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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended DECEMBER 31, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the transition period from to
Commission file number: 1-08916
CONSECO FINANCE CORP.
<TABLE>
<S> <C>
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
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of each class Name of each exchange
10 1/4% Senior Subordinated Notes due 2002 on which registered
New York Stock Exchange, Inc.
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN THE GENERAL INSTRUCTIONS
(I)(1)(a) AND (b) ON FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE
REDUCED DISCLOSURE.
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: [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X] No [ ]
Aggregate market value of common stock held by nonaffiliates: Effective
July 1, 1998, the Company's common stock is no longer traded on an established
public trading market.
Shares of common stock outstanding as of April 10, 2000: 103
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PART I
ITEM 1. BUSINESS OF CONSECO FINANCE
The Registrant meets the conditions set forth in the General Instructions
(I) (1) (a) and (b) of Form 10-K and is therefore omitting the information
otherwise required by Item 1, except for a brief description of the business
done by the Registrant and its subsidiaries during the most recent fiscal year.
Conseco Finance Corp. ("Conseco Finance", formerly Green Tree Financial
Corporation prior to its name change in November 1999) is a diversified
financial services company with operations to originate, purchase, sell and
service consumer and commercial finance loans throughout the United States. As
used in this report, the terms "we," "Conseco Finance" or the "Company" refer to
Conseco Finance Corp. and its consolidated subsidiaries. Conseco Finance became
a wholly owned subsidiary of Conseco, Inc. ("Conseco"), a financial services
holding company, on June 30, 1998, as a result of Conseco's acquisition (the
"Merger") of Conseco Finance. On March 31, 2000, Conseco announced that it plans
to explore the sale of Conseco Finance and hire Lehman Brothers Inc. to assist
in the planned sale.
The Company was originally incorporated under the laws of the State of
Minnesota in 1975. In 1995, the Company reincorporated under the laws of the
State of Delaware. The Company's principal executive offices are located at 1100
Landmark Towers, 345 Saint Peter Street, Saint Paul, Minnesota 55102-1639, and
our telephone number is (651) 293-3400.
MARKETING AND DISTRIBUTION
Conseco Finance, with nationwide operations and managed finance receivables
of $45.8 billion at December 31, 1999, is one of America's largest consumer
finance companies, with leading market positions in retail home equity
mortgages, home improvement loans and consumer and dealer floorplan loans for
manufactured housing. Originations to customers in the following states
accounted for at least 5.0 percent of our 1999 originations: Texas (7.5
percent), California (7.1 percent), Florida (6.2 percent) and North Carolina
(5.9 percent).
During 1999, we sold our aircraft and franchise commercial finance
business. We also decided to discontinue the origination of commercial
asset-based loans. These actions are consistent with our intention to focus our
capital and resources on our core consumer businesses. The aircraft, franchise
and commercial asset-based loans represented 6.4 percent of our originations
during 1999.
During 1999, 70 percent of our finance products were marketed indirectly to
customers through intermediary channels such as dealers, vendors, contractors
and retailers; the remaining products were marketed directly to our customers
through our regional offices and service centers. A description of the primary
distribution channels follows:
Dealers, Vendors, Contractors and Retailers. Manufactured housing, home
improvement, home equity, consumer finance and equipment finance receivables are
purchased from and originated by selected dealers and contractors after being
underwritten and analyzed via one of the Company's automated credit scoring
systems at one of our regional service centers. During 1999, these marketing
channels accounted for the following percentages of total loan originations: 88
percent of consumer loans for manufactured housing, 61 percent of home
improvement, 40 percent of home equity, 92 percent of consumer finance and 71
percent of equipment finance.
Regional Service Centers, Retail Satellite Offices and Telemarketing
Center. We market and originate manufactured housing loans through 45 regional
offices and 3 origination and processing centers. We originate home equity loans
through a system of 139 retail satellite offices and 6 regional centers. We also
market private label retail credit products through selected retailers and
process the contracts through Conseco Bank, Inc. ("Conseco Bank"), a Utah
industrial loan company, and through Green Tree Retail Services Bank, Inc.
("Retail Bank"), a South Dakota limited purpose credit card bank, both of which
are wholly owned subsidiaries of the Company. We utilize direct mail to
originate home improvement loans, home equity loans and credit cards. We provide
commercial finance loans to dealers, manufacturers and other distributors
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through three regional lending centers. During 1999, these marketing channels
accounted for the following percentages of total loan originations: 12 percent
of manufactured housing, 39 percent of home improvement, 60 percent of home
equity, 8 percent of consumer finance, 29 percent of equipment finance and 100
percent of retail credit contracts.
Our products include the following consumer and commercial product lines:
Manufactured Housing. We provide financing for consumer purchases of
manufactured housing. During 1999, we originated $6.6 billion of contracts for
manufactured housing purchases, or 26 percent of our total originations. At
December 31, 1999, our managed receivables include $24.7 billion of contracts
for manufactured housing purchases, or 54 percent of total managed receivables.
Manufactured housing or a manufactured home is a structure, transportable in one
or more sections, which is designed to be a dwelling with or without a permanent
foundation. Manufactured housing does not include either modular housing (which
typically involves more sections, greater assembly and a separate means of
transporting the sections) or recreational vehicles.
The majority of sales contracts for manufactured home purchases are
financed on a conventional basis. Federal Housing Administration and Veterans'
Administration contracts represent less than 1 percent of our manufactured
housing originations and 2 percent of our total servicing portfolio.
Manufactured housing contracts are generally subject to minimum down payments of
at least 5 percent of the amount financed and have terms of up to 30 years.
Through our regional service centers, we purchase manufactured housing
contracts from dealers located throughout the United States. Our regional
service center personnel solicit dealers in their region. If the dealer wishes
to utilize our financing, the dealer completes an application. Upon approval, a
dealer agreement is executed. We also originate manufactured housing installment
loan agreements directly with customers. For the year ended December 31, 1999,
88 percent of our manufactured housing loan originations were purchased from
dealers and 12 percent were originated directly by us.
Customers' credit applications for new manufactured homes are reviewed in
our service centers. If the application meets our guidelines, we generally
purchase the contract after the customer has moved into the manufactured home.
We use a proprietary automated credit scoring system to evaluate manufactured
housing contracts. The scoring system is statistically based, quantifying
information using variables obtained from customer credit applications and
credit reports.
Mortgage Services. Products within this category include home equity and
home improvement loans. During 1999, we originated $6.7 billion of contracts for
these products, or 27 percent of our total originations. At December 31, 1999,
our managed receivables include $12.2 billion of contracts for home equity and
home improvement loans, or 27 percent of total managed receivables.
We originate home equity loans through 139 retail satellite offices and 6
regional centers and through a network of correspondent lenders throughout the
United States. The satellite offices are responsible for originating,
processing, underwriting and funding the loan transaction. Subsequently, loans
are re-underwritten on a test basis by a third party to ensure compliance with
our credit policy. After the loan has closed, the loan documents are forwarded
to our loan servicing center. The servicing center is responsible for handling
customer service and performing document handling, custodial and quality control
functions.
During 1999, approximately 60 percent of our home equity finance loans were
originated directly with the borrower. The remaining finance volume was
originated through approximately 220 correspondent lenders.
Typically, home equity loans are secured by first or second liens. Homes
used for collateral in securing home equity loans may be either residential or
investor owned, one-to-four-family properties having a minimum appraised value
of $25,000. During 1999, approximately 57 percent of the loans originated were
secured by first liens. The average loan to value for loans originated in 1999
was approximately 91 percent. The majority of our home equity loans are fixed
rate closed-end loans. We periodically purchase adjustable rate loans from our
correspondent network. Adjustable rate loans accounted for 22 percent of our
home equity finance volume during 1999.
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We originate the majority of our home improvement loan contracts indirectly
through a network of home improvement contractors located throughout the United
States. We review the financial condition, business experience and
qualifications of all contractors through which we obtain loans.
We finance both conventional home improvement contracts and contracts
insured through the Federal Housing Administration Title I program. Such
contracts are generally secured by first, second or, to a lesser extent, third
liens on the improved real estate. We also implemented an unsecured conventional
home improvement lending program for certain customers which generally allows
for loans of $2,500 to $15,000. Unsecured loans account for less than 3 percent
of our home improvement servicing portfolio.
Typically, an approved contractor submits the customer's credit application
and construction contract to our centralized service center where an analysis of
the creditworthiness of the customer is made using a proprietary credit scoring
system. If it is determined that the application meets our underwriting
guidelines, we typically purchase the contract from the contractor when the
customer verifies satisfactory completion of the work.
We also originate home improvement loans directly with borrowers. After
receiving a mail solicitation, the customer calls our telemarketing center and
our sales representative explains the available financing plans, terms and rates
depending on the customer's needs. The majority of the loans are secured by a
second or third lien on the real estate of the customer. Direct distribution
accounted for approximately 39 percent of the home improvement finance
originations during 1999.
The types of home improvements we finance include exterior renovations
(such as windows, siding and roofing); pools and spas; kitchen and bath
remodeling; and room additions and garages. We may also extend additional credit
beyond the purchase price of the home improvement for the purpose of debt
consolidation.
Consumer/Credit Card. These products include financing for consumer
products and our private label credit card programs. During 1999, we originated
$3.2 billion of contracts for these products, or 13 percent of our total
originations. At December 31, 1999, our managed receivables include $3.8 billion
of contracts for consumer product and credit card loans, or 8 percent of total
managed receivables.
We also provide financing for the purchase of certain consumer products
such as marine products (boats, boat trailers and outboard motors); motorcycles;
recreational vehicles; sport vehicles (snowmobiles, personal watercraft and
all-terrain vehicles); pianos and organs; and horse and utility trailers. These
financing contracts are typically originated by dealers throughout the United
States. Approved dealers submit the customer's credit application and purchase
order to our central service center where an analysis of the creditworthiness of
the proposed buyer is made. If the application is approved, we purchase the
contract when the customer completes the purchase transaction.
We also offer private label retail credit card programs with select
retailers. We review the credit of individual customers seeking credit cards
utilizing a credit scoring system.
COMMERCIAL FINANCING
Commercial. Commercial financing primarily includes: (i) floorplan lending;
(ii) truck lending and leasing; and (iii) small-ticket equipment lending and
leasing. During 1999, we originated $8.5 billion of contracts for commercial
financing, or 34 percent of our total originations. At December 31, 1999, our
managed receivables include $5.1 billion of contracts for commercial financing,
or 11 percent of total managed receivables.
During 1999, we sold our aircraft and franchise commercial finance
divisions. We also decided to discontinue the origination of commercial
asset-backed loans. These actions are consistent with our intention to focus our
capital and resources on our core consumer businesses. During 1999, we
originated $1.6 billion of these loans, or 6.4 percent of our total
originations.
"Floorplan receivables" represent the financing of product inventory for
retail dealers of a variety of consumer products. The products securing the
floorplan receivables include manufactured housing, recreational vehicles and
marine products. During 1999, we originated $5.6 billion of these loans, or 22
percent of
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our total originations. We generally provide floorplan financing for products
only if we have also entered into an agreement with the manufacturer,
distributor or other vendor of such product to allow us to provide the consumer
financing in connection with the sale of products that are the subject of the
floorplan financing. Advances made for the purchase of inventory are most
commonly arranged in the following manner: the dealer will contact the
manufacturer and place a purchase order for a shipment of inventory. The
manufacturer will then contact us to obtain approval for the loan. Upon such
request, we will analyze whether: (i) the manufacturer is in compliance with its
floorplan agreement; (ii) the dealer is in compliance with our program; and
(iii) such purchase order is within the dealer's credit limit. If these
requirements are met, we will approve the loan. The manufacturer will then ship
the inventory and directly submit the invoice for such purchase order to us for
payment. Interest or finance charges normally begin as of the invoice date. The
proceeds of the loan being made are paid directly to the manufacturer and are
often funded a number of days subsequent to the invoice date depending upon
specific arrangements with the manufacturer. Inventory inspections are
frequently performed to physically verify the collateral securing the dealer's
loan, check the condition of the inventory, account for any missing inventory
and collect any funds due. Approximately two-thirds of our manufactured housing
dealers are participants in this program.
We also provide financing and leasing programs to commercial borrowers for
the purchase of trucks and trailers and small equipment (such as computer,
office and telecommunications equipment). During 1999, we originated $1.3
billion of these loans, or 5.2 percent of total originations. In early 2000, we
significantly reduced our originations of loans and leases relating to trucks
and trailers.
ITEM 2. PROPERTIES.
