<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1999 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 or 15(d) 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 13, 1999.
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)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1999 1998
<S> <C> <C>
Cash and cash equivalents $ 169,017 $ 139,184
Securities available-for-sale 1,223,802 1,203,500
Finance receivables 8,283,015 8,270,227
Less allowance for credit losses 357,213 350,984
Finance receivables - net 7,925,802 7,919,243
Notes receivable - affiliates 442,043 499,123
Property and equipment (at cost, less
accumulated depreciation of $139,035
for 1999 and $135,105 for 1998) 210,604 187,695
Deferred income taxes 68,433 60,717
Other receivables from affiliates 17,796
Other assets 424,242 506,745
Total assets $10,481,739 $10,516,207
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets (Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
Liabilities and
Stockholder's Equity 1999 1998
<S> <C> <C>
Loans payable - short-term:
Commercial paper $2,662,031 $2,662,321
Affiliates 251,363 194,453
Other 47,478 237,467
Unearned insurance premiums
and commissions 131,689 132,793
Insurance claims and policy reserves 30,377 29,750
Accrued interest payable 105,546 96,482
Other payables to affiliates 44,173
Other liabilities 331,696 280,737
Senior long-term debt 5,334,022 5,272,818
Total liabilities 8,894,202 8,950,994
Stockholder's equity:
Common stock without par value
(authorized 1,000 shares, issued
and outstanding 1,000 shares) 3,855 3,855
Additional paid in capital 196,697 189,438
Retained earnings 1,382,145 1,362,370
Accumulated other comprehensive
income, net of income taxes 4,840 9,550
Total stockholder's equity 1,587,537 1,565,213
Total liabilities and
stockholder's equity $10,481,739 $10,516,207
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
NORWEST FINANCIAL, INC.
Consolidated Statements of Income (Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
<S> <C> <C>
Income:
Finance charges and interest $399,160 $356,463
Insurance premiums and commissions 30,422 39,985
Other income 56,013 50,703
Total income 485,595 447,151
Expenses:
Operating expenses 189,567 164,240
Interest and debt expense 124,863 114,350
Provision for credit losses 68,082 67,176
Insurance losses and loss expenses 10,985 10,788
Total expenses 393,497 356,554
Income before income taxes 92,098 90,597
Income taxes 32,335 31,907
Net income $59,763 $58,690
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
NORWEST FINANCIAL, INC.
Consolidated Statements of Comprehensive Income (Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
<S> <C> <C>
Net income $59,763 $58,690
Other comprehensive income,
before income taxes:
Unrealized gains (losses) on
securities available-for-sale:
Unrealized gains (losses)
arising during the period (5,296) 8,265
Less: reclassification
adjustment for net gains
included in net income 2,764 1,569
(8,060) 6,696
Foreign currency
translation adjustment 966 474
Other comprehensive income
(loss) before income taxes (7,094) 7,170
Income tax expense (benefit)
related to unrealized gains
(losses) on securities
available-for-sale (2,384) 2,250
Other comprehensive income
(loss), net of income taxes (4,710) 4,920
Comprehensive income $55,053 $63,610
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NORWEST FINANCIAL, INC.
