7 $ 3,572.6 $ 3,027.3 $ 2,513.0 policyholders' benefits HSBC acquisition related costs and (198.2 ) - - - - other merger related items incurred by Household Settlement charge and related - (525.0 ) - - - expenses --------- --------- --------- -------- -------- Total costs and expenses less $ 4,615.6 $ 3,921.7 $ 3,572.6 $ 3,027.3 $ 2,513.0 policyholders' benefits, excluding nonrecurring items --------- --------- --------- -------- -------- Net interest margin and other revenues less policyholders' benefits: Owned basis $ 11,353.1 $ 10,431.5 $ 9,303.9 $ 7,643.7 $ 6,358.3 Serviced with limited recourse 2,274.9 1,923.0 1,105.4 1,135.5 1,065.4 --------- --------- --------- -------- -------- Managed basis $ 13,628.0 $ 12,354.5 $ 10,409.3 $ 8,779.2 $ 7,423.7 --------- --------- --------- -------- -------- Loss on the disposition of Thrift - $ 378.2 - - - assets and deposits Net interest margin and other revenues less policyholders' benefits, excluding nonrecurring items: Owned basis $ 11,353.1 10,809.7 $ 9,303.9 $ 7,643.7 $ 6,358.3 Serviced with limited recourse 2,274.9 1,923.0 1,105.4 1,135.5 1,065.4 --------- --------- --------- -------- -------- Managed basis $ 13,628.0 $ 12,732.7 $ 10,409.3 $ 8,779.2 $ 7,423.7 --------- --------- --------- -------- -------- Owned basis efficiency ratio 42.4 % 42.6 % 38.4 % 39.6 % 39.5 % Owned basis efficiency ratio, 40.7 36.3 38.4 39.6 39.5 operating basis Managed basis efficiency ratio 35.3 36.0 34.3 34.5 33.9 Managed basis efficiency ratio, 33.9 30.8 34.3 34.5 33.9 operating basis --------- --------- --------- -------- -------- 91 HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES RECONCILIATIONS TO GAAP FINANCIAL MEASURES SELECTED FINANCIAL DATA AND STATISTICS 2003 2002 2001 2000 1999 ------------- ------------- ------------ ------------ ------------ (All dollar amounts are stated in millions) Net Interest Margin: Net Interest Margin: Owned basis $ 7,641.2 $ 6,654.3 $ 5,787.5 $ 4,721.7 $ 3,777.2 Serviced with limited recourse 2,853.6 2,682.9 2,093.9 1,724.6 1,732.9 --------- --------- -------- -------- -------- Managed basis $ 10,494.8 $ 9,337.2 $ 7,881.4 $ 6,446.3 $ 5,510.1 --------- --------- -------- -------- -------- Average interest-earning assets: Owned basis $ 94,347.1 $ 87,884.0 $ 73,759.1 $ 61,471.2 $ 48,775.4 Serviced with limited recourse 24,130.6 22,371.3 19,620.2 18,634.4 18,514.3 --------- --------- -------- -------- -------- Managed basis $ 118,477.7 $ 110,255.3 $ 93,379.3 $ 80,105.6 $ 67,289.7 --------- --------- -------- -------- -------- Owned basis net interest margin 8.10 % 7.57 % 7.85 % 7.68 % 7.74 % Managed basis net interest margin 8.86 8.47 8.44 8.05 8.19 --------- --------- -------- -------- -------- Managed Basis Risk Adjusted Revenue: Net interest margin $ 10,494.8 $ 9,337.2 $ 7,881.4 $ 6,446.3 $ 5,510.1 Other revenues 3,510.1 3,386.1 2,830.5 2,594.6 2,171.7 Securitization revenue (146.5 ) (704.7 ) (135.7 ) (242.9 ) (116.1 ) Net charge-offs (5,254.2 ) (4,476.1 ) (3,442.8 ) (2,874.1 ) (2,715.4 ) Loss on disposition of thrift assets - 378.2 - - - --------- --------- -------- -------- -------- Risk adjusted revenue 8,604.2 7,920.7 7,133.4 5,923.9 4,850.3 Average interest-earning assets $ 118,477.7 $ 110,255.3 $ 93,379.3 $ 80,105.6 $ 67,289.7 --------- --------- -------- -------- -------- Managed basis risk adjusted revenue 7.26 % 7.18 % 7.64 % 7.40 % 7.21 % --------- --------- -------- -------- -------- 92 HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES