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Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1994 Commission file number 2-80466
Norwest Financial, Inc.
(Exact name of registrant as specified in its charter)
Iowa 42 1186565
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
206 Eighth Street, Des Moines, Iowa 50309
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (515) 243-2131
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock (without par
value): 1,000 shares outstanding as of May 4, 1994.
The registrant meets the conditions set forth in General Instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
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PART I. FINANCIAL INFORMATION
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets (Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1994 1993
<S> <C> <C>
Cash and cash equivalents $ 132,529 $ 80,762
Marketable securities (note 4) 496,939 472,656
Finance receivables:
Consumer:
Loans 2,686,981 2,659,654
Sales finance 1,091,013 1,086,576
Other 222,802 212,680
Commercial:
Accounts receivable financing 105,376 130,983
Leasing and other 371,009 381,129
Total finance receivables 4,477,181 4,471,022
Less allowance for credit losses 126,445 125,126
Finance receivables - net 4,350,736 4,345,896
Property and equipment (at cost, less
accumulated depreciation of $76,180
for 1994 and $73,085 for 1993) 58,759 57,856
Deferred income taxes 21,335 16,754
Other assets 218,299 287,675
Total assets $5,278,597 $5,261,599
</TABLE>
See accompanying notes to consolidated financial statements.
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NORWEST FINANCIAL, INC.
Consolidated Balance Sheets (Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
Liabilities and
Stockholder's Equity 1994 1993
<S> <C> <C>
Loans payable - short-term:
Commercial paper $1,053,891 $1,186,565
Affiliates 229,372 184,985
Other 133,700
Unearned insurance premiums and commissions 111,872 109,913
Insurance claims and policy reserves 29,447 28,849
Accrued interest payable 56,454 43,574
Other payables to affiliates 51,204 6,368
Other liabilities 131,761 138,214
Long-term debt:
Senior 2,631,617 2,479,192
Subordinated 282,500 262,500
Total long-term debt 2,914,117 2,741,692
Total liabilities 4,578,118 4,573,860
Commitments and contingencies
(note 2)
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 (note 2) 646,774 634,626
Foreign currency translation adjustment (6,646) (3,155)
Net unrealized holding gain on
marketable securities (note 4) 4,083
Total stockholder's equity 700,479 687,739
Total liabilities and
stockholder's equity $5,278,597 $5,261,599
</TABLE>
See accompanying notes to consolidated financial statements.
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NORWEST FINANCIAL, INC.
Statements of Consolidated Earnings (Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1994 1993
<S> <C> <C>
Income:
Finance charges and interest $232,875 $216,922
Insurance premiums and commissions 24,128 21,991
Other income (note 3) 22,692 23,642
Total income 279,695 262,555
Expenses:
Operating expenses 106,703 95,654
Interest and debt expense 60,419 62,877
Provision for credit losses 25,146 26,845
Insurance losses and loss expenses 7,170 8,951
Total expenses 199,438 194,327
Earnings before income taxes 80,257 68,228
Income taxes 28,109 24,656
Net earnings $ 52,148 $ 43,572
</TABLE>
In the opinion of management, all adjustments (none of which were other than
normal recurring accruals) necessary to present fairly the results of
operations for the periods presented have been included.
See accompanying notes to consolidated financial statements.
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NORWEST FINANCIAL, INC.
Statements of Consolidated Cash Flows (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 52,148 $ 43,572
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Provision for credit losses 25,146 26,845
Depreciation and amortization 7,000 6,113
Deferred income taxes (6,636) 466
Other assets (2,143) 534
Unearned insurance premiums
and commissions 1,959 (737)
Insurance claims and policy reserves 598 493
Accrued interest payable 12,880 11,135
Other payables to affiliates 44,836 7,925
Other liabilities (6,453) 5,585
Net cash flows from operating activities 129,335 101,931
Cash flows from investing activities:
Finance receivables:
Principal collected 1,105,532 933,607
Receivables originated or purchased (1,135,518) (952,332)
Proceeds from sales of marketable securities 20,277 5,925
Proceeds from maturities of
marketable securities 45,837 34,201
Purchase of marketable securities (84,259) (65,040)
Net additions to property and equipment (4,418) (1,967)
Other 64,543 75,989
Net cash flows from investing activities 11,994 30,383
Cash flows used for financing activities:
Net decrease in loans payable - short-term (221,987) (93,398)
Proceeds from issuance of long-term debt:
Senior 307,409 150,000
Subordinated 20,000
Repayments of long-term debt:
Senior (154,984) (104,823)
Subordinated (51,113)
Dividends paid (40,000) (50,000)
Net cash flows used for financing activities (89,562) (149,334)
Net increase (decrease) in cash
and cash equivalents 51,767 (17,020)
Cash and cash equivalents beginning of period 80,762 133,639
Cash and cash equivalents end of period $ 132,529 $ 116,619
</TABLE>
See accompanying notes to consolidated financial statements.
