TABLE OF CONTENTS
Items Page
Business 1
Properties 17
Legal Proceedings 17
Market for Registrant's Common Equity and
Related Stockholder Matters 18
Selected Financial Data 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 19
Financial Statements and Supplementary Data 23
Independent Auditors' Report 25
Consolidated Balance Sheets 26
Statements of Consolidated Earnings and
Retained Earnings 28
Statements of Consolidated Cash Flows 29
Notes to Consolidated Financial Statements 30
Schedule I - Marketable Securities 48
Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 51
Signatures 54
This Table of Contents is not a part of the Form 10-K Annual Report
and is included for convenience of reference only.
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<PAGE> 1
PART I
Item 1. Business.
THE COMPANY
Norwest Financial, Inc. (the "Company") is an Iowa corporation organized on
August 19, 1982, as the successor to a business founded in 1897, and is a
wholly-owned subsidiary of Norwest Financial Services, Inc. (the "Parent").
The Parent is a wholly-owned subsidiary of Norwest Corporation ("Norwest"), a
$50.8 billion diversified financial services organization. (Unless the context
otherwise requires, any reference to "Norwest Financial" shall include the
Company and its subsidiaries.)
Norwest Financial is primarily engaged in the consumer finance business.
Consumer finance receivables consist of loans made to individuals and sales
finance contracts arising from the sale of goods and services. Norwest
Financial also has credit card receivables and insurance premium finance
receivables in its consumer portfolio. Effective November 17, 1992, the
Company expanded its consumer finance operations into Canada with the purchase
of the consumer finance business of Trans Canada Credit Corporation Limited.
This acquisition was accounted for as a purchase and, accordingly, Norwest
Financial's financial statements were not restated to reflect the accounts and
operations of this business prior to acquisition. Canadian financial
information in this document is shown in United States dollars unless otherwise
indicated. Assets and liabilities in Canadian dollars are translated at the
exchange rate as of the balance sheet date. Canadian operating results are
translated at the average exchange rates for the period covered by the income
statement. At December 31, 1993, the Company and its consumer finance
subsidiaries had 942 branch offices in 46 states and the ten Canadian
provinces. For a summary of total income, earnings before income taxes and
total assets by country, see note 8 to the consolidated financial statements.
The Company also has insurance subsidiaries which are primarily engaged in the
business of providing, directly or through reinsurance arrangements, credit
life and credit disability insurance as a part of Norwest Financial's consumer
finance business and the consumer finance business of subsidiaries of Norwest
Corporation. Credit property, involuntary unemployment and non-filing
insurance are provided as part of Norwest Financial's consumer finance
business. Such business is written, directly or through reinsurance
agreements, by one of the Company's insurance subsidiaries, or it is offered
on an agency basis by Norwest Financial. One of the Company's subsidiaries
provides information services to Norwest Financial and other financial services
companies. The Company also has subsidiaries engaged in the commercial finance
business, including lease financing and accounts receivable financing.
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<PAGE> 2
CONSUMER OPERATIONS
At December 31, 1993, consumer receivables accounted for 89% of Norwest
Financial's total finance receivables outstanding. The amount and type of
consumer receivables outstanding in the United States and Canada is shown
below:
Consumer Receivables Outstanding
(In Thousands)
United States Canada Total
Loans:
Secured by real estate $1,200,103 $ 29,870 $1,229,973
Not secured by real estate 1,102,969 326,712 1,429,681
Total loans 2,303,072 356,582 2,659,654
Sales finance contracts 1,045,891 40,685 1,086,576
Total consumer finance 3,348,963 397,267 3,746,230
Other consumer receivables 212,680 212,680
Total consumer receivables $3,561,643 $397,267 $3,958,910
Loans had an average balance per account of $3,111. Sales finance contracts
had an average balance per account of $897. Other consumer receivables include
credit card receivables and insurance premium finance receivables.
Geography
At December 31, 1993, Norwest Financial had consumer finance branch offices in
46 states and the ten Canadian provinces. The number of consumer finance
branch offices and percentage of consumer finance receivables in the United
States or Canada at December 31, 1993, is shown on the following page:
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<PAGE> 3
Number of Branch Offices and Percent of Receivables per State or Province
<TABLE>
<CAPTION>
Percent of Percent of
Number United States Number United States
of Consumer of Consumer
Branch Finance Branch Finance
State Offices Receivables State Offices Receivables
<S> <C> <C> <C> <C> <C>
Alabama 39 4.0% Nebraska 8 1.1%
Alaska 6 .8 Nevada 11 1.4
Arizona 16 1.6 New Hampshire 1 .1
California 107 12.1 New Jersey 9 1.1
Colorado 16 1.6 New Mexico 19 2.0
Connecticut 1 .2 New York 16 2.7
Delaware 2 .1 North Carolina 18 3.0
Florida 41 5.4 North Dakota 5 .7
Georgia 18 2.4 Ohio 28 4.3
Hawaii 19 2.2 Oklahoma 14 1.6
Idaho 10 1.4 Oregon 10 1.3
Illinois 24 3.1 Pennsylvania 28 3.6
Indiana 16 1.6 Rhode Island 4 .6
Iowa 13 2.2 South Carolina 26 2.7
Kansas 6 .9 South Dakota 2 .3
Kentucky 11 1.9 Tennessee 25 2.7
Louisiana 39 3.2 Texas 49 6.0
Maryland 24 3.4 Utah 10 1.4
Massachusetts 13 1.8 Virginia 10 .7
Minnesota 9 1.7 Washington 21 3.4
Mississippi 19 1.4 West Virginia 7 .8
Missouri 24 3.7 Wisconsin 13 .8
Montana 7 .8 Wyoming 2 .2
816 100.0%
</TABLE>
<TABLE>
<CAPTION>
Percent of Percent of
Number Canadian Number Canadian
of Consumer of Consumer
Branch Finance Branch Finance
Province Offices Receivables Province Offices Receivables
<S> <C> <C> <C> <C> <C>
Alberta 8 5.6% Nova Scotia 14 14.2%
British Columbia 17 10.9 Ontario 36 29.7
Manitoba 4 2.6 Prince Edward Island 1 1.2
New Brunswick 10 8.0 Quebec 20 14.9
Newfoundland 12 9.2 Saskatchewan 4 3.7
126 100.0%
</TABLE>
During 1993, the number of consumer finance branch offices increased by 60.
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<PAGE> 4
Growth and Volume of Consumer Finance Receivables
The following tables present the growth and volume of Norwest Financial's loans
and sales finance contracts for the five years ended December 31, 1993:
Consumer Finance Receivables
and Number of Accounts Outstanding
<TABLE>
<CAPTION>
Percentage Percentage Average Number
At Consumer Increase Increase Balance of
December Finance From Previous Number of From Previous Per Branch
31, Receivables Year Accounts Year Account Offices
<S> <C> <C> <C> <C> <C> <C>
1993 $3,746,230,000 12% 2,066,000 8% $1,813 942
1992 3,356,832,000 21 1,906,000 15 1,761 882
1991 2,768,821,000 15 1,664,000 21 1,664 733
1990 2,416,911,000 16 1,372,000 11 1,762 643
1989 2,086,345,000 12 1,231,000 6 1,695 618
</TABLE>
Loans Made and Acquired and Sales Finance Contracts Purchased
<TABLE>
<CAPTION>
Number of Average Sales Average
Loans Made Size Loan Finance Number of Size
Year Ended Loans Made and Made and Contracts Contracts Contract
December 31, and Acquired* Acquired Acquired Purchased Purchased Purchased
<S> <C> <C> <C> <C> <C> <C>
1993 $2,169,132,000 775,000 $2,799 $1,553,022,000 1,591,000 $976
1992 1,944,225,000 733,000 2,652 1,257,919,000 1,350,000 932
1991 1,417,742,000 576,000 2,461 1,128,986,000 1,211,000 932
1990 1,313,697,000 494,000 2,659 896,268,000 926,000 968
1989 1,162,871,000 451,000 2,578 742,059,000 785,000 945
</TABLE>
[FN]
* Includes balances renewed of $680,357,000, $480,030,000, $392,683,000,
$377,368,000, and $339,043,000 for the years 1993 through 1989, respectively.
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<PAGE> 5
Regulation
Norwest Financial's consumer finance lending operations in the United States
are, for the most part, regulated by consumer finance laws or similar
legislation in each of the states where Norwest Financial has branch offices.
Although consumer finance laws have been in effect many years, amending and new
legislation is frequently enacted. In those states which have enacted
legislation in recent years that affects the maximum permitted amount of loan
and the maximum allowable rate of charge, the trend has been to increase such
amounts and rates of charge, or to deregulate the same altogether. With
respect to the foregoing, Norwest Financial's consumer lending operations in
Canada are, for the most part, essentially deregulated.
Consumer finance laws generally require that each branch office be licensed to
conduct its business. In most jurisdictions the granting of licenses is
dependent on a finding of financial responsibility, character and fitness of
the applicant and, in some jurisdictions, public convenience and advantage.
Each licensed branch office is subject to state or provincial regulation and
examination. In nearly all states a report of the activities of licensed
branch offices must be made annually to the appropriate state department.
Licenses are revocable for cause and their continuance depends upon compliance
with the provisions of the applicable state or provincial law. Norwest
Financial has never had any of its licenses revoked.
The Federal Consumer Credit Protection Act requires a written statement showing
the annual percentage rate of finance charge and other information to be given
to borrowers when consumer credit contracts are made. It also requires certain
disclosures to applicants concerning credit reports that are used as a basis
for denying or increasing the charge for credit.
The Federal Equal Credit Opportunity Act prohibits discrimination against
applicants with respect to any aspect of a credit transaction on the basis of
sex, marital status, race, color, religion, national origin, age (provided the
applicant has the capacity to contract), or because all or part of the
applicant's income derives from any public assistance program, or because the
applicant has in good faith exercised any right under the Federal Consumer
Credit Protection Act.
By virtue of a Federal Trade Commission rule, sales finance contracts and
certain loans (those made for the borrower's purchase of personal property from
a seller having a relationship with the lender) contain a provision that the
lender is subject to all claims and defenses which the borrower could assert
against the seller. However, the borrower's recovery under such provision
cannot exceed the amount paid under the contract.
A Federal Trade Commission trade regulation rule on creditor practices
prohibits, among other things, the taking of a security interest (other than
a purchase money security interest) in certain of a borrower's household goods.
In Canada, there are similar laws regarding the granting of credit.
Regulation of the Company's insurance subsidiaries is described under
"Insurance Operations."
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<PAGE> 6
Business Methods
Loans are generally repayable in monthly installments and are made for periods
of 180 months or less. Sales finance contracts can be either open-end
(revolving) or closed-end. An open-end sales finance contract establishes an
account that can be used from time to time for repeated purchases. A closed-
end sales finance contract covers only a single purchase. At December 31,
1993, open-end sales finance contracts accounted for 61% of Norwest Financial's
total sales finance receivables outstanding. Open-end sales finance contracts
do not have an original maturity because the accounts created by these
contracts can be used for repeated transactions. The minimum monthly payment
of open-end sales finance contracts generally ranges from 1/12 to 1/30 of the
highest unpaid balance of the account. Closed-end sales finance contracts
purchased are repayable in equal monthly instalments and generally have
original maturities of 60 months or less.
