**SECURITIES AND EXCHANGE COMMISSION****Washington, D.C.  20549**

 

**Quarterly Report Pursuant to Section 13 or15(d)**

**of the Securities Exchange Act of 1934**

 

**Form 10-Q**

 

 

 

**ForQuarter Ended                  March 31,2002                       Commission filenumber                2-80466           **

 

 

**Wells Fargo Financial, Inc.**(Exact name ofregistrant 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 telephonenumber, including area code                                                       **(515) 243-2131**

 

 

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.   Yes    ý            No           o

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.  Common Stock(without par value):  1,000 sharesoutstanding as of May 3, 2002.

 

The registrant meets theconditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and istherefore filing this Form with the reduced disclosure format.

 

 

1

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PART I.  FINANCIAL INFORMATION

 

WELLS FARGO FINANCIAL,INC.

 

Consolidated BalanceSheets (Unaudited)

 

(Thousands of Dollars)

 

 
|                                                                                                       |   | **March 31 ,** |       | **December  31,** |   |
|------------------------------------------------------------------------------------------------------------|--------|----------------|------------|-------------------|--------|
|                                                                                                       |   | **2002**       |       | **2001**          |   |
| Assets                                                                                                     |   |           |       |              |   |
| Cash  and cash equivalents                                                                                 |   | $              | 220,937    |              | $      | 260,038 |   |
|                                                                                                       |   |           |       |              |   |
| Securities  available-for-sale                                                                             |   | 1,421,877      |       | 1,377,148         |   |
|                                                                                                       |   |           |       |              |   |
| Finance  receivables                                                                                       |   | 13,965,944     |       | 13,433,569        |   |
|                                                                                                       |   |           |       |              |   |
| Less allowance  for credit losses                                                                          |   | 533,900        |       | 521,948           |   |
|                                                                                                       |   |           |       |              |   |
| Finance  receivables — net                                                                            |   | 13,432,044     |       | 12,911,621        |   |
|                                                                                                       |   |           |       |              |   |
| Notes  receivable — affiliates                                                                        |   | 604,018        |       | 636,588           |   |
|                                                                                                       |   |           |       |              |   |
| Property and  equipment (at cost, less accumulated depreciation of $89,839 for 2002 and $87,299  for 2001) |   | 104,782        |       | 94,017            |   |
|                                                                                                       |   |           |       |              |   |
| Deferred  income taxes                                                                                     |   | 97,094         |       | 62,290            |   |
|                                                                                                       |   |           |       |              |   |
| Goodwill                                                                                                   |   | 342,243        |       | 335,990           |   |
|                                                                                                       |   |           |       |              |   |
| Other assets                                                                                               |   | 210,870        |       | 231,570           |   |
|                                                                                                       |   |           |       |              |   |
| Total assets                                                                                               |   | $              | 16,433,865 |              | $      | 15,909,262 |   |

 

 

See accompanying notes to consolidated financialstatements.

 

2

----

 

 

 
|                                                                                            |   | **March 31,** |       | **December  31,** |   |
|-------------------------------------------------------------------------------------------------|--------|---------------|------------|-------------------|--------|
|                                                                                            |   | **2002**      |       | **2001**          |   |
| Liabilities and Stockholder’s Equity                                                  |   |          |       |              |   |
| Loans payable —  short-term:                                                               |   |          |       |              |   |
| Commercial paper                                                                                |   | $             | 4,022,244  |              | $      | 4,067,707 |   |
| Affiliates                                                                                      |   | 86,600        |       | 64,600            |   |
| Other                                                                                           |   | 113,229       |       | 93,742            |   |
| Unearned  insurance premiums  and commissions                                                   |   | 128,720       |       | 133,465           |   |
| Insurance claims  and policy reserves                                                           |   | 33,723        |       | 34,635            |   |
| Accrued interest  payable                                                                       |   | 124,170       |       | 131,752           |   |
| Other  liabilities                                                                              |   | 506,175       |       | 426,876           |   |
| Long-term debt:                                                                                 |   |          |       |              |   |
| Senior                                                                                          |   | 8,068,212     |       | 8,145,636         |   |
| Affiliate                                                                                       |   | 1,200,000     |       | 700,000           |   |
|                                                                                            |   |          |       |              |   |
| Total  liabilities                                                                              |   | 14,283,073    |       | 13,798,413        |   |
|                                                                                            |   |          |       |              |   |
| 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                                                                     |   | 442,302       |       | 442,302           |   |
| Retained  earnings                                                                              |   | 1,711,722     |       | 1,657,815         |   |
| Accumulated  other comprehensive  income (loss), net of income taxes                            |   | (7,087        | )          | 6,877             |   |
|                                                                                            |   |          |       |              |   |
| Total  stockholder’s equity                                                                |   | 2,150,792     |       | 2,110,849         |   |
|                                                                                            |   |          |       |              |   |
| Total  liabilities and                                                                          |   |          |       |              |   |
| stockholder’s  equity                                                                      |   | $             | 16,433,865 |              | $      | 15,909,262 |   |

 

 

See accompanying notes toconsolidated financial statements.

 

3

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WELLS FARGO FINANCIAL,INC.

