<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
$59.3 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, 1994, the Company and its consumer finance
subsidiaries had 942 branch offices in 45 states, Guam, 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 an affiliate.
Previously, one of the company's insurance subsidiaries had been providing
credit life and credit disability insurance to customers of Norwest banks. As
of December 1, 1992, this business was ceded to another insurance subsidiary
of Norwest. Effective January 1, 1995, the Company's insurance subsidiary
discontinued providing this insurance. 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. Information services
is provided to Norwest Financial and other financial services companies by
subsidiaries of the Company. The Company also has subsidiaries engaged in the
commercial finance business, including lease financing and accounts receivable
financing.
The common stock of one of the Company's consumer finance subsidiaries was
transferred by way of a non-cash dividend to the Parent on November 1, 1994
(said subsidiary being hereinafter called the "Transferred Subsidiary"). The
Transferred Subsidiary had assets totaling $147.1 million and 39 branch offices
at the time of the transfer.
<PAGE> 2
CONSUMER OPERATIONS
At December 31, 1994, consumer receivables accounted for 90% 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 $1,294,326 $ 41,462 $1,335,788
Not secured by real estate 1,186,279 332,904 1,519,183
Total loans 2,480,605 374,366 2,854,971
Sales finance contracts 1,171,950 53,439 1,225,389
Total consumer finance 3,652,555 427,805 4,080,360
Other consumer receivables 258,469 258,469
Total consumer receivables $3,911,024 $427,805 $4,338,829
Loans had an average balance per account of $3,215. Sales finance contracts
had an average balance per account of $939. Other consumer receivables include
credit card receivables and insurance premium finance receivables.
Geography
At December 31, 1994, Norwest Financial had consumer finance branch offices in
45 states, Guam, 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, 1994, is shown on the following page:
<PAGE> 3
Number of Branch Offices and Percent of Receivables
<TABLE>
<CAPTION>
Percent of Percent of
Number United States Number United States
of Consumer of Consumer
Branch Finance Branch Finance
State or Territory Offices Receivables State or Territory Offices Receivables
<S> <C> <C> <C> <C> <C>
Alaska 6 1.0% Nebraska 9 1.2%
Arizona 16 1.7 Nevada 13 1.4
California 109 12.0 New Hampshire 1 .1
Colorado 15 1.7 New Jersey 10 1.1
Connecticut 1 .2 New Mexico 19 2.0
Delaware 2 .2 New York 16 3.3
Florida 43 5.8 North Carolina 18 3.0
Georgia 22 2.6 North Dakota 5 .7
Guam 1 .1 Ohio 29 4.5
Hawaii 18 1.9 Oklahoma 17 1.9
Idaho 11 1.4 Oregon 11 1.4
Illinois 29 3.4 Pennsylvania 28 3.8
Indiana 16 1.6 Rhode Island 4 .7
Iowa 14 2.1 South Carolina 26 2.8
Kansas 8 1.0 South Dakota 2 .3
Kentucky 11 1.9 Tennessee 26 2.6
Louisiana 42 3.5 Texas 50 5.9
Maryland 23 3.6 Utah 11 1.5
Massachusetts 12 1.8 Virginia 10 .8
Minnesota 10 1.7 Washington 23 3.5
Mississippi 19 1.5 West Virginia 7 .8
Missouri 25 3.9 Wisconsin 14 .9
Montana 7 1.0 Wyoming 3 .2
812 100.0%
Percent of Percent of
Number Canadian Number Canadian
of Consumer of Consumer
Branch Finance Branch Finance
Province Offices Receivables Province Offices Receivables
Alberta 9 5.6% Nova Scotia 15 13.8%
British Columbia 17 11.9 Ontario 37 29.6
Manitoba 4 2.8 Prince Edward Island 1 1.2
New Brunswick 11 7.9 Quebec 21 14.8
Newfoundland 11 8.6 Saskatchewan 4 3.8
130 100.0%
</TABLE>
<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, 1994:
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>
1994 $4,080,360,000 9% 2,193,000 6% $1,861 942
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
</TABLE>
<TABLE>
<CAPTION>
Loans Made and Acquired and Sales Finance Contracts Purchased
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>
1994 $2,460,522,000 877,000 $2,806 $1,825,917,000 1,825,000 $1,001
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
<FN>
*Includes balances renewed of $759,775,000, $680,357,000, $480,030,000, $392,683,000,
and $377,368,000 for the years 1994 through 1990, respectively.
</TABLE>
<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."
<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,
1994, open-end sales finance contracts accounted for 64% 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 during 1994,
approximately 91% of the amount and 81% 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 1994, 63.5%
represented funds lent to borrowers who requested additional money while still
owing Norwest Financial. In the years 1993 through 1990, this figure was
64.1%, 64.4%, 63.7%, and 62.3%, respectively. In 1994, of the 877,000 loans
made by Norwest Financial, 416,000 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 $1,932; the average amount of the
old balance was $1,828. 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 1994, approximately 74% of the number of new loans were made to present
and former sales finance customers.
<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 192,000 VISA or MasterCard
accounts at December 31, 1994; credit card receivables outstanding were $185.2
million.
Dial Bank entered the insurance premium financing business through the purchase
of the receivables of Coast Program, Inc. in February 1991. Dial Bank finances
liability and material damage auto insurance in California. In addition,
Norwest Financial Coast, Inc. provides insurance premium financing in Arizona
and 10 states located throughout the southeastern section of the United States.
Business is generated through 2,300 independent insurance agents. Processing
is performed by Norwest Financial Coast, Inc. from production offices located
in Signal Hill and San Francisco, California, and Columbia, South Carolina.
At December 31, 1994, approximately 118,000 accounts totaling $73.2 million
were outstanding; $60.9 of these receivables were owned by Dial Bank.
Norwest Financial's average earned rates of charge on the average amount of
consumer receivables outstanding during each of years 1994 through 1990 were
21.76%, 22.55%, 22.49%, 21.97%, and 21.92%, 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.
