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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 June 30, 1994 Commission file number 2-80466
Norwest Financial, Inc.
(Exact name of registrant as specified in its charter)
Iowa 42 1186565
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
206 Eighth Street, Des Moines, Iowa 50309
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (515) 243-2131
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock (without par
value): 1,000 shares outstanding as of August 1, 1994.
The registrant meets the conditions set forth in General Instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
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PART I. FINANCIAL INFORMATION
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets (Unaudited)
(Thousands of Dollars)
June 30, December 31,
Assets 1994 1993
Cash and cash equivalents $ 84,031 $ 80,762
Marketable securities 514,470 472,656
Finance receivables:
Consumer:
Loans 2,786,069 2,659,654
Sales finance 1,123,345 1,086,576
Other 230,246 212,680
Commercial:
Accounts receivable financing 96,491 130,983
Leasing and other 367,947 381,129
Total finance receivables 4,604,098 4,471,022
Less allowance for credit losses 130,645 125,126
Finance receivables - net 4,473,453 4,345,896
Property and equipment (at cost, less
accumulated depreciation of $78,632
for 1994 and $73,085 for 1993) 58,591 57,856
Deferred income taxes 25,447 16,754
Other assets 294,403 287,675
Total assets $5,450,395 $5,261,599
See accompanying notes to consolidated financial statements.
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NORWEST FINANCIAL, INC.
Consolidated Balance Sheets (Unaudited)
(Thousands of Dollars)
June 30, December 31,
Liabilities and
Stockholder's Equity 1994 1993
Loans payable - short-term:
Commercial paper $1,169,100 $1,186,565
Affiliates 258,434 184,985
Other 133,700
Unearned insurance premiums and commissions 118,918 109,913
Insurance claims and policy reserves 29,791 28,849
Accrued interest payable 48,152 43,574
Other payables to affiliates 10,953 6,368
Other liabilities 147,653 138,214
Long-term debt:
Senior 2,650,007 2,479,192
Subordinated 302,500 262,500
Total long-term debt 2,952,507 2,741,692
Total liabilities 4,735,508 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) 666,797 634,626
Foreign currency translation adjustment (6,690) (3,155)
Net unrealized holding loss on
marketable securities (1,488)
Total stockholder's equity 714,887 687,739
Total liabilities and
stockholder's equity $5,450,395 $5,261,599
See accompanying notes to consolidated financial statements.
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NORWEST FINANCIAL, INC.
Statements of Consolidated Earnings (Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Income:
Finance charges and interest $237,372 $219,773 $470,247 $436,695
Insurance premiums and commissions 26,250 22,751 50,378 44,742
Other income (note 3) 23,559 24,949 46,251 48,591
Total income 287,181 267,473 566,876 530,028
Expenses:
Operating expenses 108,868 96,843 215,571 192,497
Interest and debt expense 63,568 59,644 123,987 122,521
Provision for credit losses 25,932 23,926 51,078 50,771
Insurance losses and loss expenses 7,884 8,704 15,054 17,655
Total expenses 206,252 189,117 405,690 383,444
Earnings before income taxes 80,929 78,356 161,186 146,584
Income taxes 28,538 28,138 56,647 52,794
Net earnings $ 52,391 $ 50,218 $104,539 $ 93,790
<FN>
In the opinion of management, all adjustments (none of which were other than normal recurring accruals)
necessary to present fairly the results of operations for the periods presented have been included.
</TABLE>
See accompanying notes to consolidated financial statements.
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NORWEST FINANCIAL, INC.
