<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1994 Commission file number 2-80466
Norwest Financial, Inc.
(Exact name of registrant as specified in its charter)
Iowa 42 1186565
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
206 Eighth Street, Des Moines, Iowa 50309
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (515) 243-2131
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock (without par
value): 1,000 shares outstanding as of November 1, 1994.
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 with the reduced
disclosure format.
<PAGE> 2
PART I. FINANCIAL INFORMATION
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets (Unaudited)
(Thousands of Dollars)
September 30, December 31,
Assets 1994 1993
Cash and cash equivalents $ 97,329 $ 80,762
Marketable securities 545,634 472,656
Finance receivables:
Consumer:
Loans 2,889,927 2,659,654
Sales finance 1,184,623 1,086,576
Other 243,922 212,680
Commercial:
Accounts receivable financing 93,089 130,983
Leasing and other 365,862 381,129
Total finance receivables 4,777,423 4,471,022
Less allowance for credit losses 135,532 125,126
Finance receivables - net 4,641,891 4,345,896
Property and equipment (at cost, less
accumulated depreciation of $81,323
for 1994 and $73,085 for 1993) 58,682 57,856
Deferred income taxes 29,469 16,754
Other assets 356,870 287,675
Total assets $5,729,875 $5,261,599
See accompanying notes to consolidated financial statements.
<PAGE> 3
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets (Unaudited)
(Thousands of Dollars)
September 30, December 31,
Liabilities and
Stockholder's Equity 1994 1993
Loans payable - short-term:
Commercial paper $1,398,542 $1,186,565
Affiliates 35,434 184,985
Other 75,000 133,700
Unearned insurance premiums and commissions 124,233 109,913
Insurance claims and policy reserves 31,532 28,849
Accrued interest payable 58,223 43,574
Other payables to affiliates 9,035 6,368
Other liabilities 157,205 138,214
Long-term debt:
Senior 2,778,822 2,479,192
Subordinated 295,000 262,500
Total long-term debt 3,073,822 2,741,692
Total liabilities 4,963,026 4,573,860
Stockholder's equity:
Common stock without par value
(authorized 1,000 shares,
issued 1,000 shares) 3,855 3,855
Additional paid in capital 71,413 52,413
Retained earnings (note 2) 701,100 634,626
Foreign currency translation adjustment (4,139) (3,155)
Net unrealized holding loss on
marketable securities (5,380)
Total stockholder's equity 766,849 687,739
Total liabilities and
stockholder's equity $5,729,875 $5,261,599
See accompanying notes to consolidated financial statements.
<PAGE> 4
NORWEST FINANCIAL, INC.
Statements of Consolidated Earnings (Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Quarter Ended September 30, Nine Months Ended September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Income:
Finance charges and interest $245,619 $224,586 $715,866 $661,281
Insurance premiums and commissions 27,256 22,810 77,634 67,552
Other income (note 3) 24,409 24,656 70,660 73,247
Total income 297,284 272,052 864,160 802,080
Expenses:
Operating expenses 109,662 99,159 325,233 291,656
Interest and debt expense 67,076 57,987 191,063 180,508
Provision for credit losses 28,263 24,930 79,341 75,701
Insurance losses and loss expenses 8,825 7,849 23,879 25,504
Total expenses 213,826 189,925 619,516 573,369
Earnings before income taxes 83,458 82,127 244,644 228,711
Income taxes 29,155 27,553 85,802 80,347
Net earnings $ 54,303 $ 54,574 $158,842 $148,364
<FN>
In the opinion of management, all adjustments (none of which were other than normal recurring accruals)
necessary to present fairly the results of operations for the periods presented have been included.
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
NORWEST FINANCIAL, INC.
