HOUSEHOLD FINANCE CORP - 10-Q Quarterly Report

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FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

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 1-75

HOUSEHOLD FINANCE CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 36-1239445
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(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 [ ]

At September 30, 2002, there were 1,000 shares of the registrant's common stock
outstanding.

The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.

HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

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PART I. RESTATED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

See notes to interim condensed consolidated financial statements.

2

HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

See notes to interim condensed consolidated financial statements.

3

HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

See notes to interim condensed consolidated financial statements.

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HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of
Household Finance Corporation ("HFC"), a wholly owned subsidiary of Household
International, Inc. ("Household"), and its subsidiaries have been prepared in
accordance with accounting principles generally accepted in the United States of
America 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 adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Results for the three and nine months ended
September 30, 2002 should not be considered indicative of the results for any
future quarters or the year ending December 31, 2002. HFC and its subsidiaries
may also be referred to in this Form 10-Q as "we," "us" or "our." These
unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes included in
our Annual Report on Form 10-K/A for the year ended December 31, 2001 which was
filed with the Securities and Exchange Commission on August 27, 2002.

The chief executive officer and principal financial officer of HFC have
certified that this quarterly report fairly presents, in all material respects,
the financial condition and results of operations of HFC as of and for the
period ended September 30, 2002. These certifications are included as Exhibits
99.2 and 99.3 to this Form 10-Q. The chief executive officer and principal
financial officer of HFC have also provided certifications as to the
effectiveness of our disclosure controls and procedures which are included on
pages 27 and 28

2. RESTATEMENTS

BANK MERGER RESTATEMENT: On July 1, 2002, Household International, Inc.
contributed all of the capital stock of Household Bank (SB), N.A. ("HBSB"), a
wholly owned subsidiary of Household Bank, f.s.b., to HFC. HBSB, in turn,
purchased all of the assets of Beneficial Bank USA, a wholly owned credit card
banking subsidiary of HFC. Subsequently, we merged our wholly owned banking
subsidiary, Household Bank (Nevada), N.A. with and into HBSB with HBSB being the
surviving entity. The merger completed the consolidation of all of Household
International, Inc.'s credit card banks into one credit card banking subsidiary
of HFC. We believe the combination of the banks will streamline and simplify our
regulatory reporting process as well as optimize capital and liquidity
management. In accordance with the guidance established for mergers involving
affiliates under common control, the financial statements of HFC include the
results of HBSB for all periods presented similar to a pooling of interests.

MASTERCARD AND VISA RESTATEMENT: As reported in our Annual Report on Form 10-K/A
for the year ended December 31, 2001, which was filed with the Securities and
Exchange Commission on August 27, 2002, we have restated our previously reported
consolidated financial statements. The restatement relates to a MasterCard and
Visa affinity credit card relationship and a marketing agreement with a third
party credit card marketing company, which were entered into between 1996 and
1999. All were part of our Consumer 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 auditors, KPMG LLP, advised
us that, in their 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 $241.0 million, after-tax, retroactive reduction
to retained earnings at December 31, 2001.

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3. INVESTMENT SECURITIES

Investment securities consisted of the following available-for-sale investments:

4. RECEIVABLES

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 $1.4 billion at
September 30, 2002 and $1.1 billion at December 31, 2001. Interest-only strip
receivables also included fair value mark-to-market adjustments which increased
the balance by $340.7 million at September 30, 2002 and $321.4 million at
December 31, 2001.

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* MasterCard is a registered trademark of MasterCard International, Incorporated
and Visa is a registered trademark of VISA USA, Inc.

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The outstanding balance of receivables serviced with limited recourse consisted
of the following:

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

5. CREDIT LOSS RESERVES

An analysis of credit loss reserves for the three and nine months ended
September 30 was as follows:

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 intended to be adequate but not excessive. We
statistically estimate losses for consumer receivables based on delinquency and
reage status and past loss experience. In addition, we provide loss reserves on
consumer receivables to reflect our assessment of portfolio risk factors which
may not be fully reflected in the statistical calculation (which uses roll rates
and migration analysis). These risk factors include

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bankruptcy trends, recent growth, product mix, economic conditions and current
levels of charge-offs and delinquencies.

6. ACQUIRED INTANGIBLES AND GOODWILL

Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("FAS No. 142"). FAS
No. 142 changed the accounting for goodwill from an amortization method to an
impairment-only approach. Amortization of goodwill recorded in past business
combinations ceased upon adoption of the statement on January 1, 2002. We have
completed the transitional goodwill impairment test required by FAS No. 142 and
have concluded that none of our goodwill is impaired.

We do not hold any intangible assets which are not subject to amortization.
Amortized acquired intangibles consisted of the following:

Acquired intangible amortization expense totaled $12.7 million for the quarter
ended September 30, 2002, $24.4 million for the quarter ended September 30,
2001, $45.1 million for the nine months ended September 30, 2002, $74.6 million
for the nine months ended September 30, 2001 and $99.0 million for the twelve
months ended December 31, 2001.

Estimated amortization expense associated with acquired intangibles for each of
the following years is as follows:

The following table discloses the impact of goodwill amortization on net income
for the periods indicated.