<PAGE> 8
Information concerning consumer loss experience and allowance for losses is
shown below:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Allowance, beginning
of period $114,876 $106,024 $ 77,562 $63,150 $51,450
Write-offs:
Loans 75,124 74,835 57,582 54,958 38,152
Sales finance 23,920 21,221 17,684 18,147 12,186
Other 8,552 5,491 6,496 7,608 3,712
Total write-offs 107,596 101,547 81,762 80,713 54,050
Recoveries:
Loans 11,877 11,226 8,153 5,871 5,375
Sales finance 2,528 2,224 2,438 1,938 1,814
Other 850 501 737 448 73
Total recoveries 15,255 13,951 11,328 8,257 7,262
Provision for credit losses
charged to expense 107,931 96,448 78,591 81,485 58,488
Allowance related to
receivables acquired
(transferred) - net (3,664) 20,305 5,383
Allowance, end of period
Loans 76,256 71,809 68,212 44,512 41,000
Sales finance 40,696 35,417 28,912 24,600 18,050
Other 9,850 7,650 8,900 8,450 4,100
Total allowance $126,802 $114,876 $106,024 $77,562 $63,150
Ending receivables as
a percent of total
consumer receivables:
Loans 66% 67% 70% 67% 70%
Sales finance 28 28 26 28 26
Other 6 5 4 5 4
100% 100% 100% 100% 100%
Allowance as a percent of
ending receivables 2.92% 2.90% 3.02% 2.65% 2.51%
Write-offs after recoveries
as a percent of average
consumer receivables 2.24% 2.41% 2.37% 2.69% 2.05%
Consumer receivables
outstanding more
than three payments
contractually delinquent $ 77,233 $ 73,541 $70,938 $55,635 $44,968
</TABLE>
<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, credit disability, property, and involuntary
unemployment insurance as a part of Norwest Financial's consumer finance
business and the consumer finance business of an affiliate. 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, Guam, and the ten Canadian provinces, and
property insurance in 42 states. Property insurance is offered on an agency
basis 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 25 states and nine
Canadian provinces and is written directly by one of the Company's insurance
subsidiaries in 14 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.
<PAGE> 10
Insurance premiums, claim and underwriting expenses and income from
underwriting for life and disability insurance underwritten by the Company's
insurance subsidiaries are summarized for the periods indicated below:
<TABLE>
<CAPTION>
Years Ended December 31,
<S> <C> <C> <C> <C> <C>
(In Thousands) 1994 1993 1992 1991 1990
Premiums earned:
Life $28,414 $26,141 $26,806 $24,085 $23,231
Disability 37,060 34,932 31,724 28,009 26,993
Claim expense:
Life 10,074 10,381 8,903 7,671 7,389
Disability 13,773 14,048 11,785 10,289 10,568
Underwriting expense:
Life 1,853 1,961 3,564 3,117 3,302
Disability 2,998 3,618 4,594 3,900 3,691
Income from underwriting:
Life 16,487 13,799 14,339 13,297 12,540
Disability 20,289 17,266 15,345 13,820 12,734
</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 1994 through 1990 were $31,838,000; $24,949,000; $22,204,000;
$18,169,000; and $17,252,000, respectively.
<PAGE>
<PAGE> 11
COMMERCIAL FINANCE OPERATIONS
At December 31, 1994, commercial finance receivables accounted for 10% 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, 1994:
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
1994 $407,513 $ 92,757 $500,270 (2)%
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
Norwest Financial's average earned rates of charge on the average amount of
commercial finance receivables outstanding during each of the years 1994 through
1990 were 14.58%, 13.46%, 14.06%, 14.74%, and 14.68%, respectively.
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.
<PAGE> 12
Information concerning commercial loss experience and allowance for losses is
shown below:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Allowance, beginning
of period $10,250 $11,550 $11,100 $10,625 $ 8,950
Write-offs:
Leasing and other 1,790 3,726 3,750 4,348 6,615
Accounts receivable
financing 1,497 1,870 2,522 2,036 1,200
Total write-offs 3,287 5,596 6,272 6,384 7,815
Recoveries:
Leasing and other 547 757 1,416 838 1,461
Accounts receivable
financing 701 807 634 477 536
Total recoveries 1,248 1,564 2,050 1,315 1,997
Provision for credit losses 939 2,732 4,672 5,544 7,493
Allowance, end of period:
Leasing and other 7,850 8,350 9,550 8,800 7,900
Accounts receivable
financing 1,300 1,900 2,000 2,300 2,725
Total allowance $ 9,150 $10,250 $11,550 $11,100 $10,625
Ending receivables as
a percent of total
commercial receivables:
Leasing and other 81% 74% 75% 75% 72%
Accounts receivable
financing 19 26 25 25 28
100% 100% 100% 100% 100%
Allowance as a percent of
ending receivables 1.83% 2.00% 1.96% 1.76% 1.59%
Write-offs after recoveries
as a percent of average
commercial finance
receivables .43% .73% .71% .80% .90%
</TABLE>
<PAGE> 13
Non-accrual commercial receivables totaled $2,606,000; $5,349,000; $6,864,000;
$17,125,000; and $14,666,000 at December 31, 1994 through 1990, respectively.
During 1994, 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 $312,000. The amount of finance charges and interest actually
recorded on these receivables during 1994 totaled $190,000.
Commercial receivables outstanding which were more than three payments
contractually delinquent and which were still accruing interest totaled
$1,202,000; $1,443,000; $2,586,000; $2,612,000; and $2,116,000 at
December 31, 1994 through 1990, 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
$10,000 to above $200,000. Marketing efforts are directed primarily toward
manufacturers and distributors of such equipment.
<PAGE>
<PAGE> 14
NFLI also holds a portfolio of loans generally secured by commercial real
estate. At December 31, 1994, these loans totaled $44.3 million, a decrease
of $19.7 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.
<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, 1994, NFISG had contracts
to supply information services to 24 other finance companies. On that date,
approximately 2,600 branch offices were being served and 5.8 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. Sixteen subscribing companies were utilizing SUPREME at December 31,
1994. Norwest Financial has installed SUPREME in all of its branch offices in
the United States and Canada. Overall, 5.3 million accounts in over 2,100
locations were being maintained by SUPREME at December 31, 1994.
NFISG has also developed an on-line real-time information system designed to
meet the processing demands of a broad range of leasing products including true
leases, rentals, conditional sales contracts, and third-party leases. Named
SUCCESS , this system processes such variables as property, sales, use and
transit taxes; depreciation; vendor fees; residuals; and participation. NFLI
and two non-affiliate subscribers were utilizing SUCCESS at December 31, 1994.
