<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
incorporation or organization) Identification No.)
1100 Landmark Towers
345 St. Peter Street, Saint Paul, Minnesota 55102-1639
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 293-3400
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
(Name of Each Exchange
----------------------
(Title of Each Class) on Which Registered)
--------------------- --------------------
Common Stock, $.01 par value New York Stock Exchange,
Pacific Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange,
Pacific Stock Exchange
8 1/4% Senior Subordinated Debentures due
June 1, 1995 New York Stock Exchange
10 1/4% Senior Subordinated Notes due New York Stock Exchange
June 1, 2002
Securities registered pursuant to Section 12(g) of the Act: NONE
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 and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( X)
As of February 28, 1995, the aggregate market value of voting stock held by
nonaffiliates of registrant was approximately $2,511,970,000.
As of February 28, 1995, the shares outstanding of the issuer's class of
Common Stock were as follows:
Common Stock 68,184,381
-------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
Part of 10-K
Document Where Incorporated
-------- ------------------
Proxy Statement for the 1995 Annual Meeting of Shareholders III
<PAGE>
PART I
------
Item 1. Business.
------------------
General
-------
Green Tree Financial Corporation ("Green Tree" or "the Company") originates
conditional sales contracts for manufactured homes, home improvements,
consumer products and commercial products, and provides floorplan financing
to manufactured housing dealers. The Company's insurance agencies also
market physical damage and term mortgage life insurance relating to the
customers' contracts it services. Green Tree also acts as servicer for
manufactured housing contracts originated by other lenders. Through its
principal offices in Saint Paul, Minnesota and service centers throughout
the United States, Green Tree serves all 50 states.
The Company finances both new and previously owned manufactured homes, and
originates conventional contracts as well as contracts insured by the
Department of Housing and Urban Development's Federal Housing
Administration ("FHA") and contracts partially guaranteed by the Department
of Veterans' Affairs ("VA"). The Company's home improvement loans are
financed either on a conventional basis or insured through the FHA Title I
program.
Consumer products are financed using installment sales contracts. Over the
past two years, the Company has expanded the product types it finances to
include sports vehicles, trailers for recreational activities and certain
musical instruments. In November 1994, the Company began financing
installment sales contracts for commercial products which includes general
aviation aircraft and over-the-road tractor trailers.
During 1994, the Company began a floorplan lending division which makes
loans to manufactured housing dealers for purposes of financing new and
previously owned manufactured home inventory.
Green Tree pools and securitizes substantially all of the contracts it
originates, retaining the servicing on the contracts. Conventional
manufactured housing contracts are pooled and such pools are structured
into asset-backed securities which are sold in the public securities
markets. Substantially all FHA and VA manufactured housing contracts are
converted into pass-through certificates ("GNMA certificates") guaranteed
by the Government National Mortgage Association ("GNMA"), a wholly owned
corporate instrumentality of the United States within the Department of
Housing and Urban Development. The GNMA certificates, which are secured by
the FHA and VA contracts, are then sold in the secondary market. The
Company also pools FHA-insured and conventional home improvement contracts
for sale in the secondary market. In servicing the contracts, the Company
collects payments from the borrower and remits principal and interest
payments to the holder
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of the contract or investor certificate secured by the contracts.
The Company was incorporated as Green Tree Acceptance, Inc. under the laws
of the State of Minnesota in 1975. In 1992, the Company changed its name
to Green Tree Financial Corporation. The Company's principal executive
offices are located at 1100 Landmark Towers, 345 St. Peter Street, Saint
Paul, Minnesota 55102-1639, and its telephone number is (612) 293-3400.
Unless the context otherwise requires, "Green Tree" or the "Company" means
Green Tree Financial Corporation and its subsidiaries.
Purchase and Origination of Contracts
-------------------------------------
Conditional sales contracts are the typical means of financing the purchase
of manufactured homes ("MH"), consumer products ("CP")and commercial
products("CMP") and can also be used to finance home improvements ("HI") to
existing owner-occupied one- to- four family homes. A "contract" or
"conditional sales contract" refers to an agreement evidencing a monetary
obligation and providing security for the obligation. MH contracts grant
the owner of the contract a security interest in the related manufactured
home (and any other personal property described therein), and CP and CMP
contracts grant a security interest in the related consumer or commercial
product. For secured HI contracts, a mortgage or deed of trust on the home
to which the improvements relate serves as security for the payment
obligation under the contract. Green Tree also offers unsecured HI
contracts on certain loans of $15,000 or less.
All contracts that the Company originates directly or indirectly are
written on forms provided by the Company and are originated on an
individually approved basis in accordance with Company underwriting
guidelines.
Manufactured Housing
"Manufactured housing" or a "manufactured home" is a structure,
transportable in one or more sections, which is designed to be a dwelling
with or without a permanent foundation. Since most manufactured homes are
never moved once the home has reached the homesite, the wheels and axles
are removable and have not been designed for continuous use. Manufactured
housing does not include either modular housing (which typically involves
more sections, greater assembly and a separate means of transporting the
sections) or recreational vehicles ("RV's") (which are either self-
propelled vehicles or units towed by passenger vehicles).
Conditional sales contracts for manufactured home purchases may be financed
on a conventional basis, insured by the FHA or partially guaranteed by the
VA. With respect to manufactured housing, the relative volume of
conventional, FHA and VA contracts originated by the Company depends on
customer and dealer preferences as well as prevailing market conditions.
Over the last five years, the
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percentage of FHA and VA contracts in the Company's manufactured home
contract portfolio has ranged from 20% to 39%, and at December 31, 1994,
such contracts constituted 20% of the Company's portfolio (of which
approximately 95% were FHA contracts). The Company has developed more cost
effective conventional manufactured housing lending programs and as a
result, FHA and VA contracts represented 2% of the Company's manufactured
housing originations during 1994. New conventional and VA contracts are
generally subject to minimum down payments of approximately 5% of the
amount financed, while previously owned and FHA contracts require a minimum
of 10% down payment. The Company offers manufactured housing contract
terms ranging from 7 to 30 years.
Through its regional service centers, the Company arranges to both purchase
MH contracts from MH dealers located throughout the United States as well
as arrange floorplan lines of credit. The Company's regional service
center personnel contact dealers located in their region and explain the
Company's available financing plans, terms, prevailing rates, and credit
and financing policies. If the dealer wishes to utilize the Company's
available retail or wholesale financing, the dealer must make an
application for dealer approval. Upon satisfactory results of the
Company's investigation of the dealer's creditworthiness and general
business reputation, the Company and the dealer execute a dealer agreement.
The Company also originates manufactured housing installment loan
agreements directly with customers following the same general procedures
for approval as it does with originations through dealers. For the year
ended December 31, 1994, the Company's manufactured housing contract
originations consisted of 82% purchased from dealers, and 18% directly
originated by the Company.
The dealer or customer submits the customer's credit application and
purchase order to a central or regional service center where Company
personnel make an analysis of the creditworthiness of the proposed buyer.
The analysis includes a review of the applicant's paying habits, length and
likelihood of continued employment, and certain other factors. If the
application meets the Company's guidelines and credit is approved, the
Company purchases the contract after the manufactured home is delivered,
set up and the customer has moved in.
For manufactured housing contracts, the Company uses a proprietary
automated credit scoring system which was initially implemented in 1987 and
subsequently refined and statistically re-validated. It is a statistically
based scoring system which quantifies responses using variables obtained
from customers' credit applications. As of December 31, 1994, this credit
scoring system has been used in making credit determinations on over 1.5
million applications. The Company believes the use of this proprietary
credit scoring system has contributed to the reduction in the number of
repossessions incurred as a percentage of the Company's servicing
portfolio.
For purposes of establishing floorplan financing, once a dealer has
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been approved for financing based on review of appropriate financial and
insurance information, a line of credit is determined giving consideration
to the dealer's needs and not to exceed an amount computed by the Company.
In 1994, new manufactured housing shipments rose to approximately 304,000
units, a 20% increase over 1993. The Company continues to benefit from
this increase in addition to maintaining its market share of contracts for
financing new manufactured homes. Competition to finance manufactured home
purchases continues to be strong, and there can be no assurance that such
competition will not intensify in the future. Significant decreases in
consumer demand for manufactured housing, or significant increases in
competition, could have an adverse effect on the Company's financial
position and results of operations.
Home Improvement
Through its centralized loan processing operations in Saint Paul,
Minnesota, the Company arranges to purchase certain contracts from HI
contractors located throughout the United States. The Company's business
development managers contact the HI contractors and explain the Company's
available financing plans, terms, prevailing rates, and credit and
financing policies. If the contractor wishes to utilize the Company's
available customer financing, the contractor must make an application for
contractor approval. The Company has a contractor approval process
pursuant to which the financial condition, business experience and
qualifications of the contractor are reviewed prior to his or her approval
to sell contracts to the Company. In addition, the Company occasionally
will directly originate a home improvement promissory note involving a home
improvement transaction.
The significant level of growth in the Company's HI contract originations
during the year ended December 31, 1994 results from vastly expanding the
number of relationships with contractors, remodelers and dealers throughout
the United States, as well as obtaining more business from existing
dealers. This has provided the Company with an established and growing
network through which to market its financing.
The Company finances both conventional HI contracts and HI contracts
insured through the FHA Title I program. Such contracts are generally
secured by first, second or, to a lesser extent, third mortgages on the
improved real estate. The Company has also implemented an unsecured
conventional HI lending program for certain customers which allows for loan
amounts ranging from $2,500 to $15,000.
The contractor submits the customer's credit application and construction
contract to the Company's office where an analysis of the creditworthiness
of the customer is made. The analysis
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includes a review of the customer's paying habits, length and likelihood of
continued employment and certain other procedures, including the percentage
of the customer's monthly payments on long term debts to gross monthly
income. A credit scoring system, which was developed by the Company, was
initially implemented in June 1993. This scoring system is similar to the
system the Company uses in MH financing. If it is determined that the
application meets the Company's underwriting guidelines and applicable FHA
regulations (for FHA-insured contracts) and the credit is approved, the
Company purchases the HI contract from the contractor when the customer
verifies satisfactory completion of the work.
Consumer Products
The Company arranges to purchase consumer product contracts centrally from
a variety of dealers located throughout the United States. The Company's
available financing plans, terms, prevailing rates, and credit and
financing policies are explained to the dealers. If they wish to utilize
the Company's available customer financing, the dealer must make an
application for approval. Upon satisfactory results of the Company's
investigation of the dealer's creditworthiness and general business
reputation, the Company and the dealer execute a dealer agreement.
The dealer submits the customer's credit application and purchase order to
the Company's office where personnel conduct an analysis of the
creditworthiness of the proposed buyer. The analysis includes factors
similar to that of a MH application. The Company agrees to fund the
contract once credit is approved and the customer accepts delivery of the
unit.
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The volume of contracts originated by the Company during the past five
years and certain other information for each of those years, are indicated
below:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------
1994 1993 1992(a) 1991(b) 1990
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Cost of contracts
(in thousands):
MH-Conventional $3,134,231 $2,196,655 $ 942,874 $ 432,060 $459,466
MH-FHA/VA 67,260 252,466 265,992 507,879 426,689
HI 465,523 169,443 75,287 112,135 78,272
CP 96,172 47,442 34,911 22,340 19,575
---------- ---------- ---------- ---------- --------
Total $3,763,186 $2,666,006 $1,319,064 $1,074,414 $984,002
========== ========== ========== ========== ========
Number of contracts:
MH-Conventional 115,082 87,327 43,162 23,126 24,694
MH-FHA/VA 2,660 9,607 10,322 20,716 17,702
HI 39,375 16,926 8,384 12,975 9,286
CP 11,333 6,161 4,235 2,924 2,675
---------- ---------- ---------- ---------- --------
Total 168,450 120,021 66,103 59,741 54,357
========== ========== ========== ========== ========
Average size of contracts:
MH-Conventional $ 27,235 $ 25,154 $ 21,845 $ 18,683 $ 18,606
MH-FHA/VA 25,286 26,279 25,769 24,516 24,104
HI 11,823 10,011 8,980 8,642 8,429
CP 8,486 7,700 8,243 7,640 7,318
---------- ---------- ---------- ---------- --------
Average size $ 22,340 $ 22,213 $ 19,955 $ 17,985 $ 18,103
========== ========== ========== ========== ========
Weighted average interest rates:
MH-Conventional 11.0% 10.2% 11.7% 13.5% 14.2%
MH-FHA/VA 10.5 9.7 10.7 12.1 12.9
HI 12.1 12.6 13.9 15.3 15.5
CP 11.7 13.2 14.7 16.3 16.3
---------- ---------- ---------- ---------- --------
Weighted average
interest rate 11.2% 10.3% 11.7% 13.1% 13.8%
========== ========== ========== ========== ========
Weighted average original
terms (in months):
MH-Conventional 219 205 197 180 181
MH-FHA/VA 187 201 204 202 206
HI 159 143 132 129 129
CP 76 55 56 56 56
---------- ---------- ---------- ---------- --------
Weighted average
original term 207 198 191 183 185
========== ========== ========== ========== ========
</TABLE>
(a) Does not include $552,936,000 of conventional contracts purchased from
the Resolution Trust Corporation ("RTC").
(b) Does not include $66,980,000 of conventional contracts purchased from
other originators.
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The Company believes that, in addition to an individual analysis of each
contract, it is important to achieve a geographic dispersion of contracts
in order to reduce the impact of regional economic conditions on the
overall performance of the Company's portfolio. Accordingly, the Company
seeks to maintain a portfolio of contracts dispersed throughout the United
States. At December 31, 1994, no state accounted for more than 10% of all
contracts serviced by the Company.
In 1994, the Company originated manufactured housing contracts through over
3,400 active dealers, with no single MH dealer accounting for more than one
percent of the total number of MH contracts originated by the Company.
Likewise, in its home improvement business, the Company originated
contracts through approximately 3,100 active contractors, and in its
consumer products business, the Company originated contracts through
approximately 1,300 active dealers. No single contractor or dealer
accounted for more than three percent of the total number of HI or CP
contracts originated by the Company.
Pooling, Disposition and Related Sales Structures of Contracts
--------------------------------------------------------------
The Company pools contracts for sale to investors, generally on a quarterly
or more frequent basis. It is the Company's policy to sell substantially
all of the contracts it originates or purchases. Conventional manufactured
housing contracts are generally sold through asset-backed securities. FHA-
insured and VA-guaranteed manufactured housing contracts are converted into
GNMA certificates. The GNMA certificates, which are secured by the FHA and
VA contracts, are then sold in the secondary market. The GNMA certificates
provide for payment by the Company to registered holders of the
certificates of monthly principal and interest, as well as the "pass-
through" of any principal prepayments on the contracts. The Company also
pools FHA-insured and conventional home improvement contracts for sale in
the secondary market. Consumer product contracts have also been pooled and
sold to investors, although the Company chose to inventory its 1993 and
1994 consumer product contract production. During 1994, the Company also
securitized a significant portion of its excess servicing rights receivable
in the form of securitized Net Interest Margin Certificates ("NIM
Certificates").
