================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] 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
CONSECO FINANCE CORP.
Delaware No. 41-1807858
---------------------- -------------------------------
State of Incorporation IRS Employer Identification No.
1100 Landmark Towers
Saint Paul, Minnesota 55102-1639 (651) 293-3400
- -------------------------------------- --------------
Address of principal executive offices Telephone
Green Tree Financial Corporation
--------------------------------
Former Name of Registrant
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [ X ] No [ ]
Shares of common stock outstanding as of October 29, 1999: 100
The Registrant meets the conditions set forth in general instruction
H(1)(a) and H(1)(b) to Form 10-Q. Accordingly, the disclosures in this filing
have been reduced as permitted by such instructions.
================================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
CONSECO FINANCE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
ASSETS
September 30, December 31,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Actively managed fixed maturity securities at fair value (amortized cost: 1999 - $814.0;
1998 - $342.5)............................................................................. $ 774.7 $ 340.8
Interest-only securities at fair value (amortized cost: 1999 - $1,525.9; 1998 - $1,313.6)..... 1,406.9 1,305.4
Short-term investments........................................................................ 172.9 195.2
Cash held in segregated accounts for investors................................................ 864.8 843.7
Cash deposits, restricted under pooling and servicing agreements.............................. 177.9 205.2
Other invested assets ........................................................................ 22.2 16.8
Finance receivables........................................................................... 5,500.7 3,067.2
Other receivables............................................................................. 294.1 266.7
Receivables due from Conseco, Inc............................................................. 236.0 227.5
Servicing rights.............................................................................. 134.7 116.4
Goodwill...................................................................................... 50.9 53.2
Other assets.................................................................................. 240.0 190.2
-------- --------
Total assets........................................................................... $9,875.8 $6,828.3
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Investor payables.......................................................................... $ 864.8 $ 843.7
Liabilities related to deposit products.................................................... 744.8 30.0
Other liabilities.......................................................................... 904.0 675.6
Income tax liabilities..................................................................... 528.6 547.9
Notes payable.............................................................................. 2,968.5 1,584.9
Notes payable due to Conseco, Inc.......................................................... 1,517.1 854.0
-------- --------
Total liabilities.................................................................... 7,527.8 4,536.1
-------- --------
Shareholder's equity:
Common stock and additional paid-in capital................................................ 1,341.0 1,338.3
Accumulated other comprehensive loss:
Unrealized depreciation of actively managed fixed maturity securities and
interest-only securities (net of applicable deferred income taxes: 1999 - $(58.6);
1998 - $(3.3))......................................................................... (99.7) (6.6)
Minimum pension liability adjustment (net of applicable deferred income taxes:
1999 - $ -; 1998 - $(2.7))............................................................. - (4.4)
Retained earnings.......................................................................... 1,106.7 964.9
-------- --------
Total shareholder's equity........................................................... 2,348.0 2,292.2
-------- --------
Total liabilities and shareholder's equity........................................... $9,875.8 $6,828.3
========= ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
CONSECO FINANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net investment income:
Finance receivables and other......................................... $158.5 $ 73.7 $ 398.7 $ 203.8
Interest-only securities.............................................. 49.3 34.2 140.8 94.0
Gain on sale of finance receivables..................................... 114.2 257.9 540.0 529.2
Fee revenue and other income............................................ 95.9 66.5 266.1 187.2
------ ------ -------- --------
Total revenues.................................................... 417.9 432.3 1,345.6 1,014.2
------ ------ -------- --------
Expenses:
Provision for losses.................................................... 28.3 14.5 76.8 25.7
Interest expense........................................................ 86.0 56.6 212.2 160.3
Other operating costs and expenses...................................... 180.8 168.4 503.2 453.9
Nonrecurring charges.................................................... - - - 108.0
Impairment charge....................................................... - - - 549.4
------ ------ --------- --------
Total expenses.................................................... 295.1 239.5 792.2 1,297.3
------ ------ -------- --------
Income (loss) before income taxes and extraordinary charge........ 122.8 192.8 553.4 (283.1)
Income tax expense (benefit)............................................... 51.6 73.1 211.6 (46.4)
------ ------ -------- --------
Income (loss) before extraordinary charge......................... 71.2 119.7 341.8 (236.7)
Extraordinary charge on extinguishment of debt, net of taxes............... - 9.0 - 11.5
------ ------ --------- --------
Net income (loss)................................................. $ 71.2 $110.7 $ 341.8 $ (248.2)
======= ====== ======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
CONSECO FINANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(Dollars in millions)
(unaudited)
Common stock Accumulated other
and additional comprehensive Retained
Total paid-in capital income (loss) earnings
----- --------------- ------------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1999....................................... $2,292.2 $1,338.3 $(11.0) $ 964.9
Comprehensive income, net of tax:
Net income................................................ 341.8 - - 341.8
Change in unrealized depreciation of actively managed
fixed maturity investments and interest-only securities
(net of applicable income tax benefit of $55.3)......... (93.1) - (93.1) -
Change in minimum pension liability (net of applicable
income tax expense of $2.7)............................. 4.4 - 4.4 -
--------
Total comprehensive income............................ 253.1
Tax benefit related to issuance of shares under
stock option plans........................................ 2.7 2.7 - -
Dividends on common stock................................... (200.0) - - (200.0)
-------- -------- ------- --------
Balance, September 30, 1999.................................... $2,348.0 $1,341.0 $(99.7) $1,106.7
======== ======== ====== ========
Balance, January 1, 1998....................................... $1,332.1 $ 237.8 $ 18.6 $1,075.7
Comprehensive loss, net of tax:
Net loss.................................................. (248.2) - - (248.2)
Change in unrealized appreciation (depreciation) of
interest-only securities (net of applicable income
tax benefit of $14.6)................................... (23.7) - (23.7) -
--------
Total comprehensive loss.............................. (271.9)
Capital contribution from parent............................ 1,100.0 1,100.0 - -
Issuance of stock warrants in conjunction with
financing transaction..................................... 7.7 7.7 - -
Issuance of shares for stock options and for
employee benefit plans.................................... 1.7 1.7 - -
Tax benefit related to issuance of shares under stock option
plans..................................................... 1.8 1.8 - -
Shares returned by executive due to recomputation
