<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
-------------
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 1-08916
--------
GREEN TREE FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 41-1807858
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1100 LANDMARK TOWERS, SAINT PAUL, MINNESOTA 55102-1639
------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (612) 293-3400
--------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [_]
AS OF JULY 31, 1997, 136,120,684 SHARES OF COMMON STOCK OF GREEN TREE FINANCIAL
CORPORATION WERE OUTSTANDING.
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED June 30, 1997
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Defaults upon Senior Securities 15
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBIT INDEX 18
Certain information included in this Form 10-Q/A may include "forward-looking"
information, as defined in the Private Securities Litigation Reform Act of 1995
(the "Act"). Such forward-looking information may involve risks or uncertainties
which are described in the Cautionary Statements contained in the Company's Form
8-K filed with the Securities and Exchange Commission on July 12, 1996.
Investors are specifically referred to the Cautionary Statements for a
discussion of factors which could affect the Company's operations and financial
performance. Factors referenced in the Cautionary Statements include: prevailing
economic conditions; ability to access capital resources; short-term interest
rate fluctuations; the level of defaults and prepayments on loans made by the
Company; competition; and regulatory changes. Any forward-looking information is
based upon management's reasonable estimate of future results or trends. The
Company does not undertake, and the Act specifically relieves the Company from,
any obligation to update any forward-looking statements.
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
--------------- -------------------
(unaudited)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 593,761,000 $ 442,071,000
Cash deposits, restricted 186,304,000 171,484,000
Other investments 16,894,000 11,925,000
Interest only securities 1,101,409,000 957,185,000
Receivables:
Lease 592,169,000 564,348,000
Commercial finance 355,419,000 212,920,000
Consumer revolving credit 157,702,000 40,803,000
Other accounts receivable 132,500,000 85,503,000
Contracts and collateral 879,730,000 453,008,000
Servicing rights 58,869,000 --
Property, furniture and fixtures 93,094,000 77,859,000
Goodwill 57,668,000 58,950,000
Other assets 29,914,000 21,988,000
--------------- ---------------
Total assets $ 4,255,433,000 $ 3,098,044,000
=============== ===============
Liabilities and Stockholders' Equity:
Notes payable $ 1,184,337,000 $ 472,181,000
Senior/Senior subordinated notes 290,599,000 290,348,000
Accounts payable and accrued liabilities 566,740,000 378,559,000
Investors payable 432,412,000 346,272,000
Income taxes, principally deferred 550,103,000 473,192,000
--------------- ---------------
Total liabilities 3,024,191,000 1,960,552,000
Common stock, $.01 par; authorized 400,000,000
shares, issued 141,149,284
shares (1997) and 139,782,706 shares (1996) 1,411,000 1,398,000
Additional paid-in capital 425,885,000 373,573,000
Retained earnings 998,009,000 818,733,000
Unrealized loss on securities
available for sale, net (32,603,000) --
Minimum pension liability adjustments (2,299,000) (2,299,000)
--------------- ---------------
1,390,403,000 1,191,405,000
Less treasury stock, 5,286,100 shares (1997)
and 2,051,000 shares (1996) at cost (159,161,000) (53,913,000)
--------------- ---------------
Total stockholders' equity 1,231,242,000 1,137,492,000
--------------- ---------------
Total liabilities and stockholders' equity $ 4,255,433,000 $ 3,098,044,000
=============== ===============
</TABLE>
See notes to unaudited financial statements.
3
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended June 30
------------------------------
1997 1996
------------ ------------
Revenues:
Gain on contract sales $186,563,000 $115,624,000
Interest 87,887,000 52,977,000
Servicing 27,153,000 17,235,000
Commission and other 15,542,000 10,266,000
------------ ------------
317,145,000 196,102,000
Expenses:
Interest 36,376,000 17,167,000
Cost of servicing 20,787,000 12,175,000
General and administrative 85,639,000 45,112,000
------------ ------------
142,802,000 74,454,000
------------ ------------
Earnings before income taxes 174,343,000 121,648,000
Income taxes 66,250,000 46,226,000
------------ ------------
Net earnings $108,093,000 $ 75,422,000
============ ============
Earnings per common and common
equivalent share $ .78 $ .54
============ ============
Weighted average common and common
equivalent shares outstanding 139,116,319 140,242,029
See notes to unaudited financial statements.