In order to make a careful selection of credit risks, Norwest Financial reviews
credit information concerning each applicant to determine income, living
expenses, payment obligations, indebtedness, paying habits, and length and
stability of employment. The information is obtained from the applicants, the
applicants' employers, creditors of the applicants and credit reporting
agencies. Norwest Financial believes that any risk to its business which may
be created by unfavorable local conditions is minimized by the large number of
customers, their broad range of occupations and geographical distribution.
In many cases the loans are secured by liens on household goods, automobiles,
other personal property or real estate. Of the total loans made in the United
States during 1993, approximately 92% of the amount and 82% of the number were
secured by security agreements or other forms of security. The decision to
record a lien or to appraise or examine the title to collateral depends upon
the size of loan and the type of collateral. As an alternative to recording
liens on personal property securing certain loans, Norwest Financial purchases
non-filing insurance, the cost of which is borne by the borrowers. Generally,
Norwest Financial institutes legal proceedings on its loans, including
foreclosure on collateral, only when it appears that a recovery is likely which
will justify the cost of bringing suit.
Generally, Norwest Financial carries only one loan with a borrower at any one
time. When a borrower wishes to obtain additional money from Norwest Financial
before the loan is fully repaid, a new loan is made sufficient to pay the
balance on the old loan and supply the new money, provided the borrower's
credit is satisfactory. Of the total amount of loans made during 1993, 64.1%
represented funds lent to borrowers who requested additional money while still
owing Norwest Financial. In the years 1992 through 1989, this figure was
64.4%, 63.7%, 62.3% and 62.3%, respectively. In 1993, of the 769,000 loans
made by Norwest Financial, 371,000 were to borrowers who requested additional
money while still owing a balance to Norwest Financial. The average amount of
additional money lent to such borrowers was $1,852; the average amount of the
old balance was $1,835. Norwest Financial's policy is that loans are not made
to present customers to cure a default in principal or interest.
Sales finance contracts are purchased not only because they are profitable in
themselves, but also because they provide a major source of new loan customers.
During 1993, approximately 72% of the number of new loans were made to present
and former sales finance customers.
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<PAGE> 7
Norwest Financial began marketing VISA and MasterCard credit cards to certain
of its customers through its United States branch offices in 1987. These
credit cards are issued by Dial Bank, the Company's state bank subsidiary
located in Sioux Falls, South Dakota. Dial Bank had 153,000 VISA or MasterCard
accounts at December 31, 1993; credit card receivables outstanding were $137.4
million.
Dial Bank also finances liability and material damage auto insurance in the
state of California. Dial Bank entered this business in February 1991 through
the purchase of the insurance premium finance receivables of Coast Program,
Inc. Business is generated through 2,100 independent insurance agents.
Processing is performed by Norwest Financial Coast, Inc. from production
offices located in Signal Hill and San Francisco, California. At December 31,
1993, approximately 118,000 accounts totaling $71.8 million were outstanding.
Norwest Financial's average earned rates of charge on the average amount of
consumer receivables outstanding during each of years 1993 through 1989 were
22.55%, 22.49%, 21.97%, 21.92%, and 21.78%, respectively.
Loss Experience
The allowance for losses on consumer receivables is based on loss experience
in relation to consumer receivables outstanding. All such receivables which
appear to be uncollectible or to require inordinate collection costs are
written off. In addition, consumer finance receivables in the United States
are written off for financial reporting if no payment is applied during the
three-month period immediately preceding the balance sheet date and the
receivable is three or more payments contractually delinquent. However, on
loans over $25,000, those portions of the balances determined to be fully
secured by real estate are excluded from write-offs. Consumer finance
receivables in Canada are written off in the month following a six-month period
in which no full payment is applied and if the receivable is one or more
payments contractually delinquent. Other consumer receivables are written off
for financial reporting when certain delinquency criteria are met.
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<PAGE> 8
Information concerning consumer loss experience and allowance for losses is
shown below:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Allowance, beginning
of period $106,024 $ 77,562 $63,150 $51,450 $43,428
Write-offs:
Loans 74,835 57,582 54,958 38,152 31,689
Sales finance 21,221 17,684 18,147 12,186 10,252
Other 5,491 6,496 7,608 3,712 3,053
Total write-offs 101,547 81,762 80,713 54,050 44,994
Recoveries:
Loans 11,226 8,153 5,871 5,375 5,079
Sales finance 2,224 2,438 1,938 1,814 1,989
Other 501 737 448 73 8
Total recoveries 13,951 11,328 8,257 7,262 7,076
Provision for credit losses
charged to expense 96,448 78,591 81,485 58,488 45,940
Allowance related to
receivables acquired 20,305 5,383
Allowance, end of period
Loans 71,809 68,212 44,512 41,000 34,220
Sales finance 35,417 28,912 24,600 18,050 14,380
Other 7,650 8,900 8,450 4,100 2,850
Total allowance $114,876 $106,024 $77,562 $63,150 $51,450
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Ending receivables as
a percent of total
consumer receivables:
Loans 67% 70% 67% 70% 71%
Sales finance 28 26 28 26 25
Other 5 4 5 4 4
100% 100% 100% 100% 100%
Allowance as a percent of
ending receivables 2.90% 3.02% 2.65% 2.51% 2.37%
Write-offs after recoveries
as a percent of average
consumer receivables 2.41% 2.37% 2.69% 2.05% 1.90%
Consumer receivables
outstanding more
than three payments
contractually delinquent $ 73,541 $ 70,938 $55,635 $44,968 $37,298
</TABLE>
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<PAGE> 9
Insurance Operations
The credit insurance operations have a close relationship with Norwest
Financial's consumer operations. Generally, where applicable laws permit,
Norwest Financial makes credit life, credit disability, property, and
involuntary unemployment insurance available to borrowers. If the customer
decides to purchase insurance, an additional charge is made. Credit life
insurance generally provides, at a minimum, for the repayment of the
indebtedness upon the death of the insured borrower. Credit disability
coverage provides for the monthly payment of the indebtedness while the
borrower is disabled because of accident or illness. Property insurance
provides for the payment of the value or cost of repairs or replacement of
covered property of the borrower if the property is damaged, destroyed or
stolen. Involuntary unemployment insurance provides for the monthly payment
of the indebtedness while the borrower is unemployed, if the borrower becomes
unemployed due to layoff, termination, lockout, labor disputes or strike. Non-
filing insurance is an alternative to perfecting a security interest in
property used as collateral. Payment is provided, up to a specified limit,
when there is a loss with this coverage which resulted from the failure to
perfect a security interest.
The Company's insurance subsidiaries provide, directly or through reinsurance
arrangements, credit life and credit disability insurance as a part of Norwest
Financial's consumer finance business and the consumer finance business of
subsidiaries of Norwest Corporation. Under the Bank Holding Company Act of
1956, the insurance underwriting activities of the Company's insurance
subsidiaries (other than insurance subsidiaries that are subsidiaries of the
Company's state banking subsidiary) are limited generally to the underwriting
(directly or through reinsurance arrangements) of insurance that (i) is
directly related to an extension of credit by Norwest or any of its
subsidiaries, and (ii) is limited to assuring the repayment of the outstanding
balance due on the extension of credit in the event of the death, disability
or involuntary unemployment of the borrower. In addition, the Company's
casualty insurance subsidiary is permitted under this Act to underwrite non-
filing insurance policies issued to Norwest or any of its subsidiaries.
The Company's insurance subsidiaries insure or reinsure credit life or
disability insurance in 46 states and the ten Canadian provinces and property
insurance in 42 states. Property insurance is offered in nine Canadian
provinces. Prior to 1992, property insurance in the United States was offered
by Norwest Financial on an agency basis. Involuntary unemployment insurance
is offered on an agency basis in 27 states and nine Canadian provinces and is
written directly by one of the Company's insurance subsidiaries in 12 states.
Non-filing insurance is offered on an agency basis in 20 states and is
underwritten by one of the Company's insurance subsidiaries in 25 states.
The laws of most of the states in which Norwest Financial operates regulate the
sale of insurance to borrowers by prescribing, among other things, the maximum
amount and term thereof and by fixing the permissible premium rates or
authorizing the state insurance commissioner or other state official to fix the
maximum premium rates on such insurance. In several states such rates have
been reduced in recent years.
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<PAGE> 10
The life insurance in force of the Company's United States life insurance
subsidiary for the categories (i) insurance that was directly written on
customers of Norwest Financial and other subsidiaries of Norwest by such life
insurance subsidiary, less the amount directly written on certain other
subsidiaries of Norwest and ceded, and (ii) insurance that was written on
customers of Norwest Financial and other subsidiaries of Norwest and assumed
by such life insurance subsidiary at December 31 of the years 1993 through
1989, inclusive, are shown by the following table:
<TABLE>
<CAPTION>
At December 31,
(In Thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Insurance:
Directly written $2,133,588 $1,927,063 $2,254,092 $2,098,366 $1,958,346
Written and assumed 288,818 164,839 177,056 169,699 305,203
</TABLE>
Insurance premiums, claim and underwriting expenses and income from
underwriting for life and disability insurance underwritten by the Company's
insurance subsidiaries in the United States and Canada are summarized for the
periods indicated below:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Premiums earned:
Life $26,141 $26,806 $24,085 $23,231 $21,500
Disability 34,932 31,724 28,009 26,993 24,536
Claim expense:
Life 10,381 8,903 7,671 7,389 6,618
Disability 14,048 11,785 10,289 10,568 8,706
Underwriting expense:
Life 1,961 3,564 3,117 3,302 4,402
Disability 3,618 4,594 3,900 3,691 3,651
Income from underwriting:
Life 13,799 14,339 13,297 12,540 10,480
Disability 17,266 15,345 13,820 12,734 12,179
</TABLE>
Income from the underwriting (as principal), or the sale (as agent), of
property insurance, involuntary unemployment insurance and non-filing insurance
for the years 1993 through 1989 were $24,949,000; $22,204,000; $18,169,000;
$17,252,000; and $11,451,000, respectively.
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<PAGE> 11
COMMERCIAL FINANCE OPERATIONS
At December 31, 1993, commercial finance receivables accounted for 11% of
Norwest Financial's total finance receivables outstanding. The following table
presents Norwest Financial's commercial finance business for the five years
ended December 31, 1993:
Commercial Finance Receivables Outstanding
(In Thousands)
Total
At Accounts Commercial Percentage
December Leasing Receivable Finance Increase (Decrease)
31, and Other Financing Receivables From Previous Year
1993 $381,129 $130,983 $512,112 (13)%
1992 442,331 147,570 589,901 (7)
1991 476,443 155,315 631,758 (5)
1990 477,344 188,992 666,336 8
1989 493,490 124,354 617,844 (30)
Norwest Financial's average earned rates of charge on the average amount of
commercial finance receivables outstanding during each of the years 1993
through 1989 were 13.46%, 14.06%, 14.74%, 14.68%, and 13.33%, respectively.
The common stock of two commercial finance subsidiaries, Norwest Business
Credit, Inc. and Norwest Leasing, Inc., was transferred by way of a non-cash
dividend to the Parent on December 29, 1989 (said subsidiaries being
hereinafter called the "Transferred Subsidiaries"). The Parent immediately
transferred the common stock of the Transferred Subsidiaries to Norwest by way
of a non-cash dividend. The Transferred Subsidiaries were engaged in
commercial lending and lease financing. The transfer was made at the direction
of Norwest to consolidate similar operations and to improve interaction with
customers of Norwest Banks. These two companies were originally contributed,
without consideration, by Norwest to the Company effective January 1, 1984.
