<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 SEPTEMBER 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 OCTOBER 31, 1997, 136,182,544 SHARES OF COMMON STOCK OF GREEN TREE
FINANCIAL CORPORATION WERE OUTSTANDING.
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED September 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 11
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 16
Item 2 Changes in Securities and Use of Proceeds 16
Item 3 Defaults upon Senior Securities 16
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19
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>
September 30, December 31,
1997 1996
-------------- --------------
(unaudited)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 745,216,000 $ 442,071,000
Cash deposits, restricted 196,313,000 171,484,000
Other investments 18,254,000 11,925,000
Interest only securities 1,090,993,000 957,185,000
Receivables:
Lease 628,832,000 564,348,000
Commercial finance 495,291,000 212,920,000
Consumer revolving credit 131,510,000 40,803,000
Other accounts receivable 153,630,000 85,503,000
Contracts and collateral 1,014,890,000 453,008,000
Servicing rights 79,061,000 --
Property, furniture and fixtures 105,372,000 77,859,000
Goodwill 56,926,000 58,950,000
Other assets 18,831,000 21,988,000
-------------- --------------
Total assets $4,735,119,000 $3,098,044,000
============== ==============
Liabilities and Stockholders' Equity:
Notes payable $1,335,251,000 $ 472,181,000
Senior/Senior subordinated notes 510,145,000 290,348,000
Accounts payable and accrued liabilities 571,337,000 378,559,000
Investor payable 486,244,000 346,272,000
Income taxes, principally deferred 561,779,000 473,192,000
-------------- --------------
Total liabilities 3,464,756,000 1,960,552,000
Common stock, $.01 par; authorized 400,000,000 shares,
issued 141,440,784 shares (1997) and 139,782,706
shares (1996) 1,414,000 1,398,000
Additional paid-in capital 432,097,000 373,573,000
Retained earnings 1,104,918,000 818,733,000
Unrealized loss on securities
available for sale, net (106,107,000) --
Minimum pension liability adjustments (2,299,000) (2,299,000)
-------------- --------------
1,430,023,000 1,191,405,000
Less treasury stock, 5,298,256 shares (1997)
and 2,051,000 shares (1996) at cost (159,660,000) (53,913,000)
-------------- --------------
Total stockholders' equity 1,270,363,000 1,137,492,000
-------------- --------------
Total liabilities and stockholders' equity $4,735,119,000 $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 Sept. 30
------------------------------
1997 1996
------------ ------------
Revenues:
Gain on contract sales $202,441,000 $134,110,000
Interest 99,645,000 54,541,000
Servicing 28,564,000 19,172,000
Commission and other 17,610,000 11,842,000
------------ ------------
348,260,000 219,665,000
Expenses:
Interest 45,166,000 16,931,000
Cost of servicing 20,915,000 13,861,000
General and administrative 90,530,000 50,941,000
------------ ------------
156,611,000 81,733,000
------------ ------------
Earnings before income taxes 191,649,000 137,932,000
Income taxes 72,827,000 52,414,000
------------ ------------
Net earnings $118,822,000 $ 85,518,000
============ ============
Earnings per common and common
equivalent share $ .85 $ .61
============ ============
Weighted average common and common
equivalent shares outstanding 140,448,115 140,805,663
See notes to unaudited financial statements.
4
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Nine Months Ended Sept. 30
------------------------------
1997 1996
------------ ------------
Revenues:
Gain on contract sales $542,371,000 $347,220,000
Interest 262,961,000 152,700,000
Servicing 80,398,000 52,733,000
Commission and other 46,830,000 31,232,000
------------ ------------
932,560,000 583,885,000
Expenses:
Interest 111,360,000 45,462,000
Cost of servicing 61,081,000 38,198,000
General and administrative 246,058,000 133,609,000
------------ ------------
418,499,000 217,269,000
------------ ------------
Earnings before income taxes 514,061,000 366,616,000
Income taxes 195,343,000 139,314,000
------------ ------------
Net earnings $318,718,000 $227,302,000
============ ============
Earnings per common and common
equivalent share $ 2.27 $ 1.62
============ ============
Weighted average common and common
equivalent shares outstanding 140,594,665 140,210,839
See notes to unaudited financial statements.
