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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 27, 1998
GREEN TREE FINANCIAL CORPORATION
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Delaware 01-08916 41-1807858
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(State or other jurisdiction (Commission (IRS employer
of incorporation) file number) identification No.)
1100 Landmark Towers, 345 St. Peter Street, Saint Paul, Minnesota 55102-1639
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(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 293-3400
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Not Applicable
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(Former name or former address, if changed since last report)
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Item 1. Changes in Control of Registrant.
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Not applicable.
Item 2. Acquisition or Disposition of Assets.
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Not applicable.
Item 3. Bankruptcy or Receivership.
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Not applicable.
Item 4. Changes in Registrant's Certifying Accountant.
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Not applicable.
Item 5. Other Events.
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Attached and incorporated herein by reference as Exhibit 99.1 is a
press release dated January 27, 1998 of registrant, Green Tree
Financial Corporation announcing fourth quarter and 1997 results
and plans to restate 1996 earnings.
Item 6. Resignations of Registrant's Directors.
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Not applicable.
Item 7. Financial Statements and Exhibits.
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(a) Financial statements of businesses acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
2
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(c) Exhibits.
The following is filed herewith. The exhibit numbers correspond
with Item 601(b) of Regulation S-K.
Exhibit No. Description
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99.1 Press Release dated January 27, 1998, wherein
Green Tree Financial Corporation announces
fourth quarter and 1997 results and plans to
restate 1996 earnings.
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
/s/ Joel H. Gottesman
By: ________________________________
Joel H. Gottesman
Sr. Vice President, General Counsel
and Secretary
3
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INDEX TO EXHIBITS
Exhibit Number Page
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99.1 Press Release dated January 27, 1998 wherein Green Tree
Financial Corporation announces fourth quarter and 1997
results and plans to restate 1996 earnings.
4
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[LETTERHEAD OF GREEN TREE FINANCIAL CORP.]
1100 Landmark Towers - 345 St. Peter Street - Saint Paul, Minnesota 55102-1639
(612) 293-3400 - Fax (612) 293-5746
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NEWS RELEASE
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FOR IMMEDIATE RELEASE CONTACT: Edward L. Finn
Chief Financial Officer
or
John A. Dolphin
Vice President
(612) 293-3400
GREEN TREE FINANCIAL ANNOUNCES FOURTH QUARTER AND 1997
RESULTS; COMPANY PLANS TO RESTATE 1996 EARNINGS
SAINT PAUL, MINN., January 27, 1998 -- Green Tree Financial Corporation
(NYSE: GNT) today announced its financial results for the quarter and year ended
December 31, 1997.
While the company's fundamental business outlook remains strong, these
results were negatively affected by two factors: (1) the recent heightened
volatility in the global credit markets, which increased credit spreads for
virtually all issuers of fixed income securities; and (2) a supplemental reserve
of $190 million taken in the fourth quarter. This reserve was taken as a result
of a previously announced special review of the elements used in the valuation
of Green Tree's interest only securities. In the course of that review, the
company, in consultation with its independent auditors, determined that the
carrying value of its interest only securities should be reduced by an
additional $200 million in the audited financial statements for 1996, which are
being restated accordingly.
Excluding the supplement to reserves, net earnings for the fourth quarter
were $100.5 million, or $.72 per common share. Including the impact of a
supplement to reserves in the amount of $190 million on a pre-tax basis, the
fourth quarter resulted in a net loss of $17.3 million, or ($.12) per share.
For the full year of 1997, net earnings were $301.4 million and earnings per
common share were $2.15.
Lawrence M. Coss, chairman and chief executive officer, said, "It is
certainly disappointing for Green Tree to be announcing the financial statement
adjustments that have been made for 1996 and 1997. However, these adjustments
should be viewed in the context of the extremely detailed and thorough review
that has now been completed. Green Tree and its numerous stakeholders can now
proceed with higher confidence in the operating and financial programs that have
been implemented by the company to respond to higher loan prepayments that are
an industry-wide phenomenon."
Earnings per share for the fourth quarter, excluding the supplement to
reserves, were below previous expectations of $.84 to $.94 primarily due to
lower than expected interest rate spreads realized on the company's securitized
asset sales in the period. Interest rate spreads were negatively affected by
the increased volatility experienced in the global credit markets at the end of
1997, which increased credit spreads for
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virtually all issuers of fixed income securities. Despite this volatility,
Green Tree successfully issued a record $10.5 billion of securitized assets in a
wide variety of asset classes during 1997, including $3.3 billion in the fourth
quarter.
Green Tree's total managed finance receivables ended 1997 at an all-time
high of $28.0 billion, 39 percent higher than year-end 1996 managed receivables
of $20.1 billion. This increase was generated by strong internal loan growth
during the year, with consumer loan volumes increasing 45 percent to $10.5
billion and commercial loan volumes increasing 55 percent to $5.2 billion. At
year-end, consumer managed receivables were $24.7 billion and commercial managed
receivables were $3.3 billion. Gross operating cash flow amounted to $889
million in 1997, 53 percent more than the $582 million in gross operating cash
flow generated in 1996. Net operating cash flow was $268 million in 1997 and
$89 million in 1996.
