<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
( X ) Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1998 or
( ) Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to _______
Commission File Number 1-7444
OAKWOOD HOMES CORPORATION
(Exact name of registrant as specified in its charter)
North Carolina 56-0985879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7800 McCloud Road, Greensboro, North Carolina 27409-9634
--------------------------------------------------------
(Address of principal executive offices)
Post Office Box 27081, Greensboro, North Carolina 27425-7081
------------------------------------------------------------
(Mailing address of principal executive offices)
(336) 664-2400
--------------
(Registrant's telephone number, including area code)
-----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of April 30, 1998.
Common Stock, Par Value $.50 Per Share . . . . . . . . . 46,586,340
<PAGE>
QUARTERLY REPORT ON FORM 10-Q
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended March 31, 1998
OAKWOOD HOMES CORPORATION AND SUBSIDIARIES
Greensboro, North Carolina
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
disclosures contained herein are adequate to make the information presented not
misleading. These consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K.
2
<PAGE>
OAKWOOD HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(in thousands except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
---------
1998 1997
---- ----
<S> <C> <C>
Revenues
Net sales $250,352 $190,652
Financial services income 12,570 25,475
Other income 1,971 4,162
--------- -----------
Total revenues 264,893 220,289
--------- ---------
Costs and expenses
Cost of sales 170,261 129,038
Selling, general and administrative expenses 64,964 52,265
Financial services operating expenses 12,417 4,964
Interest expense
Non-financial services 678 810
Financial services 4,238 4,509
----------- -----------
Total costs and expenses 252,558 191,586
--------- ---------
Income before income taxes 12,335 28,703
Provision for income taxes 4,687 10,989
----------- -----------
Net income $ 7,648 $ 17,714
========== ==========
Earnings per share
Basic $ .17 $ .39
Diluted $ .16 $ .38
Dividends per share $ .01 $ .01
Weighted average number of
common shares outstanding
Basic 46,214 45,677
Diluted 47,803 46,598
</TABLE>
3
<PAGE>
OAKWOOD HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(in thousands except per share data)
<TABLE>
<CAPTION>
Six months ended
March 31,
---------
1998 1997
---- ----
<S> <C> <C>
Revenues
Net sales $472,245 $368,434
Financial services income 43,049 50,247
Other income 4,262 8,798
----------- -----------
Total revenues 519,556 427,479
--------- ---------
Costs and expenses
Cost of sales 322,087 252,850
Selling, general and administrative expenses 123,425 100,632
Financial services operating expenses 23,454 10,748
Interest expense
Non-financial services 1,385 1,642
Financial services 8,157 7,998
----------- -----------
Total costs and expenses 478,508 373,870
--------- ---------
Income before income taxes 41,048 53,609
Provision for income taxes 15,598 20,702
---------- ----------
Net income $ 25,450 $ 32,907
========= =========
Earnings per share
Basic $ .55 $ .72
Diluted $ .54 $ .71
Dividends per share $ .02 $ .02
Weighted average number of
common shares outstanding
Basic 46,132 45,545
Diluted 47,567 46,665
</TABLE>
4
<PAGE>
OAKWOOD HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(in thousands except share and per share data)
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 1998 1997
---- ----
<S> <C> <C>
Cash and cash equivalents $ 19,084 $ 28,717
Receivables and investments 415,028 462,080
Inventories
Manufactured homes 258,383 186,767
Work-in-process, materials and supplies 21,975 17,672
Land/homes under development 4,957 3,859
--------- ----------
285,315 208,298
Properties and facilities 152,177 139,702
Deferred income taxes 13,805 12,994
Other assets 77,710 52,715
---------- ----------
$963,119 $904,506
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings $204,884 $175,800
Notes and bonds payable 67,282 78,815
Accounts payable and accrued liabilities 126,702 122,162
Insurance policy reserves 38,656 30,535
Other long-term obligations 14,093 13,312
Shareholders' equity
Common stock, $.50 par value; 100,000,000
shares authorized; 46,566,000 and 46,299,000
shares issued and outstanding 23,283 23,149
Additional paid-in capital 161,719 159,281
Retained earnings 331,055 306,533
--------- ---------
516,057 488,963
Less: Unearned compensation (4,555) (5,081)
----------- -----------
511,502 483,882
--------- ---------
$963,119 $904,506
======== ========
</TABLE>
5
<PAGE>
OAKWOOD HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Six months ended
March 31,
---------
1998 1997
---- ----
<S> <C> <C>
Operating activities
Net income $ 25,450 $ 32,907
Items not requiring (providing) cash
Depreciation and amortization 9,391 6,783
Deferred income taxes (811) 432
Gain on sale of loans (10,971) (11,281)
Write-down of retained interests in loan securitizations 16,300 --
Excess of cash receipts over REMIC residual income recognized
(income in excess of collections) 7,245 (613)
Other 3,262 2,021
(Increase) decrease in other receivables (411) 22,866
(Increase) in inventories (77,017) (69,744)
(Increase) in prepaid expenses (1,864) (2,619)
(Increase) decrease in deferred insurance policy
acquisition costs (717) 138
Increase (decrease) in accounts payable and accrued
liabilities 5,313 (61,467)