There were no significant changes to our recorded amount of goodwill, either in
total or by segment, during the current quarter or nine months ended September
30, 2002.

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7. INCOME TAXES

Our effective tax rate was 32.3 percent for the quarter ended September 30,
2002, 35.3 percent for the quarter ended September 30, 2001, 33.9 percent for
the nine months ended September 30, 2002 and 35.4 percent for the nine months
ended September 30, 2001. Excluding the settlement charge and related costs,
which resulted in a $191.8 million tax benefit, our effective tax rate was 35.0
percent for the current quarter and 34.5 percent for the nine months ended
September 30, 2002. The recording of the settlement charge and related expenses
resulted in a lower effective tax rate for the quarter and nine months ended
September 30, 2002. The effective tax rate differs from the statutory federal
income tax rate in all periods because of the effects of state and local income
taxes and tax credits.

8. TRANSACTIONS WITH PARENT COMPANY AND AFFILIATES

We periodically advance funds to Household International, Inc. and affiliates or
receive amounts in excess of our parent company's current requirements. Net
advances to (from) parent company and affiliates were $698.9 million at
September 30, 2002 compared to $(2,685.2) million at December 31, 2001. Net
interest income (expense) on affiliated balances was $2.7 million for the
quarter ended September 30, 2002, $(35.4) million for the quarter ended
September 30, 2001, $(8.6) million for the nine months ended September 30, 2002
and $(123.8) million for the nine months ended September 30, 2001.

9. COMPREHENSIVE INCOME

Comprehensive income was $19.5 million for the quarter ended September 30, 2002,
$306.5 million for the quarter ended September 30, 2001, $1,114.1 million for
the nine months ended September 30, 2002 and $816.2 million for the nine months
ended September 30, 2001.

The components of accumulated other comprehensive income (loss) were as follows:

10. NEW ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards No 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("FAS No. 144"). The adoption of FAS No. 144 did not have a significant
impact on our operations.

11. SUBSEQUENT EVENT

On October 11, 2002, Household reached a preliminary agreement with a
multi-state working group of state attorneys general and regulatory agencies to
effect a nationwide resolution of alleged violations of federal and/or state
consumer protection, consumer financing and banking laws and regulations with
respect to secured real estate lending from its retail branch consumer lending
operations as conducted by HFC and its consolidated subsidiaries. Consistent
with the guidance promulgated by Statement of Financial Accounting Standards No.
5, "Accounting for Contingencies," we recorded a pre-tax charge of $525 million
during the third quarter of 2002. The charge reflects the costs of this
settlement agreement and related matters, and has been reflected in the
statement of income in total costs and expenses.

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Pursuant to the proposed agreement, we will establish a fund of up to $484
million to be divided among the participating states based upon the volume of
HFC retail branch real estate secured loans which were originated in the state
from January 1, 1999 through September 30, 2002 (the "Covered Loans"). We will
deposit these monies into the fund in three installments, beginning 30 days
after the filing of consent decrees representing at least 80 percent of the
Covered Loans. The amount of the settlement fund will proportionately increase
above the $387.5 million minimum for participation in excess of 80 percent of
the Covered Loans. HFC will also reimburse the states for expenses of their
investigation, not to exceed $10.2 million, and pay fees and expenses for each
state's independent claim administrator. For the agreement to be effective,
states representing at least 80 percent of the Covered Loans must file mutually
agreed consent decrees by December 15, 2002.

12. SEGMENT REPORTING

We have one reportable segment, Consumer, which includes our consumer lending,
mortgage services, retail services, credit card services and auto finance
businesses. There has been no change in the basis of our segmentation or in the
measurement of segment profit as compared with the presentation in our Annual
Report on Form 10-K/A for the year ended December 31, 2001.
..
We allocate resources and provide information to management for decision making
on a managed basis. Therefore, an adjustment is required to reconcile the
managed financial information to our reported financial information in our
consolidated financial statements. This adjustment reclassifies net interest
margin, fee income and loss provision into securitization revenue.

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REPORTABLE SEGMENTS - MANAGED BASIS

(1) Net of policyholder benefits and excluding fees.
(2) Net income excluding settlement charge and related expenses of $333.2
million, after-tax. This is a non-GAAP measurement which is presented
for comparison purposes only.
(3) Eliminates intersegment revenues.
(4) Eliminates bad debt recovery sales and reclassifies loss reserves
between operating segments.
(5) Eliminates investments in subsidiaries and intercompany borrowings.
(6) Reclassifies net interest margin, fee income and loss provisions
relating to securitized receivables to other revenues.
(7) Represents receivables serviced with limited recourse.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES

FINANCIAL HIGHLIGHTS

(1) Net of policyholder benefits.

(2) Ratio of operating expenses to net interest margin and other revenues less
policyholders' benefits.

(3) We monitor our operations and evaluate trends on both an owned basis as
shown in our financial statements and on a managed basis. Managed basis
reporting adjustments assume that securitized receivables have not been sold and
are still on our balance sheet. Managed basis information is intended to
supplement, and should not be considered a substitute for, owned basis reporting
and should be read in conjunction with reported owned basis results.

