Attached files
| file | filename |
|---|---|
| 8-K - 8-K - HSBC Finance Corp | a12-11357_18k.htm |
Exhibit 99.1
HSBC FINANCE CORPORATION
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial information and explanatory notes present the historical condensed consolidated balance sheet for HSBC Finance Corporation (“HSBC Finance”) as of December 31, 2011 and the historical condensed consolidated statement of income (loss) for HSBC Finance for the year ended December 31, 2011, along with the unaudited pro forma condensed consolidated balance sheet for HSBC Finance as of December 31, 2011 and the unaudited pro forma condensed consolidated statement of income (loss) for HSBC Finance for the year ended December 31, 2011. Consistent with the requirements of Article 11 of Regulation S-X, the historical condensed consolidated statement of income (loss) has been presented on a continuing operations basis. In our Form 10-K for the year ended December 31, 2011, the operations of our Card and Retail Services business were reported in discontinued operations.
The pro forma condensed consolidated financial statements give effect to the pro forma adjustments relating to the sale of the Cards and Retail Services business to Capital One Financial Corporation completed on May 1, 2012. The unaudited pro forma condensed consolidated balance sheet as of December 31, 2011 assumes the sale occurred on December 31, 2011. The unaudited pro forma condensed consolidated statement of income (loss) for the year ended December 31, 2011 was prepared assuming the sale took place on January 1, 2011. As a result, the actual pro forma impact to our condensed consolidated balance sheet will differ based upon the balances of the assets and liabilities outstanding and the cash proceeds allocated to HSBC Finance at the time the transaction was completed.
The unaudited pro forma condensed consolidated financial information is presented for illustrative purposes only and does not necessarily indicate what the results of operations or financial position would have been had the pro forma adjustments occurred on the dates referred to above or purport to be indicative of the future results of operations or financial position of HSBC Finance.
HSBC Finance Corporation
Pro Forma Condensed Consolidated Balance Sheet
At December 31, 2011
(Unaudited)
|
|
|
Historical |
|
Pro Forma |
|
HSBC Finance |
| |||
|
|
|
(in millions) |
| |||||||
|
Assets |
|
|
|
|
|
|
| |||
|
Cash |
|
$ |
222 |
|
$ |
(195 |
)A |
$ |
27 |
|
|
Interest bearing deposits with banks |
|
1,143 |
|
- |
|
1,143 |
| |||
|
Securities purchased under agreements to resell |
|
920 |
|
12,685 |
B |
13,605 |
| |||
|
Securities available-for-sale |
|
2,039 |
|
- |
|
2,039 |
| |||
|
Receivables, net |
|
43,128 |
|
- |
|
43,128 |
| |||
|
Properties and equipment, net |
|
92 |
|
- |
|
92 |
| |||
|
Other assets |
|
5,109 |
|
- |
|
5,109 |
| |||
|
Assets of discontinued operations |
|
10,816 |
|
(9,953 |
)C |
863 |
| |||
|
Total assets |
|
$ |
63,469 |
|
$ |
2,537 |
|
$ |
66,006 |
|
|
Liabilities |
|
|
|
|
|
|
| |||
|
Debt: |
|
|
|
|
|
|
| |||
|
Due to affiliates |
|
$ |
8,262 |
|
$ |
- |
|
$ |
8,262 |
|
|
Commercial paper |
|
4,026 |
|
- |
|
4,026 |
| |||
|
Long-term debt |
|
39,790 |
|
- |
|
39,790 |
| |||
|
Total debt |
|
52,078 |
|
- |
|
52,078 |
| |||
|
Other liabilities |
|
2,989 |
|
- |
|
2,989 |
| |||
|
Liabilities of discontinued operations |
|
1,476 |
|
686 |
D |
2,162 |
| |||
|
Total liabilities |
|
56,543 |
|
686 |
|
57,229 |
| |||
|
Shareholders’ equity |
|
|
|
|
|
|
| |||
|
Redeemable preferred stock |
|
1,575 |
|
- |
|
1,575 |
| |||
|
Common shareholder’s equity: |
|
|
|
|
|
|
| |||
|
Common stock |
|
- |
|
- |
|
- |
| |||
|
Additional paid-in capital |
|
23,966 |
|
- |
|
23,966 |
| |||
|
Accumulated deficit |
|
(18,219 |
) |
1,851 |
E |
(16,368 |
) | |||
|
Accumulated other comprehensive loss |
|
(396 |
) |
- |
|
(396 |
) | |||
|
Total common shareholder’s equity |
|
5,351 |
|
1,851 |
|
7,202 |
| |||
|
Total shareholders’ equity |
|
6,926 |
|
1,851 |
|
8,777 |
| |||
|
Total liabilities and shareholders’ equity |
|
$ |
63,469 |
|
$ |
2,537 |
|
$ |
66,006 |
|
(1) See Note 2, “Summary of Transaction,” for additional information regarding the adjustments.
See Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information.
