<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
$72.1 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 (including the
sale of new and used automobiles). Norwest Financial also has credit card
receivables and insurance premium finance receivables in its consumer
portfolio. At December 31, 1995, the Company and its consumer finance
subsidiaries had 1,029 branch offices in 46 states, Guam, Puerto Rico, 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 certain affiliates.
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 the Company's insurance
subsidiaries, or it is offered on an agency basis by Norwest Financial.
Information services are 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.
<PAGE> 2
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 (the "Contributed Subsidiaries"). These
capital contributions to the Company have been accounted for in a manner
similar to a pooling of interests, except that results of prior periods have
not been restated. Community Credit Co. is primarily engaged in consumer
finance including loans secured by real estate and not secured by real estate
and sales finance contracts arising from the sale of automobiles. Community
Credit Co. had 55 branch offices and assets of $213.6 million at January 1,
1995. Community Credit Co. was acquired by Norwest in March 1994 and
immediately contributed to the Parent. Net earnings from the acquisition date
to December 31, 1994, were $6.3 million. Unless otherwise noted, Community
Credit Co. is included when discussing the consumer finance operations of the
Company. Dial National Bank is primarily engaged in the 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.
Effective May 4, 1995, Norwest purchased Island Finance, a group of eight
consumer finance companies headquartered in San Juan, Puerto Rico with 130
branch offices located in Puerto Rico, Panama, the Netherlands Antilles, the
U.S. Virgin Islands, Aruba, and Costa Rica. Island Finance's principal
business is making direct loans to individuals. Although Island Finance is not
included in the Company's financial results, the Company manages Island Finance
and provides approximately $500 million of its funding. In conjunction with
the Island Finance acquisition, the Company also purchased seven offices in
Puerto Rico which are engaged in purchasing sales finance contracts.
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.
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 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.
<PAGE> 3
CONSUMER OPERATIONS
At December 31, 1995, consumer receivables accounted for 91% 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 $1,424,163 $ 51,956 $1,476,119
Not secured by real estate 1,335,377 361,399 1,696,776
Total loans 2,759,540 413,355 3,172,895
Sales finance contracts 1,491,764 75,865 1,567,629
Total consumer finance 4,251,304 489,220 4,740,524
Other consumer receivables 586,840 586,840
Total consumer receivables $4,838,144 $489,220 $5,327,364
Loans had an average balance per account of $3,354. Sales finance contracts
had an average balance per account of $1,047. Other consumer receivables
include credit card receivables and insurance premium finance receivables.
<PAGE> 4
Geography
At December 31, 1995, Norwest Financial had consumer finance branch offices in
46 states, Guam, Puerto Rico, 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, 1995, is shown below. Community
Credit Co. branch offices are shown separately from the rest of the United
States finance business.
Number of Branch Offices and Percent of Receivables
<TABLE>
<CAPTION>
United States Consumer Finance
Percent of Percent of
Consumer Consumer
Branch Finance Branch Finance
Location Offices Receivables Location Offices Receivables
<S> <C> <C> <C> <C> <C>
Alaska 6 1.0% Nebraska 9 1.1%
Arizona 16 1.7 Nevada 13 1.4
California 107 11.2 New Hampshire 1 .1
Colorado 15 1.7 New Jersey 10 1.1
Connecticut 2 .3 New Mexico 20 2.1
Delaware 2 .2 New York 16 3.3
Florida 46 5.7 North Carolina 19 3.0
Georgia 22 2.7 North Dakota 5 .7
Guam 1 .2 Ohio 29 4.9
Hawaii 18 1.7 Oklahoma 18 2.0
Idaho 13 1.3 Oregon 13 1.5
Illinois 29 3.9 Pennsylvania 28 4.0
Indiana 16 1.6 Puerto Rico 7 .9
Iowa 14 1.9 Rhode Island 4 .6
Kansas 8 .9 South Carolina 26 2.8
Kentucky 11 1.9 South Dakota 4 .3
Louisiana 41 3.5 Tennessee 26 2.6
Maryland 22 3.7 Texas 50 5.6
Massachusetts 12 1.7 Utah 12 1.5
Michigan 1 .1 Virginia 10 .8
Minnesota 10 1.6 Washington 23 3.0
Mississippi 21 1.5 West Virginia 7 .8
Missouri 25 3.6 Wisconsin 14 1.0
Montana 7 1.0 Wyoming 4 .3
833 100.0%
</TABLE>
<PAGE> 5
Number of Branch Offices and Percent of Receivables, continued
<TABLE>
<CAPTION>
Canadian Consumer Finance
Percent of Percent of
Consumer Consumer
Branch Finance Branch Finance
Location Offices Receivables Location Offices Receivables
<S> <C> <C> <C> <C> <C>
Alberta 9 5.6% Nova Scotia 15 13.6%
British Columbia 18 12.6 Ontario 39 30.3
Manitoba 4 2.9 Prince Edward Island 1 1.2
New Brunswick 11 8.0 Quebec 21 13.6
Newfoundland 12 8.6 Saskatchewan 4 3.6
134 100.0%
</TABLE>
<TABLE>
<CAPTION>
Community Credit Co.
Percent of Percent of
Consumer Consumer
Branch Finance Branch Finance
Location Offices Receivables Location Offices Receivables
<S> <C> <C> <C> <C> <C>
Arizona 3 6.4% Missouri 1 .6%
Colorado 3 6.5 Ohio 2 .5
Illinois 6 19.4 Oregon 1 .7
Indiana 2 2.0 Wisconsin 16 24.3
Minnesota 28 39.6
62 100.0%
</TABLE>
<PAGE> 6
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, 1995:
<TABLE>
<CAPTION>
Consumer Finance Receivables
and Number of Accounts Outstanding
<S> <C> <C> <C> <C> <C> <C>
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
1995 $4,740,524,000 16% 2,443,000 11% $1,940 1,029
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
</TABLE>
Loans Made and Acquired and Sales Finance Contracts Purchased
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
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
1995 $2,534,194,000 873,000 $2,903 $2,073,026,000 1,916,000 $1,082
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
</TABLE>
*Includes balances renewed of $794,796,000, $759,775,000, $680,357,000,
$480,030,000, and $392,683,000 for the years 1995 through 1991, respectively.
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.
<PAGE> 7
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. When a closed-end loan
(a loan which does not allow additional borrowings) with rates or fees above
a certain percentage or amount is secured by the borrower's principal dwelling,
additional disclosures must be given at least three business days before the
loan is consummated, and limits on prepayment penalties apply to the loan. The
Act also requires certain disclosures to applicants concerning credit reports
that are used as a basis for denying or increasing the charge for credit.
The Real Estate Settlement Procedures Act requires creditors to provide
consumers with estimates of closing costs and other disclosures before loans
secured by residential real estate are made and disclosures of the actual
closing costs at the time the loan is made.
