<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1994
------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 0-11652
--------
GREEN TREE FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1263905
- ---------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1100 LANDMARK TOWERS, SAINT PAUL, MINNESOTA 55102-1639
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (612) 293-3400
--------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------------- -------------
AS OF SEPTEMBER 30, 1994, 67,646,692 SHARES OF COMMON STOCK OF GREEN TREE
FINANCIAL CORPORATION WERE OUTSTANDING.
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1994
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<C> <S> <C>
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBIT INDEX 18
Exhibit 11. (a) Computation of Primary Earnings Per
Share 19
Exhibit 11. (b) Computation of Fully Diluted Earnings
Per Share 20
Exhibit 12. Computation of Ratio of Earnings to
Fixed Charges 21
Exhibit 27. Financial Data Schedule 22
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993
------------------ -----------------
(unaudited)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 595,087,000 $ 170,674,000
Cash deposits, restricted 144,652,000 124,817,000
Other investments 21,030,000 19,016,000
Receivables:
Excess servicing rights 432,289,000 843,489,000
Other accounts receivable 59,091,000 58,604,000
Contracts, GNMA certificates
and collateral 432,337,000 495,225,000
Property, furniture and
fixtures 32,262,000 23,275,000
Other assets 4,515,000 4,402,000
-------------- --------------
Total assets $1,721,263,000 $1,739,502,000
============== ==============
Liabilities and Stockholders' Equity:
Notes payable $ -- $ 206,911,000
Senior notes 26,650,000 26,650,000
Senior subordinated notes
due 2002 262,716,000 262,435,000
Senior subordinated
debentures due 1995 19,634,000 19,008,000
Allowance for losses on
contracts sold with
recourse 68,221,000 222,135,000
Accounts payable and
accrued liabilities 215,780,000 103,598,000
Investor payable 170,566,000 139,655,000
Income taxes, principally
deferred 274,080,000 209,681,000
-------------- --------------
Total liabilities 1,037,647,000 1,190,073,000
Common stock, $.01 par;
authorized 150,000,000
shares,issued and
outstanding 67,646,692
shares (1994) and
67,034,784 shares (1993) 676,000 670,000
Additional paid-in capital 297,400,000 286,396,000
Retained earnings 385,540,000 262,363,000
-------------- --------------
Total stockholders'
equity 683,616,000 549,429,000
-------------- --------------
$1,721,263,000 $1,739,502,000
============== ==============
</TABLE>
See notes to unaudited financial statements.
3
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30
-------------------------------
1994 1993
------------- -------------
<S> <C> <C>
Income:
Net gains on contract sales $121,755,000 $ 86,233,000
Provision for losses on
contract sales (38,954,000) (32,361,000)
Interest 26,514,000 31,650,000
Service 10,588,000 8,006,000
Commissions and other 6,146,000 5,397,000
------------ ------------
126,049,000 98,925,000
Expenses:
Interest 9,331,000 13,841,000
Cost of servicing 6,915,000 6,164,000
General and administrative 23,027,000 17,154,000
------------ ------------
39,273,000 37,159,000
------------ ------------
Earnings before income taxes 86,776,000 61,766,000
Income taxes 34,710,000 29,446,000
------------ ------------
Net earnings $ 52,066,000 $ 32,320,000
============ ============
Earnings per common and common
equivalent share $.75 $.51
==== ====
Weighted average common and
common equivalent shares
outstanding 69,457,991 63,294,440
</TABLE>
See notes to unaudited financial statements.
4
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1994 1993
------------- ------------
<S> <C> <C>
Income:
Net gains on contract sales $310,516,000 $201,478,000
Provision for losses on
contract sales (97,061,000) (68,913,000)
Interest 81,178,000 77,674,000
Service 29,194,000 22,738,000
Commissions and other 19,309,000 15,206,000
------------ ------------
343,136,000 248,183,000
Expenses:
Interest 31,874,000 37,667,000
Cost of servicing 20,400,000 18,499,000
General and administrative 66,222,000 46,238,000
------------ ------------
118,496,000 102,404,000
------------ ------------
Earnings before income taxes 224,640,000 145,779,000
Income taxes 89,856,000 62,211,000
------------ ------------
Net earnings $134,784,000 $ 83,568,000
============ ============
Earnings per common and common
equivalent share $1.94 $1.33
===== =====
Weighted average common and
common equivalent shares
outstanding 69,317,600 62,842,662
</TABLE>
See notes to unaudited financial statements.