Increase (decrease) in insurance policy reserves 8,121 (399)
Increase (decrease) in other long-term obligations (98) 888
------------ -----------
Cash (used) by operations (16,807) (80,088)
Loans originated (443,567) (350,587)
Sale of loans 459,033 478,015
Principal receipts on loans 21,823 16,338
--------- ---------
Cash provided by operating activities 20,482 63,678
--------- ---------
Investing activities
Investment in and advances to joint venture (10,454) (49,000)
Additions to properties and facilities (20,739) (14,798)
Purchase of securities (5,045) --
Other (12,852) (1,260)
--------- ----------
Cash (used) by investing activities (49,090) (65,058)
--------- ---------
Financing activities
Net borrowings on short-term credit facilities 29,084 13,583
Payments on notes and bonds (11,293) (18,955)
Cash dividends (928) (917)
Proceeds from exercise of stock options 2,112 1,608
---------- ----------
Cash provided (used) by financing activities 18,975 (4,681)
--------- ----------
Net (decrease) in cash and cash equivalents (9,633) (6,061)
Cash and cash equivalents
Beginning of period 28,717 28,577
---------- ----------
End of period $ 19,084 $ 22,516
========= =========
</TABLE>
6
<PAGE>
OAKWOOD HOMES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. The consolidated financial statements reflect all adjustments, which are,
in the opinion of management, necessary to present fairly the results of
operations for the periods presented. Except for a special charge in the
amount of $16.3 million recorded for the three months ended March 31, 1998
relating to the carrying value of retained interests in certain REMIC
securitizations described in Management's Discussion and Analysis of
Financial Condition and Results of Operations, such adjustments included
only normal recurring adjustments. Results of operations for any interim
period are not necessarily indicative of results to be expected for a full
year.
2. During the quarter ended December 31, 1997, 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
table sets forth the computation of basic and diluted EPS:
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
--------- ---------
1998 1997 1998 1997
---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Numerator for basic and diluted
EPS - Net income $7,648 $17,714 $25,450 $32,907
Denominator:
Weighed average number of
common shares outstanding 46,300 45,804 46,223 45,677
Unearned ESOP shares (86) (127) (91) (132)
--------- -------- --------- -------
Denominator for basic EPS 46,214 45,677 46,132 45,545
Dilutive effect of stock options and
restricted shares computed using
the treasury stock method 1,589 921 1,435 1,120
------- -------- ------- ------
Denominator for diluted EPS 47,803 46,598 47,567 46,665
====== ====== ====== ======
Earnings per common share - basic $.17 $.39 $.55 $.72
====== ====== ====== ========
Earnings per common share - diluted $.16 $.38 $.54 $.71
====== ====== ====== ========
</TABLE>
7
<PAGE>
3. The Company is contingently liable as guarantor on installment sale
contracts sold to third parties on a full or limited recourse basis. The
amount of this contingent liability was approximately $50 million at March
31, 1998. The Company is also contingently liable as guarantor on
subordinated securities issued by REMIC trusts in the aggregate principal
amount of $40 million at March 31, 1998. In addition, the Company is
contingently liable under terms of repurchase agreements with financial
institutions providing inventory financing for retailers of homes produced
by Destiny and Golden West Homes, manufacturing subsidiaries of the Company
doing business with independent dealers. The Company estimates that its
potential obligation under repurchase agreements approximated $25 million
at March 31, 1998.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Three months ended March 31, 1998 compared to three months ended March 31, 1997
- -------------------------------------------------------------------------------
The following table summarizes certain key statistics for the quarters
ended March 31, 1998 and 1997 :
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Retail sales (in millions) $ 233.9 $ 169.9
Other sales (in millions) $ 16.5 $ 20.8
Total sales (in millions) $ 250.4 $ 190.7
Gross profit % 32.0% 32.3%
New single-section homes sold - retail 3,384 2,542
New multi-section homes sold - retail 2,363 1,922
Used homes sold - retail 696 524
New single-section homes sold - wholesale 65 138
New multi-section homes sold - wholesale 451 589
Average new single-section sales price - retail $30,700 $28,900
Average new multi-section sales price - retail $52,100 $47,900
Average new single-section sales price - wholesale $16,400 $16,000
Average new multi-section sales price - wholesale $32,800 $30,600
Weighted average retail sales centers
open during the period 317 265
</TABLE>
Retail sales dollar volume increased 38%, reflecting a 29% increase in
new unit volume, and increases of 6% and 9% in the average new unit sales prices
of single-section and multi-section homes, respectively. Single-section unit
volume increased 33%, while multi-section unit volume rose 23% from the second
quarter of fiscal 1997. During the second quarter of fiscal 1998, the Company
opened or acquired 15 new sales centers compared to 8 sales centers in the
second quarter of fiscal 1997. Total new retail sales dollars at sales centers
open more than one year increased 13% during the second quarter of fiscal 1998.
