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 December 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
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(Address of principal executive offices)
Post Office Box 27081, Greensboro, North Carolina 27425-7081
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(Mailing address of principal executive offices)
(336) 664-2400
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(Registrant's telephone number, including area code)
N/A
----
(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 January 31, 1999.
Common Stock, Par Value $.50 Per Share . . . . . . . . . 47,081,417
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
QUARTERLY REPORT ON FORM 10-Q
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended December 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.
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<PAGE>
OAKWOOD HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(in thousands except per share data)
<TABLE>
<CAPTION>
Three months ended
December 31,
1998 1997
<S> <C> <C>
Revenues
Net sales $359,814 $221,893
Financial services revenues
Consumer finance 15,906 23,560
Insurance 11,604 6,919
-------- --------
27,510 30,479
Other income 2,060 2,291
-------- --------
Total revenues 389,384 254,663
-------- --------
Costs and expenses
Cost of sales 255,181 151,826
Selling, general and administrative expenses 90,693 58,461
Financial services operating expenses
Consumer finance 7,568 5,454
Insurance 8,378 5,583
-------- --------
15,946 11,037
Provision for losses on credit sales 650 --
Interest expense
Non-financial services 2,297 707
Financial services 5,832 3,919
-------- --------
Total costs and expenses 370,599 225,950
-------- --------
Income before income taxes 18,785 28,713
Provision for income taxes 7,326 10,911
-------- --------
Net income $ 11,459 $ 17,802
======== ========
Earnings per share
Basic $ .25 $ .39
Diluted $ .24 $ .38
Dividends per share $ .01 $ .01
Weighted average number of
common shares outstanding
Basic 46,411 46,050
Diluted 46,938 47,331
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
OAKWOOD HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(in thousands except share and per share data)
December 31, September 30,
ASSETS 1998 1998
---- ----
<S> <C> <C>
Cash and cash equivalents $ 29,287 $ 28,971
Loans and investments 604,611 502,583
Other receivables 56,001 58,774
Inventories
Manufactured homes 303,634 242,867
Work-in-process, materials and supplies 45,169 42,068
Land/homes under development 7,340 6,417
----------- -----------
356,143 291,352
Properties and facilities 247,725 237,726
Deferred income taxes 13,768 14,850
Other assets 148,354 149,120
----------- -----------
$ 1,455,889 $ 1,283,376
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings $ 551,505 $ 375,023
Notes and bonds payable 69,367 61,875
Accounts payable and accrued liabilities 198,384 226,867
Insurance reserves and unearned premiums 63,082 57,419
Other long-term obligations 11,697 14,517
Shareholders' equity
Common stock, $.50 par value; 100,000,000
shares authorized; 47,073,000 and 46,660,000
shares issued and outstanding 23,537 23,330
Additional paid-in capital 172,610 167,592
Retained earnings 371,018 360,025
----------- -----------
567,165 550,947
Less: Unearned compensation (5,311) (3,272)
----------- -----------
561,854 547,675
----------- -----------
$ 1,455,889 $ 1,283,376
=========== ===========
</TABLE>
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OAKWOOD HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three months ended
December 31,
------------
1998 1997
---- ----
Operating activities
<S> <C> <C>
Net income $ 11,459 $ 17,802
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization 9,290 4,454
Deferred income taxes 1,082 (903)
Provision for losses on credit sales 650 --
(Gain) loss on sale of loans 1,447 (5,859)
Excess of cash receipts over REMIC residual income
recognized 6,181 4,177
Other 2,316 255
Changes in assets and liabilities
Other receivables 924 715
Inventories (64,791) (33,918)
Deferred insurance policy acquisition costs (1,166) (289)
Other assets (7,999) (1,019)
Accounts payable and accrued liabilities (28,625) (22,849)
Insurance reserves and unearned premiums 5,663 2,957
Other long-term obligations (66) 733
--------- ---------
Cash (used) by operations (63,635) (33,744)
Loans originated (311,138) (195,991)
Purchase of loans and securities (108,600) --
Sale of loans 293,642 271,035
Principal receipts on loans 9,641 9,454
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Cash provided (used) by operating activities (180,090) 50,754
--------- ---------
Investing activities
Acquisition of properties and facilities (16,971) (7,892)
Investment in and advances to joint venture 22,150 (21,954)
Other (8,332) 3,679
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Cash (used) by investing activities (3,153) (26,167)
--------- ---------
</TABLE>
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<TABLE>
<CAPTION>
Financing activities
<S> <C> <C>
Net borrowings on short-term credit facilities 176,482 (8,941)
Issuance of notes and bonds payable 9,200 --
Payments on notes and bonds (1,708) (5,706)
Cash dividends (466) (463)
Proceeds from exercise of stock options 51 1,217
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Cash provided (used) by financing activities 183,559 (13,893)
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Net increase in cash and cash equivalents 316 10,694
Cash and cash equivalents
Beginning of period 28,971 28,717
--------- ---------
End of period $ 29,287 $ 39,411
========= =========
</TABLE>
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<PAGE>
OAKWOOD HOMES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. The consolidated financial statements reflect all adjustments, which included
only normal recurring adjustments, which are, in the opinion of management,
necessary to present fairly the results of operations for the periods
presented. Results of operations for any interim period are not necessarily
indicative of results to be expected for a full year.