Statements of Consolidated Cash Flows (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(Thousands of Dollars)
Nine Months Ended September 30,
1994 1993
Cash flows from operating activities:
Net earnings $ 158,842 $ 148,364
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Provision for credit losses 79,341 75,701
Depreciation and amortization 20,644 18,927
Deferred income taxes (9,816) (3,183)
Other assets (63,009) (14,417)
Unearned insurance premiums
and commissions 14,320 8,349
Insurance claims and policy reserves 2,683 620
Accrued interest payable 14,649 13,337
Other payables to affiliates 2,667 (14,144)
Other liabilities 18,991 36,208
Net cash flows from operating activities 239,312 269,762
Cash flows from investing activities:
Finance receivables:
Principal collected 3,355,450 2,906,700
Receivables originated or purchased (3,730,786) (3,152,361)
Proceeds from sales of marketable securities 46,464 21,252
Proceeds from maturities of
marketable securities 73,725 111,848
Purchase of marketable securities (201,446) (184,890)
Net additions to property and equipment (11,225) (8,405)
Other (17,415) 56,644
Net cash flows from investing activities (485,233) (249,212)
Cash flows from financing activities:
Net increase (decrease) in loans payable -
short-term 3,726 (73,922)
Proceeds from issuance of long-term debt:
Senior 829,616 450,000
Subordinated 45,000 50,000
Repayments of long-term debt:
Senior (529,986) (260,047)
Subordinated (12,500) (101,870)
Additional paid in capital 19,000
Dividends paid (92,368) (125,000)
Net cash flows from financing activities 262,488 (60,839)
Net increase (decrease) in cash
and cash equivalents 16,567 (40,289)
Cash and cash equivalents beginning of period 80,762 133,639
Cash and cash equivalents end of period $ 97,329 $ 93,350
See accompanying notes to consolidated financial statements.
<PAGE> 6
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements (Unaudited)
The accompanying unaudited financial statements and notes have been prepared
in accordance with the accounting policies set forth in Norwest Financial,
Inc.'s 1993 Annual Report on Form 10-K and March 31, 1994 Quarterly Report on
Form 10-Q and should be read in conjunction with the Notes to Consolidated
Financial Statements therein.
1. Principles of Consolidation.
The consolidated financial statements include the accounts of Norwest
Financial, Inc. (the "Company") and subsidiaries. Intercompany accounts and
transactions are eliminated. The Company is a wholly owned indirect subsidiary
of Norwest Corporation.
2. Dividend Restrictions.
Certain long-term debt instruments restrict payment of dividends on and
acquisitions of the Company's common stock. In addition, such debt instruments
and many of the Company's bank credit agreements contain certain requirements
as to maintenance of net worth (as defined). Approximately $115 million of
consolidated retained earnings was unrestricted at September 30, 1994.
3. Interest Income from Marketable Securities and Cash Equivalents.
Interest and dividends from marketable securities and cash equivalents were
$9.7 million and $9.1 million for the quarters ended September 30, 1994 and
1993, respectively, and $27.8 million and $27.7 million for the nine months
ended September 30, 1994 and 1993, respectively.
4. Reclassifications.
Certain amounts in the 1993 financial statements have been reclassified to
conform to the presentation used in the 1994 financial statements.
<PAGE> 7
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Norwest Financial's performance for the third quarter of 1994 closely
paralleled performance for the first nine months of 1994. The discussion and
analysis that follows, therefore, is limited to a discussion of the first nine
months as a whole and does not include a separate discussion of the third
quarter unless otherwise noted.
Norwest Financial's total income (revenue) increased 8% for the first nine
months ($864.2 million in the first nine months of 1994 compared with $802.1
million in the first nine months of 1993).
Income from finance charges and interest increased 8% for the first nine months
($715.9 million in the first nine months of 1994 compared with $661.3 million
in the first nine months of 1993). Changes in income from finance charges and
interest result primarily from (1) changes in the amount of finance receivables
outstanding and (2) changes in the rate of charge on those receivables. In
total, average finance receivables outstanding in the first nine months of 1994
increased 10% from the first nine months of 1993; average consumer receivables
outstanding increased 14% while average commercial receivables outstanding
declined 15%.