In March 1994, the Company acquired Allied Business Systems, Inc., a computer
software company headquartered in Macon, Georgia. Since 1979, Allied Business
Systems has been providing computer systems and services to the consumer
finance industry and currently serves over 1,000 locations for over 250
companies.
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.
<PAGE> 16
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 63% of the Company's total
indebtedness at December 31, 1994. The remaining 37% includes commercial paper
with maturities of nine months or less (32%), and short-term debt to affiliates
and other short-term debt (5%).
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 1994 through 1990 without giving
effect to commitment fees relating to bank credit agreements were 6.22%, 6.41%,
7.29%, 8.33%, and 9.20%, respectively. The corresponding figures after giving
effect to commitment fees were 6.25%, 6.45%, 7.33%, 8.36%, and 9.23%,
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) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Bank credit agreements
at December 31 $1,147,700 $1,007,690 $737,500 $762,500 $742,500
Number of credit agreements 34 35 34 36 36
Daily average outstanding:
Commercial paper $1,180,649 $1,065,491 $862,620 $850,081 $727,961
Other loans 4,962 87,761 1,368 1,948 2,948
Less excess funds
investments 26,097 15,436 10,181 10,708 17,176
Net average short-term
borrowings $1,159,514 $1,137,816 $853,807 $841,321 $713,733
Ratio of bank credit
agreements to above 99% 89% 86% 91% 104%
</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, 1994, and 1993.
<PAGE> 17
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,
1994 1993 1992 1991 1990
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).
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, 1994, the Company and its subsidiaries employed
approximately 6,100 persons. Norwest Financial believes its employee
relations are excellent.
<PAGE> 18
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. 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 owns a
one-story building in Sioux Falls, South Dakota where its office is maintained.
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).
<PAGE> 19
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 1994 and 1993, 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 1994 and 1993 was as follows:
(In Thousands) 1994 1993
First quarter $40,000 $50,000
Second quarter 32,368 40,000
Third quarter 20,000 35,000
Fourth quarter 1,303 15,000
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 $116 million of
consolidated retained earnings was unrestricted at December 31, 1994.
Item 6. Selected Financial Data.
Years Ended December 31,
(In Thousands) 1994 1993 1992 1991 1990
Operating revenues $1,175,285 $1,079,719 $924,348 $839,506 $742,074
Net earnings 223,340 203,297 164,204 130,880 115,366
<TABLE>
<CAPTION>
December 31,
(In Thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Total assets $6,124,742 $5,261,599 $4,804,062 $4,139,546 $3,622,084
Long-term debt 3,092,623 2,741,692 2,406,186 2,266,658 1,972,433
</TABLE>
<PAGE> 20
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. In
addition, on November 1, 1994, the common stock of one of the Company's
consumer finance subsidiaries, (the "Transferred Subsidiary") , was transferred
by way of a non-cash dividend to the Parent.
Norwest Financial's total income (revenue) increased 9% in 1994 and 17% in 1993
($1,175.3 million in 1994 compared with $1,079.7 million in 1993 and $924.3
million in 1992).
Income from finance charges and interest increased 8% in 1994 and 19% in 1993
($965.4 million in 1994 compared with $892.8 million in 1993 and $751.8 million
in 1992). 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: 1994 1993
Consumer 13% 22%
Commercial (14) (7)
Total 10 17
Rate of charge on finance receivables: 1994 1993 1992
Consumer 21.76% 22.55% 22.49%
Commercial 14.58 13.46 14.06
Total 21.02 21.36 21.09
Increases in income from finance charges and interest in both 1994 and 1993
were due primarily to growth in average consumer receivables outstanding. In
1994, this was offset in part by the decline in the consumer rate of charge.
Average consumer receivables outstanding comprise 90% of total average finance
receivables outstanding. Growth in average consumer receivables in 1994 and
1993 was due to a combination of regular business activity and purchases.
Canadian consumer finance receivables totaling $370 million were purchased in
November 1992. Other consumer finance purchases totaled $104 million in 1994
and $142 million in 1993.
The decline in average commercial finance receivables in 1994 and 1993 was a
result of a decision to discontinue pursuing certain large leases combined with
a decline in accounts receivable financing receivables.
Changes in the earned rates of charge were due to changes in prevailing market
rates combined with a change in the portfolio mix.
<PAGE> 21
Insurance premiums and commissions increased 16% in 1994 and 9% in 1993 ($105.7
million in 1994 compared with $91.0 million in 1993 and $83.4 million in 1992).
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 10% in 1994 and 25% in 1993. 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 was 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 1% in 1994 and 3% in
1993 ($32.2 million in 1994 compared with $31.9 million in 1993 and $30.9
million in 1992). Lower insurance losses in Canada due to a change in Canadian
reinsurance agreements impacted insurance loss and loss expenses in 1994. 1993
was impacted by the change in insurance underwritten on customers of Norwest
banks.
Other income increased 9% in 1994 and 8% in 1993 ($104.3 million in 1994
compared with $95.9 million in 1993 and $89.2 million in 1992). The increase
in 1994 is due primarily to an increase in other fee income combined with an
increase in investment income. An increase in investment income, combined with
other income generated by the Canadian operations, accounted for the majority
of the increase in 1993. Average investments held increased 13% in 1994 and
18% in 1993.
Operating expenses increased 9% in 1994 and 23% in 1993 ($434.4 million in 1994
compared with $398.7 million in 1993 and $325.3 million in 1992). 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. Norwest Financial was
operating 942 consumer finance branches at both December 31, 1994, and 1993,
and 882 at December 31, 1992. However, expenses for the 39 branches of the
Transferred Subsidiary were included in 1994 until the date of the transfer on
November 1. The purchase of the assets of Trans Canada Credit Corporation
added 122 offices in November 1992.
Interest and debt expense increased 7% in 1994 and 3% in 1993 ($259.6 million
in 1994 compared with $242.4 million in 1993 and $236.3 million in 1992).