(4) The ratio of tangible shareholder's equity to tangible managed assets is a
non-GAAP ratio that is used by rating agencies as a measure to evaluate capital
adequacy. This ratio may differ from similarly named measures presented by other
companies. Tangible shareholder's equity includes common shareholder's equity,
excluding unrealized gains and losses on investments and cash flow hedging
instruments, less acquired intangibles and goodwill. Tangible managed assets
represents total managed assets less acquired intangibles, goodwill and
derivative assets.

(5) The following non-GAAP presentation is being presented for comparison
purposes only to present our operating results excluding the $333.2 million
(after-tax) settlement charge and related expenses.

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BASIS OF REPORTING

This discussion should be read in conjunction with the unaudited condensed
consolidated financial statements, notes and tables included elsewhere in this
report and in the restated Household Finance Corporation Annual Report on Form
10-K/A for the year ended December 31, 2001 (the "2001 Form 10-K/A") filed with
the Securities and Exchange Commission on August 27, 2002. Management's
discussion and analysis 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. Forward-looking statements are
typically identified by words or phrases such as "believe", "expect",
"anticipate", "intend", "may", "will", "should", "would" and "could".
Forward-looking statements involve risks and uncertainties and are based on
current views and assumptions. For a list of important factors that may affect
our actual results, see our 2001 Form 10-K/A.

We monitor our operations and evaluate trends on a managed basis which assumes
that securitized receivables have not been sold and are still on our balance
sheet. We manage 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. See Note 12,
"Segment Reporting," to the accompanying condensed consolidated financial
statements for additional information related to our results on a managed basis.

The following discussion of our financial condition and results of operations is
presented on an owned basis of reporting unless specifically noted. On an owned
basis of reporting, net interest margin, provision for credit losses and fee
income resulting from securitized receivables are included as components of
securitization revenue.

OPERATIONS SUMMARY AND TRENDS

o On October 11, 2002, Household reached a preliminary agreement with a
multi-state working group of state attorneys general and regulatory
agencies to effect a nationwide resolution of alleged violations of
federal and/or state consumer protection, consumer financing and
banking laws and regulations with respect to secured real estate
lending from its retail branch consumer lending operations as conducted
by HFC and its consolidated subsidiaries. We recorded a charge of $525
million during the third quarter of 2002 reflecting the costs of this
settlement agreement and related matters. The operational changes which
will be implemented as a result of the settlement agreement, are
expected to reduce net income by approximately $45 million in 2003.
This matter is discussed in detail in our Form 8-K dated October 11,
2002 which was filed on October 15, 2002.

On October 11, 2002, Standard & Poor's ("S&P") announced that it had
revised its ratings for our long-term and commercial paper debt as well
as that of our parent, Household. S&P's ratings were revised as
follows: long-term senior debt from "A" to "A-" and short-term debt
from "A-1" to "A-2". Also on October 11, 2002 Fitch Ratings announced
that it had placed the long-term and commercial paper ratings of
Household and each of its subsidiaries, including HFC, on "Ratings
Watch Negative," while Moody's Investors Service affirmed all ratings
for Household and HFC. The downgrade by S&P is expected to increase our
funding costs and may decrease our capacity to issue commercial paper.
In addition, this action may reduce the number of investors who are
able to purchase our debt securities and possibly affect our ability to
grow the business in the future.

o Our net income was $206.7 million for the third quarter and $1.2
billion for the first nine months of 2002. Our operating net income (a
non-GAAP measurement of net income excluding the settlement charge and
related expenses of $333.2 million, after-tax) for the third quarter of
2002 was $539.9 million, up 19 percent from net income of $454.3
million a year ago. Operating net income for the

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first nine months of 2002 was $1.5 billion, compared to net income of
$1.2 billion in the year-ago period.

Our improved operating results were due to significant receivable and
revenue growth which was partially offset by higher operating expenses
to support portfolio growth and higher credit loss provision due to the
larger portfolio and uncertain economic environment. Our credit loss
provision was greater than charge-offs by $142.2 million in the current
quarter and $373.8 million for the first nine months of 2002 due to the
adverse economic environment affecting customers in the United States.
In addition, our year-to-date earnings included higher revenues from
our tax refund lending business. Our improved operating results were
offset by the settlement charge recorded in the third quarter which
reduced net income by $333.2 million.

o In the first nine months of the year, we took a number of steps as part
of our liquidity management plans which reduced our reliance on
short-term debt and strengthened our position against market induced
volatility. These steps included establishing a $4.4 billion investment
security liquidity portfolio, issuing long-term debt which lengthened
the term of our funding, establishing $6.25 billion in incremental
conduit capacity, completing real estate secured whole loan sales of
$2.0 billion and issuing securities backed by dedicated home equity
loan receivables of $6.2 billion. We intend to maintain an investment
security portfolio for the near future to protect us from any liquidity
concerns. This action may adversely impact our net income due to the
lower return generated by these assets.

o On July 22, 2002, the four federal bank regulatory agencies issued
draft guidance for account management and loss allowance practices for
credit card lending. The agencies have not yet issued final guidance.
Based on its current form, implementation of the draft guidance would
not have a material adverse impact on our financial statements or the
way we manage our business.