5
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
---------------------------------
1994 1993
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Servicing fees and net interest
payments collected $ 58,806,000 $ 187,313,000
Net proceeds from sale of net interest
margin certificates 583,800,000 --
Net principal payments collected 6,654,000 32,146,000
Interest on contracts and
GNMA certificates 48,202,000 33,922,000
Interest on cash and investments 9,382,000 3,904,000
Commissions 12,200,000 9,077,000
Other 552,000 2,466,000
--------------- ---------------
719,596,000 268,828,000
Cash paid to employees and suppliers (88,230,000) (57,616,000)
Defeasance payments -- (24,796,000)
Interest paid on debt (23,066,000) (28,809,000)
Repossession losses net of recoveries (1,697,000) (34,144,000)
FHA insurance premiums (1,631,000) (15,110,000)
Income taxes paid (22,907,000) (13,209,000)
--------------- ---------------
(137,531,000) (173,684,000)
--------------- ---------------
NET CASH PROVIDED BY OPERATIONS 582,065,000 95,144,000
Purchase of contracts held for sale (2,693,443,000) (1,823,699,000)
Proceeds from sale of contracts
held for sale 2,747,748,000 1,539,139,000
Principal collections on contracts
held for sale 53,605,000 23,653,000
Floorplan loans disbursed (133,003,000) --
Principal collections on
floorplan loans 118,070,000 --
Cash deposits provided (32,620,000) (9,677,000)
Cash deposits returned 12,785,000 3,890,000
--------------- ---------------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES 655,207,000 (171,550,000)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities (2,014,000) (387,000)
Purchase of property, furniture
and fixtures (12,819,000) (10,098,000)
--------------- ---------------
NET CASH USED FOR INVESTING ACTIVITIES (14,833,000) (10,485,000)
--------------- ---------------
</TABLE>
(continued)
6
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
---------------------------------
1994 1993
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on credit facilities 1,088,444,000 1,634,176,000
Repayments on credit facilities (1,295,355,000) (1,549,545,000)
Issuance of debt -- 14,650,000
Payment of debt -- (4,037,000)
Common stock issued 2,557,000 140,694,000
Dividends paid (11,607,000) (7,448,000)
--------------- ---------------
NET CASH (USED FOR) PROVIDED BY
FINANCING ACTIVITIES (215,961,000) 228,490,000
--------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 424,413,000 46,455,000
CASH AND CASH EQUIVALENTS BEGINNING
OF PERIOD 170,674,000 133,435,000
--------------- ---------------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 595,087,000 $ 179,890,000
=============== ===============
RECONCILIATION OF NET EARNINGS
TO NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net earnings $ 134,784,000 $ 83,568,000
Provision for income taxes 89,856,000 62,211,000
Depreciation and amortization 6,721,000 3,786,000
Net proceeds from sale of net interest
margin certificates 583,800,000 --
Net contract payments collected, less
excess servicing rights recorded (224,565,000) (23,719,000)
Amortization of deferred service income (4,158,000) (18,927,000)
Amortization of present value discount (23,205,000) (39,586,000)
Net increase in cash deposits (19,835,000) (5,787,000)
Purchase of contracts held for sale, net
of sales and principal collections 107,911,000 (260,906,000)
Floorplan loans disbursed, net of
principal collections (14,933,000) --
Net discount on sale of loans 27,401,000 9,633,000
Increase in interest payable 6,711,000 7,300,000
Other (15,281,000) 10,877,000
--------------- ---------------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES $ 655,207,000 $ (171,550,000)
=============== ===============
</TABLE>
See notes to unaudited financial statements.
7
<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, although management believes that the disclosures are
adequate to make the information presented not misleading. 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, 1993.
Certain reclassifications have been made to the 1993 financial statements to
conform to the classifications used in the September 30, 1994 financial
statements. These reclassifications had no effect on net earnings or
stockholders' equity as previously reported. All share and per share amounts
have been restated to reflect the two-for-one stock split in the form of a
stock dividend the Company effected on June 30, 1994.
In the opinion of management, the information furnished reflects all
adjustments which are of a normal recurring nature and are necessary for a
fair presentation of the Company's financial position as of September 30,
1994, the results of its operations for the three and nine-month periods ended
September 30, 1994 and 1993, and its cash flows for the nine-month periods
ended September 30, 1994 and 1993.
