10-Q/A

UNITED STATES SECURITIES AND

EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/ A

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
OR
o	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

HSBC FINANCE CORPORATION

(formerly known as 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 o

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes o     No x

          At October 31, 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.

FORM 10-Q/A

TABLE OF CONTENTS

Part I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements:
	Statement of Income	4
	Balance Sheet	5
	Statement of Changes in Shareholder’s(s’) Equity	6
	Statement of Cash Flows	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations:
	Forward-Looking Statements	21
	Restatement	21
	Executive Overview	22
	Basis of Reporting	27
	Receivables Review	33
	Results of Operations	34
	Segment Results – Managed Basis	40
	Credit Quality	47
	Liquidity and Capital Resources	52
	Risk Management	56
	Reconciliations to GAAP Financial Measures	58
Item 4.	Controls and Procedures	62
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	62
Item 5.	Other Information	64
Item 6.	Exhibits and Reports on Form 8-K	65
Signature		66
Computation of Ratio of Earnings to Fixed Charges
Certification of CEO and CFO Pursuant to Section 302
Certification of CEO and CFO Pursuant to Section 906
Debt and Preferred Stock Securities Ratings
Report of KPMG LLP
Letter from KPMG LLP 2

2

Explanatory Note

HSBC Finance Corporation (formerly known as Household International, Inc.) is filing this amended Quarterly Report on Form 10-Q/ A to reflect the restatement of its unaudited consolidated financial statements for the periods covered by this report. Please see Note 2 to the Consolidated Financial Statements and the “Restatement” section included in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations below for a detailed discussion of the restatement. As more fully described therein, we have restated all reported periods since our acquisition by HSBC Holdings plc on March 28, 2003 to eliminate hedge accounting on all hedging relationships outstanding on that date and certain fair value swaps entered into after that date. This restatement is solely the result of the failure to satisfy certain technical requirements of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities.”

This amended Quarterly Report on Form 10-Q/ A restates the Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. We have not modified or updated the disclosures in the original Quarterly Report on Form 10-Q except as required to give effect to the restatement. As a result, this amended Quarterly Report on Form 10-Q/ A contains forward-looking information that has not been updated for events subsequent to the date of the original filing, and all information contained in this amended Quarterly Report on Form 10-Q/ A and the original Quarterly Report on Form 10-Q is subject to updating and supplementing as provided in the periodic reports that we have filed and will file with the Securities and Exchange Commission after the original filing date of the Quarterly Report on Form 10-Q.

3

PART I. FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

Household International, Inc.

CONSOLIDATED STATEMENT OF INCOME

		Three months ended						Nine months		March 29		January 1
		September 30,						ended		through		through
								September 30,		September 30,		March 28,
		2004			2003			2004		2003		2003
		(Successor)			(Successor)			(Successor)		(Successor)		(Predecessor)
		(Restated)			(Restated)			(Restated)		(Restated)
		(in millions)
Finance and other interest income		$	2,779		$	2,570		$	7,944	$	5,148	$	2,469
Interest expense			810			654			2,225		1,362		897
Net interest income			1,969			1,916			5,719		3,786		1,572
Provision for credit losses			1,123			1,001			3,048		2,074		976
Net interest income after provision for credit losses			846			915			2,671		1,712		596
Other revenues:
	Securitization revenue		267			387			881		680		434
	Insurance revenue		203			193			618		382		171
	Investment income		36			37			107		71		80
	Derivative income (expense)		72			(612	)		248		177		2
	Fee income		302			266			809		503		280
	Taxpayer financial services (expense) income		(3	)		2			209		5		181
	Other income		163			68			443		159		64
Total other revenues			1,040			341			3,315		1,977		1,212
Costs and expenses:
	Salaries and employee benefits		472			493			1,414		1,000		491
	Sales incentives		91			77			259		162		37
	Occupancy and equipment expenses		77			95			237		198		98
	Other marketing expenses		174			128			437		267		139
	Other servicing and administrative expenses		235			282			659		555		314
	Support services from HSBC affiliates		183			-			556		-		-
	Amortization of intangibles		83			82			278		162		12
	Policyholders’ benefits		93			95			299		196		91
	HSBC acquisition related costs incurred by Household		-			-			-		-		198
Total costs and expenses			1,408			1,252			4,139		2,540		1,380
Income before income tax expense			478			4			1,847		1,149		428
Income tax expense (benefit)			153			(18	)		619		384		182
Net income		$	325		$	22		$	1,228	$	765	$	246

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

4

Household International, Inc.

CONSOLIDATED BALANCE SHEET

			September 30,		December 31,
			2004		2003
			(Successor)		(Successor)
			(Restated)
			(in millions, except share data)
Assets
Cash			$	274	$	463
Securities				6,916		11,073
Receivables, net				104,225		91,027
Intangible assets, net				2,684		2,856
Goodwill				6,811		6,697
Properties and equipment, net				476		527
Real estate owned				601		631
Derivative financial assets				3,001		3,016
Other assets				2,740		2,762
Total assets			$	127,728	$	119,052
Liabilities
Debt:
	Deposits		$	51	$	232
	Commercial paper, bank and other borrowings			14,507		9,122
	Due to affiliates, net			11,371		7,589
	Long term debt (with original maturities over one year)			78,781		79,632
Total debt				104,710		96,575
Insurance policy and claim reserves				1,299		1,258
Derivative related liabilities				346		597
Other liabilities				3,546		3,131
	Total liabilities			109,901		101,561
Shareholder’s equity
Preferred stock held by HNAH (held by HSBC at December 31, 2003)				1,100		1,100
Common shareholder’s equity:
		Common stock, $0.01 par value, 100 shares authorized, 50 shares issued		-		-
		Additional paid-in capital		14,635		14,645
		Retained earnings		1,627		1,303
		Accumulated other comprehensive income		465		443
Total common shareholder’s equity				16,727		16,391
Total liabilities and shareholder’s equity			$	127,728	$	119,052

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

5

Household International, Inc.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER’S(S’) EQUITY

					Nine months			March 29			January 1
					ended			through			through
					September 30,			September 30,			March 28,
					2004			2003			2003
					Successor			Successor			(Predecessor)
					(Restated)			(Restated)
					(in millions)
Preferred stock
	Balance at beginning of period				$	1,100		$	1,100		$	1,193
	Reclassification of preferred stock issuance costs					-			-			21
	Redemption of preferred stock					-			-			(114	)
	Balance at end of period				$	1,100		$	1,100		$	1,100
Common shareholder’s(s’) equity
	Common stock
		Balance at beginning of period				-			-		$	552
		Effect of push-down accounting of HSBC’s purchase price on net assets				-			-			(552	)
		Balance at end of period				-			-		$	-
	Additional paid-in capital
		Balance at beginning of period			$	14,645		$	14,661		$	1,911
		Return of capital to HSBC				(31	)		(18	)		-
		Employee benefit plans and other				21			14			10
		Reclassification of preferred stock issuance costs				-			-			(21	)
		Effect of push-down accounting of HSBC’s purchase price on net assets				-			-			12,761
		Balance at end of period			$	14,635		$	14,657		$	14,661
	Retained earnings
		Balance at beginning of period			$	1,303		$	-		$	9,885
		Net income				1,228			765			246
		Dividends:
			Preferred stock			(54	)		(36	)		(22	)
			Common stock			(850	)		-			(412	)
		Effect of push-down accounting of HSBC’s purchase price on net assets				-			-			(9,697	)
		Balance at end of period			$	1,627		$	729		$	-
	Accumulated other comprehensive income
		Balance at beginning of period			$	443		$	-		$	(695	)
			Net change in unrealized gains (losses) on:
				Derivatives classified as cash flow hedges		44			-			101
				Securities available for sale and interest-only strip receivables		(38	)		114			(25	)
			Foreign currency translation adjustment			16			81			(24	)
		Other comprehensive income, net of tax				22			195			52
		Effect of push-down accounting of HSBC’s purchase price on net assets				-			-			643
		Balance at end of period			$	465		$	195		$	-
	Common stock in treasury
		Balance at beginning of period				-			-		$	(2,431	)
		Exercise of stock options				-			-			12
		Issuance of common stock for employee benefit plans				-			-			12
		Purchase of treasury stock				-			-			(164	)
		Effect of push-down accounting of HSBC’s purchase price on net assets				-			-			2,571
		Balance at end of period				-			-		$	-
Total common shareholder’s(s’) equity					$	16,727		$	15,581		$	14,661
Comprehensive income
Net income					$	1,228		$	765		$	246
Other comprehensive income						22			195			52
Comprehensive income					$	1,250		$	960		$	298

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

6

Household International, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS

		Nine months			March 29			January 1
		ended			through			through
		September 30,			September 30,			March 28,
		2004			2003			2003
		(Successor)			(Successor)			(Predecessor)
		(Restated)			(Restated)
		(in millions)
Cash flows from operating activities
Net income		$	1,228		$	765		$	246
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
	Provision for credit losses		3,048			2,074			976
	Insurance policy and claim reserves		(138	)		(123	)		47
	Depreciation and amortization		367			232			53
	Net change in interest-only strip receivables		410			259			30
	Net change in other assets		49			781			(593	)
	Net change in other liabilities		182			(771	)		616
	Other, net		(520	)		(73	)		84
Net cash provided by (used in) operating activities			4,626			3,144			1,459
Cash flows from investing activities
Securities:
	Purchased		(1,152	)		(2,771	)		(1,047	)
	Matured		1,179			2,107			584
	Sold		790			470			768
Net change in short-term securities available for sale			3,323			960			(375	)
Receivables:
	Originations, net of collections		(42,123	)		(27,386	)		(8,255	)
	Purchases and related premiums		(597	)		(2,070	)		(129	)
	Initial and fill-up securitizations		24,250			18,320			7,300
	Sales to affiliates		1,371			-			-
Properties and equipment:
	Purchases		(55	)		(70	)		(21	)
	Sales		2			5			-
Net cash provided by (used in) investing activities			(13,012	)		(10,435	)		(1,175	)
Cash flows from financing activities
Debt:
	Net change in short-term debt and deposits		5,343			3,024			(514	)
	Net change in time certificates		(155	)		97			150
	Net change in due to affiliates, net		3,760			5,818			-
	Long term debt issued		12,603			9,558			4,361
	Long term debt retired		(12,581	)		(11,337	)		(4,030	)
	Issuance of company obligated mandatorily redeemable preferred securities of subsidiary trusts to HSBC		-			275			-
	Redemption of company obligated mandatorily redeemable preferred securities of subsidiary trusts		-			(275	)		-
Insurance:
	Policyholders’ benefits paid		(124	)		(106	)		(36	)
	Cash received from policyholders		194			84			33
Shareholder’s(s’) dividends			(850	)		(293	)		(141	)
Redemption of preferred stock			-			-			(114	)
Purchase of treasury stock			-			-			(164	)
Issuance of common stock for employee benefit plans			-			-			62
Net cash provided by (used in) financing activities			8,190			6,845			(393	)
Effect of exchange rate changes on cash			7			41			(15	)
Net change in cash			(189	)		(405	)		(124	)
Cash at beginning of period			463			674			798
Cash at end of period		$	274		$	269		$	674

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

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation

The accompanying unaudited interim consolidated financial statements of Household International, Inc. and its subsidiaries (collectively, “Household”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods have been made. Household may also be referred to in this Form 10-Q/A as “we,” “us” or “our.” These unaudited interim consolidated financial statements should be read in conjunction with the 2003 financial information included in our Annual Report on Form 10-K for the year ended December 31, 2004 (the “2004 Form 10-K”).

Household International, Inc. is an indirect wholly owned subsidiary of HSBC Holdings plc (“HSBC”). Household was acquired by HSBC on March 28, 2003 in a purchase business combination recorded under the “push-down” method of accounting, which resulted in a new basis of accounting for the “successor” period beginning March 29, 2003. Information relating to all “predecessor” periods prior to the acquisition is presented using our historical basis of accounting, which impacts comparability to our successor period.

The preparation of financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. Interim results should not be considered indicative of results in future periods.

Interim financial statement disclosures required by U.S. GAAP regarding segments are included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) section of this Form 10-Q/ A.

Certain reclassifications have been made to prior period amounts to conform to the current period presentation. Immaterial adjustments have been made to decrease finance income and increase securitization revenue as reported in prior periods. These adjustments reflect corrections after discovery of a system programming error in the posting of finance income between owned receivables and receivables serviced with limited recourse. Reported net income for all prior periods was not affected.

2. Restatement

We have restated our consolidated financial statements for the previously reported period March 29, 2003 through December 31, 2003, the previously reported quarterly periods ended June 30, 2004 and March 31, 2004 and the three and nine month periods ended September 30, 2004. This amended Quarterly Report on Form 10-Q/A and the exhibits included herewith include all adjustments relating to the restatement for the periods covered by this report.

During the fourth quarter of 2004, as part of our preparation for the implementation of International Financial Reporting Standards (“IFRS”) by HSBC from January 1, 2005, we undertook a review of our hedging activities to confirm conformity with the accounting requirements of IFRS, which differ in several respects from the hedge accounting requirements under U.S. GAAP as set out in Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS 133”). As a result of this review, management determined that there were some deficiencies in the documentation required to support hedge accounting under U.S. GAAP. These documentation deficiencies arose following our acquisition by HSBC. As a consequence of the acquisition, pre-existing hedging relationships, including hedging relationships that had previously qualified under the “shortcut” method of accounting pursuant to SFAS 133, were required to be reestablished. At that time there was some debate in the accounting profession regarding the detailed technical requirements resulting from a business combination. We consulted with our independent accountants, KPMG LLP, in reaching a determination of

8

what was required in order to comply with SFAS 133. Following this, we took the actions we believed were necessary to maintain hedge accounting for all of our historical hedging relationships in our consolidated financial statements for the period ended December 31, 2003 and those consolidated financial statements received an unqualified audit opinion.

Management, having determined during the fourth quarter of 2004 that there were certain documentation deficiencies, engaged independent expert consultants to advise on the continuing effectiveness of the identified hedging relationships. As a result of this assessment, we concluded that a substantial number of our hedges met the correlation effectiveness requirements of SFAS 133 throughout the period following our acquisition by HSBC. However, we also determined in conjunction with KPMG LLP that, although a substantial number of the impacted hedges satisfied the correlation effectiveness requirement of SFAS 133, there were technical deficiencies in the documentation that could not be corrected retroactively or disregarded notwithstanding the proven effectiveness of the hedging relationships in place and, consequently, that the requirements of SFAS 133 were not met and that hedge accounting was not appropriate during the period these documentation deficiencies existed. We have therefore determined that we should restate all the reported periods since our acquisition by HSBC to eliminate hedge accounting on all hedging relationships outstanding at March 29, 2003 and certain fair value swaps entered into after that date. This was accomplished primarily by reclassifying the mark to market of the changes in fair market value of the affected derivative financial instruments previously classified in either debt or other comprehensive income into current period earnings.

The period to period changes in the fair value of these derivative financial instruments have been recognized as either an increase or decrease in our current period earnings through derivative income. As part of the restatement process, we have reclassified all previous hedging results reflected in interest expense associated with the affected derivative financial instruments to derivative income. Our independent registered public accounting firm has reviewed the September 30, 2004 financial results and has provided us a review report under Statement on Auditing Standards No. 100, which review report is attached to this amended Quarterly Report on Form 10-Q/A as Exhibit 99.2.

The restatement effect on our pre-tax income and net income is summarized below.

	Restatements to Reported Income
										% Change
	Pre-Tax			Tax Effect			After-Tax			to Reported
	(dollars in millions)
March 29 through September 30, 2003	$	(126	)	$	46		$	(80	)		(9.5	)%
Nine months ended September 30, 2004		47			(17	)		30			2.5
Quarter ended September 30, 2003		(708	)		258			(450	)		(95.3	)
Quarter ended September 30, 2004		5			(2	)		3			.9

A detailed summary of the impact of the restatement on our consolidated statement of income and on our consolidated balance sheet is as follows:

																March 29, 2003
		Three months ended				Three months ended						Nine months ended				through
		September 30, 2004				September 30, 2003						September 30, 2004				September 30, 2003
		As				As						As				As
		Previously		As		Previously			As			Previously		As		Previously			As
		Reported		Restated		Reported			Restated			Reported		Restated		Reported			Restated
		(in millions)
Consolidated Statement of Income:
	Net interest income	$	2,035	$	1,969	$	2,014	*	$	1,916		$	5,924	$	5,719	$	4,017	*	$	3,786
	Other revenues		969		1,040		951	*		341			3,064		3,315		1,873	*		1,977
	Income before income tax expense		473		478		712			4			1,800		1,847		1,275			1,149
	Income tax expense		151		153		240			(18	)		602		619		430			384
	Net income		322		325		472			22			1,198		1,228		845			765

9

		At September 30, 2004				At December 31, 2003
		As				As
		Previously		As		Previously		As
		Reported		Restated		Reported		Restated
		(in millions)
Consolidated Balance Sheet:
	Derivative financial assets	$	3,033	$	3,001	$	3,118	$	3,016
	Long-term debt		78,516		78,781		79,464		79,632
	Derivative related liabilities		353		346		600		597
	Other liabilities		3,651		3,546		3,228		3,131
	Common shareholder’s equity		16,912		16,727		16,561		16,391

*  Certain reclassifications have been made to prior period amounts to conform to the current year presentation.

The resulting accounting does not reflect the economic reality of our hedging activity and has no impact on the timing or amount of operating cash flows or cash flows under any debt or derivative contract. It does not affect our ability to make required payments on our outstanding debt obligations. Furthermore, our economic risk management strategies have not required amendment.

3. Securities

Securities consisted of the following available-for-sale investments:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
September 30, 2004	Cost		Gains		Losses			Value
	(in millions)
Corporate debt securities	$	2,393	$	26	$	(9	)	$	2,410
Money market funds		749		-		-			749
Time deposits		132		-		-			132
U.S. government and federal agency debt securities		2,355		-		(2	)		2,353
Non-government mortgage backed securities		84		-		-			84
Other		1,155		1		(2	)		1,154
Subtotal		6,868		27		(13	)		6,882
Accrued investment income		34		-		-			34
Total securities available for sale	$	6,902	$	27	$	(13	)	$	6,916

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2003	Cost		Gains		Losses			Value
	(in millions)
Corporate debt securities	$	5,641	$	11	$	-		$	5,652
Money market funds		794		-		-			794
Time deposits		952		-		-			952
U.S. government and federal agency debt securities		2,430		-		(2	)		2,428
Marketable equity securities		14		4		-			18
Non-government mortgage backed securities		389		-		-			389
Other		794		2		-			796
Subtotal		11,014		17		(2	)		11,029
Accrued investment income		44		-		-			44
Total securities available for sale	$	11,058	$	17	$	(2	)	$	11,073

10

A summary of gross unrealized losses and related fair values as of September 30, 2004, classified as to the length of time the losses have existed follows:

	Less Than One Year							Greater Than One Year
			Gross			Aggregate				Gross			Aggregate
	Number of		Unrealized			Fair Value of		Number of		Unrealized			Fair Value of
September 30, 2004	Securities		Losses			Investments		Securities		Losses			Investments
	(in millions)
Corporate debt securities		121	$	(3	)	$	305		195	$	(6	)	$	566
U.S. government and federal agency debt securities		-		-			-		62		(2	)		309
Other		24		(1	)		147		42		(1	)		98

Gross unrealized losses on our securities available for sale have increased during the nine months ended September 30, 2004 due to a general increase in interest rates. Since substantially all of these securities are rated A- or better, no permanent impairment is expected to be realized.

The amortized cost of our securities available for sale was adjusted to fair market value at the time of the merger with HSBC. As a result, at December 31, 2003 gross unrealized losses had existed less than one year.

4. Receivables

Receivables consisted of the following:

	September 30,			December 31,
	2004			2003
	(in millions)
Real estate secured	$	58,726		$	51,221
Auto finance		6,823			4,138
MasterCard(1)/ Visa(1)		11,666			11,182
Private label		14,000			12,604
Personal non-credit card		14,888			12,832
Commercial and other		334			401
Total owned receivables		106,437			92,378
Purchase accounting fair value adjustments		272			419
Accrued finance charges		1,489			1,432
Credit loss reserve for owned receivables		(3,953	)		(3,793	)
Unearned credit insurance premiums and claims reserves		(620	)		(703	)
Interest-only strip receivables		559			1,036
Amounts due and deferred from receivable sales		41			258
Total owned receivables, net		104,225			91,027
Receivables serviced with limited recourse		20,175			26,201
Total managed receivables, net	$	124,400		$	117,228

⁽¹⁾ MasterCard is a registered trademark of MasterCard International, Incorporated and Visa is a registered trademark of VISA USA, Inc.

Purchase accounting fair value adjustments represent adjustments which have been “pushed down” to record our receivables at fair value at the date of acquisition by HSBC.

Interest-only strip receivables are reported net of our estimate of probable losses under the recourse provisions for receivables serviced with limited recourse. Our estimate of the recourse obligation totaled

11

$1,246 million at September 30, 2004 and $2,374 million at December 31, 2003. Interest-only strip receivables also included fair value mark-to-market adjustments which increased the balance by $190 million at September 30, 2004 and $257 million at December 31, 2003.

