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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] 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 1-08916
Green Tree Financial Corporation
Delaware No. 41-1807858
---------------------- -------------------------------
State of Incorporation IRS Employer Identification No.
1100 Landmark Towers
Saint Paul, Minnesota 55102-1639 (612) 293-3400
-------------------------------------- -------------
Address of principal executive offices Telephone
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [ X ] No [ ]
Shares of common stock outstanding as of July 31, 1998: 100
This filing meets the conditions set forth in general instruction H(1)(a)
and H(1)(b) to Form 10-Q. Accordingly, the disclosures in this filing have been
reduced as permitted by such instructions.
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<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
ASSETS
June 30, December 31,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Short-term investments........................................................................ $ 177.4 $ 188.6
Cash held in segregated accounts for investors................................................ 685.3 552.8
Cash deposits, restricted under pooling and servicing agreements.............................. 247.7 247.2
Other invested assets ........................................................................ 34.3 25.3
Interest-only securities...................................................................... 934.0 1,365.8
Finance receivables........................................................................... 3,547.8 1,971.0
Other receivables............................................................................. 260.3 308.4
Servicing rights.............................................................................. 97.5 77.0
Property and equipment (net of accumulated depreciation: 1998 - $88.1; 1997 - $70.1).......... 131.8 112.4
Goodwill (net of accumulated amortization: 1998 - $4.6; 1997 - $3.2).......................... 54.7 56.1
Other assets.................................................................................. 81.8 18.2
-------- --------
Total assets.......................................................................... $6,252.6 $4,922.8
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Investor payables.......................................................................... $ 685.3 $ 552.8
Other liabilities.......................................................................... 881.0 548.8
Income tax liabilities..................................................................... 470.5 622.8
Notes payable and commercial paper......................................................... 2,779.0 1,866.3
-------- --------
Total liabilities.................................................................... 4,815.8 3,590.7
-------- --------
Shareholder's equity:
Common stock and additional paid-in capital................................................ 725.6 237.8
Accumulated other comprehensive income:
Unrealized appreciation of interest-only securities (net of applicable
deferred income taxes: 1998 - $1.0; 1997 - $13.4)..................................... 1.6 21.8
Minimum pension liability adjustment (net of applicable deferred income taxes:
1998 - $(1.9); 1997 - $(1.9)).......................................................... (3.2) (3.2)
Retained earnings.......................................................................... 712.8 1,075.7
-------- --------
Total shareholder's equity........................................................... 1,436.8 1,332.1
-------- --------
Total liabilities and shareholder's equity........................................... $6,252.6 $4,922.8
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions)
(unaudited)
Three months ended Six months ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net investment income:
Interest-only securities.............................................. $ 36.3 $ 29.4 $ 69.6 $ 56.2
Finance receivables and other......................................... 76.3 53.7 135.9 96.6
Gain on sale of finance receivables..................................... 135.2 191.3 272.4 350.4
Servicing income........................................................ 31.0 27.2 61.2 51.8
Commission and other income............................................. 28.4 15.5 53.7 29.3
------- ------ -------- ------
Total revenues.................................................... 307.2 317.1 592.8 584.3
------- ------ -------- ------
Expenses:
Interest expense........................................................ 55.2 36.4 103.7 66.2
Cost of servicing....................................................... 28.1 20.8 55.1 40.2
General and administrative expenses..................................... 122.6 85.6 230.4 155.5
Nonrecurring charges.................................................... 648.0 - 648.0 -
------- ------ -------- ------
Total expenses.................................................... 853.9 142.8 1,037.2 261.9
------- ------ -------- ------
Income (loss) before income taxes and extraordinary charge........ (546.7) 174.3 (444.4) 322.4
Income tax expense (benefit)............................................... (146.4) 66.2 (107.5) 122.5
------- ------ -------- ------
Income (loss) before extraordinary charge......................... (400.3) 108.1 (336.9) 199.9
Extraordinary charge on extinguishment of debt, net of taxes............... 2.5 - 2.5 -
------- ------ -------- ------
Net income (loss)................................................. $(402.8) $108.1 $ (339.4) $199.9
======= ====== ======== ======
The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(Dollars in millions)
(unaudited)
Common stock Accumulated other
and additional comprehensive Retained
Total paid-in capital income (loss) earnings
----- --------------- ---------------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1998...................................... $1,332.1 $237.8 $ 18.6 $1,075.7
Comprehensive loss, net of tax:
Net loss................................................. (339.4) - - (339.4)
Change in unrealized appreciation of interest-only
securities (net of applicable income tax benefit
of $12.4).............................................. (20.2) - (20.2) -
--------
Total comprehensive loss............................. (359.6)
Capital contribution from parent........................... 500.0 500.0 - -
Issuance of stock warrants in conjunction with
financing transaction.................................... 7.7 7.7 - -
Issuance of shares for stock options and for
employee benefit plans................................... 1.7 1.7 - -
Tax benefit related to issuance of shares under
stock option plans....................................... 1.8 1.8 - -
Shares returned by executive due to recomputation of bonus (23.4) (23.4) - -
Dividends on common stock.................................. (23.5) - - ( 23.5)
-------- ------ ------ --------
Balance, June 30, 1998........................................ $1,436.8 $725.6 $ (1.6) $ 712.8
======== ====== ====== ========
Balance, January 1, 1997...................................... $1,137.5 $321.1 $ (2.3) $ 818.7
Comprehensive income, net of tax:
Net income............................................... 199.9 - - 199.9
Change in unrealized depreciation of interest-only
securities (net of applicable income tax benefit
of $20.0).............................................. (32.6) - (32.6) -
--------
Total comprehensive income........................... 167.3
Issuance of shares for stock options and for
employee benefit plans................................... 51.6 51.6 - -
Tax benefit related to issuance of shares under stock
option plans............................................. .6 .6 - -
Cost of shares acquired.................................... (105.2) (105.2) - -
Dividends on common stock.................................. (20.6) - - (20.6)
-------- ------ ------ --------
Balance, June 30, 1997........................................ $1,231.2 $268.1 $(34.9) $ 998.0
======== ====== ====== ========
The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(unaudited)
Six months ended
June 30,
----------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................................ $ (339.4) $ 199.9
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Gain on sale of finance receivables.................................................... (272.4) (350.4)
Net increase in restricted cash deposits............................................... (.5) (14.8)
Amortization and depreciation.......................................................... 40.5 19.5
Income taxes........................................................................... (144.1) 102.5
Accrual and amortization of investment income.......................................... 43.9 29.6
Nonrecurring charges................................................................... 646.9 -
Extraordinary charge on extinguishment of debt......................................... 4.0 -
Other.................................................................................. 86.0 50.5
--------- ---------
Net cash provided by operating activities............................................ 64.9 36.8
--------- ---------
Cash flows from investing activities:
Cash received from the sale of finance receivables, net of expenses...................... 5,374.5 4,309.0
Principal payments received on finance receivables....................................... 2,829.8 2,138.5
Finance receivables originated........................................................... (9,642.7) (6,974.0)
Other.................................................................................... (34.5) (32.1)
--------- ---------
Net cash used by investing activities ............................................... (1,472.9) (558.6)
--------- ---------
Cash flows from financing activities:
Capital contribution from parent......................................................... 500.0 -
Issuance of shares related to stock options and employee benefit plans ................. 1.7 1.0
Issuance of notes payable and commercial paper........................................... 5,535.3 4,742.7
Payments on notes payable and commercial paper........................................... (4,616.7) (4,030.5)
Payments to repurchase equity securities................................................. - (105.2)
Dividends paid .......................................................................... (23.5) (20.6)
--------- ---------
Net cash provided by financing activities............................................ 1,396.8 587.4
--------- ---------
Net increase (decrease) in short-term investments.................................... (11.2) 65.6
Short-term investments, beginning of period................................................. 188.6 95.8
--------- ---------
Short-term investments, end of period....................................................... $ 177.4 $ 161.4
========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
5
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
The following notes should be read in conjunction with the notes to the
consolidated financial statements included in the 1997 Form 10-K of Green Tree
Financial Corporation ("We", "Green Tree" or the "Company").
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited consolidated financial statements reflect all adjustments,
consisting only of normal recurring items, which are necessary to present fairly
Green Tree's financial position and results of operations on a basis consistent
with that of our prior audited consolidated financial statements. Pursuant to
rules and regulations of the Securities and Exchange Commission applicable to
quarterly reports on Form 10-Q, certain information and disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles ("GAAP") have been condensed or omitted. Results for
interim periods are not necessarily indicative of the results that may be
expected for a full year. We have reclassified certain amounts from the prior
periods to conform to the 1998 presentation.