Loss Experience
The allowance for losses on commercial finance receivables is based on loss
experience in relation to commercial finance receivables outstanding. All such
receivables which appear to be uncollectible or to require inordinate collection
costs are written off. In addition, such receivables are automatically written
off for financial reporting when certain delinquency criteria are met.
- 11 -
<PAGE> 12
Information concerning commercial loss experience and allowance for losses is
shown below:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Allowance, beginning
of period $11,550 $11,100 $10,625 $ 8,950 $10,364
Write-offs:
Leasing and other 3,726 3,750 4,348 6,615 5,298
Accounts receivable
financing 1,870 2,522 2,036 1,200 1,356
Commercial loans 900
Total write-offs 5,596 6,272 6,384 7,815 7,554
Recoveries:
Leasing and other 757 1,416 838 1,461 648
Accounts receivable
financing 807 634 477 536 460
Commercial loans 60
Total recoveries 1,564 2,050 1,315 1,997 1,168
Provision for credit losses 2,732 4,672 5,544 7,493 9,997
Allowance related to
receivables acquired 975
Allowance of Transferred
Subsidiaries (6,000)
Allowance, end of period:
Leasing and other 8,350 9,550 8,800 7,900 6,900
Accounts receivable
financing 1,900 2,000 2,300 2,725 2,050
Total allowance $10,250 $11,550 $11,100 $10,625 $ 8,950
Ending receivables as
a percent of total
commercial receivables:
Leasing and other 74% 75% 75% 72% 80%
Accounts receivable
financing 26 25 25 28 20
100% 100% 100% 100% 100%
Allowance as a percent of
ending receivables 2.00% 1.96% 1.76% 1.59% 1.45%
Write-offs after recoveries
as a percent of average
commercial finance
receivables .73% .71% .80% .90% .64%
</TABLE>
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<PAGE> 13
Non-accrual commercial receivables totaled $5,349,000; $6,864,000; $17,125,000;
$14,666,000; and $11,611,000 at December 31, 1993 through 1989, respectively.
During 1993, the finance charges and interest that would have been recorded had
non-accrual receivables been current in accordance with their original terms
would have been $795,000. The amount of finance charges and interest actually
recorded on these receivables during 1993 totaled $210,000.
Commercial receivables outstanding which were more than three payments
contractually delinquent and which were still accruing interest totaled
$1,443,000; $2,586,000; $2,612,000; $2,116,000; and $1,439,000 at December 31,
1993 through 1989, respectively.
Lease Financing and Other
Norwest Financial Leasing, Inc. ("NFLI") operates under two separate divisions.
Each division provides a different type of financing and focuses on a different
market. Receivables are generated from business production offices and a sales
force that operates nationwide.
NFLI - Division I was formed when the Company entered the lease financing
business in 1977. Headquartered in Des Moines, Iowa, this division also has
business production offices in Riverside, California and Charlotte, North
Carolina. Division I specializes in financing commercial equipment such as
office copiers, telephone systems, small computers, and light industrial
equipment. The cost of this equipment ranges from $2,000 to $25,000. Finance
receivables are generated primarily from equipment distributors ranging from
small independently-owned vendors to large equipment manufacturers.
Generally, an end-user will enter into a lease or rental agreement with a
vendor; after approving credit, Division I purchases the contract from the
vendor and collects the lease payments from the end-user. Billing is often
done in the vendor's name, as are any customer service functions that might
become necessary in connection with the lease or rental agreement (thus
providing the vendor with a "private label" financing service). In some
instances, Division I purchases the equipment and leases it to the end-user,
with billing and other customer contacts being done in the name of NFLI.
Leases and other commercial finance receivables acquired by Division I
generally provide for equal monthly payments and normally have an initial term
of 60 months or less.
NFLI - Division II was formed by the purchase of the net assets of a lease
financing company in December 1988. Prior to November 1992, NFLI operated a
third division which was formed from the purchase of the net assets of a lease
financing company by Dial Bank and another subsidiary in June 1989. This
division was merged with Division II to form one health care equipment
financing division. Headquartered in St. Louis, Missouri, this division leases
a variety of health care equipment from blood chemistry analyzers, sterilizers,
and fluoroscopes to ultrasound equipment. Cost of the equipment can range from
$20,000 to above $250,000. Marketing efforts are directed primarily toward
manufacturers and distributors of such equipment except for certain large-
ticket items which are generally sold directly to the hospital, clinic or other
provider of health care services.
- 13 -
<PAGE> 14
NFLI also holds a portfolio of loans generally secured by commercial real
estate. At December 31, 1993, these loans totaled $64.0 million, a decrease
of $19.0 million for the year.
Accounts Receivable Financing
Norwest Financial Business Credit, Inc. ("NFBC") is engaged in the accounts
receivable financing business from its headquarters in Des Moines, Iowa. NFBC
provides customized financial services for retailers and manufacturers of
consumer products across the country. Over 400 high-quality furniture stores,
a nationally-known manufacturer of household heating and cooling systems, and
several consumer product suppliers utilize NFBC's services. Generally, NFBC
extends credit to a retailer which is secured by the retailer's accounts
receivable. NFBC provides credit approval for the retailer's accounts,
collects payments on these accounts and applies the amounts collected toward
the repayment of the loan to the retailer. Customer contacts, including
billing, collection and customer inquiries, are generally done in the
retailer's name, thereby providing a "private label" revolving credit program.
- 14 -
<PAGE> 15
INFORMATION SERVICES OPERATIONS
Norwest Financial Information Services Group, Inc. ("NFISG") has developed and
installed an on-line real-time information processing and communications system
called SWIFT , which connects, over leased telecommunication facilities,
terminals located in branch offices to the computer center in Norwest
Financial's home office. Branch employees use the computer to process loans
and payments, to write checks, and to perform bookkeeping functions. The
system provides information services to consumer finance branch offices of
Norwest Financial. In addition, as of December 31, 1993, NFISG had contracts
to supply information services to 24 other finance companies. On that date,
approximately 2,700 branch offices were being served and 6.1 million accounts
were being maintained on the system.
NFISG developed an enhancement to the system called SUPREME which replaced the
paper ledger card with video display units. SUPREME provides an elevated level
of customer service by adding a number of new capabilities to the existing
system; for example, delinquency lists and daily collection work lists,
solicitation lists (categorized by credit limit, age, occupation, or any of
many other characteristics from which branch employees choose), automated
advertising generated from those lists or for individual accounts, complete
application processing including retrieval of credit bureau reports, and
company-wide access of account records.
Since SUPREME is an enhancement of the existing SWIFT system, subscribing
companies may continue to use the existing system, or they may choose to add
SUPREME. Seventeen subscribing companies were utilizing SUPREME at December
31, 1993. Norwest Financial has installed SUPREME in all of its branch offices
in the United States and Canada. Branch offices in Canada were converted to
SUPREME beginning in March 1993. Overall, 5.2 million accounts in over 2,000
locations were being maintained by SUPREME at December 31, 1993.
NFISG introduced a new on-line real-time information system in 1991. Named
SUCCESS this system was designed to meet the processing demands of a broad
range of leasing products including true leases, rentals, conditional sales
contracts, and third-party leases. SUCCESS processes such variables as
property, sales, use and transit taxes; depreciation; vendor fees; residuals;
and participation. NFLI converted to SUCCESS in 1991. Two non-affiliate
subscribers were also utilizing SUCCESS at December 31, 1993.
NFISG continues to offer such services for sale, although there can be no
assurance of future sales, or that existing contracts will be renewed upon
expiration.
SOURCES OF FUNDS
Norwest Financial funds its operations through payments of principal and
interest from finance receivables, capital funds, the sale of debt securities,
and borrowings from banks and affiliates. Fixed rate borrowings with original
maturities of more than one year comprise 65% of the Company's total
indebtedness at December 31, 1993. The remaining 35% includes commercial paper
with maturities of nine months or less (28%), and short-term debt to affiliates
and other short-term debt (7%).
- 15 -
<PAGE> 16
The effective interest rate on commercial paper debt is higher than the stated
rates due to commitment fees paid in connection with Norwest Financial's bank
credit agreements (lines of credit and revolving credit agreements). These
agreements provide an alternative source of liquidity to support the Company's
commercial paper borrowings.
The weighted average annual interest cost of the total average daily borrowings
outstanding in each of the respective years 1993 through 1989 without giving
effect to commitment fees relating to bank credit agreements were 6.41%, 7.29%,
8.33%, 9.20%, and 9.66%, respectively. The corresponding figures after giving
effect to commitment fees were 6.45%, 7.33%, 8.36%, 9.23%, and 9.69%,
respectively. Norwest Financial has obtained and continues to obtain, at
prevailing rates, funds sufficient for the conduct of its business.
The following table contains certain information regarding short-term
borrowings (except short-term borrowings from affiliates) during the periods
indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in Thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Bank credit agreements
at December 31 $1,007,690 $737,500 $762,500 $742,500 $550,000
Number of credit agreements 35 34 36 36 33
Daily average outstanding:
Commercial paper $1,065,491 $862,620 $850,081 $727,961 $730,614
Other loans 87,761 1,368 1,948 2,948 4,016
Less excess funds
investments 15,436 10,181 10,708 17,176 14,038
Net average short-term
borrowings $1,137,816 $853,807 $841,321 $713,733 $720,592
Ratio of bank credit
agreements to above 89% 86% 91% 104% 76%
</TABLE>
See note 6 to the consolidated financial statements for a listing of the
amounts and maturities of the Company's outstanding long-term debt at December
31, 1993, and 1992.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges of
Norwest Financial for the periods indicated:
Years Ended December 31,
1993 1992 1991 1990 1989
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).
- 16 -
<PAGE> 17
COMPETITION
The business in which Norwest Financial is engaged is highly competitive. In
addition to competition from other consumer and commercial finance companies,
competition comes from sales finance companies, commercial banks, savings and
loan associations, credit card companies, credit unions and retail
establishments offering revolving credit plans. The principal method of
competition is service to customers, although interest rates and other
financing charges are adjusted from time to time to reflect market conditions.
Generally, Norwest Financial's interest rates or other financing charges are
comparable to those of other companies engaged in the consumer finance,
commercial finance or lease financing business, sales finance companies, credit
card companies and retail establishments offering revolving credit plans. They
are usually higher than those of commercial banks, savings and loan
associations and credit unions. Norwest Financial is ranked among the 25
largest finance companies in the United States in terms of total capital funds,
but is substantially smaller than the largest concerns. Trans Canada Credit
Corporation has been ranked among the largest finance companies in Canada.
EMPLOYEE RELATIONS
As of December 31, 1993, the Company and its subsidiaries employed
approximately 6,100 persons. Norwest Financial believes its employee
relations are excellent.
Item 2. Properties.
The Company owns an eleven-story building in Des Moines, Iowa, where its
principal executive offices are maintained. The Company also owns an adjacent
five-story building where other offices of the Company are maintained. Retail
and office space in the five-story building is also leased to others. The
Company's life insurance subsidiary owns a three-story building in Des Moines
which is used by the Company for administrative purposes. Dial Bank started
construction on a one-story building in Sioux Falls, South Dakota in October
of 1993. All of Norwest Financial's other business offices (consisting of
consumer branch offices, commercial finance executive and business production
offices, and other administrative offices) are located in rented office space.