of bonus.................................................. (23.4) (23.4) - -
Dividends on common stock................................... (23.5) - - (23.5)
-------- -------- ------ --------
Balance, September 30, 1998.................................... $2,124.5 $1,325.6 $ (5.1) $ 804.0
======== ======== ====== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
CONSECO FINANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(unaudited)
Nine months ended
September 30,
----------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................................ $ 341.8 $ (248.2)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Gain on sale of finance receivables.................................................... (540.0) (529.2)
Points and origination fees received................................................... 359.0 199.9
Interest-only securities investment income............................................. (140.8) (94.0)
Cash received from interest-only securities............................................ 343.0 250.3
Servicing income....................................................................... (123.7) (102.6)
Cash received from servicing activities................................................ 137.0 118.0
Provision for losses................................................................... 76.8 25.7
Amortization and depreciation.......................................................... 37.4 32.3
Income taxes........................................................................... 121.2 (71.4)
Accrual and amortization of investment income.......................................... (12.1) (9.3)
Nonrecurring and impairment charges.................................................... - 629.5
Extraordinary charge on extinguishment of debt......................................... - 18.6
Other.................................................................................. (13.3) (8.6)
---------- ----------
Net cash provided by operating activities before settlement of prior year taxes...... 586.3 211.0
Payment of taxes in settlement of prior years.......................................... (85.1) -
---------- ----------
Net cash provided by operating activities............................................ 501.2 211.0
---------- ----------
Cash flows from investing activities:
Cash received from the sale of finance receivables, net of expenses...................... 9,135.4 9,455.9
Principal payments received on finance receivables....................................... 6,777.6 4,361.8
Finance receivables originated........................................................... (18,781.8) (15,174.2)
Other.................................................................................... (174.5) (156.0)
---------- ----------
Net cash used by investing activities ............................................... (3,043.3) (1,512.5)
---------- ----------
Cash flows from financing activities:
Capital contribution from parent......................................................... - 1,100.0
Issuance of shares related to stock options.............................................. - 1.7
Issuance of liabilities related to deposit products...................................... 863.2 -
Payments on liabilities related to deposit products...................................... (148.4) -
Issuance of notes payable and commercial paper........................................... 12,652.3 9,199.2
Payments on notes payable and commercial paper........................................... (10,647.3) (9,062.5)
Common stock dividends paid ............................................................. (200.0) (23.5)
---------- ----------
Net cash provided by financing activities............................................ 2,519.8 1,214.9
---------- ----------
Net decrease in short-term investments............................................... (22.3) (86.6)
Short-term investments, beginning of period................................................. 195.2 164.2
---------- ----------
Short-term investments, end of period....................................................... $ 172.9 $ 77.6
========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE>
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
The following notes should be read in conjunction with the notes to the
consolidated financial statements included in the 1998 Form 10-K of Conseco
Finance Corp. ("we", "Conseco Finance" or the "Company", formerly Green Tree
Financial Corporation prior to its name change in November 1999).
Conseco Finance is a financial services holding company that originates,
purchases, sells and services consumer and commercial finance loans throughout
the United States. Conseco Finance is a wholly owned subsidiary of Conseco, Inc.
("Conseco"), a financial services holding company.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our unaudited consolidated financial statements reflect all adjustments,
consisting only of normal recurring items, that are necessary to present fairly
Conseco Finance's financial position and results of operations on a basis
consistent with that of our prior audited consolidated financial statements. As
permitted by rules and regulations of the Securities and Exchange Commission
applicable to quarterly reports on Form 10-Q, we have condensed or omitted
certain information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles ("GAAP").
We have also reclassified certain amounts from the prior periods to conform to
the 1999 presentation. Results for interim periods are not necessarily
indicative of the results that may be expected for a full year.
When we prepare financial statements in conformity with GAAP, we are
required to make estimates and assumptions that significantly affect various
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting periods. For example, we use significant estimates
and assumptions in calculating interest-only securities, servicing rights,
goodwill, liabilities related to litigation, gain on sale of finance receivables
and deferred income taxes. If our future experience differs from these estimates
and assumptions, our financial statements could be materially affected.
Our consolidated financial statements exclude the results of material
transactions between us and our consolidated affiliates, or among our
consolidated affiliates.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended, ("SFAS 133")
requires all derivative instruments to be recorded on the balance sheet at
estimated fair value. Changes in the fair value of derivative instruments are to
be recorded each period either in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, on the type of hedge transaction. We are required to
implement the provisions of SFAS 133 for the year 2001. We are currently
evaluating the impact of SFAS 133. At present, we believe it will not have a
material effect on either our consolidated financial position or our results of
operations.
FINANCE RECEIVABLES AND INTEREST-ONLY SECURITIES
Finance receivables, summarized by type, were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
(Dollars in millions)
<S> <C> <C>
Manufactured housing......................................................... $ 603.8 $ 798.8
Mortgage services............................................................ 1,860.4 603.5
Consumer/credit card......................................................... 1,396.7 587.3
Commercial................................................................... 1,700.7 1,120.6
-------- --------
5,561.6 3,110.2
Less allowance for doubtful accounts......................................... 60.9 43.0
-------- --------
Net finance receivables................................................. $5,500.7 $3,067.2
======== ========
</TABLE>
6
<PAGE>
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
On September 8, 1999, we announced that we would no longer structure the
securitizations of the loans we originate in a manner that results in
gain-on-sale revenues. We will use the portfolio method to account for all
future financings that support our lending activities. Securitization
transactions completed after September 8, 1999 are being structured to include
provisions that entitle the Company to repurchase assets transferred to the
special purpose entity when the aggregate unpaid principal balance reaches a
specified level which is higher than the level considered to be a clean-up call.
