10-Q

UNITED STATES SECURITIES AND

EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2004

OR

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

For the transition period from                          to                         

Commission file number 1-8198

HOUSEHOLD INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware	86-1052062
(State of Incorporation)	(I.R.S. Employer Identification No.)
2700 Sanders Road, Prospect Heights, Illinois	60070
(Address of principal executive offices)	(Zip Code)

(847) 564-5000

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

At July 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

TABLE OF CONTENTS

Part I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
	Statement of Income	3
	Balance Sheet	4
	Statement of Changes in Shareholder’s(s’) Equity	5
	Statement of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Forward-Looking Statements	17
	Executive Overview	17
	Basis of Reporting	20
	Receivable Review	26
	Results of Operations	27
	Segment Results – Managed Basis	32
	Credit Quality	37
	Liquidity and Capital Resources	46
	Risk Management	50
	Reconciliations to GAAP Financial Measures	52
Item 4.	Controls and Procedures	56
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	56
Item 6.	Exhibits and Reports on Form 8-K	59
Signature		60

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Part I.  FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

Household International, Inc.

CONSOLIDATED STATEMENT OF INCOME

	Three months ended June 30,				Six months ended June 30, 2004		March 29 through June 30, 2003		January 1 through March 28, 2003
	2004		2003
	(Successor)		(Successor)		(Successor)		(Successor)		(Predecessor)
	(in millions)
Finance and other interest income	$	2,650.3	$	2,504.1	$	5,193.1	$	2,578.6	$	2,470.5
Interest expense		640.2		558.8		1,277.5		573.4		897.4
Net interest income		2,010.1		1,945.3		3,915.6		2,005.2		1,573.1
Provision for credit losses		997.4		1,039.3		1,925.2		1,072.8		976.1
Net interest income after provision for credit losses		1,012.7		906.0		1,990.4		932.4		597.0
Other revenues:
Securitization revenue		253.0		282.6		586.7		291.1		432.6
Insurance revenue		204.2		183.3		415.1		189.0		171.6
Investment income		30.2		33.2		71.0		34.5		80.0
Fee income		247.2		228.4		514.8		237.2		279.8
Other income		178.9		162.8		480.8		167.9		247.2
Total other revenues		913.5		890.3		2,068.4		919.7		1,211.2
Costs and expenses:
Salaries and employee benefits		457.4		488.6		943.2		505.9		491.3
Sales incentives		89.8		83.2		168.4		84.6		37.7
Occupancy and equipment expenses		76.3		100.0		159.0		103.5		97.7
Other marketing expenses		131.2		135.2		262.9		139.9		138.8
Other servicing and administrative expenses		198.1		263.7		424.2		272.9		313.7
Support services from HSBC affiliates		196.4		-		373.8		-		-
Amortization of intangibles		79.4		78.3		195.0		80.3		12.3
Policyholders’ benefits		93.2		98.4		206.0		101.4		91.0
HSBC acquisition related costs incurred by Household		-		-		-		-		198.2
Total costs and expenses		1,321.8		1,247.4		2,732.5		1,288.5		1,380.7
Income before income tax expense		604.4		548.9		1,326.3		563.6		427.5
Income tax expense		209.7		184.9		450.5		189.9		181.8
Net income	$	394.7	$	364.0	$	875.8	$	373.7	$	245.7

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

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Household International, Inc.

CONSOLIDATED BALANCE SHEET

	June 30, 2004		December 31, 2003
	(Successor)		(Successor)
	(in millions, except share data)
Assets
Cash	$	110.1	$	463.4
Securities		6,923.6		11,073.1
Receivables, net		97,639.2		91,027.3
Intangible assets, net		2,667.8		2,855.8
Goodwill		6,820.5		6,697.0
Properties and equipment, net		490.6		527.2
Real estate owned		624.2		631.2
Derivative financial assets		2,178.2		3,117.7
Other assets		3,098.5		2,761.2
Total assets	$	120,552.7	$	119,153.9
Liabilities
Debt:
Deposits	$	56.1	$	231.5
Commercial paper, bank and other borrowings		10,259.0		9,122.4
Debt due to affiliates		8,764.6		7,589.3
Senior and senior subordinated debt (with original maturities over one year)		77,807.0		79,464.4
Total debt		96,886.7		96,407.6
Insurance policy and claim reserves		1,304.3		1,258.0
Derivative related liabilities		480.9		599.6
Other liabilities		3,174.3		3,228.4
Total liabilities		101,846.2		101,493.6
Shareholder’s equity
Preferred stock issued to HSBC		1,100.0		1,100.0
Common shareholder’s equity:
Common stock, $0.01 par value, 100 shares authorized, 50 shares issued		-		-
Additional paid-in capital		14,643.1		14,644.5
Retained earnings		2,205.4		1,365.3
Accumulated other comprehensive income		758.0		550.5
Total common shareholder’s equity		17,606.5		16,560.3
Total liabilities and shareholder’s equity	$	120,552.7	$	119,153.9

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

4

Household International, Inc.

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

	Six months ended June 30, 2004			March 29 through June 30, 2003			January 1 through March 28, 2003
	(in millions)
Preferred stock
Balance at beginning of period	$	1,100.0		$	1,100.0		$	1,193.2
Reclassification of preferred stock issuance costs		-			-			21.2
Redemption		-			-			(114.4	)
Balance at end of period (successor)	$	1,100.0		$	1,100.0		$	1,100.0
Common shareholder’s(s’) equity
Common stock
Balance at beginning of period		-			-		$	551.8
Effect of push-down accounting of HSBC’s purchase price on net assets		-			-			(551.8	)
Balance at end of period (successor)		-			-		$	-
Additional paid-in capital
Balance at beginning of period	$	14,644.5		$	14,660.7		$	1,911.3
Return of capital to HSBC		(13.8	)		(8.1	)		-
Employee benefit plans and other		12.4			7.6			9.8
Reclassification of preferred stock issuance costs		-			-			(21.2	)
Effect of push-down accounting of HSBC’s purchase price on net assets		-			-			12,760.8
Balance at end of period (successor)	$	14,643.1		$	14,660.2		$	14,660.7
Retained earnings
Balance at beginning of period	$	1,365.3		$	-		$	9,885.6
Net income		875.8			373.7			245.7
Dividends:
Preferred at stated rates		(35.7	)		(18.6	)		(22.2	)
Common, $.8694 per share		-			-			(411.8	)
Effect of push-down accounting of HSBC’s purchase price on net assets		-			-			(9,697.3	)
Balance at end of period (successor)	$	2,205.4		$	355.1		$	-
Accumulated other comprehensive income
Balance at beginning of period	$	550.5		$	-		$	(694.9	)
Net change in unrealized gains (losses) on:
Derivatives classified as cash flow hedges		191.2			.6			100.6
Securities available for sale and interest-only strip receivables		(3.9	)		139.7			(25.0	)
Minimum pension liability		-			-			.2
Foreign currency translation adjustment		20.2			76.7			(24.1	)
Other comprehensive income, net of tax		207.5			217.0			51.7
Effect of push-down accounting of HSBC’s purchase price on net assets		-			-			643.2
Balance at end of period (successor)	$	758.0		$	217.0		$	-
Common stock in treasury
Balance at beginning of period		-			-		$	(2,430.9	)
Exercise of stock options		-			-			12.2
Issuance of common stock for employee benefit plans		-			-			12.1
Purchase of treasury stock		-			-			(164.1	)
Effect of push-down accounting of HSBC’s purchase price on net assets		-			-			2,570.7
Balance at end of period (successor)		-			-		$	-
Total common shareholder’s equity	$	17,606.5		$	15,232.3		$	14,660.7
Comprehensive income
Net income	$	875.8		$	373.7		$	245.7
Other comprehensive income		207.5			217.0			51.7
Comprehensive income	$	1,083.3		$	590.7		$	297.4

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

5

Household International, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS

	Six months ended June 30, 2004			March 29 through June 30, 2003			January 1 through March 28, 2003
	(Successor)			(Successor)			(Predecessor)
	(in millions)
Cash flows from operating activities
Net income	$	875.8		$	373.7		$	245.7
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses		1,925.2			1,072.8			976.1
Insurance policy and claim reserves		(68.9	)		(94.3	)		47.2
Depreciation and amortization		253.3			121.5			53.5
Net change in interest-only strip receivables		291.8			197.8			36.4
Net change in other assets		(314.6	)		(208.2	)		(593.2	)
Net change in other liabilities		(204.4	)		(547.4	)		616.0
Other, net		(599.2	)		1,479.3			83.2
Net cash provided by (used in) operating activities		2,159.0			2,395.2			1,464.9
Cash flows from investing activities
Securities:
Purchased		(971.2	)		(1,268.7	)		(1,046.7	)
Matured		1,078.1			660.5			584.2
Sold		496.6			234.6			768.4
Net change in short-term securities available for sale		3,525.7			1,555.5			(375.0	)
Receivables:
Originations, net of collections		(26,071.8	)		(12,887.2	)		(8,261.6	)
Purchases and related premiums		(542.7	)		(1,831.5	)		(129.0	)
Initial and fill-up securitizations		16,719.4			9,156.5			7,300.1
Sales to affiliates		855.6			-			-
Properties and equipment:
Purchases		(31.6	)		(28.3	)		(21.6	)
Sales		1.3			2.2			.1
Net cash provided by (used in) investing activities		(4,940.6	)		(4,406.4	)		(1,181.1	)
Cash flows from financing activities
Debt:
Net change in short-term debt and demand deposits		1,105.1			1,977.6			(513.5	)
Net change in time certificates		(155.3	)		194.3			150.3
Net change in debt due to affiliates		1,121.9			3,296.5			-
Senior and senior subordinated debt issued		7,629.9			991.0			4,360.9
Senior and senior subordinated debt retired		(7,315.6	)		(4,563.0	)		(4,029.8	)
Insurance:
Policyholders’ benefits paid		(88.7	)		(64.0	)		(35.6	)
Cash received from policyholders		121.1			91.6			33.1
Shareholders’ dividends		-			(311.1	)		(141.4	)
Redemption of preferred stock		-			-			(114.4	)
Purchase of treasury stock		-			-			(164.1	)
Issuance of common stock for employee benefit plans		-			-			62.2
Net cash provided by (used in) financing activities		2,418.4			1,612.9			(392.3	)
Effect of exchange rate changes on cash		9.9			32.2			(15.2	)
Net change in cash		(353.3	)		(366.1	)		(123.7	)
Cash at beginning of period		463.4			674.0			797.7
Cash at end of period	$	110.1		$	307.9		$	674.0

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

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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 as “we,” “us” or “our.” These unaudited interim consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2003 (the “2003 Form 10-K”). Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

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.

2.        Securities

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

June 30, 2004	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in millions)
Corporate debt securities	$	2,498.9	$	6.9	$	(39.0	)	$	2,466.8
Money market funds		814.7		-		-			814.7
Time deposits		59.8		-		(.1	)		59.7
U.S. government and federal agency debt securities		2,520.7		-		(6.9	)		2,513.8
Marketable equity securities		.1		-		-			.1
Non-government mortgage backed securities		84.9		.1		(.4	)		84.6
Other		944.8		.5		(5.9	)		939.4
Subtotal		6,923.9		7.5		(52.3	)		6,879.1
Accrued investment income		44.5		-		-			44.5
Total securities available for sale	$	6,968.4	$	7.5	$	(52.3	)	$	6,923.6

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December 31, 2003	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
		(in millions)
Corporate debt securities	$	5,641.0	$	10.8	$	-		$	5,651.8
Money market funds		793.8		-		-			793.8
Time deposits		951.6		-		-			951.6
U.S. government and federal agency debt securities		2,430.1		-		(1.8	)		2,428.3
Marketable equity securities		13.6		3.9		-			17.5
Non-government mortgage backed securities		389.2		.6		(.3	)		389.5
Other		794.6		1.6		(.2	)		796.0
Subtotal		11,013.9		16.9		(2.3	)		11,028.5
Accrued investment income		44.6		-		-			44.6
Total securities available for sale	$	11,058.5	$	16.9	$	(2.3	)	$	11,073.1

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

	Less Than One Year						Greater Than One Year
June 30, 2004	Number of Securities	Gross Unrealized Losses			Aggregate Fair Value of Investments		Number of Securities	Gross Unrealized Losses			Aggregate Fair Value of Investments
	(in millions)
Corporate debt securities	550	$	(38.5	)	$	1,713.9	20	$	(.5	)	$	17.3
Time deposits	8		(.1	)		31.0	-		-			-
U.S. government and federal agency debt securities	78		(6.1	)		374.4	18		(.8	)		56.4
Non-government mortgage backed securities	8		(.4	)		19.5	-		-			-
Other	76		(5.9	)		339.3	-		-			-

Gross unrealized losses on our securities available for sale have increased during the first half of 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.

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3.        Receivables

Receivables consisted of the following:

	June 30, 2004			December 31, 2003
	(in millions)
Real estate secured	$	56,033.0		$	51,221.0
Auto finance		5,459.1			4,138.1
MasterCard(1)/Visa(1)		10,815.9			11,182.0
Private label		12,759.3			12,603.8
Personal non-credit card		14,019.2			12,832.0
Commercial and other		345.9			401.3
Total owned receivables		99,432.4			92,378.2
Purchase accounting fair value adjustments		323.2			418.9
Accrued finance charges		1,408.8			1,432.4
Credit loss reserve for owned receivables		(3,794.7	)		(3,793.1	)
Unearned credit insurance premiums and claims reserves		(644.3	)		(702.6	)
Interest-only strip receivables		707.1			953.6
Amounts due and deferred from receivable sales		206.7			339.9
Total owned receivables, net		97,639.2			91,027.3
Receivables serviced with limited recourse		22,835.4			26,200.4
Total managed receivables, net	$	120,474.6		$	117,227.7

⁽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 $1.9 billion at June 30, 2004 and $2.4 billion at December 31, 2003. Interest-only strip receivables also included fair value mark-to-market adjustments which increased the balance by $302.5 million at June 30, 2004 and $257.1 million at December 31, 2003.

Receivables serviced with limited recourse consisted of the following:

	June 30, 2004		December 31, 2003
	(in millions)
Real estate secured	$	175.3	$	193.6
Auto finance		3,877.1		4,674.8
MasterCard/Visa		9,345.2		9,966.7
Private label		4,722.7		5,261.3
Personal non-credit card		4,715.1		6,104.0
Total	$	22,835.4	$	26,200.4

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

	June 30, 2004		December 31, 2003
	(in millions)
Real estate secured	$	56,208.3	$	51,414.6
Auto finance		9,336.2		8,812.9
MasterCard/Visa		20,161.1		21,148.7
Private label		17,482.0		17,865.1
Personal non-credit card		18,734.3		18,936.0
Commercial and other		345.9		401.3
Total	$	122,267.8	$	118,578.6

4.        Credit Loss Reserves

An analysis of credit loss reserves was as follows:

	Three months ended June 30,						Six months ended June 30,
	2004			2003			2004			2003
	(in millions)
Owned receivables:
Credit loss reserves at beginning of period	$	3,753.0		$	3,483.1		$	3,793.1		$	3,332.6
Provision for credit losses		997.4			1,039.3			1,925.2			2,048.9
Charge-offs		(1,057.8	)		(997.4	)		(2,107.9	)		(1,931.7	)
Recoveries		91.9			66.2			171.6			126.6
Other, net		10.2			67.4			12.7			82.2
Credit loss reserves for owned receivables at June 30		3,794.7			3,658.6			3,794.7			3,658.6
Receivables serviced with limited recourse:
Credit loss reserves at beginning of period		2,158.5			1,776.2			2,373.5			1,759.5
Provision for credit losses		148.0			617.0			401.1			1,024.3
Charge-offs		(425.8	)		(436.1	)		(924.8	)		(854.7	)
Recoveries		24.6			23.8			52.1			43.9
Other, net		(1.3	)		(.6	)		2.1			7.3
Credit loss reserves for receivables serviced with limited recourse at June 30		1,904.0			1,980.3			1,904.0			1,980.3
Credit loss reserves for managed receivables at June 30	$	5,698.7		$	5,638.9		$	5,698.7		$	5,638.9

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

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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.

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.

5.        Intangible Assets

Intangible assets consisted of the following:

June 30, 2004	Gross		Accumulated Amortization		Carrying Value
	(in millions)
Purchased credit card relationships and related programs	$	1,516.1	$	244.1	$	1,272.0
Retail services merchant relationships		270.1		68.2		201.9
Other loan related relationships		326.1		52.8		273.3
Trade names		717.2		-		717.2
Technology, customer lists and other contracts		281.0		77.6		203.4
Intangible assets	$	3,110.5	$	442.7	$	2,667.8
December 31, 2003	Gross		Accumulated Amortization		Carrying Value
	(in millions)
Purchased credit card relationships and related programs	$	1,512.0	$	149.4	$	1,362.6
Retail services merchant relationships		270.1		41.1		229.0
Other loan related relationships		326.1		33.8		292.3
Trade names		716.9		-		716.9
Technology, customer lists and other contracts		281.0		26.0		255.0
Intangible assets	$	3,106.1	$	250.3	$	2,855.8

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

Year ending December 31,	(in millions)
2004	$	355.5
2005		334.8
2006		327.4
2007		309.7
2008		214.9

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6.        Goodwill

Goodwill balances associated with our foreign businesses will change from period to period due to movements in foreign exchange, which will cause our consolidated goodwill balance to fluctuate each reporting period. 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 second quarter of 2004, we reduced our goodwill balance by approximately $33 million as a result of such changes in tax estimates.

7.        Income Taxes

Our effective tax rates were as follows:

Three months ended June 30:
2004 (successor)	34.7	%
2003 (successor)	33.7
Six months ended June 30, 2004 (successor)	34.0
March 29 through June 30, 2003 (successor)	33.7
January 1 through March 28, 2003 (predecessor)	42.5

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 $198.2 million, which resulted in a $27.3 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.

8.        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. A description of these plans is included in Note 17 of our 2003 Form 10-K. 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.

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

	Three months ended June 30,						Six months ended June 30,			March 29 through June 30,			January 1 through March 28,
	2004			2003			2004			2003			2003
	(Successor)			(Successor)			(Successor)			(Successor)			(Predecessor)
	(in millions)
Net income, as reported	$	394.7		$	364.0		$	875.8		$	373.7		$	245.7
Add stock-based employee compensation expense included in reported net income, net of tax:
Stock option and employee stock purchase plans		1.1			1.3			8.5			1.3			6.6
Restricted stock rights		2.7			2.4			5.2			2.4			11.5
Deduct stock-based employee compensation expense determined under the fair value method, net of tax:
Stock option and employee stock purchase plans		(1.1	)		(1.3	)		(8.5	)		(1.3	)		(52.6	)
Restricted stock rights		(2.7	)		(2.4	)		(5.2	)		(2.4	)		(45.3	)
Pro forma net income	$	394.7		$	364.0		$	875.8		$	373.7		$	165.9

9.        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:

	June 30, 2004		December 31, 2003
	(in millions)
Assets and Liabilities:
Derivative financial assets, net	$	1,646.6	$	1,788.6
Other assets		266.9		.9
Debt due to affiliates		8,764.6		7,589.3
Other liabilities		96.9		26.4

	Three months ended June 30, 2004			Six months ended June 30, 2004			Three and Six months ended June 30, 2003
	(in millions)
Income/(Expense):
Interest expense	$	(65.8	)	$	(118.4	)	$	(4.6	)
HSBC Bank USA, National Association:
Real estate secured servicing revenues		3.3			5.6			-
Real estate secured sourcing, underwriting and pricing revenues		1.7			2.3			-
Other servicing, processing, origination and support revenues		2.8			5.3			-
HSBC Technology and Services (USA) Inc. (“HTSU”):
Technology and other services from HSBC affiliates		(188.2	)		(360.7	)		-
Rental revenue		8.4			16.1			-
Administrative services revenue		4.5			8.2			-
Other support services from HSBC affiliates		(8.2	)		(13.1	)		-

The notional value of derivative contracts outstanding with HSBC subsidiaries totaled $58.7 billion at June 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 $.4 billion at June 30, 2004 and $.5 billion at December 31, 2003.

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During the second quarter, we made advances to our immediate parent, HSBC Investments (North America) Inc., totaling $266.0 million. The advances are due on demand but no later than November 17, 2004 and bear interest at rates comparable to those that would be made with unaffiliated parties.

