<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1996 Commission file number 2-80466
Norwest Financial, Inc.
(Exact name of registrant as specified in its charter)
Iowa 42 1186565
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
206 Eighth Street, Des Moines, Iowa 50309
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (515) 243-2131
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock (without par
value): 1,000 shares outstanding as of August 1, 1996.
The registrant meets the conditions set forth in General Instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
<PAGE> 2
PART I. FINANCIAL INFORMATION
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets
(Thousands of Dollars)
(Unaudited)
June 30, December 31,
Assets 1996 1995
Cash and cash equivalents $ 92,415 $ 72,991
Marketable securities 774,311 757,291
Finance receivables:
Consumer:
Loans 3,222,635 3,172,895
Sales finance 1,569,279 1,567,629
Other 497,880 586,840
Commercial 491,396 507,480
Total finance receivables 5,781,190 5,834,844
Less allowance for credit losses 163,532 158,618
Finance receivables - net 5,617,658 5,676,226
Notes receivable - affiliates 638,684 552,005
Property and equipment (at cost, less
accumulated depreciation of $91,863
for 1996 and $94,334 for 1995) 66,735 63,888
Deferred income taxes 49,238 40,072
Other receivables from affiliate 31,643
Other assets 194,584 345,143
Total assets $7,433,625 $7,539,259
See accompanying notes to consolidated financial statements.
<PAGE> 3
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets
(Thousands of Dollars)
(Unaudited)
June 30, December 31,
Liabilities and
Stockholder's Equity 1996 1995
Loans payable - short-term:
Commercial paper $1,745,946 $1,739,683
Affiliates 24,560
Other 218,800
Unearned insurance premiums and commissions 136,099 140,020
Insurance claims and policy reserves 37,913 34,683
Accrued interest payable 77,672 76,916
Other payables to affiliates 74,254
Other liabilities 242,997 210,029
Long-term debt:
Senior 3,844,503 3,864,531
Subordinated 197,000 217,000
Subordinated - Affiliate 50,000
Total long-term debt 4,091,503 4,081,531
Total liabilities 6,430,944 6,501,662
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 90,766
Retained earnings (note 2) 912,363 933,366
Foreign currency translation adjustment (5,346) (5,393)
Net unrealized holding gain
on marketable securities 1,043 15,003
Total stockholder's equity 1,002,681 1,037,597
Total liabilities and
stockholder's equity $7,433,625 $7,539,259
See accompanying notes to consolidated financial statements.
<PAGE> 4
NORWEST FINANCIAL, INC.
Statements of Consolidated Earnings (Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Income:
Finance charges and interest $296,939 $275,351 $593,364 $543,426
Insurance premiums and commissions 34,553 30,331 67,631 58,148
Other income (note 3) 46,618 46,428 91,443 74,692
Total income 378,110 352,110 752,438 676,266
Expenses:
Operating expenses 128,276 114,263 254,416 228,487
Interest and debt expense 92,703 90,664 187,407 171,976
Provision for credit losses 43,884 31,497 89,836 61,811
Insurance losses and loss expenses 10,147 8,639 20,037 18,192
Total expenses 275,010 245,063 551,696 480,466
Earnings before income taxes 103,100 107,047 200,742 195,800
Income taxes 36,102 38,291 71,745 70,067
Net earnings $ 66,998 $ 68,756 $128,997 $125,733
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
NORWEST FINANCIAL, INC.