Principal and interest payments made by borrowers on the manufactured
housing contracts securing each GNMA certificate are the source of funds
for payments due on the GNMA certificates. The Company is required to
advance its own funds in order to make timely payment of all amounts due on
the GNMA certificates if, due to defaults or delinquencies on contracts,
the payments received by the Company on the contracts securing such
certificates are less than the amounts due on the certificates. If the
Company was unable to make payments on the GNMA certificates as they became
due, it would promptly notify GNMA and request GNMA to make such
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payments and, upon such notification and request, GNMA would make such
payments directly to the registered holders of the certificates and would
seek reimbursement from the Company, FHA or the VA as appropriate. The
GNMA certificates are secured by manufactured housing contracts which are
either FHA-insured or VA-guaranteed. For FHA manufactured housing
contracts, the maximum amount of insurance benefits paid by FHA is equal to
approximately 90% of the net unpaid principal and uncollected interest
earned to the date of default on the contract, subject to certain
adjustments, less the greater of the actual net sales price or FHA
appraisal of the home. The amounts reimbursable by FHA are further limited
to an aggregate amount representing reserves FHA has established. These
reserves, which approximated $112 million at December 31, 1994, are based
on the Company's origination and loss experience. The Company is required
to make scheduled premium payments to maintain the benefit of the reserve.
If losses on FHA-insured contracts exceed the established reserve, the
Company would not be reimbursed by FHA but would still be required to make
payments on the GNMA certificates. For VA manufactured housing contracts,
the maximum guarantee that may be issued is the lesser of: (1) the lesser
of $20,000 or 40% of the principal amount of the contract, or (2) the
maximum amount of guarantee entitlement available to the veteran (which may
range from $20,000 to zero).
Conventional manufactured housing, home improvement and consumer contracts
are pooled and sold by the Company through securitized asset sales which
have been either single class or senior/subordinated pass-through
structures. Under certain securitized sales structures, corporate
guarantees, bank letters of credit, surety bonds, cash deposits or other
equivalent collateral are provided by the Company as credit enhancement.
Certain senior/subordinated structures, such as those used during 1990,
1991 and 1992, 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. Customer principal and
interest payments are deposited in separate bank accounts as received by
the Company and are held for monthly distribution to the
certificateholders.
During 1994 Green Tree sold a substantial portion of its excess servicing
rights receivable, representing net cash flows retained from the
securitization of its manufactured housing contracts, in the form of
securitized NIM Certificates through public offerings. A subordinated
interest in those certificates was retained by the Company. As a result of
these transactions, certain net cash flows
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that formerly were retained by Green Tree are now passed through to
investors with the exception of a 50 basis point servicing fee which Green
Tree retains out of available monthly net cash flows. Payments on the
subordinated interests retained do not commence until the senior
certificateholders have been paid all principal and interest due them under
the terms of the transaction. Interest will continue to accrue to the
balance of such subordinated certificates until payments commence.
The Company establishes an allowance for expected losses under the recourse
provisions with investors/owners and calculates that allowance on the basis
of historical experience and management's best estimate of future credit
losses likely to be incurred. If there is a default under a contract and
liquidation of the underlying collateral on loans not sold as part of the
NIM Certificate sales, any net losses are charged against the reserves that
have been established. Losses in excess of those projected in the
valuation of the NIM Certificates have the effect of reducing the value of
the subordinate interest retained by Green Tree. The dollar amount of
potential contractual recourse to the Company exceeds both the amount of
projected losses factored into the subordinated certificate valuation and
the amount established by the Company as an "allowance for losses on
contracts sold with recourse."
Estimated losses relating to the Company's floorplan receivables are
recorded at the time the loans are made. Floorplan receivables are shown
net of the related allowance for losses on the balance sheet.
"Contracts sold" represents the face amount of the contracts sold but not
necessarily settled during the same year. Information on contracts sold is
as follows:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Contracts sold:
MH-Conventional $3,180 $2,090 $1,447(a) $ 486(b) $ 455
MH-GNMA 46 213 269 500 474
HI 544 43 72 112 81
CP -- -- 84 41 23
------ ------ ------ ------ ------
Total $3,770 $2,346 $1,872 $1,139 $1,033
====== ====== ====== ====== ======
</TABLE>
(a) Includes $533,159,000 of contracts purchased from the RTC.
(b) Includes $52,108,000 of contracts purchased from other originators, but
does not include $87,515,000 of contracts sold pursuant to a joint
venture agreement with Merrill Lynch Mortgage Capital, Inc.
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<PAGE>
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------
1994 1993 1992 1991 1990
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Weighted average yield to
investors:
MH-Conventional 8.1% 6.5% 7.7% 8.7% 10.3%
MH-GNMA 8.0 6.4 7.4 8.5 9.6
HI 8.0 6.4 7.3 8.7 9.7
CP -- -- 6.4 7.6 9.6
---- ---- ---- ---- ----
Weighted average yield 8.1% 6.5% 7.6% 8.6% 9.9%
==== ==== ==== ==== ====
</TABLE>
Servicing
---------
The Company services all of the contracts that it originates or purchases
from other originators, collecting loan payments, taxes and insurance
payments, where applicable, and other payments from borrowers and remitting
principal and interest payments to the holders of the asset-backed
securities or of the GNMA certificates.
The following table shows the composition of the Company's servicing
portfolio at December 31 for the years indicated on contracts it
originated.
<TABLE>
<CAPTION>
December 31
------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Unpaid principal
amount of
contracts being
serviced(in
millions) $ 9,441 $ 6,922 $ 5,278 $ 4,754 $ 4,098
Average unpaid
principal
balance $ 19,042 $ 17,864 $ 16,638 $ 16,394 $ 16,456
Number of
contracts
serviced 495,809 387,509 317,251 289,960 249,038
</TABLE>
During 1990 and 1991, the Company acquired servicing on manufactured
housing contracts originated by other lenders. The Company did not acquire
servicing on manufactured housing contracts originated by other lenders
during 1992, 1993 or 1994, and does not expect to acquire such servicing in
the near future. The Company has no loss risk on these contracts and
charges a service fee based on principal outstanding. The following table
shows the composition of this servicing portfolio at December 31 for the
years indicated.
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<TABLE>
<CAPTION>
December 31
-------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unpaid principal
amount of
contracts being
serviced(in
millions) $ 212 $ 272 $ 345 $ 518 $ 559
Average unpaid
principal
balance $13,515 $14,425 $14,977 $15,897 $17,435
Number of
contracts
serviced 15,710 18,884 23,064 32,576 32,051
</TABLE>
Delinquency and Loss Experience
-------------------------------
A contract is considered delinquent by the Company if any payment of $25 or
more is past-due 30 days or more. Delinquent contracts are subject to
acceleration, and repossession or foreclosure of the underlying collateral.
Losses associated with such actions are charged against applicable reserves
upon disposition of the collateral.
The following table provides certain information with respect to the
delinquency and loss experience of contracts the Company originated.
<TABLE>
<CAPTION>
At or for the year ended
December 31
--------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Number of contracts
delinquent(a) 1.49% 1.55% 1.86% 2.20% 2.09%
Repossessed contracts
sold (b) 1.55 1.87 2.53 2.42 2.46
Annual net repossession
losses(c) .63 .85 1.16 .93 .94
Repossession inventory(d) .43 .51 .58 .88 .88
</TABLE>
(a) As a percentage of the total number of contracts serviced at period
end (other than contracts already in repossession).
(b) As a percentage of the average number of contracts serviced during the
period.
(c) As a percentage of the average principal amount of contracts serviced
during the period. Annual net repossession losses represent the loss
amount at the time the repossession is sold, and has not been reduced
for amounts subsequently recovered from either customers or investors.
(d) As a percentage of the total number of contracts serviced at period
end.
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Insurance
---------
Through certain subsidiaries, the Company markets physical damage insurance
on manufactured homes and certain consumer products which collateralize
contracts serviced by the Company, and markets term mortgage life insurance
to its MH and HI customers. In addition, the Company owns Green Tree Life
Insurance Company, a life and disability reinsurance company, and
Consolidated Casualty Insurance Company, a property and casualty
reinsurance company, which function as reinsurers for policies written by
selected other insurers covering individuals whose contracts are serviced
by the Company.
The following table provides certain information with respect to net
written premiums (gross premiums on new or renewal policies issued less
cancellations of previous policies) on policies written by the Company.
The Company acts as an agent with respect to the sale of such policies and,
in some cases, the Company also acts as reinsurer of such policies.
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net written premiums:
Physical damage $63,979 $48,172 $35,500 $31,400 $29,200
Term mortgage life 7,240 5,683 5,303 4,510 3,700
------- ------- ------- ------- -------
Total $71,219 $53,855 $40,803 $35,910 $32,900
======= ======= ======= ======= =======
</TABLE>
Regulation
----------
The Company's operations are subject to supervision by state authorities
(typically state banking, consumer credit and insurance authorities) that
generally require that the Company be licensed to conduct its business. In
many states, issuance of licenses is dependent upon a finding of public
convenience, and of financial responsibility, character and fitness of the
applicant. The Company is generally subject to state regulations,
examinations and reporting requirements, and licenses are revocable for
cause.
Contracts insured under the FHA manufactured home and home improvement
lending programs are subject to compliance with detailed federal
regulations governing originations, servicing, and loss claim payments by
the FHA to cover a portion of losses due to default and repossessions or
foreclosures. These lending regulations were amended in November 1991 to
add additional requirements such as equity requirements for home
improvement contracts of over $15,000 and a pre-underwriting customer
interview to verify the credit application for both programs. These
changes have had the effect of making program compliance more burdensome
for the Company, dealers and contractors. The FHA is presently studying
other aspects of the program, and there are no assurances that future
regulatory changes will not occur. Other governmental
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programs such as VA also contain similar detailed regulations governing
loan origination and servicing responsibilities.
The FHA increased the maximum loan amounts for Title I manufactured home
loans effective for credit applications completed and received after August
30, 1993. The maximum loan amounts have been increased to $48,600 for
manufactured home loans, $16,200 for manufactured home lot loans and
$64,800 for land-and-home loans. This represents a 20% increase over
previously established maximum loan amounts. The FHA Title I maximum for
single-family home improvement loans is $25,000.
The Federal Consumer Credit Protection Act ("FCCPA") requires a written
disclosure showing the annual percentage rate of finance charges, and
requires that other information be disclosed to debtors when consumer
credit contracts are executed. The Fair Credit Reporting Act requires
certain disclosures to applicants for credit concerning information that is
used as a basis for denial of credit. The Federal Equal Credit Opportunity
Act prohibits discrimination against applicants with respect to any aspect
of a credit transaction on the basis of sex, race, color, religion,
national origin, age, marital status, derivation of income from a public
assistance program, or the good faith exercise of a right under the FCCPA,
of which it is a part. By virtue of a Federal Trade Commission rule,
conditional sales contracts must contain a provision that the holder of the
contract is subject to all claims and defenses which the debtor could
assert against the seller, but the debtor's recovery under such provisions
cannot exceed the amount paid under the contract.
The Company is also required to comply with other federal disclosure laws
for certain of its lending programs. The combination land-and-home program
and the home improvement lending program are subject to the federal Real
Estate Settlement and Procedures Act. In addition, the Company is subject
to the reporting requirements of the Home Mortgage Disclosure Act for its
manufactured home and home improvement contracts.
The construction of manufactured housing is subject to compliance with
governmental regulation. Changes in such regulations may occur from time
to time and such changes may affect the cost of manufactured housing. The
Company cannot predict whether any regulatory changes will occur or what
impact such future changes would have on the manufactured housing industry.
The Company is subject to state usury laws. Generally, state law has been
preempted by federal law with respect to certain manufactured home and home
improvement contracts, although individual states have enacted legislation
superseding federal law. To be eligible for the federal preemption, the
manufactured home or home improvement contract form must comply with
certain consumer protection provisions. A few states have elected to
override
-13-
<PAGE>
federal law, but have established maximum rates that either fluctuate with
changes in prevailing rates or are high enough so that, to date, no state's
maximum interest rate has precluded the Company from continuing business in
that state. The Company's consumer and commercial product contracts are
subject to state usury law restrictions.
Competition and Other Factors
-----------------------------
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. The Company competes with banks, finance
companies, finance subsidiaries of certain manufacturing companies, credit
unions, savings and loan associations, and others seeking to purchase
contracts. Prevailing interest rates are typically affected by economic
conditions. Changes in rates, however, generally do not inhibit the
Company's ability to compete, although from time to time in particular
geographic areas, local competition may choose to offer more favorable
rates. The Company competes by offering superior service, prompt credit
review, and a variety of financing programs.
The Company's business is generally subject to seasonal trends, reflecting
the general pattern of sales of manufactured housing and site-built homes.
Sales typically peak during the spring and summer seasons and decline to
lower levels from mid-November through January.
Employees
---------
As of December 31, 1994, the Company had 1,964 full-time and 194 part-time
employees, and considers its employee relations to be satisfactory. None
of the employees are represented by a union.
Item 2. Properties.
--------------------
At December 31, 1994, the Company operated 45 manufactured housing regional
service centers located in 34 states. The Company has opened five
additional regional servicing centers in 1995. Such offices are leased,
typically for a term of three years, and range in size from 1,700 to 10,500
square feet to accommodate a staff of approximately 5 to 55 employees. The
Company's home improvement division leases its main office in Saint Paul,
Minnesota. The lease is for a term of five years and consists of 77,000
square feet to accommodate their staff of approximately 300 employees.
(See Note I of Notes to Consolidated Financial Statements for annual rental
obligations.) The Company owns the building which houses its consumer and
commercial product divisions and its corporate offices.
-14-
<PAGE>
Item 3. Legal Proceedings.
---------------------------
The nature of the Company's business is such that it is routinely a party
or subject to items of pending or threatened litigation. Although the
ultimate outcome of certain of these matters cannot be predicted,
management believes, based upon information currently available and the
advice of counsel, that the resolution of these routine legal matters will
not result in any material adverse effect on its consolidated financial
condition.
Item 4. Submission of Matters to a Vote of Security Holders.
-------------------------------------------------------------
None.