Consolidated Statements of Cash Flows (Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 59,763 $ 58,690
Adjustments to reconcile net income to
net cash flows from operating activities,
net of effect of contributed subsidiaries:
Provision for credit losses 68,082 67,176
Depreciation and amortization 13,669 10,961
Deferred income taxes (4,752) 1,304
Other receivables from affiliates (16,709)
Other assets (1,228) 9,065
Unearned insurance premiums
and commissions (1,104) (9,061)
Insurance claims and policy reserves 627 2,494
Accrued interest payable 9,064 6,950
Other payables to affiliates (44,173) 32,759
Other liabilities 49,971 78,748
Net cash provided by operating activities 133,210 259,086
Cash flows from investing activities:
Finance receivables:
Principal collected 1,846,342 1,535,671
Receivables originated or purchased (1,910,637) (1,728,930)
Proceeds from sales of securities 18,672 27,462
Proceeds from maturities of securities 43,625 37,990
Purchases of securities (90,659) (101,859)
Net additions to property and equipment (25,250) (20,817)
Net decrease in notes receivable -
affiliates, net of effect of
contributed subsidiaries 35,556 5,550
Cash and cash equivalents of contributed
subsidiaries received 1,002
Other 101,341 159,222
Net cash provided (used) by
investing activities 19,992 (85,711)
Cash flows from financing activities:
Net decrease in loans payable - short term (133,369) (183,252)
Proceeds from issuance of
senior long-term debt 350,000 70,446
Repayment of senior long-term debt (300,000) (3,724)
Dividends paid (40,000)
Net cash used by financing activities (123,369) (116,530)
Net increase in cash and cash equivalents 29,833 56,845
Cash and cash equivalents beginning of period 139,184 94,600
Cash and cash equivalents end of period $169,017 $ 151,445
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 7
NORWEST FINANCIAL, INC.
Consolidated Statements of Stockholder's Equity (Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive Income (Loss)
Unrealized Gains
Additional Foreign on Securities
Common Paid In Retained Currency Available-
Stock Capital Earnings Translation for-Sale Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $3,855 $185,410 $1,167,418 $ (8,757) $15,864 $1,363,790
Comprehensive income:
Net income 58,690 58,690
Other 474 4,446 4,920
Balance, March 31, 1998 $3,855 $185,410 $1,226,108 $ (8,283) $20,310 $1,427,400
Balance, December 31, 1998 $3,855 $189,438 $1,362,370 $(13,530) $23,080 $1,565,213
Comprehensive income:
Net income 59,763 59,763
Other 966 (5,676) (4,710)
Contributed subsidiaries 7,259 12 7,271
Dividends (40,000) (40,000)
Balance, March 31, 1999 $3,855 $196,697 $1,382,145 $(12,564) $17,404 $1,587,537
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 8
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements (Unaudited)
The accompanying unaudited consolidated financial statements and notes
have been prepared in accordance with the accounting policies set forth
in Norwest Financial, Inc.'s 1998 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 (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 Wells Fargo & Company ("Wells Fargo").
2. Dividend Restrictions.
Certain long-term debt instruments restrict payment of dividends on and
acquisitions of the Company's common stock. In addition, such debt
instruments and the Company's bank credit agreements contain certain
requirements as to maintenance of net worth (as defined). Approximately
$938 million of consolidated stockholder's equity was unrestricted at
March 31, 1999.
3. Other Income.
Income from affiliates was $12.1 million and $14.8 million for the three
months ended March 31, 1999 and 1998, respectively.
Interest and dividends from securities available-for-sale and cash
equivalents were $18.6 million and $17.8 million for the three months
ended March 31, 1999 and 1998, respectively.
4. Reclassifications.
Certain amounts in the 1998 financial statements have been reclassified
to conform to the presentation used in the 1999 financial statements.
<PAGE> 9
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements (Unaudited)
5. Finance Receivables.
Finance receivables are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
(In Thousands) 1999 1998
<S> <C> <C>
United States consumer finance:
Loans secured by real estate $2,004,927 $1,889,410
Loans not secured by real estate 1,088,195 1,124,381
Total loans 3,093,122 3,013,791
Sales finance contracts 1,145,337 1,191,675
Credit cards 476,966 489,131
Total United States consumer finance 4,715,425 4,694,597
Canadian consumer finance:
Loans secured by real estate 75,327 71,011
Loans not secured by real estate 401,085 390,612
Total loans 476,412 461,623
Sales finance contracts 435,454 474,924
Credit cards 8,470 7,608
Total Canadian consumer finance 920,336 944,155
Automobile finance 2,029,542 2,022,813
Other 617,712 608,662
Total finance receivables $8,283,015 $8,270,227
</TABLE>
<PAGE> 10
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements (Unaudited)