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> 8
Business Methods
Loans are generally repayable in monthly installments and are made for periods
of 180 months or less. Sales finance contracts may 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, 1995, open-end sales finance contracts accounted for 55% 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 may 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 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 1995,
approximately 91% of the amount and 80% 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 1995, 63.6%
represented funds lent to borrowers who requested additional money while still
owing Norwest Financial. In the years 1994 through 1991, this figure was
63.5%, 64.1%, 64.4%, and 63.7%, respectively. In 1995, of the 870,000 loans
made by Norwest Financial, 414,000 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 $1,944; the average amount of the
old balance was $1,918. Norwest Financial's policy is that loans are not made
to present customers to cure a default in principal or interest.
<PAGE> 9
Through its network of branch offices, the Company buys sales finance contracts
from retail merchants across the United States, Canada, and Puerto Rico. The
contracts may finance a consumer's purchase of new furniture, appliances,
personal computers or, in the case of contracts bought by Community Credit Co.,
an automobile. Credit approvals are made by the branch office before the
contracts are purchased.
For consumer finance offices other than Community Credit Co., sales finance
contracts are the primary source of new customers for direct loans; of new
loans made in 1995, 76% were to current or former sales finance customers.
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 223,000 VISA or MasterCard
accounts at December 31, 1995; credit card receivables outstanding were $247.4
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 and Texas. 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 2,200 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, 1995, approximately 98,000 accounts
totaling $62.2 million were outstanding; $45.7 million of these receivables
were owned by Dial Bank.
Effective January 1, 1995, the Parent contributed Dial National Bank to the
Company. Dial National Bank is a federally-chartered bank located in Des
Moines, Iowa. The bank issues private label credit cards and dual-line Co-
Branded MasterCard credit cards for several national companies. The dual line
credit card serves as a private label credit card for use at any of the Co-
Branders' retail locations, as well as a traditional MasterCard credit card for
use at locations around the world. Dial National Bank had 180,000 accounts at
December 31, 1995; credit card receivables were $277.3 million.
Norwest Financial's average earned rates of charge on the average amount of
consumer receivables outstanding during each of years 1995 through 1991 were
21.56%, 21.76%, 22.55%, 22.49% and 21.97%, 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. Consumer receivables, other than finance receivables in Canada,
those owned by Community Credit Co., and other consumer receivables, comprise
74% of outstanding consumer receivables. These receivables, other than loans
secured by real estate over $25,000, 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. The remaining 26% of consumer receivables are written
off for financial reporting when certain delinquency criteria are met.
<PAGE> 10
<TABLE>
<CAPTION>
Information concerning consumer loss experience and allowance for losses is shown
below:
Years Ended December 31,
(In Thousands) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Allowance, beginning
of period $126,802 $114,876 $106,024 $ 77,562 $63,150
Write-offs:
Loans 93,549 75,124 74,835 57,582 54,958
Sales finance 37,118 23,920 21,221 17,684 18,147
Other 14,299 8,552 5,491 6,496 7,608
Total write-offs 144,966 107,596 101,547 81,762 80,713
Recoveries:
Loans 11,598 11,877 11,226 8,153 5,871
Sales finance 2,997 2,528 2,224 2,438 1,938
Other 1,312 850 501 737 448
Total recoveries 15,907 15,255 13,951 11,328 8,257
Provision for credit losses
charged to expense 143,467 107,931 96,448 78,591 81,485
Allowance related to
receivables acquired,
contributed or
(transferred) - net 10,898 (3,664) 20,305 5,383
Allowance, end of period:
Loans 81,193 76,256 71,809 68,212 44,512
Sales finance 54,365 40,696 35,417 28,912 24,600
Other 16,550 9,850 7,650 8,900 8,450
Total allowance $152,108 $126,802 $114,876 $106,024 $77,562
Ending receivables as
a percent of total
consumer receivables:
Loans 60% 66% 67% 70% 67%
Sales finance 29 28 28 26 28
Other 11 6 5 4 5
100% 100% 100% 100% 100%
Allowance as a percent of
ending receivables 2.86% 2.92% 2.90% 3.02% 2.65%
Write-offs after recoveries
as a percent of average
consumer receivables 2.66% 2.24% 2.41% 2.37% 2.69%
Consumer receivables
outstanding more
than three payments
contractually delinquent $101,693 $ 77,233 $ 73,541 $ 70,938 $55,635
</TABLE>
<PAGE> 11
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 certain affiliates. The Company
also offers involuntary unemployment insurance and non-filing insurance on an
agency basis in certain states. Under the Bank Holding Company Act of 1956,
the insurance underwriting activities of the Company's insurance subsidiaries
(other than the Company's foreign insurance subsidiary and 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.
The Company's casualty insurance subsidiaries are permitted under this Act to
underwrite non-filing insurance policies issued to Norwest or any of its
subsidiaries. In addition, the Company's foreign insurance subsidiary also
reinsures credit life or disability insurance written by non-affiliated
companies.
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> 12
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,
(In Thousands) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Premiums earned:
Life $39,174 $28,414 $26,141 $26,806 $24,085
Disability 47,732 37,060 34,932 31,724 28,009
Claim expense:
Life 13,528 10,074 10,381 8,903 7,671
Disability 16,715 13,773 14,048 11,785 10,289
Underwriting expense:
Life 2,994 1,853 1,961 3,564 3,117
Disability 4,462 2,998 3,618 4,594 3,900
Income from underwriting:
Life 22,652 16,487 13,799 14,339 13,297
Disability 26,555 20,289 17,266 15,345 13,820
</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 1995 through 1991 was $34,707,000; $31,838,000; $24,949,000;
$22,204,000; and $18,169,000, respectively.
<PAGE> 13
COMMERCIAL FINANCE OPERATIONS
At December 31, 1995, commercial finance receivables accounted for 9% 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, 1995:
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
1995 $409,882 $ 97,598 $507,480 1%
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)
Norwest Financial's average earned rates of charge on the average amount of
commercial finance receivables outstanding during each of the years 1995
through 1991 were 14.69%, 14.58%, 13.46%, 14.06%, and 14.74%, 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> 14
<TABLE>
<CAPTION>
Information concerning commercial loss experience and allowance for losses is shown
below:
Years Ended December 31,
(In Thousands) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Allowance, beginning
of period $9,150 $10,250 $11,550 $11,100 $10,625
Write-offs:
Leasing and other 2,706 1,790 3,726 3,750 4,348
Accounts receivable
financing 1,261 1,497 1,870 2,522 2,036
Total write-offs 3,967 3,287 5,596 6,272 6,384
Recoveries:
Leasing and other 851 547 757 1,416 838
Accounts receivable
financing 625 701 807 634 477
Total recoveries 1,476 1,248 1,564 2,050 1,315
Provision for credit losses
charged (credited) to expense (149) 939 2,732 4,672 5,544
Allowance, end of period:
Leasing and other 5,050 7,850 8,350 9,550 8,800
Accounts receivable
financing 1,460 1,300 1,900 2,000 2,300
Total allowance $6,510 $ 9,150 $10,250 $11,550 $11,100
Ending receivables as
a percent of total
commercial receivables:
Leasing and other 81% 81% 74% 75% 75%
Accounts receivable
financing 19 19 26 25 25
100% 100% 100% 100% 100%
Allowance as a percent of
ending receivables 1.28% 1.83% 2.00% 1.96% 1.76%
Write-offs after recoveries
as a percent of average
commercial finance
receivables .50% .43% .73% .71% .80%
</TABLE>
<PAGE> 15
Non-accrual commercial receivables totaled $3,299,000; $2,606,000; $5,349,000;
$6,864,000; and $17,125,000 at December 31, 1995 through 1991, respectively.