The following summary explains the accounting policies we use to arrive at
the more significant numbers in our financial statements. We prepare our
financial statements in accordance with GAAP. We follow the accounting standards
established by the Financial Accounting Standards Board, the American Institute
of Certified Public Accountants and the Securities and Exchange Commission.
Green Tree is a wholly owned subsidiary of Conseco, Inc. ("Conseco"), a
financial services holding company. Green Tree originates, purchases, sells and
services consumer and commercial finance loans throughout the United States.
In preparing financial statements in conformity with GAAP, we are required
to make estimates and assumptions that significantly affect various reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and expenses
during the reporting periods. For example, we use significant estimates and
assumptions in calculating interest-only securities, servicing rights, goodwill,
liabilities related to litigation, gain on sale of finance receivables and
deferred income taxes. If our future experience differs materially from these
estimates and assumptions, our financial statements could be affected.
Our financial statements do not include the results of material
transactions between us and our consolidated affiliates, or among our
consolidated affiliates.
Interest-only Securities
Interest-only securities represent the right to receive certain cash flows
which exceed the amount of cash flows sold in our securitized receivable sales.
Such cash flows generally are equal to the value of the interest to be collected
on the underlying financial contracts of each securitization in excess of the
sum of the interest to be paid on the securities sold, contractual servicing
fees and credit losses. We carry interest-only securities at estimated fair
value. We determine fair value by discounting the projected cash flows over the
expected life of the receivables sold using current prepayment, default, loss
and interest rate assumptions. We record any unrealized gain or loss determined
to be temporary, net of tax, as a component of shareholder's equity. See
"Interest-only Securities, Finance Receivables and Servicing Rights" for
additional discussion of gain on sale of finance receivables and interest-only
securities.
Short-term Investments
Short-term investments include invested cash and other investments
purchased with maturities of less than three months. We carry them at amortized
cost, which approximates their estimated fair value. We consider all short-term
investments to be cash equivalents.
Finance Receivables
Finance receivables consist of lease, commercial finance and revolving
credit receivables and loans held for securitization (which include recently
originated manufactured housing, home equity, home improvement, consumer and
equipment loans which will be sold in the near future). We carry finance
receivables held for securitization at the lower of cost or market. We carry our
lease
6
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
receivables (which are direct financing leases as defined in Statement of
Financial Accounting Standards No. 13 "Accounting for Leases") at the present
value of the future minimum lease payments and related residual values. We carry
commercial finance receivables (which include dealer floor plan, asset-based
financing arrangements with dealers, manufacturers and other commercial entities
and commercial real estate loans) and revolving credit receivables (which
include retail credit card arrangements with merchants and dealers and their
customers) at amortized cost. Finance receivables are net of allowance for
expected losses.
We defer fees received or costs incurred when we originate finance
receivables. We amortize fees, costs, discounts and premiums over the
contractual lives of the receivables, with consideration to anticipated
prepayments. Such deferred fees or costs are included in the cost of finance
receivables when receivables are sold. See "Interest-only Securities, Finance
Receivables and Servicing Rights" for a discussion of the sale of finance
receivables.
Servicing Rights
We generally retain the right to service loans we originate or purchase and
subsequently sell through securitizations. Fees for servicing loans are based on
a stipulated percentage of the unpaid principal balance of the loans. We
recognize a servicing asset when we sell our loans, equal to the present value
of the expected future net servicing revenue using prepayment, default, loss and
interest rate assumptions. We amortize servicing rights in proportion to total
projected net servicing income. We periodically assess our servicing rights for
impairment based on the fair value of such rights. An impairment is recognized
in the statement of operations during the period in which the impairment occurs
as an adjustment to the corresponding valuation allowance. See "Interest-only
Securities, Finance Receivables and Servicing Rights" for a discussion of the
sale of finance receivables.
Goodwill
Goodwill is the excess of the amount we paid to acquire a company accounted
for as a purchase over the fair value of its net assets. We amortize goodwill on
the straight-line basis over a 20-year period. We continually monitor the value
of our goodwill based on our estimates of future earnings. We determine whether
goodwill is fully recoverable from projected undiscounted net cash flows from
earnings of the acquired company over the remaining amortization period. If we
were to determine that changes in such projected cash flows no longer support
the recoverability of goodwill over the remaining amortization period, we would
reduce its carrying value with a corresponding charge to expense or shorten the
amortization period (no such changes have occurred). Cash flows considered in
such an analysis are those of the business acquired.
Property and Equipment
We carry property and equipment at depreciated cost. We depreciate property
and equipment on a straight-line basis over the estimated useful lives of the
assets, which average approximately 10 years. Our depreciation expense was $19.7
million and $11.9 million for the six months ended June 30, 1998 and 1997,
respectively.
Income Taxes
Our income tax expense includes deferred income taxes arising from
temporary differences between the tax and financial reporting bases of assets
and liabilities. This liability method of accounting for income taxes also
requires us to reflect in income the effect of a tax-rate change on accumulated
deferred income taxes in the period in which the change is enacted.
In assessing the realization of deferred income tax assets, we consider
whether it is more likely than not that the deferred income tax assets will be
realized. The ultimate realization of deferred income tax assets depends upon
generating future taxable income during the periods in which temporary
differences become deductible. If future income is not generated as expected,
deferred income tax assets may need to be written off.
Comprehensive Income
We adopted Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" ("SFAS 130") on January 1, 1998. SFAS 130 establishes
standards for reporting and presentation of comprehensive income and its
components in financial statements. Comprehensive income includes all changes in
shareholder's equity (except those arising from transactions with
7
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
shareholders). The new standard only requires additional disclosures; it does
not affect the Company's financial position or results of operations.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132") was
issued in February 1998 and revises current disclosure requirements for
employers' pensions and other retiree benefits. SFAS 132 will have no effect on
our financial position or results of operations. SFAS 132 is effective for our
December 31, 1998 financial statements.
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133") was issued in June
1998. SFAS 133 requires all derivative instruments to be recorded on the balance
sheet at estimated fair value. Changes in the fair value of derivative
instruments are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Management anticipates
that, due to its limited use of derivative instruments, the adoption of SFAS 133
will not have a significant effect on the Company's results of operations or
financial position.
MERGER WITH CONSECO, INC.
On June 30, 1998, Conseco completed a merger with Green Tree (the "Green
Tree Merger"). Each outstanding share of Green Tree common stock was exchanged
for .9165 of a share of Conseco common stock. Conseco issued 128.7 million
shares of its common stock (including 5.0 million common equivalent shares
issued in exchange for Green Tree's outstanding options). The Green Tree Merger
constituted a tax-free exchange. As a result of the Green Tree Merger, we
recorded merger-related costs of $108 million, net of income taxes, in the
second quarter of 1998. Such costs include investment banking, accounting, legal
and regulatory fees, severance costs and other costs associated with the Green
Tree Merger.
In conjunction with the Green Tree Merger, Conseco contributed additional
capital of $500.0 million to Green Tree. The contribution was used to increase
Green Tree's working capital and repay debt of $375 million. Conseco plans to
contribute an additional $600 million to Green Tree, of which contributions of
$350 million were made through August 13, 1998.
INTEREST-ONLY SECURITIES, FINANCE RECEIVABLES AND SERVICING RIGHTS
We pool and securitize substantially all of the finance receivables we
originate, retaining: (i) investments in interest-only securities that are
subordinated to the rights of other investors; and (ii) servicing on the
contracts. In a typical securitization, we sell finance receivables to a special
purpose entity, established for the limited purpose of purchasing the finance
receivables and selling securities representing interests in the receivables.
The special purpose entity issues interest-bearing securities that are
collateralized by the underlying pool of finance receivables. We receive the
proceeds from the sale of the securities in exchange for the finance
receivables. The securities are typically sold at the same amount as the
principal balance of the receivables sold. We retain a residual interest
representing the right to receive, over the life of the pool of finance
receivables, the excess of the principal and interest received on the
receivables transferred to the trust over the principal and interest paid to the
holders of other interests in the securitization and servicing fees.