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: 1994 1993
Short-term 3% 28%
Long-term 17 13
Total 13 17
Cost of funds: 1994 1993 1992
Short-term 4.65% 3.92% 4.15%
Long-term 6.87 7.57 8.59
Total 6.22 6.41 7.29
<PAGE> 22
Changes in average debt outstanding correspond to changes in average finance
receivables outstanding. Average finance receivables increased 10% in 1994 and
17% in 1993.
Provision for credit losses increased 10% in 1994 and 19% in 1993 ($108.9
million in 1994 compared with $99.2 million in 1993 and $83.3 million in 1992).
The increases in the provision for credit losses were due primarily to
increases in average finance receivable outstanding. Average finance
receivables increased 10% in 1994 and 17% in 1993. Net write-offs as a
percentage of average net receivables outstanding were 2.06% in 1994 compared
with 2.19% in 1993 and 2.09% in 1992.
Income taxes increased 12% in 1994 and 24% in 1993. The increases were due
primarily to increases in earnings before income taxes. The effective tax
rates were 34.4% in 1994, and 33.9% in 1993, and 33.9% in 1992.
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,
the Company recognized $661,000 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 by $4.9 million in 1994 and
$4.0 million in 1993.
Effective January 1, 1994, the Company adopted SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities". Upon adoption, the Company
classified all of its debt and equity securities as available for sale in
accordance with SFAS 115. 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 recorded as a separate component of stockholder's
equity. If a decline in security's fair value is deemed to be other than
temporary, the amount of the write-down is recognized as a reduction in
earnings.
The effect of SFAS 115 at December 31, 1994 was to decrease marketable
securities by $22.2 million and decrease stockholder's equity by $14.5 million,
the decrease in marketable securities net of the income tax effect of $7.7
million. The net unrealized holding loss on available-for-sale securities
increased by $30.9 million since January 1, 1994.
<PAGE> 23
Borrowings constitute the largest part of Norwest Financial's capitalization.
At December 31, 1994, 86% of the Company's capital had been obtained from
borrowings and 14% from stockholder's equity. Sixty-three percent of Norwest
Financial's borrowings was in fixed-rate term borrowings with original
maturities of more than one year. The remaining 37% includes commercial paper
with maturities of nine months or less (32%), and short-term debt to affiliates
and other short-term debt (5%). At December 31, 1993, short-term borrowings
comprised 35% of total borrowing. This consisted of commercial paper with
maturities of nine months of less (28%) and short-term debt to affiliates and
other short-term debt (7%). Short-term borrowings as a percent of total
borrowings averaged 29% in 1994 and 32% in 1993. Norwest Financial generally
follows a guideline of funding between 25% to 30% of borrowings with short-term
debt. 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 issued an additional $110 million (Canadian)
in long-term debt in 1994.
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, 1994, lines of credit and revolving credit
agreements totaling $1,148 million were being maintained at 34 unaffiliated
banks; $65 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) (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.
The common stock of the Transferred Subsidiary was transferred by way of a non-
cash dividend to the Parent on November 1, 1994. The Transferred Subsidiary
had assets totaling $147.1 million and 39 branch offices at the time of the
transfer. Management believes that the transfer will not have a significant
impact on the results of operations.
Effective January 1, 1995, the Parent 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 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. Community Credit Co. is
primarily engaged in automobile and consumer finance and had 55 branch offices
and assets of $213.6 million at January 1, 1995. Community Credit Co. was
acquired by Norwest Corporation in March 1994 and immediately contributed to
the Parent. Net earnings from the acquisition date to December 31, 1994 were
$6.3 million. Dial National Bank is primarily engaged in credit card business
and had assets of $112.2 million at January 1, 1995, and net earnings of $4.0
million for the year ended December 31, 1994.
<PAGE> 24
Item 8. Financial Statements and Supplementary Data.
NORWEST FINANCIAL, INC.
Consolidated Financial Statements
<PAGE> 25
Deloitte &
Touche LLP
(logo) Two Prudential Plaza Telephone:(312) 946-3000
180 North Stetson Avenue Facsimile:(312) 946-2600
Chicago, Illinois 60601-6779
INDEPENDENT AUDITORS' REPORT
Norwest Financial, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheets of Norwest Financial, Inc. (a wholly-owned
subsidiary of Norwest Financial Services, Inc. which is a wholly-owned
subsidiary of Norwest Corporation, Inc.) and subsidiaries as of December 31,
1994 and 1993, 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, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements 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, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting principles.
\s\Deloitte & Touche LLP
January 13, 1995
Deloitte Touche
Tohmatsu
International
<PAGE> 26
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31,
Assets 1994 1993
<S> <C> <C>
Cash and cash equivalents $ 63,496 $ 80,762
Marketable securities (note 2) 570,314 472,656
Finance receivables (note 3):
Consumer:
Loans 2,854,971 2,659,654
Sales finance contracts 1,225,389 1,086,576
Other 258,469 212,680
Commercial 500,270 512,112
Total finance receivables 4,839,099 4,471,022
Less allowance for credit losses (note 4) 135,952 125,126
Finance receivables - net 4,703,147 4,345,896
Notes receivable - affiliates (note 19) 376,886 33,875
Property and equipment (at cost, less
accumulated depreciation of $81,030 for
1994 and $73,085 for 1993) 58,342 57,856
Deferred income taxes (note 11) 63,387 16,754
Other assets 289,170 253,800
Total assets $6,124,742 $5,261,599
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 27
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31,
Liabilities and
Stockholder's Equity 1994 1993
<S> <C> <C>
Loans payable - short-term (note 5):
Commercial paper $1,549,067 $1,186,565
Other 201,977 133,700
Affiliates 35,946 184,985
Unearned insurance premiums and commissions (note 3) 128,812 109,913
Insurance claims and policy reserves (note 3) 32,287 28,849
Accrued interest payable 53,759 43,574
Other payables to affiliates (note 11) 4,705 6,368
Other liabilities 208,498 138,214
Long-term debt (note 6) 3,092,623 2,741,692
Total liabilities 5,307,674 4,573,860
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 71,413 52,413
Retained earnings (notes 10 and 11) 764,295 634,626
Foreign currency translation adjustment (8,029) (3,155)
Net unrealized holding loss on
marketable securities (note 2) (14,466)
Total stockholder's equity 817,068 687,739
Total liabilities and
stockholder's equity $6,124,742 $5,261,599
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 28
NORWEST FINANCIAL, INC.
