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 (FEE REQUIRED)
For the fiscal year ended September 30, 1998
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 1-7444
OAKWOOD HOMES CORPORATION
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
NORTH CAROLINA 56-0985879
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(State of incorporation) (I.R.S. Employer Identification No.)
7800 McCloud Road, Greensboro, NC 27409-9634
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(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (336)664-2400
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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Common Stock, Par Value
$.50 Per Share New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Company: (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 Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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<PAGE>
The aggregate market value of shares of the Company's $.50 par value
Common Stock, its only outstanding class of voting stock, held by non-affiliates
as of December 11, 1998 was $617,167,198.
The number of issued and outstanding shares of the Company's $.50 par
value Common Stock, its only outstanding class of common stock, as of December
11, 1998 was 47,074,357 shares.
The indicated portions of the following documents are incorporated by
reference into the indicated parts of this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
Parts Into Which
Incorporated Documents Incorporated
---------------------- ------------
<S> <C>
Annual Report to Shareholders for the
fiscal year ended September 30, 1998 Parts I and II
Proxy Statement for Annual Meeting of
Shareholders to be held February 3, 1999 Part III
</TABLE>
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 the Company'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. [ ]
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PART I
ITEM 1. BUSINESS.
Oakwood Homes Corporation, a North Carolina corporation (the
"Company"), which was founded in 1946, designs, manufactures and markets
manufactured and modular homes and finances the majority of its sales. The
Company operates seven manufacturing plants in Texas, five in North Carolina,
five in Georgia, four in Indiana, two in each of Arizona, Oregon and
Pennsylvania, and one in each of California, Colorado, Kansas, Minnesota and
Tennessee. The Company's manufactured homes are sold at retail through 359
Company owned and operated sales centers located primarily in the southeastern
and southwestern United States and to approximately 713 independent retailers
located throughout the United States. The Company writes insurance for customers
choosing to purchase insurance and reinsures the risk on the insurance it
writes.
On April 1, 1998, the Company acquired Schult Homes Corporation
("Schult") for a purchase price of approximately $101.1 million in cash. Prior
to its acquisition by the Company, Schult was the eighth largest manufacturer of
manufactured homes in the United States.
Manufactured Homes
The Company designs and manufactures a number of models of homes.
Each home contains a living room, dining area, kitchen, two, three or four
bedrooms and one or two bathrooms, and is equipped with a range and oven,
refrigerator, hot water heater and central heating. A large number of homes are
furnished with a sofa and matching chairs, dinette set, coffee and end tables,
carpeting, lamps, draperies, curtains and screens. Optional furnishings and
equipment include beds, a fireplace, washing machine, dryer, microwave oven,
dishwasher, air conditioning, intercom, stereo systems, wet bar, vaulted
ceilings, skylights, hardwood cabinetry and energy conservation items. The homes
manufactured by the Company are sold under the registered trademarks "Oakwood,"
"Freedom," "Golden West," "Villa West," "Peachtree," "Schult," "Crest Homes" and
"Marlette" and the trade names "Victory," "Country Estate," "Bradbury,"
"Winterhaven," "Golden Villa," "First Place," "Omni," "Hyatt," "Command,"
"Destiny," "Sunrise Dream Home," "Family Dream Home," "Home Theater Dream Home"
and "The Entertainer."
The Company's manufactured homes are constructed and furnished at the
Company's manufacturing facilities and transported on wheels to the homesite.
The Company's manufactured homes are sometimes occupied as permanent residences
but can be transported on wheels to new homesites. The Company's homes are
defined as "manufactured homes" under the United States Code, and formerly were
defined as "mobile homes."
The Company manufactures 14-foot and 16-foot wide single-section
homes and multi-section homes consisting of two floors that are joined at the
homesite and are 24 or 28 feet wide. The Company also manufactures a limited
number of multi-section homes consisting of three or four floors. The Company's
homes range from 40 feet to 80 feet in length. The Company's single-section
homes are sometimes placed on rental lots in communities of similarly
constructed homes.
The Company manufactures homes at thirty-two plants located in Ennis,
Gainsville, Hillsboro (2), Killeen and Navasota (2), Texas; Richfield (2),
Rockwell (2) and Pine Bluff, North Carolina; Moultrie, Georgia (5); Etna Green
(2) and Middlebury (2), Indiana; Buckeye, Arizona (2); Albany and Hermiston,
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Oregon; Lewistown and Milton, Pennsylvania; Perris, California; Fort Morgan,
Colorado; Plainville, Kansas; Redwood Falls, Minnesota; and Pulaksi, Tennessee.
The Company purchases components and materials used in the
manufacture of its homes on the open market and is not dependent upon any
particular supplier. The principal raw materials purchased by the Company for
use in the construction of its homes are lumber, steel, aluminum, galvanized
pipe, insulating materials, drywall and plastics. Steel I-beams, axles, wheels
and tires, roof and ceiling materials, home appliances, plumbing fixtures,
furniture, floor coverings, windows, doors and decorator items are purchased or
fabricated by the Company and are assembled and installed at various stages on
the assembly line. Construction of the manufactured homes and the plumbing,
heating and electrical systems installed in them must comply with the standards
set by the Department of Housing and Urban Development ("HUD") under the
National Manufactured Home Construction and Safety Standards Act of 1974. See
"Regulation."
The Company furnishes to each purchaser of a new home manufactured by
the Company a one or five year limited warranty against defects in materials and
workmanship, except for equipment and furnishings supplied by other
manufacturers which are frequently covered by the manufacturers' warranties.
Modular and Containerized Homes
In addition to traditional manufactured homes, the Company also
manufactures modular homes which are built in accordance with state or local
building codes and therefore are similar in specifications and design to
site-built homes. The Company's modular homes range in size from 960 square feet
to 3,355 square feet and include a variety of single story ranch homes, one and
a half story homes, two story homes, townhouses and duplex units, all of which
can include attached garages built at the site by others.
The Company is currently designing and developing a modular home
capable of being shipped in a standard sized shipping container. The Company has
a facility in Richfield, North Carolina that produces these homes. This facility
is also capable of being used in connection with the Company's manufactured
housing operations. The Company has applied for patent protection with respect
to this product.
Sales
At September 30, 1998, the Company sold manufactured homes through
359 Company owned and operated sales centers located in 28 states primarily in
the southeastern and southwestern United States. See "Properties - Manufactured
Home Sales Centers." The Company opened 62 new sales centers and closed three
sales centers in fiscal 1998. Each of the Company's sales centers is assigned
Company-trained sales personnel. Each salesperson is paid a commission based on
the gross margin of his or her sales, and each sales manager is paid a
commission based on the profits of the sales center.
The Company operates its sales centers under the names Oakwood(R)
Mobile Homes, Freedom Homes(R), Victory Homes, Schult(R) Homes and Golden West
Homes(R). At its sales centers, the Company sells homes manufactured by it as
well as by other manufacturers. During fiscal 1998, approximately 96% of the
Company's retail dollar sales of new homes were homes manufactured by the
Company and 4% represented sales of new homes manufactured by others. The
Company has not had difficulty purchasing homes from independent manufacturers
and believes an adequate supply of such homes is available to meet its needs.
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The Company also sells used homes acquired in trade-ins. At September
30, 1998, the Company's inventory of used homes was 1,385 homes as compared to
1,018 homes at September 30, 1997. Used homes in inventory do not include
repossessed units.
The Company also sells its homes to approximately 713 independent
retailers located throughout the United States. Sales to independent retail
dealers accounted for approximately 19% of the Company's total dollar volume of
sales in fiscal 1998 as compared to 10% in fiscal 1997. This increase resulted
from the Company's April 1, 1998 acquisition of Schult, which traditionally sold
all of its manufactured homes through independent dealers. The Company
anticipates that as it continues to establish sales centers to sell the homes
manufactured at the plants acquired in the Schult acquisition, the percentage of
sales made through independent retailers will decline. The Company does however
intend to continue to sell manufactured homes to key and exclusive independent
dealers. The Company currently sells all modular homes to independent dealers
and has no current plans to establish its own modular home distribution network.
During recent years, the Company has placed increased emphasis on the
sale of multi-section homes. In fiscal 1998, the Company's retail sales of new
multi-section homes were represented 52% of the total number of new homes sold
at retail, as compared to 47% in fiscal 1997.
The retail sales price for new single section homes sold by the
Company in fiscal 1998 generally ranged from $15,000 to $62,000 with a mean
sales price of approximately $31,400. The retail sales price of multi-section
homes sold by the Company in fiscal 1998 generally ranged from $25,000 to
$135,000, with a mean sales price of approximately $53,300.
The Company's sales have traditionally been higher in the period from
late spring through early fall than in the winter months. Because a substantial
majority of the homes manufactured by the Company are sold directly to retail
customers, the Company's backlog of orders is not material.
Company Retail Sales Financing
A significant factor affecting sales of manufactured homes is the
availability and terms of financing. Approximately 87% of the Company's retail
unit sales in fiscal 1998 were financed by installment sale contracts or loans
arranged by the Company, each of which provided for monthly payments generally
over a period of seven to 30 years. In fiscal 1998, of the aggregate loan
originations relating to retail unit sales and dispositions of repossessed
homes, 94% were installment sales or loans financed and warehoused by the
Company for investment or later sale and 6% were installment sales or loans
financed by others without recourse to the Company. The remaining 13% of retail
unit sales were paid for with cash. At September 30, 1998, the Company held
installment sale contracts or loans with a principal balance of approximately
$414.7 million and serviced an additional $3.158 billion principal balance of
installment sale contracts or loans, the substantial majority of which it
originated and securitized. A substantial majority of the installment sale
contracts held by the Company are pledged to financial institutions as
collateral for loans to the Company.
The Company is responsible for the processing of credit applications
with respect to customers seeking financing. The Company uses a credit scoring
system, updated in fiscal 1998, to improve its credit decision-making process.
The most significant criteria in the system are the stability, income and credit
history of the borrower. This system requires a minimum credit score before the
Company will consider
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underwriting a contract. This system allows the Company the ability to
standardize the process by which it decides whether to extend credit to a
customer.
The Company retains a security interest in all homes it finances. In
certain circumstances, the Company also obtains a security interest in the real
property on which a home is located.
The Company is responsible for all collection and servicing
activities with respect to installment sale contracts it owns, as well as with
respect to certain contracts that the Company originated and sold. The Company
receives servicing fees with respect to installment sale contracts that it has
sold but continues to service.
The Company's ability to finance installment sale contracts is
dependent on the availability of funds to the Company. The Company obtains funds
to finance installment sale contracts primarily through sales of real estate
mortgage investment conduit ("REMIC") trust certificates to institutional
investors. During fiscal 1998, the Company sold $1.046 billion of REMIC
securities. The Company generally has no credit exposure with respect to
securitized contracts except (i) with respect to breaches of representations and
warranties, (ii) to the extent of any retained interests in a REMIC, (iii) with
respect to required servicer advances, (iv) with respect to the servicing fee
(which is subordinated) and (v) with respect to any REMIC security the Company
has guaranteed.
The Company also obtains financing from loans insured by the Federal
Housing Administration ("FHA"). These installment sale contracts are permanently
funded primarily through the Government National Mortgage Association ("GNMA")
pass-through program, under which the Company issues obligations guaranteed by
GNMA. During fiscal 1998, the Company issued approximately $2 million in
obligations guaranteed by GNMA. FHA insurance minimizes the Company's exposure
to losses on these credit sales.
The Company uses short-term credit facilities and internally
generated funds to support installment sale contracts until a pool of
installment sale contracts is accumulated to provide for permanent financing
generally at fixed rates.
In the past, the Company sold a significant number of installment
sale contracts to unrelated financial institutions with full recourse to the
Company in the event of default by the buyer. The Company receives endorsement
fees from financial institutions for installment sale contracts it has placed
with them on such a basis. Such fees totaled $380,000 in fiscal 1998. The
Company's contingent liability on installment sale contracts sold with full and
limited recourse was approximately $42 million at September 30, 1998.
Independent Dealer Retail Sales Financing
The Company provides permanent financing for homes sold by certain
independent dealers that sell Company manufactured homes. During fiscal 1998,
the Company financed approximately $13 million of the retail sales of these
independent dealers.
During the fourth quarter of fiscal 1996, the Company and Deutsche
Financial Services Corporation ("DFS"), a subsidiary of Deutsche Bank, N.A.,
formed Deutsche Financial Capital Limited Liability Company to provide
retail sales financing for other independent dealers. DFS is a large wholesale
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financing source for manufactured housing inventory purchased by independent
dealers. The Company and DFS are equal owners of the joint venture. During
fiscal 1998, however, the Company and DFS agreed that the join venture would be
terminated, and DFS would continue the venture's business for its own account.
The joint venture substantially ceased operations in September 1998, except for
certain activities in connection with the winding down of its affairs.
The Company from time to time considers the purchase of manufactured
home installment sale portfolios originated by others as well as servicing
rights to such portfolios. In fiscal 1998, the Company purchased no such
portfolios or servicing rights.
Delinquency and Repossession
In the event an installment sale contract or loan becomes delinquent,
the Company, either as owner or as servicer, normally contacts the customer
within 8 to 25 days thereafter in an effort to have the default cured. The
Company, as owner or servicer, generally repossesses the home after payments
have become 60 to 90 days delinquent if the Company is not able to work out a
satisfactory arrangement with the customer. After repossession, the Company
generally transports the home to a Company owned and operated sales center where
the Company attempts to resell the home or contracts with an independent party
to remarket the home. The Company also sells repossessed homes at wholesale.
In an effort to minimize repossessions on contracts sold with full
recourse, the Company monitors the servicing and collection efforts of many of
the financial institutions to which the Company has sold installment sale
contracts with full recourse. In addition, the Company performs the collection
work on all installment sale contracts it has sold with recourse to two of its
major purchasers of installment sale contracts. The Company is paid a fee by the
financial institutions for performing this service.
The Company maintains a reserve for estimated credit losses on
installment sale contracts and loans owned by the Company or sold to third
parties with full or limited recourse. The Company provides for losses on credit
sales in amounts necessary to maintain the reserves at levels the Company
believes are sufficient to provide for future losses based on the Company's
historical loss experience, current economic conditions and portfolio
performance measures. For fiscal 1998, 1997 and 1996, as a result of expenses
incurred due to defaults and repossessions, $3,491,000, $3,984,000 and
$4,534,000, respectively, was charged to the reserve for losses on credit sales.
The Company's reserve for losses on credit sales at September 30, 1998 was
$2,067,000, as compared to $4,277,000 at September 30, 1997 and $8,261,000 at
September 30, 1996.
In fiscal 1998, 1997 and 1996, the Company repossessed 4,941, 3,879
and 2,858 homes, respectively. The Company's inventory of repossessed homes was
1,135 homes at September 30, 1998 as compared to 962 homes at September 30, 1997
and 642 homes at September 30, 1996. The estimated net realizable value of
repossessed homes in inventory at September 30, 1998 was approximately $35
million.
The net losses resulting from repossessions on Company originated
loans as a percentage of the average principal amount of such loans outstanding
for fiscal 1998, 1997 and 1996 was 1.52%, 1.30%, and 1.01%.
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At September 30, 1998 and September 30, 1997, delinquent installment
sale contracts and loans expressed as a percentage of the total number of
installment sale contracts and loans that the Company (a) services or (b) has
sold with full recourse and that are serviced by others were as follows:
<TABLE>
<CAPTION>
Total Number
Of Contracts Delinquency Percentage
and Loans September 30, 1998
------------------------ ------------------------------------------------------------------------
30 days 60 days 90 days Total
------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Company-serviced contracts
and loans............. 114,169(1) 2.1% 0.8% 1.2% 4.1%
Contracts and loans sold with
full recourse and
serviced by others.... 2,982 2.0% 0.7% 0.7% 3.4%
Total Number
Of Contracts Delinquency Percentage
and Loans September 30, 1997
------------------------ ------------------------------------------------------------------------
30 days 60 days 90 days Total
------- ------- ------- -----
Company-serviced contracts
and loans............. 93,013(1) 1.4% 0.5% 0.8% 2.7%
Contracts and loans sold with
full recourse and
serviced by others.... 3,753 2.2% 0.6% 0.5% 3.3%
- ------------------
</TABLE>
(1) Excludes certain contracts and loans originated in September of each
year that were being processed at year end and not entered into the
loan servicing system until October of such year.
At September 30, 1998 and September 30, 1997, delinquent installment
sale contracts and loans expressed as a percentage of the total outstanding
principal balance of installment sale contracts and loans that the Company (a)
services or (b) has sold with full recourse and that are serviced by others were
as follows:
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<TABLE>
<CAPTION>
Total Value Delinquency Percentage
of Contracts September 30, 1998
------------------------- ------------------------------------------------------------------------
30 days 60 days 90 days Total
------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Company-serviced contracts
and loans............. $3,531,522,000(1) 1.9% 0.7% 1.1% 3.7%
Contracts and loans sold with
full recourse and
serviced by others.... $22,000,000 2.3% 0.9% 0.8% 4.0%
Total Value Delinquency Percentage
of Contracts September 30, 1997
------------------------- ------------------------------------------------------------------------
30 days 60 days 90 days Total
------- ------- ------- -----
Company-serviced contracts
and loans............. $2,532,284,000(1) 1.2% 0.5% 0.9% 2.6%
Contracts and loans sold with
full recourse and
serviced by others.... $32,000,000 2.9% 0.7% 0.5% 4.1%
</TABLE>
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(1) Excludes certain contracts and loans originated in September of each
year that were being processed at year end and not entered into the
loan servicing system until October of such year.
Independent Retailer Repurchase Obligations
Substantially all of the independent retailers who purchase homes
from the Company finance new home inventories through wholesale credit lines
provided by third parties under which a financial institution provides the
retailer with a credit line for the purchase price of the home and maintains a
security interest in the home as collateral. A wholesale credit line is used by
the retailer to finance the acquisition of its display models, as well as to
finance the initial purchase of a home from a manufacturer until the home buyers
obtain permanent financing or otherwise pay the dealer for the installed home.
In connection with the wholesale financing arrangement, the financial
institution generally requires the Company to enter into a repurchase agreement
with the financial institution under which the Company is obligated, upon
default by the retailer, to repurchase its homes. Under the terms of such
repurchase agreements, the Company agrees to repurchase homes at declining
prices over the period of the agreement. At September 30, 1998, the Company
estimates that its contingent liability under these repurchase agreements was
approximately $150 million. The Company's losses under these arrangements have
not been significant.
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Insurance
On June 1, 1997, the Company ceased acting as an agent for certain
insurance companies with respect to homeowners insurance, credit life insurance
and service contracts written for its customers, and entered the reinsurance
business directly through its own captive reinsurer. This shift in activities
enables the Company to participate more fully in what management believes to be
the profitable income streams associated with the property and casualty
insurance and service contract business than was possible under the
commission-based insurance agency arrangement which preceded its formation. As
an insurance underwriter, the Company recognizes insurance premium revenues over
the life of the related policies as a component of financial services income,
with the associated claims expenses reflected in financial services operating
expenses. Previously, insurance commission revenue was reported upon the sale of
the policies by Oakwood's retail operations, and was included in other income.
Due to this fundamental change in the Company's insurance business, earnings
from insurance operations are now spread over the lives of the policies rather
than being recognized in full when the policies were sold. Because reinsurance
claims costs are recorded as insured events occur, underwriting reinsurance risk
may increase the volatility of the Company's earnings, particularly with respect
to property and casualty reinsurance. The Company has purchased catastrophe
reinsurance to reduce its underwriting exposure to natural disasters. Prior to
June 1, 1997, insurance revenues primarily related to the Company's credit life
insurance underwriting business which the Company has operated for many years
and which was combined with the Company's property and casualty reinsurance
business on October 1, 1997.
Manufactured Housing Communities
The Company has under development a manufactured housing subdivision
in Hendersonville, North Carolina. The Company also owns land on which it
intended to develop a manufactured housing subdivision in Pinehurst, North
Carolina. The Pinehurst subdivision surrounds an existing golf course which the
Company sold in fiscal 1998. The Company intends to attempt to sell its
remaining interests in the Pinehurst subdivision. The Company does not intend to
commit any material resources to the land development business in the future,
but may become involved in land development or lot purchases from time to time
to facilitate retail sales.
The Company also owns a 50% interest in a recreational vehicle
campground and adjoining undeveloped land located in Deltaville, Virginia.
Competition
The manufactured housing industry is highly competitive with
particular emphasis on price, financing terms and features offered. There are
numerous retail dealers and financing sources in most locations where the
Company conducts retail and financing operations. Several of these financing
sources are larger than the Company and have greater financial resources. There
are numerous firms producing manufactured homes in the Company's market area,
many of which are in direct competition with the Company. Several of these
manufacturers, which sell the majority of their homes through independent
dealers, are larger than the Company and have greater financial resources.
The Company believes that its vertical integration gives it a
competitive advantage over many of its competitors. However, a number of the
Company's manufacturing competitors are establishing their own
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retail distribution systems. To the extent such competitors successfully enter
the retail market, the Company could face increased competition at that level.
The Company competes on the basis of reputation, quality, financing ability,
service, features offered and price.
Manufactured homes are a form of permanent, low-cost housing and are
therefore in competition with other forms of housing, including site-built and
prefabricated homes and apartments. Historically, manufactured homes have been
financed as personal property with financing that has shorter maturities and
higher interest rates than have been available for site-built homes. In recent
years, however, there has been a growing trend toward financing manufactured
housing with maturities more similar to the financing of real estate, especially
when the manufactured housing is attached to permanent foundations on
individually-owned lots. Multi-section homes are often attached to permanent
foundations on individually-owned lots. As a result, maturities for certain
manufactured housing loans have moved closer to those for site-built housing.
Regulation
A variety of laws affect the financing of manufactured homes by the
Company. The Federal Consumer Credit Protection Act (Truth-in-Lending) and
Regulation Z promulgated thereunder require written disclosure of information
relating to such financing, including the amount of the annual percentage rate
and the finance charge. The Federal Fair Credit Reporting Act also requires
certain disclosures to potential customers concerning credit information used as
a basis to deny credit. The Federal Equal Credit Opportunity Act and Regulation
B promulgated thereunder prohibit discrimination against any credit applicant
based on certain specified grounds. The Federal Trade Commission has adopted or
proposed various Trade Regulation Rules dealing with unfair credit and
collection practices and the preservation of consumers' claims and defenses. The
Federal Trade Commission's regulations also require disclosure of a manufactured
home's insulation specification. Installment sale contracts and loans eligible
for inclusion in the GNMA Program are subject to the credit underwriting
requirements of the FHA. A variety of state laws also regulate the form of the
installment sale contracts and loan documents and the allowable deposits,
finance charge and fees chargeable pursuant to installment sale contracts and
loan documents. The sale of insurance products by the Company is subject to
various state insurance laws and regulations which govern allowable charges and
other insurance practices.
The Company is also subject to the provisions of the Fair Debt
Collection Practices Act, which regulates the manner in which the Company
collects payments on installment sale contracts, and the Magnuson-Moss Warranty
- - Federal Trade Commission Improvement Act, which regulates descriptions of
warranties on products. The descriptions and substance of the Company's
warranties are also subject to state laws and regulations.
The Company's manufacture of homes generally is subject to the
National Manufactured Housing Construction and Safety Standards Act of 1974. In
1976, the Department of Housing and Urban Development ("HUD") promulgated
regulations, which have been amended from time to time, under this Act
establishing comprehensive national construction standards covering many aspects
of manufactured home construction, including structural integrity, fire safety,
wind loads and thermal protection. The Company's modular homes are subject to
state and local building codes.