During 1995, 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 $383,000. The amount of finance charges and interest actually
recorded on these receivables during 1995 totaled $286,000.
Commercial receivables outstanding which were more than three payments
contractually delinquent and which were still accruing interest totaled
$1,025,000; $1,202,000; $1,443,000; $2,586,000; and $2,612,000 at
December 31, 1995 through 1991, 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.
NFLI also holds a portfolio of loans generally secured by commercial real
estate. At December 31, 1995, these loans totaled $38.7 million, a decrease
of $5.6 million for the year.
<PAGE> 16
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> 17
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,
equipment 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, 1995, NFISG had contracts
to supply information services to 27 other finance companies. On that date,
approximately 2,700 branch offices were being served and 6.1 million accounts
were being maintained on the system.
NFISG developed an enhancement to the system called SUPREME which replaced the
paper ledger card with video display units. SUPREME provides greater
efficiencies and enhanced customer service by adding a number of new
capabilities to the existing system. For example, delinquency lists, daily
collection work lists, solicitation lists, automated advertising, complete
application processing including retrieval of credit bureau reports, and
company-wide access of account records are a few of the automated features
provided by SUPREME. Twenty-one subscribing companies were utilizing SUPREME
at December 31, 1995. Norwest Financial has installed SUPREME in all of its
consumer finance branch offices in the United States and Canada. Overall, 5.7
million accounts in over 2,400 locations were being maintained on SUPREME at
December 31, 1995.
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, 1995.
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 1,200 locations for over 275
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> 18
ASSETS UNDER MANAGEMENT
Island Finance, a group of eight consumer finance companies headquartered in
San Juan, Puerto Rico, was acquired by Norwest in May 1995. Norwest Financial
manages Island Finance. Island Finance provides direct loans to individuals
through 130 consumer finance offices located in Puerto Rico, Panama, the
Netherlands Antilles, the U.S. Virgin Islands, Aruba, and Costa Rica.
Receivables outstanding on December 31, 1995, totaled $1.1 billion.
Island Finance's financial results and receivables are not included in the
Company's 1995 statement of consolidated earnings or consolidated balance
sheet, however, Norwest Financial provides a portion of the funding for Island
Finance. At December 31, 1995, Norwest Financial had term loans totaling $500
million with Island Finance Puerto Rico, Inc. ("IFPR"), one of the companies in
the Island Finance group. The loans have a weighted average interest rate of
8.80% and mature in 2000. IFPR is also a direct issuer of commercial paper
in the United States. At December 31, 1995, IFPR's commercial paper
outstanding totaled $572.5 million. Other entities in the Island Finance group
obtain funding by borrowing from commercial banks.
The number of consumer finance offices and percent of consumer finance
receivables are shown below:
Percent of
Consumer
Branch Finance
Location Offices Receivables
Aruba 3 2.1%
Costa Rica 2 .1
Netherlands Antilles 8 4.4
Panama 16 3.2
Puerto Rico 93 85.2
U.S. Virgin Islands 8 5.0
130 100.0%
In conjunction with the Island Finance acquisition, the Company also purchased
seven offices in Puerto Rico which are engaged in purchasing sales finance
contracts.
<PAGE> 19
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 68% of the Company's total
indebtedness at December 31, 1995. The remaining 32% includes commercial paper
with maturities of nine months or less (29%), and short-term debt to affiliates
and other short-term debt (3%).
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 1995 through 1991 without giving
effect to commitment fees relating to bank credit agreements were 6.74%,
6.22%, 6.41%, 7.29% and 8.33%, respectively. The corresponding figures after
giving effect to commitment fees were 6.76%, 6.25%, 6.45%, 7.33%, and 8.36%,
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,
<S> <C> <C> <C> <C> <C>
(Dollars in Thousands) 1995 1994 1993 1992 1991
Bank credit agreements
at December 31 $1,456,633 $1,147,700 $1,007,690 $737,500 $762,500
Number of credit agreements 38 34 35 34 36
Daily average outstanding:
Commercial paper $1,523,898 $1,180,649 $1,065,491 $862,620 $850,081
Other loans 6,211 4,962 87,761 1,368 1,948
Less excess funds
investments 41,331 26,097 15,436 10,181 10,708
Net average short-term
borrowings $1,488,778 $1,159,514 $1,137,816 $853,807 $841,321
Ratio of bank credit
agreements to above 98% 99% 89% 86% 91%
</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, 1995, and 1994.
<PAGE> 20
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,
1995 1994 1993 1992 1991
2.13 2.26 2.22 2.02 1.74
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, 1995, the Company and its subsidiaries employed
approximately 6,400 persons. Norwest Financial believes its employee
relations are excellent.
<PAGE> 21
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 facilities 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> 22
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 1995 and 1994, 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 1995 and 1994 was as follows:
(In Thousands) 1995 1994
First quarter $50,000 $40,000
Second quarter 35,000 32,368
Third quarter 45,000 20,000
Fourth quarter 15,000 1,303
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 $19 million of
consolidated retained earnings was unrestricted at December 31, 1995.
<TABLE>
<CAPTION>
Item 6. Selected Financial Data.
Years Ended December 31,
<S> <C> <C> <C> <C> <C>
(In Thousands) 1995 1994 1993 1992 1991
Operating revenues $1,419,358 $1,175,285 $1,079,719 $924,348 $839,506
Net earnings 267,941 223,340 203,297 164,204 130,880
December 31,
(In Thousands) 1995 1994 1993 1992 1991
Total assets $7,539,259 $6,124,742 $5,261,599 $4,804,062 $4,139,546
Long-term debt 4,081,531 3,092,623 2,741,692 2,406,186 2,266,658
</TABLE>
<PAGE> 23
Item 7. Management's Discussion and Analysis of Financial Condition and
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 (the "Contributed Subsidiaries"). These
capital contributions to the Company have been accounted for in a manner
similar to a pooling of interests, except that results of prior periods have
not been restated. Community Credit Co. is primarily engaged in consumer
finance including loans secured by real estate and not secured by real estate
and sales finance contracts arising from the sale of automobiles. Community
Credit Co. had 55 branch offices and assets of $213.6 million at January 1,
1995. Community Credit Co. was acquired by Norwest 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 the 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.
