UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
-----------
Date of Report (Date of earliest event reported): June 30, 1998
CONSECO, INC.
(Exact name of registrant as specified in its charter)
Indiana 1-9250 35-1468632
---------------- ----------- -------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
organization)
11825 North Pennsylvania Street
Carmel, Indiana 46032
-------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(317) 817-6100
--------------------
(Registrant's telephone number, including area code)
Not Applicable
-------------------------------
(Former name or former address,
if changed since last report.)
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
____________________
INDEX
-----
Page
----
<S> <C>
Item 2 - Acquisition or Disposition of Assets 3
Item 7 - Financial Statements and Exhibits
(a) Unaudited Consolidated Financial Statements of Green Tree
Financial Corporation as of March 31, 1998, and for each of the
three month periods ended March 31, 1998 and 1997 were filed with
the Commission as Exhibit 99.3 to the Registrant's Form 8-K dated
June 3, 1998, and are incorporated herein by this reference and
are being filed herewith pursuant to General Instruction F to
Form 8-K. 4
The Audited Consolidated Financial Statements of Green Tree
Financial Corporation required to be filed pursuant to Item 7(a)
of this Current Report on Form 8-K will be filed as soon as
practicable, but in no event later than September 13, 1998, 60
days after the date this Form 8-K is required to be filed. 16
(b) Pro Forma Combined Financial Statements of Conseco, Inc. and
Subsidiaries were filed with the Commission as Exhibit 99.1 to
the Registrant's Form 8-K dated June 3, 1998, and are
incorporated herein by this reference and are being filed
pursuant to General Instruction F to Form 8-K. 17
(c) Exhibits - None 32
</TABLE>
2
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 30, 1998, Conseco, Inc. ("Conseco") completed the acquisition
(the "Merger") of Green Tree Financial Corporation ("Green Tree") pursuant to an
Agreement and Plan of Merger (the "Merger Agreement") dated as of April 6, 1998,
as amended, among Conseco, Marble Acquisition Corp., a Delaware corporation and
a wholly owned subsidiary of Conseco, and Green Tree. In the Merger, each share
of Green Tree's common stock, par value $.01 per share was converted into 0.9165
of a share of Conseco's common stock, no par value. Conseco issued approximately
124 million shares of Conseco common stock in exchange for all of Green Tree's
common shares and equivalents. After the Merger, Conseco's total common shares
outstanding increased to approximately 312 million. As a result of the Merger,
Green Tree became a wholly owned subsidiary of Conseco. The Merger will be
accounted for as a pooling of interests.
Green Tree is a diversified financial services company that provides
financing for manufactured homes, home equity, home improvements, consumer
products and equipment and provides consumer and commercial revolving credit.
Green Tree's insurance agencies market physical damage and term mortgage life
insurance and other credit protection relating to the customers' contracts Green
Tree services. Green Tree is the largest servicer of manufactured housing
contracts in the United States. Through its principal offices in Saint Paul,
Minnesota and service centers throughout the United States, Green Tree serves
all 50 states.
Green Tree pools and securitizes substantially all of the contracts it
originates, retaining the servicing on the contracts. Such pools are structured
into asset-backed securities which are sold in the public securities markets. In
servicing the contracts, Green Tree collects payments from the borrower and
remits principal and interest payments to the holder of the contract or investor
certificate backed by the contracts.
Green Tree was originally incorporated under the laws of the State of
Minnesota in 1975. In 1995, Green Tree reincorporated under the laws of the
State of Delaware. Green Tree's principal executive offices are located at 1100
Landmark Towers, 345 Saint Peter Street, Saint Paul, Minnesota 55102-1639, and
its telephone number is (612) 293-3400.
3
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Unaudited Consolidated Financial Statements of Green Tree Financial
Corporation as of March 31, 1998, and for each of the three month
periods ended March 31, 1998 and 1997.
4
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------------- ---------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 888,743,000 $ 741,398,000
Cash deposits, restricted 234,194,000 247,237,000
Other investments 19,096,000 25,294,000
Interest only securities 1,412,280,000 1,363,200,000
Finance receivables 2,154,646,000 1,971,024,000
Other receivables 228,525,000 235,705,000
Servicing rights 111,823,000 96,311,000
Property, furniture and fixtures 121,164,000 112,404,000
Goodwill 55,399,000 56,095,000
Other assets 29,372,000 18,124,000
--------------- ---------------
Total assets $ 5,255,242,000 $ 4,866,792,000
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Notes payable $ 1,548,618,000 $ 1,355,995,000
Senior/Senior subordinated notes 510,484,000 510,316,000
Accounts payable and accrued liabilities 556,194,000 492,789,000
Investors payable 653,297,000 552,781,000
Deferred income taxes 637,430,000 622,771,000
--------------- ---------------
Total liabilities 3,906,023,000 3,534,652,000
Common stock, $.01 par; authorized 400,000,000
shares; issued 141,899,317 and
and 141,595,984 shares, respectively 1,419,000 1,416,000
Additional paid-in capital 445,190,000 435,570,000
Retained earnings 1,127,417,000 1,075,670,000
Accumulated other comprehensive income (loss):
Minimum pension liability adjustments (3,142,000) (3,142,000)
Unrealized gain on securities
available for sale, net 902,000 21,824,000
--------------- ---------------
1,571,786,000 1,531,338,000
Less treasury stock, 7,773,366 and 7,012,156
shares at cost (222,567,000) (199,198,000)
--------------- ---------------
Total stockholders' equity 1,349,219,000 1,332,140,000
--------------- ---------------
Total liabilities and stockholders' equity $ 5,255,242,000 $ 4,866,792,000
=============== ===============
See notes to unaudited financial statements.