Pursuant to Financial Accounting Standards Board Statement No. 125, Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities, such securitization transactions are accounted for as securitized
borrowings rather than sales.
For loans we finance through securitizations, this change and the resulting
use of the portfolio method of accounting, will have no effect on the total
profit we recognize over the life of each new loan, but it will change the
timing of profit recognition. Under the portfolio method, we will recognize
earnings over the life of a new loan as it generates interest. As a result, our
reported earnings from each new loan under the portfolio method will be lower in
the period it is securitized (compared to our historical method) and higher in
later periods, as interest is earned on the loan.
The securitizations completed prior to our September 8, 1999 announcement
met the applicable criteria to be accounted for as sales. We sold $9.7 billion
of finance receivables during 1999 prior to our September 8, 1999 announcement
and recognized gains of $540.0 million. We sold $9.4 billion of finance
receivables during the first nine months of 1998 and recognized gains of $529.2
million. At the time the loans were securitized and sold, we recognized a gain
and recorded our residual interest in the securitization. The residual interest
represents the right to receive, over the life of the pool of receivables: (i)
the excess of the principal and interest received on the receivables transferred
to the special purpose entity over the principal and interest paid to the
holders of other interests in the securitization; and (ii) servicing fees. In
some of those securitizations, we also retained certain lower-rated securities
that are senior in payment priority to the interest-only securities. Such
retained securities had a fair market value and amortized cost of $774.7 million
and $814.0 million, respectively, at September 30, 1999, and were classified as
actively managed fixed maturity securities.
The interest-only securities on our balance sheet represent an allocated
portion of the cost basis of the finance receivables securitized prior to
September 8, 1999 in transactions accounted for as sales. We adjust this value
to estimated fair value each quarter. We used the following assumptions to
adjust the amortized cost to estimated fair value at September 30, 1999. The
difference between estimated fair value and the amortized cost of the
interest-only securities is included in accumulated other comprehensive loss.
<TABLE>
<CAPTION>
Manufactured Home equity/ Consumer/
housing home improvement equipment Total
------- ---------------- --------- -----
(Dollars in millions)
<S> <C> <C> <C> <C>
Interest-only securities at fair value............... $ 797.3 $ 453.5 $ 156.1 $ 1,406.9
Cumulative principal balance of sold finance
receivables at September 30, 1999 (a)............. 23,676.3 9,480.2 3,999.5 37,156.0
Weighted average stated customer interest rate
on sold finance receivables (a)................... 10.0% 11.5% 10.9%
Assumptions to determine estimated fair value of
interest-only securities at September 30, 1999:
Expected weighted average annual constant
prepayment rate as a percentage of principal
balance of related finance receivables (a) (b) 11.4% 27.8% 23.6%
Expected nondiscounted credit losses as a
percentage of principal balance of
related finance receivables (a) (b)........... 6.1% 3.6% 2.3%
Weighted average discount rate ................. 14.0% 14.0% 14.0%
<FN>
- --------------------
(a) Excludes finance receivables sold in revolving-trust securitizations.
(b) The valuation of interest-only securities is affected not only by the
projected level of prepayments of principal and net credit losses, but also
by the projected timing of such prepayments and net credit losses. Should
such timing differ materially from our projections, it could have a
material effect on the valuation of our interest-only securities.
</FN>
</TABLE>
7
<PAGE>
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
We used the assumptions in the table below to determine the initial value
of the interest-only securities related to new securitizations in the first nine
months of 1999.
<TABLE>
<CAPTION>
Manufactured Home equity/ Consumer/
housing home improvement equipment
------- ---------------- ---------
(Dollars in millions)
<S> <C> <C> <C>
Related to securitizations completed in the
first nine months of 1999:
Weighted average stated customer interest rate
on sold finance receivables (a) (b)............. 9.7% 11.7% 10.8%
Assumptions to determine gain on sale during
the first nine months of 1999:
Expected weighted average annual constant
prepayment rate as a percentage of principal
balance of sold finance receivables (a) (c)... 10.6% 27.7% 18.9%
Expected nondiscounted credit losses as a
percentage of principal balance of sold
finance receivables (a) (c)................... 8.6% 3.3% 1.7%
Weighted average discount rate used for
determining the gain on sale of finance
receivables................................... 15.0% 15.0% 15.0%
<FN>
- --------------------
(a) Excludes finance receivables sold in revolving-trust securitizations.
(b) The stated interest rate reflects reductions in rates due to collection of
points. Including such points, the effective yield on manufactured housing
finance receivables was approximately 10.8 percent in the first nine months
of 1999.
(c) The valuation of interest-only securities is affected not only by the
projected level of prepayments of principal and net credit losses, but also
by the projected timing of such prepayments and net credit losses. Should
such timing differ materially from our projections, it could have a
material effect on the valuation of our interest-only securities.