When the company announced on November 13, 1997 its plans to take a
supplemental reserve addition to reduce the carrying value of its interest only
securities, it disclosed that it was undertaking a special review of the
systems, financial modeling and assumptions used in the valuation of this asset.
During the course of that review, Green Tree, in consultation with its
independent auditors, KPMG Peat Marwick LLP, determined that it had not fully
considered the effect upon its interest only securities of partial prepayments
(principal curtailments) and the impact that higher prepayments have on
projected future interest due to investors on a weighted average basis.
The adjustment which relates to the carrying value of the interest only
securities as of December 31, 1996 will total $200 million, and the company will
restate its 1996 earnings by this amount on a pre-tax basis. The adjustments
for these items which relate to subsequent activity have been reflected in the
1997 reserve addition. The 1996 restatement will reduce the carrying value of
the interest only securities as of December 31, 1996 from $1.157 billion to $957
million. The restated net earnings for 1996 are $184.7 million versus the
$308.7 million previously disclosed, and restated earnings per share are $1.31
versus the $2.20 previously disclosed. The company is currently examining the
impact on its financial statements from a reduction in the compensation paid to
the company's chief executive officer for 1996 under a previous employment
contract. The compensation earned under this contract was based on pre-tax
income and therefore will be adjusted in accordance with the company's restated
net earnings for that year.
During the course of the same review and in light of the 1996 adjustment,
the company, in consultation with its independent auditors, determined that the
previously announced fourth quarter 1997 reduction in the carrying value of its
interest only securities of $125 million to $150 million would take the form of
a $190 million pre-tax earnings reduction and an offsetting pre-tax credit of
$44 million to stockholders' equity, in accordance with the guidance provided by
Statement of Financial Accounting Standards No. 125. At December 31, 1997,
Green Tree's stockholders' equity was $1.32 billion.
The Board of Directors of Green Tree has declared a quarterly cash dividend
in the amount of $0.0875 per common share, payable on March 31, 1998, to
shareholders of record on March 16, 1998. This represents Green Tree's 46th
consecutive quarterly cash dividend. Under a previously announced stock
repurchase program approved by its Board, Green Tree bought back 4,961,156
shares of its common stock in 1997, including 1,713,900 in the fourth quarter.
Commenting on the outlook for Green Tree in 1998, Coss said, "Our plans
call for solid growth in the level of managed receivables by year-end 1998, with
the total surpassing $32 billion. We expect new finance volumes to exceed 1997
levels, balanced between manufactured housing, home equity/improvement, consumer
lending, and commercial/equipment finance. Most importantly, we remain sharply
focused on continuing our history of success in building a unique franchise
position in the finance industry."
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As a result of certain accounting decisions described below, and adjusting
for potentially higher funding costs compared to 1997, the company now expects
earnings per share for 1998 to be in the $2.50 range. Nearly half of Green
Tree's projected revenues of $1.4 billion in 1998 should come from recurring
sources, and gross operating cash flow is expected to be approximately $1.0
billion.
After careful consideration, Green Tree said that it will make certain
changes in the assumptions used to record revenues from its loan securitization
activities in 1998. In manufactured housing, the company's prepayment speed
assumption will increase by 33 percent to 200% MHP (Manufactured Housing
Prepayment). The company is hopeful that actual performance, however, will be
in the 140% to 160% MHP range, the assumption previously used in recording these
revenues. In support of this expectation, Gregory D. Aplin, president of
manufactured housing, said, "The experience thus far from our refocused effort
to reduce attrition in the portfolio has begun to produce the desired results.
Repayment activity declined in both November and December, and we intend to
sustain this trend over the course of 1998. The increase in points being
collected and lower interest rates being offered by our loan origination network
should also have a positive impact on future prepayment experience."
In the fixed-rate home equity business, an increased prepayment speed
assumption of 30% CPR (Constant Prepayment Rate) will be used. The company is
hopeful that actual performance, however, will be in the 25% to 27% CPR range,
the assumption previously used in recording these revenues. Bruce A.
Crittenden, president of Green Tree Mortgage Services, said, "Since the launch
of the home equity group in early 1996, we have been focused on building a
unique retail platform to distribute non-conforming residential mortgage
products. In 1998, we expect 80 percent of our finance volume to come through
retail channels, including our leading dealer-based home improvement operation.
This mix should have favorable consequences for both the economics of the
overall business as well as for future prepayment experience."
Green Tree's commercial, equipment and insurance operations will make an
important contribution to cash flows in 1998. Jerry W. Britton, president of
commercial lending, said, "Commercial managed receivables are expected to grow
to $4.0 billion in 1998 from $3.3 billion at the end of 1997. The value of
these collective businesses is substantial since they should generate over $100
million in pre-tax income in 1998, most of it in cash."
Green Tree Financial Corporation is a leading diversified financial
services company with nationwide operations serving customers in the consumer
finance, commercial finance and insurance markets. With managed finance
receivables of $28 billion, Green Tree is one of the largest multi-line finance
companies in the United States. Founded in 1975, Green Tree has 5,700 employees
at 200 company locations that work with over 20,000 retail dealers across the
country as well as directly with consumers.