Debt due to affiliates 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”). 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 June 30, 2004, we were servicing $4.5 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 $1.1 billion of real estate secured receivables purchased by HSBC Bank USA during the quarter and $1.5 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 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. The receivables will continue to be owned by HSBC Bank USA. Future originations will be made by Household Bank (SB), N.A. and sold daily to HSBC Bank USA.

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 underwrite substantially all ongoing debt issuances. Fees paid for such services totaled approximately $6.0 million for the six months ended June 30, 2004 and approximately $1.0 million for the period March 29 through June 30, 2003. These fees are amortized over the life of the related debt as a component of interest expense.

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10.        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:

	Pension Benefits						Other Postretirement Benefits
Three months ended June 30	2004			2003			2004		2003
	(Successor)			(Successor)			(Successor)		(Successor)
	(in millions)
Service cost – benefits earned during the period	$	13.7		$	11.8		$	1.0	$	.9
Interest cost		13.4			11.6			3.3		3.2
Expected return on assets		(22.5	)		(16.0	)		-		-
Amortization of prior service cost		.1			.2			-		-
Recognized (gains) losses		(1.3	)		-			-		-
Net periodic benefit cost	$	3.4		$	7.6		$	4.3	$	4.1

	Pension Benefits									Other Postretirement Benefits
	Six months ended June 30, 2004			March 29 through June 30, 2003			January 1 through March 28, 2003			Six months ended June 30, 2004		March 29 through June 30, 2003		January 1 through March 28, 2003
	(Successor)			(Successor)			(Predecessor)			(Successor)		(Successor)		(Predecessor)
	(in millions)
Service cost – benefits earned during the period	$	27.4		$	12.2		$	10.6		$	2.0	$	.9	$	.9
Interest cost		26.8			12.0			5.4			6.6		3.3		1.4
Expected return on assets		(45.1	)		(16.5	)		(16.2	)		-		-		1.6
Amortization of prior service cost		.2			.2			.4			-		-		-
Recognized (gains) losses		(2.6	)		-			14.0			-		-		(.3	)
Net periodic benefit cost	$	6.7		$	7.9		$	14.2		$	8.6	$	4.2	$	3.6

11.        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) in our 2003 Form 10-K and the interim period disclosure requirements in our Form 10-Q beginning with the quarter ended March 31, 2004.

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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. Adoption of FSP 106-2 is not expected to have a material impact on our accumulated postretirement benefit obligation and our net periodic benefit cost.

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 impairment accounting guidance is effective for reporting periods beginning after June 15, 2004 and the new disclosure requirements for annual reporting periods ending after June 15, 2004. 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.

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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 in the Household International, Inc. Annual Report on Form 10-K for the year ended December 31, 2003 (the “2003 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 2003 Form 10-K.

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 six months ended June 30, 2003, the “predecessor” period contributed $245.7 million of net income and the “successor” period contributed $373.7 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 June 30, 2003) to present “combined” results for the six months ended June 30, 2003.

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.

In measuring our results, management’s primary focus is on managed receivable growth and operating net income (a non-GAAP financial measure which excludes $167.3 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 $394.7 million for the quarter ended June 30, 2004, an increase of 8 percent compared to net income of $364.0 million in the prior year quarter. Net income for the first six months of 2004 was $875.8 million, an 11 percent increase over operating net income of $786.7 million for the first six months of 2003. The increases were primarily due to higher net interest income and lower provision for credit losses due to improving credit quality, partially offset by higher operating expenses and for the six month period, lower other revenues. The increase in net interest income was due to higher average receivables and for the six month period, lower funding costs, including the impact of purchase accounting fair value adjustments. The increases were partially offset by lower yields on our receivables, particularly in real estate secured receivables. Other revenues decreased during the six month period due to reduced securitization activity partially offset by higher other income. Operating expenses increased due to receivable growth and for the six month period, higher amortization of intangibles which were established in connection with the HSBC merger. Amortization of purchase accounting fair value adjustments increased net

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income by $34.1 million for the quarter ended June 30, 2004, and $34.4 million for the six months ended June 30, 2004 compared to $90.6 million for the quarter ended June 30, 2003.

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

	Three months ended June 30,						Six months ended June 30,
	2004			2003			2004			2003
	(Successor)			(Successor)			(Successor)			(Combined)
	(dollars are in millions)
Net income:(1)	$	394.7		$	364.0		$	875.8		$	619.4
Owned Basis Ratios:
Return on average owned assets (“ROA”)(1)		1.34	%		1.32	%		1.48	%		1.18	%
Return on average common shareholder’s equity (“ROE”)(1)		8.7			9.3			9.8			9.5
Net interest margin		7.94			8.51			7.80			7.91
Consumer net charge-off ratio, annualized		4.02			4.34			4.09			4.28
Efficiency ratio(1)(2)		43.4			42.0			43.7			44.9
Managed Basis Ratios:(3)
Return on average managed assets (“ROMA”)(1)		1.12	%		1.08	%		1.23	%		.96	%
Net interest margin		8.49			9.23			8.48			8.76
Risk adjusted revenue		6.86			7.26			6.98			7.22
Consumer net charge-off ratio, annualized		4.57			4.89			4.72			4.82
Efficiency ratio(1)(2)		41.3			34.3			40.9			37.9

	June 30, 2004			June 30, 2003
	(Successor)			(Successor)
	(dollars are in millions)
Receivables:
Owned basis	$	99,432.4		$	88,307.0
Managed basis(3)		122,267.8			112,575.2
Two-month-and-over contractual delinquency ratios:
Owned basis		4.57	%		5.38	%
Managed basis(3)		4.70			5.30

⁽¹⁾ The following table includes non-GAAP financial information for the six months ended June 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.

	Three months ended June 30,						Six months ended June 30,
	2004			2003			2004			2003
	(dollars are in millions)
Net income	$	394.7		$	364.0		$	875.8		$	619.4
HSBC acquisition related costs and other merger related items, after-tax		-			-			-			167.3
Operating net income	$	394.7		$	364.0		$	875.8		$	786.7
ROA		1.34	%		1.32	%		1.48	%		1.49	%
ROE		8.7			9.3			9.8			12.2
Owned basis efficiency ratio(2)		43.4			42.0			43.7			41.3
ROMA		1.12			1.08			1.23			1.21
Managed basis efficiency ratio(2)		41.3			34.3			40.9			34.8

⁽²⁾ Ratio of total costs and expenses less policyholders’ benefits to net interest margin 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.

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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 June 30, 2004		Six months ended June 30, 2004		March 29 through June 30, 2003
	(in millions)
Earnings excluding goodwill amortization – U.K. GAAP basis	$	702.2	$	1,516.5	$	519.0
Net income – U.K. GAAP basis		575.7		1,253.8		403.7

Owned receivables were $99.4 billion at June 30, 2004, $93.7 billion at March 31, 2004 and $88.3 billion at June 30, 2003. Real estate secured receivables were the primary driver of the growth despite sales to HSBC Bank USA, National Association (“HSBC Bank USA”) in late 2003 and the first quarter of 2004. Real estate secured receivables reflect sales to 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 $1.1 billion in the second quarter of 2004 and $1.5 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 both periods.

We previously reported that we intended to transfer substantially all of our domestic private label credit card and General Motors and Union Privilege MasterCard and Visa portfolios to HSBC Bank USA in 2004. We planned to maintain the related customer account relationships and sell additional volume to HSBC Bank USA on a daily basis following the initial sale. We also reported that upon receipt of regulatory approvals we expected to adopt charge-off and account management guidelines in accordance with the Uniform Retail Credit Classification and Account Management Policy issued by the Federal Financial Institutions Examination Council (“FFIEC”) for the MasterCard and Visa and private label credit card receivables which would remain on our balance sheet. Given the recent growth and funding needs of HSBC Bank USA, we expect HSBC Bank USA will apply for approval to acquire only the 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 $11 billion ($15 billion on a managed basis). Upon receipt of regulatory approval for transfer of the private label portfolio, we will, however, adopt charge-off and account management policies in accordance with FFIEC guidelines for our entire domestic private label and MasterCard and Visa portfolios. Following the transfer of the private label portfolio, we expect our net 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. As a result, it is not possible to quantify the impact of these actions at this time. Additional information on the financial impact of the proposed transfer will be reported as the regulatory approval process progresses and the amount becomes quantifiable.

Our owned basis two-months-and-over-contractual delinquency ratio, including dollars of delinquency, 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.

Net charge-offs as a percentage of average consumer receivables for the June 2004 quarter decreased over the March 2004 and prior year quarter as the lower delinquency levels we have been experiencing are beginning to have an impact on charge-off. Also contributing to the decrease in net charge-offs compared to the prior year

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quarter was 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 first six months of 2004, we became less reliant on third party debt and initial securitization levels 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 $140 million for the first six months of 2004 and less than $30 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, and will continue to be, 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 intend to structure all new funding utilizing receivables as collateral 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 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 may 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 short 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 will reduce our reported net income under U.S. GAAP. There will be no impact, however, on cash received from operations or on U.K. GAAP reported results.

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 June 30, 2003) to present “combined” results for the six months ended June 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 $167.3 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.

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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 our securitized levels fall 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.

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, which exclude purchase accounting adjustments, are also considered equity in these calculations because they include investor obligations to purchase HSBC ordinary shares in 2006.

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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 June 30, 2004			Six months ended June 30, 2004			March 29 through June 30, 2003
	(in millions)
Net income – U.S. GAAP basis	$	394.7		$	875.8		$	373.7
Adjustments, net-of-tax:
Deferred origination expenses		(31.9	)		(71.7	)		(22.2	)
Derivative financial instruments		.7			1.4			(47.5	)
Securitizations		110.9			248.7			(180.2	)
Intangibles		46.6			116.5			51.3
Purchase accounting adjustments		175.5			311.0			378.8
Other		5.9			34.9			(34.9	)
Earnings excluding goodwill amortization – U.K. GAAP basis		702.4			1,516.6			519.0
Goodwill amortization		(126.7	)		(262.8	)		(115.3	)
Net income – U.K. GAAP basis	$	575.7		$	1,253.8		$	403.7

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”.)

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

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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.

– 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

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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.

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.

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

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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.

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.

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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 3, “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.”

Receivable Review

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

	June 30, 2004		Increase (decrease) from
			March 31, 2004					June 30, 2003
			$			%		$			%
	(dollars are in millions)
Real estate secured	$	56,033.0	$	3,592.8		7	%	$	6,276.8		13	%
Auto finance		5,459.1		522.8		11			2,882.8		112
MasterCard(1)/Visa(1)		10,815.9		28.0		-			1,447.3		15
Private label		12,759.3		1,000.2		9			699.2		6
Personal non-credit card(2)		14,019.2		675.8		5			(96.0	)	(1	)
Commercial and other		345.9		(37.2	)	(10	)		(84.7	)	(20	)
Total owned receivables	$	99,432.4	$	5,782.4		6	%	$	11,125.4		13	%

⁽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:

	June 30, 2004		March 31, 2004		June 30, 2003
	(in millions)
Domestic personal non-credit card	$	6,491.6	$	5,906.7	$	6,673.5
Union Plus personal non-credit card		576.6		640.4		862.0
Personal homeowner loans		3,408.0		3,384.4		3,851.5
Foreign personal non-credit card		3,543.0		3,411.9		2,728.2
Total personal non-credit card	$	14,019.2	$	13,343.4	$	14,115.2

Receivable increases (decreases) since June 30, 2003  Driven by growth in our correspondent business, real estate secured receivables increased over the year-ago period despite sales to HSBC Bank USA. Real estate secured receivables 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 $1.1 billion in the second quarter of 2004 and $1.5 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 previously dormant correspondent relationship which totaled $1.3 billion in the second quarter of 2004. Real estate secured receivable levels in our branch-based consumer lending business continue to improve, as sales volumes remain higher than the first half of 2003 and we continue to emphasize real estate secured loans in our branches. Auto finance receivables increased over the year-ago period due to newly originated loans acquired from our dealer network and strategic alliances established during 2003 and lower securitization levels. MasterCard and Visa receivables reflect $.9 billion in portfolio acquisitions during 2003 and organic growth especially in our GM and subprime portfolios. Growth in private label receivables reflects a $.5 billion portfolio acquisition in the second quarter of 2004 and organic growth through existing merchants which was partially offset by securitization activity. Personal non-credit card receivables declined slightly over the year-ago period as we decreased the size of our domestic portfolio through tightened underwriting in our branches and decreased marketing in our branches and Union Plus portfolio. The decline was partially offset by lower securitization levels and higher levels of foreign personal non-credit card receivables.

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Receivable increases (decreases) since March 31, 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 a $.5 billion portfolio acquisition 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.

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 June 30	2004			2003			Amount			%
	(dollars are in millions)
Finance and other interest income	$	2,650.3		$	2,504.1		$	146.2		5.8	%
Interest expense		640.2			558.8			81.4		14.6
Net interest income	$	2,010.1		$	1,945.3		$	64.8		3.3	%
Net interest income as a percent of average interest-earning assets, annualized		7.94	%		8.51	%
							Increase (Decrease)
Six months ended June 30	2004			2003			Amount			%
	(dollars are in millions)
Finance and other interest income	$	5,193.1		$	5,049.1		$	144.0		2.9	%
Interest expense		1,277.5			1,470.8			(193.3	)	(13.1	)
Net interest income	$	3,915.6		$	3,578.3		$	337.3		9.4	%
Net interest income as a percent of average interest-earning assets, annualized		7.80	%		7.91	%

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 receivables. The year-to-date increase was due to higher average receivables and lower funding costs, including the impact of 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. The HSBC merger-related purchase accounting adjustments include both amortization of fair value adjustments to our external debt obligations, including derivative financial instruments (which reduced interest expense), and to our receivables (which reduced finance income). Net interest income for the quarter, excluding amortization of purchase accounting adjustments, which totaled $163.2 million in 2004 and $264.3 million in 2003, was $1.8 billion in 2004 and $1.7 billion in 2003. For the six month periods, net interest income excluding amortization of purchase accounting adjustments, which totaled $334.5 million in 2004 and $273.5 million in 2003, was $3.6 billion in 2004 and $3.3 billion in 2003.

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 six months, lower yields were partially offset by lower funding costs, including the impact of purchase accounting fair value adjustments.

Our net interest margin 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

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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 $2.6 billion in the three months ended June 30, 2004, flat compared to managed basis net interest income of $2.6 billion in the three months ended June 30, 2003. For the six months ended June 30, 2004, managed basis net interest income was $5.3 billion, up 6.0 percent from $5.0 billion in the six months ended June 30, 2003. Net interest income as a percent of average managed interest-earning assets, annualized, was 8.49 percent in the current quarter and 8.48 percent year-to-date, compared to 9.23 and 8.76 percent in the year-ago periods. As discussed above, the decreases were due to lower yields on our receivables, particularly in real estate secured receivables, partially offset in the year-to-date period by lower funding costs, including the impact 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.

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

					Increase (Decrease)
	2004		2003		Amount			%
	(dollars are in millions)
Three months ended June 30	$	997.4	$	1,039.3	$	(41.9	)	(4.0	)%
Six months ended June 30		1,925.2		2,048.9		(123.7	)	(6.0	)

Improving credit quality, partially offset by receivable growth, contributed to the decreases in the provision for credit losses. The provision as a percent of average owned receivables, annualized, was 4.13 percent in the current quarter and 4.06 percent year-to-date, compared to 4.82 and 4.83 percent in the year-ago periods. We recorded provision for owned credit losses $31.5 million greater than net charge-offs in the second quarter of 2004 and $11.1 million less than net charge-offs year-to-date. In the first quarter of 2004, provision for owned credit losses was less than net charge-off as receivable levels remained flat and credit quality improved. During the second quarter of 2004, the provision for owned credit losses was greater than net charge-offs due to receivable growth, partially offset by continued improvement is asset quality. Net charge-off dollars for the six-month period ended June 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 $108.1 million during the second quarter and $243.8 million during the first six months of 2003. 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 4, “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 June 30	2004		2003		Amount			%
	(dollars are in millions)
Securitization revenue	$	253.0	$	282.6	$	(29.6	)	(10.5	)%
Insurance revenue		204.2		183.3		20.9		11.4
Investment income		30.2		33.2		(3.0	)	(9.0	)
Fee income		247.2		228.4		18.8		8.2
Other income		178.9		162.8		16.1		10.0
Total other revenues	$	913.5	$	890.3	$	23.2		2.6	%

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					Increase (Decrease)
Six months ended June 30	2004		2003		Amount			%
	(dollars are in millions)
Securitization revenue	$	586.7	$	723.7	$	(137.0	)	(18.9	)%
Insurance revenue		415.1		360.6		54.5		15.1
Investment income		71.0		114.5		(43.5	)	(38.0	)
Fee income		514.8		517.0		(2.2	)	(.4	)
Other income		480.8		415.1		65.7		15.8
Total other revenues	$	2,068.4	$	2,130.9	$	(62.5	)	(2.9	)%

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

					Increase (Decrease)
Three months ended June 30	2004		2003		Amount			%
	(dollars are in millions)
Net initial gains(1)	$	22.3	$	32.3	$	(10.0	)	(31.0	)%
Net replenishment gains(1)		112.9		134.5		(21.6	)	(16.1	)
Servicing revenue and excess spread		117.8		115.8		2.0		1.7
Total	$	253.0	$	282.6	$	(29.6	)	(10.5	)%
					Increase (Decrease)
Six months ended June 30	2004		2003		Amount			%
	(dollars are in millions)
Net initial gains(1)	$	25.2	$	67.6	$	(42.4	)	(62.7	)%
Net replenishment gains(1)		232.7		271.4		(38.7	)	(14.3	)
Servicing revenue and excess spread		328.8		384.7		(55.9	)	(14.5	)
Total	$	586.7	$	723.7	$	(137.0	)	(18.9	)%

⁽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 mix of receivables securitized during 2004 as a result of the use of alternative funding sources and for the six month period, lower excess spread which included amortization of purchase accounting fair value adjustments to our interest-only strip receivables. Securitization revenue in the second quarter also reflects an increase in estimated losses on securitized receivables at auto finance. Securitization revenue will vary each period based on the level and mix of receivables securitized in that particular period (which will impact the gross initial gains and related estimated probable credit losses under the recourse provisions). It is also affected by the overall level and mix of previously securitized receivables (which will impact servicing revenue and excess spread). The estimate for probable credit losses for securitized receivables is also impacted by the level and mix of current period securitizations because, depending upon loss estimates and severities, securitized receivables with longer lives may result in higher over-the-life losses than receivables securitized with shorter lives. 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 intend to structure all new funding utilizing receivables as collateral 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 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 may 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 short 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.

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The termination of sale treatment on new collateralized funding activity will reduce our reported net income under U.S. GAAP. There will be no impact, however, on cash received from operations or on U.K. GAAP reported results.

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 $179.5 million in the current quarter and $291.8 million year-to-date, compared to $192.7 and $234.2 million in the year-ago periods 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, decreased in both periods due to lower yields. Lower gains from security sales and the amortization of purchase accounting adjustments also contributed to the decrease for the six-month period.

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

Other income, which includes revenue from our tax refund lending business, increased in both periods due to higher revenues from our mortgage and commercial operations, including a gain in the quarter of $79.3 million associated with the partial sale of a real estate investment. The increases were partially offset by lower derivative income. In the second quarter of 2003, we recorded income of $74.4 million due to the discontinuation of the shortcut method of accounting for our interest rate swaps as a result of the merger with HSBC. The increase in the six-month period also reflects higher revenues from our tax refund lending business which was primarily due to lower funding costs as a result of the HSBC merger.