Receivables serviced with limited recourse consisted of the following:

	September 30,		December 31,
	2004		2003
	(in millions)
Real estate secured	$	165	$	194
Auto finance		3,060		4,675
MasterCard/ Visa		8,843		9,967
Private label		3,921		5,261
Personal non-credit card		4,186		6,104
Total	$	20,175	$	26,201

The combination of receivables owned and receivables serviced with limited recourse, which comprises our managed portfolio, is shown below:

	September 30,		December 31,
	2004		2003
	(in millions)
Real estate secured	$	58,891	$	51,415
Auto finance		9,883		8,813
MasterCard/ Visa		20,509		21,149
Private label		17,921		17,865
Personal non-credit card		19,074		18,936
Commercial and other		334		401
Total	$	126,612	$	118,579

12

5. Credit Loss Reserves

An analysis of credit loss reserves was as follows:

		Three months ended						Nine months ended
		September 30,						September 30,
		2004			2003			2004			2003
		(in millions)
Owned receivables:
	Credit loss reserves at beginning of period	$	3,795		$	3,659		$	3,793		$	3,333
	Provision for credit losses		1,123			1,001			3,048			3,050
	Charge-offs		(1,068	)		(976	)		(3,176	)		(2,908	)
	Recoveries		99			77			271			204
	Other, net		4			18			17			100
	Credit loss reserves for owned receivables		3,953			3,779			3,953			3,779
Receivables serviced with limited recourse:
	Credit loss reserves at beginning of period		1,904			1,980			2,374			1,759
	Provision for credit losses		(232	)		420			169			1,444
	Charge-offs		(418	)		(459	)		(1,343	)		(1,314	)
	Recoveries		24			24			76			68
	Other, net		(32	)		(11	)		(30	)		(3	)
	Credit loss reserves for receivables serviced with limited recourse		1,246			1,954			1,246			1,954
Credit loss reserves for managed receivables		$	5,199		$	5,733		$	5,199		$	5,733

Reductions to the provision for credit losses and overall reserve levels on receivables serviced with limited recourse in 2004 reflect the impact of reduced securitization levels, including our decision to structure new collateralized funding transactions as secured financings.

We maintain credit loss reserves to cover probable losses of principal, interest and fees, including late, overlimit and annual fees. Credit loss reserves are based on a range of estimates and are intended to be adequate but not excessive. We estimate probable losses of owned consumer receivables using a roll rate migration analysis that estimates the likelihood that a loan will progress through the various stages of delinquency, or buckets, and ultimately charge off. This analysis considers delinquency status, loss experience and severity and takes into account whether loans are in bankruptcy, have been restructured or rewritten, or are subject to forbearance, an external debt management plan, hardship, modification, extension or deferment. Our credit loss reserves also take into consideration the loss severity expected based on the underlying collateral, if any, for the loan in the event of default. Delinquency status may be affected by customer account management policies and practices such as the restructure of accounts, forbearance agreements, extended payment plans, modification arrangements, consumer credit counseling accommodations, loan rewrites and deferments. When customer account management policies, or changes thereto, shift loans from a “higher” delinquency bucket to a “lower” delinquency bucket, this is reflected in our roll rate statistics. To the extent that restructured accounts have a greater propensity to roll to higher delinquency buckets, this is captured in the roll rates. Since the loss reserve is computed based on the composite of all of these calculations, this increase in roll rate is applied to receivables in all respective delinquency buckets, which increases the overall reserve level. In addition, loss reserves on consumer receivables are maintained to reflect our judgment of portfolio risk factors that may not be fully reflected in the statistical roll rate calculation. Risk factors considered in establishing overall loss reserves on consumer receivables include recent growth, product mix, bankruptcy trends, geographic concentrations, economic conditions, portfolio seasoning, account management policies and practices and current levels of charge-offs and delinquencies.

13

While our credit loss reserves are available to absorb losses in the entire portfolio, we specifically consider the credit quality and other risk factors for each of our products. We recognize the different inherent loss characteristics in each of our products as well as customer account management policies and practices and risk management/collection practices. Charge-off policies are also considered when establishing loss reserve requirements to ensure the appropriate reserves exist for products with longer charge-off periods. We also consider key ratios such as reserves to nonperforming loans and reserves as a percent of net charge-offs in developing our loss reserve estimates. Loss reserve estimates are reviewed periodically and adjustments are reported in earnings when they become known. As these estimates are influenced by factors outside of our control, such as consumer payment patterns and economic conditions, there is uncertainty inherent in these estimates, making it reasonably possible that they could change.

6.     Intangible Assets

Intangible assets consisted of the following:

			Accumulated		Carrying
September 30, 2004	Gross		Amortization		Value
	(in millions)
Purchased credit card relationships and related programs	$	1,615	$	296	$	1,319
Retail services merchant relationships		270		82		188
Other loan related relationships		326		62		264
Trade names		717		-		717
Technology, customer lists and other contracts		281		85		196
Total	$	3,209	$	525	$	2,684

			Amortization		Carrying
December 31, 2003	Gross		Accumulated		Value
	(in millions)
Purchased credit card relationships and related programs	$	1,512	$	149	$	1,363
Retail services merchant relationships		270		41		229
Other loan related relationships		326		34		292
Trade names		717		-		717
Technology, customer lists and other contracts		281		26		255
Total	$	3,106	$	250	$	2,856

Estimated amortization expense associated with our intangible assets for each of the following years is as follows:

Year ending December 31,	(in millions)
2004	$	360
2005		345
2006		337
2007		320
2008		225

During the third quarter of 2004, we completed our annual impairment test of intangible assets and determined that the fair value of each intangible asset exceeded its carrying value. As a result, we have concluded that none of our intangible assets are impaired.

14

7. Goodwill

Goodwill balances associated with our foreign businesses will change from period to period due to movements in foreign exchange. During the quarter ended March 31, 2004, we made final adjustments to the purchase price allocation resulting from our merger with HSBC. Since the one-year anniversary of our merger with HSBC was completed in the first quarter of 2004, no further merger-related adjustments to our goodwill balance will occur, except for changes in estimates of the tax basis in our assets and liabilities or other tax estimates recorded at the date of our merger with HSBC, pursuant to Statement of Financial Accounting Standards Number 109, “Accounting for Income Taxes.” During the third quarter of 2004, we reduced our goodwill balance by approximately $15 million as a result of such changes in tax estimates.

During the third quarter of 2004, we completed our annual impairment test of goodwill. For purposes of this test, we assigned the goodwill to our reporting units. The fair value of each of the reporting units to which goodwill was assigned exceeded its carrying value. As a result, we have concluded that none of our goodwill is impaired.

8. Income Taxes

Our effective tax rates were as follows:

Three months ended September 30:
	2004 (successor)(restated)	32.0	%
	2003 (successor)(restated)	(450.0	)
Nine months ended September 30, 2004 (successor)(restated)		33.5
March 29 through September 30, 2003 (successor)(restated)		33.4
January 1 through March 28, 2003 (predecessor)		42.5

The effective tax rate for the three months ended September 30, 2003 was positively impacted by low income housing credits which more than offset the operational income tax expense for the period. The effective tax rate for the period January 1 through March 28, 2003 was adversely impacted by the non-deductibility of certain HSBC acquisition related costs. Excluding HSBC acquisition related costs of $198 million, which resulted in a $27 million tax benefit, our effective tax rate was 33.3 percent for the period January 1 through March 28, 2003.

The effective tax rate differs from the statutory federal income tax rate primarily because of the effects of state and local income taxes and tax credits.

9.     Stock-Based Compensation

In 2002, we adopted the fair value method of accounting for our stock option and employee stock purchase plans. We elected to recognize stock compensation cost prospectively for all new awards granted under those plans beginning January 1, 2002 as provided under SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure (an amendment of FASB Statement No. 123)” (“SFAS No. 148”). Prior to 2002, we applied the recognition and measurement provisions of APB No. 25, “Accounting for Stock Issued to Employees” in accounting for those plans. Because options granted prior to November 2002 vested upon completion of the merger with HSBC on March 28, 2003, all of our stock options are now accounted for using the fair value method.

Our employees currently participate in one or more stock compensation plans sponsored by HSBC. Compensation expense relating to stock awards is charged to earnings over the vesting period. During the first quarter of 2004, we began to consider forfeitures for all stock awards granted subsequent to March 28, 2003 as part of our estimate of compensation cost rather than adjust compensation cost for forfeitures as they occur. The cumulative impact of this change was not material.

15

The following table illustrates the effect on net income if the fair value method had been applied to all outstanding and unvested awards in the period prior to our acquisition by HSBC:

		January 1
		through
		March 28,
		2003
		(Predecessor)
		(in millions)
Net income, as reported		$	246
Add stock-based employee compensation expense included in reported net income, net of tax:
	Stock option and employee stock purchase plans		7
	Restricted stock rights		11
Deduct stock-based employee compensation expense determined under the fair value method, net of tax:
	Stock option and employee stock purchase plans		(53	)
	Restricted stock rights		(45	)
Pro forma net income		$	166

10.     Related Party Transactions

In the normal course of business, we conduct transactions with HSBC and its subsidiaries. The following tables present related party balances and the income and (expense) generated by related party transactions:

		September 30,			December 31,
		2004			2003
		(in millions)
Assets and (Liabilities):
Derivative financial assets, net		$	2,491		$	1,789
Other assets			2			1
Due to affiliates, net
	HSBC and subsidiaries		(11,972	)		(7,589	)
	HSBC Investments (North America) Inc.		601			-
Other liabilities			(109	)		(26	)

16

		Three months			Three months			Nine months			Nine months
		ended			ended			ended			ended
		September 30,			September 30,			September 30,			September 30,
		2004			2003			2004			2003
		(in millions)
Income/(Expense):
Interest expense on borrowings from HSBC and subsidiaries		$	(95	)	$	(23	)	$	(213	)	$	(28	)
HSBC Bank USA, National Association:
	Real estate secured servicing revenues		4			-			9			-
	Real estate secured sourcing, underwriting and pricing revenues		1			-			3			-
	Gain on sale of receivables		10			-			25			-
	Other servicing, processing, origination and support revenues		3			-			8			-
Support services from HSBC affiliates			(183	)		-			(556	)		-
HSBC Technology and Services (USA) Inc.:
	Rental revenue		8			-			24			-
	Administrative services revenue		5			-			13			-
Other income from HSBC affiliates			4			-			4			-

The notional value of derivative contracts outstanding with HSBC subsidiaries totaled $59.2 billion at September 30, 2004 and $39.7 billion at December 31, 2003. Affiliate swap counterparties have provided collateral in the form of securities which are not recorded on our balance sheet and totaled $1.5 billion at September 30, 2004 and $.5 billion at December 31, 2003.

During the second quarter of 2004, we made advances to our immediate parent, HSBC Investments (North America) Inc. (“HINO”) totaling $266 million which were repaid during the third quarter of 2004. During the third quarter, we granted a $1 billion line of credit to HINO which matures in July 2005. The balance outstanding under the line of credit at September 30, 2004 was $601 million and is included in due to affiliates. Interest income associated with these advances, which totaled $2 million for both periods, is included in other income and is reflected in other income from HSBC affiliates in the above table.

During the third quarter of 2004, our Canadian business began to originate and service auto loans for an HSBC affiliate in Canada. Fees received for these services are included in other income and are reflected in other income from HSBC affiliates in the above table.

Due to affiliates also includes amounts owed to subsidiaries of HSBC (other than preferred stock). This funding was at interest rates (both the underlying benchmark rate and credit spreads) comparable to third-party rates for debt with similar maturities.

In the first quarter of 2004, we sold approximately $.9 billion of real estate secured receivables from our mortgage services business to HSBC Bank USA, National Association (“HSBC Bank USA”) and recorded a pre-tax gain of $15 million on the sale. Under a separate servicing agreement, we have agreed to service all real estate secured receivables sold to HSBC Bank USA including all future business they purchase from our correspondents. As of September 30, 2004, we were servicing $4.9 billion of real estate secured receivables for HSBC Bank USA. We also received fees from HSBC Bank USA pursuant to a service level agreement under which we sourced, underwrote and priced $.7 billion of real estate secured receivables purchased by HSBC Bank USA during the quarter and $2.2 billion year-to-date. These revenues have been recorded as other income.

Under various service level agreements, we also provide various services to HSBC Bank USA. These services include credit card servicing and processing activities through our credit card services business, loan origination and servicing through our auto finance business and other operational and administrative

17

support. Fees received for these services are reported as other income.

On July 1, 2004, Household Bank (SB), N.A. purchased the account relationships associated with $970 million of MasterCard and Visa credit card receivables from HSBC Bank USA for approximately $99 million which are included in intangible assets. The receivables will continue to be owned by HSBC Bank USA. Originations of new accounts and receivables are made by Household Bank (SB), N.A. and new receivables are sold daily to HSBC Bank USA. Gains on the daily sale of credit card receivables to HSBC Bank USA are recorded in other income.

As part of ongoing integration efforts, HSBC has instituted certain changes to its North American organization structure. Among these initiatives was the creation of a new technology services company, HSBC Technology and Services (USA) Inc. (“HTSU”). Effective January 1, 2004, our technology services employees, as well as technology services employees from other HSBC entities in North America, were transferred to HTSU. In addition, technology related assets and software purchased subsequent to January 1, 2004 are generally purchased and owned by HTSU. Technology related assets owned by Household prior to January 1, 2004 currently remain in place and were not transferred to HTSU. In addition to information technology services, HTSU also provides certain item processing and statement processing activities to us pursuant to a master service level agreement. As a result of these changes, operating expenses relating to services provided by HTSU, which have previously been reported as salaries and fringe benefits, occupancy and equipment expenses or other servicing and administrative expenses, are now reported as support services from HSBC affiliates. Support services from HSBC affiliates includes services provided by HTSU as well as banking services and other miscellaneous services provided by HSBC Bank USA and other subsidiaries of HSBC. We also receive revenue from HTSU for certain office space which we have rented to them, which has been recorded as a reduction of occupancy and equipment expenses, and for certain administrative costs, which has been recorded as other income.

In addition, we utilize a related HSBC entity to lead manage substantially all ongoing debt issuances. Fees paid for such services totaled approximately $7.8 million for the nine months ended September 30, 2004 and approximately $7.7 million for the period March 29 through September 30, 2003. These fees are amortized over the life of the related debt as a component of interest expense.

In September 2004, HSBC North America Holdings Inc. (“HNAH”) issued a new series of preferred stock totaling $1.1 billion to HSBC in exchange for our outstanding 6.5% cumulative preferred stock issued to HSBC on March 28, 2003. In October 2004, we paid the accrued dividend of $108 million on our preferred stock. Also in October 2004, our immediate parent, HINO, issued a new series of preferred stock to HNAH in exchange for our 6.5% cumulative preferred stock.

11.     Pension and Other Postretirement Benefits

Components of net periodic benefit cost related to our defined benefit pension plans and our postretirement benefits other than pensions were as follows:

							Other Postretirement
	Pension Benefits						Benefits
Three months ended September 30	2004			2003			2004		2003
	(Successor)			(Successor)			(Successor)		(Successor)
	(in millions)
Service cost – benefits earned during the period	$	14		$	12		$	1	$	1
Interest cost		13			12			3		3
Expected return on assets		(23	)		(16	)		-		-
Amortization of prior service cost		-			-			-		-
Recognized (gains) losses		(1	)		-			-		-
Net periodic benefit cost	$	3		$	8		$	4	$	4

18

	Pension Benefits									Other Postretirement Benefits
	Nine months			March 29			January 1			Nine months		March 29		January 1
	ended			through			through			ended		through		through
	September 30,			September 30,			March 28,			September 30,		September 30,		March 28,
	2004			2003			2003			2004		2003		2003
	(Successor)			(Successor)			(Predecessor)			(Successor)		(Successor)		(Predecessor)
	(in millions)
Service cost – benefits earned during the period	$	41		$	24		$	11		$	3	$	2	$	1
Interest cost		40			24			5			10		7		1
Expected return on assets		(67	)		(32	)		(16	)		-		-		2
Amortization of prior service cost		-			-			-			-		-		-
Recognized (gains) losses		(4	)		-			14			-		-		-
Net periodic benefit cost	$	10		$	16		$	14		$	13	$	9	$	4

On November 9, 2004, sponsorship of the United States defined benefit pension plan was transferred to HNAH.

12.     New Accounting Pronouncements

In December 2003, the American Institute of Certified Public Accountants (“AICPA”) released Statement of Position 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer” (“SOP 03-3”). SOP 03-3 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities acquired in a transfer if those differences are attributable to credit quality. SOP 03-3 is effective for loans acquired in fiscal years beginning after December 15, 2004. Adoption is not expected to have a material impact on our financial position or results of operations.

In December 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 132 (revised), “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (“SFAS 132 (revised)”). SFAS 132 (revised) revises employers’ disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans. SFAS 132 (revised) revises certain disclosure requirements contained in the original SFAS 132. It also requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. We adopted the annual disclosure requirements for SFAS 132 (revised) as of December 31, 2003, which are included in the 2003 financial information in our 2004 Form 10-K, and the interim period disclosure requirements in our Form 10-Q beginning with the quarter ended March 31, 2004.

In January 2004, the FASB issued FASB Staff Position 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-1”). FSP 106-1 was issued in response to a new Medicare bill that provides prescription drug coverage to Medicare-eligible retirees and was signed into law in December 2003. FSP 106-1 allowed plan sponsors the option of accounting for the effects of this new law in financial statements for periods that cover the date of enactment or making a one-time election to defer the accounting for the effects of the new law. We elected to defer the accounting for the effects of the new law. In May 2004, the FASB issued FASB Staff Position FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-2”), which superceded FSP 106-1. FSP 106-2 is effective for the first interim period beginning after June 15, 2004. For companies that elected deferral under FSP 106-1, and for which enactment is deemed to be a “significant event,” FSP 106-2 provides two methods of transition – retroactive application or prospective application from the date of adoption. If the effects of the new law are deemed not to be a “significant event”, the effect can be incorporated into the next measurement date following the effective date. Based on the information currently available, adoption of FSP 106-2 is not expected to have a material impact on

19

our accumulated postretirement benefit obligation or our net periodic benefit cost and, as such, we do not consider the effects of the new law to be a significant event. Accordingly, we will account for the effects of the new law beginning on December 31, 2004, our next measurement date.

In March 2004, the FASB reached a consensus on EITF 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“EITF 03-1”). EITF 03-1 provides guidance for determining when an investment is impaired and whether the impairment is other than temporary. EITF 03-1 also incorporates into its consensus the required disclosures about unrealized losses on investments announced by the EITF in late 2003 and adds new disclosure requirements relating to cost-method investments. The new disclosure requirements are effective for annual reporting periods ending after June 15, 2004 and the new impairment accounting guidance was to become effective for reporting periods beginning after June 15, 2004. In September 2004, the FASB delayed the effective date of EITF 03-1 for measurement and recognition of impairment losses until implementation guidance is issued. We do not expect the adoption of the impairment guidance contained in EITF 03-1 to have a material impact on our financial position or results of operations.

20

Household International, Inc.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the consolidated financial statements, notes and tables included elsewhere in this report and with the 2003 financial information included in our Annual Report on Form 10-K for the year ended December 31, 2004 (the “2004 Form 10-K”). MD&A may contain certain statements that may be forward-looking in nature within the meaning of the Private Securities Litigation Reform Act of 1995. Our results may differ materially from those noted in the forward-looking statements. Words such as “believe”, “expects”, “estimates”, “targeted”, “anticipates”, “goal” and similar expressions are intended to identify forward-looking statements but should not be considered as the only means through which these statements may be made. Statements that are not historical facts, including statements about management’s beliefs and expectations, are forward-looking statements which involve inherent risks and uncertainties and are based on current views and assumptions. A number of factors could cause actual results to differ materially from those contained in any forward-looking statements. For a list of important factors that may affect our actual results, see Cautionary Statement on Forward Looking Statements in Part I, Item 1 of our 2004 Form 10-K.

Restatement

We have restated our consolidated financial statements for the previously reported period March 29, 2003 through December 31, 2003, the previously reported quarterly periods ended June 30, 2004 and March 31, 2004 and for the three and nine month periods ended September 30, 2004. This amended Quarterly Report on Form 10-Q/A and the exhibits included herewith include all adjustments relating to the restatement for the periods covered by this report.

During the fourth quarter of 2004, as part of our preparation for the implementation of International Financial Reporting Standards (“IFRS”) by HSBC from January 1, 2005, we undertook a review of our hedging activities to confirm conformity with the accounting requirements of IFRS, which differ in several respects from the hedge accounting requirements under U.S. GAAP as set out in Statement of Financial Accounting Standards No. 133, “Accounting for Derivatives and Hedging Activities (“SFAS 133”). As a result of this review, management determined that there were some deficiencies in the documentation required to support hedge accounting under U.S. GAAP. These documentation deficiencies arose following our acquisition by HSBC. As a consequence of the acquisition, pre-existing hedging relationships, including hedging relationships that had previously qualified under the “shortcut” method of accounting pursuant to SFAS 133, were required to be reestablished. At that time there was some debate in the accounting profession regarding the detailed technical requirements resulting from a business combination. We consulted with our independent accountants, KPMG LLP, in reaching a determination of what was required in order to comply with SFAS 133. Following this, we took the actions we believed were necessary to maintain hedge accounting for all of our historical hedging relationships in our consolidated financial statements for the period ended December 31, 2003 and those consolidated financial statements received an unqualified audit opinion.