</FN>
</TABLE>
8
<PAGE>
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
Credit quality was as follows:
<TABLE>
<CAPTION>
September 30,
--------------------
1999 1998
---- ----
<S> <C> <C>
60-days-and-over delinquencies as a percentage
of managed finance receivables at period end............................ 1.27% 1.10%
==== ====
Net credit losses incurred during the last twelve months as a percentage
of average managed finance receivables during the period................ 1.20% 1.06%
==== ====
Repossessed collateral inventory as a percentage of managed finance
receivables at period end............................................... 1.20% 1.00%
==== ====
</TABLE>
Activity in the interest-only securities account was as follows:
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------
1999 1998
---- ----
(Dollars in millions)
<S> <C> <C>
Balance, beginning of period................................................ $1,305.4 $1,398.7
Additions resulting from securitizations during the period............... 414.5 566.6
Investment income........................................................ 140.8 94.0
Cash received............................................................ (343.0) (250.3)
Impairment charge to reduce carrying value............................... - (544.4)
Change in unrealized depreciation charged to shareholder's equity........ (110.8) (43.5)
-------- --------
Balance, end of period...................................................... $1,406.9 $1,221.1
======== ========
</TABLE>
In conjunction with certain sales of finance receivables, we provided
guarantees aggregating approximately $1.7 billion at September 30, 1999. We
believe the likelihood of a significant loss from such guarantees is remote.
NOTES PAYABLE
Notes payable (together with interest rates as of September 30, 1999) were
as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
(Dollars in millions)
<S> <C> <C>
Note payable to Conseco (5.63%)..................................................... $1,517.1 $ 854.0
Master repurchase agreements due on various dates in 2000 (6.13%)................... 1,785.4 780.6
Credit facility collateralized by retained interests in securitizations
due 2000 (7.38%)................................................................. 675.0 300.0
10.25% senior subordinated notes due 2002........................................... 267.3 267.3
Medium term notes due October 1999 to April 2003 (6.58%)............................ 238.7 238.7
Other............................................................................... 6.1 3.2
-------- --------
Total principal amount........................................................... 4,489.6 2,443.8
Less unamortized net discount....................................................... 4.0 4.9
-------- --------
Total............................................................................ $4,485.6 $2,438.9
======== ========
</TABLE>
9
<PAGE>
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
As of September 30, 1999, we had $5.0 billion of master repurchase
agreement capacity (of which $1,785.4 million was outstanding) with various
investment banking firms, subject to the availability of eligible collateral.
The agreements generally provide for one-year terms, which can be extended each
quarter by mutual agreement of the parties for an additional year, based upon
our financial performance.
RELATED PARTY TRANSACTIONS
Pursuant to a promissory note with Conseco, $1,517.1 million was payable at
September 30, 1999. The note bears interest at LIBOR plus a margin of .35
percent and both the principal and interest are due on demand. The Company may
borrow up to $2.0 billion under the note. Interest expense incurred under the
note totaled $49.3 million for the nine months ended September 30, 1999.
At September 30, 1999, $73.7 million par value of the 10.25% senior
subordinated notes were held by Conseco.
In the second quarter of 1999, the Company paid a $200.0 million common
stock dividend to Conseco.
LITIGATION
Conseco Finance has been served with various related lawsuits which were
filed in the United States District Court for the District of Minnesota. These
lawsuits were filed as purported class actions on behalf of persons or entities
who purchased common stock or options of Conseco Finance during the alleged
class periods that generally run from February 1995 to January 1998. One such
action did not include class action claims. In addition to Conseco Finance,
certain current and former officers and directors of Conseco Finance are named
as defendants in one or more of the lawsuits. Conseco Finance and other
defendants have obtained an order from the United States District Court for the
District of Minnesota consolidating the lawsuits seeking class action status
into two actions: one which pertains to a purported class of common stockholders
and the other which pertains to a purported class of stock option traders.
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 Conseco
Finance 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 Conseco Finance (particularly with respect to prepayment
assumptions and performance of certain loan portfolios of Conseco Finance) which
allegedly rendered Conseco Finance's financial statements false and misleading.
The Company believes that the lawsuits are without merit and intends to defend
such lawsuits vigorously. The ultimate outcome of these lawsuits cannot be
predicted with certainty. On August 24, 1999, the United States District Court
for the District of Minnesota issued an order to dismiss with prejudice all
claims alleged in the lawsuits. The plaintiffs subsequently appealed the
decision to the U.S. Court of Appeals (8th Circuit).
In addition, the Company and its subsidiaries are involved on an ongoing
basis in lawsuits related to their operations. Although the ultimate outcome of
certain of such matters cannot be predicted, such lawsuits currently pending
against the Company or its subsidiaries are not expected, individually or in the
aggregate, to have a material adverse effect on the Company's consolidated
financial condition, cash flows or results of operations.
CONSOLIDATED STATEMENT OF CASH FLOWS
In 1999, the tax benefit of $2.7 million related to the issuance of shares
under stock option plans was not reflected in the consolidated statement of cash
flows. The following non-cash items were not reflected in the consolidated
statement of cash flows in 1998: (i) the return of common stock to the Company
of $23.4 million pursuant to the recomputation of a former executive officer's
bonus for fiscal year 1996; (ii) the issuance of stock warrants totaling $7.7
million in conjunction with a financing transaction; and (iii) the tax benefit
of $1.8 million related to the issuance of common stock for option exercises.