The average selling prices for new single-section and new multi-section homes
sold at retail increased primarily due to a shift in product mix toward higher
price points.
Other sales dollar volume declined by 21%, reflecting a 29% decrease in
wholesale unit volume. This decrease was partially offset by increases of 3% and
7% in the average sales prices of new single-section homes and new multi-section
homes, respectively, due to a shift in product mix toward higher price points,
as well as price increases. The decline in wholesale unit volume reflects the
Company's strategy of changing the distribution of homes produced by Golden West
and Destiny from non-exclusive independent dealers to Company-owned retail sales
centers. During the quarter ended March 31, 1998, 78% of Golden West's and
Destiny's shipments were to Oakwood sales centers, compared to 66% in the second
quarter of fiscal 1997. Golden West and Destiny were acquired by the Company in
1994 and 1995,
9
<PAGE>
respectively. Prior to the acquisitions, these companies sold their products
exclusively at wholesale to independent retailers.
Gross profit margin decreased slightly to 32.0% during the quarter
ended March 31, 1998 from 32.3% in the second quarter of fiscal 1997, reflecting
decreased retail margins partially offset by higher operating levels and
efficiencies in manufacturing. Manufacturing production for the second quarter
of fiscal 1998 increased 14% over the second quarter of fiscal 1997. The
percentage of new homes sold at retail which were produced in Company-owned
manufacturing plants increased slightly from approximately 95% in the quarter
ended March 31, 1997 to approximately 96% in the second quarter of fiscal 1998.
Financial services income decreased to $12.6 million from $25.5 million
for the second quarter of last year. The second quarter of fiscal 1998 includes
a special charge of $16.3 million (approximately $10.1 million after tax, or
$.21 per share), relating to valuation of certain retained interests in REMICs
more fully described below. Interest income earned on loans held for investment
and on loans held for sale prior to securitization decreased from $8.0 million
in the second quarter of fiscal 1997 to $7.0 million this year. This 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 $5.1 million in the second quarter of fiscal 1997 to $6.9 million this
year, reflecting the increased size of the Company's securitized loan servicing
portfolio. REMIC residual income decreased from $4.9 million to $3.2 million,
reflecting a decrease in the average yield on those investments, arising
principally from higher credit losses more fully described below.
The Company estimates the fair value of retained residual interests in
REMIC securitizations based upon default, credit loss, voluntary prepayment and
interest rate assumptions which management believes market participants would
use for similar instruments. Such estimated fair values have a direct impact on
the magnitude of the gain or loss recorded on the sale of asset-backed
securities. 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. For the quarter ended March 31, 1998, 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 1.71% on an annualized basis of
the average principal balance of the related loans, compared to approximately
1.36% one year ago. The increase in the loss ratio is due in part to the
industry-wide trend toward lower down payments which began in 1994. The higher
loss ratio also reflects increased frequency of repossession in addition to loss
severity. 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. During the second quarter,
the number of repossessed properties disposed of exceeded the number of new
repossessions by approximately 233 units, causing a corresponding decline in the
number of repossessed properties in inventory to 914 units at March 31, 1998.
For the three months ended March 31, 1997, repossession inventory decreased 51
units to 748 units.
Increasing loss ratios have the effect of reducing the yields on the
Company's retained interests in securitized assets. In addition, disappointing
performance on certain securitizations of loans originated from 1994 to 1996
resulted in a write down of the carrying value of retained
10
<PAGE>
interests in these securitizations of approximately $16.3 million (approximately
$10.1 million after tax, or $.21 per share) in the second quarter of fiscal
1998.
Financial services income for the second quarter of fiscal 1998 and
1997 includes gains of approximately $5.0 million, or $.06 per share, after tax,
and $6.3 million, or $.08 per share, after tax, respectively, from the sale of
asset-backed securities. In addition, financial services income for the second
quarter of fiscal 1998 and 1997 includes losses of $2.2 million and $800,000,
respectively, representing Company's 50% share of the losses of DFC, the
Company's manufactured housing consumer lending joint venture. On May 7, 1998
the Company announced that it had reached an agreement in principle to sell its
interest in DFC to Deutsche Financial Services Corporation, the Company's joint
venture partner. The sale of the Company's interest in DFC is not presently
expected to have a material effect on the Company's financial position or
results of operations.
Financial services income for the second quarter of fiscal 1998 also
includes $8.0 million in revenues from the Company's new captive reinsurance
business which began operations on June 1, 1997. This new 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. Management estimates that this
conversion from an insurance agency to an insurance underwriter penalized second
quarter 1998 earnings by approximately $2.3 million (approximately $1.4 million
after tax, or approximately $.03 per share). This anomaly in comparisons is
expected to continue, with decreasing effect, through mid-1999. 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.