2. On April 1, 1998 the Company acquired Schult Homes Corporation ("Schult"), a
producer of manufactured and modular housing headquartered in Middlebury,
Indiana. The acquisition was accounted for using the purchase method of
accounting. Schult's results of operations are included with those of the
Company from the April 1, 1998 acquisition date.
3. Certain of the Company's significant accounting policies are outlined below.
REVENUE RECOGNITION - MANUFACTURED HOUSING
Passage of title and risk of loss in a retail sale occurs upon the closing of
the sale, which includes, for the great majority of retail sales, execution
of loan documents and related paperwork and receipt of the customer's down
payment.
For those sales in which the home remains personal property, rather than
being converted to real property (i.e., sales under retail installment
contracts), the closing generally takes place before the home is delivered to
and installed on the customer's site. For such sales, delivery and
installation typically are straightforward and involve minimal preparation of
the customer's site, and typically occur shortly after closing.
Sales transactions in which the home is converted from personal property to
real property are financed as traditional mortgages rather than under retail
installment contracts. Such sales typically involve significant preparation
of the customer's site, which may include installation of utilities, wells,
extensive foundations, etc., and also require completion of mortgage
financing documentation, including title searches and appraisals. As a
consequence, the closing of these transactions occurs after the home has been
delivered and installed.
WARRANTY OBLIGATIONS
The Company provides a warranty against manufacturing defects from the date
of the retail sale. Estimated future warranty obligations are accrued at the
time of sale.
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4. The components of loans and investments are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
---- ----
(in thousands)
<S> <C> <C>
Loans held for sale $ 451,441 $ 365,126
Loans held for investment 65,015 62,669
Less: reserve for uncollectible receivables (3,727) (1,653)
--------- ---------
Total loans 512,729 426,142
--------- ---------
Retained interests in REMIC securitizations
(exclusive of loan servicing assets
included in other assets)
Regular interests, at amortized cost which
approximates fair value 43,724 22,822
Residual interests, at amortized cost which
approximates fair value 48,158 53,619
--------- ---------
Total retained REMIC interests 91,882 76,441
--------- ---------
$ 604,611 $ 502,583
========= =========
</TABLE>
5. The following table sets forth the computation of basic and diluted earnings
per share ("EPS"):
<TABLE>
<CAPTION>
Three months ended
December 31,
------------
1998 1997
--------- ---------
(in thousands, except per share data)
<S> <C> <C>
Numerator for basic and diluted
EPS - Net income $ 11,459 $ 17,802
Denominator:
Weighted average number of
common shares outstanding 46,467 46,147
Unearned ESOP shares (56) (97)
--------- ---------
Denominator for basic EPS 46,411 46,050
Dilutive effect of stock options and
restricted shares computed using
the treasury stock method 527 1,281
--------- ---------
Denominator for diluted EPS 46,938 47,331
========= =========
Earnings per common share - basic $ .25 $ .39
========= =========
Earnings per common share - diluted $ .24 $ .38
========= =========
</TABLE>
8
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Options to purchase 2,839,486 shares of common stock were not included in the
computation of diluted EPS for the first quarter of fiscal 1999 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.
6. 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.
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 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 $34 million at December 31, 1998. The
Company is also contingently liable as guarantor on subordinated securities
issued by REMIC trusts in the aggregate principal amount of $55 million at
December 31, 1998. The Company is also contingently liable under terms of
repurchase agreements with financial institutions providing inventory
financing for retailers of homes produced by Destiny Industries, Inc.