</TABLE>
5
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended March 31,
---------------------------
1998 1997
------------ ------------
REVENUES:
Gain on sale of receivables $129,116,000 $153,367,000
Interest 100,991,000 75,429,000
Service 30,216,000 24,681,000
Commissions and other 25,431,000 13,678,000
------------ ------------
285,754,000 267,155,000
------------ ------------
EXPENSES:
Interest 48,492,000 29,818,000
Cost of servicing 26,974,000 19,379,000
General and administrative 107,912,000 69,889,000
------------ ------------
183,378,000 119,086,000
------------ ------------
EARNINGS BEFORE INCOME TAXES 102,376,000 148,069,000
INCOME TAXES 38,903,000 56,266,000
------------ ------------
NET EARNINGS $ 63,473,000 $ 91,803,000
============ ============
EARNINGS PER COMMON SHARE:
BASIC $ .47 $ .66
DILUTED $ .47 $ .65
See notes to unaudited financial statements.
6
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common paid-in Treasury comprehensive Retained stockholders'
stock capital stock income (loss) earnings equity
----------- ----------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1996 $ 1,398 $ 373,573 $ (53,913) $ (2,299) $ 818,733 $ 1,137,492
Comprehensive income, net of tax:
Net earnings -- -- -- -- 91,803 91,803
Unrealized loss on securities,
net of applicable
income taxes ($17,080) -- -- -- (27,867) -- (27,867)
-----------
Total comprehensive income 63,936
Common stock issuance of
1,300,000 shares 13 51,761 -- -- -- 51,774
Cost of 1,017,000 shares of
treasury stock acquired -- -- (36,688) -- -- (36,688)
Dividends on common stock -- -- -- -- (10,430) (10,430)
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, March 31, 1997 $ 1,411 $ 425,334 $ (90,601) $ (30,166) $ 900,106 $ 1,206,084
=========== =========== =========== =========== =========== ===========
BALANCES, December 31, 1997 $ 1,416 $ 435,570 $ (199,198) $ 18,682 $ 1,075,670 $ 1,332,140
Comprehensive income, net of tax:
Net earnings -- -- -- -- 63,473 63,473
Unrealized loss on securities,
net of applicable
income taxes ($12,823) -- -- -- (20,922) -- (20,922)
-----------
Total comprehensive income 42,551
Stock warrants issuance -- 7,687 -- -- -- 7,687
Common stock issuance of
303,000 shares 3 1,933 -- -- -- 1,936
Cost of 761,210 shares of
treasury stock acquired -- -- (23,369) -- -- (23,369)
Dividends on common stock -- -- -- -- (11,726) (11,726)
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, March 31, 1998 $ 1,419 $ 445,190 $ (222,567) $ (2,240) $ 1,127,417 $ 1,349,219
=========== =========== =========== =========== =========== ===========
See notes to unaudited financial statements.
</TABLE>
7
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------
1998 1997
------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Servicing fees and net interest
payments collected on sold loans $ 84,070,000 $ 78,009,000
Net principal payments collected on sold loans 128,678,000 64,067,000
Interest on unsold loans 50,972,000 46,166,000
Interest on cash and investments 14,540,000 8,539,000
Commissions 19,160,000 11,501,000
Other 13,322,000 (2,523,000)
--------------- ---------------
310,742,000 205,759,000
--------------- ---------------
Cash paid to employees and suppliers (132,988,000) (126,443,000)
Interest paid on debt (40,571,000) (20,251,000)
Income taxes paid (10,114,000) (7,430,000)
--------------- ---------------
(183,673,000) (154,124,000)
--------------- ---------------
NET CASH PROVIDED BY OPERATIONS 127,069,000 51,635,000
Purchase of loans and leases (2,766,690,000) (2,087,204,000)
Proceeds from sale of loans and leases 2,607,081,000 1,809,087,000
Principal collections on unsold loans and leases 102,141,000 178,880,000
Commercial and revolving credit loans disbursed (1,692,443,000) (839,249,000)
Principal collections on commercial and revolving credit loans 1,262,226,000 757,492,000
Proceeds from sale of commercial and revolving credit loans 317,840,000 --
Net cash deposits provided as credit enhancements 13,043,000 (4,249,000)
--------------- ---------------
NET CASH USED FOR
OPERATING ACTIVITIES (29,733,000) (133,608,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, furniture and fixtures (17,846,000) (10,084,000)
Net sales (purchases) of investment securities 6,198,000 (3,839,000)
--------------- ---------------
NET CASH USED FOR INVESTING
ACTIVITIES (11,648,000) (13,923,000)
--------------- ---------------
</TABLE>
8
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued, unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------------
1998 1997
--------------- -----------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on credit facilities 2,553,788,000 1,921,498,000
Repayments on credit facilities (2,353,963,000) (1,659,804,000)
Common stock issued 627,000 475,000
Common stock repurchased -- (36,688,000)
Dividends paid (11,726,000) (10,430,000)
--------------- ---------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 188,726,000 215,051,000
--------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 147,345,000 67,520,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 741,398,000 442,071,000
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 888,743,000 $ 509,591,000
=============== ===============
RECONCILIATION OF NET EARNINGS TO NET CASH
USED FOR OPERATING ACTIVITIES:
Net earnings $ 63,473,000 $ 91,803,000
Deferred income taxes 38,903,000 56,266,000
Valuation adjustments of interest only securities 47,000,000 --
Depreciation and amortization 10,669,000 7,556,000
Net loan payments collected, less interest only securities
and servicing rights recorded (11,746,000) (50,189,000)
Amortization of servicing rights 4,947,000 2,569,000
Accretion of yield on interest only securities (33,384,000) (25,257,000)
Net decrease (increase) in cash deposits 13,043,000 (4,249,000)
Purchase of loans and leases,
net of sales and principal collections (72,367,000) (99,237,000)
Commercial and revolving loans disbursed, net of
sales and principal collections (109,816,000) (81,757,000)
Net selling expenses on sale of loans 30,786,000 10,897,000
Interest payable increase 7,128,000 8,434,000
Income taxes paid (10,114,000) (7,430,000)
Decrease in amounts payable to employees and suppliers (7,977,000) (43,598,000)
Decrease (increase) in other receivables 2,570,000 (5,033,000)
Other (2,848,000) 5,617,000
--------------- ---------------
NET CASH USED FOR
OPERATING ACTIVITIES ($ 29,733,000) ($ 133,608,000)
=============== ===============
See notes to unaudited financial statements.