The majority of the 53% 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
discussed above. Insurance commissions for the second quarter of fiscal 1997
totaled $1.8 million.
Selling, general and administrative expenses declined to 25.9% of net
sales in the second quarter of fiscal 1998 compared to 27.4% of net sales last
year. Higher retail selling expenses were offset by lower accruals for annual
and long-term management incentive compensation plans as a result of reduced
profitability.
Financial services operating expenses rose 150% during the second
quarter of fiscal 1998 due to the addition of claims and other expenses related
to the formation of the captive reinsurance company discussed above. Exclusive
of the captive reinsurance costs, financial services operating expenses rose 35%
compared to the quarter ended March 31, 1997 on a 29% increase in the average
number of loans serviced during the period and a 27% increase in
11
<PAGE>
total credit application volume. Financial services operating expenses,
excluding captive reinsurance costs also increased due to a credit in last
year's quarter of $450,000 relating to adjustments to the Company's fees charged
to DFC for underwriting and origination services performed from its inception in
July 1996 through February 1997.
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 decreased 6% primarily due to declining and retired long-term
debt balances. Financial services interest expense associated with notes and
bonds payable is expected to continue to decline as the Company retires its
outstanding debt secured by loans. This decrease was offset by an $800,000
increase in short-term interest expense related to higher average outstanding
balances and higher weighted average interest rates on short-term lines of
credit.
Six months ended March 31, 1998 compared to six months ended March 31, 1997
- ---------------------------------------------------------------------------
The following table summarizes certain key statistics for the six months
ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Retail sales (in millions) $435.5 $320.1
Other sales (in millions) $ 36.7 $ 48.3
Total sales (in millions) $472.2 $368.4
Gross profit % 31.8% 31.4%
New single-section homes sold - retail 5,520 4,785
New multi-section homes sold - retail 4,958 3,561
Used homes sold - retail 1,245 980
New single-section homes sold - wholesale 140 349
New multi-section homes sold - wholesale 969 1,310
Average new single-section sales price - retail $30,500 $29,000
Average new multi-section sales price - retail $51,600 $48,700
Average new single-section sales price - wholesale $16,600 $15,200
Average new multi-section sales price - wholesale $34,300 $31,000
Weighted average retail sales centers
open during the period 312 262
</TABLE>
Retail sales dollar volume increased 36%, reflecting a 26% increase in
new unit volume, and increases of 5% and 6% in the average new unit sales prices
of single-section and multi-section homes, respectively. Single-section unit
volume increased 15%, while multi-section unit volume rose 39% from the first
six months of fiscal 1997. The average selling prices for new single-section and
new multi-section homes sold at retail increased primarily due to a shift in
product mix toward higher price points. During the first six months of fiscal
1998, the Company opened or acquired 26 new sales centers compared to 15 sales
centers in fiscal 1997. Total new retail sales dollars at sales centers open
more than one year increased 13% during the six months ended March 31, 1998.
Other sales dollar volume declined by 24%, reflecting a 33% decrease in
wholesale unit volume. This decrease was partially offset by increases of 9% and
11% in the average sales prices of new single-section homes and new
multi-section homes, respectively, due to a shift in
12
<PAGE>
product mix toward higher price points, as well as price increases. The decline
in wholesale unit volume reflects the Company's strategy of changing the
distribution of homes produced by Golden West and Destiny from non-exclusive
independent dealers to Company-owned retail sales centers. During the six months
ended March 31, 1998, 75% of Golden West's and Destiny's shipments were to
Oakwood sales centers, compared to 63% in the first six months of fiscal 1997.
Gross profit margin increased to 31.8% during the six months ended
March 31, 1997 from 31.4% in the first six months of fiscal 1997, reflecting
decreased retail margins offset by higher operating levels and efficiencies in
manufacturing and the reduced significance of relatively lower margin wholesale
sales. Manufacturing production for the first six months of fiscal 1998
increased 13% over the first six months of fiscal 1997. The percentage of new
homes sold at retail which were produced in Company-owned manufacturing plants
remained constant at approximately 95% in the first six months of fiscal 1998
and 1997.
Financial services income decreased to $43.0 million from $50.2 million
for the first six months of last year. The second quarter of fiscal 1998
includes a special charge of $16.3 million relating to valuation of certain
retained interests in REMICs more fully described in the second quarter results
above. Interest income earned on loans held for investment and on loans held for
sale prior to securitization decreased from $15.2 million in the first six
months of fiscal 1997 to $14.2 million this year. This 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 $10.1
million in the six months ended March 31, 1997 to $13.4 million this year,
reflecting the increased size of the Company's securitized loan servicing
portfolio. REMIC residual income decreased from $11.1 million to $6.3 million,
reflecting a decrease in the average yield on those investments, arising
principally from higher credit losses. For the six months ended March 31, 1998,
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 1.48% on
an annualized basis of the average principal balance of the related loans,
compared to approximately 1.24% one year ago.