5
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30
----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Servicing fees and net interest payments collected $ 264,117,000 $ 164,672,000
Net principal payments collected 132,597,000 74,835,000
Interest on contracts 91,246,000 38,187,000
Interest on cash, investments and receivables 77,436,000 51,582,000
Commissions 32,259,000 23,760,000
Other 6,953,000 (2,713,000)
--------------- ---------------
604,608,000 350,323,000
--------------- ---------------
Cash paid to employees and suppliers (293,753,000) (188,448,000)
Interest paid on debt (103,919,000) (37,209,000)
Income taxes paid (35,532,000) (36,525,000)
--------------- ---------------
(433,204,000) (262,182,000)
--------------- ---------------
NET CASH PROVIDED BY OPERATIONS 171,404,000 88,141,000
Purchase of contracts and leases (7,959,058,000) (5,379,042,000)
Proceeds from sale of contracts 7,167,967,000 5,766,855,000
Principal collections on contracts and leases 343,021,000 100,674,000
Proceeds from sale of commercial finance and
revolving credit loans 150,000,000 199,950,000
Commercial and revolving credit loans disbursed (3,268,256,000) (2,016,754,000)
Principal collections on commercial and revolving
credit loans 2,827,293,000 1,666,704,000
Net cash deposits (24,829,000) (18,271,000)
--------------- ---------------
NET CASH (USED FOR) PROVIDED BY
OPERATING ACTIVITIES (592,458,000) 408,257,000
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, furniture and fixtures (46,407,000) (22,667,000)
Net (purchases) sales of investments (6,329,000) 7,486,000
--------------- ---------------
NET CASH USED FOR INVESTING ACTIVITIES (52,736,000) (15,181,000)
--------------- ---------------
</TABLE>
6
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30
----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on credit facilities 7,402,625,000 4,447,278,000
Repayments on credit facilities (6,539,554,000) (4,529,492,000)
Borrowings of long-term debt 220,000,000 --
Dividends paid (32,532,000) (25,707,000)
Common stock repurchased (105,748,000) --
Common stock issued 3,548,000 3,714,000
--------------- ---------------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 948,339,000 (104,207,000)
--------------- ---------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 303,145,000 288,869,000
CASH AND CASH EQUIVALENTS BEGINNING
OF PERIOD 442,071,000 295,767,000
--------------- ---------------
CASH AND CASH EQUIVALENTS END OF
PERIOD $ 745,216,000 $ 584,636,000
=============== ===============
RECONCILIATION OF NET EARNINGS TO NET
CASH (USED FOR) PROVIDED BY
OPERATING ACTIVITIES:
Net earnings $ 318,718,000 $ 227,302,000
Provision for income taxes 195,343,000 139,314,000
Depreciation and amortization 25,867,000 15,491,000
Interest only securities and servicing rights
recorded, less net contract payments collected (253,806,000) (258,186,000)
Amortization of deferred servicing revenue -- (19,482,000)
Amortization of servicing rights 9,748,000 --
Accretion of yield on interest only securities (91,788,000) (57,030,000)
Net decrease in cash deposits (24,829,000) (18,271,000)
Purchase of contracts and leases, net of sales and
principal collections (475,905,000) 488,487,000
Commercial and revolving credit loans disbursed,
net of sales and principal collections (290,963,000) (150,100,000)
Net selling expenses on sale of contracts 45,838,000 39,523,000
Increase in interest payable 7,386,000 6,037,000
Income taxes paid (35,532,000) (36,525,000)
Increase in cash paid to employees and suppliers (8,054,000) (29,917,000)
Other (14,481,000) 61,614,000
--------------- ---------------
NET CASH (USED FOR) PROVIDED BY
OPERATING ACTIVITIES $ (592,458,000) $ 408,257,000
=============== ===============
</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 September 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
with respect to the Servicing rights was necessary at September 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 nine-month period ended September 30, 1997 the
Company provided $307 million for projected net credit losses on a discounted
basis. For the same period the Company incurred $175 million of net 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 September 30, 1997 recorded in equity is
$106,107,000 on an after-tax basis.
The Company, along with other financial services companies, has experienced
higher prepayment activity in its portfolio, particularly with respect to
manufactured housing loans made in the higher interest rate environment of 1994
and 1995. Since the end of the third quarter of 1997, the Company has undertaken
a special review of prepayment rates for such loans and the assumptions utilized
in its models to compute the value of its interest only securities.