Statements of Consolidated Earnings and Retained Earnings
(Thousands of Dollars)
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Income:
Finance charges and interest $ 965,355 $ 892,761 $751,766
Insurance premiums and commissions 105,672 91,045 83,372
Other income (note 2) 104,258 95,913 89,210
Total income 1,175,285 1,079,719 924,348
Expenses:
Operating expenses (note 14) 434,383 398,668 325,340
Interest and debt expense (note 7) 259,605 242,440 236,337
Provision for credit losses (note 4) 108,870 99,180 83,263
Insurance losses and loss expenses 32,187 31,906 30,870
Total expenses 835,045 772,194 675,810
Earnings before income taxes 340,240 307,525 248,538
Income taxes (note 11) 116,900 104,228 84,334
Net earnings 223,340 203,297 164,204
Retained earnings - January 1 634,626 571,329 497,125
857,966 774,626 661,329
Dividends (93,671) (140,000) (90,000)
Retained earnings - December 31 $ 764,295 $ 634,626 $571,329
</TABLE>
See accompanying notes to consolidated financial statements.
<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,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 223,340 $ 203,297 $ 164,204
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Provision for credit losses 108,870 99,180 83,263
Depreciation and amortization 27,339 26,086 21,668
Deferred income taxes (38,843) (349) (5,465)
Other assets (30,942) (12,731) 1,279
Unearned insurance premiums and commissions 18,899 17,983 (4,497)
Insurance claims and policy reserves 3,438 (657) (1,177)
Accrued interest payable 10,185 2,965 (466)
Other payables to affiliates (1,663) (19,511) 18,320
Other liabilities 70,284 19,602 20,419
Net cash flows from operating activities 390,907 335,865 297,548
Cash flows used for investing activities:
Finance receivables:
Principal collected 4,650,536 3,985,591 3,255,246
Receivables originated or purchased (5,116,657) (4,448,544) (3,847,996)
Proceeds from sales of marketable securities 81,945 35,314 53,253
Proceeds from maturities of marketable securities 69,005 134,355 48,556
Purchase of marketable securities (270,864) (232,424) (144,975)
Net additions to property and equipment (14,399) (13,594) (12,512)
Net increase in due from affiliates (343,011) (19,087) (684)
Other (22,728) (67,044) (64,241)
Net cash flows used for investing activities (966,173) (625,433) (713,353)
Cash flows from financing activities:
Net increase in loans payable -
short-term 281,740 41,185 410,757
Proceeds from long-term debt:
Senior 955,961 698,332 750,000
Subordinated 45,000 100,000
Repayments of long-term debt:
Senior (637,530) (360,956) (566,685)
Subordinated (12,500) (101,870) (43,787)
Additional paid in capital 19,000 7,750
Dividends paid (93,671) (140,000) (90,000)
Net cash flows from financing activities 558,000 236,691 468,035
Net increase (decrease) in cash and cash equivalents (17,266) (52,877) 52,230
Cash and cash equivalents beginning of period 80,762 133,639 81,409
Cash and cash equivalents end of period $ 63,496 $ 80,762 $ 133,639
</TABLE>
See accompanying notes to consolidated financial statements.
<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. The common stock of one of the Company's consumer finance
subsidiaries, (the "Transferred Subsidiary"), was transferred by way of a non-
cash dividend to the Parent on November 1, 1994.
Marketable Securities. Effective January 1, 1994, the Company adopted
Statement of Financial Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Upon adoption, the Company
classified all of its debt and equity securities as available for sale in
accordance with SFAS 115. 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 recorded as a separate component of stockholder's
equity. If a decline in the security's fair value is deemed to be other than
temporary, the amount of the write-down is recognized as a reduction in
earnings.
The effect of SFAS 115 at December 31, 1994 was to decrease marketable
securities by $22.2 million and decrease stockholder's equity by $14.5
million, the decrease in marketable securities net of the income tax effect
of $7.7 million. The net unrealized holding loss on available for sale
securities increased by $30.9 million since January 1, 1994.
In 1993, investments in marketable securities were carried at amortized cost.
Finance Charges and Interest:
Consumer. Finance charges and interest are earned primarily using the
interest method.
Commercial:
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.
<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).
<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 1993 and 1992 financial statements
have been reclassified to conform to the presentation used in the 1994
financial statements.
<PAGE> 33
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
2. Marketable Securities.
The amortized cost and market value of marketable securities were:
December 31, 1994 December 31, 1993
Amortized Market Amortized Market
(In Thousands) Cost Value Cost Value
U.S. Treasury and federal agencies $297,597 $279,519 $264,192 $272,369
States and political subdivisions 95,895 92,734 89,730 92,806
Other (corporate bonds, stocks,
and collateralized mortgage
obligations) 199,078 198,061 118,734 133,200
Total $592,570 $570,314 $472,656 $498,375
The gross unrealized gains and losses of marketable securities were:
December 31, 1994 December 31, 1993
Gross Unrealized Gross Unrealized
(In Thousands) Gains Losses Gains Losses
U.S. Treasury and federal agencies $ 345 $18,423 $ 8,882 $ 705
States and political subdivisions 297 3,458 3,101 25
Other (corporate bonds, stocks,
and collateralized mortgage
obligations) 5,950 6,967 15,250 784
Total $ 6,592 $28,848 $27,233 $1,514
The amortized cost and market values of marketable securities by maturity were:
December 31, 1994 December 31, 1993
Amortized Market Amortized Market
(In Thousands) Cost Value Cost Value
In one year or less $ 48,355 $ 46,371 $221,538 $236,093
After one year through five years 315,513 302,533 166,043 173,973
After five years through ten years 159,036 150,465 76,833 79,969
After ten years 69,666 70,945 8,242 8,340
Total $592,570 $570,314 $472,656 $498,375
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 $4,032,000 and $2,036,000, respectively, in 1994;
$3,311,000 and $1,063,000, respectively, in 1993; and $4,089,000 and $738,000,
respectively, in 1992.
The carrying amounts of securities on deposit under statutory or other
requirements at December 31, 1994 and 1993, were $5,775,000 and $5,523,000,
respectively.