RECONCILIATIONS TO GAAP FINANCIAL MEASURES EQUITY RATIOS 2003 2002 2001 2000 1999 ------------- ------------- ------------- ------------ ------------ (All dollar amounts are stated in millions) Tangible common equity: Common shareholder's(s') equity $ 16,560.3 $ 9,222.9 $ 7,842.9 $ 7,667.2 $ 6,237.0 Exclude: Unrealized (gains) losses on cash (97.4 ) 736.5 699.1 - - flow hedging instruments Minimum pension liability - 30.5 - - - Unrealized gains on investments and (167.0 ) (319.3 ) (223.3 ) (23.8 ) 71.3 interest-only strip receivables Acquired intangibles (2,855.8 ) (386.4 ) (455.6 ) (555.6 ) (664.5 ) Goodwill (6,697.0 ) (1,122.1 ) (1,107.4 ) (1,164.1 ) (946.3 ) --------- --------- --------- -------- -------- Tangible common equity 6,743.1 8,162.1 6,755.7 5,923.7 4,697.5 Purchase accounting adjustments 2,426.4 - - - - --------- --------- --------- -------- -------- Tangible common equity, excluding $ 9,169.5 $ 8,162.1 $ 6,755.7 $ 5,923.7 $ 4,697.5 purchase accounting adjustments --------- --------- --------- -------- -------- Tangible shareholder's(s') equity: Tangible common equity $ 6,743.1 $ 8,162.1 $ 6,755.7 $ 5,923.7 $ 4,697.5 Preferred stock 1,100.0 1,193.2 455.8 164.4 164.4 Mandatorily redeemable preferred 1,031.2 975.0 975.0 675.0 375.0 securities of Household Capital Trusts Adjustable Conversion-Rate Equity 519.1 511.0 - - - Security Units --------- --------- --------- -------- -------- Tangible shareholder's(s') equity 9,393.4 10,841.3 8,186.5 6,763.1 5,236.9 Purchase accounting adjustments 2,370.2 - - - - --------- --------- --------- -------- -------- Tangible shareholder's(s') equity, $ 11,763.6 $ 10,841.3 $ 8,186.5 $ 6,763.1 $ 5,236.9 excluding purchase accounting adjustments --------- --------- --------- -------- -------- Tangible shareholder's(s') equity plus owned loss reserves: Tangible shareholder's(s') equity $ 9,393.4 $ 10,841.3 $ 8,186.5 $ 6,763.1 $ 5,236.9 Owned loss reserves 3,793.1 3,332.6 2,663.1 2,111.9 1,757.0 --------- --------- --------- -------- -------- Tangible shareholder's(s') equity plus 13,186.5 14,173.9 10,849.6 8,875.0 6,993.9 owned loss reserves Purchase accounting adjustments 2,370.2 - - - - --------- --------- --------- -------- -------- Tangible shareholder's(s') equity plus $ 15,556.7 $ 14,173.9 $ 10,849.6 $ 8,875.0 $ 6,993.9 owned loss reserves, excluding purchase accounting adjustments --------- --------- --------- -------- -------- Tangible managed assets: Owned assets $ 119,153.9 $ 97,860.6 $ 88,910.9 $ 76,309.2 $ 60,451.8 Receivables serviced with limited 26,200.4 24,933.5 20,948.0 20,249.5 19,438.9 recourse --------- --------- --------- -------- -------- Managed assets 145,354.3 122,794.1 109,858.9 96,558.7 79,890.7 Exclude: Acquired intangibles (2,855.8 ) (386.4 ) (455.6 ) (555.6 ) (664.5 ) Goodwill (6,697.0 ) (1,122.1 ) (1,107.4 ) (1,164.1 ) (946.3 ) Derivative financial assets (3,117.7 ) (1,863.5 ) (97.2 ) - - --------- --------- --------- -------- -------- Tangible managed assets 132,683.8 119,422.1 108,198.7 94,839.0 78,279.9 Purchase accounting adjustments (431.2 ) - - - - --------- --------- --------- -------- -------- Tangible managed assets, excluding $ 132,252.6 $ 119,422.1 $ 108,198.7 $ 94,839.0 $ 78,279.9 purchase accounting adjustments --------- --------- --------- -------- -------- Equity ratios: Common and preferred equity to owned 14.82 % 10.64 % 9.33 % 10.26 % 10.59 % assets Tangible common equity to tangible 5.08 6.83 6.24 6.25 6.00 managed assets Tangible shareholder's(s') equity