 

ConsolidatedStatements of Income (Unaudited)

 

(Thousands ofDollars)

 

 
|                                |   | **Three  Months Ended March 31,** |    |
|-------------------------------------|--------|-----------------------------------|---------|
|                                |   | **2002**                          |    | **2001** |   |
| Income:                             |   |                              |    |   |   |
|                                |   |                              |    |   |   |
| Finance charges  and interest       |   | $                                 | 562,129 |   | $ | 542,833 |   |
|                                |   |                              |    |   |   |
| Insurance  premiums and commissions |   | 29,185                            |    | 30,340 |   |
|                                |   |                              |    |   |   |
| Other income                        |   | 65,464                            |    | 64,253 |   |
|                                |   |                              |    |   |   |
| Total income                        |   | 656,778                           |    | 637,426 |   |
|                                |   |                              |    |   |   |
| Expenses:                           |   |                              |    |   |   |
|                                |   |                              |    |   |   |
| Operating  expenses                 |   | 238,639                           |    | 216,331 |   |
|                                |   |                              |    |   |   |
| Goodwill  amortization              |   |                              |    | 8,908 |   |
|                                |   |                              |    |   |   |
| Interest and  debt expense          |   | 142,600                           |    | 189,764 |   |
|                                |   |                              |    |   |   |
| Provision for  credit losses        |   | 140,062                           |    | 108,435 |   |
|                                |   |                              |    |   |   |
| Insurance losses  and loss expenses |   | 11,410                            |    | 11,264 |   |
|                                |   |                              |    |   |   |
| Total expenses                      |   | 532,711                           |    | 534,702 |   |
|                                |   |                              |    |   |   |
| Income before income taxes          |   | 124,067                           |    | 102,724 |   |
|                                |   |                              |    |   |   |
| Income taxes                        |   | 45,160                            |    | 37,922 |   |
|                                |   |                              |    |   |   |
| Net income                          |   | $                                 | 78,907  |   | $ | 64,802 |   |

 

 

See accompanying notes to consolidated financial statements.

 

4

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WELLS FARGO FINANCIAL,INC.

 

ConsolidatedStatements of Comprehensive Income (Unaudited)

 

(Thousands ofDollars)

 

 
|                                                                                                |   | **Three  Months Ended March 31,** |   |
|-----------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                                |   | **2002**                          |   | **2001** |   |
| Net income                                                                                          |   | $                                 | 78,907 |   | $ | 64,802 |   |
|                                                                                                |   |                              |   |   |   |
| Other comprehensive income (loss)  before income taxes:                                             |   |                              |   |   |   |
| Unrealized gains  (losses) on securities  available-for-sale:                                       |   |                              |   |   |   |
| Unrealized gains  (losses)  arising during the period                                               |   | (16,488                           | )      | 16,206 |   |
| Reclassification  adjustment for net  gains included in net income                                  |   | (4,490                            | )      | (2,110 | ) |
|                                                                                                |   |                              |   |   |   |
|                                                                                                |   | (20,978)                          |   | 14,096 |   |
|                                                                                                |   |                              |   |   |   |
| Foreign currency  translation adjustment                                                            |   | (144                              | )      | (2,432 | ) |
|                                                                                                |   |                              |   |   |   |
| Other comprehensive income (loss)  before income taxes                                              |   | (21,122                           | )      | 11,664 |   |
|                                                                                                |   |                              |   |   |   |
| Income tax  expense (benefit) related to  unrealized gains/losses on securities  available-for-sale |   | (7,158                            | )      | 4,884 |   |
| Other  comprehensive income (loss),  net of income taxes                                            |   | (13,964                           | )      | 6,780 |   |
|                                                                                                |   |                              |   |   |   |
| Comprehensive  income                                                                               |   | $                                 | 64,943 |   | $ | 71,582 |   |

 

 

See accompanying notes to consolidated financialstatements.

 

5

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WELLS FARGOFINANCIAL, INC.

 

Consolidated Statements of Cash Flows (Unaudited)

(Thousands of Dollars)

 