Preliminarily, the Company has determined that a write down of the value of its
interest only securities in an amount estimated to be in the range of $125 to
$150 million will be made for the quarter ended December 31, 1997. Depending on
the final results of the review, the actual valuation adjustment may be greater
or less than this amount. The valuation adjustment will result in a fourth
quarter pre-tax reduction to earnings equal to the amount of the adjustment. The
Company has also instituted programs to reduce the number of prepayments and
loss severity, and the Company's management will monitor the effect of these
programs in connection with its quarterly review of the valuation of its
interest only securities.
9
<PAGE>
C. Restatement of Financial Statements
The Company determined in the fourth quarter of 1997 that 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 on 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 $362,269,000
Increase other accounts receivable $ 25,868,000
Decrease income taxes, principally deferred $127,832,000
Decrease retained earnings $107,962,000
Increase unrealized loss on securities
available for sale, net $100,607,000
10
<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 nine-month periods ended September 30, 1997 as
compared to the same period of 1996.
Three-month Nine-month
period-to-period period-to-period
increase Sept. 30, increase Sept. 30,
1996 to 1997 1996 to 1997
------------------ ------------------
Revenues:
Gain on contract sales 51.0% 56.2%
Interest 82.7 72.2
Service 49.0 52.5
Commission and other 48.7 49.9
Expenses:
Interest 166.8 145.0
Cost of servicing 50.9 59.9
General and administrative 77.7 84.2
Earnings before income taxes 38.9 40.2
Net earnings 38.9 40.2
Gain on contract sales increased 51.0% and 56.2% for the three and nine-month
periods ended September 30, 1997, respectively, over the same periods in 1996 as
a result of the increased dollar volume of contracts sold, higher interest rate
spreads on manufactured housing sales, and longer average terms on the contracts
sold. For the quarter ended September 30, 1997, total contract sales increased
$536,373,000 or 23.2% over the same period in 1996.
11
<PAGE>
The following table sets forth the Company's fixed term contract originations
and sales for the three and nine-month periods ended September 30, 1997 and
1996. Dollar amounts are in thousands.
Three-month period ended Nine-month period ended
Sept. 30, Sept. 30,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Originations:
Manufactured Housing $1,603,084 $1,415,401 $4,111,419 $3,658,540
Home Equity/ Home
Improvement 967,038 407,899 2,437,855 925,843
Consumer 286,385 269,857 769,449 691,847
Commercial and Equipment 292,846 79,701 768,045 200,879
---------- ---------- ---------- ----------
Total $3,149,353 $2,172,858 $8,086,768 $5,477,109
========== ========== ========== ==========
Sales:
Manufactured Housing $1,599,997 $1,555,052 $3,969,983 $3,783,235
Home Equity/Home
Improvement 749,925 394,065 2,016,778 805,351
Consumer 321,327 249,305 767,991 832,584
Commercial and Equipment 178,672 115,130 459,319 384,029
---------- ---------- ---------- ----------
Total $2,849,921 $2,313,552 $7,214,071 $5,805,199
========== ========== ========== ==========
The Company believes that its market share of contracts for financing new
manufactured housing increased in the first nine months of 1997 compared to the
same period in 1996. During this same time period the manufactured housing
market experienced a decrease in new home shipments as compared to the prior
year. The Company's dollar volume of new manufactured housing contract
originations rose 13% and 12% during the three and nine-month periods ended
September 30, 1997, respectively, over the same periods in 1996. The number of
new contracts originated by the Company during the first nine 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 34.3%
and 28.3% for the three and nine months, respectively, compared to the same
periods in 1996.
The dollar volume of home equity/home improvement contract originations rose
137% for the quarter and 163% for the nine-month period ended September 30, 1997
over the same periods of 1996 to $2,437,855,000. Consumer originations rose 6%
and 11% for the three and nine-month periods ended September 30, 1997 compared
to the same periods in 1996 to $769,449,000. Commercial and equipment fixed term
loan and lease originations increased 267% for the quarter and 282% for the nine
months ended at September 30, 1997 over the same periods in 1996 to
$768,045,000. The overall growth in these originations resulted from new
manufactured housing dealer participation programs, 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.
12
<PAGE>
The following table reflects the composition of the Company's servicing
portfolio at September 30, 1997 and 1996. Dollar amounts are in thousands.