Statements of Consolidated Cash Flows (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(Thousands of Dollars)
Six Months Ended June 30,
1994 1993
Cash flows from operating activities:
Net earnings $ 104,539 $ 93,790
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Provision for credit losses 51,078 50,771
Depreciation and amortization 14,035 12,627
Deferred income taxes (8,343) 617
Other assets (19,558) (13,029)
Unearned insurance premiums
and commissions 9,005 3,664
Insurance claims and policy reserves 942 770
Accrued interest payable 4,578 1,798
Other payables to affiliates 4,585 (5,553)
Other liabilities 9,439 12,147
Net cash flows from operating activities 170,300 157,602
Cash flows from investing activities:
Finance receivables:
Principal collected 2,246,694 1,907,398
Receivables originated or purchased (2,425,329) (2,007,582)
Proceeds from sales of marketable securities 39,470 15,272
Proceeds from maturities of
marketable securities 68,353 74,593
Purchase of marketable securities (151,475) (130,653)
Net additions to property and equipment (7,848) (4,928)
Other 2,373 67,945
Net cash flows from investing activities (227,762) (77,955)
Cash flows from financing activities:
Net decrease in loans payable - short-term (77,716) (116,443)
Proceeds from issuance of long-term debt:
Senior 675,892 300,000
Subordinated 45,000 50,000
Repayments of long-term debt:
Senior (505,077) (158,385)
Subordinated (5,000) (101,870)
Dividends paid (72,368) (90,000)
Net cash flows from financing activities 60,731 (116,698)
Net increase (decrease) in cash
and cash equivalents 3,269 (37,051)
Cash and cash equivalents beginning of period 80,762 133,639
Cash and cash equivalents end of period $ 84,031 $ 96,588
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 March 31, 1994 Quarterly Report on
Form 10-Q and should be read in conjunction with the Notes to Consolidated
Financial Statements therein.
1. Principles of Consolidation.
The consolidated financial statements include the accounts of Norwest
Financial, Inc. (the "Company") and subsidiaries. Intercompany accounts and
transactions are eliminated. The Company is a wholly owned 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 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 $111 million of
consolidated retained earnings was unrestricted at June 30, 1994.
3. Interest Income from Marketable Securities and Cash Equivalents.
Interest and dividends from marketable securities and cash equivalents were
$9.6 million and $9.4 million for the quarters ended June 30, 1994 and 1993,
respectively, and $18.1 million and $18.6 million for the six months ended June
30, 1994 and 1993, respectively.
4. Reclassifications.
Certain amounts in the 1993 financial statements have been reclassified to
conform to the presentation used in the 1994 financial statements.
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NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Norwest Financial's performance for the second quarter of 1994 closely
paralleled performance for the first six months of 1994. The discussion and
analysis that follows, therefore, is limited to a discussion of the first six
months as a whole and does not include a separate discussion of the second
quarter unless otherwise noted.
Norwest Financial's total income (revenue) increased 7% for the first six
months ($566.9 million in the first six months of 1994 compared with $530.0
million in the first six months of 1993).
Income from finance charges and interest increased 8% for the first six months
($470.2 million in the first six months of 1994 compared with $436.7 million
in the first six 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 six months of 1994
increased 10% from the first six months of 1993; average consumer receivables
outstanding increased 13% while average commercial receivables outstanding
declined 15%.
Six Months Ended June 30,
Rate of charge on finance receivables: 1994 1993
Consumer 21.76% 22.48%
Commercial 14.19 13.94
Total 20.94 21.30
The increase in income from finance charges and interest was due to growth in
average consumer finance receivables outstanding offset somewhat by the decline
in the rate of charge. The increase in average consumer finance receivables
was due primarily to regular business activity. Changes in the earned rates
of charge were due to changes in prevailing market rates. The decline in
commercial receivables outstanding was a result of a decision to discontinue
pursuing certain large leases combined with a decline in accounts receivable
financing receivables.
Insurance premiums and commissions increased 13% ($50.4 million in the first
six months of 1994 compared with $44.7 million in the first six 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 six months of 1994 compared
with the first six months of 1993. Insurance losses and loss expenses declined
15% ($15.1 million in the first six months of 1994 compared with $17.7 million
in the first six months of 1993). The decline in insurance losses resulted
from a change in Canadian reinsurance agreements.
Other income declined 5% ($46.3 million in the first six months of 1994
compared with $48.6 million in the first six months of 1993). A reduction in
income from data service sales 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% ($215.6 million in the first six months of
1994 compared with $192.5 million in the first six months of 1993). The
increase was due primarily to increases in employee compensation and benefits
and other costs resulting from business expansion. At June 30, 1994, Norwest
Financial was operating 961 consumer finance branches compared with 890 at
June 30, 1993.