Norwest Financial believes its facilities are suitable and adequate for its
business needs. These facilities are generally fully occupied and utilized,
although in some instances, office space has been reserved for anticipated
business expansion; otherwise, additional office space or facilities are leased
only when they are needed.
The equipment used in the information processing system (located at branch
offices, relay communication sites, and home office facilities) is leased or
owned by Norwest Financial. Telecommunication lines used in the information
processing system are leased on a monthly basis.
Item 3. Legal Proceedings.
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which the Company or any of its
subsidiaries is a party or of which any of their property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders.
Omitted in accordance with General Instructions J(2)(c).
- 17 -
<PAGE> 18
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
All of the outstanding common stock of the Company is and was, at all times
during 1993 and 1992, owned beneficially and of record by a single stockholder,
the Parent.
The aggregate amount of dividends paid by the Company on its common stock
(1,000 shares) each quarter during 1993 and 1992 was as follows:
(In Thousands) 1993 1992
First quarter $50,000 $25,000
Second quarter 40,000
Third quarter 35,000 40,000
Fourth quarter 15,000 25,000
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 $55 million of
consolidated retained earnings was unrestricted at December 31, 1993.
<TABLE>
<CAPTION>
Item 6. Selected Financial Data.
Years Ended December 31,
(In Thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Operating revenues $1,079,719 $924,348 $839,506 $742,074 $703,635
Net earnings 203,297 164,204 130,880 115,366 98,882
</TABLE>
<TABLE>
<CAPTION>
December 31,
(In Thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Total assets $5,261,599 $4,804,062 $4,139,546 $3,622,084 $3,153,427
Long-term debt 2,741,692 2,406,186 2,266,658 1,972,433 1,861,103
</TABLE>
- 18 -
<PAGE> 19
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Effective November 17, 1992, the Company expanded its consumer finance
operations into Canada with the purchase of the consumer finance business of
Trans Canada Credit Corporation Limited. This acquisition was accounted for
as a purchase and, accordingly, Norwest Financial's financial statements were
not restated to reflect the accounts and operations of the Trans Canada Credit
Corporation Limited consumer finance business prior to acquisition.
Norwest Financial's total income (revenue) increased 17% in 1993 and 10% in
1992 ($1,079.7 million in 1993 compared with $924.3 million in 1992 and $839.5
million in 1991).
Income from finance charges and interest increased 19% in 1993 and 10% in 1992
($892.8 million in 1993 compared with $751.8 million in 1992 and $685.5 million
in 1991). 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.
Increase (decrease) in average
finance receivables outstanding: 1993 1992
Consumer 22% 10%
Commercial (7) (7)
Total 17 7
Rate of charge on finance receivables: 1993 1992 1991
Consumer 22.55% 22.49% 21.97%
Commercial 13.46 14.06 14.74
Total 21.36 21.09 20.59
Increases in income from finance charges and interest in both 1993 and 1992
were due primarily to growth in average consumer receivables outstanding.
Average consumer receivables outstanding comprise 87% of total average finance
receivables outstanding. Growth in average consumer receivables in 1993 and
1992 was due to a combination of purchases and regular business activity.
Significant purchases included the $370 million of Canadian consumer finance
receivables purchased in November 1992 and a $100 million consumer finance
portfolio purchased in November 1991. Other consumer finance purchases totaled
$142 million in 1993 and $185 million in 1992.
The decline in average commercial finance receivables in 1993 and 1992 was a
result of lower customer demand combined with a decision by Norwest Financial
to discontinue pursuing certain large-ticket leases.
Changes in the earned rates of charge were due to changes in prevailing market
rates combined with a change in the portfolio mix.
- 19 -
<PAGE> 20
Insurance premiums and commissions increased 9% in 1993 and 15% in 1992 ($91.0
million in 1993 compared with $83.4 million in 1992 and $72.7 million in 1991).
Changes in insurance premiums and commissions are generally expected to
correspond to changes in average consumer finance loans outstanding (those
secured by real estate and not secured by real estate). Average consumer
finance loans outstanding increased 25% in 1993 and 11% in 1992. However,
insurance premiums and commissions were also impacted by a change in insurance
underwritten on customers of Norwest banks. Effective December 1, 1992, this
business is being ceded to another subsidiary of Norwest Corporation.
Insurance premiums from business written on customers of Norwest banks were
$8.9 million in 1992. Insurance losses and loss expenses increased 3% in 1993
and 15% in 1992 ($31.9 million in 1993 compared with $30.9 million in 1992 and
$26.9 million in 1991). The increases were primarily the result of higher
levels of insurance in force. In addition, 1993 was impacted by the change in
insurance underwritten on customers of Norwest banks.
Other income increased 8% in 1993 and 10% in 1992 ($95.9 million in 1993
compared with $89.2 million in 1992 and $81.4 million in 1991). An increase
in investment income, combined with other income generated by the Canadian
operations, accounted for the majority of the increase in 1993. In 1992, the
increase was due primarily to additional investment income. Average
investments held increased 18% in 1993 and 20% in 1992.
Operating expenses increased 23% in 1993 and 18% in 1992 ($398.7 million in
1993 compared with $325.3 million in 1992 and $275.6 million in 1991). The
increases were due primarily to increases in employee compensation and
benefits, postage, rent for office facilities, data and voice communication
expense, and other costs of business expansion. At December 31, 1993, Norwest
Financial was operating 942 consumer finance branches compared with 882 at
December 31, 1992, and 733 at December 31, 1991. The purchase of the assets
of Trans Canada Credit Corporation added 122 offices in November 1992. In
addition, the purchase of a $100 million consumer finance receivable portfolio
added 62 offices primarily in November 1991.
Interest and debt expense increased 3% in 1993 after declining 7% in 1992
($242.4 million in 1993 compared with $236.3 million in 1992 and $255.1 million
in 1991). Changes in interest and debt expense result primarily from (1)
changes in the amount of borrowings outstanding due to funding requirements for
receivables and dividends and (2) changes in the cost of those borrowings.
Increase in average debt outstanding: 1993 1992
Short-term 28% 6%
Long-term 13 5
Total 17 6
Cost of funds: 1993 1992 1991
Short-term 3.92% 4.15% 6.18%
Long-term 7.57 8.59 9.21
Total 6.41 7.29 8.33
Changes in average debt outstanding correspond to changes in average finance
receivables outstanding. Average finance receivables increased 17% in 1993 and
7% in 1992.
- 20 -
<PAGE> 21
Provision for credit losses increased 19% in 1993 after decreasing 4% in 1992
($99.2 million in 1993 compared with $83.3 million in 1992 and $87.0 million
in 1991). The increase in 1993 was due primarily to the 17% increase in
average finance receivables outstanding. In 1992, a general improvement in
economic conditions was sufficient to offset the impact of the increase in
average finance receivables outstanding. Net write-offs as a percentage of
average net receivables outstanding were 2.19% in 1993 compared with 2.09% in
1992 and 2.33% in 1991.
Income taxes increased 24% in 1993 and 32% in 1992. The increases were due
primarily to increases in earnings before income taxes. The effective tax
rates were 33.9% in 1993, 33.9% in 1992, and 32.8% in 1991.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." SFAS 106 requires the company
to accrue the estimated cost of retiree benefit payments during the years the
employee provides services. The Company previously expensed the cost of these
benefits, which are principally health care, as claims were incurred. In 1992
and 1991, the Company recognized $661,000 and $613,000, respectively, as an
expense for postretirement health care and life insurance benefits.
SFAS 106 allows recognition of the cumulative effect of the liability in the
year of the adoption or the amortization of the obligation over a period of up
to twenty years. The Company has elected to recognize this obligation of
approximately $22.2 million over a period of twenty years. The Company's cash
flows are not affected by implementation of this Statement, however,
implementation decreased income before income taxes for 1993 by $4.0 million.
In 1992, the Company elected early adoption of SFAS 109, "Accounting for Income
Taxes", which takes the asset and liability approach to comprehensive
interperiod tax accounting and requires, among other things, provision for
deferred taxes at the currently enacted statutory tax rates (including the
effects of giving consideration to alternative tax systems). SFAS 109 replaces
SFAS 96, which the Company adopted in 1988. Implementing SFAS 109 did not have
a material effect on the Company's deferred tax assets or net earnings. The
Company has not established a valuation allowance related to the total of
deferred tax assets as management believes it is more likely than not all such
assets will be realized.
In May 1993, the Financial Accounting Standards Board issued SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities." Beginning
in 1994, this Statement will require that certain investments in debt and
equity securities be classified into one of three categories: held-to-maturity,
available-for-sale, or trading. Debt securities classified as held-to-maturity
are to be reported at amortized cost. Debt and equity securities classified
as trading are to be reported at fair value, with unrealized gains and losses
included in earnings. Debt and equity securities classified as available-for-
sale are to be reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of stockholder's
equity.
- 21 -
<PAGE> 22
Upon adoption, Norwest Financial plans to classify all its debt and equity
securities as available-for-sale. If this Statement had been adopted at
December 31, 1993, marketable securities would have increased by $25.7 million
and stockholder's equity would have increased by $16.5 million, the increase
in marketable securities net of the income tax effect.
Borrowings constitute the largest part of Norwest Financial's capitalization.
At December 31, 1993, 86% of the Company's capital had been obtained from
borrowings and 14% from stockholder's equity. Sixty-five percent of Norwest
Financial's borrowings was in fixed-rate term borrowings with original
maturities of more than one year. The remaining 35% includes commercial paper
with maturities of nine months or less (28%), and short-term debt to affiliates
and other short-term debt (7%). At December 31, 1992, short-term borrowings
comprised 38% of total borrowing. This consisted of commercial paper with
maturities of nine months of less (25%), short-term funding from a group of
banks to provide for the acquisition of the consumer finance business of Trans
Canada Credit Corporation Limited (9%), and other bank debt and other
borrowings (4%). Norwest Financial generally follows a guideline of funding
between 25% to 30% of borrowings with short-term debt. Short-term borrowings
as a percent of total borrowings averaged 32% in 1993 and 29% in 1992. The
short-term borrowing percentage was higher in 1993 as a result of the funding
for Norwest Financial's Canadian operations. For the first eleven months of
1993, all borrowings for these operations were short-term, either borrowings
from banks or commercial paper borrowings. In December 1993, the Company's
Canadian subsidiary issued $130 million (Canadian) of long-term debt. The
Company's Canadian subsidiary expects to issue additional long-term debt in
1994.
Short-term borrowings from banks related to the operation of Trans Canada
Credit Corporation totaled $334 million at December 31, 1992. During 1993, the
Company's Canadian subsidiary, Norwest Financial Canada, Inc., refinanced these
borrowings through a combination of commercial paper borrowings in Canada plus
the issuance of long-term debt during December 1993.
The Company maintains bank lines of credit and revolving credit agreements to
provide an alternative source of liquidity to support the Company's commercial
paper borrowings. At December 31, 1993, lines of credit and revolving credit
agreements totaling $1,008 million were being maintained at 35 unaffiliated
banks; $30 million was unavailable on that date.
The Company 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 medium-term notes (which may have maturities
ranging from nine months to 30 years) through underwriters (acting as agent or
principal) pursuant to the $200 million medium-term note program established
by the Company in the first quarter of 1991, (iii) the issuance of debt
securities to institutional investors, and (iv) term borrowings from commercial
banks.