to 7.08 9.08 7.57 7.13 6.69 tangible managed assets Tangible shareholder's(s') equity plus 9.94 11.87 10.03 9.36 8.93 owned loss reserves to tangible managed assets Excluding purchase accounting adjustments: Tangible common equity to tangible 6.93 6.83 6.24 6.25 6.00 managed assets Tangible shareholder's(s') equity 8.89 9.08 7.57 7.13 6.69 to tangible managed assets Tangible shareholder's(s') equity 11.76 11.87 10.03 9.36 8.93 plus owned loss reserves to tangible managed assets --------- --------- --------- -------- -------- 93 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Information required by this Item is included in sections of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations on the following pages: "Liquidity and Capital Resources", pages 50 to 56, "Off-Balance Sheet Arrangements (Including Securitizations and Commitments), Secured Financings and Contractual Cash Obligations", pages 56 to 60, and "Risk Management", pages 60 to 62. Item 8. Financial Statements and Supplementary Data. Our 2003 Financial Statements meet the requirements of Regulation S-X. The 2003 Financial Statements and supplementary financial information specified by Item 302 of Regulation S-K are set forth below. 94 HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME March 29 January 1 Through Through Year Ended Year Ended December 31, March 28, December 31, December 31, 2003 2003 2002 2001 ---------------- ----------------- ------------------ --------------- -- (Successor) (Predecessor) (Predecessor) (Predecessor) (In millions) Finance and other interest income $ 7,791.9 $ 2,470.5 $ 10,525.6 $ 9,961.3 Interest expense 1,723.8 897.4 3,871.3 4,173.8 ------- ------- -------- ------- Net interest margin 6,068.1 1,573.1 6,654.3 5,787.5 Provision for credit losses on owned 2,990.8 976.1 3,732.0 2,912.9 receivables ------- ------- -------- ------- Net interest margin after provision 3,077.3 597.0 2,922.3 2,874.6 for credit losses ------- ------- -------- ------- Securitization revenue 1,007.7 432.6 2,134.0 1,762.9 Insurance revenue 574.1 171.6 716.4 662.4 Investment income 115.7 80.0 182.0 167.7 Fee income 882.0 288.3 948.4 903.5 Other income 298.1 238.7 543.4 322.5 Loss on disposition of Thrift assets - - (378.2 ) - and deposits ------- ------- -------- ------- Total other revenues 2,877.6 1,211.2 4,146.0 3,819.0 ------- ------- -------- ------- Salaries and fringe benefits 1,506.6 491.3 1,817.0 1,597.2 Sales incentives 225.8 37.7 255.9 273.2 Occupancy and equipment expenses 302.1 97.7 371.1 337.4 Other marketing expenses 409.3 138.8 531.0 490.4 Other servicing and administrative 834.8 313.7 888.9 716.8 expenses Amortization of acquired intangibles 245.5 12.3 57.8 157.6 and goodwill Policyholders' benefits 285.9 91.0 368.8 302.6 HSBC acquisition related costs - 198.2 - - incurred by Household Settlement charge and related expenses - - 525.0 - ------- ------- -------- ------- Total costs and expenses 3,810.0 1,380.7 4,815.5 3,875.2 ------- ------- -------- ------- Income before income taxes 2,144.9 427.5 2,252.8 2,818.4 Income taxes 725.4 181.8 695.0 970.8 ------- ------- -------- ------- Net income $ 1,419.5 $ 245.7 $ 1,557.8 $ 1,847.6 ------- ------- -------- ------- The accompanying notes are an integral part of these consolidated financial statements. 