The transportation of manufactured homes on highways is subject to
regulation by various Federal, state and local authorities. Such regulations may
prescribe size and road use limitations and impose lower
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than normal speed limits and various other requirements. Manufactured homes are
also subject to local zoning and housing regulations.
The Company's operations are subject to a variety of other statutes
and regulations.
Financial Information About Industry Segments
Financial information for each of the three fiscal years in the
period ended September 30, 1998 with respect to the Company's manufactured home
operations and retail sales financing operations are incorporated herein by
reference to page 34 of the Company's 1998 Annual Report to Shareholders.
Employees
At September 30, 1998, the Company employed 11,604 persons, of which
3,472 were engaged in sales and service, 7,185 in manufacturing, 454 in consumer
finance, and 493 in executive, administrative and clerical positions.
ITEM 2. DESCRIPTION OF PROPERTIES.
Offices
The Company owns its executive office space in Greensboro, North
Carolina. The Company also owns two additional office buildings, which formerly
served as its executive office space, located in two adjacent three-story
buildings in Greensboro, North Carolina. The Company leases office space in
Texas, Arizona and Florida.
Manufacturing Facilities
The location and ownership of the Company's production facilities are
as follows:
<TABLE>
<CAPTION>
Owned/
Location Leased
-------- ------
<S> <C>
Ennis, Texas Owned
Gainsville, Texas Owned
Hillsboro, Texas (2 plants) Owned
Killeen, Texas Owned
Navasota, Texas (2 plants) Owned
Richfield, North Carolina (2 plants) Owned
Rockwell, North Carolina (2 plants) Owned
Pinebluff, North Carolina Owned
Moultrie, Georgia (5 plants) Owned
Etna, Green, Indiana (2 plants) Owned
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Middlebury, Indiana (2 plants) Owned
Buckeye, Arizona (2 plants) Owned
Albany, Oregon Leased/Owned
Hermiston, Oregon Owned
Lewiston, Pennsylvania Owned
Milton, Pennsylvania Owned
Perris, California Owned
Fort Morgan, Colorado Owned
Plainville, Kansas Owned
Redwood Falls, Minnesota Owned
Pulaski, Tennessee Leased
</TABLE>
These facilities are located on tracts of land generally ranging from
10 to 50 acres. The production area in these facilities ranges from
approximately 50,000 to 250,000 square feet.
In addition, the Company owns a 112,000 square foot warehouse in
Elkhart, Indiana as well as two idle manufacturing facilities. The Company's
idle facility in Ellaville, Georgia is for sale. The Company's idle facility in
Elkton, Maryland is currently used only as a sales and service office.
The land and buildings at all of the facilities owned by the Company
were subject to mortgages with an aggregate balance of $9,327,000 at September
30, 1998.
The Company's manufacturing facilities are generally one story metal
prefabricated structures. The Company believes its facilities are in good
condition.
Based on the Company's normal manufacturing schedule of one shift per
day for a five-day week, the Company believes that its operating manufacturing
plants have the capacity to produce approximately 78,825 floors annually,
depending on product mix. This capacity includes two new Texas facilities,
opened in September 1998 and October 1998, having a combined expected capacity
of 3,500 floors. During fiscal 1998, the Company manufactured 56,188 floors at
its plants (which includes Schult production after its April 1, 1998 acquisition
date).
Manufactured Home Sales Centers
The Company's manufactured home retail sales centers consist of
tracts of from 3/4 to 4 1/2 acres of land on which manufactured homes are
displayed, each with a sales office containing from approximately 600 to 1,300
square feet of floor space. The Company operated 359 sales centers at September
30, 1998 located in 28 states distributed as follows: North Carolina (64), Texas
(63), South Carolina (24), Georgia (20), Tennessee (19), Virginia (17) Alabama
(16), Arizona (12), Kentucky (12), Ohio (12), Washington (12), Florida (11),
Mississippi (11), New Mexico (11), Louisiana (7), Oregon (7),
13
<PAGE>
Arkansas (6), Idaho (6), Missouri (5), Nevada (4), West Virginia (4), Colorado
(3), Delaware (3), Oklahoma (3), California (2), Kansas (2), Utah (2) and
Indiana (1).
Twenty-eight sales centers are on property owned by the Company and
the other locations are leased by the Company for a specified term of from one
to ten years or on a month-to-month basis. Rents paid by the Company during the
year ended September 30, 1998 for the leased sales centers totaled approximately
$11,447,000.
Manufactured Housing Communities
The Company has under development a manufactured housing subdivision
in Hendersonville, North Carolina. The Company also owns property in Pinehurst,
North Carolina on which it intended to develop a manufactured housing
subdivision. The Company intends to offer the property for sale.
The Company also owns a 50% interest in a recreational vehicle
campground and adjoining undeveloped land located in Deltaville, Virginia. At
September 30, 1998, this property was subject to a mortgage with a total balance
of $720,000.
ITEM 3. LEGAL PROCEEDINGS.
In November 1998, four shareholder suits were filed against the
Company and certain of its directors and officers, three in the United States
District Court for the Middle District of North Carolina and one in the United
States District Court in Little Rock, Arkansas. These lawsuits generally allege
that certain of the Company's financial statements were false and misleading and
that certain other disclosures were inaccurate. One of the lawsuits also alleges
that certain officers of the Company traded in the Company's common stock with
knowledge of the misleading financial statements and disclosures. Responsive
pleadings are not yet due in any of these lawsuits. The Company intends to
defend these lawsuits vigorously.
The Company is a defendant in a number of other lawsuits that are
incidental to the conduct of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
SEPARATE ITEM. EXECUTIVE OFFICERS OF THE COMPANY.
Information as to executive officers of the Company who are directors
and nominees of the Company is incorporated herein by reference to the section
captioned "Election of Directors" of the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held February 3, 1999. Information as to
the executive officers of the Company who are not directors or nominees is as
follows:
14
<PAGE>
<TABLE>
<CAPTION>
Name Age Information About Officer
- ---- --- -------------------------
<S> <C> <C>
Lisa K. Carter 32 Vice President and Controller since 1997;
Assistant Controller from 1994 to 1997;
Audit Manager, Price Waterhouse, LLP
1994; Audit Senior, Price Waterhouse, LLP
from 1991 to 1994.
Douglas R. Muir 44 Senior Vice President and Secretary since
1994; Treasurer since 1993; Partner,
Price Waterhouse, LLP from 1988 to 1993.
Robert A. Smith 53 Executive Vice President and Chief
Financial Officer since October 1998;
Executive Vice President - Finance and
Chief Operating Officer of Oakwood
Acceptance Corporation (the Company's
finance subsidiary) from September 1997
to October 1998; Senior Vice President of
the Company from February 1997 to
September 1997; Partner, Price
Waterhouse, LLP from 1984 to 1997.
Myles E. Standish 44 Executive Vice President - Chief
Administrative Officer since November
1998; General Counsel since 1995; Senior
Vice President from 1995 to 1998;
Partner, Kennedy Covington Lobdell &
Hickman, L.L.P., Attorneys at Law, from
1987 to 1995.
J. Michael Stidham 45 Executive Vice President - Retail and
Chief Operating Officer of Oakwood Mobile
Homes, Inc. (the Company's retail sales
subsidiary) since 1994; Vice President
and Chief Operating Officer of Oakwood
Mobile Home, Inc. from 1992 to 1994.
Larry M. Walker 43 Executive Vice President - Manufacturing
and Chief Operating Officer of Homes by
Oakwood, Inc. (the Company's primary
manufacturing subsidiary) since 1997;
Senior Vice President Manufacturing of
the Company 1997; Senior Vice President
Quality and Service 1996; Senior Vice
President -Manufacturing Eastern Region
1993-95.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Name Age Information About Officer
- ---- --- -------------------------
<S> <C> <C>
Suzanne H. Wood 38 Vice President - Investor Relations and
Financial Risk Management of the Company
since November 1998; Vice President and
Chief Financial Officer of Tultex
Corporation (a manufacturer, marketer and
distributor of activewear) from February
1996 to November 1998; Controller of
Tultex Corporation from 1993 to February
1996
</TABLE>
Each officer holds office until his or her death, resignation,
retirement, removal or disqualification or until his or her successor is elected
and qualified.
PART II
ITEMS 5-8.
Items 5, 7, 7A and 8 are incorporated herein by reference to pages 13
to 36 of the Company's 1998 Annual Report to Shareholders and to the sections
captioned "Securities Exchange Listing" and "Shareholders" on the inside back
cover page of the Company's 1998 Annual Report to Shareholders. Item 6 is
incorporated herein by reference to the information captioned "Net sales,"
"Total revenues," "Net income," "Earnings per common share--Basic and Diluted,"
"Total assets," "Notes and bonds payable" and "Cash dividends per common share"
for the five fiscal years ended September 30, 1998 on page 1 of the Company's
1998 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
Not applicable.
PART III
ITEMS 10-13.
Items 10-13 are incorporated herein by reference to the sections
captioned "Principal Holders of Common Stock and Holdings of Management,"
"Election of Directors," "Certain Relationships and Related Transactions,"
"Compensation Committee Report," "Executive Compensation," "Director
Compensation," "Employment Contracts, Termination of Employment and Change of
Control Arrangements" and "Section 16(a) Beneficial Ownership Reporting
Compliance" of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held February 3, 1999 and to the separate item in Part I of
this Annual Report on Form 10-K captioned "Executive Officers of the Company."
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
EXHIBITS.
List the following documents filed as part of this report:
1. Financial Statements.
The following financial statements of the Company
are included as part of Exhibit 13 hereof:
Report of PricewaterhouseCoopers LLP
Consolidated Statements of Income for the Years
ended September 30, 1998, 1997 and 1996
Consolidated Balance Sheets as of September 30,
1998 and 1997
Consolidated Statements of Cash Flows for the
Years ended September 30, 1998, 1997 and 1996
Consolidated Statement of Changes in
Shareholders' Equity for the Years ended
September 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
See the accompanying Index to Financial Statement
Schedules
3. Exhibits
3.1 Restated Charter of the Company dated
January 25, 1984 (Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year
ended September 30, 1984)
3.2 Amendment to Restated Charter of the Company
dated February 18, 1988 (Exhibit 3 to the
Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1988)
3.3 Amendment to Restated Charter of the Company
dated April 23, 1992 (Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992)
17
<PAGE>
3.4 Amended and Restated Bylaws of the Company
adopted February 1, 1995 (Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1994)
4.1 Shareholder Protection Rights Agreement between
the Company and Wachovia Bank of North
Carolina, N.A., as Rights Agent (Exhibit 4.1 to
the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1991)
4.2 Agreement to Furnish Copies of Instruments With
Respect to Long Term Debt (filed herewith)
* 10.1 Oakwood Homes Corporation 1985 Non-Qualified
Stock Option Plan (Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1985)
* 10.2 Oakwood Homes Corporation 1986 Nonqualified
Stock Option Plan for Non-Employee Directors
(Exhibit 10.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended September
30, 1986)
* 10.3 Oakwood Homes Corporation 1981 Incentive Stock
Option Plan, as amended and restated (Exhibit
10.1 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30,
1987)
* 10. 4 Form of Employment Agreement (Exhibit 10.4 to
the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1990)
* 10. 5 Schedule identifying omitted Employment
Agreements which are substantially identical to
the Form of Employment Agreement described in
Exhibit 10.4 (Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the fiscal year
ended September 30, 1990)
* 10.6 Oakwood Homes Corporation 1990 Director Stock
Option Plan (Exhibit 10.24 to the Company's
Registration Statement on Form S-2 filed on
April 13, 1991)
* 10.7 Amended and Restated Executive Retirement
Benefit Employment Agreement between the
Company and Nicholas J. St. George (Exhibit
10.21 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30,
1992)
* 10.8 Amended and Restated Executive Disability
Benefit Agreement between the Company and
Nicholas J. St. George (Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992)
* 10.9 Form of First Amendment to Employment Agreement
between the Company and Nicholas J. St. George
(Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31,
1993)
18
<PAGE>
* 10.10 First Amendment to Amended and Restated
Executive Retirement Benefit Employment
Agreement between the Company and Nicholas J.
St. George (Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended December 31, 1993)
* 10.11 First Amendment to Amended and Restated
Executive Disability Benefit Agreement between
the Company and Nicholas J. St. George (Exhibit
10.5 to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1993)
* 10.12 Form of Executive Retirement Benefit Employment
Agreement between the Company and each of J.
Michael Stidham and Larry M. Walker (Exhibit
10.7 to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1993)
* 10.13 Schedule identifying omitted Executive
Retirement Benefit Employment Agreements which
are substantially identical to the Form of
Executive Retirement Benefit Agreement
described in Exhibit 10.12 and payment
schedules under Executive Retirement Benefit
Employment Agreements (Exhibit 10.8 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1993)
* 10.14 Oakwood Homes Corporation Executive Incentive
Compensation Plan (Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996)
* 10.15 Oakwood Homes Corporation Key Employee Stock
Plan (Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June
30, 1996)
* 10.16 Form of Second Amendment to Employment
Agreement between the Company and Nicholas J.
St. George (Exhibit 10.32 to the Company's
Annual Report on Form 10-K for the year ended
September 30, 1996)
* 10.17 Oakwood Homes Corporation 1997 Director Stock
Option Plan (Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998)
* 10.18 Oakwood Homes Corporation Director Deferral
Plan (filed herewith)
* 10.19 Form of Employment Agreement between the
Company and each of William G. Edwards, Robert
A. Smith, Myles E. Standish and J. Michael
Stidham (filed herewith)
* 10.20 First Amendment to Amended and Restated
Executive Retirement Benefit Employment
Agreement between the Company and J. Michael
Stidham (filed herewith)
19
<PAGE>
13 The Company's 1998 Annual Report to
Shareholders. This Annual Report to
Shareholders is furnished for the information
of the Commission only and, except for the
parts thereof expressly incorporated by
reference in this Annual Report on Form 10-K,
is not deemed to be "filed" as a part of this
filing (filed herewith)
21 List of the Company's subsidiaries (filed
herewith)
23.1 Consent of Pricewaterhouse Coopers LLP (filed
herewith)
27 Financial Data Schedule (filed in electronic
format only). This schedule is furnished for
the information of the Commission and shall not
be deemed "filed" for purposes of Section 11 of
the Securities Act of 1933, Section 18 of the
Securities Exchange Act of 1934 and Section 323
of the Trust Indenture Act.
- -------------
* Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-K.
(b) REPORTS ON FORM 8-K. On October 13, 1998, the Company filed
a Current Report on Form 8-K in which it reported, pursuant
to Item 5 thereof (Other Events), that it had released a
letter to its shareholders relating to various matters. No
financial statements were filed as part of such Current
Report on Form 8-K.
(c) EXHIBITS. See Item 14(a)(3).
(d) FINANCIAL STATEMENT SCHEDULES. See Item 14(a)(2).
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Annual Report to be
signed on its behalf by the undersigned thereunto duly authorized.
OAKWOOD HOMES CORPORATION
By: /s/ Robert A. Smith
-----------------------------
Robert A. Smith
Executive Vice President and
Chief Financial Officer
Dated: December 29, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed below by the following persons on behalf of
the Company and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Nicholas J. St. George Director, Chairman and December 29, 1998
- ------------------------------------------ Chief Executive
Nicholas J. St. George Officer (Principal
Executive Officer)
/s/ William G. Edwards Director December 29, 1998
- ------------------------------------------
William G. Edwards
/s/ Dennis I. Meyer Director December 29, 1998
- ------------------------------------------
Dennis I. Meyer
/s/ Kermit G. Phillips, II Director December 29, 1998
- ------------------------------------------
Kermit G. Phillips, II
/s/ Roger W. Schipke Director December 29, 1998
- ------------------------------------------
Roger W. Schipke
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Lanty L. Smith Director December 29, 1998
- ------------------------------------------
Lanty L. Smith
/s/ Sabin C. Streeter Director December 29, 1998
- ------------------------------------------
Sabin C. Streeter
/s/ Francis T. Vincent, Jr. Director December 29, 1998
- ------------------------------------------
Francis T. Vincent, Jr.
/s/ Clarence W. Walker Director December 29, 1998
- ------------------------------------------
Clarence W. Walker
/s/ H. Michael Weaver Director December 29, 1998
- ------------------------------------------
H. Michael Weaver
/s/ Robert A. Smith Executive Vice President and December 29, 1998
- ------------------------------------------ Chief Financial Officer
Robert A. Smith (Principal Financial Officer)
/s/ Lisa K. Carter Vice President and December 29, 1998
- ------------------------------------------ Controller
Lisa K. Carter (Principal Accounting Officer)
</TABLE>
<PAGE>
OAKWOOD HOMES CORPORATION
INDEX TO FINANCIAL STATEMENT SCHEDULES
The financial statements, together with the report thereon of
PricewaterhouseCoopers LLP dated November 2, 1998, except as to certain
information for which the date of such report is November 25, 1998, appearing on
pages 13 to 36 of the Company's 1998 Annual Report to Shareholders, are
incorporated by reference in this Annual Report on Form 10-K. With the exception
of the aforementioned information and the information incorporated in Items 1,
5, 6, 7, 7A and 8, the 1998 Annual Report to Shareholders is not deemed to be
filed as part of this report. Financial statement schedules not included in this
Annual Report on Form 10-K have been omitted because they are not applicable or
the required information is shown in the financial statements or notes thereto.
PAGE
Supplementary information to notes to
consolidated financial statements F-1
<PAGE>
OAKWOOD HOMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
SUPPLEMENTARY INFORMATION TO NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The components of inventories are as follows:
<TABLE>
<CAPTION>
September 30, September 30, September 30,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
New manufactured homes $234,606,000 $180,813,000 $130,443,000
Used manufactured homes 8,261,000 5,954,000 6,462,000
Homes in progress 6,119,000 2,948,000 2,410,000
Land/homes under
development 6,417,000 3,859,000 4,820,000
Raw materials and supplies 35,949,000 14,724,000 11,755,000
----------- ---------- ----------
$291,352,000 $208,298,000 $ 155,890,000
=========== =========== ===========
</TABLE>
F-1
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
EXHIBITS
ITEM 14(a)(3)
ANNUAL REPORT ON FORM 10-K
Commission
For the fiscal year ended File Number
September 30, 1998 1-7444
OAKWOOD HOMES CORPORATION
EXHIBIT INDEX
Exhibit No. Exhibit Description
- ----------- -------------------
3.1 Restated Charter of the Company dated January 25, 1984
(Exhibit 3.2 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1984)
3.2 Amendment to Restated Charter of the Company dated
February 18, 1988 (Exhibit 3 to the Company's Annual
Report on Form 10-K for the fiscal year ended
September 30, 1988)
3.3 Amendment to Restated Charter of the Company dated
April 23, 1992 (Exhibit 3.3 to the Company's Annual
Report on Form 10-K for the fiscal year ended
September 30, 1992)
3.4 Amended and Restated Bylaws of the Company adopted
February 1, 1995 (Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1994)
4.1 Shareholder Protection Rights Agreement between the
Company and Wachovia Bank of North Carolina, N.A., as
Rights Agent (Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1991)
4.2 Agreement to Furnish Copies of Instruments With
Respect to Long Term Debt (filed herewith)
10.1 Oakwood Homes Corporation 1985 Non-Qualified Stock
Option Plan (Exhibit 10.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended
September 30, 1985)
<PAGE>
10.2 Oakwood Homes Corporation 1986 Nonqualified Stock
Option Plan for Non-Employee Directors (Exhibit 10.1
to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1986)
10.3 Oakwood Homes Corporation 1981 Incentive Stock Option
Plan, as amended and restated (Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1987)
10.4 Form of Employment Agreement (Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1990)
10.5 Schedule identifying omitted Employment Agreements
which are substantially identical to the Form of
Employment Agreement described in Exhibit 10.4
(Exhibit 10.5 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1990)
10.6 Oakwood Homes Corporation 1990 Director Stock Option
Plan (Exhibit 10.24 to the Company's Registration
Statement on Form S-2 filed on April 13, 1991)
10.7 Amended and Restated Executive Retirement Benefit
Employment Agreement between the Company and Nicholas
J. St. George (Exhibit 10.21 to the Company's Annual
Report on Form 10-K for the fiscal year ended
September 30, 1992)
10.8 Amended and Restated Executive Disability Benefit
Agreement between the Company and Nicholas J. St.
George (Exhibit 10.22 to the Company's Annual Report
on Form 10-K for the fiscal year ended September 30,
1992)
10.9 Form of First Amendment to Employment Agreement
between the Company and Nicholas J. St. George
(Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1993)
10.10 First Amendment to Amended and Restated Executive
Retirement Benefit Employment Agreement between the
Company and Nicholas J. St. George (Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1993)
10.11 First Amendment to Amended and Restated Executive
Disability Benefit Agreement between the Company and
Nicholas J. St. George (Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993)
10.12 Form of Executive Retirement Benefit Employment
Agreement between the Company and each of J. Michael
Stidham and Larry M. Walker (Exhibit 10.7 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1993)
<PAGE>
10.13 Schedule identifying omitted Executive Retirement
Benefit Employment Agreements which are substantially
identical to the Form of Executive Retirement Benefit
Agreement described in Exhibit 10.12 and payment
schedules under Executive Retirement Benefit
Employment Agreements (Exhibit 10.8 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993)
10.14 Oakwood Homes Corporation Executive Incentive
Compensation Plan (Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996)
10.15 Oakwood Homes Corporation Key Employee Stock Plan
(Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996)
10.16 Form of Second Amendment to Employment Agreement
between the Company and Nicholas J. St. George
(Exhibit 10.32 to the Company's Annual Report on Form
10-K for the year ended September 30, 1996)
10.17 Oakwood Homes Corporation 1997 Director Stock Option
Plan (Exhibit 10 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998)
10.18 Oakwood Homes Corporation Director Deferral Plan
(filed herewith)
10.19 Form of Employment Agreement between the Company and
each of William G. Edwards, Robert A. Smith, Myles E.
Standish and J. Michael Stidham (filed herewith)
10.20 First Amendment to Amended and Restated Executive
Retirement Benefit Employment Agreement between the
Company and J. Michael Stidham (filed herewith)
13 The Company's 1998 Annual Report to Shareholders. This
Annual Report to Shareholders is furnished for the
information of the Commission only and, except for the
parts thereof expressly incorporated by reference in
this Annual Report on Form 10-K, is not deemed to be
"filed" as a part of this filing (filed herewith).
21 List of the Company's subsidiaries (filed herewith)
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith)
27 Financial Data Schedule (filed in electronic format
only). This schedule is furnished for the information
of the Commission and shall not be deemed "filed" for
purposes of Section 11 of the Securities Act of 1933,
Section 18 of the Securities Exchange Act of 1934 and
Section 323 of the Trust Indenture Act.
EXHIBIT 4.2
Agreement to Furnish Copies of Instruments
With Respect to Long Term Debt
The Company has entered into certain agreements with respect to
long-term indebtedness which do not exceed ten percent of the total assets of
the Company and its subsidiaries on a consolidated basis. The Company hereby
agrees to furnish a copy of such agreements to the Commission upon request of
the Commission.
OAKWOOD HOMES CORPORATION
By: /s/ Robert A. Smith
----------------------------
Robert A. Smith
Executive Vice President and
Chief Financial Officer
EXHIBIT 10.18
OAKWOOD HOMES CORPORATION DIRECTOR DEFERRAL PLAN
1. NAME:
This plan shall be known as the "Oakwood Homes Corporation Director
Deferral Plan" (the "Plan").