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 fringe 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 June 30	2004		2003		Amount			%
	(dollars are in millions)
Salaries and employee benefits	$	457.4	$	488.6	$	(31.2	)	(6.4	)%
Sales incentives		89.8		83.2		6.6		7.9
Occupancy and equipment expenses		76.3		100.0		(23.7	)	(23.7	)
Other marketing expenses		131.2		135.2		(4.0	)	(3.0	)
Other servicing and administrative expenses		198.1		263.7		(65.6	)	(24.9	)
Support services from HSBC affiliates		196.4		-		196.4		100.0
Amortization of intangibles		79.4		78.3		1.1		1.4
Policyholders’ benefits		93.2		98.4		(5.2	)	(5.3	)
Total costs and expenses	$	1,321.8	$	1,247.4	$	74.4		6.0	%

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					Increase (Decrease)
Six months ended June 30	2004		2003		Amount			%
	(dollars are in millions)
Salaries and employee benefits	$	943.2	$	997.2	$	(54.0	)	(5.4	)%
Sales incentives		168.4		122.3		46.1		37.7
Occupancy and equipment expenses		159.0		201.2		(42.2	)	(21.0	)
Other marketing expenses		262.9		278.7		(15.8	)	(5.7	)
Other servicing and administrative expenses		424.2		586.6		(162.4	)	(27.7	)
Support services from HSBC affiliates		373.8		-		373.8		100.0
Amortization of intangibles		195.0		92.6		102.4		100	+
Policyholders’ benefits		206.0		192.4		13.6		7.1
HSBC acquisition related costs incurred by Household		-		198.2		(198.2	)	(100.0	)
Total costs and expenses	$	2,732.5	$	2,669.2	$	63.3		2.4	%

The following table summarizes our owned basis efficiency ratio:

	2004		2003
Three months ended June 30	43.4	%	42.0	%
Six months ended June 30:
GAAP basis	43.7		44.9
Excluding HSBC acquisition related costs(1)	43.7		41.3

⁽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 increases in the 2004 efficiency ratios over the 2003 operating basis ratios were primarily attributable to an increase in expenses, as well as lower securitization revenue. The year-to-date period increase also reflects higher intangible amortization.

Salaries and employee benefits decreased primarily due to the transfer of our technology personnel to HTSU. Excluding this change, salaries and fringe benefits increased $26.8 million for the quarter and $58.8 million year-to-date as a result of increases in substantially all of our business units. For the six 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.

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

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

Other marketing expenses decreased in both periods primarily due to decreased credit card marketing.

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 consulting costs and increased REO costs due to higher volumes.

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Support services from HSBC affiliates includes the following:

	Three months ended June 30, 2004		Six months ended June 30, 2004
	(in millions)
Technology and other services charged to us by HTSU	$	188.2	$	360.7
Support services, banking services and other miscellaneous expenses for services provided by subsidiaries of HSBC		8.2		13.1

Amortization of intangibles was essentially flat during the quarter. The increase in the six month period reflects higher amortization of intangibles established in conjunction with the HSBC merger.

Policyholders’ benefits decreased in the second quarter as a result of lower expenses in our domestic businesses. 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 drove the increase in policyholder benefits for the six-month period.

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.

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. 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 in our 2003 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.

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

							Increase (Decrease)
Three months ended June 30	2004			2003			Amount			%
	(dollars are in millions)
Net income	$	255.9		$	175.2		$	80.7		46.1	%
Net interest income		1,914.6			1,804.1			110.5		6.1
Fee income		85.4			78.8			6.6		8.4
Other revenues, excluding fee income		(209.8	)		175.8			(385.6	)	(100	+)
Intersegment revenues		25.8			30.3			(4.5	)	(14.9	)
Provision for credit losses		733.5			1,182.9			(449.4	)	(38.0	)
Total costs and expenses		647.5			593.6			53.9		9.1
Receivables		92,195.5			83,992.1			8,203.4		9.8
Assets		94,799.1			86,352.1			8,447.0		9.8
Net interest income as a percent of average interest-earning assets, annualized		8.41	%		8.65	%		-		-
Return on average managed assets		1.10			.82			-		-
							Increase (Decrease)
Six months ended June 30	2004			2003			Amount			%
	(dollars are in millions)
Net income	$	560.3		$	391.5		$	168.8		43.1	%
Net interest income		3,779.2			3,542.3			236.9		6.7
Fee income		179.2			176.0			3.2		1.8
Other revenues, excluding fee income		(391.3	)		192.9			(584.2	)	(100	+)
Intersegment revenues		48.0			56.2			(8.2	)	(14.6	)
Provision for credit losses		1,398.6			2,122.7			(724.1	)	(34.1	)
Total costs and expenses		1,274.2			1,159.4			114.8		9.9
Net interest income as a percent of average interest-earning assets, annualized		8.39	%		8.62	%		-		-
Return on average managed assets		1.22			.93			-		-

Our Consumer segment reported higher net income in both periods. Increases in net interest income and decreases in provision for credit losses were partially offset by higher operating expenses and substantially lower other revenues, excluding fee income. Net interest income increased primarily due to higher receivable levels. Net interest income as a percent of average interest-earning assets, annualized, decreased primarily due to lower yields on real estate secured 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. Our auto finance business also reported lower net interest income as a percent of average interest-earning assets as we have targeted lower yielding but higher credit quality customers. Other revenues, excluding fee income, decreased as a result of a $382.6 million decline in securitization revenue during the quarter and $595.2 million year-to-date as a result of a decline in receivables securitized. Initial securitization levels were much lower in 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 first six months of 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 during the second quarter. Although we experienced higher net charge-offs in our owned portfolio during the first six months of 2004 as a result of higher delinquency levels in prior quarters, our overall owned provision for credit losses was lower than

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net charge-offs because charge-offs are a lagging indicator of changes in credit quality. Over-the-life provisions for credit losses for securitized receivables recorded in any given period reflect the level and 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 $162.5 million for the quarter and $481.8 million year-to-date. For 2003, we increased managed loss reserves by recording loss provision greater than net charge-offs of $301.8 million for the quarter and $371.4 million year-to-date.

Managed receivables increased 5.1 percent compared to $87.7 billion at March 31, 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 $1.1 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 previously dormant correspondent relationship which totaled $1.3 billion in the quarter. We also experienced solid growth in auto finance receivables though our dealer network as well as in private label receivables which included a $.5 billion portfolio acquisition during the quarter.

Compared to June 30, 2003, managed receivables increased 9.8 percent. Receivable growth was strongest in our real estate secured portfolio despite sales to HSBC Bank USA. Real estate secured receivables reflect sales to HSBC Bank USA totaling $3.7 billion and $1.5 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 previously dormant correspondent relationship as discussed above. Our auto finance portfolio also reported strong growth as a result of newly originated loans acquired from our dealer network and strategic alliances established during 2003. Increases in private label receivables were the result of portfolio acquisitions as well as organic growth. Personal non-credit card receivables declined as we reduced the size of this portfolio through tightened underwriting and decreased marketing in our branches.

The increase in return on average managed assets (“ROMA”) reflects higher net income as discussed above.

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

							Increase (Decrease)
Three months ended June 30	2004			2003			Amount			%
	(dollars are in millions)
Net income	$	120.3		$	94.3		$	26.0		27.6	%
Net interest income		512.8			471.6			41.2		8.7
Fee income		334.9			294.6			40.3		13.7
Other revenues, excluding fee income		(55.6	)		36.7			(92.3	)	(100	+)
Intersegment revenues		6.1			6.9			(.8	)	(11.6	)
Provision for credit losses		319.0			383.3			(64.3	)	(16.8	)
Total costs and expenses		283.8			269.4			14.4		5.3
Receivables		18,355.1			17,439.2			915.9		5.3
Assets		20,404.6			20,086.6			318.0		1.6
Net interest income as a percent of average interest-earning assets, annualized		10.15	%		9.87	%		-		-
Return on average managed assets		2.35			1.90			-		-

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							Increase (Decrease)
Six months ended June 30	2004			2003			Amount			%
	(dollars are in millions)
Net income	$	257.4		$	222.1		$	35.3		15.9	%
Net interest income		1,041.4			950.2			91.2		9.6
Fee income		685.1			621.0			64.1		10.3
Other revenues, excluding fee income		(19.6	)		94.7			(114.3	)	(100	+)
Intersegment revenues		14.0			15.5			(1.5	)	(9.7	)
Provision for credit losses		740.5			774.6			(34.1	)	(4.4	)
Total costs and expenses		561.4			538.5			22.9		4.3
Net interest income as a percent of average interest-earning assets, annualized		10.08	%		9.86	%		-		-
Return on average managed assets		2.45			2.21			-		-

Our Credit Card Services segment reported higher net income in both periods. Increases in net interest income and fee income, and decreases in the provision for credit losses were partially offset by the impact of lower securitization levels and higher operating expenses. Net interest income and fee income increased as a result of higher receivable levels. Provision for credit losses decreased as a result of improving credit quality and changes in securitization levels. We decreased managed loss reserves by recording loss provision less than net charge-offs of $66.8 million for the quarter and $20.4 million year-to-date. For 2003, we decreased managed loss reserves by recording loss provision less than net charge-offs of $3.3 million for the quarter and increased managed loss reserves by recording loss provision greater than net charge-offs of $55.0 million year-to-date. Other revenues, excluding fee income, decreased primarily as a result of a decline in receivables securitized, including higher run-off.

Managed receivables decreased 1.7 percent compared to $18.7 billion at March 31, 2004. The decrease during the quarter was due to higher payments being made by customers as a result of an improved economy, the run-off of promotional balances in our General Motors and Union Privilege portfolios and the continued liquidation of previously acquired portfolios. This decrease was partially offset by growth in our merchant partnership and subprime portfolios. Compared to June 30, 2003, managed receivables increased 5.3 percent. Receivables growth was largely attributable to portfolio acquisitions in 2003 totaling $.9 billion and organic growth in our GM and subprime portfolios.

The increase in return on average managed assets reflects higher net income as discussed above.

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

							Increase (Decrease)
Three months ended June 30	2004			2003			Amount			%
	(dollars are in millions)
Net income	$	33.5		$	43.9		$	(10.4	)	(23.7	)%
Net interest income		195.5			180.8			14.7		8.1
Fee income		24.0			20.4			3.6		17.6
Other revenues, excluding fee income		101.0			77.1			23.9		31.0
Intersegment revenues		3.4			3.1			.3		9.7
Provision for credit losses		93.4			85.1			8.3		9.8
Total costs and expenses		173.3			127.3			46.0		36.1
Receivables		11,380.3			10,185.5			1,194.8		11.7
Assets		12,341.5			11,171.7			1,169.8		10.5
Net interest income as a percent of average interest-earning assets, annualized		6.91	%		7.22	%		-		-
Return on average managed assets		1.10			1.64			-		-

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							Increase (Decrease)
Six months ended June 30	2004			2003			Amount			%
	(dollars are in millions)
Net income	$	61.7		$	75.1		$	(13.4	)	(17.8	)%
Net interest income		398.2			359.9			38.3		10.6
Fee income		43.8			38.9			4.9		12.6
Other revenues, excluding fee income		189.0			149.9			39.1		26.1
Intersegment revenues		6.8			5.7			1.1		19.3
Provision for credit losses		188.0			170.0			18.0		10.6
Total costs and expenses		345.4			265.5			79.9		30.1
Net interest income as a percent of average interest-earning assets, annualized		7.00	%		7.33	%		-		-
Return on average managed assets		1.01			1.43			-		-

Our International segment reported lower net income in both periods. The decrease in net income reflects higher provision for credit losses and operating expenses, partially offset by higher net interest income and other revenues, excluding fee income, and higher fee 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 $2.2 million in the current quarter and $5.7 million year-to-date. Net interest income increased due to higher receivable levels. Net interest income as a percent of average interest-earning assets, annualized, decreased due to lower pricing, run-off of higher yielding receivables, a greater mix of personal non-credit card receivables and, for the quarter, a higher cost of funds. Provision for credit losses increased primarily due to increased levels of receivables. We increased managed loss reserves by recording loss provision greater than net charge-offs of $9.0 million during the current quarter, $12.2 million during the prior year quarter, $21.9 million during the six months ended June 30, 2004 and $30.1 million during the six months ended June 30, 2003. Other revenues, excluding fee income, increased due to higher insurance revenues, partially offset by decreases in securitization revenue as a result of a decline in receivables securitized. Total costs and expenses increased primarily due to higher salary expenses to support receivable growth and higher policyholder benefits, which resulted from increased insurance sales volumes.

Managed receivables increased 1.1 percent compared to $11.3 billion at March 31, 2004 primarily due to growth in our MasterCard/Visa and personal non-credit card portfolios. Compared to June 30, 2003, managed receivables increased 11.7 percent as strong growth in our real estate secured and personal non-credit card portfolios since June 30, 2003 was partially offset by a decline in our MasterCard and Visa portfolio in the United Kingdom. Applying constant currency rates, managed receivables at June 30, 2004 would have been $.1 billion higher using March 31, 2004 exchange rates and $.8 billion lower using June 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 six months ended June 30, 2003 combines January 1 through March 28, 2003 (the “predecessor period”) and March 29 to June 30, 2003 (the “successor period”) in order to present “combined” financial results for the six months ended June 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 six months ended June 30, 2003 include combined information from both the “successor” and “predecessor” periods which impacts comparability to the current period.

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

	Consumer			Credit Card Services			Inter- national		All Other			Adjustments/ Reconciling Items			Managed Basis Consolidated Totals			Securitization Adjustments			Owned Basis Consolidated Totals
	(in millions)
Three months ended June 30, 2004
Net interest income	$	1,914.6		$	512.8		$	195.5	$	25.8		$	-		$	2,648.7		$	(638.6	)(5)	$	2,010.1
Fee income		85.4			334.9			24.0		.8			-			445.1			(197.9	)(5)		247.2
Other revenues, excluding fee income		(209.8	)		(55.6	)		101.0		176.4			(34.2	)(2)		(22.2	)		688.5	(5)		666.3
Intersegment revenues		25.8			6.1			3.4		(1.1	)		(34.2	)(2)		-			-			-
Provision for credit losses		733.5			319.0			93.4		(1.1	)		.6	(3)		1,145.4			(148.0	)(5)		997.4
Total costs and expenses		647.5			283.8			173.3		217.2			-			1,321.8			-			1,321.8
Net income		255.9			120.3			33.5		7.2			(22.2	)		394.7			-			394.7
Receivables		92,195.5			18,355.1			11,380.3		336.9			-			122,267.8			(22,835.4	)(6)		99,432.4
Assets		94,799.1			20,404.6			12,341.5		24,490.6			(8,647.7	)(4)		143,388.1			(22,835.4	)(6)		120,552.7
Three months ended June 30, 2003
Net interest income	$	1,804.1		$	471.6		$	180.8	$	207.1		$	-		$	2,663.6		$	(718.3	)(5)	$	1,945.3
Fee income		78.8			294.6			20.4		1.9			-			395.7			(167.3	)(5)		228.4
Other revenues, excluding fee income		175.8			36.7			77.1		143.8			(40.1	)(2)		393.3			268.6	(5)		661.9
Intersegment revenues		30.3			6.9			3.1		(.2	)		(40.1	)(2)		-			-			-
Provision for credit losses		1,182.9			383.3			85.1		3.0			2.0	(3)		1,656.3			(617.0	)(5)		1,039.3
Total costs and expenses		593.6			269.4			127.3		257.1			-			1,247.4			-			1,247.4
Net income		175.2			94.3			43.9		77.3			(26.7	)		364.0			-			364.0
Receivables		83,992.1			17,439.2			10,185.5		958.4			-			112,575.2			(24,268.2	)(6)		88,307.0
Assets		86,352.1			20,086.6			11,171.7		27,059.4			(8,822.2	)(4)		135,847.6			(24,268.2	)(6)		111,579.4
Six months ended June 30, 2004
Net interest income	$	3,779.2		$	1,041.4		$	398.2	$	74.5		$	-		$	5,293.3		$	(1,377.7	)(5)	$	3,915.6
Fee income		179.2			685.1			43.8		1.9			-			910.0			(395.2	)(5)		514.8
Other revenues, excluding fee income		(391.3	)		(19.6	)		189.0		470.4			(66.7	)(2)		181.8			1,371.8	(5)		1,553.6
Intersegment revenues		48.0			14.0			6.8		(2.1	)		(66.7	)(2)		-			-			-
Provision for credit losses		1,398.6			740.5			188.0		(1.9	)		1.1	(3)		2,326.3			(401.1	)(5)		1,925.2
Total costs and expenses		1,274.2			561.4			345.4		551.5			-			2,732.5			-			2,732.5
Net income		560.3			257.4			61.7		39.6			(43.2	)		875.8			-			875.8
Six months ended June 30, 2003
Net interest income	$	3,542.3		$	950.2		$	359.9	$	169.8		$	-		$	5,022.2		$	(1,443.9	)(5)	$	3,578.3
Fee income		176.0			621.0			38.9		3.1			-			839.0			(322.0	)(5)		517.0
Other revenues, excluding fee income		192.9			94.7			149.9		511.3			(76.5	)(2)		872.3			741.6	(5)		1,613.9
Intersegment revenues		56.2			15.5			5.7		(.9	)		(76.5	)(2)		-			-			-
Provision for credit losses		2,122.7			774.6			170.0		2.6			3.3	(3)		3,073.2			(1,024.3	)(5)		2,048.9
Total costs and expenses		1,159.4			538.5			265.5		705.8			-			2,669.2			-			2,669.2
HSBC acquisition related costs incurred by Household		-			-			-		198.2			-			198.2			-			198.2
Net income		391.5			222.1			75.1		(18.3	)		(51.0	)		619.4			-			619.4
Operating net income(1)		391.5			222.1			75.1		149.0			(51.0	)		786.7			-			786.7

⁽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 $167.3 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.

⁽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 margin, 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. 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.

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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 3, “Receivables,” in the accompanying consolidated financial statements for receivables by product type and Note 4, “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:

	June 30, 2004			March 31, 2004			June 30, 2003
	(dollars are in millions)
Owned credit loss reserves	$	3,794.7		$	3,753.0		$	3,658.6
Reserves as a percent of:
Receivables		3.82	%		4.01	%		4.14	%
Net charge-offs(1)		98.2			96.7			98.2
Nonperforming loans		103.0			96.7			94.6

⁽¹⁾ Quarter-to-date, annualized

During the quarter ended June 30, 2004, credit loss reserves increased as the provision for owned credit losses was $31.5 million greater than net charge-offs reflecting growth in our loan portfolio, partially offset by improved asset quality. In the quarter ended June 30, 2003, provision for owned credit losses was $108.1 million greater than net charge-offs. Reserve levels at June 30, 2004 reflect the factors discussed above.

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:

	June 30, 2004			March 31, 2004			June 30, 2003
	(dollars are in millions)
Managed credit loss reserves	$	5,698.7		$	5,911.5		$	5,638.9
Reserves as a percent of:
Receivables		4.66	%		5.01	%		5.01	%
Net charge-offs(1)		104.2			102.5			104.9
Nonperforming loans		122.8			119.8			116.4

⁽¹⁾ Quarter-to-date, annualized

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.

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Delinquency – Owned Basis

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

	June 30, 2004		March 31, 2004		June 30, 2003
Real estate secured	3.39	%	3.87	%	4.27	%
Auto finance	2.12		1.68		2.49
MasterCard/Visa	5.83		5.90		5.97
Private label	5.00		5.38		5.45
Personal non-credit card	8.92		9.64		9.39
Total	4.57	%	5.01	%	5.38	%

Total owned delinquency decreased $136.6 million and 44 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 private label delinquency reflects improved underwriting, collections and credit models. The decrease in personal non-credit card delinquency reflects the positive impact of tightened underwriting and reduced marketing in our branches as well as improved collection efforts. The increase in auto finance delinquency reflects normal seasonal patterns and a temporary impact due to changes in collections.

Compared to a year ago, total delinquency decreased $199.6 million and 81 basis points as all products reported lower delinquency levels. The improvements are generally the result of improvements in the economy and better underwriting.

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):

	June 30, 2004		March 31, 2004		June 30, 2003
Real estate secured	1.04	%	1.15	%	1.03	%
Auto finance	3.05		4.65		5.30
MasterCard/Visa	9.91		8.66		10.43
Private label	5.06		5.29		6.41
Personal non-credit card	10.59		11.17		9.87
Total	4.02	%	4.17	%	4.34	%
Real estate secured net charge-offs and REO expense as a percent of average real estate secured receivables	1.47	%	1.63	%	1.46	%

Net charge-offs decreased 15 basis points compared to the quarter ended March 31, 2004 as the lower delinquency levels we have been experiencing due to an improving economy are beginning to have an impact on charge-offs. The decrease in auto finance net charge-offs reflects a normal seasonal pattern related to higher charge-offs in the first quarter. The increase in our MasterCard and Visa portfolio is primarily attributable to seasonal trends and the effect of a lower average receivable level. In addition to economic conditions, the decrease in our personal non-credit card portfolio is a result of improved credit quality and portfolio stabilization.