</TABLE>
9
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The interim financial statements have been prepared by Green Tree Financial
Corporation (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission applicable to quarterly
reports on Form 10-Q. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments which are of a normal
recurring nature and are necessary for a fair presentation have been included.
However, results for interim periods are not necessarily indicative of the
results that may be expected for a full year. It is suggested that these
financial statements be read in conjunction with the consolidated financial
statements and related notes and schedules included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes standards for reporting and presentation of comprehensive income and
its components in a full set of financial statements. Comprehensive income
includes all changes in stockholders' equity except those arising from
transactions with shareholders. The new standard requires only additional
disclosures in the consolidated financial statements; it does not affect the
Company's financial position or results of operations.
10
<PAGE>
B. INTEREST ONLY SECURITIES
The activity in interest only securities for the three months ended March 31,
1998 is summarized as follows:
Balance at beginning of period $1,363,200,000
Additions 164,349,000
Yield on interest only securities 33,384,000
Net cash collected (67,908,000)
Realized writedown of interest only
securities (47,000,000)
Unrealized writedown of interest
only securities (33,745,000)
----------------
Balance at end of period $1,412,280,000
================
In 1995 and previous years, the Company sold a substantial portion of its
interest only securities related to manufactured housing securitization
transactions between 1978 and 1995 in the form of securitized Net Interest
Margin Certificates. The Company retained a subordinated interest in the cash
flow of the interest only securities sold. These interests are included in
interest only securities and total $79,357,000 at March 31, 1998.
Generally, interest only securities relate to the sale of closed end
manufactured housing, home equity, home improvement, consumer and equipment
finance receivables. The Company's interest only securities are subject to a
substantial amount of credit loss and prepayment risk related to the receivables
sold. In connection with the valuation of interest only securities, the Company
has provided for approximately $946,060,000 of credit losses as of March 31,
1998. On a nondiscounted basis the amount of credit losses provided for in
connection with the valuation of the interest only securities is approximately
$1,399,149,000. These estimated losses if realized, would reduce the amount of
cash flows available to the interest only securities and are considered in the
Company's valuation processes.
The weighted average interest rate used to discount expected future cash flows
of the interest only securities is 11.60% as of March 31, 1998.
11
<PAGE>
The table below details information pertinent to the valuation of the interest
only securities as of March 31, 1998.
<TABLE>
<CAPTION>
Manufactured Home Equity/ Consumer/
Housing Home Improvement Equipment Total
--------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Interest only securities carrying amount $ 872,578,000 396,498,000 143,204,000 $ 1,412,280,000
Unpaid principal balance of sold receivables $18,186,731,000 5,004,964,000 2,655,252,000 $25,846,947,000
Weighted average customer interest rate on
sold receivables 10.46% 11.85% 11.12%
Approximate expected weighted average constant
prepayment rate as a percentage
of unpaid principal balance of sold
receivables (1) 9.75% 25.0% 22.0%
Approximate remaining expected non
discounted credit losses as a percentage
of unpaid principal balance of sold
receivables (1) 6.2% 4.4% 2.0%
</TABLE>
(1) Valuation of the Company's interest only securities is impacted not only
by the projected level of prepayments of principal and net credit losses,
as shown above, but also by the projected timing of such prepayments and
net credit losses. Should the timing of projected prepayments of principal
or net credit losses differ materially from the timing projected by the
Company, such timing could have a material effect on the valuation of the
interest only securities.
12
<PAGE>
C. FINANCE RECEIVABLES
Finance receivables consisted of the following:
March 31, 1998 December 31,1997
-------------- ----------------
Lease $ 267,987,000 $ 191,572,000
Commercial Finance 632,172,000 683,691,000
Revolving Credit Card 324,795,000 165,151,000
Loans Held For Sale 929,692,000 930,610,000
-------------- --------------
Total $2,154,646,000 $1,971,024,000
============== ==============
D. SERVICING RIGHTS
The activity in servicing rights for the period ended March 31, 1998 is
summarized as follows:
Balance at beginning of period $ 96,311,000
Additions 20,459,000
Amortization ( 4,947,000)
--------------
Balance at end of period $ 111,823,000
==============
E. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net earnings by the weighted
average number of shares of Common Stock outstanding during each period. Diluted
earnings per share is computed by dividing net earnings by the weighted average
number of shares of Common Stock and potential Common Stock outstanding during
each period. The following table presents the earnings per share data. Options
to purchase 5,529,469 and 298,544 shares are excluded from the computation of
diluted earnings per common share because of their anti-dilutive effect, as the
exercise price of the option exceeds the average market price of the Common
Stock for the three months ended March 31, 1998 and 1997, respectively.
Three months ended March 31,
---------------------------
1998 1997
------------ ------------
Net Earnings $ 63,473,000 $ 91,803,000
============ ============
Weighted average Common Stock
outstanding 134,236,605 138,511,310
Effect of dilutive securities:
Options 1,463,317 3,708,253
Warrants 119,981 --
------------ ------------
Diluted Common Stock 135,819,903 142,219,563
============ ============
Earnings per common share:
Basic $ .47 $ .66
Diluted $ .47 $ .65
13
<PAGE>
F. STOCKHOLDERS' EQUITY
STOCK OPTION PLANS
The Company has three stock option plans: two employee stock option plans and an
outside director plan. In 1992, the Board of Directors approved a supplemental
stock option plan for its outside directors. In 1995, the Company's stockholders
approved an Employee Stock Incentive Plan. In 1998 the Board of Directors
approved a Company Stock Option Plan for issuances of stock options to non-
officer employees.
Options for 864,520 shares were available for future grant under these plans.
The Company's Board of Directors has reserved 11,149,252 shares for future
issuance under all plans as of March 31, 1998.