2. PURPOSE AND INTENT:
Oakwood Homes Corporation (the "Corporation") establishes this Plan
effective January 1, 1999 for the purpose of providing the nonemployee members
of its Board of Directors with the opportunity to defer payment of all or any
portion of the annual retainer fee and/or meetings fees payable during a year in
the form of "Stock Units" (as defined herein). It is the intent of the
Corporation that amounts deferred under the Plan by a director shall not be
taxable to the director for income tax purposes until the time actually received
by the director. The provisions of the Plan shall be construed and interpreted
to effectuate such intent.
3. DEFINITIONS:
For purposes of the Plan, the following terms shall have the
following meanings:
"ACCOUNT" of a Participant means the account established and
maintained on the books of the Corporation to record a Participant's interest
under the Plan, as adjusted from time to time pursuant to the terms of the Plan.
"CLAIM" means a claim for benefits under the Plan.
"CLAIMANT" means a person making a Claim.
"COMMITTEE" means the committee of individuals who are serving from
time to time as the members of the Compensation Committee of the Board of
Directors of the Corporation. If not all of the members of the Compensation
Committee are "Non-Employee Directors" within the meaning of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, then "Committee" means a
committee of two (2) or more individuals of the Compensation Committee who are
Non-Employee Directors.
"COMMON STOCK" means the common stock of the Corporation.
"FAIR MARKET VALUE" with respect to a share of the Corporation's
Common Stock at a particular time, shall be that value as determined by the
Committee which shall be (i) if such Common Stock is listed on a national
securities exchange, on any given date, (A) the average of the highest and
lowest market prices of shares of Common Stock, as reported on the consolidated
transaction reporting system for such exchange for that date, or if shares of
Common Stock were not traded on such date, on the next preceding
1
<PAGE>
day on which shares of Common Stock were traded, or (B) if the Common Stock is
not reported on the consolidated transaction reporting system for such exchange,
the mean between the highest price and the lowest price at which the Common
Stock shall have been sold regular way on a national securities exchange on said
date, or, if no sales occur on said date, then on the next preceding date on
which there were such sales of Common Stock; or (ii) if the Common Stock shall
not be listed on a national securities exchange, the mean between the average
high bid and low asked prices last reported by the National Association of
Securities Dealers, Inc. for the over-the-counter market on said date or, if no
bid and asked prices are reported on said date, then on the next preceding date
on which there were such quotations; or (iii) if at any time quotations for the
Common Stock shall not be reported by the National Association of Securities
Dealers, Inc. for the over-the-counter market and the Common Stock shall not be
listed on any national securities exchange, the fair market value determined by
the Committee on the basis of available prices for such Common Stock or in such
other manner as the Committee may deem reasonable.
"FEES" means both (i) the annual retainer fee (the "Annual Retainer
Fee") and (ii) any meetings fees (the "Meetings Fees") payable to a Nonemployee
Director under the Corporation's compensation policies for directors in effect
from time to time.
"NONEMPLOYEE DIRECTOR" means an individual who is a member of the
Board of Directors of the Corporation, but who is not an employee of the
Corporation or any of its subsidiaries.
"PARTICIPANT" means a Nonemployee Director who has elected to
participate in the Plan as provided in paragraph 5 below.
"PLAN ADMINISTRATOR" means such person or entity designated as the
"Plan Administrator" for purposes of the Plan by the Committee. If the Committee
fails to designate a Plan Administrator, then the Committee shall be the Plan
Administrator.
"PLAN YEAR" means the twelve (12) month period beginning January 1
and ending December 31.
"STOCK UNIT" means a unit having a value as of a given date equal to
the Fair Market Value of one (1) share of Common Stock on such date.
4. ADMINISTRATION:
The Plan Administrator shall be responsible for administering the
Plan. The Plan Administrator shall have all of the powers necessary to enable it
to properly carry out its duties under the Plan. Not in limitation of the
foregoing, the Plan Administrator shall have the power to construe and interpret
the Plan and to determine all questions that shall arise thereunder. The Plan
Administrator shall have such other and further specified duties, powers,
authority and discretion as are elsewhere in the Plan either expressly or by
necessary implication conferred upon it. The Plan Administrator may appoint such
agents as it may deem necessary for the effective performance of its duties, and
may delegate to such agents such powers and duties as the Plan Administrator may
deem expedient or appropriate that are not inconsistent with the intent of the
Plan. The decision of the Plan Administrator upon all matters within its scope
of authority shall be final and conclusive on all persons, except to the extent
otherwise provided by law.
5. OPERATION:
(a) Eligibility. Each Nonemployee Director shall be eligible to
participate in the Plan.
(b) Elections to Defer. A Nonemployee Director may become a
Participant in the Plan by irrevocably electing, on a form provided by the Plan
Administrator, to defer all or any portion of the Annual Retainer Fee payable to
the Nonemployee Director during such Plan Year and/or the Meetings
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<PAGE>
Fees payable to the Nonemployee Director for all meetings occurring during such
Plan Year. In order to be effective, a Nonemployee Director's election to defer
must be executed and returned to the Plan Administrator on or before the date
specified by the Plan Administrator for such purpose. Such election must
normally be made prior to the beginning of the Plan Year to which the election
relates. However, the Plan Administrator, in its sole and exclusive discretion,
may determine that in certain circumstances an election may be made during a
Plan Year if such determination is not inconsistent with the intent of the Plan
expressed in paragraph 2 above.
(c) Establishment of Account. The Corporation shall establish and
maintain on its books an Account for each Participant. The Account shall be
credited with the amount of Fees deferred by the Participant as of the date the
Fees would have otherwise been paid to the Participant. The deferral shall be
credited to the Participant's Account in the form of whole and fractional Stock
Units that have an aggregate value as of the date of credit equal to the amount
deferred.
(d) Account Adjustments. Each Account shall be credited additional
full or fractional Stock Units for cash dividends paid on the Common Stock based
on the number of Stock Units in the Stock Account on the applicable dividend
record date and calculated based on the Fair Market Value of the Common Stock on
the applicable dividend payment date. Each Stock Account shall also be equitably
adjusted as determined by the Plan Administrator in the event of any stock
dividend, stock split or similar change in the capitalization of the
Corporation.
(e) Payment Options. At the time a Participant first makes an
election to defer Fees under the Plan, the Participant shall be given the
opportunity to irrevocably elect one of the following payment options: (i)
single cash payment or (ii) five (5) annual installments. The election shall be
made in writing on a form provided by the Plan Administrator and must be
returned to the Plan Administrator before such date as specified by the Plan
Administrator. Such election shall be effective with respect to any Fees
deferred under the Plan by the Participant, including Fees deferred under the
Plan for all subsequent Plan Years. If a Participant fails to duly elect a
payment option, the method of payment shall be the single cash payment.
(f) Single Cash Payment. If a Participant to whom the single cash
payment method applies terminates services with the Corporation as a member of
the Board of Directors of the Corporation, then the number of Stock Units
credited to the Account as of the termination date shall be converted to cash
based on the Fair Market Value of the Common Stock on such date, and such cash
amount shall be paid in a single cash payment to the Participant (or to the
Participant's designated beneficiary in the case of the Participant's death) as
soon as administratively practicable following such date.
(g) Annual Installments. If a Participant to whom the annual
installment payment method applies terminates services with the Corporation as a
member of the Board of Directors of the Corporation, then the number of Stock
Units credited to the Participant's Account as of the termination date shall be
converted to cash based on the Fair Market Value of the Common Stock on such
date, and such cash amount shall be paid to the Participant five (5) equal
annual installments commencing as soon as administratively practicable after
such date. Interest shall accrue on the unpaid portion of the Account balance
during the payment period at a per annum rate of seven percent (7%) (or such
other rate as the Plan Administrator may establish from time to time), and each
annual installment shall include any unpaid, accrued interest determined as of
such payment date. If a Participant who has selected the annual installments
method dies before any or all of the annual installments have been paid, such
remaining annual installments shall be paid to the Participant's designated
beneficiary.
3
<PAGE>
(h) Other Payment Provisions. Subject to the provisions of paragraph
6 below, a Participant shall not be paid any portion of the Participant's
Account prior to the Participant's termination of services as a member of the
Board of Directors of the Corporation. Any payment hereunder shall be subject to
applicable payroll and withholding taxes. Participants shall designate a
beneficiary under the Plan on a form furnished by the Plan Administrator, and if
a Participant does not have a beneficiary designation in effect, the designated
beneficiary shall be the Participant's estate. In the event any amount becomes
payable under the provisions of the Plan to a Participant, beneficiary or other
person who is a minor or an incompetent, whether or not declared incompetent by
a court, such amount may be paid directly to the minor or incompetent person or
to such person's fiduciary (or attorney-in-fact in the case of an incompetent)
as the Plan Administrator, in its sole discretion, may decide, and the Plan
Administrator shall not be liable to any person for any such decision or any
payment pursuant thereto.
(i) Statements of Account. Each Participant shall receive an annual
statement of the balance in the Participant's Account.
6. AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN:
The Committee shall have the right and power at any time and from
time to time to amend the Plan in whole or in part and at any time to terminate
the Plan; provided, however, that no such amendment or termination shall reduce
the amount actually credited to a Participant's Account under the Plan on the
date of such amendment or termination, or further defer the due dates for the
payment of such amounts, without the consent of the affected Participant. In
connection with any termination of the Plan, the Committee shall have the
authority to cause the Accounts of all Participants to be paid in a single cash
payment as of a date determined by the Committee or to otherwise accelerate the
payment of Accounts in such manner as the Committee shall determine in its
discretion.
7. CLAIMS PROCEDURES:
(a) General. In the event that a Claimant has a Claim under the Plan,
such Claim shall be made by the Claimant's filing a notice thereof with the Plan
Administrator within ninety (90) days after such Claimant first has knowledge of
such Claim. Each Claimant who has submitted a Claim to the Plan Administrator
shall be afforded a reasonable opportunity to state such Claimant's position and
to present evidence and other material relevant to the Claim to the Plan
Administrator for its consideration in rendering its decision with respect
thereto. The Plan Administrator shall render its decision in writing within
ninety (90) days after the Claim is referred to it, unless special circumstances
require an extension of such time within which to render such decision, in which
event such decision shall be rendered no later than one hundred eighty (180)
days after the Claim is referred to it. A copy of such written decision shall be
furnished to the Claimant.
(b) Notice of Decision of Plan Administrator. Each Claimant whose
Claim has been denied by the Plan Administrator shall be provided written notice
thereof, which notice shall set forth:
(i) the specific reason(s) for the denial;
(ii) specific reference to pertinent provision(s) of the Plan
upon which such denial is based;
4
<PAGE>
(iii) a description of any additional material or information
necessary for the Claimant to perfect such Claim and an
explanation of why such material or information is
necessary; and
(iv) an explanation of the procedure hereunder for review of
such Claim;
all in a manner calculated to be understood by such Claimant.
(c) Review of Decision of Plan Administrator. Each such Claimant
shall be afforded a reasonable opportunity for a full and fair review of the
decision of the Plan Administrator denying the Claim. Such review shall be by
the Committee. Such appeal shall be made within ninety (90) days after the
Claimant received the written decision of the Plan Administrator and shall be
made by the written request of the Claimant or such Claimant's duly authorized
representative of the Committee. In the event of appeal, the Claimant or such
Claimant's duly authorized representative may review pertinent documents and
submit issues and comments in writing to the Committee. The Committee shall
review the following:
(i) the initial proceedings of the Plan Administrator with
respect to such Claim;
(ii) such issues and comments as were submitted in writing by
the Claimant or the Claimant's duly authorized
representative; and
(iii) such other material and information as the Committee, in
its sole discretion, deems advisable for a full and fair
review of the decision of the Plan Administrator.
The Committee may approve, disapprove or modify the decision of the Plan
Administrator, in whole or in part, or may take such other action with respect
to such appeal as it deems appropriate. The decision of the Committee with
respect to such appeal shall be made promptly, and in no event later than sixty
(60) days after receipt of such appeal, unless special circumstances require an
extension of such time within which to render such decision, in which event such
decision shall be rendered as soon as possible and in no event later than one
hundred twenty (120) days following receipt of such appeal. The decision of the
Committee shall be in writing and in a manner calculated to be understood by the
Claimant and shall include specific reasons for such decision and set forth
specific references to the pertinent provisions of the Plan upon which such
decision is based. The Claimant shall be furnished a copy of the written
decision of the Committee. Such decision shall be final and conclusive upon all
persons interested therein, except to the extent otherwise provided by
applicable law.
8. APPLICABLE LAW:
The Plan shall be construed, administered, regulated and governed in
all respects under and by the laws of the United States to the extent
applicable, and to the extent such laws are not applicable, by the laws of the
state of North Carolina.
9. MISCELLANEOUS:
A Participant's rights and interests under the Plan may not be
assigned or transferred by the Participant. The Plan shall be an unsecured,
unfunded arrangement. To the extent the Participant acquires a right to receive
payments from the Corporation under the Plan, such right shall be no greater
5
<PAGE>
than the right of any unsecured general creditor of the Corporation. Nothing
contained herein shall be deemed to create a trust of any kind or any fiduciary
relationship between the Corporation and any Participant. The Plan shall be
binding on the Corporation and any successor in interest of the Corporation.
IN WITNESS WHEREOF, this instrument has been executed by an
authorized officer of the Corporation as of the 18th day of November, 1998.
OAKWOOD HOMES CORPORATION
By:
------------------------------
Name:
----------------------
Title:
----------------------
"Corporation"
6
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
as of the ____ day of _______________, ______ between OAKWOOD HOMES CORPORATION,
a North Carolina corporation (the "Company"), and
______________________________________(the "Executive").
STATEMENT OF PURPOSE
The Company considers sound and vital management to be essential to
protecting and enhancing the best interests of the Company and its stockholders.
Although the Company knows of no change in control of the Company which is being
contemplated, the Company recognizes that a future change in control is always
possible and this possibility creates uncertainty and insecurity among members
of management. The Company believes that appropriate measures should be taken to
reinforce the dedication of key members of management and to provide them with a
greater sense of security so that they will be encouraged to remain in the
employ of the Company. The Company also believes that it is in the best
interests of the Company and its stockholders that appropriate measures be taken
to assure the neutrality of management in analyzing a potential change in
control and the options available to the Company and to preserve continuity in
corporate management and operations in the event of a change in control.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Company and the Executive hereby agree as follows:
1. Operation of Agreement.
(a) This Agreement shall be effective upon its execution,
but anything in this Agreement to the contrary notwithstanding, neither this
Agreement nor any of its provisions, except its renewal provision, shall be
operative unless and until there has been a Change in Control of the Company, as
defined in Subsection 1(c) below and subject to the provisions of Subsection
1(d) below (regarding action by a majority of the Incumbent Board to modify or
terminate this Agreement up to 30 days following a Change in Control).
(b) If no Change in Control of the Company has occurred on
or before the close of business on December 31, 2001,
this Agreement shall thereupon expire; provided, however, the parties by their
written mutual assent may extend said date on which this Agreement shall expire.
(c) A "Change in Control" shall be deemed to have occurred
if any of the following events shall have occurred:
(i) any corporation, other person or "Group" (as defined below)
becomes the "Beneficial Owner" (as defined below) of more
than 25% of the Company's outstanding Common Stock; or
(ii) the Company's outstanding Common Stock (x) is held of
record by less than 300 persons or (y) is neither listed on
a national securities exchange nor authorized to be quoted
on an inter-dealer quotation system of a registered
national securities association.
1
<PAGE>
For purposes of this definition of Change in Control, the following terms shall
have the following meanings:
"Beneficial Owner" shall have the meaning which that term is given in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Act").
"Group" shall mean persons who act in concert as described in Section
14(d)(2) of the Act.
(d) Notwithstanding any provision of this Agreement to the
contrary, at any time up to thirty (30) days following the date of a Change in
Control, the Board of Directors may, in its sole and exclusive discretion with
approval of at least a majority of the "Incumbent Board" (as defined below),
terminate this Agreement or make any modifications to the terms and provisions
of this Agreement (including without limitation causing the Agreement to not
apply with respect to the given Change in Control or reducing the amount of
benefits described herein) without the consent of Executive. For purposes
hereof, "Incumbent Board" shall mean the group of individuals who, as of the
date of this Agreement, constitute the Board of Directors of the Company;
provided, however, that any individual who becomes a director subsequent to the
date of this Agreement and whose election, or whose nomination for election by
the Company's shareholders, to the Board of Directors was either (i) approved by
a vote of at least a majority of the directors then comprising the Incumbent
Board or (ii) recommended by a Nominating Committee comprised entirely of
directors who are then Incumbent Board members shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Act), other actual
or threatened solicitation of proxies or consents or an actual or threatened
tender offer.
2. Employment; Period of Employment.
(a) The Company agrees to continue the Executive in its
employ, and the Executive hereby agrees to remain in the employ of the Company,
for the period set forth in Subsection 2(b) below (the "Period of Employment")
in the position and with the duties and responsibilities set forth in Section 3
below, subject to the other terms and conditions of this Agreement.
(b) The Period of Employment shall commence on the date of
any Change in Control and, subject only to the Executive's death or termination
of employment by the Company for "Cause" or "Disability" or by the Executive for
"Good Reason" (as defined in Section 4), shall continue until the close of
business on the later of (i) that date two years after the date on which the
Change in Control occurred or (ii) the expiration date under Subsection 1(b),
taking into account any extensions of said expiration date.
3. Position, Duties, and Responsibilities.
(a) During the Period of Employment, the Executive shall
continue to serve as an officer of the Company, either (i) with substantially
the same offices, titles, duties and responsibilities as the Executive had
immediately prior to the Change in Control or (ii) with a higher office with
titles, duties and responsibilities commensurate with such higher office.
(b) During the Period of Employment, the Executive shall
devote his full-time efforts during normal business hours to the business and
affairs of the Company, except reasonable
2
<PAGE>
vacation periods and periods of illness or incapacity, but nothing in this
Agreement shall preclude the Executive from devoting reasonable time to serving
as a director or member of a committee of one or more organizations (business,
charitable, civic, religious or otherwise) involving no conflict with the
interests of the Company.
4. Termination Following Change in Control. If, after a Change in
Control of the Company has occurred, the Company shall terminate the Executive's
employment other than because of his death or for Disability or Cause or if the
Executive shall terminate his employment for Good Reason, the Executive shall be
entitled to all of the benefits and payments provided in Section 5 below,
subject to the provisions of Subsection 1(d) above.
(a) Disability. Termination based on "Disability" shall
mean termination because of the Executive's absence due to physical or mental
illness from his duties with the Company on a full-time basis for 150
consecutive business days unless within 30 days after Notice of Termination (as
defined in Subsection 4(d) below) is given following such absence, the Executive
shall return to the full-time performance of his duties.
(b) Cause. Termination shall be deemed to have been for
Cause only if termination shall have been the result of
an act or acts of dishonesty on the part of the Executive constituting a felony
and resulting or intended to result in substantial gain or personal enrichment
at the expense of the Company, or if there has been a willful and substantial
breach by the Executive of the provisions of Subsection 3(b) above, and such
breach has caused substantial injury to the Company. In no event shall the
Executive's termination by the Company be considered to have been for Cause if
such termination took place as a result of (i) the Executive's bad judgment or
negligence or (ii) any act or omission without intent of gaining a profit to
which the Executive was not legally entitled or (iii) any act or omission
believed by the Executive in good faith to have been in, or not opposed to, the
interests of the Company.
(c) Good Reason. "Good Reason" shall mean
(i) the assignment to the Executive of any duties
inconsistent with his duties described in Subsection 3(a)
above or any removal of the Executive from or any failure
to re-elect the Executive to his positions described in
Subsection 3(a) above, except in connection with promotions
to higher office;
(ii) a reduction by the Company in the
Executive's base salary as in effect immediately prior to
the Change in Control;
(iii) the failure by the Company to maintain and
to continue the Executive's participation in the Company's
benefit or compensation plans as in effect immediately
prior to the Change in Control (including but not limited
to bonus and incentive compensation plans, stock option,
bonus, award and purchase plans, life insurance, medical,
health and accident, and disability plans); or the taking
of any action by the Company which would adversely affect
the Executive's participation in or reduce the Executive's
benefits under any of such plans or deprive the Executive
of any fringe benefit he enjoyed immediately prior to the
Change in Control; or the failure to provide the Executive
with the number of paid vacation days to which he was
entitled under the Company's normal vacation policy in
effect immediately prior to the Change in Control;
3
<PAGE>
(iv) the relocation of the Executive's office to
anywhere other than a location within 100 miles of
Greensboro, North Carolina or the Company's requiring the
Executive to be based anywhere other than within 100 miles
of Greensboro, North Carolina (or such other location as
shall be the location of the Executive's office immediately
prior to the Change in Control) except for required travel
on the Company's business to an extent consistent with the
Executive's business travel obligations immediately prior
to the Change in Control; or
(v) the failure by the Company to obtain the
assumption of this Agreement by any successor as
contemplated in Section 7 below.
(d) Any termination of the Executive's employment, unless
because of death, shall be communicated by written Notice of Termination to the
other party. In the event of termination of employment by the Company for Cause
or Disability or by the Executive for Good Reason, the Notice of Termination
shall state the specific ground for termination (Cause, Disability or Good
Reason) and set forth in reasonable detail the facts and circumstances claimed
to provide a basis for the specified ground of termination.
(e) "Termination Date" shall mean (i) if the Executive's
employment is terminated due to death, the Executive's date of death, (ii) if
the Executive's employment is terminated for Disability, thirty days after
Notice of Termination is given (provided that the Executive shall not have
returned to the performance of his duties on a full-time basis during such
thirty day period), (iii) if the Executive's employment is terminated for Cause,
the date specified in the Notice of Termination, and (iv) if the Executive's
employment is terminated for any other reason, the date on which a Notice of
Termination is given.
5. Benefits.
(a) If the Company shall terminate the Executive's
employment other than because of his death or for Disability or Cause, or if the
Executive shall terminate his employment for Good Reason, then the Company shall
pay to the Executive and provide him, his dependents, beneficiaries and estate,
with the following;
(i) The Company shall pay the Executive his full
base salary through the Termination Date at the higher of
the rate in effect when Notice of Termination is given or
the rate in effect one year prior to such date, plus credit
for any vacation earned but not taken. The Executive's full
base salary shall be paid at the times normally scheduled
for payment of the salaries of key members of management;
provided, however, that all of such salary shall be paid
not later than Termination Date.
(ii) The Company shall pay the Executive a lump
sum payment equal to two times the highest annual
compensation (including base salary, incentive compensation
and monetary bonus or similar award) paid or payable to the
Executive by the Company for any of the three fiscal years
ended immediately prior to the Termination Date. This lump
sum payment shall be due and payable on the 10th business
day after the Termination Date and bear interest from the
Termination Date until paid at then current prime rate of
interest of First Union National Bank.
4
<PAGE>
(iii) The Company shall pay all legal fees and
expenses which the Executive may incur as a result of the
Company's contesting the validity or enforceability of this
Agreement, or as a result of the Company's failure to make
timely payment of any sum due to the Executive hereunder.
(b) The Executive shall not be required to mitigate the
benefits or amounts of any payment provided for in this
Section 5 by seeking other employment or otherwise, nor shall the amount of any
payment provided for in this Section 5 be reduced by any compensation earned by
the Executive as a result of employment by another employer after the Date of
Termination, or otherwise.