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NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements (Unaudited)
The accompanying unaudited financial statements and notes have been prepared
in accordance with the accounting policies set forth in Norwest Financial,
Inc.'s 1993 Annual Report on Form 10-K and should be read in conjunction
with the Notes to Consolidated Financial Statements therein.
1. Principles of Consolidation.
The consolidated financial statements include the accounts of Norwest
Financial, Inc. (the "Company") and subsidiaries. Intercompany accounts and
transactions are eliminated. The Company is a wholly-owned subsidiary of
Norwest Financial Services, Inc. which is a wholly-owned subsidiary of
Norwest Corporation.
2. Dividend Restrictions.
Certain long-term debt instruments restrict payment of dividends on and
acquisitions of 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 $106 million of
consolidated retained earnings was unrestricted at March 31, 1994.
3. Interest Income from Marketable Securities and Cash Equivalents.
Interest and dividends from marketable securities and cash equivalents were
$8.5 million and $9.3 million for the quarters ended March 31, 1994 and
1993, respectively.
4. Marketable Securities.
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 requires 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. For securities
classified as held-to-maturity or available-for-sale, if a decline in a
security's fair value below amortized cost is deemed to be other than
temporary, the cost basis of the security is written down to fair value and the
amount of the write-down is included in earnings.
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NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements (Unaudited), Concluded
4. Marketable Securities, Continued.
Effective January 1, 1994, the Company adopted SFAS 115. Upon adoption, the
Company classified all its debt and equity securities as available-for-sale.
The Company previously carried its investments in marketable securities at
amortized cost except for other than temporary declines in market value which
were recognized as a reduction in earnings.
The effect of SFAS 115 at March 31, 1994 was to increase marketable securities
by $6.1 million and increase stockholder's equity by $4.1 million, the increase
in marketable securities net of the income tax effect of $2 million. The net
unrealized holding gain on available-for-sale securities decreased by $12.4
million since January 1, 1994.
5. Reclassifications.
Certain amounts in the 1993 financial statements have been reclassified to
conform to the presentation used in the 1994 financial statements.
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NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Norwest Financial's total income (revenue) increased 7% for the first three
months ($279.7 million in the first three months of 1994 compared with
$262.6 million in the first three months of 1993).
Income from finance charges and interest also increased 7% for the first
three months ($232.9 million in the first three months of 1994 compared with
$216.9 million in the first three months of 1993). Changes in income from
finance charges and interest result primarily from (1) changes in the amount
of finance receivables outstanding and (2) changes in the rate of charge on
those receivables. In total, average finance receivables outstanding in the
first three months of 1994 increased 9% from the first three months of 1993;
average consumer receivables outstanding increased 13% while average
commercial receivables outstanding declined 14%.
Three Months Ended March 31,
Rate of charge on finance receivables: 1994 1993
Consumer 21.66% 22.37%
Commercial 14.22 13.91
Total 20.83 21.17
The increase in income from finance charges and interest was due to growth
in average consumer finance receivables outstanding offset somewhat by the
decline in the rate of charge. The increase in average consumer finance
receivables was due primarily to regular business activity. Changes in the
earned rates of charge were due to changes in prevailing market rates. The
decline in commercial receivables outstanding was primarily the result of a
decline in accounts receivable financing receivables.
Insurance premiums and commissions increased 10% ($24.1 million in the first
three months of 1994 compared with $22.0 million in the first three months
of 1993). Changes in insurance premiums and commissions generally correspond
to changes in average consumer finance loans outstanding. Average consumer
finance loans outstanding increased 9% in the first three months of 1994
compared with the first three months of 1993. Insurance losses and loss
expenses declined 20% ($7.2 million in the first three months of 1994
compared with $9.0 million in the first three months of 1993). The decline
in insurance losses resulted from a change in Canadian reinsurance
agreements.
Other income declined 4% ($22.7 million in the first three months of 1994
compared with $23.6 million in the first three months of 1993). A reduction
in investment income accounted for the majority of the decline.
