<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 March 31, 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 May 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 (Unaudited)
(Thousands of Dollars)
March 31, December 31,
Assets 1996 1995
Cash and cash equivalents $ 105,289 $ 72,991
Marketable securities 762,294 757,291
Finance receivables:
Consumer:
Loans 3,142,736 3,172,895
Sales finance 1,508,997 1,567,629
Other 560,843 586,840
Commercial 493,869 507,480
Total finance receivables 5,706,445 5,834,844
Less allowance for credit losses 161,072 158,618
Finance receivables - net 5,545,373 5,676,226
Notes receivable - affiliates 529,109 552,005
Property and equipment (at cost, less
accumulated depreciation of $97,482
for 1996 and $94,334 for 1995) 64,399 63,888
Deferred income taxes 50,372 40,072
Other receivables from affiliate 31,643
Other assets 181,806 345,143
Total assets $7,238,642 $7,539,259
See accompanying notes to consolidated financial statements.
<PAGE 3>
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets (Unaudited)
(Thousands of Dollars)
March 31, December 31,
Liabilities and
Stockholder's Equity 1996 1995
Loans payable - short-term:
Commercial paper $1,683,609 $1,739,683
Other 218,800
Unearned insurance premiums and commissions 134,330 140,020
Insurance claims and policy reserves 35,367 34,683
Accrued interest payable 78,608 76,916
Other payables to affiliates 4,839
Other liabilities 218,168 210,029
Long-term debt:
Senior 3,850,519 3,864,531
Subordinated 217,000 217,000
Total long-term debt 4,067,519 4,081,531
Total liabilities 6,222,440 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) 920,365 933,366
Foreign currency translation adjustment (4,948) (5,393)
Net unrealized holding gain
on marketable securities 6,164 15,003
Total stockholder's equity 1,016,202 1,037,597
Total liabilities and
stockholder's equity $7,238,642 $7,539,259
See accompanying notes to consolidated financial statements.
<PAGE 4>
NORWEST FINANCIAL, INC.
Statements of Consolidated Earnings (Unaudited)
(Thousands of Dollars)
Three Months Ended March 31,
1996 1995
Income:
Finance charges and interest $296,425 $268,075
Insurance premiums and commissions 33,078 27,817
Other income (note 3) 44,825 28,264
Total income 374,328 324,156
Expenses:
Operating expenses 126,140 114,224
Interest and debt expense 94,704 81,312
Provision for credit losses 45,952 30,314
Insurance losses and loss expenses 9,890 9,553
Total expenses 276,686 235,403
Earnings before income taxes 97,642 88,753
Income taxes 35,643 31,776
Net earnings $ 61,999 $ 56,977
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)
Three Months Ended March 31,
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 61,999 $ 56,977
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Provision for credit losses 45,952 30,314
Depreciation and amortization 6,773 6,364
Deferred income taxes (5,396) 3,054
Other receivables from affiliate 31,643
Other assets 26,730 3,016
Unearned insurance premiums
and commissions (5,690) (778)
Insurance claims and policy reserves 684 970
Accrued interest payable 1,692 12,197
Other payables to affiliates 4,839 18,564
Other liabilities 8,139 (32,228)
Net cash flows from operating activities 177,365 98,450
Cash flows from investing activities:
Finance receivables:
Principal collected 1,393,407 1,208,168
Receivables originated or purchased (1,308,506) (1,273,225)
Proceeds from sales of marketable securities 49,825 8,612
Proceeds from maturities of
marketable securities 14,461 12,375
Purchase of marketable securities (83,032) (37,422)
Net additions to property and equipment (4,343) (3,004)
Net decrease in note receivable - affiliates 22,896 51,197
Contributed subsidiaries received, net of
cash and cash equivalents 2,477
Other 134,559 122,421
Net cash flows used for investing activities 219,267 91,599
Cash flows from financing activities:
Net decrease in loans payable -
short term (274,874) (546,923)
Proceeds from issuance of long-term debt-
Senior 450,000
Repayments of long-term debt-
Senior (14,460) (38)
Dividends paid (75,000) (50,000)
Net cash flows used for financing activities (364,334) (146,961)
Net increase in cash and cash equivalents 32,298 43,088
Cash and cash equivalents beginning of period 72,991 63,496
Cash and cash equivalents end of period $ 105,289 $ 106,584
</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 $58 million of
consolidated retained earnings was unrestricted at March 31, 1996.
3. Other Income.
Income from affiliates was $14.7 million and $1.9 million for the three months
ended March 31, 1996 and 1995, respectively.