-15-
<PAGE>
PART II
-------
Item 5. Market for the Registrant's Common Equity and Related
--------------------------------------------------------------
Stockholder Matters.
--------------------
The Company's Common Stock is traded on the New York and Pacific Stock
Exchanges under the symbol "GNT." The following table sets forth, for the
periods indicated, the range of the high and low sale prices.
<TABLE>
<CAPTION>
1993 High Low
---- ------- ---------
<S> <C> <C>
First quarter $18-1/4 $11-19/32
Second quarter 21-3/8 16-1/8
Third quarter 27-1/2 19-3/4
Fourth quarter 31-1/4 22-1/16
<CAPTION>
1994 High Low
---- ------- ---------
<S> <C> <C>
First quarter $ 29 $21-11/16
Second quarter 30-1/2 21-1/2
Third quarter 34-7/8 24-3/4
Fourth quarter 30-5/8 24-1/4
</TABLE>
The above stock prices, as well as all other share and per share amounts
referenced in this Annual Report on Form 10-K, have been restated to
reflect the two-for-one stock splits effected in the form of stock
dividends in January 1993 and June 1994.
On February 28, 1995, the Company had approximately 549 shareholders of
record of its Common Stock including the nominee of The Depository Trust
Company which held approximately 65,037,067 shares of Common Stock.
The Company has paid cash dividends since December 1986. The 1994 first
quarter dividend rate was $0.046875 per share. In May 1994, the Board of
Directors approved an increase in the quarterly dividend rate to $0.0625
per share effective June 1994. In February 1995, the Board of Directors
approved another increase in the quarterly dividend rate to $0.09375 per
share effective March 1995. The payment of future dividends will depend on
the Company's financial condition, prospects and such other factors as the
Board of Directors may deem relevant. Under certain debt agreements, the
Company is subject to restrictions limiting the payment of dividends and
Common Stock repurchases. At December 31, 1994, under the most restrictive
agreement, such payments were limited to $74,805,000, which represents 50%
of consolidated net earnings for the most recently concluded four fiscal
quarter periods less dividends paid.
-16-
<PAGE>
Item 6. Selected Financial Data.
---------------------------------
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- -------- ---------
(dollars in thousands except per-share data)
<S> <C> <C> <C> <C> <C>
Income $497,427 $366,680 $246,615 $214,765 $175,675
Earnings before
income taxes 302,131 200,537 118,806 92,176 59,418
Earnings before
extraordinary
loss(a) 181,279 116,423 72,472 56,688 36,542
Net earnings 181,279 116,423 55,015 56,688 36,542
Earnings per common
share:
Before
extraordinary
loss (a) 2.61 1.81 1.21 1.00 .59
Net earnings 2.61 1.81 .91 1.00 .59
Cash dividends per
common share .23 .17 .15 .15 .15
At year-end:
Excess servicing
rights receivable $ 533,182 $ 843,489 $ 640,647 $513,881 429,098
Total assets 1,771,839 1,739,502 1,167,055 969,161 814,662
Total debt 309,319 515,004 376,043 361,410 335,757
Allowance for
losses on
contracts sold
with recourse 84,016 222,135 189,669 134,681 91,945
Stockholders'
equity 725,891 549,429 298,834 237,544 192,478
</TABLE>
(a) Before extraordinary loss relating to the debt exchange in 1992.
Item 7. Management's Discussion and Analysis.
----------------------------------------------
Introduction
------------
The Company originates conditional sales contracts for manufactured homes
("MH"), home improvements ("HI"), consumer products ("CP")and commercial
products ("CMP"), and provides floorplan financing to manufactured housing
dealers. Over the past two years, the Company has expanded the consumer
product types it finances to include sports vehicles, trailers for
recreational activities and certain musical instruments. In November 1994,
the Company began financing commercial contracts for general aviation aircraft
and over-the-road tractor trailers. The Company's insurance agencies also
market physical damage and term mortgage life insurance relating to the
customers' contracts it services. Green Tree also acts as servicer for
manufactured housing contracts originated by other lenders.
-17-
<PAGE>
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. 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 securitized Net Interest
Margin Certificate ("NIM Certificate") sales are shown net of projected
losses and 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 NIM 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 NIM Certificates.
The Company believes that its allowance for losses on contracts sold with
recourse 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 allowance has been discounted
using an interest
-18-
<PAGE>
rate equivalent to the risk-free market rate for securities with a duration
consistent with the estimated timing of losses. The outstanding security
balances of contracts at December 31, 1994 were $1,520,307,000 of GNMA
certificates and $7,534,340,000 related to securitized transactions,
including whole loan sales.
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 corporate guarantees,
letters of credit 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 carrying value of the subordinated interest in the NIM Certificates
retained by the Company is determined using prepayment and default
assumptions consistent with those used in determining the value of excess
servicing rights receivable, giving consideration to differences in the
composition of the contracts underlying those anticipated cash flows. The
subordinated certificates are shown net of the effect of projected losses.
Payments on the subordinated certificates will not be made until such time
as the senior certificateholders have been paid all principal and interest
due them under the terms of the transactions. As such, interest on the
subordinated certificates will continue to accrue to the outstanding
balance until payments commence. Green Tree has and will continue to
collect a monthly servicing fee equal to 50 basis points on an annualized
basis on the underlying contract balance to the extent that adequate funds
are available based on cash flows provided by each underlying securitized
sale.
The Company's expectations used in calculating its excess servicing rights
receivable and allowance for losses on contracts sold with recourse, as
well as the value of the subordinated interest in the NIM Certificates, 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 current earnings. The Company reflects favorable
portfolio experience prospectively as realized.
-19-
<PAGE>
Results of operations
---------------------
The following table shows, for the periods indicated, the percentage
relationships to income of certain income and expense items and the
percentage changes in such items from period to period.
<TABLE>
<CAPTION>
Period-to-period
As a percentage of increase (decrease)
income for the year ----------------------
ended December 31 1993 1992
--------------------- to to
1994 1993 1992 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Income:
Net gains on contract
sales 91.4% 76.1% 91.9% 63.0% 23.1%
Provision for losses
on contract sales (27.0) (21.0) (42.7) 74.3 (26.8)
Interest 22.4 30.7 31.4 (1.0) 45.2
Service 8.1 8.5 11.9 28.3 6.8
Commissions and other 5.1 5.7 7.5 21.7 13.5
----- ----- -----
Total income 100.0% 100.0% 100.0%
===== ===== =====
Expenses:
Interest 8.4% 14.0% 18.2% (18.6) 14.0
Cost of servicing 6.2 7.1 9.5 18.3 10.7
General and
administrative 24.7 24.2 24.1 38.1 49.7
Earnings before
income taxes and
extraordinary loss 60.7 54.7 48.2 50.7 68.8
Earnings before
extraordinary loss 36.4 31.8 29.4 55.7 60.6
Net earnings 36.4 31.8 22.3 55.7 111.6
</TABLE>
Net gains on contract sales increased 63.0% and 23.1% for the years ended
December 31, 1994 and 1993, respectively, as the dollar volume of contracts
originated and sold rose during these periods. During 1994, total contract
sales increased $1,423,930,000, or 60.7%. During 1993, total contract
sales increased $474,274,000, or 25.3%. Also contributing to the increase
in net gains on contract sales for both 1994 and 1993 was an increase in
the percentage of conventional contracts versus GNMA certificates sold
(which is partially offset by a higher provision for losses on conventional
contracts), 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. These increases were partially offset by decreased
interest rate spreads on contracts sold in 1994, and in 1993, an increase
in prepayment reserves as a result of falling interest rates and the
ongoing evaluation of the Company's prepayment projections based on
activity. For 1992, net gains on contract sales reflects the Company's
purchase of portfolios from the Resolution Trust
-20-
<PAGE>
Corporation ("RTC") which resulted in gains at the time of sale primarily
due to purchase discounts. The gain on RTC contract sales was
substantially offset by recourse liabilities assumed at the same time which
were included in the provision for losses on contract sales.
Prevailing interest rates are typically affected by economic conditions.
Changes in interest rates generally do not inhibit the Company's ability to
compete, although from time to time, in particular geographic areas, local
competition may be able to offer more favorable rates. Because of the size
of the excess servicing spread (which enables the Company to absorb changes
in interest rates) and the relatively short period of time between
origination and sale of contracts, the Company's ability to sell contracts
is generally not affected by gradual changes in interest rates, although
the amount of earnings may be affected. Average excess servicing spreads
were 3.1%, 3.8% and 4.8% for 1994, 1993 and 1992, respectively. Excess
servicing spreads decreased during 1994 as the rates on the Company's sales
of securitized loans increased faster than the rates on the contracts
originated by the Company, whereas during 1993, the Company's spreads
decreased as the rates on the contracts originated by the Company declined
faster than the rates on the Company's sales of securitized loans. Excess
servicing spreads were higher during 1992 as the rates on contracts
purchased, primarily from the RTC, were higher than the rates on the
contracts originated by the Company during 1992. Excluding the contracts
purchased from the RTC, the servicing spread was 4.1% for 1992, which is
reflective of interest rate movements during the year and interest rates at
the time of sale. Traditionally, changes in interest rates have less of an
impact on the Company's prepayment level as compared to conventional
housing prepayment levels. The changes in the interest rate environment,
however, did cause an increase in prepayments on the portfolio underlying
the Company's excess servicing rights receivable during 1993 and 1994. The
weighted average customer interest rate on the underlying portfolio of the
Company decreased during 1994 and 1993 due to generally lower rates on
originations for those years.
The 74.3 % increase in the provision for losses on contract sales during
1994 reflects the Company's higher dollar volume of contracts sold as well
as the changing mix of originations to a significantly lower percentage of
FHA and VA contracts. The 26.8% decrease in the provision for losses on
contract sales for 1993 is a result of the increased provision for losses
incurred in 1992 for the recourse liabilities assumed as a result of the
RTC repurchase and as a result of discounting the provision for losses on
contracts sold during all of 1993 compared to just one quarter in 1992.
The decrease in the 1993 provision for losses also reflects the shift in
manufactured home sales to more expensive multi-section homes and land-and-
home sales from single-wide homes. The Company's increased provision for
losses on contract sales for 1992 reflects the effect of the RTC repurchase
as well as the higher
-21-
<PAGE>
dollar volume of contracts sold. The Company feels that its credit
underwriting standards and servicing procedures have served to stabilize
its loss experience. A very important factor in the reduction of the
Company's credit risk is the geographic dispersion of the portfolio. At
December 31, 1994, no state accounted for more than 10% of all contracts
serviced by the Company. The Company continually monitors its dispersion
of contracts as economic downturns are often more severely felt in certain
geographic areas than others.
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 NIM Certificates. Green Tree Securitized
Net Interest Margin Trust 1994-A, completed in March, sold certificates
valued at $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 and
are shown net of projected losses.
The manufactured housing market experienced a 20% increase in new home
shipments during 1994 compared to 1993. The Company continues to benefit
from this increase as its dollar volume of MH contract originations rose
30.7% during 1994 over 1993 to $3,201,491,000. 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 as the Company's MH
financing shifts to more expensive multi-section homes and land-and-home
contracts, and price increases by the MH manufacturers.
The dollar volume of home improvement contract originations rose 174.7%
during 1994 over 1993 to $465,523,000. This significant level of
continuing growth results from vastly expanding the number of relationships
with HI contractors, remodelers and dealers throughout the United States,
as well as obtaining more business from existing dealers. This has
provided the Company with an established and growing network through which
to market its financing.
-22-
<PAGE>
Interest income is realized from contracts held for sale, cash deposits,
short-term investments, as well as amortization of the present value
discount relating to excess servicing rights receivable. Interest income
decreased 1.0% for the year ended December 31, 1994. Interest income
relating to the amortization of the present value discount during 1994
decreased compared to 1993 as a result of the NIM Certificate sales,
offset partially by interest accrued on the subordinated certificates.
Earnings on short-term investment activity relating to the cash generated
by the NIM Certificate sales and an increase in average contracts held for
sale due to substantially higher production levels during 1994 also
partially offset that decrease. Interest income grew 45.2% during 1993 due
to interest earned on the increased dollar amount of contracts held for
sale during 1993 compared to 1992. During 1993 and 1992, increased
amortization of the present value discount on the Company's growing excess
servicing rights receivable also contributed to the growth in interest
income.
The increase in service income of 28.3% during 1994 and 6.8% during 1993
resulted from the 35.2% and 20.3% growth in the Company's average
originated servicing portfolio during 1994 and 1993, respectively, but was
offset by the decline in servicing income on contracts originated by
others. The average unpaid principal balance of contracts being serviced
for others during 1994 and 1993 decreased 22.1% and 23.0%, respectively.
The Company expects this decline in outside servicing income to continue in
the future.
Commissions and other income, which includes commissions earned on new
insurance policies written and renewals on existing policies, as well as
other income from late fees, grew during 1994, 1993 and 1992 primarily as a
result of the increase in net written insurance premiums as the Company's
contract originations and servicing portfolio continue to grow.
Interest expense decreased 18.6% during the year ended December 31, 1994.
The Company maintained a lower level of borrowings to fund its loan
originations during 1994, as compared with 1993, as a result of converting
a substantial portion of its excess servicing rights receivable to cash
through the NIM Certificate sales, as well as completing more frequent
contract sales in 1994. This decreased level of borrowings is offset
slightly by higher average credit facility borrowing rates throughout much
of 1994. The Company's interest expense increased 14.0% in 1993 as a
result of the higher amount of average outstanding borrowings supporting
the Company's increased contract inventory levels. The increase was,
however, partially offset by lower credit facility borrowing rates and the
lower effective interest rate on the Company's senior subordinated debt as
a result of the Company's debt exchange in 1992. Interest expense was
lower in 1992 primarily as a result of the April debt exchange which
reduced the blended effective cost of the Company's publicly held
subordinated debt from 13.1% to 10.8%.
-23-
<PAGE>
Green Tree's dollar amount of cost of servicing has increased over the past
three years as its total average servicing portfolio during the years ended
December 31, 1994, 1993 and 1992 grew 32.4%, 17.1% and 8.0%, respectively.
The Company's cost of servicing as a percentage of contracts serviced has
decreased over each of the past three years.
General and administrative expenses rose 38.1% and 49.7% during 1994 and
1993, respectively. However, as a percentage of contract originations and
as a percentage of revenue, these expenses have remained relatively
constant over the past three years. The dollar growth is due primarily to
an increase in personnel and other origination costs related to the
significant growth in the number of contracts the Company has originated
over the past three years. The Company continues to actively manage and
control these expenses, although increases are expected as the volume of
business grows.