 
|                                                                                                                          |   | **Three  Months Ended March 31,** |    |
|-------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                                                                                          |   | **2002**                          |    | **2001** |   |
| Cash flows from  operating activities:                                                                                        |   |                              |    |   |   |
| Net income                                                                                                                    |   | $                                 | 78,907  |   | $ | 64,802 |   |
| Adjustments to reconcile net income to  net cash flows from operating activities,  net of effect of transferred subsidiaries: |   |                              |    |   |   |
| Provision for  credit losses                                                                                                  |   | 140,062                           |    | 108,435 |   |
| Depreciation and  amortization                                                                                                |   | 4,088                             |    | 13,053 |   |
| Deferred  income taxes                                                                                                        |   | (25,931                           | )       | 3,721 |   |
| Other assets                                                                                                                  |   | 7,359                             |    | 35,456 |   |
| Unearned insurance premiumsand commissions                                                                                    |   | (4,745                            | )       | 799 |   |
| Insurance claims  and policy reserves                                                                                         |   | (912                              | )       | 180 |   |
| Accrued interest  payable                                                                                                     |   | (7,582                            | )       | (345 | ) |
| Other payables  to affiliates                                                                                                 |   | 52,815                            |    | (12,060 | ) |
| Other  liabilities                                                                                                            |   | 26,458                            |    | 7,969 |   |
|                                                                                                                          |   |                              |    |   |   |
| Net cash  provided by operating activities                                                                                    |   | 270,519                           |    | 222,010 |   |
|                                                                                                                          |   |                              |    |   |   |
| Cash flows from  investing activities:                                                                                        |   |                              |    |   |   |
| Finance receivables:                                                                                                          |   |                              |    |   |   |
| Principal  collected                                                                                                          |   | 2,692,046                         |    | 2,264,657 |   |
| Receivables originated or purchased                                                                                           |   | (3,070,413                        | )       | (2,372,766 | ) |
| Proceeds from sales  of securities                                                                                            |   | 159,030                           |    | 93,161 |   |
| Proceeds from  maturities of securities                                                                                       |   | 28,496                            |    | 43,018 |   |
| Purchases of securities                                                                                                       |   | (248,995                          | )       | (193,620 | ) |
| Net additions to property and equipment                                                                                       |   | (14,532                           | )       | (4,714 | ) |
| Net decrease  (increase) in notes receivable — affiliates                                                                |   | 32,570                            |    | (157,465 | ) |
| Cash and cash  equivalents of subsidiary transferred                                                                          |   |                              |    | (1,567 | ) |
| Net cash used for acquisitions                                                                                                |   | (280,756                          | )       | (324,573 | ) |
| Other                                                                                                                         |   | 46,015                            |    | (50,067 | ) |
|                                                                                                                          |   |                              |    |   |   |
| Net cash used by  investing activities                                                                                        |   | (656,539                          | )       | (703,936 | ) |
|                                                                                                                          |   |                              |    |   |   |
| Cash flows from  financing activities:                                                                                        |   |                              |    |   |   |
| Net decrease in  loans payable — short term                                                                              |   | (3,976                            | )       | (37,147 | ) |
| Proceeds from  issuance of long term debt:                                                                                    |   |                              |    |   |   |
| Senior                                                                                                                        |   | 400,000                           |    | 581,364 |   |
| Affiliate                                                                                                                     |   | 500,000                           |    | 244,130 |   |
| Repayment of senior long-term debt                                                                                            |   | (524,105                          | )       | (409,389 | ) |
| Capital contribution by parent                                                                                                |   |                              |    | 130,000 |   |
| Dividends paid                                                                                                                |   | (25,000                           | )       |   |   |
|                                                                                                                          |   |                              |    |   |   |
| Net cash  provided by financing activities                                                                                    |   | 346,919                           |    | 508,958 |   |
|                                                                                                                          |   |                              |    |   |   |
| Net (decrease)  increase in cash and cash equivalents                                                                         |   | (39,101                           | )       | 27,032 |   |
|                                                                                                                          |   |                              |    |   |   |
| Cash and cash  equivalents beginning of period                                                                                |   | 260,038                           |    | 205,036 |   |
|                                                                                                                          |   |                              |    |   |   |
| Cash and cash  equivalents end of period                                                                                      |   | $                                 | 220,937 |   | $ | 232,068 |   |

 

 

See accompanyingnotes to consolidated financial statements.

 

6

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WELLS FARGO FINANCIAL, INC.

 

ConsolidatedStatements of Stockholder’s Equity (Unaudited)

 

(Thousands of Dollars)

 

 
|                              |   |       |       |           |       |         |       | **Accumulated  Other**           |       |                        |       |
|-----------------------------------|--------|------------|------------|----------------|------------|--------------|------------|----------------------------------|------------|-----------------------------|------------|
|                              |   |       |       |           |       |         |       | **Comprehensive  Income (Loss)** |       |                        |       |
|                              |   |       |       |           |       |         |       |                             |       | **Unrealized  Gains**       |       |   |   |
|                              |   |       |       | **Additional** |       |         |       | **Foreign**                      |       | **(Losses)  on Securities** |       |   |   |
|                              |   | **Common** | ** ** | **Paid In**    | ** ** | **Retained** | ** ** | **Currency**                     | ** ** | **Available-**              | ** ** |   | ** ** |
|                              |   | **Stock**  | ** ** | **Capital**    | ** ** | **Earnings** | ** ** | **Translation**                  | ** ** | **for-Sale**                | ** ** | **Total** | ** ** |
|                              |   |       |       |           |       |         |       |                             |       |                        |       |   |   |
| Balance,  December 31, 2000       |   | $          | 3,855      |           | $          | 312,302      |       | $                                | 1,540,902  |                        | $          | (11,220 | ) | $ | 8,776 |   | $ | 1,854,615 |   |
|                              |   |       |       |           |       |         |       |                             |       |                        |       |   |   |
| Comprehensive  income (loss):     |   |       |       |           |       |         |       |                             |       |                        |       |   |   |
| Net  income                       |   |       |       |           |       | 64,802       |       |                             |       |                        |       | 64,802 |   |
| Other                             |   |       |       |           |       |         |       | (2,432                           | )          | 9,212                       |       | 6,780 |   |
|                              |   |       |       |           |       |         |       |                             |       |                        |       |   |   |
| Capital  contribution from parent |   |       |       | 130,000        |       |         |       |                             |       |                        |       | 130,000 |   |
|                              |   |       |       |           |       |         |       |                             |       |                        |       |   |   |
| Transfer of  subsidiary           |   |       |       |           |       | (4,759       | )          |                             |       |                        |       | (4,759 | ) |
|                              |   |       |       |           |       |         |       |                             |       |                        |       |   |   |
| Balance, March  31, 2001          |   | $          | 3,855      |           | $          | 442,302      |       | $                                | 1,600,945  |                        | $          | (13,652 | ) | $ | 17,988 |   | $ | 2,051,438 |   |
|                              |   |       |       |           |       |         |       |                             |       |                        |       |   |   |
| Balance,  December 31, 2001       |   | $          | 3,855      |           | $          | 442,302      |       | $                                | 1,657,815  |                        | $          | (14,335 | ) | $ | 21,212 |   | $ | 2,110,849 |   |
|                              |   |       |       |           |       |         |       |                             |       |                        |       |   |   |
| Comprehensive  income (loss):     |   |       |       |           |       |         |       |                             |       |                        |       |   |   |
| Net  income                       |   |       |       |           |       | 78,907       |       |                             |       |                        |       | 78,907 |   |
| Other                             |   |       |       |           |       |         |       | (144                             | )          | (13,820                     | )          | (13,964 | ) |
|                              |   |       |       |           |       |         |       |                             |       |                        |       |   |   |
| Dividends                         |   |       |       |           |       | (25,000      | )          |                             |       |                        |       | (25,000 | ) |
|                              |   |       |       |           |       |         |       |                             |       |                        |       |   |   |
| Balance, March  31, 2002          |   | $          | 3,855      |           | $          | 442,302      |       | $                                | 1,711,722  |                        | $          | (14,479 | ) | $ | 7,392 |   | $ | 2,150,792 |   |