Statements of Consolidated Cash Flows (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(Thousands of Dollars)
Six Months Ended June 30,
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 128,997 $ 125,733
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Provision for credit losses 89,836 61,811
Depreciation and amortization 13,665 12,837
Deferred income taxes (1,596) 2,540
Other receivables from affiliate 31,643
Other assets 20,270 5,866
Unearned insurance premiums
and commissions (3,921) 9,398
Insurance claims and policy reserves 3,230 2,159
Accrued interest payable 756 18,616
Other payables to affiliates 74,254 (4,034)
Other liabilities 32,968 1,519
Net cash flows from operating activities 390,102 236,445
Cash flows from investing activities:
Finance receivables:
Principal collected 2,802,231 2,408,966
Receivables originated or purchased (2,833,499) (2,660,637)
Proceeds from sales of marketable securities 85,358 34,531
Proceeds from maturities of
marketable securities 26,855 17,497
Purchase of marketable securities (150,763) (96,025)
Net additions to property and equipment (10,658) (11,584)
Net increase in notes receivable - affiliates (86,679) (430,374)
Contributed subsidiaries received, net of
cash and cash equivalents 2,477
Other 124,314 124,520
Net cash flows used for investing activities (42,841) (610,629)
Cash flows from financing activities:
Net decrease in loans payable -
short term (187,977) (207,273)
Proceeds from issuance of long-term debt:
Senior 779,411
Subordinated - affiliate 50,000
Repayments of long-term debt:
Senior (19,860) (5,438)
Subordinated (20,000) (30,000)
Dividends paid (150,000) (85,000)
Net cash flows from (used for)
financing activities (327,837) 451,700
Net increase in cash and cash equivalents 19,424 77,516
Cash and cash equivalents beginning of period 72,991 63,496
Cash and cash equivalents end of period $ 92,415 $ 141,012
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements (Unaudited)
The accompanying unaudited financial statements and notes have been prepared
in accordance with the accounting policies set forth in Norwest Financial,
Inc.'s 1995 Annual Report on Form 10-K and should be read in conjunction with
the Notes to Consolidated Financial Statements therein. In the opinion of
management, all adjustments (none of which were other than normal recurring
accruals) necessary to present fairly the financial statements for the periods
presented have been included.
1. Principles of Consolidation.
The consolidated financial statements include the accounts of Norwest
Financial, Inc. (the "Company") and subsidiaries. Intercompany accounts and
transactions are eliminated. The Company is a wholly-owned subsidiary of
Norwest Financial Services, Inc. which is a wholly-owned subsidiary of Norwest
Corporation.
2. Dividend Restrictions.
Certain of the Company's bank credit agreements contain requirements as to
maintenance of net worth (as defined). Approximately $52 million of
consolidated retained earnings was unrestricted at June 30, 1996.
3. Other Income.
Income from affiliates was $13.6 million and $15.2 million for the quarters
ended June 30, 1996 and 1995, respectively, and $28.3 million and $17.1 million
for the six months ended June 30, 1996 and 1995, respectively.
Interest and dividends from marketable securities and cash equivalents were
$12.9 million and $13.0 million for the quarters ended June 30, 1996 and 1995,
respectively and $25.7 million and $24.6 million for the six months ended June
30, 1996 and 1995, respectively.
4. Reclassifications.
Certain amounts in the 1995 financial statements have been reclassified to
conform to the presentation used in the 1996 financial statements.
<PAGE> 7
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Norwest Financial's performance for the second quarter of 1996 closely
paralleled performance for the first six months of 1996. The discussion and
analysis that follows, therefore, is limited to a discussion of the first six
months as a whole and does not include a separate discussion of the second
quarter unless otherwise noted.
Norwest Financial's total income (revenue) increased 11% for the first six
months ($752.4 million in the first six months of 1996 compared with $676.3
million in the first six months of 1995).
Income from finance charges and interest increased 9% for the first six months
($593.4 million in the first six months of 1996 compared with $543.4 million
in the first six months of 1995). Changes in income from finance charges and
interest result primarily from (1) changes in the amount of finance receivables
outstanding and (2) changes in the rate of charge on those receivables. In
total, average finance receivables outstanding in the first six months of 1996
increased 11% from the first six months of 1995; average consumer receivables
outstanding increased 12% while average commercial receivables outstanding
remained the same.
Six Months Ended June 30,
Rate of charge on finance receivables: 1996 1995
Consumer 21.16% 21.60%
Commercial 14.99 14.77
Total 20.62 20.95
The increase in income from finance charges and interest was due to growth in
average finance receivables outstanding offset somewhat by the decline in the
rate of charge. The increase in average finance receivables was due primarily
to regular business activity.