Management, having determined during the fourth quarter of 2004 that there were certain documentation deficiencies, engaged independent expert consultants to advise on the continuing effectiveness of the identified hedging relationships and again consulted with our independent accountants, KPMG LLP. As a result of this assessment, we concluded that a substantial number of our hedges met the correlation effectiveness requirement of SFAS 133 throughout the period following our acquisition by HSBC. However, we also determined in conjunction with KPMG LLP that, although a substantial number of the impacted hedges satisfied the correlation effectiveness requirement of SFAS 133, there were technical deficiencies in the documentation that could not be corrected retroactively or disregarded notwithstanding

21

Household International, Inc.

the proven effectiveness of the hedging relationships in place and, consequently, that the requirements of SFAS 133 were not met and that hedge accounting was not appropriate during the period these documentation deficiencies existed. We have therefore determined that we should restate all the reported periods since our acquisition by HSBC to eliminate hedge accounting on all hedging relationships outstanding at March 29, 2003 and certain fair value swaps entered into after that date. This was accomplished primarily by reclassifying the mark to market of the changes in fair market value of the affected derivative financial instruments previously classified in either debt or other comprehensive income into current period earnings.

The period to period changes in the fair value of these derivative financial instruments have been recognized as either an increase or decrease in our current period earnings through derivative income. As part of the restatement process, we have reclassified all previous hedging results reflected in interest expense associated with the affected derivative financial instruments to derivative income. Our independent registered public accounting firm has reviewed our September 30, 2004 financial results and has provided us a review report under Statement on Auditing Standards No. 100, which review report is attached to this amended Quarterly Report on Form 10-Q/A as Exhibit 99.2.

The cumulative restatement is as follows for the periods presented below:

	Restatements to Reported Income
										% Change
	Pre-Tax			Tax Effect			After Tax			to Reported
	(dollars in millions)
March 29, 2003 through September 30, 2003	$	(126	)	$	46		$	(80	)		(9.5	)%
Nine months ended September 30, 2004		47			(17	)		30			2.5
Quarter ended September 30, 2003		(708	)		258			(450	)		(95.3	)
Quarter ended September 30, 2004		5			(2	)		3			.9

See Note 2, “Restatement,” for a detailed summary of the impact of the restatement on our consolidated statement of income and our consolidated balance sheet for the periods presented.

The resulting accounting does not reflect the economic reality of our hedging activity and has no impact on the timing or amount of operating cash flows or cash flows under any debt or derivative contract. It does not affect our ability to make required payments on our outstanding debt obligations. Furthermore, the restatement has no impact on our results on a U.K. GAAP basis, which are used in measuring and rewarding performance of employees. Finally, our economic risk management strategies have not required amendment.

Executive Overview

Household International, Inc. is principally a non-operating holding company and an indirect wholly owned subsidiary of HSBC Holdings plc (“HSBC”). Household may also be referred to in MD&A as “we”, “us”, or “our”. Household’s acquisition by HSBC on March 28, 2003 has resulted in a new basis of accounting reflecting the fair market value of our assets and liabilities for the “successor” period beginning March 29, 2003. Information for all “predecessor” periods prior to the merger is presented using our historical basis of accounting, which impacts comparability to our “successor” period beginning March 29, 2003. During the nine months ended September 30, 2003, the “predecessor” period contributed $246 million of net income and the “successor” period contributed $765 million of net income. To assist in the comparability of our financial results and to make it easier to discuss and understand our results of operations, MD&A combines the “predecessor” period (January 1 to March 28, 2003) with the “successor” period (March 29 to September 30, 2003) to present “combined” results for the nine months ended September 30, 2003.

22

Household International, Inc.

In addition to owned basis reporting, we also monitor our operations and evaluate trends on a managed basis (a non-GAAP financial measure), which assumes that securitized receivables have not been sold and are still on our balance sheet. See “Basis of Reporting” for further discussion of the reasons we use this non-GAAP financial measure.

On September 30, 2004, we commenced the rebranding of the majority of our U.S. and Canadian businesses, including Household International, to the HSBC brand. The rebranding means that businesses previously operating under the Household name will be called HSBC. Our consumer lending business will retain the HFC and Beneficial brands, accompanied by the HSBC Group’s endorsement signature, “Member HSBC Group.” The single brand will allow HSBC in North America to better align its businesses, providing a stronger platform to service customers and advance growth. The HSBC brand also positions us to expand the products and services offered to our customers. As part of this initiative and subject to regulatory approvals, we expect to merge with our subsidiary, Household Finance Corporation, in December 2004. At the time of the merger, Household International, Inc. will change its name to HSBC Finance Corporation.

In measuring our results, management’s primary focus is on managed receivable growth and operating net income (a non-GAAP financial measure which excludes $167 million, after-tax, of HSBC acquisition related costs and other merger related items incurred by Household in the first quarter of 2003.) See “Basis of Reporting” for further discussion of operating net income. Net income was $325 million for the quarter ended September 30, 2004, compared to net income of $22 million in the prior year quarter. The increase in net income during the quarter was attributable solely to higher derivative income. Derivative income increased $684 million in the current quarter as compared to the prior year quarter due to the impact of lower long term rates on our portfolio of receive fixed swaps and the impact of higher short term rates on our pay fixed swap portfolio. Excluding the impact of derivative income, net income was lower compared with the prior year quarter. The decrease was primarily due to higher operating expenses and higher provision for credit losses due to receivable growth, partially offset by higher net interest income. Net income for the first nine months of 2004 was $1,228 million, a 4 percent increase from operating net income of $1,178 million for the first nine months of 2003. The increase was primarily due to higher other revenues, including higher derivative income, and higher net interest income partially offset by higher operating expenses. Operating expenses increased due to receivable growth, increases in legal costs and, for the nine month period, higher amortization of intangibles which were established in connection with the HSBC merger. The increase in net interest income during both periods was due to higher average receivable balances offset by lower yields on our receivables, particularly in real estate secured and auto finance receivables.

Funding costs were higher during the three month period resulting from a rising interest rate environment. Other revenues increased during the nine month period due to higher derivative and other income, partially offset by reduced initial securitization activity. Amortization of purchase accounting fair value adjustments increased net income by $43 million for the quarter ended September 30, 2004, and by $103 million for the nine months ended September 30, 2004 and compared to $5 million for the quarter ended September 30, 2003 and $41 million for the nine months ended September 30, 2003.

23

Household International, Inc.

The financial information set forth below summarizes selected financial highlights of Household as of September 30, 2004 and 2003 and for the three and nine month periods ended September 30, 2004 and 2003.

		Three months ended						Nine months ended
		September 30,						September 30,
		2004			2003			2004			2003
		(Successor)			(Successor)			(Successor)			(Combined)
		(Restated)			(Restated)			(Restated)			(Restated)
		(dollars are in millions)
Net income:(1)		$	325		$	22		$	1,228		$	1,011
Owned Basis Ratios:
	Return on average owned assets (“ROA”)(1)		1.04	%		.08	%		1.36	%		1.25	%
	Return on average common shareholder’s equity (“ROE”)(1)		7.1			.1			9.2			9.5
	Net interest margin		7.29			7.98			7.41			7.74
	Consumer net charge-off ratio, annualized		3.77			3.98			3.98			4.17
	Efficiency ratio(1)(2)		45.1			53.5			44.0			44.0
Managed Basis Ratios:(3)
	Return on average managed assets (“ROMA”)(1)		.89	%		.06	%		1.14	%		1.02	%
	Net interest margin		7.88			8.79			8.13			8.62
	Risk adjusted revenue		6.66			4.82			6.92			7.06
	Consumer net charge-off ratio, annualized		4.38			4.68			4.61			4.77
	Efficiency ratio(1)(2)		49.0			44.8			43.1			37.4

		September 30,			September 30,
		2004			2003
		(Successor)			(Successor)
		(dollars are in millions)
Receivables:
	Owned basis	$	106,437		$	93,028
	Managed basis(3)		126,612			117,137
Two-month-and-over contractual delinquency ratios:
	Owned basis		4.43	%		5.36	%
	Managed basis(3)		4.59			5.36

⁽¹⁾ The following table includes non-GAAP financial information for the nine months ended September 30, 2003. This information is provided for comparison of our operating trends only and should be read in conjunction with our owned basis GAAP financial information. See “Basis of Reporting” for additional discussion on the use of non-GAAP financial measures and “Reconciliations to GAAP Financial Measures” for quantitative reconciliations to the equivalent GAAP basis

financial measure.

24

Household International, Inc.

	Three months ended						Nine months ended
	September 30,						September 30,
	2004			2003			2004			2003
	(Restated)			(Restated)			(Restated)			(Restated)
	(dollars are in millions)
Net income	$	325		$	22		$	1,228		$	1,011
HSBC acquisition related costs and other merger related items, after-tax		-			-			-			167
Operating net income	$	325		$	22		$	1,228		$	1,178
ROA		1.04	%		.08	%		1.36	%		1.46	%
ROE		7.1			.1			9.2			11.1
Owned basis efficiency ratio(2)		45.1			53.5			44.0			41.6
ROMA		.89			.06			1.14			1.19
Managed basis efficiency ratio(2)		49.0			44.8			43.1			35.4

(2)	Ratio of total costs and expenses less policyholders’ benefits to net interest income and other revenues less policyholders’ benefits.
(3)	Managed basis reporting is a non-GAAP financial measure. See “Basis of Reporting” for additional discussion on the use of this non-GAAP financial measure and “Reconciliations to GAAP financial Measures” for quantitative reconciliations to the equivalent GAAP basis financial measure.

Because HSBC reports results on a U.K. GAAP basis, our management also separately monitors earnings excluding goodwill amortization and net income under U.K. GAAP (non-GAAP financial measures). The following table summarizes U.K. GAAP results:

	Three months ended				Nine months		March
	September 30,				ended		29 through
					September 30,		September 30,
	2004		2003		2004		2003
	(Restated)		(Restated)		(Restated)		(Restated)
	(dollars are in millions)
Earnings excluding goodwill amortization – U.K. GAAP basis	$	621	$	576	$	2,138	$	1,095
Net income – U.K. GAAP basis		491		463		1,745		867

Owned receivables were $106.4 billion at September 30, 2004, $99.4 billion at June 30, 2004, and $93.0 billion at September 30, 2003. We experienced growth in all our receivable products with real estate secured receivables being the primary contributor of the growth. Real estate secured receivable levels reflect sales to HSBC Bank USA, National Association (“HSBC Bank USA”) of $.9 billion on March 31, 2004 and $2.8 billion on December 31, 2003 and purchases of correspondent receivables directly by HSBC Bank USA of $.7 billion in the third quarter of 2004 and $2.2 billion year-to-date, a portion of which we otherwise would have purchased. Lower securitization levels also contributed to the increase in owned receivables over June 30, 2004 and September 30, 2003 levels.

We previously reported that we intend to transfer our domestic private label credit card portfolio to HSBC Bank USA in 2004. We plan to maintain the related customer account relationships and sell additional volume to HSBC Bank USA on a daily basis following the initial sale. HSBC Bank USA has filed a formal application seeking regulatory approval to acquire our domestic private label portfolio in 2004. We and HSBC Bank USA will consider potential transfers of some of our MasterCard and Visa receivables to HSBC Bank USA in the future based upon continuing evaluations of capital and liquidity at each entity.

The private label receivables we expect to sell to HSBC Bank USA by year-end will have a principal balance of approximately $12 billion ($15 billion on a managed basis). Upon receipt of regulatory approval for transfer of the private label portfolio, we will adopt charge-off and account management policies in accordance with the Uniform Retail Credit Classification and Account Management Policy issued by the Federal Financial Institutions Examination Council (“FFIEC”) for our entire domestic private label and MasterCard and Visa portfolios. Following the transfer of the private label portfolio, we expect our net

25

Household International, Inc.

interest income and fee income will be substantially reduced, but our other income will substantially increase as we record gains from the initial and continuing sales of private label receivables in the future. We cannot predict with any degree of certainty the timing as to when or if regulatory approval will be received and, therefore, when the related asset transfers will be completed. However, if regulatory approval is received, we currently expect that adoption of FFIEC charge-off and account management policies for our domestic private label and MasterCard/ Visa credit card portfolios would result in a reduction to net income of approximately $130 million. We also currently expect that we will recognize an after tax gain on sale of approximately $370 million when the domestic private label portfolio is sold to HSBC Bank USA. Updates to the information on the financial impact of the proposed transfer will be reported as the regulatory approval process progresses and the amounts become certain.

Our owned basis two-months-and-over-contractual delinquency ratio decreased compared to both the prior quarter and the prior year quarter. The decrease is consistent with the improvements in early delinquency roll rate trends we began to experience in the fourth quarter of 2003 as a result of improvements in the economy and better underwriting, including both improved modeling and improved credit quality of originations. Dollars of delinquency decreased compared to the prior year quarter but increased compared to the prior quarter as securitization levels declined and our interest in the receivables of certain securitization trusts increased.

Net charge-offs as a percentage of average consumer receivables for the September 2004 quarter decreased over the June 2004 and prior year quarter as the lower delinquency levels we have been experiencing are having an impact on charge-offs. Also contributing to the decrease in net charge-offs compared to the prior year quarter were improved collections and a decrease in the percentage of the portfolio comprised of personal non-credit card receivables, which have a higher net charge-off rate than other products in our portfolio.

During the nine months ended September 30, 2004, we became less reliant on third party debt and initial securitization funding as we used proceeds from the sale of real estate secured receivables to HSBC Bank USA and debt issued to affiliates to assist in the funding of our businesses. Because we are now a subsidiary of HSBC, our credit spreads relative to Treasuries have tightened. We recognized cash funding expense savings, primarily as a result of these tightened credit spreads and lower costs due to shortening the maturity of our liabilities primarily through increased issuance of commercial paper, in excess of $235 million for the first nine months of 2004 and less than $70 million for the prior-year period compared to the funding costs we would have incurred using average spreads from the first half of 2002.

Securitization of consumer receivables has been a source of funding and liquidity for us. Under U.K. GAAP as reported by HSBC, our securitizations are treated as secured financings. In order to align our accounting treatment with that of HSBC under U.K. GAAP, we began to structure all new collateralized funding transactions as secured financings in the third quarter of 2004. However, because existing public private label and MasterCard and Visa credit card transactions were structured as sales to revolving trusts that require replenishments of receivables to support previously issued securities, receivables of each of these asset types will continue to be sold to these trusts and the resulting replenishment gains recorded until the revolving periods end, the last of which is expected to occur in 2007. In addition, we will continue to replenish at reduced levels, certain non-public personal non-credit card and MasterCard and Visa securities issued to conduits and record the resulting replenishment gains for a period of time in order to manage liquidity. Since our securitized receivables have varying lives, it will take several years for these receivables to pay-off and the related interest-only strip receivables to be reduced to zero. The termination of sale treatment on new collateralized funding activity reduces our reported net income under U.S. GAAP. There is no impact, however, on cash received from operations or on U.K. GAAP reported results.

26

Household International, Inc.

Basis of Reporting

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Unless noted, the discussion of our financial condition and results of operations included in MD&A is presented on an owned basis of reporting.

Household’s acquisition by HSBC on March 28, 2003 has resulted in a new basis of accounting reflecting the fair value of our assets and liabilities for the “successor” period beginning March 29, 2003. Information for all “predecessor” periods prior to the merger are presented using our historical basis of accounting, which impacts comparability with the “successor” period beginning March 29, 2003. To assist in the comparability of our financial results and to make it easier to discuss and understand our results of operations, MD&A combines the “predecessor” period (January 1 through March 28, 2003) with the “successor” period (March 29 through September 30, 2003) to present “combined” results for the nine months ended September 30, 2003.

In addition to the U.S. GAAP financial results reported in our consolidated financial statements, MD&A includes reference to the following information which is presented on a non-GAAP basis:

Operating Results, Percentages and Ratios Certain percentages and ratios have been presented on an operating basis and have been calculated using “operating net income”, a non-GAAP financial measure. “Operating net income” is net income excluding $167 million, after-tax, of HSBC acquisition related costs and other merger related items incurred by Household in the first quarter of 2003. This nonrecurring item is also excluded in calculating our operating basis efficiency ratios. We believe that excluding this nonrecurring item helps readers of our financial statements to better understand the results and trends of our underlying business.

Managed Basis Reporting We monitor our operations and evaluate trends on a managed basis (a non-GAAP financial measure), which assumes that securitized receivables have not been sold and are still on our balance sheet. We manage and evaluate our operations on a managed basis because the receivables that we securitize are subjected to underwriting standards comparable to our owned portfolio, are serviced by operating personnel without regard to ownership and result in a similar credit loss exposure for us. In addition, we fund our operations, review our operating results, and make decisions about allocating resources such as employees and capital on a managed basis.

When reporting on a managed basis, net interest income, provision for credit losses and fee income related to receivables securitized are reclassified from securitization revenue in our owned statement of income into the appropriate caption. Additionally, charge-off and delinquency associated with these receivables are included in our managed basis credit quality statistics.

Debt analysts, rating agencies and others also evaluate our operations on a managed basis for the reasons discussed above and have historically requested managed basis information from us. We believe that managed basis information enables investors and other interested parties to better understand the performance and quality of our entire managed loan portfolio and is important to understanding the quality of originations and the related credit risk inherent in our owned and securitized portfolios. As the level of our securitized receivables falls over time, managed basis and owned basis results will eventually converge, and we will only report owned basis results.

Equity Ratios Tangible shareholder’s equity to tangible managed assets (“TETMA”), tangible shareholder’s equity plus owned loss reserves to tangible managed assets (“TETMA + Owned Reserves”) and tangible common equity to tangible managed assets are non-GAAP financial measures that are used by Household management or certain rating agencies to evaluate capital adequacy. These ratios may differ from similarly named measures presented by other companies. The most directly comparable GAAP financial measure is common and preferred equity to owned assets.

27

Household International, Inc.

We also monitor our equity ratios excluding the impact of purchase accounting adjustments. We do so because we believe that the purchase accounting adjustments represent non-cash transactions which do not affect our business operations, cash flows or ability to meet our debt obligations.

Preferred securities issued by certain non-consolidated trusts are considered equity in the TETMA and TETMA + Owned Reserves calculations because of their long-term subordinated nature and the ability to defer dividends. Our Adjustable Conversion-Rate Equity Security Units, adjusted for purchase accounting adjustments, are also considered equity in these calculations because they include investor obligations to purchase HSBC ordinary shares in 2006.

U.K. GAAP Because HSBC reports results on a U.K. GAAP basis, our management also separately monitors net income and earnings excluding goodwill amortization under U.K. GAAP (non-GAAP financial measures). The following table reconciles our net income on a U.S. GAAP basis to earnings excluding goodwill amortization and net income on a U.K. GAAP basis:

			Three months
			ended						Nine months			March 29
			September 30,						ended			through
									September 30,			September 30,
			2004			2003			2004			2003
			(Restated)			(Restated)			(Restated)			(Restated)
			(in millions)
Net income – U.S. GAAP basis			$	325		$	22		$	1,228		$	765
	Adjustments, net-of-tax:
		Deferred origination expenses		5			(24	)		(67	)		(46	)
		Derivative financial instruments		(3	)		453			(28	)		37
		Securitizations		177			(168	)		426			(348	)
		Intangibles		46			46			163			97
		Purchase accounting adjustments		76			181			387			560
		Other		(5	)		66			29			30
Earnings excluding goodwill amortization – U.K. GAAP basis				621			576			2,138			1,095
Goodwill amortization				(130	)		(113	)		(393	)		(228	)
Net income – U.K. GAAP basis			$	491		$	463		$	1,745		$	867

Differences between U.S. and U.K GAAP are as follows:

Deferred origination expenses

U.K. GAAP

•  Fee and commission income is accounted for in the period when receivable, except when it is charged to cover the costs of a continuing service to, or risk borne for, the customer, or is interest in nature. In these cases, it is recognized on an appropriate basis over the relevant period.

•  Loan origination costs are generally expensed as incurred. As permitted by U.K. GAAP, HSBC applies a restricted definition of the incremental, directly attributable origination expenses that are deferred and subsequently amortized over the life of the loans.

U.S. GAAP

•  Certain loan fee income and direct loan origination costs are amortized to the profit and loss account over the life of the loan as an adjustment to interest income (SFAS 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases”.)

28

Household International, Inc.

Derivative financial instruments

U.K. GAAP

•  Non-trading derivatives are those which are held for hedging purposes as part of our risk management strategy against cash flows, assets, liabilities, or positions measured on an accruals basis. Non-trading transactions include qualifying hedges and positions that synthetically alter the characteristics of specified financial instruments.