The Company 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 on Norwest Financial's finance receivables.
- 22 -
<PAGE> 23
Item 8. Financial Statements and Supplementary Data.
NORWEST FINANCIAL, INC.
Consolidated Financial Statements
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<PAGE> 24
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- 24 -
<PAGE> 25
Deloitte &
Touche
(logo) Two Prudential Plaza Telephone:(312) 946-3000
180 North Stetson Avenue Facsimile:(312) 946-2600
Chicago, Illinois 60601
INDEPENDENT AUDITORS' REPORT
Norwest Financial, Inc.:
We have audited the accompanying consolidated balance sheets of Norwest
Financial, Inc. (a wholly owned subsidiary of Norwest Financial Services, Inc.)
and subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of earnings and retained earnings and of cash flows for each of the
three years in the period ended December 31, 1993. Our audits also included
the financial statement schedule listed in the Index at Item 14(a)(2). These
financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Norwest Financial, Inc. and its
subsidiaries at December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993 in conformity with generally accepted accounting principles. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
\s\ Deloitte & Touche
January 13, 1994
Deloitte Touche
Tohmatsu
International
- 25 -
<PAGE> 26
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31,
Assets 1993 1992
<S> <C> <C>
Cash and cash equivalents $ 80,762 $ 133,639
Marketable securities (note 2) 472,656 409,901
Finance receivables (note 3):
Consumer:
Loans 2,659,654 2,442,283
Sales finance contracts 1,086,576 914,549
Other 212,680 152,964
Commercial:
Accounts receivable financing 130,983 147,570
Leasing and other 381,129 442,331
Total finance receivables 4,471,022 4,099,697
Less allowance for credit losses (note 4) 125,126 117,574
Finance receivables - net 4,345,896 3,982,123
Property and equipment (at cost, less
accumulated depreciation of $73,085 for
1993 and $61,368 for 1992) 57,856 58,354
Deferred income taxes (note 11) 16,754 16,405
Other assets 287,675 203,640
Total assets $5,261,599 $4,804,062
</TABLE>
See accompanying notes to consolidated financial statements.
- 26 -
<PAGE> 27
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31,
Liabilities and
Stockholder's Equity 1993 1992
<S> <C> <C>
Loans payable - short-term (note 5):
Commercial paper $1,186,565 $ 970,419
Affiliates 184,985 44,265
Other 133,700 449,381
Unearned insurance premiums and commissions (note 3) 109,913 91,930
Insurance claims and policy reserves (note 3) 28,849 29,506
Accrued interest payable 43,574 40,609
Other payables to affiliates (note 11) 6,368 25,879
Other liabilities 138,214 118,612
Long-term debt (note 6) 2,741,692 2,406,186
Total liabilities 4,573,860 4,176,787
Commitments and contingencies
(notes 9 and 11)
Stockholder's equity:
Common stock without par value
(authorized 1,000 shares,
issued 1,000 shares) 3,855 3,855
Additional paid in capital 52,413 52,413
Retained earnings (notes 10 and 11) 634,626 571,329
Foreign currency translation adjustment (3,155) (322)
Total stockholder's equity 687,739 627,275
Total liabilities and
stockholder's equity $5,261,599 $4,804,062
</TABLE>
See accompanying notes to consolidated financial statements.
- 27 -
<PAGE> 28
NORWEST FINANCIAL, INC.
Statements of Consolidated Earnings and Retained Earnings
(Thousands of Dollars)
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Income:
Finance charges and interest $ 892,761 $751,766 $685,454
Insurance premiums and commissions 91,045 83,372 72,676
Other income (note 2) 95,913 89,210 81,376
Total income 1,079,719 924,348 839,506
Expenses:
Operating expenses (note 14) 398,668 325,340 275,606
Interest and debt expense (note 7) 242,440 236,337 255,075
Provision for credit losses (note 4) 99,180 83,263 87,029
Insurance losses and loss expenses 31,906 30,870 26,931
Total expenses 772,194 675,810 644,641
Earnings before income taxes 307,525 248,538 194,865
Income taxes (note 11) 104,228 84,334 63,985
Net earnings 203,297 164,204 130,880
Retained earnings - January 1 571,329 497,125 424,245
774,626 661,329 555,125
Dividends (140,000) (90,000) (58,000)
Retained earnings - December 31 $ 634,626 $571,329 $497,125
</TABLE>
See accompanying notes to consolidated financial statements.
- 28 -
<PAGE> 29
NORWEST FINANCIAL, INC.
Statements of Consolidated Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Thousands of Dollars)
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 203,297 $ 164,204 $ 130,880
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Provision for credit losses 99,180 83,263 87,029
Depreciation and amortization 26,086 21,668 15,621
Deferred income taxes (349) (5,465) 5,805
Other assets (12,731) 1,279 3,305
Unearned insurance premiums and commissions 17,983 (4,497) 1,641
Insurance claims and policy reserves (657) (1,177) 1,285
Accrued interest payable 2,965 (466) 3,027
Other payables to affiliates (19,511) 18,320 1,238
Other liabilities 19,602 20,419 26,387
Net cash flows from operating activities 335,865 297,548 276,218
Cash flows used for investing activities:
Finance receivables:
Principal collected 3,985,591 3,255,246 2,891,995
Receivables originated or purchased (4,448,544) (3,847,996) (3,344,298)
Proceeds from sales of marketable securities 35,314 53,253 34,345
Proceeds from maturities of marketable securities 134,355 48,556 17,635
Purchase of marketable securities (232,424) (144,975) (104,859)
Net additions to property and equipment (13,594) (12,512) (14,079)
Other (86,131) (64,925) (59,555)
Net cash flows used for investing activities (625,433) (713,353) (578,816)
Cash flows from financing activities:
Net increase in loans payable -
short-term 41,185 410,757 116,079
Proceeds from long-term debt:
Senior 698,332 750,000 700,000
Subordinated 100,000 80,000
Repayments of long-term debt:
Senior (360,956) (566,685) (478,180)
Subordinated (101,870) (43,787) (7,595)
Additional paid in capital 7,750 700
Dividends paid (140,000) (90,000) (58,000)
Net cash flows from financing activities 236,691 468,035 353,004
Net increase (decrease) in cash and cash equivalents (52,877) 52,230 50,406
Cash and cash equivalents beginning of period 133,639 81,409 31,003
Cash and cash equivalents end of period $ 80,762 $ 133,639 $ 81,409
</TABLE>
See accompanying notes to consolidated financial statements.
- 29 -
<PAGE> 30
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements
1. Significant Accounting Policies.
Principles of Consolidation. The consolidated financial statements include the
accounts of Norwest Financial, Inc. (the "Company") and subsidiaries
(collectively, "Norwest Financial"). Intercompany accounts and transactions
are eliminated. The Company is a wholly-owned subsidiary of Norwest Financial
Services, Inc. (the "Parent"), which is a wholly-owned subsidiary of Norwest
Corporation.
Marketable Securities. Investments in marketable securities are carried at
amortized cost except for other than temporary declines in market value which
are recognized as a reduction in earnings. Purchases are limited to investment
grade securities. At December 31, 1993, and 1992, no marketable securities
were being held for resale, therefore, no portion of the portfolio is being
carried at the lower of cost or market (note 2).
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Beginning in 1994, this Statement will require
that certain investments in debt and equity securities be classified into one
of three categories: held-to-maturity, available-for-sale, or trading. Debt
securities classified as held-to-maturity are to be reported at amortized cost.
Debt and equity securities classified as available-for-sale are to be reported
at fair value, with unrealized gains and losses excluded from earnings and
reported in a separate component of stockholder's equity.
Upon adoption, Norwest Financial plans to classify all its debt and equity
securities as available-for-sale. If this Statement had been adopted at
December 31, 1993, marketable securities would have increased by $25.7 million
and stockholder's equity would have increased by $16.5 million, the increase
in marketable securities net of the income tax effect.
Finance Charges and Interest:
Consumer. Finance charges and interest are earned primarily using the
interest method.
Accounts Receivable Financing. Dealer discounts are deferred at the time
receivables are recorded and taken into income as payments are received.
Finance charges are recognized on the interest method as accounts are
billed. When a loan is delinquent and in management's opinion the
collectibility of interest is doubtful, interest income is no longer accrued
for financial purposes.
Leasing and Other. Finance charges and interest are earned using the
interest method. No income is accrued on receivables which are more than
three payments contractually delinquent.
- 30 -
<PAGE> 31
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
1. Significant Accounting Policies, Continued:
Finance Charges and Interest, Continued:
Loan Origination Fees and Costs. Fees received and certain direct costs
incurred for the origination of receivables are deferred and amortized to
interest income over the contractual lives of the receivables using the
interest method. Unamortized amounts are recognized at the time receivables
are paid in full. Material discounts and premiums on purchased receivables
are recognized over the contractual life of the purchased receivable using
a method that approximates the interest method.
Allowance for Credit Losses. The allowance for credit losses is based on loss
experience in relation to finance receivables outstanding and is established
through a provision for credit losses charged to expense. The allowance is an
amount that management believes will be adequate to absorb possible losses on
existing receivables that may become uncollectible based on evaluations of
collectibility of receivables and prior credit loss experience.
Finance receivables which appear to be uncollectible or to require inordinate
collection costs are written off. In addition, consumer finance receivables
in the United States are written off for financial reporting if no payment is
applied during the three-month period immediately preceding the balance sheet
date and the receivable is three or more payments contractually delinquent.
However, on loans over $25,000, those portions of the balances determined to
be fully secured by real estate, are excluded from write-offs. Consumer
finance receivables in Canada are written off in the month following a six-
month period in which no full payment is applied and if the receivable is one
or more payments contractually delinquent. Other consumer receivables and
commercial finance receivables are written off for financial reporting when
certain delinquency criteria are met.
Property and Equipment. Depreciation is provided for property and equipment
on a straight-line basis over their estimated useful lives, which are: 19 to
39 years for buildings, 5 to 39 years for building equipment and improvements,
and 3 to 8 years for furniture, fixtures and equipment. Generally, leasehold
improvements are amortized over five years. Maintenance and repairs of
building and office equipment (not significant in the aggregate) are charged
to expense. At the time assets are disposed of or are retired, the related
asset and accumulated depreciation or amortization are removed from the
respective accounts. Gains and losses on dispositions are included in
earnings.
Deferred Income Taxes. Deferred income taxes have been provided in accordance
with SFAS 109 which reflect the impact of temporary differences between the
amounts of assets and liabilities recorded for financial reporting on a basis
different from that used for income tax purposes (note 11).
Retirement Plan. Retirement plans cover substantially all employees who meet
certain age and service requirements. The Company's funding policy is to
contribute no more than the maximum amount that can be deducted for federal
income tax purposes (note 12).
- 31 -
<PAGE> 32
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
1. Significant Accounting Policies, Continued:
Insurance Income and Expense. Insurance premiums are recognized as income over
the terms of the policies. Premiums for credit life insurance are recognized
as revenue using a method that approximates the interest method. Premiums for
credit disability insurance and involuntary unemployment insurance are
recognized as revenue in relationship to anticipated claims. Premiums and
commissions from property insurance and non-filing insurance are recognized as
revenue on a pro-rata basis. Policy acquisition expenses (principally agents'
commissions) are deferred and charged to expense over the terms of the related
policies in proportion to premium income recognition.