<PAGE> 34
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
2. Marketable Securities, continued:
Interest and dividends from marketable securities and cash equivalents was
$38,298,000, $36,562,000, and $33,939,000 for the years ended December 31,
1994, 1993 and 1992, respectively.
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, 1994, 1993 and 1992, approximated $3,959,755,000,
$3,320,575,000 and $2,556,106,000, 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 $143,249,000 and
$119,551,000 at December 31, 1994, and 1993, respectively.
At December 31, 1994, contractual maturities of commercial receivables were as
follows: $192,250,000 were due in one year or less; $287,399,000 were due after
one year through five years, and $20,621,000 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 $427,805,000 and
$397,267,000 at December 31, 1994, and 1993, respectively.
<PAGE> 35
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
4. Allowance for Credit Losses.
The analysis of the allowance for credit losses is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1994 1993 1992
<S> <C> <C> <C>
Allowance for credit losses beginning of year $125,126 $117,574 $ 88,662
Provision for credit losses charged to expense 108,870 99,180 83,263
Write-offs: United States (93,089) (88,100) (85,100)
Canada (17,794) (19,043) (2,934)
Recoveries: United States 12,968 11,941 13,378
Canada 3,535 3,574
Allowance related to receivables acquired
(transferred) - net (3,664) 20,305
Allowance for credit losses end of year $135,952 $125,126 $117,574
</TABLE>
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
$1,147,700,000 at December 31, 1994; $65,000,000 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, 1994, were to remain
in effect and unused throughout 1995, the Company would pay approximately
$1,050,200 in commitment fees.
<PAGE> 36
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
5. Loans Payable - Short-term, continued:
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>
1994 1993 1992
<S> <C> <C> <C>
Weighted average annual interest
rate on commercial paper and
other short-term debt:
During December 5.86% 3.53% 4.80%
During December after considering
the effect of commitment fees 5.94 3.64 4.89
For the year 4.53 3.80 4.03
For the year after considering
the effect of commitment fees 4.64 3.91 4.16
Average daily amount of commercial
paper and other short-term debt
outstanding during the year $1,185,611,000 $1,154,724,000 $904,201,000
Maximum amount of commercial paper
and other short-term debt
outstanding at any month-end
during the year $1,751,044,000 $1,320,265,000 $1,419,800,000
</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 1994, 1993, and 1992 was
4.95%, 4.65%, and 9.35%, respectively.
<PAGE> 37
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
6. Long-term Debt.
Long-term debt outstanding:
December 31,
(In Thousands) 1994 1993
Senior - United States:
4-7/8% due 1994 $ $ 100,000
7.95 % due 1994 150,000
8-1/4% due 1994 150,000
8.90 % due 1994 100,000
9.206% due 1994 30,000
9.75 % due 1994 100,000
4-5/8% due 1995 75,000 75,000
7-1/4% due 1995 150,000 150,000
7.10 % due 1996 150,000 150,000
8-7/8% due 1996 100,000 100,000
6 % due 1997 150,000 150,000
6-1/4% due 1997 150,000
6-1/2% due 1997 150,000 150,000
6-1/2% due 1997 150,000
5-1/2% due 1998 150,000 150,000
8-1/2% due 1998 100,000 100,000
6.20 % due 1999 75,000 75,000
6-1/4% due 1999 150,000
6-7/8% due 1999 100,000 100,000
5-1/8% due 2000 150,000 150,000
6-7/8% due 2000 150,000
7-3/4% due 2001 100,000
7.95 % due 2002 100,000 100,000
6-1/8% due 2003 150,000 150,000
7 % due 2003 150,000 150,000
6 % due 2004 150,000
Total senior - United States 2,600,000 2,380,000
Senior - Canada:
5.40 % due 1996 7,135
5.96 % due 1996 21,405 22,692
8.26 % due 1996 14,270
6.25 % due 1998 71,350 75,640
8.65 % due 1998 3,567
8.50 % due 1999 53,513
Total senior - Canada 171,240 98,332
Total senior 2,771,240 2,478,332
<PAGE> 38
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
6. Long-term Debt, Continued:
Long-term debt outstanding, continued:
December 31,
(In Thousands) 1994 1993
Senior subordinated:
9.16 % due 1994 $ $ 7,500
9.55 % due 1994 5,000
9.63 % due 1995 20,000 20,000
8.375% due 1996 25,000 25,000
9-5/8% due 1998 50,000 50,000
Medium-term notes* 200,000 155,000
Total senior subordinated 295,000 262,500
Other 26,383 860
Total long-term debt outstanding $3,092,623 $2,741,692
* Medium-term notes outstanding have maturities ranging from 1995 to 1997
with interest rates from 4.85% to 8.78%.
Other debt represents senior debt secured by lease receivables and related
equipment under lease. At December 31, 1994, other debt had a weighted average
rate of 9.0% and a final contractual maturity in 1998.
Contractual maturities of long-term debt for the years 1995 through 1999 are
$255,000,000; $457,809,000; $654,671,000; $396,592,000; and $378,513,000,
respectively.
<PAGE>
<PAGE> 39
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) 1994 1993 1992
Short-term - affiliates $ 626 $ 4,626 $ 1,432
Short-term - commercial paper & other 54,027 44,282 36,271
Long-term 200,245 188,422 193,090
Amortization of debt expense 4,707 5,110 5,544
Total interest and debt expense $259,605 $242,440 $236,337
8. Operations by Country.
The following is a summary of total income, earnings before income taxes, and
total assets by country:
(In Thousands) 1994 1993 1992
Total income:
United States $1,050,069 $ 955,786 $ 908,773
Canada 125,216 123,933 15,575
Total $1,175,285 $1,079,719 $ 924,348
Earnings before income taxes:
United States $ 303,817 $ 267,982 $ 245,846
Canada 36,423 39,543 2,692
Total $ 340,240 $ 307,525 $ 248,538
Total assets at December 31:
United States $5,655,594 $4,825,416 $4,403,538
Canada 469,148 436,183 400,524
Total $6,124,742 $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, 1994, under operating leases having initial or remaining lease
terms in excess of one year are estimated to approximate $29 million.
<PAGE> 40
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 $116 million of
consolidated retained earnings was unrestricted at December 31, 1994.