6. Options. Subject to the provisions of Subsection 1(d) above, all
of the Executive's outstanding stock options shall become exercisable in full on
the date of a Change in Control of the Company, whether or not the stock options
were exercisable on such date.
7. Successors; Binding Agreement.
(a) The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
and substance satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
company would be required to perform if no such succession had taken place. As
used in this Agreement, "Company" shall mean the company as defined in the
preamble to this Agreement and any successor to its business or assets which
executes and delivers the agreement provided for in this Paragraph 7 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
8. Notices. For the purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United Stated registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
--------------------------
Post Office Box 7386
Greensboro, North Carolina
27417-0386
If to the Company:
--------------------------
Oakwood Homes Corporation
Post Office Box 7386
Greensboro, North Carolina
27417-0386
Attention: Secretary
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
5
<PAGE>
9. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
North Carolina.
10. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party of
any breach of this Agreement shall be deemed a waiver of any prior or subsequent
breach. No agreements or representations, oral or otherwise, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
11. Separability. The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same Agreement.
13. Withholding of Taxes. The Company may withhold from any benefits
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.
14. Non-assignability. This Agreement is personal in nature and
neither of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder, except as
provided in Section 7 above. Without limiting the foregoing, the Executive's
right to receive payments hereunder shall not be assignable or transferable,
whether by pledge, creation of a security interest or otherwise, other than a
transfer by his will or by the laws of descent or distribution, and in the event
of any attempted assignment or transfer contrary to this paragraph, the Company
shall have no liability to pay any amount so attempted to be assigned or
transferred.
15. Arbitration; Fees.
(a) Any disputes between the Company and the Executive
concerning this Agreement will be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, by a panel
of three arbitrators, one selected by the Executive, one selected by the Company
and the other selected by the two so chosen. Judgment upon the arbitration award
rendered by the arbitrators shall be binding and conclusive and may be entered
in any court having jurisdiction thereof. The costs of the arbitration shall be
borne by the Company.
(b) In the event that the Executive receives an arbitration
award pursuant to subsection (a) above, the Company
shall, within thirty (30) days after the presentation of proper receipts or
invoices therefor, reimburse the Executive the reasonable fees and disbursements
of counsel incurred in connection of any amounts awarded the Executive pursuant
thereto.
16. Termination of Pre-Existing Employment Agreement. The Company and
the Executive hereby acknowledge and agree that this Agreement replaces any
employment agreement previously entered into between the Company and the
Executive, and that any rights granted under any such pre-existing employment
agreement are hereby terminated and of no further force and effect.
[SIGNATURES ON NEXT PAGE]
6
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth.
OAKWOOD HOMES CORPORATION
ATTEST: By:
-----------------------------
Nicholas J. St. George,
Chairman and Chief Executive
- ---------------------------- Officer
EXECUTIVE:
[SEAL]
--------------------------------
[Name]
7
EXHIBIT 10.20
STATE OF NORTH CAROLINA FIRST AMENDMENT TO AMENDED AND
COUNTY OF GUILFORD RESTATED EXECUTIVE RETIREMENT
BENEFIT EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED EXECUTIVE RETIREMENT
BENEFIT EMPLOYMENT AGREEMENT (this "First Amendment") is entered into as of this
31st day of December, 1998, by and between OAKWOOD HOMES CORPORATION, a
North Carolina corporation with its principal executive offices in Greensboro,
North Carolina (the "Company"), and J. MICHAEL STIDHAM, residing at 3824
O'Briant Place, Greensboro, North Carolina ("Executive");
W I T N E S S E T H:
WHEREAS, the Company and Executive entered into an Amended and
Restated Executive Retirement Benefit Employment Agreement as of December ___,
1993 (the "Retirement Agreement"); and
WHEREAS, the Company and Executive desire to amend the Retirement
Agreement to make certain technical amendment and substitute the Schedules
attached hereto for the Schedules attached thereto;
NOW THEREFORE, the Company and Executive in consideration of the
mutual covenants and agreements hereinafter set forth and other valuable
considerations, do hereby agree as follows:
1. Amendment of Section 1(c).
Section 1(c) of the Retirement Agreement is hereby amended
by adding the word "annual" immediately preceding the word
"anniversary" contained therein so that such Section now reads as follows:
(c) Payment Period means the time beginning on
the first day of the calendar month in which Executive or
his beneficiary(ies) first receives, or should receive, a
benefit payment under this Agreement and ending on the last
day of the calendar month immediately preceding the
fifteenth (15th) annual anniversary of the receipt of said
initial payment.
2. Substitution of New Schedules. The Retirement Agreement is hereby
amended by deleting Schedules A, B, C, D and E attached to the Retirement
Agreement in their entirety and substituting therefor Schedules A, B, C, D and E
attached hereto.
3. Ratification; Confirmation. Except as amended hereby, all the
terms and conditions of the Retirement Agreement shall remain in full force and
effect, and are hereby ratified and confirmed in all respects.
<PAGE>
4. Counterparts. This Amendment may be executed in any one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this First Amendment to
be executed and delivered as of the day and year first above set forth.
OAKWOOD HOMES CORPORATION
By: /s/ Nicholas J. St. George
-------------------------------
Nicholas J. St. George
Chairman and Chief
Executive Officer
(CORPORATE SEAL)
ATTEST:
/s/ Myles E. Standish
- ------------------------------
Secretary
/s/ J. Michael Stidham
-----------------------------(Seal)
J. Michael Stidham
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE A
RETIREMENT BENEFIT PAYMENT SCHEDULE
J. MICHAEL STIDHAM
- --------------------------------------------------------------------------------
AGE ON THE LAST DAY OF THE MONTH
IN WHICH RETIREMENT OCCURS MONTHLY BENEFIT
- ------------------------------------------------- ------------------------------
65 $26,300.42
64 23,482.51
63 20,966.53
62 18,720.12
61 16,714.39
60 14,923.56
- ------------------------------------------------- ------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE B
CHANGE OF CONTROL BENEFIT PAYMENT SCHEDULE
J. MICHAEL STIDHAM
- --------------------------------------------------------------------------------
AGE ON DATE OF TERMINATION MONTHLY BENEFIT
- --------------------------------------------- ----------------------------------
54 $1,492.36
53 $2,984.71
52 $4,477.07
51 $5,969.42
50 $7,461.78
PRIOR TO 50 $14,923.56
- --------------------------------------------- ----------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE C
DEATH BENEFIT PAYMENT SCHEDULE
J. MICHAEL STIDHAM
- --------------------------------------------------------------------------------
DEATH DURING THE YEAR
BEGINNING JANUARY 1, MONTHLY BENEFIT
- --------------------------------------------------------------------------------
2015 $26,300.42
2014 24,811.71
2013 23,407.28
2012 22,082.34
2011 20,832.39
2010 19,653.20
2009 18,540.76
2008 17,491.28
2007 16,501.21
2006 15,567.18
2005 14,686.02
2004 13,854.73
2003 13,070.50
2002 12,330.66
2001 11,632.70
2000 10,974.24
1999 10,353.06
1998 9,767.04
1997 9,214.19
1996 8,692.63
1995 8,200.59
1994 7,736.41
1993 7,298.60
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE D
TERMINATION WITHOUT CAUSE PAYMENT SCHEDULE
J. MICHAEL STIDHAM
- --------------------------------------------------------------------------------
AGE ON DATE OF TERMINATION MONTHLY BENEFIT
- ---------------------------------------------------- ---------------------------
65 $26,300.42
64 23,482.51
63 20,966.53
62 18,720.12
61 16,714.39
60 14,923.56
59 14,923.56
58 14,923.56
57 14,923.56
56 14,923.56
55 14,923.56
54 13,431.20
53 11,938.85
52 10,446.49
51 8,954.14
50 7,461.78
- ---------------------------------------------------- ---------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE E
APPROVED VOLUNTARY TERMINATION PAYMENT SCHEDULE
J. MICHAEL STIDHAM
- --------------------------------------------------------------------------------
AGE ON DATE OF TERMINATION MONTHLY BENEFIT
- ------------------------------------------- ------------------------------------
59 $14,923.56
58 14,923.56
57 14,923.56
56 14,923.56
55 14,923.56
54 13,431.20
53 11,938.85
52 10,446.49
51 8,954.14
50 7,461.78
- ------------------------------------------- ------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year ended September 30,
---------------------------------------------------------------------------
(in thousands, except per share data) 1998(1) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $1,404,432 $ 952,704 $ 862,079 $ 741,521 $ 595,127 $ 422,103
Total revenues $1,482,553 $1,070,051 $ 973,922 $ 821,412 $ 664,610 $ 483,736
Net income $ 55,353 $ 81,913 $ 68,255 $ 45,318 $ 35,655 $ 25,715
Earnings per common share
Basic $ 1.20 $ 1.79 $ 1.53 $ 1.03 $ 0.82 $ 0.65
Diluted $ 1.17 $ 1.75 $ 1.47 $ 0.99 $ 0.78 $ 0.59
Total assets $1,283,376 $ 904,506 $ 841,977 $ 782,640 $ 590,397 $ 596,950
Notes and bonds payable $ 61,875 $ 78,815 $ 134,379 $ 198,812 $ 207,990 $ 264,225
Cash dividends per common share $ 0.04 $ 0.04 $ 0.04 $ 0.04 $ 0.04 $ 0.04
</TABLE>
(1) Includes special charges of approximately $51.3 million, or $.67 per share,
after tax. See Note 4 to the consolidated financial statements.
(Bar chart appears here. See table below for plot points.)
NET SALES
(in millions)
'93 '94 '95 '96 '97 '98
422 595 742 862 953 1,404
5 year compound growth rate: 27%
(Bar chart appears here. See table below for plot points.)
NET INCOME
(in millions)
'93 '94 '95 '96 '97 '98
26 36 45 68 82 87
5 year compound growth rate, excluding special charges: 28%
(Bar chart appears here. See table below for plot points.)
DILUTED EPS
'93 '94 '95 '96 '97 '98
0.59 0.78 0.99 1.47 1.75 1.84
5 year compound growth rate, excluding special charges: 26%
(Bar chart appears here. See table below for plot points.)
SHAREHOLDERS' EQUITY
(in millions)
'93 '94 '95 '96 '97 '98
240 276 318 392 484 548
5 year compound growth rate: 18%
(Bar chart appears here. See table below for plot points.)
OPERATING CASH FLOWS
(in millions)
'93 '94 '95 '96 '97 '98
33 43 49 69 77 134
5 year compound growth rate: 32%
(Bar chart appears here. See table below for plot points.)
NEW HOMES SOLD AT RETAIL
(in thousands)
'93 '94 '95 '96 '97 '98
Total 9.8 13.0 16.7 20.1 22.1 26.1
Single-section 7.3 9.7 12.1 13.6 11.7 12.4
Multi-section 2.5 3.3 4.6 6.5 10.4 13.7
5 year compound growth rate: 22%
(Bar chart appears here. See table below for plot points.)
NUMBER OF SALES CENTERS
'93 '94 '95 '96 '97 '98
121 152 198 255 300 359
(Line chart appears here. See table below for plot points.)
CUMULATIVE GROWTH
'93 '94 '95 '96 '97 '98
Oakwood retail home sales 0 34 71 106 126 167
Industry shipments 0 19 34 48 45 49
1998 ANNUAL REPORT 1
<PAGE>
TO OUR SHAREHOLDERS
As the financial highlights on the preceding page reveal, 1998 was a bittersweet
year for Oakwood Homes. On a positive note, it was a year of significant
achievements in our retailing and manufacturing operations as we expanded our
capabilities dramatically. The year witnessed continued growth in our captive
retailing network as we extended our influence with consumers as the nation's
premier housing retailer. In addition, we comp leted our third major business
combination, a landmark $100 million acquisition of Schult Homes Corporation,
the oldest name in manufactured housing.
(Bar chart appears here. See table below for plot points.)
NET SALES
(in millions)
'93 '94 '95 '96 '97 '98
422 595 742 862 953 1,404
5 year compound growth rate: 27%
(Photo appears here with the following caption)
Nicholas J. St. George
Chairman and Chief Executive Officer
We also faced and met a key challenge in our financial services operation,
which was affected by special asset valuation charges against income related
primarily to loan securitizations. These special non-cash charges obscured the
real progress taking place elsewhere in the Company.
Financial Overview of 1998
Total revenues, which exceeded one billion dollars for the first time last year,
jumped 39% to $1.483 billion in 1998. This growth was propelled by both the
internal expansion of our retail network and the contribution of Schult Homes
following its acquisition on April 1.
Increased distribution through select independent dealers--largely reflecting
standing relationships with our new Schult Homes retailers--helped push total
sales up 47% to $1.404 billion. The other major component of revenues, financial
services income, declined 34% to $67.4 million due to the impact of special
charges totaling $51.3 million or $.67 per share, after tax. Before these
non-cash charges, financial services income rose 15% to a record $118.6 million
in 1998.
Net income totaled $55.4 million or $1.17 per diluted share for 1998, down
32% from earnings of $81.9 million or $1.75 per diluted share in 1997. Excluding
the special charges, net income rose to $87.2 million or $1.84 per diluted
share.
Finally, business generated cash flow was up sharply in 1998, totaling
approximately
1998 ANNUAL REPORT 2
<PAGE>
$134.2 million compared to $77.1 million in fiscal 1997.
Special Charges
We were disappointed to see Oakwood's consistent earnings growth interrupted in
1998. Oakwood has built a strong record, virtually unrivaled in our industry,
based on a strategy of complete vertical integration of all the steps necessary
to produce and deliver a quality product for our customers. For a decade, the
financial services element of this vertically integrated business model
contributed to steady profit growth for the Company and, more important,
provided a critical link in the overall selling process that synergistically
expanded our opportunities in retailing and manufacturing. However, the rapidly
changing economic and business environment required that we reassess the risks
of the consumer finance business.
The consumer finance business obtains substantially all its long-term
financing by securitizing the loans it originates. When Oakwood securitizes its
loans, it conveys ownership of the loans to a trust, which in turn issues debt
instruments secured by the loans. All of the cash generated from the loans is
the property of the trust, which uses that cash to pay principal and interest on
the debt, to pay Oakwood a fee to service the loans and, to the extent there is
cash remaining in the trust after absorbing credit losses, the trust pays this
residual cash flow to Oakwood.
"Total revenues, which exceeded one billion dollars for the first time last
year, jumped 39% to $1.483 billion in 1998."
Oakwood is required to estimate the amount and timing of this residual cash
flow when it securitizes loans, and to record an asset for the present value of
that estimate. Estimating residual cash flow necessarily involves making
assumptions about future events over the life of the transaction, which
typically is many years. Two important variables in the estimation process are
the amount and timing of credit losses and the rate at which customers
voluntarily prepay their loans. While these estimates are based, in part, on
historical patterns, changes in economic conditions, interest rates and the
competitive environment will inevitably cause the amount of residual cash flow
actually received to differ from amounts estimated.
(Bar chart appears here. See table below for plot points.)
OPERATING CASH FLOWS
(in millions)
'93 '94 '95 '96 '97 '98
33 43 49 69 77 134
5 year compound growth rate: 32%
1998 ANNUAL REPORT 3
<PAGE>
This year we and the mortgage and consumer finance industry experienced
higher voluntary loan prepayments and increased credit losses. The reasons for
the consumer's recent rush to refinance existing loans or purchase a "trade up"
home are apparent: interest rates are at historic lows and competition among
manufactured housing lenders for loan origination business is intense.
Consequentially, we increased our estimates of future credit losses and
prepayments, which resulted in special charges to write down residual interests
in certain loan securitizations. Notwithstanding the effects of special charges
on our results of operations, cash flow from securitized loans rose dramatically
in 1998. Total securitized cash flow, including servicing fees, rose 31% from
approximately $39 million in 1997 to over $51 million in 1998.
Consumer Finance Business Reaffirmed
We have long believed in the power of vertical integration, including the
consumer finance elements of our business. Nevertheless, the write-downs
compelled us to undertake, with ~the assistance of outside consultants, a
detailed study of our business model to look specifically at the operations of
our financial services subsidiary. We approached this review with no
predispositions, only the desire to reduce volatility in our financial services
earnings and to implement business strategies that provide the greatest benefit
for our shareholders. Through this introspective process, we became even more
convinced that our fundamental strategy of vertical integration represents the
best business model for the manufactured housing industry. It is the only model
that positions us to best compete in any business
(Bar chart appears here. See table below for plot points.)
LOAN ORIGINATIONS
(in millions)
'93 '94 '95 '96 '97 '98
212 344 487 721 884 1,236
5 year compound growth rate: 42%
(Photo appears here with the following caption.)
Fine architectural details, including a fireplace, skylights and arches,
heighten Oakwood's value in the minds of customers.
4 1998 ANNUAL REPORT
<PAGE>
"Our review and analysis reaffirmed that the availability and control of
financing are key aspects of completing the sale of our products."
- --------------------------------------------------------------------------------
environment. As the final link in the value chain, financial services remains a
key element in our growth strategy.
Specifically, our review and analysis reaffirmed that the availability and
control of financing are key aspects of completing the sale of our products,
clearly providing important support for our other integrated operations, as well
as competitive advantages. We also gain important access to capital, and, as a
result, avoid having to rely on outside finance companies who can exit the
business at any time, a trend we witnessed in the 1980s and that is beginning to
~occur again today. In addition, this business historically has been an
important contributor to our total profitability, and we expect it to be an
important contributor going forward.
Action Steps
We also recognized that Oakwood must work to reduce financial earnings
volatility that has recently plagued the consumer finance industry. To this end,
we have refined our
(Photo appears here with the following caption.)
With its emphasis on higher price point multi-section homes, including modular
homes and even two-story HUD code homes as seen above, Schult has expanded the
Company's product offerings.
(Bar chart appears here. See table below for plot points.)
SERVICING PORTFOLIO
(in millions)
'93 '94 '95 '96 '97 '98
538 843 1,201 1,745 2,547 3,573
1998 ANNUAL REPORT 5
<PAGE>
"1998 was truly a banner year for Oakwood as we continued to set the standard
for performance in the manufactured housing industry."
- --------------------------------------------------------------------------------
valuation and accounting assumptions to reflect today's rapidly changing
environment. Although we remain cautious regarding our expectations that current
market conditions will improve in the near future, we expect recognition of
lower gains ~at the time of the sale of loans and lower initial yields recorded
on residual interests. While this may shift the timing of income recognition to
future years when we have actual experience in loan performance, we believe this
approach will minimize the likelihood of future impairment of residual assets
and resulting special charges.
(Bar chart appears here. See table below for plot points.)
CUMULATIVE GROWTH
'93 '94 '95 '96 '97 '98
Oakwood retail home sales 0 34 71 106 126 167
Industry shipments 0 19 34 48 45 49
(Photo appears here with the following caption.)
Oakwood Homes is best positioned to fulfill customers' expectations for quality
and service, because we control all aspects of the manufacturing, retail and
finance processes.
6 1998 ANNUAL REPORT
<PAGE>
(Photo appears here with the following caption.)
Oakwood's homes are manufactured with amenities once thought possible only in
site-built homes.
Retail and Manufacturing Operations Post Strong Results
In our retail and manufacturing operations, 1998 was truly a banner year for
Oakwood as we continued to set the standard for performance in the manufactured
housing industry. This ongoing drive for excellence can be seen in the strength
of our network of sales centers, which continues to rank as the largest and most
powerful retailing force in the industry. With steady sales center expansion
during 1998, combined with strong same-store sales, Oakwood's retailing system
achieved continued market share gains. In manufacturing, we solidified our
position as the nation's third largest manufactured homebuilder, reflecting the
addition of 14 Schult Homes manufacturing facilities during the year and
continued growth within our existing plants. Never have our product lines been
more diverse, our market reach greater, and our potential for growth more
attractive.
Outstanding performances in retail and manufacturing produced significant
gross profit gains. Gross margin for 1998, excluding the effects of the Schult
acquisition, rose to 32.8% from 31.6% last year, and relentless execution of our
vertical integration strategy has widened our gross margin from 24.9% just five
years ago.
Record Retail Growth
The growth of our industry over the past several years reflects a number of
factors that will continue to benefit manufactured housing. Strong demographic
trends, along with the increasing affordability and value offered by
manufactured housing, are driving growth. Manufactured housing continues to gain
ground
(Bar chart appears here. See table below for plot points.)
GROWTH PROFIT MARGIN
'93 '94 '95 '96 '97 '98
24.9 25.8 26.7 29.3 31.6 30.7
1998 ANNUAL REPORT 7
<PAGE>
"Manufactured housing continues to gain ground on site-built homes in terms of
features, styling, quality, and consumer appeal."
- --------------------------------------------------------------------------------
on site-built homes in terms of features, styling, quality, and consumer appeal.
Against this favorable backdrop, the power of Oakwood's vertically
integrated model is readily apparent. Our 167% growth in retail unit sales over
the past five years is triple the growth rate of the industry. Our market share
gains reflect, more than any other aspect of Oakwood's integration strategy, our
efforts to expand and control our retail distribution. Such control allows us to
respond more quickly to the needs of our customers and remain attuned to the
kinds of homes and features desired. Captive retail distribution also allows us
to avoid reliance on thinly capitalized retailers who may not survive the next
economic downturn, while insulating us from much of the margin pressure to which
pure manufacturers are exposed.
The retail environment remains highly fragmented. While Oakwood is the
largest manufactured housing retailer in America, we control only about 8% of
retail distribution. Much of the remaining 92% is controlled by small
independent retailers. In this highly competitive market, we expect to achieve
continued gains in market share and to be opportunistic in consolidating
fragmented distribution systems. However, we will also remain disciplined, and
will only acquire retailers in the context of our long-term strategic plan and
only at reasonable prices.
Extending Our Lead
The growth of our retail operations in 1998 was excellent. Oakwood sold
more than 26,000 homes at retail, up 18% over the 22,000 homes sold in the
previous year. On the basis of floors sold, which equalizes our shipment data
for the significant shift in sales mix toward multi-section homes that began in
1997, Oakwood's retail sales units increased an even faster rate of 22%.
Several factors have enabled us to extend our lead in home retailing. We
have achieved strong same-store sales growth, reflecting both the ongoing
strength of end retail demand and the favorable impact of our new products.
Oakwood's same-store sales dollars increased 13% in 1998 as the Company
introduced four more editions of its Street of Dreams series, including the
Family Dream Home(TM),
(Bar chart appears here. See table below for plot points.)
NEW HOMES SOLD AT RETAIL
(in thousands)
'93 '94 '95 '96 '97 '98
Multi-section 9.8 13.0 16.7 20.1 22.1 26.1
Single-section PLEASE FILL IN
5 year compound growth rate: 22%
8 1998 ANNUAL REPORT
<PAGE>
(Photo appears here with the following caption.)
Increasing popularity is fueling demand for Oakwood's multi-section homes. These
higher end homes accounted for 52% of Oakwood's retail home sales in 1998, up
from 47% in 1997 and 32% in 1996.
- --------------------------------------------------------------------------------
a four bedroom home for growing families, and the Home Theater Dream Home(TM),
featuring a large screen television and home theater sound system. Each new home
targets specific market segments and packs specific features for increased
differentiation in the marketplace. The Street of Dreams program, the first of
its kind to be backed by a national ~advertising campaign, remains a key part of
our plan to strengthen the Oakwood brand image and build greater brand
awareness. Already, market research indicates that Oakwood enjoys higher name
recall than any other home brand.