Financial services income for the first six months of fiscal 1998 and
1997 includes gains of approximately $11.0 million, or $.14 per share, after tax
and $11.3 million, or $.15 per share, after tax, respectively, from the sale of
asset-backed securities.
Financial services income for the first six months of fiscal 1998 also
includes $15.0 million in revenues from the Company's new captive reinsurance
business described in the discussion of second quarter results of operations
above. Management estimates that this conversion from an insurance agency to an
insurance underwriter penalized year-to-date 1998 earnings by approximately $4.1
million (approximately $2.5 million after tax, or approximately $.05 per share).
This anomaly in comparisons is expected to continue, with decreasing effect,
through mid-1999.
The majority of the 52% 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
discussed above. Insurance commissions for the first six months of fiscal 1997
totaled $4.3 million.
13
<PAGE>
Selling, general and administrative expenses declined to 26.1% of net
sales in the first six months of fiscal 1998 compared to 27.3% of net sales last
year. The decrease reflects in part lower accruals for annual and long-term
management incentive compensation plans as a result of reduced profitability and
the reduced significance of fixed costs on a higher revenue base. These
decreases were partially offset by higher retail selling expenses.
Financial services operating expenses rose 118% during the six months
ended March 31, 1998 due to the addition of claims and other expenses related to
the formation of the captive reinsurance company discussed above. Exclusive of
the captive reinsurance costs, financial services operating expenses rose 18%
compared to the first six months of fiscal 1997 on a 30% increase in the average
number of loans serviced during the period and a 30% increase in total credit
application volume.
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 2% primarily due to a $2.4 million increase in
short-term interest expense related to higher average outstanding balances and
higher weighted average interest rates on short-term lines of credit. This
increase was partially offset by lower interest expense on declining and retired
long-term debt balances. Financial services interest expense associated with
notes and bonds payable is expected to continue to decline as the Company
retires its outstanding debt secured by loans.
YEAR 2000 ISSUES
----------------
The Company has analyzed the potential effects of year 2000 issues on
the computer systems that support the Company's business, including issues
associated with the Company's internally developed software and software
licensed from third parties. The Company is also in the process of reviewing the
issues faced by certain significant suppliers to the Company.
The Company has begun remediation of internally developed software to
resolve year 2000 compliance issues. The costs incurred by the Company to date,
which have been charged to expense, have not been material, and the Company does
not anticipate that the expected remaining costs will be material. Based upon
its assessment of internally developed and licensed software and the status of
remediation undertaken to date, the Company believes that substantially all
significant issues associated with year 2000 compliance will be resolved by the
end of calendar 1998, except for year 2000 issues associated with the Company's
consumer finance loan origination systems which the Company plans to replace
with year 2000-compliant systems by June 1999.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Receivables and investments decreased from September 30, 1997 primarily
due to the timing and amount of the Company's securitization of loans held for
sale, as well as the continued amortization of loans held for investment. The
Company originates loans and warehouses them until sufficient receivables have
been accumulated for a securitization. Through its Oakwood Mortgage Investors
subsidiary, the Company has securitized approximately $450 million of loans in
the first six months of fiscal 1998.
14
<PAGE>
The increase in inventories from September 30, 1997 reflects the
seasonal manufacture of inventory during the winter months in preparation for
the spring and summer selling season, as well as the increase in the number of
retail sales centers since September 30, 1997.
Short-term borrowings reflect outstanding advances on the Company's
warehousing facility used to finance originated loans prior to securitization or
other permanent financing as well as borrowings under other short-term credit
facilities. Management believes that permanent financing for its loans remains
readily available and anticipates securitizing installment sale contracts using
REMICs approximately every three months.
During the quarter ended March 31, 1998 the Company increased the size
of its revolving credit facility from $125 million to $175 million and
subsequent to quarter-end increased the size of its warehouse facility from $175
million to $250 million.
The Company intends to finance internal growth of its retail and
manufacturing business principally using internally generated funds and
short-term lines of credit. Because the Company generally sells all of the
regular REMIC interests in its securitizations, additional permanent corporate
financing is not expected to be required to fund internal expansion of the
financial services businesses. Should the Company expand its businesses through
other significant acquisitions, additional permanent capital could be required.
In addition, the Company continues to monitor the debt and equity markets and
evaluate the sources and cost of long-term capital in light of management's
assessment of existing and future conditions in the capital markets and its
assessment of the appropriate components of the Company's capital structure.
While management believes that existing financing is sufficient to provide for
the Company's internal growth for the foreseeable future, the Company may seek
to raise additional long-term debt or equity if compelling market conditions
arise. During 1997 Standard & Poor's Ratings Group, Moody's Investors Service
and Fitch Investors Service, L.P. each raised its rating of the Company's senior
long-term debt to BBB-. Management believes that achieving an investment grade
rating from major credit rating agencies enhances the Company's flexibility in
obtaining both short and long-term financing.