A summary of the stock option plan activity is as follows:
Number of Weighted Average
Shares Exercise Price
---------- -----------------
Outstanding at December 31, 1997 9,910,465 $25.98
Granted 835,500 23.00
Exercised (303,333) 12.87
Expired (156,900) 30.92
----------
Outstanding at March 31, 1998 10,285,732 $23.04
==========
Of the 10,285,732 options outstanding at March 31, 1998, 10,145,732 options
relate to the employee and chief executive stock option plans and 140,000
options relate to the outside director plan.
On March 1, 1998, the Company offered to reprice certain employee stock options
to the current market price on March 1, 1998. The offer was not extended to the
six most senior executive officers. Employees accepting this offer agreed to a
revised vesting schedule and an exercise price of $23.00, representing the
market price at March 1, 1998. Approximately 2.8 million options were repriced.
14
<PAGE>
A summary of stock options outstanding and exercisable at March 31, 1998 is as
follows:
Options Outstanding:
Range of Number Remaining Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price
- - ----------------- ------------- ---------------- -------------------
$ 2.97-22.50 1,714,332 4.17 $ 6.46
23.00-23.00 3,639,500 9.92 23.00
23.38-30.50 2,350,300 7.68 25.52
30.88-33.38 2,323,000 7.90 31.21
33.50-47.00 258,600 9.17 37.61
----------- --------- ---- -------
$ 2.97-47.00 10,285,732 7.97 $ 23.04
Options Exercisable:
Range of Number Weighted Average
Exercise Prices Exercisable Exercise Price
- - ------------------- ----------- -----------------
$ 2.97-22.50 1,563,665 $ 5.45
23.00-23.00 0 0.00
23.38-30.50 824,300 25.01
30.88-33.38 493,000 31.31
33.50-47.00 57,600 38.10
-------------- ---------- -------
$ 2.97-47.00 2,938,565 $ 15.92
WARRANTS
On February 13, 1998, the Company issued warrants to purchase 2.7 million common
shares at $22.75 per share to the provider of a credit facility secured by the
Company's interest only securities. The warrant expires on the later of February
13, 2000 or 90 days after the credit facility has been paid in full. The Company
has the option to call and repurchase the warrant for $15.00 per warrant share
regardless of the closing price of the common shares at the call date.
15
<PAGE>
ITEM 7(a). FINANCIAL STATEMENTS AND EXHIBITS, continued
The Audited Consolidated Financial Statements of Green Tree
Financial Corporation required to be filed pursuant to Item 7(a) of
this Current Report on Form 8-K will be filed as soon as
practicable, but in no event later than September 13, 1998, 60 days
after the date this Form 8-K is required to be filed.
16
<PAGE>
ITEM 7(b). FINANCIAL STATEMENTS AND EXHIBITS, Continued
Pro Forma Combined Financial Statements of Conseco, Inc . and
Subsidiaries.
17
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF CONSECO, INC.
On April 6, 1998, Conseco, Inc. ("Conseco") and Green Tree Financial
Corporation ("Green Tree") entered into an Agreement and Plan of Merger pursuant
to which Green Tree would become a wholly owned subsidiary of Conseco (the
"Merger"). The following unaudited pro forma combined balance sheet as of March
31, 1998, combines the historical combined balance sheets of Conseco and Green
Tree as if the Merger had been effective on March 31, 1998, after giving effect
to certain adjustments described in the accompanying notes to the unaudited pro
forma combined financial information.
The unaudited pro forma combined statements of operations for the three
months ended March 31, 1998 and 1997, and for each of the three years ended
December 31, 1997, present the combined results of operations of Conseco and
Green Tree as if the Merger had been effective at the earliest period presented.
The unaudited pro forma combined financial information and accompanying
notes reflect the application of the pooling of interests method of accounting
for the Merger. Under this method of accounting, the recorded assets,
liabilities, shareholders' equity, income and expense of Conseco and Green Tree
are combined and reflected at their historical amounts.
The unaudited pro forma combined financial statements are based on the
historical financial statements of Conseco and Green Tree and are qualified in
their entirety by, and should be read in conjunction with, these financial
statements and the notes thereto. The unaudited pro forma combined financial
statements are not necessarily indicative of the results of operations or the
combined financial position that would have resulted had the Merger been
consummated at the beginning of the period indicated, nor are they necessarily
indicative of future results of operations or financial position.