•  Non-trading derivatives are accounted for on an equivalent basis to the underlying assets, liabilities or net positions. Any profit or loss arising is recognized on the same basis as that arising from the related assets, liabilities or positions.

•  To qualify as a hedge, a derivative must effectively reduce the price, foreign exchange or interest rate risk of the asset, liability or anticipated transaction to which it is linked and be designated as a hedge at inception of the derivative contract. Accordingly, changes in the market value of the derivative must be highly correlated with changes in the market value of the underlying hedged item at inception of the hedge and over the life of the hedge contract. If these criteria are met, the derivative is accounted for on the same basis as the underlying hedged item. Derivatives used for hedging purposes include swaps, forwards and futures.

•  Interest rate swaps are also used to alter synthetically the interest rate characteristics of financial instruments. In order to qualify for synthetic alteration, a derivative instrument must be linked to specific individual, or pools of similar, assets or liabilities by the notional principal and interest rate risk of the associated instruments, and must achieve a result that is consistent with defined risk management objectives. If these criteria are met, accrual based accounting is applied, i.e. income or expense is recognized and accrued to the next settlement date in accordance with the contractual terms of the agreement.

•  Any gain or loss arising on the termination of a qualifying derivative is deferred and amortized to earnings over the original life of the terminated contract. Where the underlying asset, liability or position is sold or terminated, the qualifying derivative is immediately marked-to-market through the profit and loss account.

•  Derivatives that do not qualify as hedges or synthetic alterations at inception are marked-to-market through the profit and loss account, with gains and losses included within “other income”.

U.S. GAAP

•  All derivatives must be recognized as either assets or liabilities in the balance sheet and be measured at fair value (SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”).

•  The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation as described below:

–  For a derivative designated as hedging exposure to changes in the fair value of a recognized asset or liability or a firm commitment, the gain or loss is recognized in earnings in the period of change together with the associated loss or gain on the hedged item attributable to the risk being hedged. Any resulting net gain or loss represents the ineffective portion of the hedge.

–  For a derivative designated as hedging exposure to variable cash flows of a recognized asset or liability, or of a forecast transaction, the derivative’s gain or loss associated with the effective portion of the hedge is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecast transaction affects earnings. The ineffective portion is reported in earnings immediately.

–  For net investment hedges in which derivatives hedge the foreign currency exposure of a net investment in a foreign operation, the change in fair value of the derivative associated with the effective portion of the hedge is included as a component of other comprehensive income, together with the associated loss or gain on the hedged item. The ineffective portion is reported in earnings immediately.

29

Household International, Inc.

–  In order to apply hedge accounting it is necessary to comply with documentation requirements and to demonstrate the effectiveness of the hedge on an ongoing basis.

–  For a derivative not designated as a hedging instrument, the gain or loss is recognized in earnings in the period of change in fair value.

Securitizations

U.K. GAAP

•  FRS 5, “Reporting the Substance of Transactions,” requires that the accounting for securitized receivables is governed by whether the originator has access to the benefits of the securitized assets and exposure to the risks inherent in those benefits and whether the originator has a liability to repay the proceeds of the note issue:

–  The securitized assets should be derecognized in their entirety and a gain or loss on sale recorded where the originator retains no significant benefits and no significant risks relating to those securitized assets.

–  The securitized assets and the related finance should be consolidated under a linked presentation where the originator retains significant benefits and significant risks relating to those securitized assets but where the downside exposure is limited to a fixed monetary amount and certain other conditions are met.

–  The securitized assets and the related finance should be consolidated on a gross basis where the originator retains significant benefits and significant risks relating to those securitized assets and does not meet the conditions required for linked presentation.

–  The run-off of prior period transactions and a lower volume of transactions have resulted in lower income under U.S. GAAP in the quarter and year-to-date periods and, therefore, higher reported net income under U.K. GAAP.

U.S. GAAP

•  SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” requires that receivables that are sold to a special purpose entity and securitized can only be derecognized and a gain or loss on sale recognized if the originator has surrendered control over those securitized assets.

•  Control has been surrendered over transferred assets if and only if all of the following conditions are met:

–  The transferred assets have been put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership.

–  Each holder of interests in the transferee (i.e., holder of issued notes) has the right to pledge or exchange their beneficial interests, and no condition constrains this right and provides more than a trivial benefit to the transferor.

–  The transferor does not maintain effective control over the assets through either an agreement that obligates the transferor to repurchase or to redeem them before their maturity or through the ability to unilaterally cause the holder to return specific assets, other than through a clean-up call.

–  If these conditions are not met the securitized assets should continue to be consolidated.

•  Where we retain an interest in the securitized assets, such as a servicing right or the right to residual cash flows from the special purpose entity, we recognize this interest at fair value on sale of the assets.

•  There are no provisions for linked presentation of securitized assets and the related finance.

30

Household International, Inc.

Intangibles

U.K. GAAP

•  An intangible asset is recognized separately from goodwill where it is identifiable and controlled. It is identifiable only if it can be disposed of or settled separately without disposing of the whole business. Control requires legal rights or custody over the item.

•  An intangible asset purchased as part of a business combination is capitalized at fair value based on its replacement cost, which is normally its estimated market value.

U.S. GAAP

•  An intangible asset is recognized separately from goodwill when it arises from contractual or other legal rights or if it is separable, i.e. it is capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented, or exchanged in combination with a related contract, asset or liability. The effect of this is that certain intangible assets such as trademarks and customer relationships are recognized under U.S. GAAP, although such assets will not be recognized under U.K. GAAP.

•  Intangible assets are initially recognized at fair value. An intangible asset with a finite useful life is amortized over the period for which it contributes to the future cash flows of the entity. An intangible asset with an indefinite useful life is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.

Purchase accounting adjustments – The reconciling “purchase accounting adjustments” predominantly reflect:

•  the measurement of equity consideration at the date the terms of acquisition are agreed and announced under U.S. GAAP; under U.K. GAAP equity consideration is measured at the date of acquisition;

•  recognition of deferred tax on all fair value adjustment under U.S. GAAP, and corresponding amortization post-acquisition;

•  non-recognition of residual interests in securitization vehicles existing at acquisition under U.K. GAAP. Instead, the assets and liabilities of the securitization vehicles are recognized on the U.K. GAAP balance sheet, and credit provisions are established against the loans and advances. This GAAP adjustment existing at acquisition unwinds over the life of the securitization vehicles; and

•  certain costs which under U.K. GAAP, relate to either post-acquisition management decisions or certain decisions made prior to the acquisition are required to be expensed to the post-acquisition profit and loss account and cannot be capitalized as goodwill, or included within the fair value of the liabilities of the acquired entity.

Other – Includes adjustments related to suspension of interest accruals on nonperforming loans, capitalized software costs and other items.

•  Capitalized software costs

–  U.K. GAAP – HSBC generally expenses costs of software developed for internal use. If it can be shown that conditions for capitalization are met under FRS 10, “Goodwill and intangible assets,” or FRS 15, “Tangible fixed assets”, the software is capitalized and amortized over its useful life. Website design and content development costs are capitalized only to the extent that they lead to the creation of an enduring asset delivering benefits at least as great as the amount capitalized.

–  U.S. GAAP – The American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position 98-1, “Accounting for the costs of computer software developed or obtained for internal use,” requires that all costs incurred in the preliminary project and post implementation stages of internal software development be expensed. Costs incurred in the application development stage must be capitalized and amortized over their estimated useful life. Website design costs are capitalized and website content development costs are expensed as they are incurred.

31

Household International, Inc.

Goodwill amortization

U.K. GAAP

•  Goodwill arising on acquisitions of subsidiary undertakings, associates or joint ventures prior to 1998 was charged against reserves in the year of acquisition.

•  For acquisitions made on or after January 1, 1998, goodwill is included in the balance sheet and amortized over its estimated useful life on a straight-line basis. U.K. GAAP allows goodwill previously eliminated against reserves to be reinstated, but does not require it.

•  Goodwill included in the balance sheet is tested for impairment when necessary by comparing the recoverable amount of an entity with the carrying value of its net assets, including attributable goodwill. The recoverable amount of an entity is the higher of its value in use, generally the present value of the expected future cash flows from the entity, and its net realizable value.

•  At the date of disposal of subsidiaries, associates or joint ventures, any unamortized goodwill or goodwill charged directly against reserves is included in our share of the undertakings’ total net assets in the calculation of the gain or loss on disposal.

•  Where quoted securities are issued as part of the purchase consideration in an acquisition, the fair value of those securities for the purpose of determining the cost of acquisition is the market price at the date of completion.

U.S. GAAP

•  Goodwill acquired up to June 30, 2001 was capitalized and amortized over its useful life but not more than 25 years. The amortization of previously acquired goodwill ceased from December 31, 2001.

•  SFAS 142, “Goodwill and Other Intangible Assets” requires that goodwill should not be amortized but should be tested for impairment annually at the reporting unit level by applying a fair-value-based test.

•  The goodwill of a reporting unit should be tested for impairment between annual tests in response to events or changes in circumstance which could result in an impairment.

•  Where quoted securities are issued as part of the purchase consideration in an acquisition, the fair value of those securities for the purpose of determining the cost of acquisition is the average market price of the securities for a reasonable period before and after the date that the terms of the acquisition are agreed and announced.

Quantitative Reconciliations of Non-GAAP Financial Measures to GAAP Financial Measures For a reconciliation of managed basis net interest income, fee income and provision for credit losses to the comparable owned basis amounts, see “Segment Results - Managed Basis” in this MD&A. For a reconciliation of our owned loan portfolio by product to our managed loan portfolio, see Note 4, “Receivables,” to the accompanying consolidated financial statements. For additional quantitative reconciliations of non-GAAP financial measures presented herein to the equivalent GAAP basis financial measures, see “Reconciliations to GAAP Financial Measures.”

32

Household International, Inc.

Receivables Review

The following table summarizes owned receivables at September 30, 2004 and increases (decreases) over prior periods:

			Increases (decreases) from
			June 30, 2004						September 30, 2003
	September 30,
	2004		$			%			$			%
	(dollars are in millions)
Real estate secured	$	58,726	$	2,693			4.8	%	$	5,957			11.3	%
Auto finance		6,823		1,364			25.0			3,122			84.4
MasterCard(1)/ Visa(1)		11,666		850			7.9			1,774			17.9
Private label		14,000		1,241			9.7			1,593			12.8
Personal non-credit card(2)		14,888		869			6.2			1,038			7.5
Commercial and other		334		(12	)		(3.5	)		(75	)		(18.3	)
Total owned receivables	$	106,437	$	7,005			7.0	%	$	13,409			14.4	%

(1)	MasterCard is a registered trademark of MasterCard International, Incorporated and Visa is a registered trademark of VISA USA, Inc.
(2)	Personal non-credit card receivables are comprised of the following:

	September 30,		June 30,		September 30,
	2004		2004		2003
	(in millions)
Domestic personal non-credit card	$	7,141	$	6,492	$	6,459
Union Plus personal non-credit card		510		576		755
Personal homeowner loans		3,535		3,408		3,735
Foreign personal non-credit card		3,702		3,543		2,901
Total personal non-credit card	$	14,888	$	14,019	$	13,850

Receivable increases (decreases) since September 30, 2003 Driven by growth in our correspondent and branch businesses, real estate secured receivables increased over the year-ago period. Real estate secured receivable levels reflect sales to HSBC Bank USA of $.9 billion on March 31, 2004 and $2.8 billion on December 31, 2003, as well as HSBC Bank USA’s purchase of receivables directly from correspondents totaling $.7 billion in the third quarter of 2004 and $2.2 billion year-to-date, a portion of which we otherwise would have purchased. Growth in real estate secured receivables was supplemented by purchases from a single correspondent relationship which totaled $.6 billion in the third quarter of 2004 and $1.9 billion year-to-date. Real estate secured receivable levels in our branch-based consumer lending business continue to improve, as sales volumes remain higher than the year-ago period and we continue to emphasize real estate secured loans in our branches, including a near-prime mortgage product we introduced in 2003. The increases in the real estate secured receivable levels have been partially offset by run-off of the higher yielding real estate secured receivables, including second lien loans largely due to refinance activity. Auto finance receivables increased over the year-ago period due to newly originated loans acquired from our dealer network, strategic alliances established during 2003, increased growth in the consumer direct loan program and lower securitization levels. MasterCard and Visa receivables reflect organic growth especially in our subprime portfolios and lower securitization levels.

Growth in private label receivables reflects year to date portfolio acquisitions of $.5 billion, organic growth through existing merchants and lower securitization levels. Personal non-credit card receivables increased due to lower securitization levels and higher levels of foreign personal non-credit card receivables.

33

Household International, Inc.

Receivable increases (decreases) since June 30, 2004 Both our correspondent and branch businesses reported growth in their real estate secured portfolios as discussed above. Growth in our private label portfolio reflects organic growth and lower securitization levels. Growth in our auto finance and personal non-credit card portfolios reflect lower levels of securitizations. Auto finance receivables also increased due to new originations from our dealer network and increased growth in the consumer direct loan program. Personal non-credit card receivables also experienced increased originations. During the third quarter, we began to increase availability of personal non-credit card loans as a result of an improving economy.

Results of Operations

Unless noted otherwise, the following discusses amounts reported in our owned basis statement of income.

Net interest income The following table summarizes net interest income:

							Increase
							(Decrease)
Three months ended September 30	2004			2003			Amount		%
	(Restated)			(Restated)
	(dollars are in millions)
Finance and other interest income	$	2,779		$	2,570		$	209		8.1	%
Interest expense		810			654			156		23.9
Net interest income	$	1,969		$	1,916		$	53		2.8	%
Net interest income as a percent of average interest-earning assets, annualized		7.29	%		7.98	%

							Increase
							(Decrease)
Nine months ended September 30	2004			2003			Amount			%
	(Restated)			(Restated)
	(dollars are in millions)
Finance and other interest income	$	7,944		$	7,617		$	327			4.3	%
Interest expense		2,225			2,259			(34	)		(1.5	)
Net interest income	$	5,719		$	5,358		$	361			6.7	%
Net interest income as a percent of average interest-earning assets, annualized		7.41	%		7.74	%

The increase in dollars of net interest income during the quarter was due to higher average receivables, partially offset by lower yields on our receivables, particularly real estate secured and auto finance receivables, and higher funding costs as a result of a rising interest rate environment. The year-to-date increase was due to higher average receivables and lower funding costs including a higher impact from purchase accounting fair value adjustments, partially offset by lower yields. The lower yields reflect reduced pricing, including higher levels of near prime receivables, as well as the run-off of higher yielding real estate secured receivables, including second lien loans largely due to refinance activity. We experienced a higher benefit from the amortization of purchase accounting fair value adjustments in both periods. Our purchase accounting fair value adjustments include both amortization of fair value adjustments to our external debt obligations and to our receivables. Amortization of purchase accounting fair value adjustments increased net interest income during the quarter by $174 million in 2004 and $182 million in 2003. For the nine month period, amortization of purchase accounting fair value adjustments increased net interest income by $549 million in 2004 and $403 million in 2003.

34

Household International, Inc.

Net interest income as a percentage of average interest earning assets declined during both the quarter and year-to-date period. As discussed above, lower yields on our receivables drove the decreases in both periods. For the three-month period, higher funding costs due to a rising interest rate environment also contributed to the decrease. For the nine-month period, lower yields were partially offset by lower funding costs.

Our net interest margin on an owned basis was impacted by the loss of hedge accounting on the hedging relationships at the time of the merger. The loss of hedge accounting on the impacted hedging relationships reduced net interest income during the quarter by $66 million in 2004 and $98 million in 2003. For the nine month period, the loss of hedge accounting on the impacted hedging relationships reduced net interest income by $205 million in 2004 and $231 million in 2003. The following table compares our reported net interest margin to what it otherwise would have been had hedge accounting not been lost:

Three months ended

Three months ended

Nine months ended

Nine months ended

?September 30, 2004

?September 30, 2003

September 30, 2004

?September 30, 2003

Without

Without

Without

Without

Loss of

Loss of

Loss of

Loss of

As

Hedge

As

Hedge

As

Hedge

As

Hedge

Reported

Accounting*

Reported

Accounting*

Reported

Accounting*

Reported

Accounting*

Net interest margin

7.29

%

7.54

%

7.98

%

8.39

%

7.41

%

7.67

%

7.74

%

8.07

%

*  Represents a non-GAAP financial measure which is being provided for comparison of our trends and should be read in conjunction with our reported results.

Our net interest income on a managed basis includes finance income earned on our owned receivables as well as on our securitized receivables. This finance income is offset by interest expense on the debt recorded on our balance sheet as well as the contractual rate of return on the instruments issued to investors when the receivables were securitized. Managed basis net interest income was $2,550 million in the three months ended September 30, 2004, down 3 percent from $2,631 million in the three months ended September 30, 2003. For the nine months ended September 30, 2004, managed basis net interest income was $7,706 million, up 2 percent from $7,519 million in the nine months ended September 30, 2003. Net interest income as a percent of average managed interest-earning assets, annualized, was 7.88 percent in the current quarter and 8.13 percent year-to-date, compared to 8.79 and 8.62 percent in the year-ago periods. As discussed above, the decreases were due to lower yields on our receivables, particularly in real estate secured and auto finance receivables and, in the three month period, higher funding costs resulting from a rising interest rate environment. For the nine month period, the lower yields were partially offset by lower funding costs including a higher benefit from amortization of purchase accounting fair value adjustments. Net interest income as a percent of receivables on a managed basis is greater than on an owned basis because the managed basis portfolio includes relatively more unsecured loans, which have higher yields.

Our net interest margin on a managed basis was impacted by the loss of hedge accounting as discussed above. The following table compares our reported net interest margin to what it otherwise would have been had hedge accounting not been lost:

Three months ended

Three months ended

Nine months ended

Nine months ended

?September 30, 2004

?September 30, 2003

September 30, 2004

?September 30, 2003

Without

Without

Without

Without

Loss of

Loss of

Loss of

Loss of

As

Hedge

As

Hedge

As

Hedge

As

Hedge

Reported

Accounting*

Reported

Accounting*

Reported

Accounting*

Reported

Accounting*

Net interest margin

7.88

%

8.08

%

8.79

%

9.12

%

8.13

%

8.34

%

8.62

%

8.89

%

*  Represents a non-GAAP financial measure which is being provided for comparison of our trends and should be read in conjunction with our reported results.

35

Household International, Inc.

Provision for credit losses The following table summarizes provision for credit losses:

					Increase
					(Decrease)
	2004		2003		Amount			%
	(dollars are in millions)
Three months ended September 30	$	1,123	$	1,001	$	122			12.2	%
Nine months ended September 30		3,048		3,050		(2	)		-

Our provision for credit losses increased during the quarter due to receivable growth, including lower securitization levels, which was partially offset by improved credit quality. Provision for credit losses was flat for the nine months ended September 30, 2004 compared to the year ago period as increased requirements due to receivable growth were offset by improving credit quality. The provision as a percent of average owned receivables, annualized, was 4.36 percent in the current quarter and 4.16 percent year-to-date, compared to 4.42 and 4.69 percent in the year-ago periods. We recorded provision for owned credit losses $154 million greater than net charge-offs in the third quarter of 2004 and $143 million year-to-date. During the third quarter of 2004, the provision for owned credit losses was greater than net charge-offs due to receivable growth, partially offset by continued improvement in asset quality. Net charge-off dollars for the nine-month period ended September 30, 2004 increased compared to the prior year period as higher delinquencies in the prior year due to adverse economic conditions migrated to charge-off. In 2003, we recorded provision for owned credit losses greater than net charge-offs of $102 million during the third quarter and $346 million year-to-date. The provision for credit losses may vary from quarter to quarter, depending on the product mix and credit quality of loans in our portfolio. See Note 5, “Credit Loss Reserves” to the accompanying consolidated financial statements for further discussion of factors affecting the provision for credit losses.

Other revenues The following table summarizes other revenues:

							Increase (Decrease)
Three months ended September 30	2004			2003			Amount			%
	(Restated)			(Restated)
	(dollars are in millions)
Securitization revenue	$	267		$	387		$	(120	)		(31.0	)%
Insurance revenue		203			193			10			5.2
Investment income		36			37			(1	)		(2.7	)
Derivative income (expense)		72			(612	)		684			100	+
Fee income		302			266			36			13.5
Taxpayer financial services (expense) income		(3	)		2			(5	)		(100+	)
Other income		163			68			95			100	+
Total other revenues	$	1,040		$	341		$	699			100.0	%

36

Household International, Inc.