The Company's servicing operations are housed in Saint Paul, Minnesota, in
120,000 square feet of a building owned by the Company. The Company operates 45
manufactured housing regional service centers and three commercial finance
business centers. Such offices are leased, typically for a term of three to five
years, and range in size from 1,700 to 22,000 square feet. We also operate a
central servicing center in Rapid City, South Dakota. The lease on this facility
has a remaining term of four years, with an option to purchase, and consists of
137,000 square feet. In Rapid City, South Dakota, we have agreed to lease one
additional building under construction which will contain approximately 76,000
square feet. The home improvement and consumer product divisions lease their
main office in Saint Paul, Minnesota. The lease has a remaining term of four
years and consists of 125,000 square feet. The home equity business has
operations in six regional locations and 139 regional satellite offices, plus a
service center in Tempe, Arizona, which opened in February 1997 (which consists
of three buildings totaling approximately 200,000 square feet). We also lease 4
other administrative offices in Minnesota, New Jersey and Georgia totaling
approximately 197,000 square feet; these leases are short-term in length with
remaining lease terms ranging from one to five years.
ITEM 3. LEGAL PROCEEDINGS.
Conseco Finance was served with various related lawsuits filed in the
United States District Court for the District of Minnesota. These lawsuits were
generally filed as purported class actions on behalf of persons or entities who
purchased common stock or options of Conseco Finance during alleged class
periods that generally run from February 1995 to January 1998. One action
(Florida State Board of Admin. v. Green Tree Financial Corp., Case No. 98-1162)
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
obtained an order consolidating the lawsuits seeking class action status into
two actions, one of which pertains to a purported class of common stockholders
(In re Green Tree Financial Corp. Stock Litig., Case No. 97-2666) and the other
which pertains to a purported class action of stock option traders (In re Green
Tree Financial Corp. Options Litig., Case No. 97-2679). 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. On
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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
for the 8th Circuit, and the appeal is currently pending. The Company believes
that the lawsuits are without merit and intends to continue to defend them
vigorously. The ultimate outcome of these lawsuits cannot be predicted with
certainty.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Registrant meets the conditions set forth in the General Instructions
(I)(1)(a) and (b) of Form 10-K and is therefore omitting the information
otherwise required by Item 4.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
Effective July 1, 1998, the Company became a wholly owned subsidiary of
Conseco and its common stock is no longer traded on an established public
trading market. Dividends declared on common stock for 1998 were $.175 per
common share.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The Registrant meets the conditions set forth in the General Instructions
(I)(1)(a) and (b) of Form 10-K and is therefore omitting the information
otherwise required by Item 6.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The Registrant meets the conditions set forth in the General Instructions
(I)(1)(a) and (b) of Form 10-K and is therefore omitting the information
otherwise required by Item 7, except for management's narrative analysis of the
results of operations explaining the reasons for material changes in the amount
of revenue and expense items between 1999, 1998 and 1997.
In this section, we review the consolidated results of operations of
Conseco Finance for the three years ended December 31, 1999, and where
appropriate, provide explanations for material changes in the amount of revenue
and expense items during such periods. Please read this discussion in
conjunction with the accompanying consolidated financial statements and notes.
On March 31, 2000, Conseco announced its plan to explore the sale of
Conseco Finance and hire Lehman Brothers Inc. to assist in the planned sale.
All statements, trend analyses and other information contained in this
report and elsewhere (such as in 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 and 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) performance of our investments; (v) changes in the Federal
income tax laws and regulations which may affect the relative tax advantages of
some of the Company's products; (vi) increasing competition in the finance
business; (vii) regulatory changes or actions, including those relating to
regulation of financial services; (viii) the outcome of the contemplated sale
process relating to the Company; and (ix) the risk factors or uncertainties
listed from time to time in the filings of the Company or its parent, Conseco,
Inc., with the Securities and Exchange Commission.
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Results of operations for the three years ended December 31, 1999:
The following tables and narratives summarize the results of our
operations.
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<CAPTION>
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
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Loan originations:
Manufactured housing...................................... $ 6,607.3 $ 6,077.5 $ 5,479.3
Mortgage services......................................... 6,745.8 5,215.8 3,476.3
Consumer/credit card...................................... 3,241.3 2,727.9 1,511.0
Commercial................................................ 8,514.6 7,400.8 5,181.2
--------- --------- ---------
Total.................................................. $25,109.0 $21,422.0 $15,647.8
========= ========= =========
Securitizations of receivables recorded as sales:
Manufactured housing...................................... $ 5,598.2 $ 5,556.4 $ 5,369.8
Home equity/home improvement.............................. 3,748.4 5,038.5 3,031.5
Consumer/equipment........................................ 600.0 2,022.4 1,615.5
Leases.................................................... -- 379.9 508.0
Commercial and retail revolving credit.................... 117.7 741.0 224.4
Retained bonds............................................ (405.2) (364.6) --
--------- --------- ---------
Total.................................................. $ 9,659.1 $13,373.6 $10,749.2
========= ========= =========
Managed receivables (average):
Manufactured housing...................................... $22,899.2 $19,478.2 $16,279.3
Mortgage services......................................... 10,237.5 6,425.3 3,444.3
Consumer/credit card...................................... 3,324.1 2,388.6 1,368.9
Commercial................................................ 5,303.0 4,082.2 2,642.1
--------- --------- ---------
Total.................................................. $41,763.8 $32,374.3 $23,734.6
========= ========= =========
Revenues:
Net investment income:
Finance receivables and other.......................... $ 647.1 $ 295.5 $ 220.4
Interest-only securities............................... 185.1 132.9 125.8
Gain on sale of finance receivables....................... 550.6 745.0 782.5
Fee revenue and other income.............................. 372.7 260.4 178.5
--------- --------- ---------
Total revenues......................................... 1,755.5 1,433.8 1,307.2
--------- --------- ---------
Expenses:
Provision for losses...................................... 128.7 44.2 25.8
Interest expense.......................................... 341.3 213.7 160.9
Other operating costs and expenses........................ 697.2 601.9 444.4
--------- --------- ---------
Total expenses......................................... 1,167.2 859.8 631.1
--------- --------- ---------
Operating income before impairment and merger-related
charges, income taxes and extraordinary charge....... 588.3 574.0 676.1
Impairment charges.......................................... 554.3 549.4 190.0
Merger-related charges...................................... -- 108.0 --
--------- --------- ---------
Income (loss) before income taxes and extraordinary
charge............................................... $ 34.0 $ (83.4) $ 486.1
========= ========= =========
</TABLE>
General: We provide financing for manufactured housing, home equity, home
improvements, consumer products and equipment, and provide consumer and
commercial revolving credit. Finance products include both fixed-term and
revolving loans and leases. The Company also markets physical damage and term
mortgage life insurance and other credit protection relating to the loans it
services.
On September 8, 1999, we announced that we would no longer structure our
securitizations in a manner that results in recording a sale of the loans.
Instead, new securitization transactions after that date are being
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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. Until these assets are repurchased, however,
the assets are the property of the special purpose entity and are not available
to satisfy the claims of creditors of the Company. 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 secured borrowings, whereby the
loans and securitization debt remain on the balance sheet, rather than as sales.
The change to the structure of our new 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 securitizations which are structured as
secured borrowings), we will recognize: (i) earnings over the life of new loans
as interest revenues are generated; (ii) interest expense on the securities
which are sold to investors in the loan securitization trusts; and (iii)
provision for losses. 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.
Loan originations in 1999 were $25.1 billion, up 17 percent over 1998. Loan
originations in 1998 were $21.4 billion, up 37 percent over 1997.
Manufactured housing loan originations increased by $529.8 million, or 9
percent, during 1999 and by $598.2 million, or 11 percent, during 1998. The
increase in 1999 is primarily due to an increase in the number of contracts
written. The increase in 1998 is primarily due to an increase in the average
size of the contracts written.
Mortgage services loan originations increased by $1.5 billion, or 29
percent, during 1999 and by $1.7 billion, or 50 percent, during 1998. The
increase reflects growth in both home equity and home improvement business. We
have continued to expand these origination networks.
Consumer/credit card loan originations increased by $513.4 million, or 19
percent, during 1999 and by $1.2 billion, or 81 percent, during 1998. The
increase is primarily the result of our successful marketing efforts, including
a number of new private label credit card relationships with large retailers.
Commercial loan originations increased by $1.1 billion, or 15 percent,
during 1999 and increased by $2.2 billion, or 43 percent, during 1998. The
increase primarily reflects higher production in floorplan financing.
Securitizations of receivables recorded as sales relate to the
securitizations structured prior to our September 8, 1999, announcement. The
total finance receivables sold in 1999 decreased by 28 percent from 1998
reflecting the change in securitization structure described above.
Managed receivables include finance receivables transferred to special
purpose entities in securitization transactions (whether accounted for as sales
or on the portfolio method) and finance receivables recorded on our balance
sheet that have not been securitized. Average managed receivables increased to
$41.8 billion in 1999, up 29 percent over 1998, and to $32.4 billion in 1998, up
36 percent over 1997.
Net investment income on finance receivables and other consists of: (i)
interest earned on finance receivables; and (ii) interest income on short-term
and other investments. Such income increased by 119 percent, to $647.1 million,
in 1999 and by 34 percent, to $295.5 million, in 1998, consistent with the
increases in average on-balance sheet finance receivables. The weighted average
yields earned on finance receivables and other investments were 12.2 percent,
10.8 percent and 12.5 percent during 1999, 1998 and 1997, respectively. As a
result of the change in the structure of our securitizations, future interest
earned on finance receivables should increase as our average on-balance sheet
finance receivables increase.
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 39 percent, to $185.1 million, in 1999 and
by 5.6 percent, to $132.9 million, in 1998. The increase is consistent with the
change in the average balance of interest-only securities and the June 30, 1998,
increase in the discount rate assumption we use to value our interest-only
securities. The weighted average yields earned on interest-only securities were
13.5 percent, 13.2 percent and 11.2 percent during 1999, 1998 and 1997,
respectively. As a result of the change
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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. Accordingly, future investment income
accreted on the interest-only security will decrease, as cash remittances from
the prior gain-on-sale securitizations reduce the interest-only security
balances. The balance of the interest-only securities was reduced further in
1999 by the portion of the impairment charge related to the interest-only
security ($533.8 million), which will cause a reduction in interest income
accreted to this security in future years. 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 accreted
on the interest-only security would decrease in future periods.
Gain on sale of finance receivables is the difference between the proceeds
from the sale of receivables (net of related sale costs) and the allocated
carrying amount of the receivables sold, including deferred origination fees and
costs. The amount relates to the securitizations structured as sales prior to
our September 8, 1999, announcement. In those securitizations, we determined
such carrying amount by allocating the total carrying amount of the finance
receivables between the portion we sell and the interests we retain (generally,
securities classified as fixed maturities, interest-only securities and
servicing rights), based on each portion's 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 of finance receivables decreased by 26 percent, to $550.6
million, in 1999 and decreased by 4.8 percent, to $745.0 million, in 1998. The
decrease in 1999 primarily reflects our decision to no longer structure our
securitizations as sales and to a lesser extent, the lower ratio of gain on sale
to loans sold. Our new securitizations are being structured as secured
borrowings and no gain on sale is 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. During 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 5.4
percent in 1999 from 6.3 percent in 1998 and 7.4 percent in 1997.
In recent periods, the Company has emphasized the inclusion of points and
origination fees in finance receivables originated. Points and origination fees
collected upon the securitization of finance receivables increased to $390.0
million (or 71 percent of the gain on sale recognized) in 1999 compared to
$298.3 million (or 40 percent of the gain on sale recognized) in 1998; and
$179.8 million (or 23 percent of the gain on sale recognized) in 1997.
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 hold rather than sell some of the
securities in the securitization trusts, particularly securities having
corporate guarantee provisions. Prior to our September 8, 1999, announcement,
the securities that we hold were treated as retained interests in the
securitization trusts. We recognize no gain on the portion of the assets related
to such securities, but we expect to recognize greater interest income, net of
related interest expense, over the term we hold them. At December 31, 1999 and
1998, we held $694.3 million and $340.8 million, respectively, of such
securities which are classified as actively managed fixed maturities.
Fee revenue and other income includes servicing income, commissions earned
on insurance policies written in conjunction with financing transactions, and
other income from late fees. Such income increased by
10
<PAGE> 11
43 percent, to $372.7 million, in 1999 and by 46 percent, to $260.4 million, in
1998. Our servicing portfolio (on which we earn servicing income) and our net
written insurance premiums both grew along with managed receivables. As a result
of the change in the structure of our future securitizations announced on
September 8, 1999, we no longer record an asset for servicing rights at the time
of our securitizations, nor do we record servicing fee revenue; instead, the
entire amount of interest income is recorded as investment income. Accordingly,
the amount of servicing income will decline in subsequent periods.
Provision for losses increased by 191 percent, to $128.7 million, in 1999
and by 71 percent, to $44.2 million, in 1998. The increase is principally due to
the increase of loans held on our balance sheet. Under the portfolio method
(which is used for securitizations structured as secured borrowings), we
recognize the credit losses on the loans on our balance sheet as the losses are
incurred. For loans previously recorded as sales, 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 60 percent, to $341.3 million, in 1999 and by
33 percent, to $213.7 million, in 1998. 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, which was 6.4 percent, 7.2 percent and
8.1 percent during 1999, 1998 and 1997, respectively, and a reduction in
borrowings attributable to the proceeds of the $1.1 billion capital contribution
from Conseco in 1998.