18
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
March 31, 1998
(Dollars in millions)
ASSETS
PRO FORMA
CONSECO GREEN TREE ADJUSTMENTS COMBINED
------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Investments:
Actively managed fixed maturities at fair value.................. $22,968.9 $ - $ - $22,968.9
Equity securities at fair value.................................. 263.4 - - 263.4
Interest only securities......................................... - 1,412.3 - 1,412.3
Finance receivables.............................................. - 2,154.6 - 2,154.6
Mortgage loans................................................... 474.2 - - 474.2
Credit-tenant loans.............................................. 596.6 - - 596.6
Policy loans..................................................... 691.7 - - 691.7
Other invested assets ........................................... 534.8 19.1 - 553.9
Short-term investments........................................... 837.7 888.7 - 1,726.4
Assets held in separate accounts................................. 675.2 - - 675.2
--------- -------- ------ ---------
Total investments.......................................... 27,042.5 4,474.7 - 31,517.2
Accrued investment income............................................ 399.9 - - 399.9
Other receivables.................................................... - 228.5 - 228.5
Servicing rights..................................................... - 111.8 - 111.8
Cost of policies purchased........................................... 2,442.6 - - 2,442.6
Cost of policies produced............................................ 1,022.5 - - 1,022.5
Reinsurance receivables.............................................. 761.8 - - 761.8
Income tax assets.................................................... 42.4 - (42.4) (2) -
Goodwill............................................................. 3,604.9 55.4 - 3,660.3
Property and equipment............................................... 176.0 121.2 - 297.2
Cash deposits, restricted............................................ - 234.2 - 234.2
Other assets......................................................... 431.3 29.4 - 460.7
--------- -------- ------ ---------
Total assets............................................... $35,923.9 $5,255.2 $(42.4) $41,136.7
========= ======== ====== =========
(continued on next page)
The accompanying notes are an integral
part of the unaudited pro forma combined financial
statements.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET (Continued)
March 31, 1998
(Dollars in millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
PRO FORMA
CONSECO GREEN TREE ADJUSTMENTS COMBINED
------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Liabilities:
Insurance liabilities:
Interest sensitive products................................... $17,320.6 $ - $ - $17,320.6
Traditional products.......................................... 5,758.0 - - 5,758.0
Claims payable and other policyholder funds................... 1,617.3 - - 1,617.3
Unearned premiums............................................. 409.1 - - 409.1
Liabilities related to separate accounts...................... 675.2 - - 675.2
Investment borrowings............................................ 1,196.1 - - 1,196.1
Investor payables................................................ - 653.3 - 653.3
Other liabilities................................................ 1,223.4 556.2 240.0 (3) 2,019.6
Income tax liabilities........................................... - 637.4 (42.4) (2) 595.0
Notes payable and commercial paper:
Corporate...................................................... 2,435.1 - - 2,435.1
Related to finance receivables................................. - 2,059.1 - 2,059.1
--------- -------- ------- ---------
Total liabilities.......................................... 30,634.8 3,906.0 197.6 34,738.4
--------- -------- ------- ---------
Minority interest:
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust...................... 1,388.1 - - 1,388.1
Common stock of subsidiary....................................... .7 - - .7
Shareholders' equity:
Preferred stock.................................................. 115.8 - - 115.8
Common stock and additional paid-in capital...................... 2,397.0 446.6 (222.6) (4) 2,621.0
Accumulated other comprehensive income:
Unrealized appreciation of fixed maturity investments......... 159.0 - - 159.0
Unrealized appreciation of other investments.................. 10.9 .9 - 11.8
Minimum pension liability adjustment.......................... - (3.1) - (3.1)
Less treasury shares at cost..................................... - (222.6) 222.6 (4) -
Retained earnings................................................ 1,217.6 1,127.4 (240.0) (3) 2,105.0
--------- -------- ------- ---------
Total shareholders' equity................................. 3,900.3 1,349.2 (240.0) 5,009.5
--------- -------- ------- ---------
Total liabilities and shareholders' equity................. $35,923.9 $5,255.2 $ (42.4) $41,136.7
========= ======== ======= =========
The accompanying notes are an integral
part of the unaudited pro forma combined financial
statements.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
for the three months ended March 31, 1998
(Dollars in millions, except per share data)
PRO FORMA
CONSECO GREEN TREE ADJUSTMENTS COMBINED
------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income:
Traditional products............................................. $ 859.4 $ - $ 859.4
Interest sensitive products...................................... 130.7 - 130.7
Net investment income............................................... 583.3 101.0 684.3
Gain on sale of receivables......................................... - 129.1 129.1
Net investment gains................................................ 104.8 - 104.8
Fee revenue and other income........................................ 20.8 55.7 76.5
-------- ------ --------
Total revenues.............................................. 1,699.0 285.8 1,984.8
-------- ------ --------
Benefits and expenses:
Insurance policy benefits........................................... 680.4 - 680.4
Amounts added to annuity and financial product
policyholder account balances:
Interest...................................................... 188.4 - 188.4
Other amounts added to variable and equity-indexed
annuity products........................................... 85.6 - 85.6
Interest expense on notes payable................................... 39.0 48.5 87.5
Interest expense on short-term investment borrowings................ 18.9 - 18.9
Amortization related to operations.................................. 117.1 - 117.1
Amortization related to investment gains............................ 86.4 - 86.4
Other operating costs and expenses.................................. 165.0 134.9 299.9
-------- ------ --------
Total benefits and expenses................................... 1,380.8 183.4 1,564.2
-------- ------ --------
Income before income taxes, minority interest
and extraordinary charge ................................. 318.2 102.4 420.6
Income tax expense...................................................... 131.3 38.9 170.2
-------- ------ --------
Income before minority interest and
extraordinary charge ..................................... 186.9 63.5 250.4
Minority interest - distributions on Company-obligated mandatorily
redeemable preferred securities of subsidiary trusts, net of
income taxes........................................................ 19.4 - 19.4
-------- ------ --------
Income before extraordinary charge ......................... 167.5 63.5 231.0
Extraordinary charge on extinguishment of
debt, net of taxes and minority interest............................ 16.4 - 16.4
-------- ------ --------
Net income.................................................. 151.1 63.5 214.6
Less preferred stock dividends.......................................... 2.0 - 2.0
-------- ------ --------
Net income applicable to common stock....................... $ 149.1 $ 63.5 $ 212.6
======== ====== ========
(continued on next page)
The accompanying notes are an integral
part of the unaudited pro forma combined financial
statements.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (Continued)
for the three months ended March 31, 1998
(Dollars in millions, except per share data)
PRO FORMA
CONSECO GREEN TREE ADJUSTMENTS COMBINED
------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Earnings per common share:
Basic:
Weighted average shares outstanding............................ 185,941,000 134,237,000 (11,209,000) (4) 308,969,000
Net income before extraordinary charge ........................ $.89 $.47 $.74
Extraordinary charge .......................................... .09 - .05
---- ---- ----
Net income................................................ $.80 $.47 $.69
==== ==== ====