B. Excess Servicing Rights Receivable
Excess servicing rights receivable consists of:
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993
------------------ ------------------
(unaudited)
<S> <C> <C>
Gross cash flows receivable
on contracts sold $ 532,874,000 $2,307,735,000
Less:
Prepayment reserve (185,903,000) (761,732,000)
FHA insurance premiums
and other fees (11,722,000) (83,706,000)
Deferred service income (40,221,000) (161,407,000)
Discount to present value (73,035,000) (457,401,000)
Subordinated certificates 210,296,000 --
------------- --------------
$ 432,289,000 $ 843,489,000
============= ==============
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company originates conditional sales contracts for manufactured homes
("MH"), home improvements ("HI") and consumer products ("CP"). The Company
also markets physical damage and term mortgage life insurance relating to the
customers' contracts it services, and acts as servicer on manufactured housing
contracts originated by other lenders.
The Company records "net gains on contract sales" at the time of sale of its
contracts and defers service income, recognizing it as servicing is performed.
The Company's net gains on contract sales are an amount equal to the present
value of the expected excess servicing rights receivable to be collected
during the term of the contracts, plus or minus any premiums or discounts
realized on the sale of the contracts and less any selling expenses. "Excess
servicing rights receivable" represents cash expected to be received by the
Company over the life of the contracts. The subordinated certificates
retained by the Company from the Net Interest Margin Certificate sales are
included in excess servicing rights receivable. Excess servicing rights
receivable, excluding the subordinated certificates, is calculated by
aggregating the contractual payments to be received pursuant to the contracts
and subtracting: (i) the estimated amount to be remitted to the
investors/owners of the contracts, (ii) the estimated amount that will not be
collected as a result of prepayments, (iii) the estimated amount to be
remitted for FHA insurance and other credit enhancement fees and (iv) the
estimated amount that represents deferred service income. Deferred service
income represents the amount that will be earned by the Company for servicing
the contracts. Concurrently with recognizing such gains, the Company also
records the present value of excess servicing rights as an asset on the
Company's balance sheet. Excess servicing rights receivable is calculated
using prepayment, default, and interest rate assumptions which the Company
believes market participants would use for similar instruments, such
assumptions being consistent, given portfolio composition, with those used in
the public sales of the Net Interest Margin Certificates. Excess servicing
rights receivable has not been reduced for potential losses under recourse
provisions of the sales. Such rights are subordinated to the rights of
investors/owners of the contracts. The Company believes that the excess
servicing rights receivable recognized at the time of sale does not exceed the
amount that would be received if it were sold in the marketplace.
The Company establishes an allowance for expected losses under the recourse
provisions with investors/owners of contracts or investor certificates and
calculates that allowance on the basis of historical experience and
management's best estimate of future credit losses likely to be incurred. The
amount of this provision is reviewed quarterly and adjustments are made if
actual experience or other factors indicate management's estimate of losses
should be revised. While the Company retains a substantial amount of risk of
default on the loan portfolios that it sells, such risk has been substantially
reduced through the two sales to date of Net Interest Margin Certificates.
The Company believes that its allowance for losses on contracts sold with
recourse, which includes loss reserves
9
<PAGE>
relating to the subordinated certificates which the Company owns as a result
of the Net Interest Margin sales, is adequate and consistent with current
economic conditions as well as historical default and loss experiences of the
Company's entire loan portfolio. The allowance for losses on contracts sold
with recourse is shown separately as a liability.
The Company records the amount to be remitted to the investors/owners of the
contracts or investor certificates for the activity related to the current
month, payable the next month, as "investor payable" and it is shown
separately as a liability on the Company's balance sheet.
The Company has provided the investors/owners of pools of contracts with a
variety of additional forms of credit enhancements on its securitized sales.
These credit enhancements have included letters of credit, corporate
guarantees and surety bonds that provide limited recourse to the Company, and
letters of credit that, if drawn, are entitled to reimbursement only from the
future excess cash flows of the underlying transactions. Furthermore, certain
securitized sales structures use cash reserve funds and certain cash flows
from the underlying pool of contracts as the credit enhancement.
The Company's expectations used in calculating its excess servicing rights
receivable and allowance for losses on contracts sold with recourse are
subject to volatility that could materially affect operating results.
Prepayments resulting from obligor mobility, general and regional economic
conditions and prevailing interest rates, as well as actual losses incurred,
may vary from the performance the Company projects. The Company recognizes
the impact of adverse prepayment and loss experience by recording a charge to
earnings immediately. The Company reflects favorable portfolio experience
prospectively as realized.