Under the portfolio method, we recognize interest expense on the securities
issued to investors in the securitization trusts. Since these securities
typically have higher interest rates than our other debt, we expect our average
borrowing rate to increase in the future.
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 16 percent, to $697.2 million,
in 1999 and by 35 percent, to $601.9 million, in 1998, reflecting: (i) the
growth in our servicing portfolio; and (ii) the growth of our loan origination
offices and infrastructure.
Impairment charges represent reductions in the value of interest-only
securities and servicing rights recognized as a loss in the statement of
operations. We carry interest-only securities at estimated fair value, which is
determined by discounting the projected cash flows over the expected life of the
receivables sold using current prepayment, default, loss and interest rate
assumptions. Estimates for prepayments, defaults and losses for manufactured
housing loans are determined based on a macroeconomic model developed by the
Company with the assistance of outside experts. We record any unrealized gain or
loss determined to be temporary, net of tax, as a component of shareholders'
equity. Declines in value are considered to be other than temporary when the
present value of estimated future cash flows discounted at a risk free rate
using current assumptions is less than the book value of the interest-only
securities. When declines in value considered to be other than temporary occur,
we reduce the amortized cost to estimated fair value and recognize a loss in the
statement of operations. The assumptions used to determine new values are based
on our internal evaluations and consultation with external advisors having
significant experience in valuing these securities.
During 1999 and early 2000 the Company re-evaluated its interest-only
securities and servicing rights, including the underlying assumptions, in light
of loss experience exceeding previous expectations. The principal change in the
revised assumptions resulting from this process was an increase in expected
future credit losses, relating primarily to reduced assumptions as to future
housing price inflation, recent loss experience, and refinements to the
methodology of the model. The effect of this change was offset somewhat by a
revision to the estimation methodology to incorporate the value associated with
the cleanup call rights held by the Company in securitizations. We recognized a
$554.3 million impairment charge ($349.2 million after tax) in 1999 to reduce
the book value of the interest-only securities and servicing rights.
During the second quarter of 1998, prepayments on securitized loan
contracts continued to exceed our expectations and we concluded that such
prepayments were likely to continue to be higher than expected in future periods
as well. As a result of these developments, we concluded that the value of the
interest-only securities and servicing rights had been impaired, and we
determined a new value using current assumptions. In addition, during the second
quarter of 1998, the market yields of publicly traded securities similar to our
11
<PAGE> 12
interest-only securities increased. The new assumptions reflect the following
changes from the assumptions previously used: (i) an increase in prepayment
rates; (ii) an increase in the discount rate used to determine the present value
of future cash flows to 15 percent from 11.5 percent; and (iii) an increase in
anticipated default rates. We recognized a $549.4 million ($355.8 million after
tax) impairment charge in 1998 to reduce the carrying value of the interest-only
securities and servicing rights.
In 1997, we conducted a review of the systems, financial modeling and
assumptions used in the valuation of our interest-only securities. The review
was part of our ongoing process to ascertain the appropriateness of assumptions,
systems and methods of modeling to determine the valuation of our interest-only
securities. The nature and extent of the review procedures were influenced by
our experiencing higher manufactured housing loan prepayments in 1997. We
recognized a $190.0 million ($117.8 million after tax) impairment charge in 1997
to take into account the adverse prepayment experience in 1997 and our
expectations of future prepayments, the effect upon the interest-only securities
of partial prepayments (principal curtailments), and the impact that higher
prepayments have on the weighted average rate of projected future interest due
to investors.
Merger-related charges of $108.0 million were recognized in 1998 and
include: $5.0 million of transaction costs; $71.0 million of severance and other
employment related costs; and $32.0 million of other costs. Transaction costs
included expenses related to the Merger. Severance and other employment related
costs included contractual severance and other benefits due to certain
executives. Other costs included the write-off of computer equipment and related
software that will no longer be used, losses for facilities to be vacated,
increases to legal expense accruals, and various other costs.
12
<PAGE> 13
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Accountants.......................... 14
Consolidated Balance Sheet at December 31, 1999 and 1998.... 16
Consolidated Statement of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... 17
Consolidated Statement of Shareholder's Equity for the years
ended December 31, 1999, 1998 and 1997.................... 18
Consolidated Statement of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... 19
Notes to Consolidated Financial Statements.................. 20
</TABLE>
13
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholder of
Conseco Finance Corp.
In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of operations, shareholder's equity and cash flows present fairly, in all
material respects, the financial position of Conseco Finance Corp. (formerly
Green Tree Financial Corporation prior to its name change in November 1999) and
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
Conseco Finance Corp. which statements reflect total revenues of $1,307.2
million for the year ended December 31, 1997. Those statements were audited by
other auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included in 1997 for
Conseco Finance Corp., is based solely on the report of the other auditors. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits and the report of other auditors provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
April 13, 2000
15
<PAGE> 15
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Conseco Finance Corp.
Saint Paul, Minnesota:
We have audited the consolidated statements of operations, shareholder's
equity and cash flows of Conseco Finance Corp. (formerly Green Tree Financial
Corporation) and subsidiaries for the year ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Conseco Finance Corp. and subsidiaries for the year ended December 31,
1997 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," in 1997.
/s/ KPMG LLP
Minneapolis, Minnesota
January 27, 1998
16
<PAGE> 16
CONSECO FINANCE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999 AND 1998
(DOLLARS IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Actively managed fixed maturities at fair value (amortized
cost: 1999 -- $712.6; 1998 -- $342.5)..................... $ 694.3 $ 340.8
Interest-only securities at fair value (amortized cost:
1999 -- $916.2; 1998 -- $1,313.6.......................... 905.0 1,305.4
Cash and cash equivalents................................... 533.4 195.2
Cash held in segregated accounts for investors.............. 849.7 843.7
Cash held in restricted accounts............................ 270.6 205.2
Fixed maturities due from subsidiaries of Conseco, Inc...... 104.6 --
Other invested assets....................................... 103.9 16.8
Finance receivables......................................... 4,978.5 3,067.2
Finance receivables -- securitized.......................... 4,730.5 --
Receivables due from Conseco, Inc........................... 435.1 227.5
Servicing rights............................................ 111.9 116.4
Goodwill.................................................... 99.7 53.2
Other assets................................................ 637.5 456.9
--------- --------
Total assets...................................... $14,454.7 $6,828.3
========= ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Investor payables......................................... $ 853.0 $ 843.7
Liabilities related to certificates of deposit............ 870.5 30.0
Other liabilities......................................... 743.5 675.6
Income tax liabilities.................................... 230.4 547.9
Notes payable:
Related to securitized finance receivables structured
as collateralized borrowings.......................... 4,641.8 --
Due to Conseco, Inc.................................... 2,116.7 854.0
Other.................................................. 2,563.8 1,584.9
--------- --------
Total liabilities................................. 12,019.7 4,536.1
--------- --------
Shareholder's equity:
Common stock and additional paid-in capital............... 1,641.0 1,338.3
Accumulated other comprehensive loss (net of applicable
deferred income tax benefit: 1999 -- $11.0;
1998 -- $6.0).......................................... (18.8) (11.0)
Retained earnings......................................... 812.8 964.9
--------- --------
Total shareholder's equity........................ 2,435.0 2,292.2
--------- --------
Total liabilities and shareholder's equity........ $14,454.7 $6,828.3
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE> 17
CONSECO FINANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Net investment income:
Finance receivables and other.......................... $ 647.1 $ 295.5 $ 220.4
Interest-only securities............................... 185.1 132.9 125.8
Gain on sale of finance receivables....................... 550.6 745.0 782.5
Servicing income.......................................... 165.3 140.0 113.7
Fee revenue and other income.............................. 207.4 120.4 64.8
-------- -------- --------
Total revenues......................................... 1,755.5 1,433.8 1,307.2
-------- -------- --------
Expenses:
Provision for losses...................................... 128.7 44.2 25.8
Interest expense.......................................... 341.3 213.7 160.9
Cost of servicing......................................... 173.3 118.0 88.7
Other operating costs and expenses........................ 523.9 483.9 355.7
Impairment charge......................................... 554.3 549.4 190.0
Merger-related charges.................................... -- 108.0 --
-------- -------- --------
Total expenses......................................... 1,721.5 1,517.2 821.1
-------- -------- --------
Income (loss) before income taxes and extraordinary
charge............................................... 34.0 (83.4) 486.1
Income tax expense (benefit)................................ (16.4) (7.6) 184.7
-------- -------- --------
Income (loss) before extraordinary charge.............. 50.4 (75.8) 301.4
Extraordinary charge on extinguishment of debt, net of
taxes..................................................... 2.5 11.5 --
-------- -------- --------
Net income (loss)...................................... $ 47.9 $ (87.3) $ 301.4
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE> 18
CONSECO FINANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED OTHER
AND ADDITIONAL COMPREHENSIVE RETAINED
TOTAL PAID-IN CAPITAL INCOME (LOSS) EARNINGS
----- --------------- ----------------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1997........................... $1,137.5 $ 321.1 $ (2.3) $ 818.7
Comprehensive income, net of tax:
Net income..................................... 301.4 -- -- 301.4
Change in unrealized appreciation
(depreciation) of interest-only securities
(net of applicable income tax expense of
$13.4 million).............................. 21.8 -- 21.8 --
Change in minimum pension liability adjustment
(net of applicable income tax benefit of $.5
million).................................... (.9) -- (.9) --
--------
Total comprehensive income................ 322.3
Issuance of shares for stock options and employee
benefit plans.................................. 55.8 55.8 -- --
Tax benefit related to issuance of shares under
stock option plans............................. 6.2 6.2 -- --
Cost of shares acquired.......................... (145.3) (145.3) -- --
Dividends on common stock........................ (44.4) -- -- (44.4)
-------- -------- ------- --------
Balance, December 31, 1997......................... 1,332.1 237.8 18.6 1,075.7
Comprehensive income, net of tax:
Net loss....................................... (87.3) -- -- (87.3)
Change in minimum pension liability adjustment
(net of applicable income tax benefit of $.8
million).................................... (1.2) -- (1.2) --
Change in unrealized appreciation
(depreciation) of actively managed fixed
maturity investments and interest-only
securities (net of applicable income tax
benefit of $16.7)........................... (28.4) -- (28.4) --
--------
Total comprehensive income................ (116.9)
Capital contribution from parent................. 1,100.0 1,100.0 -- --
Issuance of shares for stock options............. 1.7 1.7 -- --
Tax benefit related to issuance of shares under
stock option plans............................. 14.5 14.5 -- --
Issuance of warrants in conjunction with
financing transaction.......................... 7.7 7.7 -- --
Shares returned by former executive due to
recomputation of bonus......................... (23.4) (23.4) -- --
Dividends on common stock........................ (23.5) -- -- (23.5)
-------- -------- ------- --------
Balance, December 31, 1998......................... 2,292.2 1,338.3 (11.0) 964.9
Comprehensive income (loss), net of tax:
Net income..................................... 47.9 -- -- 47.9
Change in minimum pension liability adjustment
(net of applicable income tax expense of
$2.6 million)............................... 4.2 -- 4.2 --
Change in unrealized appreciation
(depreciation) of actively managed fixed
maturity investments and interest-only
securities (net of applicable income tax
benefit of $7.6)............................ (12.0) -- (12.0) --
--------
Total comprehensive income................ 40.1
Issuance of common stock......................... 299.4 299.4 -- --
Tax benefit related to issuance of shares under
stock option plans............................. 3.3 3.3 --
Dividends on common stock........................ (200.0) -- -- (200.0)
-------- -------- ------- --------
Balance, December 31, 1999......................... $2,435.0 $1,641.0 $ (18.8) $ 812.8
======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE> 19
CONSECO FINANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net investment income.................................. $ 1,009.0 $ 640.3 $ 482.0
Points and origination fees............................ 390.0 298.3 179.8
Fee revenue and other income........................... 383.1 280.3 193.9
Interest expense....................................... (293.5) (194.2) (156.5)
Merger-related charges................................. (20.9) (48.5) --
Other operating costs.................................. (655.7) (598.0) (629.6)
Taxes.................................................. (188.0) (29.0) (31.8)
---------- ---------- ----------
Net cash provided by operating activities........... 624.0 349.2 37.8
---------- ---------- ----------
Cash flows from investing activities:
Cash received from the sale of finance receivables, net
of expenses......................................... 9,516.6 13,303.6 10,683.2
Principal payments received on finance receivables..... 7,487.2 6,065.9 4,084.4
Finance receivables originated......................... (24,650.5) (21,261.6) (15,550.2)
Other.................................................. (196.8) (78.2) (74.8)
---------- ---------- ----------
Net cash used by investing activities............... (7,843.5) (1,970.3) (857.4)
---------- ---------- ----------
Cash flows from financing activities:
Cash contributed by parent resulting from asset
transfer............................................ 18.2 -- --
Capital contribution from parent....................... -- 1,100.0 --
Issuance of shares related to stock options............ -- 1.7 5.1
Issuance of liabilities related to deposit products.... 1,128.8 -- --
Payments on liabilities related to deposit products.... (288.3) -- --
Issuance of notes payable and commercial paper......... 22,220.3 12,563.9 10,577.8
Payments on notes payable and commercial paper......... (15,321.3) (11,990.0) (9,473.9)
Payment to repurchase equity securities................ -- -- (145.3)
Common stock dividends paid............................ (200.0) (23.5) (44.4)
---------- ---------- ----------
Net cash provided by financing activities........... 7,557.7 1,652.1 919.3
---------- ---------- ----------
Net increase in cash and cash equivalents........... 338.2 31.0 99.7
Cash and cash equivalents, beginning of year............. 195.2 164.2 64.5
---------- ---------- ----------
Cash and cash equivalents, end of year................... $ 533.4 $ 195.2 $ 164.2
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE> 20
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The following summary explains the accounting policies we use to arrive at
the more significant numbers in our financial statements. We prepare our
financial statements in accordance with generally accepted accounting principles
("GAAP"). We follow the accounting standards established by the Financial
Accounting Standards Board, the American Institute of Certified Public
Accountants and the Securities and Exchange Commission.