We recognize a gain on the sale of finance receivables equal to the
difference between the proceeds from the sale, net of related transaction costs,
and the allocated carrying amount of the receivables sold. We allocate the
carrying amount of finance receivables between the assets sold and retained
based on their relative fair values at the date of sale. The estimated fair
value of the retained assets (interest-only securities and servicing rights) is
determined by discounting their projected future cash flows using prepayment,
default, loss, servicing cost and discount rate assumptions. In conjunction with
certain sales of financial receivables, the Company has provided guarantees of
approximately $1.8 billion at June 30, 1998. The Company believes a significant
loss from such guarantees is remote.
On a quarterly basis, we determine the estimated fair value of our
interest-only securities based on discounted projected future cash flows using
current assumptions. Differences between the estimated fair value and carrying
value of interest-only securities considered to be temporary are recognized as
adjustments to shareholder's equity. Declines in value are considered to be
other than temporary when the present value of estimated future cash flows
discounted at a risk free rate using appropriate assumptions is less
8
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
than the carrying value of the interest-only securities. When declines in value
considered to be other than temporary occur, the carrying value is reduced to
estimated fair value and a loss is recognized in the statement of operations.
During the first quarter of 1998, prepayments on loan contracts exceeded
expectations, and as a result, a $29.1 million reduction in the carrying value
of our interest-only securities (net of income taxes of $17.9 million) was
realized. During the second quarter of 1998, prepayments on loan contracts
continued to exceed expectations and management believes that such prepayments
will be higher than expected in future periods as well. In addition, the market
yields of publicly traded securities that are similar to our interest-only
securities increased during the second quarter, decreasing the market value of
such investments. As a result of these developments, we concluded that an
impairment in the value of the interest-only securities and servicing rights had
occurred, and a new value was determined using the current assumptions. The new
assumptions (which are summarized below) reflect the following changes from the
assumptions previously used: (i) an increase in prepayment rates; (ii) an
increase in the discount rate used to determine the present value of future cash
flows to 15 percent from 11 percent; and (iii) an increase in anticipated future
rates of default. A $350 million nonrecurring charge to reduce the value of
interest-only securities and servicing rights (net of income taxes of $190
million) was recognized in the second quarter of 1998.
The following summarizes assumptions used to determine the estimated fair
value of interest-only securities as of June 30, 1998:
<TABLE>
<CAPTION>
Manufactured Home equity/ Consumer/
housing home improvement equipment Total
------- ---------------- --------- -----
(Dollars in millions)
<S> <C> <C> <C> <C>
Interest-only securities............................ $ 471.5 $ 299.9 $ 162.6 $ 934.0
Principal balance of sold finance
receivables (1).................................. 18,599.0 4,739.0 3,020.0 26,358.0
Weighted average customer interest rate on sold
finance receivables (1).......................... 10.35% 11.56% 10.86%
Expected weighted average constant prepayment
rate as a percentage of principal balance of sold
finance receivables (1) (2)...................... 12.00% 25.00% 22.00%
Expected nondiscounted credit losses as a
percentage of principal balance of sold
finance receivables (1) (2)...................... 6.00% 4.40% 2.00%
Weighted average discount rate (1).................. 15.00% 15.00% 15.00%
<FN>
- -------------------
(1) Excludes finance receivables sold in revolving trust securitizations.
(2) The valuation of interest-only securities is affected not only by the
projected level of prepayments of principal and net credit losses, as shown
above, but also by the projected timing of such prepayments and net credit
losses. Should the timing of projected prepayments of principal or net
credit losses differ materially from the timing projected by the Company,
such timing could have a material effect on the valuation of the
interest-only securities.
</FN>
</TABLE>
The following summarizes information with respect to the 60-days-and-over
contractual dollar delinquencies, loss experience and repossessed collateral
experience of our managed finance receivables at June 30, 1998 and 1997 and for
the six month periods then ended:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
60-days-and-over delinquencies as a percentage
of managed finance receivables at period end............................ 1.03% .90%
==== ===
Net credit losses as a percentage of average managed finance
receivables during the period........................................... 1.07% 1.01%
==== ====
Repossessed collateral during the year as a percentage of
managed finance receivables at period end............................... .92% .90%
=== ===
</TABLE>
9
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
Activity in the interest-only securities account during the six months
ended June 30, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------
1998 1997
---- ----
(Dollars in millions)
<S> <C> <C>
Balance, beginning of period................................................ $1,365.8 $ 983.5
Additions resulting from securitizations during the period............... 269.9 331.9
Investment income........................................................ 69.6 56.2
Cash received............................................................ (156.6) (117.6)
Reduction in carrying value as a result of adverse prepayment experience. (47.0) -
Nonrecurring charge to reduce carrying value............................. (535.0) -
Change in unrealized appreciation........................................ (32.7) (52.6)
-------- --------
Balance, end of period...................................................... $ 934.0 $1,201.4
======== ========
</TABLE>
During the six months ended June 30, 1998 and 1997, the Company sold $5.4
billion and $4.4 billion, respectively, of finance receivables in various
securitized transactions and recognized gains of $272.4 million and $350.4
million, respectively.
Finance receivables, summarized by type, were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
(Dollars in millions)
<S> <C> <C>
Lease........................................................................ $ 418.7 $ 209.3
Commercial finance........................................................... 654.4 684.6
Revolving credit card........................................................ 404.2 166.3
Loans held for sale.......................................................... 2,094.9 930.6
-------- --------
3,572.2 1,990.8
Less allowance for doubtful accounts......................................... (24.4) (19.8)
-------- --------
Net finance receivables................................................. $3,547.8 $1,971.0
======== ========
</TABLE>
Servicing rights, retained subsequent to the sale of finance receivables,
are amortized in proportion to and over the estimated period of net servicing
income.
The activity in the servicing rights account during the six months ended
June 30, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------
1998 1997
---- ----
(Dollars in millions)
<S> <C> <C>
Balance, beginning of period............................................... $ 77.0 $30.8
Additions resulting from securitizations
during the period..................................................... 36.7 34.3
Amortization............................................................ (11.2) (6.2)
Nonrecurring charge to establish a valuation allowance.................. (5.0) -
------ -----
Balance, end of period..................................................... $ 97.5 $58.9
====== =====
</TABLE>
10
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
Servicing rights are evaluated for impairment on an ongoing basis,
stratified by product type and origination period. To the extent the recorded
amount exceeds the fair value, a valuation allowance is established through a
charge to earnings. Upon subsequent measurement of the fair value of these
servicing rights in future periods, if the fair value equals or exceeds the
carrying amount, any previously recorded valuation allowance would be deemed
unnecessary and, therefore, restored to earnings.
NOTES PAYABLE AND COMMERCIAL PAPER
Notes payable and commercial paper were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
Interest rate 1998 1997
------------- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Master repurchase agreements......................................... 6.65% $1,355.8 $ -
Credit facility secured by interest-only securities.................. 7.66 700.0 -
Senior subordinated notes............................................ 10.80 264.0 263.7
Bank debt............................................................ 6.22 225.0 35.0
Medium term notes.................................................... 6.62 238.7 246.6
Commercial paper..................................................... - - 1,319.1
Other................................................................ 2.00 1.8 1.9
-------- --------
Total principal amount............................................ 2,785.3 1,866.3
Less unamortized net discount........................................ (6.3) -
-------- --------
Total............................................................. $2,779.0 $1,866.3
======== ========
</TABLE>
At June 30, 1998, we had $3.8 billion of master repurchase agreements with
various investment banking firms, subject to the availability of eligible
collateral. The master repurchase agreements generally provide for annual terms
which are extended each quarter by mutual agreement of the parties for an
additional annual term based on review of updated quarterly financial
information of the Company.
We entered into a new credit facility in February 1998, which provides for
a $700 million line of credit secured by our interest-only securities. The line
of credit matures on February 12, 2000, with an optional one year extension. In
addition, we issued warrants to purchase 2.5 million equivalent shares of
Conseco common stock at $24.8227 per share to the provider of the facility
subject to a maximum appreciation of $16.37 per equivalent share. The warrants
were exercised at the date of the Green Tree Merger.
The senior subordinated notes are due June 1, 2002. Interest on the notes
is payable semi-annually.
We substantially restructured and repaid a portion of our bank debt during
1998. After the restructuring, the bank debt provides $325.0 million of
financing through September 1998. We recognized an extraordinary charge of $2.5
million (net of a $1.5 million tax benefit) as a result of the repayment,
restructuring and cancellation of a portion of our bank debt.
The medium term notes are senior notes with either fixed or floating rates
of interest and with maturities in excess of nine months. Interest on these
notes is payable semi-annually.