 

 

See accompanying notes toconsolidated financial statements.

 

7

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WELLS FARGO FINANCIAL,INC.

 

Notes to ConsolidatedFinancial Statements (Unaudited)

 

 

The accompanyingunaudited consolidated financial statements and notes have been prepared inaccordance with the accounting policies set forth in Wells Fargo Financial,Inc.’s 2001 Annual Report on Form 10-K and should be read in conjunction withthe Notes to Consolidated Financial Statements therein. In the opinion ofmanagement, all adjustments (none of which were other than normal recurringaccruals) necessary to present fairly the financial statements for the periodspresented have been included. The results of operations for interim periods arenot necessarily indicative of the results to be expected for the entire year.

 

1.             Principles ofConsolidation.

 

The consolidated financial statements include the accounts of WellsFargo Financial, Inc. (the “Company”) and subsidiaries (collectively, “WellsFargo Financial”).  Intercompanyaccounts and transactions are eliminated. The Company is a wholly-owned subsidiary of Wells Fargo FinancialServices, Inc. (the “Parent”) which is a wholly-owned subsidiary of Wells Fargo& Company (“Wells Fargo”).

 

2.             DividendRestrictions.

 

Certain long-term debt instruments restrict payment of dividends on andacquisitions of the Company’s common stock. In addition, such debt instruments and the Company’s bank creditagreements contain certain requirements as to maintenance of net worth (asdefined).  Approximately $884.3 millionof consolidated stockholder’s equity was unrestricted at March 31, 2002.

 

3.             Other Income.

 

Income from affiliates was $10.6 million and $11.4 million for thethree months ended March 31, 2002 and 2001, respectively.

 

Interest and dividends from securities available-for-sale and cashequivalents were $19.3 million and $19.0 million for the three months endedMarch 31, 2002 and 2001, respectively.

 

8

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4.             FinanceReceivables.

 

Finance receivables are as follows:

 
|                                  |   | **March 31,** |       | **December  31,** |   |
|---------------------------------------|--------|---------------|------------|-------------------|--------|
| **(In Thousands)**                    |   | **2002**      |       | **2001**          |   |
| United  States consumer finance:      |   |          |       |              |   |
| Real  estate-secured loans            |   | $             | 3,206,042  |              | $      | 2,984,226 |   |
| Consumer  loans                       |   | 1,408,084     |       | 1,483,055         |   |
|                                  |   |          |       |              |   |
| Total  loans                          |   | 4,614,126     |       | 4,467,281         |   |
|                                  |   |          |       |              |   |
| Sales  finance contracts              |   | 1,147,228     |       | 1,228,396         |   |
| Credit  cards                         |   | 1,380,109     |       | 1,341,039         |   |
|                                  |   |          |       |              |   |
| Total  United States consumer finance |   | 7,141,463     |       | 7,036,716         |   |
|                                  |   |          |       |              |   |
| Canadian  consumer finance:           |   |          |       |              |   |
| Real  estate-secured loans            |   | 96,037        |       | 90,919            |   |
| Consumer  loans                       |   | 460,060       |       | 461,668           |   |
|                                  |   |          |       |              |   |
| Total  loans                          |   | 556,097       |       | 552,587           |   |
|                                  |   |          |       |              |   |
| Sales  finance contracts              |   | 579,288       |       | 585,725           |   |
| Credit  cards                         |   | 24,179        |       | 24,494            |   |
|                                  |   |          |       |              |   |
| Total  Canadian consumer finance      |   | 1,159,564     |       | 1,162,806         |   |
|                                  |   |          |       |              |   |
| Automobile  finance                   |   | 3,478,789     |       | 3,375,101         |   |
|                                  |   |          |       |              |   |
| Leasing                               |   | 1,262,526     |       | 1,290,658         |   |
|                                  |   |          |       |              |   |
| Other                                 |   | 923,602       |       | 568,288           |   |
|                                  |   |          |       |              |   |
| Total  finance receivables (1)        |   | $             | 13,965,944 |              | $      | 13,433,569 |   |