6. Allowance for Credit Losses.
The analysis of the allowance for credit losses is as follows:
Three Months Ended March 31,
(In Thousands) 1999 1998
Allowance for credit losses
beginning of period $350,984 $297,800
Provision for credit losses
charged to expense 68,082 67,176
Write-offs (76,101) (78,892)
Recoveries 14,248 12,632
Allowance related to receivables
contributed or acquired 6,627
Allowance for credit losses
end of period $357,213 $305,343
7. Statements of Consolidated Cash Flows.
The Company and its subsidiaries consider highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents. Supplemental disclosure of certain cash flow information
is presented below:
Three Months Ended March 31,
(In Thousands) 1999 1998
Cash paid (refunded) for:
Interest $116,184 $109,499
Income taxes 73,140 (1,967)
<PAGE> 11
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements (Unaudited)
<TABLE>
<CAPTION>
8. Segment Information.
The Company has three reportable segments: U.S. consumer finance, Canadian consumer finance, and
automobile finance. The Company's operating segments are determined by product type and geography.
U.S. consumer finance operations make loans to individuals and purchase sales finance contracts
through 763 consumer finance branches in 46 states, Guam, Saipan, and Puerto Rico. The U.S.
consumer finance segment also issues credit cards through two banking subsidiaries. Canadian
consumer finance operations make loans to individuals and purchase sales finance contracts through
148 consumer finance branches in the 10 provinces. Automobile finance operations specialize in
purchasing sales finance contracts directly from automobile dealers and making loans secured by
automobiles through 221 branches in 33 states and Puerto Rico. Results from insurance operations are
included in the appropriate segment.
Selected quarterly financial information for each segment is shown below:
(In Thousands)
U.S. Canadian
Three Months Ended Consumer Consumer Automobile
March 31, 1999: Finance Finance Finance Other* Eliminations Total
<S> <C> <C> <C> <C> <C> <C>
Finance charges and interest $224,571 $57,311 $95,568 $21,710 $ $399,160
Intersegment income 11,397 (11,397)
Total income 282,577 62,932 100,021 51,462 (11,397) 485,595
Net income 35,049 7,526 11,551 5,637 59,763
Three Months Ended
March 31, 1998:
Finance charges and interest 226,156 38,858 73,605 17,844 356,463
Intersegment income 12,673 (12,673)
Total income 287,398 43,593 77,390 51,443 (12,673) 447,151
Net income 31,568 6,418 5,951 14,753 58,690
* Information from other segments below the quantitative threshold are attributable to commercial finance operations, information
services operations, several miscellaneous insurance companies and operations in Argentina.
</TABLE>
<PAGE> 12
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements (Unaudited)
9. Business Combinations.
Effective January 1, 1999, the Parent made a capital contribution,
without consideration, to the Company of the issued and outstanding
shares of capital stock of Aman Collection Service, Inc. and Aman
Collection Service 1, Inc. (collectively referred to as "Aman"). This
capital contribution was accounted for as a merger of interests under
common control. Aman's headquarters are in Aberdeen, South Dakota and
its principal business is collection services.
Effective January 21, 1999, the Parent made a capital contribution,
without consideration, to the Company of the assets (along with and
subject to the liabilities) and other related leasehold or property
interests or rights formerly held by Mid-Penn Consumer Discount Company
("Mid-Penn"). Immediately preceding the capital contribution,
Mid-Penn had merged with and into the Parent, and the Parent was the
surviving corporation. This capital contribution was accounted for as
a merger of interests under common control. Mid-Penn's headquarters
were in Philadelphia, Pennsylvania and its principal business was consumer
finance. Mid-Penn had finance receivables outstanding of $10 million at
the time of the merger into the parent.