Interest and dividends from marketable securities and cash equivalents were
$12.7 million and $11.6 million for the three months ended March 31, 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 total income (revenue) increased 15% for the first three
months ($374.3 million in the first three months of 1996 compared with $324.2
million in the first three months of 1995).
Income from finance charges and interest increased 11% for the first three
months ($296.4 million in the first three months of 1996 compared with $268.1
million in the first three 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
three months of 1996 increased 13% from the first three months of 1995; average
consumer receivables outstanding increased 14% while average commercial
receivables outstanding increased 1%.
Three Months Ended March 31,
Rate of charge on finance receivables: 1996 1995
Consumer 21.00% 21.47%
Commercial 14.87 14.85
Total 20.47 20.83
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 19% ($33.1 million in the first
three months of 1996 compared with $27.8 million in the first three 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 7% in the first three months of 1996 compared with the
first three 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 $4.3
million in the first three months of 1996. Insurance losses and loss expenses
increased 4% ($9.9 million in the first three months of 1996 compared with $9.6
million in the first three months of 1995). Insurance losses and loss expenses
on the new insurance arrangements noted above were $.4 million in the first
three months of 1996.
<PAGE 8>
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
Other income increased 59% ($44.8 million in the first three months of 1996
compared with $28.3 million in the first three months of 1995). Income from
affiliates was $14.7 million in the first three months of 1996 compared with
$1.9 million in the first three 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 $347 million from the first three 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.
Operating expenses increased 10% ($126.1 million in the first three months of
1996 compared with $114.2 million in the first three months of 1995). The
increase was due primarily to increases in employee compensation and benefits
and other costs resulting from business expansion. At March 31, 1996, Norwest
Financial was operating 1,024 consumer finance branch offices compared with
1,003 at March 31, 1995.
Interest and debt expense increased 16% ($94.7 million in the first three
months of 1996 compared with $81.3 million in the first three 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 three
months of 1996 increased 20% from the first three months of 1995.
Three Months Ended March 31,
Costs of funds: 1996 1995
Short-term 5.51% 6.27%
Long-term 6.94 6.96
Total 6.52 6.75
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 13% from the first three
months of 1995. Average notes receivable - affiliates increased by $347
million from the first three months of 1995.
Provision for credit losses increased 52% ($46.0 million in the first three
months of 1996 compared with $30.3 million in the first three months of 1995).
Net write-offs as a percentage of average net receivables outstanding increased
to .77% in the first three months of 1996 compared with .57% in the first three
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 12% ($35.6 million in the first three
months of 1996 compared with $31.8 million in the first three months of 1995).
The increase was due primarily to the increase in earnings before income taxes.
The effective tax rate was 36.5% for the first three months of 1996 and 35.8%
for the first three months 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 March 31, 1996, lines of credit
and revolving credit agreements totaling $1,329 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:
Three Months Ended Years Ended December 31,
March 31, 1996 1995 1994 1993 1992 1991
2.00 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 three months ended March 31, 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: May 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>
Three
Months
Ended
March 31,
1996 Years Ended December 31,
(Thousands of Dollars)
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Net earnings $ 61,999 $267,941 $223,340 $203,297 $164,204 $130,880
Add:
Fixed charges:
Interest including
amortization of
debt expense 94,704 359,079 259,605 242,440 236,337 255,075
One-third of
rentals* 2,605 10,317 9,747 10,146 8,207 7,209
Total fixed
charges 97,309 369,396 269,352 252,586 244,544 262,284
Provision for
income taxes 35,643 147,873 116,900 104,228 84,334 63,985
Total net earnings,
fixed charges and
income taxes -
"Earnings" $194,951 $785,210 $609,592 $560,111 $493,082 $457,149
Ratio of earnings
to fixed charges 2.00 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 105,289
<SECURITIES> 762,294
<RECEIVABLES> 5,706,445
<ALLOWANCES> 161,072
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 161,881
<DEPRECIATION> 97,482
<TOTAL-ASSETS> 7,238,642
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 5,751,128<F2>
0
0
<COMMON> 3,855
<OTHER-SE> 1,012,347
<TOTAL-LIABILITY-AND-EQUITY> 7,238,642
<SALES> 0
<TOTAL-REVENUES> 374,328
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 136,030
<LOSS-PROVISION> 45,952
<INTEREST-EXPENSE> 94,704
<INCOME-PRETAX> 97,642
<INCOME-TAX> 35,643
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,999
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>NORWEST FINANCIAL INC HAS A NON-CLASSIFIED BALANCE SHEET
SO THIS INFORMATION IS UNAVAILABLE.
<F2>INCLUDES $1.7 BILLION OF SHORT-TERM LOANS
</FN>
</TABLE>