10
<PAGE>
CONSECO FINANCE CORP. AND SUBSIDIARIES
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion highlights material factors affecting our results
of operations. This discussion should be read in conjunction with the
consolidated financial statements and notes included herein and in our 1998 Form
10-K. The Registrant meets the conditions set forth in the General Instructions
(H)(1)(a) and (b) of the Form 10-Q and is therefore omitting certain information
otherwise required by Item 2.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Contract originations:
Manufactured housing.............................................. $ 1,794.5 $ 1,668.0 $ 5,189.2 $ 4,546.1
Mortgage services................................................. 1,726.5 1,337.5 5,095.8 3,628.2
Consumer/credit card.............................................. 1,123.7 746.6 2,404.9 2,011.1
Commercial........................................................ 2,367.2 1,950.4 6,506.1 5,310.8
--------- ----------- ---------- ---------
Total........................................................... $ 7,011.9 $ 5,702.5 $19,196.0 $15,496.2
========= ========== ========= =========
Securitizations of finance receivables recorded as sales:
Manufactured housing.............................................. $ 1,854.5 $ 1,650.0 $ 5,335.6 $ 4,206.4
Home equity/home improvement...................................... 747.4 1,399.8 3,696.1 2,978.9
Consumer/equipment................................................ - 800.0 770.7 1,574.5
Leases............................................................ - 291.3 252.7 291.3
Commercial and retail revolving credit............................ 25.2 34.7 117.7 523.1
Retained bonds.................................................... (143.8) (115.5) (515.2) (129.8)
--------- -------- --------- ---------
Total........................................................... $ 2,483.3 $ 4,060.3 $ 9,657.6 $ 9,444.4
========= ========= ========= =========
Managed receivables (average):
Manufactured housing.............................................. $23,469.1 $19,903.3 $22,426.4 $19,057.6
Mortgage services................................................. 10,810.8 6,794.7 9,740.5 5,986.6
Consumer/credit card.............................................. 3,444.9 2,560.5 3,178.1 2,233.8
Commercial........................................................ 5,492.1 4,249.8 5,388.3 3,902.0
--------- --------- --------- ---------
Total........................................................... $43,216.9 $33,508.3 $40,733.3 $31,180.0
========= ========= ========= =========
Net investment income:
Finance receivables and other..................................... $ 158.5 $ 73.7 $ 398.7 $ 203.8
Interest-only securities.......................................... 49.3 34.2 140.8 94.0
Gain on sale of finance receivables.................................. 114.2 257.9 540.0 529.2
Fee revenue and other income......................................... 95.9 66.5 266.1 187.2
---------- --------- --------- ---------
Total revenues.................................................. 417.9 432.3 1,345.6 1,014.2
--------- --------- --------- ---------
Provision for losses................................................. 28.3 14.5 76.8 25.7
Interest expense..................................................... 86.0 56.6 212.2 160.3
Other operating costs and expenses................................... 180.8 168.4 503.2 453.9
--------- --------- --------- ---------
Total expenses.................................................. 295.1 239.5 792.2 639.9
--------- --------- --------- ---------
Operating income before impairment and nonrecurring
charges, income taxes and extraordinary charge................ 122.8 192.8 553.4 374.3
Impairment charge.................................................... - - - (549.4)
Nonrecurring charges................................................. - - - (108.0)
--------- --------- --------- ---------
Income (loss) before income taxes and extraordinary charge...... $ 122.8 $ 192.8 $ 553.4 $ (283.1)
========= ========= ========= =========
</TABLE>
11
<PAGE>
CONSECO FINANCE CORP. AND SUBSIDIARIES
--------------------
Contract originations in the third quarter of 1999 were $7.0 billion, up 23
percent over 1998. Contract originations in the first nine months of 1999 were
$19.2 billion, up 24 percent over 1998.
Manufactured housing contract originations increased by $126.5 million, or
7.6 percent, in the third quarter of 1999 and by $643.1 million, or 14 percent,
during the first nine months of 1999. The 1999 year-to-date increase was due to
a 5.2 percent increase in the average contract size and a 8.6 percent increase
in the number of contracts originated.
Mortgage services contract originations increased by $389.0 million, or 29
percent, in the third quarter of 1999 and by $1,467.6 million, or 40 percent,
during the first nine months of 1999. The increase reflects growth in both home
equity and home improvement business. We have continued to expand these
origination networks.
Consumer/credit card contract originations increased by $377.1 million, or
51 percent, in the third quarter of 1999 and by $393.8 million, or 20 percent,
during the first nine months of 1999 because of our successful marketing
efforts.
Commercial originations increased by $416.8 million, or 21 percent, in the
third quarter of 1999 and by $1,195.3 million, or 23 percent, during the first
nine months of 1999, reflecting higher production in most areas of commercial
financing.
Securitizations of finance receivables occur when the finance receivables
we originate are transferred to a special purpose entity which we establish for
the limited purpose of selling securities which are backed by the cash flows
from the transferred loans. Prior to our September 8, 1999 announcement, these
transactions were structured in a manner which required us to recognize
gain-on-sale revenues. Securitizations completed after September 8, 1999 are
being structured in a manner which will require us to account for the
transactions as secured borrowings.
The amount of receivables we securitize in a particular period depends on
many factors, including: (i) the volume of recent originations; (ii) market
conditions; and (iii) the availability and cost of alternative financing. The
total finance receivables sold in the third quarter of 1999 decreased by 39
percent from the third quarter of 1998 reflecting the change in securitization
structure announced in September 1999. The total finance receivables sold in the
first nine months of 1999 increased by 2.3 percent over the same period in 1998.
We held $5.5 billion of finance receivables on our balance sheet at September
30, 1999, an increase of $2.2 billion over September 30, 1998, primarily as a
result of an increase in originations and the change to portfolio lending.
Managed receivables include finance receivables sold through
securitizations prior to our September 8, 1999 announcement, as well as the
finance receivables and related interests recorded on our balance sheet. Average
managed receivables increased to $43.2 billion in the third quarter of 1999, up
29 percent over 1998, and to $40.7 billion in the first nine months of 1999, up
31 percent over the same period in 1998.
Net investment income on finance receivables and other consists of: (i)
interest earned on unsold finance receivables; and (ii) interest income on
short-term and other investments. Such income increased by 115 percent, to
$158.5 million, in the third quarter of 1999 and increased by 96 percent, to
$398.7 million, in the first nine months of 1999. The increase is consistent
with the increase in average finance receivables during the 1999 periods. The
weighted average yields earned on finance receivables and other investments were
11.7 percent and 10.5 percent during the third quarters of 1999 and 1998,
respectively, and such weighted average yields were 12.2 percent and 10.9
percent during the first nine months of 1999 and 1998, respectively.