During the third quarter of 1993, the Company took a one-time charge to
earnings of $4,685,000 as a result of the August 1993 enactment of the new
federal corporate income tax rate. The charge reflects the increase in the
federal corporate income tax rate on the Company's deferred tax liability
and increased the Company's effective tax rate during that year to 41.9%.
The Company's effective tax rate during 1994 was 40% and in 1992 was 39%.
As a result of a new organizational structure instituted in December 1994,
the Company's effective tax rate for 1995 is expected to be 38%.
The Company is affected by consumer demand for manufactured housing, home
improvements, consumer products and its insurance products. Consumer
demand, in turn, is partially influenced by regional trends, economic
conditions and personal preferences. The Company can make no prediction
about any particular geographic area in which it does business. These
regional effects, however, are mitigated by the national geographic
dispersion of its servicing portfolio.
Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," does not affect the
Company as the Company does not provide postretirement benefits other than
its pension plans.
Inflation has not had a material effect on the Company's income or earnings
over the past three fiscal years.
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.
-24-
<PAGE>
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, corporate guarantees, bank letters of credit, surety
bonds, cash deposits or other equivalent collateral are provided by the
Company as credit enhancements. Certain senior/subordinated structures,
used during 1990, 1991 and 1992, 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 1994, the Company used a senior/subordinated structure for each of
its eight conventional manufactured home loan sales and enhanced a portion
of the subordinated certificates sold with a corporate guarantee. This is
the first year in which the Company has had more than one securitized
conventional manufactured home loan sale in a quarter. The Company's
production has reached a volume where multiple conventional manufactured
home 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 first public home improvement loan sale, in the
first quarter of 1994, was a single class pass-through enhanced with a cash
collateral account, whereas its public sales in the second, third and
fourth quarters of 1994 were each comprised of two trusts. The first
trust, which included secured home improvement contracts, employed a
senior/subordinated structure with a corporate guarantee and the second
trust, which included unsecured home improvement contracts, 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. The Company may consider
such transactions as a source of future liquidity.
In February 1992, the Company replaced letters of credit and cash deposits
held as credit enhancements for certain existing securitized transactions
with financial guaranty insurance policies issued by a credit bond insurer
for an annual fee approximately equal to the Company's cost of maintaining
the letters of credit and cash deposits. The financial guaranty insurance
policies are noncancelable for the lives of the securitized transactions.
The
-25-
<PAGE>
effect of this transaction was to make available to the Company previously
restricted cash deposits approximating $20 million. In addition, the
Company's outstanding letters of credit were reduced by approximately $62
million.
Servicing fees and net interest payments collected, which has been the
Company's principal source of cash, decreased during the year ended
December 31, 1994 as a result of the NIM Certificate sales, the proceeds of
which are shown separately on the Company's statements of cash flows. Net
interest payments collected on the transactions underlying the NIM
Certificates, after certain deductions, are remitted directly to the senior
certificateholders. Payments on the subordinated certificates will not
commence until the senior certificateholders have been paid in full. For
the year ended December 31, 1994, servicing fees and net interest payments
collected consist only of servicing fees collected on the NIM Certificates,
plus servicing fees and net interest payments on all existing HI and CP
securitizations, the third and fourth quarter 1994 MH securitizations and
all of the GNMA pools sold during 1994. In the future, servicing fees and
net interest payments collected 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,
until the Company begins to collect payments on its subordinated interest.
The increases in servicing fees and net interest payments collected during
1993 and 1992 are a result of the increased amount of servicing spread
collected due to the growth of the Company's servicing portfolio.
Net principal payments collected have been positive in each of the last
three years as a result of an increase in the contract principal payments
collected by the Company as of the end of each year 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.
Included in net principal payments collected in 1992 was approximately
$18,000,000 of previously advanced principal recouped by the Company in
conjunction with the purchase and resale of contracts from the RTC.
Interest on contracts and GNMA certificates during 1994 includes interest
the Company received on the NIM 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 continued through the second quarter of 1992.
The cash flows used to make these defeasance payments were sold as part of
the NIM Certificate sale.
Repossession losses net of recoveries decreased significantly in 1994 as a
result of the sale of the NIM Certificates. Repossession losses on
contracts whose net cash flows were sold as part of these transactions
(with the exception of the first five securitized
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<PAGE>
sales completed by Green Tree in 1987 through the first quarter of 1988 as
such losses were excluded from the 1994-A NIM Certificate sale) are not
borne by the Company but, instead, reduce the amount of cash available to
pay the senior certificateholders. To the extent that such losses should
exceed projected levels, the impact would first be borne by Green Tree
through charges to the valuation of its subordinated certificates, and
thereafter by the holders of the certificates, not through charges to the
allowance for losses on contracts sold. Repossession losses decreased in
1993 as compared to 1992, despite a larger average servicing portfolio, as
a result of continued improvement in the performance of the loan portfolio.
In the future, 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, as well as losses on the first five MH
securitizations.
FHA insurance premiums paid also decreased significantly during 1994, as
such payments which relate to contracts in the NIM Certificate sales are
made through cash flows on those transactions.
Net cash provided by operating activities increased significantly over
1993, primarily as a result of the sale of NIM Certificates. Proceeds from
the sale of contracts was greater than the purchase of contracts held for
sale in 1994 as the Company chose to securitize its HI loans primarily
originated in the third and fourth quarters of 1993 in 1994. Net cash from
operating activities was negative in 1993 due largely to the increase in
dollar volume of contracts held for sale. This increase in contract
inventory was a result of the Company's decision not to securitize any CP
loans, any HI loans after the second quarter, and through increases in MH
production. During 1992, the additional servicing fees and net interest
and principal payments collected, as well as the reduction in net cash
deposits provided, contributed to the Company's positive cash flows from
operating activities. These increased operating cash flows in 1992 were
offset by increased repossession losses net of recoveries as a result of
management's action to reduce the Company's aged repossession inventory
levels and poor economic conditions in California. To a lesser extent,
1994, 1993 and 1992 cash flows from operating activities were also reduced
by income taxes paid. The Company expects it will use its remaining net
operating loss carryforward during 1995, and accordingly will be paying
additional taxes on its taxable income thereafter.
Net cash used for investing activities included the purchase in 1993 of
certain floors of the building where the Company's corporate offices are
located, and in 1994, included the renovation of certain floors in its
corporate office building and the buyout and upgrade of the Company's main
frame computer.
-27-
<PAGE>
The Company used cash from financing activities during 1994 as it repaid
all of its borrowings on credit facilities and increased its common stock
dividend rate 33.3% in May 1994. Net cash provided by financing activities
was positive in 1993 as borrowings on credit facilities and proceeds from
the issuance of common stock and debt exceeded debt repayments and
dividends, while in 1992, debt repayments, dividends and other financing
activities exceeded borrowings.
The Company had a $60,000,000 bank warehousing credit agreement for the
purpose of financing its manufactured home, home improvement and motorcycle
contract production, as well as meeting other cash needs, under which
$60,000,000 was available, subject to the availability of appropriate
collateral, at December 31, 1994. As a result of the increased liquidity
that Green Tree experienced during 1994, the Company chose to reduce the
amount of this facility to $15,000,000, and revised and extended the
agreement effective January 1, 1995. This new agreement is unsecured and
expires December 31, 1995.
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 December 31, 1994, the Company had
$950,000,000 available under these master repurchase agreements, subject to
the availability of appropriate collateral. These agreements all provide
for annual terms that are extended each quarter by mutual agreement of the
parties for an additional year term based upon receipt of updated quarterly
financial information from the Company. The Company believes that, if it
so desires, these agreements will continue to be renewed each quarter.
In September 1993, the Company completed a 5,000,000 share (post-split)
common stock offering, and sold an additional 750,000 shares to cover over-
allotments. The net proceeds of approximately $138,000,000 were used to
finance the Company's continued growth in its manufactured home, home
improvement and consumer products contract inventory, to temporarily reduce
notes payable under the Company's borrowing agreements, and for other
general corporate purposes. During the first quarter of 1992, the Company
completed a 12,000,000 share (post-split) common stock offering, and in
April 1992, the Company sold an additional 1,229,600 shares to cover over-
allotments. The net proceeds of approximately $115,000,000 were used to
purchase and retire all of the Company's outstanding preferred stock (which
had a liquidation value of $143,495,000) for $102,000,000 as part of the
settlement of litigation between the Company and the RTC, and for general
corporate purposes. The preferred stock had a $9,300,000 annual cash
dividend requirement which terminated upon its repurchase.
In September 1992, the Securities and Exchange Commission declared
effective the Company's $250 million shelf registration which
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<PAGE>
enables the Company to offer, from time to time, medium-term notes with
maturities in excess of nine months. The notes may bear interest at fixed
or floating rates. In October 1992, the Company sold $12 million of 7.55%
notes due 1999. In April 1993, the Company sold an additional $14,650,000
of medium-term notes. The notes were issued at varying rates (6.69% to
7.62%) with terms ranging from 5 to 10 years. The proceeds from the
issuance of these notes were used to pay down the Company's notes payable.
The issuance of these notes lengthened the Company's debt maturity schedule
at an interest rate which the Company believed to be favorable.
In April 1992, the Company completed an exchange offer related to its 8
1/4% Senior Subordinated Debentures due 1995 (the "Debentures"). Of the
$287,500,000 of Debentures, $267,254,000 were tendered and accepted for
exchange by the Company for its new 10 1/4% Senior Subordinated Notes due
2002. The result of the exchange was to reduce the blended effective cost
of the Company's outstanding subordinated debt from 13.1% to 10.8%. An
extraordinary charge of $17,457,000 was recognized in the second quarter as
a result of the exchange. The extraordinary charge resulted from the
accelerated write-down of the original issue discount and deferred debt
expense, net of income taxes of $11,161,000, relating to the Debentures
exchanged. The $20,246,000 of remaining Debentures due June 1, 1995 will
be retired by the Company from its available cash.
-29-
<PAGE>
Item 8. Financial Statements and Supplementary Data.
-----------------------------------------------------
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENTS FURNISHED PURSUANT
TO THE REQUIREMENTS OF FORM 10-K
AND
INDEPENDENT AUDITORS' REPORT
-------------------------------------
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
--------------------------------------------
-30-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Green Tree Financial Corporation
Saint Paul, Minnesota:
We have audited the accompanying consolidated balance sheets of Green Tree
Financial Corporation and subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the years in the three-year period ended
December 31, 1994 and the financial statement schedule listed in the Index
at Item 14(a)(2). These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Green
Tree Financial Corporation and subsidiaries as of December 31, 1994 and
1993, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1994 in conformity
with generally accepted accounting principles. Also in our opinion, the
related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
Minneapolis, Minnesota
February 6, 1995
-31-
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
December 31
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents (Note A) $ 455,956,000 $ 170,674,000
Cash deposits, restricted (Note F) 146,057,000 124,817,000
Other investments (Note A) 20,920,000 19,016,000
Receivables:
Excess servicing rights
(Notes A and B) 533,182,000 843,489,000
Floorplan (net of allowance
of $1,216,000) 166,507,000 --
Other accounts receivable 34,841,000 58,604,000
Contracts, GNMA certificates and
collateral(Notes C, E and F) 372,776,000 495,225,000
Property, furniture and fixtures
(Note D) 36,555,000 23,275,000
Other assets (including deferred
debt expense of $2,427,000 and
$2,816,000, respectively) 5,045,000 4,402,000
-------------- --------------
Total assets $1,771,839,000 $1,739,502,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Notes payable (Note E) $ -- $ 206,911,000
Senior notes (Note E) 26,650,000 26,650,000
Senior subordinated notes due 2002
(Note E) 262,814,000 262,435,000
Senior subordinated debentures due
1995 (Note E) 19,855,000 19,008,000
Allowance for losses on contracts
sold with recourse (Notes A and F) 84,016,000 222,135,000
Accounts payable and accrued
liabilities 183,749,000 103,598,000
Investor payable 169,269,000 139,655,000
Income taxes, principally deferred
(Note K) 299,595,000 209,681,000
-------------- --------------
Total liabilities 1,045,948,000 1,190,073,000
Commitments and contingencies (Notes F and I)
Stockholders' equity (Notes E and G):
Common stock, $.01 par; authorized
150,000,000 shares, issued and
outstanding 67,647,192 shares
(1994) and 67,034,784 shares (1993) 676,000 670,000
Additional paid-in capital 297,408,000 286,396,000
Retained earnings 427,807,000 262,363,000
-------------- --------------
Total stockholders' equity 725,891,000 549,429,000
-------------- --------------
$1,771,839,000 $1,739,502,000
============== ==============
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
INCOME:
Net gains on contract sales $454,831,000 $279,061,000 $226,754,000
Provision for losses on
contract sales (134,416,000) (77,135,000) (105,357,000)
Interest 111,376,000 112,495,000 77,461,000
Service 40,077,000 31,249,000 29,252,000
Commissions and other 25,559,000 21,010,000 18,505,000
------------ ------------ ------------
497,427,000 366,680,000 246,615,000
EXPENSES:
Interest 41,619,000 51,155,000 44,868,000
Cost of servicing 30,857,000 26,078,000 23,557,000
General and administrative 122,820,000 88,910,000 59,384,000
------------ ------------ ------------
195,296,000 166,143,000 127,809,000
------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS 302,131,000 200,537,000 118,806,000
INCOME TAXES (Note K) 120,852,000 84,114,000 46,334,000
------------ ------------ ------------
EARNINGS BEFORE EXTRAORDINARY LOSS 181,279,000 116,423,000 72,472,000
EXTRAORDINARY LOSS ON DEBT EXCHANGE
(Net of income taxes of
$11,161,000)(Note E) -- -- (17,457,000)
------------ ------------ ------------
NET EARNINGS $181,279,000 $116,423,000 $ 55,015,000
============ ============ ============
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