Foreign Currency Translation. Assets and liabilities of the Canadian
operations are translated at the exchange rate as of the balance sheet date.
Canadian operating results are translated at the average exchange rates for the
period covered by the income statement. The resulting translation adjustments
are recorded as a separate component of stockholder's equity.
Reclassifications. Certain amounts in the 1992 and 1991 financial statements
have been reclassified to conform to the presentation used in the 1993
financial statements.
- 32 -
<PAGE> 33
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
2. Marketable Securities.
The carrying value and market value of marketable securities were:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
Carrying Market Carrying Market
(In Thousands) Value Value Value Value
<S> <C> <C> <C> <C>
U.S. Treasury and federal agencies $264,192 $272,369 $215,842 $225,020
States and political subdivisions 89,730 92,806 53,720 57,292
Other 118,734 133,200 140,339 154,108
Total $472,656 $498,375 $409,901 $436,420
</TABLE>
The gross unrealized gains and losses of marketable securities were:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
Gross Unrealized Gross Unrealized
(In Thousands) Gains Losses Gains Losses
<S> <C> <C> <C> <C>
U.S. Treasury and federal agencies $ 8,882 $ 705 $ 9,458 $280
States and political subdivisions 3,101 25 3,583 11
Other 15,250 784 14,467 698
Total $27,233 $1,514 $27,508 $989
</TABLE>
The carrying and market values of marketable securities by maturity were:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
Carrying Market Carrying Market
(In Thousands) Value Value Value Value
<S> <C> <C> <C> <C>
In one year or less $221,538 $236,093 $ 47,299 $ 55,756
After one year through five years 166,043 173,973 158,321 167,433
After five years through ten years 76,833 79,969 151,303 158,885
After ten years 8,242 8,340 52,978 54,346
Total $472,656 $498,375 $409,901 $436,420
</TABLE>
Norwest Financial computes realized gains and losses using the specific
identification method. Total gross realized gains and losses from the sale of
marketable securities were $3,311,000 and $1,063,000, respectively, in 1993;
$4,089,000 and $738,000, respectively, in 1992; and $2,290,000 and $843,000,
respectively in 1991.
The carrying amounts of securities on deposit under statutory or other
requirements at December 31, 1993 and 1992, were $5,989,000 and $5,067,000,
respectively.
Interest and dividends from marketable securities and cash equivalents was
$36,562,000, $33,939,000, and $29,792,000 for the years ended December 31,
1993, 1992 and 1991, respectively.
- 33 -
<PAGE> 34
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
3. Finance Receivables.
Loans are generally repayable in monthly installments over a period of 180
months or less. Sales finance contracts can be either open-end (revolving) or
closed-end. Open-end sales finance contracts do not have an original maturity
because the accounts created by these contracts can be used for repeated
transactions. The minimum monthly payment of open-end sales finance contracts
generally ranges from 1/12 to 1/30 of the highest unpaid balance of this
account. Closed-end sales finance contracts purchased are repayable in equal
monthly instalments and generally have original maturities of 60 months or
less.
The amounts of cash payments applied to consumer finance receivables during the
years ended December 31, 1993, 1992 and 1991, approximated $3,320,575,000,
$2,556,106,000, and $2,124,832,000, respectively. These amounts exceeded the
amount contractually due because a substantial portion of such receivables are
renewed, converted, or paid in full prior to maturity. Unearned insurance
premiums and insurance claims and policy reserves which pertain to Norwest
Financial's consumer finance receivables were approximately $119,551,000 and
$101,009,000 at December 31, 1993, and 1992, respectively.
At December 31, 1993, contractual maturities of commercial receivables were as
follows: $283,668,000 were due in one year or less; $171,517,000 were due after
one year through five years, and $56,927,000 were due after five years.
Substantially all commercial receivables have fixed interest rates.
Contractual maturities are not presented for the consumer receivables as it is
the Company's experience that a substantial portion of the consumer receivable
portfolio is renewed or repaid before contractual maturity dates.
Consumer finance receivables include Canadian receivables of $397,267,000 and
$378,439,000 at December 31, 1993, and 1992.
4. Allowance for Credit Losses.
The analysis of the allowance for credit losses is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1993 1992 1991
<S> <C> <C> <C>
Allowance for credit losses beginning of year $117,574 $ 88,662 $ 73,775
Provision for credit losses charged to expense 99,180 83,263 87,029
Write-offs: United States (88,100) (85,100) (87,097)
Canada (19,043) (2,934)
Recoveries: United States 11,941 13,378 9,572
Canada 3,574
Allowance related to receivables acquired 20,305 5,383
Allowance for credit losses end of year $125,126 $117,574 $ 88,662
</TABLE>
- 34 -
<PAGE> 35
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
5. Loans Payable - Short-term.
Commitment fees are paid to support bank credit agreements (lines of credit
and revolving credit agreements). The bank credit agreements amounted to
$1,007,690,000 at December 31, 1993; $30,000,000 was unavailable at that date.
Unused bank credit agreements are available to support outstanding commercial
paper. If all credit agreements in effect at December 31, 1993, were to remain
in effect and unused throughout 1994, the Company would pay approximately
$1,379,000 in commitment fees.
Weighted average annual interest rates and average debt outstanding for
commercial paper and other short-term debt excluding short-term debt from
affiliates are shown below:
<TABLE>
<CAPTION>
1993 1992 1991
Weighted average annual interest
rate on commercial paper and
other short-term debt:
<S> <C> <C> <C>
During December 3.53% 4.80% 4.99%
During December after considering
the effect of commitment fees 3.64 4.89 5.10
For the year 3.80 4.03 6.12
For the year after considering
the effect of commitment fees 3.91 4.16 6.22
Average daily amount of commercial
paper and other short-term debt
outstanding during the year $1,154,724,000 $904,201,000 $852,029,000
Maximum amount of commercial paper
and other short-term debt
outstanding at any month-end
during the year $1,320,265,000 $1,419,800,000 $1,015,351,000
</TABLE>
The weighted average annual interest rate was computed by dividing total
interest expense on commercial paper and other short-term debt by the average
daily amount of such debt outstanding. The weighted average annual interest
rate on short-term debt to affiliates for the years 1993, 1992, and 1991 was
4.65%, 9.35%, and 9.59%, respectively.
- 35 -
<PAGE> 36
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
6. Long-term Debt.
Long-term debt outstanding:
December 31,
(In Thousands) 1993 1992
Senior:
8.625% due 1993 $ $ 100,000
9 % due 1993 100,000
4-7/8% due 1994 100,000 100,000
7.95 % due 1994 150,000 150,000
8-1/4% due 1994 150,000 150,000
8.90 % due 1994 100,000 100,000
9.206% due 1994 30,000 30,000
9.75 % due 1994 100,000 100,000
9.90 % due 1994* 100,000
4-5/8% due 1995 75,000 75,000
7-1/4% due 1995 150,000 150,000
5.96 % due 1996 22,692
7.10 % due 1996 150,000 150,000
8-7/8% due 1996 100,000 100,000
9-1/8% due 1996* 50,000
6 % due 1997 150,000 150,000
6-1/2% due 1997 150,000 150,000
5-1/8% due 1998 150,000
6.25 % due 1998 75,640
8-1/2% due 1998 100,000 100,000
6.20 % due 1999 75,000 75,000
6-7/8% due 1999 100,000 100,000
5-1/8% due 2000 150,000
7.95 % due 2002 100,000 100,000
6-1/8% due 2003 150,000
7 % due 2003 150,000
Total senior 2,478,332 2,130,000
*Prepaid in 1993.
- 36 -
<PAGE> 37
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
6. Long-term Debt, Continued:
Long-term debt outstanding, continued:
December 31,
(In Thousands) 1993 1992
Senior subordinated:
9.16 % due 1994 $ 7,500 $ 7,500
9.55 % due 1994 5,000 5,000
9 % due 1995* 50,000
9.63 % due 1995 20,000 20,000
8-1/4% due 1996* 50,000
8.375% due 1996 25,000 25,000
9-5/8% due 1998 50,000 50,000
Medium-term notes** 155,000 55,000
Total senior subordinated 262,500 262,500
Junior subordinated:
9.87% due 1993 1,870
Other 860 11,816
Total long-term debt outstanding $2,741,692 $2,406,186
*Prepaid in 1993.
**Medium-term notes outstanding have maturities ranging from 1995 to 1997 with
interest rates from 4.85% to 8.78%.
Other debt represent senior debt assumed as a result of the purchase of the net
assets of a leasing company in 1989. The terms of the agreement generally
provide for monthly payments of principal and interest.
Contractual maturities of long-term debt for the years 1994 through 1998 are
$643,360,000; $255,000,000; $392,692,000; $350,000,000; and $375,640,000,
respectively.
- 37 -
<PAGE> 38
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
7. Interest and Debt Expense.
Interest and debt expense is summarized as follows:
Years Ended December 31,
(In Thousands) 1993 1992 1991
Short-term - affiliates $ 4,626 $ 1,432 $ 948
Short-term - commercial paper & other 44,282 36,271 52,311
Long-term 188,422 193,090 197,411
Amortization of debt expense 5,110 5,544 4,405
Total interest and debt expense $242,440 $236,337 $255,075
8. Operations by Country.
The following is a summary of total income, earnings before income taxes, and
total assets by country:
(In Thousands) 1993 1992
Total income:
United States $ 955,786 $ 908,773
Canada 123,933 15,575
Total $1,079,719 $ 924,348
Earnings before income taxes:
United States $ 267,982 $ 245,846
Canada 39,543 2,692
Total $ 307,525 $ 248,538
Total assets at December 31:
United States $4,825,416 $4,403,538
Canada 436,183 400,524
Total $5,261,599 $4,804,062
Effective November 17, 1992, the Company expanded its consumer finance
operations into Canada with the purchase of the consumer finance business of
Trans Canada Credit Corporation Limited. This acquisition was accounted for
as a purchase and, accordingly, Norwest Financial's financial statements were
not restated to reflect the accounts and operations of this business prior to
acquisition.
9. Leased Assets and Lease Commitments.
Lease terms are generally for three to seven years. Commitments at December
31, 1993, under operating leases having initial or remaining lease terms in
excess of one year are estimated to approximate $26 million.
- 38 -
<PAGE> 39
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
10. 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 $55 million of
consolidated retained earnings was unrestricted at December 31, 1993.
11. Income Taxes.
The Company and its subsidiaries are included in the consolidated federal
income tax return of Norwest Corporation. Federal income taxes are allocated
to the Company and its subsidiaries at the approximate amount which would have
been computed on a separate return basis. The current income taxes payable
included in other payables to affiliates was $3.4 million and $23.5 million at
December 31, 1993, and 1992, respectively. The Company's Canadian subsidiaries
file separate federal and provincial returns in Canada.
At December 31, 1993, no federal income taxes had been provided on approxi-
mately $23 million of the United States life insurance subsidiary's retained
earnings since such taxes become payable only to the extent such retained
earnings are distributed as dividends or to the extent prescribed by tax laws.
The life insurance subsidiary does not contemplate distributing dividends from
these retained earnings. The amount of unrecognized deferred tax liability at
December 31, 1993, was $7.8 million.