4
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Six Months Ended June 30
------------------------------
1997 1996
------------ ------------
Revenues:
Gain on contract sales $339,930,000 $213,111,000
Interest 163,316,000 98,159,000
Servicing 51,834,000 33,560,000
Commission and other 29,220,000 19,390,000
------------ ------------
584,300,000 364,220,000
Expenses:
Interest 66,194,000 28,531,000
Cost of servicing 40,166,000 24,337,000
General and administrative 155,528,000 82,668,000
------------ ------------
261,888,000 135,536,000
------------ ------------
Earnings before income taxes 322,412,000 228,684,000
Income taxes 122,516,000 86,900,000
------------ ------------
Net earnings $199,896,000 $141,784,000
============ ============
Earnings per common and common
equivalent share $ 1.42 $ 1.01
============ ============
Weighted average common and common
equivalent shares outstanding 140,667,941 139,913,427
See notes to unaudited financial statements.
5
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Servicing fees and net interest payments collected $ 143,130,000 $ 106,408,000
Net principal payments collected 90,281,000 59,367,000
Interest on contracts 54,936,000 27,503,000
Interest on cash, investments and receivables 52,654,000 31,697,000
Commissions 26,120,000 16,557,000
Other 5,143,000 (141,000)
--------------- ---------------
372,264,000 241,391,000
--------------- ---------------
Cash paid to employees and suppliers (189,538,000) (130,744,000)
Interest paid on debt (52,480,000) (27,449,000)
Income taxes paid (20,021,000) (25,080,000)
--------------- ---------------
(262,039,000) (183,273,000)
--------------- ---------------
NET CASH PROVIDED BY OPERATIONS 110,225,000 58,118,000
Purchase of contracts and leases (5,072,390,000) (3,171,967,000)
Proceeds from sale of contracts 4,336,525,000 3,468,454,000
Principal collections on contracts and leases 440,993,000 68,971,000
Proceeds from sale of commercial finance loans -- 199,950,000
Commercial and revolving credit loans disbursed (1,901,585,000) (1,291,647,000)
Principal collections on commercial and revolving
credit loans 1,697,510,000 976,283,000
Net cash deposits (14,820,000) (10,873,000)
--------------- ---------------
NET CASH (USED FOR) PROVIDED BY
OPERATING ACTIVITIES (403,542,000) 369,289,000
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, furniture and fixtures (27,093,000) (15,230,000)
Net (purchases) sales of investments (4,968,000) 14,943,000
--------------- ---------------
NET CASH USED FOR INVESTING ACTIVITIES (32,061,000) (287,000)
--------------- ---------------
</TABLE>
6
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on credit facilities 4,742,667,000 2,574,576,000
Repayments on credit facilities (4,030,510,000) (2,636,271,000)
Dividends paid (20,620,000) (17,120,000)
Common stock repurchased (105,248,000) --
Common stock issued 1,004,000 2,959,000
--------------- ---------------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 587,293,000 (75,856,000)
--------------- ---------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 151,690,000 293,146,000
CASH AND CASH EQUIVALENTS BEGINNING
OF PERIOD 442,071,000 295,767,000
--------------- ---------------
CASH AND CASH EQUIVALENTS END OF
PERIOD $ 593,761,000 $ 588,913,000
=============== ===============
RECONCILIATION OF NET EARNINGS TO NET
CASH (USED FOR) PROVIDED BY
OPERATING ACTIVITIES:
Net earnings $ 199,896,000 $ 141,784,000
Provision for income taxes 122,516,000 86,900,000
Depreciation and amortization 13,958,000 9,932,000
Net contract payments collected, less interest only
securities and servicing rights recorded (170,875,000) (133,535,000)
Amortization of deferred servicing revenue -- (11,023,000)
Amortization of servicing rights 5,497,000 --
Accretion of yield on interest only securities (58,769,000) (35,214,000)
Net increase in cash deposits (14,820,000) (10,873,000)
Purchase of contracts and leases, net of sales and
principal collections (314,994,000) 365,458,000
Commercial and revolving credit loans disbursed,
net of sales and principal collections (204,075,000) (43,414,000)
Net selling expenses on sale of contracts 27,510,000 23,710,000
Increase (decrease) in interest payable 15,067,000 (193,000)
Income taxes paid (20,021,000) (25,080,000)
Increase in cash paid to employees and suppliers (7,379,000) (32,885,000)
Other 2,947,000 33,722,000
--------------- ---------------
NET CASH (USED FOR) PROVIDED BY
OPERATING ACTIVITIES $ (403,542,000) $ 369,289,000
=============== ===============
</TABLE>
See notes to unaudited financial statements
7
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
A. Basis of Presentation
The interim financial statements have been prepared by Green Tree Financial
Corporation ("the Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission applicable to quarterly
reports on Form 10-Q/A. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments which are of a normal
recurring nature and are necessary for a fair presentation have been included.