SEGMENT RESULTS--MANAGED BASIS

Our Consumer segment reported net income of $174.6 million for the quarter and
$931.6 million year-to-date. Operating net income (a non-GAAP measurement of net
income excluding the settlement charge and related expenses of $333.2 million,
after-tax) was $507.8 million for the third quarter compared to net income of
$420.0 million in the year-ago quarter. Year-to-date, operating net income
increased to $1.3 billion compared to net income of $1.1 billion for the first
nine months of 2001. The improved operating results were driven by higher net
interest margin, fee income and other revenues which increased $672.5 million,
to $3.0 billion in the quarter and $1.6 billion, to $8.1 billion year-to-date.
Strong receivable growth and higher securitization activity, pursuant to our
liquidity management plans, drove the increases. The higher revenues were
partially offset by substantially higher credit loss provision and higher
expenses. Our credit loss provision rose $476.2 million, to $1.4 billion in the
quarter and $1.2 billion, to $3.8 billion year-to-date as a result of increased
levels of receivables and the continued weak economy. We increased managed loss
reserves by recording provision greater than charge-offs of $281.8 million in
the quarter and $722.5 million year-to-date. Higher salary and operating
expenses were the result of additional employees and operating costs to support
the increased receivable levels, additional collectors and investments in the
growth of our businesses.

Managed receivables grew to $93.5 billion at September 30, 2002, compared to
$91.2 billion at June 30, 2002 and $80.1 billion at September 30, 2001. The
managed receivable growth was driven by growth in all products with the
strongest growth (in dollars) in our real estate secured receivables. This
growth was partially offset by whole loan sales in our mortgage services
business of $1.1 billion in the current quarter and $900 million in the first
quarter. We expect to continue whole loan sales from our mortgage services and
consumer lending businesses for the remainder of the year to meet our capital
targets. These actions may adversely affect earnings in 2003 until we are able
to replace these assets through growth or portfolio purchases.

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Return on average managed assets ("ROMA") was .71 and 1.33 percent in the third
quarter and first nine months of 2002 compared to 2.05 and 1.85 percent in the
year-ago periods. Excluding the settlement charge and related expenses, ROMA was
2.08 percent in the third quarter and 1.81 percent in the first nine months of
2002. The decline in the year-to-date ratio reflects higher credit loss
provision.

BALANCE SHEET REVIEW

(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:

Receivables growth was a key contributor to our improved operating results. To
support capital levels and maintain acceptable debt ratings, we expect to
control receivable growth with portfolio sales and lower organizations for the
remainder of 2002. Earnings in future periods may be adversely affected if we
are unable to replace the sold receivables with comparable receivables through
growth or portfolio purchases.

Compared to September 30, 2001, owned receivables increased $11.0 billion, or 18
percent, to $72.9 billion at September 30, 2002. Receivable growth was strongest
in our real estate secured portfolio, which increased 27 percent over the
September 2001 level, and was balanced between our branch-based consumer lending
business and our mortgage services businesses. This growth was partially offset
by the sale of approximately $2.0 billion in whole loans by our mortgage
services business during the first nine months of 2002 pursuant to our liquidity
management plans. In our auto finance business, growth resulting from a strong
and rational market, larger sales force, increased dealer penetration and strong
Internet originations, was substantially offset by higher securitization levels.
In our MasterCard and Visa portfolio, growth in our subprime, Union Privilege
and Household Bank branded portfolios, was also partially offset by higher
securitization levels. In our private label portfolio, organic growth for
existing merchants and a $725 million portfolio acquisition in the fourth
quarter of 2001 were also offset by higher securitization levels. In our
personal non-credit card portfolio, which increased 13 percent to $11.4 billion,
growth in our branches was also partially offset by higher securitization
levels. During the twelve months ended September 30, 2002, we securitized $8.3
billion including $3.2 billion of auto finance receivables, $760.0 million of
MasterCard and Visa receivables, $1.4 billion of private label receivables and
$3.0 billion of personal non-credit card receivables.

Compared to June 30, 2002, receivables grew $1.1 billion or an annualized 6
percent. The strongest growth was in our MasterCard and Visa portfolio,
especially in our Union Privilege and subprime portfolios. Good consumer demand
resulted in strong volume in our branch-based consumer lending and mortgage
services businesses which contributed to growth in our real estate secured and
personal non-

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credit card portfolios. Real estate secured growth was partially offset by the
sale of approximately $1.1 billion in whole loans by our mortgage services
business during the current quarter. Growth in our auto finance and private
label portfolios was more than offset by higher securitization levels. During
the third quarter, we securitized $2.5 billion including $986 million of auto
finance receivables, $160 million of MasterCard and Visa receivables, $390
million of private label receivables and $1.0 billion of personal non-credit
card receivables.

Owned consumer two-months-and-over contractual delinquency as a percent of owned
consumer receivables was 5.17 percent at September 30, 2002, compared with 4.77
percent at June 30, 2002 and 5.08 percent at September 30, 2001. The annualized
consumer owned charge-off ratio in the third quarter of 2002 was 4.19 percent,
compared with 4.07 percent in the prior quarter and 3.86 percent in the year-ago
quarter.

Our debt to equity ratio was 7.8:1 at September 30, 2002 compared to 7.3:1 at
December 31, 2001.