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. The Transferred Subsidiary had assets totaling
$147.1 million and 39 branch offices at the time of the transfer. The transfer
did not have a significant impact on the results of operations.
Norwest Financial's total income (revenue) increased 21% in 1995 and 9% in 1994
($1,419.4 million in 1995 compared with $1,175.3 million in 1994 and $1,079.7
million in 1993). Total income increased 15% in 1995 excluding the Contributed
Subsidiaries.
Income from finance charges and interest increased 16% in 1995 and 8% in 1994
($1,118.3 million in 1995 compared with $965.4 million in 1994 and $892.8
million in 1993). Income from finance charges and interest increased 9% in 1995
excluding the Contributed Subsidiaries. Changes in income from finance charges
and interest result primarily from (1) changes in the amount of finance
receivables outstanding and (2) changes in the rate of charge on those
receivables.
Increase (decrease) in average
finance receivables outstanding: 1995 1994
Consumer 18% 13%
Commercial 6 (14)
Total 16 10
Rate of charge on finance receivables: 1995 1994 1993
Consumer 21.56% 21.76% 22.55%
Commercial 14.69 14.58 13.46
Total 20.92 21.02 21.36
<PAGE> 24
Increases in income from finance charges and interest in both 1995 and 1994
were due primarily to growth in average consumer receivables outstanding. This
was offset in part by the decline in the consumer rate of charge. Average
consumer receivables outstanding comprise 91% of total average finance
receivables outstanding. Growth in average consumer receivables in 1995 and
1994 was due to regular business activity combined with the increase due to the
Contributed Subsidiaries. Excluding the Contributed Subsidiaries, average
consumer finance receivables increased 10%.
Changes in the earned rates of charge were due to changes in prevailing market
rates combined with a change in the portfolio mix.
Insurance premiums and commissions increased 21% in 1995 and 16% in 1994
($128.1 million in 1995 compared with $105.7 million in 1994 and $91.0 million
in 1993). 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 11% in 1995 and 10% in 1994. In addition,
beginning in the second quarter of 1995, one of the Company's insurance
subsidiaries began providing credit insurance as part of the consumer finance
business of several affiliates. Insurance premiums and commission on this
business were $10.4 million. Insurance losses and loss expenses increased 22%
in 1995 and 1% in 1994 ($39.2 million in 1995 compared with $32.2 million in
1994 and $31.9 million in 1993). The increase in 1995 was related to the
increase in insurance premiums and commissions. Lower insurance losses in
Canada due to a change in Canadian reinsurance agreements impacted insurance
loss and loss expenses in 1994. The Contributed Subsidiaries did not have a
significant effect on insurance premiums and commissions and insurance losses
and loss expenses.
Other income increased 66% in 1995 and 9% in 1994 ($173.0 million in 1995
compared with $104.3 million in 1994 and $95.9 million in 1993 ). Other income
would have increased 62% excluding the Contributed Subsidiaries. Income from
affiliates combined with an increase in investment income accounted for the
majority of the increase in 1995. Income from affiliates was $43.3 million in
1995 compared to $2.1 million in 1994. Income from affiliates corresponds with
the increase in notes receivable - affiliates. Effective May 4, 1995, Norwest
Financial, Inc. agreed to lend $500 million to an affiliate, Island Finance
Puerto Rico, Inc. This debt has a weighted average interest rate of 8.80% and
matures in 2000. The increase in 1994 is due primarily to an increase in
other fee income combined with an increase in investment income. Average
investments held increased 29% in 1995 and 13% in 1994.
Operating expenses increased 6% in 1995 and 9% in 1994 ($461.9 million
compared with $434.4 million in 1994 and $398.7 million in 1993). Operating
expenses increased 2% excluding the Contributed Subsidiaries. Norwest
Financial was operating 1,029 consumer finance branches at December 31, 1995
compared with 942 at both December 31, 1994, and 1993. However, expenses for
the 39 branches of the Transferred Subsidiary were included in 1994 until the
date of the transfer on November 1.
<PAGE> 25
Interest and debt expense increased 38% in 1995 and 7% in 1994 ($359.1 million
in 1995 compared with $259.6 million in 1994 and $242.4 million in 1993).
Changes in interest and debt expense result primarily from (1) changes in the
amount of borrowings outstanding due to funding requirements for receivables,
dividends, and notes receivable - affiliates and (2) changes in the cost of
those borrowings.
Increase in average debt outstanding: 1995 1994
Short-term 26% 3%
Long-term 27 17
Total 26 13
Cost of funds: 1995 1994 1993
Short-term 6.12% 4.65% 3.92%
Long-term 7.00 6.87 7.57
Total 6.74 6.22 6.41
Changes in average debt outstanding result primarily from the change in average
finance receivables outstanding combined, in 1995, with the change in average
notes receivable - affiliates. Average finance receivables increased 16% in
1995 and 10% in 1994. Average notes receivable - affiliates increased by $312
million in 1995 and $128 million in 1994.
Provision for credit losses increased 32% in 1995 and 10% in 1994 ($143.3
million in 1995 compared with $108.9 million in 1994 and $99.2 million in
1993). Provision for credit losses increased 26% in 1995 excluding the
Contributed Subsidiaries. Increases in average finance receivables outstanding
contributed to the increase in the provision for credit losses. Average
finance receivables increased 16% in 1995 and 10% in 1994. Net write-offs as
a percentage of average net receivables outstanding were 2.46% in 1995 compared
with 2.06% in 1994 and 2.19% in 1993.
Income taxes increased 26% in 1995 and 12% in 1994. The increases were due
primarily to increases in earnings before income taxes. The effective tax
rates were 35.6% in 1995, 34.4% in 1994, and 33.9% in 1993.
Borrowings constitute the largest part of Norwest Financial's capitalization.
At December 31, 1995, 85% of the Company's capital had been obtained from
borrowings and 15% from stockholder's equity. Sixty-eight percent of Norwest
Financial's borrowings was in fixed-rate term borrowings with original
maturities of more than one year. The remaining 32% includes commercial paper
with maturities of nine months or less (29%), and other short-term debt (3%).
At December 31, 1994, short-term borrowings comprised 37% of total borrowings.
This consisted of commercial paper with maturities of nine months or less (32%)
and short-term debt to affiliates and other short-term debt (5%). Short-term
borrowings as a percent of total borrowings averaged 29% in 1995 and 1994.