HSBC Finance Corporation
Pro Forma Condensed Consolidated Statement of Income (Loss)
Year Ended December 31, 2011
(Unaudited)
|
|
|
Historical |
|
Other |
|
HSBC Finance |
| |||
|
|
|
(in millions) |
| |||||||
|
Finance and other interest income |
|
$ |
4,124 |
|
$ |
- |
|
$ |
4,124 |
|
|
Interest expense |
|
2,348 |
|
94 |
F |
2,442 |
| |||
|
Net interest income |
|
1,776 |
|
(94 |
) |
1,682 |
| |||
|
Provision for credit losses |
|
4,418 |
|
- |
|
4,418 |
| |||
|
Net interest income (loss) after provision for credit losses |
|
(2,642 |
) |
(94 |
) |
(2,736 |
) | |||
|
Total other revenues |
|
439 |
|
- |
|
439 |
| |||
|
Total operating expenses |
|
1,531 |
|
- |
|
1,531 |
| |||
|
Loss from continuing operations before income tax |
|
(3,734 |
) |
(94 |
) |
(3,828 |
) | |||
|
Income tax benefit |
|
1,424 |
|
33 |
G |
1,457 |
| |||
|
Loss from continuing operations |
|
$ |
(2,310 |
) |
$ |
(61 |
) |
$ |
(2,371 |
) |
(1) See Note 2, “Summary of Transaction,” for additional information regarding the adjustments.
See Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information.
HSBC FINANCE CORPORATION
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
Note 1: Basis of Presentation
The unaudited pro forma condensed consolidated financial information reflecting the sale of the Cards and Retail Services business is based on the historical consolidated financial statements of HSBC Finance adjusted to exclude the impact of the Cards and Retail Services business as if it had been sold on January 1, 2011 for purposes of the unaudited pro forma condensed consolidated statement of income (loss) and at December 31, 2011 for purposes of the unaudited pro forma condensed consolidated balance sheet. The unaudited pro forma condensed consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of HSBC Finance’s results of operations had the sale been consummated on January 1, 2011, or financial position had the sale been consummated as at December 31, 2011, nor is it necessarily indicative of the results of operations in future periods or the future financial position of HSBC Finance.
Consistent with the requirements of Article 11 of Regulation S-X, the historical condensed consolidated statement of income (loss) has been presented on a continuing operations basis. In our Form 10-K for the year ended December 31, 2011, the operations of our Card and Retail Services business were reported in discontinued operations. The unaudited pro forma condensed financial information should be read in conjunction with the historical consolidated financial statements of HSBC Finance and related notes thereto.
Note 2: Summary of Transaction
The following pro forma adjustments have been reflected in the unaudited pro forma condensed consolidated financial information. All adjustments are based on current assumptions which are subject to change.
Balance Sheet Adjustments
A The pro forma adjustment for cash reflects the following:
|
|
|
Pro Forma |
| |
|
|
|
(in millions) |
| |
|
Represents the pay down of long-term debt secured by credit card receivables immediately prior to the transaction |
|
$ |
(195 |
) |
|
Represents cash proceeds allocated to HSBC Finance |
|
12,685 |
| |
|
Represents the investment of the cash proceeds allocated to HSBC Finance in short-term investments for the purposes of paying down debt as it matures in future periods and general corporate purposes |
|
(12,685 |
) | |
|
|
|
$ |
(195 |
) |
B Represents the investment of the cash proceeds allocated to HSBC Finance in short-term investments for the purposes of paying down debt as it matures in future periods and for general corporate purposes.
C Represents the assets of discontinued credit card operations which as a result of this transaction will not remain on our consolidated balance sheet.
D The pro forma adjustment for liabilities of discontinued operations reflects the following:
|
|
|
Pro Forma |
| |
|
|
|
(in millions) |
| |
|
Represents the pay down of long-term debt secured by credit card receivables immediately prior to the transaction. |
|
$ |
(195 |
) |
|
Represents other liabilities which as a result of this transaction will not remain on our consolidated balance sheet |
|
(202 |
) | |
|
Represents third-party advisory and other fees associated with the transaction |
|
68 |
| |
|
Represents the net effect on deferred tax liabilities of the estimated gain on sale based on asset values as of December 31, 2011 at the statutory income tax rates |
|
1,015 |
| |
|
|
|
$ |
686 |
|
E Represents the estimated after-tax gain on sale related to the transaction based on asset values and purchase price allocation as of December 31, 2011.
Income Statement Adjustments
F Represents the reversal of interest expense which was allocated to our discontinued credit card operations in our historical consolidated statement of income (loss) for the year ended December 31, 2011 in accordance with our existing internal transfer pricing policy as external interest expense is unaffected by the classification of businesses as discontinued operations. As a result, no interest expense has been allocated to the Card and Retail Services business for the purposes of this pro forma condensed consolidated statement of income (loss).
G Represents the net effect of the pro forma adjustments at the statutory income tax rates.
Note 3: Use of Proceeds
Based on asset values at December 31, 2011, total consideration received as a result of this transaction would have been approximately $12.7 billion. We invested the proceeds in short-term investments to be used in future periods to pay down long-term debt as it matures and for general corporate purposes. Had these short-term investments been on our balance sheet throughout 2011, other revenues would have increased by $20 million during the year ended December 31, 2011 based on the interest rates prevailing during the year.
Note 4: Other Transactions
On July 31, 2011, our affiliate HSBC USA Inc. announced they had reached an agreement to sell, among other things, certain loans to First Niagara Bank, N.A. (“First Niagara”). The account relationships associated with a portion of the loans being sold to First Niagara are owned by HSBC Finance. The transaction with First Niagara, combined with our desire to surrender the national bank charter of our credit card banking subsidiary, HSBC Bank Nevada, N.A. to the Office of the Comptroller of the Currency as soon as practicable after the sale of our Card and Retail Services business to Capital One Financial Corporation, resulted in the sale of all cardholder relationships not being sold to Capital One Financial Corporation reflected in assets of discontinued operations totaling $29 million to HSBC USA Inc. and its subsidiaries during March 2012, resulting in a gain of $79 million. This transaction has not