BUSINESS ACQUISITION
--------------------
On April 1, 1998 the Company acquired Schult Homes Corporation. Each
outstanding common share of Schult has been converted into the right to receive
$22.50 in cash, or approximately $101 million in the aggregate. The Company will
account for the acquisition as a purchase.
Schult is an independent producer of manufactured and modular housing
headquartered in Middlebury, Indiana. Schult focuses on the middle to higher
price range of the manufactured housing market and the lower to middle price
range of the modular housing market. For the year ended June 28, 1997,
approximately 86% of Schult's $348 million of net sales represented sales of
manufactured homes, with the balance representing sales of modular homes. Schult
markets manufactured homes under the "Schult" and "Marlette" brand names, and
modular homes under the "Crest" brand name. Schult's products are manufactured
in ten plants located in seven states, and are sold to over 900 independent
dealers.
The Company financed the acquisition through a $100 million loan from a
commercial bank. The loan provides that the $100 million is repayable 364 days
from the date on which the loan was funded. The Company intends to refinance the
acquisition financing using long-term debt.
15
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Information required by this item was provided in the Form
10-Q filed for the quarter ended December 31, 1997.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
(4) Agreement to Furnish Copies of
Instruments with Respect to Long-term
Debt
(10) Oakwood Homes Corporation 1997 Director
Stock Option Plan
(11) Statement re Computation of Earnings Per
Share
(27) Financial Data Schedule (filed in
electronic format only)
b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter
ended March 31, 1998.
Items 1, 2, 3 and 5 are inapplicable and are omitted.
16
<PAGE>
OAKWOOD HOMES CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 1998
OAKWOOD HOMES CORPORATION
BY: s/ C. Michael Kilbourne
------------------------
C. Michael Kilbourne
Executive Vice President
(Chief Financial Officer)
(Duly Authorized Officer)
17
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
ITEM 6(a)
FORM 10-Q
QUARTERLY REPORT
For the quarter ended Commission File Number
March 31, 1998 1-7444
OAKWOOD HOMES CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description
----------- -------------------
<S> <C>
4 Agreement to Furnish Copies of Instruments with
respect to Long-Term Debt
10 Oakwood Homes Corporation 1997 Director Stock Option Plan
11 Statement re Computation of Earnings Per Share
27 Financial Data Schedule (filed in electronic format only)
</TABLE>
18
<PAGE>
EXHIBIT 4
AGREEMENT TO FURNISH COPIES OF INSTRUMENTS
WITH RESPECT TO LONG-TERM DEBT
------------------------------
The Registrant has entered into certain agreements with respect to
long-term indebtedness which do not exceed ten percent of the total assets of
the Registrant and its subsidiaries on a consolidated basis. The Registrant
hereby agrees to furnish a copy of such agreements to the Commission upon
request of the Commission.
OAKWOOD HOMES CORPORATION
By: s/ C. Michael Kilbourne
------------------------
C. Michael Kilbourne
Executive Vice President
19
<PAGE>
EXHIBIT 10
OAKWOOD HOMES CORPORATION
1997 DIRECTOR STOCK OPTION PLAN
1. Purpose. This Plan is intended to provide directors who are not employees of
the Company a sense of proprietorship and personal involvement in the
development and financial success of the Company and to encourage such directors
to remain with and to devote their best efforts to the Company.
2. Definitions. Whenever used in the Plan, unless the context clearly
indicates otherwise, the following terms shall have the following meanings:
(a) "Act" means the Securities Exchange Act of 1934, as amended.
(b) "Board" or "Board of Directors" means the Board of Directors of the
Company.
(c) "Common Stock" means the Common Stock of the Company and any other
stock or securities resulting from the adjustment thereof or substitution
therefor as described in Paragraph 8 below.
(d) "Company" means Oakwood Homes Corporation, a North Carolina
corporation.
(e) "Director" means a member of the Company's Board of Directors who
is not a regular employee of the Company or its subsidiaries.
(f) "Disability" means the condition which results when an individual
has become permanently and totally disabled within the meaning of Section
72(m)(7) of the Internal Revenue Code of 1986, as amended.
(g) "Fair Market Value" with respect to a share of the Common Stock at
a particular time shall be that value as determined by the Board of Directors
which shall be (i) if such Common Stock is listed on a national securities
exchange or traded on the NASDAQ National Market System, 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 or the NASDAQ National Market
System 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 or traded on
the NASDAQ National Market System, the mean between the bid and 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 or traded on the NASDAQ National Market System, the fair
market value determined by the Board of Directors in such manner as the Board
may deem reasonable.
20
<PAGE>
(h) "Stock Option Agreement" means the written agreement between a
Director and the Company evidencing the grant of an option under the Plan and
setting forth the terms and conditions thereof.