During the fourth quarter of 1997 and the first quarter of 1998, the
Company's senior unsecured debt ratings were lowered by each of the credit
rating agencies which provide ratings on its debt. As a result of these actions,
we curtailed our issuance of commercial paper in favor of our master repurchase
agreements and bank credit line.
11
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
LITIGATION
Green Tree has been served with various related lawsuits which were filed
in the United States District Court for the District of Minnesota. These
lawsuits were filed by certain former stockholders of Green Tree as purported
class actions on behalf of persons or entities who purchased common stock of
Green Tree during the alleged class periods that generally run from February
1995 to January 1998. One such action did not include class action claims. In
addition to Green Tree, certain current and former officers and directors of
Green Tree are named as defendants in one or more of the lawsuits. Green Tree
and other defendants intend to seek consolidation in the United States District
Court for the District of Minnesota of each of the lawsuits seeking class action
status. Plaintiffs in the lawsuits assert claims under Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934. In each case, plaintiffs allege that
Green Tree and the other defendants violated federal securities laws by, among
other things, making false and misleading statements about the current state and
future prospects of Green Tree (particularly with respect to prepayment
assumptions and performance of certain loan portfolios of Green Tree) which
allegedly rendered Green Tree's financial statements false and misleading. The
Company believes that the lawsuits are without merit and intends to defend such
lawsuits vigorously.
The Company and its subsidiaries are involved on an ongoing basis in
lawsuits related to its operations. Although the ultimate outcome of certain of
such matters cannot be predicted, none of such lawsuits currently pending
against the Company or its subsidiaries is expected, individually or in the
aggregate, to have a material adverse effect on the Company's consolidated
financial condition, cash flows or results of operations.
CONSOLIDATED STATEMENT OF CASH FLOWS
The following non-cash items were not reflected in the consolidated
statement of cash flows in 1998: (i) the return of common stock to the Company
of $23.4 million pursuant to the recomputation of an executive officer's bonus
for fiscal year 1996; and (ii) the tax benefit of $1.8 million related to the
issuance of common stock for option exercises. The following non-cash items were
not reflected in the consolidated statement of cash flows in 1997: (i) the tax
benefit of $.6 million related to the issuance of common stock for option
exercises; and (ii) the issuance of common stock of $50.6 to an executive
officer of the Company.
12
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion highlights material factors affecting our results
of operations and significant changes in our balance sheet. This discussion
should be read in conjunction with the consolidated financial statements and
notes included herein and in the 1997 Form 10-K of Green Tree.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Contract originations:
Manufactured housing.............................................. $ 1,673.9 $ 1,494.6 $2,878.1 $2,508.3
Home equity/home improvement...................................... 1,252.5 836.9 2,290.7 1,470.8
Consumer/retail credit............................................ 689.3 427.2 1,264.5 690.8
Commercial/equipment.............................................. 1,820.3 1,197.4 3,360.4 2,150.2
--------- --------- -------- --------
Total........................................................... $ 5,436.0 $ 3,956.1 $9,793.7 $6,820.1
========= ========= ======== ========
Sales of finance receivables:
Manufactured housing.............................................. $ 1,356.5 $ 1,320.0 $2,556.5 $2,370.0
Home equity/home improvement...................................... 500.1 629.3 1,450.1 1,149.4
Consumer/equipment................................................ 403.5 594.8 903.5 844.8
Commercial and retail revolving credit............................ 170.5 - 488.3 -
--------- --------- -------- --------
Total........................................................... $ 2,430.6 $ 2,544.1 $5,398.4 $4,364.2
========= ========= ======== ========
Managed receivables (at period end):
Fixed contracts................................................... $29,646.3 $22,239.0
Revolving credit.................................................. 2,655.8 1,416.3
--------- ---------
Total........................................................... $32,302.1 $23,655.3
========= =========
Net investment income:
Interest-only securities.......................................... $ 36.3 $ 29.4 $ 69.6 $ 56.2
Finance receivables and other..................................... 76.3 53.7 135.9 96.6
Gain on sale of finance receivables.................................. 135.2 191.3 272.4 350.4
Servicing income..................................................... 31.0 27.2 61.2 51.8
Commission and other income.......................................... 28.4 15.5 53.7 29.3
--------- --------- -------- --------
Total revenues.................................................. 307.2 317.1 592.8 584.3
--------- --------- -------- --------
Interest expense..................................................... 55.2 36.4 103.7 66.2
Cost of servicing.................................................... 28.1 20.8 55.1 40.2
General and administrative expenses.................................. 122.6 85.6 230.4 155.5
--------- --------- -------- --------
Total expenses.................................................. 205.9 142.8 389.2 261.9
-------- -------- -------- --------
Operating income before income taxes and
extraordinary charge.......................................... 101.3 174.3 203.6 322.4
Nonrecurring charges................................................. (648.0) - (648.0) -
--------- --------- -------- --------
Income (loss) before income taxes and
extraordinary charge.......................................... $ (546.7) $ 174.3 $ (444.4) $ 322.4
========= ========= ======== ========
</TABLE>
13
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------
Green Tree is a diversified financial services company that provides
financing for manufactured housing, home equity, home improvements, consumer
products and equipment and provides consumer and commercial revolving credit.
Our financing products include both fixed term and revolving loans and leases.
We also market physical damage and term mortgage life insurance and other credit
protection relating to the loans we service.
Contract originations in the second quarter of 1998 were $5.4 billion, up
37 percent over 1997. Contract originations in the first six months of 1998 were
$9.8 billion, up 44 percent over 1997.
Manufactured housing contract originations increased $369.8 million, or 15
percent, during the first six months of 1998 over 1997. The number of contracts
originated during the 1998 period increased as well as the average contract size
reflecting an increase in land-and-home contracts and slight price increases by
the manufactured housing manufacturers.
Home equity/home improvement contract originations increased $819.9
million, or 56 percent, during the first six months of 1998 over 1997. The
increase is primarily the result of our continued expansion of the home equity
retail origination network.
Consumer and retail credit originations increased $573.7 million, or 83
percent, during the first six months of 1998 over 1997. The increase reflects
the success of several direct mail campaigns as well as the development of new
relationships with retailers.
Commercial and equipment originations increased $1.2 billion, or 56
percent, during the first six months of 1998 over 1997. The increase reflects
higher production in all areas of commercial financing.
Sales of finance receivables occur when we sell finance receivables we
originate in secondary markets through securitizations. The total receivables
sold in a particular period is dependent on many factors including: (i) the
volume of recent originations; (ii) market conditions; and (iii) the
availability and cost of alternative financing. Total finance receivables sold
in the second quarter of 1998 decreased 4.5 percent from 1997. Such sales were
lower than the previous year because we increased our inventory of finance
receivables at June 30, 1998, holding them for sale after the end of the quarter
when the supply of securitizations in the capital markets is expected to be
lower and the spreads are expected to be better. Total finance receivables were
$3.5 billion at June 30, 1998, an increase of $1.6 billion over December 31,
1997. Total finance receivables sold in the first six months of 1998 were up 24
percent over 1997.
Managed receivables include finance receivables sold through
securitizations as well as finance receivables and retained interests in finance
receivables held by the Company. The total portfolio serviced by the Company
increased to $32.3 billion at June 30, 1998, a 37 percent increase over 1997.
Net investment income on interest-only securities represents the accretion
recognized on the interest-only securities retained when finance receivables are
sold. Such income increased 23 percent, to $36.3 million, in the second quarter
of 1998 and increased 24 percent, to $69.6 million, in the first six months of
1998. The increases are consistent with the increase in the average
interest-only securities held in the 1998 periods. The weighted average yields
earned on interest-only securities were 10.9 percent and 10.4 percent during the
first six months of 1998 and 1997, respectively.
Net investment income on finance receivables and other consists of interest
earned on our unsold finance receivables and interest income on short-term and
other investments. Such income increased 42 percent, to $76.3 million, in the
second quarter of 1998 and increased 41 percent, to $135.9 million, in the first
six months of 1998. The increases are consistent with the increases in average
finance receivables during the 1998 periods. The weighted average yield earned
on finance receivables was 11.0 percent during the first six months of both 1998
and 1997.
Gain on sale of finance receivables represents the difference between the
proceeds from the sale, net of related transaction costs, and the allocated
carrying amount of the receivables sold. The allocated carrying amount is
determined by allocating the original amount of the receivables between the
portion sold and any retained interests (interest-only securities and servicing
rights), based on their relative fair values at the time of sale. Assumptions
used in calculating the estimated fair value of interest-only securities and
servicing rights are subject to volatility that could materially affect
operating results. Prepayments from competition, obligor mobility, general and
regional economic conditions and prevailing interest rates, as well as actual
losses incurred, may vary from the performance projected.