Earnings before extraordinary
loss $2.61 $1.81 $ 1.21
Extraordinary loss -- -- (.30)
----- ----- -----
Net earnings $2.61 $1.81 $ .91
===== ===== =====
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 69,334,169 64,374,818 58,399,940
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
<TABLE>
<CAPTION>
Additional Total
Preferred Common paid-in Retained stockholders'
stock stock capital earnings equity
--------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCES, December 31, 1991 $14,000 $472,000 $124,747,000 $112,311,000 $237,544,000
Common stock issuance -- 136,000 118,935,000 -- 119,071,000
Preferred stock repurchased (14,000) -- (101,986,000) -- (102,000,000)
Dividends on:
Preferred stock -- -- -- (1,995,000) (1,995,000)
Common Stock -- -- -- (8,801,000) (8,801,000)
Net earnings -- -- -- 55,015,000 55,015,000
------- -------- ------------ ------------ ------------
BALANCES, December 31, 1992 -- 608,000 141,696,000 156,530,000 298,834,000
Common stock issuance -- 62,000 144,700,000 -- 144,762,000
Dividends on common stock -- -- -- (10,590,000) (10,590,000)
Net earnings -- -- -- 116,423,000 116,423,000
------- -------- ------------ ------------ ------------
BALANCES, December 31, 1993 -- 670,000 286,396,000 262,363,000 549,429,000
Common stock issuance -- 6,000 11,012,000 -- 11,018,000
Dividends on common stock -- -- -- (15,835,000) (15,835,000)
Net earnings -- -- -- 181,279,000 181,279,000
------- -------- ------------ ------------ ------------
BALANCES, December 31, 1994 $ -- $676,000 $297,408,000 $427,807,000 $725,891,000
======= ======== ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------------
1994 1993 1992
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Servicing fees and net
interest payments collected $ 93,119,000 $ 249,884,000 $ 205,900,000
Net proceeds from sale of net
interest margin certificates 583,800,000 -- --
Net principal payments
collected 693,000 28,316,000 45,256,000
Interest on contracts and
GNMA certificates 61,007,000 52,016,000 27,184,000
Interest on cash and
investments 15,002,000 5,517,000 5,731,000
Commissions 16,609,000 13,665,000 16,254,000
Other 2,491,000 2,092,000 3,096,000
------------ ------------ -------------
772,721,000 351,490,000 303,421,000
------------ ------------ -------------
Cash paid to employees
and suppliers (136,796,000) (87,864,000) (75,905,000)
Defeasance payments -- (32,177,000) (29,725,000)
Interest paid on debt (38,604,000) (48,472,000) (40,099,000)
Repossession losses net
of recoveries (1,538,000) (46,325,000) (50,369,000)
FHA insurance premiums (2,181,000) (19,681,000) (17,888,000)
Income taxes paid (28,385,000) (17,800,000) (9,622,000)
------------ ------------ -------------
(207,504,000) (252,319,000) (223,608,000)
------------ ------------ -------------
NET CASH PROVIDED BY
OPERATIONS 565,217,000 99,171,000 79,813,000
Purchase of contracts
held for sale (3,718,545,000) (2,665,594,000) (1,879,934,000)
Proceeds from sale of
contracts held for sale 3,764,569,000 2,319,268,000 1,866,896,000
Principal collections on
contracts held for sale 71,382,000 40,789,000 19,214,000
Floorplan loans disbursed (368,873,000) -- --
Principal collections on
floorplan loans 233,771,000 -- --
Cash deposits provided as
credit enhancements (36,176,000) (12,133,000) (44,304,000)
Cash deposits returned 14,936,000 4,384,000 22,131,000
------------ ------------ -------------
NET CASH PROVIDED BY (USED
FOR) OPERATING ACTIVITIES 526,281,000 (214,115,000) 63,816,000
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property,
furniture and fixtures (18,911,000) (11,658,000) (1,694,000)
Purchase of investment
securities (1,904,000) (5,512,000) (2,020,000)
------------ ------------ -------------
NET CASH USED FOR
INVESTING ACTIVITIES (20,815,000) (17,170,000) (3,714,000)
------------ ------------ -------------
</TABLE>
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<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------------
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on credit facilities 1,418,011,000 2,379,552,000 1,188,115,000
Repayments on credit facilities (1,624,922,000) (2,252,079,000) (1,208,864,000)
Common stock issued 2,562,000 141,028,000 116,286,000
Repurchase of preferred stock -- -- (102,000,000)
Dividends paid (15,835,000) (10,590,000) (13,123,000)
Proceeds from debt issuance -- 14,650,000 12,000,000
Payments of debt -- (4,037,000) (6,983,000)
Fees paid for debt
exchange and issuance -- -- (2,968,000)
-------------- -------------- --------------
NET CASH (USED FOR) PROVIDED
BY FINANCING ACTIVITIES (220,184,000) 268,524,000 (17,537,000)
-------------- -------------- --------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 285,282,000 37,239,000 42,565,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 170,674,000 133,435,000 90,870,000
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 455,956,000 $ 170,674,000 $ 133,435,000
============== ============== ==============
RECONCILIATION OF NET
EARNINGS TO NET CASH PROVIDED BY
(USED FOR) OPERATING ACTIVITIES:
Net earnings $ 181,279,000 $ 116,423,000 $ 55,015,000
Deferred taxes 90,572,000 63,743,000 26,554,000
Extraordinary loss on debt exchange -- -- 28,618,000
Depreciation and amortization 9,762,000 5,291,000 6,711,000
Net proceeds from sale of net interest
margin certificates 583,800,000 -- --
Net contract payments collected, less
excess servicing rights recorded (302,610,000) (58,844,000) 34,557,000
Amortization of deferred service income (6,599,000) (26,318,000) (21,240,000)
Net amortization of present
value discount (33,316,000) (54,793,000) (44,625,000)
Net increase in cash deposits (21,240,000) (7,749,000) (22,173,000)
Purchase of contracts held
for sale, net of sales
and principal collections 117,406,000 (305,537,000) 6,176,000
Floorplan loans disbursed, net of
principal collections (135,102,000) -- --
Net discount (gain) on sale of loans 36,816,000 16,496,000 (9,720,000)
Other 5,513,000 37,173,000 3,943,000
-------------- -------------- --------------
NET CASH PROVIDED BY (USED
FOR) OPERATING ACTIVITIES $ 526,281,000 $ (214,115,000) $ 63,816,000
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
--------------------------------------------
A. Summary of Significant Accounting Policies
Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany profits,
transactions and balances have been eliminated.
Contract sales
--------------
The Company originates directly, or indirectly through dealers, conditional
sales contracts which are typically sold at or near par to investors. The
Company retains the servicing rights and participation in certain cash
flows from the loans. The present value of expected cash flows from this
participation which exceeds normal servicing fees is recorded at the time
of sale as "excess servicing rights receivable." The 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 NIM Certificates.
The excess servicing rights receivable has not been reduced for potential
losses under recourse provisions of the sales. The allowance for losses on
contracts sold with recourse is shown separately as a liability on the
Company's balance sheet. For contracts sold prior to October 1, 1992, the
allowance is shown on a nondiscounted basis. For contracts sold after
September 30, 1992, the allowance has been discounted using an interest
rate equivalent to the risk-free market rate for securities with a duration
consistent with the estimated timing of losses based on guidance issued by
the Financial Accounting Standards Board's Emerging Issues Task Force
("EITF") in "EITF Issue 92-2."
In determining expected cash flows, management considers economic
conditions at the date of sale. In subsequent periods, these estimates are
revised as necessary for any reductions in expected future cash flows
arising from adverse prepayment and loss experience by recording a charge
to current earnings. Favorable experience is recognized prospectively as
realized.
During 1994, in two separate transactions, the Company sold a substantial
portion of its excess servicing rights receivable to investors in the form
of securitized NIM Certificates. The
-37-
<PAGE>
subordinated certificates retained by the Company are included in excess
servicing rights receivable at a value which is net of expected losses. No
gain or loss was recorded as a result of these transactions, such
certificates being valued in the market place using prepayment, default and
interest rate assumptions generally consistent with those recorded by the
Company.
Interest payments received on the contracts, less interest payments paid to
investors (including payments on the NIM Certificates), are reported on the
consolidated statements of cash flows as "servicing fees and net interest
payments collected." Principal payments received on the contracts, less
non-defeasance principal payments paid to investors, is reported as "net
principal payments collected" on the consolidated statements of cash flows.
Interest income and service income are recognized by systematically
amortizing the present value discount and deferred service income,
respectively.
The Company defers service income at an annual rate of 0.44% and discounts
cash flows on its sales at the rate it believes a purchaser would require
as a rate of return. The cash flows were discounted to present value using
discount rates which averaged approximately 9.5% in 1994, 9.3% in 1993 and
9.6% in 1992. The Company has developed its assumptions based on
experience with its own portfolio, available market data (including market
estimates utilized in the sales of the NIM Certificates) and ongoing
consultation with its investment bankers. The Company believes that the
assumptions used in estimating cash flows are similar to that which would
be used by an outside investor.
Depreciation
------------
Property, furniture and fixtures are carried at cost and are depreciated
over their estimated useful lives on a straight-line basis.
Deferred debt expenses
----------------------
Expenses associated with the issuance of long-term debt are amortized on a
straight-line basis over the term of the debt. Amortization was $390,000
in 1994, $389,000 in 1993 and $494,000 in 1992.
Earnings per common and common equivalent share
-----------------------------------------------
Earnings per common and common equivalent share are computed by dividing
net earnings less preferred dividends ($1,995,000 in 1992) by the weighted
average number of shares of Common Stock and Common Stock equivalents
outstanding during each year. Common Stock equivalents consist of the
dilutive effect of Common Stock which may be issued upon exercise of stock
options. All share and per-share amounts have been restated to reflect the
two-for-one stock
-38-
<PAGE>
splits the Company effected in January 1993 and June 1994. Earnings per
share and fully diluted earnings per share are substantially the same.
Cash and cash equivalents
-------------------------
For purposes of the statements of cash flows, the Company considers all
highly liquid temporary investments purchased with a maturity of three
months or less to be cash equivalents. These temporary investments include
United States Treasury Funds, A1/P1 commercial paper or bank money market
accounts. At December 31, 1994 and 1993, cash of approximately
$164,901,000 and $140,528,000, respectively, was held in trust for
subsequent payment to investors. In addition, cash of approximately
$3,377,000 and $2,404,000 was restricted and held by the Company's
subsidiaries pursuant to master repurchase agreements and government
requirements at December 31, 1994 and 1993, respectively.
Other investments
-----------------
Other investments consist of highly liquid investments with original
maturities of more than three months. Other investments are held in United
States Treasury Bills, United States Government Bonds, corporate bonds and
certificates of deposit, and are stated at cost plus accrued interest,
which approximates market value. At December 31, 1994 and 1993,
investments of approximately $19,916,000 and $17,865,000, respectively,
were held in trust for policy and claim reserves for the Company's
insurance subsidiaries. In addition, investments of approximately
$1,004,000 and $1,151,000 were restricted and held by the Company's
subsidiaries pursuant to a master repurchase agreement and government
requirements at December 31, 1994 and 1993, respectively.
Allowance for losses
--------------------
Recourse of investors against the Company is governed by the agreements
between the investor and the Company (Note F). The allowance for losses on
contracts sold with recourse represents the Company's best estimate of
future credit losses likely to be incurred over the entire life of the
contracts, pursuant to recourse provided to investors. Amounts
representing losses on the contracts underlying the NIM Certificates are
reflected in the carrying value of the subordinated certificates.
B. Excess Servicing Rights Receivable
Excess servicing rights receivable consists of net excess cash expected to
be collected over the life of the contracts sold. During 1994, a
substantial portion of these net cash flows were sold to investors through
two securitized NIM Certificate sales in which the Company retained a
subordinated interest. As of December 31 excess servicing rights
receivable consists of:
-39-
<PAGE>
<TABLE>
<CAPTION>
Excess
Servicing
Gross NIM Rights
1994 Cash Flows Certificates Receivable
- ---- ---------- ------------ ----------
<S> <C> <C> <C>
Gross cash flows receivable
on contracts sold $3,034,775,000 $(2,192,553,000) $842,222,000
Less:
Prepayment reserve (1,053,682,000) 729,186,000 (324,496,000)
FHA insurance and other fees (66,269,000) 53,902,000 (12,367,000)
Deferred service income (236,007,000) 167,089,000 (68,918,000)
Discount to present value (543,573,000) 422,778,000 (120,795,000)
Subordinated interest in
NIM Certificates -- 217,536,000 217,536,000
-------------- --------------- ------------
$1,135,244,000 $ (602,062,000) $533,182,000
============== =============== ============
1993
- ----
Gross cash flows receivable
on contracts sold $2,307,735,000 -- $2,307,735,000
Less:
Prepayment reserve (761,732,000) -- (761,732,000)
FHA insurance and other fees (83,706,000) -- (83,706,000)
Deferred service income (161,407,000) -- (161,407,000)
Discount to present value (457,401,000) -- (457,401,000)
--------------- ------------ --------------
$ 843,489,000 -- $ 843,489,000
=============== ============ ==============
</TABLE>
During 1994 the Company completed two sales of portions of its excess
servicing rights receivable in the form of securitized NIM Certificates.
Green Tree Securitized Net Interest Margin Trust 1994-A, completed in
March, sold certificates representing 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 representing approximately 72% of the estimated
present value of future excess servicing cash flows derived from the
Company's sales of manufactured housing contracts in the first and second
quarters of 1994. The remaining 22% and 28% interests in Net Interest
Margin Trust 1994-A and 1994-B, respectively, were retained by the Company
as subordinated interests.
This subordinated interest will continue to accrue interest as no payments
of principal or interest will be made until the senior certificateholders
have been paid in full. The carrying value is analyzed quarterly to
determine the impact, if any, of adverse prepayment or loss experience.
However, the carrying value will continue to reflect the discount rates
utilized at the time of sale.
-40-
<PAGE>
The carrying value of excess servicing rights receivable is analyzed
quarterly to determine the impact of prepayments, if any. During 1993,
adjustments were required as a result of adverse prepayment activity which
approximated $22,000,000.
During the years ended December 31, 1994, 1993 and 1992, the Company sold
$45,668,000, $213,368,000 and $268,916,000, respectively, of GNMA
guaranteed certificates secured by FHA-insured and VA-guaranteed contracts.
At December 31, 1994 and 1993, the outstanding principal balance on GNMA
certificates issued by the Company was $1,520,307,000 and $1,793,908,000,
respectively.
During the years ended December 31, 1994, 1993 and 1992, the Company sold
$3,724,102,000, $2,132,472,000 and $1,602,650,000, respectively, of
contracts in various securitized transactions and in sales to private
investors. At December 31, 1994 and 1993, the outstanding principal
balance on all conventional securitized and private investor sales was
$7,534,340,000 and $4,713,012,000, respectively.
C. Contracts, GNMA Certificates and Collateral
Contracts, GNMA certificates and collateral consist of:
<TABLE>
<CAPTION>
December 31
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
Contracts held for sale $341,370,000 $428,092,000
Other contracts held 12,418,000 9,570,000
Collateral in process
of liquidation 8,681,000 47,847,000
Contracts held as collateral 10,307,000 9,716,000
------------ ------------
$372,776,000 $495,225,000
============ ============
</TABLE>
Collateral in process of liquidation includes collateral related only to
contracts which have not been included in the MH securitizations and GNMA
pools underlying the NIM Certificate sales. Gross collateral in process of
liquidation was $53,193,000 as of December 31, 1994.