("Destiny"), Golden West Homes ("Golden West") and Schult, manufacturing
subsidiaries of the Company doing business with independent dealers. The
Company estimates that its potential obligation under repurchase agreements
approximated $161 million at December 31, 1998.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Three months ended December 31, 1998 compared to three months ended December 31,
1997
The following table summarizes certain statistics for the quarters ended
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Retail sales (in millions) $ 241.6 $ 201.6
Other sales (in millions) $ 118.2 $ 20.3
Total sales (in millions) $ 359.8 $ 221.9
Gross profit % - integrated operations 34.6% 33.0%
Gross profit % - wholesale operations 17.8% 17.8%
New single-section homes sold - retail 1,896 2,136
New multi-section homes sold - retail 3,073 2,595
Used homes sold - retail 593 549
New single-section homes sold - wholesale 732 75
New multi-section homes sold - wholesale 2,608 518
Average new single-section sales price - retail $33,100 $30,100
Average new multi-section sales price - retail $56,300 $51,100
Average new single-section sales price - wholesale $21,600 $16,700
Average new multi-section sales price - wholesale $39,000 $35,700
Weighted average retail sales centers
open during the period 361 305
</TABLE>
NET SALES
Retail sales dollar volume increased 20%, reflecting a 5% increase in new unit
volume, increases of 10% in the average new unit sales prices of both
single-section and multi-section homes and a shift in product mix toward
multi-section homes which have higher average selling prices than single-section
homes. Average retail sales prices rose due to price increases and a shift in
product mix toward higher price points. Multi-section homes accounted for 62% of
retail new unit sales compared to 55% in the first quarter of fiscal 1998. 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 the first quarter of fiscal 1999, the Company opened or acquired four new
sales centers compared to 11 sales centers during the first quarter of fiscal
1998. The Company also closed one underperforming sales center during the
quarter compared to two in the first quarter of fiscal 1998. Total new retail
sales dollars at sales centers open more than one year increased 4% during the
first quarter of fiscal 1999.
In mid-December 1998 the Company acquired Suburban Homes ("Suburban"), a
manufactured housing retailer located in the metro Detroit area. Suburban
operates sales centers in land-lease
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communities in Michigan and Delaware. The Suburban acquisition is not reflected
in the sales center openings discussed above.
Other sales dollar volume, which consists principally of wholesale sales to
independent dealers by the Company's Destiny, Golden West and Schult
subsidiaries, increased due to wholesale unit volume related to the acquisition
of Schult on April 1, 1998 in a transaction accounted for as a purchase. Schult
sold 2,743 units, representing $97.6 million of sales, to independent dealers
during the quarter ended December 31, 1998. Excluding the effects of the Schult
acquisition, wholesale sales were essentially flat. During the first quarter of
fiscal 1999, 76% of Golden West's and Destiny's shipments were to Company-owned
sales centers, compared to 72% in the three months ended December 31, 1997;
these shipments are not included in the dollar and unit sales in the table
above. The average wholesale sales prices of single-section homes and
multi-section homes sold by Destiny and Golden West remained relatively
constant. Schult's higher average price points caused the overall average
wholesale selling prices of single-section and multi-section homes to rise 29%
and 9%, 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 34.6% in the first quarter of fiscal 1999 from 33.0% in fiscal
1998. Approximately 97% of new homes sold at retail were produced in
Company-owned manufacturing plants in the first quarter of fiscal 1999 compared
to 94% in the three months ended December 31, 1997.
Wholesale gross profit margins remained constant. The combined wholesale gross
profit margin of Golden West and Destiny increased over the first quarter of
fiscal 1998, principally due to improved efficiencies. Such increase was offset
by the effects of the acquisition of Schult, whose gross profit margins
currently are lower than those of the Company's other wholesale sales.
FINANCIAL SERVICES REVENUES
Consumer finance revenues for the first quarter of fiscal 1999 declined to $15.9
million from $23.6 million in fiscal 1998. Revenues for the three months ended
December 31, 1998 reflect a loss on the sale of asset-backed securities of $1.4
million (approximately $883,000, after tax, or $.02 per share) compared to a
gain in the prior year quarter of $6.0 million (approximately $3.7 million,
after tax, or $.08 per share). Global economic conditions and strength in the
U.S. treasury market in recent months contributed to a significant increase in
the spread over treasurys required by institutional purchasers of the Company's
asset-backed securities, which increased the Company's permanent financing costs
and reduced the estimated residual cash flow on the current quarter's
securitization.