10
<PAGE>
Results of Operations:
The following tables show, for the periods indicated, the percentage change in
income, expenses and earnings for the Company's three and nine-month periods
ended September 30, 1994 as compared to the same periods of 1993.
<TABLE>
<CAPTION>
Three-month Nine-month
period-to-period period-to-period
increase (decrease) increase (decrease)
September 30, September 30,
1993 to 1994 1993 to 1994
------------------- -------------------
<S> <C> <C>
Income:
Net gains on contract
sales 41.2% 54.1%
Provision for losses on
contract sales 20.4 40.8
Interest (16.2) 4.5
Service 32.3 28.4
Commissions and other 13.9 27.0
Expenses:
Interest (32.6) (15.4)
Cost of servicing 12.2 10.3
General and administrative 34.2 43.2
Earnings before income
taxes 40.5 54.1
Net earnings 61.1 61.3
</TABLE>
Net gains on contract sales increased 41.2% and 54.1% for the three and nine-
month periods ended September 30, 1994, respectively, over the same periods in
1993 as the dollar volume of contracts originated and sold rose. For the
quarter ended September 30, 1994, total contract sales increased $344,708,000
or 52.0% and for the nine-month period ended September 30, 1994, total
contract sales increased $1,216,726,000 or 79.8%. Also contributing to the
increase in net gains on contract sales during the nine-month period ended
September 30, 1994 was an increase in the percentage of conventional contracts
versus GNMA certificates sold and an increase in the average contract term due
to a shift in the Company's MH financing to more expensive multi-section homes
and land-and-home contracts. The effect these increases had on net gains on
contract sales was partially offset by decreased interest rate spreads on
contracts sold for both the quarter and nine-month period ended September 30,
1994.
The increases in the provision for losses on contract sales of 20.4% and 40.8%
for the three and nine-month periods ended September 30, 1994, respectively,
also reflect the higher dollar volume of contracts sold. These increases in
the provision were offset in part by the change in the sales mix for the first
three quarters of 1994 to a higher dollar volume of HI contracts sold and
continuing improvements in the Company's loan portfolio performance.
During the first and third quarters of 1994 the Company completed sales of a
substantial portion of its excess servicing rights receivable to the public in
the form of Securitized Net Interest Margin Certificates. Green Tree
Securitized Net Interest Margin Trust 1994-A, completed in March, sold
certificates valued at
11
<PAGE>
$508,000,000. This represented approximately 78% of the estimated present
value of future excess servicing cash flows derived from the Company's sales
of certain manufactured housing contracts between 1978 and 1993. Green Tree
Securitized Net Interest Margin Trust 1994-B, completed in July, sold
certificates valued at $92,400,000 representing approximately 72% of the
estimated present value of future excess servicing cash flows derived from the
Company's securitized sales of manufactured housing contracts during the first
and second quarters of 1994. The estimated present value of these future
excess servicing cash flows was previously recorded on the Company's balance
sheet as part of "excess servicing rights receivable", "contracts, GNMA
certificates and collateral" and "allowance for losses on contracts sold with
recourse". The remaining 22% and 28% interests retained by the Company in Net
Interest Margin Trust 1994-A and 1994-B, respectively, representing
subordinated certificates, continue to be recorded as part of excess servicing
rights receivable.
The following table sets forth the Company's contract originations and sales
for the three and nine-month periods ended September 30, 1994 and 1993.
Dollar amounts are in thousands.
<TABLE>
<CAPTION>
Three-month Nine-month
period ended period ended
September 30, September 30,
1994 1993 1994 1993
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Originations:
MH - Conventional $ 872,115 $677,433 $2,323,009 $1,500,310
MH - FHA/VA 9,284 69,130 61,124 202,449
HI 151,537 55,054 336,917 112,716
CP 28,367 12,381 69,317 35,283
---------- -------- ---------- ----------
Total $1,061,303 $813,998 $2,790,367 $1,850,758
========== ======== ========== ==========
Sales:
MH - Conventional $ 848,828 $663,353 $2,303,184 $1,364,357
MH - GNMA 13,033 -- 37,811 117,499
HI 146,200 -- 400,433 42,846
---------- -------- ---------- ----------
Total $1,008,061 $663,353 $2,741,428 $1,524,702
========== ======== ========== ==========
</TABLE>
The manufactured housing market experienced an increase in new home shipments
during the first nine months of 1994 compared to 1993. The Company continues
to benefit from this increase in addition to increasing its market share of
contracts for financing new manufactured homes. The Company's dollar volume
of manufactured housing contract originations rose 18.1% and 40.0% during the
three and nine-month periods ended September 30, 1994, respectively, over the
same periods in 1993. This increase in dollar volume is due to the growth in
the number of contracts originated by the Company, an increase in the average
contract size due to a shift in the Company's MH financing to more expensive
multi-section homes and land-and-home contracts, and price increases by the MH
manufacturers.