The aggregate method is used in determining the lower of cost or market
value of contracts held for sale and contracts held as collateral. See
fair value disclosure of financial instruments in Note H.
Potential losses on the liquidation of the collateral are included in
determining the allowance for losses on contracts sold with recourse (Notes
F and H).
Included in other accounts receivable as of December 31, 1994 and 1993 was
approximately $1,284,000 and $34,055,000, respectively, of GNMA
certificates which were sold during 1994 and 1993 for settlement in January
1995 and 1994, respectively. These GNMA
-41-
<PAGE>
certificates along with contracts held for sale are used in full or in part
as collateral on the Company's warehousing credit agreement and master
repurchase agreements (Note E).
D. Property, Furniture and Fixtures
Property, furniture and fixtures consist of:
<TABLE>
<CAPTION>
December 31
Estimated --------------------------
useful life 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cost:
Building 35 years $20,530,000 $17,268,000
Furniture and equipment 3-7 years 30,042,000 14,213,000
Leasehold improvements 3-5 years 266,000 485,000
Land and improvements 1,796,000 1,795,000
----------- -----------
52,634,000 33,761,000
Less accumulated depreciation (16,079,000) (10,486,000)
----------- -----------
$36,555,000 $23,275,000
=========== ===========
</TABLE>
Depreciation expense for 1994, 1993 and 1992 was $5,656,000, $2,482,000 and
$1,668,000, respectively.
E. Debt
The Company had a $60,000,000 bank warehousing credit agreement under which
$60,000,000 was available, subject to the availability of appropriate
collateral, at December 31, 1994 as there were no borrowings under this
agreement. This committed facility is to be used for financing the
Company's manufactured home, home improvement and motorcycle contract
production, as well as meeting other daily cash needs. The agreement
provided for interest at variable rates and certain fee provisions, the
costs of which are included in interest expense. Any borrowings were
collateralized by manufactured housing, home improvement and motorcycle
contracts. The credit agreement contains certain restrictive covenants
which include maintaining minimum net worth (as defined in the agreement)
and a debt to net worth ratio not to exceed 5 to 1. As a result of the
increased liquidity that Green Tree experienced during 1994, the Company
chose to reduce the amount of this facility to $15,000,000, and revised and
extended the agreement effective January 1, 1995. This new agreement is
unsecured and expires December 31, 1995. 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
December 31, 1994, the amount available, subject to the availability of
appropriate collateral, was $950,000,000 as there were no borrowings under
these agreements. These agreements all provide for annual terms that are
extended each quarter by mutual agreement of the parties for an additional
year term based upon receipt of updated quarterly financial information
from the Company. The Company believes that, if it so desires, these
agreements will continue to be renewed each quarter.
-42-
<PAGE>
Debt is as follows:
<TABLE>
<CAPTION>
December 31
---------------------------
1994 1993
------------ ------------
<S> <C> <C>
Notes payable $ -- $206,911,000
Senior notes 26,650,000 26,650,000
Senior subordinated notes, 10 1/4%,
due 2002 (see below), less
unamortized original issue
discount of $4,440,000 and
$4,819,000, respectively 262,814,000 262,435,000
Senior subordinated debentures,
8 1/4%, due 1995 (see below), less
unamortized original issue
discount of $391,000 and
$1,238,000, respectively 19,855,000 19,008,000
------------ ------------
$309,319,000 $515,004,000
============ ============
</TABLE>
The Company has on file a shelf registration to issue up to $250 million of
senior notes with maturities in excess of nine months. The notes may bear
interest at fixed or floating rates. The senior notes outstanding at
December 31, 1994 and 1993 bear interest at a weighted average rate of
7.27% and have maturities ranging from 1998 to 2003. Interest on these
notes is payable semi-annually.
The 8 1/4% senior subordinated debentures due 1995 (the "Debentures") were
issued in connection with a public offering in June 1985. The effective
interest rate on the Debentures is 13.1% and interest is payable semi-
annually. In April 1992, the Company completed an offer to exchange a new
issue of 10 1/4% Senior Subordinated Notes due June 1, 2002 (the "Notes")
for its outstanding Debentures. Of the Company's $287,500,000 of
Debentures, $267,254,000 were tendered and accepted for exchange by the
Company for its new Notes. The effective interest rate on the Notes is
10.8%. The Company must maintain a net worth of $80,000,000 or will be
required, through the operation of a sinking fund, to redeem $25,000,000 on
such contingent sinking fund payment date. Interest is payable semi-
annually. An extraordinary charge of $17,457,000 was recognized in the
second quarter of 1992 as a result of the exchange. The extraordinary
charge resulted from the accelerated write-down of the original issue
discount and deferred debt expense, net of income taxes of $11,161,000,
relating to the Debentures exchanged.
At December 31, 1994, aggregate maturities of debt for the following five
years are $40,246,000, payable as follows: $20,246,000 in 1995, $8,000,000
in 1998 and $12,000,000 in 1999.
F. Allowance for Losses on Contracts Sold with Recourse
The Company sells GNMA guaranteed certificates which are secured by FHA-
insured and VA-guaranteed contracts. The majority of credit losses
incurred on these contracts are covered by FHA insurance or VA guarantees
with the remainder borne by the Company.
-43-
<PAGE>
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 NIM Certificates.
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 corporate guarantees,
letters of credit and surety bonds that provided 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. At December 31, 1994 and 1993, the Company had
bank letters of credit and surety bonds outstanding of $174,910,000 and
$204,803,000, respectively. Cash deposits held in interest bearing
accounts totaled $146,057,000 and $124,817,000, and contracts pledged
aggregated $10,307,000 and $9,716,000 at December 31, 1994 and 1993,
respectively, and are maintained as part of credit enhancement features
under certain sales structures.
Allowances are provided for the Company's best estimate of future credit
losses likely to be incurred over the entire life of the contracts.
Estimated losses are based on an analysis of the underlying loans and do
not reflect the maximum recourse provided to investors. The following table
presents an analysis of the allowance for losses on contracts sold with
recourse for 1994, 1993 and 1992.
<TABLE>
<CAPTION>
Gross NIM Net
Allowance Certificates Allowance
------------ -------------- --------------
1994
- ----
<S> <C> <C> <C>
Allowance at beginning
of year $222,135,000 $ -- $ 222,135,000
Sale of NIM Certificates -- (273,093,000) (273,093,000)
Provision for losses 134,416,000 -- 134,416,000
Losses net of recoveries (45,406,000) 43,868,000 (1,538,000)
Amortization of present
value discount on loss
reserve 9,154,000 (7,058,000) 2,096,000
------------ ------------- -------------
Allowance at end of year $320,299,000 $(236,283,000) $ 84,016,000
============ ============= =============
</TABLE>
-44-
<PAGE>
<TABLE>
<CAPTION>
Gross NIM Net
Allowance Certificates Allowance
----------- ------------ -----------
<S> <C> <C> <C>
1993
- ----
Allowance at beginning of year $189,669,000 -- $189,669,000
Provision for losses 77,135,000 -- 77,135,000
Losses net of recoveries (46,325,000) -- (46,325,000)
Amortization of present value
discount on loss reserve 1,656,000 -- 1,656,000
------------ ------------- ------------
Allowance at end of year $222,135,000 -- $222,135,000
============ ============= ============
1992
- ----
Allowance at beginning of year $134,681,000 -- $134,681,000
Provision for losses 105,357,000 -- 105,357,000
Losses net of recoveries (50,369,000) -- (50,369,000)
------------ ------------- -------------
Allowance at end of year $189,669,000 -- $189,669,000
============ ============= =============
</TABLE>
G. Stockholders' Equity
Common Stock
------------
In December 1992 and May 1994, the Board of Directors declared two-for-one
stock splits, in the form of stock dividends, payable on January 31, 1993
and June 30, 1994 to shareholders of record as of January 15, 1993 and June
15, 1994, respectively. All references in the consolidated financial
statements and notes with regard to number of shares, stock options and
related prices, and per-share amounts have been restated to give
retroactive effect to the stock splits.
In September 1993, the Company completed a 5,000,000 share Common Stock
offering, and sold an additional 750,000 shares to cover over-allotments.
The net proceeds of approximately $138,000,000 were used to finance the
Company's continued growth in its manufactured home, home improvement and
consumer products contract inventory, to temporarily reduce certain
borrowings under the Company's bank warehousing agreement and master
repurchase agreements and for other general corporate purposes.
During the first quarter of 1992, the Company completed a 12,000,000 share
Common Stock offering and in April 1992, the Company sold an additional
1,229,600 shares to cover over-allotments. The net proceeds of
approximately $115,000,000 were used to purchase and retire all of the
Company's outstanding Preferred Stock discussed below, and for general
corporate purposes.
-45-
<PAGE>
In February 1995, the Company's Board of Directors approved and
authorized the repurchase of up to 3,500,000 shares of the Company's Common
Stock from time to time in the open market or in private transactions.
Preferred Stock
---------------
During 1992, the Company repurchased 50,012 shares of its Preferred Series
B Stock, 712,562 shares of its Preferred Series C Stock and 672,376 shares
of its Preferred Series D Stock which represented all of the Company's
outstanding Preferred Stock. These shares, which had a liquidation value
of $100 per share, or $143,495,000, were repurchased and retired for
$102,000,000 as part of the settlement of litigation between the Company
and the Resolution Trust Corporation (the "RTC"). The Preferred Stock had
a $9,300,000 annual cash dividend requirement which terminated upon its
repurchase.
In connection with the issuance of the rights discussed below, the Company
authorized shares of Junior Preferred Stock. If issued, the stock will be
nonredeemable. Each share of Junior Preferred Stock will have a minimum
cumulative, preferential quarterly dividend rate of $25 per share, but will
be entitled to an aggregate dividend of 100 times the dividend declared on
the Common Stock. In the event of liquidation, the holders of the Junior
Preferred Stock will receive a minimum preferred liquidation payment of
$100 per share, but will be entitled to receive an aggregate liquidation
payment equal to 100 times the payment made per share of Common Stock.
Each share of Junior Preferred Stock will have 100 votes, voting together
with the Common Stock. In the event of any merger, consolidation or other
transaction in which Common Stock is exchanged, each share of Junior
Preferred Stock will be entitled to receive 100 times the amount received
per share of Common Stock. At December 31, 1994, there were no shares of
Junior Preferred Stock outstanding.
Rights
------
In October 1985, the Company issued one Preferred Stock purchase right for
each share of Common Stock and amended the rights in August 1990. The
rights become exercisable if a person or group either acquires or makes an
offer to acquire 20% or more of Green Tree's Common Stock (10% in the case
of an "adverse person" designated by the Board of Directors).
If the rights become exercisable, a holder will be entitled to purchase for
the exercise price ($125) the number of shares of Common Stock which has a
market value equal to two times the purchase price. If the Company is
involved in a merger or other business combination, the rights will be
modified so as to entitle a holder to buy a number of shares of Common
Stock of the acquiring company having a market value of twice the exercise
price of each right.
-46-
<PAGE>
The rights may be redeemed upon approval of a majority of the independent
directors of the Company for $.10 per right at any time prior to the tenth
day after a public announcement that a person or group has acquired
beneficially 20% or more of Green Tree's Common Stock.
Stock option plans
------------------
Under the terms of two expired 1983 stock option plans, a total of
12,131,760 shares of Green Tree's Common Stock was initially reserved for
grant to eligible employees and directors.
A summary of stock activity related to these stock option plans is as
follows:
<TABLE>
<CAPTION>
Number of Option price
shares per share
---------- ------------
<S> <C> <C>
Outstanding at December 31, 1991 74,000 $3.22
Exercised (10,000) 3.22
-------
Outstanding at December 31, 1992 64,000 3.22
Exercised (24,000) 3.22
-------
Outstanding at December 31, 1993 40,000 3.22
Exercised (40,000) 3.22
-------
Outstanding at December 31, 1994 --
=======
</TABLE>
In 1988, the Company's shareholders approved two new stock option plans: an
employee stock option plan and an outside director plan. In 1992, the
Board of Directors approved a new supplemental stock option plan for its
outside directors. The number of shares reserved under those plans is
4,200,000.
A summary of the two stock option plans is as follows:
<TABLE>
<CAPTION>
Number of Option price
shares per share
--------- ---------
<S> <C> <C>
Outstanding at December 31, 1991 3,526,000 $ 1.63- 9.75
Granted 38,000 8.25- 12.00
Exercised (148,000) 1.63- 10.34
Expired (200,000) 9.16
---------
Outstanding at December 31, 1992 3,216,000 1.63- 12.00
Granted 194,000 11.94- 27.00
Exercised (308,236) 3.22- 9.16
Expired (179,996) 9.16
---------
Outstanding at December 31, 1993 2,921,768 1.63- 27.00
Granted 84,000 22.31- 30.38
Exercised (349,870) 3.22- 16.88
Expired (82,664) 9.16- 27.00
---------
Outstanding at December 31, 1994 2,573,234 $ 1.63- 30.38
=========
</TABLE>
-47-
<PAGE>
Of the 2,573,234 options outstanding at December 31, 1994, 2,459,234
options related to the employee stock option plan, and 114,000 options
related to the outside director plan. The director options and 2,027,234
shares of certain employee options were exercisable as of December 31,
1994. Options for 170,660 shares were available for future grant. The
option price per share represents the market value of the Company's stock
on the date of grant except for certain options granted in 1993. The
option price per share on 170,000 options granted in 1993 represents 50% of
the market value of the Company's stock on the date of grant.
Stock bonus plan
----------------
In 1988, the Company's shareholders approved a new key executive stock
bonus plan. Shares issued under this plan are pursuant to an employment
agreement and the stock is valued at $5.9375 per share which represents the
closing market price of the stock on the date of the employment agreement.
The number of shares reserved under this plan is 12,000,000. Total shares
issued under this plan during 1994, 1993 and 1992 were 443,214, 240,620 and
332,768, respectively. As of December 31, 1994 there were 10,409,690
shares available for future issuance.
Dividends
---------
During 1994, 1993 and 1992 the Company declared and paid dividends of $.23,
$.17 and $.15 per share, respectively, on its Common Stock. Under certain
debt agreements, the Company is subject to restrictions limiting the
payment of dividends and common stock repurchases. At December 31, 1994,
under the most restrictive agreement, such payments were limited to
$74,805,000, which represents 50% of consolidated net earnings for the most
recently concluded four fiscal quarter period less dividends paid.
H. Fair Value Disclosure of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires that the Company disclose
the estimated fair values of its financial instruments. Fair value
estimates, methods and assumptions are set forth below for the Company's
financial instruments.