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 $4.7 million and $3.4 million at
December 31, 1994, and 1993, respectively. The Company's Canadian subsidiaries
file separate federal and provincial returns in Canada.
At December 31, 1994, 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, 1994, was $7.8 million.
<PAGE> 41
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
11. Income Taxes, Continued:
Income taxes for the years 1994, 1993, and 1992 are composed of the following
elements:
Years Ended December 31,
(In Thousands) 1994 1993 1992
Current:
Federal $113,168 $ 97,800 $86,691
State 2,625 3,044 3,049
Foreign 11,601 3,733 59
Deferred:
Federal and state (13,572) (13,818) (6,443)
Foreign 3,078 13,469 978
Total income taxes $116,900 $104,228 $84,334
Income before income taxes from operations outside the United States was $33.4
million and $39.1 million for the years ended December 31, 1994 and 1993,
respectively. Such income was not material for the year ended December 31,
1992.
Deferred income taxes are primarily due to leasing and lease financing, the
allowance for credit losses, and accrued employee benefits.
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.
<PAGE> 42
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
12. Retirement Plans, continued.
The Plan's funded status and reconciliation to the balance sheet is presented
below:
<TABLE>
<CAPTION>
Years Ended December 31,
<S> <C> <C>
(In Thousands) 1994 1993
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $33,003 and $28,364 at
December 31, 1994, and 1993, respectively $(40,947) $(35,678)
Projected benefit obligation for service
rendered to-date $(63,248) $(56,157)
Plan assets at fair value* 62,545 51,215
Plan assets less than projected
benefit obligation (703) (4,942)
Unrecognized net asset at January 1, 1986,
being amortized over 15 years (607) (709)
Unrecognized prior service costs (1,349) (1,070)
Unrecognized net loss from past experience
different from that assumed and effects
of changes in assumptions 12,509 13,399
Prepaid pension cost at December 31 $ 9,850 $ 6,678
<FN>
* Consists primarily of marketable bonds and debentures and obligations of the
United States Government and its agencies and includes $252,000 and $270,000
of debt securities issued by the Company at December 31, 1994, and 1993,
respectively.
</TABLE>
Assumptions used in the accounting were:
As of December 31,
1994 1993
Weighted average discount rate 7.0% 7.0%
Expected long-term rate of return on assets 6.0 6.0
Rate of increase in future compensation levels 6.0 6.0
<PAGE> 43
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
12. Retirement Plans, Continued:
The components of net pension cost in the United States for 1994, 1993, and
1992 are presented below:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1994 1993 1992
<S> <C> <C> <C>
Service cost - benefits earned during the year $3,216 $2,292 $1,478
Interest cost on projected benefit obligation 4,168 3,571 2,895
Actual return on plan assets (1,912) (3,760) (3,059)
Net amortization and deferral* 1,602 2,081 (214)
Net periodic pension cost $7,074 $4,184 $1,100
</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 one of the Company's
life insurance subsidiaries. Annual benefits paid to retirees covered by the
contracts were approximately $1.9 million in 1994 and $2.0 million in 1993.
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).
<PAGE> 44
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.
Expense for the TCC Plan was $1,360,000 in 1994 and none in 1993. No
contribution was required in 1994 and 1993.
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 $11,500,000,
$9,330,000, and $7,912,000 for the years ended December 31, 1994, 1993, and
1992, 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, the Company
recognized $661,000 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 by $4.9 million in 1994 and $4.0
million in 1993.
<PAGE> 45
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) Years ended December 31,
1994 1993
Retirees $ (8,233) $ (8,916)
Fully eligible plan participants (48) (81)
Other active plan participants (22,129) (21,314)
(30,410) (30,311)
Unrecognized transition obligation 20,012 21,124
Unrecognized net loss 1,532 5,185
Accrued postretirement benefit liability $ (8,866) $ (4,002)
The Company has not funded any part of the accumulated postretirement benefit
obligation.
Net postretirement benefit cost consisted of the following components:
(In thousands) Years ended December 31,
1994 1993
Service cost - benefits earned
during the year $ 2,085 $ 1,570
Interest cost on accumulated
postretirement benefit obligation 2,018 1,882
Amortization of transition obligation 1,112 1,112
Amortization of unrecognized net loss 383
$ 5,598 $ 4,564
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1994 was 12% for 1995
decreasing each successive year until it reaches 8% in 1999, 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, 1994 by approximately $5.7 million and net
postretirement benefit cost by $1.1 million for the year. The assumed discount
rate used in determining the accumulated postretirement benefit obligation was
7% at both December 31, 1994, and December 31, 1993.
<PAGE> 46
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
14. Summary of Operating Expenses.
Following is a summary of operating expenses for the years 1994, 1993, and
1992:
Years Ended December 31,
(In Thousands) 1994 1993 1992
Salaries $195,903 $179,185 $147,927
Other employee benefits 37,649 29,951 21,044
Depreciation and amortization 27,339 26,086 21,668
Rent - real estate leases 22,686 20,854 16,919
Payroll taxes 16,360 14,129 11,862
Data and voice communication 15,884 14,331 11,226
Collection and credit information 14,343 13,765 11,845
Advertising 12,731 11,137 11,284
Postage 11,912 11,218 10,512
Travel 8,646 10,319 7,225
Retirement plan 8,434 4,184 1,100
Stationery and supplies 7,319 6,694 4,806
Taxes other than income taxes 6,656 5,636 5,207
Rent - data processing
equipment leases 6,556 9,585 7,703
Equipment repairs and maintenance 4,929 4,645 4,909
Management fees paid to Norwest
Corporation 2,321 2,199 1,807
Other 34,715 34,750 28,296
Total operating expenses $434,383 $398,668 $325,340
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:
Years Ended December 31,
(In Thousands) 1994 1993 1992
Cash paid for:
Interest $242,386 $235,432 $232,949
Income taxes 118,907 130,872 74,752
<PAGE>
<PAGE> 47
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, 1994, the Company had 942 consumer finance
offices in 45 states, Guam, and all ten Canadian provinces compared with 942
consumer finance offices in 46 states and ten Canadian provinces at
December 31, 1993. Credit cards are issued by Dial Bank to customers located
in 46 states; all 45 states where the Company and its subsidiaries have
consumer finance branches and one additional state where consumer finance
branches of an affiliate are located. Insurance premium financing is provided
for liability and material damage auto insurance in California, Arizona, and
10 states located throughout the southeastern United States.