<PAGE> 26
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, 1995, lines of credit and revolving credit
agreements totaling $1,457 million were being maintained at 38 unaffiliated
banks; $80 million was unavailable on that date.
The Company and a Canadian subsidiary obtain its long-term debt capital
primarily from (i) the issuance of debt securities to the public through
underwriters on a firm-commitment basis, (ii) the issuance of debt securities
to institutional investors, and (iii) term borrowings from commercial banks.
The Company also obtains long-term debt from the issuance of medium term notes
(which may have maturities ranging from nine months to 30 years) through
underwriters (acting as agent or principal).
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.
<PAGE> 27
Item 8. Financial Statements and Supplementary Data.
NORWEST FINANCIAL, INC.
Consolidated Financial Statements
<PAGE> 28
This page was intentionally left blank.<PAGE> 29
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 the accompanying 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) and subsidiaries as
of December 31, 1995 and 1994, 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, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these 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
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
\s\Deloitte & Touche LLP
January 15, 1996
Deloitte Touche
Tohmatsu
International
<PAGE> 30
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31,
<S> <C> <C>
Assets 1995 1994
Cash and cash equivalents $ 72,991 $ 63,496
Marketable securities (note 2) 757,291 570,314
Finance receivables (note 3):
Consumer:
Loans 3,172,895 2,854,971
Sales finance contracts 1,567,629 1,225,389
Other 586,840 258,469
Commercial 507,480 500,270
Total finance receivables 5,834,844 4,839,099
Less allowance for credit losses (note 4) 158,618 135,952
Finance receivables - net 5,676,226 4,703,147
Notes receivable - affiliates (note 19) 552,005 376,886
Property and equipment (at cost, less
accumulated depreciation of $94,334 for
1995 and $81,030 for 1994) 63,888 58,342
Deferred income taxes (note 11) 40,072 63,387
Other receivables from affiliate (note 11) 31,643
Other assets 345,143 289,170
Total assets $7,539,259 $6,124,742
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 31
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31,
Liabilities and
Stockholder's Equity 1995 1994
<S> <C> <C>
Loans payable - short-term (note 5):
Commercial paper $1,739,683 $1,549,067
Other 218,800 201,977
Affiliates 35,946
Unearned insurance premiums and commissions (note 3) 140,020 128,812
Insurance claims and policy reserves (note 3) 34,683 32,287
Accrued interest payable 76,916 53,759
Other payables to affiliates (note 11) 4,705
Other liabilities 210,029 208,498
Long-term debt (note 6) 4,081,531 3,092,623
Total liabilities 6,501,662 5,307,674
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 90,766 71,413
Retained earnings (notes 10 and 11) 933,366 764,295
Foreign currency translation adjustment (5,393) (8,029)
Net unrealized holding gain (loss) on
marketable securities (note 2) 15,003 (14,466)
Total stockholder's equity 1,037,597 817,068
Total liabilites and
Stockholder's equity $7,539,259 $6,124,742
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 32
NORWEST FINANCIAL, INC.
Statements of Consolidated Earnings and Retained Earnings
(Thousands of Dollars)
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Income:
Finance charges and interest $1,118,265 $ 965,355 $ 892,761
Insurance premiums and commissions 128,093 105,672 91,045
Other income (note 2) 173,000 104,258 95,913
Total income 1,419,358 1,175,285 1,079,719
Expenses:
Operating expenses (note 14) 461,910 434,383 398,668
Interest and debt expense (note 7) 359,079 259,605 242,440
Provision for credit losses (note 4) 143,318 108,870 99,180
Insurance losses and loss expenses 39,237 32,187 31,906
Total expenses 1,003,544 835,045 772,194
Earnings before income taxes 415,814 340,240 307,525
Income taxes (note 11) 147,873 116,900 104,228
Net earnings 267,941 223,340 203,297
Retained earnings - January 1 764,295 634,626 571,329
1,032,236 857,966 774,626
Dividends (145,000) (93,671) (140,000)
Contributed Subsidiaries (note 1) 46,130
Retained earnings - December 31 $ 933,366 $ 764,295 $ 634,626
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 33
NORWEST FINANCIAL, INC.
Statements of Consolidated Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Thousands of Dollars)
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 267,941 $ 223,340 $ 203,297
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Provision for credit losses 143,318 108,870 99,180
Depreciation and amortization 25,404 27,339 26,086
Deferred income taxes 10,882 (38,843) (349)
Other receivables from affiliate (31,643)
Other assets (51,263) (30,942) (12,731)
Unearned insurance premiums and commissions 9,655 18,899 17,983
Insurance claims and policy reserves 1,479 3,438 (657)
Accrued interest payable 22,380 10,185 2,965
Other payables to affiliates (7,170) (1,663) (19,511)
Other liabilities (3,946) 70,284 19,602
Net cash flows from operating activities 387,037 390,907 335,865
Cash flows used for investing activities:
Finance receivables:
Principal collected 4,897,983 4,650,536 3,985,591
Receivables originated or purchased (5,728,651) (5,116,657) (4,448,544)
Proceeds from sales of marketable securities 99,959 81,945 35,314
Proceeds from maturities of marketable securities 60,216 69,005 134,355
Purchase of marketable securities (269,315) (270,864) (232,424)
Net additions to property and equipment (18,013) (14,399) (13,594)
Net increase in notes receivable - affiliates (356,325) (343,011) (19,087)
Contributed subsidiaries received, net of
cash and cash equivalents 2,477
Other (7,689) (22,728) (67,044)
Net cash flows used for investing activities (1,319,358) (966,173) (625,433)
Cash flows from financing activities:
Net increase in loans payable -
short-term 171,493 281,740 41,185
Proceeds from long-term debt:
Senior 1,229,411 955,961 698,332
Subordinated 45,000 100,000
Repayments of long-term debt:
Senior (233,438) (637,530) (360,956)
Subordinated (80,650) (12,500) (101,870)
Additional paid in capital 19,000
Dividends paid (145,000) (93,671) (140,000)
Net cash flows from financing activities 941,816 558,000 236,691
Net increase (decrease) in cash and cash equivalents 9,495 (17,266) (52,877)
Cash and cash equivalents beginning of period 63,496 80,762 133,639
Cash and cash equivalents end of period $ 72,991 $ 63,496 $ 80,762
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 34
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. 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 (the "Contributed Subsidiaries"). These capital
contributions to the Company have been accounted for in a manner similar
to a pooling of interests, except that results of prior periods have not
been restated. 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. Debt and equity securities are classified as
available for sale. Debt and equity securities classified as available
for sale are to be reported at fair value with net unrealized gains and
losses, net of deferred income taxes, excluded from earnings and recorded
as a separate component of stockholder's equity until realized. 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.
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.
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.