However, results for interim periods are not necessarily indicative of the
results that may be expected for a full year. It is suggested that these
financial statements be read in conjunction with the consolidated financial
statements and related notes and schedules included in the Company's Annual
Report on Form 10-K/A for the year ended December 31, 1996.
Certain reclassifications have been made to the December 31, 1996 financial
statements to conform to the classifications used in the June 30, 1997 financial
statements. These reclassifications had no effect on net earnings or
stockholders' equity as previously reported.
Effective January 1, 1997 the Company adopted Statement of Financial Accounting
Standards No. 125 ("SFAS 125"), Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. The adoption of SFAS 125
did not have a material impact on the Company's financial position or results of
operations.
SFAS 125 requires prospective implementation as of January 1, 1997 and
retroactive application is not permitted. However, certain reclassifications
have been made to prior financial statements to conform to the current period
presentation. The previously classified excess servicing rights receivable has
been reclassified as interest only securities and is shown net of the Company's
previously classified allowance for losses on contracts sold. Effective January
1, 1997 the portion of the Company's interest only securities that exceeded
contractually specified servicing fees is classified as interest only securities
and the remaining asset is classified as servicing rights.
Among other provisions, SFAS 125 uses a "financial components" approach relative
to the recognition of financial assets and liabilities resulting from the
transfer of financial assets. Specifically, SFAS 125 requires that gain
recognition on the sale of financial assets be based on an allocated cost basis
method for the financial components sold. SFAS 125 also provides guidance
relative to the classification and ongoing measurement of the financial
components retained in connection with financial asset sales. Such components
are recorded at allocated cost. The Company retains interest only securities and
servicing rights upon the sale of its financial contracts.
8
<PAGE>
Servicing rights are carried at allocated cost and amortized in proportion to
and over the estimated period of net servicing income. Servicing rights are
evaluated for impairment on an ongoing basis and, to the extent the recorded
amount exceeds the fair value of those servicing rights, 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, represent current period earnings
only to the extent of such previously recorded allowance. No valuation allowance
was necessary at June 30, 1997.
B. Interest Only Securities
Interest only securities represent the right to receive certain cash flows which
exceed the amount of cash flows sold in the Company's securitized contract
sales. Interest only securities generally represent the value of interest to be
collected on the underlying financial contracts of each securitization over the
sum of the interest to be paid to security classes sold, contractual servicing
fees and credit losses.
These cash flows are projected and discounted over the expected life of the
financial contracts using prepayment, default, loss, and interest rate
assumptions that the Company believes market participants would use for similar
financial instruments.
In connection with the gain on sale of contracts and recording interest only
securities retained for the six-month period ended June 30, 1997 the Company
provided $187 million for projected credit losses on a discounted basis. For the
same period the Company incurred $105 million of credit losses.
The Company classifies its interest only securities as available for sale and
carries these securities at fair value. Accordingly, unrealized gains and losses
are reported on a net basis as a separate component of stockholders' equity. The
total amount of unrealized loss at June 30, 1997 recorded in equity is
$32,603,000 on an after-tax basis.
C. Restatement of 1996 Financial Statements
The Company determined in the fourth quarter of 1997 that its processes for
assessing the valuation of its interest only securities had not fully considered
the effects of partial prepayments on projected future interest collections and
the impact of changes in projected future interest due to investors on a
weighted average basis on the bonds outstanding. In consideration of these
items, the Company restated the financial statements for 1996, as filed in the
1996 10-K/A and restated the unrealized loss on securities available for sale.
The effect on the Company's previously reported financial statements for the
interim period in 1997 is as follows:
Decrease interest only securities $248,312,000
Increase other accounts receivable $ 25,868,000
Decrease income taxes, principally deferred $ 84,529,000
Decrease retained earnings $107,962,000
Increase unrealized loss on securities
available for sale, net $ 29,953,000
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As more fully described in the Notes to Unaudited Financial Statements,
financial information in this Report has been restated to correct the valuation
of the Company's interest only securities.