95 HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS At December 31, ------------------------------------------- 2003 2002 ------------------- -------------------- (Successor) (Predecessor) (In millions, except share data) ASSETS Cash $ 463.4 $ 797.7 Investment securities 11,073.1 7,584.0 Receivables, net 91,027.3 82,050.5 Acquired intangibles, net 2,855.8 386.4 Goodwill 6,697.0 1,122.1 Properties and equipment, net 527.2 535.1 Real estate owned 631.2 427.1 Derivative financial assets 3,117.7 1,863.5 Other assets 2,761.2 3,094.2 --------- -------- Total assets $ 119,153.9 $ 97,860.6 --------- -------- LIABILITIES AND SHAREHOLDER'S(S') EQUITY Debt: Deposits $ 231.5 $ 821.2 Commercial paper, bank and other borrowings 9,122.4 6,128.3 Due to affiliates 7,589.3 - Senior and senior subordinated debt (with 79,464.4 75,751.2 original maturities over one year) --------- -------- Total debt 96,407.6 82,700.7 Insurance policy and claim reserves 1,258.0 1,047.6 Derivative related liabilities 599.6 1,183.9 Other liabilities 3,228.4 2,512.3 --------- -------- Total liabilities 101,493.6 87,444.5 Preferred stock (issued to HSBC at December 31, 1,100.0 1,193.2 2003) Common shareholder's(s') equity: Common stock, $0.01 and $1.00 par value, 100 - 551.8 and 750,000,000 shares authorized, 50 and 551,811,025 shares issued at December 31, 2003 and 2002, respectively Additional paid-in capital 14,644.5 1,911.3 Retained earnings 1,365.3 9,885.6 Accumulated other comprehensive income (loss) 550.5 (694.9 ) Less common stock in treasury, at cost, - (2,430.9 ) 77,197,686 shares at December 31, 2002 --------- -------- Total common shareholder's(s') equity 16,560.3 9,222.9 --------- -------- Total liabilities and shareholder's(s') equity $ 119,153.9 $ 97,860.6 --------- -------- The accompanying notes are an integral part of these consolidated financial statements. 96 HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS March 29 January 1 Through Through Year Ended Year Ended December 31, March 28, December 31, December 31, 2003 2003 2002 2001 --------------- --------------- ---------------- ----------------- (Successor) (Predecessor) (Predecessor) (Predecessor) (In millions) Cash Provided by Operations Net income $ 1,419.5 $ 245.7 $ 1,557.8 $ 1,847.6 Adjustments to reconcile net income to net cash provided by operations: Provision for credit losses on 2,990.8 976.1 3,732.0 2,912.9 owned receivables Insurance policy and claim (196.1 ) 47.2 16.1 204.2 reserves Depreciation and amortization 343.7 53.5 233.3 314.7 Deferred income tax provision (47.6 ) 89.6 (119.6 ) (6.1 ) Interest-only strip receivables, 414.8 36.4 (139.0 ) (100.6 ) net change Other assets 898.7 (593.2 ) (136.0 ) (112.9 ) Other liabilities (673.8 ) 526.4 325.2 (107.2 ) Other, net (38.3 ) 83.2 1,996.0 564.9 --------- -------- --------- --------- Cash provided by operations 5,111.7 1,464.9 7,465.8 5,517.5 --------- -------- --------- --------- Investments in Operations Investment securities: Purchased (4,750.2 ) (1,046.7 ) (5,288.6 ) (1,744.2 ) Matured 3,403.4 584.2 2,161.3 481.9 Sold 686.8 768.4 642.2 686.3 Short-term investment securities, net (2,683.6 ) (375.0 ) (1,254.0 ) 255.9 change Receivables: Originations, net (41,658.4 ) (8,261.6 ) (47,424.5 ) (45,210.3 ) Purchases and related premiums (2,472.9 ) (129.0 ) (1,072.6 ) (1,577.4 ) Initial and fill-up 30,337.6 7,300.1 36,278.3 30,167.9 securitizations Whole loan sales - - 6,287.0 1,011.3 Sales to affiliates 2,843.9 - - - Properties and equipment purchased (94.2 ) (21.6 ) (158.6 ) (175.2 ) Properties and equipment sold 5.5 .1 20.0 20.3 --------- -------- --------- --------- Cash decrease from investments in (14,382.1 ) (1,181.1 ) (9,809.5 ) (16,083.5 ) operations --------- -------- --------- --------- Financing and Capital Transactions Short-term debt and demand deposits, 2,958.9 (513.5 ) (6,232.5 ) 1,300.9 net change Time certificates, net change (708.4 ) 150.3 (1,409.8 ) (2,118.6 ) Disposition of Thrift deposits - - (4,258.9 ) - Due to affiliates, net change 7,109.5 - - - Senior and senior subordinated debt 15,559.6 4,360.9 30,619.6 21,172.0 issued Senior and senior subordinated debt (15,789.2 ) (4,029.8 ) (16,275.9 ) (9,107.0 ) retired Policyholders' benefits paid (120.6 ) (35.6 ) (286.8 ) (85.7 ) Cash received from policyholders 126.9 33.1 92.4 60.4 Shareholders' dividends (292.6 ) (141.4 ) (509.7 ) (406.6 ) Issuance of preferred securities by 275.0 - - 400.0 Household Capital Trusts (issued to HSBC in 2003) Redemption of preferred securities of (275.0 ) - - (100.0 ) Household Capital Trusts Issuance of preferred stock - - 726.4 291.4 Redemption of preferred stock - (114.4 ) - - Purchase of treasury stock - (164.1 ) (279.6 ) (916.3 ) Common stock offering - - 399.8 - Issuance of common stock for employee - 62.2 135.6 121.8 benefit plans --------- -------- --------- --------- Cash increase (decrease) from 8,844.1 (392.3 ) 2,720.6 10,612.3 financing and capital transactions --------- -------- --------- --------- Effect of exchange rate changes on 215.7 (15.2 ) (122.8 ) 7.1 cash --------- -------- --------- --------- Increase (decrease) in cash (210.6 ) (123.7 ) 254.1 53.4 Cash at beginning of period 674.0 797.7 543.6 490.2 --------- -------- --------- --------- Cash at end of period $ 463.4 $ 674.0 $ 797.7 $ 543.6 --------- -------- --------- --------- Supplemental Cash Flow Information: Interest paid $ 2,582.2 $ 897.2 $ 3,995.1 $ 4,511.2 Income taxes paid 600.4 39.6 863.9 979.5 --------- -------- --------- --------- Supplemental Noncash Financing and Capital Activities: Push-down of purchase price by HSBC $ - $ 14,660.7 $ - $ - Exchange of preferred stock for - 1,100.0 - - preferred stock issued to HSBC --------- -------- --------- --------- The accompanying notes are an integral part of these consolidated financial statements. 97 HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN PREFERRED STOCK AND COMMON SHAREHOLDER'S(S') EQUITY Common Shareholder's(s') Equity --------------------------------------------------------------------------------------- Accumulated Other Additional Comprehensive Common Total Common Preferred Common Paid-in Retained Income Stock in Shareholder's(s') Stock Stock Capital Earnings (Loss) Treasury Equity ----------- ---------- ------------ ------------ ------------- ------------ ------------- (All amounts except per share data are stated in millions) Balance at $ 164.4 $ 551.1 $ 1,926.0 $ 7,396.5 $ (214.7 ) $ (1,991.7 ) $ 7,667.2 December 31, 2000 (Predecessor) ------- ------ -------- -------- ------ -------- -------- Net income 1,847.6 1,847.6 Other comprehensive income, net of tax: Cumulative effect of (241.4 ) (241.4 ) change in accounting principle (SFAS No. 133) Net losses on cash flow (457.7 ) (457.7 ) hedging instruments Net unrealized gains on 199.5 199.5 investments and interest-only strip receivables Foreign currency (18.1 ) (18.1 ) translation adjustments ------- ------ -------- -------- ------ -------- -------- Total comprehensive 1,329.9 income Cash dividends: Preferred at stated (15.5 ) (15.5 ) rates Common, $.85 per share (391.1 ) (391.1 ) Issuance of 291.4 - preferred stock Exercise of stock