<PAGE> 13
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Statements made in Management's Discussion and Analysis may be forward-
looking and are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking
statements address management's present expectations about future
performance and involve inherent risks and uncertainties. A number of
important factors (some of which are beyond the Company's control) could
cause actual results to differ materially from those in the forward-
looking statements. Those factors include the economic environment,
competition, products and pricing in the geographic and business areas
in which the Company conducts its operations, prevailing interest rates,
changes in government regulations and policies affecting financial
services companies, credit quality and credit risk management,
acquisitions, and integration of acquired businesses.
Norwest Financial's total income (revenue) increased 9% for the first
three months ($485.6 million in the first three months of 1999 compared
with $447.2 million in the first three months of 1998).
Income from finance charges and interest increased 12% for the first
three months ($399.2 million in the first three months of 1999 compared
with $356.5 million in the first three months of 1998). 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 1999 increased 17%
from the first three months of 1998; average U.S. consumer finance
receivables outstanding increased 4%, average Canadian consumer finance
receivables outstanding increased 51%, average automobile finance
receivables outstanding increased 41%, and average other finance
receivables outstanding increased 24%.
Three Months Ended March 31,
Rate of charge on finance receivables: 1999 1998
U.S. consumer finance 19.08% 19.90%
Canadian consumer finance 24.57 25.23
Automobile finance 18.85 20.54
Other 14.30 14.51
Total 19.29 20.12
<PAGE> 14
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
The increases in income from finance charges and interest was due
primarily to growth in average receivables outstanding. This was
offset in part by the decline in the rate of charge. Growth in average
receivables for all categories was due primarily to various acquisitions
combined with regular business activity. The majority of the increase
in Canadian consumer finance average receivables was due to the
acquisition of T. Eaton Acceptance Co. Limited and National Retail
Credit Services Limited, effective April 21, 1998. The majority of the
increase in automobile finance average receivables was due to the
capital contribution by the Parent to the Company, of the issued and
outstanding shares of capital stock of Reliable Financial Services,
Inc., effective June 30, 1998, along with the acquisition of automobile
sales finance contracts from Sunstar Acceptance Corporation, a division
of NationsBank, in October 1998. The majority of the increase in other
average receivables was due to significant receivable growth of Norwest
Financial Preferred Capital, Inc., a subsidiary of the Company which
began rediscounting to commercial entities in 1997. 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 decreased 24% ($30.4 million in the
first three months of 1999 compared with $40.0 million in the first
three months of 1998.) The decreases were primarily due to decreases in
insurance premiums and commissions on multiple peril crop insurance.
Multiple peril crop insurance is a government-sponsored program. The
Company's profit or loss from its multiple peril crop insurance is
determined after the crop season ends on the basis of a profit sharing
formula established by law and the Risk Management Agency, a division of
the United States Department of Agriculture. The profit or loss on
multiple peril crop insurance is primarily recognized in the third and
fourth quarters of the calendar year. This profit sharing formula
requires estimates to be made as to the amount of premiums and losses
that will be allocated to the Company by the Risk Management Agency.
The actual amounts are received from the Risk Management Agency in the
following quarter and any difference is recorded in that quarter.
Insurance losses and loss expenses increased 2% ($11.0 million in the
first three months of 1999 compared with $10.8 million in the first
three months of 1998.)
Other income increased 10% ($56.0 million in the first three months of
1999 compared with $50.7 million in the first three months of 1998).
The increase in other income was due primarily to collection service
income of Aman, which was contributed to the Company by the Parent
effective January 1, 1999.
<PAGE> 15
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
Operating expenses increased 15% ($189.6 million in the first three
months of 1999 compared with $164.2 million in the first three months of
1998). The increase was due primarily to increases in employee
compensation and benefits and other costs relating to business
expansion, including various acquisitions after the first quarter of
1998.
Interest and debt expense increased 9% ($124.9 million in the first
three months of 1999 compared with $114.4 million in the first three
months of 1998). Changes in interest and debt expense result primarily
from (1) changes in the amount of borrowings outstanding and (2) changes
in the cost of those borrowings. Average total outstanding borrowings
in the first three months of 1999 increased 11% from the first three
months of 1998.