Diluted:
Weighted average shares outstanding........................... 207,930,000 135,820,000 (11,341,000) (4) 332,409,000
Net income before extraordinary charge ........................ $.81 $.47 $.70
Extraordinary charge........................................... .08 - .05
---- ---- ----
Net income................................................ $.73 $.47 $.65
==== ==== ====
The accompanying notes are an integral
part of the unaudited pro forma combined financial
statements.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
for the three months ended March 31, 1997
(Dollars in millions, except per share data)
PRO FORMA
CONSECO GREEN TREE ADJUSTMENTS COMBINED
------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income:
Traditional products............................................. $ 566.2 $ - $ 566.2
Interest sensitive products...................................... 103.9 - 103.9
Net investment income............................................... 409.2 75.4 484.6
Gain on sale of receivables......................................... - 153.4 153.4
Net investment gains................................................ 5.1 - 5.1
Fee revenue and other income........................................ 14.6 38.4 53.0
-------- ------ --------
Total revenues.............................................. 1,099.0 267.2 1,366.2
-------- ------ --------
Benefits and expenses:
Insurance policy benefits........................................... 455.3 - 455.3
Amounts added to annuity and financial product
policyholder account balances:
Interest...................................................... 173.7 - 173.7
Other amounts added to variable and equity-indexed
annuity products........................................... 16.2 - 16.2
Interest expense on notes payable................................... 25.8 29.8 55.6
Interest expense on short-term investment borrowings................ 2.8 - 2.8
Amortization related to operations.................................. 103.6 - 103.6
Amortization related to investment gains............................ 11.8 - 11.8
Other operating costs and expenses.................................. 114.4 89.3 203.7
-------- ------ --------
Total benefits and expenses................................... 903.6 119.1 1,022.7
-------- ------ --------
Income before income taxes, minority interest
and extraordinary charge ................................. 195.4 148.1 343.5
Income tax expense...................................................... 70.6 56.3 126.9
-------- ------ --------
Income before minority interest and
extraordinary charge ..................................... 124.8 91.8 216.6
Minority interest:
Distributions on Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts, net of income taxes.... 8.7 - 8.7
Dividends on preferred stock of subsidiaries........................ 1.3 - 1.3
-------- ------ --------
Income before extraordinary charge ........................... 114.8 91.8 206.6
Extraordinary charge on extinguishment of
debt, net of taxes and minority interest............................ 3.3 - 3.3
-------- ------ --------
Net income.................................................... 111.5 91.8 203.3
Less amounts applicable to preferred stock:
Charge related to induced conversions............................... 12.3 - 12.3
Preferred stock dividends........................................... 2.3 - 2.3
-------- ------ --------
Net income applicable to common stock....................... $ 96.9 $ 91.8 $ 188.7
======== ====== ========
(continued on next page)
The accompanying notes are an integral
part of the unaudited pro forma combined financial
statements.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (Continued)
for the three months ended March 31, 1997
(Dollars in millions, except per share data)
PRO FORMA
CONSECO GREEN TREE ADJUSTMENTS COMBINED
------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Earnings per common share:
Basic:
Weighted average shares outstanding............................ 177,670,000 138,511,000 (11,566,000) (4) 304,615,000
Net income before extraordinary charge ........................ $.57 $.66 $.63
Extraordinary charge .......................................... .02 - .01
---- ---- ----
Net income................................................ $.55 $.66 $.62
==== ==== ====
Diluted:
Weighted average shares outstanding........................... 203,620,000 142,220,000 (11,875,000) (4) 333,965,000
Net income before extraordinary charge ........................ $.51 $.65 $.58
Extraordinary charge........................................... .02 - .01
---- ---- ----
Net income................................................ $.49 $.65 $.57
==== ==== ====
The accompanying notes are an integral
part of the unaudited pro forma combined financial
statements.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
for the year ended December 31, 1997
(Dollars in millions, except per share data)
PRO FORMA
CONSECO GREEN TREE ADJUSTMENTS COMBINED
------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income:
Traditional products............................................. $2,954.1 $ - $2,954.1
Interest sensitive products...................................... 456.7 - 456.7
Net investment income............................................... 1,825.3 370.6 2,195.9
Gain on sale of receivables......................................... - 546.8 546.8
Net investment gains................................................ 266.5 - 266.5
Fee revenue and other income........................................ 65.8 174.1 239.9
-------- -------- --------
Total revenues.............................................. 5,568.4 1,091.5 6,659.9
-------- -------- --------
Benefits and expenses:
Insurance policy benefits........................................... 2,368.3 - 2,368.3
Amounts added to annuity and financial product
policyholder account balances:
Interest...................................................... 697.1 - 697.1
Other amounts added to variable and equity-indexed
annuity products........................................... 109.6 109.6
Interest expense on notes payable................................... 109.4 160.9 270.3
Interest expense on short-term investment borrowings................ 42.0 - 42.0
Amortization related to operations.................................. 408.8 - 408.8
Amortization related to investment gains............................ 181.2 - 181.2
Nonrecurring charges................................................ 71.7 - 71.7
Other operating costs and expenses.................................. 577.2 444.5 1,021.7
-------- -------- --------
Total benefits and expenses................................... 4,565.3 605.4 5,170.7
-------- -------- --------
Income before income taxes, minority interest
and extraordinary charge ................................. 1,003.1 486.1 1,489.2
Income tax expense...................................................... 376.6 184.7 561.3
-------- -------- --------
Income before minority interest and
extraordinary charge ..................................... 626.5 301.4 927.9
Minority interest:
Distributions on Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts, net of income taxes... 49.0 - 49.0
Dividends on preferred stock of subsidiaries........................ 3.3 - 3.3
-------- -------- --------
Income before extraordinary charge ......................... 574.2 301.4 875.6
Extraordinary charge on extinguishment of
debt, net of taxes and minority interest............................ 6.9 - 6.9
-------- -------- --------
Net income.................................................. 567.3 301.4 868.7
Less amounts applicable to preferred stock:
Charge related to induced conversions............................... 13.2 - 13.2
Preferred stock dividends........................................... 8.7 - 8.7
-------- -------- --------
Net income applicable to common stock....................... $ 545.4 $ 301.4 $ 846.8
======== ======== ========
(continued on next page)
The accompanying notes are an integral
part of the unaudited pro forma combined financial
statements.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (Continued)
for the year ended December 31, 1997
(Dollars in millions, except per share data)
PRO FORMA
CONSECO GREEN TREE ADJUSTMENTS COMBINED
------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Earnings per common share:
Basic:
Weighted average shares outstanding............................ 185,751,000 136,715,000 (11,416,000)(4) 311,050,000
Net income before extraordinary charge ........................ $2.98 $2.20 $2.74
Extraordinary charge .......................................... .04 - .02
----- ----- -----
Net income................................................ $2.94 $2.20 $2.72
===== ===== =====
Diluted:
Weighted average shares outstanding............................ 210,179,000 140,254,000 (11,711,000)(4) 338,722,000