We have continued to expand our retail network at a rapid pace, increasing
the number of locations by 59 in 1998
(Bar chart appears here. See table below for plot points.)
MULTI-SECTION SALES
(% of new retail home sales)
'93 '94 '95 '96 '97 '98
25 25 28 32 47 52
1998 ANNUAL REPORT 9
<PAGE>
"Our market share gains reflect, more than any other aspect of Oakwood's
integration strategy, our efforts to expand and control our retail
distribution."
- --------------------------------------------------------------------------------
and ending the year with a total of 359 retail centers. In 1999, our goal is to
add 60 to 65 new retail centers. Our expansion, almost threefold since 1993, has
focused on adding density to our existing markets, primarily in the Deep South
and in the Pacific Northwest. With our recent acquisition of Schult Homes, we
are also moving into Midwestern markets to leverage the manufacturing capacity
we gained through this acquisition.
Ongoing Gains In
Manufacturing
The final core element of our vertical integration strategy involves the control
of manufacturing--
(Bar chart appears here. See table below for plot points.)
NUMBER OF SALES CENTERS
'93 '94 '95 '96 '97 '98
121 152 198 255 300 359
(Photo appears here with the following caption.)
Advanced manufacturing technology and capabilities have expanded the types of
homes that can be built in a factory, allowing Oakwood to target more
traditional, site-built housing consumers.
10 1998 ANNUAL REPORT
<PAGE>
we want to build in our own factories substantially all the homes we sell at
retail. Similar to our control at retail, this command allows us to respond
quickly to changing consumer preferences and ensure consistent product quality
and a high level of after-sale customer service. Moreover, because we control
the ultimate distribution of our homes, we can also operate our manufacturing
plants at higher production levels year round to minimize the impact of business
seasonality. And, by linking our manufacturing capability to retail
distribution, we have achieved one of the shortest order/deliver lead times in
the industry, a huge competitive advantage over non-integrated competitors.
We have purposefully matched our manufacturing expansion to the needs of
our retail system. Since 1994, the Company has accelerated its growth through
three strategic acquisitions that added manufacturing clout in the Pacific
Northwest, the Deep South and the Midwest. Our acquisition of Schult Homes
typifies this strategic advantage, combining one of the strongest, fastest
growing companies in the industry with the oldest name in manufactured housing.
While extending our product line to include additional price points, more
high-end multi-section homes, and entry into modular housing, Schult
complemented our own retail system with over 600 loyal independent dealers. With
the opening of a new facility in Killeen, Texas in September 1998, Oakwood now
has a network of 32 manufacturing plants that will serve as the foundation for
retail expansion in target areas nationwide.
These strategic capacity additions have also allowed Oakwood to greatly
increase the percentage of homes built and sold through its retail system. In
1998, about 96% of the homes we sold at retail were built in our own factories.
Capacity increases have enabled us to respond meaningfully and swiftly to the
affluent customer's increasing interest in multi-section housing. Multi-section
homes, which accounted for just 25% of our retail sales in 1993, jumped to 47%
last year and increased
(Bar chart appears here. See table below for plot points.)
FLOORS PRODUCED
(in thousands)
'93 '94 '95 '96 '97 '98
21.7 27.6 31.1 35.0 40.4 56.2
5 year compound growth rate: 21%
"Since 1994, the Company has accelerated its growth through three strategic
acquisitions which added manufacturing clout in the Pacific Northwest, the Deep
South and the Midwest."
1998 ANNUAL REPORT 11
<PAGE>
again to 52% of retail shipments in 1998, with our Street of Dreams program
contributing to this beneficial shift in sales mix.
Maintaining Our Focus
Clearly, we are maintaining a sharp focus on the business drivers that will fuel
Oakwood's growth over the long-term and enable us to achieve the level of
performance that you, our shareholders, have come to expect. These include our
core competencies in retailing and manufacturing, arguably the strongest in ~our
industry, and the way we integrate and leverage these skills to expand market
share, increase sales and create profit opportunities that surpass those of our
competitors.
We faced difficult economic conditions in 1998 and emerged stronger and
smarter for the experience. Our strategic foundation is firmly grounded. We
remain driven to meet and surpass the competition in every step of the
manufacturing and retailing cycle. This Oakwood ~heritage, to be the very best,
continues to guide us as we work to build your trust and confidence in our
future performance and prospects. Thank you for your continued interest and
loyalty.
Sincerely yours,
/s/ N.J. St. George
Nicholas J. St. George
Chairman and
Chief Executive Officer
(Photo appears here with the following caption.)
Directors: (left to right, standing) Clarence W. Walker, Sabin C. Streeter,
Dennis I. Meyer, Kermit G. Phillips, II, William G. Edwards, Lanty L. Smith,
Roger W. Schipke; (seated) Francis T. Vincent, Jr., Nicholas J. St. George;
(not pictured H. Michael Weaver).
12 1998 ANNUAL REPORT
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Oakwood Homes Corporation
and Subsidiaries
RESULTS OF OPERATIONS
Fiscal 1998 represented the Company's twelfth consecutive year of record sales
and revenues. Total sales increased 47% to $1.4 billion from $953 million last
year, following an 11% increase in 1997 from the $862 million reported in 1996.
Total revenues rose 39% to $1.5 billion from $1.1 billion last year, compared to
$974 million reported for 1996.
Industry shipments grew in 1998 after a decline for the first time in five years
during 1997. According to industry sources, shipments of manufactured homes were
up approximately 5% for the first nine months of calendar 1998, following a 3%
decrease in calendar 1997. Oakwood's growth continued to far surpass the
industry, as new retail unit sales grew by 18% in fiscal 1998 and 10% in fiscal
1997.
The following table summarizes certain key sales statistics for each of the last
three fiscal years:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail sales (in millions) ............ $1,140.0 $ 858.4 $ 703.2
Other sales (in millions) ............. $ 264.4 $ 94.3 $ 158.9
Total sales (in millions) ............. $1,404.4 $ 952.7 $ 862.1
Gross profit %-
integrated operations .............. 33.7% 33.0% 31.8%
Gross profit %-
wholesale operations ............... 17.7% 19.0% 18.0%
New single-section homes
sold-retail ....................... 12,390 11,670 13,639
New multi-section homes
sold-retail ....................... 13,669 10,418
6,488
Used homes sold-retail ................ 2,349 2,155 1,908
New single-section homes
sold-wholesale .................... 1,638 539 1,334
New multi-section homes
sold-wholesale..................... 6,145 2,508 3,890
Average new single-section
sales price-retail ................ $ 31,400 $29,200 $27,700
Average new multi-section
sales price-retail ................ $ 53,300 $47,900 $47,900
Average new single-section
sales price-wholesale ............. $ 20,900 $15,500 $14,200
Average new multi-section
sales price-wholesale ............. $ 37,000 $31,900 $29,800
Weighted average retail
sales centers open during the year 330 278 227
Average dollar sales per
sales center (in millions) ........ $ 3.5 $ 3.1 $ 3.1
</TABLE>
1998 COMPARED TO 1997
NET SALES
Retail sales dollar volume increased 33%, reflecting an 18% increase in new unit
volume and increases of 8% and 11% in the average new unit sales prices of
single-section and multi-section homes, respectively. Average retail sales
prices rose due to price increases and a shift in product mix toward higher
price points. Single-section unit volume increased 6%, while multi-section unit
volume rose 31% from 1997. The Company believes the multi-section performance
reflects the addition of new homes to the Company's product line in response to
continuing consumer preference for multi-section homes.
During 1998 the Company opened or acquired 62 new sales centers compared to 49
sales centers during 1997. The Company also closed three underperforming sales
centers during the year compared to four in 1997. Total new retail sales dollars
at sales centers open more than one year increased 13% during 1998.
Other sales dollar volume, which consists principally of wholesale sales to
independent dealers by the Company's Destiny, Golden West and Schult
subsidiaries, increased 180%, due to an increase in wholesale unit volume
related to the acquisition of Schult on April 1, 1998 in a transaction accounted
for as a purchase. Schult sold 5,386 units, representing $185.9 million of
sales, to independent dealers subsequent to the acquisition. Excluding the
effects of the Schult acquisition, wholesale sales declined 17%, reflecting the
Company's strategy of changing the distribution of products produced by Golden
West and Destiny from non-exclusive independent dealers to Company-owned retail
sales centers. During 1998, 79% of Golden West's and Destiny's shipments were to
Oakwood sales centers, compared to 68% in 1997. The wholesale sales increase
also reflects increases in the average wholesale sales prices of single-section
homes and multi-section homes sold by Destiny and Golden West of 2% and 6%,
respectively. Schult's higher average price points caused the overall average
wholesale selling prices of single-section and multi-section homes to rise 35%
and 16%, respectively.
GROSS PROFIT
Gross profit margin--integrated operations reflects gross profit earned on all
sales at retail as well as the manufacturing gross profit on retail sales of
units manufactured by the Company.Gross profit margin--integrated operations
increased to 33.7 % in 1998 from 33.0 % in 1997. Approximately 96% of new homes
sold at retail were produced in Company-owned manufacturing plants in both 1998
and 1997.
Wholesale gross profit margins decreased as a result of the acquisition of
Schult, whose gross profit margins currently are lower than those of the
Company's other wholesale sales. The combined wholesale gross profit margin of
Golden West and Destiny increased over last year, principally due to improved
efficiencies.
FINANCIAL SERVICES INCOME
Financial services income for 1998 declined to $67.4 million from $1 million in
1 principally due to special charges of $51.3 million (approximately $31.8
million after tax, or $.67 per share), relating primarily to valuation
adjustments of certain retained interests in REMIC securitizations. Interest
income earned on loans held for investment and on loans held for sale prior to
securitization increased from $29.4 million during 1997 to $30.9 million in
1998. The increase reflects higher average outstanding balances of loans held
for sale prior to securitization due to increased origination volume.
1998 ANNUAL REPORT 13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont.)
Oakwood Homes Corporation
and Subsidiaries
This increase was partially offset by lower interest income on loans held for
investment, the principal balance of which is declining as these loans are
liquidated. Loan servicing fees increased from $21.5 million during 1997 to
$27.7 million this year, reflecting the increased size of the Company's
securitized loan servicing portfolio.
The Company finances its consumer lending activities primarily by securitizing
the loans it originates using Real Estate Mortgage Investment Conduits
("REMICs"), and accounts for loan securitizations under Statement of Financial
Accounting Standards No. 125, "Accounting for Transfer and Servicing of
Financial Assets and Extinguishments of Liabilities" ("FAS 125"). Under FAS 125
the Company allocates the sum of its basis in the loans conveyed to each REMIC
and the costs of forming the REMIC among the REMIC interests retained and the
REMIC interests sold to investors based upon the estimated fair values of such
interests. The Company's 50% owned consumer finance joint venture, Deutsche
Financial Capital ("DFC," an equity method investee), also has securitized its
separate loan originations and also applies the provisions of FAS 125.
REMIC interests retained by the Company include servicing assets and REMIC
residual interests. The Company estimates the fair value of retained REMIC
residual interests based, in part, upon default and prepayment assumptions which
management believes market participants would use for similar instruments. The
actual rate of voluntary prepayments and the amount and timing of credit losses
affect the Company's yield on retained REMIC residual interests and the fair
value of such interests in periods subsequent to the securitization; the actual
rate of voluntary prepayments and credit losses typically varies over the life
of each transaction and from transaction to transaction. If over time the
Company's actual experience is more favorable than that assumed, the Company's
yield on its REMIC residual interests will be enhanced. Similarly, if over time
the Company's actual experience is less favorable than that assumed, such yield
will be reduced or impairment of the residuals may result.
During 1998 the financial markets experienced a decline in interest rates and
continued increases in consumer bankruptcies. As a result, mortgage and consumer
finance businesses have suffered increased prepayments and credit losses. The
Company's loan portfolios were also impacted by these market factors. For the
year ended September 30, 1998, total credit losses on loans originated by the
Company, including losses relating to assets securitized by the Company, loans
held for investment, loans held for sale an loans sold with full or partial
recourse, amounted to approximately 1.52% of the average principal balance of
the related loans, compared to approximately 1.30% one year ago. Because losses
on repossessions are reflected in the loss ratio principally in the period
during which the repossessed property is disposed of, fluctuations in the number
of repossessed properties disposed of from period to period may cause variations
in the charge-off ratio.
At September 30, 1998 the delinquency rate on Company originated loans was 4.0
%, compared to 2.6% at September 30, 1997. Increased delinquency rates
ultimately may result in increased repossessions and foreclosures and an
increase in credit losses.
During 1998 the Company experienced a rise in the rate of voluntary prepayments
of loans in a number of its securitized loan pools. This higher rate of
voluntary prepayments, together with increased credit losses with respect to
certain pools of securitized loans, adversely affected the Company's ability to
recover the carrying value of its residual interests in such securitizations. As
a result, the Company recognized an indicated impairment of the Company's
investments in certain securitization residuals in the second and third quarters
totaling approximately $39.5 million.
In late 1996 the Company and an unrelated partner formed Deutsche Financial
Capital ("DFC"), a joint venture engaged in providing consumer financing to
customers of independent retailers of manufactured housing. The Company and its
partner each owned 50% of DFC. During 1998, because of intensified competitive
conditions in the manufactured housing lending industry, the Company agreed with
its joint venture partner to cease the Company's participation in DFC. In the
third quarter the Company recorded a special charge of approximately $4.3
million to reduce the carrying value of its investment in and advances to DFC
to their estimated net realizable values. Subsequent to September 30, 1998, the
Company and its joint venture partner each purchased from DFC approximately one
half of DFC's warehouse of unsecuritized loans, which enabled DFC to retire the
indebtedness incurred to finance the warehouse. As a result, DFC has
substantially been liquidated.
DFC had securitized approximately $390 million of loans originated since its
inception. Credit losses on these loans have been greater than those expected by
the Company or DFC. Because of higher credit losses, the Company increased its
credit loss assumptions with respect to those transactions, which resulted in an
indicated impairment of the residual interests. Accordingly, in the third
quarter, the Company recorded a special charge of approximately $7.5 million to
reduce the carrying value of those investments.
REMIC residual income decreased from $19.4 million in 1997 to $10.3 million in
1998, reflecting a decline in the average balance of residual interests
resulting from the writedowns of those investments during the year and, to a
lesser extent, lower yields on those investments arising from higher credit
losses.
Financial services income for 1998 and 1997 includes gains of approximately
$20.1 million, or $.26 per share, after tax, and $19.3 million, or $.25 per
share, after tax, respectively, from the sale of asset-backed securities.
Financial services income for 1998 also includes $34.0 million in insurance
revenues from the Company's captive reinsurance business which began operations
on June 1, 1997. This
14 1998 ANNUAL REPORT
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
subsidiary enables the Company to participate more fully in what management
believes to be the profitable income streams associated with the property and
casualty insurance and service contract business than was possible under the
commission-based insurance agency arrangement which preceded its formation. As
an insurance underwriter, the Company recognizes insurance premium revenues over
the life of the related policies as a component of financial services income,
with the associated claims expenses reflected in financial services operating
expenses. Previously, insurance commission revenue was reported upon the sale of
the policies by Oakwood's retail operations, and was included in other income.
Due to this fundamental change in the Company's business, earnings for insurance
operations are now spread over the lives of the policies rather than being
recognized in full when the policies were sold. Because reinsurance claims costs
are recorded as insured events occur, reinsurance underwriting risk may increase
the volatility of the Company's earnings, particularly with respect to property
and casualty reinsurance. The Company has purchased catastrophe reinsurance to
reduce its underwriting exposure to natural disasters. Prior to June 1, 1997,
insurance revenues related to the Company's credit life insurance underwriting
business which the Company has operated for many years and which was combined
with the property and casualty reinsurance subsidiary on October 1, 1997.
OTHER INCOME
The majority of the 26% decrease in other income reflects decreased insurance
commissions resulting from the formation of the reinsurance subsidiary and the
Company's exit from commission-based insurance agency arrangements. Insurance
commissions totaled $6.4 million in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to 24.3% of net sales for
the year ended September 30, 1998 compared to 24.8% of net sales last year.
Higher retail selling expenses were offset by lower selling, general and
administrative expenses as a percentage of sales at Schult. Excluding the
effects of the Schult acquisition, selling, general and administrative expenses
for 1998 were 26.1% of net sales compared to 24.8% of net sales last year, with
higher retail selling expenses accounting for the majority of the increase,
partially offset by decreased accruals for management compensation.
FINANCIAL SERVICES OPERATING EXPENSES
Financial services operating expenses rose 78% during 1998 due to the addition
of claims and other expenses related to the formation of the captive reinsurance
company. Exclusive of the captive reinsurance costs, financial services
operating expenses increased 19% over 1997 on a 26% increase in the average
number of loans serviced during the year and a 46% increase in total credit
application volume.
INTEREST EXPENSE
Financial services interest expense includes interest expense associated with
long-term debt secured by loans as well as interest expense associated with all
short-term line of credit borrowings. Financial services interest expense
increased 12% primarily due to a $5.2 million increase in interest expense
related to higher average outstanding balances on short-term lines of credit.
This increase was partially offset by lower interest expense on declining and
retired long-term debt balances.
Non-financial services interest expense rose from $3.3 million to $6.0
million due principally to interest costs related to the financing of the Schult
acquisition.
INCOME TAXES
The Company's effective income tax rate was 38.6% in 1998 compared to 38.5% in
1997. The Company currently expects its effective income tax rate to rise
modestly due to anticipated higher state income taxes arising from the Schult
acquisition.
1997 COMPARED TO 1996
NET SALES
Retail sales dollar volume increased 22%, reflecting a 10% increase in new unit
volume, a 5% increase in the average new single-section sales price and an
increase in the percentage of total retail new unit volume represented by
multi-section homes from 32% in 1996 to 47 % in 1997. Single-section unit volume
decreased 14%, while multi-section unit volume rose 61% from 1996. The average
retail sales price for new single-section homes increased primarily due to a
shift in product mix toward higher price points. In 1997 the Company opened or
acquired 49 new sales centers compared to 60 sales centers in 1996. The Company
also closed four underperforming sales centers during 1997 and three in 1996.
Total new retail sales dollars at sales centers open more than one year
increased 8 % during 1997.
Other sales dollar volume, which consists principally of wholesale sales to
independent dealers by the Company's Destiny and Golden West subsidiaries,
declined 41%, reflecting the Company's strategy of changing the distribution of
products produced by Golden West and Destiny from non-exclusive independent
dealers to Company-owned retail sales centers. During 1997, 68% of Golden West's
and Destiny's shipments were to Oakwood sales centers, compared to 34% in 1996.
GROSS PROFIT
Gross profit margin--integrated operations increased to 33.0% in 1997 from 31.8%
in 1996, reflecting higher operating levels and efficiencies at manufacturing
and greater internal sourcing of retail sales. Manufacturing production
increased 15% over 1996 and the percentage of new homes
1998 ANNUAL REPORT 15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont.)
Oakwood Homes Corporation
and Subsidiaries
sold at retail which were produced in Company-owned manufacturing plants
increased from approximately 90% in 1996 to approximately 96% in 1997.
Gross profit margin--wholesale operations increased to 19.0% in 1997 from
18.0% in 1996, reflecting higher operating levels and efficiencies at
manufacturing.
FINANCIAL SERVICES INCOME
Financial services income increased to $102.8 million from $92.3 million in
1996. Interest income earned on loans held for investment and on loans held for
sale prior to securitization decreased from $34.6 million in 1996 to $29.4
million in 1997. The decrease reflects the decline in the principal balance of
loans held for investment and loans held for sale, as well as a decrease in the
average yield on those assets as older, higher-yielding loans are liquidated.
Loan servicing fees increased from $15.9 million in 1996 to $21.5 million in
1997, reflecting the increased size of the Company's securitized loan servicing
portfolio. REMIC residual income increased from $16.2 million to $19.4 million,
reflecting an increase in the average balance of REMIC residual interests during
the year. This increase was partially offset by a decrease in the average yield
on those investments, arising principally from higher credit losses. Financial
services income for 1997 and 1996 includes gains of approximately $19.3 million,
or $.25 per share, after tax and $19.4 million, or $.26 per share, after tax,
respectively, from the sale of asset-backed securities. Fiscal 1996 also
included a non-recurring gain on a resecuritization transaction of $1.4 million,
or $.02 per share, after tax. Financial services income for 1997 also includes
$6.9 million in revenues from the Company's captive reinsurance underwriting
subsidiary which began operations on June 1, 1997. For the year ended September
30, 1997, total credit losses on loans originated by the Company, including
losses relating to securitized assets, loans held for investment, loans held for
sale and loans sold with full or partial recourse, amounted to approximately
1.30% of the average principal balance of the related loans, compared to
approximately 1.01% in fiscal 1996. The increase in net credit losses is due in
part to the industrywide trend toward lower down payments which began in 1994.
The higher loss ratio also reflects increased frequency of repossession in
addition to loss severity, and had the effect of reducing the yields on the
Company's retained interests in securitized assets.
OTHER INCOME
The majority of the 25% decrease in other income reflects decreased insurance
commissions resulting from the formation of the reinsurance subsidiary and the
Company's exit from commission-based insurance agency arrangements. An increase
in multi-section unit sales, with respect to which the Company's insurance
penetration rate is lower because of more competitive market conditions,
adversely affected commission income prior to formation of the reinsurance
business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses rose to 24.8% of net sales compared
to 24.6% of net sales in 1996. The increase in selling, general and
administrative expenses as a percentage of net sales was caused primarily by
higher selling expenses at retail and the integration of Destiny and Golden
West, whose general and administrative expenses are increasingly spread over the
Company's retail sales volumes as the Company reduces wholesale sales to
non-exclusive independent dealers. This was partially offset by a reduction in
accru als relating to long-term incentive compensation plans.
FINANCIAL SERVICES OPERATING EXPENSES
Financial services operating expenses rose 54% due to a 29% increase in the
average number of loans serviced during the year and an 18% increase in total
credit application volume, as well as the addition of claims and other expenses
related to the formation of the captive reinsurance company. Exclusive of the
captive reinsurance costs, financial services operating expenses rose $3.9
million or 21% over 1996.
INTEREST EXPENSE
Financial services interest expense includes interest expense associated with
long-term debt secured by loans and interest expense associated with short-term
line of credit borrowings used to fund the warehousing of loans prior to their
securitization. Financial services interest expense decreased 18% primarily due
to declining and retired long-term debt balances. This decrease was offset by a
$2.9 million increase in short-term interest expense related to higher average
outstanding balances, offset by lower weighted average interest rates on
short-term lines of credit.
Non-financial services interest expense rose from $2.2 million to $3.3
million due principally to interest costs related to new corporate office
facilities.
YEAR 2000 ISSUES
During 1997 the Company formed an ongoing project team to address the Year 2000
issue. The project has several phases, including assessment of the hardware and
software affected by the Year 2000 issue; identification of critical suppliers
and assessment of their state of readiness; conversion of existing processes,
hardware and software as required; testing of modified, existing and new
processes; implementation of Year 2000 compliant systems; and development and
implementation of contingency and business continuation plans as considered
necessary. The Company is also conducting ongoing awareness campaigns with key
vendors.
16 1998 ANNUAL REPORT
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
By December 31, 1998 management believes the assessment, conversion and testing
phases as they relate to the Company's hardware and software will be complete in
all material respects. Based upon the status of remediation undertaken to date,
the Company believes that substantially all significant internal system issues
associated with Year 2000 compliance will be resolved by the end of calendar
1998. In addition, communication and follow-up is ongoing with critical
suppliers whose system failures could potentially have a significant impact on
the Company's operations to verify their stage of Year 2000 readiness.