Three Months Ended March 31,
Costs of funds: 1999 1998
Short-term 5.14% 5.62%
Long-term 6.64 6.74
Total 6.14 6.44
Changes in average debt outstanding generally correspond to changes in
average finance receivables outstanding combined with the change in
notes receivable - affiliates. Average finance receivables and notes
receivable - affiliates increased 11% from the first three months of
1998.
Provision for credit losses increased 1% ($68.1 million in the first
three months of 1999 compared with $67.2 million in the first three
months of 1998). Net write-offs decreased 7% in the first three
months of 1999.
Three Months Ended March 31,
Net write-offs, not annualized, as a
percentage of average net receivables
outstanding: 1999 1998
U.S. consumer finance .63% .85%
Canadian consumer finance 1.10 .94
Automobile finance 1.07 1.47
Other .05 .18
Total .75 .93
<PAGE> 16
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
During 1999 the provision for credit losses exceeded net write-offs by
$6.2 million. At March 31, 1999, the Company had an allowance for
credit losses of $357.2 million (4.31% of receivables) compared with
$351.0 million (4.24% of receivables) at December 31, 1998. There were
no material changes in estimation methods and assumptions during 1999
and 1998. Non-accrual automobile and commercial receivables were $27.4
million at March 31, 1999 compared with $32.5 million at December 31,
1998. In addition, finance receivables outstanding which were more than
three payments contractually delinquent and which were still accruing
interest were $122.7 million at March 31, 1999 compared with $123.7
million at December 31, 1998. Management believes the allowance for
credit losses at March 31, 1999, is adequate to absorb expected losses
in the finance receivables portfolio.
Income taxes increased 1% ($32.3 million in the first three months of
1999 compared with $31.9 million in the first three months of 1998).
Income before income taxes increased 2% ($92.1 million in the first
three months of 1999 compared with $90.6 million in the first three
months of 1998.) The effective tax rate was 35.1% for the first three
months of 1999 compared with 35.2% for the first three months of 1998.
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 March 31, 1999, lines of
credit and revolving credit agreements totaling $1,827 million were
being maintained at 32 domestic and international banks; the entire
amount was available on that date. Additionally, the Company's bank
subsidiaries, Dial Bank and Dial National Bank, have access to federal
funds borrowings. At March 31, 1999, federal funds availability at the
two banks was $378 million.
The Company and a Canadian subsidiary obtain long-term debt capital
primarily from the issuance of debt securities to the public through
underwriters on a firm-commitment basis and the issuance of debt
securities to institutional investors. The Company and a Canadian
subsidiary also obtain long-term debt from the issuance of medium-term
notes (which 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> 17
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
During 1998 and 1999, Norwest Financial continued with its company-wide
project to prepare Norwest Financial's systems for Year 2000 compliance.
The Year 2000 issue relates to computer systems that use two digits
rather than four to define the applicable year and whether such systems
will properly process information when the year changes to 2000.
"Systems" include all hardware, networks, system and application
software, and commercial "off the shelf" software, and embedded
technology such as properties/date impacted processors in automated
systems such as elevators, telephone systems, security, heating and
cooling systems and others. Priority is given to "mission critical"
systems. A system is considered "mission critical" if it is vital to
the successful continuation of a core business activity.
The implementation of Norwest Financial's Year 2000 readiness project is
divided into four principal phases: Phase I requires a comprehensive
assessment and inventory of all applicable software, system hardware
devices, data and voice communication devices and other embedded
technology to determine Year 2000 vulnerability and risk; Phase II
requires date detection on systems intended to determine which systems
must be remediated and which systems are compliant and require testing
only, determination of the resources and costs, and the development of
schedules and high level testing plans and schedules for the repair,
replacement and/or retirement of systems that are determined not to be
compliant. Phase III requires repair, replacement and/or retirement of
systems that are determined not to be Year 2000 compliant, and planning
the integration testing for those systems that have interfaces with
other systems both internal and external to Norwest Financial, such as
customers/suppliers; and Phase IV requires integration testing on
applicable systems to validate that interfaces are Year 2000 compliant
and contingency planning.