LIQUIDITY AND CAPITAL RESOURCES

Throughout 2002, the capital markets have been volatile. Investor demand for
both medium and long-term debt has slowed due to adverse economic conditions and
lingering concerns about overall business confidence. These conditions, coupled
with our restatement in August as well as uncertainty preceding the resolution
of certain matters with the various state regulatory agencies, affected the
nature of our funding. During the quarter, the cost to access traditional medium
and long-term unsecured debt funding sources became significantly higher than
expected. We have not experienced funding difficulties. We believe as markets
stabilize and we evidence movement toward meeting our capital goals, our access
to the capital markets will improve and funding costs will decrease.

On October 11, 2002, Standard & Poor's ("S&P") announced that it had revised its
ratings for our long-term and commercial paper debt as well as that of our
parent, Household. S&P's ratings were revised as follows: long-term senior debt
from "A" to "A-" and short-term debt from "A-1" to "A-2". Also on October 11,
2002 Fitch Ratings announced that it had placed the long-term and commercial
paper ratings of Household and each of its subsidiaries, including HFC, on
"Ratings Watch Negative," while Moody's Investors Service affirmed all ratings
for Household and HFC. The downgrade by S&P is expected to increase our funding
costs and decrease our capacity to issue commercial paper.

Commercial paper, bank and other borrowings of $4.2 billion were $1.2 billion
higher at September 30, 2002 than the June 30, 2002 level, but $4.9 billion
lower than the year-end 2001 level. We took advantage of the low interest rate
environment and issued long-term debt in early 2002. We also reduced outstanding
commercial paper to address general market liquidity concerns. As a result of
our split rating, outstanding commercial paper, bank and other borrowings may
decrease in future quarters as the market for our commercial paper may contract.

Senior and senior subordinated debt (with original maturities over one year)
increased $18.0 billion from year-end to $69.2 billion at September 30, 2002.
During the nine months ended September 30, 2002, we issued $4.7 billion in
domestic medium-term notes, $5.0 billion in U.S. dollar-denominated global debt,
$4.8 billion in InterNotes(SM) (a retail-oriented medium-term note program),
L.500 ($710) million of 10-year debt to investors in the U.K., E.3 ($2.7)
billion in Euro bonds and $328 million in yen-denominated debt. Of these
issuances, $7.2 billion had maturities greater than 5 years which reduced our
overall dependence on the potentially volatile commercial paper markets. In
addition, we issued $6.2 billion of securities backed by dedicated home equity
loan receivables.

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During the current quarter, we issued $328 million in yen-denominated debt, $1.3
billion in InterNotes(SM) and $3.4 billion of securities backed by dedicated
home equity loan receivables.

During 2002, we established an investment security portfolio designed to improve
liquidity management and provide additional flexibility in the event of
potential future volatility in the financial markets. At September 30, 2002,
this portfolio totaled $4.4 billion.

We paid dividends to our parent of $300 million; all of which were paid in the
current quarter. In 2001, we paid dividends to our parent company of $225
million in the second quarter and $275 million in the first quarter. HBSB also
paid dividends of $225 million to an affiliate in the third quarter of 2001.
During the first nine months of 2002, we received no capital contributions from
our parent. We received capital contributions from our parent of $50 million in
the third quarter of 2001.

SECURITIZATIONS AND SECURED FINANCINGS

Securitizations and secured financings of consumer receivables have been, and
will continue to be, a source of liquidity for us. In a securitization, a
designated pool of non real estate consumer receivables, typically MasterCard or
Visa credit card, private label credit card, personal non-credit card or auto
finance, 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 Statement of Financial Accounting Standards No. 140 ("FAS No.
140") and, therefore, is not consolidated. The QSPE funds its receivables
purchase through the issuance of securities to investors, entitling them to
receive specified cash flows during the life of the securities. The securities
are collateralized by the underlying receivables transferred to the QSPE. 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. The estimated present value of these rights to future
residual cash flows are recorded on our balance sheet at the time of sale as
interest-only strip receivables, net of our recourse obligation to investors for
failure of debtors to pay. Our recourse is limited to our rights to future cash
flows and any subordinated interests that we may retain. 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 FAS No.
140. Therefore, the receivables and the underlying debt of the trust remain on
our balance sheet. Using this source of funding results in similar operating
results and cash flows as issuing debt through alternative funding sources.

During the third quarter and first nine months of 2002, our securitization
activity exceeded that of both prior year periods. The higher securitization
levels reflect our liquidity management plans to limit reliance on short-term
unsecured debt in potentially volatile markets. Additionally, securitizations
were often a more cost-effective source of funding than traditional medium and
long-term unsecured debt funding sources.

17

Receivables securitized (excluding replenishments of certificateholder
interests) were as follows:

Our securitized receivables totaled $21.8 billion at September 30, 2002,
compared to $19.8 billion at December 31, 2001.

In the first nine months of 2002, we established $6.25 billion in incremental
conduit capacity for our real estate secured product. Consistent with previous
transactions, draws on these facilities are structured as secured financings for
accounting purposes. At September 30, 2002, our undrawn conduit lines totaled
$5.2 billion and included $4.4 billion of undrawn capacity on the real estate
lines put in place in 2002.