Conseco Finance Corp. ("we", "Conseco Finance", or the "Company", formerly
Green Tree Financial Corporation prior to its name change in November 1999) 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. On March 31, 2000, Conseco announced its
plan to explore the sale of the Company.
On June 30, 1998, we completed a merger with Conseco (the "Merger")
accounted for by Conseco as a pooling of interests. Each share of Conseco
Finance common stock was exchanged for .9165 of a share of Conseco common stock.
A total of 128.7 million shares of Conseco common stock were issued (including
5.0 million common equivalent shares issued in exchange for Conseco Finance's
outstanding options). Conseco also contributed $1.1 billion of additional
capital to Conseco Finance during 1998.
On December 31, 1999, Conseco transferred the following assets to the
Company at Conseco's carrying value: (i) fixed maturity investments due from
affiliates of Conseco with a carrying value of $104.6 million; (ii) other
invested assets with a carrying value of $100.5 million; and (iii) two insurance
marketing companies with net assets having a carrying value of $94.3 million.
The carrying value of these assets approximates fair value. Such amounts were
added to the common stock and paid-in capital of the Company.
The following summarizes the other invested assets received by the Company
(dollars in millions):
<TABLE>
<S> <C>
Non-investment grade debt................................... $ 17.8(a)
Limited partnerships and joint ventures..................... 42.3(b)
Junior certificates in asset-backed securities.............. 40.4(c)
------
Total other invested assets received................... $100.5
======
</TABLE>
- -------------------------
(a) Represents an investment in non-investment grade debt which matures in 2004
with an interest rate of 7.8 percent. We record this investment at fair
value, with any unrealized gain or loss, net of tax, recorded as a
component of shareholder's equity. There was no such unrealized
appreciation (depreciation) at December 31, 1999.
(b) Limited partnership and joint venture investments primarily include
investments in companies over whose operations the Company exercises
significant influence but does not control. We account for them using the
equity method.
(c) These investments represent the rights to receive residual cash flows from
various non-affiliated investment-backed securitization trusts. We carry
these investments at estimated fair values. We determine fair value by
discounting the projected future cash flows over the expected life of the
investments in the trust using current default loss and interest rate
assumptions. We record any unrealized gain or loss determined to be
temporary, net of tax, as a component of shareholder's equity. Declines in
value are considered to be other than temporary when the present value of
estimated future cash flows discounted at a risk free rate using current
assumptions is less than the carrying value of the interest-only
securities. When declines in value considered to be other than temporary
occur, we reduce the amortized cost to estimated fair value and recognize a
loss in the statement of operations. At
21
<PAGE> 21
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1999, the unrealized appreciation (depreciation) related to
these securities was not significant.
The Company received the following net assets related to the subsidiaries
transferred (dollars in millions):
<TABLE>
<S> <C>
Cash and short-term investments............................. $18.2
Goodwill.................................................... 49.5
Receivables due from Conseco, Inc........................... 11.2
Other assets:
Intangible asset representing the net present value
(discounted at 15 percent) of future commissions at the
date of acquisition.................................... 33.8
Accounts receivable....................................... 17.0
Other..................................................... 2.2
Accounts payable............................................ (34.2)
Income tax liabilities...................................... (3.4)
-----
Net assets transferred................................. $94.3
=====
</TABLE>
Our consolidated financial statements exclude the results of material
transactions between us and our consolidated affiliates, or among our
consolidated affiliates. We reclassified certain amounts in our 1997 and 1998
consolidated financial statements and notes to conform with the 1999
presentation. These reclassifications have no effect on net income or
shareholder's equity.
ACTIVELY MANAGED FIXED MATURITY SECURITIES
We classify our investments in fixed maturity securities as actively
managed which are carried at estimated fair value. Such securities represent the
interests we retain in loan securitizations, other than interest-only securities
and servicing rights. Adjustments to carry actively managed fixed maturity
securities at fair value have no effect on our earnings unless they are other
than temporary. Changes in fair value determined to be temporary are recorded,
net of tax, in shareholder's equity.
INTEREST-ONLY SECURITIES
Interest-only securities represent the right to receive certain future cash
flows from securitization transactions structured prior to our September 8,
1999, announcement (see "Revenue Recognition for Sales of Finance Receivables
and Amortization of Servicing Rights" below). Such cash flows generally are
equal to the value of the principal and interest to be collected on the
underlying financial contracts of each securitization in excess of the sum of
the principal and interest to be paid on the securities sold and contractual
servicing fees. We carry interest-only securities at estimated fair value. We
determine fair value by discounting the projected cash flows over the expected
life of the receivables sold using current prepayment, default loss and interest
rate assumptions. Estimates for prepayments, defaults, and losses for
manufactured housing loans are determined based on a macroeconomic model
developed by the Company with the assistance of outside experts. We record any
unrealized gain or loss determined to be temporary, net of tax, as a component
of shareholder's equity. Declines in value are considered to be other than
temporary when the present value of estimated future cash flows discounted at a
risk free rate using current assumptions is less than the book value of the
interest-only securities. When declines in value considered to be other than
temporary occur, we reduce the amortized cost to estimated fair value and
recognize a loss in the statement of operations. The assumptions used to
determine new values are based on our internal evaluations and consultation with
external advisors having significant experience in valuing these securities. See
note 2 for additional discussion of gain on sale of receivables and
interest-only securities.
22
<PAGE> 22
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include commercial paper, invested cash and other
investments purchased with maturities of less than three months. We carry them
at amortized cost, which approximates their estimated fair value.
FINANCE RECEIVABLES
Finance receivables include manufactured housing, home equity, home
improvement, general consumer, equipment, commercial finance and revolving
credit loans. Commercial finance receivables generally represent dealer
floorplan; truck lending and leasing; and small-ticket equipment lending and
leasing (such as small-ticket computer, office and telecommunication equipment).
Revolving credit loans consist of retail credit card arrangements with
merchants, dealers and their customers. We carry finance receivables at
amortized cost, net of an allowance for credit losses.
We defer fees received and costs incurred when we originate finance
receivables. We amortize deferred fees, costs, discounts and premiums over the
contractual lives of the receivables, giving consideration to anticipated
prepayments. We include such deferred fees or costs in the amortized cost of
finance receivables.
We generally stop accruing investment income on finance receivables after
three consecutive months of contractual delinquency.
Finance receivables transferred to securitization trusts in transactions
structured as securitized borrowings are classified as finance
receivables -- securitized. These receivables are held as collateral for the
notes issued to investors in the securitization trusts. Finance receivables held
by us without such collateral restrictions are classified as finance
receivables.
PROVISION FOR LOSSES
The provision for credit losses charged to expense is based upon an
assessment of current and historical loss experience, loan portfolio trends,
prevailing economic and business conditions, and other relevant factors. In
management's opinion, the provision is sufficient to maintain the allowance for
credit losses at a level that adequately provides for losses inherent in the
portfolio.
We reduce the carrying value of finance receivables to net realizable value
after six months of contractual delinquency.
GOODWILL
Goodwill includes: (i) the excess of the amount we paid to acquire a
company over the fair value of its net assets; and (ii) the goodwill related to
the two insurance marketing companies transferred from Conseco to the Company on
December 31, 1999. We amortize goodwill on the straight-line basis generally
over a 20-year period. At December 31, 1999, the total accumulated amortization
of goodwill was $9.0 million. We continually monitor the value of our goodwill
based on our estimates of future earnings. We determine whether goodwill is
fully recoverable from projected undiscounted net cash flows from earnings of
the subsidiaries over the remaining amortization period. If we were to determine
that changes in such projected cash flows no longer support the recoverability
of goodwill over the remaining amortization period, we would reduce its carrying
value with a corresponding charge to expense or shorten the amortization period
(no such changes have occurred). Cash flows considered in such an analysis are
those of the business acquired.
23
<PAGE> 23
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LIABILITIES RELATED TO CERTIFICATES OF DEPOSIT
These liabilities relate to the certificates of deposits issued by our bank
subsidiary. The liability and interest expense account are also increased for
the interest which accrues on the deposits. The weighted average interest
crediting rate on these deposits was 5.8 percent during 1999.
INCOME TAXES
Our income tax expense includes deferred income taxes arising from
temporary differences between the tax and financial reporting bases of assets
and liabilities. In assessing the realization of deferred income tax assets, we
consider whether it is more likely than not that the deferred income tax assets
will be realized. The ultimate realization of deferred income tax assets depends
upon generating future taxable income during the periods in which temporary
differences become deductible. If future income is not generated as expected,
deferred income tax assets may need to be written off (no such write-offs have
occurred).
USE OF ESTIMATES
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 values for the interest-only securities,
servicing rights, goodwill, liabilities for deposit products, liabilities
related to litigation, gain on sale of finance receivables, allowance for credit
losses on finance receivables and deferred income taxes. If our future
experience differs from these estimates and assumptions, our financial
statements could be materially affected.
REVENUE RECOGNITION FOR SALES OF FINANCE RECEIVABLES AND AMORTIZATION OF
SERVICING RIGHTS
On September 8, 1999, we announced that we would no longer structure our
securitizations in a manner that results in recording a sale of the loans.
Instead, we are using the portfolio method (the accounting method required for
securitizations which are structured as secured borrowings) to account for
securitization transactions structured after that date. Our new securitizations
are 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. Until these assets are repurchased,
the assets are the property of the special purpose entity and are not available
to satisfy the claims of creditors of the Company. Pursuant to Financial
Accounting Standards Board Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS 125"),
such securitization transactions are accounted for under the portfolio method,
whereby the loans and securitization debt remain on our balance sheet, rather
than as sales.
For securitizations structured prior to September 8, 1999, we accounted for
the sale of finance receivables in accordance with SFAS 125. In applying SFAS
125 to our securitized sales, we recognized a gain, representing the difference
between the proceeds from the sale (net of related sale costs) and the carrying
value of the component of the finance receivable sold. We determined such
carrying amount by allocating the carrying value of the finance receivables
between the portion we sell and the interests we retain (generally interest-only
securities, servicing rights and, in some instances, other securities), based on
each portion's relative fair values on the date of the sale.
We amortize the servicing rights we retain after the sale of finance
receivables, in proportion to, and over the estimated period of, net servicing
income.
We evaluate servicing rights for impairment on an ongoing basis, stratified
by product type and origination period. To the extent that the recorded amount
exceeds the fair value, we establish a valuation
24
<PAGE> 24
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
allowance through a charge to earnings. If we determine, upon subsequent
measurement of the fair value of these servicing rights, that the fair value
equals or exceeds the amortized cost, any previously recorded valuation
allowance would be deemed unnecessary and restored to earnings.
FAIR VALUES OF FINANCIAL INSTRUMENTS
We use the following methods and assumptions to determine the estimated
fair values of financial instruments:
Actively managed fixed maturities. For fixed maturity securities, we use
quotes from independent pricing services, where available. For investment
securities for which such quotes are not available, we use values obtained from
broker-dealer market makers or by discounting expected future cash flows using a
current market rate appropriate for the yield, credit quality, and the maturity
of the investment being priced.
Interest-only securities. We discount future expected cash flows over the
expected life of the receivables sold using prepayment, default, loss severity
and interest rate assumptions that we believe market participants would use to
value such securities.
Other invested assets. We use quoted market prices, where available. When
quotes are not available, we estimate the fair value based on: (i) discounted
future expected cash flows; or (ii) independent transactions which establish a
value for our investment. When we are unable to estimate a fair value, we assume
a market value equal to carrying value.
Cash and cash equivalents. The carrying amount for these instruments
approximates their estimated fair value.
Finance receivables. The estimated fair value of finance receivables,
including those that have been securitized, is determined based on general
market transactions which establish values for similar loans.
Liabilities related to certificates of deposit. We estimate the fair value
of these liabilities using discounted cash flow analyses based on current
crediting rates. Since crediting rates are generally not guaranteed beyond one
year, market value approximates carrying value.