Green Tree Financial Corporation ("Green Tree" or the "Company") 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. The Company's financing
products include both fixed term and revolving loans and leases. The Company's
insurance agencies market physical damage and term mortgage life insurance and
other credit protection relating to the customers' contracts it services.
Results of Operations:
The following table shows the percentage change in revenues, expenses and
earnings for the three and six-month periods ended June 30, 1997 as compared to
the same period of 1996.
Three-month Six-month
period-to-period period-to-period
increase June 30, increase June 30,
1996 to 1997 1996 to 1997
----------------- -----------------
Revenues:
Gain on contract sales 61.4% 59.5%
Interest 65.9 66.4
Service 57.5 54.5
Commission and other 51.4 50.7
Expenses:
Interest 111.9 132.0
Cost of servicing 70.7 65.0
General and administrative 89.8 88.1
Earnings before income taxes 43.3 41.0
Net earnings 43.3 41.0
Gain on contract sales increased 61.4% and 59.5% for the three and six-month
periods ended June 30, 1997, respectively, over the same periods in 1996 as a
result of the increased dollar volume of contracts sold, higher interest rate
spreads and longer average terms on the contracts sold. For the quarter ended
June 30, 1997, total contract sales increased $466,364,000 or 22.4%
10
<PAGE>
The following table sets forth the Company's fixed term contract originations
and sales for the three and six-month periods ended June 30, 1997 and 1996.
Dollar amounts are in thousands.
<TABLE>
<CAPTION>
Three-month period ended Six-month period ended
June 30, June 30,
------------------------------- -------------------------------
1997 1996 1997 1996
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Originations:
Manufactured Housing $1,494,619 $1,345,104 $2,508,335 $2,243,139
Home Equity/ Home
Improvement 836,860 354,941 1,470,817 517,944
Consumer 310,817 280,443 483,064 421,990
Commercial and Equipment 267,486 55,917 475,199 121,178
-------------- ------------- -------------- --------------
Total $2,909,782 $2,036,405 $4,937,415 $3,304,251
============== ============= ============= ==============
Sales:
Manufactured Housing $1,319,986 $1,364,148 $2,369,986 $2,228,183
Home Equity/Home
Improvement 746,754 292,429 1,266,853 411,286
Consumer 315,614 264,300 446,664 583,280
Commercial and Equipment 161,698 156,731 280,647 268,989
-------------- ------------- ------------- --------------
Total $2,544,052 $2,077,608 $4,364,150 $3,491,647
============== ============= ============= ==============
</TABLE>
The Company's market share of contracts for financing new manufactured housing
increased in the first six months of 1997 compared to the same period in 1996.
During this same time period the manufactured housing market experienced a
slight decrease in new home shipments as compared to the prior year. The
Company's dollar volume of new manufactured housing contract originations rose
11.1% and 11.8% during the three and six-month periods ended June 30, 1997,
respectively, over the same periods in 1996. The number of new contracts
originated by the Company during the first six months of 1997 has grown from
1996 and the average contract size has also increased due to a trend in the
Company's manufactured home financing to more land-and-home contracts and slight
price increases by the manufactured housing manufacturers. The dollar volume of
previously owned manufactured housing contract originations rose 24.9% and 24.6%
for the three and six months, respectively, compared to the same periods in
1996.
The dollar volume of home equity/home improvement contract originations rose
135.8% for the quarter and 184% for the six-month period ended June 30, 1997
over the same periods of 1996 to $1,471,000,000. Consumer originations rose
10.8% and 14.5% for the three and six-month periods ended June 30, 1997 compared
to the same periods in 1996 to $483,064,000. Commercial and Equipment fixed term
loan and lease originations increased 378.4% for the quarter and 292.1% for the
six months ended at June 30, 1997 over the same periods in 1996 to $475,199,000.
The overall growth in these originations resulted from expanding the number of
relationships with dealers and the growth in the Company's home equity
originations network, as well as the addition of the equipment leasing business.
11
<PAGE>
The following table reflects the composition of the Company's servicing
portfolio at June 30, 1997 and 1996. Dollar amounts are in thousands.
