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 September 30, 1995 Commission file number 2-80466
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Norwest Financial, Inc.
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(Exact name of registrant as specified in its charter)
Iowa 42 1186565
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
206 Eighth Street, Des Moines, Iowa 50309
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (515) 243-2131
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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 .
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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 November 1, 1995.
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.
PART I. FINANCIAL INFORMATION
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets (Unaudited)
(Thousands of Dollars)
September 30, December 31,
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Assets 1995 1994
------ ---- ----
Cash and cash equivalents $ 106,153 $ 63,496
Marketable securities 711,644 570,314
Finance receivables:
Consumer:
Loans 3,151,500 2,854,971
Sales finance 1,433,680 1,225,389
Other 405,433 258,469
Commercial 506,066 500,270
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Total finance receivables 5,496,679 4,839,099
Less allowance for credit losses 152,548 135,952
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Finance receivables - net 5,344,131 4,703,147
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Notes receivable - affiliates 584,376 376,886
Property and equipment (at cost, less
accumulated depreciation of $91,030
for 1995 and $81,030 for 1994) 63,441 58,342
Deferred income taxes 53,266 63,387
Other assets 193,330 289,170
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Total assets $7,056,341 $6,124,742
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See accompanying notes to consolidated financial statements.
NORWEST FINANCIAL, INC.
Consolidated Balance Sheets (Unaudited)
(Thousands of Dollars)
September 30, December 31,
Liabilities and --------------- ------------
Stockholder's Equity 1995 1994
------------------- ---- ----
Loans payable - short-term:
Commercial paper $1,617,528 $1,549,067
Affiliates 35,946
Other 201,977
Unearned insurance premiums and commissions 141,987 128,812
Insurance claims and policy reserves 35,838 32,287
Accrued interest payable 77,340 53,759
Other payables to affiliates 4,705
Other liabilities 224,347 208,498
Long-term debt:
Senior 3,716,604 2,797,623
Subordinated 270,100 295,000
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Total long-term debt 3,986,704 3,092,623
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Total liabilities 6,083,744 5,307,674
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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 (note 2) 870,444 764,295
Foreign currency translation adjustment (3,550) (8,029)
Net unrealized holding gain (loss)
on marketable securities 11,082 (14,466)
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Total stockholder's equity 972,597 817,068
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Total liabilities and
stockholder's equity $7,056,341 $6,124,742
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See accompanying notes to consolidated financial statements.
NORWEST FINANCIAL, INC.
Statements of Consolidated Earnings (Unaudited)
(Thousands of Dollars)
Quarter Ended September 30, Nine Months Ended September 30,
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1995 1994 1995 1994
---- ---- ---- ----
Income:
Finance charges and interest $283,085 $245,619 $ 826,511 $715,866
Insurance premiums and commissions 33,970 27,256 92,118 77,634
Other income (note 3) 44,885 24,409 119,577 70,660
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Total income 361,940 297,284 1,038,206 864,160
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Expenses:
Operating expenses 119,530 109,662 348,017 325,233
Interest and debt expense 92,165 67,076 264,141 191,063
Provision for credit losses 39,680 28,263 101,491 79,341
Insurance losses and loss expenses 10,337 8,825 28,529 23,879
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Total expenses 261,712 213,826 742,178 619,516
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Earnings before income taxes 100,228 83,458 296,028 244,644
Income taxes 35,942 29,155 106,009 85,802
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Net earnings $ 64,286 $ 54,303 $ 190,019 $158,842
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See accompanying notes to consolidated financial statements.
NORWEST FINANCIAL, INC.