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 1994 and 1993 were as follows:
(In Thousands) Interest Provision
Total and Debt for Credit
Quarter Ended Income Expense Losses Net Earnings
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
March 31, 1994 279,695 60,419 25,146 52,148
June 30, 1994 287,181 63,568 25,932 52,391
September 30, 1994 297,284 67,076 28,263 54,303
December 31, 1994 311,125 68,542 29,529 64,498
<PAGE> 48
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
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.
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 and Notes Receivable - Affiliates. The interest rates on
the receivables outstanding at December 31, 1994, and 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.
Loans Payable - Short-term and Accrued Interest Payable. Carrying value is a
reasonable estimate of fair value. The carrying amount approximates fair value
due to the short maturity of these instruments.
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.
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 $2,922,103,000 as of
December 31, 1994 and $2,828,237,000 as of December 31, 1993.
19. Notes Receivable - Affiliates.
Notes receivable from affiliates were $376,886,000 and $33,875,000 at
December 31, 1994, and 1993, respectively. Notes receivable - affiliates
include a combination of short-term and long-term notes receivable. The notes
earn interest at rates that approximate the cost of borrowings of the Company.
<PAGE> 49
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Concluded
20. Subsequent Events.
Effective January 1, 1995, the Parent 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 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. Community Credit Co. is
primarily engaged in automobile and consumer finance and had 55 branch offices
and assets of $213.6 million at January 1, 1995. Community Credit Co. was
acquired by Norwest Corporation in March 1994 and immediately contributed to
the Parent. Net earnings from the acquisition date to December 31, 1994 were
$6.3 million. Dial National Bank is primarily engaged in credit card business
and had assets of $112.2 million at January 1, 1995, and net earnings of $4.0
million for the year ended December 31, 1994.
<PAGE> 50
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, 1994, and 1993.
b. Statements of consolidated earnings and retained earnings for the
years ended December 31, 1994, 1993, and 1992.
c. Statements of consolidated cash flows for the years ended
December 31, 1994, 1993, and 1992.
(2) Financial Statement Schedules:
All 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).
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).
<PAGE> 51
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, 1993, which is hereby incorporated by reference).
*(12) Computation of ratios of earnings to fixed charges for the years
ended December 31, 1994, 1993, 1992, 1991, and 1990.
*(23) Consent of Deloitte & Touche LLP.
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.
<PAGE>
(b) Reports on Form 8-K.
<PAGE> 52
One report on Form 8-K was filed during the last quarter of the period
covered by this report. Accordingly, the following information is
furnished:
A Form 8-K Current Report dated November 8, 1994, was filed (i) to report,
pursuant to Item 5 (Other Events), the commencement of Norwest Financial,
Inc.'s medium-term note program and the execution and delivery of a
distribution agreement in connection therewith, and (ii) to effect the
filing under the Securities Exchange Act of 1934, as amended, pursuant to
Item 7 (Financial Statements, Pro Forma Financial Information and
Exhibits), of such agreement, the forms of medium-term notes, and a
related opinion and related consents, for incorporation by reference into
Norwest Financial, Inc.'s Registration Statement on Form S-3, Registration
33-52157.
<PAGE>
<PAGE> 53
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 10th day of March
1995.
NORWEST FINANCIAL, INC.
By \s\James R. Berens
James R. Berens
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 10th day of March 1995.
\s\David C. Wood
David C. Wood
Chairman of the Board
(Principal Executive Officer)
\s\James R. Berens
James R. Berens
President and Director
\s\Patricia J. McFarland
Patricia J. McFarland
Vice President, General Counsel and
Secretary and Director
\s\Stanley S. Stroup
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)
NORWEST FINANCIAL, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Exhibit (12)
<TABLE>
<CAPTION>
Years Ended December 31,
(Thousands of Dollars)
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net earnings $223,340 $203,297 $164,204 $130,880 $115,366
Add:
Fixed charges:
Interest including
amortization of
debt expense 259,605 242,440 236,337 255,075 242,151
One-third of
rentals* 9,747 10,146 8,207 7,209 6,583
Total fixed
charges 269,352 252,586 244,544 262,284 248,734
Provision for
income taxes 116,900 104,228 84,334 63,985 58,119
Total net earnings,
fixed charges and
income taxes -
"Earnings" $609,592 $560,111 $493,082 $457,149 $422,219
Ratio of earnings
to fixed charges 2.26 2.22 2.02 1.74 1.70
</TABLE>
*One-third of rentals is deemed representative of the interest factor.
EXHIBIT 23
Deloitte &
Touche LLP
(logo) Two Prudential Plaza Telephone: (312) 946-3000
180 North Stetson Avenue Facsimile: (312) 946-2600
Chicago, Illinois 60601
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 33-
52157 of Norwest Financial, Inc. on Form S-3 of our report dated January 13,
1995, appearing in this Annual Report on Form 10-K of Norwest Financial, Inc.
for the year ended December 31, 1994.
\s\ Deloitte & Touche LLP
March 10, 1995
Deloitte Touche
Tohmatsu
International
<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> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 63,496
<SECURITIES> 570,314
<RECEIVABLES> 4,839,099
<ALLOWANCES> 135,952
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 139,372
<DEPRECIATION> 81,030
<TOTAL-ASSETS> 6,124,742
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 4,879,613<F2>
<COMMON> 3,855
0
0
<OTHER-SE> 813,213
<TOTAL-LIABILITY-AND-EQUITY> 6,124,742
<SALES> 0
<TOTAL-REVENUES> 1,175,285
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 466,570
<LOSS-PROVISION> 108,870
<INTEREST-EXPENSE> 259,605
<INCOME-PRETAX> 340,240
<INCOME-TAX> 116,900
<INCOME-CONTINUING> 223,340
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 223,340
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>NORWEST FINANICAL INC HAS A NON-CLASSIFIED BALANCE SHEET
SO THIS INFORMATION IS UNAVAILABLE.
<F2>INCLUDES $1.8 BILLION OF SHORT-TERM LOANS
</FN>
</TABLE>