<PAGE> 35
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
1. Significant Accounting Policies, Continued:
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. Consumer receivables, other
than finance receivables in Canada, those owned by Community Credit Co.,
and other consumer receivables comprise 74% of outstanding consumer
receivables. These receivables, other than loans secured by real estate
over $25,000, 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. The remaining 26% of 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 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. Norwest Financial's funding
policy is to contribute no more than the maximum amount that can be
deducted for federal income tax purposes (note 12).
<PAGE> 36
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.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
<PAGE> 37
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
2. Marketable Securities.
The amortized cost and market value of marketable securities were:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
Amortized Market Amortized Market
(In Thousands) Cost Value Cost Value
<S> <C> <C> <C> <C>
U.S. Treasury and federal agencies $337,193 $344,368 $297,597 $279,519
States and political subdivisions 102,374 103,704 95,895 92,734
Other (corporate bonds, stocks,
and collateralized mortgage
obligations) 294,642 309,219 199,078 198,061
Total $734,209 $757,291 $592,570 $570,314
The gross unrealized gains and losses of marketable securities were:
December 31, 1995 December 31, 1994
Gross Unrealized Gross Unrealized
(In Thousands) Gains Losses Gains Losses
U.S. Treasury and federal agencies $ 7,548 $ 373 $ 345 $18,423
States and political subdivisions 1,371 41 297 3,458
Other (corporate bonds, stocks,
and collateralized mortgage
obligations) 16,282 1,705 5,950 6,967
Total $25,201 $2,119 $6,592 $28,848
The amortized cost and market values of marketable securities by maturity were:
December 31, 1995 December 31, 1994
Amortized Market Amortized Market
(In Thousands) Cost Value Cost Value
In one year or less $ 85,855 $ 87,674 $ 48,355 $ 46,371
After one year through five years 396,102 407,092 315,513 302,533
After five years through ten years 180,556 185,048 159,036 150,465
After ten years 71,696 77,477 69,666 70,945
Total $734,209 $757,291 $592,570 $570,314
</TABLE>
Norwest Financial computes realized gains and losses using the specific
identification method. Total gross realized gains and losses from the sale of
marketable securities were $8,057,000 and $1,260,000, respectively, in 1995;
$4,032,000 and $2,036,000, respectively, in 1994; and $3,311,000 and
$1,063,000, respectively, in 1993.
The carrying amounts of securities on deposit under statutory or other
requirements at December 31, 1995 and 1994, were $7,664,000 and $5,775,000,
respectively.
<PAGE> 38
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
2. Marketable Securities, Continued:
Interest and dividends from marketable securities and cash equivalents were
$49,613,000, $38,298,000, and $36,562,000 for the years ended December 31,
1995, 1994 and 1993, 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, 1995, 1994 and 1993, approximated $4,130,253,000,
$3,959,755,000, and $3,320,575,000, 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 $150,292,000 and
$143,249,000 at December 31, 1995, and 1994, respectively.
At December 31, 1995, contractual maturities of commercial receivables were as
follows: $206,611,000 were due in one year or less; $280,247,000 were due after
one year through five years, and $20,622,000 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 $489,220,000 and
$427,805,000 at December 31, 1995, and 1994, respectively.
<PAGE> 39
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) 1995 1994 1993
<S> <C> <C> <C>
Allowance for credit losses beginning of year $135,952 $125,126 $117,574
Provision for credit losses charged to expense 143,318 108,870 99,180
Write-offs: United States (127,689) (93,089) (88,100)
Canada (21,244) (17,794) (19,043)
Recoveries: United States 13,860 12,968 11,941
Canada 3,523 3,535 3,574
Allowance related to receivables contributed,
acquired, or transferred 10,898 (3,664)
Allowance for credit losses end of year $158,618 $135,952 $125,126
</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
$1,456,633,000 at December 31, 1995; $80,000,000 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, 1995, were to remain
in effect and unused throughout 1996, the Company would pay approximately
$1,037,000 in commitment fees.
<PAGE> 40
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>
1995 1994 1993
<S> <C> <C> <C>
Weighted average annual interest
rate on commercial paper and
other short-term debt:
During December 5.87% 5.86% 3.53%
During December after considering
the effect of commitment fees 5.93 5.94 3.64
For the year 6.10 4.53 3.80
For the year after considering
the effect of commitment fees 6.16 4.64 3.91
Average daily amount of commercial
paper and other short-term debt
outstanding during the year $1,530,109,000 $1,185,611,000 $1,154,724,000
Maximum amount of commercial paper
and other short-term debt
outstanding at any month-end
during the year $1,958,483,000 $1,751,044,000 $1,320,265,000
</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 from affiliates for the years 1995, 1994, and 1993 was
8.91%, 4.95%, and 4.65%, respectively.
<PAGE> 41
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
6. Long-term Debt.
Long-term debt outstanding:
<TABLE>
<CAPTION>
December 31,
(In Thousands) 1995 1994
<S> <C> <C>
Senior - United States:
4-5/8% due 1995 $ $ 75,000
7-1/4% due 1995 150,000
7.10 % due 1996 150,000 150,000
8.60 % due 1996 1,400
8.85 % due 1996 2,000
8-7/8% due 1996 100,000 100,000
6 % due 1997 150,000 150,000
6-1/4% due 1997 150,000 150,000
6-1/2% due 1997 150,000 150,000
6-1/2% due 1997 150,000 150,000
8.95 % due 1996-97 2,200
9.00 % due 1996-97 4,000
10.13% due 1996-97 1,100
5-1/2% due 1998 150,000 150,000
6.23 % due 1998 150,000
7.34 % due 1998 2,000
8-1/2% due 1998 100,000 100,000
6.20 % due 1999 75,000 75,000
6-1/4% due 1999 150,000 150,000
6-7/8% due 1999 100,000 100,000
6.99 % due 1996-99 10,200
9.50 % due 1997-99 10,000
5-1/8% due 2000 150,000 150,000
6-7/8% due 2000 150,000 150,000
7-1/4% due 2000 150,000
8-3/8% due 2000 150,000
7-3/4% due 2001 100,000 100,000
6-1/4% due 2002 200,000
7-7/8% due 2002 150,000
7.95 % due 2002 100,000 100,000
8.56 % due 1997-2002 10,000
6-1/8% due 2003 150,000 150,000
6.93 % due 1998-2003 15,000
7 % due 2003 150,000 150,000
6 % due 2004 150,000 150,000
6-3/4% due 2005 150,000
7-1/2% due 2005 150,000
6-1/4% due 2007 100,000
Total senior - United States 3,632,900 2,600,000
</TABLE>
<PAGE> 42
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
6. Long-term Debt, Continued:
Long-term debt outstanding, continued
<TABLE>
<CAPTION>
December 31,
(In Thousands) 1995 1994
<S> <C> <C>
Senior - Canada:
5.40 % due 1996 $ 7,332 $ 7,135
5.96 % due 1996 21,995 21,405
8.26 % due 1996 14,663 14,270
8.38 % due 1997 21,995
6.25 % due 1998 73,316 71,350
8.65 % due 1998 3,666 3,567
8.50 % due 1999 54,987 53,513
7.80 % due 2000 7,332
Total senior - Canada 205,286 171,240
Total senior 3,838,186 2,771,240
Senior subordinated - United States:
9.63 % due 1995 20,000
8.375% due 1996 25,000 25,000
7.34 % due 1998 2,000
9-5/8% due 1998 50,000
Medium-term notes* 190,000 200,000
Total senior subordinated 217,000 295,000
Other 26,345 26,383
Total long-term debt outstanding $4,081,531 $3,092,623
</TABLE>
* Medium-term notes outstanding have maturities ranging from 1996 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, 1995, 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 1996 through 2000 are
$469,340,000; $687,583,000; $538,868,000; $389,754,000; and $611,499,000,
respectively.