Dollar volume of home improvement contract originations rose 175.3% and 198.9%
during the three and nine-month periods ended September 30, 1994,
respectively, over the same periods in 1993. This significant level of
continuing growth results from vastly expanding the number of relationships
with contractors, remodelers and dealers
12
<PAGE>
throughout the United States, providing the Company with an established and
growing network through which to market its financing.
Interest income is realized from contracts held for sale, cash deposits and
short-term investments, as well as amortization of the present value discount
relating to excess servicing rights receivable. Interest income decreased
16.2% during the three-months ended September 30, 1994 and increased 4.5%
during the nine-months ended September 30, 1994, as compared to the same
periods in 1993. Despite substantially higher production levels, contracts
held for sale for the three-months ended September 30, 1994 were lower on
average than the same period in 1993 as a result of more frequent sales in
1994. In addition, for both the three and nine-month periods ended September
30, 1994, interest income from the amortization of the present value discount
decreased compared to the same periods in 1993 as a result of the Net Interest
Margin Certificate sales, though earnings on short-term investment activity
relating to the cash generated by those sales has partially offset that
decrease.
The increase in service income of 32.3% and 28.4% during the three and nine-
month periods ended September 30, 1994, respectively, resulted from the 34.8%
growth in the Company's average originated servicing portfolio for the nine
months but was offset by the decline in servicing revenue on contracts
originated by others. The average unpaid principal balance of contracts being
serviced for others during the first nine months of 1994 decreased 22.1%
compared to the same period in 1993. The Company expects this decline in
outside servicing to continue.
Commissions and other income, which represents commissions earned on new
insurance policies written and renewals on existing policies, as well as other
income from late fees, increased 13.9% and 27.0% during the three and nine-
month periods ended September 30, 1994, respectively. This increase is
primarily due to an increase in net written insurance premiums.
Interest expense decreased 32.6% and 15.4% during the three and nine-month
periods ended September 30, 1994. The Company has maintained a lower level of
borrowings to fund its loan originations during the second and third quarters
of 1994, as compared with the same periods in 1993, as a result of converting
a substantial portion of its excess servicing rights receivable to cash
through the Net Interest Margin Certificate sales, as well as completing more
frequent sales in 1994. This decreased level of borrowings is offset slightly
by higher average short-term borrowing rates throughout much of 1994.
Cost of servicing increased 12.2% and 10.3% during the quarter and nine-month
period ended September 30, 1994 while the Company's total average servicing
portfolio during the first nine months of 1994 grew 31.8% compared to the same
period last year. The Company's cost of servicing as a percentage of
contracts serviced decreased during the first nine months of 1994, compared to
the same period in 1993.
General and administrative expenses rose 34.2% and 43.2% during the three and
nine-month periods ended September 30, 1994, respectively.
13
<PAGE>
However, as a percentage of contract originations, these expenses have
remained relatively constant with the comparative periods in 1993. The dollar
growth is due primarily to an increase in personnel and other costs related to
the significant growth in the number of contracts the Company originated
during the first nine months of 1994.
The Company is affected by consumer demand for manufactured housing, home
improvements, consumer products and insurance products. Consumer demand, in
turn, is partially influenced by regional trends, economic conditions and
personal preferences. While the Company can make no prediction about any
particular geographic area in which it does business, these regional effects
are mitigated by the national geographic dispersion of its servicing
portfolio.
Capital Resources and Liquidity:
The Company's business requires continued access to the capital markets for
the purchase, warehousing and sale of contracts. To satisfy these needs, the
Company employs a variety of capital resources.
Historically, the most important liquidity source for the Company has been its
ability to sell contracts in the secondary markets through loan
securitizations and sales of GNMA certificates. Under certain securitized
sales structures, bank letters of credit, surety bonds, cash deposits or other
equivalent collateral are provided by the Company as credit enhancements.