 

----

(1)          Outstanding receivable balances at March 31, 2002 andDecember 31, 2001 are net of unearned income, including net deferred fees, of$2.30 billion and $2.25 billion, respectively. Non-accrual finance receivables were $70.0 million at March 31, 2002compared with $76.0 million at December 31, 2001.  In addition, finance receivables outstanding which were more thanthree payments contractually delinquent and which were still accruing interestwere $161.2 million at March 31, 2002 compared with $172.4 million at December31, 2001.

 

9

----

 

 

 

5.                                       Allowance for Credit Losses.

 

The analysis of the allowance for credit losses is as follows:

 
|                                                  |   | **Three  Months Ended March 31,** |    |
|-------------------------------------------------------|--------|-----------------------------------|---------|
| **(In  Thousands)**                                   |   | **2002**                          |    | **2001** |   |
| Allowance for  credit losses  beginning of period     |   | $                                 | 521,948 |   | $ | 462,555 |   |
|                                                  |   |                              |    |   |   |
| Provision for credit losses  charged to expense       |   | 140,062                           |    | 108,435 |   |
|                                                  |   |                              |    |   |   |
| Write-offs                                            |   | (148,648                          | )       | (127,519 | ) |
|                                                  |   |                              |    |   |   |
| Recoveries                                            |   | 23,611                            |    | 20,028 |   |
|                                                  |   |                              |    |   |   |
| Allowance related to business  combinations and other |   | (3,073                            | )       | 39,575 |   |
|                                                  |   |                              |    |   |   |
| Allowance for credit losses  end of period            |   | $                                 | 533,900 |   | $ | 503,074 |   |

 

 

6.                                       Statements of Consolidated Cash Flows.

 

The Company andits subsidiaries consider highly liquid debt instruments purchased with anoriginal maturity of three months or less to be cash equivalents.  Supplemental disclosure of certain cash flowinformation is presented below:

 
|                |   | **Three  Months Ended March 31,** |    |
|---------------------|--------|-----------------------------------|---------|
| **(In  Thousands)** |   | **2002**                          |    | **2001** |   |
| Cash paid for:      |   |                              |    |   |   |
| Interest            |   | $                                 | 153,354 |   | $ | 184,928 |   |
| Income  taxes       |   | 9,830                             |    | 40,423 |   |
|                     |        |                                   |         |  |  |  |  |

 

 

 

10

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7.             SegmentInformation.

 

The Company has four reportable segments: U.S.consumer finance, Canadian consumer finance, automobile finance, andleasing.  The Company’s operatingsegments are determined by product type and geography.  U.S. consumer finance operations make loansto individuals and purchase sales finance contracts through 768 consumerfinance branches in 47 states, Guam, Saipan, and Puerto Rico.  The U.S. consumer finance segment alsoissues credit cards through two banking subsidiaries.  Canadian consumer finance operations make loans to individualsand purchase sales finance contracts through 162 consumer finance branches inthe 10 provinces.  Automobile financeoperations specialize in purchasing sales finance contracts directly fromautomobile dealers and making loans secured by automobiles through 189 branchesin 33 states and Puerto Rico.  Leasingoperations specialize in financing commercial equipment such as office copiers,telephone systems, health care equipment, small computers, and light industrialequipment.  Lease finance receivablesare generated primarily from equipment distributors ranging from smallindependently-owned vendors to large equipment manufacturers.  Results from insurance operations areincluded in the appropriate segment.

 

Selected financial information for each segment is shown below:

 

 

(In Thousands)