<PAGE> 18
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
Norwest Financial may be affected by the Year 2000 compliance issues
of governmental agencies, business and other entities who provide data to,
or receive data from, Norwest Financial, and by entities, such as
borrowers, vendors, customers and business partners, whose financial
condition or operational capability is significant to Norwest Financial.
Norwest Financial's Year 2000 project also includes assessing the Year
2000 readiness of certain customers, borrowers, vendors, business
partners, counterparties and governmental entities and the testing of
major external interfaces with third parties which Norwest Financial has
determined are critical. Norwest Financial is primarily engaged in the
consumer and automobile finance business. The average balance
outstanding with any individual customer is not significant. As a
result Norwest Financial does not plan to test the Year 2000 compliance
of any borrowers. Norwest Financial has tested mainframe and mid-range
software applications included in the company's systems. Norwest
Financial is testing the Year 2000 compliance of its mission critical
vendors. In addition, Norwest Financial is obtaining representations and
warranties of the Year 2000 compliance of its major vendors. In
addition to assessing the readiness of these external parties, Norwest
Financial is developing contingency plans which will include recovery
plans and alternatives to mitigate the effects of counterparties whose
own failure to properly address Year 2000 issues may adversely impact
Norwest Financial's ability to perform mission critical functions.
These contingency plans are currently being developed and are expected
to be substantially completed by June 30, 1999. The contingency plans
will be validated and subject to review by a qualified independent
party. Specific plans for the turn of the century event, December 31,
1999 through January 3, 2000 will be completed and tested during the
third quarter of 1999. The Company has used independent verification
and validation processes in determining its Year 2000 compliance. The
Company did not rely on automated tools for verification and validation.
Norwest Financial has substantially completed Phases I, II, and III of
its Year 2000 project. Phase IV for all mission critical systems is
anticipated to be completed by June 30, 1999. In the area of embedded
technology, or non-information technology systems, Norwest Financial has
completed Phases I, II and III of the Year 2000 project. The Company
believes all mission critical embedded technology is Year 2000
compliant.
Through March 31, 1999, Norwest Financial has incurred charges of $4.8
million related to its Year 2000 project. This represents less than 10%
of its information technology budget. Charges include $3.2 million
related to the cost of internal staff redeployed to the Year 2000
project, as well as $.5 million for external consulting costs and $1.1
million for costs of accelerated replacement of hardware and software
due to Year 2000 issues. Norwest Financial currently estimates that its
total cost for the Year 2000 project will be $5.3 million. The
redeployment of internal staff has not delayed other information
technology projects, and thus will not have an impact on the financial
condition or results of operations.
<PAGE> 19
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
The foregoing paragraphs contain a number of forward-looking statements.
These statements reflect management's best current estimates, which were
based on numerous assumptions about future events, including the
continued availability of certain resources, representations received
from third party service providers and other third parties, and
additional factors. There can be no guarantee that these estimates,
including Year 2000 costs, will be achieved, and actual results could
differ materially from those estimates.
A number of important factors could cause management's estimates and the
impact of the Year 2000 issue to differ materially from what is
described in the forward-looking statements contained in the above
paragraphs. Those factors include, but are not limited to,
uncertainties in the costs of hardware and software, the availability
and cost of programmers and other systems personnel, inaccurate or
incomplete execution of the phases, ineffective remediation of computer
code and the ability of Norwest Financial's customers, vendors,
competitors and counterparties to effectively address the Year 2000
issue.
If Year 2000 issues are not adequately addressed by Norwest Financial
and significant third parties, Norwest Financial's business, results of
operations and financial position could be materially adversely
affected. Failure of certain vendors to be Year 2000 compliant could
result in disruption of important services upon which Norwest Financial
depends, including, but not limited to, such services as
telecommunications, electrical power and data processing. The failure
of loan customers to properly prepare for the Year 2000 could also
result in increases in problem loans and credit losses in future years.