Certain senior/subordinated structures retain a portion of the Company's
excess servicing spread as additional credit enhancement or for accelerated
principal repayments to subordinated certificateholders. The Company analyzes
the cash flows unique to each transaction, as well as the marketability and
earnings potential of such transactions when choosing the appropriate
structure for each securitized loan sale. The structure of each securitized
sale depends, to a great extent, on conditions of the fixed income markets at
the time of sale, as well as cost considerations and availability and
effectiveness of the various enhancement methods. During the third quarter of
1994, the Company used a senior/subordinated structure for each of its two
conventional manufactured home loan sales. For each of the MH loan sales, the
Company enhanced a portion of the subordinated piece with a corporate
guarantee. This is the second quarter in which the Company has had more than
one securitized conventional MH loan sale. The Company's production has
reached a volume where multiple conventional MH loan sales in a quarter are
more feasible economically and they serve to reduce interest rate risk by
shortening the holding period of the contracts. The Company's public home
improvement loan sale in the third quarter of 1994 was comprised of two
trusts. The first employed a senior/subordinated structure with a corporate
guarantee and the second was a single class pass-through with a corporate
guarantee.
During 1994, the Company added another significant source of liquidity in
completing its first two public sales of a significant portion of its excess
servicing rights receivable. Net proceeds to the Company from the sales were
approximately $584,000,000 and were used to pay down notes payable, with the
remainder invested in marketable short-term securities and used to fund
ongoing contract originations.
14
<PAGE>
Servicing fees and net interest payments collected, which has been the
Company's principal source of cash, decreased during the nine-month period
ended September 30, 1994 as a result of the Net Interest Margin Certificate
sales, the proceeds of which are shown separately on the Company's statement
of cash flows. For the nine months ended September 30, 1994, servicing fees
and net interest payments collected consist of servicing fees collected only
from the Net Interest Margin Certificates, plus servicing fees and net
interest payments on all existing HI and CP securitizations, the third
quarter 1994 MH securitizations and all of the GNMA pools sold during 1994.
In the future, servicing fees and net interest payments collected, as well as
repossession losses net of recoveries, will continue to include activity
relating to all future securitizations and GNMA pools in which the Company
does not sell or has not yet sold a portion of the related excess servicing
rights. In addition, repossession losses net of recoveries will continue to
include losses on the first five MH securitizations (1987 through the first
quarter of 1988), as such losses were excluded from the 1994-A Net Interest
Margin Certificate sale.
Net principal payments collected were positive in each of the nine-month
periods ended September 30, 1994 and 1993 as a result of an increase in the
contract principal payments collected by the Company as of the end of each
period but not yet remitted to the investors/owners of the contracts. These
increases are a result of customer payoffs and the growth of the Company's
servicing portfolio.
Interest on contracts and GNMA certificates during the first nine months of
1994 includes interest the Company received on the net interest margin
certificates for the period they were held by the Company.
Defeasance structures were used on the Company's securitized sales in the
fourth quarter of 1990 and continuing through the second quarter of 1992. The
cash flows used to make these defeasance payments were sold as part of the Net
Interest Margin Certificate sale. Going forward, defeasance payments will
include only those payments made for future securitized sales which use a
defeasance structure in which the Company does not sell or has not yet sold
the related excess servicing rights.
The Company has a $60,000,000 bank warehousing credit agreement for the
purpose of financing its manufactured home, home improvement and motorcycle
contract production under which $60,000,000 was available, subject to the
availability of appropriate collateral, at September 30, 1994. This agreement
expires November 30, 1994.
In addition, the Company currently has $950,000,000 in master repurchase
agreements with various investment banking firms for the purpose of financing
its contract production. At September 30, 1994, the Company had $950,000,000
available under these master repurchase agreements, subject to the
availability of appropriate collateral. These agreements expire during 1994
and 1995. The Company believes that, if it so desires, these agreements could
be renewed.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part II, Item 8, Note I (Litigation), of the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, as supplemented by the Company's Report on
Form 10-Q for the quarterly period ended June 30, 1994.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. (a) EXHIBITS
11.(a) Computation of Primary Earnings Per Share
11.(b) Computation of Fully Diluted Earnings Per Share
12. Computation of Ratio of Earnings to Fixed
Charges
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
16
<PAGE>
SIGNATURES
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.