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Total net charge-offs for the current quarter decreased from June 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 and private label reported lower net charge-off levels generally as a result of receivable growth and better underwriting, including both improved modeling and improved credit quality of originations. Auto finance net charge-offs also reflect improved used auto prices which resulted in lower loss severities. The increase in our personal non-credit card portfolio reflects maturation of the portfolio as well as reduced originations.

Owned Nonperforming Assets

	June 30, 2004			March 31, 2004			June 30, 2003
	(dollars are in millions)
Nonaccrual receivables	$	2,832.5		$	3,003.2		$	3,021.2
Accruing consumer receivables 90 or more days delinquent		849.6			876.1			843.8
Renegotiated commercial loans		1.5			1.5			1.5
Total nonperforming receivables		3,683.6			3,880.8			3,866.5
Real estate owned		624.2			656.4			486.3
Total nonperforming assets	$	4,307.8		$	4,537.2		$	4,352.8
Credit loss reserves as a percent of nonperforming receivables		103.0	%		96.7	%		94.6	%

Compared to March 31, 2004, the decrease in nonaccrual receivables and total nonperforming assets is primarily attributable to a decrease in our real estate secured portfolio due to improved credit quality and collection efforts. 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. As summarized in the tables that follow, in the third quarter of 2003, we implemented certain changes to our restructuring policies. These changes are intended to eliminate and/or streamline exception provisions to our existing policies and are generally effective for receivables originated or acquired after January 1, 2003. Receivables originated or acquired prior to January 1, 2003 generally are not subject to the revised restructure and customer account management policies. However, for ease of administration, in the third quarter of 2003 our mortgage services business elected to adopt uniform policies for all products regardless of the date an account was originated or acquired. Implementation of the uniform policy by mortgage services has the effect of only counting restructures occurring on or after January 1, 2003 in assessing restructure eligibility for purposes of the limitation that no account may be restructured more than four times in a rolling 60 month period. Resetting these counters will not impact the ability of mortgage services to report historical restructure statistics. Other business units may also elect to adopt uniform policies in the future. The changes have not had, and are not expected to have a significant impact on our business model or on our results of operations as these changes are generally being phased in as new receivables are originated or acquired.

Approximately two-thirds of all restructured receivables are secured products, which may have less loss severity exposure because of the underlying collateral. Credit loss reserves take into account whether loans have been

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restructured, rewritten or are subject to forbearance, an external debt management plan, 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.

Our restructuring policies and practices vary by product and are described in the table that follows. The fact that the restructuring criteria may be met for a particular account does not require us to restructure that account, and the extent to which we restructure accounts that are eligible under the criteria will vary depending upon our view of prevailing economic conditions and other factors which may change from period to period. In addition, for some products, accounts may be restructured without receipt of a payment in certain special circumstances (e.g., upon reaffirmation of a debt owed to us in connection with a Chapter 7 bankruptcy proceeding). We use account restructuring as an account and customer management tool in an effort to increase the value of our account relationships, and accordingly, the application of this tool is subject to complexities, variations and changes from time to time. These policies and practices are continually under review and assessment to assure that they meet the goals outlined above, and accordingly, we modify or permit exceptions to these general policies and practices from time to time. In addition, exceptions to these policies and practices may be made in specific situations in response to legal or regulatory agreements or orders.

In the policies summarized below, “hardship restructures” and “workout restructures” refer to situations in which the payment and/or interest rate may be modified on a temporary or permanent basis. In each case, the contractual delinquency status is reset to current. “External debt management plans” refers to situations in which consumers receive assistance in negotiating or scheduling debt repayment through public or private agencies such as Consumers Credit Counseling Services.

HISTORICAL RESTRUCTURING POLICIES AND PRACTICES(1),(2),(3)	RESTRUCTURING POLICIES AND PRACTICES FOLLOWING CHANGES IMPLEMENTED IN THE THIRD QUARTER 2003(1),(3)
Real estate secured	Real estate secured
Real Estate – Overall	Real Estate – Overall
•   An account may be restructured if we receive two qualifying payments within the 60 days preceding the restructure; we may restructure accounts in hardship, disaster or strike situations with one qualifying payment or no payments •   Accounts that have filed for Chapter 7 bankruptcy protection may be restructured upon receipt of a signed reaffirmation agreement •   Accounts subject to a Chapter 13 plan filed with a bankruptcy court generally require one qualifying payment to be restructured •   Except for bankruptcy reaffirmation and filed Chapter 13 plans, agreed automatic payment withdrawal or hardship/disaster/strike, accounts are generally limited to one restructure every 12 months •   Accounts generally are not eligible for restructure until on books for at least six months	•   Accounts may be restructured upon receipt of two qualifying payments within the 60 days preceding the restructure •   Accounts will be limited to four restructures in a rolling 60 month period •   Accounts generally are not eligible for restructure until nine months after origination •   Accounts whose borrowers have filed for Chapter 7 bankruptcy protection may be restructured upon receipt of a signed reaffirmation agreement •   Accounts whose borrowers are subject to a Chapter 13 plan filed with a bankruptcy court generally may be restructured upon receipt of one qualifying payment •   Except for bankruptcy reaffirmation and filed Chapter 13 plans, accounts will generally not be restructured more than once in a 12 month period •   Accounts whose borrowers agree to pay by automatic withdrawal are generally restructured upon receipt of one qualifying payment(4)

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HISTORICAL RESTRUCTURING POLICIES AND PRACTICES(1),(2),(3)	RESTRUCTURING POLICIES AND PRACTICES FOLLOWING CHANGES IMPLEMENTED IN THE THIRD QUARTER 2003(1),(3)
Real estate secured	Real estate secured
Real Estate – Consumer Lending	Real Estate – Mortgage Services(5)
•   Accounts whose borrowers agree to pay by automatic withdrawal are generally restructured upon receipt of one qualifying payment	•   Accounts will generally not be eligible for restructure until nine months after origination and six months after acquisition
Auto finance	Auto finance
•   Accounts may be extended if we receive one qualifying payment within the 60 days preceding the extension •   Accounts may be extended no more than three months at a time and by no more than three months in any 12-month period •   Extensions are limited to six months over the contractual life •   Accounts that have filed for Chapter 7 bankruptcy protection may be restructured upon receipt of a signed reaffirmation agreement •   Accounts whose borrowers are subject to a Chapter 13 plan may be restructured upon filing of the plan with a bankruptcy court	•   Accounts may generally be extended upon receipt of two qualifying payments within the 60 days preceding the extension •   Accounts may be extended by no more than three months at a time •   Accounts will be limited to four extensions in a rolling 60 month period, but in no case will an account be extended more than a total of six months over the life of the account •   Accounts will be limited to one extension every six months •   Accounts will not be eligible for extension until on the books for at least six months •   Accounts whose borrowers have filed for Chapter 7 bankruptcy protection may be restructured upon receipt of a signed reaffirmation agreement •   Accounts whose borrowers are subject to a Chapter 13 plan may be restructured upon filing of the plan with a bankruptcy court
MasterCard and Visa	MasterCard and Visa
•   Typically, accounts qualify for restructuring if we receive two or three qualifying payments prior to the restructure, but accounts in approved external debt management programs may generally be restructured upon receipt of one qualifying payment. •   Generally, accounts may be restructured once every six months	•   Typically, accounts qualify for restructuring if we receive two or three qualifying payments prior to the restructure, but accounts in approved external debt management programs may generally be restructured upon receipt of one qualifying payment. •   Generally, accounts may be restructured once every six months
Private label(6)	Private label(6)
•   An account may generally be restructured if we receive one or more qualifying payments, depending upon the merchant •   Restructuring is limited to once every six months (or longer, depending upon the merchant) for revolving accounts and once every 12 months for closed-end accounts	•   Accounts originated after October 1, 2002 for certain merchants require receipt of two or three qualifying payments to be restructured, except accounts in an approved, external debt management program may be restructured upon receipt of one qualifying payment.

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HISTORICAL RESTRUCTURING POLICIES AND PRACTICES(1),(2),(3)	RESTRUCTURING POLICIES AND PRACTICES FOLLOWING CHANGES IMPLEMENTED IN THE THIRD QUARTER 2003(1),(3)
	Private label(6)
	•   Accounts must be on the books for nine months and we must receive the equivalent of two qualifying payments within the 60 days preceding the restructure •   Accounts are not eligible for subsequent restructure until 12 months after a prior restructure and upon our receipt of three qualifying payments within the 90 days preceding the restructure
Personal non-credit card	Personal non-credit card
•   Accounts may be restructured if we receive one qualifying payment within the 60 days preceding the restructure; may restructure accounts in a hardship/disaster/strike situation with one qualifying payment or no payments	•   Accounts may be restructured upon receipt of two qualifying payments within the 60 days preceding the restructure •   Accounts will be limited to one restructure every six months •   Accounts will be limited to four
•   If an account has never been more than 90 days delinquent, it may be generally restructured up to three times per year •   If an account has ever been more than 90 days delinquent, generally it may be restructured with one qualifying payment no more than four times over its life; however, generally the account may thereafter be restructured if two qualifying payments are received •   Accounts subject to programs for hardship or strike may require only the receipt of reduced payments in order to be restructured; disaster may be restructured with no payments	restructures in a rolling 60 month period •   Accounts will not be eligible for restructure until six months after origination

(1) We employ account restructuring and other customer account management policies and practices as flexible customer account management tools. In addition to variances in criteria by product, criteria may also vary within a product line (for example, in our private label credit card business, criteria may vary from merchant to merchant). Also, we continually review our product lines and assess restructuring criteria and they are subject to modification or exceptions from time to time. Accordingly, the description of our account restructuring policies or practices provided in this table should be taken only as general guidance to the restructuring approach taken within each product line, and not as assurance that accounts not meeting these criteria will never be restructured, that every account meeting these criteria will in fact be restructured or that these criteria will not change or that exceptions will not be made in individual cases. In addition, in an effort to determine optimal customer account management strategies, management may run more conservative tests on some or all accounts in a product line for fixed periods of time in order to evaluate the impact of alternative policies and practices.

(2) For our United Kingdom business, all portfolios have a consistent account restructure policy. An account may be restructured if we receive two or more qualifying payments within two calendar months, limited to one restructure every 12 months, with a lifetime limit of three times. In hardship situations an account may

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be restructured if a customer makes three consecutive qualifying monthly payments within the last three calendar months. Only one hardship restructure is permitted in the life of a loan. There were no changes to the restructure policies of our United Kingdom business in 2003.

(3) Generally, policy changes will not be applied to the entire portfolio on the date of implementation and may be applied to new, or recently originated or acquired accounts. However, for ease of administration, in the third quarter of 2003 our mortgage services business elected to adopt uniform policies for all products regardless of the date an account was originated or acquired. Implementation of the uniform policy has the effect of only counting restructures occurring on or after January 1, 2003 in assessing restructure eligibility for the purpose of the limitation that no account may be restructured more than four times in a rolling 60 month period. Resetting these counters will not impact the ability of mortgage services to report historical restructure statistics. Other business units may also elect to adopt uniform policies. Unless otherwise noted, the revisions to the restructure policies and practices implemented in the third quarter 2003 will generally be applied only to accounts originated or acquired after January 1, 2003 and the historical restructuring policies and practices are effective for all accounts originated or acquired prior to January 1, 2003. The changes have not had, and are not expected to have a significant impact on our business model or results of operations as these changes are generally being phased in as receivables are originated or acquired.

(4) Our mortgage services business implemented this policy for all accounts effective March 1, 2004.

(5) Prior to January 1, 2003, accounts that had made at least six qualifying payments during the life of the loan and that agreed to pay by automatic withdrawal were generally restructured with one qualifying payment.

(6) For our Canadian business, private label is limited to one restructure every four months. For private label accounts in our Canadian business originated or acquired after January 1, 2003, two qualifying payments must be received, the account must be on the books for at least six months, at least six months must have elapsed since the last restructure, and there may be no more than four restructures in a rolling 60 month period.

In addition to our restructuring policies and practices, we employ other customer account management techniques, which we typically use on a more limited basis, that are similarly designed to manage customer relationships, maximize collection opportunities and avoid foreclosure or repossession if reasonably possible. These additional customer account management techniques include, at our discretion, actions such as extended payment arrangements, approved external debt management plans, forbearance, modifications, loan rewrites and/or deferment pending a change in circumstances. We typically use these customer account management techniques with individual borrowers in transitional situations, usually involving borrower hardship circumstances or temporary setbacks that are expected to affect the borrower’s ability to pay the contractually specified amount for some period of time. These actions vary by product and are under continual review and assessment to determine that they meet the goals outlined above. For example, under a forbearance agreement, we may agree not to take certain collection or credit agency reporting actions with respect to missed payments, often in return for the borrower’s agreeing to pay us an extra amount in connection with making future payments. In some cases, these additional customer account management techniques may involve us agreeing to lower the contractual payment amount and/or reduce the periodic interest rate. When we use a customer account management technique, we may treat the account as being contractually current and will not reflect it as a delinquent account in our delinquency statistics. However, if the account subsequently experiences payment defaults, it will again become contractually delinquent. We generally consider loan rewrites to involve an extension of a new loan, and such new loans are not reflected in our delinquency or restructuring statistics.

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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 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.

	June 30, 2004			March 31, 2004			June 30, 2003
	(dollars are in millions)
Total Restructured by Restructure Period – Domestic Portfolio(1)
(Managed Basis)
Never restructured		86.1	%		84.7	%		83.7	%
Restructured:
Restructured in the last 6 months		4.8			6.2			7.2
Restructured in the last 7–12 months		4.0			3.9			3.8
Previously restructured beyond 12 months		5.1			5.2			5.3
Total ever restructured(2)		13.9			15.3			16.3
Total		100.0	%		100.0	%		100.0	%
Total Restructured by Product – Domestic Portfolio(1)
(Managed Basis)
Real estate secured	$	8,884.8		$	9,506.0		$	9,225.0
Auto finance		1,304.3			1,255.0			1,360.1
MasterCard/Visa		639.4			504.6			579.6
Private label		830.2			990.0			1,146.3
Personal non-credit card		3,726.6			3,913.3			4,202.3
Total	$	15,385.3		$	16,168.9		$	16,513.3
(As a percent of managed receivables)
Real estate secured		16.5	%		18.9	%		19.2	%
Auto finance		14.0			13.9			17.3
MasterCard/Visa		3.6			2.8			3.5
Private label		5.6			7.0			8.3
Personal non-credit card		25.0			26.3			26.8
Total(2)		13.9	%		15.3	%		16.3	%

⁽¹⁾ Excludes foreign businesses, commercial and other.

⁽²⁾ Total including foreign businesses was 13.0 percent at June 30, 2004, 14.4 percent at March 31, 2004, and 15.3 percent at June 30, 2003.

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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 June 30, 2004, $1.0 billion or .8 percent of managed receivables at March 31, 2004 and $1.1 billion or 1.0 percent of managed receivables at June 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 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 June 30, 2004 statistics in this paragraph.

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 levels during the first six months of 2004 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 $140 million for the first six months of 2004 and less than $30 million for the prior-year period compared to the funding costs we would have incurred using average spreads from 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 June 30, 2004 and $11.1 billion at December 31, 2003. Included in the June 30, 2004 balance was $2.6 billion dedicated to our credit card bank and $3.1 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 $10.3 billion at June 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 $3.4 billion at June 30, 2004 and $2.8 billion at December 31, 2003.

46

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

	June 30, 2004		December 31, 2003
	(In billions)
Debt issued to HSBC subsidiaries:
Domestic short-term borrowings	$	-	$	2.6
Drawings on bank lines in the U.K.		4.7		3.4
Term debt		3.8		1.3
Preferred securities issued by Household Capital Trust VIII		.3		.3
Total debt issued to HSBC subsidiaries		8.8		7.6
Debt issued to HSBC clients:
Euro commercial paper		3.4		2.8
Term debt		.7		.4
Total debt issued to HSBC clients		4.1		3.2
Preferred stock issued to HSBC		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)		1.5		-
Total real estate secured receivable activity with HSBC Bank USA		5.2		2.8
Total HSBC related funding	$	19.2	$	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 June 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 $58.7 billion, or approximately 83 percent of total derivative contracts, outstanding with HSBC affiliates. In July, an additional $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.

Senior and senior subordinated debt (with original maturities over one year) decreased to $77.8 billion at June 30, 2004 from $79.5 billion at December 31, 2003. Significant issuances during the first six months of 2004 included the following:

• $2.3 billion of domestic medium-term notes

• $1.3 billion of foreign currency-denominated bonds (including $.3 billion which was issued to customers of HSBC)

• $ .7 billion of InterNotes^(SM) (retail-oriented medium-term notes)

• $1.3 billion of global debt

• $1.7 billion of securities backed by home equity loans. For accounting purposes, these transactions were structured as secured financings.

47

Selected capital ratios are summarized in the following table:

	June 30, 2004		December 31, 2003
TETMA(1)	7.83	%	7.08	%
TETMA + Owned Reserves(1)	10.71		9.94
Tangible common equity to tangible managed assets(1)	5.82		5.08
Common and preferred equity to owned assets	15.52		14.82
Excluding purchase accounting adjustments:
TETMA(1)	9.60		8.89
TETMA + Owned Reserves(1)	12.49		11.76
Tangible common equity to tangible managed assets(1)	7.62		6.93

⁽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, Fitch affirmed our “A” senior long-term and “F1” commercial paper ratings. 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.

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, typically real estate secured, 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 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.

48

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

Three months ended June 30	2004		2003
	(in millions)
Auto finance	$	300.0	$	596.3
MasterCard/Visa		500.0		-
Private label		190.0		250.0
Personal non-credit card		-		305.0
Total	$	990.0	$	1,151.3
Six months ended June 30	2004		2003
	(in millions)
Auto finance	$	300.0	$	1,007.1
MasterCard/Visa		550.0		320.0
Private label		190.0		250.0
Personal non-credit card		-		815.0
Total	$	1,040.0	$	2,392.1

Securitization levels were much lower in the first half of 2004 as we used funding from HSBC, including proceeds from receivable sales to HSBC Bank USA, to assist in the funding of our operations.

Our securitized receivables totaled $22.8 billion at June 30, 2004, compared to $26.2 billion at December 31, 2003. As of June 30, 2004, closed-end real estate secured receivables totaling $7.9 billion secured $6.0 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 19 percent of the funding associated with our managed portfolio at June 30, 2004 and 21 percent at December 31, 2003. Secured financings represented 5 percent of the funding associated with our managed portfolio at June 30, 2004 and 5 percent at December 31, 2003.

We believe the market for securities backed by receivables is a reliable, efficient and cost-effective source of funds. Securitizations and secured financings of consumer receivables have been, and will continue to be, a source of our funding and liquidity. 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 intend to structure all new funding utilizing receivables as collateral 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 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 may 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 short 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 will reduce our reported net income under U.S. GAAP. There will be no impact, however, on cash received from operations or on U.K. GAAP reported results.

49

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 Jan. 1 through June 30, 2004		Estimated July 1 through Dec. 31, 2004	Estimated full year 2004
	(In billions)
Funding needs:
Net asset growth	$	4	$  9 - 10	$	13 - 14
Commercial paper, term debt and securitization maturities		17	11 - 12		28 - 29
Other		-	2 -   3		2 -   3
Total funding needs, including growth	$	21	$22 - 25	$	43 - 46
Funding sources:
External funding, including HSBC clients	$	18	$20 - 22	$	38 - 40
HSBC and HSBC subsidiaries		3	2 -   3		5 -   6
Total funding sources	$	21	$22 - 25	$	43 - 46

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 June 30, 2004 was $3 million, which includes risk associated with financial 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 $3.0 million. As of June 30, 2004, we had a PVBP position of $.2 million reflecting the impact of a one basis point increase in interest rates. Our PVBP position was $.7 million at December 31, 2003.

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

	June 30, 2004		December 31, 2003
	(In millions)
Decrease in pre-tax earnings following an immediate hypothetical 100 basis points parallel rise in interest rates	$	338.0	$	358.0
Increase in pre-tax earnings following an immediate hypothetical 100 basis points parallel fall in interest rates	$	351.0	$	369.0

These estimates include the impact of the derivative positions we have entered into. 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.