Cash and cash equivalents, cash deposits and other investments
--------------------------------------------------------------
The carrying amount of cash and cash equivalents, cash deposits and other
investments approximates fair value because they generally mature in 90
days or less and do not present unanticipated credit concerns.
-48-
<PAGE>
Excess servicing rights receivable
----------------------------------
Excess servicing rights receivable is calculated using prepayment, default
and interest rate assumptions that the Company believes market participants
would use for similar instruments at the time of sale. Projected
performance is monitored on an ongoing basis. The initially established
discount rate is fixed for the life of the transaction. As such, the fair
value of excess servicing rights receivable primarily includes
consideration of a current discount rate to be applied to the financial
instrument as a whole.
The Company has consulted with investment bankers and obtained an estimate
of a market discount rate. Utilizing this market discount rate, and such
other assumptions as the Company believes market participants would use for
similar instruments, the Company has estimated the fair value of its excess
servicing rights receivable, excluding its subordinated interest in the NIM
Certificates, to approximate its carrying value, shown net of the related
allowance for losses which is disclosed separately as a liability on the
balance sheet.
The carrying value of excess servicing relating to the subordinated
interest retained in the NIM Certificates sold during 1994 is calculated
using prepayment and default assumptions which the Company believes market
participants would use currently, but using the interest rate determined at
the time of sale. For purposes of computing fair value, the Company
consulted with its investment bankers and obtained an estimate of a market
interest rate as of December 31, 1994. Using that rate, carrying value
exceeds fair value for this component of excess servicing rights receivable
by $19,822,000.
Contracts held for sale and as collateral
-----------------------------------------
Contracts held for sale and as collateral are generally recent originations
which will be sold during the following quarter. The Company does not
charge origination fees or points and, as such, its contracts have
origination rates generally in excess of rates on the securities into which
they will be pooled. Since these contracts have not been converted into
securitized pools, the Company estimates the fair value to be the carrying
amount plus the cost of origination.
Floorplan loans receivable
--------------------------
Floorplan loans receivable consists entirely of loans which reprice monthly
in accordance with the prime lending rate offered by banks. Given this
repricing structure, the Company estimates the fair value of these
receivables to approximate their carrying value.
-49-
<PAGE>
Collateral in process of liquidation
------------------------------------
Collateral in the process of liquidation is valued on an individual unit
basis after inspection of such collateral. Shown net of the related
allowance for losses on contracts sold with recourse, fair value
approximates carrying value.
Other contracts held
--------------------
Pursuant to investor sale agreements, certain contracts are repurchased by
the Company as a result of delinquency before they are repossessed, and are
included in other contracts held. The loss has been estimated on an
aggregate basis, and is included on the balance sheet in allowance for
losses on contracts sold with recourse.
Notes payable
-------------
Notes payable consists of amounts payable under the Company's warehouse
line or repurchase agreements and, given its short-term nature, is at a
rate which approximates market. As such, fair value approximates the
carrying amount.
Senior notes
------------
The fair value of the Company's senior notes is estimated based on the
quoted market price of similar issues or on the current rates offered to
the Company for debt of a similar maturity.
Senior subordinated notes and debentures
----------------------------------------
The Company's senior subordinated notes and debentures are valued at quoted
market prices.
-50-
<PAGE>
The carrying amounts and estimated fair values of the Company's financial
assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
------------------- -----------------
Estimated Estimated
Carrying fair Carrying fair
amount value amount value
-------- --------- -------- ---------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents,
cash deposits and other
investments $622,933 $622,933 $314,507 $314,507
Excess servicing rights
receivable (net of
allowance for losses) 449,990 430,168 636,999 636,999
Contracts held for sale
and as collateral 351,677 360,469 437,808 448,753
Floorplan loans
receivable 166,507 166,507 -- --
Collateral in process
of liquidation 7,857 7,857 32,202 32,202
Other contracts held 12,418 8,287 9,570 6,441
Financial liabilities:
Notes payable -- -- 206,911 206,911
Senior notes 26,650 25,058 26,650 28,136
Senior subordinated
notes due 2002 262,814 288,298 262,434 318,032
Senior subordinated
debentures due 1995 19,855 20,290 19,008 21,132
</TABLE>
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
The estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Fair value estimates are based on judgments
regarding future loss and prepayment experience, current economic
conditions, specific risk characteristics and other factors. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. For example, the Company has a
regional branch network with significant dealer relationships and a
proprietary credit scoring system, both of which contribute heavily to the
Company's ongoing profitability and neither of which is considered a
financial instrument.
-51-
<PAGE>
I. Commitments and Contingencies
Lease commitments
-----------------
At December 31, 1994, aggregate minimum rental commitments under
noncancelable leases having terms of more than one year were $13,275,000,
payable $3,663,000 (1995), $3,580,000 (1996), $3,182,000 (1997), $2,198,000
(1998) and $652,000 (1999). Total rental expense for the years ended
December 31, 1994, 1993 and 1992 was $5,065,000, $4,449,000 and $4,955,000,
respectively. These leases are for office facilities and equipment, and
many contain either clauses for cost of living increases and/or options to
renew or terminate the lease.
Litigation
----------
The nature of the Company's business is such that it is routinely a party
or subject to items of pending or threatened litigation. Although the
ultimate outcome of certain of these matters cannot be predicted,
management believes, based upon information currently available and the
advice of counsel, that the resolution of these routine legal matters will
not result in any material adverse effect on its consolidated financial
condition.
J. Benefit Plans
The Company has a qualified noncontributory defined benefit pension plan
covering substantially all of its employees over 21 years of age. The
plan's benefits are based on years of service and the employee's
compensation. The plan is funded annually based on the maximum amount that
can be deducted for federal income tax purposes. The assets of the plan
are primarily invested in common stock, corporate bonds and cash
equivalents. As of December 31, 1994 and 1993, net assets available for
plan benefits were $5,873,000 and $5,242,000, and the accumulated benefit
obligation was $3,934,000 and $4,305,000, respectively. As of December 31,
1994 and 1993, the projected benefit obligation of the plan was $7,460,000
and $8,169,000, respectively. In addition, the Company maintains a
nonqualified pension plan for certain key employees as designated by the
Board of Directors. This plan is not currently funded and the projected
benefit obligation at December 31, 1994 and 1993 was $9,711,000 and
$9,158,000, respectively. Total pension expense for the plans in 1994,
1993 and 1992 was $3,585,000, $2,340,000 and $1,619,000, respectively.
In July 1992, the Company's Board of Directors approved a 401(k) Retirement
Savings Plan available to all eligible employees. The plan commenced on
October 1, 1992. To be eligible for the plan, the employee must be at
least 21 years of age and have completed one year of employment at Green
Tree during which the employee worked at least 1,000 hours. Eligible
employees may contribute to the plan up to 10% of their earnings with a
maximum of $9,240 for
-52-
<PAGE>
1994 based on the Internal Revenue Service annual contribution limit. The
Company will match 50% of the employee contributions for an amount up to 6%
of each employee's earnings. Contributions are invested at the direction
of the employee in one or more funds. Company contributions generally
vest after three years, although contributions for those employees already
having three years of service vest immediately. Company contributions to
the plan were $713,000, $575,000 and $208,000 in 1994, 1993 and 1992,
respectively.
K. Income Taxes
Income taxes consist of the following:
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
Current:
Federal $ 27,077,000 $17,253,000 $16,843,000
State 3,203,000 3,118,000 2,937,000
------------ ----------- -----------
30,280,000 20,371,000 19,780,000
Deferred:
Federal 76,100,000 53,826,000 21,769,000
State 14,472,000 9,917,000 4,785,000
------------ ----------- -----------
90,572,000 63,743,000 26,554,000
------------ ----------- -----------
$120,852,000 $84,114,000 $46,334,000
============ =========== ===========
</TABLE>
For the year ended December 31, 1992, a current tax benefit of $11,161,000
was included in the extraordinary loss from the Company's debt exchange so
that net tax expense was $35,173,000.
Deferred income taxes are provided for temporary differences between pretax
income for financial reporting purposes and taxable income. The tax
effects of temporary differences that give rise to significant portions of
the deferred tax assets and deferred tax liabilities at December 31, 1994
and 1993 are presented below.
<TABLE>
<CAPTION>
December 31
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Excess servicing rights $307,080,000 $234,721,000
Other 15,320,000 3,272,000
------------ ------------
Gross deferred tax liabilities 322,400,000 237,993,000
------------ ------------
Deferred tax assets:
Net operating loss carryforward 19,551,000 23,571,000
Other 6,773,000 8,918,000
------------ ------------
Gross deferred tax assets 26,324,000 32,489,000
Valuation allowance -- --
------------ ------------
Gross deferred tax assets, net
of valuation 26,324,000 32,489,000
------------ ------------
Net deferred tax liability $296,076,000 $205,504,000
============ ============
</TABLE>
-53-
<PAGE>
At December 31, 1994, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $50,000,000 which are
available to offset future federal taxable income and expire no earlier
than 2001. No valuation allowance was required as of December 31, 1994 or
1993 since it is likely that the deferred tax asset will be realized
against future taxable income.
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
Year ended December 31
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 34.0%
State tax, net of federal benefit 3.8 4.2 4.3
Adjustments to deferred tax assets
and liabilities for enacted
changes in tax laws and rates -- 1.9 --
Other 1.2 .8 .7
---- ---- ----
40.0% 41.9% 39.0%
==== ==== ====
</TABLE>
-54-
<PAGE>
QUARTERLY RESULTS OF OPERATIONS (unaudited)
-------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands
except per-share amounts) First Second Third Fourth
quarter quarter quarter quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1994:
Income $104,798 $112,289 $126,049 $154,291
Net earnings 38,492 44,226 52,066 46,495
Net earnings per share .56 .64 .75 .67
1993:
Income $ 66,645 $ 82,613 $ 98,925 $118,497
Net earnings 22,061 29,187 32,320 32,855
Net earnings per share .35 .46 .51 .48
1992:
Income $ 51,907 $ 60,700 $ 66,302 $ 67,706
Earnings before
extraordinary loss 12,695 19,730 23,097 16,950
Net earnings 12,695 2,273 23,097 16,950
Per share:
Earnings before
extraordinary loss .22 .32 .38 .27
Net earnings .22 .04 .38 .27
</TABLE>
Item 9. Disagreements on Accounting and Financial Disclosures.
---------------------------------------------------------------
None.
-55-
<PAGE>
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
-------------------------------------------------------------
Pursuant to General Instruction G(3), reference is made to the information
contained in the Company's definitive proxy statement for its 1995 Annual
Meeting of Shareholders which will be filed with the Securities and
Exchange Commission on or before May 1, 1995.
Item 11. Executive Compensation.
---------------------------------
Pursuant to General Instruction G(3), reference is made to the information
contained in the Company's definitive proxy statement for its 1995 Annual
Meeting of Shareholders which will be filed with the Securities and
Exchange Commission on or before May 1, 1995.
Item 12. Security Ownership of Certain Beneficial Owners and
------------------------------------------------------------
Management.
-----------
Pursuant to General Instruction G(3), reference is made to the information
contained in the Company's definitive proxy statement for its 1995 Annual
Meeting of Shareholders which will be filed with the Securities and
Exchange Commission on or before May 1, 1995.
Item 13. Certain Relationships and Related Transactions.
---------------------------------------------------------
Reference is made to Note I of Notes to Consolidated Financial Statements
contained in Item 8 hereof.
-56-
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on
----------------------------------------------------------------
Form 8-K.
---------
(a)(l) Financial statements
The following consolidated financial statements of Green Tree Financial
Corporation and subsidiaries are included in Part II, Item 8 of this
report:
Page(s)
-------
Independent Auditors' Report 31
Consolidated Balance Sheets - December 31,
1994 and 1993 32
Consolidated Statements of Operations - years
ended December 31, 1994, 1993 and 1992 33
Consolidated Statements of Stockholders'
Equity - years ended December 31, 1994, 1993
and 1992 34
Consolidated Statements of Cash Flows - years
ended December 31, 1994, 1993 and 1992 35-36
Notes to Consolidated Financial Statements 37-54
(2) Financial statement schedules
The following consolidated financial statement
schedule of Green Tree Financial Corporation and
subsidiaries are included in Part IV of this
report:
Schedule VIII - Valuation and qualifying accounts 62
Schedules other than those listed above are omitted because of the
absence of the conditions under which they are required or because the
information required is included in the consolidated financial
statements or notes thereto.
(3) Exhibits
Exhibit
No.
-------
3(a) Articles of Incorporation (incorporated by reference to Company's
Registration Statement on Form S-4; File No. 33-42249); as
amended by Restated Articles of Incorporation dated May 27, 1992
and Articles of Amendment to Restated Articles of Incorporation
dated May 20, 1994 (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1994; File No. 0-11652).
-57-
<PAGE>
3(b) Bylaws (incorporated by reference to Company's
Registration Statement on Form S-4; File No. 33-42249).
4(a) Amended and Restated Rights Agreement dated as of August 16,
1990 relating to amendments to the Company's Shareholders Rights
Plan originally adopted on October 9, 1985 (incorporated by
reference to the Company's quarterly report on Form 10-Q for the
quarter ended September 30, 1990; File No. 0-11652).
4(b) Indenture dated as of June 1, 1985 relating to $287,500,000
of 8 1/4% Senior Subordinated Debentures due June 1, 1995
(incorporated by reference to the Company's Registration
Statement on Form S-4; File No. 33-42249).
4(c) Indenture dated as of March 15, 1992 relating to
$287,500,000 of 10 1/4% Senior Subordinated Notes due June 1,
2002 (incorporated by reference to the Company's Registration
Statement on Form S-4; File No. 33-42249).
4(d) Indenture dated as of September 1, 1992 relating to $250,000,000
of Medium-Term Notes, Series A, Due Nine Months or More From
Date of Issue (incorporated by reference to the Company's
Registration Statement on Form S-3; File No. 33-51804).
10(a) Company's Key Executive Bonus Program (incorporated by reference
to the Company's Registration Statement on Form S-l; File
No. 2-82880).
10(b) Employment Agreement, dated April 20, 1991 between the Company
and Lawrence M. Coss (incorporated by reference to the Company's
Registration Statement on Form S-4; File No. 33-42249).
10(c) Green Tree Financial Corporation 1987 Stock Option Plan
(incorporated by reference to the Company's Registration
Statement on Form S-4; File No. 33-42249).
10(d) Green Tree Financial Corporation Key Executive Stock Bonus
Plan (incorporated by reference to the Company's
Registration Statement on Form S-4; File No. 33-42249).