GREEN TREE FINANCIAL CORPORATION
DATE: November 3, 1994 /s/John W. Brink
------------------------------
John W. Brink
Executive Vice President,
Treasurer and Chief Financial
Officer
DATE: November 3, 1994 /s/Drew S. Backstrand
------------------------------
Drew S. Backstrand
Vice President and General
Counsel
17
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Page
------- ------- ----
11.(a) Computation of Primary Earnings Per Share 19
11.(b) Computation of Fully Diluted Earnings Per
Share 20
12. Computation of Ratio of Earnings to
Fixed Charges 21
27. Financial Data Schedule 22
18
<PAGE>
Exhibit 11.(a)
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1994 1993
------------ -----------
<S> <C> <C>
Net earnings $134,784,000 $83,568,000
============ ===========
Weighted average number of
common and common equivalent
shares outstanding:
Weighted average common
shares outstanding 67,412,297 61,118,198
Dilutive effect of stock
options after application
of treasury-stock method 1,905,303 1,724,464
------------ -----------
69,317,600 62,842,662
============ ===========
Earnings per share $1.94 $1.33
===== =====
Three Months Ended September 30
-------------------------------
1994 1993
------------ -----------
Net earnings $ 52,066,000 $32,320,000
============ ===========
Weighted average number of
common and common equivalent
shares outstanding:
Weighted average common
shares outstanding 67,602,359 61,370,262
Dilutive effect of stock
options after application
of treasury-stock method 1,855,632 1,924,178
------------ -----------
69,457,991 63,294,440
============ ===========
Earnings per share $.75 $.51
==== ====
</TABLE>
19
<PAGE>
Exhibit 11.(b)
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1994 1993
------------ -----------
<S> <C> <C>
Net earnings $134,784,000 $83,568,000
============ ===========
Weighted average number of
common and common equivalent
shares outstanding:
Weighted average common
shares outstanding 67,412,297 61,118,198
Dilutive effect of stock
options after application
of treasury-stock method 1,905,303 1,893,630
------------ -----------
69,317,600 63,011,828
============ ===========
Earnings per share $1.94 $1.33
===== =====
Three Months Ended September 30
-------------------------------
1994 1993
------------ -----------
Net earnings $ 52,066,000 $32,320,000
============ ===========
Weighted average number of
common and common equivalent
shares outstanding:
Weighted average common
shares outstanding 67,602,359 61,370,262
Dilutive effect of stock
options after application
of treasury-stock method 1,855,632 2,071,156
------------ -----------
69,457,991 63,441,418
============ ===========
Earnings per share $.75 $.51
==== ====
</TABLE>
20
<PAGE>
Exhibit 12.
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
<TABLE>
<CAPTION>
Nine months
ended
September 30, 1994
------------------
(unaudited)
<S> <C>
Earnings:
Earnings before income taxes $224,640,000
Fixed charges:
Interest 31,874,000
One-third rent 1,263,000
------------
33,137,000
------------
$257,777,000
============
Fixed charges:
Interest $ 31,874,000
One-third rent 1,263,000
------------
$ 33,137,000
============
Ratio of earnings to fixed charges (1) 7.78
====
</TABLE>
(1) For purposes of computing the ratio, earnings consist of earnings before
income taxes plus fixed charges.
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the financial statements of Green Tree Financial Corporation and Subsidiaries
for the nine-month period ended September 30, 1994 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 739,739,000
<SECURITIES> 21,030,000
<RECEIVABLES> 59,091,000
<ALLOWANCES> 0
<INVENTORY> 432,337,000
<CURRENT-ASSETS> 0
<PP&E> 46,506,000
<DEPRECIATION> 14,243,000
<TOTAL-ASSETS> 1,721,263,000
<CURRENT-LIABILITIES> 0
<BONDS> 309,000,000
<COMMON> 676,000
0
0
<OTHER-SE> 682,940,000
<TOTAL-LIABILITY-AND-EQUITY> 1,721,263,000
<SALES> 310,516,000
<TOTAL-REVENUES> 343,136,000
<CGS> 0
<TOTAL-COSTS> 86,622,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 97,061,000
<INTEREST-EXPENSE> 31,874,000
<INCOME-PRETAX> 224,640,000
<INCOME-TAX> 89,856,000
<INCOME-CONTINUING> 134,784,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134,784,000
<EPS-PRIMARY> 1.94
<EPS-DILUTED> 1.94
</TABLE>