					Increase (Decrease)
Nine months ended September 30	2004		2003		Amount			%
	(Restated)		(Restated)
	(dollars are in millions)
Securitization revenue	$	881	$	1,114	$	(233	)		(20.9	)%
Insurance revenue		618		553		65			11.8
Investment income		107		151		(44	)		(29.1	)
Derivative income		248		179		69			38.5
Fee income		809		783		26			3.3
Taxpayer financial services income		209		186		23			12.4
Other income		443		223		220			98.7
Total other revenues	$	3,315	$	3,189	$	126			4.0	%

Securitization revenue is the result of the securitization of our receivables and includes the following:

					Increase (Decrease)
Three months ended September 30	2004		2003		Amount			%
	(dollars are in millions)
Net initial gains(1)	$	-	$	25	$	(25	)		(100.0	)%
Net replenishment gains(1)		112		138		(26	)		(18.8	)
Servicing revenue and excess spread		155		224		(69	)		(30.8	)
Total	$	267	$	387	$	(120	)		(31.0	)%

					Increase (Decrease)
Nine months ended September 30	2004		2003		Amount			%
	(dollars are in millions)
Net initial gains(1)	$	25	$	92	$	(67	)		(72.8	)%
Net replenishment gains(1)		344		410		(66	)		(16.1	)
Servicing revenue and excess spread		512		612		(100	)		(16.3	)
Total	$	881	$	1,114	$	(233	)		(20.9	)%

⁽¹⁾ Net of our estimate of probable credit losses under the recourse provisions

The decreases in securitization revenue were due to decreases in the level and product mix of receivables securitized during 2004, including the impact of higher run-off due to shorter expected lives as a result of our decision to structure all new collateralized funding transactions as secured financings beginning in the third quarter of 2004. However, because existing public private label and MasterCard and Visa credit card transactions were structured as sales to revolving trusts that require replenishments of receivables to support previously issued securities, receivables of each of these asset types will continue to be sold to these trusts and the resulting replenishment gains recorded until the revolving periods end, the last of which is expected to occur in 2007. In addition, we will continue to replenish at reduced levels, certain non-public personal non-credit card and MasterCard and Visa securities issued to conduits and record the resulting replenishment gains for a period of time in order to manage liquidity. Since our securitized receivables have varying lives, it will take several years for these receivables to pay-off and the related interest-only strip receivables to be reduced to zero. The termination of sale treatment on new collateralized funding activity and the reduction of sales under replenishment agreements reduces our reported net income under U.S. GAAP. There is no impact, however, on cash received from operations or on U.K. GAAP reported results.

37

Household International, Inc.

Our interest-only strip receivables, net of the related loss reserve and excluding the mark-to-market adjustment recorded in accumulated other comprehensive income, decreased $122 million in the current quarter and $410 million year-to-date, compared to decreases of $79 million in the third quarter of 2003 and $289 million for the year-to-date period as securitized receivables decreased.

Insurance revenue increased in both periods, due primarily to increased sales in our U.K. business.

Investment income, which includes income on securities available for sale in our insurance business as well as realized gains and losses from the sale of securities, was flat compared to the prior year quarter as decreases in income due to lower yields were substantially offset by higher gains from security sales during the quarter. The decrease in investment income for the nine month period was due to lower yields, lower gains from security sales and the amortization of purchase accounting adjustments.

Derivative income (expense), which includes realized and unrealized gains and losses on derivatives which do not qualify as effective hedges under SFAS 133 as well as the ineffectiveness on derivatives associated with our qualifying hedges is summarized in the tables below:

Three months ended September 30	2004		2003
	(in millions)
Net realized gains (losses)	$	19	$	(15	)
Net unrealized gains (losses)		53		(596	)
Ineffectiveness		—		(1	)
Total	$	72	$	(612	)

Nine months ended September 30	2004		2003
	(in millions)
Net realized gains (losses)	$	36	$	55
Net unrealized gains (losses)		211		119
Ineffectiveness		1		5
Total	$	248	$	179

Derivative income increased in both periods. Compared to the prior year quarter, derivative income increased $684 million. Derivative income in the prior year quarter was impacted by a substantial increase in the yield curve during the first half of the quarter causing a significant decline in the value of our receive fixed swaps. These swaps were terminated during the prior year quarter as part of our strategy to regain the use of shortcut accounting. Derivative income for the current quarter reflects the impact of lower long term rates on our portfolio of receive fixed swaps and the impact of higher short term rates on our pay fixed swap portfolio.

For the nine month periods, derivative income reflects the impact of higher interest rates and the shift in mix to a predominately pay fixed swap portfolio. These derivatives remain economic hedges of the underlying debt instruments.

Fee income, which includes revenues from fee-based products such as credit cards, increased in both periods due to higher credit card fees. For the nine month period, higher credit card fees were partially offset by higher payments to merchant partners as a result of portfolio acquisitions in our retail services business. See “Segment Results – Managed Basis” herein for additional information on fee income on a managed basis.

Taxpayer financial services income, increased during the nine-month period ended September 30, 2004 primarily due to lower funding costs as a result of our acquisition by HSBC.

38

Household International, Inc.

Other income, increased in both periods due to higher revenues from our mortgage operations. The increase in the three month period also reflects higher enhancement services income and higher gains on miscellaneous asset sales.

Costs and Expenses As discussed earlier, effective January 1, 2004, our technology services employees were transferred to HSBC Technology and Services (USA) Inc. (“HTSU”). As a result, operating expenses relating to information technology as well as certain item processing and statement processing activities, which have previously been reported as salaries and employee benefits, occupancy and equipment expenses, or other servicing and administrative expenses are now billed to us by HTSU and reported as support services from HSBC affiliates. Support services from HSBC affiliates also includes banking services and other miscellaneous services provided by HSBC Bank USA and other subsidiaries of HSBC.

The following table summarizes total costs and expenses:

					Increase
					(Decrease)
Three months ended September 30	2004		2003		Amount			%
	(dollars are in millions)
Salaries and employee benefits	$	472	$	493	$	(21	)		(4.3	)%
Sales incentives		91		77		14			18.2
Occupancy and equipment expenses		77		95		(18	)		(18.9	)
Other marketing expenses		174		128		46			35.9
Other servicing and administrative expenses		235		282		(47	)		(16.7	)
Support services from HSBC affiliates		183		-		183			100.0
Amortization of intangibles		83		82		1			1.2
Policyholders’ benefits		93		95		(2	)		(2.1	)
Total costs and expenses	$	1,408	$	1,252	$	156			12.5	%

					Increase (Decrease)
Nine months ended September 30	2004		2003		Amount			%
	(dollars are in millions)
Salaries and employee benefits	$	1,414	$	1,491	$	(77	)		(5.2	)%
Sales incentives		259		199		60			30.2
Occupancy and equipment expenses		237		296		(59	)		(19.9	)
Other marketing expenses		437		406		31			7.6
Other servicing and administrative expenses		659		869		(210	)		(24.2	)
Support services from HSBC affiliates		556		-		556			100.0
Amortization of intangibles		278		174		104			59.8
Policyholders’ benefits		299		287		12			4.2
HSBC acquisition related costs incurred by Household		-		198		(198	)		(100.0	)
Total costs and expenses	$	4,139	$	3,920	$	219			5.6	%

Salaries and employee benefits decreased primarily due to the transfer of our technology personnel to HTSU. Excluding this change, salaries and employee benefits increased $40 million for the quarter and $99 million year-to-date as a result of additional staffing, primarily in our consumer lending, mortgage services and international businesses to support growth and in our compliance functions. For the nine month period, these increases were partially offset by decreases in employee benefit expenses as a result of non-recurring expenses incurred in the first quarter of 2003 in conjunction with the merger.

39

Household International, Inc.

Sales incentives increased in both periods reflecting higher volumes in our branches. The year-to-date increase also reflects increases in our mortgage services business.

Occupancy and equipment expenses decreased in both periods primarily due to the formation of HTSU as discussed above.

Other marketing expenses increased in both periods primarily due to increased credit card marketing, largely due to changes in marketing responsibilities associated with the General Motors (“GM”) co-branded credit card which will result in higher marketing expense for the GM Card® in the future.

Other servicing and administrative expenses decreased primarily due to the transfer of certain item processing and statement processing services to HTSU. The decreases were partially offset by higher systems costs due to growth, higher insurance commissions and higher legal costs from the settlement of claims.

Support services from HSBC affiliates primarily include technology and other services charged to us by HTSU.

Amortization of intangibles was essentially flat during the quarter. The increase in the nine month period reflects higher amortization of intangibles established in conjunction with our acquisition by HSBC.

Policyholders’ benefits essentially remained flat in the third quarter. Increases in policyholder benefits for the nine month period resulted from higher sales in our U.K. business and higher amortization of fair value adjustments relating to our insurance business, partially offset by lower expenses in our domestic business.

HSBC acquisition related costs incurred by Household in the first quarter of 2003 include payments to executives under existing employment contracts and investment banking, legal and other costs relating to our acquisition by HSBC.

The following table summarizes our owned basis efficiency ratio:

		2004			2003
		(Restated)			(Restated)
Three months ended September 30			45.1	%		53.5	%
Nine months ended September 30:
	GAAP Basis		44.0			44.0
	Excluding HSBC acquisition related costs(1)		44.0			41.6

⁽¹⁾ Represents a non-GAAP financial measure. See “Basis of Reporting” for additional discussion on the use of this non-GAAP financial measure and “Reconciliations to GAAP Financial Measures” for quantitative reconciliations of our operating efficiency ratio to our owned basis GAAP efficiency ratio.

The efficiency ratio improved during the three months ended September 30, 2004 primarily as a result of significantly higher derivative income in the three months ended September 30, 2004, partially offset by higher operating expenses, lower securitization revenue and lower net interest income as a percentage of average interest earning assets. Excluding the impact of the HSBC acquisition related costs, the efficiency ratio deteriorated during the nine months ended September 30, 2004 due to higher operating expenses, including higher intangible amortization in the year-to-end period, lower securitization revenue and lower net interest income as a percentage of average interest earning assets, partially offset by higher derivative income.

Segment Results – Managed Basis

We have three reportable segments: Consumer, Credit Card Services and International. Our Consumer segment consists of our consumer lending, mortgage services, retail services and auto finance businesses.

40

Household International, Inc.

Our Credit Card Services segment consists of our domestic MasterCard and Visa credit card business. Our International segment consists of our foreign operations in the United Kingdom, Canada, Ireland and the remainder of Europe.

Effective January 1, 2004, our direct lending business, which has previously been reported in our “All Other” caption, was consolidated into our consumer lending business and as a result is now included in our Consumer segment. Prior periods have not been restated as the impact was not material. There have been no other changes in the basis of our segmentation or any changes in the measurement of segment profit as compared with the presentation of our 2003 financial information included in our 2004 Form 10-K.

We monitor our operations and evaluate trends on a managed basis (a non-GAAP financial measure), which assumes that securitized receivables have not been sold and are still on our balance sheet. We manage and evaluate our operations on a managed basis because the receivables that we securitize are subjected to underwriting standards comparable to our owned portfolio, are serviced by operating personnel without regard to ownership and result in a similar credit loss exposure for us. In addition, we fund our operations, review our operating results, and make decisions about allocating resources such as employees and capital on a managed basis. When reporting on a managed basis, net interest income, provision for credit losses and fee income related to receivables securitized are reclassified from securitization revenue in our owned statement of income into the appropriate caption.

Consumer Segment The following table summarizes results for our Consumer segment:

							Increase (Decrease)
Three months ended September 30	2004			2003			Amount			%
	(dollars are in millions)
Net income	$	294		$	287		$	7			2.4%
Net interest income		1,956			1,875			81			4.3
Securitization revenue		(547	)		(42	)		(505	)		(100+	)
Fee and other income		187			153			34			22.2
Intersegment revenues		26			27			(1	)		(3.7	)
Provision for credit losses		506			920			(414	)		(45.0	)
Total costs and expenses		619			606			13			2.1
Receivables		95,946			87,739			8,207			9.4
Assets		98,099			90,108			7,991			8.9
Net interest income as a percent of average interest-earning assets, annualized		8.20	%		8.65%			-			-
Return on average managed assets		1.22			1.30			-			-

							Increase (Decrease)
Nine months ended September 30	2004			2003			Amount			%
	(dollars are in millions)
Net income	$	855		$	679		$	176			25.9	%
Net interest income		5,735			5,417			318			5.9
Securitization revenue		(1,089	)		12			(1,101	)		(100+	)
Fee and other income		516			467			49			10.5
Intersegment revenues		74			82			(8	)		(9.8	)
Provision for credit losses		1,905			3,042			(1,137	)		(37.4	)
Total costs and expenses		1,892			1,765			127			7.2
Net interest income as a percent of average interest-earning assets, annualized		8.33	%		8.63	%		-			-
Return on average managed assets		1.22			1.06			-			-

41

Household International, Inc.

Our Consumer segment reported higher net income in both periods. Increases in net interest income as well as fee and other income and decreases in provision for credit losses were partially offset by higher operating expenses and substantially lower securitization revenue. Net interest income increased primarily due to higher receivable levels. Net interest income as a percent of average interest-earning assets, however, decreased primarily due to lower yields on real estate secured and auto finance receivables as a result of reduced pricing and higher levels of near-prime receivables, as well as the run-off of higher yielding real estate secured receivables, including second lien loans largely due to refinance activity. For the three month period, increased cost of funds due to a rising interest rate environment also contributed to the decrease. Our auto finance business reported lower net interest income as a percent of average interest-earning assets as we have targeted lower yielding but higher credit quality customers. Securitization revenue decreased in both periods as a result of a significant decline in receivables securitized, including the impact of higher run-off due to shorter expected lives, as a result of our decision to structure all new collateralized funding transactions as secured financings beginning in the third quarter of 2004. Initial securitization levels were lower in the first nine months of 2004 as we used funding from HSBC, including proceeds from receivable sales, to assist in the funding of our operations. Operating expenses increased as the result of additional operating costs to support the increased receivable levels including higher salaries and sales incentives.

During the nine months ended September 30, 2004, we experienced improved credit quality. Our managed basis provision for credit losses, which includes both provision for owned basis receivables and over-the-life provision for receivables serviced with limited recourse, decreased in both the quarter and year-to-date periods as a result of improving credit quality and changes in securitization levels. Partially offsetting the decrease in managed loss provision was an increase in estimated losses on securitized receivables at auto finance in both periods. We have experienced higher dollars of net charge-offs in our owned portfolio during the first nine months of 2004 as a result of higher delinquency levels in prior quarters and higher levels of owned receivables. However, our overall owned provision for credit losses was lower than net charge-offs because charge-offs are a lagging indicator of credit quality. Over-the-life provisions for credit losses for securitized receivables recorded in any given period reflect the level and product mix of securitizations in that period. Subsequent charge-offs of such receivables result in a decrease in the over-the-life reserves without any corresponding increase to managed loss provision. The combination of these factors, including changes in securitization levels, resulted in a decrease in managed loss reserves as net charge-offs were greater than the provision for credit losses by $414 million for the quarter and $895 million year-to-date. For 2003, we increased managed loss reserves by recording loss provision greater than net charge-offs of $23 million for the quarter and $394 million year-to-date.

Managed receivables increased 4 percent compared to $92.2 billion at June 30, 2004. Growth during the quarter was driven by higher real estate secured receivables in both our correspondent and branch-based consumer lending businesses which was partially offset by $.7 billion of correspondent receivables purchased directly by HSBC Bank USA (a portion of which we otherwise would have purchased). Growth in our correspondent business was supplemented by purchases from a single correspondent relationship which totaled $.6 billion in the quarter. We also experienced solid growth in auto finance receivables though our dealer network as well as in private label receivables. Personal non-credit card receivables also experienced growth as we began to increase availability of the product as a result of an improving economy.

Compared to September 30, 2003, managed receivables increased 9 percent. Receivable growth was strongest in our real estate secured portfolio. Real estate secured receivable levels reflect sales to HSBC Bank USA totaling $3.7 billion and $2.2 billion of correspondent receivables purchased directly by HSBC Bank USA, a portion of which we otherwise would have purchased. Real estate growth also benefited from purchases associated with a single correspondent relationship which totaled $1.9 billion year-to-date. Our auto finance portfolio also reported strong growth as a result of newly originated loans acquired from our

42

Household International, Inc.

dealer network and strategic alliances established during 2003. Increases in private label receivables were the result of portfolio acquisitions as well as organic growth.

The decrease in return on average managed assets (“ROMA”) for the quarter reflects a higher rate of increase in average managed assets than in net income as discussed above. For the year-to-date period, the increase in ROMA reflects higher income as discussed above.

Credit Card Services Segment The following table summarizes results for our Credit Card Services segment.

							Increase (Decrease)
Three months ended September 30	2004			2003			Amount			%
	(dollars are in millions)
Net income	$	134		$	144		$	(10	)		(6.9	)%
Net interest income		519			490			29			5.9
Securitization revenue		(77	)		11			(88	)		(100+	)
Fee and other income		460			392			68			17.3
Intersegment revenues		6			6			-			-
Provision for credit losses		364			400			(36	)		(9.0	)
Total costs and expenses		328			268			60			22.4
Receivables		18,509			18,285			224			1.2
Assets		20,620			20,826			(206	)		(1.0	)
Net interest income as a percent of average interest-earning assets, annualized		10.24	%		10.00	%		-			-
Return on average managed assets		2.60			2.85			-			-

							Increase (Decrease)
Nine months ended September 30	2004			2003			Amount			%
	(dollars are in millions)
Net income	$	391		$	366		$	25			6.8	%
Net interest income		1,561			1,441			120			8.3
Securitization revenue		(222	)		4			(226	)		(100+	)
Fee and other income		1,271			1,116			155			13.9
Intersegment revenues		20			22			(2	)		(9.1	)
Provision for credit losses		1,105			1,175			(70	)		(6.0	)
Total costs and expenses		890			806			84			10.4
Net interest income as a percent of average interest-earning assets, annualized		10.10	%		9.87	%		-			-
Return on average managed assets		2.50			2.42			-			-

Our Credit Card Services segment reported lower net income during the quarter but higher net income year-to-date. The decrease in net income during the quarter was due to the impact of lower securitization levels and higher operating expenses, particularly marketing expenses, partially offset by increases in net interest income and fee and other income and lower credit loss provision. The trends in net interest income, fee and other income, securitization revenue, credit loss provision and operating expenses were consistent in both the quarter and the year-to-date periods. Net income and ROMA for the year-to-date period, however, were higher than in the year ago period but lower for the quarter. This is because the decreases in the level of receivables securitized, coupled with the increased marketing expense were more significant in the quarter than in the year-to-date period. Increases in net interest income as well as fee and other income in both periods resulted from higher receivable levels and product mix, with the increase

43

Household International, Inc.

in net interest income partially offset in the quarter by higher cost of funds due to a rising interest rate environment. Provision for credit losses also decreased in both periods as a result of improving credit quality and changes in securitization levels. We increased managed loss reserves for the quarter by recording loss provision greater than net charge-offs of $15 million and we decreased managed loss reserves year-to-date by recording loss provision less than net charge-offs of $6 million. For 2003, we increased managed loss reserves by recording loss provision greater than net charge-offs of $43 million for the quarter and $98 million year-to-date. Securitization revenue declined in both periods as a result of a decline in receivables securitized, including higher run-off due to shorter expected lives.

Managed receivables of $18.5 billion increased .8 percent compared to $18.4 billion at June 30, 2004. The increase during the quarter was due to growth in our subprime and internally branded prime portfolios which was substantially offset by the continued decline in certain old acquired portfolios. Although our subprime receivables tend to have smaller balances, they generate higher returns. Compared to September 30, 2003, managed receivables increased 1.2 percent. Receivables growth was largely attributable to organic growth in our subprime portfolios which was partially offset by the continued decline in these old acquired portfolios.

International Segment The following table summarizes results for our International segment:

							Increase (Decrease)
Three months ended September 30	2004			2003			Amount			%
	(dollars are in millions)
Net income	$	18		$	42		$	(24	)		(57.1	)%
Net interest income		185			190			(5	)		(2.6	)
Securitization revenue		(87	)		2			(89	)		(100+	)
Fee and other income		130			98			32			32.7
Intersegment revenues		4			3			1			33.3
Provision for credit losses		19			101			(82	)		(81.2	)
Total costs and expenses		181			128			53			41.4
Receivables		11,833			10,180			1,653			16.2
Assets		12,770			11,053			1,717			15.5
Net interest income as a percent of average interest-earning assets, annualized		6.29	%		7.45	%		-			-
Return on average managed assets		.57			1.54			-			-

							Increase (Decrease)
Nine months ended September 30	2004			2003			Amount			%
	(dollars are in millions)
Net income	$	80		$	116		$	(36	)		(31.0	)%
Net interest income		583			549			34			6.2
Securitization revenue		(92	)		13			(105	)		(100+	)
Fee and other income		369			276			93			33.7
Intersegment revenues		10			9			1			11.1
Provision for credit losses		207			271			(64	)		(23.6	)
Total costs and expenses		527			394			133			33.8
Net interest income as a percent of average interest-earning assets, annualized		6.76	%		7.37	%		-			-
Return on average managed assets		.86			1.46			-			-

44

Household International, Inc.