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.
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For the quarter ended December 31, 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 and loans sold with full or
partial recourse, amounted to approximately 1.60% on an annualized basis of the
average principal balance of the related loans, compared to approximately 1.22%
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 December 31, 1998 the delinquency rate on Company originated loans, excluding
loans originated on behalf of Deutsche Financial Capital ("DFC"), the Company's
former consumer finance joint venture, was 4.2%, compared to 3.9% at September
30, 1998 and 4.2% at December 31, 1997. Increased delinquency rates ultimately
may result in increased repossessions and foreclosures and an increase in credit
losses.
REMIC residual income decreased from $3.0 million in the quarter ended December
31, 1997 to $1.9 million in first quarter of fiscal 1999, primarily reflecting a
decline in the average balance of residual interests resulting from writedowns
recorded of retained residual interests in fiscal 1998.
Interest income earned on loans held for investment and on loans held for sale
prior to securitization increased from $7.2 million during the first quarter of
fiscal 1998 to $10.6 million in fiscal 1999. The increase reflects higher
average outstanding balances of loans held for sale prior to securitization due
to increased origination volume. 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 decreased from $6.5
million during the first quarter of fiscal 1998 to $6.4 million this year.
Servicing fees did not increase commensurately with the growth of the Company's
securitized loan portfolio because certain securitizations did not generate
sufficient cash flows to enable the Company to receive its full servicing fee.
The Company has not recorded revenues or receivables for these shortfalls, as
the Company's right to receive servicing fees is subordinate to the holders of
regular REMIC interests.
Insurance revenues from the Company's captive reinsurance business increased 68%
to $11.6 million for the three months ended December 31, 1998 from $6.9 million
for the three months ended December 31, 1997. This increase is primarily due to
the increased size of the portfolio, as well as increased premiums written
resulting from retail sales growth and improved penetration, renewal and
cancellation rates. 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.
12
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to 25.2% of net sales for
the three months ended December 31, 1998 from 26.3% 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 the first quarter of fiscal 1999 were 29.5% of net sales compared to 26.3%
of net sales last year, primarily reflecting higher retail selling expenses
caused by compensation plan changes implemented during the second quarter of
fiscal 1998.
FINANCIAL SERVICES OPERATING EXPENSES
Consumer finance operating expenses rose 39% during the first quarter of fiscal
1999 due principally to increased headcount and other compensation cost
increases. In the first quarter, the average number of loans serviced increased
21% and total credit application volume increased 50% over last year. Insurance
operating costs increased 50% during the first quarter of fiscal 1999
principally due to higher claims costs associated with the increasing size of
the business.
INTEREST EXPENSE
Non-financial services interest expense rose from $707,000 for the first quarter
of fiscal 1998 to $2.3 million in 1999, due principally to interest costs
related to the financing of the Schult acquisition.
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 49% for the first quarter of fiscal 1999 primarily due to a $2.2
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.
INCOME TAXES
The Company's effective income tax rate was 39.0% for the first three months of
fiscal 1999 compared to 38.0% in fiscal 1998 due to higher state income taxes
arising from the Schult acquisition.
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
employees and key vendors.
Management believes the assessment, conversion and testing phases as they relate
to the Company's hardware and software are 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 have been resolved. In addition, communication and follow-up
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<PAGE>
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
The increase in inventories since September 30, 1998 reflects the manufacture of
inventory in preparation for the summer selling season, the increase in the
number of retail sales centers since September 30, 1998, and an increase in the
percentage of inventories represented by multi-section homes, which have higher
average unit costs than single-section homes.
The increase in loans and investments since September 30, 1998 principally
reflects an increase in loans held for sale from $365 million at September 30,
1998 to $451 million at December 31, 1998. The Company originates loans and
warehouses them until sufficient receivables have been accumulated for a
securitization. In addition, during the quarter ended December 31, 1998 the
Company purchased, at par, from a financial institution loans having an
aggregate principal balance of approximately $7 million. Such purchase was
financed by a term loan from the financial institution.
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 decreased significantly. 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.
At December 31, 1998 the Company owned subordinated asset-backed securities
having a principal balance of approximately $39 million associated with the
Company's August and November 1998 securitizations. Such securities are regular
REMIC interests and are included in the related caption in the table appearing
in Note 4. The Company intends to sell such securities if an offer acceptable to
the Company can be obtained.