Net income before extraordinary charge ........................ $2.67 $2.15 $2.55
Extraordinary charge........................................... .03 - .02
----- ----- -----
Net income................................................ $2.64 $2.15 $2.53
===== ===== =====
The accompanying notes are an integral
part of the unaudited pro forma combined financial
statements.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
for the year ended December 31, 1996
(Dollars in millions, except per share data)
PRO FORMA
CONSECO GREEN TREE ADJUSTMENTS COMBINED
------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income:
Traditional products............................................. $1,384.3 $ - $1,384.3
Interest sensitive products...................................... 269.9 - 269.9
Net investment income............................................... 1,302.5 215.3 1,517.8
Gain on sale of receivables......................................... - 389.7 389.7
Net investment gains................................................ 60.8 - 60.8
Fee revenue and other income........................................ 49.8 119.1 168.9
-------- -------- --------
Total revenues.............................................. 3,067.3 724.1 3,791.4
-------- -------- --------
Benefits and expenses:
Insurance policy benefits........................................... 1,195.0 - 1,195.0
Amounts added to annuity and financial product
policyholder account balances:
Interest...................................................... 620.2 - 620.2
Other amounts added to variable and equity-indexed
annuity products........................................... 48.4 - 48.4
Interest expense on notes payable................................... 108.1 70.1 178.2
Interest expense on short-term investment borrowings................ 22.0 - 22.0
Amortization related to operations.................................. 240.0 - 240.0
Amortization related to investment gains............................ 36.0 - 36.0
Other operating costs and expenses.................................. 304.0 330.2 634.2
-------- -------- --------
Total benefits and expenses................................... 2,573.7 400.3 2,974.0
-------- -------- --------
Income before income taxes, minority interest
and extraordinary charge ................................. 493.6 323.8 817.4
Income tax expense...................................................... 179.8 123.0 302.8
-------- -------- --------
Income before minority interest and
extraordinary charge ..................................... 313.8 200.8 514.6
Minority interest:
Distributions on Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts, net of income taxes... 3.6 - 3.6
Dividends on preferred stock of subsidiaries........................ 8.9 - 8.9
Equity in earnings of subsidiaries.................................. 22.4 - 22.4
-------- -------- --------
Income before extraordinary charge ......................... 278.9 200.8 479.7
Extraordinary charge on extinguishment of
debt, net of taxes and minority interest............................ 26.5 - 26.5
-------- -------- --------
Net income.................................................. 252.4 200.8 453.2
Less preferred stock dividends.......................................... 27.4 - 27.4
-------- -------- --------
Net income applicable to common stock....................... $ 225.0 $ 200.8 $ 425.8
======== ======== ========
(continued on next page)
The accompanying notes are an integral
part of the pro forma combined financial
statements.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS (Continued)
for the year ended December 31, 1996
(Dollars in millions, except per share data)
PRO FORMA
CONSECO GREEN TREE ADJUSTMENTS COMBINED
------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Earnings per common share:
Basic:
Weighted average shares outstanding............................ 104,584,000 136,996,000 (11,439,000)(4) 230,141,000
Net income before extraordinary charge ........................ $2.40 $1.47 $1.96
Extraordinary charge .......................................... .25 - .11
----- ----- -----
Net income................................................ $2.15 $1.47 $1.85
===== ===== =====
Diluted:
Weighted average shares outstanding............................ 138,860,000 140,562,000 (11,737,000)(4) 267,685,000
Net income before extraordinary charge ........................ $2.01 $1.43 $1.79
Extraordinary charge........................................... .19 - .10
----- ----- -----
Net income................................................ $1.82 $1.43 $1.69
===== ===== =====
The accompanying notes are an integral
part of the pro forma combined financial
statements.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
for the year ended December 31, 1995
(Dollars in millions, except per share data)
PRO FORMA
CONSECO GREEN TREE ADJUSTMENTS COMBINED
------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income:
Traditional products............................................. $1,355.6 $ - $1,355.6
Interest sensitive products...................................... 109.4 - 109.4
Net investment income............................................... 1,142.6 176.0 1,318.6
Gain on sale of receivables......................................... - 448.7 448.7
Net investment gains................................................ 204.1 - 204.1
Fee revenue and other income........................................ 43.6 86.6 130.2
-------- -------- --------
Total revenues.............................................. 2,855.3 711.3 3,566.6
-------- -------- --------
Benefits and expenses:
Insurance policy benefits........................................... 1,107.5 - 1,107.5
Amounts added to annuity and financial product
policyholder account balances:
Interest...................................................... 556.6 - 556.6
Other amounts added to variable and equity-indexed
annuity products........................................... 28.8 - 28.8
Interest expense on notes payable................................... 119.4 57.3 176.7
Interest expense on short-term investment borrowings................ 22.2 - 22.2
Amortization related to operations.................................. 203.6 - 203.6
Amortization related to investment gains............................ 126.6 - 126.6
Other operating costs and expenses.................................. 272.1 244.4 516.5
-------- -------- --------
Total benefits and expenses................................... 2,436.8 301.7 2,738.5
-------- -------- --------
Income before income taxes, minority interest
and extraordinary charge ................................. 418.5 409.6 828.1
Income tax expense...................................................... 87.0 155.6 242.6
-------- -------- --------
Income before minority interest and
extraordinary charge ..................................... 331.5 254.0 585.5
Minority interest:
Dividends on preferred stock of subsidiaries........................ 11.9 - 11.9
Equity in earnings of subsidiaries.................................. 97.1 - 97.1
-------- -------- --------
Income before extraordinary charge ......................... 222.5 254.0 476.5
Extraordinary charge on extinguishment of
debt, net of taxes and minority interest............................ 2.1 - 2.1
-------- -------- --------
Net income.................................................. 220.4 254.0 474.4
Less preferred stock dividends.......................................... 18.4 - 18.4
-------- -------- --------
Net income applicable to common stock....................... $ 202.0 $ 254.0 $ 456.0
======== ======== ========
(continued on next page)
The accompanying notes are an integral
part of the pro forma combined financial
statements.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS (Continued)
for the year ended December 31, 1995
(Dollars in millions, except per share data)
PRO FORMA
CONSECO GREEN TREE ADJUSTMENTS COMBINED
------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Earnings per common share:
Basic:
Weighted average shares outstanding............................ 81,405,000 136,644,000 (11,410,000)(4) 206,639,000
Net income before extraordinary charge ........................ $2.51 $1.86 $2.22
Extraordinary charge .......................................... .03 - .01
----- ----- -----
Net income................................................ $2.48 $1.86 $2.21
===== ===== =====
Diluted:
Weighted average shares outstanding............................ 103,881,000 140,090,000 (11,698,000)(4) 232,273,000
Net income before extraordinary charge ........................ $2.14 $1.81 $2.05
Extraordinary charge........................................... .02 - .01
----- ----- -----
Net income................................................ $2.12 $1.81 $2.04
===== ===== =====
The accompanying notes are an integral
part of the pro forma combined financial
statements.