Notes payable. For publicly traded debt, we use current market values. For
other notes, we use discounted cash flow analyses based on our current
incremental borrowing rates for similar types of borrowing arrangements.
25
<PAGE> 25
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Here are the estimated fair values of our financial instruments:
<TABLE>
<CAPTION>
1999 1998
--------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Financial assets:
Actively managed fixed maturities.................. $ 694.3 $ 694.3 $ 340.8 $ 340.8
Interest-only securities........................... 905.0 905.0 1,305.4 1,305.4
Fixed maturities due from subsidiaries of
Conseco......................................... 104.6 104.6 -- --
Other invested assets.............................. 103.9 103.9 16.8 16.8
Cash and cash equivalents.......................... 533.4 533.4 195.2 195.2
Finance receivables (including finance
receivables -- securitized)..................... 9,709.0 10,057.2 3,067.2 3,150.0
Financial liabilities:
Liabilities related to certificates of deposit..... 870.5 870.5 30.0 30.0
Notes payable:
Notes payable and commercial paper.............. 2,563.8 2,563.0 1,584.9 1,584.3
Notes payable due to Conseco.................... 2,116.7 2,116.7 854.0 854.0
Related to securitized finance receivables
structured as collateralized borrowings....... 4,641.8 4,636.8 -- --
</TABLE>
IMPAIRMENT CHARGE
During 1999 and early 2000 the Company re-evaluated its interest-only
securities and servicing rights, including the underlying assumptions, in light
of loss experience exceeding previous expectations. The principal change in the
revised assumptions resulting from this process was an increase in expected
future credit losses, relating primarily to reduced assumptions as to future
housing price inflation, recent loss experience and refinements to the
methodology of the model. The effect of this change was offset somewhat by a
revision to the estimation methodology to incorporate the value associated with
the cleanup call rights held by the Company in securitizations. We recognized a
$554.3 million impairment charge ($349.2 million after tax) in 1999 to reduce
the book value of the interest-only securities and servicing rights.
During the second quarter of 1998, prepayments on securitized loan
contracts continued to exceed expectations and management concluded that such
prepayments were likely to continue to be higher than expected in future periods
as well. As a result of these developments, we concluded that the value of the
interest-only securities and servicing rights had been impaired, and we
determined a new value using current assumptions. In addition, the market yields
of publicly traded securities similar to our interest-only securities also
increased during the second quarter. The assumptions used to determine the new
value at that time were based on our internal evaluations and consultation with
external investment managers having significant experience in valuing these
securities. The new assumptions reflect the following changes from the
assumptions previously used: (i) an increase in prepayment rates; (ii) an
increase (to 15 percent from 11.5 percent) in the discount rate used to
determine the present value of future cash flows; and (iii) an increase in
anticipated default rates. We recognized a $549.4 million impairment charge in
1998 to reduce the carrying value of the interest-only securities and servicing
rights.
In 1997, we conducted a review of the systems, financial modeling and
assumptions used in the valuation of our interest-only securities. The review
was part of our ongoing process to ascertain the appropriateness of assumptions,
systems and methods of modeling to determine the valuation of our interest-only
securities. The nature and extent of the review procedures were influenced by
our experiencing higher manufactured housing loan prepayments in 1997. We
recognized a $190.0 million impairment charge in 1997 to take into account the
26
<PAGE> 26
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adverse prepayment experience in 1997 and our expectations of future
prepayments, the effect upon the interest-only securities of partial prepayments
(principal curtailments), and the impact that higher prepayments have on the
weighted average rate of projected future interest due to investors.
CHARGE RELATED TO MERGER
We recognized a $108.0 million merger-related charge in the second quarter
of 1998 related to the Merger consisting of: $5.0 million of transaction costs;
$71.0 million of severance and other employment related costs; and $32.0 million
of other costs. Transaction costs included expenses related to the Merger.
Severance and other employment related costs included contractual severance and
other benefits due to certain executives. Other costs included the write-off of
computer equipment and related software that will no longer be used, losses for
facilities to be vacated, increases to legal expense accruals, and various other
costs.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended by
Statement of Financial Accounting Standards No. 137, "Deferral of the Effective
Date of FASB Statement No. 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. SFAS 133 is required to be implemented in year 2001. We are
currently evaluating the impact of SFAS 133; at present, we do not believe it
will have a material effect on our consolidated financial position or results of
operations. Because of ongoing changes to implementation guidance, we do not
plan on adopting the new standard until the first quarter of 2001.
We implemented Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1") on
January 1, 1999. SOP 98-1 defines internal use software and when the costs
associated with internal use software should be capitalized. The implementation
of SOP 98-1 did not have a material effect on our consolidated financial
position or results of operations.
2. FINANCE RECEIVABLES AND INTEREST-ONLY SECURITIES:
On September 8, 1999, we announced that we would no longer structure our
securitizations in a manner that results in recording a sale of the loans.
Instead, we are using the portfolio method to account for securitization
transactions structured after that date. Our new securitizations are 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. Until these assets are repurchased, however, the
assets are the property of the special purpose entity and are not available to
satisfy claims of creditors of the Company. Pursuant to SFAS 125, such
securitization transactions are accounted for under the portfolio method,
whereby the loans and securitization debt remain on our balance sheet, rather
than as sales.
We classify the finance receivables transferred to the securitization
trusts and held as collateral for the notes issued to investors as finance
receivables-securitized. We are generally able to repurchase these receivables
from the trust when the aggregate unpaid principal balance reaches 20 percent of
the initial principal balance of the finance receivables. The average interest
rate earned on these receivables at December 31, 1999, was approximately 11.7
percent. We classify the notes issued to investors in the securitization trusts
as "notes payable related to securitized finance receivables structured as
collateralized borrowings".
27
<PAGE> 27
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Finance receivables-securitized, summarized by type, were as follows at
December 31, 1999 (dollars in millions):
<TABLE>
<S> <C>
Manufactured housing........................................ $ 953.0
Mortgage services........................................... 2,077.3
Consumer/credit card........................................ 1,076.9
Commercial.................................................. 637.0
--------
4,744.2
Less allowance for credit losses............................ 13.7
--------
Net finance receivables-securitized....................... $4,730.5
========
</TABLE>
The other finance receivables, summarized by type, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Manufactured housing........................................ $ 795.8 $ 798.8
Mortgage services........................................... 1,277.0 603.5
Consumer/credit card........................................ 824.7 587.3
Commercial.................................................. 2,155.7 1,120.6
-------- --------
5,053.2 3,110.2
Less allowance for credit losses............................ 74.7 43.0
-------- --------
Net finance receivables................................... $4,978.5 $3,067.2
======== ========
</TABLE>
The changes in the allowance for credit losses included in finance
receivables were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Allowance for credit losses, beginning of year.......... $ 43.0 $ 19.8 $ 14.3
Provision for losses.................................... 128.7 44.2 25.8
Credit losses........................................... (83.3) (21.0) (20.3)
------ ------ ------
Allowance for credit losses, end of year................ $ 88.4 $ 43.0 $ 19.8
====== ====== ======
</TABLE>
The securitizations structured prior to our September 8, 1999, announcement
met the applicable criteria to be accounted for as sales. At the time the loans
were securitized and sold, we recognized a gain and recorded our retained
interest represented by the interest-only security. The interest-only security
represents the right to receive, over the life of the pool of receivables, the
excess of the principal and interest received on the receivables transferred to
the special purpose entity over the sum of: (i) principal and interest paid to
the holders of other interests in the securitization; and (ii) contractual
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 par value, fair market value and
amortized cost of $769.8 million, $694.3 million and $712.6 million,
respectively, at December 31, 1999, (including gross unrealized gains of $11.4
million and gross unrealized losses of $29.7 million) and were classified as
actively managed fixed maturity securities.
During 1999, 1998 and 1997, the Company sold $9.7 billion, $13.4 billion
and $10.7 billion, respectively, of finance receivables in various securitized
transactions and recognized gains of $550.6 million, $745.0 million and $782.5
million, respectively.
28
<PAGE> 28
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The interest-only securities on our balance sheet represent an allocated
portion of the cost basis of the finance receivables in the securitization
transactions accounted for as sales related to transactions structured prior to
September 8, 1999. We used the following assumptions to adjust the amortized
cost to estimated fair value at December 31, 1999. The difference between
estimated fair value and the amortized cost of the interest-only securities is
included in accumulated other comprehensive loss, net of taxes.
<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...... $ 528.3 $ 318.0 $ 58.7 $ 905.0
Cumulative principal balance of sold finance
receivables at December 31, 1999.......... 22,854.6 8,804.8 3,049.4 34,708.8
Weighted average stated customer interest
rate on sold finance receivables.......... 10.0% 11.5% 11.0%
Assumptions to determine estimated fair
value of interest-only securities at
December 31, 1999:
Expected weighted average annual constant
prepayment rate as a percentage of
principal balance of related finance
receivables(a)......................... 9.4% 21.7% 22.4%
Expected nondiscounted credit losses as a
percentage of principal balance of
related finance receivables(a)......... 9.0% 5.8% 5.1%
Weighted average discount rate............ 14.0% 14.0% 14.0%
</TABLE>
- -------------------------
(a) 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.
Additionally, such valuation is determined by discounting cash flows over
the entire expected life of the receivables sold.
We used the assumptions in the table below to determine the initial value
of the interest-only securities related to securitizations accounted for as
sales in 1999.
<TABLE>
<CAPTION>
MANUFACTURED HOME EQUITY/ CONSUMER/
HOUSING HOME IMPROVEMENT EQUIPMENT
------------ ---------------- ---------
<S> <C> <C> <C>
Related to securitizations completed in 1999:
Weighted average stated customer interest rate on
sold finance receivables(a)....................... 9.7% 11.7% 11.4%
Assumptions to determine gain on sale during 1999:
Expected weighted average annual constant
prepayment rate as a percentage of principal
balance of sold finance receivables(b).......... 10.6% 27.7% 25.8%
Expected nondiscounted credit losses as a
percentage of principal balance of sold finance
receivables(b).................................. 8.6% 3.3% 2.8%
Weighted average discount rate used for
determining the gain on sale of finance
receivables..................................... 14.0% 14.0% 14.0%
</TABLE>
- -------------------------
(a) 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 1999.
(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
29
<PAGE> 29
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
losses. Should such timing differ materially from our projections, it
could have a material effect on the valuation of our interest-only
securities.
Activity in the interest-only securities account during 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C>
Balance, beginning of year................................ $1,305.4 $1,398.7
Additions resulting from securitizations during the
period............................................... 393.9 719.6
Investment income....................................... 185.1 132.9
Cash received........................................... (442.6) (358.0)
Impairment charge to reduce carrying value.............. (533.8) (544.4)
Change in unrealized depreciation charged to
shareholder's equity................................. (3.0) (43.4)
-------- --------
Balance, end of year...................................... $ 905.0 $1,305.4
======== ========
</TABLE>
Credit quality of managed finance receivables was as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
60-days-and-over delinquencies as a percentage of managed
finance receivables at period end......................... 1.42% 1.19%
Net credit losses incurred the last twelve months as a
percentage of average managed finance receivables during
the period................................................ 1.31% 1.03%
Repossessed collateral inventory as a percentage of managed
finance receivables at period end......................... 1.34% 1.14%
</TABLE>
3. INCOME TAXES:
Income tax liabilities were comprised of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C>
Deferred income tax (assets) liabilities:
Interest-only securities.................................. $271.3 $573.3
Unrealized depreciation................................... (11.0) (3.3)
Net operating loss carryforward........................... (6.3) --
Other..................................................... (7.8) (101.8)
------ ------
Deferred income tax liabilities........................ 246.2 468.2
Current income tax (assets) liabilities..................... (15.8) 79.7
------ ------
Income tax liability................................... $230.4 $547.9
====== ======
</TABLE>
Income tax expense (benefit) was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Current tax provision................................ $ 169.2 $ 41.4 $ 35.1
Deferred tax provision (benefit)..................... (185.6) (49.0) 149.6
------- ------ ------
Income tax expense (benefit).................... $ (16.4) $ (7.6) $184.7
======= ====== ======
</TABLE>
30
<PAGE> 30
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense (benefit) differed from that computed at the applicable
federal statutory rate (35 percent) for the following reasons:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Tax expense (benefit) income before income taxes at
statutory rate...................................... $ 12.0 $(29.2) $170.1
Nondeductible merger-related expense.................. -- 7.0 --
Other................................................. 1.2 15.6 --
Settlement of tax issues related to revenue recognized
as gain on sale of finance receivables.............. (30.2) -- --
State taxes, net...................................... .6 (1.0) 14.6
------ ------ ------
Income tax expense (benefit)..................... $(16.4) $ (7.6) $184.7
====== ====== ======
</TABLE>
At December 31, 1999, we had federal income tax loss carryforwards of $21.3
million available for use on future tax returns. Portions of these carryforwards
begin expiring in 2005. Loss carryforwards of $3.3 million (attributable to
acquired companies) may be used only to offset the income from those companies.