June 30
----------------------------------
1997 1996
--------------- ---------------
Servicing Portfolio:
Fixed term contracts $22,238,000 $15,483,000
Commercial revolving credit 1,258,000 866,000
Consumer revolving credit 159,000 9,000
--------------- ---------------
Total $23,655,000 $16,358,000
=============== ===============
Interest income is realized from interest only securities, commercial finance
and revolving credit receivables, contract and lease inventory, cash deposits,
and short-term investments. Interest income grew 65.9% and 66.4% during the
three and six-month periods ended June 30, 1997 compared to the same periods in
1996 primarily from increased earnings on the Company's commercial finance and
lease receivables and the increase in interest only securities. Due to higher
origination levels, contract inventory for the six-months ended June 30, 1997
was higher on average than the same period in 1996 which also contributed to the
increase in interest income.
The increase in servicing income of 57.5% and 54.5% during the three and
six-month periods ended June 30, 1997, respectively, compared to the same
periods of 1996 resulted from the growth in the Company's average servicing
portfolio. The Company's servicing income as a percentage of the serviced
portfolio increased as a result of the product mix of the portfolio changing to
products with higher servicing fees.
Commissions and other income, which includes commissions earned on new insurance
policies written and renewals on existing policies, grew 51.4% and 50.7% during
the three and six month periods ended June 30, 1997, respectively, compared to
the same periods in 1996. This growth is primarily a result of the increase in
net written insurance premiums as the Company's contract originations and
servicing portfolio continue to grow.
Interest expense increased 111.9% and 132.0% during the three and six-month
periods ended June 30, 1997, as a result of higher interest rates and the
Company maintaining a higher level of borrowings to fund its loan originations,
commercial finance, and lease portfolio during the first six months of 1997
compared to 1996.
Green Tree's dollar amount of cost of servicing increased 70.7% for the quarter
and 65.0% for the six-month period ended June 30, 1997, compared to the same
periods in 1996 as the Company's total average servicing portfolio grew 44.4%.
The Company's cost of servicing as a percentage of the serviced portfolio
increased as a result of the product mix change in the portfolio towards
products which require more servicing resources.
General and administrative expenses rose 89.8% and 88.1% for the three and
six-month periods ended June 30, 1997. As a percentage of total finance volumes,
these expenses have slightly increased compared to the same periods in 1996. The
dollar growth is due primarily to an increase in personnel and other costs
related to the continued expansion of the Company's new divisions as well as the
increased volume of contracts the Company originated during the first six months
of 1997.
12
<PAGE>
Capital Resources and Liquidity:
The Company's business requires continued access to the capital markets for the
purchase, warehousing and sale of contracts. To satisfy these needs, the Company
employs a variety of capital resources.
Historically, the most important liquidity source for the Company has been its
ability to sell contracts in the secondary markets through loan securitizations.
During the second quarter of 1997 the Company completed five securitizations,
two backed by manufactured housing loans, two by home equity and/or home
improvement loans and one by consumer and equipment loans. Each securitized sale
employed a senior/subordinate structure with a portion of the subordinate bonds
enhanced by a corporate guarantee.
Servicing fees and net interest payments collected, which has been the Company's
principal source of cash, increased during the six-month period ended June 30,
1997 compared to the same period in 1996. Contributing to this growth is an
increase in servicing revenue collected by the Company on its growing servicing
portfolio, and growth in the interest only securities from the Company's ongoing
securitizations.
Net principal payments collected were positive for the six-month period ended
June 30, 1997 and 1996 as a result of an increase in the contract principal
payments collected by the Company 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 of contracts which have been sold.
Interest on contracts increased significantly during the first six months of
1997 compared to the same period in 1996 as a result of the Company having a
larger average outstanding contract portfolio.
Interest on cash, investments and receivables increased during the first six
months of 1997 compared to the same period in 1996 primarily as a result of the
increase in lease, commercial finance, and revolving credit receivables.
Cash paid to employees and suppliers increased $58,794,000 in the first six
months of 1997 compared to the same period in 1996. This increase relates to the
growth in the Company's total general and administrative expenses and servicing
costs and the increase in the taxes paid in 1997 on the annual bonus of the
chief executive officer pursuant to the terms of an employment agreement.
Dividends paid by the Company increased 20.4% in the first six months of 1997
compared to the same period in 1996 as the Company's quarterly average dividend
rate increased 20% over the 1996 quarterly average dividend rate for the first
six months.
The Company has a $2,000,000,000 commercial paper program which is used
primarily for purposes of financing its contract inventory prior to the sale of
those receivables in the form of securitization. This program is backed by both
committed bank facilities and master repurchase agreements with various
investment banking firms. As of June 30, 1997 the Company had issued and
outstanding $758 million in notes under this program. During the second quarter,
the Company established a financing conduit for it's equipment leasing business.