Net investment income on interest-only securities is the accretion
recognized on the interest-only securities we retain after we sell finance
receivables. Such income increased by 44 percent, to $49.3 million, in the third
quarter of 1999 and by 50 percent, to $140.8 million, in the first nine months
of 1999. The increase is consistent with the change in the average balance of
interest-only securities and the increase in the discount rate assumption we use
to value our interest-only securities. The weighted average yields earned on
interest-only securities were 13.6 percent and 9.7 percent during the first nine
months of 1999 and 1998, respectively. As a result of the change in the
structure of our securitizations, we will account for future transactions as
secured borrowings and we will not recognize gain-on-sale revenue or additions
to interest-only securities. As a result, future investment income accreted on
the interest-only securities will decrease, as cash remittances from the
gain-on- sale securitizations reduce the interest-only security balances. We
regularly analyze future expected cash flows from this security to determine the
appropriate interest accretion rate. If we determine that this rate should be
lower, investment income
12
<PAGE>
CONSECO FINANCE CORP. AND SUBSIDIARIES
--------------------
accreted on the interest-only security would decrease in future periods. See
Gain on sale of finance receivables below for further discussion of how the
September 8, 1999 change will affect our future earnings.
Gain on sale of finance receivables is the difference between the proceeds
from the sale of receivables (net of related transaction costs) and the
allocated carrying amount of the receivables sold. The amount relates to the
securitizations structured as sales which occurred prior to our September 8,
1999 announcement previously discussed. In those securitizations, we determined
the allocated carrying amount by allocating the total carrying amount of the
receivables between the portion sold and any retained interests (securities
classified as fixed maturities, interest-only securities and servicing rights),
based on their relative fair values at the time of sale. Assumptions used in
calculating the estimated fair value of such retained interests are subject to
volatility that could materially affect operating results. Prepayment rates may
vary from expected rates as a result of competition, obligor mobility, general
and regional economic conditions and changes in interest rates. In addition,
actual losses incurred as a result of loan defaults may vary from projected
performance.
Our gain on sale decreased by 56 percent, to $114.2 million, in the third
quarter of 1999 and increased by 2.0 percent, to $540.0 million, in the first
nine months of 1999. The decrease in the third quarter primarily reflects the
decrease in securitizations structured as sales and to a lesser extent, the
lower ratio of gain on sale to loans sold. Securitizations completed in future
periods will be structured as secured borrowings and no gain on sale will be
recognized. The gain recognized for our previous securitizations fluctuated when
changes occurred in: (i) the amount of loans sold; (ii) market conditions (such
as the market interest rates available on securities sold in these
securitizations); (iii) the amount and type of interest we retained in the
receivables sold; and (iv) assumptions used to calculate the gain. The gain
recognized in the first quarter of 1998 was reduced by $47 million for an
interest-only security valuation adjustment. In response to higher prepayment
rates and higher market yields on publicly traded securities similar to our
interest-only securities, we increased the assumed prepayment and discount rates
used to calculate the gain on sale of finance receivables for sales completed
after June 30, 1998. Late in the second quarter of 1999 and continuing into the
third quarter of 1999, the general level of interest rates increased, causing us
to incur higher interest costs on securitizations completed at that time.
Accordingly, the amount of gain (before valuation adjustments) as a percentage
of closed-end loans sold decreased to 4.6 percent in the third quarter of 1999
from 6.4 percent in the third quarter of 1998 and decreased to 5.7 percent in
the first nine months of 1999 compared to 5.9 percent in the first nine months
of 1998.
In recent periods, the Company has emphasized the inclusion of points and
origination fees in finance receivables originated, which increases the amount
of cash received when such receivables are securitized. Points and origination
fees collected upon the securitization of finance receivables increased to
$115.8 million (or 101 percent of the gain on sale recognized) in the third
quarter of 1999 compared to $89.7 million (or 35 percent of the gain on sale
recognized) in the third quarter of 1998; and increased to $359.0 million (or 66
percent of the gain on sale recognized) in the first nine months of 1999
compared to $199.9 million (or 38 percent of the gain on sale recognized) in the
comparable period of 1998.
In recent periods, conditions in the credit markets have resulted in
less-attractive pricing of certain lower-rated securities in our securitization
structure. As a result, we have chosen to reduce the amount of securities sold
by the securitization trusts, particularly securities having corporate guarantee
provisions. Prior to our September 8, 1999 announcement, these securities were
treated as retained interests in the securitization trusts. We recognize no gain
on the sale on such securities, but we recognize greater interest income, net of
related interest expense, over the term we hold them. At September 30, 1999, we
held $774.7 million of such securities which are classified as actively managed
fixed maturities.
The change to the structure of our future securitizations will have no
effect on the total profit we recognize over the life of each new loan, but it
will change the timing of profit recognition. Under the portfolio method (the
accounting method required for our future securitizations which are structured
as secured borrowings), we will recognize: (i) earnings over the life of new
loans as interest revenues are generated; and (ii) interest expense on the
securities which are sold to investors in the loan securitization trusts. As a
result, our reported earnings from new loans securitized in transactions
accounted for under the portfolio method will be lower in the period in which
the loans are securitized (compared to our historical method) and higher in
later periods, as interest spread is earned on the loans.
Fee revenue and other income includes servicing income, commissions earned
on insurance policies written in conjunction with the financing transactions and
other income from late fees. Such income increased by 44 percent, to $95.9
million, in the third quarter of 1999 and by 42 percent, to $266.1 million, in
the first nine months of 1999. Our servicing portfolio (on which we earn
servicing income) and our net written insurance premiums both grew along with
managed receivables. As a
13
<PAGE>
CONSECO FINANCE CORP. AND SUBSIDIARIES
--------------------
result of the change in the structure of our future securitizations announced on
September 8, 1999, we will no longer record an asset for servicing rights at the
time of our securitizations, nor will we record servicing fee revenue; instead,
the entire amount of interest income will be recorded as investment income.