Insurance premiums and commissions increased 16% ($67.6 million in the first
six months of 1996 compared with $58.1 million in the first six months of
1995). Changes in insurance premiums and commissions generally correspond to
changes in average consumer finance loans outstanding (those secured by real
estate and not secured by real estate). Average consumer finance loans
outstanding increased 6% in the first six months of 1996 compared with the
first six months of 1995. In addition, Norwest Financial began providing
credit insurance as part of the consumer finance business of several affiliates
in the second quarter of 1995 and a non-related company in the fourth quarter
of 1995. Insurance premiums and commissions on these arrangements were $8.8
million in the first six months of 1996 compared with $1.4 million in the first
six months of 1995. Insurance losses and loss expenses increased 10% ($20.0
million in the first six months of 1996 compared with $18.2 million in the
first six months of 1995). Insurance losses and loss expenses on the new
insurance arrangements noted above were $1.0 million in the first six months
of 1996 compared with $.1 million in the first six months of 1995.
<PAGE> 8
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
Other income increased 22% ($91.4 million in the first six months of 1996
compared with $74.7 million in the first six months of 1995). Income from
affiliates was $28.3 million in the first six months of 1996 compared with
$17.1 million in the first six months of 1995. Changes in income from
affiliates result from changes in notes receivable - affiliate combined with
management fees charged to affiliates. Average notes receivable - affiliate
increased $255 million from the first six months of 1995. Effective May 4,
1995, Norwest Financial, Inc. agreed to lend $500 million in term loans to an
affiliate, Island Finance Puerto Rico, Inc. This debt has a weighted average
interest rate of 8.80% and matures in 2000. Other income remained about the
same in the second quarter of 1996 compared with the second quarter of 1995
($46.6 million compared with $46.4 million). Income from affiliates was $13.6
million in the second quarter of 1996 compared with $15.2 million in the second
quarter of 1995.
Operating expenses increased 11% ($254.4 million in the first six months of
1996 compared with $228.5 million in the first six months of 1995). The
increase was due primarily to increases in employee compensation and benefits
and other costs resulting from business expansion. At June 30, 1996, Norwest
Financial was operating 1,047 consumer finance branch offices compared with
1,024 at June 30, 1995.
Interest and debt expense increased 9% ($187.4 million in the first six months
of 1996 compared with $172.0 million in the first six months of 1995). 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. Average total outstanding borrowings in the first six months
of 1996 increased 14% from the first six months of 1995.
Six Months Ended June 30,
Costs of funds: 1996 1995
Short-term 5.44% 6.31%
Long-term 6.94 7.00
Total 6.50 6.79
Changes in average debt outstanding generally corresponds to changes in average
finance receivables outstanding combined with the change in notes receivable -
affiliates. Average finance receivables increased 11% from the first six
months of 1995. Average notes receivable - affiliates increased by $255
million from the first six months of 1995. Interest and debt expense increased
2% in the second quarter of 1996 compared with the second quarter of 1995
($92.7 million compared with $90.7 million). Average total outstanding
borrowings in the second quarter of 1996 increased 8% from the second quarter
of 1995. The total cost of funds was 6.48% in the second quarter of 1996
compared with 6.83% in the second quarter of 1995.
Provision for credit losses increased 45% ($89.8 million in the first six
months of 1996 compared with $61.8 million in the first six months of 1995).
Net write-offs as a percentage of average net receivables outstanding increased
to 1.51% in the first six months of 1996 compared with 1.12% in the first six
months of 1995.
<PAGE> 9
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Concluded
Federal and state income taxes increased 2% ($71.7 million in the first six
months of 1996 compared with $70.1 million in the first six months of 1995).
The increase was due primarily to the increase in earnings before income taxes.