Our International segment reported lower net income in both periods. The decrease in net income reflects higher operating expenses and lower securitization revenue partially offset by increased fee and other income, lower provision for credit losses and, for the nine month period, higher net interest income. Applying constant currency rates, which uses the average rate of exchange for the 2003 period to translate current period net income, net income would have been lower by $2 million in the current quarter and $7 million year-to-date. Net interest income decreased during the quarter as increases in net interest income due to higher receivable levels were more than offset by higher cost of funds due to a rising interest rate environment. Net interest income increased during the nine month period due to higher receivable levels partially offset by higher cost of funds. Net interest income as a percent of average interest-earning assets, annualized, decreased in both periods due to lower pricing, run-off of higher yielding receivables, the mix of personal non-credit card receivables and a higher cost of funds. Securitization revenue declined as a result of lower levels of securitized receivables. Fee and other income increased primarily due to higher insurance revenues. Provision for credit losses decreased due to reduced securitization levels, partially offset by a higher provision for credit losses on owned receivables due to receivable growth. We decreased managed loss reserves by recording loss provision less than net charge-offs of $74 million for the quarter and $52 million year-to-date. For 2003, we increased managed loss reserves by recording loss provision greater than net charge-offs of $26 million for the quarter and $56 million year-to-date. Total costs and expenses increased primarily due to higher salary expenses to support receivable activity and higher policyholder benefits, which resulted from increased insurance sales volumes.

Managed receivables increased 4 percent compared to $11.4 billion at June 30, 2004 primarily due to growth in our private label and personal non-credit card portfolios. Compared to September 30, 2003, managed receivables increased 16 percent due to strong growth in our real estate secured and personal non-credit card portfolios since September 30, 2003 partially offset by a decline in our MasterCard/ Visa portfolio. Applying constant currency rates, managed receivables at September 30, 2004 would have been $.1 billion lower using June 30, 2004 exchange rates and $.9 billion lower using September 30, 2003 exchange rates.

The decrease in ROMA reflects lower net income as discussed above.

Reconciliation of Managed Basis Segment Results Income statement information included in the table for the nine months ended September 30, 2003 combines January 1 through March 28, 2003 (the “predecessor period”) and March 29 to September 30, 2003 (the “successor period”) in order to present “combined” financial results for the nine months ended September 30, 2003. Fair value adjustments related to purchase accounting and related amortization have been allocated to Corporate, which is included in the “All Other” caption within our segment disclosure. As a result, managed and owned basis consolidated totals for the nine months ended September 30, 2003 include combined information from both the “successor” and “predecessor” periods which impacts comparability to the current period.

45

Household International, Inc.

Reconciliations of our managed basis segment results to managed basis and owned basis consolidated totals are as follows:

																Managed
				Credit									Adjustments/			Basis						Owned Basis
				Card			Inter-			All			Reconciling			Consolidated			Securitization			Consolidated
	Consumer			Services			national			Other			Items			Totals			Adjustments			Totals
	(in millions)
Three months ended September 30, 2004 (Restated)
Net interest income	$	1,956		$	519		$	185		$	(110	)	$	-		$	2,550		$	(581	)(5)	$	1,969
Securitization revenue		(547	)		(77	)		(87	)		(31	)		-			(742	)		1,009	(5)		267
Fee and other income		187			460			130			227			(35	)(2)		969			(196	)(5)		773
Intersegment revenues		26			6			4			(1	)		(35	)(2)		-			-			-
Provision for credit losses		506			364			19			1			1	(3)		891			232	(5)		1,123
Total costs and expenses		619			328			181			280			-			1,408			-			1,408
Net income		294			134			18			(98	)		(23	)		325			-			325
Receivables		95,946			18,509			11,833			324			-			126,612			(20,175	)(6)		106,437
Assets		98,099			20,620			12,770			25,030			(8,616	)(4)		147,903			(20,175	)(6)		127,728
Three months ended September 30, 2003 (Restated)
Net interest income	$	1,875		$	490		$	190		$	76		$	-		$	2,631		$	(715	)(5)	$	1,916
Securitization revenue		(42	)		11			2			(71	)		-			(100	)		487	(5)		387
Fee and other income		153			392			98			(461	)		(36	)(2)		146			(192	)(5)		(46	)
Intersegment revenues		27			6			3			-			(36	)(2)		-			-			-
Provision for credit losses		920			400			101			(2	)		2	(3)		1,421			(420	)(5)		1,001
Total costs and expenses		606			268			128			250			-			1,252			-			1,252
Net income		287			144			42			(427	)		(24	)		22			-			22
Receivables		87,739			18,285			10,180			933			-			117,137			(24,109	)(6)		93,028
Assets		90,108			20,826			11,053			25,294			(8,764	)(4)		138,517			(24,109	)(6)		114,408
Nine months ended September 30, 2004 (Restated)
Net interest income	$	5,735		$	1,561		$	583		$	(173	)	$	-		$	7,706		$	(1,987	)(5)	$	5,719
Securitization revenue		(1,089	)		(222	)		(92	)		(124	)		-			(1,527	)		2,408	(5)		881
Fee and other income		516			1,271			369			969			(101	)(2)		3,024			(590	)(5)		2,434
Intersegment revenues		74			20			10			(3	)		(101	)(2)		-			-			-
Provision for credit losses		1,905			1,105			207			(1	)		1	(3)		3,217			(169	)(5)		3,048
Total costs and expenses		1,892			890			527			830			-			4,139			-			4,139
Net income		855			391			80			(32	)		(66	)		1,228			-			1,228
Nine months ended September 30, 2003 (Restated)
Net interest income	$	5,417		$	1,441		$	549		$	112		$	-		$	7,519		$	(2,161	)(5)	$	5,358
Securitization revenue		12			4			13			(147	)		-			(118	)		1,232	(5)		1,114
Fee and other income		467			1,116			276			843			(112	)(2)		2,590			(515	)(5)		2,075
Intersegment revenues		82			22			9			(1	)		(112	)(2)		-			-			-
Provision for credit losses		3,042			1,175			271			-			6	(3)		4,494			(1,444	)(5)		3,050
Total costs and expenses		1,765			806			394			955			-			3,920			-			3,920
HSBC acquisition related costs incurred by Household		-			-			-			198			-			198			-			198
Net income		679			366			116			(75	)		(75	)		1,011			-			1,011
Operating net income(1)		679			366			116			92			(75	)		1,178			-			1,178

⁽¹⁾ This non-GAAP financial measure is provided for comparison of our operating trends only and should be read in conjunction with our owned basis GAAP financial information. Operating net income excludes $167 million (after-tax) of HSBC acquisition related costs and other merger related items incurred by Household in 2003. See “Basis of Reporting” for additional discussion on the use of non- GAAP financial measures.

46

Household International, Inc.

(2)	Eliminates intersegment revenues.
(3)	Eliminates bad debt recovery sales between operating segments.
(4)	Eliminates investments in subsidiaries and intercompany borrowings.
(5)	Reclassifies net interest income, fee income and provision for credit losses relating to securitized receivables to other revenues.
(6)	Represents receivables serviced with limited recourse.

Credit Quality

Subject to receipt of regulatory approvals, we intend to transfer our domestic private label credit card portfolio to HSBC Bank USA in 2004. Contingent upon receiving regulatory approval for this asset transfer, we will adopt charge-off and account management guidelines in accordance with the Uniform Retail Credit Classification and Account Management Policy issued by the FFIEC for our entire domestic private label and MasterCard and Visa portfolios. See “Executive Overview” for further discussion.

Credit Loss Reserves

We maintain credit loss reserves to cover probable losses of principal, interest and fees, including late, overlimit and annual fees. Credit loss reserves are based on a range of estimates and are intended to be adequate but not excessive. While our credit loss reserves are available to absorb losses in the entire portfolio, we specifically consider the credit quality and other risk factors for each of our products. We recognize the different inherent loss characteristics in each of our products as well as customer account management policies and practices and risk management/collection practices. Charge-off policies are also considered when establishing loss reserve requirements to ensure the appropriate reserves exist for products with longer charge-off periods. We also consider key ratios such as reserves to nonperforming loans and reserves as a percent of net charge-offs in developing our loss reserve estimates. Loss reserve estimates are reviewed periodically and adjustments are reported in earnings when they become known. As these estimates are influenced by factors outside of our control, such as consumer payment patterns and economic conditions, there is uncertainty inherent in these estimates, making it reasonably possible that they could change. See Note 4, “Receivables,” in the accompanying consolidated financial statements for receivables by product type and Note 5, “Credit Loss Reserves,” for our credit loss reserve methodology and an analysis of changes in the credit loss reserves.

The following table summarizes owned basis credit losses:

		September 30,			June 30,			September 30,
		2004			2004			2003
		(dollars are in millions)
Owned credit loss reserves		$	3,953		$	3,795		$	3,779
Reserves as a percent of:
	Receivables		3.71	%		3.82	%		4.06	%
	Net charge-offs(1)		102.0			98.2			105.1
	Nonperforming loans		104.1			103.0			92.6

⁽¹⁾ Quarter-to-date, annualized

During the quarter ended September 30, 2004, credit loss reserves increased as the provision for owned credit losses was $154 million greater than net charge-offs reflecting growth in our loan portfolio, partially offset by improved asset quality. In the quarter ended September 30, 2003, provision for owned credit losses was $102 million greater than net charge-offs. Reserve levels at September 30, 2004 reflect the factors discussed above.

47

Household International, Inc.

For securitized receivables, we also record a provision for estimated probable losses that we expect to incur under the recourse provisions. The following table summarizes managed credit loss reserves:

		September 30,			June 30,			September 30,
		2004			2004			2003
		(dollars are in millions)
Managed credit loss reserves		$	5,199		$	5,699		$	5,733
Reserves as a percent of:
	Receivables		4.11	%		4.66	%		4.89	%
	Net charge-offs(1)		95.4			104.2			107.4
	Nonperforming loans		111.1			122.8			111.7

⁽¹⁾ Quarter-to-date, annualized

During the quarter ended September 30, 2004, managed credit loss reserves decreased as a result of changes in securitization levels.

See “Basis of Reporting” for additional discussion on the use of non-GAAP financial measures and “Reconciliations to GAAP Financial Measures” for quantitative reconciliations of the non-GAAP financial measures to the comparable GAAP basis financial measure.

Delinquency – Owned Basis

The following table summarizes two-months-and-over contractual delinquency (as a percent of consumer receivables):

	September 30,			June 30,			September 30,
	2004			2004			2003
Real estate secured		3.27	%		3.39	%		4.20	%
Auto finance		1.81			2.12			2.14
MasterCard/ Visa		5.84			5.83			5.99
Private label		4.72			5.00			5.59
Personal non-credit card		8.83			8.92			9.96
Total		4.43	%		4.57	%		5.36	%

Total owned delinquency decreased 14 basis points compared to the prior quarter. This decrease is consistent with improvements in early delinquency roll rate trends we began to experience in the fourth quarter of 2003 as a result of improvements in the economy and better underwriting, including both improved modeling and improved credit quality of originations. The overall decrease in our real estate secured portfolio reflects receivable growth and improved collection efforts which were partially offset by the seasoning and maturation of the portfolio. The decrease in auto finance delinquencies reflects the impact of tightened underwriting, higher receivable levels and lower securitization levels. Auto finance delinquency in June 2004 was also adversely impacted by changes in collections operations. The decrease in private label delinquency reflects receivable growth as well as improved underwriting, collections and credit models. The decrease in personal non-credit card delinquency reflects the positive impact of receivable growth as well as improved collection efforts.

Compared to a year ago, total delinquency decreased 93 basis points as all products reported lower delinquency levels. The improvements are generally the result of improvements in the economy and better underwriting.

48

Household International, Inc.

Net Charge-offs of Consumer Receivables – Owned Basis

The following table summarizes net charge-offs of consumer receivables (as a percent, annualized, of average consumer receivables):

	September 30,			June 30,			September 30,
	2004			2004			2003
Real estate secured		1.19	%		1.04	%		.91	%
Auto finance		3.66			3.05			4.62
MasterCard/ Visa		8.50			9.91			8.61
Private label		4.79			5.06			5.35
Personal non-credit card		9.50			10.59			10.55
Total		3.77	%		4.02	%		3.98	%
Real estate secured net charge-offs and REO expense as a percent of average real estate secured receivables		1.31	%		1.47	%		1.35	%

Net charge-offs decreased 25 basis points compared to the quarter ended June 30, 2004 as the lower delinquency levels we have been experiencing due to an improving economy are having an impact on charge-offs. Our real estate secured portfolio experienced an increase in net charge-offs during the third quarter reflecting lower estimates of net realizable value as a result of process changes to better estimate property values at the time of foreclosure which has resulted in an increase in real estate net charge-offs compared to the previous quarter. The increase in auto finance net charge-offs reflects the impact of higher delinquency levels in the second quarter which have progressed to charge-off. The decrease in MasterCard/ Visa reflects the impact of higher net charge-offs in the second quarter due to seasonality. In addition to economic conditions, the decrease in net charge-offs in personal non-credit card is a result of improved credit quality and portfolio stabilization.

Total net charge-offs for the current quarter decreased from September 2003 net charge-offs levels due to an improving economy and a decrease in the percentage of the portfolio comprised of personal non-credit card receivables, which have a higher net charge-off rate than other products in our portfolio. In addition, auto finance, MasterCard and Visa, private label and personal non-credit card reported lower net charge-off levels generally as a result of receivable growth, improved collections and better underwriting, including both improved modeling and improved credit quality of originations. The decrease in auto finance net charge-offs also reflects the decision to target lower yielding but higher credit quality customers as well as improved used auto prices which resulted in lower loss severities. The increase in our real estate secured portfolio reflects lower estimates of net realizable value at the time of foreclosure.

Owned Nonperforming Assets

	September 30,			June 30,			September 30,
	2004			2004			2003
	(dollars are in millions)
Nonaccrual receivables	$	2,891		$	2,833		$	3,197
Accruing consumer receivables 90 or more days delinquent		905			849			883
Renegotiated commercial loans		1			2			2
Total nonperforming receivables		3,797			3,684			4,082
Real estate owned		601			624			543
Total nonperforming assets	$	4,398		$	4,308		$	4,625
Credit loss reserves as a percent of nonperforming receivables		104.1	%		103.0	%		92.6	%

49

Household International, Inc.

Compared to June 30, 2004, the increase in nonaccrual receivables and total nonperforming assets is primarily attributable to an increase in our real estate secured portfolio due to growth. Compared to September 30, 2003, the decrease in nonaccrual receivables and total nonperforming assets is primarily due to improved credit quality and collection efforts partially offset by growth. Accruing consumer receivables 90 or more days delinquent includes domestic MasterCard and Visa and private label credit card receivables, consistent with industry practice.

Account Management Policies and Practices

Our policies and practices for the collection of consumer receivables, including our customer account management policies and practices, permit us to reset the contractual delinquency status of an account to current, based on indicia or criteria which, in our judgment, evidence continued payment probability. Such policies and practices vary by product and are designed to manage customer relationships, maximize collection opportunities and avoid foreclosure or repossession if reasonably possible. If the account subsequently experiences payment defaults, it will again become contractually delinquent.

The tables below summarize approximate restructuring statistics in our managed basis domestic portfolio. We report our restructuring statistics on a managed basis only because the receivables that we securitize are subject to underwriting standards comparable to our owned portfolio, are serviced and collected without regard to ownership and result in a similar credit loss exposure for us. As previously reported, in prior periods we used certain assumptions and estimates to compile our restructure statistics. We also stated that we continue to enhance our ability to capture and segment restructure data across all business units. In the tables that follow, the restructure statistics presented for June 30, 2004 and September 30, 2004 have been compiled using enhanced systemic counters and refined assumptions and estimates. As a result of the systems enhancements, for June 30, 2004 and subsequent periods we exclude from our reported statistics loans that had been reported as contractually delinquent that have been reset to a current status because we have determined that the loan should not have been considered delinquent (e.g., payment application processing errors). Statistics reported for all periods prior to June 30, 2004 include such loans. When comparing restructuring statistics from different periods, the fact that our restructure policies and practices will change over time, that exceptions are made to those policies and practices, and that our data capture methodologies have been enhanced, should be taken into account. Further, to the best of our knowledge, most of our competitors do not disclose account restructuring, reaging, loan rewriting, forbearance, modification, deferment or extended payment information comparable to the information we have disclosed, and the lack of such disclosure by other lenders may limit the ability to draw meaningful conclusions about our business based solely on data or information regarding account restructuring statistics or policies.

50

Household International, Inc.

Total Restructured by Restructure Period – Domestic Portfolio⁽¹⁾

(Managed Basis)

		September 30,			June 30,			September 30,
		2004			2004			2003
		(dollars are in millions)
Never restructured			86.5	%		86.1	%		84.2	%
Restructured:
	Restructured in the last 6 months		4.8			4.8			7.3
	Restructured in the last 7-12 months		3.6			4.0			3.5
	Previously restructured beyond 12 months		5.1			5.1			5.0
	Total ever restructured(2)		13.5			13.9			15.8
Total			100.0	%		100.0	%		100.0	%
Total Restructured by Product – Domestic Portfolio(1) (Managed Basis)
Real estate secured		$	8,895		$	8,885		$	9,531
Auto finance			1,420			1,304			1,269
MasterCard/ Visa			628			639			578
Private label			756			830			1,091
Personal non-credit card			3,688			3,727			4,136
Total		$	15,387		$	15,385		$	16,605
(As a percent of managed receivables)
Real estate secured			15.8	%		16.5	%		18.7	%
Auto finance			14.4			14.0			15.1
MasterCard/ Visa			3.5			3.6			3.3
Private label			5.0			5.6			7.7
Personal non-credit card			24.3			25.0			26.7
Total(2)			13.5	%		13.9	%		15.8	%

(1)	Excludes foreign businesses, commercial and other.
(2)	Total including foreign businesses was 12.6 percent at September 30, 2004, 13.0 percent at June 30, 2004, and 14.9 percent at September 30, 2003.

The amount of domestic and foreign managed receivables in forbearance, modification, rewrites or other account management techniques for which we have reset delinquency and that is not included in the restructured or delinquency statistics was approximately $.5 billion or ..4 percent of managed receivables at September 30, 2004, $.5 billion or .4 percent of managed receivables at June 30, 2004 and $1.1 billion or .9 percent of managed receivables at September 30, 2003. For periods prior to June 30, 2004, all credit card approved consumer credit counseling accommodations are included in the reported statistics. As a result of our systems enhancements, we are now able to segregate which credit card approved consumer credit counseling accommodations included resetting the contractual delinquency status to current after January 1, 2003. Such accounts are included in the September 30, 2004 and June 30, 2004 restructure statistics in the table above. Credit card credit counseling accommodations that did not include resetting contractual delinquency status are not reported in the table above or the September 30, 2004 and June 30, 2004 statistics in this paragraph.

51

Household International, Inc.

Liquidity and Capital Resources

The funding synergies resulting from our merger with HSBC have allowed us to reduce our reliance on traditional sources to fund our growth. We continue to focus on balancing our use of affiliate and third-party funding sources to minimize funding expense while maximizing liquidity. As discussed below, we decreased third-party debt and initial securitization funding during the nine months ended September 30, 2004 as we used proceeds from the sale of real estate secured receivables to HSBC Bank USA, debt issued to affiliates and additional secured financings to assist in the funding of our businesses.

Because we are now a subsidiary of HSBC, our credit spreads relative to Treasuries have tightened. We recognized cash funding expense savings, primarily as a result of these tightened credit spreads and lower costs due to shortening the maturity of our liabilities primarily through increased issuance of commercial paper, in excess of $235 million during the nine months ended September 30, 2004 and less than $70 million for the prior-year period compared to the funding costs we would have incurred using average spreads during the first half of 2002. It is anticipated that these tightened credit spreads and other funding synergies will eventually enable HSBC to realize annual cash funding expense savings, including external fee savings, in excess of $1 billion per year as our existing term debt matures over the course of the next few years. The portion of these savings to be realized by Household will depend in large part upon the amount and timing of the proposed domestic private label credit card portfolio transfer to HSBC Bank USA and other initiatives between Household and HSBC subsidiaries.

Securities totaled $6.9 billion at September 30, 2004 and $11.1 billion at December 31, 2003. Included in the September 30, 2004 balance was $2.6 billion dedicated to our credit card bank and $3.2 billion held by our insurance subsidiaries. Included in the December 31, 2003 balance was $2.4 billion dedicated to our credit card bank and $3.1 billion held by our insurance subsidiaries. Our securities balance at December 31, 2003 was unusually high as a result of the cash received from the $2.8 billion real estate secured loan sale to HSBC Bank USA on December 31, 2003 as well as excess liquidity.

Commercial paper, bank and other borrowings totaled $14.5 billion at September 30, 2004 and $9.1 billion at December 31, 2003. Included in this total was outstanding Euro commercial paper sold to customers of HSBC of $3.7 billion at September 30, 2004 and $2.8 billion at December 31, 2003. Commercial paper, bank and other borrowings increased significantly during the third quarter of 2004 to help give us greater flexibility in managing liquidity surrounding the contemplated private label credit card sale to HSBC Bank USA.

52

Household International, Inc.