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

50

Counterparty Credit Risk  At June 30, 2004, we had derivative contracts with a notional value of approximately $70.9 billion, including $58.7 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 are recorded in our balance sheet as other assets or derivative related liabilities and totaled $.3 billion at June 30, 2004. Affiliate swap counterparties generally provide collateral in the form of securities which are not recorded on our balance sheet and totaled $.4 billion at June 30, 2004.

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

51

Reconciliations to GAAP Financial Measures

	Three months ended						Six months ended
	June 30, 2004			June 30, 2003			June 30, 2004			June 30, 2003
	(dollars are in millions)
Return on Average Assets:
Net income	$	394.7		$	364.0		$	875.8		$	619.4
HSBC acquisition related costs and other merger related items incurred by Household, after-tax		-			-			-			167.3
Operating net income	$	394.7		$	364.0		$	875.8		$	786.7
Average assets:
Owned basis	$	117,523.2		$	110,363.7		$	118,492.4		$	105,400.8
Serviced with limited recourse		23,567.8			24,079.8			24,422.6			24,117.5
Managed basis	$	141,091.0		$	134,443.5		$	142,915.0		$	129,518.3
Return on average owned assets		1.34	%		1.32	%		1.48	%		1.18	%
Return on average owned assets, operating basis		1.34			1.32			1.48			1.49
Return on average managed assets		1.12			1.08			1.23			.96
Return on average managed assets, operating basis		1.12			1.08			1.23			1.21
Return on Average Common Shareholder’s Equity:
Net income	$	394.7		$	364.0		$	875.8		$	619.4
Dividends on preferred stock		(17.9	)		(18.5	)		(35.7	)		(40.8	)
Net income available to common shareholders		376.8			345.5			840.1			578.6
HSBC acquisition related costs and other merger related items incurred by Household		-			-			-			167.3
Operating net income available to common shareholders	$	376.8		$	345.5		$	840.1		$	745.9
Average common shareholder’s equity	$	17,345.2		$	14,830.9		$	17,072.8		$	12,181.7
Return on average common shareholder’s equity		8.7	%		9.3	%		9.8	%		9.5	%
Return on average common shareholder’s equity, operating basis		8.7			9.3			9.8			12.2
Net Interest Income:
Net Interest Income:
Owned basis	$	2,010.1		$	1,945.3		$	3,915.6		$	3,578.3
Serviced with limited recourse		638.6			718.3			1,377.7			1,443.9
Managed basis	$	2,648.7		$	2,663.6		$	5,293.3		$	5,022.2
Average interest-earning assets:
Owned basis	$	101,237.8		$	91,395.5		$	100,456.9		$	90,480.2
Serviced with limited recourse		23,567.8			24,079.8			24,422.6			24,117.5
Managed basis	$	124,805.6		$	115,475.3		$	124,879.5		$	114,597.7
Owned basis net interest margin		7.94	%		8.51	%		7.80	%		7.91	%
Managed basis net interest margin		8.49			9.23			8.48			8.76
Managed Basis Risk Adjusted Revenue:
Net interest income	$	2,648.7		$	2,663.6		$	5,293.3		$	5,022.2
Other revenues, excluding securitization revenue		858.4			775.0			1,876.9			1,729.2
Less: Net charge-offs		(1,367.1	)		(1,343.5	)		(2,809.0	)		(2,615.9	)
Risk adjusted revenue	$	2,140.0		$	2,095.1		$	4,361.2		$	4,135.5
Average interest-earning assets	$	124,805.6		$	115,475.3		$	124,879.5		$	114,597.7
Managed basis risk adjusted revenue		6.86	%		7.26	%		6.98	%		7.22	%

52

Reconciliations to GAAP Financial Measures (continued)

	Three months ended									Six months ended
	June 30, 2004			March 31, 2004			June 30, 2003			June 30, 2004			June 30, 2003
	(dollars are in millions)
Consumer Net Charge-off Ratio:
Consumer net charge-offs:
Owned basis	$	965.9		$	970.4		$	931.2		$	1,936.3		$	1,805.1
Serviced with limited recourse		401.2			471.5			412.3			872.7			810.8
Managed basis	$	1,367.1		$	1,441.9		$	1,343.5		$	2,809.0		$	2,615.9
Average consumer receivables:
Owned basis	$	96,188.8		$	92,973.7		$	85,836.5		$	94,581.3		$	84,378.5
Serviced with limited recourse		23,567.8			25,277.4			24,079.8			24,422.6			24,117.5
Managed basis	$	119,756.6		$	118,251.1		$	109,916.3		$	119,003.9		$	108,496.0
Owned basis consumer net charge-off ratio		4.02	%		4.17	%		4.34	%		4.09	%		4.28	%
Managed basis consumer net charge-off ratio		4.57			4.88			4.89			4.72			4.82
Reserves as a Percent of Net Charge-offs
Loss reserves:
Owned basis	$	3,794.7		$	3,753.0		$	3,658.6		$	3,794.7		$	3,658.6
Serviced with limited recourse		1,904.0			2,158.5			1,980.3			1,904.0			1,980.3
Managed basis	$	5,698.7		$	5,911.5		$	5,638.9		$	5,698.7		$	5,638.9
Net charge-offs:
Owned basis	$	965.9		$	970.4		$	931.2		$	1,936.3		$	1,805.1
Serviced with limited recourse		401.2			471.5			412.3			872.7			810.8
Managed basis	$	1,367.1		$	1,441.9		$	1,343.5		$	2,809.0		$	2,615.9
Owned basis reserves as a percent of net charge-offs		98.2	%		96.7	%		98.2	%		98.0	%		101.3	%
Managed basis reserves as a percent of net charge-offs		104.2			102.5			104.9			101.4			107.8
Efficiency Ratio:
Total costs and expenses less policyholders’ benefits	$	1,228.6		$	1,297.9		$	1,149.0		$	2,526.5		$	2,476.8
HSBC acquisition related costs incurred by Household		-			-			-			-			(198.2	)
Total costs and expenses less policyholders’ benefits, excluding nonrecurring items	$	1,228.6		$	1,297.9		$	1,149.0		$	2,526.5		$	2,278.6
Net interest income and other revenues less policyholders’ benefits:
Owned basis	$	2,830.4		$	2,947.6		$	2,737.2		$	5,778.0		$	5,516.8
Serviced with limited recourse		148.0			253.1			617.0			401.1			1,024.3
Managed basis	$	2,978.4		$	3,200.7		$	3,354.2		$	6,179.1		$	6,541.1
Owned basis efficiency ratio		43.4	%		44.0	%		42.0	%		43.7	%		44.9	%
Owned basis efficiency ratio, operating basis		43.4			44.0			42.0			43.7			41.3
Managed basis efficiency ratio		41.3			40.6			34.3			40.9			37.9
Managed basis efficiency ratio, operating basis		41.3			40.6			34.3			40.9			34.8

53

Reconciliations to GAAP Financial Measures (continued)

	June 30, 2004			March 31, 2004			June 30, 2003
	(dollars are in millions)
Two-Months-and-Over-Contractual Delinquency:
Consumer two-months-and-over-contractual delinquency:
Owned basis	$	4,534.3		$	4,670.9		$	4,734.0
Serviced with limited recourse		1,194.0			1,280.3			1,210.9
Managed basis	$	5,728.3		$	5,951.2		$	5,944.9
Consumer receivables:
Owned basis	$	99,115.2		$	93,298.7		$	87,915.3
Serviced with limited recourse		22,835.4			24,356.9			24,268.2
Managed basis	$	121,950.6		$	117,655.6		$	112,183.5
Consumer two-months-and-over-contractual delinquency:
Owned basis		4.57	%		5.01	%		5.38	%
Managed basis		4.70			5.06			5.30
Reserves as a Percent of Receivables:
Loss reserves:
Owned basis	$	3,794.7		$	3,753.0		$	3,658.6
Serviced with limited recourse		1,904.0			2,158.5			1,980.3
Managed basis	$	5,698.7		$	5,911.5		$	5,638.9
Receivables:
Owned basis	$	99,432.4		$	93,650.0		$	88,307.0
Serviced with limited recourse		22,835.4			24,356.9			24,268.2
Managed basis	$	122,267.8		$	118,006.9		$	112,575.2
Reserves as a percent of receivables:
Owned basis		3.82	%		4.01	%		4.14	%
Managed basis		4.66			5.01			5.01
Reserves as a Percent of Nonperforming Loans:
Loss reserves:
Owned basis	$	3,794.7		$	3,753.0		$	3,658.6
Serviced with limited recourse		1,904.0			2,158.5			1,980.3
Managed basis	$	5,698.7		$	5,911.5		$	5,638.9
Nonperforming loans:
Owned basis	$	3,683.6		$	3,880.8		$	3,866.5
Serviced with limited recourse		958.2			1,055.4			978.3
Managed basis	$	4,641.8		$	4,936.2		$	4,844.8
Reserves as a percent of nonperforming loans:
Owned basis		103.0	%		96.7	%		94.6	%
Managed basis		122.8			119.8			116.4

54

Reconciliations to GAAP Financial Measures (continued)

	June 30, 2004			December 31, 2003
	(dollars are in millions)
Equity Ratios Tangible common equity:
Common shareholder’s equity	$	17,606.5		$	16,560.3
Exclude:
Unrealized gains (losses) on:
Derivatives classified as cash flow hedges		(288.6	)		(97.4	)
Securities available for sale and interest-only strip receivables		(163.1	)		(167.0	)
Intangible assets, net		(2,667.8	)		(2,855.8	)
Goodwill		(6,820.5	)		(6,697.0	)
Tangible common equity		7,666.5			6,743.1
Purchase accounting adjustments		2,347.4			2,426.4
Tangible common equity, excluding purchase accounting adjustments	$	10,013.9		$	9,169.5
Tangible shareholder’s equity:
Tangible common equity	$	7,666.5		$	6,743.1
Preferred stock		1,100.0			1,100.0
Mandatorily redeemable preferred securities of Household Capital Trusts		1,027.6			1,031.2
Adjustable Conversion-Rate Equity Security Units		524.5			519.1
Tangible shareholder’s equity		10,318.6			9,393.4
Purchase accounting adjustments		2,294.8			2,370.2
Tangible shareholder’s equity, excluding purchase accounting adjustments	$	12,613.4		$	11,763.6
Tangible shareholder’s equity plus owned loss reserves:
Tangible shareholder’s equity	$	10,318.6		$	9,393.4
Owned loss reserves		3,794.7			3,793.1
Tangible shareholder’s equity plus owned loss reserves		14,113.3			13,186.5
Purchase accounting adjustments		2,294.8			2,370.2
Tangible shareholder’s equity plus owned loss reserves, excluding purchase accounting adjustments	$	16,408.1		$	15,556.7
Tangible managed assets:
Owned assets	$	120,552.7		$	119,153.9
Receivables serviced with limited recourse		22,835.4			26,200.4
Managed assets		143,388.1			145,354.3
Exclude:
Intangible assets, net		(2,667.8	)		(2,855.8	)
Goodwill		(6,820.5	)		(6,697.0	)
Derivative financial assets		(2,178.2	)		(3,117.7	)
Tangible managed assets		131,721.6			132,683.8
Purchase accounting adjustments		(329.2	)		(431.2	)
Tangible managed assets, excluding purchase accounting adjustments	$	131,392.4		$	132,252.6
Equity ratios:
Common and preferred equity to owned assets		15.52	%		14.82	%
Tangible common equity to tangible managed assets		5.82			5.08
Tangible shareholder’s equity to tangible managed assets (“TETMA”)		7.83			7.08
Tangible shareholder’s equity plus owned loss reserves to tangible managed assets (“TETMA + Owned Reserves”)		10.71			9.94
Excluding purchase accounting adjustments:
Tangible common equity to tangible managed assets		7.62			6.93
TETMA		9.60			8.89
TETMA + Owned Reserves		12.49			11.76

55

Item 4.  Controls and Procedures

Internal Controls  In our quarterly report on Form 10-Q for the period ended March 31, 2004, we reported that management had undertaken certain measures to strengthen the corporation’s internal controls relating to certain accounting processes. During the second quarter, management and the Audit Committee determined that the corporation’s internal control over financial reporting would benefit from a restructuring of responsibilities for certain functions in the corporation’s accounting department. Additional management is in the process of being transferred from other parts of the HSBC group and is expected to assume responsibilities in the third quarter.

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 are 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.

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.

Merger Litigation  Several lawsuits were filed alleging violations of law with respect to the merger with HSBC. We believe that the claims lack merit and the defendants deny the substantive allegations of the lawsuits. These lawsuits are described below.

Between August 27, 2002 and January 15, 2003, derivative lawsuits on behalf of the company and class actions on behalf of Household common stockholders were filed against Household and certain of its officers and directors. See Bailey v. Aldinger, et al., No 02 CH 16476 (Circuit Court, Cook County, Illinois, Chancery Division); McLaughlin v. Aldinger, et al., No. 02 CH 20683 (Circuit Court, Cook County, Illinois, Chancery Division); Pace v. Aldinger, et al., No. 02 CH 19270 (Circuit Court, Cook County, Illinois, Chancery Division); Williamson v. Aldinger, et al., No. 03 600331 (United States District Court for the Northern District of Illinois). The lawsuits principally asserted claims for breach of fiduciary duty in connection with our restatement of earnings announced on August 14, 2002, the allegedly improper lending practices by Household’s subsidiaries and the alleged failure by certain Household officers to take appropriate steps to maximize the value of the merger transaction between Household and HSBC Holdings plc announced on November 14, 2002. On March 18, 2003, a memorandum of understanding was signed by the parties containing the essential terms of the settlement of all four lawsuits. Those settlement terms included a $55 million reduction in the termination fee for the Household-HSBC merger, a supplemental disclosure to Household shareholders in the supplemental Household proxy statement, a confirmation from Goldman Sachs stating that as of the date of the confirmation it was aware of nothing that would cause it to withdraw its November 14, 2002 opinion about the fairness of the Household-HSBC merger to Household’s common shareholders and payment by the defendants of plaintiff’s costs relating to notice to stockholders as well as $2.0 million in attorneys fees for plaintiffs’ counsel. A stipulation reflecting the settlement was signed by the parties on September 22, 2003 and the Circuit Court, Cook County, Illinois, Chancery Division preliminarily approved the settlement of the Bailey, McLaughlin and Pace

56

lawsuits on September 29, 2003 and directed that notice be provided to Household stockholders and class members. Following the distribution of the notice, the Circuit Court, Cook County, Illinois, Chancery Division held a settlement fairness hearing on December 23, 2003. The final order dismissing the state court cases (Pace, McLaughlin and Bailey) was entered on June 7, 2004. The final order dismissing the Williamson case was entered by the United States District Court for the Northern District of Illinois on July 23, 2004.

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 settlement 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. 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

57

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 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, have been 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 remain essentially allege 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. The Court has ordered that all discovery, including class certification issues, must be completed by September 17, 2004 and dispositive motions and responses must be filed by November 8, 2004.

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 filed notice of their intent to appeal. 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

58

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.

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 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

  3.1 Amended and Restated Certificate of Incorporation of Household International, Inc., as amended.

10.7 Household International, Inc. Directors Non-Qualified Deferred Compensation Plan.

10.9 Household International, Inc. Non-Qualified Deferred Compensation Plan for Executives.

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.

(b)  Reports on Form 8-K

During the quarter ended June 30, 2004, the Registrant filed a Current Report on Form 8-K on May 17, 2004 with respect to the financial supplement pertaining to the financial results of Household International, Inc. for the quarter ended March 31, 2004.

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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.

	HOUSEHOLD INTERNATIONAL, INC. (Registrant)
Date:  August 2, 2004	/s/  Simon C. Penney
	Simon C. Penney
	Senior Executive Vice President and
	Chief Financial Officer

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Exhibit Index

3.1	Amended and Restated Certificate of Incorporation of Household International, Inc., as amended.
10.7	Household International, Inc. Directors Non-Qualified Deferred Compensation Plan.
10.9	Household International, Inc. Non-Qualified Deferred Compensation Plan for Executives.
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.

61

EX-3.(I)

Exhibit 3.1

RESTATED CERTIFICATE OF INCORPORATION

OF

HOUSEHOLD INTERNATIONAL, INC.

(as amended May 11, 2004)

HOUSEHOLD INTERNATIONAL, INC.

RESTATED CERTIFICATE OF INCORPORATION

INDEX

DATE	DESCRIPTION
5/11/04	Amended Certificate of Designations of Series A Cumulative Preferred Stock of Household International, Inc.
3/28/03	Certificate of Merger of Household International, Inc. with and into H2 Acquisition Corporation
3/27/03	Certificate of Amended and Restated Certificate of Incorporation of H2 Acquisition Corporation
3/27/03	Amended and Restated Certificate of Incorporation of H2 Acquisition Corporation
3/26/03	Certificate of Designations of Series A Cumulative Preferred Stock of H2 Acquisition Corporation

2

AMENDED

CERTIFICATE OF DESIGNATIONS OF

SERIES A CUMULATIVE PREFERRED STOCK

OF HOUSEHOLD INTERNATIONAL, INC.

Pursuant to Section 151 of the General

Corporation Law of the State of Delaware

Household International Inc., a Delaware corporation (the “Corporation”), in accordance with the provisions of Section 151 (g) of the Delaware General Corporation Law, hereby certifies on June 30, 2004 as follows:

FIRST: The Amended and Restated Certificate of Incorporation of the Corporation authorizes the issuance by the Board of Directors (the “Board”) of the Corporation of up to 1100 shares of preferred stock (the “Preferred Stock”), par value $0.01 per share, in one or more series, and further authorizes the Board to determine the designations, preferences, rights and qualifications, limitations or restrictions granted to or imposed upon any such series of Preferred Stock;

SECOND: On March 26, 2003, the Board adopted a resolution authorizing the creation and issuance of a series of said Preferred Stock to be known as “Series A Cumulative Preferred Stock” and the Certificate of Designations for the Series A Cumulative Preferred Stock was filed with the Secretary of State of the State of Delaware on March 27, 2003;

THIRD: As of May 30, 2003, the Board deemed it advisable to amend the Certificate of Designations of the Series A Cumulative Preferred Stock and HSBC Holdings plc, the sole owner of all outstanding shares of the Series A Cumulative Preferred Stock and the sole shareholder of the common stock of the Corporation approved such amendment, which was filed with the Secretary of State of the State of Delaware on August 1, 2003;

FOURTH: As of May 11, 2004, the Board deemed it advisable to further amend the Certificate of Designations of the Series A Cumulative Preferred Stock and adopted a resolution as set forth below, the effectiveness of such resolution to be subject to approval of such amendment by HSBC Holdings plc, the sole owner of all outstanding shares of Series A Cumulative Preferred Stock and by HSBC Investments (North America) Inc., the sole shareholder of the common stock of the Corporation; and

FIFTH: As of May 12, 2004, HSBC Holdings plc and HSBC Investments (North America) Inc. approved the amendment to the Certificate of Designations of the Series A Cumulative Preferred Stock as set forth in the following resolution;

“RESOLVED, that the Board deems it advisable, subject to approval of HSBC Holdings plc, the sole shareholder of a series of authorized preferred stock (the “Preferred Stock”) of the Corporation, and the approval of HSBC Investments (North America) Inc., the sole shareholder of the Corporation’s outstanding common stock, that the Certificate of Designations for such series shall be amended, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof (in addition to the powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, set forth in the Corporation’s Amended and Restated Certificate of Incorporation that are applicable to the Preferred Stock), are as follows:

Section 1.  Designation and Amount.

The shares of such series shall be designated as the “Series A Cumulative Preferred Stock” (“Series A Preferred Stock”) and the number of shares constituting such series shall be one thousand one hundred

3

(1,100), which number may be decreased by the Board of Directors (the “Board”) of the Corporation without a vote of stockholders; provided, however, that such number may not be decreased below the number of then currently outstanding shares of Series A Preferred Stock.

Section 2.  Dividends and Distributions.

(a) The holders of shares of Series A Preferred Stock in preference to the holders of shares of the Corporation’s common stock (the “Common Stock”) par value $0.01 per share, and to any other capital stock of the Corporation ranking junior to Series A Preferred Stock as to payment of dividends, shall be entitled to receive when, as and if declared by the Board out of funds of the Corporation legally available for the payment of dividends, cumulative dividends at, an annual rate of 6.5% of the Redemption Price (as defined in Section 4(a)) per share, and no more. Dividends payable in respect of the outstanding shares of Series A Preferred Stock shall begin to accrue and be cumulative from the date of original issue of such shares (which date is March 28, 2003, as reflected on the certificates evidencing the same), and shall be payable in annual payments on October 15 (or, if any such day is not a Business Day (as defined in Section 8) the Business Day preceding such day) in each year (each such date being referred to herein as “Annual Dividend Payment Date”), commencing in respect of each share of Series A Preferred Stock on October 15, 2004.