None of the carryforwards are available to reduce the future tax provision for
financial reporting purposes.
4. NOTES PAYABLE:
NOTES PAYABLE (EXCLUDING NOTES PAYABLE RELATED TO SECURITIZED FINANCE
RECEIVABLES STRUCTURED AS COLLATERALIZED BORROWINGS)
Notes payable (excluding notes payable related to securitized finance
receivables structured as collateralized borrowings) at December 31, 1999 and
1998, were as follows (interest rates as of December 31, 1999):
<TABLE>
<CAPTION>
1999 1998
---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C>
Note payable to Conseco (6.81%)............................. $2,116.7 $ 854.0
Master repurchase agreements due on various dates in 2000
(6.22%)................................................... 1,620.9 780.6
Credit facility collateralized by retained interests in
securitizations due 2000 (8.46%).......................... 499.0 300.0
10.25% senior subordinated notes due 2002................... 217.3 267.3
Medium term notes due April 2000 to April 2003 (6.53%)...... 226.7 238.7
Other....................................................... 3.1 3.2
-------- --------
Total principal amount................................. 4,683.7 2,443.8
Unamortized net discount.................................... 3.2 4.9
-------- --------
Total notes payable.................................... $4,680.5 $2,438.9
======== ========
</TABLE>
We substantially restructured and repaid a portion of our bank debt during
1998. We recognized an extraordinary charge of $11.5 million (net of a $7.1
million tax benefit) as a result of the repayment, restructuring and
cancellation of a portion of our bank debt.
In 1998, we entered into a $2 billion promissory note with Conseco. The
note bears interest at LIBOR plus a margin of .35 percent and both the principal
and interest are due on demand. Interest expense incurred under the note totaled
$79.5 million and $16.8 million in 1999 and 1998, respectively. On January 1,
2000, the promissory note was amended and restated to provide for borrowings up
to $5 billion and quarterly interest payments at a rate of LIBOR plus a margin
of 1.5 percent.
31
<PAGE> 31
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1999, we had $6.9 billion of master repurchase
agreements and commercial paper conduit facilities (of which $2.9 billion was
outstanding) with various banking and investment banking firms, subject to the
availability of eligible collateral. The agreements generally provide for one
year terms, some of which can be extended each quarter by mutual agreement of
the parties for an additional year, based upon our financial performance.
During 1999, we repurchased $50.0 million par value of our 10.25% senior
subordinated notes due 2002 for $53.5 million. We recognized an extraordinary
charge of $2.5 million (net of a $1.5 million tax benefit) as a result of such
repurchases. At December 31, 1999 and 1998, $23.7 million and $73.3 million par
value of the 10.25% senior subordinated notes were held by Conseco or its
subsidiaries.
The maturities of notes payable (excluding notes payable related to
securitized finance receivables structured as collateralized borrowings and the
note payable due to Conseco on demand) at December 31, 1999, were as follows
(dollars in millions):
<TABLE>
<CAPTION>
MATURITY DATE
-------------
<S> <C>
2000........................................................ $2,123.0
2001........................................................ 1.7
2002........................................................ 437.4
2003........................................................ 4.9
--------
Total par value at December 31, 1999................... $2,567.0
========
</TABLE>
NOTES PAYABLE RELATED TO SECURITIZED FINANCE RECEIVABLES STRUCTURED AS
COLLATERALIZED BORROWINGS
Notes payable related to securitized finance receivables structured as
collateralized borrowings were $4,641.8 million at December 31, 1999. The
principal and interest on these notes are paid using the cash flows from the
underlying finance receivables which serve as collateral for the notes.
Accordingly, the timing of the principal payments on these notes is dependent on
the payments received on the underlying finance receivables which back the
notes. The average interest rate on these notes at December 31, 1999 was 7.6
percent.
5. OTHER DISCLOSURES:
LEASES
The Company rents office space, equipment and computer software under
noncancellable operating leases. Rental expense was $21.8 million in 1999, $16.6
million in 1998 and $13.1 million in 1997. Future required minimum rental
payments as of December 31, 1999, were as follows (dollars in millions):
<TABLE>
<S> <C>
2000........................................................ $25.8
2001........................................................ 20.6
2002........................................................ 13.4
2003........................................................ 10.1
2004........................................................ 5.2
Thereafter.................................................. 5.3
-----
Total.................................................. $80.4
=====
</TABLE>
32
<PAGE> 32
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other operating costs and expenses were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Salaries and wages............................ $393.6 $283.9 $212.8
Other......................................... 130.3 200.0 142.9
------ ------ ------
Total other operating costs and
expenses............................... $523.9 $483.9 $355.7
====== ====== ======
</TABLE>
PENSION PLANS
The Company has a qualified noncontributory defined benefit pension plan
covering substantially all of its employees over 21 years of age. The plan's
benefits are based on years of service and the employee's compensation. The plan
is funded annually based on the maximum amount that can be deducted for federal
income tax purposes. The assets of the plan are primarily invested in common
stock, corporate bonds and cash equivalents. In addition, the Company maintains
a nonqualified pension plan for certain key employees as designated by the Board
of Directors. The following table sets forth the plan's funded status and
amounts recognized in the Company's statement of financial position at December
31. Amounts related to such benefit plans were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C>
Benefit obligation, beginning of year...................... $ 88.5 $ 72.9
Service cost............................................. 7.3 7.3
Interest cost............................................ 3.0 5.0
Actuarial loss (gain).................................... (40.6) 4.3
Settlement and curtailment gains......................... (15.8) --
Benefits paid............................................ (21.8) (1.0)
------ ------
Benefit obligation, end of year............................ $ 20.6 $ 88.5
====== ======
Fair value of plan assets, beginning of year............... $ 15.1 $ 9.1
Actual return on plan assets............................. 2.5 2.6
Employer contributions................................... 3.7 4.4
Benefits paid............................................ (2.5) (1.0)
------ ------
Fair value of plan assets, end of year..................... $ 18.8 $ 15.1
====== ======
Funded status.............................................. $ (1.8) $(73.4)
Unrecognized net actuarial gain............................ .4 43.4
Unrecognized prior service cost............................ -- (.2)
------ ------
Accrued benefit liability............................. $ (1.4) $(30.2)
====== ======
</TABLE>
We used the following weighted average assumptions to calculate benefit
obligations for our 1999 and 1998 valuations: discount rate of approximately 6.5
percent; an expected return on plan assets of approximately 9.0 percent; and we
assumed an annual rate of compensation increase of 5.5 percent.
33
<PAGE> 33
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of the cost we recognized related to pension plans are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Service cost........................................... $7.3 $ 7.3 $ 4.8
Interest cost.......................................... 3.0 5.0 3.9
Expected return on plan assets......................... (1.4) (.9) (.7)
Amortization of prior service cost..................... -- .2 .2
Recognized net actuarial loss.......................... 1.0 2.2 1.8
---- ----- -----
Net periodic benefit cost......................... $9.9 $13.8 $10.0
==== ===== =====
</TABLE>
The Company has qualified defined contribution plans for which
substantially all employees are eligible. Company contributions, which match
certain voluntary employee contributions to the plan, totaled $4.7 million in
1999, $3.6 million in 1998 and $2.5 million in 1997. Matching contributions are
required to be made either in cash or in Conseco common stock.
LITIGATION
Conseco Finance was served with various related lawsuits filed in the
United States District Court for the District of Minnesota. These lawsuits were
generally filed as purported class actions on behalf of persons or entities who
purchased common stock or options of Conseco Finance during alleged class
periods that generally run from February 1995 to January 1998. One action
(Florida State Board of Admin. v. Green Tree Financial Corp., Case No. 98-1162)
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
obtained an order consolidating the lawsuits seeking class action status into
two actions, one of which pertains to a purported class of common stockholders
(In re Green Tree Financial Corp. Stock Litig., Case No. 97-2666) and the other
which pertains to a purported class action of stock option traders (In re Green
Tree Financial Corp. Options Litig., Case No. 97-2679). 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. 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 for
the 8th Circuit, and the appeal is currently pending. The Company believes that
the lawsuits are without merit and intends to continue to defend them
vigorously. The ultimate outcome of these lawsuits cannot be predicted with
certainty.
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.
GUARANTEES
We have provided guarantees of approximately $1.6 billion at December 31,
1999, in conjunction with certain sales of finance receivables. We believe the
likelihood of a significant loss from such guarantee is remote.
34
<PAGE> 34
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. CONSOLIDATED STATEMENT OF CASH FLOWS:
The following disclosures supplement our consolidated statement of cash
flows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Additional non-cash items not reflected in the
consolidated statement of cash flows:
Issuance of common stock under stock option
and employee benefit plans.................. $ -- $ -- $ 50.7
Tax benefit related to the issuance of common
stock under employee benefit plans.......... 3.3 14.5 6.2
Shares returned by former executive due to
recomputation of bonus...................... -- 23.4 --
</TABLE>
The following reconciles net income to net cash provided by operating
activities:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $ 47.9 $ (87.3) $ 301.4
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Gain on sale of finance receivables........... (550.6) (745.0) (782.5)
Points and origination fees received.......... 390.0 298.3 179.8
Interest-only securities investment income.... (185.1) (132.9) (125.8)
Cash received from interest-only securities... 442.6 358.0 266.1
Servicing income.............................. (165.3) (140.0) (113.7)
Cash received from servicing activities....... 175.7 159.9 129.1
Provision for losses.......................... 128.7 44.2 25.8
Net increase (decrease) in restricted cash
deposits.................................... 46.8 42.0 (75.7)
Amortization and depreciation................. 52.3 44.4 30.6
Income taxes.................................. (120.8) (43.7) 141.5
Accrual and amortization of investment
income...................................... (80.7) (13.2) (4.5)
Impairment charges and merger-related
charges..................................... 533.8 608.9 190.0
Extraordinary charge on extinguishment of
debt........................................ 4.0 18.6 --
Other......................................... (10.2) (63.0) (124.3)
Payment of taxes in settlement of prior
years....................................... (85.1) -- --
------- ------- -------
Net cash provided by operating
activities............................. $ 624.0 $ 349.2 $ 37.8
======= ======= =======
</TABLE>
35
<PAGE> 35
CONSECO FINANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
1ST 2ND 4TH
QUARTER(A)(B) QUARTER(A)(B) 3RD QUARTER(A)(B) QUARTER(B)
------------- ------------- ----------------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
1999
Revenues........... $432.4 $ 437.7 $457.8 $427.6
Income (loss)
before income
taxes and
extraordinary
charge.......... 183.6 112.5 73.0 (335.1)
Net income
(loss).......... 128.6 78.4 56.4 (215.5)
1998
Revenues........... $289.2 $ 292.9 $432.3 $419.4
Income (loss)
before income
taxes and
extraordinary
charge.......... 102.4 (578.2)(c)(d) 192.8 199.6
Net income
(loss).......... 63.5 (422.3)(c)(d) 110.7 160.8
</TABLE>
- -------------------------
(a) We have restated amounts previously reported for the first, second and third
quarters of 1999 to reflect adjustments, principally related to: (i)
impairment charges relating to interest-only securities and servicing
rights; (ii) delaying the recognition of revenue from sales of loans to
certain commercial paper conduit trusts until the loans were subsequently
placed into their final securitization structures; (iii) the reallocation of
gain on sale revenues relating to a securitization closed over two quarters;
(iv) adjusting loan origination cost deferrals; and (v) adjusting corporate
tax and other expense allocations. These changes decreased previously
reported net income in the first, second and third quarters by $7.5 million,
$56.1 million and $14.8 million, respectively.
(b) Included in the first, second, third and fourth quarters of 1999 are
impairment charges of $12.2 million ($7.7 million after tax), $71.6 million
($45.1 million after tax), $100.1 million ($63.1 million after tax) and
$370.4 million ($233.3 million after tax), respectively.
(c) We have restated amounts previously reported for the second quarter of 1998
to reflect a correction to the impairment charge we previously reported.
This change increased the previously reported net loss by $19.5 million.
(d) Includes: (i) an impairment charge of $549.4 million ($355.8 million after
tax); and (ii) merger-related expenses of $108.0 million ($108.0 million
after tax).
8. SUBSEQUENT EVENT:
On March 31, 2000, Conseco announced that it plans to explore the sale of
the Company and hire Lehman Brothers Inc. to assist in the planned sale.
36
<PAGE> 36
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
The Registrant meets the conditions set forth in the General Instructions
(I)(1)(a) and (b) of Form 10-K and is therefore omitting the information
otherwise required in Part III.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. See Index to Consolidated Financial Statements on
page 13 for a list of financial statements included in this Report.
2. Financial Statement Schedules. All schedules are omitted, either because
they are not applicable, not required, or because the information they
contain is included elsewhere in the consolidated financial statements
or notes.
3. Exhibits. See Exhibit Index immediately preceding the Exhibits filed
with this report.
(b) Reports on Form 8-K -- None.
37
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 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, this 13th day of April, 2000.
CONSECO FINANCE CORP.