3. Administration. The Plan shall be administered by the Board of
Directors. The Board shall have all of the powers necessary to enable it to
carry out its duties properly under the Plan, including but not limited to the
power and duty to construe and interpret the Plan and to determine all questions
that shall arise under the Plan, which interpretations and determinations shall
be conclusive and binding upon all persons. Subject to the express provisions of
the Plan, the Board may establish from time to time such regulations, provisions
and procedures which in its opinion may be advisable in the administration of
the Plan.
4. Eligibility; Option Grants. All Directors shall automatically be
granted options to purchase 6,000 shares (subject to adjustment or substitution
pursuant to Paragraph 8 hereof from the date hereof, irrespective of whether
such option has been granted) of the Common Stock on each of the following grant
dates:
July 30, 1998
July 30, 2000
July 30, 2002
; provided, however, that such automatic grants shall be made pro rata to all
Directors if on the date of a grant there shall not be a number of shares
sufficient to make all such grants.
5. Shares Available for Option. The Board of Directors shall reserve
for the purposes of the Plan, out of the authorized but unissued Common Stock or
out of shares of Common Stock held in the Company's treasury, or partly out of
each, as shall be determined by the Board of Directors, a total of 180,000
shares of Common Stock of the Company (subject to adjustment or substitution
pursuant to Paragraph 8 hereof). In the event that an option granted under the
Plan to any Director expires or is terminated unexercised as to any shares
covered thereby, such shares shall thereafter be available for the granting of
options under the Plan.
6. Option Price. The option price shall be the Fair Market Value of the
Common Stock on the date such option is granted.
7. Exercise of Options.
(a) Each option granted under the Plan by its terms shall require the
Director granted such option to remain available to serve as a Director of the
Company for six months from the date of the grant of such option before the
right to exercise any part of such option will accrue. A Director may thereafter
exercise any or all of such option until the expiration or termination of the
option; provided, that not less than 100 shares may be purchased at any one time
unless the number of shares purchased is the total number at such time
purchasable under the option. Subject to earlier termination as provided herein,
all options granted under this Plan shall expire ten years from the date of
grant thereof.
(b) If an optionee shall cease to be a Director of the Company
otherwise than by such optionee's death or Disability, then, subject to
Subparagraph 7(a) hereof, the option shall be exercisable at any time prior to
the earlier of (i) the expiration date of such option or (ii) that date which is
three months from the date such optionee ceases to be a Director, such three
month period to include the
21
<PAGE>
date on which such termination occurs. If an optionee ceases to be a Director of
the Company as a result of such optionee's death or Disability, then, subject to
Subparagraph 7(a) hereof, the option shall be exercisable at any time prior to
the earlier of (i) the expiration date of such option or (ii) that date which is
one year from the date such optionee ceases to be a Director. In the event of
the death of an optionee, then, subject to Subparagraph 7(a) hereof, such
optionee's option shall be exercisable to the extent herein otherwise provided
by the executor or personal representative of the optionee's estate or by any
person who acquired the right to exercise such option by bequest under the
optionee's will or by inheritance.
(c) Except as otherwise provided in a Stock Option Agreement, the form
of which has been approved by the Board of Directors, each option granted under
the Plan by its terms shall not be transferable by the optionee otherwise than
by will or, if the optionee dies intestate, by the laws of descent and
distribution of the state of the optionee's domicile at the time of the
optionee's death, and such option shall be exercisable during such optionee's
lifetime only by such optionee.
(d) Each option shall be confirmed by a Stock Option Agreement executed
by the Company and by the person to whom such option is granted.
(e) The option price for each share of Common Stock purchased pursuant
to the exercise of each option shall, at the time of the exercise of the option,
be paid in full (i) in cash or (ii) in whole or in part in shares of Common
Stock valued at the Fair Market Value of such shares on the date of exercise.
Any shares of Common Stock accepted in payment of any part of the option price
shall not increase the number of shares of Common Stock otherwise available for
issuance under the Plan.
(f) To the extent that an option is not exercised within the period of
time prescribed therefor as set forth in the Plan, and the Stock Option
Agreement confirming such option, the option shall lapse and all rights of the
optionee thereunder shall terminate.
8. Adjustment of Number of Shares. In the event that a dividend shall
be declared upon the Common Stock payable in shares of Common Stock, the number
of shares of Common Stock then subject to any such option and the number of
shares reserved for issuance pursuant to the Plan but not yet covered by an
option shall be adjusted by adding to each such share the number of shares which
would be distributable thereon if such share had been outstanding on the date
fixed for determining the shareholders entitled to receive such stock dividend.