(b) Following the initial dividend, the amount of dividends payable shall be determined on the basis of twelve 30-day months and a 360-day year. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accumulated and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board may fix a record date (a “Regular Record Date”) for the determination of holders (the “Registered Holders”) of shares of Series A Preferred Stock entitled to receive payment of a dividend declared thereon, which record date shall be no more than 75 days nor less than ten days prior to the date fixed for the payment thereof. Any dividend declared by the Board as payable and punctually paid on an Annual Dividend Payment Date will be paid to Registered Holders. All cash payments shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.

(c) If any applicable dividend payment or redemption payment is not made on an Annual Dividend Payment Date or the date set for such redemption, respectively, thereafter the Series A Preferred Stock shall accrue additional dividends in respect of all such dividend payments and redemption payments that are past due and unpaid (such amount, the “Arrearage”). Such additional dividends in respect of any Arrearage shall be deemed to accumulate from day to day whether or not earned or declared until the Arrearage is paid, shall be calculated as of such successive Annual Dividend Payment Date and shall constitute an additional Arrearage from and after any Annual Dividend Payment Date to the extent not paid on such Annual Dividend Payment Date. References in any Section herein to dividends that have accumulated or that have been deemed to have accumulated with respect to the Series A Preferred Stock shall include the amount, if any, of any Arrearage together with any dividends accumulated or deemed to have accumulated on such Arrearage pursuant to the immediately preceding two sentences. Additional dividends in respect of any Arrearage may be declared and paid at any time, in whole or in part, without reference to any regular Annual Dividend Payment Date, to the Registered Holders as they appear on the stock record books of the Corporation on such record date as may be fixed by the Board of Directors (which record date shall be no more than 75 days nor less than ten days prior to the corresponding payment date).

(d) The holders of shares of Series A Preferred Stock shall not be entitled to receive any dividends or other distributions in respect of such shares of Series A Preferred Stock except as provided for hereby.

Section 3.  Restrictive Covenants: Voting Rights.

(a) So long as any shares of Series A Preferred Stock shall be outstanding and unless the consent or approval of a greater number of shares shall then be required by law, without first obtaining the consent or

4

approval of the holders of a majority of the number of then- outstanding shares of Series A Preferred Stock, given in person or by proxy at a meeting at which the holders of such shares shall be entitled to vote separately as a class, or by written consent, the Corporation shall not:

(i) (A) authorize or create any class or series, or any shares of any class or series, of capital stock of the Corporation having any preference or priority (either as to dividends or upon redemption, liquidation, dissolution, or winding up) over Series A Preferred Stock (“Senior Stock”) or (B) issue shares of Senior Stock; provided however, that no such vote shall be required with respect to the authorization or creation by the Corporation of one or more classes and/or series of Senior Stock if the proceeds of the Corporation’s issuance of such Senior Stock are sufficient, and are used, to redeem all outstanding shares of Series A Preferred Stock concurrently with the issuance of such Senior Stock;

(ii) (A) authorize or create any class or series, or any shares of any class or series, of capital stock of the Corporation ranking on a parity (either as to dividends or upon redemption, liquidation, dissolution or winding up) with the Series A Preferred Stock (“Parity Stock”) or (B) issue shares of Parity Stock; provided, however, that no such vote shall be required with respect to the authorization, creation or issuance by the Corporation of one or more classes and/or series of Parity Stock if the proceeds of the Corporation’s issuance of such Parity Stock are sufficient, and are used to redeem all outstanding shares of Series A Preferred Stock congruently with the issuance of such Parity Stock;

(iii) reclassify, convert or exchange any shares of any capital stock of the Corporation into shares of Senior Stock or Parity Stock;

(iv) authorize any security exchangeable for, convertible into, or evidencing the right to purchase any shares of Senior Stock or Parity Stock; or

(v) amend alter or repeal the Corporation’s Amended and Restated Certificate of Incorporation, as it may be amended from time to time, or the Corporation’s By-Laws, as they may be amended from time to time, to alter or change the powers, designations, preferences, rights and qualifications, limitations or restrictions of Series A Preferred Stock or any Senior Stock or Parity Stock so as to affect Series A Preferred Stock in any material adverse respect.

(b) The holders of the Series A Preferred Stock shall be entitled to one vote for each share of Series A Preferred Stock voting together with the holders of Common Stock as a single class, at all meetings of holders of shares of Common Stock (and written actions in lieu of meetings) (i) at which any resolution is proposed to (A) effect the voluntary liquidation, dissolution or winding up of the Corporation, or (B) the sale, lease, conveyance or exchange of all or substantially all of the assets, property or business of the Corporation; or (ii) if the Corporation shall have failed to pay in full all cash dividends due and payable on an Annual Dividend Payment Date (whether or not declared by the Board) including any Arrearage; provided in the case of clause (i) above, the holders of the Series A Preferred Stock will be entitled to vote only on any resolution that is proposed to effect the voluntary liquidation, dissolution or winding up of the Corporation, or the sale, lease, conveyance or exchange of all or substantially all of the assets, property or business of the Corporation.

(c) With respect to all matters to be voted on at meetings of holders of shares of Common Stock (and written actions in lieu of meetings) and not specifically covered by Section 3(b) above, the holders of Series A Preferred Stock shall be entitled to vote with the holders of Common Stock, and shall have such vote so that the holders of Series A Preferred Stock, in the aggregate, hold 15% of the voting power with respect to such matters.

(d) Except as otherwise expressly provided hereby, or as required by law, the holders of shares of Series A Preferred Stock shall have no voting rights and their consent shall not be required for the taking of any corporate action.

5

Section 4.  Redemption.

(a) The Corporation may at its option redeem, in whole or in part, the shares of Series A Preferred Stock on or after March 31, 2008, but only out of funds legally available therefor, by paying therefor in cash $1,000,000 per share (the “Redemption Price”) plus an amount equal to all accumulated dividends and any Arrearage thereon, to the date of redemption. If less than all outstanding shares of Series A Preferred Stock are to be redeemed, the Corporation shall redeem shares pro rata among the holders thereof in accordance with the respective numbers of shares of Series A Preferred Stock held by each of them.

(b) In order to facilitate the redemption of shares of Series A Preferred Stock pursuant to Section 4(a), the Board may fix a record date for the determination of the holders of shares of Series A Preferred Stock to be redeemed not more than 60 days or less than 10 days prior to the date fixed for such redemption. Notice of any redemption of shares of Series A Preferred Stock pursuant to Section 4(a) shall specify a date and procedures for such redemption and shall be mailed not less than 10 nor more than 60 days prior to such date fixed for redemption to each holder Registered Holder at such Registered Holder’s address as it appears on the transfer books of the Corporation.

(c) From and after the date of any redemption effected by the Corporation pursuant to sections 4(a), all dividends on shares of Series A Preferred Stock thereby called for redemption shall cease to accrue and all rights of the holders thereof as holders of Series A Preferred Stock shall, with respect to shares thereby called for redemption, cease and terminate. Any interest allowed on moneys which shall have been Set Apart for Payment (as defined in Section 8) prior to the date of redemption for the payment of the Redemption Price (or any accumulated dividends and any Arrearage thereon) shall be paid to the Corporation. Any moneys so deposited which shall remain unclaimed by the holders of such Series A Preferred Stock at the end of two years after the redemption date shall to the fullest extent permitted by law become the property of, and be paid by such bank or trust company to, the Corporation.

Section 5.  Reacquired Shares.

Any shares of Series A Preferred Stock redeemed purchased or otherwise acquired by the Corporation or any Subsidiary (as defined in Section 8) of the Corporation in any manner whatsoever shall become authorized but unissued shares of Preferred Stock, par value $0.01 per share, of the Corporation and may be reissued as part of another class or series of Preferred Stock, subject to the conditions or restrictions on authorizing or creating any class or series. or any shares of any class or series, set forth in Section 3(a).

Section 6.  Liquidation, Dissolution or Winding Up.

(a) If the Corporation shall liquidate, dissolve or wind up, whether pursuant to federal bankruptcy laws, state laws or otherwise, no distribution shall be made (i) to the holders of shares of search for term Common Stock, unless prior thereto the holders of shares of Series A Preferred Stock shall have received $1,000,000 per share plus an amount equal to all accumulated dividends and any Arrearage thereon to the date of such payment or (ii) to the holders of shares of Parity Stock, except distributions made ratably on Series A Preferred Stock and all such Parity Stock in proportion to the total amounts which the holders of, all such shares are entitled upon such liquidation, dissolution or winding up of the Corporation.

(b) Neither the consolidation, merger or other business combination of the Corporation with or into any other Person (as defined in Section 8) or Persons, nor the sale, lease, exchange or conveyance of all or any part of the property, assets or business of the Corporation to a Person or Persons shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 6.

Section 7.  Rank.

Series A Preferred Stock will rank, with respect to dividends and upon distribution of assets in liquidation, dissolution or winding up, prior to the Common Stock.

6

Section 8.  Definitions.

As used herein, the following terms shall have the meanings indicated.

“Business Day” means any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.

“Person” means any individual, partnership, corporation, limited liability company, unincorporated organization trust or joint venture. or a governmental agency or political subdivision thereof.

“Set Apart for Payment” means, when used with respect to funds of the Corporation to be used to effect any redemption of shares of Series A Preferred Stock, that funds of the Corporation sufficient to satisfy such payment of redemption shall have been irrevocably deposited with a bank or trust company doing business in the Borough of Manhattan in the City of New York and having a capital and surplus of at least $50 million in trust for the exclusive benefit of the holders of the shares of Series A Preferred Stock to be redeemed and that such funds will be payable from and after the date of redemption to holders of Series A Preferred Stock who surrender their certificates representing such stock in accordance with the notice of redemption provided pursuant to Section 4(b).

“Subsidiary” means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Voting Stock (as defined below) is at the time owned or controlled directly or indirectly by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (A) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (B) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof).

“Voting Stock” of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the board of directors of such Person.”

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed in its name and on its behalf and affirmed, under penalties of perjury on the date first written above by a duly authorized officer of the Corporation.

HOUSEHOLD INTERNATIONAL, INC
By:	/s/    PATRICK D. SCHWARTZ
	Patrick D. Schwartz
	Vice President, Deputy General Counsel-Corporate and Assistant Secretary

Attest:	/s/    DARCIE J. OAKES
	Darcie J. Oakes
	Assistant Secretary

7

CERTIFICATE OF MERGER

of

HOUSEHOLD INTERNATIONAL, INC.

with and into

H2 ACQUISITION CORPORATION

Pursuant to Section 251 of the General

Corporation Law of the State of Delaware

H2 Acquisition Corporation, a Delaware corporation (“H2”), does hereby certify:

FIRST: That the name and state of incorporation of each of the constituent corporations of the merger are as follows:

Name	State of Incorporation
Household International, Inc.	Delaware
H2 Acquisition Corporation	Delaware

SECOND: That an Agreement and Plan of Merger (the “Merger Agreement”), dated as of November 14, 2002, by and among HSBC Holdings plc, Household International, Inc. (“Household”) and H2 has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of Section 251 of the Delaware General Corporation Law.

THIRD: The name of the surviving corporation of the merger is “H2 Acquisition Corporation” (the “Surviving Corporation”), which will change its name to “Household International, Inc.” as provided in Article FOURTH hereof.

FOURTH: Article I of the Amended and Restated Certificate of Incorporation of H2 is hereby amended to read in its entirety as follows;

“The name of the corporation is Household International, Inc. (hereinafter referred to as the “Corporation”).”

Except for such amendment, the Restated Certificate of Incorporation of the Surviving Corporation shall be the Amended and Restated Certificate of Incorporation of H2.

FIFTH: That the executed Merger Agreement is on file at the office of the Surviving Corporation, the address of which is 2700 Sanders Road, Prospect Heights, Illinois 60070.

SIXTH: That a copy of the Merger Agreement will be furnished by the Surviving Corporation, on request and without cost, to any stockholder of any constituent corporation.

SEVENTH: This Certificate of Merger shall become effective at 5:02 p.m., Eastern Standard Time, on March 28, 2003.

IN WITNESS WHEREOF, the undersigned duly executed this Certificate of Merger as of the 28th day of March 2003.

H2 ACQUISITION CORPORATION
By:	/s/    PAUL L. LEE
	Paul L. Lee
	Vice President, Secretary and Treasurer

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CERTIFICATE OF

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

H2 ACQUISITION CORPORATION

Paul L. Lee, being the Vice-President, Secretary and Treasurer of H2 Acquisition Corporation, a Delaware corporation (the “Corporation”) does hereby certify as follows:

1. That the Corporation filed its original Certificate of Incorporation (the “Original Certificate”) with the Delaware Secretary of State of the State on November 13, 2002, and an Amended and Restated Certificate of Incorporation (the “First Amendment”) with the Delaware Secretary of State of the State on March 24, 2003 (the Original Certificate, as amended by the First Amendment, being hereinafter referred to as the “Certificate”).

2. That the Board of Directors of the Corporation, pursuant to Sections 141, 242 and 245 of the Delaware General Corporation Law (the “DGCL”) adopted resolutions authorizing the Corporation to amend and restate the Certificate and adopt the Amended and Restated Certificate of Incorporation (the “Restated Certificate”) attached hereto as Exhibit A.

3. That the sole holder of the Corporation’s issued and outstanding capital stock approved and adopted the Restated Certificate in accordance with Sections 228, 242 and 245 of the DGCL.

IN WITNESS WHEREOF, the undersigned, being the Vice-President, Secretary and Treasurer herein above named, for the purpose of the amending and restating the Certificate and adopting the Restated Certificate pursuant to the DGCL, under penalties of perjury, does hereby declare and certify that this is the act and deed of the Corporation and the facts stated herein are true, and accordingly has hereunto signed this certificate this 27^th day of March 2003.

By:	/s/    PAUL L. LEE
	Paul L. Lee
	Vice President, Secretary and Treasurer

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AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

H2 ACQUISITION CORPORATION

March 27, 2003

Article I

The name of the corporation is H2 Acquisition Corporation (hereinafter referred to as the “Corporation”).

Article II

The registered office of the Corporation is to be located at 1209 Orange Street, in the City of Wilmington, in the County of New Castle, in the State of Delaware. The name of its registered agent at that address is The Corporation Trust Company.

Article III

The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware.

Article IV

(1) The total number of shares of all classes of stock which the Corporation shall have the authority to issue is 1200 shares, of which 100 shares, par value $0.01, shall be of a class designated “common stock”, and 1100 shares, par value $0.01 per share, shall be of a class designated “preferred stock”.

(2) The common stock of the Corporation shall be subject to the express terms of the preferred stock and any series thereof. Each share of common stock shall have the right to cast on vote for each share for the election of directors and on all other matters upon which stockholders are entitled to vote.

(3) The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article IV, to provided for the issuance from time to time in one or more series of any number of shares of preferred stock, and, by filing a certificate pursuant to the Delaware General Corporation Law (the “Preferred Stock Designation”), to establish the number of shares to be included in each series, and to fix the designations, relative rights, preferences, qualifications and limitations of the shares of each such series. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following:

(i) the designation of the series, which may be by distinguishing number, letter or title;

(ii) the number of shares of the series, which number the Board of Directors may thereafter (except where otherwise provided in the Preferred Stock Designation) increase or decrease (but not below the number of shares thereof them outstanding);

(iii) the voting rights, if any, of the holders of shares of the series;

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(iv) shall be cumulative or noncumulative and the dividend rate of the series, and the preferences, if any, over any other series (or of any other series over such series) with respect to dividends;

(v) dates at which dividends, if any, shall be payable;

(vi) the redemption rights and price or prices, if any, for shares of the series;

(vii) the amounts payable on, and the preferences, if any, of shares of the series in the event of any voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the affairs of the Corporation;

(viii) the terms and amount of any purchase, retirement or sinking fund provided for the purchase or redemption of shares of the series;

(ix) whether the shares of the series shall be convertible into or exchangeable for shares of any other class or series, or any other security, of the Corporation or any other corporation, and, if so, the specification of such other class or series of such other security, the conversion or exchange price or prices or rate or rates, any adjustments thereof, the date or dates at which such shares shall be convertible or exchangeable and all other terms and conditions upon which such conversion or exchange may be made;

(x) whether the issuance of additional shares of preferred stock shall be subject to restrictions as to issuance, or as to the powers, preferences or other rights of any other series;

(xi) the right of the shares of such series to the benefit of conditions and restrictions upon the creation of indebtedness of the Corporation or any subsidiary of the Corporation, upon the issue of any additional stock (including additional shares of such series or any other series) and upon the payment of dividends or the making of other distributions on, and the purchase, redemption or other acquisition by the Corporation or any subsidiary of any outstanding stock of the Corporation; and

(xii) such other powers, preferences and relative, participating, optional and other special rights, and the qualifications, limitations and restrictions thereof as the Board of Directors shall determine.

The holders of preferred stock shall not have any preemptive rights except to the extent such rights shall be specifically provided for in the resolution or resolutions providing for the issuance thereof adopted by the Board of Directors.

Article V

The name and address of the incorporator is as follows:

Brandon W. Gardner

Cleary, Gottlieb, Steen & Hamilton

One Liberty Plaza

New York, New York 10006

Article VI

Names of the persons constituting the initial Board of Directors of the Corporation are as follows:

Youseef A. Nasr

452 Fifth Ave., 10^th Floor

New York, NY 10018

Paul L. Lee

452 Fifth Ave., 7th Floor

New York, NY 10018

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Article VII

The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:

(1) The number of directors of the Corporation shall be such as from time to time shall be fixed by, or in the manner provided in, the by-laws. Election of directors need not be by ballot unless the by-laws so provide.

(2) The Board of Directors shall have powers without the assent or vote of the stockholders to make, alter, amend, change, add to or repeal the by-laws of the Corporation; to fix and vary the amount to be served for any proper purpose; to authorize and cause to be executed mortgages and liens upon all or any part of the property of the Corporation; to determine the use and disposition of any surplus or net profits; and to fix the times for the declaration and payment of dividends.

(3) The directors in their discretion may submit any contract or act for approval or ratification at any annual meeting of the stockholders or at any meeting of the stockholders called for the purpose of considering any such act or contract, and any contract or act that shall be approved or be ratified by the vote of the holders of a majority of the stock of the Corporation which is represented in person or by proxy at such meeting and entitled to vote thereat (provided that a lawful quorum of stockholders be there represented in person or by proxy) shall be as valid and as binding upon the Corporation and upon all the stockholders as though it had been approved or ratified by every stockholder of the Corporation, whether or not the contract or act would otherwise be open to legal attack because of directors’ interest, or of any other reason.

(4) In addition to the powers and authorities hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation; subject, nevertheless, to the provisions of the statutes of Delaware, of this certificate, and to any by-laws from time to time made by the stockholders; provided, however, that no by-laws so made shall invalidate any prior act of the directors which would have been valid if such by-law had not been made.

Article VIII

The Corporation shall, to the full extend permitted by Section 145 of the Delaware General Corporation Law, as amended from time to time, indemnify all persons whom it may indemnify pursuant thereto.

Article IX

Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware, may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of section 271 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as consequence of such compromise or arrangement,

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the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.

Article X

The Corporation reserves the right to amend, alter, change or repeal any provisions contained in this certificate of incorporation in the manner now or hereafter prescribed by law, and all rights and powers conferred herein on stockholders, directors and officers are subject to this reserved power.

Article XI

The personal liability of the directors of the Corporation is hereby eliminated to the fullest extent permitted by paragraph (7) of subsection (b) of Section 102 of the General Corporation Law of the State of Delaware, as the same may be amended or supplemented.

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CERTIFICATE OF DESIGNATIONS OF

SERIES A CUMULATIVE PREFERRED STOCK

OF H2 ACQUISITION CORPORATION

Pursuant to Section 151 of the General

Corporation Law of the State of Delaware

H2 Acquisition Corporation a Delaware corporation (the “Corporation”), in accordance with the provisions of Section 151 (g) of the Delaware General Corporation Law, hereby certifies on March 26, 2003 as follows:

FIRST: The Amended and Restated Certificate of Incorporation of the Corporation authorizes the issuance by the Board of Directors (the “Board”) of the Corporation of up to 1100 shares of preferred stock (the “Preferred Stock”), par value $0.01 per share, in one or more series, and further authorizes the Board to determine the designations, preferences, rights and qualifications, limitations or restrictions granted to or imposed upon any such series of Preferred Stock.