 
|                         |   | **U.S.****Consumer** |    | **Canadian****Consumer** |   | **Automobile** |   |        |   |       |   |      |   |      |    |      |   |     |   |
|------------------------------|--------|----------------------|---------|--------------------------|--------|----------------|--------|-------------|--------|------------|--------|-----------|--------|-----------|---------|-----------|--------|----------|--------|
|                         |   | **Finance**          |    | **Finance**              |   | **Finance**    |   | **Leasing** |   | **Other*** |   | **Total** |   |
| **Three Months Ended**       |   |                 |    |                     |   |           |   |        |   |       |   |      |   |      |    |      |   |     |   |   |   |   |   |   |   |
| **March 31,:**               |   | **2002**             |    | **2001**                 |   | **2002**       |   | **2001**    |   | **2002**   |   | **2001**  |   | **2002**  |    | **2001**  |   | **2002** |   | **2001** |   | **2002** |   | **2001** |   |
| Finance charges and interest |   | $                    | 314,233 |                     | $      | 304,082        |   | $           | 63,954 |       | $      | 60,926    |   | $         | 137,127 |      | $      | 129,920  |   | $ | 37,028 |   | $ | 32,021 |   | $ | 9,787 |   | $ | 15,884 |   | $ | 562,129 |   | $ | 542,833 |   |
| Total income                 |   | 375,869              |    | 370,589                  |   | 70,224         |   | 67,427      |   | 145,303    |   | 137,334   |   | 45,515    |    | 37,210    |   | 19,867   |   | 24,866 |   | 656,778 |   | 637,426 |   |
| Net income                   |   | 43,170               |    | 31,799                   |   | 11,530         |   | 10,308      |   | 14,492     |   | 11,444    |   | 8,790     |    | 8,183     |   | 925      |   | 3,068 |   | 78,907 |   | 64,802 |   |
| Total assets                 |   | 8,957,203            |    | 8,248,182                |   | 1,410,128      |   | 1,066,770   |   | 3,732,021  |   | 3,403,378 |   | 1,400,158 |    | 1,394,597 |   | 934,355  |   | 575,709 |   | 16,433,865 |   | 14,688,636 |   |
|                              |        |                      |         |                          |        |                |        |             |        |            |        |           |        |           |         |           |        |          |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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*                 Information from other segments below the quantitativethreshold are attributable to miscellaneous insurance companies, collectionservices, operations in Argentina (2001 only) and commercial finance operationsincluding rediscounting.

 

11

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8.             RecentAccounting Standards.

 

In June 2001, the Financial Accounting Standards Board(FASB) issued Statement No. 142 (FAS 142), Goodwill and Other IntangibleAssets.

 

FAS 142 eliminates amortization of goodwill associatedwith business combinations completed after June 30, 2001.  During the transition period from July 1,2001 through December 31, 2001, goodwill associated with business combinationscompleted prior to July 1, 2001, continued to be amortized through the incomestatement.  Effective January 1, 2002,goodwill amortization ceased.

 

As required by the statement, goodwill was assessedfor impairment at the reporting unit level by applying a fair-value-based testduring the first quarter of 2002.  TheCompany determined no goodwill impairment had occurred in its reporting units.

 

“Adjusted Earnings” — FAS 142 Transitional Disclosure

 

Effective January 1, 2002, the amortization ofgoodwill was discontinued.  The tablebelow reconciles reported earnings for first quarter 2001 to “adjusted”earnings, which exclude goodwill amortization.

 
|                              |   | **Quarter  ended**  |    | **Quarter  ended**  |   |
|-----------------------------------|--------|---------------------|---------|---------------------|--------|
|                              |   | **March 31,  2002** |    | **March 31,  2001** |   |
|                              |   | **Reported**        |    | **Reported**        |   | **Goodwill** |   | **“Adjusted”** |   |
| **(in thousands)**                |   | **earnings**        |    | **earnings**        |   | **amortization** |   | **earnings** |   |
|                              |   |                |    |                |   |   |   |   |   |
| Income  before income tax expense |   | $                   | 124,067 |                | $      | 102,724 |   | $ | 8,908 |   | $ | 111,632 |   |
| Income  tax expense               |   | 45,160              |    | 37,922              |   | 2,713 |   | 40,635 |   |
|                              |   |                |    |                |   |   |   |   |   |
| Net  income                       |   | $                   | 78,907  |                | $      | 64,802 |   | $ | 6,195 |   | $ | 70,997 |   |

 

 

9.             Goodwill.

 

The changes in the carrying amount of goodwill for thethree months ended March 31, 2002 are as follows:

 
| **(In Thousands)**             |   | **U.S.**              |   | **Canadian**          |   |                    |   |        |    |      |   |      |   |
|--------------------------------|--------|-----------------------|--------|-----------------------|--------|-------------------------|--------|-------------|---------|-----------|--------|-----------|--------|
|                           |   | **Consumer  Finance** |   | **Consumer  Finance** |   | **Automobile  Finance** |   | **Leasing** |    | **Other** |   | **Total** |   |
|                           |   |                  |   |                  |   |                    |   |        |    |      |   |      |   |
| Balance  as of January 1, 2002 |   | $                     | 12,894 |                  | $      | 33,864                  |   | $           | 178,815 |      | $      | 110,417   |   | $ |   |   | $ | 335,990 |   |
|                           |   |                  |   |                  |   |                    |   |        |    |      |   |      |   |
| Goodwill  acquired             |   |                  |   |                  |   |                    |   |        |    | 6,333     |   | 6,333     |   |
|                           |   |                  |   |                  |   |                    |   |        |    |      |   |      |   |
| Changes  due to exchange rates |   |                  |   | (80                   | )      |                    |   |        |    |      |   | (80       | )      |
|                           |   |                  |   |                  |   |                    |   |        |    |      |   |      |   |
| Balance  as of March 31, 2002  |   | $                     | 12,894 |                  | $      | 33,784                  |   | $           | 178,815 |      | $      | 110,417   |   | $ | 6,333 |   | $ | 342,243 |   |

 

The additional goodwillresulted from the purchase of the rediscount operations of Washington MutualBank, FA on March 28, 2002.

 

 

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WELLS FARGOFINANCIAL, INC.