Gain on sale of finance receivables decreased 29 percent, to $135.2
million, in the second quarter of 1998 and decreased 22 percent, to $272.4
million, in the first six months of 1998. Such gain fluctuates when changes
occur in: (i) the amount of loans sold;
14
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------
(ii) market conditions; (iii) the amount and type of interest retained in the
receivables sold; and (iv) changes in assumptions used to calculate the gain.
Recent experience has indicated that prepayment rates have exceeded expectations
for loans sold in prior periods. In addition, the market yields of publicly
traded securities that are similar to our interest-only securities increased
during the second quarter, increasing the market discount rate used when
calculating gains. Assumptions used to determine the gains in the 1998 periods
reflect higher prepayment assumptions and higher discount rates. Accordingly,
the amount of gain as a percentage of total loans sold has decreased. In
addition, during the second quarter of 1998, we reduced the total finance
receivables sold and increased our inventory of finance receivables as described
above.
Servicing income represents fees received for servicing finance receivables
sold in securitizations. Such income increased 14 percent, to $31.0 million, in
the second quarter of 1998 and increased 18 percent, to $61.2 million, in the
first six months of 1998. After such sales, we continue to service the loans
sold for a fee. Servicing income grows as the total portfolio of finance
receivables managed for others increases.
Commission and other income includes commissions earned on new insurance
policies written and renewals on existing policies, as well as other income from
transaction fees. Such income increased 83 percent, to $28.4 million, in the
second quarter of 1998 and increased 83 percent, to $53.7 million, in the first
six months of 1998. The increase reflects: (i) the growth in our revolving
credit receivables (upon which transaction fees are assessed); (ii) an increase
in other managed receivables (which present opportunities for sales of insurance
products); and (iii) an increased emphasis on generating such income.
Interest expense increased 52 percent, to $55.2 million, in the second
quarter of 1998 and increased 57 percent, to $103.7 million, in the first six
months of 1998. The increase primarily reflects increased borrowings to fund
loan originations, commercial revolving credit and lease portfolio financings
during the 1998 periods and our deliberate strategy to increase our inventory of
finance receivables as described above. The weighted average interest rates on
our borrowings were 7.8 percent and 8.0 percent during the first six months of
1998 and 1997, respectively.
Cost of servicing represents the costs incurred to service finance
receivables sold. Such costs fluctuate in relation to the total balance of
finance receivables managed for others and the fees earned for providing such
servicing.
General and administrative expenses have primarily increased in recent
periods as a result of the increased volume of contracts originated.
Nonrecurring charges include: (i) merger related costs (including
investment banking, accounting, legal and regulatory fees, severance costs and
other costs associated with the Green Tree Merger) of $108 million; and (ii) a
charge to reduce the value of interest-only securities and servicing rights of
$540 million.
During the second quarter of 1998, prepayments on loan contracts continued
to exceed expectations and management concluded that such prepayments would
continue to be higher than expected in future periods as well. In addition, the
market yields of publicly traded securities that are similar to our
interest-only securities increased during the quarter, decreasing the market
values of such investments. As a result of these developments, we concluded an
impairment in the value of the interest-only securities and servicing rights had
occurred, and a new value was determined using current assumptions. The new
assumptions reflect the following changes from the assumptions previously used:
(i) an increase in prepayment rates; (ii) an increase in the discount rate used
to determine the present value of future cash flows to 15 percent from 11
percent; and (iii) an increase in anticipated future rates of default. A $540
million charge to reduce the carrying value of the interest-only securities and
servicing rights (before income taxes of $190 million) was recognized in the
second quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Changes in the consolidated balance sheet between December 31, 1997 and
June 30, 1998, reflect: (i) our operating results; (ii) the nonrecurring charge
of $463 million (net of income taxes of $185 million) related to merger-related
costs and the charge to reduce the value of interest-only securities and
servicing rights; (iii) our origination and sale of finance receivables; (iv)
the change in the fair value of interest-only securities (after the effect of
the aforementioned charge); and (v) various financing transactions. Financing
transactions (described in the notes to the consolidated financial statements)
include: (i) common stock repurchases; (ii) the issuance of notes payable and
debt repayment; and (iii) the $500 million capital contribution from Conseco.
The decrease in shareholder's equity in the first six months of 1998
reflects: (i) the net loss of $339.4 million; (ii) the change in unrealized
appreciation of securities of $20.2 million; (iii) return of common stock of
$23.4 million related to the recomputation of an executive's 1996 bonus; and
(iv) dividends on
15
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------
common stock of $23.5 million. The decreases were partially offset by: (i) the
capital contribution from Conseco of $500.0 million; (ii) the value of stock
warrants in conjunction with a financing transaction of $7.7 million; and (iii)
amounts received upon the exercise of stock options (and the tax benefit
thereon) of $3.5 million.
Our business requires continued access to the capital markets for the
purchase, warehousing and sale of contracts. To satisfy these needs, we employ a
variety of capital resources.
Historically, our most important liquidity source has been our ability to
sell contracts in the secondary markets through loan securitizations. Under
certain securitized sales structures, we have provided a variety of credit
enhancements, which generally take the form of corporate guarantees, but have
also included bank letters of credit, surety bonds, cash deposits and over
collateralization or other equivalent collateral. We analyze the cash flows
unique to each transaction, as well as the marketability and projected economic
value of such transactions when choosing the appropriate structure for each
securitized loan sale. The structure of a securitized sale depends, to a great
extent, on conditions of the fixed income markets at the time of sale as well as
cost considerations and availability and effectiveness of the various
enhancement methods. During the first six months of 1998, we used a
senior/subordinated structure for each of our five manufactured home loan sales
and enhanced a portion of the subordinated certificates sold with a corporate
guarantee. During the first six months of 1998, our home equity and home
improvement loan sales included two separate but cross-collateralized loan
pools, both of which employed a senior/subordinated structure with a limited
guarantee on a portion of the subordinate certificates.
Our sale of consumer products, equipment finance and certain home equity
and home improvement loans during the first quarter of 1998 employed a
multi-class credit tranched grantor trust structure issuing fixed rate
certificates with a limited corporate guarantee on the most subordinate class.
In the second quarter of 1998, our sale of consumer products and equipment
finance loans utilized a multi-class credit tranched owner trust structure
issuing fixed rate notes and certificates with a limited corporate guarantee on
the most subordinate class. Also during the first and second quarters, we sold
$50.0 million of private-label credit card receivables and $438.3 million of
floorplan receivables through two separate revolving trusts.
Servicing fees and net interest payments collected on sold loans increased
during the six-month period ended June 30, 1998 compared with the same period in
1997. Contributing to this growth is an increase in servicing revenue we collect
on our growing servicing portfolio. Interest on unsold loans increased during
the first six months of 1998 compared with the same period in 1997 as a result
of the increase in the outstanding finance receivables.
We currently have $3.8 billion in master repurchase agreements, subject to
the availability of eligible collateral, with various investment banking firms
for the purpose of financing our contract and commercial finance loan
production. The master repurchase agreements generally provide for annual terms
which are extended each quarter by mutual agreement of the parties for an
additional annual term based upon receipt of updated quarterly financial
information. In addition, we have unsecured bank credit agreements of $325.0
million scheduled to expire on September 30, 1998. At June 30, 1998, we have
$1.4 billion outstanding under the repurchase agreements and $225.0 million of
borrowings under the unsecured bank credit agreements.
We also have a commercial paper program through which we are authorized to
issue up to $2 billion in notes of varying terms (not to exceed 270 days) to
meet our warehousing liquidity needs. This program is backed by a combination of
our bank credit agreements and master repurchase agreements referred to above.
As of June 30, 1998, no commercial paper is outstanding under this program. We
have curtailed our issuance of commercial paper in favor of master repurchase
agreements, due to recent ratings actions by credit agencies which lowered Green
Tree's senior unsecured debt ratings.
In addition, we have a $700 million line of credit secured by our
interest-only securities. This line of credit matures on February 12, 2000 with
an option to extend for an additional one year term.