<PAGE> 43
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
7. Interest and Debt Expense.
Interest and debt expense is summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1995 1994 1993
<S> <C> <C> <C>
Short-term - affiliates $ 1,142 $ 626 $ 4,626
Short-term - commercial paper & other 93,780 54,027 44,282
Long-term 258,376 200,245 188,422
Amortization of debt expense 5,781 4,707 5,110
Total interest and debt expense $359,079 $259,605 $242,440
</TABLE>
8. Operations by Country.
The following is a summary of total income, earnings before income taxes, and
total assets by country: (Results for Puerto Rico sales finance branches and
Guam are included in United States amounts.)
(In Thousands) 1995 1994 1993
Total income:
United States $1,265,937 $1,050,069 $ 955,786
Canada 153,421 125,216 123,933
Total $1,419,358 $1,175,285 $1,079,719
Earnings before income taxes:
United States $ 362,581 $ 303,817 $ 267,982
Canada 53,233 36,423 39,543
Total $ 415,814 $ 340,240 $ 307,525
Total assets at December 31:
United States $6,982,254 $5,655,594 $4,825,416
Canada 557,005 469,148 436,183
Total $7,539,259 $6,124,742 $5,261,599
9. Leased Assets and Lease Commitments.
Lease terms are generally for three to seven years. Commitments at
December 31, 1995, under operating leases having initial or remaining lease
terms in excess of one year are estimated to approximate $37 million.
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 instru-
ments and many of the Company's bank credit agreements contain certain
requirements as to maintenance of net worth (as defined). Approximately $19
million of consolidated retained earnings was unrestricted at December 31,
1995.
<PAGE> 44
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
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. Current income taxes
receivable of $31.6 million was included in other receivables from affiliate
at December 31, 1995. Current income taxes payable of $4.7 million was
included in other payables to affiliates at December 31, 1994. The Company's
Canadian subsidiaries file separate federal and provincial returns in Canada.
At December 31, 1995, 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, 1995, was $7.8 million.
Income taxes for the years, 1995, 1994, and 1993 are composed of the
following elements:
Years Ended December 31,
(In Thousands) 1995 1994 1993
Current:
Federal $113,452 $113,168 $ 97,800
State 2,043 2,625 3,044
Foreign 21,915 11,601 3,733
Deferred:
Federal and state 13,239 (13,572) (13,818)
Foreign (2,776) 3,078 13,469
Total income taxes $147,873 $116,900 $104,228
Income before taxes from operations outside the United States was $53.2
million, $33.4 million, and $39.1 million for years ended December 31, 1995,
1994, and 1993, respectively.
Deferred income taxes are primarily due to leasing and lease financing, the
allowance for credit losses, accrued employee benefits and the net unrealized
holding gain (loss) on marketable securities.
<PAGE> 45
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
12. Retirement Plans.
The Company has a defined benefit pension plan which covers United States
employees who meet certain age and service requirements (the "NFI Plan").
Pension benefits provided are based on the employee's highest compensation in
three consecutive calendar years during the last ten calendar years of
employment. Benefits accrue under this plan at a rate of 1-1/4% for each
year of service.
The 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
Canadian/Quebec Pension Plan Earnings Ceiling for each year of service (not
to exceed 35 years of service).
<PAGE> 46
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
12. Retirement Plans, Continued:
The funded status and reconciliation to the balance sheet of the NFI Plan and
the TCC Plan, combined, for the year ended December 31, 1995 and of the NFI
Plan for the year ended December 31, 1994 are presented below:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1995 1994
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $49,518 and $33,003 at
December 31, 1995, and 1994, respectively $(58,500) $(40,947)
Projected benefit obligation for service
rendered to-date $(87,244) $(63,248)
Plan assets at fair value* 84,574 62,545
Plan assets less than projected
benefit obligation (2,670) (703)
Unrecognized net assets being
amortized through 2000. (1,690) (607)
Unrecognized prior service costs (920) (1,349)
Unrecognized net loss from past experience
different from that assumed and effects
of changes in assumptions 6,042 12,509
Prepaid pension cost at December 31 $ 762 $ 9,850
</TABLE>
* Consists primarily of marketable bonds and debentures and obligations
of the United States Government and its agencies and includes $252,000
of debt securities issued by the Company at December 31, 1994.
Assumptions used in the accounting for the NFI Plan were:
As of December 31,
1995 1994
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
Assumptions used in the accounting for the TCC Plan were:
As of December 31, 1995
Weighted average discount rate 8.0%
Expected long-term rate of return on assets 8.0
Rate of increase in future compensation levels 6.5
<PAGE> 47
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
12. Retirement Plans, Continued:
The components of net pension expense for the NFI Plan and TCC Plan,
combined, for 1995 and for the NFI Plan for 1994, and 1993 are presented
below:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1995 1994 1993
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 4,605 $3,216 $2,292
Interest cost on projected benefit obligation 5,944 4,168 3,571
Actual return on plan assets (12,474) (1,912) (3,760)
Net amortization and deferral* 10,292 1,602 2,081
Net periodic pension expense $ 8,367 $7,074 $4,184
</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 NFI 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 1995 and 1994.
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
dollar 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
$10,842,000, $11,500,000 and $9,330,000 for the years ended December 31,
1995, 1994, and 1993, respectively.
<PAGE> 48
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
13. Postretirement Benefits.
The Company provides certain health care and life benefits for substantially
all of its retired United States employees. In accordance with SFAS 106, the
Company has elected to recognize the transition obligation of approximately
$22.2 million over a period of twenty years.
The accumulated postretirement benefit obligation and reconciliation to the
balance sheet is presented below:
(In Thousands) Years ended December 31,
1995 1994
Retirees $ (8,798) $ (8,233)
Fully eligible plan participants (57) (48)
Other active plan participants (28,063) (22,129)
(36,918) (30,410)
Unrecognized transition obligation 18,901 20,012
Unrecognized net loss 2,483 1,532
Unrecognized prior service cost 802
Accrued postretirement benefit liability $(14,732) $ (8,866)
The Company has not funded any part of the accumulated postretirement benefit
obligation.