By: /s/ STEPHEN C. HILBERT
------------------------------------
Stephen C. Hilbert
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE (CAPACITY) DATE
--------- ---------------- ----
<C> <S> <C>
/s/ STEPHEN C. HILBERT Chairman of the Board, April 13, 2000
- --------------------------------------------- Chief Executive Officer and Director
Stephen C. Hilbert (Principal Executive Officer)
/s/ ROLLIN M. DICK Executive Vice President, Chief April 13, 2000
- --------------------------------------------- Financial
Rollin M. Dick Officer and Director
(Principal Financial Officer)
/s/ JAMES S. ADAMS Senior Vice President and April 13, 2000
- --------------------------------------------- Chief Accounting Officer
James S. Adams (Principal Accounting Officer)
/s/ THOMAS J. KILIAN Director April 13, 2000
- ---------------------------------------------
Thomas J. Kilian
</TABLE>
38
<PAGE> 38
CONSECO FINANCE CORP.
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
(FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999)
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
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(b) Merger of Green Tree Financial Corporation, as filed with
the Delaware Secretary of State on June 30, 1995
(incorporated by reference to the Company's Registration
Statement on Form S-1; File No. 33-60869).
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.
4(a) Indenture dated as of March 15, 1992 relating to
$287,500,000 of 10 1/4% Senior Subordinated Notes due June
1, 2002 (incorporated by reference to the Company's
Registration Statement on Form S-4; File No. 33-42249).
4(b) Indenture dated as of September 1, 1992 relating to
$250,000,000 of Medium-Term Notes, Series A, Due Nine Months
or More From Date of Issue (incorporated by reference to the
Company's Registration Statement on Form S-3; File No.
33-51804).
4(c) Amended and Restated Promissory Note dated January 1, 2000
issued by the Company to Conseco, Inc. (filed herewith).
10(a) Master Repurchase Agreement dated as of September 1, 1995
between Merrill Lynch Mortgage Capital, Inc. and Green Tree
Financial Corporation (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995; File No. 1-08916); as amended by
Amendment to the Master Repurchase Agreement dated June 1,
1997 (incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
1997; File No. 0-11652); as amended by Amendment to the
Master Repurchase Agreement dated February 10, 1998
(incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1998,
File No. 1-08916).
10(b) Master Repurchase Agreement dated as of October 15, 1992
between Green Tree Finance Corp.-Five and Lehman Commercial
Paper, Inc. (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
1992; File No. 0-11652); as amended by Amendment to the
Master Repurchase Agreement dated June 30, 1995
(incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1995;
File No. 0-11652); as amended by Amended and Restated Master
Repurchase Agreement dated February 4, 1998 between Lehman
Commercial Paper Inc. and Green Tree Finance Corp.-Five
(incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1998;
File No. 1-0896).
10(c) Asset Assignment Agreement dated as of February 13, 1998
between Green Tree Residual Finance Corp. I and Lehman
Commercial Paper, Inc. (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1998; File No. 1-08916).
10(d) Contribution Agreement, dated as of December 27, 1999, among
Conseco, Inc., CIHC, Incorporated, Conseco Finance Corp. and
CFIHC, Inc. (filed herewith).
</TABLE>
39
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
12 Computation of Ratio of Earnings to Fixed Charges (filed
herewith).
23.1 Consent of KPMG LLP (filed herewith).
23.2 Consent of PricewaterhouseCoopers LLP (filed herewith).
27 Financial Data Schedule (filed herewith).
</TABLE>
PURSUANT TO ITEM 601(b)(4) OF REGULATION S-K, THERE HAS BEEN EXCLUDED FROM
THE EXHIBITS FILED PURSUANT TO THIS REPORT, INSTRUMENTS DEFINING THE RIGHTS OF
HOLDERS OF LONG-TERM DEBT OF THE COMPANY WHERE THE TOTAL AMOUNT OF THE
SECURITIES AUTHORIZED UNDER SUCH INSTRUMENTS DOES NOT EXCEED TEN PERCENT OF THE
TOTAL ASSETS OF THE COMPANY. THE COMPANY HEREBY AGREES TO FURNISH A COPY OF ANY
SUCH INSTRUMENTS TO THE COMMISSION UPON REQUEST.
40
<PAGE> 1
AMENDED AND RESTATED
PROMISSORY NOTE
$5,000,000,000 January 1, 2000
FOR VALUE RECEIVED, the undersigned, Conseco Finance Corp. (f/k/a Green
Tree Financial Corporation), a Delaware Corporation (the "Borrower"), hereby
promises to pay to the order of Conseco, Inc., an Indiana corporation (the
"Lender"), at 11825 North Pennsylvania Street, Carmel, Indiana 46032, (i) the
principal amount of Five Billion Dollars ($5,000,000,000), or, if less, the
aggregate unpaid principal amount of each loan or advance made by the Lender to
the Borrower hereunder, in lawful money of the United States of America in
immediately available funds, (ii) interest accrued and unpaid as of the date
hereof with respect to the Old Note (as defined below), and (iii) interest from
the date hereof on the principal amount hereof from time to time outstanding, in
like funds, at a rate per annum equal to 150 basis points in excess of the
London interbank offered rate for a one, two, three or six-month period (each,
an "Interest Period"), as published in The Wall Street Journal and as selected
by the Borrower prior to the expiration of the then current Interest Period (the
"Interest Rate"). If the Borrower fails to select an Interest Period prior to
the expiration of the then current Interest Period, then the Borrower shall be
deemed to have selected an Interest Period of one month.
This Note may be prepaid in whole or in part at any time without
premium or penalty. Amounts prepaid on this Note may be reborrowed.
The unpaid principal balance of this Note shall be due and payable in
full on demand by the Lender. Accrued and unpaid interest on the principal
balance of this Note shall be due and payable quarterly in arrears on each March
31st, June 30th, September 30th and December 31st, with the first interest
payment due March 31, 2000. The Borrower promises to pay interest, on demand, on
any overdue principal and, to the extent permitted by law, overdue interest from
their due dates at a rate equal to the Interest Rate plus 2.0%.
This Note amends and restates that certain Promissory Note dated July
17, 1998 by Green Tree Financial Corporation payable to Conseco, Inc. for Two
Billion Dollars ($2,000,000,000) (the "Old Note") and the Old Note is null and
void.
The Borrower and any and all sureties, guarantors and endorsers of this
Note and all other parties now or hereafter liable hereon, severally waive
grace, presentment for payment, protest, notice of any kind (including notice of
dishonor, notice of protest, notice of intention to accelerate and notice of
acceleration) and diligence in collecting and bringing suit against any party
hereto, and agree to all extensions and partial payments, with or without
notice, before or after maturity. The nonexercise by the holder of any of its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
This Note shall be construed in accordance with and governed by the
laws of the State of Indiana and any applicable laws of the United States of
America. The provisions of this Note shall be binding on and inure to the
benefit of the successors and assigns of the Borrower and the Lender, including
any subsequent holders of this Note.
In the event this Note is not paid when due at maturity, the Borrower
agrees to pay, in addition to the principal of and interest on this Note, all
costs of collection, including reasonable note attorneys' fees.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by
its duly authorized officer as of the date first above written.
CONSECO FINANCE CORP.
(f/k/a Green Tree Financial Corp.)
By: /s/ Rollin M. Dick
-----------------------------
Name: Rollin M. Dick
Title: Executive Vice President and
Chief Financial Officer
<PAGE> 1
EXHIBIT 10.D
CONTRIBUTION AGREEMENT
CONTRIBUTION AGREEMENT (this "Agreement"), dated as of December 27,
1999, among Conseco, Inc., an Indiana corporation ("Conseco"), CIHC,
Incorporated, a Delaware corporation ("CIHC"), Conseco Finance Corp., a Delaware
corporation ("Conseco Finance"), and CFIHC, Inc., a Delaware corporation
("Holding").
PRELIMINARY STATEMENT
WHEREAS, Conseco is the owner, beneficially and of record, of all of
the issued and outstanding capital stock of Conseco Finance and CIHC and will
receive substantial benefit from the transactions contemplated hereby;
WHEREAS, Conseco Finance is the owner, beneficially and of record,
of all of the issued and outstanding capital stock of Holding and will receive
substantial benefit from the transactions contemplated hereby;
WHEREAS, Conseco and CIHC each desires to convey to Conseco Finance
certain assets, and Conseco Finance desires to receive from each such party
these certain assets, in an exchange described in Section 351 of the Internal
Revenue Code of 1986, as amended (the "Code") subject to all of the terms and
conditions set forth herein;
WHEREAS, Conseco Finance desires to issue common stock to Conseco
and CIHC;
WHEREAS, Conseco Finance desires to contribute, immediately after
the contribution of the assets from Conseco and CIHC to Conseco Finance, such
assets to Holding as a contribution to the capital of Holdings; and
WHEREAS, Holding desires to receive such contribution from Conseco
Finance.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, it is hereby agreed among Conseco, CIHC,
Conseco Finance and Holding as follows:
ARTICLE I
CONTRIBUTION
------------
1.1. Conseco's Contribution. Upon the terms of this Agreement and in
consideration for the Conseco Finance Stock (as hereinafter defined) issued
pursuant to Article II, at the First Closing (as hereinafter defined), Conseco
shall contribute, transfer, assign, convey and deliver to Conseco Finance, and
Conseco Finance shall acquire from Conseco, all right, title and
<PAGE> 2
interest of Conseco in, to and under the assets listed on Annex I hereto (herein
collectively called the "Contributed Conseco Assets").
1.2. CIHC's Contribution. Upon the terms of this Agreement and in
consideration for the Conseco Finance Stock issued pursuant to Article II, at
the First Closing, CIHC shall contribute, transfer, assign, convey and deliver
to Conseco Finance, and Conseco Finance shall acquire from CIHC, all right,
title and interest of CIHC in, to and under the assets listed on Annex II hereto
(herein collectively called the "Contributed CIHC Assets").
1.3. Conseco Finance's Contribution. Upon the terms of this
Agreement, at the Second Closing (as hereinafter defined), CIHC shall
contribute, transfer, assign, convey and deliver to Holding, and Holding shall
acquire from Conseco Finance, all right, title and interest of Conseco Finance
in, to and under the Contributed Conseco Assets and the Contributed CIHC Assets.
ARTICLE II
ISSUANCE OF CONSECO FINANCE STOCK
---------------------------------
2.1. Stock Issuance to Conseco. Subject to the terms of this
Agreement, at the First Closing, Conseco Finance shall issue to Conseco, in
consideration for the assets contributed pursuant to Article I by Conseco, 1.5
validly issued, fully paid and nonassessable shares of common stock, par value
$0.01 per share, of Conseco Finance ("Conseco Finance Stock").
2.2. Stock Issuance to CIHC. Subject to the terms of this Agreement,
at the First Closing, Conseco Finance shall issue to CIHC, in consideration for
the assets contributed pursuant to Article I by CIHC, 3.6 validly issued, fully
paid and nonassessable shares of Conseco Finance Stock.
ARTICLE III
CLOSING
-------
3.1. Closings. The closing (the "First Closing") of the transfer of
the Contributed Conseco Assets and Contributed CIHC Assets to Conseco Finance
shall be consummated at 3:00 P.M., local time, on December 27, 1999 at the
offices of Conseco, Carmel, Indiana, or at such other place or at such other
time as shall be agreed upon by Conseco, CIHC, Conseco Finance and Holding. The
closing (the "Second Closing" and, together with the First Closing, the
"Closings") of the transfer of the Contributed Conseco Assets and the
Contributed CIHC Assets to Holding shall be consummated immediately after the
First Closing at the offices of Conseco, Carmel, Indiana or at such other place
as the First Closing occurs.
-2-
<PAGE> 3
3.2. Conseco's Deliveries. At the First Closing, Conseco shall
deliver to Conseco Finance (a) an Instrument of Contribution duly executed by
Conseco and (b) such other instruments of transfer or conveyance as Conseco
Finance may reasonably request or as may be otherwise necessary to evidence or
effect the assignment, transfer, conveyance and delivery of the Contributed
Conseco Assets to Conseco Finance. In addition to the foregoing deliveries,
Conseco shall take all steps and actions as Conseco Finance may reasonably
request or as may otherwise be necessary to put Conseco Finance in actual
possession or control of the Contributed Conseco Assets.
3.3. CIHC's Deliveries. At the First Closing, CIHC shall deliver to
Conseco Finance (a) an Instrument of Contribution duly executed by CIHC and (b)
such other instruments of transfer or conveyance as Conseco Finance may
reasonably request or as may be otherwise necessary to evidence and effect the
assignment, transfer, conveyance and delivery of the Contributed CIHC Assets to
Conseco Finance. In addition to the foregoing deliveries, CIHC shall take all
steps and actions as Conseco Finance may reasonably request or as may otherwise
be necessary to put Conseco Finance in actual possession or control of the
Contributed CIHC Assets.