The costs incurred by the Company to date related to Year 2000 readiness,
which have been charged to expense, have not been material, and the Company does
not anticipate that the expected remaining costs will be material. While the
Company believes its efforts will provide reasonable assurance that material
disruptions will not occur, the potential for interruption still exists,
primarily related to the uncertainty which may surround the Year 2000 readiness
of third-party suppliers. The Company has not yet adopted any formal contingency
plan in the event its Year 2000 project is not completed on schedule. However,
if significant risks are identified, the Company intends to develop contingency
plans as deemed necessary at that time.
LIQUIDITY AND CAPITAL RESOURCES
Retail financing of sales of the Company's products is an integral part of the
Company's vertical integration strategy. Such financing consumes substantial
amounts of capital, which the Company has obtained principally by securitizing
such loans, primarily using REMICs. Since 1994, the Company generally has sold
to investors securities having a principal balance approximately equal to the
principal balance of the loans securitized, and accordingly has not been
required to seek the capital required to fund its finance business outside of
the asset-backed securities market.
Late in 1998, global economic conditions significantly reduced the
liquidity in the asset-backed securities market, and credit spreads over
treasurys demanded by purchasers of the Company's asset-backed securities rose
significantly. In addition, demand for the most deeply subordinated asset-backed
securities offered for sale by the Company has significantly decreased. Widening
credit spreads adversely affect the Company's permanent funding costs, and
adversely affect the Company's profitability if the Company is unable to
increase rates charged to customers to compensate for these higher costs.
Moreover, decreased demand for asset-backed securities could require the Company
to seek alternative sources of financing for the loans originated by the
consumer finance business.
In addition to the ongoing need for long-term capital to fund its
financing operations, the Company will require capital to execute its ongoing
expansion strategy. The Company estimates that its fiscal 1999 capital
expenditures will approximate $70 million, comprised principally of offices,
leasehold improvements and fixtures relating to retail expansion, computer
hardware and software associated with new and enhanced management information
systems and improvements to manufacturing facilities. In addition to capital
expenditures, the retail expansion will require an investment of approximately
$300,000 to $500,000 of working capital for each new sales center, or
approximately $31 million for fiscal 1999. Capital expenditures and working
capital requirements in later years are dependent upon the extent of expansion
undertaken in such years.
In recent years, the Company has financed internal growth of its retail
and manufacturing business principally using internally generated funds and
short-term lines of credit. In April 1998 the Company borrowed $100 million from
a commercial bank to finance the Schult acquisition, and subsequent to September
30, 1998 borrowed an additional $75 million to refinance its acquisition of
warehoused loans from the DFC joint venture. The aggregate $175 million of
indebtedness matures in March 1999. The Company intends to refinance the $100
million of Schult indebtedness by issuance of long-term debt, using the public
or private debt markets or the commercial bank market, and to repay the $75
million of indebtedness incurred subsequent to year end upon securitization of
the loans acquired from DFC. Depending on market conditions, the Company may
seek to raise additional long-term debt in order to reduce reliance on
short-term bank debt. The Company's senior long-term debt is rated BBB-, which
management believes enhances the Company's flexibility in obtaining both short
and long-term financing.
The Company has several credit facilities in place to provide for its
short-term liquidity needs. The Company has a $325 million credit facility with
a conduit commercial paper issuer to provide warehouse financing for loans prior
to securitization. The Company also has a $175 million revolving credit facility
with a group of banks which is available to fund additional working capital
needs, a $20 million cash management line of credit and $20 million of
uncommitted lines of credit.
MARKET RISK
Certain of the Company's financial instruments are subject to market risks,
including interest rate risk. The Company's financial instruments are not
currently subject to foreign currency risk or commodity price risk. The Company
has no financial instruments held for trading purposes.
The Company originates loans, most of which are at fixed rates of
interest, in the ordinary course of business and periodically securitizes them
to obtain permanent financing for such loan originations. Accordingly, the
Company's loans held for sale are exposed to risk from changes in interest rates
between the time loans are originated and the time at which the Company obtains
permanent financing, generally at fixed rates of interest, in the asset-backed
securities market. The Company attempts to manag this risk by minimizing the
1998 ANNUAL REPORT 17
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont.)
warehousing period of unsecuritized loans and from time to time hedging this
interest rate risk using derivative financial instruments. Loans held for sale
are excluded from the table below as they primarily represent recent
originations which will be securitized in fiscal 1999.
Loans held for investment also are subject to interest rate risk. The
Company currently does not originate any loans with the intention of holding
them for investment.
Retained regular REMIC interests are held as available for sale
securities; the value of these securities may change in response to, among other
things, changes in interest rates. Retained residual interests in REMIC
securitizations are valued as described in Note 4 to the consolidated financial
statements. The value of such residual assets may be influenced by, among other
things, changes in interest rates.
All of the Company's short-term borrowings bear interest at variable
rates. Accordingly, an increase in short-term interest rates would adversely
affect interest expense on short-term debt. In addition, certain of the
Company's notes and bonds payable bear interest at floating rates, and interest
expense on such obligations would be adversely affected by an increase in
short-term interest rates.
The following table sets forth the Company's financial instruments that
are sensitive to changes in interest rates at September 30, 1998.
<TABLE>
<CAPTION>
Weighted Assumed cash flows
average ------------------------------------------------------------
interest rate There- Fair
(dollar amounts in thousands) at year end(1) 1999 2000 2001 2002 2003 after Total value
-------------- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans held for investment(2)
Fixed rate loans...................13.3% $20,077 $15,971 $12,579 $9,782 $7,350 $10,346 $76,105 $58,275
Variable rate loans................ 9.3% 2,700 2,159 1,715 1,351 1,055 2,228 11,208 7,579
Retained REMIC interests
Regular interests(3)............... 8.7% 1,692 1,877 8,525 1,647 2,267 22,738 38,746 22,822
Residual interests.................16.3% 19,888 10,576 17,706 3,053 15,986 20,041 87,250 53,619
</TABLE>
(1) For REMIC residual interests represents the weighted average interest rate
used to discount assumed cash flows.
(2) Assumed cash flows represent contractual cash flows reduced by the effects
of estimated prepayments.
(3) Assumed cash flows reflect the assumed prepayment rates used in estimating
the fair values of the related residual interests.
<TABLE>
<CAPTION>
Weighted
average Maturities
interest rate -------------------------------------------------------------
at year end There- Fair
(dollar amounts in thousands) -------------- 1999 2000 2001 2002 2003 after Total value
---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term borrowings............... 6.1% $375,023 $ -- $ -- $ -- $ -- $ -- $375,023 $375,023
Notes and bonds payable
Fixed rate....................... 9.3% 9,454 7,010 3,837 17,228 60 343 37,932 38,342
Variable rate.................... 5.9% 8,858 7,676 2,470 650 619 3,670 23,943 23,943
</TABLE>
NEW ACCOUNTING STANDARDS
In June 1997 the Financial Accounting Standards Board (the "Board") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("FAS 130"), and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"). FAS 130 requires that changes in the amounts of comprehensive income
items, currently reported as separate components of equity, be shown in a
financial statement, displayed as prominently as other financial statements. FAS
131 establishes new standards for business segment reporting, which will require
reporting of business segment information that is more comprehensive than that
currently reported in the financial statements. Both statements will be adopted
by the Company in fiscal 1999. The Company does not expect adoption of either
statement to have a material impact on the Company's financial condition or
results of operations.
In June 1998 the Board adopted Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"), which establishes accounting and reporting standards for derivative
instruments and hedging activities. FAS 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The Company currently is
evaluating the potential effect of FAS 133 on its financial statements.
In October 1998 the Board adopted Statement of Financial Accounting
Standards No. 134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise"
("FAS 134"), which amends existing classification and accounting treatment of
mortgage-backed securities retained after mortgage loans held for sale are
securitized, for entities engaged in mortgage banking activities. FAS 134 is
effective for the first fiscal quarter beginning after December 15, 1998. The
Company does not expect adoption of FAS 134 to have a material effect on its
financial position or results of operations.
18 1998 ANNUAL REPORT
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year ended September 30,
------------------------------------
(in thousands except per share data) 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Net sales.........................................$1,404,432 $ 952,704 $862,079
Financial services income, net of special
charges of $51,300 in 1998...................... 67,359 102,778 92,346
Other income...................................... 10,762 14,569 19,497
------------------------------------
Total revenue................................. 1,482,553 1,070,051 973,922
------------------------------------
Costs and expenses
Cost of sales..................................... 973,434 651,400 609,303
Selling, general and administrative expenses...... 341,441 236,586 211,759
Financial services operating expenses............. 51,758 29,056 18,810
Provision for losses on credit sales.............. 1,281 -- 1,000
Interest expense
Financial services.............................. 18,579 16,543 20,149
Non-financial services.......................... 5,970 3,274 2,221
------------------------------------
Total costs and expenses...................... 1,392,463 936,859 863,242
------------------------------------
Income before income taxes.......................... 90,090 133,192 110,680
Provision for income taxes.......................... 34,737 51,279 42,425
------------------------------------
Net income..........................................$ 55,353 $ 81,913 $ 68,255
------------------------------------
Earnings per share
Basic.............................................$ 1.20 $ 1.79 $ 1.53
------------------------------------
Diluted...........................................$ 1.17 $ 1.75 $ 1.47
------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
1998 ANNUAL REPORT 19
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
---------------------
(in thousands except share and per share data) 1998 1997
---------- --------
<S> <C> <C>
Assets
Cash and cash equivalents.......................................$ 28,971 $ 28,717
Loans and investments........................................... 502,583 428,034
Other receivables............................................... 58,774 34,046
Inventories..................................................... 291,352 208,298
Properties and facilities, net of accumulated depreciation
and amortization.............................................. 237,726 139,702
Deferred income taxes........................................... 14,850 12,994
Other assets.................................................... 149,120 52,715
---------- --------
$1,283,376 $904,506
========== ========
Liabilities and shareholders' equity............................$ 375,023 $175,800
Short-term borrowings........................................... 61,875 78,815
Notes and bonds payable......................................... 226,867 122,162
Accounts payable and accrued liabilities........................ 57,419 30,535
Insurance reserves and unearned premiums........................ 14,517 13,312
Other long-term obligations.....................................
Shareholders' equity
Common stock, $.50 par value; 100,000,000 shares authorized;
46,660,000 and 46,299,000 shares issued and outstanding....... 23,330 23,149
Additional paid-in capital.................................... 167,592 159,281
Retained earnings............................................. 360,025 306,533
---------- --------
Unearned compensation......................................... 550,947 488,963
Total shareholders' equity.................................. (3,272) (5,081)
---------- --------
Commitments and contingencies (Notes 4, 10 and 17).............. 547,675 483,882
---------- --------
$1,283,376 $904,506
========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 1998 ANNUAL REPORT
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended September 30,
------------------------------------------
(in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income.................................................................. $ 55,353 $ 81,913 $ 68,255
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization............................................. 24,950 14,325 10,461
Deferred income taxes..................................................... (4,406) (3,320) 5,872
Provision for losses on credit sales ..................................... 1,281 -- 1,000
Gain on sale of loans .................................................... (20,058) (19,255) (19,358)
Special charges .......................................................... 51,300 -- --
Excess of cash receipts over REMIC residual income recognized ............ 19,934 2,535 1,678
Other .................................................................... 5,854 923 720
Changes in assets and liabilities, net of effect of business acquisition
Other receivables ...................................................... (5,414) 7,631 (40,826)
Inventories ............................................................ (62,705) (52,408) (4,700)
Prepaid expenses ....................................................... 344 (4,007) (489)
Deferred insurance policy acquisition costs ............................ (4,260) (6,614) (841)
Accounts payable and accrued liabilities ............................... 48,621 (39,872) 58,105
Insurance reserves and unearned premiums ............................... 26,884 25,001 2,024
Other long-term obligations ............................................ 8,968 3,742 94
-------------------------------------------
Cash provided by operations .............................................. 146,646 10,594 81,995
Loans originated ............................................................. (1,236,436) (883,633) (721,414)
Purchase of loans and securities ............................................. (5,045) (2,636) (1,465)
Sale of loans ................................................................ 1,061,517 913,004 699,552
Principal receipts on loans .................................................. 53,048 34,056 15,651
-------------------------------------------
Cash provided by operating activities ...................................... 19,730 71,385 74,319
-------------------------------------------
Investing activities
Business acquisition ....................................................... (101,829) -- --
Acquisition of properties and facilities ................................... (51,411) (38,402) (41,303)
Investment in and advances to joint venture ................................ (24,454) (5,051) (3,000)
Sale of securities ......................................................... -- -- 21,655
Other ...................................................................... (20,797) (9,607) 22,857
-------------------------------------------
Cash provided (used) by investing activities ............................. (198,491) (53,060) 209
-------------------------------------------
Financing activities
Net borrowings (repayments) on short-term credit facilities................. 94,223 30,294 (8,894)
Proceeds from borrowings related to business acquisition ................... 100,000 -- --
Issuance of notes and bonds payable ........................................ 4,472 -- 1,686
Payments on notes and bonds ................................................ (22,540) (55,084) (49,043)
Cash dividends ............................................................. (1,861) (1,840) (1,795)
Proceeds from exercise of stock options .................................... 4,721 8,445 5,906
-------------------------------------------
Cash provided (used) by financing activities ............................. 179,015 (18,185) (52,140)
-------------------------------------------
Net increase in cash and cash equivalents .................................... 254 140 22,388
Cash and cash equivalents
Beginning of year .......................................................... 28,717 28,577 6,189
-------------------------------------------
End of year ................................................................ $ 28,971 $ 28,717 $ 28,577
-------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
1998 ANNUAL REPORT 21
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Additional
shares Common paid-in Retained Unearned
(in thousands except per share data) outstanding stock capital earnings compensation
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1995 ............. 22,171 $ 11,086 $ 149,482 $ 160,000 $ (2,160)
Net income ............................ -- -- -- 68,255 --
Exercise of stock options ............. 730 365 5,541 -- --
Issuance of restricted stock .......... 200 100 5,325 -- (5,118)
ESOP shares committed to be released .. -- -- 413 -- 480
Cash dividends ($.04 per share) ....... -- -- -- (1,795) --
2-for-1 stock split ................... 22,520 11,260 (11,260) -- --
------------------------------------------------------------
Balance at September 30, 1996 ............. 45,621 22,811 149,501 226,460 (6,798)
Net income ............................ -- -- -- 81,913 --
Exercise of stock options ............. 634 316 8,129 -- --
Issuance of restricted stock .......... 44 22 1,181 -- (824)
Amortization of unearned compensation . -- -- -- -- 2,061
ESOP shares committed to be released .. -- -- 470 -- 480
Cash dividends ($.04 per share) ....... -- -- -- (1,840) --
------------------------------------------------------------
Balance at September 30, 1997 ............. 46,299 23,149 159,281 306,533 (5,081)
Net income ............................ -- -- -- 55,353 --
Exercise of stock options ............. 352 176 4,545 -- --
Issuance of restricted stock .......... 9 5 278 -- (188)
Amortization of unearned compensation . -- -- -- -- 1,517
ESOP shares committed to be released .. -- -- 614 -- 480
Stock options issued in connection with
business acquisition ................ -- -- 2,874 -- --
Cash dividends ($.04 per share) ....... -- -- -- (1,861) --
------------------------------------------------------------
Balance at September 30, 1998 ............. 46,660 $ 23,330 $ 167,592 $ 360,025 $ (3,272)
============================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
22 1998 ANNUAL REPORT
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--Summary of significant accounting policies
Principles of consolidation
The consolidated financial statements include the accounts of Oakwood Homes
Corporation and its subsidiaries (collectively, the "Company"). All significant
intercompany transactions and balances have been eliminated in consolidation.
Retail financing
A substantial majority of the Company's retail customers purchase homes on
credit. The related loans are evidenced by either installment sale contracts or
mortgages originated by the Company's finance subsidiary, Oakwood Acceptance
Corporation, or, to a much lesser extent, by third party financial institutions.
The Company finances its lending activities primarily by securitizing the
loans it originates using Real Estate Mortgage Investment Conduits ("REMICs")
or, for certain FHA-insured loans, using collateralized mortgage obligations
issued under authority granted to the Company by the Government National
Mortgage Association ("GNMA").
Effective January 1, 1997 the Company adopted prospectively Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" ("FAS 125"), which
modified in certain respects the Company's accounting policies for sales of
receivables. Under FAS 125, the Company allocates the sum of its basis in the
loans conveyed to each REMIC and the costs of forming the REMIC among the REMIC
interests retained and the REMIC interests sold to investors based upon the
relative estimated fair values of such interests. This practice is the same as
that employed by the Company prior to adoption of FAS 125.
In addition to the retained REMIC residual interests recognized by the Company
prior to January 1, 1997, FAS 125 requires recognition as a retained REMIC
interest of the estimated fair value of the servicing contract entered into by
the Company in connection with each securitization. Recognition of such
servicing assets has the effect of increasing the gain recorded on the Company's
securitizations. Further, FAS 125 requires recognition, as a reduction in the
sales price of REMIC interests sold, of the estimated fair value of any
guarantee made by the Company of payment of principal or interest on REMIC
interests sold. Recognition of the fair value of such guarantees, which was not
required prior to adoption of FAS 125, has the effect of decreasing the gain
recorded on the Company's securitizations.
Servicing assets are amortized in proportion to and over the period of
estimated net servicing income. Guarantee liabilities are amortized to income
over the period during which the guarantee is outstanding.
Adoption of FAS 125 had no material effect on the Company's financial position
or results of operations.
REMIC interests retained by the Company following securitization are
considered available for sale and are carried at their amortized cost which
approximates fair value. The Company has no securities held for trading
purposes.
Loans held for investment are carried at their outstanding principal amounts,
less unamortized discounts plus unamortized premiums. Loans held for sale are
carried at the lower of cost or market.
Revenue recognition--manufactured housing
The Company records a retail sale upon passage of title to the home to the
customer and, in the case of credit sales, upon execution of the loan agreement
and other required documentation and receipt of a designated minimum down
payment. Homes sold to independent dealers are manufactured to order; the
Company recognizes a sale upon completion and transfer of title to the home.
Prior to the formation of the Company's property and casualty and service
contract reinsurance underwriting subsidiary on June 1, 1997, the Company acted
as a sales agent for unrelated insurance companies and received an agent's
commission on sales of insurance policies issued by those insurance companies.
Insurance commissions were included in other income and totaled approximately
$6.4 million and $11.2 million in 1997 and 1996, respectively.
Revenue recognition--financial services
Interest income on loans is recognized in accordance with the terms of the loans
(principally 30 day accrual). The Company retains servicing rights for
substantially all loans it originates, except for loans sold without recourse.
Servicing fee income is recognized as earned. Income on retained REMIC
interests, net of associated credit losses, is recorded as earned using the
level yield method over the period such interests are outstanding.
The Company periodically purchases portfolios of loans. The Company adds to
the reserve for credit losses an estimate of future credit losses on such loans
and includes such amount as a component of the purchase price of the acquired
portfolios. The difference between the aggregate purchase price of the acquired
portfolios and the aggregate principal balance of the loans included therein,
representing discount or premium on the loans, is amortized to income over the
life of the loans using the level yield method.
On June 1, 1997 the Company formed a captive reinsurance underwriting
subsidiary, domiciled in Bermuda, for property and casualty and credit life
insurance and service contract business. Premiums from reinsured insurance
policies are deferred and recognized as revenue over the term of the contracts,
generally ranging from one to five years. Claims expenses are recorded as
insured events occur. Policy acquisition costs are deferred and amortized over
the terms of the contracts.
1998 ANNUAL REPORT 23
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
Interest rate risk management
The Company periodically enters into off-balance sheet financial agreements,
principally forward contracts to enter into interest rate swaps and options on
such contracts, in order to hedge the sales price of REMIC interests to be sold
in securitization transactions. The net settlement proceeds or cost from
termination of the agreements is included in the determination of gain or loss
on the sale of the REMIC interests.
Inventories
Inventories are valued at the lower of cost or market, with cost determined
using the specific identification method for new and used manufactured homes and
the first-in, first-out method for all other items.
Properties and facilities
Properties and facilities are carried at cost less accumulated depreciation and
amortization. The Company provides depreciation and amortization using
principally the straight-line method over the assets' estimated useful lives,
which are as follows:
Estimated
Classification useful lives
- --------------------------------------------------------------------------------
Land improvements......................3-20 years
Buildings and field sales offices......5-39 years
Furniture, fixtures and equipment......3-12 years
Leasehold improvements.................1-10 years
Goodwill
Goodwill represents the excess of cost over the fair value of net assets of
businesses acquired and is amortized on a straight-line basis over periods
ranging from approximately 7 years for retail sales center acquisitions to 40
years for manufacturing facilities.
Income taxes
The Company accounts for deferred income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are based on the
temporary differences between the financial reporting basis and tax basis of the
Company's assets and liabilities at enacted tax rates expected to be in effect
when such amounts are realized or settled.
Reserve for credit losses
The Company maintains reserves for estimated credit losses
on loans held for investment, on loans warehoused prior to securitization and on
loans sold to third parties with full or limited recourse. The Company provides
for losses in amounts necessary to maintain the reserves at amounts the Company
believes are sufficient to provide for future losses based upon the Company's
historical loss experience, current economic conditions and an assessment of
current portfolio performance measures.
Stock-based compensation
The Company accounts for stock-based compensation plans under the provisions of
Accounting Principles Board Opinion No. 25 ("APB 25").
Cash and cash equivalents
Short-term investments having initial maturities of three months or less are
considered cash equivalents.
Use of estimates in the preparation of
financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain amounts previously reported for 1997 and 1996 have been reclassified to
conform to classifications used in 1998.
NOTE 2--Acquisition
On April 1, 1998 the Company acquired Schult Homes Corporation ("Schult"), a
producer of manufactured and modular housing headquartered in Middlebury,
Indiana. Each outstanding common share of Schult was converted into the right to
receive $22.50 in cash, or approximately $101 million in the aggregate. In
addition, the Company issued options to acquire common stock of the Company in
exchange for certain options to acquire common shares of Schult which were
outstanding as of the acquisition date. The estimated fair market value of
Company stock options issued was approximately $2.9 million, which has been
included as part of the cost of the acquisition, together with costs incurred in
effecting the acquisition of approximately $750,000. The Company financed the
acquisition principally through a $100 million loan from a commercial bank
repayable not later than March 30, 1999. The Company intends to refinance the
acquisition financing using long-term debt.
The acquisition has been accounted for using the purchase method of
accounting. A summary of the consideration paid in
24 1998 ANNUAL REPORT
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
the acquisition and the allocation thereof to the net assets acquired is as
follows:
(in thousands)
- ---------------------------------------------------------------
Cash paid to selling shareholders ................. $ 101,079
Acquisition costs ................................. 750
Estimated fair value of stock options issued ...... 2,874
---------
Total consideration issued ...................... 104,703
Long-term debt assumed ............................ 1,608
Deferred income taxes ............................. 2,550
---------
$ 108,861
=========
Allocated to:
Properties and facilities ....................... $ 66,794
Working capital and other assets and liabilities,
excluding intangibles ......................... (15,585)
Intangible assets:
Assembled workforce (amortized using the
straight-line method over five years) ....... 5,562
Dealer distribution network (amortized using
the straight-line method over five years) ... 6,000
Goodwill (amortized using the straight-line
method over 40 years) ....................... 46,090
---------
$ 108,861
=========
Schult's results of operations are included with those of the Company from the
April 1, 1998 acquisition date.