SECOND: On March 26, 2003, the Board adopted the following resolution authorizing the creation and issuance of a series of said Preferred Stock to be known as “Series A Cumulative Preferred Stock”:

RESOLVED, that pursuant to the authority vested in the Board in accordance with the provisions of its Amended and Restated Certificate of Incorporation, a series of the class of authorized preferred stock (the “Preferred Stock”), par value $0.01 per share, of the Corporation be, and hereby is created, and that the designation and amount thereof and the voting powers, preferences and relative, participating. optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof (in addition to the powers, designations, preferences and relative, participating. optional or other special rights, and the qualifications, limitations or restrictions thereof, set forth in the Corporation’s Amended and Restated Certificate of Incorporation that are applicable to the Preferred Stock), are as follows:

Section 1.  Designation and Amount.

The shares of such series shall be designated as the “Series A Cumulative Preferred Stock” (“Series A Preferred Stock”) and the number of shares constituting such series shall be one thousand one hundred (1,100), which number may be decreased by the Board of Directors (the “Board”) of the Corporation without a vote of stockholders; provided, however, that such number may not be decreased below the number of then currently outstanding shares of Series A Preferred Stock.

Section 2.  Dividends and Distributions.

(a) The holders of shares of Series A Preferred Stock in preference to the holders of shares of the Corporation’s common stock (the “Common Stock”) par value $0.01 per share, and to any other capital stock of the Corporation ranking junior to Series A Preferred Stock as to payment of dividends, shall be entitled to receive, when, as and if declared by the Board out of funds of the Corporation legally available for the payment of dividends, cumulative dividends at, an annual rate of 6.5% of the Redemption Price (as defined in Section 4(a)) per share, and no more. Dividends payable in respect of the outstanding shares of Series A Preferred Stock shall begin to accrue and be cumulative from the respective dates of original issue of such shares (which dates shall be reflected on the certificates evidencing the same), and shall be payable in quarterly payments on January 15, April 15, July 15 and October 15 {or, if any such day is not a Business Day (as defined in Section 8) the Business Day preceding such day) in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”) for each of the fiscal quarters ended March 31, June 30, September 30 and December 31, respectively, commencing in respect of each share of Series A Preferred Stock on July 15, 2003.

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(b) The amount of dividends payable shall be determined on the basis of twelve 30-day months and a 36O-day year. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accumulated and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board may fix a record date (a “Regular Record Date”) for the determination of holders (the “Registered Holders”) of shares of Series A Preferred Stock entitled to receive payment of a dividend declared thereon, which record date shall be no more than 60 days nor less than ten days prior to the date fixed for the payment thereof. Any dividend declared by the Board as payable and punctually paid on a Quarterly Dividend Payment Date will be paid to Registered Holders. All cash payments shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.

(c) If any applicable dividend payment or redemption payment is not made on a Quarterly Dividend Payment Date or the date set for such redemption, respectively, thereafter the Series A Preferred Stock shall accrue additional dividends in respect of all such dividend payments and redemption payments that are past due and unpaid (such amount, the “Arrearage”). Such additional dividends in respect of any Arrearage shall be deemed to accumulate from day to day whether or not earned or declared until the Arrearage is paid, shall be calculated as of such successive Quarterly Dividend Payment Date and shall constitute an additional Arrearage from and after any Quarterly Dividend Payment Date to the extent not paid on such Quarterly Dividend Payment Date. References in any Section herein to dividends that have accumulated or that have been deemed to have accumulated with respect to the Series A Preferred Stock shall include the amount, if any, of any Arrearage together with any dividends accumulated or deemed to have accumulated on such Arrearage pursuant to the immediately preceding two sentences. Additional dividends in respect of any Arrearage may be declared and paid at any time, in whole or in part, without reference to any regular Quarterly Dividend Payment Date, to the Registered Holders as they appear on the stock record books of the Corporation ‘on such record date as may be fixed by the Board of Directors (which record date shall be no more than 60 days nor less than ten days prior to the corresponding payment date).

(d) The holders of shares of Series A Preferred Stock shall not be entitled to receive any dividends or other distributions in respect of such shares of Series A Preferred Stock except as provided for hereby.

Section 3.  Restrictive Covenants: Voting Rights.

(a) So long as any shares of Series A Preferred Stock shall be outstanding and unless the consent or approval of a greater number of shares shall then be required by law, without first obtaining the consent or approval of the holders of a majority of the number of then- outstanding shares of Series A Preferred Stock, given in person or by proxy at a meeting at which the holders of such shares shall be entitled to vote separately as a class, or by written consent, the Corporation shall not:

(i) (A) authorize or create any class or series, or any shares of any class or series, of capital stock of the Corporation having any preference or priority (either as to dividends or upon redemption, liquidation, dissolution, or winding up) over Series A Preferred Stock (“Senior Stock”) or (B) issues shares of Senior Stock; provided however, that no such vote shall be required with respect to the authorization or creation by the Corporation of one or more classes and/or series of Senior Stock if the proceeds of the Corporation’s issuance of such Senior Stock are sufficient, and are used, to redeem all outstanding shares of Series A Preferred Stock concurrently with the issuance of such Senior Stock;

(ii) (A) authorize or create any class or series, or any shares of any class or series, of capital stock of the Corporation ranking on a parity (either as to dividends or upon redemption, liquidation, dissolution or winding up) with the Series A Preferred Stock (“Parity Stock”) or (B) issue shares of Parity Stock; provided, however, that no such vote shall be required with respect to the authorization, creation or issuance by the Corporation of one or more classes and/or series of Parity Stock if the proceeds of the Corporation’s issuance of such Parity Stock are sufficient, and are used to redeem all outstanding shares of Series A Preferred Stock congruently with the issuance of such Parity Stock;

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(iii) reclassify, convert or exchange any shares of any capital stock of the Corporation into shares of Senior Stock or Parity Stock;

(iv) authorize any security exchangeable for, convertible into, or evidencing the right to purchase any shares of Senior Stock or Parity Stock; or

(v) amend alter or repeal the Corporation’s Amended and Restated Certificate of Incorporation, as it may be amended from time to time, or the Corporation’s By-Laws, as they may be amended from time to time, to alter or change the powers, designations, preferences, rights and qualifications, limitations or restrictions of Series A Preferred Stock or any Senior Stock or Parity Stock so as to affect Series A Preferred Stock in any material adverse respect.

(b) The holders of the Series A Preferred Stock shall be entitled to one vote for each share of Series A Preferred Stock voting together with the holders of Common Stock as a single class, at all meetings of holders of shares of Common Stock (and written actions in lieu of meetings) (i) at which any resolution is proposed to (A) effect the voluntary liquidation, dissolution or winding up of the Corporation. or (B) the sale, lease, conveyance or exchange of all or substantially all of the assets, property or business of the Corporation; or (ii) if the Corporation shall have failed to pay in full all cash dividends due and payable on a Quarterly Dividend Payment Date (whether or not declared by the Board) including any Arrearage; provided in the case of clause (i) above, the holders of the Series A Preferred Stock will be entitled to vote only on any resolution that is proposed to effect the voluntary liquidation, dissolution or winding up of the Corporation, or the sale, lease, conveyance or exchange of all or substantially all of the assets, property or business of the Corporation.

(c) With respect to all matters to be voted on at meetings of holders of shares of Common Stock (and written actions in lieu of meetings) and not specifically covered by Section 3(b) above, the holders of Series A Preferred Stock shall be entitled to vote with the holders of Common Stock, and shall have such vote so that the holders of Series A Preferred Stock, in the aggregate, hold 15% of the voting power with respect to such matters.

(d) Except as otherwise expressly provided hereby, or as required by law, the holders of shares of Series A Preferred Stock shall have no voting rights and their consent shall not be required for the taking of any corporate action.

Section 4.  Redemption.

(a) The Corporation may at its option redeem, in whole or in part, the shares of Series A Preferred Stock on or after March 31, 2008, but only out of funds legally available therefor, by paying therefor in cash $1,000,000 per share (the “Redemption Price”) plus an amount equal to all accumulated dividends and any Arrearage thereon, to the date of redemption. If less than all outstanding shares of Series A Preferred Stock are to be redeemed, the Corporation shall redeem shares pro rata among the holders thereof in accordance with the respective numbers of shares of Series A Preferred Stock held by each of them.

(b) In order to facilitate the redemption of shares of Series A Preferred Stock pursuant to Section 4(a), the Board may fix a record date for the determination of the holders of shares of Series A Preferred Stock to be redeemed. not more than 60 days or less than 10 days prior to the date fixed for such redemption. Notice of any redemption of shares of Series A Preferred Stock pursuant to Section 4(a) shall specify a date and procedures for such redemption and shall be mailed not less than 10 nor more than 60 days prior to such date fixed for redemption to each holder Registered Holder at such Registered Holder’s address as it appears on the transfer books of the Corporation.

(c) From and after the date of any redemption effected by the Corporation pursuant to Sections 4(a), all dividends on shares of Series A Preferred Stock thereby called for redemption shall cease to accrue and all rights of the holders thereof as holders of Series A Preferred Stock shall, with respect to shares thereby called for

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redemption, cease and terminate- Any interest allowed on moneys which shall have been Set Apart for Payment (as defined in Section 8) prior to the date of redemption for the payment of the Redemption Price (or any accumulated dividends and any Arrearage thereon) shall be paid to the Corporation. Any moneys so deposited which shall remain unclaimed by the holders of such Series A Preferred Stock at the end of two years after the redemption date shall to the fullest extent permitted by law become the property of, and be paid by such bank or trust company to, the Corporation.

Section 5.  Reacquired Shares.

Any shares of Series A Preferred Stock redeemed purchased or otherwise acquired by the Corporation or any Subsidiary (as defined in Section 8) of the Corporation in any. manner whatsoever shall become authorized but unissued shares of Preferred Stock, par value $0.0 I per share, of the Corporation and may be reissued as part of another class or series of Preferred Stock, subject to the conditions or restrictions on authorizing or creating any class or series. or any shares of any class or series, set forth in Section 3(a).

Section 6.  Liquidation, Dissolution or Winding Up.

(a) If the Corporation shall liquidate, dissolve or wind up, whether pursuant to federal bankruptcy laws, state laws or otherwise, no distribution shall be made (i) to the holders of shares of Junior Stock or Common Stock, unless prior thereto the holders of shares of Series A Preferred Stock shall have received $1.000,000 per share plus an amount equal to all accumulated dividends and any Arrearage thereon to the date of such payment or (ii) to the holders of shares of Parity Stock. except distributions made ratably on Series A Preferred Stock and all such Parity Stock in proportion to the total amounts which the holders of, all such shares are entitled upon such liquidation, dissolution or Winding up of the Corporation.

(b) Neither the consolidation, merger or other business combination of the Corporation with or into any other Person (as defined in Section 8) or Persons, nor the sale, lease, exchange or conveyance of all or any part of the property, assets or business of the Corporation to a Person Or Persons other than the holders of Junior Stock shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 6.

Section 7.  Rank.

Series A Preferred Stock will rank, with respect to dividends and upon distribution of assets in liquidation, dissolution or winding up, prior to the Common Stock.

Section 8.  Definitions.

As used herein, the following terms shall have the meanings indicated.

“Business Day” means any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.

“Person” means any individual, partnership, corporation, limited liability company, unincorporated organization trust or joint venture, or a governmental agency or political subdivision thereof.

“Set Apart for Payment” means, when used with respect to funds of the Corporation to be used to effect any redemption of shares of Series A Preferred Stock, that funds of the Corporation sufficient to satisfy such payment of redemption shall have been irrevocably deposited with a bank or trust company doing business in the Borough of Manhattan in the City of New York and having a capital and surplus of at least $50 million in trust for the exclusive benefit of the holders of the shares of Series A Preferred Stock to be redeemed and that such funds will be payable from and after the date of redemption to holders of Series A Preferred Stock who surrender their certificates representing such stock in accordance with the notice of redemption provided pursuant to Section 4(b).

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“Subsidiary” means, with respect to any Person, (i) any corporation, association or other business entity of which more than 500/0 of the total voting power of shares of Voting Stock (as defined below) is at the time owned or controlled directly or indirectly by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (A) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (B) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof).

“Voting Stock” of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the board of directors of such Person.

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed in its name and on its behalf and affirmed, under penalties of perjury on the date first written above by a duly authorized officer of the Corporation.

H2 ACQUISITION CORPORATION
By:	/s/    PAUL L. LEE
	Paul L. Lee
	Vice President, Secretary and Treasurer

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EX-10.7

Exhibit 10.7

HOUSEHOLD INTERNATIONAL DIRECTORS

NON-QUALIFIED DEFERRED COMPENSATION PLAN

Section 1. Purpose. The purpose of this Plan is to provide non-management directors (the “Directors”) of Household International, Inc. (the “Company”) the opportunity to defer receipt of cash compensation paid by the Company to such person in their role as Director and to provide for future savings of compensation earned. The provision of such an opportunity is designed to aid the Company in attracting and retaining as members of its Board of Directors, persons whose abilities, experience and judgment can contribute to the well being of the Company.

Section 2. Name, Effective Date. The Company previously maintained a deferred compensation plan known as the Household International Deferred Fee Plan for Directors which had an effective date of January 10, 1995 as well as a plan known as the Household International Deferred Phantom Stock Plan for Directors which had an effective date of July 11, 1995. These two plans are referred to herein as the “Prior Plans.” The Company now desires to substantially change the provisions of the Prior Plans especially with respect to investment options and deferral elections. Accordingly, this plan known as the Household International Directors Non-Qualified Deferred Compensation Plan (the “Plan”) is to be effective as of May 1, 2004 (the “Effective Date”).

Section 3. Plan Year. The initial Plan Year shall begin on May 1, 2004 and end on December 31, 2004. Thereafter, a Plan Year shall be the calendar year.

Section 4. Administration of the Plan. The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the “Committee”). The Committee shall conclusively interpret the provisions of the Plan, decide all claims, and shall make all determinations under the Plan. The Committee shall act by vote or written consent of a majority of its members. However, the Committee may appoint one or more persons or an entity as its delegate to handle various administrative matters on its behalf such as recordkeeping and other administrative duties with respect to the Plan.

Section 5. Eligibility. Any Director serving on the Board of Directors of the Company who is not deemed to be an employee of the Company or any of its subsidiaries or affiliates is eligible to participate in the Plan.

Section 6. Deferred Compensation Account. An unfunded deferred compensation account shall be established for each person who elects to participate in the Plan. A separate account shall be established for each Plan Year’s deferrals. An amount equal to the compensation deferred will be credited to the participant’s deferred compensation account for that Plan Year within three business days of the date such compensation would otherwise be initially payable.

Section 7. Amount of Deferral. For Plan Year 2004 and for each Plan Year thereafter, a participant may elect to defer receipt of Board of Director fees (including annual retainer and chairperson committee retainer fees) that would otherwise be paid in that year and which have not yet been earned. The annual aggregate deferral election made by a participant for a particular Plan Year must be at least $5,000.

Section 8. Election of Deferral. An election to defer compensation for each Plan Year shall be made on forms provided by the Committee for that purpose and shall be effective on the date indicated, but not before the date filed with the Committee. For the initial Plan Year of the Plan, valid elections must be filed by April 23, 2004 and will be effective with the first pay date on or after May 1, 2004. Any deferral election made under the Prior Plans with respect to compensation earned for 2004, shall become ineffective with respect to any amounts that would become payable on or after May 1, 2004. For 2005 and Plan Years thereafter, the elections must be filed by December 15 to be effective for unearned compensation that would otherwise be paid in the following Plan Year. In the case of newly elected Directors who first become eligible to participate in the Plan subsequent to the first day of a Plan Year, such newly eligible participant shall be entitled to make an election to defer compensation for services to be performed subsequent to the election provided such election is made within 30

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days after the date such Director becomes eligible. In this case, such election shall be effective when made with respect to any compensation to be paid during the period beginning with the date following the date of the election through December 31 of the same initial year of participation.

At the time that the participant makes a deferral election for a particular Plan Year, he or she shall also select a time for distribution as well as the form of distribution. A participant may elect to receive the deferrals for a particular Plan Year either at termination from Board membership, or at a future specified date while still serving on the Board. Termination from Board membership means termination from the Board of Directors of the Company and the Boards of all of the Company’s subsidiaries and affiliates. Any future deferred distribution date chosen by a participant must be at least two years after the end of the Plan Year for which the election is made.

If a participant has failed to select a future deferred distribution date for a Plan Year deferral or if he or she terminates Board membership, for a reason other than death, prior to reaching the selected future deferred distribution date, then distribution of such deferred compensation will be made or commence in the calendar year following the date of the participant’s termination of Board membership.

The usual form of distribution is a lump sum. However, at the time of deferral, a participant is eligible to select an optional form of distribution consisting of annual or quarterly installments of up to 10 years. Quarterly installments will be paid in January, April, July, and October. Notwithstanding the foregoing, if at initial valuation the amount to be distributed (i.e., a common distribution date and a common installment method) is less than $25,000, then distribution will be in a lump sum. The method of distribution (from one form of installments to another form of installments or to a lump sum and vice versa) can be changed by filing a form with the Committee at least 12 months prior to the distribution date. However, subject to Section 18, the election to receive a Plan Year’s deferrals at termination of Board membership or at some future date while still a Board member is irrevocable.

Section 9. Hypothetical Investment. Each deferred compensation account for a particular Plan Year will be credited with earnings from the date on which deferred compensation is credited to the account until the date of payment. The participant can elect to have the amount credited to his or her account for a particular Plan Year invested hypothetically in various benchmark funds. The benchmark funds that initially will be available under the Plan are as follows: 1) Van Kampen Real Estate Securities – A Shares 2) Oppenheimer Global – A Shares 3) AIM Small Cap Growth – Class A 4) HSBC Investor Small Cap Equity – Class Y 5) Fidelity Advisor Mid Cap Stock – Class A 6) Dreyfus S&P 500 Index 7) HSBC Investor Growth & Income – Class Y 8) HSBC Investor Fixed Income – Class Y 9) HSBC Investor Money Market – Class Y. The benchmark funds may be subsequently changed by the Committee or its delegate as it sees fit. In the absence of an investment election for a Plan Year, the participant’s deferred compensation account balance for that Plan Year will be deemed invested in the HSBC Investor Money Market – Class Y.

The participant can change his or her investment election as to the amount for a particular Plan Year already credited or to be credited to his or her account in whole percentages on a monthly basis by filing an appropriate election form with the Committee by the 25^th day of the month prior to the first day of the month in which the election is to be effective. Each Plan Year of deferrals may have a separate investment allocation. There is no guarantee a participant’s deferred compensation account deemed invested in a particular benchmark fund will increase; amounts may decrease based on the performance of the benchmark fund.

Section 10. Prior Plan Deferrals. Amounts that were previously deferred by a participant for a Plan Year under the Prior Plans and which have not been distributed as of the Effective Date will be credited to the participant’s deferred compensation account under this Plan known as the Prior Plan Balance. Amounts credited to the Prior Plan Balance for any prior plan year will be distributed according to the participant’s previous deferral election for that plan year under the Prior Plans subject to the participant’s right to change the manner of distribution in accordance with Section 8, if eligible. The amounts credited to the participant’s account under the Prior Plans which were hypothetically invested in the Stock Component shall continue to be hypothetically invested in such Stock Component until such time as the participant elects to have such amounts transferred to

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one or more of the benchmark funds offered under the Plan but no deemed dividends on such amounts nor new deferrals nor transfers from other benchmark funds can be hypothetically invested in the Stock Component. However, any amounts that are credited or would be credited to the participant’s account under the Prior Plans invested in the Cash Component will be invested in the HSBC Investor Money Market – Class Y. The participant may make an election to have amounts representing the Prior Plan Balance for each prior plan year invested hypothetically in the benchmark investment funds offered under this Plan and the investment election for any plan year can be changed from time to time in accordance with Section 9.

Section 11. Value of Deferred Compensation Accounts. The value of each participant’s deferred compensation account shall include compensation deferred, adjusted for any increase or decrease thereon, pursuant to Section 9 of the Plan.