</TABLE>
30
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited pro forma combined financial statements have been prepared
assuming that the Merger will be accounted for under the pooling of
interests method and are based on the historical consolidated financial
statements of Conseco and Green Tree. Certain amounts in the historical
financial statements of Green Tree have been reclassified to conform with
Conseco's historical financial statement presentation.
Conseco and Green Tree are still in the process of reviewing their
respective accounting policies relative to those followed by the other
entity. As a result of this review, it might be necessary to restate
certain amounts in Conseco's or Green Tree's financial statements to
conform to those accounting policies that are most appropriate. In
management's opinion, any such restatements will not be material.
Green Tree pools and securitizes substantially all of the loan contracts
it originates, retaining: (i) investments in interest-only securities
that are subordinated to the rights of other investors; and (ii) the
servicing on the contracts. The valuation of interest-only securities and
servicing rights is determined by discounting the projected cash flows
over the expected life of the finance receivables sold using prepayment,
default, loss, servicing cost and discount rate assumptions. Impairment
in the value of interest-only securities considered other than temporary
is recognized as a reduction to earnings, while impairment that is
temporary is recognized as a reduction to shareholders' equity.
Impairment in the value of servicing rights is recognized as a reduction
in earnings. The assumptions used in calculating the value of
interest-only securities and servicing rights are subject to volatility.
Prepayments resulting from competition, obligor mobility, general and
regional economic conditions, and prevailing interest rates, as well as
actual losses incurred, may vary from the performance projected in future
periods. Assumptions with respect to future prepayments, defaults,
losses, servicing costs and discount rates are reviewed periodically. As
disclosed in its Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, Green Tree realized a material writedown of its interest-
only securities due to higher than expected prepayments. Prepayments have
continued to exceed expectations in April 1998. If prepayments continue
above expectations, or upon review certain other assumptions are revised,
it is likely that there will be a further material writedown in the value
of the interest-only securities and servicing rights and this reduction
in value could materially affect operating results. Any adjustments to be
made in future periods will depend on circumstances existing at that
time.
The unaudited pro forma consolidated financial information should be read
in conjunction with the historical consolidated financial statements of
Conseco and Green Tree and the notes thereto.
2. INCOME TAX LIABILITIES
The income tax assets of Conseco are netted against the income tax
liabilities of Green Tree.
3. MERGER AND INTEGRATION COSTS
In connection with the Merger, Conseco expects to incur Merger-related
costs of approximately $240 million, net of income taxes. Such costs
include investment banking, accounting, legal and regulatory fees,
severance and retention costs and other costs associated with the Merger.
These expenses (including the related tax effect) have been reflected in
the unaudited pro forma combined balance sheet financial information, but
are not reflected in the unaudited pro forma statement of operations
financial information since such expenses are not expected to have a
continuing impact on the combined company.
4. SHAREHOLDERS' EQUITY AND WEIGHTED AVERAGE SHARES OUTSTANDING
Weighted average shares outstanding have been adjusted to reflect the
issuance of .9165 shares of Conseco common stock for each share of Green
Tree common stock or equivalent. The following shares of Green Tree
common stock or equivalents were outstanding at April 6, 1998: (i)
134,012,054 shares of Green Tree common stock; (ii) 10,297,132 options
outstanding to purchase Green Tree common stock at an average price of
$23.12 per share (such options are equivalent to 6,174,713 shares of
Conseco common stock, based on the last reported sale price of a share of
Conseco common stock on April 6, 1998); and (iii) warrants to purchase
2,735,688 shares of Green Tree common stock at $22.75 per share (such
warrants are equivalent to 710,568 shares of Conseco common stock, based
on the last reported sale price of a share of Conseco common stock on
April 6, 1998 based on Green Tree's right to call the warrant by issuing
stock equivalents at $15 per warrant). The treasury stock held by Green
Tree prior to the Merger has been reclassified to common stock and
additional paid-in capital to conform to Conseco's presentation.
5. OPERATING COST SAVINGS
No adjustment has been included in the unaudited pro forma consolidated
financial information for the anticipated operating cost savings. The
combined company expects to achieve operating cost savings through the
reduction of certain borrowing costs as well as potentially through the
elimination of redundant staff functions, data processing, marketing
synergies and certain back office operations and the reduction of
corporate overhead. There can be no assurance that anticipated operating
cost savings will be achieved.
31
<PAGE>
ITEM 7(c). FINANCIAL STATEMENTS AND EXHIBITS, Continued
Exhibits - None
32
<PAGE>
SIGNATURE
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 hereunto duly authorized.
CONSECO, INC.
DATE: July 13, 1998 By: /s/ ROLLIN M. DICK
----------------------------------
Name: Rollin M. Dick
Title: Executive Vice President
and Chief Financial Officer
33