Nine months Ended September 30,
Rate of charge on finance receivables: 1994 1993
Consumer 21.76% 22.54%
Commercial 14.31 13.64
Total 20.98 21.34
The increase in income from finance charges and interest was due to growth in
average consumer finance receivables outstanding offset somewhat by the decline
in the rate of charge. The increase in average consumer finance receivables
was due primarily to regular business activity. Changes in the earned rates
of charge were due to changes in prevailing market rates. The decline in
commercial receivables outstanding was a result of a decision to discontinue
pursuing certain large leases combined with a decline in accounts receivable
financing receivables.
Insurance premiums and commissions increased 15% ($77.6 million in the first
nine months of 1994 compared with $67.6 million in the first nine months of
1993). Changes in insurance premiums and commissions generally correspond to
changes in average consumer finance loans outstanding. Average consumer
finance loans outstanding increased 10% in the first nine months of 1994
compared with the first nine months of 1993. Insurance losses and loss
expenses declined 6% ($23.9 million in the first nine months of 1994 compared
with $25.5 million in the first nine months of 1993). The decline resulted
from lower insurance losses in Canada in the first six months of 1994, as a
result of a change in Canadian reinsurance agreements. Insurance losses and
loss expenses increased 12% in the third quarter of 1994 ($8.8 million compared
with $7.8 million).
<PAGE> 8
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
Other income declined 4% ($70.7 million in the first nine months of 1994
compared with $73.2 million in the first nine months of 1993). A reduction in
income from data service sales accounted for the decline.
Operating expenses increased 12% ($325.2 million in the first nine months of
1994 compared with $291.7 million in the first nine months of 1993). The
increase was due primarily to increases in employee compensation and benefits
and other costs resulting from business expansion. At September 30, 1994,
Norwest Financial was operating 974 consumer finance branches compared with 913
at September 30, 1993.
Interest and debt expense increased 6% ($191.1 million in the first nine months
of 1994 compared with $180.5 million in the first nine months of 1993).
Changes in interest and debt expense result primarily from (1) changes in the
amount of borrowings outstanding due to funding requirements for receivables
and (2) changes in the cost of those borrowings. Average total outstanding
borrowings in the first nine months of 1994 increased 10% from the first nine
months of 1993; average short-term debt outstanding declined 4% while average
long-term debt increased 17%. The shift from short-term to long-term debt was
the result of long-term debt issued for the Canadian operations.
Nine Months Ended September 30,
Costs of funds: 1994 1993
Short-term 4.31% 4.00%
Long-term 6.90 7.68
Total 6.18 6.50
Changes in average debt outstanding generally correspond to changes in average
finance receivables outstanding. Average finance receivables increased 10%
from the first nine months of 1993. The increase in the cost of short-term
debt was due to increases in prevailing market rates. The cost of long-term
debt declined as rates on debt issued since September 30, 1993 were less than
the rates on debt maturing since that date.
Interest and debt expense increased 16% in the third quarter of 1994 compared
with the third quarter of 1993 ($67.1 million compared with $58.0 million).
Average total outstanding borrowings increased 13% for the same period, while
the cost of funds was 6.27% in the third quarter of 1994 compared with 6.23%
in the third quarter of 1993.
<PAGE> 9
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Concluded
Provision for credit losses increased 5% ($79.3 million in the first nine
months of 1994 compared with $75.7 million in the first nine months of 1993).
Net write-offs as a percentage of average net receivables outstanding declined
to 1.52% in the first nine months of 1994 compared with 1.58% in the first nine
months of 1993. The provision for credit losses increased 13% in the third
quarter of 1994 compared with the third quarter of 1993 ($28.3 million compared
with $24.9 million). Net write-offs as a percentage of average net receivables
outstanding were .50% in the third quarter of 1994 compared with .53% in the
third quarter of 1993.
Income taxes increased 7% ($85.8 million in the first nine months of 1994
compared with $80.3 million in the first nine months of 1993). The increase
was the result of the increase in earnings before income taxes as the effective
tax rate was 35.1% for both the first nine months of 1994 and the first nine
months of 1993.
Net earnings increased 7% in the first nine months of 1994 compared with the
same period in 1993 ($158.8 million compared with $148.4 million). The
increase was the result of the items previously discussed. Net earnings in the
third quarter of 1994, however, declined slightly compared with the third
quarter of 1993 ($54.3 million compared with $54.6 million). The additional
levels of interest and debt expense, provision for credit losses and insurance
losses, and loss expenses discussed previously were the primary reasons.