In the event that the outstanding shares of Common Stock shall be changed into
or exchanged for a different number or kind of shares of stock or other
securities of the Company or of another corporation, whether through
reorganization, recapitalization, stock split-up, combination of shares, merger
or consolidation, then there shall be substituted for each share of Common Stock
subject to any such option and for each share of Common Stock reserved for
issuance pursuant to the Plan but not yet covered by an option, the number and
kind of shares of stock or other securities into which each outstanding share of
Common Stock shall be so changed or for which each such share shall be
exchanged. In the event there shall be any change, other than as specified above
in this Paragraph 8, in the number or kind of outstanding shares of Common Stock
or of any stock or other securities into which such Common Stock shall have been
changed or for which it shall have been exchanged, then if the Board of
Directors shall in its sole discretion determine that such change equitably
requires an adjustment in the number or kind of shares theretofore reserved for
issuance pursuant to the Plan but not yet covered by an option and of the shares
then subject to an option or options, such adjustment shall be made by the Board
of Directors and shall be effective and binding for all purposes of the Plan and
each Stock Option Agreement entered into under the Plan. In the case of any such
substitution or adjustment as provided for in this Paragraph 8, the option price
in each Stock Option Agreement for each share covered thereby prior to such
substitution or adjustment shall be the option price for all shares of stock or
other securities which
22
<PAGE>
shall have been substituted for such share or to which such share shall have
been adjusted pursuant to this Paragraph 8. No adjustment or substitution
provided for in this Paragraph 8 shall require the Company in any Stock Option
Agreement to issue a fractional share and the total substitution or adjustment
with respect to each Stock Option Agreement shall be limited accordingly.
9. Amendment of Plan. The Board of Directors shall have the right to
amend, suspend or terminate the Plan at any time; provided that, except as and
to the extent authorized and permitted by Paragraph 8 above, no amendment shall
be made which shall (i) increase the total number of shares which may be issued
and sold pursuant to options granted under the Plan, (ii) decrease the minimum
option price, (iii) change the class of individuals eligible to receive options,
or (iv) withdraw the administration of the Plan from the Board of Directors or a
committee of the Board of Directors, none of whom is eligible to be allotted
stock or to receive options under the Plan, unless such amendment is made by or
with the approval of the holders of a majority of the then outstanding Common
Stock of the Company, by written consent or by vote in person or by proxy at a
duly held meeting of said shareholders.
10. Compliance with Law and Other Conditions. No shares shall be issued
pursuant to the exercise of any option granted under the Plan prior to
compliance by the Company, to the satisfaction of its counsel, with any
applicable laws.
11. Effective Date-and Duration of Plan. The effective date of the Plan
shall be the date of its adoption by the Board of Directors, which adoption
shall be subject to the approval of the Plan, either by written consent or by
vote, by the holders of a majority of the outstanding shares of Common Stock of
the Company present or represented by proxy at the next duly held meeting of the
shareholders. No options shall be exercisable until the Plan has been so
approved by the shareholders, and all options granted under the Plan shall be
void if shareholder approval is not so obtained.
23
<PAGE>
EXHIBIT 11
OAKWOOD HOMES CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
--------- ---------
1998 1997 1998 1997
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding 46,300 45,804 46,223 45,677
Less: Unearned ESOP shares (86) (127) (91) (132)
-------- -------- -------- --------
Weighted average number of common
shares outstanding 46,214 45,677 46,132 45,545
======== ======== ======== ========
Net income $ 7,648 $ 17,714 $ 25,450 $ 32,907
======== ======== ======== ========
Earnings per common share - basic $ .17 $ .39 $.55 $ .72
======== ======== ======== ========
Weighted average number of common
shares outstanding 46,300 45,804 46,223 45,677
Add: Dilutive effect of stock options
and restricted shares, computed
using the treasury stock method 1,589 921 1,435 1,120
Less: Unearned ESOP shares (86) (127) (91) (132)
-------- -------- -------- --------
Weighted average number of common
and common equivalent shares
outstanding 47,803 46,598 47,567 46,665
======== ======== ======== ========
Net income $ 7,648 $ 17,714 $ 25,450 $ 32,907
======== ======== ======== ========
Earnings per common share - diluted $ .16 $ .38 $.54 $ .71
======== ======== ======== ========
</TABLE>
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED
MARCH 31, 1998 FILED AS PART OF THE REGISTRANT'S FORM 10-Q FOR THE QUARTER
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 19,084
<SECURITIES> 0
<RECEIVABLES> 416,377
<ALLOWANCES> 1,349
<INVENTORY> 285,315
<CURRENT-ASSETS> 0
<PP&E> 206,243
<DEPRECIATION> 54,066
<TOTAL-ASSETS> 963,119
<CURRENT-LIABILITIES> 331,586
<BONDS> 67,282
0
0
<COMMON> 23,283
<OTHER-SE> 488,219
<TOTAL-LIABILITY-AND-EQUITY> 963,119
<SALES> 472,245
<TOTAL-REVENUES> 519,556
<CGS> 322,087
<TOTAL-COSTS> 468,966
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,542
<INCOME-PRETAX> 41,048
<INCOME-TAX> 15,598
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,450
<EPS-PRIMARY> .55
<EPS-DILUTED> .54
</TABLE>