Section 12. Payment of Deferral. Subject to Section 18, a distribution may be made from the participant’s deferred compensation account as soon as practicable in the calendar year following the date of the termination of the participant’s Board membership unless an earlier date for distribution while serving as a Board member is specified by the participant in his or her election to defer compensation or in the event of the participant’s death. If a participant elected to defer any Plan Year’s compensation to a specific date while serving as a Board member, such Plan Year’s deferred compensation and earnings or losses thereon will be payable in cash in a lump sum or installments, if applicable, on the date specified unless it is paid earlier due to termination of Board membership or death. If a participant terminates Board membership, for a reason other than death, before the date chosen for distribution, then distribution will occur in the calendar year following such termination. The account balance will be distributed in the same form of distribution elected for termination of employment subject to the minimum requirements for installments. If a participant terminates Board membership while receiving in-service installments, then the remaining installments will be distributed as they fall due.

Section 13. Taxation. All distributions from the Plan are treated as ordinary income subject to federal and state income taxation at the time of distribution (with the exception of states that assess taxes at the time of deferral). Distributions (including investment returns) are also subject to self-employment and Medicare taxes. The participants and their beneficiaries, distributees, and personal representatives will bear any and all federal, foreign, state, local or other income or other taxes imposed on amounts deferred or paid under the Plan.

Section 14. Designation of Beneficiary. A participant may designate a beneficiary or beneficiaries which shall be effective upon filing written notice with the Committee on the form provided by the Committee for that purpose. If a Participant is married and has not designated his or her spouse as the sole primary beneficiary of his or her account, then such spouse must provide written consent to the participant’s beneficiary designation form or else the account will be paid to such spouse, if living, upon the death of the participant. If no beneficiary is designated, the beneficiary will be the participant’s estate. If more than one beneficiary statement has been filed, the beneficiary or beneficiaries designated in the statement bearing the most recent date will be deemed the valid beneficiary or beneficiaries.

Section 15. Death of Participant or Beneficiary. In the event of a participant’s death before he or she has received the full value of his or her deferred compensation account, the then current value of the participant’s deferred compensation account shall be determined and such amount shall be paid to the beneficiary or beneficiaries of the deceased participant as soon as practicable thereafter in cash in a lump sum. If no designated beneficiary has been named or survives the participant, the beneficiary will be the participant’s estate.

Section 16. Participant’s Rights Unsecured. The right of any participant or beneficiary to receive payment under the provisions of the Plan shall be an unsecured claim against the general assets of the Company, and any successor company in the event of a merger, consolidation, reorganization or any other event which causes the Company’s assets or business to be acquired by another company. No provisions contained in the Plan shall be construed to give any participant or beneficiary at any time a security interest in the deferred compensation account or any other assets of the Company.

Section 17. Statement of Account. Statements will be sent to participants following the end of each calendar quarter reflecting the value of their deferred compensation accounts as of the end of that quarter. The accounts will be valued daily but recorded monthly.

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Section 18. Hardship Withdrawals. Notwithstanding anything in this Plan to the contrary, a participant may request a hardship withdrawal of all or a portion of the balance of his or her deferred compensation account by filing a written request with the Committee in a form acceptable to the Committee for that purpose. A hardship withdrawal will be granted on a limited basis and only due to the participant’s or dependant’s illness or accident, casualty loss of the participant’s property or similar circumstances arising out of events beyond the control of the participant. A participant requesting a hardship withdrawal will be requested to submit documentation of the hardship and proof that the loss is not covered by other means. This request may be granted, solely in the absolute discretion of the Committee. No member of the Committee may vote on, or otherwise influence, a decision of the Committee concerning his or her request for a hardship withdrawal. A hardship withdrawal by a participant shall have no effect on any amounts remaining in the participant’s account and shall not have any effect on any current or future deferral election after the hardship withdrawal.

Section 19. Assignability. No right to receive payments hereunder shall be transferable or assignable by a participant or a beneficiary.

Section 20. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois.

Section 21. Amendment or Termination of Plan. This Plan may at any time or from time to time be amended, modified or terminated by the Committee. No amendment, modification or termination shall, without the consent of a participant, adversely affect such participant’s accruals on his or her prior elections. Rights accrued prior to termination of the Plan will not be canceled by termination of the Plan.

Section 22. Payment of Certain Costs of the Participant. If a dispute arises regarding the interpretation or enforcement of this Plan and the participant (or, in the event of his or her death, his or her beneficiary) obtains a final judgment in his or her favor from a court of competent jurisdiction from which no appeal may be taken, whether because the time to do so has expired or otherwise, or his or her claim is settled by the Company prior to the rendering of such a judgment, all reasonable legal and other professional fees and expenses incurred by the participant in contesting or disputing any such claim or in seeking to obtain or enforce any right or benefit provided for in the Plan or in otherwise pursuing his or her claim will be promptly paid by the Company with interest thereon at the highest Illinois statutory rate for interest on judgments against private parties from the date of payment thereof by the participant to the date of reimbursement to him or her by the Company.

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EX-10.9

Exhibit 10.9

HOUSEHOLD INTERNATIONAL

NON-QUALIFIED DEFERRED COMPENSATION PLAN

Section 1. Purpose. The purpose of this Plan is to provide certain executives of Household International, Inc. (the “Company”) and certain of its direct and indirect subsidiaries (the Company and such subsidiaries being referred to as the “Employers”) the opportunity to defer receipt of compensation and provide for future savings of compensation earned. The provision of such an opportunity is designed to aid the Company in attracting and retaining as executives, persons whose abilities, experience and judgment can contribute to the well being of the Company.

Section 2. Name, Effective Date. The Company previously maintained a deferred compensation plan known as the Household International Non-Qualified Deferred Compensation Plan (the “Prior Plan”) which had an effective date of December 1, 1996. The Company now desires to substantially change the provisions of the Prior Plan especially with respect to eligibility, investment options and deferral elections. Accordingly, this plan also known as the Household International Non-Qualified Deferred Compensation Plan (the “Plan”) is to be effective as of May 1, 2004 (the “Effective Date”).

Section 3. Plan Year. The initial Plan Year shall begin on May 1, 2004 and end on December 31, 2004. Thereafter, a Plan Year shall be the calendar year.

Section 4. Administration of the Plan. The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the “Committee”). The Committee shall conclusively interpret the provisions of the Plan, decide all claims, and shall make all determinations under the Plan. The Committee shall act by vote or written consent of a majority of its members. However, the Committee may appoint one or more persons or an entity as its delegate to handle various administrative matters on its behalf such as recordkeeping and other administrative duties with respect to the Plan.

Section 5. Eligibility. Any executive of the Employers who is on the United States payroll, other than as a secondee, and whose compensation is at least $150,000 as of February 15, 2004 is eligible to participate in the Plan for the initial Plan Year beginning on May 1, 2004. For Plan Years thereafter, an executive of the Employers who is on the United States payroll, other than as a secondee, must have compensation of at least $150,000 as of the November 1 preceding the Plan Year for which an election is made in order to be eligible to participate in the Plan for that Plan Year. Compensation shall be determined prior to any reduction for any salary contributions to a cafeteria plan established pursuant to Section 125 of the Internal Revenue Code of 1986, as amended (the “Code”) or to a plan qualified pursuant to Section 401(k) of the Code or due to a transportation fringe under Section 132(f) of the Code. For purposes of eligibility, compensation means annualized base salary for the current calendar year plus annual bonus, commission, and performance based incentive awards earned in the previous calendar year and paid by the time of the eligibility determination date. A participant must meet the annual minimum for each Plan Year in order to make a deferral election for that Plan Year although the $150,000 minimum may be changed by the Committee.

Section 6. Deferred Compensation Account. An unfunded deferred compensation account shall be established for each person who elects to participate in the Plan. A separate account shall be established for each Plan Year’s deferrals. An amount equal to the compensation deferred will be credited to the participant’s deferred compensation account for that Plan Year within three business days of the date such compensation would otherwise be initially payable.

Section 7. Amount of Deferral. For Plan Year 2004 and for each Plan Year thereafter, a participant may elect to defer receipt of up to 80% of the unearned salary, commissions and performance based incentive awards that would otherwise be paid in that year and/or up to 80% of the annual bonus earned for that year which generally becomes payable to the participant in the following year. No deferral election shall reduce a participant’s compensation below the amount necessary to satisfy the amounts needed for applicable employment taxes, benefit plan withholding requirements or income tax or other tax withholding. The annual aggregate deferral election made by a participant for a particular Plan Year must be at least $5,000.

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Section 8. Election of Deferral. An election to defer compensation for each Plan Year shall be made on forms provided by the Committee for that purpose and shall be effective on the date indicated, but not before the date filed with the Committee. For the initial Plan Year of the Plan, valid elections must be filed by April 23, 2004 and will be effective with the first pay date on or after May 1, 2004. Any deferral election made under the Prior Plan with respect to compensation earned for 2004, shall become ineffective with respect to any amounts that would become payable on or after May 1, 2004. For 2005 and Plan Years thereafter, the elections must be filed by December 15 to be effective for unearned compensation that would otherwise be paid in the following Plan Year. At the time that the participant makes a deferral election for a particular Plan Year, he or she shall also select a time for distribution as well as the form of distribution. A participant may elect to receive the deferrals for a particular Plan Year either at termination of employment, including retirement due to disability, or at a future specified date while employed. For purposes of the Plan, termination of employment refers to termination of employment from all the Employers and their subsidiaries and affiliates. Any future deferred distribution date chosen by a participant must be at least two years after the end of the Plan Year for which the election is made. If a participant has failed to select a future deferred distribution date for a Plan Year deferral or if he or she terminates employment, including retirement due to disability, for a reason other than death, prior to reaching the selected future deferred distribution date, then distribution of such deferred compensation will be made or commence in the calendar year following the date of the participant’s termination of employment.

The usual form of distribution is a lump sum. However, at the time of deferral, a participant is eligible to select an optional form of distribution consisting of annual installments of up to 10 years if he or she has or will have 10 years of Company service as of the date such installments begin. Notwithstanding the foregoing, if at initial valuation the amount to be distributed (i.e., a common distribution date and a common installment method) is less than $25,000, then distribution will be in a lump sum. The method of distribution (from one form of installments to another form of installments or to a lump sum and vice versa) can be changed by filing a form with the Committee at least 12 months prior to the distribution date. However, subject to Section 18, the election to receive a Plan Year’s deferrals at termination of employment or at some future date while employed is irrevocable.

Section 9. Hypothetical Investment. Each deferred compensation account for a particular Plan Year will be credited with earnings from the date on which deferred compensation is credited to the account until the date of payment. The participant can elect to have the amount credited to his or her account for a particular Plan Year invested hypothetically in various benchmark funds. The benchmark funds that initially will be available under the Plan are as follows: 1) Van Kampen Real Estate Securities – A Shares 2) Oppenheimer Global – A Shares 3) AIM Small Cap Growth – Class A 4) HSBC Investor Small Cap Equity – Class Y 5) Fidelity Advisor Mid Cap Stock – Class A 6) Dreyfus S&P 500 Index 7) HSBC Investor Growth & Income – Class Y 8) HSBC Investor Fixed Income – Class Y 9) HSBC Investor Money Market – Class Y. The benchmark funds may be subsequently changed by the Committee or its delegate as it sees fit. In the absence of an investment election for a Plan Year, the participant’s deferred compensation account balance for that Plan Year will be deemed invested in the HSBC Investor Money Market – Class Y.

The participant can change his or her investment election as to the amount for a particular Plan Year already credited or to be credited to his or her account in whole percentages on a monthly basis by filing an appropriate election form with the Committee by the 25^th day of the month prior to the first day of the month in which the election is to be effective. Each Plan Year of deferrals may have a separate investment allocation. There is no guarantee a participant’s deferred compensation account deemed invested in a particular benchmark fund will increase; amounts may decrease based on the performance of the benchmark fund.

Section 10. Prior Plan Deferrals. Amounts that were previously deferred by a participant for a Plan Year under the Prior Plan and which have not been distributed as of the Effective Date will be credited to the participant’s deferred compensation account under this Plan known as the Prior Plan Balance. Amounts credited to the Prior Plan Balance for any prior plan year will be distributed according to the participant’s previous deferral election for that plan year under the Prior Plan subject to the participant’s right to change the manner of distribution in accordance with Section 8, if eligible. The amounts credited to the participant’s account under the Prior Plan which were hypothetically invested in Fund A (the Stock Fund) shall continue to be hypothetically

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invested in such Stock Fund until such time as the participant elects to have such amounts transferred to one or more of the benchmark funds offered under the Plan but no deemed dividends on such amounts nor new deferrals nor transfers from other benchmark funds can be hypothetically invested in the Stock Fund. However, any amounts that are credited or would be credited to the participant’s account under the Prior Plan invested in Fund B (the Treasury Fund) will be invested in the HSBC Investor Money Market – Class Y. The participant may make an election to have amounts representing the Prior Plan Balance for each prior plan year invested hypothetically in the benchmark investment funds offered under this Plan and the investment election for any plan year can be changed from time to time in accordance with Section 9.

Section 11. Value of Deferred Compensation Accounts. The value of each participant’s deferred compensation account shall include compensation deferred, adjusted for any increase or decrease thereon, pursuant to Section 9 of the Plan.

Section 12. Payment of Deferral. Subject to Section 18, a distribution may be made from the participant’s deferred compensation account as soon as practicable in the calendar year following the date of the termination of the participant’s employment, including retirement due to disability, unless an earlier date for distribution while employed is specified by the participant in his or her election to defer compensation or in the event of the participant’s death. If a participant elected to defer any Plan Year’s compensation to a specific date while employed, such Plan Year’s deferred compensation and earnings or losses thereon will be payable in cash in a lump sum or installments, if applicable, on the date specified unless it is paid earlier due to termination of employment or death. If a participant terminates employment, including retirement due to disability, for a reason other than death, before the date chosen for distribution, then distribution will occur in the calendar year following termination. The account balance will be distributed in the same form of distribution elected for termination of employment subject to the minimum requirements for installments. If a participant terminates employment while receiving in-service installments, then the remaining installments will be distributed as they fall due.

Section 13. Withholding. There shall be deducted from all deferrals and payments under the Plan the amount of any taxes required to be withheld by any federal, state or local government. The participants and their beneficiaries, distributees, and personal representatives will bear any and all federal, foreign, state, local or other income or other taxes imposed on amounts deferred or paid under the Plan.

Section 14. Designation of Beneficiary. A participant may designate a beneficiary or beneficiaries which shall be effective upon filing written notice with the Committee on the form provided by the Committee for that purpose. If a Participant is married and has not designated his or her spouse as the sole primary beneficiary of his or her account, then such spouse must provide written consent to the participant’s beneficiary designation form or else the account will be paid to such spouse, if living, upon the death of the participant. If no beneficiary is designated, the beneficiary will be the participant’s estate. If more than one beneficiary statement has been filed, the beneficiary or beneficiaries designated in the statement bearing the most recent date will be deemed the valid beneficiary or beneficiaries.

Section 15. Death of Participant or Beneficiary. In the event of a participant’s death before he or she has received the full value of his or her deferred compensation account, the then current value of the participant’s deferred compensation account shall be determined and such amount shall be paid to the beneficiary or beneficiaries of the deceased participant as soon as practicable thereafter in cash in a lump sum. If no designated beneficiary has been named or survives the participant, the beneficiary will be the participant’s estate.

Section 16. Participant’s Rights Unsecured. The right of any participant or beneficiary to receive payment under the provisions of the Plan shall be an unsecured claim against the general assets of the Company, and any successor company in the event of a merger, consolidation, reorganization or any other event which causes the Company’s assets or business to be acquired by another company. No provisions contained in the Plan shall be construed to give any participant or beneficiary at any time a security interest in the deferred compensation account or any other assets of the Company.

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Section 17. Statement of Account. Statements will be sent to participants following the end of each calendar quarter reflecting the value of their deferred compensation accounts as of the end of that quarter. The accounts will be valued daily but recorded monthly.

Section 18. Hardship Withdrawals. Notwithstanding anything in this Plan to the contrary, a participant may request a hardship withdrawal of all or a portion of the balance of his or her deferred compensation account by filing a written request with the Committee in a form acceptable to the Committee for that purpose. A hardship withdrawal will be granted on a limited basis and only due to the participant’s or dependant’s illness or accident, casualty loss of the participant’s property or similar circumstances arising out of events beyond the control of the participant. A participant requesting a hardship withdrawal will be requested to submit documentation of the hardship and proof that the loss is not covered by other means. This request may be granted, solely in the absolute discretion of the Committee. No member of the Committee may vote on, or otherwise influence, a decision of the Committee concerning his or her request for a hardship withdrawal. A hardship withdrawal by a participant shall have no effect on any amounts remaining in the participant’s account and shall not have any effect on any current or future deferral election after the hardship withdrawal.

Section 19. Assignability. No right to receive payments hereunder shall be transferable or assignable by a participant or a beneficiary.

Section 20. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois.

Section 21. Amendment or Termination of Plan. This Plan may at any time or from time to time be amended, modified or terminated by the Committee. No amendment, modification or termination shall, without the consent of a participant, adversely affect such participant’s accruals on his or her prior elections. Rights accrued prior to termination of the Plan will not be canceled by termination of the Plan.

Section 22. Payment of Certain Costs of the Participant. If a dispute arises regarding the interpretation or enforcement of this Plan and the participant (or, in the event of his or her death, his or her beneficiary) obtains a final judgment in his or her favor from a court of competent jurisdiction from which no appeal may be taken, whether because the time to do so has expired or otherwise, or his or her claim is settled by the Company prior to the rendering of such a judgment, all reasonable legal and other professional fees and expenses incurred by the participant in contesting or disputing any such claim or in seeking to obtain or enforce any right or benefit provided for in the Plan or in otherwise pursuing his claim will be promptly paid by the Company with interest thereon at the highest Illinois statutory rate for interest on judgments against private parties from the date of payment thereof by the participant to the date of reimbursement to him or her by the Company.

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EX-12

Exhibit 12

Computation of Ratio of Earnings to Fixed Charges and to Combined

Fixed Charges and Preferred Stock Dividends

	Six months ended June 30, 2004		March 29 through June 30, 2003		January 1 through March 28, 2003
	(Successor)		(Successor) (in millions)		(Predecessor)
Net income	$	875.8	$	373.7	$	245.7
Income tax expense		450.5		189.9		181.8
Income before income tax expense		1,326.3		563.6		427.5
Fixed charges:
Interest expense(1)		1,277.5		574.5		898.1
Interest portion of rentals(2)		26.6		11.2		18.2
Total fixed charges		1,304.1		585.7		916.3
Total earnings as defined	$	2,630.4	$	1,149.3	$	1,343.8
Ratio of earnings to fixed charges		2.02		1.96		1.47	(4)
Preferred stock dividends(3)		54.2		32.8		33.4
Ratio of earnings to combined fixed charges and preferred stock dividends		1.94		1.86		1.41	(4)

(1) For financial statement purposes for the periods January 1 through March 28, 2003 and March 29 through June 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 $167.3 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 percent and our ratio of earnings to combined fixed charges and preferred stock dividends would have been 1.63 percent. These non-GAAP financial ratios are provided for comparison of our operating trends only.

EX-31

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 Household International, Inc., certify that:

1. I have reviewed this report on Form 10-Q of Household International, Inc.;

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.

Date: August 2, 2004

/s/ William F. Aldinger

William F. Aldinger

Chairman and Chief Executive Officer

Certification of Chief Financial Officer

I, Simon C. Penney, Senior Executive Vice President and Chief Financial Officer of Household International, Inc., certify that:

1. I have reviewed this report on Form 10-Q of Household International, Inc.;

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.

Date: August 2, 2004

/s/ Simon C. Penney

Simon C. Penney

Senior Executive Vice President and

Chief Financial Officer

EX-32

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 Quarterly Report of Household International, Inc. (the “Company”) on Form 10-Q for the period ending June 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 the Company, 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

August 2, 2004

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 Quarterly Report of Household International, Inc. (the “Company”) on Form 10-Q for the period ending June 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 the Company, 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

August 2, 2004

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 Household International, Inc. and will be retained by Household International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.1

Exhibit 99.1

Debt and Preferred Stock Securities Ratings

At June 30, 2004	Standard & Poor’s Corporation	Moody’s Investors 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