Interest and debt expense increased 1% ($124.0 million in the first six months
of 1994 compared with $122.5 million in the first six 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 six months of 1994 increased 9% from the
first six months of 1993; average short-term debt outstanding declined 4% while
average long-term debt increased 14%. The shift from short-term to long-term
debt was the result of long-term debt issued for the Canadian operations.
Six Months Ended June 30,
Costs of funds: 1994 1993
Short-term 3.97% 4.18%
Long-term 6.98 7.78
Total 6.13 6.64
Changes in average debt outstanding generally correspond to changes in average
finance receivables outstanding. Average finance receivables increased 10%
from the first six months of 1993.
Interest and debt expense increased 7% in the second quarter of 1994 compared
with the second quarter of 1993 ($63.6 million compared to $59.6 million).
Average total outstanding borrowings increased 10% for the same period, while
the cost of funds was 6.24% in the second quarter of 1994 compared with 6.53%
in the second quarter of 1993.
Provision for credit losses increased 1% ($51.1 million in the first six months
of 1994 compared with $50.8 million in the first six months of 1993). Net
write-offs as a percentage of average net receivables outstanding declined to
1.02% in the first six months of 1994 compared with 1.05% in the first six
months of 1993. The provision for credit losses increased 8% in the second
quarter of 1994 compared with the second quarter of 1993 ($25.9 million
compared to $23.9 million). Net write-offs increased by $1.5 million, or 7%,
during the second quarter of 1994 compared with the second quarter of 1993.
Income taxes increased 7% ($56.6 million in the first six months of 1994
compared with $52.8 million in the first six months of 1993). The effective
tax rate was 35.1% for the first six months of 1994 and 36.0% for the first six
months of 1993.
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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 maintains bank lines of credit
and revolving credit agreements to provide an alternative source of liquidity
to support the commercial paper borrowings. At June 30, 1994, lines of credit
and revolving credit agreements totaling $962.7 million were being maintained
at 33 unaffiliated banks. None of this credit was in use at the time.
The Company and one of its Canadian subsidiaries obtains its long-term debt
capital primarily from (i) the issuance of debt securities to the public
through underwriters on a firm-commitment basis, (ii) the issuance of debt
securities to institutional investors and (iii) term borrowings from commercial
banks.
Norwest Financial anticipates the continued availability of borrowed funds, at
prevailing interest rates, to provide for Norwest Financial's growth in the
foreseeable future. Funds are also generated internally from payments of
principal and interest received on Norwest Financial's finance receivables.
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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:
Six Months Ended Years Ended December 31,
June 30, 1994 1993 1992 1991 1990 1989
2.25 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 six months ended June 30, 1994.
(b) Reports on 8-K.
No reports on Form 8-K were filed during the quarter for which this report
is filed.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORWEST FINANCIAL, INC.
Date: August 1, 1994
By \S\ Robert W. Bettle
Robert W. Bettle
Vice President and Controller
(Principal Accounting Officer)
NORWEST FINANCIAL, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Exhibit (12)
<TABLE>
<CAPTION>
Six
Months
Ended
June 30,
1994 Years Ended December 31,
(Thousands of Dollars)
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Net earnings $104,539 $203,297 $164,204 $130,880 $115,366 $ 98,882
Add:
Fixed charges:
Interest including
amortization of
debt expense 123,987 242,440 236,337 255,075 242,151 249,764
One-third of
rentals* 4,711 10,146 8,207 7,209 6,583 6,038
Total fixed
charges 128,698 252,586 244,544 262,284 248,734 255,802
Provision for
income taxes 56,647 104,228 84,334 63,985 58,119 44,062
Total net earnings,
fixed charges and
income taxes -
"Earnings" $289,884 $560,111 $493,082 $457,149 $422,219 $398,746
Ratio of earnings
to fixed charges 2.25 2.22 2.02 1.74 1.70 1.56
</TABLE>
*One-third of rentals is deemed representative of the interest factor.