YEAR 2000 CONVERSION COSTS
We have initiated a corporate-wide program designed to ensure that all of
our computer systems will function properly in the year 2000. Many existing
programs were designed and developed to use only two digits to identify a year
in the date field. If not addressed, these computer applications could result in
system failures with possible adverse effects on our operations. A large number
of our employees, as well as external consultants and contract programmers, are
working on various year 2000 projects. We also have been working with our
vendors to help avoid year 2000 problems with outside software or services they
provide to us. Under our program, we are analyzing our application systems,
operating systems, hardware, networks, EDI interfaces and infrastructure devices
(such as facsimile machines and telephone systems).
16
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------
We are addressing the year 2000 issues we identify in two ways. In some
cases, our most effective solution will be to purchase new, more modern systems;
these costs will be capitalized as assets and amortized over their expected
useful lives. In other cases, we will modify existing systems, thereby incurring
costs that will be charged to operating expense.
We have incurred expenses throughout 1997 and in the first two quarters of
1998 related to this project and will continue to incur costs over the next 18
months. We currently estimate that the total costs related to our year 2000
projects will be approximately $14.0 million. Approximately 7 percent of these
costs have been incurred in periods prior to June 30, 1998.
The impact of year 2000 issues will depend not only on the corrective
actions we take, but also on the way in which year 2000 issues are addressed by
governmental agencies, businesses and other third parties that provide services
or data to, or receive services or data from, the Company, or whose financial
condition or operational capability is important to the Company.
Our year 2000 projects are currently on schedule. We expect the projects to
be completed by the end of the second quarter of 1999.
FORWARD-LOOKING STATEMENTS
All statements, trend analyses and other information contained in this
report and elsewhere (such as in other filings by Conseco or Green Tree with the
Securities and Exchange Commission, press releases, presentations by Conseco or
Green Tree or its management or oral statements) relative to markets for
Conseco's or Green Tree's products and trends in Conseco's or Green Tree's
operations or financial results, as well as other statements including words
such as "anticipate," "believe," "plan," "estimate," "expect," "intend," and
other similar expressions, constitute forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors which may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include, among
other things: (i) general economic conditions and other factors, including
prevailing interest rate levels, short-term interest rate fluctuations, stock
market performance and health care inflation, which may affect the ability of
Conseco to sell its products, the ability of Green Tree to make loans and access
capital resources, the market value of Conseco's or Green Tree's investments,
the lapse rate and profitability of policies and the level of defaults and
prepayments of loans made by Green Tree; (ii) Conseco's ability to achieve
anticipated levels of operational efficiencies at recently acquired companies,
as well as through other cost-saving initiatives; (iii) customer response to new
products, distribution channels and marketing initiatives; (iv) mortality,
morbidity, usage of health care services and other factors which may affect the
profitability of Conseco's insurance products; (v) changes in the federal income
tax laws and regulations which may affect the relative tax advantages of some of
Conseco's products; (vi) increasing competition in the sale of insurance and
annuities and in the consumer finance business; (vii) regulatory changes or
actions, including those relating to regulation of financial services affecting
(among other things) bank sales and underwriting of insurance products,
regulation of the sale, underwriting and pricing of insurance products, and
health care regulation affecting Conseco's supplemental health insurance
products; (viii) the availability and terms of future acquisitions; and (ix) the
risk factors or uncertainties listed in Conseco's or Green Tree's other filings
with the Securities and Exchange Commission. In addition to the above, these
statements are subject to uncertainties related to the synergies, charges and
expenses associated with the Green Tree Merger.
17
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Green Tree has been served with various related lawsuits which were filed
in the United States District Court for the District of Minnesota. These
lawsuits were filed by certain former stockholders of Green Tree as purported
class actions on behalf of persons or entities who purchased common stock of
Green Tree during the alleged class periods that generally run from February
1995 to January 1998. One such action did not include class action claims. In
addition to Green Tree, certain current and former officers and directors of
Green Tree are named as defendants in one or more of the lawsuits. Green Tree
and other defendants intend to seek consolidation in the United States District
Court for the District of Minnesota of each of the lawsuits seeking class action
status. Plaintiffs in the lawsuits assert claims under Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934. In each case, plaintiffs allege that
Green Tree and the other defendants violated federal securities laws by, among
other things, making false and misleading statements about the current state and
future prospects of Green Tree (particularly with respect to prepayment
assumptions and performance of certain loan portfolios of Green Tree) which
allegedly rendered Green Tree's financial statements false and misleading. The
Company believes that the lawsuits are without merit and intends to defend such
lawsuits vigorously.
The Company and its subsidiaries are involved on an ongoing basis in
lawsuits related to its operations. Although the ultimate outcome of certain of
such matters cannot be predicted, none of such lawsuits currently pending
against the Company or its subsidiaries is expected, individually or in the
aggregate, to have a material adverse effect on the Company's consolidated
financial condition, cash flows or results of operations.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. (a) Exhibits
10 (j) Green Tree Financial Corporation Restated
1992 Supplemental Stock Option Plan.
12 Computation of Ratio of Earnings to Fixed
Charges.
27 Financial Data Schedule.
27.1 Restated Financial Data Schedule.
27.2 Restated Financial Data Schedule.
27.3 Restated Financial Data Schedule.
27.4 Restated Financial Data Schedule.
27.5 Restated Financial Data Schedule.
27.6 Restated Financial Data Schedule.
27.7 Restated Financial Data Schedule.
18
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------
27.8 Restated Financial Data Schedule.
27.9 Restated Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a Form 8-K on April 6, 1998,
reporting under Item 5 thereof current developments
relating to the agreement to merge the Company with a
subsidiary of Conseco, Inc.
19
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREEN TREE FINANCIAL CORPORATION
Dated: August 14, 1998 By: /s/ ROLLIN M. DICK
------------------
Rollin M. Dick
Executive Vice President and
Chief Financial Officer
(authorized officer and principal
financial officer)
20
GREEN TREE FINANCIAL CORPORATION
RESTATED 1992 SUPPLEMENTAL STOCK OPTION PLAN
1. Purpose of Plan.
This Plan shall be known as the "Green Tree Financial Corporation
Restated 1992 Supplemental Stock Option Plan" and is hereinafter referred to as
the "Plan." The purpose of the Plan is to attract and retain the services of
experienced and knowledgeable non-employee directors of Green Tree Financial
Corporation (the "Company") and to provide additional incentive for such
directors to increase their interest in the Company's long term success and
progress. Options granted under this Plan shall be non-qualified stock options
which do not qualify as Incentive Stock Options within the meaning of Section
422A of the Internal Revenue Code of 1986, as amended (the "Code").
2. Stock Subject to Plan.
Subject to the provisions of Section 11 hereof, the stock to be subject
to options under the Plan (the "Shares") shall be the Company's authorized
Common Stock, par value $0.01 per share (the "Common Stock"). Such shares will
be authorized but unissued shares. Subject to adjustment as provided in Section
11 hereof, the maximum number of shares on which options may be exercised under
this Plan shall be 400,000(1) shares. If an option under the Plan expires, or
for any reason is terminated or unexercised with respect to any Shares, such
Shares shall again be available for options thereafter granted during the term
of the Plan.
3. Administration of Plan.
The Plan shall be administered by the Board of Directors of the
Company. The Board of Directors shall have plenary authority in its discretion,
but subject to the express provisions of this Plan, to interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to the Plan, and to
make all other determinations necessary or advisable for the administration of
the Plan. The Board of Directors' determinations on the foregoing matters shall
be final and conclusive.
4. Eligibility.
An "Eligible Director" shall be a director of the Company who is not
otherwise an employee of the Company or any subsidiary of the Company; provided,
however, that so long as any director of the Company is serving as a
representative of another organization and any options issued to such director
under the Plan are required to be remitted to such organization, such director
shall not be deemed to be an Eligible Director for purposes of the Plan.
5. Grant of Options.
Upon approval of the Plan by the Board of Directors, but subject to
approval of the Plan by the stockholders of the Company pursuant to Section 14
hereof, each Eligible Director who completes a full fiscal quarter of service as
a director of the Company after December 31, 1992 shall automatically be granted
on the last business day of each such quarter an option to acquire 4,000(1)
Shares under the Plan; provided, however, that no options shall be granted under
the Plan for any fiscal quarter ending after June 30, 1998.
- --------
(1)Adjusted to reflect the 1/31/93, 6/30/94 and 10/15/95 stock splits.