10(e) Master Repurchase Agreement dated as of August 1, 1990
between Green Tree Finance Corp.-Three and
-58-
<PAGE>
Merrill Lynch Mortgage Capital Inc. (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1990; File No. 0-11652); as
amended by Amendment to the Master Repurchase Agreement
dated May 10, 1993 (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1994; File No. 0-11652).
10(f) Warehousing Credit Agreement dated as of November 30, 1990 among
Green Tree Financial Corporation and certain banks and First
Bank National Association, Administrative Agent (incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1990; File No. 0-11652); as amended by a
Consent and Third Amendment to Warehousing Credit Agreement
dated November 27, 1991 (incorporated by reference to the
Company's Registration Statement on Form S-4; File No. 33-
42249); as amended by a Consent to Warehousing Credit Agreement
dated February 13, 1992 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December
31, 1991; File No. 0-11652); as amended by Fourth Amendment to
Warehousing Credit Agreement dated November 30,1992
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992; File No. 0-
11652); as amended by Sixth Amendment to Warehousing Credit
Agreement dated November 30, 1993 and Seventh Amendment to
Warehousing Credit Agreement dated April 11, 1994 (incorporated
by reference to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1994; File No. 0-11652).
10(g) Master Repurchase Agreement dated as of May 17, 1991
between Green Tree Finance Corp.-Four and First Boston
Mortgage Capital Corp. (incorporated by reference to the
Company's Registration Statement on Form S-4; File No. 33-
42249); as amended by Amendment to the Master Repurchase
Agreement dated March 31, 1994; (incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1994; File No. 0-11652).
10(h) Insurance and Indemnity Agreement dated as of February 13,
1992 among Green Tree Financial Corporation, MaHCS Guaranty
Corporation and Financial Security Assurance Inc.
(incorporated by reference to the Company's Annual Report
on Form
-59-
<PAGE>
10-K for the year ended December 31, 1991; File No. 0-11652); as
amended by Amended and Restated Insurance and Indemnity
Agreement dated March 11, 1994 (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1994; File No. 0-11652).
10(i) Master Repurchase Agreement dated as of October 15, 1992 between
Green Tree Finance Corp.-Five and Lehman Commercial Paper, Inc.
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992; File
No. 0-11652).
10(j) 401(k) Plan Trust Agreement effective as of October 1, 1992
(incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992; File
No. 0-11652).
10(k) Green Tree Financial Corporation 1992 Supplemental Stock
Option Plan (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
1993; File No. 0-11652).
11(a) Computation of Primary Earnings Per Share (filed herewith).
11(b) Computation of Fully Diluted Earnings Per Share (filed
herewith).
12 Computation of Ratio of Earnings to Fixed Charges (filed
herewith).
22 Subsidiaries of the Registrant (filed herewith).
24 Consent of KPMG Peat Marwick LLP (filed herewith).
25 Powers of Attorney (filed herewith).
27 Financial Data Schedule (filed herewith).
PURSUANT TO ITEM 601(b)(4) OF REGULATION S-K, THERE HAS BEEN EXCLUDED FROM
THE EXHIBITS FILED PURSUANT TO THIS REPORT, INSTRUMENTS DEFINING THE RIGHTS
OF HOLDERS OF LONG-TERM DEBT OF THE COMPANY WHERE THE TOTAL AMOUNT OF THE
SECURITIES AUTHORIZED UNDER SUCH INSTRUMENTS DOES NOT EXCEED TEN PERCENT OF
THE TOTAL ASSETS OF THE COMPANY. THE COMPANY HEREBY AGREES TO FURNISH A
COPY OF ANY SUCH INSTRUMENTS TO THE COMMISSION UPON REQUEST.
(b) Reports on Form 8-K
None.
-60-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Green Tree Financial Corporation has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GREEN TREE FINANCIAL CORPORATION
By: /s/Lawrence M. Coss By: /s/John W. Brink
----------------------------- --------------------------
Lawrence M. Coss John W. Brink
Chairman and Chief Executive Vice President,
Executive Officer Treasurer and Chief
(principal executive Financial Officer
officer) (principal financial
officer)
By: /s/Robley D. Evans
--------------------------
Robley D. Evans
Vice President and
Controller (principal
accounting officer)
Dated: March 28, 1995
--
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/Lawrence M. Coss
- ---------------------------------
Lawrence M. Coss, Director March 28, 1995
--
/s/Richard G. Evans
- ---------------------------------
Richard G. Evans, Director March 28, 1995
--
/s/Robert D. Potts
- ---------------------------------
Robert D. Potts, Director March 28, 1995
--
By: /s/Drew S. Backstrand
-------------------------
Drew S. Backstrand
Attorney-in-Fact
W. Max McGee, Director ) Dated: March 28, 1995
) --
Tania A. Modic, Director )
)
Robert S. Nickoloff, Director )
-61-
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
-------------------------------------------------
<TABLE>
<CAPTION>
Additions-
Balance at reductions Balance
beginning to income at end
Description of period recognized Deductions of period
----------- ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
(dollar in thousands)
Valuation and qualifying
accounts which are deducted
from the assets
to which they apply:
- -----------------------------
Deferred service income:
Year ended December 31, 1994 $161,407 $124,015 212,243(a) $ 68,918
4,261(b)
Year ended December 31, 1993 119,487 68,238 26,318(b) 161,407
Year ended December 31, 1992 107,592 33,135 21,240(b) 119,487
Reserves which support balance
sheet caption reserves:
- -----------------------------
Allowance for losses on contracts
sold with recourse:
Year ended December 31, 1994 222,135 136,512 273,093(a) 84,016
1,538(c)
Year ended December 31, 1993 189,669 78,791 46,325(c) 222,135
Year ended December 31, 1992 134,681 105,357 50,369(c) 189,669
</TABLE>
Notes:
(a) Reduced as a result of the NIM Certificate sales.
(b) Amortization and discount.
(c) Amounts charged off.
-62-
<PAGE>
GREEN TREE FINANCIAL CORPORATION
Securities and Exchange Commission
Form 10-K
(For the Fiscal Year Ended December 31, 1994)
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page No.
----------- ------- --------
<S> <C> <C>
11(a) Computation of Primary Earnings
Per Share 64
11(b) Computation of Fully Diluted
Earnings Per Share 65
12 Computation of Ratio of Earnings
to Fixed Charges 66
21 Subsidiaries of Registrant 67
23 Consent of KPMG Peat Marwick LLP 69
24 Powers of Attorney 70
27 Financial Data Schedule 71
</TABLE>
<PAGE>
Exhibit 11.(a)
--------------
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
COMPUTATION OF PRIMARY EARNINGS PER SHARE
-----------------------------------------
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Earnings before
extraordinary loss $181,279,000 $116,423,000 $ 72,472,000
Extraordinary loss on
debt exchange -- -- (17,457,000)
------------ ------------ ------------
Net earnings 181,279,000 116,423,000 55,015,000
Less cumulative dividends
on preferred stock -- -- 1,995,000
------------ ------------ ------------
$181,279,000 $116,423,000 $ 53,020,000
============ ============ ============
Weighted average number of
common and common equivalent
shares outstanding:
Weighted average common
shares outstanding 67,470,998 62,595,152 57,705,524
Dilutive effect of stock
options after application
of treasury-stock method 1,863,171 1,779,666 694,416
------------ ------------ ------------
69,334,169 64,374,818 58,399,940
------------ ------------ ------------
Earnings per share:
Earnings before
extraordinary
loss $2.61 $1.81 $1.21
Extraordinary loss on
debt exchange -- -- (.30)
----- ----- -----
Net earnings $2.61 $1.81 $ .91
===== ===== =====
</TABLE>
<PAGE>
Exhibit 11.(b)
--------------
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
-----------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------
1994 1993 1992
------------ ------------ -------------
<S> <C> <C> <C>
Earnings before
extraordinary loss $181,279,000 $116,423,000 $ 72,472,000
Extraordinary loss on
debt exchange -- -- (17,457,000)
------------ ------------ ------------
Net earnings 181,279,000 116,423,000 55,015,000
Less cumulative dividends
on preferred stock -- -- 1,995,000
------------ ------------ ------------
$181,279,000 $116,423,000 $ 53,020,000
============ ============ ============
Weighted average number of
common and common
equivalent shares outstanding:
Weighted average common
shares outstanding 67,470,998 62,595,152 57,705,524
Dilutive effect of stock
options after application
of treasury-stock method
assuming full dilution 1,952,775 1,887,512 694,416
------------ ------------ ------------
69,423,773 64,482,664 58,399,940
------------ ------------ ------------
Earnings per share:
Earnings before extraordinary loss $2.61 $1.81 $1.21
Extraordinary loss on debt exchange -- -- (.30)
----- ----- -----
Net earnings $2.61 $1.81 $ .91
===== ===== =====
</TABLE>
<PAGE>
Exhibit 12.
-----------
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------------------------------
1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Earnings:
Earnings before
income taxes $302,131,000 $200,537,000 $118,806,000 $ 92,176,000 $ 59,418,000
Fixed charges:
Interest 41,619,000 51,155,000 44,868,000 48,957,000 51,193,000
One-third rent 1,688,000 1,483,000 1,652,000 1,467,000 812,000
------------ ------------ ------------ ------------ ------------
43,307,000 52,638,000 46,520,000 50,424,000 52,005,000
------------ ------------ ------------ ------------ ------------
$345,438,000 $253,175,000 $165,326,000 $142,600,000 $111,423,000
============ ============ ============ ============ ============
Fixed Charges:
Interest $ 41,619,000 $ 51,155,000 $ 44,868,000 $ 48,957,000 $ 51,193,000
One-third rent 1,688,000 1,483,000 1,652,000 1,467,000 812,000
------------ ------------ ------------ ------------ ------------
$ 43,307,000 $ 52,638,000 $ 46,520,000 $ 50,424,000 $ 52,005,000
============ ============ ============ ============ ============
Ratio of earnings
to fixed charges (1) 7.98 4.81 3.55 2.83 2.14
==== ==== ==== ==== ====
</TABLE>
(1) For purposes of computing the ratios, earnings consist of earnings before
income taxes plus fixed charges.
<PAGE>
Exhibit 21.
-----------
GREEN TREE FINANCIAL CORPORATION
SUBSIDIARIES
The following is a list of the Company's subsidiaries which are all owned
100% by Green Tree Financial Corporation who is the ultimate or immediate
parent:
<TABLE>
<CAPTION>
State of
Name of Subsidiary Incorporation
------------------ -------------
<S> <C>
Green Tree Financial Servicing Corporation Delaware
Green Tree Financial Corp.- Kentucky Delaware
Green Tree Financial Corp.- Louisiana Delaware
Green Tree Financial Corp. - Mississippi Delaware
Green Tree Financial Corp.- North Carolina Delaware
Green Tree Financial Corp.- Ohio Delaware
Green Tree Financial Corp.- Texas Delaware
Green Tree Credit Corp. New York
Green Tree Consumer Discount Company Pennsylvania
Consolidated Acceptance Corporation Nevada
Rice Park Properties Corporation Minnesota
Woodgate Consolidated Incorporated Texas
Woodgate Utilities Incorporated Texas
Green Tree Finance Corp.-One Minnesota
Green Tree Finance Corp.-Two Minnesota
Green Tree Finance Corp.-Three Minnesota
Green Tree Finance Corp.-Four Minnesota
Green Tree Finance Corp.-Five Minnesota
Green Tree Manufactured Housing Net
Interest Margin Finance Corp. I Delaware
Green Tree Manufactured Housing Net
Interest Margin Finance Corp. II Delaware
Green Tree Agency, Inc. Minnesota
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
State of
Name of Subsidiary Incorporation
------------------ -------------
<S> <C>
Green Tree Agency of Nevada, Inc. Nevada
GTA Agency, Inc. New York
Crum-Reed General Agency, Inc. Texas
Green Tree Life Insurance Company Arizona
Consolidated Casualty Insurance Company Arizona
Green Tree Guaranty Corporation Minnesota
Green Tree Vehicles Guaranty Corporation Minnesota
MaHCS Guaranty Corporation Delaware
</TABLE>
<PAGE>
Exhibit 23.
-----------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
The Board of Directors
Green Tree Financial Corporation:
We consent to incorporation by reference of our report dated February 6,
1995, relating to the consolidated balance sheets of Green Tree Financial
Corporation and subsidiaries as of December 31, 1994 and 1993 and the
related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended December
31, 1994, which report appears in the December 31, 1994 Form 10-K of Green
Tree Financial Corporation, in the following Registration Statements of
Green Tree Financial Corporation; No. 2-88293 on Form S-8/S-3, No. 33-51804
on Form S-3, No. 33-53881 on Form S-3/S-11, No. 33-55855 on Form S-3, No.
33-53449 on Form S-3 and No. 33-55853 on Form S-3.
Minneapolis, Minnesota
February 6, 1995
<PAGE>
Exhibit 24
----------
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Lawrence M. Coss and Drew S.
Backstrand, and each or either one of them, his true and lawful
attorney(s)-in-fact and agent(s), with full power of substitution and
resubstitution for him and in his name, place, and stead, in any and all
capacities, to sign the 1994 Annual Report on Form 10-K of Green Tree
Financial Corporation, and any and all amendments thereto, and to file the
same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney(s)-in-fact and agent(s), and each of them, full power and
authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney(s)-in-fact and agent(s), or either of them, or his
or their substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURE DATE
--------- ----
/s/W. Max McGee March 8, 1995
-------------------------
W. Max McGee
/s/Tania A. Modic March 10, 1995
------------------------
Tania A. Modic
/s/Robert S. Nickoloff March 10, 1995
-------------------------
Robert S. Nickoloff
<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 YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 602,013,000
<SECURITIES> 20,920,000
<RECEIVABLES> 202,564,000
<ALLOWANCES> 1,216,000
<INVENTORY> 372,776,000
<CURRENT-ASSETS> 0
<PP&E> 52,634,000
<DEPRECIATION> 16,079,000
<TOTAL-ASSETS> 1,771,839,000
<CURRENT-LIABILITIES> 0
<BONDS> 309,319,000
<COMMON> 676,000
0
0
<OTHER-SE> 725,215,000
<TOTAL-LIABILITY-AND-EQUITY> 1,771,839,000
<SALES> 454,831,000
<TOTAL-REVENUES> 497,427,000
<CGS> 0
<TOTAL-COSTS> 153,677,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 134,416,000
<INTEREST-EXPENSE> 41,619,000
<INCOME-PRETAX> 302,131,000
<INCOME-TAX> 120,852,000
<INCOME-CONTINUING> 181,279,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 181,279,000
<EPS-PRIMARY> 2.61
<EPS-DILUTED> 2.61
</TABLE>