Accordingly, the amount of servicing income will decline in subsequent periods.
Provision for losses increased by 95 percent, to $28.3 million, in the
third quarter of 1999 and by 199 percent, to $76.8 million, in the first nine
months of 1999. The increase is principally due to the increase of loans held on
our balance sheet. Under the portfolio method which will be used for future
securitizations, we will recognize the credit losses on the loans on our balance
sheet as the losses are incurred. For loans previously recorded on the
gain-on-sale basis, the anticipated discounted credit losses are reflected
through a reduction in the gain-on-sale revenue recorded at the time of
securitization.
Interest expense increased by 52 percent, to $86.0 million, in the third
quarter of 1999 and by 32 percent, to $212.2 million, in the first nine months
of 1999. Our borrowings grew in order to fund the increase in finance
receivables. These increases were offset somewhat by a decrease in our average
borrowing rate to 6.5 percent in the third quarter of 1999 from 6.9 percent in
the third quarter of 1998. Our average borrowing rate during the first nine
months of 1999 was 6.4 percent compared to 7.5 percent during the first nine
months of 1998.
Under the portfolio method which will be used for future securitizations,
we will recognize interest expense on the securities issued to investors in the
securitization trusts.
Other operating costs and expenses include the costs associated with
servicing our managed receivables and non-deferrable costs related to
originating new loans. Such expense increased by 7.4 percent, to $180.8 million,
in the third quarter of 1999 and by 11 percent, to $503.2 million, in the first
nine months of 1999 reflecting: (i) the growth in our servicing portfolio; and
(ii) the growth in our loan origination offices and infrastructure.
An impairment charge of $549.4 million was recognized in the first nine
months of 1998 to reduce the carrying value of the interest-only securities and
servicing rights.
Nonrecurring charges of $108.0 million were recognized in the first nine
months of 1998 and include various costs related to the Merger (including
investment banking, accounting, legal and regulatory fees).
YEAR-2000 MATTERS
Many of today's computer programs were originally designed to identify each
year using two digits. So, certain date- sensitive software may recognize the
date "00" as the year 1900, rather than the year 2000. The failure to correct a
material year-2000 problem could result in an interruption in, or failure of, a
number of normal business activities or operations. Such failures could
materially and adversely affect the Company's results of operations, liquidity
or financial condition. Due to the general uncertainty inherent in the year-2000
problem, including uncertainty about the preparedness of our external business
relationships, we are not able currently to determine whether the consequences
of year-2000 failures will have a material impact on our results of operations,
liquidity or financial condition. We believe, however, that our year-2000
readiness efforts (described below) will minimize the likelihood of a material
adverse impact.
A number of our employees (including several officers), as well as external
consultants and contract programmers, were assigned to work on various year-2000
projects. We analyzed our application systems, operating systems, hardware,
networks, electronic data interfaces and infrastructure devices (such as
facsimile machines and telephone systems).
We divided each year-2000 project into three phases: (i) an audit and
assessment phase, designed to identify year-2000 issues; (ii) a modification
phase, designed to correct year-2000 issues; and (iii) a testing phase, designed
to test the installed modifications.
We have completed all three phases for all projects. During the rest of
1999, we plan to re-review and re-test many of our critical systems and continue
to assess and monitor the year-2000 readiness of the systems used by our
business partners, vendors and other third parties. We believe that we have
provided for sufficient time in order to complete any additional modifications,
if necessary, before December 31, 1999.
14
<PAGE>
CONSECO FINANCE CORP. AND SUBSIDIARIES
--------------------
In the course of our year-2000 program, we: (i) converted numerous older
systems to more modern, year-2000-ready systems already used elsewhere in the
Company; (ii) purchased and installed new, year-2000-ready systems (we
capitalized these costs and are amortizing them over their expected useful
lives); and (iii) modified other systems to make them year-2000- ready (we
charged these costs to operating expense). We currently estimate that the total
cost of our year-2000 program will be approximately $22 million, of which
approximately 95 percent (related primarily to modifying existing software
systems) had been incurred by September 30, 1999. This expense is not material
to our financial position and we are funding it through our operating cash
flows.
The impact of year-2000 issues will depend not only on the corrective
actions we take, but also on the way in which year-2000 issues are addressed by
governmental agencies, businesses and other third parties: (i) that provide us
with capital, services, utilities or data; (ii) that receive services or data
from us; or (iii) whose financial condition or operating capability is important
to us. We continue to update our assessments of potential year-2000 risks
associated with our third-party relationships. These assessments are necessarily
limited to matters over which we can reasonably exercise control. We have been
informed by our key financial institutions and utilities that they will be
year-2000 ready at year-end 1999.
We are also continuing to develop contingency plans designed to help us
conduct business as usual in the unlikely event of a year-2000-related
disruption.
Our year-2000 program continues to be the highest priority for our
information technology employees and others within the Company. Our objective is
to continue providing our clients and business partners with quality service
during the century changeover. We have continued to work on other systems
projects during our year-2000 program; in many cases, we have accelerated system
upgrades when the new systems also address year-2000 issues.