The Company and one of its Canadian subsidiaries maintains revolving credit
facilities to provide an alternative source of liquidity to support the
commercial paper borrowings. At September 30, 1994, revolving credit
facilities totaling $1,022.6 million were being maintained at 33 unaffiliated
banks. None of this credit was in use at the time.
The Company and one of its Canadian subsidiaries obtains its long-term debt
capital primarily from (i) the issuance of debt securities to the public
through underwriters on a firm-commitment basis, (ii) the issuance of debt
securities to institutional investors and (iii) term borrowings from commercial
banks.
Norwest Financial anticipates the continued availability of borrowed funds, at
prevailing interest rates, to provide for Norwest Financial's growth in the
foreseeable future. Funds are also generated internally from payments of
principal and interest received on Norwest Financial's finance receivables.
<PAGE> 10
PART II. OTHER INFORMATION
NORWEST FINANCIAL, INC.
Item 5. Other Information.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges of
Norwest Financial, Inc. and its subsidiaries for the periods indicated:
Nine months Ended Years Ended December 31,
September 30, 1994 1993 1992 1991 1990 1989
2.23 2.22 2.02 1.74 1.70 1.56
The ratios of earnings to fixed charges have been computed by dividing net
earnings plus fixed charges and income taxes by fixed charges. Fixed charges
consist of interest and debt expense plus one-third of rentals (which is deemed
representative of the interest factor).
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit (12) Computation of ratios of earnings to fixed charges for the
years ended December 31, 1993, 1992, 1991, 1990 and 1989
and the nine months ended September 30, 1994.
(b) Reports on 8-K.
No reports on Form 8-K were filed during the quarter for which this report
is filed.
S I G N A T U R E S
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.
NORWEST FINANCIAL, INC.
Date: November 1, 1994
By \s\Robert W. Bettle
Robert W. Bettle
Vice President and Controller
(Principal Accounting Officer)
NORWEST FINANCIAL, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Exhibit (12)
<TABLE>
<CAPTION>
Nine
Months
Ended
September 30,
1994 Years Ended December 31,
(Thousands of Dollars)
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Net earnings $158,842 $203,297 $164,204 $130,880 $115,366 $ 98,882
Add:
Fixed charges:
Interest including
amortization of
debt expense 191,063 242,440 236,337 255,075 242,151 249,764
One-third of
rentals* 7,220 10,146 8,207 7,209 6,583 6,038
Total fixed
charges 198,283 252,586 244,544 262,284 248,734 255,802
Provision for
income taxes 85,802 104,228 84,334 63,985 58,119 44,062
Total net earnings,
fixed charges and
income taxes -
"Earnings" $442,927 $560,111 $493,082 $457,149 $422,219 $398,746
Ratio of earnings
to fixed charges 2.23 2.22 2.02 1.74 1.70 1.56
</TABLE>
[FN]
*One-third of rentals is deemed representative of the interest factor.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM NORWEST FINANCIAL INC AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 97,329
<SECURITIES> 545,634
<RECEIVABLES> 4,777,423
<ALLOWANCES> 135,532
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 140,005
<DEPRECIATION> 81,323
<TOTAL-ASSETS> 5,729,875
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 4,582,798<F2>
<COMMON> 3,855
0
0
<OTHER-SE> 762,994
<TOTAL-LIABILITY-AND-EQUITY> 5,729,875
<SALES> 0
<TOTAL-REVENUES> 864,160
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 349,112
<LOSS-PROVISION> 79,341
<INTEREST-EXPENSE> 191,063
<INCOME-PRETAX> 244,644
<INCOME-TAX> 85,802
<INCOME-CONTINUING> 158,842
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 158,842
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>NORWEST FINANCIAL INC HAS A NON-CLASSIFIED BALANCE
SHEET - THIS INFORMATION IS UNAVAILABLE.
<F2>INCLUDES $1.5 BILLION OF SHORT-TERM LOANS.
</FN>
</TABLE>