Sept. 30
--------------------------
1997 1996
----------- -----------
Servicing Portfolio:
Fixed term contracts $24,214,000 $16,996,000
Commercial revolving credit 1,464,000 958,000
Consumer revolving credit 247,000 25,000
----------- -----------
Total $25,925,000 $17,979,000
=========== ===========
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 82.7% and 72.2% during the
three and nine-month periods ended September 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 nine-months ended
September 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 49.0% and 52.5% during the three and
nine-month periods ended September 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 48.7% and 49.9% during
the three and nine month periods ended September 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 166.8% and 145.0% during the three and nine-month
periods ended September 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, revolving credit, and lease portfolio during the first nine
months of 1997 compared to 1996.
Green Tree's dollar amount of cost of servicing increased 50.9% for the quarter
and 59.9% for the nine-month period ended September 30, 1997, compared to the
same periods in 1996 as the Company's total average servicing portfolio grew
44.2%. 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 77.7% and 84.2% for the three and
nine-month periods ended September 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
nine months of 1997.
13
<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 third quarter of 1997 the Company completed four public
securitizations, two backed by manufactured housing loans, one 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. Additionally, the Company
completed a private securitization of its consumer revolving credit portfolio
during the quarter utilizing a revolving master trust structure.
Servicing fees and net interest payments collected, which has been the Company's
principal source of cash, increased during the nine-month period ended September
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 nine-month period ended
September 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 nine 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 nine
months of 1997 compared to the same period in 1996 primarily as a result of the
increase in commercial finance, lease, and revolving credit receivables.
Cash paid to employees and suppliers increased $105,305,000 in the first nine
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 26.6% in the first nine months of 1997
compared to the same period in 1996 as the Company's quarterly average dividend
rate increased 16.7% over the 1996 quarterly average dividend rate for the first
nine 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 September 30, 1997 the Company had issued and
outstanding $962 million in notes under this program.
14
<PAGE>
During the second quarter, the Company established a financing conduit for its
equipment leasing business. As of September 30, 1997, the principal balance of
the conduit was $359 million. Other short-term debt outstanding at September 30,
1997 totaled $14 million.
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 September 30, 1997 the
Company had $15 million in borrowings outstanding under the three-year facility.
In addition, master repurchase agreements are in place with a variety of
investment banking firms totaling $2,800,000,000 which are subject to the
availability of eligible collateral. There were no outstanding balances under
the master repurchase agreements as of September 30, 1997.
Recently Issued Accounting Standards
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.
In June, 1997, The Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income", which the Company is required to adopt
effective December 31, 1997. This adoption will have no financial impact to the
Company , but will require new disclosure information. The Company's management
is currently reviewing the disclosure requirements.
In June, 1997, The Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information",
which the Company is required to adopt for the 1998 fiscal period. This adoption
does not require that segment information be reported in interim periods in the
initial year, but that segment information is disclosed in the following year
for comparability purposes. The segmentation disclosure requirements are under
review by the Company's management.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been served with various lawsuits 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 condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
16
<PAGE>
ITEM 6. (A) EXHIBITS
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 September 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 September 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 September 30,
1997; File No. 1-08916).
27. Restated Financial Data Schedule.
(B) REPORTS ON FORM 8-K
None.
17
<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
18
<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 NINE-MONTH PERIOD ENDED SEPT. 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 941,529,000
<SECURITIES> 1,090,993,000
<RECEIVABLES> 1,255,633,000
<ALLOWANCES> 0
<INVENTORY> 1,014,890,000
<CURRENT-ASSETS> 0
<PP&E> 168,072,000
<DEPRECIATION> 62,700,000
<TOTAL-ASSETS> 4,735,199,000
<CURRENT-LIABILITIES> 0
<BONDS> 510,145,000
0
0
<COMMON> 1,414,000
<OTHER-SE> 1,268,949,000
<TOTAL-LIABILITY-AND-EQUITY> 4,735,119,000
<SALES> 542,371,000
<TOTAL-REVENUES> 932,560,000
<CGS> 0
<TOTAL-COSTS> 307,139,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,360,000
<INCOME-PRETAX> 514,061,000
<INCOME-TAX> 195,343,000
<INCOME-CONTINUING> 318,718,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 318,718,000
<EPS-PRIMARY> 2.27
<EPS-DILUTED> 2.27
</TABLE>