FORWARD-LOOKING STATEMENTS
All statements, trend analyses and other information contained in this
report and elsewhere (such as in other filings by the Company with the
Securities and Exchange Commission, press releases, presentations by the Company
or its management or oral statements) relative to markets for the Company's
products and trends in the Company's operations or financial results, as well as
other statements including words such as "anticipate," "believe," "plan,"
"estimate," "expect," "intend," "should," "could," "goal," "target," "on track,"
"comfortable with," and other similar expressions, constitute forward-looking
statements under the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are subject to known and unknown risks, uncertainties
and other factors which may cause actual results to be materially different from
those contemplated by the forward-looking statements. Such factors include,
among other things: (i) general economic conditions and other factors, including
prevailing interest rate levels, stock and credit market performance, which may
affect (among other things) the Company's ability to sell its products, its
ability to make loans and access capital resources and the costs associated
therewith, the market value of the Company's investments, and the level of
defaults and prepayments of loans made by the Company; (ii) the Company's
ability to achieve anticipated synergies and levels of operational efficiencies;
(iii) customer response to new products, distribution channels and marketing
initiatives; (iv) changes in the Federal income tax laws and regulations which
may affect the relative tax advantages of some of the Company's products; (v)
increasing competition in the finance business; (vi) regulatory changes or
actions, including those relating to regulation of financial services; (vii) the
ability of the Company and its vendors and other external parties to achieve
Year 2000 readiness for significant systems and operations on a timely basis;
(viii) the availability and terms of future acquisitions; and (ix) the risk
factors or uncertainties listed from time to time in the Company's filings with
the Securities and Exchange Commission.
15
<PAGE>
CONSECO FINANCE CORP. AND SUBSIDIARIES
--------------------
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Conseco Finance has been served with various related lawsuits which were
filed in the United States District Court for the District of Minnesota. These
lawsuits were filed as purported class actions on behalf of persons or entities
who purchased common stock or options of Conseco Finance during the alleged
class periods that generally run from February 1995 to January 1998. One such
action did not include class action claims. In addition to Conseco Finance,
certain current and former officers and directors of Conseco Finance are named
as defendants in one or more of the lawsuits. Conseco Finance and other
defendants have obtained an order from the United States District Court for the
District of Minnesota consolidating the lawsuits seeking class action status
into two actions: one which pertains to a purported class of common stockholders
and the other which pertains to a purported class of stock option traders.
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 Conseco
Finance 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 Conseco Finance (particularly with respect to prepayment
assumptions and performance of certain loan portfolios of Conseco Finance) which
allegedly rendered Conseco Finance's financial statements false and misleading.
The Company believes that the lawsuits are without merit and intends to defend
such lawsuits vigorously. The ultimate outcome of these lawsuits cannot be
predicted with certainty. On August 24, 1999, the United States District Court
for the District of Minnesota issued an order to dismiss with prejudice all
claims alleged in the lawsuits. The plaintiffs subsequently appealed the
decision to the U.S. Court of Appeals (8th Circuit).
In addition, the Company and its subsidiaries are involved on an ongoing
basis in lawsuits related to its operations. Although the ultimate outcome of
certain of such matters cannot be predicted, such lawsuits currently pending
against the Company or its subsidiaries are not expected, individually or in the
aggregate, to have a material adverse effect on the Company's consolidated
financial condition, cash flows or results of operations.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. (a) Exhibits
3(a) Restated Certificate of Incorporation of Conseco Finance Corp.
was filed with the Securities and Exchange Commission as Exhibit
3.2 to the Company's Registration Statement on Form S-3/A (No.
333-85037) and is incorporated herein by reference.
3(c) Restated Bylaws of Conseco Finance Corp. were filed with the
Securities and Exchange Commission as Exhibit 3.4 to the
Company's Registration Statement on Form S-3/A (No. 333-85037)
and are incorporated herein by reference.
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K - None
16
<PAGE>
CONSECO FINANCE CORP. AND SUBSIDIARIES
--------------------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSECO FINANCE CORP.
Dated: November 15, 1999 By: /s/ ROLLIN M. DICK
------------------
Rollin M. Dick
Executive Vice President and
Chief Financial Officer
(authorized officer and principal
financial officer)
17
<TABLE>
<CAPTION>
CONSECO FINANCE CORP. AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
for the nine months ended September 30, 1999 and the year
ended December 31, 1998
(Dollars in millions)
Nine months
ended Year ended
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Pretax income (loss) from operations:
Net income (loss) $ 341.8 $(87.3)
Add income tax expense (benefit) 211.6 (7.6)
Add extraordinary charge on extinguishment of debt - 11.5
------- ------
Pretax income (loss) from operations 553.4 (83.4)
------- ------
Add fixed charges:
Interest expense on long-term debt 212.2 213.7
Portion of rental(a) 5.2 5.5
------- ------
Fixed charges 217.4 219.2
------- ------
Adjusted earnings $ 770.8 $135.8
======= ======
Ratio of earnings to fixed charges 3.55X (b)
====== ======
<FN>
(a) Interest portion of rental is assumed to be 33 percent.
(b) For 1998, adjusted earnings were $83.4 million less than fixed charges.
Adjusted earnings for 1998 included an impairment charge of $549.4
million and nonrecurring charges of $108.0 million related to the
merger of the Company with Conseco, Inc.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,042,700 <F1>
<SECURITIES> 2,181,600 <F2>
<RECEIVABLES> 5,561,600
<ALLOWANCES> 60,900
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 333,000
<DEPRECIATION> 132,400
<TOTAL-ASSETS> 9,875,800
<CURRENT-LIABILITIES> 0
<BONDS> 506,000
0
0
<COMMON> 1,341,000
<OTHER-SE> 1,007,000 <F3>
<TOTAL-LIABILITY-AND-EQUITY> 9,875,800
<SALES> 540,000
<TOTAL-REVENUES> 1,345,600
<CGS> 0
<TOTAL-COSTS> 580,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 212,200
<INCOME-PRETAX> 553,400
<INCOME-TAX> 211,600
<INCOME-CONTINUING> 341,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 341,800
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1> Includes $864,800 of cash held in segregated accounts for investors and
$177,900 of cash deposits, restricted under pooling and servicing
agreements.
<F2> Includes $774,700 of actively managed fixed maturity securities and
$1,406,900 of interest-only securities.
<F3> Includes retained earnings of $1,106,700 and accumulated other
comprehensive losses of $99,700.
</FN>
</TABLE>