Statements of Consolidated Cash Flows (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(Thousands of Dollars)
Nine Months Ended September 30,
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1995 1994
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Cash flows from operating activities:
Net earnings $ 190,019 $ 158,842
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Provision for credit losses 101,491 79,341
Depreciation and amortization 19,366 20,644
Deferred income taxes (200) (9,816)
Other assets (29,645) (63,009)
Unearned insurance premiums
and commissions 11,622 14,320
Insurance claims and policy reserves 2,634 2,683
Accrued interest payable 22,804 14,649
Other payables to affiliates (7,170) 2,667
Other liabilities 10,372 18,991
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Net cash flows from operating activities 321,293 239,312
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Cash flows from investing activities:
Finance receivables:
Principal collected 3,624,057 3,355,450
Receivables originated or purchased (4,080,803) (3,730,786)
Proceeds from sales of marketable securities 64,916 46,464
Proceeds from maturities of
marketable securities 31,482 73,725
Purchase of marketable securities (165,924) (201,446)
Net additions to property and equipment (14,418) (11,225)
Net increase in notes receivable - affiliates (388,696) (157,207)
Contributed subsidiaries received, net of
cash and cash equivalents 2,477
Other 130,612 139,792
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Net cash flows from investing activities (796,297) (485,233)
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Cash flows from financing activities:
Net increase (decrease) in loans payable -
short term (169,462) 3,726
Proceeds from issuance of long-term debt:
Senior 929,411 829,616
Subordinated 45,000
Repayments of long-term debt:
Senior (81,638) (529,986)
Subordinated (30,650) (12,500)
Additional paid in capital 19,000
Dividends paid (130,000) (92,368)
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Net cash flows from financing activities 517,661 262,488
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Net increase in cash and cash equivalents 42,657 16,567
Cash and cash equivalents beginning of period 63,496 80,762
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Cash and cash equivalents end of period $ 106,153 $ 97,329
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See accompanying notes to consolidated financial statements.
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
1994 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 $101 million of
consolidated retained earnings was unrestricted at September 30, 1995.
3. OTHER INCOME.
Income from affiliates was $13.2 million and zero for the quarters ended
September 30, 1995 and 1994, respectively, and $30.3 million and zero for the
nine months ended September 30, 1995 and 1994, respectively.
Interest and dividends from marketable securities and cash equivalents were
$12.2 million and $9.7 million for the quarters ended September 30, 1995 and
1994, respectively, and $36.8 million and $27.8 million for the nine months
ended September 30, 1995 and 1994, respectively.
4. STATEMENTS OF CONSOLIDATED CASH FLOWS
Effective January 1, 1995, Norwest Financial Services, Inc. made a capital
contribution, without consideration, to the Company of the outstanding common
stock of Community Credit Co. and Dial National Bank. These capital
contributions 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. and Dial National Bank had assets of $326,491,000 and
liabilities of $261,345,000 at the time of the contribution.
5. RECLASSIFICATIONS.
Certain amounts in the 1994 financial statements have been reclassified to
conform to the presentation used in the 1995 financial statements.
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Norwest Financial's performance for the third quarter of 1995 closely paralleled
performance for the first nine months of 1995. The discussion and analysis that
follows, therefore, is limited to a discussion of the first nine months as a
whole and does not include a separate discussion of the third quarter unless
otherwise noted.
Effective January 1, 1995, Norwest Financial Services, Inc. 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.
Norwest Financial's total income (revenue) increased 20% for the first nine
months ($1,038.2 million in the first nine months of 1995 compared with $864.2
million in the first nine months of 1994). Total income increased 14% excluding
the Contributed Subsidiaries.
Income from finance charges and interest increased 15% for the first nine months
($826.5 million in the first nine months of 1995 compared with $715.9 million
in the first nine months of 1994). Income from finance charges and interest
increased 9% 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. In total, average finance receivables outstanding in the first
nine months of 1995 increased 15% from the first nine months of 1994; average
consumer receivables outstanding increased 17% while average commercial
receivables outstanding increased 4%.
Nine Months Ended September 30,
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Rate of charge on finance receivables: 1995 1994
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Consumer 21.63% 21.76%
Commercial 14.70 14.31
Total 20.97 20.98
The increase in income from finance charges and interest was due to growth in
average finance receivables outstanding. The increase in average finance
receivables was due primarily to regular business activity combined with the
increase due to the Contributed Subsidiaries. Excluding the Contributed
Subsidiaries, average finance receivables increased 9%.