<PAGE>
6. Price.
The option price for all options granted under the Plan shall be the
fair market value of the Shares covered by the option at the time the option is
granted. For the purpose of the preceding sentence and for all other valuation
purposes under the Plan, the "fair market value" of the Common Stock as of any
date shall be (i) the closing price of the Common Stock on such date, as
reported on the consolidated reporting system for the New York Stock Exchange or
such other national securities exchange as is then the primary exchange for
trading in the Common Stock, or (ii) if the Common Stock is not then listed on a
national securities exchange, the last sale price or highest closing bid price
(whichever is applicable) as reported on the National Association of Securities
Dealers Automated Quotation System. If, on the date of determination of fair
market value, the Common Stock is not publicly traded, the Board of Directors
shall make a good faith attempt to determine the fair market value of the Common
Stock as required by this Section 6 and in connection therewith shall take such
action as it deems necessary or advisable.
7. Term.
Each option and all rights and obligations thereunder shall, subject to
the provisions of Section 9 herein, expire ten (10) years from the date of
granting of the option.
8. Exercise of Option.
(a) Options granted under the Plan shall not be exercisable for a
period of six months after the date of grant, or until stockholder approval of
the Plan has been obtained, whichever occurs later, but thereafter will be
exercisable in full at any time or from time to time during the term of the
option, subject to the provisions of Section 9 hereof.
(b) The exercise of any option granted hereunder shall only be
effective at such time as counsel to the Company shall have determined that the
issuance and delivery of Common Stock pursuant to such exercise will not violate
any state or federal securities or other laws. An optionee desiring to exercise
an option may be required by the Company, as a condition of the effectiveness of
any exercise of an option granted hereunder, to agree in writing that all Common
Stock to be acquired pursuant to such exercise shall be held for his or her own
account without a view to any further distribution thereof, that the
certificates for such shares shall bear an appropriate legend to that effect and
that such shares will not be transferred or disposed of except in compliance
with applicable federal and state securities laws.
(c) An optionee electing to exercise an option shall give written
notice to the Company of such election and of the number of Shares subject to
such exercise. The full purchase price of such Shares shall be tendered with
such notice of exercise. Payment shall be made to the Company either (i) in cash
(including check, bank draft or money order), or (ii) by delivering shares of
Common Stock already owned by the optionee having a fair market value equal to
the full purchase price of the Shares, or (iii) by any combination of cash and
such shares; provided, however, that an optionee shall
-2-
<PAGE>
not be entitled to tender shares of Common Stock pursuant to successive,
substantially simultaneous exercises of options granted under this or any other
stock option plan of the Company. For purposes of the preceding sentence, the
"fair market value" of such tendered shares shall be determined as provided in
Section 6 herein as of the date of exercise. Until such person has been issued
the Shares subject to such exercise, he or she shall possess no rights as a
stockholder with respect to such Shares.
9. Effect of Termination of Directorship or Death or Disability.
(a) In the event that an optionee shall cease to be an Ongoing Director
(as defined in Section 9 (d), below) for any reason other than removal for cause
due to his or her serious misconduct or his or her death or disability, such
optionee shall have the right to exercise the option at any time within seven
months after such termination of Ongoing Directorship to the extent of the full
number of Shares he or she was entitled to purchase under the option on the date
of termination, subject to the condition that no option shall be exercisable
after the expiration of the term of the option.
(b) In the event that an optionee shall be removed for cause as an
Ongoing Director by reason of his or her serious misconduct during the course of
his or her service as an Ongoing Director, the option shall be terminated as of
the date of the misconduct.
(c) If the optionee shall die while serving as an Ongoing Director or
within three months after termination of his or her Ongoing Directorship for any
reason other than removal for cause due to his or her serious misconduct, or
become disabled (as determined by the Board of Directors in its sole discretion)
while serving as an Ongoing Director and such optionee shall not have fully
exercised the option, such option may be exercised at any time within twelve
months after his or her death or disability by the personal representatives,
administrators, or, if applicable, guardian, of the optionee or by any person or
persons to whom the option is transferred by will or the applicable laws of
descent and distribution, to the extent of the full number of shares he or she
was entitled to purchase under the option on the date of death, disability, or
termination of Ongoing Directorship, if earlier, and subject to the condition
that no option shall be exercisable after the expiration of the term of the
option.
(d) As used herein, the term "Ongoing Director" means (i) a director of
the Company, (ii) a director of any corporation that controls in excess of 50%
of the voting power of the outstanding equity securities of the Company (whether
or not such Ongoing Director is a director of such corporation at the time an
option is granted to him or her under the Plan, and (iii) a director of a wholly
owned subsidiary of the Company.
-3-
<PAGE>
10. Non-Transferability.
No option granted under the Plan shall be transferable by the optionee,
otherwise than by will or the laws of descent and distribution as provided in
Section 9(c) herein. Except as provided in Section 9(c) herein with respect to
disability of the optionee, during the lifetime of an optionee the option shall
be exercisable only by such optionee.
11. Dilution or Other Adjustments.
If there shall be any change in the Common Stock through merger,
consolidation, reorganization, recapitalization, stock dividend (of whatever
amount), stock split or other change in the corporate structure, appropriate
adjustments in the Plan and outstanding options shall be made by the Board of
Directors. In the event of any such changes, adjustments shall include, where
appropriate, changes in the aggregate number of shares subject to the Plan, the
number of shares and the price per share subject to outstanding options in order
to prevent dilution or enlargement of option rights.
12. Amendment or Discontinuance of Plan.
The Board of Directors may amend or discontinue the Plan at any time.
However, subject to the provisions of Section 11 no amendment of the Plan shall,
without stockholder approval: (i) increase the maximum number of Shares with
respect to which options may be granted under the Plan as provided in Section 2
hereof, (ii) modify the eligibility requirements for participation in the Plan
as provided in Section 4 hereof, or (iii) change the date of grant or exercise
price of, or the number of Shares subject to, options granted or to be granted
to Eligible Directors, as provided in Sections 5 and 6 hereof. The Board of
Directors shall not alter or impair any option theretofore granted under the
Plan without the consent of the holder of the option. Notwithstanding any other
provision of the Plan or any option, without the approval of stockholders of the
Company, no such amendment shall be made that, absent such approval, would cause
the exemptions of Rule16b-3 to become unavailable with respect to the options
hereunder or with respect to the ability of the Eligible Directors to satisfy
the disinterested person requirements of Rule 16b-3 in administering any other
stock-based compensation plan of the Company (this limitation on amendments to
the Plan shall include, without limitation, a prohibition on any contemplated
amendment within six months of any prior amendment, other than to comport with
changes in the Code, the Employee Retirement Income Security Act, or the rules
thereunder).
13. Time of Granting.
Nothing contained in the Plan or in any resolution adopted or to be
adopted by the Board of Directors or by the stockholders of the Company, and no
action taken by the Board of Directors (other than the execution and delivery of
an option), shall constitute the granting of an option hereunder.
14. Effective Date and Termination of Plan.
-4-
<PAGE>
(a) The Plan was approved by the Board of Directors on March 10, 1992
and shall be approved by the stockholders of the Company within twelve (12)
months thereafter. The effective date of the Plan shall be the date of
stockholder approval. The Plan was amended by the Board of Directors of the
Company on November 22, 1997, and was subsequently amended by the Board of
Directors and the stockholder of the Company as of July 1, 1998.
(b) Unless the Plan shall have been discontinued as provided in Section
12 hereof, the Plan shall terminate on December 31, 2002. No option may be
granted after such termination, but termination of the Plan shall not, without
the consent of the optionee, alter or impair any rights or obligations under any
option theretofore granted.