As of June 30,
13
<PAGE>
1997, the principal balance of the conduit was $409 million. Other short-term
debt outstanding at June 30, 1997 totaled $17 million dollars.
The Company has a three-year unsecured revolving line of credit totaling
$750,000,000 which expires April 15, 1999, as well as a 364 day unsecured
revolving line of credit totaling $750,000,000. As of June 30, 1997 the Company
had no borrowings outstanding under these facilities. In addition, master
repurchase agreements are in place with a variety of investment banking firms
totaling $2,300,000,000 which are subject to the availability of eligible
collateral. There were no outstanding balances under the master repurchase
agreements as of June 30, 1997.
Financial Accounting Standards Board Statement No. 128
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share." which the Company is required to adopt on December
31, 1997. This adoption requires the Company to change the method currently used
to compute earnings per share and to restate prior periods. The impact of this
simplified "Earnings Per Share" methodology is not expected to have a material
impact on earnings per share.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been served with various lawsuits which were filed
against the Company in United States District Court for the District
of Minnesota. These lawsuits were filed by certain stockholders of the
Company as purported class actions on behalf of persons or entities
who purchased common stock of the Company during the alleged class
periods that generally run from February 1995 to January 1998. In
addition to the Company, certain current and former officers and
directors of the Company are named as defendants in one or more of the
lawsuits. The Company and the other defendants intend to seek
consolidation of each of the lawsuits in the United States District
Court for the District of Minnesota. 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 the Company 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 the Company (particularly with respect to
prepayment assumptions and performance of certain of the Company's
loan portfolios) which allegedly rendered the Company's financial
statements false and misleading. The Company believes that the
lawsuits are without merit and intends to defend such lawsuits
vigorously.
In addition, 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 statements.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Green Tree's Annual Meeting of Shareholders was held May 15, 1997. At
the meeting the shareholders elected two directors of the Company and
ratified the selection of KPMG Peat Marwick LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1997.
ITEM 5. OTHER INFORMATION
None.
15
<PAGE>
ITEM 6. (A) EXHIBITS
10(e). Amendment to the Master Repurchase Agreement between
Green Tree Financial Corp.-Three and Merrill Lynch
Mortgage Capital Inc. dated June 1, 1997 (incorporated
by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1997; File
No. 1-08916).
10(q). Reverse Repurchase Agreement between Green Tree
Financial Corporation and Smith Barney Mortgage Capital
Group Inc. dated June 1, 1997 (incorporated by
reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1997; File
No. 1-08916).
11(a). Computation of Primary Earnings Per Share (incorporated
by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1997; File
No. 1-08916).
11(b). Computation of Fully Diluted Earnings Per Share
(incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June
30, 1997; File No. 1-08916).
12. Computation of Ratio of Earnings to Fixed Charges
(incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June
30, 1997; File No. 1-08916).
27. Restated Financial Data Schedule.
(B) REPORTS ON FORM 8-K
None.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GREEN TREE FINANCIAL CORPORATION
DATE: March 18, 1998 /S/ EDWARD L. FINN
-----------------------------
Edward L. Finn
Executive Vice President and Chief
Financial Officer
DATE: March 18, 1998 /S/ JOEL H. GOTTESMAN
-----------------------------
Joel H. Gottesman
Senior Vice President, General Counsel
and Secretary
17
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT
- -------------- -------
27. Restated Financial Data Schedule.
<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 SIX-MONTH PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 780,065,000
<SECURITIES> 1,101,409,000
<RECEIVABLES> 1,237,790,000
<ALLOWANCES> 0
<INVENTORY> 879,730,000
<CURRENT-ASSETS> 0
<PP&E> 149,012,000
<DEPRECIATION> 55,916,000
<TOTAL-ASSETS> 4,255,433,000
<CURRENT-LIABILITIES> 0
<BONDS> 290,599,000
0
0
<COMMON> 1,411,000
<OTHER-SE> 1,229,831,000
<TOTAL-LIABILITY-AND-EQUITY> 4,255,433,000
<SALES> 339,930,000
<TOTAL-REVENUES> 584,300,000
<CGS> 0
<TOTAL-COSTS> 195,694,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,194,000
<INCOME-PRETAX> 322,412,000
<INCOME-TAX> 122,516,000
<INCOME-CONTINUING> 199,896,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 199,896,000
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
</TABLE>