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
Insurance premiums and commissions increased 19% ($92.1 million in the first
nine months of 1995 compared with $77.6 million in the first nine months of
1994). 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 11% in the first nine months of 1995 compared with the
first nine months of 1994. In addition, beginning in the second quarter of 1995
one of the Company's insurance subsidiaries began providing credit insurance as
a part of the consumer finance business of several affiliates. Insurance
premiums and commissions on this business were $5.0 million. Insurance losses
and loss expenses increased 19% ($28.5 million in the first nine months of 1995
compared with $23.9 million in the first nine months of 1994). The Contributed
Subsidiaries did not have a significant effect on insurance premiums and
commissions and insurance losses and loss expenses.
Other income increased 69% ($119.6 million in the first nine months of 1995
compared with $70.7 million in the first nine months of 1994). Other income
would have increased 64% excluding the Contributed Subsidiaries. Income from
affiliates combined with an increase in investment income accounted for the
majority of the increase. Income from affiliates was $30.3 million in the first
nine months of 1995 compared with zero in the first nine months of 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. Other income increased 84% in the
third quarter of 1995 compared with the third quarter of 1994 ($44.9 million
compared with $24.4 million). The increase was due primarily to a $13.2 million
increase in income from affiliates and a $2.5 million increase in investment
income.
Operating expenses increased 7% ($348.0 million in the first nine months of 1995
compared with $325.2 million in the first nine months of 1994). Operating
expenses increased 3% excluding the Contributed Subsidiaries.
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
Interest and debt expense increased 38% ($264.1 million in the first nine months
of 1995 compared with $191.1 million in the first nine months of 1994).
Interest and debt expense would have increased 31% excluding the Contributed
Subsidiaries. Changes in interest and debt expense result primarily from (1)
changes in the amount of borrowings outstanding due to funding requirements for
receivables and notes receivable - affiliates and (2) changes in the cost of
those borrowings. Average total outstanding borrowings in the first nine months
of 1995 increased 23% from the first nine months of 1994.
Nine Months Ended September 30,
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Costs of funds: 1995 1994
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Short-term 6.21% 4.31%
Long-term 7.00 6.90
Total 6.77 6.18
The change in average debt outstanding results primarily from the change in
average finance receivables outstanding and average notes receivable from
affiliates. Average finance receivables increased $705 million or 15% from the
first nine months of 1994. Average notes receivable from affiliates increased
by $325 million from the first nine months of 1994.
Provision for credit losses increased 28% ($101.5 million in the first nine
months of 1995 compared with $79.3 million in the first nine months of 1994).
Provision for credit losses increased 23% excluding the Contributed
Subsidiaries. Net write-offs as a percentage of average net receivables
outstanding increased to 1.77% in the first nine months of 1995 compared with
1.52% in the first nine months of 1994. Provision for credit losses increased
40% in the third quarter of 1995 compared with the third quarter of 1994 ($39.7
million compared with $28.3 million). Net write-offs were $35.0 million in the
third quarter of 1995 compared with $23.4 million in the third quarter of 1994.
Federal and state income taxes increased 24% ($106.0 million in the first nine
months of 1995 compared with $85.8 million in the first nine months of 1994).
The increase was due primarily to the increase in earnings before income taxes.
The effective tax rate was 35.8% for the first nine months of 1995 and 35.1% for
the first nine months of 1994.
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 September 30, 1995, lines of credit
and revolving credit agreements totaling $1,204 million were being maintained at
35 unaffiliated banks. None of this credit was in use at the time.
Norwest Financial, Inc.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Concluded
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.
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:
Years Ended December 31,
Nine Months Ended ------------------------------------
September 30, 1995 1994 1993 1992 1991 1990
---------------------------- ---- ---- ---- ---- ----
2.09 2.26 2.22 2.02 1.74 1.70
The ratios of earnings to fixed charges have been computed by dividing net
earnings plus fixed charges and income taxes by fixed charges. Fixed charges
consist of interest and debt expense plus one-third of rentals (which is deemed
representative of the interest factor).
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, 1994, 1993, 1992,
1991 and 1990 and the nine months ended September
30, 1995.
(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: November 1, 1995
By /s/ Robert W. Bettle
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Robert W. Bettle
Vice President and Controller
(Principal Accounting Officer)