(Restated as of July 1, 1998)
-5-
<TABLE>
<CAPTION>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges,
Preferred Dividends and Distributions on Company-Obligated Mandatorily
Redeemable Preferred Securities of Subsidiary Trusts - Consolidated Basis
for the six months ended June 30, 1998 and the year ended December 31, 1997
(Dollars in millions)
Six months
ended Year ended
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Pretax income from operations:
Net income (loss) $(339.4) $301.4
Add income tax expense (107.5) 184.7
Add extraordinary charge on extinguishment of debt 2.5 -
------- ------
Pretax income (loss) from operations (444.4) 486.1
------- ------
Add fixed charges:
Interest expense on long-term debt, including amortization 103.7 160.9
Portion of rental(1) 2.6 4.4
------- ------
Fixed charges 106.3 165.3
------- ------
Adjusted earnings (loss) $(338.1) $651.4
======= ======
Ratio of earnings (loss) to fixed charges (3.18)X 3.94X
====== ======
<FN>
(1) Interest portion of rental is assumed to be 33 percent.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,110,400
<SECURITIES> 934,000
<RECEIVABLES> 3,547,800
<ALLOWANCES> 24,400
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 219,900
<DEPRECIATION> 88,100
<TOTAL-ASSETS> 6,252,600
<CURRENT-LIABILITIES> 0
<BONDS> 502,700
0
0
<COMMON> 725,600
<OTHER-SE> 711,200
<TOTAL-LIABILITY-AND-EQUITY> 6,252,600
<SALES> 272,400
<TOTAL-REVENUES> 592,800
<CGS> 0
<TOTAL-COSTS> 285,500
<OTHER-EXPENSES> 648,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103,700
<INCOME-PRETAX> (444,400)
<INCOME-TAX> (107,500)
<INCOME-CONTINUING> (336,900)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,500)
<CHANGES> 0
<NET-INCOME> (339,400)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 988,600
<SECURITIES> 1,363,200
<RECEIVABLES> 1,971,000
<ALLOWANCES> 19,800
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 182,500
<DEPRECIATION> 70,100
<TOTAL-ASSETS> 4,866,800
<CURRENT-LIABILITIES> 0
<BONDS> 510,300
0
0
<COMMON> 1,400
<OTHER-SE> 1,332,100
<TOTAL-LIABILITY-AND-EQUITY> 4,866,800
<SALES> 546,800
<TOTAL-REVENUES> 1,091,500
<CGS> 0
<TOTAL-COSTS> 444,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 160,900
<INCOME-PRETAX> 486,100
<INCOME-TAX> 184,700
<INCOME-CONTINUING> 301,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 301,400
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 2.15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 941,500
<SECURITIES> 1,091,000
<RECEIVABLES> 1,255,600
<ALLOWANCES> 0
<INVENTORY> 1,014,900
<CURRENT-ASSETS> 0
<PP&E> 168,100
<DEPRECIATION> 62,700
<TOTAL-ASSETS> 4,735,100
<CURRENT-LIABILITIES> 0
<BONDS> 510,100
0
0
<COMMON> 1,400
<OTHER-SE> 1,268,900
<TOTAL-LIABILITY-AND-EQUITY> 4,735,100
<SALES> 542,400
<TOTAL-REVENUES> 932,600
<CGS> 0
<TOTAL-COSTS> 307,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,400
<INCOME-PRETAX> 514,100
<INCOME-TAX> 195,300
<INCOME-CONTINUING> 318,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 318,700
<EPS-PRIMARY> 2.33
<EPS-DILUTED> 2.27
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 780,100
<SECURITIES> 1,101,400
<RECEIVABLES> 1,237,800
<ALLOWANCES> 0
<INVENTORY> 879,700
<CURRENT-ASSETS> 0
<PP&E> 149,000
<DEPRECIATION> 55,900
<TOTAL-ASSETS> 4,255,400
<CURRENT-LIABILITIES> 0
<BONDS> 290,600
0
0
<COMMON> 1,400
<OTHER-SE> 1,229,800
<TOTAL-LIABILITY-AND-EQUITY> 4,255,400
<SALES> 339,900
<TOTAL-REVENUES> 584,300
<CGS> 0
<TOTAL-COSTS> 195,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,200
<INCOME-PRETAX> 322,400
<INCOME-TAX> 122,500
<INCOME-CONTINUING> 199,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 199,900
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.42
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 685,300
<SECURITIES> 978,800
<RECEIVABLES> 933,300
<ALLOWANCES> 0
<INVENTORY> 624,200
<CURRENT-ASSETS> 0
<PP&E> 123,900
<DEPRECIATION> 41,500
<TOTAL-ASSETS> 3,563,300
<CURRENT-LIABILITIES> 0
<BONDS> 290,500
0
0
<COMMON> 1,400
<OTHER-SE> 1,204,700
<TOTAL-LIABILITY-AND-EQUITY> 3,563,300
<SALES> 153,400
<TOTAL-REVENUES> 267,200
<CGS> 0
<TOTAL-COSTS> 89,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,800
<INCOME-PRETAX> 148,100
<INCOME-TAX> 56,300
<INCOME-CONTINUING> 91,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91,800
<EPS-PRIMARY> .66
<EPS-DILUTED> .65
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 613,600
<SECURITIES> 11,900
<RECEIVABLES> 923,900
<ALLOWANCES> 14,300
<INVENTORY> 453,000
<CURRENT-ASSETS> 0
<PP&E> 121,800
<DEPRECIATION> 44,000
<TOTAL-ASSETS> 3,591,900
<CURRENT-LIABILITIES> 0
<BONDS> 290,300
0
0
<COMMON> 1,400
<OTHER-SE> 1,136,100
<TOTAL-LIABILITY-AND-EQUITY> 3,591,900
<SALES> 741,500
<TOTAL-REVENUES> 724,100
<CGS> 0
<TOTAL-COSTS> 330,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 351,700
<INTEREST-EXPENSE> 70,100
<INCOME-PRETAX> 323,800
<INCOME-TAX> 123,100
<INCOME-CONTINUING> 200,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 200,800
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.43
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 754,700
<SECURITIES> 12,400
<RECEIVABLES> 425,400
<ALLOWANCES> 1,600
<INVENTORY> 470,100
<CURRENT-ASSETS> 0
<PP&E> 106,000
<DEPRECIATION> 39,300
<TOTAL-ASSETS> 3,144,200
<CURRENT-LIABILITIES> 0
<BONDS> 290,200
0
0
<COMMON> 1,400
<OTHER-SE> 1,169,200
<TOTAL-LIABILITY-AND-EQUITY> 3,144,200
<SALES> 599,400
<TOTAL-REVENUES> 583,900
<CGS> 0
<TOTAL-COSTS> 171,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 252,200
<INTEREST-EXPENSE> 45,500
<INCOME-PRETAX> 366,600
<INCOME-TAX> 139,300
<INCOME-CONTINUING> 227,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 227,300
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.62
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 751,600
<SECURITIES> 5,000
<RECEIVABLES> 313,200
<ALLOWANCES> 1,500
<INVENTORY> 626,500
<CURRENT-ASSETS> 0
<PP&E> 98,700
<DEPRECIATION> 34,900
<TOTAL-ASSETS> 2,902,800
<CURRENT-LIABILITIES> 0
<BONDS> 290,100
0
0
<COMMON> 1,400
<OTHER-SE> 1,089,800
<TOTAL-LIABILITY-AND-EQUITY> 2,902,800
<SALES> 361,600
<TOTAL-REVENUES> 364,200
<CGS> 0
<TOTAL-COSTS> 107,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 148,500
<INTEREST-EXPENSE> 28,500
<INCOME-PRETAX> 228,700
<INCOME-TAX> 86,900
<INCOME-CONTINUING> 141,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 141,800
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.01
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 520,600
<SECURITIES> 20,100
<RECEIVABLES> 358,400
<ALLOWANCES> 1,500
<INVENTORY> 733,000
<CURRENT-ASSETS> 0
<PP&E> 91,500
<DEPRECIATION> 31,200
<TOTAL-ASSETS> 2,614,600
<CURRENT-LIABILITIES> 0
<BONDS> 290,000
0
0
<COMMON> 1,400
<OTHER-SE> 1,014,600
<TOTAL-LIABILITY-AND-EQUITY> 2,614,600
<SALES> 155,500
<TOTAL-REVENUES> 168,100
<CGS> 0
<TOTAL-COSTS> 49,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 58,000
<INTEREST-EXPENSE> 11,400
<INCOME-PRETAX> 107,000
<INCOME-TAX> 40,700
<INCOME-CONTINUING> 66,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,400
<EPS-PRIMARY> .49
<EPS-DILUTED> .48
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 455,100
<SECURITIES> 19,900
<RECEIVABLES> 198,800
<ALLOWANCES> 4,500
<INVENTORY> 884,300
<CURRENT-ASSETS> 0
<PP&E> 83,700
<DEPRECIATION> 26,600
<TOTAL-ASSETS> 2,383,500
<CURRENT-LIABILITIES> 0
<BONDS> 289,900
0
0
<COMMON> 1,400
<OTHER-SE> 923,600
<TOTAL-LIABILITY-AND-EQUITY> 2,383,500
<SALES> 671,700
<TOTAL-REVENUES> 71,300
<CGS> 0
<TOTAL-COSTS> 244,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 223,000
<INTEREST-EXPENSE> 57,300
<INCOME-PRETAX> 409,600
<INCOME-TAX> 155,700
<INCOME-CONTINUING> 254,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 254,000
<EPS-PRIMARY> 1.86
<EPS-DILUTED> 1.81
</TABLE>