 

Management’s Discussionand Analysis

of Financial Conditionand Results of Operations

 

 

 

*Statementsmade in Management’s Discussion and Analysis may be forward-looking and aremade pursuant to the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995. Forward-looking statements address management’s present expectationsabout future performance and involve inherent risks and uncertainties.  A number of important factors (some of whichare beyond the Company’s control) could cause actual results to differmaterially from those in the forward-looking statements.  Those factors include the economic environment,competition, products and pricing in the geographic and business areas in whichthe Company conducts its operations, prevailing interest rates, changes ingovernment regulations and policies affecting financial services companies,credit quality and credit risk management, acquisitions, and integration ofacquired businesses.*

 

Wells Fargo Financial’s net income for the first three months of 2002was $78.9 million compared with $64.8 million for the first three months of2001.  Wells Fargo Financial adopted FAS142, Goodwill and Other Intangible Assets, effective January 1, 2002.  Accordingly, goodwill amortizationceased.  Net income in the first quarterof 2001 included $6.2 million of goodwill amortization (net of tax).  Excluding amortization of goodwill, netincome for the first three months of 2002 was $78.9 compared with $71.0 millionfor the first three months of 2001.

 

Well’s Fargo Financial’s total income (revenue) increased 3% for thefirst three months ($656.8 million in the first three months of 2002 comparedwith $637.4 million in the first three months of 2001).

 

Income from finance charges and interest increased 4% for the firstthree months ($562.1 million in the first three months of 2002 compared with$542.8 million in the first three months of 2001).  Changes in income from finance charges and interest resultpredominantly from (1) changes in the amount of finance receivables outstandingand (2) changes in the rate of charge on those receivables.  In total, average finance receivables outstandingin the first three months of 2002 increased 12% from the first three months of2001; average U.S. consumer finance receivables outstanding increased 9%,average Canadian consumer finance receivables outstanding increased 12%,average automobile finance receivables outstanding increased 9%, averageleasing finance receivables outstanding increased 28%, and average otherfinance receivables outstanding increased 34%.

 

 
|                                   |   | **2002** |   | **2001** |   |
|----------------------------------------|--------|----------|--------|----------|--------|
| Rate of charge on finance receivables: |   |     |   |     |   |
|                                   |   |     |   |     |   |
| U.S. consumer  finance                 |   | 17.76    | %      | 18.78    | %      |
| Canadian  consumer finance             |   | 22.08    |   | 23.53    |   |
| Automobile  finance                    |   | 16.16    |   | 16.76    |   |
| Leasing                                |   | 11.60    |   | 12.81    |   |
| Other                                  |   | 6.82     |   | 14.84    |   |
| Total                                  |   | 16.68    |   | 18.03    |   |

 

 

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The increase inincome from finance charges and interest was due to growth in averagereceivables outstanding.  Growth inaverage receivables for U.S. consumer finance, Canadian consumer finance andautomobile finance was due to regular business activity.  The increase in average leasing financereceivables was due primarily to the purchase of Conseco Finance VendorServices Corporation on January 31, 2001. The majority of the increase in other average receivables was due tosignificant receivable growth of the rediscounting operations.  Changes in the earned rates of charge weredue to changes in prevailing market rates combined with a change in theportfolio mix.  The decline in theearned rate of charge for other finance receivables occurred due to the changein portfolio mix occurring due to the growth of rediscounting operations andthe transfer of the Company’s operations in Argentina to its parent duringDecember 2001.

 

Other income increased 2%($65.5 million in the first three months of 2002 compared with $64.3 million inthe first three months of 2001).  Theincrease in other income was due predominantly to additional fee incomeoriginating from the companies acquired in the past year and realized gains onthe sale of securities.

 

Operating expensesincreased 10% ($238.6 million in the first three months of 2002 compared with$216.3 million in the first three months of 2001).  The increase was due primarily to increases in employeecompensation and benefits and other costs relating to business expansion andacquisitions.

 

Interest and debt expensedecreased 25% ($142.6 million in the first three months of 2002 compared with$189.8 million in the first three months of 2001).  Changes in interest and debt expense result predominantly from(1) changes in the amount of borrowings outstanding and (2) changes in the costof those borrowings.  Average totaloutstanding borrowings in the first three months of 2002 increased 19% from thefirst three months of 2001.

 
|            |   | **Three  Months Ended March 31,** |   |
|-----------------|--------|-----------------------------------|--------|
|            |   | **2002**                          |   | **2001** |   |
| Costs of funds: |   |                              |   |   |   |
|            |   |                              |   |   |   |
| Short-term      |   | 2.11                              | %      | 6.11 | % |
| Long-term       |   | 6.08                              |   | 6.66 |   |
| Total           |   | 4.77                              |   | 6.49 |   |
|                 |        |                                   |        |  |  |  |

 

 

Changes in averagedebt outstanding generally correspond to changes in average finance receivablesoutstanding combined with the change in notes receivable - affiliates.  Average finance receivables and notesreceivable - affiliates increased 12% from the first three months of 2001.

 

Provision for creditlosses increased 29% ($140.1 million in the first three months of 2002 comparedwith $108.4 million in the first three months of 2001).  Net write-offs increased 16% ($125.0 millionin the first three months of 2002 compared with $107.5 million in the firstthree months of 2001).  The increase wasdue primarily to higher write-offs in the Company’s automobile finance business(see following table).