Due to affiliates and other HSBC related funding are summarized in the following table:

		September 30,			December 31,
		2004			2003
		(in billions)
Debt issued to HSBC subsidiaries:
	Domestic short-term borrowings	$	-		$	2.6
	Drawings on bank lines in the U.K.		6.3			3.4
	Term debt		5.4			1.3
	Preferred securities issued by Household Capital Trust VIII		.3			.3
	Total debt issued to HSBC subsidiaries		12.0			7.6
Debt issued to HSBC clients:
	Euro commercial paper		3.7			2.8
	Term debt		.7			.4
	Total debt issued to HSBC clients		4.4			3.2
Preferred stock issued to HNAH (issued to HSBC at December 31, 2003)			1.1			1.1
Real estate secured receivable activity with HSBC Bank USA:
	Cash received on sales (cumulative)		3.7			2.8
	Direct purchases from correspondents (cumulative)		2.2			-
	Run-off of real estate secured receivable activity with HSBC Bank USA		(1.0	)		-
Total real estate secured receivable activity with HSBC Bank USA			4.9			2.8
Total HSBC related funding		$	22.4		$	14.7

Proceeds from the December 2003 sale of $2.8 billion of real estate secured loans to HSBC Bank USA, which at year-end 2003 had been temporarily held as securities available for sale, were used to pay-down domestic short-term borrowings in the first quarter of 2004. Proceeds from the March 2004 real estate secured receivable sale were used to pay-down commercial paper balances which had been used as temporary funding in the first quarter of 2004 and to fund various debt maturities.

As of September 30, 2004, we had revolving credit facilities with HSBC of $2.5 billion domestically and $7.5 billion in the U.K. There have been no draws on the domestic line. We also had derivative contracts with a notional value of $59.2 billion, or approximately 87 percent of total derivative contracts, outstanding with HSBC affiliates. In July 2004, a $4.0 billion credit facility was provided by an HSBC affiliate in Geneva to allow temporary increases in commercial paper issuance to help give greater flexibility in managing liquidity surrounding the contemplated private label credit card sale to HSBC Bank USA.

Long term debt (with original maturities over one year) decreased to $78.8 billion at September 30, 2004 from $79.6 billion at December 31, 2003. Significant issuances during the nine months ended September 30, 2004 included the following:

•  $4.2 billion of domestic and foreign medium-term notes

•  $1.8 billion of foreign currency-denominated bonds (including $243 million which was issued to customers of HSBC)

•  $1.2 billion of InterNotes^SM (retail-oriented medium-term notes)

•  $1.3 billion of global debt

•  $4.0 billion of securities backed by home equity and auto finance loans. For accounting purposes, these transactions were structured as secured financings.

53

Household International, Inc.

Selected capital ratios are summarized in the following table:

		September 30,			December 31,
		2004			2003
		(Restated)			(Restated)
TETMA(1)			7.18	%		7.03	%
TETMA + Owned Reserves(1)			10.10			9.89
Tangible common equity to tangible managed assets(1)			5.22			5.04
Common and preferred equity to owned assets			13.96			14.69
Excluding purchase accounting adjustments:
	TETMA(1)		8.88			8.94
	TETMA + Owned Reserves(1)		11.81			11.81
	Tangible common equity to tangible managed assets(1)		6.96			6.98

⁽¹⁾ TETMA, TETMA + Owned Reserves and tangible common equity to tangible managed assets represent non-GAAP financial ratios that are used by Household management and certain rating agencies to evaluate capital adequacy and may differ from similarly named measures presented by other companies. See “Basis of Reporting” for additional discussion on the use of non-GAAP financial measures and “Reconciliations to GAAP Financial Measures” for quantitative reconciliations to the equivalent GAAP basis financial measure.

In April 2004, Fitch Ratings revised our Rating Outlook to Positive from Stable and raised our Support Rating to “1” from “2”. In addition, in July 2004 Fitch Ratings raised our Senior Debt Rating to “A+” from “A” and raised our Senior Subordinated Debt Rating and our Preferred Stock Rating to “A” from “A-”. We are committed to maintaining at least a mid-single “A” rating and as part of that effort will continue to review appropriate capital levels with our rating agencies.

On September 8, 2004, we declared a $850 million common stock dividend to our immediate parent, HSBC Investments (North America) Inc. (“HINO”), which was paid on September 30, 2004. In October 2004, we paid an accrued dividend of $108 million on our preferred stock to HNAH.

Securitizations and secured financings Securitizations (which are structured to receive sale treatment under Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a Replacement of FASB Statement No. 125,” (“SFAS No. 140”)) and secured financings (which do not receive sale treatment under SFAS No. 140) of consumer receivables are used to limit our reliance on the unsecured debt markets and often are more cost-effective than alternative funding sources.

In a securitization, a designated pool of non-real estate consumer receivables is removed from the balance sheet and transferred to an unaffiliated trust. This unaffiliated trust is a qualifying special purpose entity (“QSPE”) as defined by SFAS No. 140 and, therefore, is not consolidated. The QSPE funds its receivable purchase through the issuance of securities to investors, entitling them to receive specified cash flows during the life of the securities. The receivables transferred to the QSPE serve as collateral for the securities. At the time of sale, an interest-only strip receivable is recorded, representing the present value of the cash flows we expect to receive over the life of the securitized receivables, net of estimated credit losses. Under the terms of the securitizations, we receive annual servicing fees on the outstanding balance of the securitized receivables and the rights to future residual cash flows on the sold receivables after the investors receive their contractual return. Cash flows related to the interest-only strip receivables and servicing the receivables are collected over the life of the underlying securitized receivables.

In a secured financing, a designated pool of receivables are conveyed to a wholly owned limited purpose subsidiary which in turn transfers the receivables to a trust which sells interests to investors. Repayment of the debt issued by the trust is secured by the receivables transferred. The transactions are structured as secured financings under SFAS No. 140. Therefore, the receivables and the underlying debt of the trust remain on our balance sheet. We do not recognize a gain in a secured financing transaction. Because the

54

Household International, Inc.

receivables and the debt remain on our balance sheet, revenues and expenses are reported consistently with our owned balance sheet portfolio. Using this source of funding results in similar cash flows as issuing debt through alternative funding sources.

Under U.K. GAAP as reported by HSBC, securitizations are treated as secured financings. In order to align our accounting treatment with that of HSBC under U.K. GAAP, we began to structure all new collateralized funding transactions as secured financings in the third quarter of 2004. However, because existing public private label and MasterCard and Visa credit card transactions were structured as sales to revolving trusts that require replenishments of receivables to support previously issued securities, receivables of each of these asset types will continue to be sold to these trusts and the resulting replenishment gains recorded until the revolving periods end, the last of which is expected to occur in 2007. In addition, we will continue to replenish at reduced levels, certain non-public personal non-credit card and MasterCard/ Visa securities issued to conduits and record the resulting replenishment gains for a period of time in order to manage liquidity. Since our securitized receivables have varying lives, it will take several years for these receivables to pay-off and the related interest-only strip receivables to be reduced to zero. The termination of sale treatment on new collateralized funding activity reduces our reported net income under U.S. GAAP. There is no impact, however, on cash received from operations or on U.K. GAAP reported results. Because we believe the market for securities backed by receivables is a reliable, efficient and cost-effective source of funds, we will continue to use secured financings of consumer receivables as a source of our funding and liquidity.

As previously discussed, securitization levels were much lower in 2004 as a result of the use of alternate funding sources, including funding from HSBC subsidiaries and our decision to structure all new collateralized funding transactions as secured financings beginning in the third quarter of 2004.

Receivables securitized (excluding replenishments of certificateholder interests) are summarized in the following table:

Three months ended September 30	2004		2003
	(in millions)
Auto finance	$	-	$	-
MasterCard/ Visa		-		350
Private label		-		-
Personal non-credit card		-		885
Total	$	-	$	1,235

Nine months ended September 30	2004		2003
	(in millions)
Auto finance	$	-	$	1,007
MasterCard/ Visa		550		670
Private label		190		250
Personal non-credit card		-		1,700
Total	$	740	$	3,627

Our securitized receivables totaled $20.2 billion at September 30, 2004, compared to $26.2 billion at December 31, 2003. As of September 30, 2004, closed-end real estate secured and auto finance receivables totaling $9.3 billion secured $7.3 billion of outstanding debt related to securitization transactions which were structured as secured financings. At December 31, 2003, closed-end real estate secured receivables totaling $8.0 billion secured $6.7 billion of outstanding debt related to secured financing transactions. Securitizations structured as sales represented 16 percent of the funding associated with our managed portfolio at September 30, 2004 and 21 percent at December 31, 2003. Secured financings represented

55

Household International, Inc.

6 percent of the funding associated with our managed portfolio at September 30, 2004 and 5 percent at December 31, 2003.

2004 funding strategy Our current estimated domestic funding needs and sources for 2004 are summarized in the table that follows. Because we cannot predict with any degree of certainty the timing as to when or if approval will be received for our proposed transfer of our domestic private label credit card receivables to HSBC Bank USA, such transfer is not contemplated in the following 2004 funding plan. If the proposed transfer does occur, our external funding needs will decrease.

		Actual		Estimated
		January 1		October 1
		through		through		Estimated
		September 30,		December 31,		full year
		2004		2004		2004
		(in billions)
Funding needs:
	Net asset growth	$	7	$	5 - 6	$	12 - 13
	Commercial paper, term debt and securitization maturities		23		4 - 5		27 - 28
	Other		1		0 - 1		1 - 2
	Total funding needs, including growth	$	31	$	9 - 12	$	40 - 43
Funding sources:
	External funding, including HSBC clients	$	27	$	7 - 9	$	34 - 36
	HSBC and HSBC subsidiaries		4		2 - 3		6 - 7
	Total funding sources	$	31	$	9 - 12	$	40 - 43

Risk Management

Liquidity Risk There have been no significant changes in our approach to liquidity risk since December 31, 2003.

Interest Rate and Currency Risk HSBC has certain limits and benchmarks that serve as guidelines in determining appropriate levels of interest rate risk. One such limit is expressed in terms of the Present Value of a Basis Point (“PVBP”), which reflects the change in value of the balance sheet for a one basis point movement in all interest rates. Our PVBP limit as of September 30, 2004 was $3 million, which includes risk associated with hedging instruments. Thus, for a one basis point change in interest rates, the policy dictates that the value of the balance sheet shall not increase or decrease by more than $3 million. As of September 30, 2004, we had a PVBP position of less than $.1 million reflecting the impact of a one basis point increase in interest rates. Our total PVBP position was $.7 million at December 31, 2003 which does not change as a result of the loss of hedge accounting.

We also monitor the impact that an immediate hypothetical 100 basis points parallel increase or decrease in interest rates would have on our net interest income. The following table summarizes such estimated impact:

	September 30,		December 31,
	2004		2003
	(in millions)
Decrease in net interest income following an immediate hypothetical 100 basis points parallel rise in interest rates	$	316	$	406
Increase in net interest income following an immediate hypothetical 100 basis points parallel fall in interest rates	$	337	$	385

56

Household International, Inc.

These estimates include both the net interest income impact of the derivative positions we have entered into which are considered to be effective hedges under SFAS 133 and the impact of economic hedges of certain underlying debt instruments which do not qualify for hedge accounting as previously discussed, as if they were effective hedges under SFAS 133. These estimates also assume we would not take any corrective actions in response to interest rate movements and, therefore, exceed what most likely would occur if rates were to change by the amount indicated.

This approach best reflects the economic risks inherent in our balance sheet. Despite the loss of hedge accounting for certain underlying debt instruments as discussed above, the interest rate derivative positions hedging specific debt issues remain effective economic transactions. At inception, each hedge was structured to match the critical terms of the underlying debt. The validity of these financial structures and the effectiveness of corresponding economic hedges has been subsequently confirmed by an independent third party. From March 29, 2003 through September 30, 2004, the daily change in price of a substantial number of these derivative instruments which do not qualify for hedge accounting under SFAS 133 correlated highly with the change in price of the underlying debt. In this analysis, there is no intent to manage or otherwise alter existing derivative contracts meaning that at maturity of the derivative and the underlying debt instrument, no net value remains, unlike a portfolio with a focus on trading. Thus the treatment of all hedges as if they were effective under SFAS 133 remains the most effective way of depicting the impact of interest rate changes. Nevertheless, we have calculated a sensitivity to a 100 basis point immediate rise and fall in interest rates at December 31, 2004 which considers the loss of hedge accounting. See our 2004 Form 10-K for the results of this sensitivity analysis.

Counterparty Credit Risk At September 30, 2004, we had derivative contracts with a notional value of approximately $68.2 billion, including $59.2 billion outstanding with HSBC affiliates. Most swap agreements, both with third parties and affiliates, require that payments be made to, or received from, the counterparty when the fair value of the agreement reaches a certain level. Generally, third-party swap counterparties provide collateral in the form of cash which is recorded in our balance sheet as other assets or derivative related liabilities and totaled $.3 billion at September 30, 2004. Affiliate swap counterparties generally provide collateral in the form of securities which are not recorded on our balance sheet and totaled $1.5 billion at September 30, 2004.

There have been no significant changes in our approach to managing counterparty credit risk since December 31, 2003.

57

HOUSEHOLD INTERNATIONAL, INC.

RECONCILIATIONS TO GAAP FINANCIAL MEASURES

		Three months ended						Nine months ended
		September 30,			September 30,			September 30,			September 30,
		2004			2003			2004			2003
		(Restated)			(Restated)			(Restated)			(Restated)
		(dollars are in millions)
Return on Average Assets:
Net income		$	325		$	22		$	1,228		$	1,011
HSBC acquisition related costs and other merger related items incurred by Household, after-tax			-			-			-			167
Operating net income		$	325		$	22		$	1,228		$	1,178
Average assets:
	Owned basis	$	124,512		$	112,059		$	120,456		$	107,619
	Serviced with limited recourse		21,542			23,719			23,462			23,985
	Managed basis	$	146,054		$	135,778		$	143,918		$	131,604
Return on average owned assets			1.04	%		.08	%		1.36	%		1.25	%
Return on average owned assets, operating basis			1.04			.08			1.36			1.46
Return on average managed assets			.89			.06			1.14			1.02
Return on average managed assets, operating basis			.89			.06			1.14			1.19
Return on Average Common Shareholder’s Equity:
Net income		$	325		$	22		$	1,228		$	1,011
Dividends on preferred stock			(18	)		(18	)		(54	)		(58	)
Net income available to common shareholders			307			4			1,174			953
HSBC acquisition related costs and other merger related items incurred by Household			-			-			-			167
Operating net income available to common shareholders		$	307		$	4		$	1,174		$	1,120
Average common shareholder’s equity		$	17,367		$	15,544		$	17,057		$	13,396
Return on average common shareholder’s equity			7.1	%		.1	%		9.2	%		9.5	%
Return on average common shareholder’s equity, operating basis			7.1			.1			9.2			11.1
Net Interest Income:
Net interest income:
	Owned basis	$	1,969		$	1,916		$	5,719		$	5,358
	Serviced with limited recourse		581			715			1,987			2,161
	Managed basis	$	2,550		$	2,631		$	7,706		$	7,519
Average interest-earning assets:
	Owned basis	$	107,955		$	95,999		$	102,957		$	92,320
	Serviced with limited recourse		21,542			23,719			23,462			23,985
	Managed basis	$	129,497		$	119,718		$	126,419		$	116,305
Owned basis net interest margin			7.29	%		7.98	%		7.41	%		7.74	%
Managed basis net interest margin			7.88			8.79			8.13			8.62
Managed Basis Risk Adjusted Revenue:
Net interest income		$	2,550		$	2,631		$	7,706		$	7,519
Other revenues, excluding securitization revenue			969			146			3,024			2,590
Less: Net charge-offs			(1,363	)		(1,334	)		(4,172	)		(3,950	)
Risk adjusted revenue		$	2,156		$	1,443		$	6,558		$	6,159
Average interest-earning assets		$	129,497		$	119,718		$	126,419		$	116,305
Managed basis risk adjusted revenue			6.66	%		4.82	%		6.92	%		7.06	%

58

HOUSEHOLD INTERNATIONAL, INC.

RECONCILIATIONS TO GAAP FINANCIAL MEASURES (Continued)

		Three months ended									Nine months ended
		September 30,			June 30,			September 30,			September 30,			September 30,
		2004			2004			2003			2004			2003
		(dollars are in millions)
Consumer Net Charge-off Ratio:
Consumer net charge-offs:
	Owned basis	$	969		$	966		$	897		$	2,905		$	2,702
	Serviced with limited recourse		394			401			435			1,267			1,246
	Managed basis	$	1,363		$	1,367		$	1,332		$	4,172		$	3,948
Average consumer receivables:
	Owned basis	$	102,821		$	96,189		$	90,172		$	97,328		$	86,269
	Serviced with limited recourse		21,542			23,568			23,719			23,462			23,985
	Managed basis	$	124,363		$	119,757		$	113,891		$	120,790		$	110,254
Owned basis consumer net charge-off ratio			3.77	%		4.02	%		3.98	%		3.98	%		4.17	%
Managed basis consumer net charge-off ratio			4.38			4.57			4.68			4.61			4.77
Reserves as a Percent of Net Charge-offs
Loss reserves:
	Owned basis	$	3,953		$	3,795		$	3,779		$	3,953		$	3,779
	Serviced with limited recourse		1,246			1,904			1,954			1,246			1,954
	Managed basis	$	5,199		$	5,699		$	5,733		$	5,199		$	5,733
Net charge-offs:
	Owned basis	$	969		$	966		$	899		$	2,905		$	2,704
	Serviced with limited recourse		394			401			435			1,267			1,246
	Managed basis	$	1,363		$	1,367		$	1,334		$	4,172		$	3,950
Owned basis reserves as a percent of net charge-offs			102.0	%		98.2	%		105.1	%		102.1	%		104.8	%
Managed basis reserves as a percent of net charge-offs			95.4			104.2			107.4			93.5			108.9
Efficiency Ratio (Restated):
Total costs and expenses less policyholders’ benefits		$	1,315		$	1,228		$	1,157		$	3,840		$	3,633
HSBC acquisition related costs incurred by Household			-			-			-			-			198
Total costs and expenses less policyholders’ benefits, excluding nonrecurring items		$	1,315		$	1,228		$	1,157		$	3,840		$	3,435
Net interest income and other revenues less policyholders’ benefits:
	Owned basis	$	2,916		$	2,889		$	2,162		$	8,735		$	8,260
	Serviced with limited recourse		(232	)		148			420			169			1,444
	Managed basis	$	2,684		$	3,037		$	2,582		$	8,904		$	9,704
Owned basis efficiency ratio			45.1	%		42.5	%		53.5	%		44.0	%		44.0	%
Owned basis efficiency ratio, operating basis			45.1			42.5			53.5			44.0			41.6
Managed basis efficiency ratio			49.0			40.4			44.8			43.1			37.4
Managed basis efficiency ratio, operating basis			49.0			40.4			44.8			43.1			35.4

59

HOUSEHOLD INTERNATIONAL, INC.

RECONCILIATIONS TO GAAP FINANCIAL MEASURES (Continued)

		September 30,			June 30,			September 30,
		2004			2004			2003
		(dollars are in millions)
Two-Months-and-Over-Contractual Delinquency:
Consumer two-months-and-over-contractual delinquency:
	Owned basis	$	4,702		$	4,534		$	4,966
	Serviced with limited recourse		1,092			1,194			1,289
	Managed basis	$	5,794		$	5,728		$	6,255
Consumer receivables:
	Owned basis	$	106,130		$	99,115		$	92,656
	Serviced with limited recourse		20,175			22,836			24,109
	Managed basis	$	126,305		$	121,951		$	116,765
Consumer two-months-and-over-contractual delinquency:
	Owned basis		4.43	%		4.57	%		5.36	%
	Managed basis		4.59			4.70			5.36
Reserves as a Percent of Receivables:
Loss reserves:
	Owned basis	$	3,953		$	3,795		$	3,779
	Serviced with limited recourse		1,246			1,904			1,954
	Managed basis	$	5,199		$	5,699		$	5,733
Receivables:
	Owned basis	$	106,437		$	99,432		$	93,028
	Serviced with limited recourse		20,175			22,836			24,109
	Managed basis	$	126,612		$	122,268		$	117,137
Reserves as a percent of receivables:
	Owned basis		3.71	%		3.82	%		4.06	%
	Managed basis		4.11			4.66			4.89
Reserves as a Percent of Nonperforming Loans:
Loss reserves:
	Owned basis	$	3,953		$	3,795		$	3,779
	Serviced with limited recourse		1,246			1,904			1,954
	Managed basis	$	5,199		$	5,699		$	5,733
Nonperforming loans:
	Owned basis	$	3,797		$	3,684		$	4,082
	Serviced with limited recourse		881			958			1,052
	Managed basis	$	4,678		$	4,642		$	5,134
Reserves as a percent of nonperforming loans:
	Owned basis		104.1	%		103.0	%		92.6	%
	Managed basis		111.1			122.8			111.7

60

HOUSEHOLD INTERNATIONAL, INC.