The effective tax rate was 35.7% for the first six months of 1996 and 35.8% for
the first six months of 1995. Federal and state income taxes decreased 6% in
the second quarter of 1996 compared with the second quarter of 1995 ($36.1
million compared with $38.3 million). The effective tax rate was 35.0% for the
second quarter of 1996 and 35.8% for the second quarter of 1995.
The Company and one of its Canadian subsidiaries maintain bank lines of credit
and revolving credit agreements to provide an alternative source of liquidity
to support the commercial paper borrowings. At June 30, 1996, lines of credit
and revolving credit agreements totaling $1,328 million were being maintained
at 32 unaffiliated banks. None of this credit was in use at the time.
The Company and one of its Canadian subsidiaries obtain long-term debt capital
primarily from (i) the issuance of debt securities to the public through
underwriters on a firm-commitment basis, (ii) the issuance of debt securities
to institutional investors, and (iii) term borrowings from commercial banks.
The Company also obtains long-term debt from the issuance of medium-term notes
(which may have maturities ranging from nine months to 30 years) through
underwriters (acting as agent or principal).
Norwest Financial anticipates the continued availability of borrowed funds, at
prevailing interest rates, to provide for Norwest Financial's growth in the
foreseeable future. Funds are also generated internally from payments of
principal and interest received on Norwest Financial's finance receivables.
<PAGE> 10
PART II. OTHER INFORMATION
NORWEST FINANCIAL, INC.
Item 5. Other Information.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges of
Norwest Financial, Inc. and its subsidiaries for the periods indicated:
Six Months Ended Years Ended December 31,
June 30, 1996 1995 1994 1993 1992 1991
2.04 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).
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit (12) Computation of ratios of earnings to fixed charges for the
years ended December 31, 1995, 1994, 1993, 1992 and 1991
and the six months ended June 30, 1996.
(b) Reports on 8-K.
No reports on Form 8-K were filed during the quarter for which this report
is filed.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORWEST FINANCIAL, INC.
Date: August 1, 1996
By \S\ Robert W. Bettle
Robert W. Bettle
Vice President and Controller
(Principal Accounting Officer)
NORWEST FINANCIAL, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Exhibit (12)
<TABLE>
<CAPTION>
Six
Months
Ended
June 30,
1996 Years Ended December 31,
(Thousands of Dollars)
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Net earnings $128,997 $267,941 $223,340 $203,297 $164,204 $130,880
Add:
Fixed charges:
Interest including
amortization of
debt expense 187,407 359,079 259,605 242,440 236,337 255,075
One-third of
rentals* 5,357 10,317 9,747 10,146 8,207 7,209
Total fixed
charges 192,764 369,396 269,352 252,586 244,544 262,284
Provision for
income taxes 71,745 147,873 116,900 104,228 84,334 63,985
Total net earnings,
fixed charges and
income taxes -
"Earnings" $393,506 $785,210 $609,592 $560,111 $493,082 $457,149
Ratio of earnings
to fixed charges 2.04 2.13 2.26 2.22 2.02 1.74
</TABLE>
*One-third of rentals is deemed representative of the interest factor.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORWEST
FINANCIAL INC AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 92,415
<SECURITIES> 774,311
<RECEIVABLES> 5,781,190
<ALLOWANCES> 163,532
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 158,598
<DEPRECIATION> 91,863
<TOTAL-ASSETS> 7,433,625
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 5,862,009<F2>
0
0
<COMMON> 3,855
<OTHER-SE> 998,826
<TOTAL-LIABILITY-AND-EQUITY> 7,433,625
<SALES> 0
<TOTAL-REVENUES> 752,438
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 274,453
<LOSS-PROVISION> 89,836
<INTEREST-EXPENSE> 187,407
<INCOME-PRETAX> 200,742
<INCOME-TAX> 71,745
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128,997
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>NORWEST FINANCIAL INC HAS A NON-CLASSIFIED BALANCE SHEET
SO THIS INFORMATION IS UNAVAILABLE.
<F2>INCLUDES $1.8 BILLION OF SHORT-TERM LOANS
</FN>
</TABLE>