In 1992, the Company elected early adoption of SFAS 109, "Accounting for Income
Taxes", which takes the asset and liability approach to comprehensive
interperiod tax accounting and requires, among other things, provision for
deferred taxes at the currently enacted statutory tax rates (including the
effects of giving consideration to alternative tax systems). SFAS 109 replaces
SFAS 96, which the Company adopted in 1988. Implementing SFAS 109 did not have
a material effect on the Company's deferred tax assets or net earnings. The
Company has not established a valuation allowance related to the total of
deferred tax assets as management believes it is more likely than not all such
assets will be realized.
- 39 -
<PAGE> 40
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
11. Income Taxes, Continued:
Income taxes for the years 1993, 1992, and 1991 are composed of the following
elements:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1993 1992 1991
<S> <C> <C> <C>
Current:
Federal $101,533 $86,750 $56,448
State and provincial 3,044 3,049 1,732
Deferred (349) (5,465) 5,805
Total income taxes $104,228 $84,334 $63,985
</TABLE>
Deferred income taxes are primarily due to leasing and lease financing, the
allowance for credit losses, and accrued employee benefits.
The effective income tax rates for the years ended December 31, 1993, 1992,
and 1991 differed from the statutory federal income tax rate in the United
States for the following reasons:
<TABLE>
<CAPTION>
Percent of Pretax Income for the
Years Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 34.0% 34.0%
Change due to:
Tax-exempt income (.4) (.5) (.9)
Other, net (.7) .4 (.3)
Effective tax rate 33.9% 33.9% 32.8%
</TABLE>
- 40 -
<PAGE> 41
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
12. Retirement Plans.
The Company has a defined benefit pension plan which covers United States
employees who meet certain age and service requirements. Pension benefits
provided are based on the employee's highest compensation in three consecutive
calendar years during the last ten calendar years of employment. Benefits
accrue under this plan at a rate of 1-1/4% for each year of service.
The Plan's funded status and reconciliation to the balance sheet is presented
below:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1993 1992
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $28,364 and $21,814 at
December 31, 1993, and 1992, respectively $(35,678) $(27,943)
Projected benefit obligation for service
rendered to-date $(56,157) $(41,654)
Plan assets at fair value* 51,215 40,379
Plan assets less than projected
benefit obligation (4,942) (1,275)
Unrecognized net asset at January 1, 1986,
being amortized over 15 years (709) (810)
Unrecognized prior service costs (1,070) (1,202)
Unrecognized net loss from past experience
different from that assumed and effects
of changes in assumptions 13,399 4,617
Prepaid pension cost at December 31 $ 6,678 $ 1,330
</TABLE>
* Consists primarily of marketable bonds and debentures and obligations of
the United States Government and its agencies and includes $270,000 and
$628,000 of debt securities issued by the Company at December 31, 1993,
and 1992, respectively.
Assumptions used in the accounting were:
As of December 31,
1993 1992
Weighted average discount rate 7.0% 8.0%
Expected long-term rate of return on assets 6.0 9.0
Rate of increase in future compensation levels 6.0 6.0
- 41 -
<PAGE> 42
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
12. Retirement Plans, Continued:
The components of net pension cost for 1993, 1992 and 1991 are presented below:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1993 1992 1991
<S> <C> <C> <C>
Service cost - benefits earned during the year $2,292 $1,478 $1,319
Interest cost on projected benefit obligation 3,571 2,895 2,550
Actual return on plan assets (3,760) (3,059) (4,911)
Net amortization and deferral* 2,081 (214) 1,746
Net periodic pension cost $4,184 $1,100 $ 704
</TABLE>
* Consists of the net effects of delayed recognition of certain events (for
example, unanticipated investment performance) arising during the current
period and amortization (recognition) of the net unrecognized effects of
past similar events over a five year period.
The Plan holds single premium annuity contracts issued by the Company's United
States life insurance subsidiary. Annual benefits paid to retirees covered by
the contracts were approximately $2.0 million in 1993 and $2.1 million in 1992.
The Company's Canadian subsidiary, Trans Canada Credit Corporation ("TCC"), has
a non-contributory defined benefit pension plan (the "TCC Plan") which covers
employees who meet certain service requirements. Pension benefits under the
TCC Plan are based on the employee's highest compensation in five consecutive
calendar years during the last ten calendar years of employment. Benefits
generally accrue under the TCC Plan at a rate of 1% of such highest average
compensation up to the average Canada/Quebec Pension Plan Earnings Ceiling (an
amount based on the maximum amount of the annual compensation used to calculate
the employee's Canada/Quebec Pension Plan benefits) plus 1.5% of such highest
average compensation in excess of the average Canada/Quebec Pension Plan
Earnings Ceiling for each year of service (not to exceed 35 years of service).
- 42 -
<PAGE> 43
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
12. Retirement Plans, Continued:
Under the agreement for the acquisition by TCC of the consumer finance business
of Trans Canada Credit Corporation Limited and its affiliates (the "Predecessor
Employers"), TCC was required to establish the TCC Plan, which is substantially
similar to the pension plan maintained by the Predecessor Employers, and the
TCC Plan is required to assume the accrued benefit obligations of the TCC
employees and retirees who had previous service with the Predecessor Employers.
Such agreement also requires the Predecessor Employers to cause their pension
plan to transfer assets to the TCC Plan equal in value to the amount of the
transferred accrued benefit obligations plus a ratable portion of the surplus
attributable to such employees. Transfer of such assets and liabilities to the
TCC Plan from the Predecessor Employers' pension plan is subject to the receipt
of applicable governmental approvals. Upon the completion of the transfer of
such assets and liabilities to it, the TCC Plan will be adequately funded. No
contribution was required in 1993 and 1992.
The Company also has a defined contribution thrift and profit sharing plan
whereby each eligible United States employee may make basic contributions up
to 6% of his or her compensation and supplemental contributions up to an
additional 4%. The Company makes a matching contribution of $.25 for every
$1.00 of the basic employee contribution made during the year and not
withdrawn. The Company may also make a profit sharing contribution on the
basic employee contribution with the amount determined by the percentage return
on consolidated equity (as defined) of Norwest Financial Services, Inc. and its
subsidiaries. Contribution expense for the Company was $9,330,000, $7,912,000,
and $8,050,000 for the years ended December 31, 1993, 1992, and 1991,
respectively.
13. Postretirement Benefits.
The Company provides certain health care and life benefits for substantially
all of its retired United States employees. Effective January 1, 1993, the
Company adopted SFAS 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." SFAS 106 requires the company to accrue the estimated
cost of retiree benefit payments during the years the employee provides
services. The Company previously expensed the cost of these benefits, which
are principally health care, as claims were incurred. In 1992 and 1991, the
Company recognized $661,000 and $613,000, respectively, as an expense for
postretirement health care and life insurance benefits.
SFAS 106 allows recognition of the cumulative effect of the liability in the
year of the adoption or the amortization of the obligation over a period of up
to twenty years. The Company has elected to recognize this obligation of
approximately $22.2 million over a period of twenty years. The Company's cash
flows are not affected by implementation of this Statement, however,
implementation decreased income before taxes for 1993 by $4.0 million.
- 43 -
<PAGE> 44
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
13. Postretirement Benefits, Continued:
The plan's accumulated postretirement benefit obligation and reconciliation to
the balance sheet is presented below:
(In thousands) December 31, 1993
Retirees $ (8,916)
Fully eligible plan participants (81)
Other active plan participants (21,314)
(30,311)
Unrecognized transition obligation 21,124
Unrecognized net loss 5,185
Accrued postretirement benefit liability $ (4,002)
The Company has not funded any part of the accumulated postretirement benefit
obligation.
Net postretirement benefit cost for 1993 consisted of the following components:
(In thousands)
Service cost - benefits earned
during the year $ 1,570
Interest cost on accumulated
postretirement benefit obligation 1,882
Amortization of transition obligation 1,112
$ 4,564
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1993 was 12% for 1994
decreasing each successive year until it reaches 8% in 2000, after which it
remains constant. A one percent increase in the assumed health care cost trend
rate for each year would increase the accumulated postretirement benefit
obligation as of December 31, 1993 by approximately $4.3 million and net
postretirement benefit cost by $.8 million for the year. The assumed discount
rate used in determining the accumulated postretirement benefit obligation was
8% at January 1, 1993, and 7% at December 31, 1993.
- 44 -
<PAGE> 45
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
14. Summary of Operating Expenses.
Following is a summary of operating expenses for the years 1993, 1992, and
1991:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1993 1992 1991
<S> <C> <C> <C>
Salaries $179,185 $147,927 $125,537
Other employee benefits 29,951 21,044 17,581
Depreciation and amortization 26,086 21,668 15,621
Rent - real estate leases 20,854 16,919 15,060
Postage 15,625 13,696 12,558
Data and voice communication 14,331 11,226 10,346
Payroll taxes 14,129 11,862 10,301
Collection and credit information 13,765 11,845 10,704
Travel 10,319 7,225 6,096
Rent - data processing
equipment leases 9,585 7,703 6,566
Stationery and supplies 6,774 4,806 4,061
Advertising 5,753 7,252 5,383
Taxes other than income taxes 5,636 5,207 4,253
Equipment repairs and maintenance 4,645 4,909 4,618
Retirement plan 4,184 1,100 704
Management fees paid to Norwest
Corporation 2,199 1,807 1,860
Other 35,647 29,144 24,357
Total operating expenses $398,668 $325,340 $275,606
</TABLE>
15. Statements of Consolidated Cash Flows.
The Company and its subsidiaries consider highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
Supplemental disclosure of certain cash flow information is presented below:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1993 1992 1991
<S> <C> <C> <C>
Cash paid for:
Interest $235,432 $232,949 $248,599
Income taxes 130,872 74,752 58,582
</TABLE>
- 45 -
<PAGE> 46
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
16. Concentrations of Credit Risk.
The Company and its subsidiaries are primarily engaged in the consumer finance
business. The average balance outstanding with any individual customer is not
significant. At December 31, 1993, the Company had 942 consumer finance
offices in 46 states and all ten Canadian provinces compared with 882 consumer
finance offices in 46 states and ten Canadian provinces at December 31, 1992.
Credit cards are issued by Dial Bank to customers located in all 46 states
where consumer finance branches are located. In addition, insurance premium
financing is provided for liability and material damage auto insurance in the
state of California.
A subsidiary of the Company also provides accounts receivable financing
primarily to high quality furniture stores across the country. In addition,
another subsidiary of the Company provides lease financing and other leasing
services nationwide for a variety of commercial equipment with an emphasis on
health care equipment.
17. Selected Quarterly Financial Data (Unaudited).
Selected quarterly financial data for 1993 and 1992 were as follows:
(In Thousands) Interest Provision
Total and Debt for Credit
Quarter Ended Income Expense Losses Net Earnings
March 31, 1992 $223,840 $61,415 $26,431 $ 33,133
June 30, 1992 225,143 58,321 18,325 41,188
September 30, 1992 227,087 56,422 21,170 40,568
December 31, 1992 248,278 60,179 17,337 49,315
March 31, 1993 262,555 62,877 26,845 43,572
June 30, 1993 267,473 59,644 23,926 50,218
September 30, 1993 272,052 57,987 24,930 54,574
December 31, 1993 277,639 61,932 23,479 54,933
- 46 -
<PAGE> 47
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Concluded
18. Fair Value of Financial Instruments.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and Cash Equivalents. Due to the relatively short period of time between
the origination of these instruments and their expected realization, the
carrying value of cash and cash equivalents is a reasonable estimate of fair
value at December 31, 1993, and 1992.