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NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
Operating expenses increased 12% ($106.7 million in the first three months
of 1994 compared with $95.7 million in the first three months of 1993). The
increase was due primarily to increases in employee compensation and
benefits and other costs resulting from business expansion. At March 31,
1994, Norwest Financial was operating 947 consumer finance branches compared
with 886 at March 31, 1993.
Interest and debt expense declined 4% ($60.4 million in the first three
months of 1994 compared with $62.9 million in the first three months of
1993). Changes in interest and debt expense result primarily from (1)
changes in the amount of borrowings outstanding due to funding requirements
for receivables and dividends and (2) changes in the cost of those
borrowings. Average total outstanding borrowings in the first three months
of 1994 increased 8% from the first three months of 1993; average short-term
debt outstanding declined 2% while average long-term debt increased 12%.
Three Months Ended March 31,
Costs of funds: 1994 1993
Short-term 3.59% 4.40%
Long-term 7.07 7.91
Total 6.02 6.75
Changes in average debt outstanding generally correspond to changes in
average finance receivables outstanding. Average finance receivables
increased 9% from the first three months of 1993.
Provision for credit losses declined 6% ($25.1 million in the first three
months of 1994 compared with $26.8 million in the first three months of
1993). Net write-offs as a percentage of average net receivables
outstanding declined to .54% in the first three months of 1994 compared with
.56% in the first three months of 1993.
Federal and state income taxes increased 14% ($28.1 million in the first
three months of 1994 compared with $24.7 million in the first three months
of 1993). The effective tax rate was 35.0% for the first three months of
1994 and 36.1% for the first three months of 1993.
The Company and one of its Canadian subsidiaries maintains bank lines of
credit and revolving credit agreements to provide an alternative source of
liquidity to support the commercial paper borrowings. At March 31, 1994,
lines of credit and revolving credit agreements totaling $992.7 million were
being maintained at 34 unaffiliated banks. None of this credit was in use at
the time.
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NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Concluded
The Company and one of its Canadian subsidiaries obtains its long-term debt
capital primarily from (i) the issuance of debt securities to the public
through underwriters on a firm-commitment basis, (ii) the issuance of
medium-term notes (which may have maturities ranging from three 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.
Norwest Financial anticipates the continued availability of borrowed funds,
at prevailing interest rates, to provide for Norwest Financial's growth in
the foreseeable future. Funds are also generated internally from payments
of principal and interest received on Norwest Financial's finance
receivables.
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PART II. OTHER INFORMATION
NORWEST FINANCIAL, INC.
Item 5. Other Information.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges of
Norwest Financial, Inc. and its subsidiaries for the periods indicated:
Three Months Ended Years Ended December 31,
March 31, 1994 1993 1992 1991 1990 1989
2.28 2.22 2.02 1.74 1.70 1.56
The ratios of earnings to fixed charges have been computed by dividing net
earnings plus fixed charges and income taxes by fixed charges. Fixed
charges consist of interest and debt expense plus one-third of rentals
(which is deemed representative of the interest factor).
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit (12) Computation of ratios of earnings to fixed charges for the
years ended December 31, 1993, 1992, 1991, 1990 and 1989
and the three months ended March 31, 1994.
(b) Reports on 8-K.
No reports on Form 8-K were filed during the quarter for which this report
is filed.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORWEST FINANCIAL, INC.
Date: May 4, 1994
By \S\ ROBERT W. BETTLE
Robert W. Bettle
Vice President and Controller
(Principal Accounting Officer)
NORWEST FINANCIAL, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Exhibit (12)
<TABLE>
<CAPTION>
Three
Months
Ended
March 31,
1994 Years Ended December 31,
(Thousands of Dollars)
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Net earnings $ 52,148 $203,297 $164,204 $130,880 $115,366 $ 98,882
Add:
Fixed charges:
Interest including
amortization of
debt expense 60,419 242,440 236,337 255,075 242,151 249,764
One-third of
rentals* 2,292 10,146 8,207 7,209 6,583 6,038
Total fixed
charges 62,711 252,586 244,544 262,284 248,734 255,802
Provision for
income taxes 28,109 104,228 84,334 63,985 58,119 44,062
Total net earnings,
fixed charges and
income taxes -
"Earnings" $142,968 $560,111 $493,082 $457,149 $422,219 $398,746
Ratio of earnings
to fixed charges 2.28 2.22 2.02 1.74 1.70 1.56
</TABLE>
*One-third of rentals is deemed representative of the interest factor.