options .5 31.2 15.2 46.9 Issuance of common stock .1 72.8 48.9 121.8 for employee benefit plans Purchase of treasury (916.3 ) (916.3 ) stock ------- ------ -------- -------- ------ -------- -------- Balance at 455.8 551.7 2,030.0 8,837.5 (732.4 ) (2,843.9 ) 7,842.9 December 31, 2001 (Predecessor) ------- ------ -------- -------- ------ -------- -------- Net income 1,557.8 1,557.8 Other comprehensive income, net of tax: Net losses on cash flow (37.4 ) (37.4 ) hedging instruments Net unrealized gains on 96.0 96.0 investments and interest-only strip receivables Minimum pension (30.5 ) (30.5 ) liability Foreign currency 9.4 9.4 translation adjustments ------- ------ -------- -------- ------ -------- -------- Total comprehensive 1,595.3 income Cash dividends: Preferred at stated (62.8 ) (62.8 ) rates Common, $.97 per share (446.9 ) (446.9 ) Issuance of 737.4 (11.0 ) (11.0 ) preferred stock Exercise of stock options .1 5.2 1.7 7.0 Issuance of common stock 49.9 96.9 146.8 for employee benefit plans Common stock offering (194.2 ) 594.0 399.8 Issuance of adjustable 31.4 31.4 conversion rate equity security units Purchase of treasury (279.6 ) (279.6 ) stock ------- ------ -------- -------- ------ -------- -------- Balance at 1,193.2 551.8 1,911.3 9,885.6 (694.9 ) (2,430.9 ) 9,222.9 December 31, 2002 (Predecessor) ------- ------ -------- -------- ------ -------- -------- Net income 245.7 245.7 Other comprehensive income, net of tax: Net gains on cash 100.6 100.6 hedging instruments Net unrealized losses (25.0 ) (25.0 ) on investments and interest-only strip receivables Minimum pension .2 .2 liability Foreign currency (24.1 ) (24.1 ) translation adjustments ------- ------ -------- -------- ------ -------- -------- Total comprehensive 297.4 income Cash dividends: Preferred at stated (22.2 ) (22.2 ) rates Common, $.8694 per (411.8 ) (411.8 ) share Exercise of stock options 12.2 12.2 Issuance of common stock 9.8 12.1 21.9 for employee benefit plans Purchase of treasury (164.1 ) (164.1 ) stock Reclassification of 21.2 (21.2 ) (21.2 ) preferred stock issuance costs Redemption of (114.4 ) preferred stock ------- ------ -------- -------- ------ -------- -------- Balance at March 1,100.0 551.8 1,899.9 9,697.3 (643.2 ) (2,570.7 ) 8,935.1 28, 2003 (Predecessor) ------- ------ -------- -------- ------ -------- -------- Effect of push-down (551.8 ) 12,760.8 (9,697.3 ) 643.2 2,570.7 5,725.6 accounting of HSBC's purchase price on net assets ------- ------ -------- -------- ------ -------- -------- Balance at March 1,100.0 - 14,660.7 - - - 14,660.7 28, 2003 (Successor) ------- ------ -------- -------- ------ -------- -------- Net income 1,419.5 1,419.5 Other comprehensive income, net of tax: Net gains on cash flow 97.4 97.4 hedging instruments Net unrealized gains on 167.0 167.0 investments and interest-only strip receivables Foreign currency 286.1 286.1 translation adjustments ------- ------ -------- -------- ------ -------- -------- Total comprehensive 1,970.0 income Preferred dividends (54.2 ) (54.2 ) accrued to HSBC Return of capital to HSBC (41.1 ) (41.1 ) Employee benefit plans 24.9 24.9 and other ------- ------ -------- -------- ------ -------- -------- Balance at $ 1,100.0 $ - $ 14,644.5 $ 1,365.3 $ 550.5 $ - $ 16,560.3 December 31, 2003 (Successor) ------- ------ -------- -------- ------ -------- -------- This information is provided by RNS The company news service from the London Stock Exchange

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