We also issued securities backed by dedicated home equity loan receivables of
$3.4 billion in the third quarter of 2002 and $6.2 billion year-to-date,
compared to $717 million in the nine months ended September 30, 2001. For
accounting purposes, these transactions were structured as secured financings.
Therefore, the receivables and the related debt remain on our balance sheet. As
of September 30, 2002, closed-end real estate secured receivables totaling $7.7
billion secured $6.8 billion of outstanding debt related to these transactions.
At December 31, 2001, closed-end real estate secured receivables totaling $1.7
billion secured $1.5 billion of outstanding debt related to these transactions.

We believe the market for securities backed by receivables is a reliable,
efficient and cost-effective source of funds. At September 30, 2002,
securitizations represented 23 percent and secured financings represented 7
percent of the funding associated with our managed portfolio. At December 31,
2001, securitizations represented 24 percent and secured financings represented
2 percent of the funding associated with our managed portfolio.

REGULATORY MATTERS

Our banking subsidiary is subject to the capital adequacy guidelines adopted by
the Office of the Comptroller of the Currency ("OCC") and the Federal Deposit
Insurance Corporation ("FDIC") and are well capitalized. In response to the 2001
Guidance for Subprime Lending Programs issued by the Office of Thrift
Supervision, OCC and FDIC, we made capital contributions to our banking
subsidiary of approximately $250 million and our parent contributed an
additional $900 million in the first quarter of 2002. Throughout the year, we
have taken actions designed to optimize capital management of our banks,
including merging all of Household's credit card banks into a single banking
subsidiary of HFC.

On October 11, 2002, Household reached a preliminary agreement with a
multi-state working group of state attorneys general and regulatory agencies to
effect a nationwide resolution of alleged violations of consumer protection,
consumer lending and insurance laws and regulations in our retail branch
consumer lending operations as conducted by HFC and its consolidated
subsidiaries. We recorded a charge of $525 million (pre-tax) reflecting the
costs of this settlement agreement and related matters. This matter is discussed
in detail in our Form 8-K dated October 11, 2002 which was filed on October 15,
2002.

RESULTS OF OPERATIONS

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

18

NET INTEREST MARGIN Net interest margin on an owned basis was $1.6 billion for
the third quarter of 2002, up 21 percent from $1.3 billion for the prior-year
quarter. Net interest margin on an owned basis for the first nine months of 2002
was $4.6 billion, up from $3.8 billion in the prior-year period. The increases
were primarily due to receivables growth and lower funding costs.

Net interest margin as a percent of average owned interest-earning assets,
annualized, was 8.22 percent in the quarter and 8.31 percent in the first nine
months of 2002, compared to 8.64 and 8.41 percent in the year-ago periods. The
declines were due to the impact of our liquidity-related investment portfolio
which was established in 2002. These reductions were partially offset by lower
funding costs.

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 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 margin increased
$404.1 million, to $2.2 billion in the third quarter of 2002 and $1.2 billion,
to $6.4 billion year-to-date primarily due to higher receivable levels.

Net interest margin as a percent of average managed interest-earning assets,
annualized, was 8.95 percent in the current quarter and 9.11 percent in the
first nine months of 2002, compared to 9.07 and 8.86 percent in the year-ago
periods. The net interest margin on a managed basis is greater than on an owned
basis because the managed basis portfolio includes more auto finance, MasterCard
and Visa and personal non-credit card receivables, which have higher yields. The
decrease in the quarter was primarily due to the liquidity-related investment
portfolio established in 2002. This portfolio has lower yields than our other
products. Lower funding costs were the primary driver of the increased margin
for the nine-month period.

PROVISION FOR CREDIT LOSSES The provision for credit losses for receivables for
the third quarter of 2002 totaled $901.0 million, compared to $649.2 million in
the prior-year quarter. The provision for the first nine months of 2002 was $2.5
billion, compared to $1.9 billion in the year-ago period. The provision as a
percent of average owned receivables, annualized, was 4.94 percent in the third
quarter of 2002, compared to 4.27 percent in the third quarter of 2001. We
recorded owned loss provision greater than charge-offs of $142.2 million during
the third quarter and $373.8 million during the first nine months of 2002.
Receivables growth, increases in personal bankruptcy filings and uncertainty as
to the timing and extent of an economic recovery contributed to a higher
provision. The provision for credit losses may vary from quarter to quarter,
depending on the product mix and credit quality of loans in our portfolio. See
Note 5, "Credit Loss Reserves" to the accompanying condensed consolidated
financial statements for further discussion of factors affecting the provision
for credit losses.

OTHER REVENUES Total other revenues were $1.1 and $2.9 billion for the third
quarter and first nine months of 2002, compared to $871.4 million and $2.5
billion for the same periods in 2001 and included the following:

Securitization revenue is the result of the securitization of our receivables
and includes initial and replenishment gains on sale, net of our estimate of
probable credit losses under the recourse provisions, as well as servicing
revenue and excess spread. Securitization revenue was $505.7 million and $1.5
billion for the third quarter and first nine months of 2002, compared to $422.3
million and $1.2 billion

19

for the same periods in 2001. The increases were due to higher average
securitized receivables as well as increases in the level of receivables
securitized during both the quarter and year-to-date. 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.