 

 

 

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|                                                                                       |   | **Three  Months**    |   |
|--------------------------------------------------------------------------------------------|--------|----------------------|--------|
|                                                                                       |   | **Ended  March 31,** |   |
|                                                                                       |   | **2002**             |   | **2001** |   |
| Net write-offs,  not annualized, as a  percentage of average net receivables  outstanding: |   |                 |   |   |   |
| U.S. consumer  finance                                                                     |   | 1.00                 | %      | 1.02 | % |
| Canadian consumer finance                                                                  |   | 1.06                 |   | 1.02 |   |
| Automobile  finance                                                                        |   | .99                  |   | .75 |   |
| Leasing                                                                                    |   | .57                  |   | .58 |   |
| Other                                                                                      |   | .20                  |   | .32 |   |
| Total                                                                                      |   | .93                  |   | .89 |   |

 

During 2002, theprovision for credit losses exceeded net write-offs by $15.0 million.  At March 31, 2002, the Company had anallowance for credit losses of $533.9 million (3.82% of receivables) comparedwith $521.9 million (3.89% of receivables) at December 31, 2001.  There were no material changes in estimationmethods and assumptions during 2002 and 2001. Non-accrual finance receivables were $70.0 million at March 31, 2002compared with $76.0 million at December 31, 2001.  In addition, finance receivables outstanding which were more thanthree payments contractually delinquent and which were still accruing interestwere $161.2 million at March 31, 2002 compared with $172.4 million at December31, 2001.  The process of determiningthe allowance for credit losses is a critical accounting policy of the Company.  The process requires subjective and complexjudgements by management.  Assumptionsabout economic conditions, unemployment rates, and projected write-offs arefactors considered when evaluating the allowance for losses.  Management believes the allowance for creditlosses at March 31, 2002, is adequate to absorb probable losses on existingreceivables in the finance receivables portfolio.  However, no assurance can be given that the Company will not, inany particular period, sustain credit losses that are sizeable in relation tothe amount reserved, or that subsequent evaluations of the portfolio, in lightof the factors then prevailing, including economic conditions and the ongoingexamination process by the Company will not require significant increases inthe allowance for losses.

 

Income taxes increased19% ($45.2 million in the first three months of 2002 compared with $37.9million in the first three months of 2001). Income before income taxes increased 21% ($124.1 million in the firstthree months of 2002 compared with $102.7 million in the first three months of2001.)  The effective tax rate was 36.4%for the first three months of 2002 and 36.9% for the first three months of2001.

 

The Company maintainsbank lines of credit and revolving credit agreements to provide an alternativesource of liquidity to support the Company’s commercial paper borrowings.  At March 31, 2002, lines of credit andrevolving credit agreements totaling $2,751 million were being maintained at 19domestic and international banks; the entire amount was available on that date.  Additionally, the Company’s banksubsidiaries, Wells Fargo Financial Bank and Wells Fargo Financial NationalBank, have access to federal funds borrowings. At March 31, 2002, federal funds availability at the two banks was $435million.

 

The Company and a Canadian subsidiary obtain long-term debt capitalprimarily from the issuance of debt securities to the public throughunderwriters on a firm-commitment basis and the issuance of debt securities toinstitutional investors.  The Companyand a Canadian subsidiary also obtain long-term debt from the issuance ofmedium-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 Wells Fargo Financial’s growth inthe foreseeable future.  Funds are alsogenerated internally from payments of principal and interest on Wells FargoFinancial’s finance receivables.

 

 

 

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PART II.  OTHER INFORMATION

 

WELLS FARGOFINANCIAL, INC.

 

 

## *Item5.  Other Information.*

 

RATIOS OF EARNINGSTO FIXED CHARGES

 

The following table setsforth the ratios of earnings to fixed charges of Wells Fargo Financial, Inc.and its subsidiaries for the periods indicated:

 
| **Three  Months Ended** |   | **Years  Ended December 31,** |   |
|-------------------------|--------|-------------------------------|--------|
| **March 31,  2002**     |   | **2001**                      |   | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
| 1.85                    |   | 1.61                          |   | 1.58 |   | 1.78 |   | 1.72 |   | 2.00 |   |

 

 

The ratios of earnings to fixed charges have beencomputed by dividing net earnings plus fixed charges and income taxes by fixedcharges.  Fixed charges consist ofinterest and debt expense plus one-third of rentals (which is deemedrepresentative of the interest factor).

 

 

*Item6.  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, 2001, 2000, 1999, 1998 and 1997 and the  three months ended March 31, 2002. |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

(b)  Reports on 8-K

 

On January 28, 2002, the Company filed a current report on Form 8-Krelated to entering into a distribution agreement with certain agents providingfor the sale from time to time of the Company’s Medium-Term Notes.

 

 

 

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 theundersigned thereunto duly authorized.

 
|                     | WELLS FARGO FINANCIAL, INC. |
|--------------------------|-----------------------------|
|                     |                        |   |
| Date:  May 3,  2002 |                        |   |
|                     |                        |   |
|                     |                        |   |
|                     | By                          | /s/ Eric Torkelson |
|                     |                        | Eric Torkelson |
|                     |                        | Senior Vice President and Controller |
|                     |                        | (Principal Accounting Officer) |

 

 

 

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