Summarized below is unaudited pro forma financial data of the Company assuming
the Schult acquisition had taken place at the beginning of the fiscal years
presented. The pro forma results are not necessarily indicative of future
earnings or earnings that would have been reported had the acquisition been
completed when assumed.
(in thousands, except per share data) 1998 1997
- --------------------------------------------------------------------------------
(unaudited)
Net sales ................................ $1,572,579 $1,296,582
Net income ............................... $ 52,431 $ 82,918
Earnings per share--diluted .............. $ 1.11 $ 1.77
NOTE 3--Financial services businesses
The Company's financial services businesses are as follows: Oakwood Acceptance
Corporation ("Oakwood Acceptance") purchases a substantial portion of the loans
originated by the Company's retail operations. Oakwood Acceptance also purchases
loans from unrelated retailers and from time to time purchases portfolios of
loans from third parties. Oakwood Acceptance retains servicing on substantially
all loans held for investment or securitized by Oakwood Acceptance or its
subsidiary, Oakwood Mortgage Investors, Inc. Oakwood Funding Corporation
("Oakwood Funding") is a special-purpose subsidiary of Oakwood Acceptance which
has issued non-recourse notes secured by specific pools of loans. Oakwood
Acceptance has from time to time also issued notes in its own name secured by
loans. Oakwood Financial Corporation is a subsidiary of Oakwood Homes
Corporation which holds the Company's retained interests in REMIC trusts.
Tarheel Insurance Company, Ltd. ("Tarheel") reinsures risk on property and
casualty and credit life insurance policies and extended service contracts
written by an unrelated insurance company in connection with sales of Company
products. On October 1, 1997 the Company dissolved Oakwood Life Ltd., its credit
life reinsurance subsidiary, after transferring its assets and liabilities to
Tarheel.
During the year ended September 30, 1998 the Company decided to cease its
participation in Deutsche Financial Capital ("DFC"), a 50% owned joint venture
engaged in providing consumer financing to customers of independent retail
dealers of manufactured housing, and recorded a provision of approximately $4.3
million to reduce the carrying value of the investment in and advances to the
joint venture to their estimated net realizable values.
The aggregate principal balance of loans sold to third parties, including
securitization transactions, was approximately $1.1 billion, $922 million and
$721 million in 1998, 1997 and 1996, respectively.
Oakwood Acceptance's servicing portfolio totaled approximately $3.6 billion
and $2.5 billion at September 30, 1998 and 1997, respectively, of which
approximately $3.0 billion and $2.1 billion, respectively, represented loans
owned by REMIC trusts and other loans sold to third parties.
Condensed financial information for the Company's financial services
businesses is set forth below:
(in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Statement of income
Revenues
Consumer finance
Interest income ............ $ 30,918 $ 29,351 $ 34,569
Servicing fees ............. 27,662 21,479 15,857
REMIC residual income ...... 10,282 19,444 16,193
Gain on sale of loans
and securities ........... 20,058 19,255 19,358
Special charges ............ (51,300) -- --
Other ...................... (4,226) 2,187 3,085
-----------------------------------
Total consumer
finance revenues ..... 33,394 91,716 89,062
-----------------------------------
Insurance
Premium revenues ........... 33,435 10,549 3,132
Investment income .......... 2,515 648 287
Less: intercompany
interest income .......... (1,985) (135) (135)
-----------------------------------
Total insurance revenues 33,965 11,062 3,284
-----------------------------------
Total revenues ....... 67,359 102,778 92,346
-----------------------------------
Cost and expenses
Consumer finance
Interest expense ........... 18,579 16,543 20,149
Operating expenses ......... 24,204 20,364 16,792
Provision for credit losses 1,281 -- 1,000
-----------------------------------
Total consumer finance
costs and expenses ... 44,064 36,907 37,941
-----------------------------------
Insurance
Claims expense ............. 18,546 5,037 514
Commissions and
ceding fees .............. 8,063 3,431 1,367
Other ...................... 945 224 137
-----------------------------------
Total insurance costs
and expenses ......... 27,554 8,692 2,018
-----------------------------------
Total costs
and expenses ..... 71,618 45,599 39,959
-----------------------------------
Income (loss) before
income taxes ............... $ (4,259) $ 57,179 $ 52,387
===================================
25 1998 ANNUAL REPORT
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(in thousands) 1998 1997
- -------------------------------------------------------------
Balance sheet
Loans .................................. $424,231 $328,119
REMIC regular interests ................ 22,822 9,724
REMIC residual interests ............... 53,619 84,228
Loan servicing assets .................. 9,261 3,786
Investment in and advances to
joint venture ........................ 17,823 6,443
Other assets ........................... 74,182 54,533
-------------------
Total assets ....................... $601,938 $486,833
===================
Short-term borrowings .................. $174,200 $ 84,800
Notes payable secured by loans ......... 30,881 48,359
Insurance reserves and unearned premiums 57,419 30,535
Due to affiliates ...................... 154,511 164,621
Other liabilities ...................... 15,574 3,304
Parent company's investment ............ 169,353 155,214
-------------------
Total liabilities and parent
company's investment ............. $601,938 $486,833
===================
Condensed financial information for Oakwood Homes Corporation with its
financial services businesses accounted for using the equity method is as
follows:
(in thousands) 1998 1997 1996
- --------------------------------------------------------------------
Statement of income
Revenues
Net sales ............. $ 1,404,432 $ 952,704 $ 862,079
Equity in income (loss)
of financial services
businesses .......... (4,259) 57,179 52,387
Other income .......... 10,762 14,569 19,971
----------------------------------------
Total revenues .... 1,410,935 1,024,452 934,437
----------------------------------------
Costs and expenses
Cost of sales ......... 973,434 651,400 609,303
Selling, general and
administrative
expenses ............ 341,441 236,586 212,233
Interest expense ...... 5,970 3,274 2,221
----------------------------------------
Total costs
and expenses .... 1,320,845 891,260 823,757
----------------------------------------
Income before
income taxes .......... 90,090 133,192 110,680
Provision for
income taxes .......... 34,737 51,279 42,425
----------------------------------------
Net income .............. $55,353 $ 81,913 $ 68,255
========================================
(in thousands) 1998 1997
- -----------------------------------------------------------------
Balance sheet
Current assets
Cash and cash equivalents .......... $ 24,769 $ 27,715
Receivables ........................ 33,431 18,093
Receivable from financial
services businesses .............. 20,955 3,500
Inventories ........................ 291,352 208,298
Prepaid expenses ................... 6,491 5,857
------------------------
Total current assets ........... 376,998 263,463
Properties and facilities ............ 232,175 136,065
Investment in and advances to
financial services businesses ...... 302,909 316,335
Other assets ......................... 93,220 21,645
------------------------
$1,005,302 $ 737,508
========================
Current liabilities
Short-term borrowings .............. $ 200,823 $ 91,000
Current maturities of long-term debt 1,830 5,524
Accounts payable and
accrued liabilities .............. 211,293 118,858
------------------------
Total current liabilities ...... 413,946 215,382
Long-term debt ....................... 29,164 24,932
Other long-term obligations .......... 14,517 13,312
Shareholders' equity ................. 547,675 483,882
------------------------
$1,005,302 $ 737,508
========================
NOTE 4--Loans and investments
The components of loans and investments are as follows:
(in thousands) 1998 1997
- -------------------------------------------------------------
Loans held for sale ................ $ 365,126 $ 255,944
Loans held for investment .......... 62,669 81,214
Less: reserve for
uncollectible receivables ........ (1,653) (3,076)
----------------------
Total loans ................ 426,142 334,082
----------------------
Retained interests in REMIC
securitizations (exclusive of loan
servicing assets included in
other assets)
Regular interests, at amortized
cost which approximates
fair value ................... 22,822 9,724
Residual interests, at amortized
cost which approximates
fair value ................... 53,619 84,228
----------------------
Total retained
REMIC interests .......... 76,441 93,952
----------------------
$ 502,583 $ 428,034
======================
26 1998 ANNUAL REPORT
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
The estimated principal receipts, including estimated prepayments, on loans
held for investment are $15.5 million in 1999, $12.7 million in 2000, $10.4
million in 2001, $8.5 million in 2002, $6.7 million in 2003 and the balance
thereafter.
Loans in which the Company retains an interest, either directly by owning them
or indirectly through the Company's retained interests in REMIC securitizations,
are located in over forty states, with North Carolina, Texas, South Carolina and
Virginia accounting for the majority of the loans. Because of the nature of the
Company's retail business, loans are not concentrated with any single customer
or among any group of customers.
Substantially all the loans included in the Company's GNMA securitizations are
covered by FHA insurance which generally limits the Company's risk to 10% of
credit losses incurred on such loans. The Company's credit risk associated with
nonrecourse debt secured by loans is limited to the Company's equity in the
underlying collateral. The Company retains all of the credit risk associated
with loans used to secure debt issued by the Company and with respect to which
creditors have recourse to the general credit of the Company in addition to the
collateral for the indebtedness. The Company's contingent liability as guarantor
of loans sold to third parties on a recourse basis was approximately $42 million
and $58 million as of September 30, 1998 and 1997, respectively.
The following table summarizes the transactions reflected in the reserve for
credit losses:
(in thousands) 1998 1997 1996
- -----------------------------------------------------------------------
Balance at beginning of year ....... $ 4,277 $ 8,261 $ 11,795
Provision for losses on credit sales 1,281 -- 1,000
Losses charged to the reserve ...... (3,491) (3,984) (4,534)
--------------------------------
Balance at end of year ............. $ 2,067 $ 4,277 $ 8,261
================================
The reserve for credit losses is reflected in the consolidated balance sheet
as follows:
(in thousands) 1998 1997
- -----------------------------------------------------------------
Reserve for uncollectible receivables
(included in loans and investments) ......... $1,653 $3,076
Reserve for contingent liabilities (included in
accounts payable and accrued liabilities) ... 414 1,201
---------------
$2,067 $4,277
===============
The Company also retains credit risk on REMIC securitizations because the
related trust agreements provide that all losses incurred on REMIC loans are
charged to REMIC interests retained by the Company (including the Company's
right to receive servicing fees) before any losses are charged to REMIC
interests sold to third party investors. The Company also has guaranteed payment
of principal and interest on subordinated securities issued by REMIC trusts
having an aggregate principal amount outstanding of approximately $55 million
and $30 million as of September 30, 1998 and 1997, respectively. Liabilities
recorded with respect to such guarantees in accordance with FAS 125 were
approximately $5.4 million and $2.9 million at September 30, 1998 and 1997,
respectively, and are included in other long-term obligations.
REMIC interests retained by the Company include servicing assets and REMIC
residual interests. The Company estimates the fair value of retained REMIC
residual interests based, in part, upon default and prepayment assumptions which
management believes market participants would use for similar instruments. The
actual rate of voluntary prepayments and the amount and timing of credit losses
affect the Company's yield on retained REMIC residual interests and the fair
value of such interests in periods subsequent to the securitization; the actual
rate of voluntary prepayments and credit losses typically varies over the life
of each transaction and from transaction to transaction. If over time the
Company's actual experience is more favorable than that assumed, the Company's
yield on its REMIC residual interests will be enhanced. Similarly, if over time
the Company's actual experience is less favorable than that assumed, such yield
will be reduced or impairment of the residuals may result. During the year ended
September 30, 1998 the Company recorded special charges of approximately $39.5
million to reduce the carrying value of Oakwood REMIC residual interests to
reflect higher assumptions for credit losses and voluntary prepayment speeds. In
addition, the Company recorded special charges of approximately $7.5 million
relating to residuals associated with the DFC joint venture.
The following table sets forth certain data with respect to securitized loans
in which the Company retains a residual interest, and with respect to the
assumptions used by the Company in estimating the fair value of such residual
interests, as of the end of 1998 and 1997.
(dollar amounts in thousands) 1998 1997
- --------------------------------------------------------------------
Aggregate unpaid principal
balance of loans ............... $ 2,982,034 $ 2,076,647
Weighted average interest rate
of loans at year end ........... 10.9% 11.0%
Approximate assumed weighted
average constant prepayment
rate as a percentage of unpaid
principal balance of loans ....... 16.6% 10.2%
Approximate remaining assumed
nondiscounted credit losses as a
percentage of unpaid principal
balance of loans ................. 12.0% 9.9%
Approximate weighted average
interest rate used to discount
assumed residual cash flows ...... 16.3% 16.2%
1998 ANNUAL REPORT 27
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
NOTE 5--Other receivables
The components of other receivables are as follows:
(in thousands) 1998 1997
- -------------------------------------------------
Trade receivables ........... $22,768 $ 5,418
Insurance premiums receivable 4,026 4,851
Accrued interest ............ 2,551 2,427
Other receivables ........... 29,429 21,350
-----------------
$58,774 $34,046
=================
Trade receivables represent amounts due from independent manufactured housing
dealers, which are located principally in the Pacific Northwest, Southeast and
Midwest.
NOTE 6--Inventories
The components of inventories are as follows:
(in thousands) 1998 1997
- --------------------------------------------------------------
Manufactured homes ..................... $242,867 $186,767
Work-in-progress, materials and supplies 42,068 17,672
Land/homes under development ........... 6,417 3,859
-------------------
$291,352 $208,298
===================
NOTE 7--Properties and facilities
The components of properties and facilities are as follows:
(in thousands) 1998 1997
- ----------------------------------------------------------
Land and land improvements ...... $ 37,144 $ 24,894
Buildings and field sales offices 129,960 74,793
Furniture, fixtures and equipment 110,724 71,136
Leasehold improvements .......... 25,333 15,255
----------------------
303,161 186,078
Less: accumulated depreciation
and amortization .............. (65,435) (46,376)
----------------------
$ 237,726 $ 139,702
======================
Depreciation and amortization of properties and facilities was approximately
$20.2 million, $12.9 million and $9.5 million in 1998, 1997 and 1996,
respectively.
Note 8--Other assets
The components of other assets are as follows:
(in thousands) 1998 1997
- -----------------------------------------------------------------
Goodwill, net of accumulated amortization
of $2,225 and $668, respectively ........ $ 56,652 $ 3,503
Restricted cash and investments ........... 21,964 16,548
Investment in and advances to joint
venture, net of loss reserves ........... 17,823 6,443
Deferred insurance policy acquisition costs 12,728 8,468
Identifiable intangibles acquired in Schult
acquisition, net of accumulated
amortization of $1,156 .................. 10,406 --
Loan servicing assets, net of accumulated
amortization of $1,416 and
$259, respectively ...................... 9,261 3,786
Prepaid expenses .......................... 7,799 7,329
Other ..................................... 12,487 6,638
-------------------
$149,120 $ 52,715
===================
Amortization expense of goodwill and identifiable intangibles was
approximately $2.7 million, $402,000 and $204,000 in 1998, 1997 and 1996,
respectively.
Restricted cash and investments include custodial cash balances used to secure
a portion of obligations to pay reinsurance claims, trust account cash balances
required by certain OAC servicing agreements and trust account balances required
by certain states for custody of customer deposits until a retail sale is
consummated.
The Company estimates the fair value of loan servicing assets as the present
value of the estimated future net servicing cash flows. Assumptions as to credit
losses and voluntary prepayments used in the valuation of loan servicing assets
are the same as those used in the valuation of retained REMIC residual assets
(see Note 4). The fair values of loan servicing assets approximated their
carrying values as of September 30, 1998 and 1997, and no valuation allowances
have been recorded.
For the years ended September 30, 1998 and 1997, loan servicing assets
recorded on securitizations were approximately $6.6 million and $4.0 million,
respectively, and amortization expense of loan servicing assets was
approximately $1.2 million and $259,000, respectively.
Note 9--Short-term credit facilities
The Company has a $250 million revolving warehouse financing facility with a
conduit commercial paper issuer, secured by loans held for sale. Subsequent to
September 30, 1998 the facility was increased to $325 million. At September 30,
1998 and 1997, $174.2 million and $84.8 million, respectively, was outstanding
under the facility. The weighted average interest rate on borrowings outstanding
at September 30, 1998 was 5.86%, compared to an average rate of 5.92% at
September 30, 1997. The Company also has a $175 million unsecured syndicated
revolving credit facility, borrowings under which currently bear interest at
LIBOR plus .5%. At September 30, 1998 and 1997, $88 million and $91 million,
respectively, was outstanding under the facility. The Company also has a $20
million unsecured cash management line and $20 million of uncommitted credit
lines.
In addition, at September 30, 1998 short-term borrowings include a $100
million short-term loan with a bank related to the Schult acquisition, as
discussed in Note 2. The note bears interest at LIBOR plus 1% and is due March
30, 1999.
28 1998 ANNUAL REPORT
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
Note 10--Notes and bonds payable
The components of notes and bonds payable are as follows:
(in thousands) 1998 1997
- -------------------------------------------------------------------
Non-financial services debt
8% reset debentures due 2007 ................ $16,945 $16,945
Industrial revenue bonds due in installments
through 2011, with interest at 3.67%
at September 30, 1998 ......................... 5,492 --
Industrial revenue bond due in installments
through 2001, with interest at 73% of
the lender's prime rate ....................... 2,025 2,125
Facilities loan payable in quarterly
installments through 1998 ................. -- 4,000
Capitalized aircraft lease payable in
monthly installments through 2000, with
interest at LIBOR plus .75% ................... 3,270 3,835
401(k) note payable in quarterly
installments through 2000, with interest
at LIBOR plus 1.25% ........................... 720 1,200
Other notes payable ......................... 2,542 2,351
-----------------
Total non-financial services debt ..... 30,994 30,456
-----------------
Financial services debt collateralized by loans
Nonrecourse debt
Note issued by Oakwood Funding,
payable in monthly installments
through 1999, with interest
at 7.44% ...................................... 3,246 9,699
Subordinated note payable issued by
Oakwood Funding with interest
payable monthly at 12.58%,
amortizing through 2000 ....................... 4,692 7,372
-----------------
Total nonrecourse debt ................ 7,938 17,071
-----------------
Recourse debt
Term loans payable in monthly
installments through July 2000,
with interest ranging from LIBOR
plus .5% to LIBOR plus .75% ................... 11,076 18,334
Subordinated note with interest payable
monthly at 10.51%, amortizing
through 2001 .................................. 11,867 12,954
-----------------
Total recourse debt ................... 22,943 31,288
-----------------
Total financial services debt ......... 30,881 48,359
-----------------
$61,875 $78,815
=================
The interest rate on the reset debentures will reset on June 1, 2002 to a rate
to be determined by the Company at its sole discretion. The reset debentures are
redeemable at par at the option of the holders thereof upon the occurrence of
certain events, the most significant of which, generally, involve a substantial
recapitalization of the Company, merger or consolidation of the Company, or
acquisition of more than 30% of the beneficial ownership in the Company by any
person. In addition, the holders of the reset debentures may call for their
redemption as of the interest reset date. The reset debentures are callable at
par at the option of the Company.
The payment of notes collateralized by loans generally is based on the
scheduled monthly payment and actual prepayments of principal on the loans
collateralizing the notes. Under the provisions of certain note agreements, the
notes are secured solely by the underlying collateral, which consists
principally of the loans collateralizing the debt. Such collateral had an
aggregate carrying value of approximately $55 million at September 30, 1998.
Land, land improvements, buildings and equipment with a net book value of
approximately $30 million are pledged as collateral for the facilities term
loan, the industrial revenue bonds and certain other notes payable.
In connection with the issuance of certain indebtedness, the Company incurred
certain costs which are being amortized over the life of the related obligations
using the level yield method.
The estimated principal payments under notes and bonds payable, assuming the
reset debentures are redeemed by the holders on the June 1, 2002 redemption
date, are $18.3 million in 1999, $14.7 million in 2000, $6.3 million in 2001,
$17.9 million in 2002, $679,000 in 2003 and the balance thereafter. Interest
paid by the Company on all outstanding debt, including both short-term and
long-term borrowings, was approximately $24.3 million, $20.3 million and $22.5
million in 1998, 1997 and 1996, respectively.
Various of the Company's debt agreements contain covenants which, among other
things, require the Company to maintain certain minimum financial ratios. The
Company was in compliance with all such covenants at September 30, 1998.
At September 30, 1998 commercial banks, at the request of the Company, had
outstanding letters of credit of approximately $59 million in favor of various
creditors of the Company, of which approximately $55 million relates to the
Company's reinsurance business. Such letters of credit have been issued to
secure the reinsurance subsidiary's obligations to pay reinsurance claims and to
meet regulatory capital requirements.
Note 11--Accounts payable and accrued liabilities
The components of accounts payable and accrued liabilities are as follows:
(in thousands) 1998 1997
- ---------------------------------------------------
Accounts payable ............ $133,809 $ 80,834
Accrued compensation ........ 31,017 20,664
Accrued insurance ........... 13,179 3,620
Accrued dealer volume rebates 12,123 1,957
Income taxes payable ........ 5,265 4,793
Other accrued liabilities ... 31,474 10,294
-------------------
$226,867 $122,162
===================
Note 12--Shareholders' equity
The Company has adopted a Shareholder Protection Rights Plan (the "Plan") to
protect shareholders against unsolicited attempts to acquire control of the
Company that do not offer what the Company believes to be an adequate price to
all shareholders. Under the Plan, each outstanding share of the Company's common
stock has associated with it a right to purchase (each, a "Right" and,
collectively, the "Rights"), upon the occurrence of certain events, one
two-hundredth of a share of junior participating Class A preferred stock
("Preferred Stock") at an exercise price of $20. The Rights will become
exercisable only if a person or group (an "Acquiring Person"), without the
Company's consent, commences a tender or
1998 ANNUAL REPORT 29
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
exchange offer for, or acquires 20% or more of the voting power of, the Company.
In such event, each holder of Preferred Stock, other than the Acquiring
Person, will be entitled to acquire that number of shares of the Company's
common stock having a market value of twice the exercise price. Similarly, if,
without the Company's consent, the Company is acquired in a merger or other
business combination transaction, each holder of Preferred Stock, other than the
Acquiring Person, will be entitled to acquire voting shares of the acquiring
company having a value of twice the exercise price. The Rights may be redeemed
at a price of $.005 per Right by the Company at any time prior to any person or
group acquiring 20% or more of the Company's voting power or certain other
triggering events, and will expire on August 22, 2001.
The Company's authorized capital stock includes 500,000 shares of $100 par
value preferred stock. The preferred stock may be issued in one or more series
with such terms, preferences, limitations and relative rights as the Board of
Directors shall determine. No preferred stock has been issued.