Securitization revenue included the following:

Our interest-only strip receivables increased $54.5 and $93.4 million in the
third quarter and first nine months of 2002 compared to $33.1 and $52.2 million
in the year-ago periods. These increases exclude the mark-to-market adjustment
recorded in accumulated other comprehensive income.

Insurance revenue was $131.2 and $397.1 million in the third quarter and first
nine months of 2002 compared to $125.7 and $360.2 million in the year-ago
periods. The increases reflect increased sales on a larger receivable portfolio.

Investment income, which includes interest income on investment securities in
the insurance business as well as realized gains and losses from the sale of
investment securities, was $43.5 and $126.9 million in the third quarter and
first nine months of 2002 compared to $38.7 and $111.2 million in the year-ago
periods. The increases were primarily due to higher interest income, primarily
resulting from higher average investment balances consistent with our liquidity
management plans, partially offset by lower yields.

Fee income, which includes revenues from fee-based products such as credit
cards, was $244.0 and $607.5 million in the third quarter and first nine months
of 2002, compared to $222.6 and $609.8 million in the year-ago periods. The
increase in the quarter was due to higher levels of credit card fees from both
card businesses. The year-to-date decrease was primarily attributable to
improvements in early stage delinquencies in the first half of the year which
resulted in lower late fees in our credit card businesses.

See Note 12, "Segment Reporting," to the accompanying condensed consolidated
financial statements for additional information on fee income on a managed
basis.

Other income, which includes revenue from our tax refund lending business, was
$125.7 and $342.3 million in the third quarter and first nine months of 2002
compared to $62.1 and $253.9 million in the prior-year periods. The increases
are primarily attributable to increased revenues from our mortgage operations.
Higher revenues, including higher collections, from our seasonal tax refund
lending business also contributed to the year-to-date increase.

EXPENSES Total costs and expenses, including the $525 million settlement charge
and related expenses, for the third quarter and first nine months of 2002 were
$1.5 and $3.3 billion compared to $851.6 million and $2.5 billion in the
comparable prior-year periods. Excluding the settlement charge, costs and
expenses were $936.9 million in the current quarter and $2.7 billion
year-to-date. The increases were driven by higher compensation and other
expenses to support our growing portfolio. Our owned basis efficiency ratio was
53.1 and 41.5 percent in the third quarter and first nine months of 2002
compared to

20

36.8 and 38.2 percent in the comparable prior-year periods. Excluding the
settlement charge, our owned basis efficiency ratio was 32.7 percent in the
quarter and 34.3 percent in the first nine months of 2002.

Total costs and expenses included the following:

Salaries and fringe benefits for the third quarter and first nine months of 2002
were $373.0 million and $1.1 billion compared to $334.2 and $974.5 million in
the third quarter and first nine months of 2001. The increases were primarily
due to additional staffing at all businesses to support growth including sales,
collections and service quality.

Sales incentives for the third quarter and first nine months of 2002 were $57.3
and $173.1 million compared to $71.5 and $195.1 million in the comparable
prior-year periods. The decreases were due to conditions of our 2002 branch
incentive plans which, generally, have higher volume requirements than the
prior-year plans.

Occupancy and equipment expense for the third quarter and first nine months of
2002 was $74.6 and $223.4 million compared to $67.3 and $202.4 million in the
comparable prior-year periods. The increases were primarily the result of higher
repairs and maintenance costs.

Other marketing expenses for the third quarter and first nine months of 2002
were $126.0 and $377.9 million compared to $120.6 and $350.0 million in the
comparable prior-year periods. The increases were primarily due to increased
credit card marketing initiatives.

Other servicing and administrative expenses for the third quarter and first nine
months of 2002 were $196.6 and $552.6 million compared to $152.6 and $476.9
million in the comparable prior-year periods. Higher collection, REO, legal and
consulting expenses contributed to the increases.

Amortization of acquired intangibles and goodwill for the third quarter and
first nine months of 2002 was $12.7 and $45.1 million compared to $39.0 and
$118.5 million in the comparable prior-year periods. The decreases were
primarily attributable to the adoption of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets", on January 1, 2002.
Amortization of goodwill recorded in past business combinations ceased upon
adoption of the new accounting statement.

Policyholders' benefits for the third quarter and first nine months of 2002 were
$85.6 and $232.2 million compared to $66.4 and $195.7 million in the comparable
prior-year periods. The increases are primarily due to and consistent with the
increase in insurance revenues resulting from the increased policy sales.

Settlement charge and related expenses were $525 million in both the third
quarter and first nine months of 2002. The charges are the result of a
preliminary agreement with a multi-state group of state attorneys general and
regulatory agencies, to effect a nationwide resolution of alleged violations of
consumer protection, consumer lending and insurance laws and regulations in our
retail branch consumer lending operations as conducted by HFC and its
consolidated subsidiaries under the HFC and Beneficial brand names.

21

CREDIT LOSS RESERVES

Our consumer credit management policies focus on product type and specific
portfolio risk factors. Our consumer credit portfolio is diversified by product
and geographic location. See Note 4, "Receivables" in the accompanying condensed
consolidated financial statements for receivables by product type and Note 5,
"Credit Loss Reserves," for our credit loss reserve methodology and an analysis
of changes in the credit loss reserves.