RECONCILIATIONS TO GAAP FINANCIAL MEASURES (Continued)

			September 30,			December 31,
			2004			2003
			(Restated)			(Restated)
			(dollars are in millions)
Equity Ratios
Tangible common equity:
Common shareholder’s equity			$	16,727		$	16,391
Exclude:
	Unrealized gains (losses) on:
		Derivatives classified as cash flow hedges		(35	)		10
		Securities available for sale and interest-only strip receivables		(129	)		(167	)
	Intangible assets, net			(2,684	)		(2,856	)
	Goodwill			(6,811	)		(6,697	)
Tangible common equity				7,068			6,681
Purchase accounting adjustments				2,335			2,548
Tangible common equity, excluding purchase accounting adjustments			$	9,403		$	9,229
Tangible shareholder’s equity:
Tangible common equity			$	7,068		$	6,681
Preferred stock				1,100			1,100
Mandatorily redeemable preferred securities of Household Capital Trusts				1,026			1,031
Adjustable Conversion-Rate Equity Security Units				527			519
Tangible shareholder’s equity				9,721			9,331
Purchase accounting adjustments				2,284			2,492
Tangible shareholder’s equity, excluding purchase accounting adjustments			$	12,005		$	11,823
Tangible shareholder’s equity plus owned loss reserves:
Tangible shareholder’s equity			$	9,721		$	9,331
Owned loss reserves				3,953			3,793
Tangible shareholder’s equity plus owned loss reserves				13,674			13,124
Purchase accounting adjustments				2,284			2,492
Tangible shareholder’s equity plus owned loss reserves, excluding purchase accounting adjustments			$	15,958		$	15,616
Tangible managed assets:
Owned assets			$	127,728		$	119,052
Receivables serviced with limited recourse				20,175			26,201
Managed assets				147,903			145,253
Exclude:
	Intangible assets, net			(2,684	)		(2,856	)
	Goodwill			(6,811	)		(6,697	)
	Derivative financial assets			(3,001	)		(3,016	)
Tangible managed assets				135,407			132,684
Purchase accounting adjustments				(278	)		(431	)
Tangible managed assets, excluding purchase accounting adjustments			$	135,129		$	132,253
Equity ratios:
Common and preferred equity to owned assets				13.96	%		14.69	%
Tangible common equity to tangible managed assets				5.22			5.04
Tangible shareholder’s equity to tangible managed assets (“TETMA”)				7.18			7.03
Tangible shareholder’s equity plus owned loss reserves to tangible managed assets (“TETMA + Owned Reserves”)				10.10			9.89
Excluding purchase accounting adjustments:
	Tangible common equity to tangible managed assets			6.96			6.98
	TETMA			8.88			8.94
	TETMA + Owned Reserves			11.81			11.81

61

Item 4. Controls and Procedures

Disclosure Controls As of the end of the period covered by this report, with the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that as of the end of such period, our disclosure controls and procedures were effective in timely alerting them to material information relating to Household International, Inc. required to be included in our periodic reports with the Securities and Exchange Commission.

As a result of a subsequent evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by our Annual Report on Form 10-K for the year ended December 31, 2004, with the participation of our Chief Executive Officer and Chief Financial Officer, we identified a material weakness in our internal controls over financial reporting relating to the process of establishing and maintaining effective hedges under the “shortcut” method of accounting pursuant to Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities.” As a result, and as set forth in Note 2 to the Consolidated Financial Statements and the “Restatement” section included in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, we have restated our unaudited consolidated financial statements for the periods covered by this report. We have also undertaken remedial action to address and correct the weakness in our internal controls over this process.

Internal Controls There have not been any changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

General We are parties to various legal proceedings resulting from ordinary business activities relating to our current and/or former operations. Certain of these actions are or purport to be class actions seeking damages in very large amounts. These actions assert violations of laws and/or unfair treatment of consumers. Due to the uncertainties in litigation and other factors, we cannot be certain that we will ultimately prevail in each instance. We believe that our defenses to these actions have merit and any adverse decision should not materially affect our consolidated financial condition.

Consumer Lending Litigation During the past several years, the press has widely reported certain industry related concerns that may impact us. Some of these involve the amount of litigation instituted against finance and insurance companies operating in certain states and the large awards obtained from juries in those states (Alabama and Mississippi are illustrative). Like other companies in this industry, some of our subsidiaries are involved in a number of lawsuits pending against them in these states. The Alabama and Mississippi cases, in particular, generally allege inadequate disclosure or misrepresentation of financing terms. In some suits, other parties are also named as defendants. Unspecified compensatory and punitive damages are sought. Several of these suits purport to be class actions or have multiple plaintiffs. The judicial climate in these states is such that the outcome of all of these cases is unpredictable. Although our subsidiaries believe they have substantive legal defenses to these claims and are prepared to defend each case vigorously, a number of such cases have been settled or otherwise resolved for amounts that in the aggregate are not material to our operations. Appropriate insurance carriers have been notified of each claim, and a number of reservations of rights letters have been received. Certain of the financing of merchandise claims have been partially covered by insurance.

In a case decided on March 31, 2004 and published on May 13, the Appellate Court of Illinois, First District (Cook County), ruled in U.S. Bank National Association v. Clark, et al., that certain lenders (which did not include any subsidiaries of Household) violated the Illinois Interest Act by imposing points

62

and finance charge fees in excess of 3% of the principal amount on loans with an interest rate in excess of 8%. The Appellate Court held for the first time that when the Illinois legislature made amendments to the late fee provisions of the Interest Act in 1992, Illinois opted out of the Federal Depository Institutions Deregulation and Monetary Control Act of 1980 (“DIDMCA”) and, in “certain instances,” the Federal Alternative Mortgage Transaction Parity Act of 1982 (“AMPTA”). DIDMCA and AMPTA each contain provisions that preempt certain state laws unless state legislatures took affirmative action to “opt-out” of the federal preemptions within specified time frames. The Court found that as a result of 1992 legislative action, the State’s 3% restriction on points and finance charge fees are now enforceable in Illinois. The Appellate Court’s ruling reversed the trial court’s decision, which had relied on previous opinions of the Illinois Attorney General, the Illinois Office of Banks and Real Estate, and other courts. Should the decision stand and be applied retroactively throughout Illinois, lenders would be required to make refunds to customers who had a closed-end real estate secured first mortgage loan of double the interest paid or contracted for, whichever is greater. The plaintiffs in the Clark case have filed a notice of appeal with the Illinois Supreme Court. Three cases have been filed against subsidiaries of Household based upon the Clark decision: Wilkes v. Household Finance Corporation III, et al., Circuit Court of Cook County, Illinois, Chancery Division, filed on June 18, 2004 (purported class action); Aslam v. Accredited Home Lenders, Inc., et al., Circuit Court of Cook County, Illinois, Chancery Division, filed on June 11, 2004 (purported class action); and Morris, et al. v. Household Mortgage Services, Inc., U.S. District Court for the Northern District of Illinois, filed on June 22, 2004. On our motion, the Wilkes case was removed to Bankruptcy Court, however, plaintiffs have filed a motion to return the case to the U.S. District Court. We also served an arbitration demand on plaintiff’s counsel as permitted under the loan documents and filed a motion to stay or dismiss the case pending arbitration. The Aslam case was settled for an immaterial amount and was dismissed on October 28, 2004. The portion of the Morris case alleging violations of the Illinois Interest Act was settled for an immaterial amount. At this time, we are unable to quantify the potential impact of the Clark decision should it receive retroactive application.

Securities Litigation In August 2002, we restated previously reported consolidated financial statements. The restatement related to certain MasterCard and Visa co-branding and affinity credit card relationships and a third party marketing agreement, which were entered into between 1992 and 1999. All were part of our Credit Card Services segment. In consultation with our prior auditors, Arthur Andersen LLP, we treated payments made in connection with these agreements as prepaid assets and amortized them in accordance with the underlying economics of the agreements. Our current auditor, KPMG LLP, advised us that, in its view, these payments should have either been charged against earnings at the time they were made or amortized over a shorter period of time. The restatement resulted in a $155.8 million, after-tax, retroactive reduction to retained earnings at December 31, 1998. As a result of the restatement, and other corporate events, including, e.g., the 2002 settlement with 50 states and the District of Columbia relating to real estate lending practices, Household, and its directors, certain officers and former auditors, have been involved in various legal proceedings, some of which purport to be class actions. A number of these actions allege violations of federal securities laws, were filed between August and October 2002, and seek to recover damages in respect of allegedly false and misleading statements about our common stock. To date, none of the class claims has been certified. These legal actions have been consolidated into a single purported class action, Jaffe v. Household International, Inc., et al., No. 02 C 5893 (N.D. Ill., filed August 19, 2002), and a consolidated and amended complaint was filed on March 7, 2003. The amended complaint purports to assert claims under the federal securities laws, on behalf of all persons who purchased or otherwise acquired Household securities between October 23, 1997 and October 11, 2002, arising out of alleged false and misleading statements in connection with Household’s sales and lending practices, the 2002 state settlement agreement referred to above, the restatement and the HSBC merger. The amended complaint, which also names as defendants Arthur Andersen LLP, Goldman, Sachs & Co., and Merrill Lynch, Pierce, Fenner & Smith, Inc., fails to specify the amount of damages sought. In May 2003, we, and other defendants, filed a motion to dismiss the complaint. On March 19, 2004, the Court granted in part, and denied in part the defendants’ motion to dismiss the complaint. The Court dismissed all claims against Merrill Lynch, Pierce, Fenner & Smith, Inc. and Goldman Sachs & Co. The Court also dismissed certain claims alleging strict liability for alleged misrepresentation of material facts based on

63

statute of limitations grounds. The claims that remain against some or all of the defendants essentially allege the defendants knowingly made a false statement of a material fact in conjunction with the purchase or sale of securities, that the plaintiffs justifiably relied on such statement, the false statement(s) caused the plaintiffs’ damages, and that some or all of the defendants should be liable for those alleged statements. The Court has ordered that all factual discovery must be completed by January 13, 2006 and expert witness discovery must be completed by July 24, 2006.

Other actions arising out of the restatement, which purport to assert claims under ERISA on behalf of participants in Household’s Tax Reduction Investment Plan, were consolidated into a single purported class action, In re Household International, Inc. ERISA Litigation, Master File No. 02 C 7921 (N.D. Ill). A consolidated and amended complaint was filed against Household, William Aldinger and individuals on the Administrative Investment Committee of the plan. The consolidated complaint purports to assert claims under ERISA that are similar to the claims in the Jaffe case. Essentially, the plaintiffs allege that the defendants breached their fiduciary duties to the plan by investing in Household stock and failing to disclose information to Plan participants. A motion to dismiss the complaint was filed in June 2003. On March 30, 2004, the Court granted in part, and denied in part, the defendants’ motion to dismiss the complaint. The Court dismissed all claims alleging that some or all of the defendants breached their co-fiduciary obligations; misrepresented the prudence of investing in Household stock; failed to disclose nonpublic information regarding alleged accounting and lending improprieties; and failed to provide other defendants with non-public information. The claims that remained essentially alleged that some or all of the defendants failed to prudently manage plan assets by continuing to invest in, or provide matching contributions of, Household stock. On October 8, 2004, the parties entered into a settlement agreement and documents have been filed with the Court seeking preliminary approval of the settlement. Preliminary approval was granted on October 13, 2004. Notice of the proposed terms were published and mailed to applicable Plan participants in October and the Court will hold a fairness hearing on November 22, 2004. If approved by the Court and not appealed, the settlement will become final at that time. The settlement provides for a payment of $46.5 million which will be paid into Plan accounts after deduction of plaintiffs’ legal fees and costs. The entire settlement will be funded by insurance proceeds.

On June 27, 2003, a case entitled, West Virginia Laborers Pension Trust Fund v. Caspersen, et al., was filed in the Chancery Division of the Circuit Court of Cook County, Illinois as case number 03CH10808. This purported class action names as defendants the directors of Beneficial Corporation at the time of the 1998 merger of Beneficial Corporation into a subsidiary of Household, and claims that those directors’ due diligence of the Company at the time they considered the merger was inadequate. The Complaint claims that as a result of some of the securities law and other violations alleged in the Jaffe case, the Company’s common shares lost value. Pursuant to the merger agreement with Beneficial Corporation, we assumed the defense of this litigation. In September of 2003, the defendants filed a motion to dismiss which was granted on June 15, 2004 based upon a lack of personal jurisdiction over the defendants. The plaintiffs have appealed this decision. In addition, on June 30, 2004, a case entitled, Employer-Teamsters Local Nos. 175 & 505 Pension Trust Fund v. Caspersen, et al., was filed in the Superior Court of New Jersey, Law Division, Somerset County as Case Number L9479-04. Other than the change in plaintiff, the suit is substantially identical to the above West Virginia Laborer’s Pension Trust Fund case, and is brought by the same principal law firm which brought that suit. The defendants have filed a motion to dismiss this case.

With respect to these securities litigation matters, we believe that we have not, and our officers and directors have not, committed any wrongdoing and in each instance there will be no finding of improper activities that may result in a material liability to us or any of our officers or directors.

Item 5. Other Information

As approved by the Audit Committee of the Board of Directors, we have engaged KPMG to perform certain non-audit services during the year. Those services include language translation services relating to debt offerings of subsidiaries, preparation of SAS70 reports relating to services performed for contractual

64

counterparties, reporting on an annual report for the pension plan for our UK operations, and certain tax services including account analysis, advice regarding certain transactions and preparation of returns for securitization trusts.

Item 6. Exhibits and Reports on Form 8-K

      (a) Exhibits

12		Statement of Computation of Ratio of Earnings to Fixed Charges and to Combined Fixed Charges and Preferred Stock Dividends.
31		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99	.1	Debt and Preferred Stock Securities Ratings.
99	.2	Report of KPMG LLP, independent registered public accounting firm.
99	.3	Letter of independent registered public accounting firm, KPMG LLP, regarding unaudited interim financial information.

      (b) Reports on Form 8-K

During the quarter ended September 30, 2004, the Registrant filed a Current Report on Form 8-K on August 2, 2004 with respect to the financial supplement pertaining to the financial results of Household International, Inc. for the quarter ended June 30, 2004.

65

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HSBC FINANCE CORPORATION

(formerly known as Household International, Inc.)

(Registrant)

/s/ Simon C. Penney

Simon C. Penney

Senior Executive Vice President and

Chief Financial Officer

Date: March 31, 2005

66

Exhibit Index

12		Statement of Computation of Ratio of Earnings to Fixed Charges and to Combined Fixed Charges and Preferred Stock Dividends.
31		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99	.1	Debt and Preferred Stock Securities Ratings.
99	.2	Report of KPMG LLP, independent registered public accounting firm.
99	.3	Letter of independent registered public accounting firm, KPMG LLP, regarding unaudited interim financial information.

EX-12

EXHIBIT 12

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND

TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

		Nine months		March 29		January 1
		ended		through		through
		September 30,		September 30,		March 28,
		2004		2003		2003
				(Successor)		(Predecessor)
		(Successor)		(Restated)
		(Restated)		(in millions)
Net income		$	1,228	$	765	$	246
Income tax expense			619		384		182
Income before income tax expense			1,847		1,149		428
Fixed charges:
	Interest expense(1)		2,225		1,362		898
	Interest portion of rentals(2)		39		26		18
Total fixed charges			2,264		1,388		916
Total earnings as defined		$	4,111	$	2,537	$	1,344
Ratio of earnings to fixed charges			1.82		1.83		1.47	(4)
Preferred stock dividends(3)			81		59		32
Ratio of earnings to combined fixed charges and preferred stock dividends			1.75		1.75		1.42	(4)

(1)	For financial statement purposes for the periods January 1 through March 28, 2003 and March 29 through September 30, 2003, these amounts are reduced for income earned on temporary investment of excess funds, generally resulting from over-subscriptions of commercial paper issuances.
(2)	Represents one-third of rentals, which approximates the portion representing interest.
(3)	Preferred stock dividends are grossed up to their pretax equivalents.
(4)	The ratios for the period January 1 through March 28, 2003 have been negatively impacted by $167 million (after-tax) of HSBC acquisition related costs and other merger related items incurred by Household. Excluding these charges, our ratio of earnings to fixed charges would have been 1.69 and our ratio of earnings to combined fixed charges and preferred stock dividends would have been 1.63. These non-GAAP financial ratios are provided for comparison of our operating trends only.

EX-31 3 c92348q3exv31.htm CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 302

EXHIBIT 31

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

Certification of Chief Executive Officer

I, William F. Aldinger, Chairman and Chief Executive Officer of HSBC Finance Corporation (formerly known as Household International, Inc.), certify that:

      1. I have reviewed this amended report on Form 10-Q/A of HSBC Finance Corporation;

      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

      4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

      a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

      5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

      a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

      b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ William F. Aldinger

William F. Aldinger

Chairman and Chief Executive Officer

Date: March 31, 2005

2

Certification of Chief Financial Officer

I, Simon C. Penney, Senior Executive Vice President and Chief Financial Officer of HSBC Finance Corporation (formerly known as Household International, Inc.), certify that:

      1. I have reviewed this amended report on Form 10-Q/A of HSBC Finance Corporation;

      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

      4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

      a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

      5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

      a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

      b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Simon C. Penney

Simon C. Penney

Senior Executive Vice President and

Chief Financial Officer

Date: March 31, 2005

3 EX-32 4 c92348q3exv32.htm CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 906

EXHIBIT 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the amended Quarterly Report of HSBC Finance Corporation, formerly known as Household International, Inc. (the “Company”), on Form 10-Q/A for the period ending September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William F. Aldinger, Chairman and Chief Executive Officer of HSBC Finance Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

      (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

      (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William F. Aldinger

William F. Aldinger

Chairman and Chief Executive Officer

March 31, 2005

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the amended Quarterly Report of HSBC Finance Corporation, formerly known as Household International, Inc. (the “Company”), on Form 10-Q/A for the period ending September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Simon C. Penney, Senior Executive Vice President and Chief Financial Officer of HSBC Finance Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

      (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

      (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Simon C. Penney

Simon C. Penney

Senior Executive Vice President and

Chief Financial Officer

March 31, 2005

This certification accompanies each Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

Signed originals of these written statements required by Section 906 of the Sarbanes-Oxley Act of 2002 have been provided to HSBC Finance Corporation and will be retained by HSBC Finance Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.1 5 c92348q3exv99w1.htm DEBT AND PREFERRED STOCK SECURITIES RATINGS

EXHIBIT 99.1

DEBT AND PREFERRED STOCK SECURITIES RATINGS

		Standard &		Moody’s
		Poor’s		Investors
At September 30, 2004		Corporation		Service		Fitch, Inc.
Household International, Inc.
	Senior debt		A		A2		A+
	Preferred stock		BBB+		Baa1		A
Household Finance Corporation
	Senior debt		A		A1		A+
	Senior subordinated debt		A-		A2		A
	Commercial paper		A-1		P-1		F-1
HFC Bank Limited
	Senior debt		A		A1		A+
	Commercial paper		A-1		P-1		F-1
Household Bank (SB), N.A
	Senior debt		A		A1		A+

EX-31

exv31

EX-32

exv32

EX-99.1

exv99w1

EX-99.2

EXHIBIT 99.2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholder

HSBC Finance Corporation

We have reviewed the consolidated balance sheet of HSBC Finance Corporation (formerly Household International, Inc.) (the Company), an indirect wholly-owned subsidiary of HSBC Holdings plc, and subsidiaries as of September 30, 2004 (successor basis), the related consolidated statements of income for the three and nine months ended September 30, 2004 (successor basis), the three months ended September 30, 2003 (successor basis), and the periods January 1, 2003 through March 28, 2003 (predecessor basis) and March 29, 2003 through September 30, 2003 (successor basis), and the consolidated statements of changes in shareholder’s(s’) equity and cash flows for the nine months ended September 30, 2004 (successor basis), and the periods January 1, 2003 through March 28, 2003 (predecessor basis) and March 29, 2003 through September 30, 2003 (successor basis). These consolidated financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards established by the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, HSBC Finance Corporation was acquired by HSBC Holdings plc on March 28, 2003 in a purchase business combination recorded under the “push-down” method of accounting. As a result of the acquisition, the consolidated financial information for the period after the acquisition is presented on a different cost basis than that for the period before the acquisition and, therefore, is not comparable.

As discussed in Note 2 to the consolidated financial statements, HSBC Finance Corporation has restated its consolidated financial statements as of September 30, 2004 (successor basis) and for the three and nine months ended September 30, 2004 (successor basis), the three months ended September 30, 2003 (successor basis), and the period March 29, 2003 through September 30, 2003 (successor basis).

/s/ KPMG LLP

Chicago, Illinois

November 15, 2004 (except as to Note 2, which is as of March 31, 2005)

EX-99.3

EXHIBIT 99.3

HSBC Finance Corporation

Prospect Heights, Illinois

Re:  Quarterly Report Pursuant to Section 13 of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2004 as filed on Form 10-Q/ A on March 31, 2005

With respect to the subject quarterly report pursuant to Section 13 of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2004 as filed on Form 10-Q/ A on March 31, 2005, we acknowledge our awareness of the use therein of our report dated November 15, 2004 (except as to Note 2, which is as of March 31, 2005) related to our reviews of interim financial information.

Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such report is not considered part of a registration statement prepared or certified by an accountant, or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act.

/s/ KPMG LLP

Chicago, Illinois

March 31, 2005