3.4. Conseco Finance's Deliveries. (a) At the First Closing, Conseco
Finance shall deliver
(i) to Conseco, a certificate representing 1.5 shares of
Conseco Finance Stock duly registered in the name of Conseco;
(ii) to CIHC, a certificate representing 3.6 shares of Conseco
Finance Stock, duly registered in the name of CIHC; and
(b) At the Second Closing, Conseco Finance shall deliver to Holding (a) an
Instrument of Contribution duly executed by Conseco Finance and (b) such other
instruments of transfer or conveyance as Holding may reasonably request or as
may be otherwise necessary to evidence and effect the assignment, transfer,
conveyance and delivery of the Contributed Conseco Assets and the Contributed
CIHC Assets to Holding. In addition to the foregoing deliveries, Conseco Finance
shall take all steps and actions as Holding may reasonably request or as may
otherwise be necessary to put Holding in actual possession or control of the
Contributed Conseco Assets and the Contributed CIHC Assets.
-3-
<PAGE> 4
ARTICLE IV
GENERAL PROVISIONS
------------------
4.1. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their successors and assigns.
The successors and assigns hereunder shall include, without limitation, any
successor in interest to any assignee or any subsequent assignee (whether by
merger, liquidation (including successive mergers or liquidations) or
otherwise). Nothing in this Agreement, expressed or implied, is intended or
shall be construed to confer upon any person or entity other than the parties
and successors and assigns permitted by this Section 4.1 any right, remedy or
claim under or by reason of this Agreement.
4.2. Entire Agreement; Amendments. This Agreement and the Exhibits
and Annexes referred to herein and the documents delivered pursuant hereto
contain the entire understanding of the parties hereto with regard to the
subject matter contained herein or therein, and supersede all prior agreements,
understandings or letters of intent between or among any of the parties hereto.
This Agreement shall not be amended, modified or supplemented except by a
written instrument signed by an authorized representative of each of the parties
hereto.
4.3. Interpretation. Article titles and headings to sections herein
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement. The Exhibits
and Annexes referred to herein shall be construed with and as an integral part
of this Agreement to the same extent as if they were set forth verbatim herein.
4.4. Partial Invalidity. Wherever possible, each provision hereof
shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without invalidating
the remainder of such invalid, illegal or unenforceable provision or provisions
or any other provisions hereof, unless such a construction would be
unreasonable.
4.5. Execution in Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be considered an original
instrument, but all of which shall be considered one and the same agreement, and
shall become binding when one or more counterparts have been signed by each of
the parties hereto and delivered to each of Conseco, CIHC, Conseco Finance and
Holding.
4.6. Further Assurances. At the First Closing or Second Closing, as
applicable, Conseco, CIHC and Conseco Finance shall (i) deliver to Conseco
Finance or Holding, as applicable, such other bills of sale, deeds,
endorsements, assignments and other good and sufficient instruments of
conveyance and transfer, in form reasonably satisfactory to Conseco Finance or
Holding, as Conseco Finance or Holding may reasonably request or as may be
otherwise reasonably necessary to vest in Conseco Finance or Holding, as the
case may be, all the right, title and interest of Conseco, CIHC and Conseco
Finance in, to or under any or all of the Contributed Conseco Assets and the
-4-
<PAGE> 5
Contributed CIHC Assets and (ii) take all steps as may be reasonably necessary
to put Conseco Finance or Holding, as applicable, in actual possession and
control of all the Contributed Conseco Assets and the Contributed CIHC Assets.
From time to time following the Closings, Conseco, CIHC and Conseco Finance
shall execute and deliver, or cause to be executed and delivered, to Conseco
Finance or Holding, as the case may be, such other instruments of conveyance and
transfer as Conseco Finance or Holding may reasonably request or as may be
otherwise necessary to more effectively convey and transfer to, and vest in,
Holding and put Holding in possession of, any part of the Contributed Conseco
Assets and the Contributed CIHC Assets.
4.7. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws (as opposed to the conflicts of
law provisions) of the State of Indiana.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Contribution
Agreement to be executed as of the day and year first above written.
CONSECO, INC.
By: /s/ Thomas J. Kilian
--------------------------------
Name: Thomas J. Kilian
Title: Executive Vice President
CIHC, INCORPORATED
By: /s/ David A. Hill
--------------------------------
Name: David A. Hill
Title: Vice President
CONSECO FINANCE CORP.
By: /s/ Thomas J. Kilian
--------------------------------
Name: Thomas J. Kilian
Title: President
CFIHC, INC.
By: /s/ David A. Hill
--------------------------------
Name: David A. Hill
Title: President
-6-
<PAGE> 7
ANNEX I
(i) 100 shares of the common stock, no par value per share, of Conseco
Private Capital Group Inc., an Indiana corporation, constituting all of
the issued and outstanding stock of such corporation.
(ii) 100 shares of the common stock, no par value per share, of Conseco
Mortgage Capital, Inc., a Delaware corporation, constituting all of the
issued and outstanding stock of such corporation.
(iii) 3,000 shares of the common stock, no par value per share, of Marketing
Distribution Systems Consulting Group, Inc., a Delaware corporation,
constituting all of the issued and outstanding stock of such corporation.
(iv) All of its beneficial interest in the Floating Rate Certificates in the
aggregate stated amount of $3,219,000 in the Brickyard Loan Trust, a
business trust formed under the laws of Delaware pursuant to the Trust
Agreement dated as of March 31, 1998 among Conseco, Inc. and Life Re
Corporation, as Initial Certificate owners, and Chase Manhattan Bank
Delaware, as Trustee.
(v) All of its membership interest in Official Starter, LLC, a Delaware
limited liability company pursuant to an Operating Agreement dated July
28, 1999, constituting a 15.08% membership interest in such limited
liability company.
(vi) Promissory Note dated December 23, 1999 of Consumer Acceptance
Corporation.
-7-
<PAGE> 8
ANNEX II
(i) 100 shares of the common stock, par value $0.001 per share, of Conseco
Global Investments, Inc., a Delaware corporation, constituting all of
the issued and outstanding stock of such corporation.
(ii) All right, title and interest to the proceeds from the sale of certain
real estate by CNC Real Estate Inc., a Delaware corporation.
(iii) 1,000 shares of the common stock, par value $1.00 per share, of
Performance Matters Associates, Inc., a Delaware corporation,
constituting all of the issued and outstanding stock of such
corporation.
(iv) Replacement Promissory Note dated December 9, 1999 of Consumer
Acceptance Corporation.
(v) 12% Subordinated Convertible Replacement Note dated April 20, 1998 of
Consumer Acceptance Corporation in the amount of $3,250,000.
(vi) 12% Subordinated Convertible Replacement Note dated April 20, 1999 of
Consumer Acceptance Corporation in the amount of $1,500,000.
(vii) Subordinated Convertible Note dated April 11, 1997 of Consumer
Acceptance Corporation in the amount of $10,000,000.
(viii) Subordinated Convertible Debenture dated September 12, 1996 of NAL
Financial Group, Inc in the amount of $2,250,000.
(ix) Subordinated Convertible Debenture dated September 12, 1996 of NAL
Financial Group, Inc in the amount of $2,750,000.
(x) 9% Subordinated Convertible Debenture dated November 30, 1995 of NAL
Financial Group, Inc in the amount of $1,250,000.
(xi) 9% Subordinated Convertible Debenture dated July 14, 1995 of NAL
Financial Group, Inc in the amount of $1,000,000.
(xii) 9% Subordinated Convertible Debenture dated July 28, 1995 of NAL
Financial Group, Inc in the amount of $1,000,000.
(xiii) 9% Subordinated Convertible Debenture dated August 22, 1995 of NAL
Financial Group, Inc in the amount of $1,000,000.
(xiv) 9% Subordinated Convertible Debenture dated July 29, 1996 of NAL
Financial Group, Inc in the amount of $2,500,000.
-8-
<PAGE> 9
(xv) Federal National Mortgage Association Pool #00708 (cusip #31362TWJ8) in
the original face amount of $13,092,291.
(xvi) All of its beneficial interest in the Junior Certificate in the stated
amount of $4,608,000 in the Loan Finance Investment Trust 98-1, a
business trust formed under the laws of Delaware pursuant to the Trust
Agreement dated as of December 11, 1998 by and amount BSCSIX, Inc., as
Depositor, The Bank of New York, as Trustee, and the Bank of New York
(Delaware), as Delaware Trustee, as amended.
(xvii) All of its beneficial interest in the Junior Certificate in the stated
amount of $5,996,000 in the Allison Collateral Trust, a business trust
formed under the laws of Delaware pursuant to the Trust Agreement dated
as of December 11, 1998 by and amount BSCSIX, Inc., as Depositor, The
Bank of New York, as Trustee, and the Bank of New York (Delaware), as
Delaware Trustee, as amended.
(xviii) All of its beneficial interest in the Junior Certificate in the stated
amount of $5,540,000 in the Zenith Strategic Income Trust, a business
trust formed under the laws of Delaware pursuant to the Trust Agreement
dated as of December 11, 1998 by and amount BSCSIX, Inc., as Depositor,
The Bank of New York, as Trustee, and the Bank of New York (Delaware),
as Delaware Trustee, as amended.
(xix) All of its beneficial interest in the Participation Agreement dated
December 22, 1998 between CIHC and Conseco Finance Servicing
Corporation (formerly Green Tree Financial Servicing Corporation)
relating to a note from Environmental Systems.
-9-
<PAGE> 1
EXHIBIT 12.1
CONSECO FINANCE CORP. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pretax income from operations:
Net income (loss)......................................... $ 47.9 $(87.3) $301.4
Add income tax expense (benefit).......................... (16.4)) (7.6) 184.7
Add extraordinary charge on extinguishment of debt........ 2.5 11.5 --
------ ------ ------
Pretax income (loss) from operations................... 34.0 (83.4) 486.1
------ ------ ------
Add fixed charges:
Interest expense.......................................... 341.3 213.7 160.9
Portion of rental (a)..................................... 7.2 5.5 4.4
------ ------ ------
Fixed charges.......................................... 348.5 219.2 165.3
------ ------ ------
Adjusted earnings...................................... $382.5 $135.8 $651.4
====== ====== ======
Ratio of earnings to fixed charges................... 1.10X (b) 3.94X
====== ====== ======
</TABLE>
- -------------------------
(a) Interest portion of rental is estimated 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.
41
<PAGE> 1
Conseco Finance
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Conseco Finance Corp.:
We consent to the incorporation by reference of our report dated January 27,
1998, relating to the consolidated statements of operations, shareholder's
equity and cash flows for the year ended December 31, 1997, of Conseco Finance
Corp. and subsidiaries (formerly known as Green Tree Financial Corporation),
which report appears in the December 31, 1999 Form 10-K of Conseco Finance
Corp., in the following Registration Statements of Conseco Finance Corp.: Nos.
333-85037, 333-92315, 333-85119, 333-92313, 333-52233, 333-75375, and 333-91557
on Form S-3. Our report refers to the Company's adoption of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," in 1997.
/s/ KPMG LLP
Minneapolis, Minnesota
April 11, 2000
<PAGE> 1
Conseco Finance
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Conseco Finance Corp. (formerly Green Tree Financial Corporation) (File Nos.
333-85037, 333-92315, 333- 85119, 333-92313, 333-52233, 333-75375 and 333-91557)
of our report dated April 13, 2000, on our audits of the consolidated financial
statements of Conseco Finance Corp. as of December 31, 1999 and 1998 and for the
years ended December 31, 1999 and 1998, which report is included in this Annual
Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
--------------------------------
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
April 13, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,653,700<F1>
<SECURITIES> 1,599,300<F2>
<RECEIVABLES> 9,797,400<F3>
<ALLOWANCES> 88,400
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 326,300
<DEPRECIATION> 144,700
<TOTAL-ASSETS> 14,454,700
<CURRENT-LIABILITIES> 0
<BONDS> 444,000
0
0
<COMMON> 1,641,000
<OTHER-SE> 794,000<F4>
<TOTAL-LIABILITY-AND-EQUITY> 14,454,700
<SALES> 550,600
<TOTAL-REVENUES> 1,755,400
<CGS> 0
<TOTAL-COSTS> 697,100
<OTHER-EXPENSES> 554,300<F5>
<LOSS-PROVISION> 128,700
<INTEREST-EXPENSE> 341,300
<INCOME-PRETAX> 34,000
<INCOME-TAX> (16,400)
<INCOME-CONTINUING> 50,400
<DISCONTINUED> 0
<EXTRAORDINARY> (2,500)
<CHANGES> 0
<NET-INCOME> 47,900
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Includes $849,700 of cash held in segregated accounts for investors and
$270,600 of cash held in restricted accounts.
<F2>Includes $694,300 of actively managed fixed maturity securities and $905,000
of interest-only securities.
<F3>Includes $4,730,500 of finance receivables - securitized.
<F4>Includes retained earnings of $812,800 and accumulated other comprehensive
losses of $18,800.
<F5>Represents an impairment charge to writedown the carrying value of
interest-only securities and servicing rights.
</FN>
</TABLE>