The following table sets forth owned basis credit loss reserves for the periods
indicated:

(1) Quarter-to-date, annualized

Reserves as a percentage of receivables at September 30, 2002 reflect higher
delinquency levels and continuing uncertainty as to the ultimate impact the
weakened economy will have on charge-off and delinquency levels.

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

(1) Quarter-to-date, annualized

Managed basis reserve ratios are somewhat higher than comparable owned basis
ratios because our managed portfolio includes a lower percentage of real estate
secured receivables, which historically have had lower credit losses than our
other products.

22

CREDIT QUALITY

DELINQUENCY - OWNED BASIS

Two-Months-and-Over Contractual Delinquency (as a percent of consumer
receivables):

Compared to the previous quarter, the weakened economy contributed to higher
delinquencies in all products. These increases were consistent with our
expectations. Approximately a quarter of the increase in our real estate secured
portfolio was attributable to the sale of $1.6 billion in predominantly
non-delinquent receivables during the quarter. The sequential increase in auto
finance delinquency is consistent with historical seasonal trends.

Compared to a year ago, the weakened economy negatively affected delinquency
rates for all products. These increases were partially offset by improved
collections. The improved collections were a direct result of increasing the
size of our collection staff, especially in our branch network.

NET CHARGE-OFFS OF CONSUMER RECEIVABLES - OWNED BASIS

Net Charge-offs of Consumer Receivables (as a percent, annualized, of average
consumer receivables):

The weak economy, including higher bankruptcy charge-offs, drove the increase in
charge-off ratios over the previous quarter. These increases were consistent
with our expectations. The decrease in MasterCard and Visa charge-offs reflects
decreases across all MasterCard and Visa credit card products.

Compared to the prior-year quarter, our net charge-off ratio increased 33 basis
points, primarily due to the weak economy. These increases were partially offset
by improved collections as a direct result of increasing the size of our
collection staff. The decrease in MasterCard and Visa charge-off is primarily
attributable to improvements in our subprime portfolio. Charge-offs in our
personal non-credit card portfolio increased more than most other products
because our typical personal non-credit card customer is less resilient and,
therefore, more exposed to the recent economic downturn.

The increases in real estate charge-offs and REO expense as a percent of average
real estate secured receivables over both of the prior periods were the result
of the seasoning of our portfolios, higher loss severities, especially in second
lien mortgages, and higher bankruptcy filings.

23

OWNED NONPERFORMING ASSETS

24

ITEM 4. CONTROLS AND PROCEDURES

We maintain a system of internal controls and procedures designed to provide
reasonable assurance as to the reliability of our published financial statements
and other disclosures included in this report. Within the 90-day period prior to
the date of this report, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934. Based upon that evaluation, our Chief
Executive Officer and our Principal Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to Household Finance Corporation (including its
consolidated subsidiaries) required to be included in this quarterly report on
Form 10-Q.

There have been no significant changes in our internal controls or in other
factors which could significantly affect internal controls subsequent to the
date that we carried out our evaluation.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

12 Statement of Computation of Ratio of Earnings to Fixed
Charges.

99.1 Selected Debt Securities Ratings.

99.2 Certification of Chief Executive Officer.

99.3 Certification of Principal Financial Officer.

(b) Report on Form 8-K

During the third quarter of 2002, we filed a Current Report on Form 8-K on
August 26, 2002 pertaining to selected unaudited financial information with
respect to the operations of HFC for the one month periods ended July 31, 2002
and 2001 and as of July 31, 2002 which include the results of Household Bank
(SB), N.A., which was contributed to HFC by Household International, Inc. on
July 1, 2002.

25

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 FINANCE CORPORATION
-----------------------------
(Registrant)

Date: October 24, 2002 By: /s/ Steven L. McDonald
---------------- ----------------------------------
Steven L. McDonald
Executive Vice President and
Chief Accounting Officer
and Controller
(as principal financial officer)

26

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, David A. Schoenholz, Chairman and Chief Executive Officer of Household
Finance Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Household Finance
Corporation;

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) designed such disclosure controls and procedures 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 quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

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

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: October 24, 2002
/s/ David A. Schoenholz
-------------------------------------
David A. Schoenholz
Chairman and Chief Executive Officer

27

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Steven L. McDonald, Executive Vice President and Chief Accounting Officer and
Controller (as Principal Financial Officer), of Household Finance Corporation,
certify that:

1. I have reviewed this quarterly report on Form 10-Q of Household Finance
Corporation;

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

d) designed such disclosure controls and procedures 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 quarterly report is being prepared;

e) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

f) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

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

c) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

d) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: October 24, 2002
/s/ Steven L. McDonald
-----------------------------------
Steven L. McDonald
Executive Vice President and
Chief Accounting Officer and Controller

28

EXHIBIT INDEX

12 Statement of Computation of Ratio of Earnings to Fixed Charges.

99.1 Selected Debt Securities Ratings.

99.2 Certification of Chief Executive Officer.

99.3 Certification of Principal Financial Officer.

29