Note 13--Income taxes
The components of the provision for income taxes are as follows:
(in thousands) 1998 1997 1996
- -------------------------------------------------------------
Current
Federal ................ $ 35,854 $ 51,020 $ 32,426
State .................. 3,289 3,579 4,127
--------------------------------
39,143 54,599 36,553
--------------------------------
Deferred
Federal ................ (5,406) (3,027) 5,239
State .................. 1,000 (293) 633
--------------------------------
(4,406) (3,320) 5,872
--------------------------------
Provision for income taxes $ 34,737 $ 51,279 $ 42,425
================================
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rates follows:
1998 1997 1996
- ----------------------------------------------------
Statutory federal income tax rate 35% 35% 35%
State income taxes, less federal
income tax benefit ............ 3 2 3
Other ........................... 1 2 --
----------------
Effective income tax rate ....... 39% 39% 38%
================
Deferred income taxes includes the following components:
(in thousands) 1998 1997
- ----------------------------------------------------------------
Deferred income tax assets
Inventories .......................... $ 1,459 $ 1,325
REMIC residual interests ............. 9,880 8,668
Accrued liabilities .................. 16,463 7,252
Insurance reserves and
unearned premiums .................. 4,503 1,905
Net operating loss carryforward ...... 1,083 1,803
Other ................................ 5,109 1,814
---------------------
Gross deferred income tax assets 38,497 22,767
---------------------
Deferred income tax liabilities
Properties and facilities ............ (14,797) (6,078)
Deferred insurance policy
acquisition costs .................. (4,364) (3,137)
Acquired intangible assets ........... (4,058) --
Other ................................ (428) (558)
---------------------
Gross deferred income
tax liabilities .............. (23,647) (9,773)
---------------------
Net deferred income tax asset ........ $ 14,850 $ 12,994
=====================
At September 30, 1998 the remaining net operating loss carryforward is
approximately $3.1 million for federal income tax purposes. Utilization of such
carryforward is dependent upon the realization of taxable income by Golden West
and is further limited to a maximum of approximately $774,000 annually through
2002.
Income tax payments were approximately $35.8 million, $44.9 million and $43.6
million in 1998, 1997 and 1996, respectively.
Note 14--Earnings per share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("FAS 128"), which establishes standards for computing and
presenting earnings per share ("EPS") by replacing the presentation of primary
and fully diluted EPS with a presentation of basic and diluted EPS. All current
and prior year EPS amounts herein reflect adoption of FAS 128. The following
reconciliation details the numerator and denominator used in the computation of
basic and diluted EPS:
(in thousands, except per share data) 1998 1997 1996
- ---------------------------------------------------------------------
Numerator for basic and
diluted EPS--Net income ........ $ 55,353 $ 81,913 $ 68,255
--------------------------------
Denominator:
Weighted average number of
common shares outstanding ...... 46,320 45,798 44,880
Unearned shares ................ (81) (122) (161)
--------------------------------
Denominator for basic EPS ...... 46,239 45,676 44,719
Dilutive effect of stock options
and restricted shares
computed using the treasury
stock method ..................... 1,185 1,115 1,741
--------------------------------
Denominator for diluted EPS .... 47,424 46,791 46,460
--------------------------------
Basic earnings per share ....... $ 1.20 $ 1.79 $ 1.53
--------------------------------
Diluted earnings per share ..... $ 1.17 $ 1.75 $ 1.47
--------------------------------
30 1998 ANNUAL REPORT
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
Options to purchase 1,604,996 shares of common stock were not included in the
computation of diluted EPS for the fourth quarter of fiscal 1998 because the
options' exercise prices were greater than the average market price of the
Company's common stock for that period and their inclusion would have been
antidilutive.
Note 15--Stock option and award plans
The Company has a Key Employee Stock Plan (the "Stock Plan") under which
4,043,910 common shares were reserved for issuance to key employees at September
30, 1998. The Stock Plan provides that an additional number of common shares
shall be reserved for issuance under the Stock Plan each October 1 equal to 1.5%
of the number of common shares outstanding on such date. Awards or grants under
the plan may be made in the form of stock options, stock appreciation rights,
restricted stock and performance shares.
The Company also has a Director Stock Option Plan under which 180,000 shares
of the Company's common stock were reserved for grant to non-employee directors
of the Company. The exercise price of options granted is the fair market value
of the Company's common stock on the date of grant. Options granted under the
plan become exercisable six months from the date of grant and expire 10 years
from the date of grant.
The following table summarizes the changes in the number of shares under
option pursuant to the plans described above and pursuant to certain earlier
plans under which options may no longer be granted:
Weighted
average
Number exercise
of shares price
- -----------------------------------------------------------
Outstanding at September 30, 1995 3,238,774 $ 5.93
Granted ......................... 1,345,496 18.58
Exercised ....................... (1,079,434) 4.06
Terminated ...................... (80,334) 13.84
-----------
Outstanding at September 30, 1996 3,424,502 11.31
Granted ......................... 331,000 21.19
Exercised ....................... (633,913) 6.10
Terminated ...................... (142,006) 16.61
-----------
Outstanding at September 30, 1997 2,979,583 13.26
Granted ......................... 1,235,500 28.50
Exercised ....................... (351,744) 6.79
Terminated ...................... (126,482) 18.36
-----------
Outstanding at September 30, 1998 3,736,857 18.74
=======================
Exercisable at September 30, 1996 1,512,893 5.16
=======================
Exercisable at September 30, 1997 1,323,513 7.67
=======================
Exercisable at September 30, 1998 1,129,438 8.89
=======================
The following is a summary of stock options outstanding at September 30, 1998:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
-------------------------------------------------------- ---------------------------
Range of Number Weighted average contractual Weighted average Number Weighted average
exercise price of shares life remaining (in years) exercise price of shares exercise price
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.74-$ 2.84 214,852 1.6 $ 2.28 214,852 $ 2.28
4.05- 6.25 486,733 3.2 4.74 412,573 4.86
10.72- 11.22 53,400 6.2 11.02 45,900 11.07
12.16- 14.72 342,546 5.2 13.02 324,588 13.00
17.97- 18.33 996,496 6.9 18.31 45,193 18.05
19.78- 22.57 371,834 8.6 20.47 27,002 21.88
23.00- 25.94 90,496 8.1 24.45 59,330 23.69
28.85 1,175,500 8.9 28.85 -- --
37.97 5,000 9.4 37.97 -- --
--------- ---------
All options 3,736,857 6.8 $18.74 1,129,438 $ 8.89
========= =========
</TABLE>
The following table summarizes restricted stock issued under the Stock Plan:
Weighted average
Number of shares fair value per share
- --------------------------------------------------------
Fiscal 1996...... 200,000 $27.13
Fiscal 1997...... 43,834 $27.45
Fiscal 1998...... 14,439 $28.25
As of September 30, 1998 there were a total of 2,135,770 shares of common
stock reserved for future grants under the Company's stock option plans.
The aggregate compensation expense for stock-based compensation plans,
computed under the provisions of APB 25, was approximately $1.4 million, $3.5
million and $3.7 million in 1998, 1997 and 1996, respectively. Such compensation
expense relates entirely to accruals for restricted stock awards under the Stock
Plan (charged to income over the vesting periods of the related awards) and, in
1996, to stock appreciation rights.
The Financial Accounting Standards Board has adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS
123"), which permits, but does not require, the Company to utilize a fair-value
based method of accounting for stock-based compensation. The Company has elected
to continue use of the APB 25 accounting principles for its stock option plans
and accordingly has recorded no compensation cost for grants of stock options.
Had compensation cost for the Company's stock option plans been determined based
on the estimated fair
1998 ANNUAL REPORT 31
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
value at the grant dates for awards in 1998, 1997 and 1996 consistent with the
provisions of FAS 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
(in thousands, except per share data) 1998 1997 1996
- --------------------------------------------------------------------
Net income--as reported............... $55,353 $81,913 $68,255
Net income--pro forma................. 52,321 79,540 66,388
Basic earnings per share--
as reported ........................ $ 1.20 $ 1.79 $ 1.53
Basic earnings per share--
pro forma........................... 1.13 1.74 1.48
Diluted earnings per share--
as reported......................... $ 1.17 $ 1.75 $ 1.47
Diluted earnings per share--
pro forma .......................... 1.10 1.70 1.43
The pro forma information set forth in the preceding table does not reflect
application of the FAS 123 measurement principles to options granted prior to
October 1, 1995. Accordingly, the pro forma information does not necessarily
reflect the Company's results of operations on a pro forma basis assuming the
FAS 123 measurement principles had been applied to all stock options granted
prior to October 1, 1995 and which were not vested at that date, and is not
necessarily representative of the pro forma effects on the results of operations
of future years had the Company adopted the measurement principles of FAS 123.
The pro forma information set forth in the preceding table reflects a weighted
average estimated fair value of stock options granted in 1998, 1997 and 1996
respectively, of $11.72, $9.32 and $8.30 per share. Such estimated fair values
were computed using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants issued in 1998, 1997 and 1996,
respectively: dividend yield of .14%, .19% and .22%; expected volatility of
36.28%, 38.47% and 41.90%; weighted average risk-free interest rate of 5.75%,
6.68% and 5.79%; and expected lives of 5 years for fiscal 1998, 1997 and 1996.
Note 16--Employee benefit plans
The Company maintains a 401(k) plan in which substantially all employees who
have met certain age and length of service requirements may participate. On
January 1, 1998 the Company's employee stock ownership plan ("ESOP") was merged
with the 401(k) plan. Employee contributions to the 401(k) plan are limited to a
percentage of their compensation and are matched 100% by the Company for the
first 6% of compensation contributed. The Company's match consists of a 50% cash
contribution and a 50% Company stock contribution. The Company also maintains a
401(k) retirement plan for Schult employees, contributions to which are based on
employee earnings.
During 1995 the Company loaned approximately $2.4 million to the ESOP to
enable the ESOP to purchase Company common stock on the open market. The ESOP
refinanced the Company's loan with the proceeds of a loan from a commercial bank
which the Company has guaranteed; the Company has reflected the note payable,
now held by the 401(k) plan, as a liability in the accompanying consolidated
balance sheet. The bank loan provides that shares are released ratably upon
repayment of the principal of the loan. Compensation cost relating to shares
acquired with the proceeds of the loan is measured by reference to the fair
value of the shares committed to be released during the period, in accordance
with Statement of Position 93-6.
At September 30, 1998 the 401(k) plan held a total of 542,293 shares of the
Company's common stock having a fair value of approximately $7.1 million. Of the
total number of shares, 10,160 shares have been committed to be released, 60,968
shares are held in suspense and the balance, representing shares acquired using
cash contributed to the ESOP and 401(k) plan in excess of its debt service
requirements and shares acquired in prior years, have been allocated to plan
participants. To the extent possible, shares held in suspense will be used to
fund the Company's matching 50% stock contribution. Uncommitted shares are
included at cost in unearned compensation in the consolidated balance sheet.
Total compensation cost under the 401(k) and ESOP plans was approximately $6.5
million, $3.4 million and $2.0 million in 1998, 1997 and 1996, respectively.
Note 17--Contingencies
In November 1998 the Company and certain of its present and former officers and
directors were named as defendants in lawsuits filed on behalf of purchasers of
the Company's common stock for various periods between April 11, 1997 and July
21, 1998 (the "Class Period"). These complaints, which seek class action
certification, allege violations of federal securities law based on alleged
false and misleading financial statements, reports filed by the Company and
other representations during the Class Period. The Company intends to defend
such lawsuits vigorously.
In addition, the Company is also subject to legal proceedings and claims which
have arisen in the ordinary course of its business and have not been finally
adjudicated. These actions, when ultimately concluded and determined will not,
in the opinion of management, have a material effect on the results of
operations or financial condition of the Company.
The Company is contingently liable under terms of repurchase agreements with
financial institutions providing inventory financing for retailers of their
products. These arrangements, which are customary in the industry, provide for
the repurchase of products sold to retailers in the event of default on
32 1998 ANNUAL REPORT
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
payments by the retailer. The risk of loss under these agreements is spread over
numerous retailers and is further reduced by the resale value of repurchased
homes. The estimated potential obligations under such agreements approximated
$150 million at September 30, 1998. Losses under these agreements have not been
significant.
Note 18--Fair value of financial instruments
The Company is a party to on- and off-balance sheet financial instruments as a
result of its financing and funding activities. On-balance sheet financial
assets include loans originated in conjunction with retail home sales, loans
purchased from third parties, trade receivables arising from sales of homes to
independent dealers and other receivables. The Company has estimated the fair
value of loans held for sale by reference to the estimated gain to be realized
on the securitization of such loans. The Company has estimated the fair value of
loans held for investment by discounting the estimated future cash flows
relating thereto using interest rates which approximate the interest rates
charged by Oakwood Acceptance as of year end for loans of similar character and
duration. Due to their short-term nature, the fair values of trade and other
receivables approximates their carrying values.
The Company estimates the fair value of retained regular and residual
interests in REMIC securitizations as described in Note 4. However, there exists
no active market for manufactured housing residual REMIC interests or uniformly
accepted valuation methodologies. The Company estimates the fair value of
guarantee liabilities by reference to the estimated price differential between
guaranteed and unguaranteed securities offered for sale by the Company. Based on
current estimates, management believes that the fair values of the Company's
retained REMIC interests and guarantee liabilities on subordinated REMIC
securities sold approximate their carrying values.
On-balance sheet financial obligations consist of amounts outstanding under
the Company's short-term credit facilities and notes and bonds payable. The
Company estimates the fair values of debt obligations using rates currently
offered to the Company for borrowings having similar character, collateral and
duration or, in the case of the Company's outstanding reset debentures, by
reference to quoted market prices.
Off-balance sheet interest rate protection agreements at September 30, 1997
consisted of options on forward starting interest rate swaps in the aggregate
notional amount of $185 million expiring on November 20, 1997. These agreements
are valued at the amount payable or receivable by the Company had the contracts
been terminated at year end. There were no such agreements outstanding at
September 30, 1998.
The following table sets forth the carrying amounts and estimated fair values
of the Company's financial instruments at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------- --------------------
Estimated Carrying Estimated Carrying
(in thousands) fair value amount fair value amount
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents, including restricted
cash and investments......................... $ 50,935 $ 50,935 $ 45,265 $ 45,265
Loans and investments
Loans held for sale.......................... 364,904 365,126 261,549 255,944
Loans held for investment
Fixed rate loans........................... 58,275 55,090 77,304 71,736
Variable rate loans........................ 7,579 7,579 9,478 9,478
Less: reserve for uncollectible receivables.. -- (1,653) -- (3,076)
Retained REMIC regular interests............. 22,822 22,822 9,724 9,724
Retained REMIC residual interests............ 53,619 53,619 84,228 84,228
Other receivables.............................. 58,774 58,774 34,046 34,046
Liabilities
Short-term borrowings ......................... 375,023 375,023 175,800 175,800
Interest rate protection agreements............ -- -- 1,491 --
Notes and bonds payable
Fixed rate obligations....................... 38,342 37,932 49,597 48,505
Variable rate obligations.................... 23,943 23,943 30,310 30,310
Guarantee liabilities on subordinated REMIC
securities sold.............................. 5,381 5,381 2,915 2,915
</TABLE>
1998 ANNUAL REPORT 33
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
Note 19--Quarterly financial data (unaudited)
A summary of quarterly financial information follows:
<TABLE>
<CAPTION>
First Second Third Fourth
(in thousands, except per share data) quarter quarter quarter quarter Year
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Net sales............................ $221,893 $250,352 $440,129 $492,058 $1,404,432
----------------------------------------------------
Gross profit......................... $ 70,067 $ 80,091 $134,659 $146,181 $ 430,998
----------------------------------------------------
Net income(1)........................ $ 17,802 $ 7,648 $ 4,959 $ 24,944 $ 55,353
----------------------------------------------------
Earnings per share
Basic(1)........................... $ 0.39 $ 0.17 $ 0.11 $ 0.54 $ 1.20
----------------------------------------------------
Diluted(1)......................... $ 0.38 $ 0.16 $ 0.10 $ 0.53 $ 1.17
----------------------------------------------------
1997
Net sales............................ $ 177,782 $ 190,652 $ 266,015 $ 318,255 $ 952,704
----------------------------------------------------
Gross profit......................... $ 53,970 $ 61,614 $ 84,499 $ 101,221 $ 301,304
----------------------------------------------------
Net income........................... $ 15,193 $ 17,714 $ 22,497 $ 26,509 $ 81,913
----------------------------------------------------
Earnings per share
Basic.............................. $ .33 $ .39 $ .49 $ .58 $ 1.79
----------------------------------------------------
Diluted............................ $ .33 $ .38 $ .48 $ .56 $ 1.75
----------------------------------------------------
</TABLE>
The sum of quarterly basic earnings per share does not necessarily equal basic
earnings per share for the year.
(1) Includes special charges of approximately $16.3 million and $35.0 million,
respectively, for the second and third quarters of 1998 relating primarily to
write-downs of certain retained REMIC residual interests.
Note 20--Business segment information
The Company operates in two principal businesses. The manufactured housing
segment includes the Company's retail and manufacturing operations. The
Company's retail business purchases homes primarily from the Company's
manufacturing operations but supplements these purchases in certain markets with
purchases from third party manufacturers. The Company's manufacturing operations
sell a substantial majority of its homes to the Company's retail operations,
with a portion distributed through independent dealers.
The financial services segment provides retail financing to customers of the
manufactured housing segment as well as to customers of independent retail
dealers. This segment both originates and services loans, and securitizes the
loans in the public and private markets as a source of capital. The segment also
reinsures credit life insurance risk on policies sold to retail customers, and
beginning June 1, 1997 reinsures insurance risk on property and casualty
insurance and extended service contracts sold to retail customers.
Segment operating income is income before general corporate expenses,
non-financial interest expense, investment income and income taxes. Identifiable
assets include those assets directly related to the Company's operations in the
different segments; general corporate assets consist principally of cash,
certain property and other investments.
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
- --------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Manufactured housing.. $ 1,414,607 $ 967,000 $ 881,218
Financial services(1) 67,359 102,778 92,346
Investment income .... 587 273 358
------------------------------------------
$ 1,482,553 $ 1,070,051 $ 973,922
------------------------------------------
Operating income
Manufactured housing.. $ 115,874 $ 95,309 $ 82,181
Financial services(1) (4,259) 57,179 52,387
------------------------------------------
Combined ........... 111,615 152,488 134,568
Non-financial services
interest expense ... (5,970) (3,274) (2,221)
Investment income .... 587 273 358
General corporate
expenses ........... (16,142) (16,295) (22,025)
------------------------------------------
Income before
income taxes ..... $ 90,090 $ 133,192 $ 110,680
------------------------------------------
Identifiable assets
Manufactured housing.. $ 629,170 $ 363,206 $ 307,771
Financial services ... 601,938 486,833 490,472
General corporate .... 52,268 54,467 43,734
------------------------------------------
$ 1,283,376 $ 904,506 $ 841,977
------------------------------------------
Depreciation and
amortization
Manufactured housing.. $ 16,264 $ 8,230 $ 7,302
Financial services ... 2,413 1,241 565
General corporate .... 6,273 4,854 2,594
------------------------------------------
$ 24,950 $ 14,325 $ 10,461
------------------------------------------
Capital expenditures
Manufactured housing.. $ 44,365 $ 31,731 $ 24,290
Financial services ... 2,878 1,925 1,247
General corporate .... 4,168 4,746 15,766
------------------------------------------
$ 51,411 $ 38,402 $ 41,303
------------------------------------------
</TABLE>
(1) Includes special charges of approximately $51.3 million in 1998 relating
primarily to write-downs of certain retained REMIC residual interests.
34 1998 ANNUAL REPORT
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Oakwood Homes Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity present fairly, in all material respects, the financial position of
Oakwood Homes Corporation and its subsidiaries at September 30, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1998, in conformity with generally
accepted accounting principles. 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 conducted our
audits of these statements in accordance with generally accepted auditing
standards 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 provide a reasonable basis for the opinion expressed above.
/s/ Pricewaterhouse Coopers LLP
Greensboro, North Carolina
November 2, 1998, except as to the information presented in the first paragraph
of Note 17 for which the date is November 25, 1998.
1998 ANNUAL REPORT 35
<PAGE>
Oakwood Homes Corporation
and Subsidiaries
COMMON STOCK PRICES
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
Quarter High Low High Low High Low High Low High Low
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First.............. 33 3/16 24 7/8 29 7/8 21 21 16 5/8 13 1/4 10 3/8 14 1/4 11 1/4
Second............. 41 3/4 33 1/8 23 17 3/8 25 3/4 18 1/2 13 1/2 10 7/8 14 7/8 10 1/8
Third.............. 38 13/16 26 5/16 24 3/4 16 3/4 25 20 13 1/2 11 5/8 11 7/8 9 5/8
Fourth............. 31 7/8 13 1/16 30 23 7/16 28 20 3/8 18 1/8 12 7/8 14 1/2 11 1/8
</TABLE>
DIVIDEND INFORMATION
The Company declared a cash dividend of $.01 per common share during each of the
eight quarters in the period ended September 30, 1998.
36 1998 ANNUAL REPORT
EXHIBIT 21
<TABLE>
<CAPTION>
LIST OF SUBSIDIARIES OF THE COMPANY
Name of Subsidiary(1) Jurisdiction of Incorporation
<S> <C>
Destiny Industries, Inc. Georgia
Deutsche Financial Capital I Corp. North Carolina
Deutsche Financial Capital Limited Liability Company North Carolina
Deutsche Financial Capital Securitization LLC North Carolina
Golden Circle Financial Services California
Golden West Homes California
Homes by Oakwood, Inc. North Carolina
Marlette Homes, Inc. Indiana
Oakwood Acceptance Corporation (2) North Carolina
Oakwood Financial Corporation Nevada
Oakwood Funding Corporation Nevada
Oakwood Holdings, Inc. Nevada
Oakwood Mobile Homes, Inc. (3) North Carolina
Oakwood Mortgage Investors, Inc. North Carolina
Oakwood Realty Services, Inc. North Carolina
OFC, LLC Nevada
Schult Homes - Georgia Corporation Georgia
Schult Homes Corporation Indiana
Schult Operating Company (4) Indiana
Tarheel Insurance Company, Ltd. Bermuda
</TABLE>
- ----------
(1) Each subsidiary does business under its corporate name.
(2) Also does business under the names "Nationwide Mortgage"
and "Golden Circle Financial Services."
(3) Also does business under the names "Freedom Homes,"
"Victory Homes," "Golden West Homes" and "Schult Homes."
(4) Also does business under the name "Crest Homes."
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in (a) the
Registration Statements on Form S-8 (Nos. 2-81624, 33-3797, 33-50408,
33-50414, 33-50416, 33-68602, 333-01023, 333-5629 and 333-51125) of
Oakwood Homes Corporation, (b) the Registration Statement on Form S-3 (No.
333-47053) of Oakwood Homes Corporation and (c) the Registration Statement
on Form S-3 (No. 333-31441) of Oakwood Mortgage Investors, Inc. of our
report dated November 2, 1998, except for the informaiton presented in the
first paragraph of footnote 17 for which the date is November 25, 1998,
appearing on page 35 of the Annual Report to Stockholders which is
incorporated in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSE COOPERS LLP
Winston-Salem, North Carolina
December 29, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30,
1998 FILED AS PART OF THE REGISTRANT'S FORM 10-K FOR THE YEAR ENDED SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<CIK> 0000073609
<NAME> OAKWOOD HOMES CORP.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 28,971
<SECURITIES> 0
<RECEIVABLES> 563,010
<ALLOWANCES> 1,653
<INVENTORY> 291,352
<CURRENT-ASSETS> 0
<PP&E> 303,161
<DEPRECIATION> 65,435
<TOTAL-ASSETS> 1,283,376
<CURRENT-LIABILITIES> 601,476
<BONDS> 61,875
0
0
<COMMON> 23,330
<OTHER-SE> 524,345
<TOTAL-LIABILITY-AND-EQUITY> 1,283,376
<SALES> 1,404,432
<TOTAL-REVENUES> 1,482,553
<CGS> 973,434
<TOTAL-COSTS> 1,367,914
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,549
<INCOME-PRETAX> 90,090
<INCOME-TAX> 34,737
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,353
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.17
</TABLE>