Cautionary Statement Regarding Forward-Looking Statements: Certain
information included in this press release 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; 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.
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GREEN TREE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31 Year Ended December 31
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1997 1996 1997 1996
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<S> <C> <C> <C> <C>
INCOME:
Gain on contract sales (Note 1) $ 4,457,000 $ 42,523,000 $ 546,828,000 $389,743,000
Interest 107,608,000 62,615,000 370,569,000 215,315,000
Service 28,855,000 20,530,000 109,253,000 73,263,000
Commissions and other 17,980,000 14,558,000 64,810,000 45,790,000
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158,900,000 140,226,000 1,091,460,000 724,111,000
EXPENSES:
Interest 49,522,000 24,588,000 160,882,000 70,050,000
Cost of servicing 27,659,000 14,824,000 88,740,000 53,022,000
General and administrative (Note 2) 109,657,000 169,469,000 355,715,000 303,078,000
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186,838,000 208,881,000 605,337,000 426,150,000
EARNINGS (LOSS) BEFORE
INCOME TAXES ( 27,938,000) ( 68,655,000) 486,123,000 297,961,000
INCOME TAXES ( 10,616,000) ( 26,089,000) 184,727,000 113,225,000
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NET EARNINGS (LOSS) ($ 17,322,000) ($ 42,566,000) $ 301,396,000 $184,736,000
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EARNINGS (LOSS) PER SHARE ($ .12) ($ .30) $2.15 $1.31
============== ============== ============== ============
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 139,082,940 141,614,803 140,254,442 140,561,830
</TABLE>
Note 1: Gain on Contract Sales for the three months and years ended December 31,
1997 and 1996 is shown net of supplemental additions to reserves of $190,000,000
and $200,000,000, respectively. In connection with the adoption of SFAS125,
Gain on Contract Sales for the three months ended December 31, 1997 and 1996 is
shown net of provision for losses of $119,567,000 and $99,585,000, respectively.
For the years ended December 31, 1997 and 1996, Gain on Contract Sales is shown
net of provision for losses of $426,205,000 and $351,743,000, respectively.
Note 2: Before the impact from a reduction in the compensation paid to the chief
executive officer for 1996.
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GREEN TREE FINANCIAL CORPORATION
ADDITIONAL INFORMATION:
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<CAPTION>
BALANCE SHEET DATA - (Unaudited, $ millions) 12/31/97 9/30/97 12/31/96
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<S> <C> <C> <C>
Total Assets $ 4,840 $ 5,072 $ 3,098
Contracts and Leases Held For Sale $ 1,293 $ 1,644 $ 1,017
Long Term Debt $ 510 $ 510 $ 290
Stockholders' Equity (Note) $ 1,315 $ 1,479 $ 1,121
Common Shares Outstanding 134,583,828 136,142,528 137,731,706
Note: Before the impact from a reduction in the compensation paid to the chief
executive officer for 1996.
MANAGED FINANCE RECEIVABLES ($ millions) 12/31/97 9/30/97 12/31/96
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Manufactured Housing $ 18,005 $ 17,281 $ 14,786
Home Improvement/Home Equity 4,849 4,105 2,246
Consumer/Retail 1,760 1,619 919
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Subtotal - Consumer $ 24,614 $ 23,005 $ 17,951
Commercial/Equipment 3,343 2,920 2,122
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Total $ 27,957 $ 25,925 $ 20,073
CREDIT QUALITY (Dollar Basis as % of Mgd. Fin. Rec.) 12/31/97 9/30/97 12/31/96
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60+ Delinquency
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Manufactured Housing 1.22% 1.18% 1.19%
Home Improvement/Home Equity 0.88% 0.83% 0.85%
Consumer/Retail 1.24% 0.96% 0.94%
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Subtotal - Consumer 1.15% 1.10% 1.13%
Commercial/Equipment 0.55% 0.52% 0.61%
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Total 1.08% 1.03% 1.08%
Net Credit Losses (annualized)
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Manufactured Housing 1.15% 1.15% 0.76%
Home Improvement/Home Equity 0.69% 0.63% 1.12%
Consumer/Retail 1.20% 0.96% 0.52%
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Subtotal - Consumer 1.07% 1.06% 0.77%
Commercial/Equipment 0.75% 0.72% 0.44%
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Total 1.04% 1.02% 0.74%
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<CAPTION>
Three Months Ended Dec. 31, Twelve Months Ended Dec. 31,
FINANCE VOLUME ($ millions) 1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Manufactured Housing $ 1,368 $ 1,224 $ 5,479 $ 4,882
Home Improvement/Home Equity 1,038 568 3,476 1,494
Consumer/Retail 366 205 1,511 836
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Subtotal - Consumer $ 2,772 $ 1,997 $ 10,466 $ 7,212
Commercial/Equipment 1,554 945 5,182 3,343
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Total $ 4,326 $ 2,942 $ 15,648 $10,555
SECURITIZED ASSET SALES ($ millions) $ 3,311 $ 2,609 $ 10,525 $ 8,414
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