<PAGE>
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, 1995 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, 1995.
The registrant meets the conditions set forth in General Instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
<PAGE>
PART I. FINANCIAL INFORMATION
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets (Unaudited)
(Thousands of Dollars)
June 30, December 31,
Assets 1995 1994
Cash and cash equivalents $ 141,012 $ 63,496
Marketable securities 684,537 570,314
Finance receivables:
Consumer:
Loans 3,080,455 2,854,971
Sales finance 1,377,249 1,225,389
Other 368,771 258,469
Commercial 500,099 500,270
Total finance receivables 5,326,574 4,839,099
Less allowance for credit losses 147,838 135,952
Finance receivables - net 5,178,736 4,703,147
Notes receivable - affiliates 626,054 376,886
Property and equipment (at cost, less
accumulated depreciation of $88,336
for 1995 and $81,030 for 1994) 64,203 58,342
Deferred income taxes 51,077 63,387
Other assets 159,743 289,170
Total assets $6,905,362 $6,124,742
See accompanying notes to consolidated financial statements.
<PAGE>
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets (Unaudited)
(Thousands of Dollars)
June 30, December 31,
Liabilities and
Stockholder's Equity 1995 1994
Loans payable - short-term:
Commercial paper $1,569,400 $1,549,067
Affiliates 35,946
Other 10,317 201,977
Unearned insurance premiums and commissions 139,763 128,812
Insurance claims and policy reserves 35,363 32,287
Accrued interest payable 73,152 53,759
Other payables to affiliates 3,136 4,705
Other liabilities 215,494 208,498
Long-term debt:
Senior 3,638,167 2,797,623
Subordinated 270,750 295,000
Total long-term debt 3,908,917 3,092,623
Total liabilities 5,955,542 5,307,674
Stockholder's equity:
Common stock without par value
(authorized 1,000 shares,
issued 1,000 shares) 3,855 3,855
Additional paid in capital 90,766 71,413
Retained earnings (note 2) 851,158 764,295
Foreign currency translation adjustment (6,014) (8,029)
Net unrealized holding gain (loss)
on marketable securities 10,055 (14,466)
Total stockholder's equity 949,820 817,068
Total liabilities and
stockholder's equity $6,905,362 $6,124,742
See accompanying notes to consolidated financial statements.
<PAGE>
NORWEST FINANCIAL, INC.
Statements of Consolidated Earnings (Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Income:
Finance charges and interest $275,351 $237,372 $543,426 $470,247
Insurance premiums and commissions 30,331 26,250 58,148 50,378
Other income (note 3) 48,309 23,559 74,692 46,251
Total income 353,991 287,181 676,266 566,876
Expenses:
Operating expenses 114,263 108,868 228,487 215,571
Interest and debt expense 92,545 63,568 171,976 123,987
Provision for credit losses 31,497 25,932 61,811 51,078
Insurance losses and loss expenses 8,639 7,884 18,192 15,054
Total expenses 246,944 206,252 480,466 405,690
Earnings before income taxes 107,047 80,929 195,800 161,186
Income taxes 38,291 28,538 70,067 56,647
Net earnings $ 68,756 $ 52,391 $125,733 $104,539
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NORWEST FINANCIAL, INC.
Statements of Consolidated Cash Flows (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(Thousands of Dollars)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 125,733 $ 104,539
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Provision for credit losses 61,811 51,078
Depreciation and amortization 12,837 14,035
Deferred income taxes 2,540 (8,343)
Other assets 5,866 (19,558)
Unearned insurance premiums
and commissions 9,398 9,005
Insurance claims and policy reserves 2,159 942
Accrued interest payable 18,616 4,578
Other payables to affiliates (4,034) 4,585
Other liabilities 1,519 9,439
Net cash flows from operating activities 236,445 170,300
Cash flows from investing activities:
Finance receivables:
Principal collected 2,408,966 2,246,694
Receivables originated or purchased (2,660,637) (2,425,329)
Proceeds from sales of marketable securities 34,531 39,470
Proceeds from maturities of
marketable securities 17,497 68,353
Purchase of marketable securities (96,025) (151,475)
Net additions to property and equipment (11,584) (7,848)
Net increase in notes receivable - affiliates (430,374) (93,031)
Contributed subsidiaries received, net of
cash and cash equivalents 2,477
Other 124,520 95,404
Net cash flows from investing activities (610,629) (227,762)
Cash flows from financing activities:
Net decrease in loans payable - short-term (207,273) (77,716)
Proceeds from issuance of long-term debt:
Senior 779,411 675,892
Subordinated 45,000
Repayments of long-term debt:
Senior (5,438) (505,077)
Subordinated (30,000) (5,000)
Dividends paid (85,000) (72,368)
Net cash flows from financing activities 451,700 60,731
Net increase in cash and cash equivalents 77,516 3,269
Cash and cash equivalents beginning of period 63,496 80,762
Cash and cash equivalents end of period $ 141,012 $ 84,031
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
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 1994 Annual Report on Form 10-K and should be read in conjunction with
the Notes to Consolidated Financial Statements therein. In the opinion of
management, all adjustments (none of which were other than normal recurring
accruals) necessary to present fairly the financial statements for the periods
presented have been included.