Marketable Securities. Fair values of these financial instruments were
estimated using quoted market prices, when available. If quoted market prices
were not available, fair value was estimated using quoted market prices for
similar assets (note 2).
Finance Receivables. The interest rates on the receivables outstanding at
December 31, 1993 are consistent with the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities. As a result, the carrying value is a reasonable estimate
of fair value at December 31, 1993, and 1992.
Loans Payable - Short-term and Accrued Interest Payable. Carrying value is a
reasonable estimate of fair value.
Other Payables to Affiliates. Due to the relatively short period of time
between the origination of these instruments and the expected realization, the
carrying value of other payables to affiliates is a reasonable estimate of fair
value at December 31, 1993, and 1992.
Long-term Debt. Based on quoted market rates for the same or similar issues
or on current rates offered to the Company for similar debt of the same
remaining maturities, the fair value of long-term debt is $2,828,237,000 as of
December 31, 1993 and $2,462,920,000 as of December 31, 1992.
- 47 -
<PAGE> 48
NORWEST FINANCIAL, INC.
Schedule I - Marketable Securities
(Thousands of Dollars)
<TABLE>
<CAPTION>
Name of Issuer and Market Carrying
Title of Each Issue Par Value Cost Value Value
<S> <C> <C> <C> <C>
United States Government
and its agencies $265,445 $263,738 $272,369 $264,192
Canadian Government and
its agencies 4,295 4,295 4,295 4,295
States 15,425 15,789 16,021 15,703
Political subdivisions:
Alabama 500 496 501 496
Arizona 1,500 1,582 1,626 1,564
Colorado 2,800 2,821 3,008 2,818
Delaware 250 250 256 250
Florida 750 763 804 754
Hawaii 250 250 250 250
Illinois 5,175 5,330 5,452 5,311
Indiana 1,500 1,422 1,519 1,479
Iowa 3,200 3,192 3,356 3,198
Kansas 2,750 2,753 2,903 2,751
Maryland 950 968 975 965
Michigan 250 250 267 250
Minnesota 750 688 766 757
Nevada 1,000 968 1,044 996
New Jersey 500 514 539 504
New Mexico 100 103 104 103
Oklahoma 1,215 1,214 1,240 1,215
Oregon 1,050 995 1,068 1,028
Tennessee 310 310 341 310
Texas 14,025 14,161 14,722 14,075
Utah 700 710 752 703
Virginia 500 512 524 511
Washington 1,225 1,202 1,273 1,218
Wisconsin 3,000 3,017 3,173 3,013
Total political subdivisions 44,471 46,463 44,519
</TABLE>
- 48 -
<PAGE> 49
NORWEST FINANCIAL, INC.
Schedule I - Marketable Securities, Continued
(Thousands of Dollars)
<TABLE>
<CAPTION>
Name of Issuer and Market Carrying
Title of Each Issue Par Value Cost Value Value
<S> <C> <C> <C> <C>
Special revenue:
Alabama $ 500 $ 497 $ 511 $ 497
Alaska 85 87 88 85
Arizona 750 714 756 741
Arkansas 100 98 100 100
California 250 256 275 252
Colorado 495 495 530 495
Delaware 215 204 215 215
Florida 1,150 1,148 1,193 1,149
Georgia 750 750 748 750
Idaho 575 575 575 575
Illinois 1,800 1,796 1,857 1,797
Indiana 860 783 876 860
Iowa 4,518 4,553 4,619 4,550
Kentucky 250 250 250 250
Louisiana 500 422 526 472
Maryland 500 553 550 551
Michigan 500 513 540 505
Minnesota 510 510 526 510
Missouri 485 484 485 484
Montana 500 500 519 500
Nebraska 1,435 1,431 1,489 1,432
Nevada 1,340 1,340 1,349 1,340
New Mexico 250 250 273 250
North Carolina 68 68 68 68
Oklahoma 920 924 961 927
Pennsylvania 325 325 334 325
South Dakota 685 641 702 683
Tennessee 1,000 1,001 1,000 1,000
Texas 2,080 2,131 2,199 2,095
Utah 3,340 3,348 3,382 3,347
Washington 2,685 2,658 2,826 2,703
Total special revenue 29,305 30,322 29,508
</TABLE>
- 49 -
<PAGE> 50
NORWEST FINANCIAL, INC.
Schedule I - Marketable Securities, Concluded
(Thousands of Dollars)
<TABLE>
<CAPTION>
Number of
Name of Issuer and Shares or Market Carrying
Title of Each Issue Par Value Cost Value Value
<S> <C> <C> <C> <C>
Public utilities $ 500 $ 450 $ 530 $ 464
Industrial & miscellaneous $ 74,827 74,442 79,834 74,671
Preferred stock 430,896 19,466 20,739 19,454
Common stock 978,497 19,851 27,802 19,850
Total marketable securities $471,807 $498,375 $472,656
</TABLE>
- 50 -
<PAGE> 51
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Omitted in accordance with General Instruction J(2)(c).
Item 11. Executive Compensation.
Omitted in accordance with General Instruction J(2)(c).
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Omitted in accordance with General Instruction J(2)(c).
Item 13. Certain Relationships and Related Transactions.
Omitted in accordance with General Instruction J(2)(c).
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
(1) Financial Statements:
a. Consolidated balance sheets as of December 31, 1993, and 1992.
b. Statements of consolidated earnings and retained earnings for the
years ended December 31, 1993, 1992, and 1991.
c. Statements of consolidated cash flows for the years ended
December 31, 1993, 1992, and 1991.
(2) Financial Statement Schedules:
Schedule I - Marketable Securities
All other schedules are omitted because they are not applicable or the
information is given in consolidated financial statements or notes
thereto.
(3) Exhibits:
3(a) Articles of Incorporation of the Company (Exhibit 3(a) of the
Company's Form 10-K Annual Report for 1983, which is hereby
incorporated by reference).
- 51 -
<PAGE> 52
3(b) By-laws of the Company (Exhibit 3(b) of the Company's Form 10-K
Annual Report for 1983, which is hereby incorporated by reference).
4(a) Conformed copy of Indenture dated as of May 1, 1986, between the
Company and The Chase Manhattan Bank (National Association),
Trustee (Exhibit 4(o) of the Company's Form 10-K Annual Report for
1986, which is hereby incorporated by reference).
4(b) Conformed copy of Indenture dated as of May 1, 1986, between the
Company and Harris Trust and Savings Bank, Trustee (Exhibit 4(p) of
the Company's Form 10-K Annual Report for 1986, which is hereby
incorporated by reference).
4(c) Copy of Norwest Financial, Inc. Standard Multiple-Series Indenture
Provisions dated May 1, 1986, (Exhibit 4(q) of the Company's Form
10-K Annual Report for 1986, which is hereby incorporated by
reference).
4(d) Conformed copy of First Supplemental Indenture dated as of February
15, 1991, between the Company and The Chase Manhattan Bank
(National Association), Trustee (Exhibit 4.3 of the Company's Form
8-K Current Report dated February 25, 1991, which is hereby
incorporated by reference).
4(e) Conformed copy of First Supplemental Indenture dated as of February
15, 1991, between the Company and Harris Trust and Savings Bank,
Trustee (Exhibit 4.4 of the Company's Form 8-K Current Report dated
February 25, 1991, which is hereby incorporated by reference).
4(f) Conformed copy of Indenture dated as of November 1, 1991, between
the Company and The First National Bank of Chicago, Trustee
(Exhibit 2(a) of the Company's Form 8-A Registration Statement
dated May 24, 1988, which is hereby incorporated by reference).
(10) Copy of Employment Agreement dated August 31, 1987, between
Richard J. Brinkman and the Company (Exhibit (10) of the Company's
Form 10-K Annual Report for 1987, which is hereby incorporated by
reference).
*(12) Computation of ratios of earnings to fixed charges for the years
ended December 31, 1993, 1992, 1991, 1990, and 1989.
*(23) Consent of Deloitte & Touche.
Certain instruments with respect to long-term debt publicly issued, privately
placed or borrowed from banks are not filed herewith as exhibits as the total
amount of securities or indebtedness authorized under any of such instruments
does not exceed 10% of the total assets of the Company and its subsidiaries on
a consolidated basis. In accordance with subsection (4)(iii) of paragraph (b)
of Item 601 of Regulation S-K, the Company hereby agrees to furnish a copy of
any such instrument to the Securities and Exchange Commission upon request.
The list of subsidiaries exhibit required by Item 601 of Regulation S-K has
been omitted in accordance with General Instruction J(2)(b).
*Filed herewithin.
- 52 -
<PAGE> 53
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the last quarter
of the period covered by this report.
- 53 -
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 11th day of March
1994.
NORWEST FINANCIAL, INC.
By \s\David C. Wood
David C. Wood
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, on behalf of the
registrant and in the capacities indicated, on the 11th day of March 1994.
\s\Richard J. Brinkman
Richard J. Brinkman
Chairman of the Board
(Principal Executive Officer)
\s\David C. Wood
David C. Wood
President and Director
\s\James R. Berens
James R. Berens
Vice President, General Counsel and
Secretary and Director
Stanley S. Stroup
Director
\s\Alfred Z. Winick
Alfred Z. Winick
Senior Vice President and Director
\s\Dennis E. Young
Dennis E. Young
Senior Vice President and Treasurer
and Director
(Principal Financial Officer)
\s\Robert W. Bettle
Robert W. Bettle
Vice President and Controller
(Principal Accounting Officer)
- 54 -
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
12 Computation of ratios of earnings Electronic
to fixed charges for the years Transmission
ended December 31, 1993, 1992,
1991, 1990, and 1989.
23 Consent of Deloitte & Touche. Electronic
Transmission
NORWEST FINANCIAL, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Exhibit (12)
<TABLE>
<CAPTION>
Years Ended December 31,
(Thousands of Dollars)
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Net earnings $203,297 $164,204 $130,880 $115,366 $ 98,882
Add:
Fixed charges:
Interest including
amortization of
debt expense 242,440 236,337 255,075 242,151 249,764
One-third of
rentals* 10,146 8,207 7,209 6,583 6,038
Total fixed
charges 252,586 244,544 262,284 248,734 255,802
Provision for
income taxes 104,228 84,334 63,985 58,119 44,062
Total net earnings,
fixed charges and
income taxes -
"Earnings" $560,111 $493,082 $457,149 $422,219 $398,746
Ratio of earnings
to fixed charges 2.22 2.02 1.74 1.70 1.56
</TABLE>
*One-third of rentals is deemed representative of the interest factor.
NORWEST FINANCIAL, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Exhibit (12)
<TABLE>
<CAPTION>
Years Ended December 31,
(Thousands of Dollars)
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Net earnings $203,297 $164,204 $130,880 $115,366 $ 98,882
Add:
Fixed charges:
Interest including
amortization of
debt expense 242,440 236,337 255,075 242,151 249,764
One-third of
rentals* 10,146 8,207 7,209 6,583 6,038
Total fixed
charges 252,586 244,544 262,284 248,734 255,802
Provision for
income taxes 104,228 84,334 63,985 58,119 44,062
Total net earnings,
fixed charges and
income taxes -
"Earnings" $560,111 $493,082 $457,149 $422,219 $398,746
Ratio of earnings
to fixed charges 2.22 2.02 1.74 1.70 1.56
</TABLE>
*One-third of rentals is deemed representative of the interest factor.