Notwithstanding Norwest Financial's efforts, there can be no assurance
that Norwest Financial or significant third party vendors or other
significant third parties will adequately address their Year 2000
issues. Norwest Financial is continuing to assess the Year 2000
readiness of third parties but does not know at this time whether the
failure of third parties to be Year 2000 compliant will have a material
effect on results of operations, liquidity and financial condition.
The forward-looking statements made in the foregoing Year 2000
discussion speak only as of the date on which such statements are made,
and Norwest Financial undertakes no obligation to update any forward-
looking statement to reflect events or circumstances after the date on
which such statement is made to reflect the occurrence of unanticipated
events.
<PAGE> 20
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:
<TABLE>
<CAPTION>
Three Months Ended Years Ended December 31,
March 31, 1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1.72 1.72 2.00 2.11 2.13 2.26
</TABLE>
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, 1998, 1997, 1996, 1995
and 1994 and the three months ended March 31, 1999.
(b) Reports on 8-K
Two reports on Form 8-K were filed during the quarter for which this
report is filed. Accordingly, the following information is furnished:
A Form 8-K Current Report dated January 21, 1999 was filed, pursuant to
Item 5. (Other Events), to place on file a copy of the Press Release
issued on January 21, 1999 announcing the consolidated financial results
of Norwest Financial, Inc. ("NFI") and its subsidiaries for the year
ended December 31, 1998.
A Form 8-K Current Report dated March 5, 1999 was filed (i) to report,
pursuant to Item 4. (Change in Registrant's Certifying Accountant),
that the Board of Directors of NFI dismissed Deloitte & Touche LLP
and approved the selection of KPMG Peat Marwick LLP as NFI's independent
accountants for the year ending December 31, 1999 and (ii) to place on
file a copy of the March 5, 1999 letter of Deloitte & Touche LLP to the
Securities and Exchange Commission pursuant to Item 304 (a) (3) of
Regulation S-K.
<PAGE> 21
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 13, 1999
By \S\ Eric Torkelson
Eric Torkelson
Senior 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,
1999 Years Ended December 31,
(Thousands of Dollars)
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net income $59,763 $238,604 $269,450 $276,331 $267,941 $223,340
Add:
Fixed charges:
Interest including
amortization of
debt expense 124,863 485,784 401,736 372,859 359,079 259,605
One-third of
rentals* 3,395 13,406 12,107 10,748 10,317 9,747
Total fixed
charges 128,258 499,190 413,843 383,607 369,396 269,352
Provision for
income taxes 32,335 121,668 144,082 148,096 147,873 116,900
Total net earnings,
fixed charges and
income taxes -
"Earnings" $220,356 $859,462 $827,375 $808,034 $785,210 $609,592
Ratio of earnings
to fixed charges 1.72 1.72 2.00 2.11 2.13 2.26
</TABLE>
*One-third of rentals is deemed representative of the interest factor.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY 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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 169,017
<SECURITIES> 1,223,802
<RECEIVABLES> 8,283,015
<ALLOWANCES> 357,213
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 349,639
<DEPRECIATION> 139,035
<TOTAL-ASSETS> 10,481,739
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,294,894<F2>
0
0
<COMMON> 3,855
<OTHER-SE> 1,583,682
<TOTAL-LIABILITY-AND-EQUITY> 10,481,739
<SALES> 0
<TOTAL-REVENUES> 485,595
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 200,552
<LOSS-PROVISION> 68,082
<INTEREST-EXPENSE> 124,863
<INCOME-PRETAX> 92,098
<INCOME-TAX> 32,335
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,763
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>NORWEST FINANCIAL INC. HAS A NON-CLASSIFIED BALANCE
SHEET SO THIS INFORMATION IS UNAVAILABLE.
<F2>INCLUDES $3.0 BILLION OF SHORT-TERM LOANS.
</FN>
</TABLE>