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 $99 million of
consolidated retained earnings was unrestricted at June 30, 1995.
3. Other Income.
Income from affiliates was $15.2 million and zero for the quarters ended
June 30, 1995 and 1994, respectively, and $17.1 million and zero for the six
months ended June 30, 1995 and 1994, respectively.
Interest and dividends from marketable securities and cash equivalents were
$13.0 million and $9.6 million for the quarters ended June 30, 1995 and 1994,
respectively, and $24.6 million and $18.1 million for the six months ended
June 30, 1995 and 1994, respectively.
4. Statements of Consolidated Cash Flows
Effective January 1, 1995, Norwest Financial Services, Inc. made a capital
contribution, without consideration, to the Company of the outstanding common
stock of Community Credit Co. and Dial National Bank. These capital
contributions have been accounted for in a manner similar to a pooling of
interests, except that results of prior periods have not been restated.
Community Credit Co. and Dial National Bank had assets of $326,491,000 and
liabilities of $261,345,000 at the time of the contribution.
5. Reclassifications.
Certain amounts in the 1994 financial statements have been reclassified to
conform to the presentation used in the 1995 financial statements.
<PAGE>
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Norwest Financial's performance for the second quarter of 1995 closely
paralleled performance for the first six months of 1995. 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.
Effective January 1, 1995, Norwest Financial Services, Inc. made a capital
contribution, without consideration, to the Company of the outstanding common
stock of Community Credit Co. and Dial National Bank (the "Contributed
Subsidiaries"). These capital contributions to the Company have been accounted
for in a manner similar to a pooling of interests, except that results of prior
periods have not been restated.
Norwest Financial's total income (revenue) increased 19% for the first six
months ($676.3 million in the first six months of 1995 compared with $566.9
million in the first six months of 1994). Total income increased 13% excluding
the Contributed Subsidiaries.
Income from finance charges and interest increased 16% for the first six months
($543.4 million in the first six months of 1995 compared with $470.2 million
in the first six months of 1994). Income from finance charges and interest
increased 9% excluding the Contributed Subsidiaries. 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 1995 increased 16% from the first six months of 1994;
average consumer receivables outstanding increased 17% while average commercial
receivables outstanding increased 3%.
Six Months Ended June 30,
Rate of charge on finance receivables: 1995 1994
Consumer 21.60% 21.76%
Commercial 14.77 14.19
Total 20.95 20.94
The increase in income from finance charges and interest was due to growth in
average finance receivables outstanding. The increase in average finance
receivables was due primarily to regular business activity combined with the
increase due to the Contributed Subsidiaries. Excluding the Contributed
Subsidiaries, average finance receivables increased 9%.
<PAGE>
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
Insurance premiums and commissions increased 15% ($58.1 million in the first
six months of 1995 compared with $50.4 million in the first six months of
1994). Changes in insurance premiums and commissions generally 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 11% in the first six months of 1995 compared with the
first six months of 1994. Insurance losses and loss expenses increased 21%
($18.2 million in the first six months of 1995 compared with $15.1 million in
the first six months of 1994). Insurance losses and loss expenses were lower
in 1994 due to a change in Canadian reinsurance agreements. The Contributed
Subsidiaries did not have a significant effect on insurance premiums and
commissions and insurance losses and loss expenses.
Other income increased 61% ($74.7 million in the first six months of 1995
compared with $46.3 million in the first six months of 1994). Other income
would have increased 57% excluding the Contributed Subsidiaries. Income from
affiliates combined with an increase in investment income accounted for the
majority of the increase. Income from affiliates was $17.1 million in the
first six months of 1995 compared with zero in the first six months of 1994.
Income from affiliates corresponds with the increase in notes receivable -
affiliates. Effective May 4, 1995, Norwest Financial, Inc. agreed to lend $500
million to an affiliate, Island Finance Puerto Rico, Inc. This debt has a
weighted average interest rate of 8.80% and matures in 2000. Other income
increased 105% in the second quarter of 1995 compared with the second quarter
of 1994 ($48.3 million compared with $23.6 million). The increase was due
primarily to a $15.2 million increase in income from affiliates and a $3.4
million increase in investment income.
Operating expenses increased 6% ($228.5 million in the first six months of 1995
compared with $215.6 million in the first six months of 1994). Operating
expenses increased 1% excluding the Contributed Subsidiaries.