Net postretirement benefit expense consisted of the following components:
<TABLE>
<CAPTION>
(In Thousands) Years ended December 31,
<S> <C> <C> <C>
1995 1994 1993
Service cost - benefits earned
during the year $2,733 $2,085 $1,570
Interest cost on accumulated
postretirement benefit obligation 2,439 2,018 1,882
Amortization of transition obligation 1,112 1,112 1,112
Amortization of unrecognized net loss 545 383
Amortization of unrecognized prior
service cost 44
Net periodic postretirement
benefit expense $6,873 $5,598 $4,564
</TABLE>
<PAGE> 49
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
13. Postretirement Benefits, Continued:
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1995 was 10% for 1996
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, 1995 by approximately $7.8 million and
net postretirement benefit expense by $1.3 million for the year. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation was 7% at both December 31, 1995, and December 31, 1994.
14. Summary of Operating Expenses.
Following is a summary of operating expenses for the years 1995, 1994, and
1993:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1995 1994 1993
<S> <C> <C> <C>
Salaries $226,165 $195,903 $179,185
Other employee benefits 25,773 37,649 29,951
Depreciation and amortization 25,404 27,339 26,086
Rent - real estate leases 24,691 22,686 20,854
Payroll taxes 17,680 16,360 14,129
Data and voice communication 16,118 15,884 14,331
Collection and credit information 14,487 14,343 13,765
Postage 13,770 11,912 11,218
Advertising 13,404 12,731 11,137
Travel 8,825 8,646 10,319
Retirement Plan 8,367 8,434 4,184
Taxes other than income taxes 7,785 6,656 5,636
Stationery and supplies 7,497 7,319 6,694
Rent - data processing
equipment leases 5,636 6,556 9,585
Equipment repairs and maintenance 4,835 4,929 4,645
Management fees paid to Norwest
Corporation 3,835 2,321 2,199
Other 37,638 34,715 34,750
Total operating expenses $461,910 $434,383 $398,668
</TABLE>
<PAGE> 50
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
15. Statements of Consolidated Cash Flows.
The Company and its subsidiaries consider highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
Supplemental disclosure of certain cash flow information is presented below:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1995 1994 1993
<S> <C> <C> <C>
Cash paid for:
Interest $328,255 $242,386
$235,432
Income taxes 181,022 118,907
130,872
</TABLE>
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, 1995, the Company had 1,029
consumer finance offices in 46 states, Guam, Puerto Rico, and all ten
Canadian provinces compared with 942 consumer finance offices in 45 states,
Guam and ten Canadian provinces at December 31, 1994. Credit cards are
issued by Dial Bank to customers located nationwide. Dial National Bank
issues private label and dual-line Co-Branded credit cards nationwide.
Insurance premium financing is provided for liability and material damage
auto insurance in California, Arizona, Texas, 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.
<PAGE> 51
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Continued
17. Selected Quarterly Financial Data (Unaudited).
Selected quarterly financial data for 1995 and 1994 were as follows:
(In Thousands) Interest Provision
Total and Debt for Credit
Quarter Ended Income Expense Losses Net
Earnings
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
March 31, 1995 322,275 79,431 30,314 56,977
June 30, 1995 353,991 92,545 31,497 68,756
September 30, 1995 361,940 92,165 39,680 64,286
December 31, 1995 381,152 94,938 41,827 77,922
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, 1995, and 1994, 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.
<PAGE> 52
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements, Concluded
18. Fair Value of Financial Instruments, Continued:
Other Receivables from Affiliate and 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
receivables from affiliate and 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
$4,195,715,000 as of December 31, 1995 and $2,922,103,000 as of December
31, 1994.
19. Notes Receivable - Affiliates.
Notes receivable - affiliates were $552,005,000 and $376,886,000 at
December 31, 1995, and 1994, respectively. Notes receivable - affiliates
include a combination of short-term and long-term notes receivable.
Effective May 4, 1995, Norwest Financial, Inc. made term loans totaling
$500 million to an affiliate, Island Finance Puerto Rico, Inc. The loans
have a weighted average interest rate of 8.80% and mature in 2000. The
remainder of notes outstanding at December 31, 1995 and the notes
outstanding at December, 1994, earn interest at rates that approximate the
cost of borrowings of the Company.
<PAGE> 53
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, 1995, and 1994.
b. Statements of consolidated earnings and retained earnings for
the years ended December 31, 1995, 1994, and 1993.
c. Statements of consolidated cash flows for the years ended
December 31, 1995, 1994, and 1993.
(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> 54
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, 1995, 1994, 1993, 1992, and 1991.
*(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.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the last
quarter of the period covered by this report.
<PAGE> 55 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
13th day of March 1996.
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 13th day of March 1996.
\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
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)
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net earnings $267,941 $223,340 $203,297 $164,204 $130,880
Add:
Fixed charges:
Interest including
amortization of
debt expense 359,079 259,605 242,440 236,337 255,075
One-third of
rentals* 10,317 9,747 10,146 8,207 7,209
Total fixed
charges 369,396 269,352 252,586 244,544 262,284
Provision for
income taxes 147,873 116,900 104,228 84,334 63,985
Total net earnings,
fixed charges and
income taxes -
"Earnings" $785,210 $609,592 $560,111 $493,082 $457,149
Ratio of earnings
to fixed charges 2.13 2.26 2.22 2.02 1.74
</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.
33-62635 and No. 33-52157 of Norwest Financial, Inc. on Form S-3 of our report
dated January 15, 1996, appearing in the Annual Report on Form 10-K of Norwest
Financial, Inc. for the year ended December 31, 1995.
\s\ Deloitte & Touche LLP
March 13, 1996
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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 72,991
<SECURITIES> 757,291
<RECEIVABLES> 5,834,844
<ALLOWANCES> 158,618
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 158,222
<DEPRECIATION> 94,334
<TOTAL-ASSETS> 7,539,259
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 6,040,014<F2>
<COMMON> 3,855
0
0
<OTHER-SE> 1,033,742
<TOTAL-LIABILITY-AND-EQUITY> 7,539,259
<SALES> 0
<TOTAL-REVENUES> 1,419,358
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 501,147
<LOSS-PROVISION> 143,318
<INTEREST-EXPENSE> 359,079
<INCOME-PRETAX> 415,814
<INCOME-TAX> 147,873
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 267,941
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>NORWEST FINANCIAL INC HAS A NON-CLASSIFIED BALANCE SHEET
SO THIS INFORMATION IS UNAVAILABLE.
<F2>INCLUDES $2.0 BILLION OF SHORT-TERM LOANS
</FN>
</TABLE>