On January 21, 1999 the Company securitized approximately $351 million of loans,
and sold all the securities created in such transaction, except for the residual
interest which has been retained by the Company consistent with past practice.
The securities sold on January 21, 1999 included securities
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<PAGE>
substantially the same as the $39 million of subordinated securities from the
Company's August and November 1998 securitizations owned by the Company at
December 31, 1998.
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 in the first quarter of
fiscal 1999 borrowed an additional $75 million to refinance, in part, its
acquisition of approximately one-half of the warehoused loans of DFC. During
fiscal 1998 the Company agreed with its joint venture partner to cease the
Company's participation in DFC. The majority of the loans acquired by the
Company from DFC were securitized in connection with the January 1999 loan
securitization, and the $75 million of acquisition indebtedness was repaid.
The $100 million of indebtedness matures in March 1999. The Company intends to
refinance the $100 million of indebtedness by issuance of long-term debt, using
the public or private debt markets or the commercial bank market. 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. In addition, one of the Company's commercial banks
has committed to lend the Company up to $50 million, if needed for working
capital purposes, through March 31, 1999.
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PART II. OTHER INFORMATION
Item 1. 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 allegedly 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 lawsuits that are incidental
to the conduct of its business.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the Registrant held on
February 3, 1999, the shareholders elected Nicholas J. St. George, Sabin C.
Streeter, Roger W. Schipke and William G. Edwards as directors and approved the
selection of PricewaterhouseCoopers LLP as independent accountants. The
following table sets forth the votes on each such matter:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NOT VOTED
Election of Directors
(by nominee)
<S> <C> <C> <C>
Nicholas J. St. George 38,313,614 -- 163,813 8,596,930
Sabin C. Streeter 38,301,364 -- 176,063 8,596,930
Roger W. Schipke 38,324,445 -- 152,982 8,596,930
William G. Edwards 38,300,409 -- 177,018 8,596,930
Approval of selection of
PricewaterhouseCoopers
LLP as Independent
Accountants 38,310,100 57,933 109,394 8,596,930
</TABLE>
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
(4) Agreement to Furnish Copies of Instruments with Respect
to Long-term Debt
(27) Financial Data Schedule (filed in electronic format only)
b) Reports on Form 8-K
On October 13, 1998 the Company filed a report on Form 8-K in
which the Company announced the release of a letter to
shareholders on such date.
Items 2, 3 and 5 are inapplicable and are omitted.
17
<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: February 15, 1999
OAKWOOD HOMES CORPORATION
BY: s/ Robert A. Smith
------------------------------
Robert A. Smith
Executive Vice President
(Chief Financial Officer)
(Duly Authorized Officer)
18
<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
December 31, 1998 1-7444
OAKWOOD HOMES CORPORATION
EXHIBIT INDEX
Exhibit No. Exhibit Description
----------- -------------------
4 Agreement to Furnish Copies of Instruments with
respect to Long-Term Debt
27 Financial Data Schedule (filed in electronic
format only)
19
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/ Robert A. Smith
--------------------
Robert A. Smith
Executive Vice President
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Registrant's consolidated financial statements for the quarter ended
December 31, 1998 filed as part of the Registrant's Form 10-Q for the quarter
ended December 31, 1998 and is qualified in its entirety by reference to such
Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 29,287
<SECURITIES> 0
<RECEIVABLES> 664,339
<ALLOWANCES> 3,727
<INVENTORY> 356,143
<CURRENT-ASSETS> 0
<PP&E> 320,983
<DEPRECIATION> 73,258
<TOTAL-ASSETS> 1,455,889
<CURRENT-LIABILITIES> 749,889
<BONDS> 69,367
0
0
<COMMON> 23,537
<OTHER-SE> 538,317
<TOTAL-LIABILITY-AND-EQUITY> 1,455,889
<SALES> 359,814
<TOTAL-REVENUES> 389,384
<CGS> 255,181
<TOTAL-COSTS> 361,820
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 650
<INTEREST-EXPENSE> 8,129
<INCOME-PRETAX> 18,785
<INCOME-TAX> 7,326
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,459
<EPS-PRIMARY> .25<F1>
<EPS-DILUTED> .24
<FN>
EPS-BASIC
</FN>
</TABLE>