Interest and debt expense increased 39% ($172.0 million in the first six months
of 1995 compared with $124.0 million in the first six months of 1994).
Interest and debt expense would have increased 31% excluding the Contributed
Subsidiaries. Changes in interest and debt expense result primarily from (1)
changes in the amount of borrowings outstanding due to funding requirements for
receivables and notes receivable - affiliates and (2) changes in the cost of
those borrowings. Average total outstanding borrowings in the first six months
of 1995 increased 22% from the first six months of 1994.
Six Months Ended June 30,
Costs of funds: 1995 1994
Short-term 6.31% 3.97%
Long-term 7.00 6.98
Total 6.79 6.13
<PAGE>
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Concluded
The change in average debt outstanding results primarily from the change in
average finance receivables outstanding and average notes receivable from
affiliates. Average finance receivables increased $697 million or 16% from the
first six months of 1994. Average notes receivable from affiliates increased
by $269 million from the first six months of 1994.
Provision for credit losses increased 21% ($61.8 million in the first six
months of 1995 compared with $51.1 million in the first six months of 1994).
Provision for credit losses increased 16% excluding the Contributed
Subsidiaries. Net write-offs as a percentage of average net receivables
outstanding increased to 1.12% in the first six months of 1995 compared with
1.02% in the first six months of 1994.
Federal and state income taxes increased 24% ($70.1 million in the first six
months of 1995 compared with $56.6 million in the first six months of 1994).
The increase was due primarily to the increase in earnings before income taxes.
The effective tax rate was 35.8% for the first six months of 1995 and 35.1% for
the first six months of 1994. Federal and state income taxes increased 34%
($38.3 million in the quarter ended June 30, 1995 compared with $28.5 million
in the quarter ended June 30, 1994). The increase in the second quarter was
also due primarily to the increase in earnings before income taxes. The
effective tax rate was 35.8% for the quarter ended June 30, 1995, and 35.3% for
the quarter ended June 30, 1994.
The Company and one of its Canadian subsidiaries maintain bank lines of credit
and revolving credit agreements to provide an alternative source of liquidity
to support the commercial paper borrowings. At June 30, 1995, lines of credit
and revolving credit agreements totaling $1,216 million were being maintained
at 35 unaffiliated banks. None of this credit was in use at the time.
The Company and one of its Canadian subsidiaries obtain 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.
The Company also obtains long-term debt from the issuance of medium-term notes
(which may have maturities ranging from nine months to 30 years) through
underwriters (acting as agent or principal).
Norwest Financial anticipates the continued availability of borrowed funds, at
prevailing interest rates, to provide for Norwest Financial's growth in the
foreseeable future. Funds are also generated internally from payments of
principal and interest received on Norwest Financial's finance receivables.
<PAGE>
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, 1995 1994 1993 1992 1991 1990
2.11 2.26 2.22 2.02 1.74 1.70
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, 1994, 1993, 1992, 1991 and 1990
and the six months ended June 30, 1995.
(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, 1995
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,
1995 Years Ended December 31,
(Thousands of Dollars)
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Net earnings $125,733 $223,340 $203,297 $164,204 $130,880 $115,366
Add:
Fixed charges:
Interest including
amortization of
debt expense 171,976 259,605 242,440 236,337 255,075 242,151
One-third of
rentals* 5,088 9,747 10,146 8,207 7,209 6,583
Total fixed
charges 177,064 269,352 252,586 244,544 262,284 248,734
Provision for
income taxes 70,067 116,900 104,228 84,334 63,985 58,119
Total net earnings,
fixed charges and
income taxes -
"Earnings" $372,864 $609,592 $560,111 $493,082 $457,149 $422,219
Ratio of earnings
to fixed charges 2.11 2.26 2.22 2.02 1.74 1.70
</TABLE>
*One-third of rentals is deemed representative of the interest factor.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORWEST
FINANCIAL INC AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 141,012
<SECURITIES> 684,537
<RECEIVABLES> 5,326,574
<ALLOWANCES> 147,838
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 152,539
<DEPRECIATION> 88,336
<TOTAL-ASSETS> 6,905,362
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 5,488,634<F2>
<COMMON> 3,855
0
0
<OTHER-SE> 945,965
<TOTAL-LIABILITY-AND-EQUITY> 6,905,362
<SALES> 0
<TOTAL-REVENUES> 676,266
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 246,679
<LOSS-PROVISION> 61,811
<INTEREST-EXPENSE> 171,976
<INCOME-PRETAX> 195,800
<INCOME-TAX> 70,067
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125,733
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>NORWEST FINANCIAL INC HAS A NON-CLASSIFIED BALANCE SHEET
SO THIS INFORMATION IS UNAVAILABLE.
<F2>INCLUDES $1.6 BILLION OF SHORT-TERM LOANS
</FN>
</TABLE>
